BNUMBER: B-270228.3
DATE: April 3, 1996
TITLE: Occu-Health, Inc.
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DOCUMENT FOR PUBLIC RELEASE
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:Occu-Health, Inc.
File: B-270228.3
Date:April 3, 1996
Craig A. Holman, Esq., Dorn C. McGrath, Esq., and Richard L.
Moorhouse, Esq., Holland & Knight, for the protester.
Brian A. Bannon, Esq., and Margaret A. Dillenburg, Esq., Dyer Ellis &
Joseph, for EHG National Health Services, Inc., an intervenor.
Jerome C. Brennan, Esq., and Robert Sebold, Esq., Department of
Defense, for the agency.
Charles W. Morrow, Esq., and Guy R. Pietrovito, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
The procuring agency improperly failed to notify offerors that it no
longer intended to exercise or evaluate the solicitation's options
where it knew this fact prior to the receipt of best and final offers.
DECISION
Occu-Health, Inc. protests the award of a contract to EHG National
Health Services, Inc. under request for proposals (RFP) No.
S2202A-95-R-0001, issued by the Defense Contract Management Command,
Northeast District, Defense Logistics Agency (DLA), for occupational
health and industrial hygiene services.
We sustain the protest.
The RFP, issued April 25, 1995, sought occupational health and
industrial hygiene services for the Northeast District's headquarters
health clinic in Boston, Massachusetts and 41 field sites. The RFP
provided for the award of a fixed-price contract for 1 base year with
4 option years, and included the standard "Evaluation of Options"
clause, set forth at Federal Acquisition Regulation (FAR) sec. 52.217-5,
which informed offerors that the government would evaluate offers by
adding the price for the base period and options years, unless the
government determined, in accordance with FAR sec. 17.206(b), that
evaluation of option quantities was not in its best interests.[1]
A best value basis for award was stated, and the following evaluation
factors identified: quality, management, and price. Offerors were
informed that the quality factor was more important than the
management factor, and that both the quality and management factors
were significantly more important than price. The RFP incorporated
FAR sec. 52.215-16, Alternate III, which states that the government
intends to make award without conducting discussions.
DLA received proposals from Occu-Health and EHG, the incumbent
contractor, by the closing date for the receipt of proposals.
Occu-Health offered the lowest total price (base and option years
included) of [DELETED] while EHG offered a total price of [DELETED].
On August 3, DLA made oral inquiries to Occu-Health regarding several
aspects of its proposal. Discussions were not conducted with EHG, and
best and final offers (BAFO) not requested. The agency determined
that EHG's proposal represented the best value to the government and
made award to EHG on August 31, with performance to commence on
October 1.
Occu-Health protested the award to our Office on September 19,
asserting that DLA improperly conducted discussions with EHG and that
the source selection was not reasonably based. This protest was
dismissed on October 2 after DLA decided to take corrective action by
conducting discussions and requesting BAFOs.[2] On October 5, DLA
initiated negotiations with the offerors. Following discussions, on
October 24, DLA requested BAFOs to be submitted by November 1.
During this same time frame, a recommendation of the Base Realignment
and Closure Commission (BRAC) to close the Defense Contract Management
Command's South District and consolidate functions under the Command's
West District and Northeast District became final. Specifically, BRAC
recommended closing the South District on July 1, 1995; the President
approved the BRAC's recommendation and submitted it to Congress on
July 15; and the recommendation became final on October 1. On October
27, prior to the receipt of BAFOs under the RFP, the Northeast
District determined, in a meeting including the procuring contracting
officer, that it would not exercise the options under the contract
because "it would be better to prepare a solicitation to provide
health services to all of the newly configured District in fiscal year
1997, than to rely on options."
BAFOs were received from both EHG and Occu-Health by the November 1
closing date.[3] EHG reaffirmed its initial offer of [DELETED]
([DELETED] for the base year and [DELETED] for the option years),
while Occu-Health reduced its price to [DELETED]. EHG's BAFO was
rated slightly higher ([DELETED]) than Occu-Health's BAFO ([DELETED]),
based upon the agency's view that the [DELETED] offered by EHG was
better qualified than the [DELETED] offered by Occu-Health.
