BNUMBER:  B-272526
DATE:  October 21, 1996
TITLE:  Hughes Georgia, Inc.

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Matter of:Hughes Georgia, Inc.

File:     B-272526

Date:October 21, 1996

Michael A. Hordell, Esq., and Laura L. Hoffman, Esq., Gadsby & Hannah, 
for the protester.
William C. Herrmann, Esq., for Ainslie Corporation, an intervenor.
Major David P. Harney and Nancy Holzwanger, Esq., Department of the 
Army, for the agency.
Paul E. Jordan, Esq., and Paul Lieberman, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Protest that agency improperly failed to perform technical 
evaluation is denied where the only stated evaluation criteria were 
price and past performance risk. 

2.  Protest that agency improperly referred agency determination of 
small business offeror's lack of production capability to Small 
Business Administration for consideration under certificate of 
competency procedures is denied where inadequate production capability 
was the basis of the agency's nonresponsibility determination and was 
not part of the technical evaluation.

3.  In solicitation for fixed-price contract in which evaluation 
scheme provided for use of price analysis techniques, agency 
reasonably concluded that awardee's prices were reasonable based on 
comparison of competitive offers, prior contracts for the same items, 
and independent government estimate. 

4.  In procurement where price is more important than past performance 
risk, price/technical tradeoff is unobjectionable where agency 
reasonably concludes that low past performance risk rating is not 
worth significant price premium 
(22 percent) and awards to low-price offeror with neutral past 
performance rating.

DECISION

Hughes Georgia, Inc. protests the award of a contract to Ainslie 
Corporation under request for proposals (RFP) No. DAAH01-96-R-0020, 
issued by the U.S. Army Missile Command (MICOM) for TOW missile night 
sights.  Hughes contends that the agency's evaluation and award 
determination were flawed and that it improperly referred the issue of 
Ainslie's responsibility to the Small Business Administration 
(SBA).[1]  

We deny the protest.

The RFP contemplated award of a firm, fixed-price contract for basic 
and optional quantities of two types of TOW missile night sights 
(AN/UAS 12C and AN/UAS 12A sights) plus first articles, related cable 
assemblies, and basic sight assemblies (BSA). The basic quantities 
were in support of foreign military sales to four countries, while the 
cable assemblies and BSAs were for U.S. military spares.  

The solicitation called for offerors to complete the RFP package 
(prices, representations, and certifications) and to furnish 
information on past contracts.  MICOM states that it possesses a 
stable, reliable technical data package (TDP) and for this reason did 
not require offerors to submit technical proposals.  The RFP called 
out only two evaluation factors:  price and past performance risk, 
with price identified as being "slightly more important" than past 
performance risk.  Award was to be made to the offeror whose proposal 
provided the best value to the government.  The RFP stated that the 
agency reserved the right to award on the basis of initial proposals 
without conducting discussions or requesting best and final offers. 

Three offerors, including Ainslie and Hughes, submitted offers by the 
March 28, 1996, closing date for receipt of proposals.  None had any 
proposal deficiencies.  The past performance risk evaluation was based 
on information submitted by the offerors, and proposals were rated in 
this respect as "low," "moderate," "high," or, in the absence of 
relevant performance history, "unknown."  A proposal risk analysis 
group (PRAG) reviewed the offerors' past performance information and 
contacted the references listed to determine the relevance of each 
listed contract.  From its evaluation, the PRAG found that Hughes and 
the third offeror had performed relevant contracts (with the same or 
similar requirements and of comparable dollar value) and concluded 
that both offerors' proposals should be rated as presenting a "low" 
risk.  Using the same standard, the PRAG found that none of Ainslie's 
contracts was relevant and thus rated Ainslie's proposal as presenting 
an "unknown" risk.  The RFP provided that an unknown rating would be 
considered "neutral and acceptable."

The price evaluation was based on the aggregate price proposed for all 
first article, production quantity, and option quantity contract line 
items.  The agency compared the offeror's proposed prices with each 
other, against an agency estimate, and against prior contracts for the 
same items, and found all proposed prices were reasonable. 

The contracting officer, as the source selection authority (SSA), 
reviewed the findings of the price evaluators and the PRAG.  The SSA, 
noting that Ainslie had proposed the lowest aggregate price and had a 
neutral past performance rating while Hughes had a higher price but a 
better past performance rating, preliminarily determined that the $4.4 
million price premium associated with Hughes's proposal made Ainslie's 
proposal the best value to the government.  

