TITLE: B-311200; B-311200.2, Joint Venture Penauille/BMAR & Associates, LLC, May 12, 2008
BNUMBER: B-311200; B-311200.2
DATE: May 12, 2008
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B-311200; B-311200.2, Joint Venture Penauille/BMAR & Associates, LLC, May 12, 2008
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Decision
Matter of: Joint Venture Penauille/BMAR & Associates, LLC
File: B-311200; B-311200.2
Date: May 12, 2008
T. Wayne Gray, Esq., Joseph P. Hornyak, Esq., and Megan M. Mocho, Esq.,
Holland & Knight LLP, for the protester.
Philip J. Davis, Esq., William A. Roberts, III, Esq., Jon W. Burd, Esq.,
John R. Prairie, Esq., and Lina D. Soni, Esq., Wiley Rein LLP, for Team
BOS Sigonella, an intervenor.
Amy M. Steed, Esq., Department of the Navy, for the agency.
Charles W. Morrow, Esq., Sharon L. Larkin, Esq., and James A. Spangenberg,
Esq., Office of General Counsel, GAO, participated in the preparation of
the decision.
DIGEST
Protest challenging price evaluation is sustained, where the procuring
agency unreasonably determined that the protester's lower-priced line
items for a small portion of the work created an "extremely high"
performance risk and based its decision on an erroneous belief that the
contractor could reject work that was ordered.
DECISION
Joint Venture Penauille/BMAR & Associates, LLC (JVPB) protests the award
of a contract to Team BOS Sigonella (BOS) under request for proposals
(RFP) No. N33191-07-R-0221, issued by the Naval Facilities Engineering
Command, Europe and Support Services, for facilities support services.
JVPB contends that the Navy improperly rejected its proposal as being
unreasonably low in price.
We sustain the protest.
BACKGROUND
The RFP sought to procure "Base Operating and Support Services" at the
Naval Air Station in Sigonella, Italy, under a fixed-price contract, with
a combination of fixed-quantity and indefinite-quantity line items. The
period of performance included a 45-day phase-in period, 1-year base
period, and four 1-year option periods.[1] RFP sect. F.1. The selected
contractor was required to provide facility support, management and
administration, and environmental services that were identified in the
performance work statement (PWS). The facility support services included
facility investment, janitorial services, pest control services, refuse
collection and recycling, "Other (Minor Work)," grounds maintenance,
street sweeping, and shuttle bus services. Id. sect. C, PWS, at 1. At
issue in this protest is the minor work requirement of the facility
support services, which the RFP defined as follows:
Minor work orders are used for minor construction, fabrication,
alteration, maintenance, repairs, special events support and office
moves requiring no more than EUR [Euros] 10,000 in labor, materials and
equipment. Example of minor work jobs are: minor construction, special
event site preparation, replace fire alarm panels, replace pumps,
replace carpet, replace tiles, furniture moving, pump out man hole, etc.
. . . .
Id. at 40. Minor work was further classified as either "priority" or
"routine," although neither term was identified in the RFP. The work was
also grouped into "categories" based solely on the value of the work to be
performed. Id.
Included with the RFP was an "Exhibit Line Item" (ELIN) schedule. For each
of the required services in the PWS, including minor work, the ELIN
schedule identified fixed-quantity and indefinite-quantity line items for
which the offerors were to provide unit and total prices for identified or
estimated quantities of work.[2] For minor work, the "[p]erformance
standards" for both fixed-quantity and indefinite-quantity work were the
same, except that offerors were guaranteed an identified quantity of
fixed-quantity work, and indefinite-quantity work would only be ordered
"if and when needed." Id. at 43. With regard to minor work, the ELIN
schedule for fixed-quantity work provided as follows (while we list here
the categories for "priority" work, the categories for "routine" work were
identical):
Category I, Priority Minor Work (from EUR 0.01 to EUR 2,000.00)
Category II, Priority Minor Work (from EUR 2,000.01 to EUR 5,000.00)
Category III, Priority Minor Work (from EUR 5,000.01 to EUR 7,500.00)
Category IV, Priority Minor Work (from EUR 7,500.01 to EUR 10,000.00)
RFP, attach. J-0200000-1.1, ELIN Schedule, at 10. For indefinite-quantity
minor work, the ELIN schedule stated (again, while we list the information
for "priority" work, the same statement was listed for the "routine" work
categories):
Priority Minor Work (Category I) See Requirement 1503090 in Section C[3]
Priority Minor Work (Category II) See Requirement 1503090 in Section C
Priority Minor Work (Category III) See Requirement 1503090 in Section C
Priority Minor Work (Category IV) See Requirement 1503090 in Section C
Id. at 23.
