BNUMBER: B-261959.3
DATE: January 23, 1996
TITLE: Raytheon Company
**********************************************************************
REDACTED DECISION
A protected decision was issued on the date below and was subject to a
GAO Protective Order. This version has been redacted or approved by
the parties involved for public release.
Matter of:Raytheon Company
File: B-261959.3
Date: January 23, 1996
Kenneth S. Kramer, Esq., James S. Kennell, Esq., Anne B. Perry, Esq.,
and Catherine E. Pollack, Esq., Fried, Frank, Harris, Shriver, &
Jacobson, for the protester.
Mark D. Colley, Esq., David P. Metzger, Esq., Steven D. Gordon, Esq.,
Bruce E. Kasold, Esq., Craig A. Holman, Esq., and Dorn C. McGrath,
Esq., Holland & Knight, for Hughes Missile Systems Company, an
interested party.
Shauna D. Russell, Esq., and Timothy Hickey, Esq., Department of the
Navy, for the agency.
Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest that, given agency's establishment of an evaluation
Steering Committee composed of representatives from NATO member
nations, agency was required to secure waiver of statutory requirement
that contracts be awarded only by the head of the agency or his
delegate--not foreign citizens--is denied where there is no basis in
the record to conclude that participation by foreign members of the
Steering Committee in the evaluation process resulted in an abdication
of source selection authority to the Steering Committee.
2. Where, in response to an agency question attempting to clarify a
proposal's offer of technical data rights, offeror proposes a material
revision to its proposal, and agency accepts and proceeds to evaluate
the proposal on the basis of the response, agency has engaged in
discussions such that it must hold discussions with the other
competitive range offeror and allow both offerors to submit best and
final offers.
DECISION
Raytheon Electronic Systems Division, through its parent, Raytheon
Company, protests the award of a contract to Hughes Missile Systems
Company under request for proposals (RFP) No. N00024-95-R-5400, issued
by the Naval Sea Systems Command, Department of the Navy. The RFP was
issued to procure engineering and manufacturing development of the
Evolved Seasparrow Missile. Raytheon argues that the Navy's selection
of Hughes for award of this contract was unreasonable and results from
an improper deviation from applicable procurement laws and
regulations.
We sustain the protest.
BACKGROUND
This procurement--seeking design, development, fabrication (of test
articles) and testing of a modified warhead, new rocket motor, and new
tail control section for the existing Seasparrow missile system--was
conducted pursuant to a Memorandum of Understanding (MOU) among
members of the North Atlantic Treaty Organization (NATO). The MOU,
for the Cooperative Support of the Seasparrow Surface Missile System,
provides for the establishment of a steering committee comprised of a
representative of each of the 13 nations participating in the MOU. An
addendum to the MOU assigns the contracting responsibility for the
missile upgrade to the Department of the Navy within the U.S.
Department of Defense (DOD) (and provides that the procurement be
conducted in accordance with U.S. contracting laws, regulations and
procedures), but requires unanimous approval by the Steering Committee
of any source selection advisory council (SSAC) recommendation for
award prior to a final selection decision by the source selection
authority (SSA).
Pursuant to the authority in 10 U.S.C. sec. 2304(c)(1) (1994), the Navy
limited the competition here to Raytheon and Hughes, the only two
qualified Seasparrow missile producers, and issued the RFP on December
16, 1994. As mentioned above, the procurement seeks a modified
guidance section and fuze,[1] along with a new rocket motor and new
tail control system, resulting in a faster and more maneuverable
missile. These increases in speed, maneuverability, and warhead/fuze
effectiveness are required to meet both U.S. and international threat
scenarios. Despite the international cooperative nature of this
endeavor, however, the U.S. threat scenario included in the RFP is
more challenging--i.e., more difficult to counter--is classified and
is not releasable to the non-U.S. participants in the program. As a
result, these requirements were included in a classified attachment to
the RFP marked "NOFORN," barring dissemination of the information to
foreign nationals. Section L of the RFP advised offerors that any
information covered by the NOFORN restriction should be clearly
labeled and segregated in a separate proposal annex.[2]
Section M of the RFP advised the two offerors that proposals would be
evaluated under each of seven technical/management evaluation factors,
listed below in descending order of importance: (1)
performance/design; (2) schedule, planning and control; (3) work
share; (4) organization/resources; (5) test and evaluation; (6)
support engineering; and (7) production readiness. Section M also
advised that offers must be evaluated as technically acceptable under
each of the above factors to be eligible for award. In addition,
section M explained that the agency was seeking the greatest value for
the government and reserved the right to pay a premium of up to 25
percent to obtain the services of an offeror whose proposal received a
higher technical score than the lowest cost technically acceptable
proposal. The RFP also warned that the agency intended to award a
contract without discussions.