The contracting officer then ordered that a pre-award survey be 
conducted at Ainslie's facility.  In addition to personnel from the 
cognizant Defense Contract Management Center (DCMC), MICOM sent four 
individuals (not part of the proposal evaluation team) to act as 
technical observers.  The consensus of DCMC and the MICOM personnel 
was that Ainslie lacked the technical expertise and necessary 
equipment to perform the contract and recommended no award be made to 
Ainslie.[2]  The contracting officer then prepared a determination 
finding Ainslie nonresponsible.  

Since Ainslie is a small business, the contracting officer referred 
the matter to the SBA to consider under the certificate of competency 
(COC) procedures.  The contracting officer sent the SBA copies of the 
RFP, applicable drawing packages and specifications, the pre-award 
survey report and findings, an abstract of the proposals, and a 
statement from the Director, Weapon Systems Management Directorate at 
MICOM detailing the Director's opinion of Ainslie's lack of capability 
to perform the contract.  After reviewing this material, the SBA 
issued a COC for Ainslie.  Based upon the SBA's finding that Ainslie 
was responsible, and the review of  the evaluation record, the 
contracting officer again found that Ainslie's proposal represented 
the best value and awarded it the contract for $10,543,644.  Upon 
receiving notice of the award and a debriefing, Hughes filed this 
protest challenging the agency's evaluation of Ainslie's proposal and 
the agency's award decision. 

Evaluating the relative merits of competing proposals is a matter 
within the discretion of the contracting agency since the agency is 
responsible for defining its needs and the best method of 
accommodating them, and it must bear the burden resulting from a 
defective evaluation.  Advanced Technology and Research Corp., 
B-257451.2, Dec. 9, 1994, 94-2 CPD  para.  230; Marine Animal Prods. Int'l, 
Inc., B-247150.2, July 13, 1992, 92-2 CPD  para.  16.  Consequently, we will 
not reevaluate proposals but instead will examine the agency's 
evaluation to ensure that it was reasonable and consistent with the 
solicitation's stated evaluation factors.  MAR Inc., B-246889, Apr. 
14, 1992, 92-1 CPD  para.  367.  An offeror's mere disagreement with the 
agency does not render the evaluation unreasonable.  Medland Controls, 
Inc., B-255204; B-255204.3, Feb. 17, 1994, 94-1 CPD  para.  260.  Our review 
of the record provides no basis for objecting to the agency's 
evaluation.

Hughes first argues that the agency failed to follow the stated 
evaluation criteria.  Noting that past performance risk was a crucial 
evaluation factor in this best value procurement, Hughes contends that 
the agency effectively ignored this evaluation factor by giving 
Ainslie's proposal a "neutral" rating for past performance since 
Ainslie lacked any experience with the night sights.

The RFP in section M provided only two evaluation criteria:  price and 
past performance risk.  With regard to past performance, offerors were 
required to submit current and past performance information for up to 
five contracts received or performed during the past 5 years for the 
same or similar hardware and effort required by the RFP.  The agency's 
past performance risk assessment was to be based on each offeror's 
current and past record of performance as it related to the 
probability of successful accomplishment of the required effort.  In 
the absence of "any relevant past or current performance history 
during the past 5 years, the offeror's proposal [would] be considered 
unknown for performance risk evaluation" purposes.  In section L-25, 
instructions for proposal preparation, the RFP provided for offerors 
to submit information on previous contracts received or performed in 
the past 5 years "for the same or similar hardware and effort required 
by this solicitation."

While there was no specific definition of "relevant" past performance 
in the RFP, reading the evaluation provisions in section M together 
with the proposal instructions in section L makes it clear that 
"relevant" past performance history consists of past or current 
history concerning the "same or similar hardware" to that being 
procured.  Here, the agency reviewed the information submitted by 
Ainslie and found that it had never before produced electronic-optical 
items which were the same as or similar to the solicited night sights 
and none of the contracts that it had performed were of comparable 
size or value.  Based on this evaluation, the agency reasonably 
concluded that Ainslie lacked any relevant past performance history.  
Having found no relevant history, under the evaluation scheme the 
agency was precluded from evaluating Ainslie's past performance as 
anything other than "unknown" and, therefore, "neutral."[3]  Thus, the 
agency precisely followed, rather than ignored, the stated evaluation 
scheme.  

