BNUMBER: B-270860.3; B-270860.4
DATE: May 30, 1996
TITLE: Holiday Inn-Laurel--Protest and Request for Costs
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Matter of:Holiday Inn-Laurel--Protest and Request for Costs
File: B-270860.3; B-270860.4
Date:May 30, 1996
Nick Merza, Holiday Inn-Laurel, and James H. Roberts III, Esq.,
Manatt, Phelps & Phillips, for the protester.
J. William Bennett, Esq., for Convention Marketing Services, Inc., an
intervenor.
Capt. Bryant Banes, Thomas J. Duffy, Esq., and Col. Nicholas Retson,
Department of the Army, for the agency.
Denise Benjamin, Esq., and David R. Kohler, Esq., for the Small
Business Administration.
Tania L. Calhoun, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protester is entitled to the costs of filing and pursuing its
protest challenging the Army's evaluation of its technical proposal
where the agency failed to promptly or adequately investigate the
clearly meritorious protest allegations questioning the propriety of
the evaluation, but only took corrective action when the General
Accounting Office asked it to review various improprieties readily
apparent in the evaluation documents provided with the agency report.
2. Protest that contracting agency improperly failed to award the
contract to the protester after the Small Business Administration
(SBA) issued the firm a certificate of competency (COC) is sustained
where the record shows that shortly after SBA issued its decision to
deny the COC it learned that decision might be erroneous; it
immediately requested and received additional time to review that
decision from the contracting agency; and the contracting agency
failed to take any contract action until after it received SBA's final
decision to issue the COC.
DECISION
Holiday Inn-Laurel requests that we declare it entitled to
reimbursement of the reasonable costs of filing and pursuing its
protest of the evaluation of its proposal under request for proposals
(RFP) No. DAHC36-95-R-0012, issued by the Department of the Army for
the provision of meals, lodging, and transportation to support the
Baltimore Military Entrance and Processing Station in Baltimore,
Maryland. Holiday Inn-Laurel also protests the Army's refusal to
award it the contract in light of the fact that the Small Business
Administration (SBA) issued the firm a certificate of competency
(COC).
We conclude that Holiday Inn-Laurel is entitled to the costs of filing
and pursuing its prior protest, and we sustain its current protest.
BACKGROUND
On May 26, 1995, the Army issued this solicitation to award a
fixed-price, indefinite quantity contract to the offeror submitting
the lowest-priced, technically acceptable offer. The RFP established
a performance period of 1 base year, with up to 4 option years.
Proposals would be evaluated under six equally important factors, each
of which contained various subfactors. After evaluating the four
proposals it received, the Army excluded the proposal of Holiday
Inn-Laurel, the incumbent contractor, from the competitive range.
Holiday Inn-Laurel protested the Army's action in our Office. The
Army's report rebutted the protest and provided evaluation documents
to support its position. In its comments, Holiday Inn-Laurel raised
several new allegations derived from these documents. Among other
things, the firm alleged that the Army had improperly evaluated its
proposal under the site visit factor; improperly determined that
Holiday Inn-Laurel had little past experience; improperly required it
to submit past performance evaluations when the Army possessed such
evaluations; and improperly evaluated its orientation plan. In
response to our request to review the allegations concerning the site
visit factor and the firm's past performance, the Army took corrective
action by reopening discussions and including the protester's proposal
in the competitive range. We dismissed the protest as academic on
October 11.[1]
The Army conducted discussions, evaluated the revised proposals it
received, and determined that Holiday Inn-Laurel's proposal, at a
price of $2,741,250, would not be considered for award because its
technical proposal was rated marginal and its past performance was
poor. The contract was awarded to CMS @ Holiday Inn Express at a
price of $3,455,250.