After receipt of initial proposals from both Raytheon and Hughes on
March 7, 1995, the source selection evaluation board (SSEB) and the
cost evaluation panel (CEP) evaluated the proposals and prepared
reports to the SSAC. The SSEB's report provided the following
adjectival ratings under each of the evaluation factors:
Hughes Raytheon
Performance/Design [DELETED] [DELETED]
Schedule, Planning and Control[DELETED] [DELETED]
Work Share [DELETED] [DELETED]
Organization/Resources[DELETED] [DELETED]
Test and Evaluation [DELETED] [DELETED]
Support Engineering [DELETED] [DELETED]
Production Readiness [DELETED] [DELETED]
With respect to costs, the CEP's report to the SSAC made the following
adjustments to each offeror's proposed costs:
Proposed Costs Evaluated Costs
Hughes [DELETED] $175,219,629
Raytheon [DELETED] [DELETED]
The CEP's report also identifies additional risk associated with
Raytheon's proposed costs. Specifically, since [DELETED].
Upon receipt of these reports, the SSAC began a review of the SSEB and
CEP findings, including assigning numerical scores to the
predetermined weighting factors in order to calculate a weighted
technical/management score for each offeror. As part of this review,
the SSAC upgraded the adjectival ratings assigned to Hughes by the
SSEB in four of the seven evaluation factors. In each case where the
SSAC upgraded the adjectival rating assigned to the Hughes proposal by
the SSEB, the SSAC made written findings explaining the basis for its
decisions. The SSAC made no changes to the ratings assigned the
Raytheon proposal by the SSEB. At the conclusion of the review, the
evaluation results were as follows (with the changed ratings shown in
bold):
Hughes Raytheon
Performance/Design Acceptable Good
Schedule, Planning and ControlGood Acceptable
Work Share Outstanding Acceptable
Organization/ResourcesAcceptable Acceptable
Test and Evaluation Good Acceptable
Support Engineering Good Acceptable
Production ReadinessAcceptable Acceptable
Using these adjectival ratings and the weights assigned each of the
evaluation factors, the SSAC calculated a weighted score of [DELETED]
for Hughes's proposal and [DELETED] for Raytheon's proposal. After
comparing the strengths and weaknesses associated with the two
technical proposals, and considering the relative difference in
evaluated costs and cost risk, the SSAC recommended award to Hughes
despite the higher evaluated costs in its proposal.[3]
The SSA for this procurement states that he attended several days of
the deliberations of the SSAC and concluded that award should be made
to Hughes. The SSA explains that he advised civilian leadership of
the Navy of his decision in late May 1995. On a date after June 16
but before June 19, the SSA--who also served as chairman of the
Steering Committee formed pursuant to the MOU--received the unanimous
vote of the Steering Committee to accept the SSAC recommendation,
which included his vote as chairman. The SSA explains that on June
19, he formally determined that award should be made to Hughes, based
on the recommendation of the SSAC and the Steering Committee vote. On
that date, the contracting officer awarded the contract to Hughes and
this protest followed.
PROTESTER'S CONTENTIONS
Raytheon's protest raises two broad challenges to this procurement:
(1) that the structure of the source selection process foreclosed any
independent selection decision by the SSA; and (2) that the evaluation
was unreasonable. In the first broad area, Raytheon contends that by
permitting representatives of foreign governments to serve on the
SSAC, the Navy improperly relinquished control over the selection
decision for reasons discussed more fully below. In the second broad
area, Raytheon claims that the Navy improperly held discussions only
with Hughes and not with Raytheon; that the technical evaluation of
both proposals was unreasonable; that the Navy improperly awarded on
the basis of initial proposals when discussions were required; and
that the Navy's evaluation of Hughes's proposed costs was
unreasonable.
