BNUMBER:  B-270602.3
DATE:  August 21, 1996
TITLE:  Tidewater Marine, Inc.--Request for Costs

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Matter of:Tidewater Marine, Inc.--Request for Costs

File:     B-270602.3

Date:August 21, 1996

William J. Spriggs, Esq., Spriggs & Hollingsworth, for the protester.
Robert M. Elwell, Esq., Department of the Navy, for the agency.
Behn Miller, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

General Accounting Office will not recommend that protester recover 
costs of filing and pursuing its protest where the record shows that 
corrective action was taken 
8 calendar days after the key issue was squarely put in dispute, and 
therefore was not unduly delayed.

DECISION

Tidewater Marine, Inc. requests that we recommend that it be 
reimbursed the costs of filing and pursuing its protest challenging 
the terms of request for proposals (RFP) No. N62387-96-R-1303, issued 
by the Department of the Navy, Military Sealift Command (MSC), for 
tugboat towing and related harbor services to support various live 
fire naval exercises in Mayport, Florida.  Tidewater maintains that 
because the protest was "clearly meritorious and the [agency] took 
significant corrective action," our Office should recommend the award 
of all protest costs, including attorneys' fees and consultant fees, 
pursuant to 4 C.F.R.  sec.  21.8(e) (1996), which provides that "[i]f the 
contracting agency decides to take corrective action in response to a 
protest" our Office may recommend the reimbursement of such expenses 
by the contracting agency.

We deny the request.

The challenged RFP (which was issued on October 27, 1995) permitted 
offerors to submit their proposals using either of two standard 
proposal packets, referred to as TUGWORK or TUGTIME.  The principal 
difference between these proposal formats is the pricing method.  
Whereas the TUGWORK proposal format requires offerors to propose three 
hourly rates for performing the required tugboat services, and to 
include all charges and fuel expenses in each of the proposed hourly 
rates, the TUGTIME proposal requires offerors to propose three daily 
rates, and provides that the contractor will be separately reimbursed 
for all port charges and fuel expenses incurred during performance.

On November 27--30 minutes prior to the closing time for receipt of 
initial proposals--Tidewater filed its first protest at this Office, 
challenging numerous terms in the RFP as defective.  On November 28, 
MSC contacted the protester's counsel to pursue settlement 
negotiations; on November 29, pursuant to the prior day's telephone 
discussions, MSC issued a letter to the protester's counsel advising 
Tidewater that "the agency desires to discuss a compromise with a view 
towards securing withdrawal of the protest," and requesting a "list of 
specific remedial measures" from the protester to accomplish this 
goal.

On December 1, because it did not receive any response to its request 
for a list of suggested remedies from the protester, MSC filed a 
motion at this Office requesting dismissal of Tidewater's protest 
under 4 C.F.R.  sec.  21.1(f) of our Bid Protest Regulations, which 
requires protests to state legally sufficient grounds of protest.  On 
December 7, Tidewater responded to the request for dismissal with a 
statement of general opposition to the dismissal request, and a list 
of "SUGGESTIONS TO REMEDY SOLICITATION DEFECTS."

We concluded that Tidewater's protest did in fact articulate legally 
sufficient grounds of protest.  In light of the protester's proffered 
list of suggested remedies, and the agency's stated desire to 
accommodate the protester's concerns and negotiate a settlement, we 
placed the case on an accelerated resolution schedule, see 4 C.F.R.  sec.  
21.10(e), and by means of a December 8 telephone conference, urged the 
parties to pursue settlement negotiations, and to apprise our Office 
of any progress within 2 weeks.

As a result of these negotiations, the parties settled all protest 
grounds except for Tidewater's challenge to the solicitation's TUGTIME 
fuel consumption rate provision.  As noted above, under the TUGTIME 
proposal, fuel consumption was to be a separately reimbursable expense 
and was not to be included in offerors' proposed fixed daily rates.  
However, in their proposals, offerors nonetheless were required to 
provide a fuel consumption rate figure, from which the agency could 
calculate an evaluated price to project the contractor's actual costs 
of contract performance and determine whether, in addition to the 
proposed daily rate prices, that contractor was offering the 
lowest-priced proposal.  In this regard, the solicitation contemplated 
contract award to the lowest-priced, technically acceptable offeror.