The agency explains that the price ranges, listed above in the ELINs for
fixed-quantity minor work, defined the categories of minor work. That is,
minor work valued at EUR 0.01 to EUR 2,000.00 was designated as "Category
I," minor work valued at EUR 2,000.01 to EUR 5,000.00 was designated as
"Category II," etc. For fixed-quantity minor work, offerors could
challenge the categorization of work, pursuant to the following PWS
provision:
(3) Recategorization
If the contractor does not agree with the categorization of a minor work
order, the contractor shall return the work order by letter to the
[contracting officer] within (2) working days of issuance, annotated to
indicate non-acceptance. The returned work order shall be accompanied by
the contractor's estimate or explanation. After reviewing the
contractor's estimate, the [contracting officer] will attempt to
negotiate an agreement. If an agreement cannot be reached, the
[contracting officer] may direct the contractor to proceed or arrange to
have the work performed by other means . . .
If the Government agrees the work will exceed the category dollar
ceiling, the minor work order will either be cancelled or recategorized.
RFP sect. C, PWS, at 41. Effectively, if the contractor believed that a
particular "minor work" order should be paid at a higher rate, it could
tell the contracting officer that the work fell into a higher (that is, a
higher-priced) category. The agency interpreted this provision to also
apply to the indefinite-quantity minor work.
The RFP provided for award on a "best value" basis, considering five
equally-weighted technical factors and price. The technical factors were
identified as organizational experience, organizational past performance,
management approach, staffing plan and resources, and safety. The
combination of the five technical factors was considered to be of equal
importance to the price factor. For the price evaluation, the RFP stated
that the "offeror's total price for all line items for the phase-in and
base period and four option periods will be compared to the total price of
the other offerors as well as the Independent Government Estimate [IGE]. .
. ." In addition, the RFP provided that "[p]rice proposals may be
evaluated for realism, completeness, balance, and reasonableness." RFP
sect. M-2.
Five offerors responded to the solicitation, and the proposals of three
offerors, including JVPB and BOS, were found to be in the competitive
range. Discussions were held with each of the three offerors, after which
all submitted revised proposals.[4] A technical evaluation board (TEB)
evaluated proposals and assigned "good" ratings to both JVPB's and BOS's
proposals under each of the technical factors, except that BOS's proposal
was found to be superior under the organizational past performance factor
and was rated "excellent" under this factor. AR, exh. 16, Final SSB
Report, at 3.
A price evaluation board (PEB) evaluated the offerors' proposed prices and
noted that JVPB provided the lowest-priced proposal at EUR [DELETED], and
BOS provided the next lowest-priced proposal at EUR 41,386,407. Based on a
comparison of offerors' prices to one another,[5] the PEB determined that
all offerors' prices were "acceptable," except that JVPB's prices were
found to be "unacceptable" for the indefinite-quantity portion of the
minor work.[6] AR, exh. 15, Final PEB Report, at 10. In support of this
conclusion, the PEB noted that JVPB and BOS proposed the following prices
for minor work:
+------------------------------------------------------------------------+
|Category |Price Range| JVPB | JVPB | BOS | BOS |
| | | | | | |
| | | Fixed | Indefinite | Fixed |Indefinite|
| | |Quantity | Quantity |Quantity | Quantity |
|----------+-----------+---------+------------------+---------+----------|
|Priority I|EUR 0.01 - |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
| | | | | | |
| |2,000.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Priority |EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
|II |2,000.01 --| | | | |
| | | | | | |
| |5,000.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Priority |EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
|III |5,000.01 --| | | | |
| | | | | | |
| |7,500.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Priority |EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
|IV |7,500.01 --| | | | |
| | | | | | |
| |10,000.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Routine I |EUR .01 -- |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
| | | | | | |
| |2,000.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Routine II|EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
| |2,000.01 --| | | | |
| | | | | | |
| |5,000.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Routine |EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
|III |5,000.01 --| | | | |
| | | | | | |
| |7,500.00 | | | | |
|----------+-----------+---------+------------------+---------+----------|
|Routine IV|EUR |[DELETED]|[DELETED] |[DELETED]|[DELETED] |
| |7,500.01 --| | | | |
| | | | | | |
| |10,000.00 | | | | |
+------------------------------------------------------------------------+
AR, exh. 15, Final PEB Report, at 4-5.
The PEB determined that JVPB's proposed indefinite-quantity prices for the
minor work were "unreasonable," and posed a "significant" and "extremely
high level" of performance risk. Id. at 5, 10. In explaining this
conclusion, the PEB noted that JVPB's indefinite-quantity prices were
approximately [DELETED] percent lower than its own fixed-quantity prices,
and were lower than other offerors' indefinite-quantity prices for the
same work. The PEB also noted that JVPB's proposed indefinite-quantity
prices were "below the price range established for each category of Minor
Work, except Category I." Id. at 4. The PEB believed that JVPB's low
prices would encourage the firm to reject orders for indefinite-quantity
minor work to avoid losing money on low-priced orders. Id.; Agency
Response to GAO's Interrogatories (Apr. 30, 2008), at 5. For these
reasons, the PEB concluded that JVPB's proposal was unacceptable.
