BNUMBER:  B-272070
DATE:  August 9, 1996
TITLE:  District Moving & Storage, Inc.; Guardian Storage, Inc.;
and Quality Transport Services, Inc.

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Matter of:District Moving & Storage, Inc.; Guardian Storage, Inc.; 
          and Quality Transport Services, Inc.

File:     B-272070

Date:August 9, 1996

Alan F. Wohlstetter, Esq., and Stanley I. Goldman, Esq., Denning & 
Wohlstetter, for the protesters.
Dennis J. Gallagher, Esq., Department of State, for the agency.
Tania L. Calhoun, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Under solicitation that contemplates multiple awards, provision that 
restricts award to only one of any affiliated offerors is not unduly 
restrictive of competition where the record shows that the agency 
reasonably concluded that multiple awards to affiliated offerors would 
be prejudicial to the government's interests, and, thus, that the 
provision is reasonably necessary to meet the agency's minimum needs.

DECISION

District Moving & Storage, Inc., Guardian Storage, Inc., and Quality 
Transport Services, Inc. protest the terms of request for proposals 
(RFP) No. S-OPRAQ-96-R-0515, issued by the Department of State for 
non-temporary storage and related services.  The protesters contend 
that the solicitation, which contemplates multiple awards, improperly 
restricts award to only one of any affiliated offerors.

We deny the protest.

Our Office has long held that contracting agencies are not required to 
reject offers from affiliated firms, or to limit them to one award, 
unless doing so would be prejudicial to the interests of the 
government or would give the affiliated offerors an unfair advantage 
over other offerors.  See 39 Comp. Gen. 892 (1960); see also Fiber-Lam 
Inc., 69 Comp. Gen. 364 (1990), 90-1 CPD  para.  351; Colonial Storage Co.; 
Paxton Van Lines, Inc., B-253501.5 et al., Oct. 19, 1993, 93-2 CPD  para.  
234; Pioneer Recovery Sys., Inc., B-214700; B-214878, Nov. 13, 1984, 
84-2 CPD  para.  520.  This protest presents the question whether State may 
properly restrict award to only one of any affiliated offerors under 
this solicitation.  
   
The solicitation contemplates the award of five fixed-price, 
indefinite quantity contracts to firms that will pick up, receive, 
weigh, store, and deliver out of storage the household and personal 
effects of government employees arriving in and departing from the 
Washington, D.C. metropolitan area.  Each contract will run for 1 base 
year, with up to 4 option years.  

Award will be made to the firms whose offers are most advantageous to 
the government, considering technical merit and price.  Technical 
merit is more important than price, but price may become the 
determining factor as the proposals become more equal in technical 
merit.  The RFP sets forth five technical merit evaluation factors and 
requires offerors to include current financial statements along with 
their price proposals.

Section H.22 of the solicitation governs which contractors will be 
entitled to receive the most orders.  While each contractor will 
receive a minimum order, the lowest-priced contractor will be entitled 
to receive the most orders, followed by the next low-priced 
contractor, and so on.[1]  A certain percentage of orders is also set 
aside for the contractors who perform quality service as defined in 
this section.  Finally, the section provides that no contractor will 
receive more than 30 percent of the total projected annual volume.

Section B.1 of the RFP contains the provision at issue in this 
protest:

     "NOTE:   Only one company from affiliated companies shall be 
     allowed to receive an award for this requirement.  Affiliated is 
     defined for the purpose of this solicitation as:  Any business 
     concerns, organizations, or individuals are affiliates of each 
     other if, directly or indirectly, (a) either one controls or has 
     the power to control the other, or (b) a third party controls or 
     has the power to control both.  Indicia of control include, but 
     are not limited to, interlocking management or ownership, 
     identity or interests among family members, shared facilities, 
     equipment, and common use of employees."

District, Guardian, and Quality, self-described as affiliated firms 
under the above definition, filed an agency-level protest objecting 
that this requirement is unduly restrictive of competition.  After 
State denied the protest, the firms filed the same protest in our 
Office.