On November 17, the contracting officer determined that EHG's BAFO
represented the best value to the government because EHG's offer
received the higher technical point score and the price differential
between the offerors--considering only their proposed prices for the
base year--was insignificant. In his selection decision, the
contracting officer determined that given the reorganization of the
Defense Contract Management Command it was very unlikely that options
in the contract would be exercised; accordingly, the contracting
officer concluded, in accordance with FAR sec. 17.206(b), that it was not
in the government's best interests to include the option year prices
in the evaluation of offers for award purposes. The offerors were
informed that EHG's offer was again selected for award and that EHG's
contract would "remain in effect." This second protest by Occu-Health
followed on November 30.[4]
Occu-Health objects to the agency's failure to inform offerors of the
agency's changed needs. Occu-Health argues that the agency should
have amended the RFP prior to the receipt of BAFOs to inform offerors
that the contract options would not likely be exercised and that
option year pricing would not be evaluated. Occu-Health asserts that
it could have significantly reduced its base year price by
restructuring how it intended to obtain and provide required health
care, industrial hygiene, and computer equipment.
DLA does not dispute Occu-Health's arguments concerning the firm's
statement that it would have reduced its base year pricing, but argues
that the agency has the discretion under FAR sec. 17.206(b) not to
evaluate the options in making an award, whenever the agency becomes
aware that the option quantities will not be required. In this
regard, the agency notes that the RFP informed offerors that option
years pricing would not be evaluated where it was determined that not
evaluating options was in the government's best interest.
It is true that FAR sec. 17.206(b) provides an agency with authority to
not evaluate option quantities in making an award, even where the
solicitation informed bidders or offerors that options would be
evaluated, where the agency properly determines that evaluation of
options is not in the best interests of the government. Thus, we have
previously held that a determination not to evaluate options, made
after receipt of bids, did not preclude an award on the basis of base
bid items and, by implication, did not require the receipt of new
bids. See Foley Co., 71 Comp. Gen. 148 (1992), 92-1 CPD para. 47. This,
however, does not resolve this case. The FAR, at section
17.208(c)(4), also provides that a contracting agency may include the
standard "Evaluation of Options" clause, as included in this RFP, only
where a determination has been made that there is a reasonable
likelihood that the option(s) will be exercised. Thus, an RFP that
includes this clause informs offerors that the government's reasonably
anticipated needs include the option quantities, the prices for which
are intended to be evaluated. This notice is important because
vendors may structure their bids/proposals differently depending upon
whether the exercise of an option is likely.
It is fundamental that the government select for award the offer that
is most advantageous to the government, considering price and other
evaluation factors identified in the solicitation. 10 U.S.C. sec.
2305(b)(4)(B)(1994). It is also a fundamental requirement that the
government apprise offerors of its actual needs in a manner designed
to achieve full and open competition and so that offerors may fairly
compete on an equal basis. 10 U.S.C. sec. 2305(a)(1)(A); Unisys Corp.,
67 Comp. Gen. 512 (1988), 88-2 CPD para. 35. Accordingly, where the
government's needs change, a procuring agency is required to notify
offerors of its changed needs, affording offerors the opportunity to
make and the government to obtain the most advantageous offer in
response to the government's actual needs. FAR sec. 15.606; EEV, Inc.,
B-261297; B-261297.2, Sept. 11, 1995, 95-2 CPD para. 107; Dept. of
State-Recon., B-243974.4, May 18, 1992, 92-1 CPD para. 447.
Here, we find, given the statutory requirements that an agency inform
offerors of its actual needs and select the most advantageous offer to
the government, that DLA improperly failed to inform offerors of its
changed needs. Although FAR sec. 17.206(b) permits agencies to not
evaluate option prices and the RFP, through the clause at FAR sec.