The TEB and PEB reported their findings to the source selection board
(SSB), which agreed with and adopted the boards' findings. The SSB
recommended award to BOS as the "best value" to the government, and the
source selection authority (SSA) concurred. The SSA awarded the contract
to BOS, and JVPB protested.
DISCUSSION
JVPB challenges the Navy's determination that its indefinite-quantity
pricing for minor work was unreasonably low and unacceptable, arguing that
the determination was based on a faulty price realism analysis.[7]
Before awarding a fixed-price contract, an agency is required to determine
that the offered price is fair and reasonable. Federal Acquisition
Regulation (FAR) sect. 15.402(a). An agency's concern in making a price
reasonableness determination focuses on whether the offered prices are too
high, not too low. Medical Matrix, LP, B-299526, B-299526.2, June 12,
2007, 2007 para. 123 at 9 n.6. Although not required, an agency may also
provide for a price realism analysis in a solicitation for award of a
fixed-price contract for the purpose of assessing an offeror's
understanding of the requirements and the risk inherent in an offeror's
proposal. L-3 Commc'ns, KDI Precision Prod., Inc., B-290091 et al., June
14, 2002, 2002 CPD para. 155 at 5-6. In this regard, the risk of poor
performance when a contractor is forced to provide services at little or
no profit is a legitimate concern in evaluating proposals. Molina Eng'g,
Ltd/Tri-J Indus., Inc. Joint Venture, B-284895, May 22, 2000, 2000 CPD
para. 86 at 4. We will review the price evaluation conducted to determine
whether it was reasonable and consistent with the RFP evaluation criteria.
The Arora Group, Inc., B-277674, Nov. 10, 1997, 98-1 CPD para. 64 at 4.
Here, the record does not show that the agency performed a reasonable
price evaluation. Although the Navy rejected JVPB's proposal on the basis
of low indefinite-quantity pricing for minor work, the record does not
provide any evidence that the agency considered whether this reflected a
lack of understanding of the requirements, or that there was a credible
risk to performance. The agency did not consult with the TEB to consider
whether JVPB could perform the work at the prices proposed. In fact, the
SSB concluded that JVPB "successfully demonstrated a good understanding of
the requirements."[8] AR, exh. 16, Final SSB Report, at 4.
The agency explains that "significant" proposal risk stems from its belief
that "under the [indefinite-quantity] portion [of minor work], the
Contractor has the option of returning, and ultimately rejecting work if
they do not agree with the Category the Government is issuing it under."
AR, exh. 15, Final PEB Report, at 4-5. In this regard, the agency is
referring to the "Recategorization" provision of the PWS that allows the
contractor to challenge the categorization of fixed-quantity minor
work--that is, whether the work should be classified as category I, II,
III, or IV. RFP sect. C, PWS, at 41. According to the agency, this
provision also applies to indefinite-quantity minor work.
We first note that it is not evident from the record that the
"Recategorization" provision applies to the indefinite-quantity minor
work. The provision is not included or referenced in the
indefinite-quantity portion of the PWS addressing minor work. Although the
PWS for indefinite-quantity minor work incorporates by reference
fixed-quantity "[p]erformance standards," id. at 43, the
"Recategorization" provision is not listed as a performance standard.
Likewise, the ELIN schedule for indefinite-quantity minor work references
"Requirement 1503090 in Section C" (i.e., the PWS), but the
"Recategorization" provision appears at 1503040 of the PWS.
Furthermore, in response to inquiries from our Office, the agency conceded
that neither the "Recategorization" provision, nor any other provision of
the RFP, permits the contractor to reject minor work orders issued by the
contracting officer. Agency Response to GAO's Interrogatories (Apr. 30,
2008), at 4. Thus, the reason given contemporaneously for rejecting JVPB's
proposal was conceded to be erroneous. The agency now argues that JVPB's
low indefinite-quantity pricing will encourage the firm to challenge
categories (essentially arguing that it should be paid a higher price for
the particular "minor work" to be performed), which will place a
"significant administrative burden" on the agency in responding to these
challenges. Id. at 5. Even though, as discussed above, it is not clear
from the record that the "Recategorization" provision applies to the
indefinite-quantity minor work, the fact that a contractor may exercise a
contract right is not a legitimate reason for rejecting its proposal.
Moreover, the indefinite-quantity portion of minor work represents only a
small fraction of the overall contract and may never be ordered. See RFP
sect. C, PWS, at 43 (indefinite-quantity minor work will be ordered only
"if and when needed"). Thus, even if JVPB's prices were considered too low
for this aspect of minor work, this does not seem to support the agency's
conclusion that the performance risk to the overall contract is "extremely
high."