On January 4, 1996, Holiday Inn-Laurel protested the Army's action to
our Office. Among other things, the firm asserted that the Army had
improperly evaluated its technical proposal as marginal, and, more
specifically, that the Army had improperly evaluated its technical
proposal with respect to past performance. The firm also challenged
the Army's past performance evaluation to the extent that it
constituted a nonresponsibility determination.[2]
Shortly after the protest was filed, the contracting officer
determined that Holiday Inn-Laurel's poor past performance and its
alleged falsification of past performance information in its technical
proposal justified a finding that it was nonresponsible. Since the
firm is a small business concern, in accordance with Federal
Acquisition Regulation (FAR) sec. 19.602-1(a)(2), the Army referred the
matter to the SBA on January 19 for review under its COC procedures.
The Army also issued a stop-work order to the awardee.
In its February 8 report, the Army summarily rebutted the protest
allegations and referred to the enclosed evaluation documents. Our
review of those documents showed that the evaluation was flawed.
Contrary to the RFP's mandate, the Army had not weighted the technical
evaluation factors equally. Moreover, the evaluators had improperly
downgraded the protester's proposal based on its past performance
under numerous evaluation factors and subfactors which did not provide
for the evaluation of past performance. See J.A. Jones Management
Servs., Inc., B-254941.2, Mar. 16, 1994, 94-1 CPD para. 244.
On February 13, our Office asked the Army to address these concerns.
In its February 21 response, filed the day before Holiday Inn-Laurel
was to have filed its comments, the Army advised us that it had taken
corrective action and reevaluated the proposals consistent with our
concerns. As a result, Holiday Inn-Laurel was determined to be the
lowest-priced, technically acceptable offeror, and thus in line for
award. However, the Army did not make award to the firm because it
had been determined nonresponsible, and SBA's decision on the COC was
still pending. Under the circumstances, we dismissed the protests as
academic with respect to the technical evaluation challenge, and as
premature with respect to the nonresponsibility determination
challenge since SBA had not yet acted.
On March 6, Holiday Inn-Laurel filed this request for costs with our
Office, arguing that the Army had unduly delayed taking corrective
action in response to the firm's meritorious protest. On that same
day, SBA declined to issue the firm a COC, but then subsequently
issued the COC, as discussed further below. Holiday Inn-Laurel
protests the Army's refusal to acknowledge the SBA's issuance of the
COC and award the contract to the firm as the lowest-priced,
technically acceptable, responsible offeror.
REQUEST FOR COSTS
When an agency takes corrective action prior to our issuing a decision
on the merits, we may recommend that the protester recover the
reasonable costs of filing and pursuing the protest. Bid Protest
Regulations, 4 C.F.R. sec. 21.8(e) (1996). We will make such a
recommendation where, based on the circumstances of the case, we
determine that the agency unduly delayed taking corrective action in
the face of a clearly meritorious protest. Oklahoma Indian
Corp.--Claim for Costs, 70 Comp. Gen. 558 (1991), 91-1 CPD para. 558.
Holiday Inn-Laurel's protest alleged that the Army had improperly
evaluated its proposal as marginal, and more specifically alleged
that its proposal had been improperly evaluated with respect to past
performance. The Army does not dispute that its corrective action was
taken in response to our queries bearing directly upon issues implicit
in those allegations--the improper weighting of the technical
evaluation factors and the improper consideration of past performance
in conjunction with factors and subfactors unrelated to past
performance. As a result, we conclude that the Army's corrective
action was taken in response to Holiday Inn-Laurel's clearly
meritorious protest. The determinative question, then, is whether the
corrective action was prompt under the circumstances. Ostrom Painting
& Sandblasting, Inc.--Entitlement to Costs, 72 Comp. Gen. 207 (1993),
93-1 CPD para. 390; Griner's-A-One Pipeline Servs., Inc.--Entitlement to
Costs, B-255078.3, July 22, 1994, 94-2 CPD para. 41. We conclude that the
Army unduly delayed taking corrective action here.