STRUCTURE OF THE SOURCE SELECTION PROCESS
In its challenge to the structure of the source selection
process--portions of which were the subject of a partial dismissal
decision issued early in these proceedings[4]--Raytheon essentially
argues that the Navy wrongly abdicated the authority to make the
selection decision to the foreign members of the Steering Committee
(many of whom also served on the SSAC) without obtaining a statutory
waiver that Raytheon claims was required. Based on our review of the
applicable statutory provisions, we conclude that, under these
circumstances, the Navy's selection process was proper.
This procurement was conducted under the authority set forth at 22
U.S.C. sec. 2767 (1994), which permits the President to enter into
cooperative projects with NATO, or with NATO member countries. A
companion provision within the Department of Defense procurement
statutes, 10 U.S.C. sec. 2350b (1994), authorizes the Secretary of
Defense to support such cooperative projects through the use of
contracting or other activities. Under this authority, the Secretary
may waive the application of most laws and regulations related to the
formation of contracts, see 10 U.S.C. sec. 2350b(c)(1)(A),[5] but such a
waiver must be signed by either the Secretary of Defense, the Deputy
Secretary of Defense, or the Acquisition Executive designated for the
Office of the Secretary of Defense. See 10 U.S.C. sec. 2350b(c)(3).
Against this backdrop of near unlimited authority to waive applicable
procurement statutes (coupled with greatly curtailed delegation
authority), Raytheon contends that the inclusion of the NATO Steering
Committee members on the SSAC violates the requirements applicable to
the evaluation of contracts set forth in 10 U.S.C. sec. 2305(b)(4)(B),
which provides, in relevant part, that:
"the head of the agency shall award a contract with reasonable
promptness to the responsible source whose proposal is most
advantageous to the United States, considering only cost or price
and the other factors included in the solicitation."
While Raytheon recognizes that the above-quoted authority to evaluate
contracts may be delegated to any agency official pursuant to 10
U.S.C. sec. 2311,[6] Raytheon argues that this authority could not be
delegated to the foreign representatives of the Steering Committee who
were empaneled on the SSAC without use of the waiver authority in 10
U.S.C. sec. 2350b(c)(3). Similarly, Raytheon argues that the Steering
Committee members' presence on the SSAC, together with the requirement
that the Steering Committee unanimously approve the selection
decision, was a de facto divestiture of the SSA's selection authority
in favor of the Steering Committee. According to Raytheon, our Office
should conclude that the structure of the selection process here was
improper without a decision by the Secretary of Defense (or one of his
two delegees) to waive the application of section 2305, and that the
contract awarded to Hughes is void ab initio.
Our Office will not usually consider a protester's challenge to the
composition of an evaluation panel because we regard this as a matter
within the discretion of the agency which we will not review without a
showing of possible abuse of that discretion in light of a conflict of
interest or actual bias on the part of evaluators. Univ. Research
Corp., B-253725.4, Oct. 26, 1993, 93-2 CPD para. 259; Herndon Science and
Software, Inc., B-245505, Jan. 9, 1992, 92-1 CPD para. 46; National
Council of Teachers of English, B-230669, July 5, 1988, 88-2 CPD para. 6.
We consider the protester's contentions in this case, however, to the
extent Raytheon claims that by placing the foreign members of the
Steering Committee on the SSAC the Navy violated statutory
requirements.
We conclude that there is no requirement for the statutory waiver
contemplated by 10 U.S.C. sec. 2350b. First, as noted above, 10 U.S.C. sec.
2305(b)(4)(B) refers to contract award being made by the "head of the
agency"; 10 U.S.C. sec. 2311 permits the agency head--here, the Secretary
of Defense--to delegate procurement responsibilities and functions to
any agency official. We see no basis to interpret these provisions to
preclude an agency's use of outside assistance to formulate a
selection decision.
To the extent that Raytheon contends that the Navy's reliance on the
SSAC resulted in an abdication of source selection authority, we find
this argument without merit. The Navy structured this shared-expense,
NATO cooperative procurement so that the NATO members, who after all
will be acquiring the missile system, agreed with the selection.
