BNUMBER: B-271559; B-271559.2
DATE: July 16, 1996
TITLE: Support Services International, Inc.
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Matter of:Support Services International, Inc.
File: B-271559; B-271559.2
Date:July 16, 1996
Joel C. Mandelman, Esq., for the protester.
Mike Colvin, Department of Health and Human Services, for the agency.
Jennifer D. Westfall-McGrail, Esq., and Christine S. Melody, Esq.,
Office of the General Counsel, GAO, participated in the preparation of
the decision.
DIGEST
1. Indian Health Service (IHS) did not violate the Buy Indian Act by
failing to set aside a health care-related acquisition for
Indian-owned companies since under the Buy Indian Act IHS has the
discretion to set procurements aside for Indian-owned firms, but is
not required to set aside any particular procurement.
2. Contracting agency has not adequately justified its decision not
to solicit the incumbent and instead to award to another company on a
sole source basis where the record fails to demonstrate a reasonable
basis for the agency determination that the incumbent could not be
expected to perform the services satisfactorily.
DECISION
Support Services International, Inc. (SSI), an Indian-owned company,
protests the award of an interim contract to McKesson Drug Company
under request for proposals (RFP) No. 785, issued by the Phoenix Area
Indian Health Service (IHS), Department of Health and Human Services
(HHS), for the purchase and delivery of drugs on the Federal Supply
Schedule (FSS) to Indian health clinics located in Arizona, Nevada,
and Utah. The protester complains that the award improperly was made
on a sole source basis to a company that is not Indian-owned.
We sustain the protest.
BACKGROUND
In March 1995, the IHS awarded a contract consisting of base year plus
two 1-year options contract to SSI under RFP No. 753, a Buy Indian Act
set-aside for the distribution of drugs and pharmaceutical items on
the FSS to IHS hospitals and clinics located in Arizona, Nevada, and
Utah. At the conclusion of the base year, the IHS decided not to
exercise the option under SSI's contract since (as discussed more
fully below) it was dissatisfied with SSI's performance during the
base year and agency officials believed they could obtain the services
at a substantially lower cost by negotiating an interagency agreement
with the Department of Veterans Affairs (VA).[1] Since, as of the
date that SSI's base year was due to expire (i.e., March 31, 1996),
the IHS was still in the process of negotiating an agreement with the
VA and anticipated that the arrangement would take an additional 90
days to implement in Arizona and an additional 180 days to implement
in Nevada and Utah, the IHS awarded an interim contract for the
services to McKesson, a pharmaceutical wholesaler which had been
acting as a subcontractor to SSI under its contract and which was also
the contractor servicing the VA's Arizona facilities.
On March 27, 1996, after learning that the option under its contract
would not be exercised and that the agency instead intended to
negotiate an agreement with the VA to have the services added to a
contract that the VA had with McKesson, SSI protested to our Office.
SSI argued that an award to McKesson, by means of an interagency
agreement with the VA, would violate both the Buy Indian Act (since
McKesson is not an Indian-owned firm) and the Competition in
Contracting Act of 1984 (CICA) (since companies other than McKesson
had not been permitted to compete for the award.)
By letter dated April 12, 1996, the agency notified our Office that it
agreed with SSI that an award to McKesson, by means of an interagency
agreement with the VA, would violate IHS's Buy Indian policy and that
it intended to take corrective action by conducting a new procurement
under the Buy Indian Act. The agency further informed us that it
expected to issue the new solicitation within the next month and that
SSI would be given an opportunity to compete.
On April 15, SSI learned of the interim award to McKesson, which the
agency had decided to leave in place until the recompetition had been
concluded. On April 19, the protester filed a supplemental protest
with our Office objecting to the interim award.
ANALYSIS
SSI first argues that, as the satisfactorily performing incumbent, it
should have been allowed to continue performing the services until the
new competition was concluded. We are aware of no requirement,
however, that a procuring agency with an urgent need for interim
services extend an incumbent's contract rather than award a new
contract. See Automation Management Consultants, Inc., B-243805, Aug.
29, 1991, 91-2 CPD para. 213.