Notwithstanding the allegations raised in the protest, and the
evaluation documents within its possession which clearly showed the
improprieties noted above, the Army proceeded to file a report
disputing the protester's position and arguing that the protest was
without merit and should be dismissed or denied. The agency report is
bereft of any evidence that the Army reviewed these underlying
evaluation documents. Had the Army undertaken a reasonable
investigation into the propriety of the technical evaluation, it would
have seen that the competitive range determination, which describes
the weighting scheme used in the evaluation, clearly confirms that the
agency failed to comply with the RFP's statement that all six factors
were of equal importance. Had the Army undertaken a reasonable
investigation into the propriety of the past performance evaluation of
the protester's proposal, it would have seen that each evaluator
improperly downgraded the firm, often significantly, for its perceived
poor past performance in areas not calling for such review, thus
greatly--and improperly--exaggerating the importance of past
performance in the overall evaluation. See J.A. Jones Management
Servs., Inc., supra.
Hence, had the Army promptly undertaken a reasonable factual
investigation before filing its report on the protest, the merits of
Holiday Inn-Laurel's contentions would have been clear at the outset.
See Tucson Mobilephone, Inc.--Request for Entitlement, 73 Comp. Gen.
71 (1994), 94-1 CPD para. 12; Carl Zeiss, Inc.--Request for Declaration of
Entitlement to Costs, B-247207.2, Oct. 23, 1992, 92-2 CPD para. 274. Our
conclusion is confirmed by the fact that these same errors were
present in the evaluation at issue in the prior protest, and should
have been corrected at that time. Indeed, after the Army took its
initial corrective action, this Office advised the Army that the
weighting scheme used in the evaluation did not comply with the RFP's
instructions. See Griner's-A-One Pipeline Servs., Inc.--Entitlement
to Costs, supra. In view of the fact that the Army took corrective
action only after the protester undertook the expense of preparing its
comments on the protest, we recommend that Holiday Inn-Laurel be
reimbursed the costs of filing and pursuing its protest. Tucson
Mobilephone, Inc.--Request for Entitlement, supra. Holiday Inn-Laurel
should submit its claim for costs, detailing and certifying the time
expended and costs incurred, directly to the agency within 90 days of
receipt of this decision. 4 C.F.R. sec. 21.8(f)(1)).
PROTEST
Background
The contracting officer determined that Holiday Inn-Laurel was
nonresponsible on the basis of its allegedly poor performance on the
prior contract for these services. His determination rests upon the
firm's problems complying with the contract's overflow housing, menu
selection, and transportation requirements; recurring issues of
discourteous treatment to applicants, including possible racial bias;
and a belief that the firm falsified information in its technical
proposal by "whiting out" its identity from a complaint letter. In
determining whether to issue a COC, SBA's industrial specialist
analyzed the information provided by the Army in its referral package,
as well as the information submitted by Holiday Inn-Laurel in its COC
application. SBA also conducted its own facility and financial
surveys. The specialist found that each area of review was
satisfactory, save for the firm's performance capability, as reflected
in the nonresponsibility determination, and recommended against
issuance of a COC.
On March 5, SBA's COC committee met and unanimously voted to deny a
COC on the basis of the firm's past performance, with specific
reference to applicant complaints of discourteous treatment. As to
the Army's other concerns, the committee noted that the firm had used
unapproved facilities for overflow housing, but that these facilities
had been approved under a prior contract and were not unacceptable;
the firm had difficulty understanding the proper menu variety but made
changes when asked to do so; the firm initially had difficulty
resolving transportation problems but had done so; and the "whiting
out" of the firm's name in a complaint letter was merely an attempt to
comply with the RFP's requirement to delete all proposal references to
the offeror's identity.
By letter dated March 6, SBA declined to issue the COC. Holiday
Inn-Laurel was advised that it could meet with SBA staff to discuss
the reasons for its decision and did so, by telephone, on March 8.
