DIGEST: Protest that awardee proposed below-cost prices for ship husbanding services while intending to recoup its losses on an unpriced portion of the contract for provisioning services is denied where contract contained adequate safe-guards to insure that provisions to be supplied under the contract would be reasonably priced. The protester principally contends that the Navy has accepted what is. That the solicitation was structured in an improper manner. That its proprietary pricing information was improperly disclosed to other offerors. The awardee is required to arrange for and manage. These husbanding services are to be performed at the fixed prices set forth in RFP line items. The contractor is also required to "assist" each visiting vessel's Supply Officer in purchasing supplies.
B-244853, Nov 25, 1991
DIGEST: Protest that awardee proposed below-cost prices for ship husbanding services while intending to recoup its losses on an unpriced portion of the contract for provisioning services is denied where contract contained adequate safe-guards to insure that provisions to be supplied under the contract would be reasonably priced.
International Transport, S.A.:
International Transport, S.A. (Intrans) protests the award of a contract to Semar, S.A. under request for proposals (RFP) No. N00612-91 R-0156, issued by the Department of the Navy for ship husbanding and other services to be provided at designated ports in Chile. The protester principally contends that the Navy has accepted what is, in essence, an unbalanced offer, that the solicitation was structured in an improper manner, and that its proprietary pricing information was improperly disclosed to other offerors.
We deny the protest in part and dismiss it in part.
Through the RFP, the Navy sought to acquire the services of a "husbanding agent" in support of visiting American naval vessels at designated Chilean ports. Pursuant to delivery orders issued by the agency under the contract, the awardee is required to arrange for and manage, directly or by subcontracting, the performance of specified "husbanding" services-- e.g., berthing, tug service, garbage service and potable water, etc. These husbanding services are to be performed at the fixed prices set forth in RFP line items.
The contract also has an "unpriced" aspect. Specifically, by the terms of the RFP, the contractor is also required to "assist" each visiting vessel's Supply Officer in purchasing supplies-- such as food- a function known as "provisioning." The RFP did not provide a line item for the pricing of provisions because, as the Navy explains, such supplies are subject to wide fluctuations in price due to local market conditions; rather, for evaluation purposes, the RFP provided overall dollar value estimates of what the Navy expected to pay for provisions at each designated port.
If requested by the Supply Officer to obtain provisions, the contractor is required to provide evidence of the price reasonableness of all items tendered to the ship for acceptance, as well as evidence that the provisions were competitively acquired; where these conditions are not met, the Supply Officer is authorized to reject the tendered supplies and purchase them outside the contract. The contractor is not paid for rejected supplies.
The RFP was issued on February 28, 1991. Award was to be made to the offeror whose proposal was determined most advantageous to the government, price and "other factors" considered. The "other factors" were: husbanding experience; management approach; personnel; and facilities. These factors were weighted one and one-half times more than price.
After an initial round of offers and discussions, three acceptable best and final offers were received. The awardee's and the protester's proposals were evaluated as follows:
Offeror Price Price Score Technical Score Total Score
Semar $388,600 40.00 50.99 90.99
Intrans $630,230 24.66 60.00 84.66
The evaluators recommended that award be made to Semar, the low priced offeror. They noted that Semar was a ship "chandler"-- basically a firm in the provisioning business which subcontracts through licensed shipping agents (such as the protester) to arrange for husbanding services. They also noted that Semar had been a successful contractor for the same requirements in 1989-1990. The Navy reports that the earlier contract contained no terms for the pricing of provisions and that the agency never encountered a pricing problem with Semar.
Award was made to Semar on July 3. Unsuccessful offerors were notified by letter dated July 8 which contained an abstract of all final pricing of the three finalists.
Intrans objects to Semar's proposing below-cost husbanding prices and alleges that the firm did so in order to obtain the contract /1/ with the intention of recouping its losses through inflated provisioning prices. Intrans maintains that, as a result, the Navy could not be reasonably assured that the awardee would perform at the lowest overall cost to the government. In addition, Intrans also argues that ship chandlers should not have been permitted to compete with shipping agents under unpriced provisioning terms. Finally, Intrans objects to the post-award release of its line item prices for husbanding services.
The protester's principal challenge is essentially an argument that Semar submitted an "unbalanced" offer which should have been rejected. The concept of unbalancing applies to negotiated contracts where, as here, price constitutes a primary basis for award. Merret Square, Inc., B-220526.2, Mar. 17, 1986, 86-1 CPD Para. 259. Before an offer can be rejected as materially unbalanced, the offer must first be found to be mathematically unbalanced. An offer is mathematically unbalanced where it is based on nominal prices for some items and enhanced prices for other items. Where there is reasonable doubt that the acceptance of a mathematically unbalanced offer will result in the lowest overall cost to the government, the offer is materially unbalanced and cannot be accepted. C.F.S. Air Cargo, Inc., B-240726.5, June 6, 1991, 91-1 CPD Para. 539.
Semar's proposal was not materially unbalanced. In reaching this conclusion, we have considered the protester's arguments that the firm's husbanding prices were, at least in some cases, actually below cost. Even if Intrans is correct in this regard, the record simply contains no evidence showing that Semar would, much less could, overcharge for provisions in the manner suggested by Intrans. All that the protester has provided are arguments that chandlers, as a group, usually procure provisions in a manner different from that used by shipping agents-- a manner which, in the protester's opinion, is less likely to produce reasonable prices for supplies of good quality.
On the other hand, the record shows that the Navy had reasonable assurances that its needs would be met at the lowest overall cost to the government. First, Semar's fixed price for husbanding services was more than $240,000 lower than Intrans' final evaluated price. Next, the terms of the contract do not actually require the Navy to order any provisions through the awardee; furthermore, if the agency does, a vessel's Supply Officer is not obligated to accept the provisions if Semar does not provide documentation of price reasonableness. While the protester generally asserts that these contractual terms are not an adequate safe- guard to protect the Navy from price gouging because Supply Officers do not have the time or expertise to make adequate price reasonableness determinations, Intrans submits no support for this assertion and we have no basis upon which to conclude that Supply Officers will not meet their responsibilities in this regard. Finally, the record shows that Semar has successfully performed an identical contract with no complaints about excess provisioning prices. Under these circumstances, we cannot conclude that the award to Semar was improper because it was likely to result in overall higher costs of performance to the government. See C.F.S. Air Cargo, Inc., supra.
To the extent that Intrans is now arguing that the RFP was deficient because it permitted chandlers to compete in an unfair manner for unpriced provisioning services, its protest is untimely. Protests based on alleged solicitation defects which, like these, are apparent from the face of the solicitation must be filed before the time set for receipt of initial proposals; Intrans, however, filed its protest after award. Bid Protest Regulations, 4 C.F.R. Sec. 21.2(a)(1) (1991), as amended by 56 Fed.Reg. 3759 (1991).
Finally, Intrans has objected to the release of its final line item prices after award. While we do not know why the agency released the prices under this negotiated procurement, it is apparent that the release did not provide any offeror in this procurement with a competitive advantage and we, therefore, have no basis to disturb the award to Semar on this basis.
The protest is denied in part and dismissed in part.
/1/ There is nothing inherently improper in a firm's submitting what may be a below-cost proposal to obtain a contract, or in the government's accepting such an offer after determining the offeror is responsible. Since the agency necessarily determined Semar to be responsible when it awarded the contract, Semar's allegedly below-cost offer is not a basis for overturning the award. DH Indus., B-232963, Jan. 25, 1989, 89-1 CPD Para. 80.