SSI next argues that by failing to set the acquisition aside for
Indian-owned firms, the IHS violated the Buy Indian Act. Contrary to
the protester's contention, the Buy Indian Act does not require that
all contracts awarded to provide goods and services to Indian tribes
be awarded preferentially to Indian-owned contractors. Rather, the
Act states simply that "[s]o far as may be practicable Indian labor
shall be employed, and purchases of the products . . . of Indian
industry may be made in open market in the discretion of the Secretary
of the Interior." 25 U.S.C. sec. 47 (1994). The federal courts and our
Office have construed this language as conferring upon the Secretary
of the Interior--and, with regard to the maintenance and operation of
hospitals and health facilities for Indians, the IHS[2]--broad
discretionary authority to negotiate exclusively with Indian
contractors; neither the courts nor our Office have construed the Act
as requiring that every eligible procurement be set aside for
Indian-owned companies, however. See Lakota Contractors Ass'n. v.
U.S. Dept. of Health and Human Servs., 882 F.2d 320 (8th Cir. 1989);
Indian Resources Int'l, Inc., B-256671, July 18, 1994, 94-2 CPD para. 29.
Moreover, to the extent that the award to McKesson violated IHS's own
internal Buy Indian policy, which provides for the award of health
care-related contracts to non-Indian firms only if no eligible Indian
firms are available, we do not regard an agency's internal policy as
establishing legal rights and responsibilities such as to make actions
contrary to the stated policy illegal and subject to objection by this
Office. Indian Resources Int'l, Inc., supra.
Turning to the issue of whether the IHS violated CICA by awarding the
interim contract to McKesson on a sole source basis, CICA does permit
noncompetitive acquisitions in specified circumstances, such as when
the services needed are available from only one responsible source or
when the agency's need for the services is of such an unusual and
compelling urgency that the agency would be seriously injured unless
permitted to limit the number of sources solicited. 41 U.S.C. sec.
253(c)(1), (c)(2) (1994). When an agency uses noncompetitive
procedures under 41 U.S.C. sec. 253(c)(1) or (c)(2), it is required to
execute a written justification and approval (J&A) with sufficient
facts and rationale to support the use of the specific authority. 41
U.S.C. sec. 253(f)(1)(A) and (B). Our review of the agency's decision to
conduct a sole source procurement focuses on the adequacy of the
rationale and conclusions set forth in the J&A. Techno-Sciences,
Inc., B-257686; B-257686.2, Oct. 31, 1994, 94-2 CPD para. 164.
Here, the agency justified the sole source award to McKesson on the
ground that McKesson was the only company that could begin to furnish
services immediately upon expiration of SSI's contract and thus assure
that services did not lapse. In this regard, the contracting officer
noted that McKesson, as a subcontractor to SSI, had been responsible
for the delivery of medications under SSI's contract and thus already
had in place ordering and delivery systems and payment mechanisms.
Other wholesalers, in contrast, would require 90 to 120 days to
implement their systems, according to the agency. The contracting
officer further noted that he did not regard SSI, the incumbent, as a
viable source since its performance during the base year had been
unsatisfactory.
We do not think that the agency has adequately justified its decision
to exclude SSI from the competition. While an agency may, in urgent
circumstances, limit the competition to firms with satisfactory work
experience which it believes can promptly and properly perform the
services, DOD Contracts, Inc., B-250603.2, Mar. 3, 1993, 93-1 CPD para.
195, and is not required to solicit the incumbent if it reasonably
doubts, based on the incumbent's prior record, that the firm can
perform the services, Sanchez Porter's Co., 69 Comp. Gen. 426 (1990),
90-1 CPD para. 433, the agency's assessment of the incumbent's prior
performance and capability to perform must be reasonable. Here, we
think that the IHS's assessment of SSI's prior performance and
capability to perform was not reasonable.
The record shows that the IHS's dissatisfaction with SSI's performance
during the base year stemmed from SSI's inability, during the initial
months of performance, to obtain drugs from a few manufacturers at the
FSS prices, which generally are lower than market. As the prime
pharmaceutical vendor for the IHS clinic pharmacies, SSI was eligible
to purchase drugs for the clinics at FSS prices, but a few
manufacturers were unaware of SSI's authority to do so. Thus, the
manufacturers in question were furnishing the drugs requested and
billing SSI's subcontractor, McKesson, at the FSS prices, but were
then billing McKesson for the difference between the FSS price and the
market price. McKesson, in turn, was billing the pharmacies for the
difference between the two prices.
IHS held SSI accountable for failing to obtain all requested drugs at
the FSS prices, and viewed SSI's inability to resolve the pricing
problems as evidence of the protester's unwillingness and inability to
perform its contractual responsibilities. However, our review of the
contract and the record reveals that the agency's blame was misplaced.