Also, if low prices "incentivize" a contractor to challenge minor work
categories, as the agency now contends, then the awardee is similarly
"incentivized." As the record shows, BOS's proposed prices for minor work
were lower than JVPB's for all of the fixed-quantity categories, and were
just below the established ranges for all minor work categories (both
fixed-quantity and indefinite-quantity), except for category I. As noted
by the protester, because of its low prices, BOS may be even more
"incentivized" to challenge categories for both fixed-quantity minor work
(where order quantities are guaranteed) and indefinite-quantity minor work
(where orders are placed only when needed). Indeed, it would appear that,
since fixed-quantity orders will definitely occur, the likelihood of
category challenges with fixed-quantity work is greater than with
indefinite-quantity work. Thus, it is not apparent how the protester's
pricing of indefinite-quantity minor work will cause significantly more of
an administrative burden to the agency under the "Recategorization"
provision than the awardee's pricing.
In sum, we sustain the protest because the Navy's price evaluation of the
protester's proposal lacks a reasonable basis, and is not supported by the
contemporaneous evaluation record. Under the circumstances, we recommend
that the agency reevaluate proposals, conduct discussions if necessary,
perform a price/technical tradeoff if required, and make a new source
selection decision. The agency should also consider whether to clarify for
offerors whether proposed prices for minor work must be within the
category ranges stated in the ELIN schedule. In addition, we recommend
that the agency reimburse JVPB the reasonable costs of filing and pursuing
the protest, including reasonable attorneys' fees. 4 C.F.R. sect.
21.8(d)(1). JVPB's certified claim for costs, detailing the time spent and
the costs incurred, must be submitted to the agency within 60 days of
receiving this decision. 4 C.F.R. sect. 21.8(f)(1).
The protest is sustained.
Gary L. Kepplinger
General Counsel
------------------------
[1] The phase-in period contained only fixed-quantity work, while the base
and option periods contained both fixed-quantity and indefinite-quantity
work.
[2] Identified quantities were provided for fixed-quantity line items, and
estimated quantities were provided for indefinite-quantity line items.
[3] "Section C" refers to the PWS, which was located in section C of the
solicitation.
[4] During discussions, JVPB was asked to explain why its fixed-quantity
prices were "so much higher" than its indefinite-quantity prices for minor
work. See AR, exh. 15, Final PEB Report, at 3. In response, JVPB raised
its indefinite-quantity prices, but did not provide any narrative
explanation to the agency.
[5] The PEB did not compare offerors' prices to the IGE because it found
that the IGE was "not a valuable tool in this particular acquisition." The
PEB explained that because services at Sigonella were being consolidated
for the first time under this RFP, the IGE "may not have accurately taken
[into] account the many benefits, such as economies of scale," due to this
consolidation. Rather, the IGE was based on historical data, where
services were being procured under a variety of service contracts. AR,
exh. 8, Initial PEB Report, at 3.
[6] JVPB's proposed fixed-quantity prices for minor work were found to be
reasonable and acceptable.
[7] JVPB also protests the agency's affirmative determination of
responsibility with regard to BOS, based on JVPB's belief that one of
BOS's team members did not comply with RFP requirements relating to the
"Anti-Mafia and other Italian laws," and is not authorized to enter into
contracts relating to this procurement. Suppl. Protest at 3; JVPB's
Comments at 14. Because the determination that an offeror is capable of
performing a contract is largely committed to the contracting officer's
discretion, GAO will generally not consider a protest challenging such a
determination, except where the protest alleges that definitive
responsibility criteria in the solicitation have not been met, or
identifies evidence raising serious concerns that, in reaching a
particular responsibility determination, the contracting officer
unreasonably failed to consider available relevant information or
otherwise violated statue or regulation. 4 C.F.R. sect. 21.5(c) (2008).
Here, the record shows that the agency considered all of the submissions
required by the RFP in reaching its responsibility determination, and was
not aware of any information that would cause it to question the BOS
team's responsibility. JVPB has not shown that further investigation of
the issues raised in its protest was required, or that the responsibility
determination was improper.
[8] We recognize that the SSB concluded, without explanation, that the
"weakness in [JVPB's] price reasonableness suggests a lack of
understanding of the [s]olicitation requirements." AR, exh. 16, Final SSB
Report, at 5. However, the SSB did not reconcile this conclusion with
other statements it made with regard to the technical evaluation, such as:
JVPB "successfully demonstrated a good understanding of the requirements,"
"present[ed] a technical approach and capabilities that exceed[ed] the
solicitation performance and capability standards," and presented an
"overall low degree of risk in meeting the Government's requirements." Id.
at 4.