SBA's area director states that, during that conversation, Holiday
Inn-Laurel's representatives expanded upon the information furnished
and explained why it believed that the Army's nonresponsibility
determination was unfounded and based upon an overly harsh assessment
of its performance under the contract. The area director states that
this information was extremely compelling and worthy of further review
to ensure that the decision to deny the COC was not erroneous.
Accordingly, on that same afternoon, SBA's acting supervisory
industrial specialist telephoned the contracting officer. After
ascertaining that the stop work order had not yet been lifted, the
parties agree that the supervisory industrial specialist asked the
contracting officer for additional time to review the case to ensure
that the decision was sound, considering the possibility of litigation
with a finding adverse to both SBA and the Army. Both the supervisory
industrial specialist and the area director, who was listening to this
conversation on a speakerphone, state that the contracting officer was
specifically advised that he did not have to provide SBA with this
additional time, but, in his discretion, could accept the COC denial
as the final decision at that time. The contracting officer does not
dispute this account. Notwithstanding this advice, the contracting
officer agreed not to lift the stop work order until March 14 to give
SBA time to review the matter. SBA's March 12 letter to the
contracting officer, sent to confirm this conversation, states that
"[d]uring this period [to March 14], SBA will again review certain
materials relevant to the case. If we do not advise you otherwise by
the aforementioned date and time, you may consider our decision to
decline the COC as final and binding." The contracting officer did
not respond to this letter.
During SBA's review it determined that fewer than one percent of the
applicants had complained of rude or discourteous treatment or poor
service, a rate better than that demonstrated by the current
contractor to date. It also found no evidence of racial bias. The
area director states that he had initially believed that the
complaints were unsolicited--and that the rude treatment alone
compelled their submission--but now learned that they were part of an
evaluation survey given to all applicants. SBA also noted and
discounted the Army's other reasons for the nonresponsibility
determination. As a result, SBA determined to issue the COC to
Holiday Inn-Laurel on March 14.
That afternoon, SBA's supervisory industrial specialist telephoned the
contracting officer and advised him of SBA's intention to issue the
COC and its rationale for doing so. In accordance with FAR sec.
19.602-3(a), the contracting officer asked to submit new or additional
information bearing on Holiday Inn-Laurel's use of overflow facilities
and the total number of written complaints of rude or discourteous
treatment of applicants, and the parties agreed that further action
would be suspended pending SBA review of this additional information.
By letter of March 15 to the contracting officer, SBA confirmed this
conversation. The contracting officer did not respond to this letter.
On March 18, a new contracting officer[3] telephoned SBA's supervisory
industrial specialist to check on the status of SBA's action because
she was concerned that the interim contract was soon to end and the
Army needed continued performance of these services. The contracting
officer stated that she had no additional information to furnish SBA
at this time. When asked if she would accept SBA's decision to
rescind the COC denial, she replied that she "could not tell the SBA
what to decide one way or another." She also informed SBA that a
decision had to be made. SBA's March 19 letter to the contracting
officer to both confirm this conversation and to formally issue the
COC states, "You indicated that you have elected not to appeal
issuance of the COC." In her March 21 letter of response to SBA, the
contracting officer did not deny having made this election, nor did
she state her intention to appeal.[4] Instead, she asserted that
neither she nor the prior contracting officer had authorized the
reconsideration of the denial, and that she considered that denial to
be final. She also lifted the stop work order. This protest
followed.
Analysis
Holiday Inn-Laurel and SBA argue that since SBA has conclusive
authority to determine a small business firm's responsibility, the
Army is bound to abide by its decision to issue the COC here and award
the contract to Holiday Inn-Laurel. SBA asserts that the Army agreed
to allow SBA to review its initial decision denying the COC and took
no position to the contrary until after it received the final decision
to issue the COC. The Army counters that SBA is prohibited from
reconsidering its decision denying a COC except in circumstances not
present here.[5]
Under the Small Business Act, 15 U.S.C. sec. 637(b)(7) (1994), SBA has
conclusive authority to review a contracting officer's negative
determination of responsibility and to determine a small business
firm's responsibility by issuing or refusing to issue a COC. 15
U.S.C. sec. 637(b)(7)(A); R.T. Nelson Painting Serv., Inc., 69 Comp. Gen.