52.217-5, informed offerors of the possibility that the government
might not evaluate options, we think that, in light of the statutory
requirements set forth in 10 U.S.C. sec. 2305(a)(1)(A) and (b)(4)(B), an
agency may not rely on this FAR provision without requesting revised
proposals when the agency knows, at least prior to the receipt of
BAFOs, its needs have materially changed, so that it will not be
evaluating options. To read FAR sec. 17.206(b) as broadly as DLA
suggests--as granting an agency essentially unfettered discretion to
decide not to evaluate options without advising offerors of this
change under circumstances when the agency could reasonably provide
that advice--would be inconsistent with the agency's fundamental
obligations to allow offerors the opportunity to respond to the
government's actual needs and to obtain the offer that is most
advantageous to the government. See Management Sys. Designers, Inc.,
et al., B-244383.4, et al., Dec. 6, 1991, 91-2 CPD para. 518.
This concern is very much highlighted by this case. As noted above,
the competition between EHG and Occu-Health was very close. Although
EHG was given a higher rating in the more important evaluation
factors, the contracting officer made his best value determination in
part upon the fact that the offerors' base year price differential was
"insignificant." The protester's president has demonstrated in a
sworn declaration how it would have changed its approach to performing
the contract requirements to significantly reduce its base year price,
if Occu-Health had been aware of the agency's changed requirements,
that is, its elimination of the needs represented by the option items.
Specifically, Occu-Health states that if it had been aware that only
the base period would be performed, it would have [DELETED]. In
total, Occu-Health's base-year price would assertedly have been
reduced by almost [DELETED]. The agency and intervenor do not
challenge the protester's assertion that it could lower its base year
pricing if it had been aware of the agency's actual needs. Moreover,
the intervenor does not assert that it could or would have similarly
lowered its base year pricing if it had been apprised of the
government's changed needs. Thus, it reasonably appears that
Occu-Health was prejudiced by the agency's failure to announce its
changed needs and that the agency might have precluded receipt of a
more advantageous offer. Accordingly, we sustain Occu-Health's
protest on this basis.[5]
We recommend that, if feasible, the agency reopen the competition,
issue an amendment reflecting its changed needs, and permit the
offerors to submit revised proposals. If Occu-Health is determined to
be entitled to award, then DLA should terminate EHG's contract and
make award to Occu-Health, if otherwise appropriate. We recommend
that in the event that the agency determines that reopening the
competition is not feasible, Occu-Health be reimbursed its costs of
proposal preparation. Bid Protest Regulations, sec. 21.8(d)(2), 60 Fed.
Reg. 40,737, 40743 (Aug. 10, 1995) (to be codified at 4 C.F.R. sec.
21.8(d)(2)). We also recommend that Occu-Health be reimbursed its
costs of filing and pursuing the protest. Bid Protest Regulations, sec.
21.8(d)(1). The protester should submit its certified claim for costs
to the contracting agency within 90 days of receiving this decision.
Bid Protest Regulations, sec. 21.8(f)(1).
The protest is sustained.
Comptroller General
of the United States
1. FAR sec. 17.206(b) provides that:
"The contracting officer need not evaluate offers for any
option quantities when it is determined that evaluation
would not be in the best interests of the [g]overnment and
this determination is approved at a level above the
contracting officer. An example of a circumstance that
may support a determination not to evaluate offers for
option quantities is when there is a reasonable certainty
that funds will be unavailable to permit exercise of the
option."
2. Performance was not stayed in connection with Occu-Health's
protest, and DLA elected to leave the EHG award in place during the
reopening of the competition.
3. EHG protested the agency's reopening of discussions, but withdrew
its protests after again being selected for award.
4. The agency initially determined that urgent and compelling
circumstances warranted continued performance of the contract, but
subsequently decided that it need not make this determination because
it had made award on August 31 and had not stayed performance.
5. Occu-Health also protests the agency's evaluation of the experience
of its proposed [DELETED] under the quality and management evaluation
factors. We have reviewed these allegations and find them to be
without merit.