While, in this sense, the Steering Committee could effectively veto a
selection, it had no authority to impose selection of a contractor on
the SSA. Under the framework of this cooperative endeavor, if the
Steering Committee disagreed with the SSA, there would have been a
stalemate, and presumably, the project would not have gone forward.
While this framework clearly invests the Steering Committee with a
significant role, we do not agree that it transfers from the SSA to
the Steering Committee authority to select a contractor. Thus, we do
not agree that this framework triggered the requirement for a waiver
from the applicable statutes.[7]
Since we conclude that no waiver was required to structure the
selection process as the Navy did here and deny this ground of
Raytheon's protest, we need not consider Raytheon's contention that
the award decision without a waiver was void ab initio. Similarly, we
deny Raytheon's related claim that the mere presence of foreign
representatives on the SSAC--and their corresponding inability to
review portions of the technical proposals marked NOFORN--rendered the
evaluation here unreasonable. The SSEB performed a detailed review of
the proposals, including those portions of the proposal which could
not be revealed to representatives of foreign governments. The SSAC
accepted the SSEB's assessments in this regard, and, as discussed
above, the SSAC had significant participation by U.S. citizens who
were eligible to review the NOFORN portions of the proposals if
needed. Thus, we see nothing unreasonable about the evaluation here
based on the presence of non-U.S. citizens on the SSAC.
DISCUSSIONS
Raytheon contends that the Navy improperly held discussions only with
Hughes, and wrongly permitted Hughes to revise its proposal, while not
giving Raytheon a similar opportunity. Raytheon argues that once the
Navy held discussions with Hughes, it was required to do so with
Raytheon, and it was required to permit both offerors to submit best
and final offers (BAFO). The Navy does not deny that if discussions
are held, they must be held with all offerors or that upon the
conclusion of discussions, all offerors must be permitted to submit
BAFOs; rather, the Navy argues that no discussions occurred here, and
that what transpired between the Navy and Hughes was merely
clarification of Hughes's proposal.
At issue here is Hughes's proposed conveyance of data rights to the
government for certain elements of the Seasparrow missile.
Specifically, Hughes's proposal [DELETED].[8]
GPLR permit the government to use technical data to conduct follow-on
competitive procurements, but limit use of the data for other
commercial purposes. Defense Federal Acquisition Regulation
Supplement (DFARS) sec. 227.401(14).[9] GPLR may only be claimed by an
offeror for a limited time; offerors are required to identify the time
period for which they claim GPLR, and after expiration of the claimed
time the government is entitled to unlimited rights to the data.
DFARS sec. 227.402-72(a)(2); 252.227-7013(b)(2).
In reviewing Hughes's proposal, the Navy explains that its evaluators
wanted confirmation that the above-quoted Hughes statement was
intended to mean that, [DELETED]. This led to the following written
question to Hughes:
[DELETED]
Hughes responded:
[DELETED]
The Navy concluded that Hughes's response meant that the proposal was
offering [DELETED]. In its recommendation to the SSA that award be
made to Hughes, the SSAC included Hughes's offer [DELETED] proposal
over Raytheon's. According to Raytheon, regardless of whether the
Navy intended to seek clarification or to conduct discussions, Hughes
took the opportunity to revise its proposal, and this exchange
constituted discussions. Thus, Raytheon claims that it, too, should
be given an opportunity to revise its proposal.
Federal Acquisition Regulation (FAR) sec. 15.610(a) permits contracting
agencies to make award on the basis of initial proposals without
discussions, where the solicitation, as here, announces this
possibility. Where discussions are held with one offeror, however,
the agency is required to conduct discussions with all other offerors
whose proposals are in the competitive range, which is composed of
those proposals that, as submitted, either are acceptable or are
susceptible of being made acceptable through negotiations. FAR sec.
15.610(b); HFS, Inc., B-248204.2, Sept. 18, 1992, 92-2 CPD para. 188;
Microlog Corp., B-237486, Feb. 26, 1990, 90-1 CPD para. 227; Kinetic
Concepts, Inc., B-232118, Oct. 26, 1988, 88-2 CPD para. 428. Discussions
are material communications related to an offeror's proposal and
distinguishable from clarifications, which are merely inquiries for
the purpose of eliminating minor uncertainties or irregularities in a
proposal. Microlog Corp., supra.
