BNUMBER:  B-272336; B-272336.2
DATE:  September 27, 1996
TITLE:  Integrated Systems Group

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DOCUMENT FOR PUBLIC RELEASE
A protected decision was issued on the date below and was subject to a 
GAO Protective Order.  This version has been redacted or approved by 
the parties involved for public release.
Matter of:Integrated Systems Group

File:     B-272336; B-272336.2

Date:September 27, 1996

Shelton H. Skolnick, Esq., Skolnick & Leishman, for the protester.
Melissa K. Erny, Esq., Department of the Navy, for the agency.
John Van Schaik, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Where agency permitted offeror to submit information to clarify an 
ambiguity in the price of its alternate offer and to make that 
alternate offer acceptable, the agency conducted discussions.  Since 
discussions were conducted with one offeror, the agency should have 
conducted discussions with all offerors whose proposals were in the 
competitive range and permitted those offerors to submit best and 
final offers.

DECISION

Integrated Systems Group, Inc. (ISG) protests the award of a contract 
to Force Computers, Inc. under request for proposals (RFP) No. 
N00163-95-R-0003, issued by the Department of the Navy for central 
processor units and right to use licenses.  ISG argues that the Navy 
improperly opened discussions with Force Computers after initially 
awarding the contract to ISG.

We sustain the protest.

The solicitation sought proposals for a base quantity of 30 processors 
and licenses; offerors could propose specified units manufactured by 
Force Computers or Themis Computer, Inc. by inserting prices in the 
appropriate spaces in section B of the RFP.  Offerors also were to 
submit prices for processors, licenses, and technical data for three 
option periods.  Under the RFP, the first option could be exercised up 
to 365 days after award, the second option could be exercised up to 
730 days after award, and the third option could be exercised up to 
1,095 days after award.  Although the RFP called for prices on 300 
processors in each of the option periods, the solicitation limited the 
number of processors that could be ordered under the options to 300.  
The solicitation included no specific warranty terms; offerors could 
offer their standard commercial warranties.

Under the solicitation, award was to be made to the offeror whose 
proposal represented the best overall value to the government, 
including consideration of price and "quality performance history."  
Each proposal was to be assigned a rating of low, moderate, or high 
risk based on an assessment of performance data.  The solicitation 
explained that prices would be evaluated by adding each offeror's 
total price for the base period, the average of the offeror's unit 
prices for the option quantities multiplied by the maximum option 
quantity of 300 units, and a price for data.

Three proposals were submitted.  Force Computers offered its own 
products, and ISG offered both Force Computers and Themis products.  
All of the proposals were given low risk ratings.

Based on an evaluation of prices, ISG's Themis proposal was determined 
to offer the lowest overall price of $2,267,105.  Although Force 
Computers' proposal included four additional pricing pages attached to 
its section B, the agency initially ignored those additional pages in 
the calculation of Force Computers' price.  Based solely on the prices 
in section B of its proposal, the agency calculated Force Computers' 
price as $2,313,295.  The contract initially was awarded to ISG and 
unsuccessful offeror letters were sent to Force Computers and the 
third offeror.  Those letters included ISG's price.

After the award, the contracting officer received a phone call from 
Force Computers questioning whether alternate proposals in its 
additional price pages had been evaluated and arguing that Force 
Computers should have been found to have submitted the lowest price.  
That phone call was followed by a letter dated April 24, 1996, from 
Force Computers requesting a review of the award decision.  In that 
letter, Force Computers stated that its proposal offered three 
"options . . . in accordance with Section M (M2 Alternate 
Specifications)"[1] and that the second and third options offered 
significantly lower prices than the award price.  The letter further 
stated:

     "After further reviewing our submittal, it has become apparent 
     that possibly the presentation although we admit may have been 
     somewhat confusing, would still have provided a lower total price 
     to the Government in the M2 options.  The total savings to the 
     government were either $427,740.00 or $692,340.00 (19% or 31%) in 
     [Force Computers'] M2 options II and II, and each provided a 
     three (3) year warranty.  The purpose of these proposed options 
     was to provide 'Best Value for the Government.'"

A memorandum prepared by the contracting officer before the protest 
was filed explains that an agency contract negotiator reviewed the 
additional pages in Force Computers' proposal and concluded that Force 
Computers was offering the government a discount on a 2-year warranty 
and had proposed a price for a one- time purchase of 300 of the 
processors which was required to be taken within of calendar year 
1996.  The contracting officer's memorandum explains that these 
alternatives were rejected because the government does not purchase 
additional warranty coverage and funding would not be available to 
purchase all 300 processors at one time.  