By letter dated January 4, 1996, Tidewater reiterated its challenge to 
the fuel consumption rate provision.  First, Tidewater contended that 
the RFP was unclear as to how the fuel consumption rate would be 
factored in the agency's price evaluation.  Next, Tidewater challenged 
the fuel consumption rate provision as defective because the agency 
did not provide for a realism analysis of this figure.  Without a 
realism evaluation, Tidewater maintained, offerors were free to 
deliberately understate their actual fuel consumption rate in order to 
receive a lower evaluated price, and then recoup the actual fuel 
consumption expense as a cost reimbursable item during contract 
performance.
  
On January 31, MSC provided an agency report responding to Tidewater's 
challenge to the TUGTIME fuel consumption rate provision.  First, MSC 
contended that the pricing evaluation criteria--including those for 
the fuel consumption rate--were easily deduced from the face of the 
RFP.  The agency explained that MSC would use a price evaluation 
formula which would multiply the number of expected tugboat service 
hours per contract period by each offeror's proposed fuel consumption 
rate; this sum--which would yield the total quantity of fuel consumed 
in barrels per contract period--would then be multiplied by the 
current market price for a barrel of fuel to arrive at an evaluated 
fuel consumption price.  The agency's explanation further showed that 
each element of the pricing formula--with the exception of the current 
market price for a barrel of fuel--was evident in the RFP.

MSC also argued that given the inclusion in the RFP of a warranty 
clause--which required offerors to warrant all proposed performance 
characteristics, including the proposed fuel consumption rate--the 
potential problems with price manipulation cited by the protester 
would not arise.  Although the RFP theoretically permitted the agency 
to continue with contract performance in the event that an awardee had 
misrepresented a proposed performance characteristic, MSC nonetheless 
maintained that it would require the successful awardee to honor its 
proposed fuel consumption rate, and that under operation of the 
warranty provision, the agency did not intend to reimburse a 
contractor for any fuel consumption costs that exceeded the rate 
offered in its proposal.

In its February 14 comments on the agency report, Tidewater argued 
that the ability of the agency to enforce the warranty certification 
post-award in no way protected the integrity of the competition during 
the proposal evaluation stage.  Tidewater asserted that absent the 
incorporation of a provision providing for the evaluation of the 
proposed fuel consumption rates for realism, the competitive integrity 
of the procurement was not assured.  That is, offerors who prepared 
their pricing proposals in good faith could be underbid by 
unscrupulous offerors, who gamed the competitive system by submitting 
an underestimated fuel consumption rate.

On March 4, this Office conducted a telephone conference with all 
parties.  Based on our research--which was provided to all parties to 
focus the discussion, and which had not otherwise been reviewed by the 
parties in the course of developing the protest record--this Office 
asked the parties to read the cited precedents, and consider further 
settlement negotiations.  On March 12, MSC issued an amendment which 
incorporated a provision indicating that fuel costs and consumption 
rates would be evaluated for realism, and further providing that fuel 
consumption in excess of an offeror's proposed fuel consumption rates 
would not be reimbursed.  On March 13, as a result of this amendment, 
Tidewater withdrew its protest.  That same day, Tidewater filed this 
request for costs.

DISCUSSION

Under the Competition in Contracting Act of 1984 (CICA), our Office 
may recommend recovery of costs where we find that an agency's action 
violated a procurement statute or regulation.  31 U.S.C.  sec.  3554(c)(1) 
(1994).  Additionally, as noted above, our Bid Protest Regulations 
provide that we may recommend that a protester recover its costs of 
filing and pursuing a protest where the contracting agency decides to 
take corrective action in response to a protest.  4 C.F.R.  sec.  21.8(e).  
This does not mean, however, that costs are due in every case in which 
an agency takes corrective action; rather, we will recommend payment 
of costs only where an agency unduly delays taking corrective action 
in the face of a clearly meritorious protest.  Baxter Healthcare 
Corp.--Entitlement to Costs, B-259811.3, 
Oct. 16, 1995, 95-2 CPD  para.  174.