279 (1990), 90-1 CPD para. 202. SBA's determination must be accepted by
the agency as "conclusive." See Tomko, Inc., 63 Comp. Gen. 218
(1984), 84-1 CPD
para. 202.
SBA regulations governing the COC process state that, when a COC is
denied, the firm is advised that it may meet with SBA representatives
to discuss the reasons for the denial. 13 C.F.R. sec. 125.5(g). In
part, that provision states that "such conference will be for the sole
purpose of enabling the applicant to improve or correct deficiencies
and will not constitute a basis for reopening the case in which the
[COC] was denied." The Army contends that this language flatly
prohibits SBA from reconsidering its denial of a COC. However, SBA
interprets this provision solely as a notice to COC applicants that
the debriefing is not intended as an appeal process for unsuccessful
applicants, not as a bar to further SBA review following the issuance
of an initial decision under the circumstances here.
We think that SBA's interpretation of 13 C.F.R. sec. 125.5(g) is
reasonable when the provision is read as a whole and in context. The
purpose of section 125.5(g) is to explain the procedures available to
small businesses after denial of a COC, specifically, notification of
the reasons for the denial as well as a face-to-face meeting to
elaborate on SBA's rationale in the interest of enabling the small
business to improve or correct its deficiencies. In this context, the
language to which the Army points ("such conference . . . will not
constitute a basis for reopening the case") reasonably may be read as
limited to indicating that the post-decision conference available
under the regulation does not give rise to a right of appeal of the
COC denial by the small business. We see no reason to interpret this
provision more broadly as a divestiture by SBA of the authority to
correct an erroneous decision in appropriate circumstances.[6] See
American Trucking Ass'ns, Inc. v. Frisco Transp. Co., 358 U.S. 133
(1958) (administrative bodies have the inherent authority to correct
mistakes resulting from oversight or inadvertence).
Where SBA does not notify a contracting agency of its intent to issue
a COC until after the prescribed or agreed-upon time period for
issuing a COC decision, but the contracting officer nevertheless
receives such advice from SBA prior to taking any contract action, the
agency is bound by the COC determination. Age King Indus., Inc.,
B-225445.2, June 17, 1987, 87-1 CPD para. 602. Similarly here, we
conclude that SBA was not prohibited from reviewing its initial denial
of the COC after it learned that the decision might be erroneous, and
before the stop work order was lifted. Although the Army could have
proceeded to lift the stop work order after it received the initial
denial of the COC, FAR sec. 19.602-4(c), it did not do so, instead
delaying action pending reconsideration by SBA.[7] When the Army
subsequently was advised of the decision to issue a COC, it could not
disregard it, given that the stop work order had not been lifted and
the government otherwise would not be materially prejudiced by
honoring the COC. Age King Indus., supra. This result is consistent
with the contracting officer's basic responsibility under the RFP to
make award to the responsible offeror offering the lowest priced,
technically acceptable proposal, and with the statutory scheme that
vests conclusive authority for determining a small business's
responsibility in SBA. Id.
Under the circumstances here, we conclude that the Army must consider
SBA's issuance of the COC as conclusive. See 15 U.S.C. sec. 637(b)(7);
Age King Indus., Inc., supra. Accordingly, we recommend that the Army
terminate the contract to CMS and make award to Holiday Inn-Laurel as
the lowest-priced, technically acceptable, responsible offeror. We
also recommend that the agency pay the protester the costs of filing
and pursuing this protest, including attorneys' fees. 4 C.F.R. sec.