The memorandum further explains that the negotiator was confused as to 
what Force Computers was proposing in its alternate pricing on the 
first additional page attached to its section B prices.  According to 
the memorandum, during a conference call with Force Computers, agency 
officials asked the firm:  "Besides the extended warranty, what was 
your intent of how the Government should [have] evaluated your 
alternate pricing?"  When this question was not answered to the 
agency's satisfaction, an agency official stated:  "Your alternate 
pricing is contingent upon exercising all of the options."  Force 
Computers responded that the pricing was not contingent.  The 
memorandum states that an agency official requested that Force 
Computers submit a letter explaining its prices.

In letters dated May 1 and May 2, Force Computers explained that it 
had submitted three different pricing proposals, each independent of 
the other two and that under a contract resulting from any of its 
proposals, the government would have the right to exercise the options 
as described in the option clause of the solicitation.  More 
specifically, the May 2 letter explained that the first option could 
be exercised by the agency up to 365 days after award, the second 
option up to 730 days after award, and the third option up to 1,095 
days after award.

The contracting officer reports that:

     "In light of the clarification received from [Force Computers], I 
     reevaluated the proposals, including [Force Computers'] alternate 
     proposal which included a 24% discount on pricing for the option 
     quantities from its Section B pricing.  The results of that 
     evaluation were that [Force Computers'] alternate proposal 
     offered the lowest total evaluated price at $1,825,677.00."

  ISG's contract was terminated and a contract was awarded to Force 
Computers.

ISG argues that Force Computers' alternate proposal on which the award 
was based was unacceptable as submitted and therefore could not be the 
basis for award.  In addition, ISG argues that the telephone 
conference calls with Force Computers and the letters from that firm 
after the contract was awarded to ISG amounted to discussions since 
those communications were necessary to make Force Computers' alternate 
proposal acceptable.  According to ISG, the Navy violated regulatory 
requirements by not opening discussions with ISG and other competitive 
range offerors and requesting best and final offers (BAFO) from those 
firms.

It is a fundamental principle of federal procurement that all offerors 
must be treated equally.  Loral Terracom; Marconi Italiana, 66 Comp. 
Gen. 272 (1987), 87-1 CPD  para.  182.  Thus, the conduct of discussions 
with one offeror generally requires that discussions be conducted with 
all competitive range offerors and that offerors have an opportunity 
to submit revised offers.  Microlog Corp., B-237486, Feb. 26, 1990, 
90-1 CPD  para.  227.  Discussions occur whenever (1) an offeror is given an 
opportunity to revise or modify its proposal, or (2) information 
provided by an offeror is essential for determining the acceptability 
of its proposal.  Federal Acquisition Regulation (FAR)  sec.  15.601 (FAC 
90-40); HFS, Inc., B-248204.2, Sept. 18, 1992, 92-2 CPD  para.  188.  Here, 
we conclude that the agency's post award communications with Force 
Computers constituted discussions both because Force Computers was 
given an opportunity to modify its proposal and because the firm 
provided information essential for determining the acceptability of 
its alternate proposal.

First, after the firm was informed of ISG's low price, Force Computers 
was permitted to modify its alternate proposal to remove an ambiguity 
concerning the price of its extended warranty.  Based on the firm's 
proposal as submitted, the cost of the extended warranty included in 
Force Computers' alternate proposal was unclear.  The second of the 
four additional pages included with the proposal appears to offer a 
2-year extended warranty with a 24-percent discount on the firm's 
section B prices for processors in the options years.  The fourth 
additional page attached to the proposal, however, includes different 
warranty price terms; that page was Force Computers quotation form for 
an extended warranty for the Force Computers processor called for by 
the RFP.  After the statement:  "We are pleased to submit the 
following quotation," the quotation form included the following:
     
Quantity  Description           Price

 1 Year   Extended Warranty     12% of Cost of Unit Price

 2 Year   Extended Warranty     24% of Cost of Unit Price
Thus, the last of the four pages could be read as including an 
extended warranty of 1-year at an additional cost of 12 percent of the 
unit price of a processor, or an extended warranty of 2 years at an 
additional cost of 24 percent.  Based on the proposal itself, it is 
unclear how these terms were to be reconciled with the second page 
offer of a 2-year extended warranty with a 24-percent discount.  
Similarly, it was not clear which prices included the extended 
warranty and what was meant by such proposal terms as:

     "THIS [price] IS CALCULATED BASED ON THE FOLLOWING CRITERIA[:]  

               .    .    .    .    .

     "*EXTENDED WARRANTY COSTS ARE 12% PER UNIT PER YEAR OR 1% PER 
     MONTH."  