The difference between clarifications and discussions is described in
FAR sec. 15.601:
"'Clarification' . . . means communication with an offeror for
the sole purpose of eliminating minor irregularities,
informalities, or apparent clerical mistakes in the proposal . .
. . Unlike discussion . . ., clarification does not give the
offeror an opportunity to revise or modify its proposal, except
to the extent that correction of apparent clerical mistakes
results in a revision."
"'Discussion' . . . means any oral or written communication
between the Government and an offeror (other than communications
conducted for the purpose of minor clarification) whether or not
initiated by the Government, that (a) involves information
essential for determining the acceptability of a proposal, or (b)
provides the offeror an opportunity to revise or modify its
proposal."
See also New Hampshire-Vermont Health Serv., 57 Comp. Gen. 347 (1978),
78-1 CPD para. 202 (if the communications provide an offeror with an
opportunity to make a substantive change in its proposal, the
communications are discussions, not clarifications); The Human
Resources Co., B-187153, Nov. 30, 1976, 76-2 CPD para. 459 (same). If
discussions are conducted, the agency must request BAFOs from those
offerors whose proposals are still in the competitive range, even
where the discussions do not directly affect the offerors' relative
standing. FAR sec. 15.611(a); HFS, Inc., supra; Microlog Corp., supra;
Kinetic Concepts, Inc., supra.
It is the actions of the parties that determine whether discussions
have been held, and not merely the characterization of the
communications by the agency. ABT Assocs., B-196365, May 27, 1980,
80-1 CPD para. 362; The Human Resources Co., supra. The acid test of
whether discussions have been held is whether it can be said that an
offeror was provided the opportunity to revise or modify its proposal.
51 Comp. Gen. 479 (1972); New Hampshire-Vermont Health Serv., supra;
The Human Resources Co., supra.
The key issue here is whether Hughes's response changed its proposal
in a meaningful way. We conclude that it did, and thus that the
exchange constituted discussions, not clarifications.
The Navy explains that the Seasparrow missile program has existed
since 1968, and that during that time improvements to the missile have
been modest. With this procurement, the Navy (and NATO) seek
engineering and manufacturing design changes to significantly enhance
the capabilities of this missile system. After the design changes
procured here are incorporated into the Seasparrow missile, the Navy
(and NATO) seek to competitively purchase production quantities of
these missiles for years to come. In this environment, the
willingness of the offerors to provide relatively unfettered access to
as much of the technical data as possible will have a significant
impact on the government's ability to conduct future competitions for
the enhanced missile. [DELETED].
[DELETED]
[DELETED] other conclusion about the meaning of Hughes's response is
not supported by the language of the response.[10]
Since Hughes's response to the Navy's question about [DELETED] effect
of revising the company's proposal, this exchange met the requirements
of the test set forth at FAR sec. 15.601 for determining whether
discussions were held. 4th Dimension Software, Inc.; Computer Assocs.
Int'l, Inc., B-251936; B-251936.2, May 13, 1993, 93-1 CPD para. 420.
Accordingly, we sustain the protest.[11]
RECOMMENDATION
We recommend that the Navy conduct discussions with both offerors,
request best and final offers, and proceed with the source selection
process. In view of our recommendation, we need not consider
Raytheon's numerous challenges to the evaluation, since most of these
matters can be resolved, if necessary, during discussions.
If, after the selection process has concluded, Raytheon's offer is
determined to be more advantageous than the offer submitted by Hughes,
the Navy should terminate Hughes's contract and award to Raytheon. We
also find that the protester is entitled to recover the reasonable
cost of filing and pursuing this protest, including attorney's fees.
4 C.F.R. sec. 21.6(d)(1) (1995). The protester should submit its
certified claim for protest costs directly to the agency within 60
days of receipt of this decision. 4 C.F.R. sec. 21.6(f)(1).
The protest is sustained.