The contract clearly required the contracting officer to notify the
drug companies of SSI's status prior to the date it commenced
performance[3]--yet the record shows that the contracting officer did
not do so until early October 1995 (i.e., 6 months after performance
had begun.) In our view, the record shows that the difficulty that
SSI encountered in obtaining certain drugs at FSS prices was in large
part attributable to the IHS's failure to notify the various drug
manufacturers at the time of award that SSI would be acting as IHS's
pharmaceutical vendor for the clinics. To the extent that, once
informed of SSI's status, a few manufacturers still refused to furnish
the drugs at FSS prices because their companies, as a matter of
general policy, refused to provide FSS pricing under prime vendor
contracts, we fail to see how SSI, as a contractor, could have
compelled them to do so.
We also fail to see that SSI's status as other than a drug wholesaler
impaired its ability to perform, as the agency implies. The
contracting specialist in fact concedes that any hesitancy that
manufacturers may have had about dealing with SSI due to their lack of
familiarity with the company "did not turn out to be a problem" since
the companies were willing to deal with SSI's subcontractor, McKesson,
which had responsibility for placing orders with, and receiving
payment from, the drug companies.
Further, regardless of who was at fault for SSI's initial difficulties
in obtaining FSS prices from certain manufacturers, the record shows
that the pricing problems had largely been resolved by early 1996, as
evidenced by the decreasing number of "re-bills" being received by IHS
clinic pharmacists. It thus appears that not only was SSI not
responsible for the difficulties that IHS encountered in obtaining FSS
pricing for drugs for its pharmacies, but further that most of the
problems had been resolved prior to expiration of SSI's contract for
the base year.
IHS has not established that SSI is incapable of performing the
interim services. The J&A cites unsatisfactory performance and
difficulties with the current contractor, which, as we discussed
above, does not support such a conclusion. Neither the J&A nor the
rest of the record set forth any other rationale to demonstrate that
SSI cannot perform. We find no reasonable basis for IHS's
determination that SSI should be excluded from the competition.
Accordingly, we sustain the protest.
Since the agency now projects that the new solicitation will not be
issued until July 1996, and that award will not be made until
September, we recommend that it solicit proposals from both SSI and
McKesson for performance of the services during the remaining interim
period, and, if it determines that SSI's proposal is more advantageous
than McKesson's, that it terminate the interim contract awarded to
McKesson and make award to SSI. We also recommend that the agency pay
the protester the costs of filing and pursuing its protest.[4] See
Bid Protest Regulations, 4 C.F.R. sec. 21.8(d)(1) (1996). In accordance
with section 21.8(f)(1) of our Regulations, SSI's certified claim for
such costs, detailing the time expended and the costs incurred, must
be submitted directly to the agency within 90 days after receipt of
the decision.
The protest is sustained.
Comptroller General
of the United States
1. VA had in place contracts for the delivery of pharmaceuticals to VA
facilities in the states in question, which agency officials thought
could be modified to include deliveries for the IHS clinics.
2. The functions of the Secretary of the Interior for the maintenance
and operation of hospital and health facilities for Indians were
transferred to the Secretary of HHS, who delegated HHS' authority
under the Buy Indian Act exclusively to the IHS. Department of Health
and Human Servs.--Request for Advance Decision, B-232364, Oct. 5,
1988, 88-2 CPD para. 325.
3. Section B-1 of the contract provided as follows:
"Contractor shall provide all drugs/pharmaceutical items
(comprising approximately 12,000 items) for twenty-two
Phoenix Area Indian Health Service, Service Unit Hospital
and clinic facilities located in Arizona, Nevada, and
Utah, [for] which the Prime Vendor has been authorized by
the manufacturer as a distributor:
A. Under the Federal Supply Schedule; and
B. Under other Government supply contracts. It will be
the responsibility of the IHS Contracting Officer to
contact contractors for authorization for the Prime Vendor
to distribute products and utilize contract pricing. Once
authorization is received, IHS will provide the successful
Prime Vendor with participating contractors and pricing
information." (Emphasis added.)
4. Our recommendation regarding the payment of costs extends to the
supplemental protest only. We do not recommend that the protester be
reimbursed for the costs of pursuing its initial protest since the
agency took prompt corrective action in response to that protest. In
this regard, we will recommend that an agency that has taken
corrective action pay a protester its protest costs only where the
agency delays unduly in taking the corrective action in the face of a
clearly meritorious protest. CSL Birmingham Assocs.; IRS
Partners-Birmingham--Entitlement to Costs, B-251931.4; B-251931.5,
Aug. 29, 1994, 94-2 CPD para. 82.