A procuring agency must specify its needs in a manner designed to 
promote full and open competition, and may include restrictive 
provisions in a solicitation only to the extent necessary to satisfy 
the agency's minimum needs.  See 41 U.S.C. 
 sec.  253a(a)(1)(A), (2)(B) (1994); CardioMetrix, B-259736, Apr. 28, 1995, 
95-1 CPD  para.  223; Omega World Travel, Inc., B-258374, Jan. 13, 1995, 
95-1 CPD  para.  20.  Where a protester challenges a specification as unduly 
restrictive of competition, it is the agency's responsibility to 
establish that the specification is reasonably necessary to meet its 
minimum needs.  Id.  In our review, we examine the adequacy of the 
agency's position not simply with regard to the reasonableness of the 
rationale asserted, but also the analysis given in support of the 
reasons advanced by the agency to assure that the agency's overall 
position will withstand logical scrutiny.  Cardiometrix, supra; The 
Kohler Co., B-257162, Sept. 2, 1994, 94-2 CPD 
 para.  88.  

A contracting officer's rejection of more than one offer submitted by 
two or more affiliated firms would be justified where there would 
otherwise be prejudice to the interests of the government or where the 
affiliated offerors would be afforded an unfair competitive advantage 
over other offerors.[2]  39 Comp. Gen. 892, supra; Colonial Storage 
Co.; Paxton Van Lines, Inc., supra. It follows that the validity of 
the protested "affiliation restriction", which limits affiliated 
offerors to one award, must be determined based upon these same 
considerations.

State principally argues that the government's interests would be 
prejudiced absent this restriction, and, thus, that it is reasonably 
necessary to meet its minimum needs.[3]  State asserts that the 
nonperformance or business failure of a moving and storage contractor 
can spell catastrophe for its household effects moving and storage 
program, and that this catastrophe would be magnified if two or more 
contractors were affiliated--commonly owned or controlled.

To demonstrate the array of situations which can occur under these 
types of contracts, State cites its 1995 study of storage and claims 
accountability problems with numerous moving and storage firms in the 
Washington, D.C. metropolitan area over the past 20 years.  All of 
these incidents resulted in loss and damage claims and associated 
costs to the agency, many of which have not been recovered.  For 
example, labor strikes at some firms prevented State from storing or 
removing household effects.  Fire, flooding, and mildew at other firms 
caused severe damage to stored goods and, in one instance, the 
contractor's insurer refused to assume liability, forcing State to 
have the damaged goods unpacked, dried, repacked, and transferred.  
Still another firm defaulted on its warehouse lease, preventing State 
from storing or removing household effects and forcing the agency to 
transfer the goods.  Bankruptcies at yet other firms resulted in 
sealed warehouses, preventing State from gaining access to its stored 
goods and requiring it to be responsible for transferring the goods.  
Another firm unexpectedly went out of business, requiring State to 
move its stored goods to another facility.  Managerial and financial 
problems due to a change in ownership of again another firm resulted 
in closed warehouses and undocumented moves of stored goods with 
associated theft and damage.      

State explains that the impact of such problems is potentially far 
greater when two or more affiliated firms are awarded contracts.  For 
example, if their common owners/controllers make business decisions 
which result in financial failure, the continued performance of all of 
the affiliated firms would be put into question, and the goods stored 
by all of the affiliated firms would be placed in jeopardy.  This is 
particularly critical since, under the solicitation's traffic 
distribution scheme, three affiliated awardees would be entitled to 
receive as much as 60 percent of the permanent storage of household 
effects over the life of the contract.[4]  Hence, a financial or 
nonperformance problem affecting the affiliated awardees could 
jeopardize the disposition of a large amount of State's stored 
household effects.      

The protesters contend that the way to protect the government against 
contractor financial failure is to evaluate the offerors' finances, 
including the financial statements required by the solicitation.  

This contention ignores the agency's concerns with respect to the 
potential nonperformance of a firm.  There is nothing to suggest that 
State could evaluate proposals in a way that would allow certain 
nonperformance problems--such as fires, floods, strikes, and so on--to 
be predicted.  For example, since nothing in the solicitation prevents 
affiliated offerors from utilizing common warehouses and employees, 
such nonperformance problems could have a significant adverse impact 
on the agency's operations--a labor strike by the common employees of 
multiple affiliated firms could shut down all of their services, a 
fire at the common warehouse of multiple affiliated firms could damage 
the goods stored by all of the firms, and so on.  In a related 
argument, State asserts that moving firms' "high season" corresponds 
with the agency's peak requirements for their services, requiring the 
agency to spread its requirements among independent businesses to 
ensure adequate capacity.  Multiple affiliated awardees who share 
warehouse space and employees undercut the agency's assurances of 
adequate capacity in the event of a nonperformance problem.  State is 
also concerned that while the financial capability of individual 
affiliated offerors may be acceptable, their cumulative financial 
capability may pose an unacceptable risk; that is, the insolvency of 
one firm may have an impact on the solvency of the others.  

