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.