As a preliminary matter, we disagree with MSC's contention that 
Tidewater's protest of the fuel consumption rate provision was not 
clearly meritorious.  Without the modifications made by amendment No. 
0004--which provided that each proposed fuel consumption rate would be 
evaluated for realism and that the agency would not reimburse, under 
any circumstances, fuel costs incurred in excess of an offeror's 
proposed fuel consumption rate--we think the RFP left the door open to  
potential pricing abuses.  Simply stated, without a mechanism to alert 
offerors that unrealistic fuel consumption rate estimates would be 
rejected, offerors were free, under the unamended solicitation, to 
quote an unrealistically low fuel consumption rate in their proposals, 
and recoup the actual fuel consumption costs post-award, without 
penalty.  In this regard, we have long recognized that a cost realism 
analysis must be performed on all cost reimbursable elements of a 
proposal since an offeror's estimated costs may not provide valid 
indications of the final and actual allowable costs that the 
government is required to pay.  CACI, Inc.--Fed., 64 Comp. Gen. 71 
(1984), 84-2 CPD  para.  542.  

Notwithstanding our conclusion that Tidewater's protest was 
meritorious, we nevertheless conclude that the agency's corrective 
action does not warrant payment of protest costs.  As stated above, it 
is not our intention to recommend award of protest costs in every case 
in which the agency takes corrective action in response to a protest.  
Rather, we will recommend award of such costs where, based on the 
circumstances of the case, we find that the agency unduly delayed 
taking corrective action in the face of a clearly meritorious protest.  
Instrumentation Lab. Co.--Entitlement to Costs, B-246819.2, June 15, 
1992, 92-1 CPD  para.  517.  In deciding whether an agency's corrective 
action was so delayed as to warrant recovery of costs, the 
determination of the appropriate date from which the promptness is 
measured is critical.  Holiday Inn-Laurel--Entitlement to Costs, 
B-265646.4, Nov. 20, 1995, 95-2 CPD  para.  233.

Here, there is no question that MSC acted promptly.  First, 1 day 
after Tidewater filed its protest at this Office, the agency 
immediately contacted the protester in order to obtain clarification 
and a better understanding of the protester's objections, and 
negotiate a settlement.  Next, the agency specifically requested a 
list of suggested remedies from the protester and readily agreed to 
engage in settlement negotiations with Tidewater.  Although the 
parties were not able to resolve the protester's concerns regarding 
the fuel consumption rate and related pricing evaluation,[1] the 
agency readily agreed to produce its report on an accelerated 
schedule, and set forth cogent arguments and relevant precedent for 
why it believed its position on the solicitation's fuel consumption 
rate provision was legally defensible.

During the telephone conference on March 4, this Office for the first 
time focused the parties on an applicable line of case precedent, and 
at that point, we believe the interpretational dispute surrounding the 
challenged provision was first squarely drawn.  Once the agency 
understood the legal flaw in its solicitation, it diligently worked 
with the protester to arrive at an amendment that satisfied the 
protester's concerns, and remedied the defects in the challenged RFP.

Under these circumstances, we do not believe that MSC's corrective 
action was unduly delayed.  Rather, the agency's diligent pursuit and 
resolution of the protest issues, its good faith, and its execution of 
a corrective amendment within 8 calendar days from when the key 
protest issue was squarely drawn displays exactly the type of prompt 
corrective action which we seek in bid protest resolution, and which 
it is not our intent to penalize.  See Baxter Healthcare 
Corp.--Entitlement to Costs, supra (corrective action taken 8 working 
days after the issue was first squarely put in dispute was not unduly 
delayed).  A contrary view would provide little incentive for agencies 
to provide timely corrective action or settlement negotiations if they 
were to incur the same costs in settling a protest as they would going 
through the entire bid protest resolution process and losing on the 
merits of our final decision.  See Instrumentation Lab. Co.-- 
Entitlement to Costs, supra.

The request is denied.

Comptroller General
of the United States

1. We see no basis to recommend awarding costs with regard to the 
other issues raised in the initial protest which were resolved by 
issuance of amendment No. 0002.  Any delay in issuing the amendment 
was the result of the agency's diligent pursuit of negotiations with 
Tidewater, which included providing Tidewater the opportunity to 
review and edit the amendment.