The protesters contend that the RFP's required performance bond and 
imposition of contractor liability for loss or damage provides 
financial protection to the agency.  While the parties dispute the 
extent to which the performance bond would compensate the agency for 
reprocurement costs, the agency persuasively asserts that even if 
quantifiable monetary losses can be recovered from the failed 
contractors' insurance and bonding, a business failure imposes 
tremendous strains on the entire household effects program, as routine 
work goes unperformed while the agency attempts to deal with the 
situation, which is greatly exacerbated to the extent that an 
affiliated firm is detrimentally affected by such a failure.

In another argument, unaddressed by the protesters, State asserts that 
allowing one entity to gain a larger portion of the freight places the 
agency at a disadvantage when managing the contract.  If one 
affiliated awardee does not comply with the contract's terms and is 
placed on a non-use status, the other affiliated awardees will pick up 
at least part of that business and there will be no incentive to 
quickly correct violations.  In contrast, independent companies tend 
to quickly resolve issues so they can receive business again.

In any event, State points out that affiliated firms can "game" their 
offers to the government's prejudice.  If affiliated firms know that 
they can receive multiple contracts, some may offer lower prices and 
others higher prices.  State explains that, considering the way that 
traffic is distributed,[5] a lower-priced affiliated awardee can 
decline business knowing that it will go to the higher-priced 
affiliated awardee, resulting in higher costs to the government.  
Affiliated offerors can book the lowest-priced awardee with non-State 
business during the "high season," when it is difficult to book 
storage, so that the higher-priced awardee will receive that business.  
The protesters here, for example, use the same traffic management 
system so they are able to shift business between one firm and the 
others.  While the protesters have not priced their offers in the way 
envisioned by the agency, nothing in the solicitation precludes other 
affiliated firms from doing so, and we think this concern clearly 
provides a reasonable basis for the solicitation restriction.

In short, we conclude that the record supports State's determination 
that the award of contracts to multiple affiliated offerors under the 
circumstances present here would prejudice the government's interests.  
As a result, we find that State reasonably concluded that the 
affiliation restriction is necessary to meet the agency's minimum 
needs, and is not unduly restrictive.

The protest is denied.

Comptroller General
of the United States

1. The low-priced contractor is to receive 25 percent of the traffic, 
with the other contractors receiving lesser percentages--20, 15, 10, 
and 5 percent, in order of their respective prices.

2. In the Colonial protest, unsuccessful offerors under a State moving 
and storage services procurement argued that the agency's award of 
contracts to each of the three affiliated firms now protesting was 
improper due to the requirement, also present here, that no contractor 
may receive more than 30 percent of the total business.  In that case, 
where the agency supported the awards to these affiliated firms and 
there was no showing of prejudice to the government or to other 
offerors, we were unable to say that the awards were improper.  While 
the protesters make much of that conclusion and of the position then 
taken by the agency, each solicitation stands on its own, and the 
absence of the affiliation restriction in any prior procurements for 
these services does not establish its unreasonableness here.  See 
Lionhart Group, Ltd., B-257715, Oct. 31, 1994, 94-2 CPD  para.  170; Cobra 
Technologies, Inc., B-249323, Oct. 30, 1992, 92-2 CPD  para.  310. 

3. Since we conclude that this justification is sufficient to show the 
reasonableness of the agency's position, we need not address the 
agency's argument that the restriction is necessary to prevent 
affiliated offerors from obtaining an unfair competitive advantage.  
We note State's concession that this is a minor justification.

4. While the protesters contend that "this has never happened," the 
RFP clearly allows for this possibility.

5. When State is notified of a shipment, it contacts the selected 
contractor to determine if the employee's packing requirements and 
date parameters can be met.  If so, the move will be scheduled.  If 
not, or if the selected contractor refuses the shipment for other 
reasons, another contractor will be selected.