Comptroller General
of the United States
1. The onboard fuze detects the missile's proximity to the target and
computes the optimum point to detonate the warhead. The Seasparrow
generally destroys targets by guiding to within warhead lethal radius
of the target and detonating.
2. To assure that offerors understood that there would be foreign
participation in the source selection process, the agency drafted a
question on this subject which was included as part of 69 offeror
questions answered prior to the submission of proposals.
3. The SSAC also concluded that award without discussions was
appropriate, and elected not to use the discussion questions drafted
by the SSEB for each of the technical/management weaknesses
identified.
4. Raytheon has asked that we reconsider our earlier decision
dismissing the first ground of its initial protest, B-261959, Aug. 16,
1995, unpub., while the Navy has argued that Raytheon has failed to
provide any basis for reconsidering our earlier decision. Since
Raytheon's supplemental protest filings have changed the formulation
of this challenge significantly since its initial protest, and since
in our view its current challenge is timely and raises an issue that
may appropriately be considered by our forum, we will consider the
issue on its merits.
5. Section 2350b(c)(1)(A) permits the Secretary to waive:
"the application of any provision of law, other than a
provision of the Arms Export Control Act or section 2304
of this title, that specifically--(A) prescribe procedures
to be followed in the formation of contracts. . . ."
6. 10 U.S.C. sec. 2311, entitled "Assignment and delegation of
procurement functions and responsibilities," provides in pertinent
part as follows: "(a) In general.--Except to the extent expressly
prohibited by another provision of law, the head of an agency may
delegate, subject to his direction, to any other officer or official
of that agency, any power under this chapter."
7. We note that Raytheon's assertions that the SSA would have been
hamstrung had he selected an offeror different from that recommended
by the Steering Committee in this case raises a theoretical concern
only. The SSA here explains that he participated in several days of
the SSAC review, and that as the SSAC developed its consensus on each
of the evaluation factors, he reached his own conclusions about the
relative strengths and weaknesses of the competing proposals. The SSA
explains that he agreed with the ultimate decision that the Hughes
proposal offered the greatest value to the government.
Additionally, we note that Raytheon's assertions imply that the
foreign representatives on the Steering Committee comprised the
totality of the SSAC, other than its U.S. chairman. However, the
record shows that the SSAC included significant participation by U.S.
government personnel. For example, while several of the NATO country
representatives on the Steering Committee opted not to participate on
the SSAC, the SSAC included both a U.S. Chairman, two U.S.
representatives, and two U.S. technical advisors. (The two technical
advisors were not named members of the SSAC but were serving as
advisors to the SSAC members.) In addition, the SSAC met throughout
its deliberations with the Chairman of the SSEB, and the SSA--both
officials with the U.S. Navy. Thus, of the 12 signatories on the SSAC
report, 3 were U.S. representatives, and 4 other U.S. representatives
participated in the deliberations.
8. This quotation was taken from the narrative text of Hughes's
proposal. The Navy's question to Hughes quotes from a tabular display
of the proposed data rights set forth on the same page. We see no
substantive difference between the two statements.
9. The DFARS provisions applicable to technical data rights have been
revised. The new provisions are effective as of their date of
publication for inclusion in solicitations issued after September 29,
1995. See 60 Fed. Reg. 33,464-33,507 (June 28, 1995) (to be codified
at 48 C.F.R Parts 211, 227, and 252). The citations in this decision
are those applicable to this procurement--i.e., the ones in place
prior to June 28, 1995.
10. In fact, we find unreasonable the Navy's conclusion that Hughes's
response means [DELETED]. Under these circumstances, the Navy's
conclusion that Hughes's proposal [DELETED].
11. Prejudice is a prerequisite to sustaining a protest, and
generally, we have presumed prejudice when an agency holds discussions
with fewer than all of the competitive range offerors. National
Medical Staffing, Inc., B-259402; B-259402.2, Mar. 24, 1995, 95-1 CPD
para. 163. Here, in fact, Raytheon has asserted that, if given the
opportunity to address evaluator concerns during discussions, it would
have submitted a revised proposal. There is no basis to assume that
this would not have occurred, with the result that the outcome of the
competition could have been affected. See id.; Telos Field Eng'g,
B-253492.2, Nov. 16, 1993, 93-2 CPD para. 275.