Although as a result of Force Computers' explanation agency officials 
decided the firm was offering an extended warranty at a discounted 
price, based on the proposal itself, including all of the attached 
pages, the price of the extended warranty was ambiguous.[2]  The 
agency's communications with Force Computers to resolve the ambiguity 
concerning the warranty pricing after the award to ISG amounted to 
discussion since during those communications the firm was permitted to 
modify its proposal to remove the ambiguity.[3]  See Information 
Ventures, Inc., B-245128, Dec. 18, 1991, 91-2 CPD  para.  558.   

Second, the agency's communications with Force Computers constituted 
discussions because the firm was permitted to submit information 
essential for determining the acceptability of its alternate proposal.  
As submitted, Force Computers' alternate proposal was not acceptable 
because it did not clearly meet the terms of the solicitation.  The 
third additional page included with Force Computers' proposal stated:

     "M2-ALTERNATE SPECIFICATIONS-ALTERNATE BID

     "THIS ALTERNATE PROPOSAL IS FOR A ONE-TIME PURCHASE OF 300 PIECES 
     THAT DELIVERY OF ALL BOARDS MUST BE TAKEN WITHIN 12 MONTHS OF 
     CALENDAR YEAR 1996."

Although Force Computers' proposal package included two sets of option 
prices in addition to the option prices in section B, the proposal did 
not state that two separate and independent alternate proposals were 
intended and did not clearly state which delivery terms were to apply 
to which set of option prices.  Thus, it was unclear from the face of 
the proposal as submitted whether any alternate proposal would meet 
the solicitation requirement that the first option could be exercised 
up to 365 days after award, the second option up to 730 days after 
award, and the third option up to 1,095 days after award.  The 
agency's contract negotiator declined to evaluate the alternate 
proposals in part because of questions concerning the delivery 
schedule in the alternate proposals for the options.  Not until Force 
Computers submitted its May 1 and May 2 letters did the firm 
specifically bind itself to the option schedule in the solicitation.  

In negotiated procurements, any proposal that fails to conform to 
material terms and conditions of a solicitation should be considered 
unacceptable and may not form the basis for an award.  Martin Marietta 
Corp., 69 Comp. Gen. 214 (1990), 90-1 CPD  para.  132.  The solicitation 
unambiguously required that the second and third options could be 
exercised up to 730 days and 1,095 days after award, respectively.  
But for the post-award communications with Force Computers, that 
firm's alternate proposal would not have been acceptable due to the 
ambiguity concerning its compliance with the option schedule required 
by the solicitation.  Thus, the telephone conferences with Force 
Computers, and that firm's written responses--which declared the 
firm's intent to comply with the option schedule under its alternate 
proposal--amounted to discussions.  FAR  sec.  15.601; ALT Communications., 
Inc., B-246315, Mar. 2, 1992, 92-1 CPD  para.  248.  Since discussions were 
conducted with Force Computers, discussions should have been opened 
with all competitive range offerors and BAFOs should have been 
requested.

ISG was prejudiced by the Navy's actions because it is not clear that 
the outcome of the competition would have remained the same had ISG 
been provided an opportunity to revise its proposal.  See Microlog 
Corp., supra.  In this regard, it is not uncommon for offerors to 
offer substantial price reductions when given the opportunity, even 
when the government's requirements have not changed.  Information 
Ventures, Inc., supra.  

We recommend that the Navy open negotiations with ISG and Force 
Computers and request BAFOs.  If ISG offers the lowest price in its 
BAFO, the contract with Force Computers should be terminated and award 
made to ISG.  We also find that ISG is entitled to the costs of filing 
and pursuing this protest.  4 C.F.R.  sec.  21.8(d)(1) (1996).  In 
accordance with 4 C.F.R.  sec.  21.8(f)(1), ISG's certified claim for such 
costs, detailing the time expended and costs incurred, must be 
submitted directly to the agency within 90 days of receipt of this 
decision.

The protest is sustained.

Comptroller General
of the United States

1. The solicitation, at section M2, permitted offerors to submit 
alternate offers meeting commercial standards equal to the military 
specifications in the solicitation.

2. The terms of this alternate proposal were not limited to a single 
one of the attached pages but were included on all of those pages 
since the last sentence of the first attached page states:

            "PLEASE REVIEW THE ATTACHED PROPOSED SAVINGS PER BOARD TO 
            GET THE AVERAGE COST PER BOARD THAT INCLUDES THE EXTENDED 
            WARRANTY."

3. The agency does not explain why they disregarded the fourth page or 
how the terms on that page are consistent with other terms in Force 
Computers' proposal.