21.8(d)(1). In accordance with 4 C.F.R. sec. 21.8(f)(1), Holiday
Inn-Laurel's certified claim for such costs, including the time
expended and costs incurred, must be submitted directly to the agency
within 90 days after receipt of this decision.
The protest is sustained.
Comptroller General
of the United States
1. Holiday Inn-Laurel subsequently requested that we find it entitled
to the costs of filing and pursuing its protest. We declined to do so
since the record showed that the firm's comments raised new
allegations; the corrective action was clearly linked to these new
allegations and not to the initial protest allegation, which was not
clearly meritorious; and the corrective action was taken 5 working
days after the comments were filed. Holiday Inn-Laurel--Entitlement
to Costs, B-265646.4, Nov. 20, 1995, 95-2 CPD para. 233.
2. Holiday Inn-Laurel also filed a supplemental protest consisting
solely of challenges to the evaluation of the awardee's proposal.
While the firm's request for costs does not specify the protest or
protests for which the firm seeks recovery, its language clearly
refers to the allegations raised in the initial protest. As discussed
below, considering that the corrective action at issue here was taken
in response to the allegations raised in the initial protest, and
considering that these allegations are entirely severable from those
raised in the supplemental protest, our recommendation that Holiday
Inn-Laurel recover the costs of filing and pursuing its protest is
limited to that initial protest. See Interface Flooring Sys.
Inc.--Claim for Attorneys' Fees, 66 Comp. Gen. 597 (1987), 87-2 CPD para.
106; Sperry Marine, Inc.--Claim for Costs, B-245654.3, May 17, 1994,
94-1 CPD para. 312.
3. While this contracting officer was "new," SBA's supervisory
industrial specialist states, and the contracting officer does not
deny, that she was privy to at least part of his March 14 telephone
conversation with the previous contracting officer.
4. While the parties dispute whether the new contracting officer
specifically elected to accept the COC's issuance without an appeal,
the contracting officer states that she repeatedly advised SBA that
she needed a final decision. However, the regulations do not
contemplate an appeal after the final decision, but before. When the
contracting officer and SBA's area office cannot agree as to whether a
COC should be issued, the contracting officer may ask that the matter
be referred to SBA's Central Office for review. FAR sec. 19.602-3(a).
If the Central Office agrees with the area office, the contracting
agency may appeal that agreement to the Central Office, which will
make the final decision. FAR sec. 19.602-3(c), (d). Although SBA states
that the contracting officer was advised of her option to refer the
matter to SBA's Central Office, she did not do so. Since she had
already declined to accept any of the options to resolve the matter
with the area office, her insistence on receiving a final decision
effectively waived her right to appeal to SBA's Central Office.
5. The Army acknowledges that a contracting officer presented with new
or additional information regarding a firm's responsibility may refer
the matter back to SBA for its review. See West State, Inc.,
B-255692, B-255693, Mar. 23, 1994, 94-1 CPD para. 211; UAV Sys., Inc.,
B-255281; B-255281.2, Feb. 17, 1994, 94-1 CPD para. 121; Reuben Garment
Int'l Co., Inc., B-198923, Sept. 11, 1980, 80-2 CPD para. 191.
6. Even if we did not agree with agency's interpretation of the
clause, we are required to give deference to an agency's reasonable
interpretation of its regulations. See Udall v. Tallman, 380 U.S. 1
(1965); Israel Aircraft Indus., Ltd.--Recon., B-258229.2, July 26,
1995, 95-2 CPD para. 46.
7. The contracting officer does not dispute that SBA specifically
advised him on March 8 that he could accept the COC denial as the
final decision at that time. Moreover, while we do not question the
contracting officer's statement that he interpreted his March 8
conversation with SBA to mean that SBA only needed more time to "firm
up" the denial decision, and that SBA did not mention a possibility of
reversal or reconsideration, SBA's March 12 letter confirming this
conversation put him on notice that SBA did not share this
understanding and clearly contemplated reversal of the decision as a
possibility.