Hughes next argues that since Ainslie lacked experience with producing 
night sights, the agency should have found Ainslie's proposal 
technically unacceptable.  However, the RFP did not require such 
experience and did not provide for the evaluation of such experience.  
In this regard, offerors were required to submit only price and past 
performance information.  Thus, except to the extent that specific 
experience was encompassed by the past performance criterion and was 
to be considered under that criterion, the agency was precluded from 
rejecting Ainslie's proposal on the basis of its lack of experience.  
To the extent Hughes is arguing that the evaluation scheme should have 
included additional evaluation criteria, its challenge is untimely.  
Protests of solicitation improprieties must be raised prior to the 
closing time for receipt of proposals.  Bid Protest Regulations, 4 
C.F.R.  sec.  21.2(a)(1) (1996).

In a related argument, Hughes contends that the pre-award survey 
team's finding that Ainslie lacked the technical expertise and 
equipment necessary to perform the contract constituted a 
determination that Ainslie's proposal was technically unacceptable.  
Hughes maintains that the participation of four MICOM technical 
personnel transformed the purported responsibility survey into a 
technical acceptability evaluation.  Thus, in Hughes's view, referral 
to the SBA was improper.  This argument is without merit. 

The findings of the pre-award survey that Ainslie lacked the necessary 
production, technical equipment, and facilities for contract 
performance, or the ability to obtain them, concern Ainslie's 
responsibility.  Federal Acquisition Regulation (FAR)  sec.  9.104-1(f).  
While traditional responsibility factors may be used as technical 
evaluation criteria in a negotiated procurement when the agency's 
needs warrant a comparative evaluation of those areas, Clegg Indus., 
Inc., 70 Comp. Gen. 679 (1991), 91-2 CPD  para.  145, here the RFP did not 
include technical evaluation factors.  Thus, neither the inclusion of 
agency technical personnel in the conduct of the pre-award survey nor 
the recommendation of "no award" based on Ainslie's lack of expertise 
and equipment could arguably convert this clear responsibility process 
into a technical evaluation or have the effect of obviating Ainslie's 
obligation to meet the requirements of the SOW.

Under the Small Business Act, 15 U.S.C.  sec.  637(b)(7) (1994), agencies 
may not find that a small business, such as Ainslie, is nonresponsible 
without referring the matter to the SBA, which has final authority to 
determine the responsibility of small business concerns.  Joanell 
Labs. Inc.; Nu-Way Mfg. Co., Inc., 71 Comp. Gen. 348 (1992), 92-1 CPD  para.  
369.  Thus, when the contracting officer determined that Ainslie was 
nonresponsible, the proper course of action was referral of the matter 
to the SBA.  Since the SBA has exclusive jurisdiction to determine the 
responsibility of a small business, our Office generally does not 
review either the contracting officer's decision to refer a 
responsibility question to the SBA, or the SBA's decision to issue a 
COC.[4]  See 4 C.F.R.  sec.  21.5(b)(2); MRL, Inc.--Recon., B-235673.4, 
Aug. 29, 1989, 89-2 CPD  para.  188. 

Hughes next contends that the agency's price analysis was flawed.  
Based on its own expertise in producing the night sights, Hughes 
argues that the agency should have found that Ainslie's prices were 
not reasonable because they were unrealistically low.  Had the agency 
evaluated the realism of Ainslie's prices, Hughes argues, it would 
have concluded that Ainslie lacked an understanding of the contract's 
requirements.  

Generally, cost realism (a measurement of the likely cost of 
performance in a cost reimbursement contract) is not a factor in the 
evaluation of proposals when a fixed-price contract is to be awarded, 
since the government's liability is fixed, and the risk of cost 
escalation is borne by the contractor.  PHP Healthcare Corp.; Sisters 
of Charity of the Incarnate Word, B-251799 et al., May 4, 1993, 93-1 
CPD  para.  366.  While an agency may provide for a price realism analysis 
in the solicitation of fixed-price proposals, id., where, as here, no 
provision is made, there is no requirement for a realism analysis.  

The RFP provided for the evaluation of prices using "price analysis 
techniques."  "Price analysis" is defined as the "process of examining 
and evaluating a proposed price without evaluating its separate cost 
elements and proposed profit."  FAR  sec.  15.801 (FAC 90-32).  The 
contracting officer is responsible for selecting and using whatever 
price analysis techniques will ensure a fair and reasonable price.  
These techniques may include one or more techniques such as comparison 
of proposed prices by the offerors, comparison of prior proposed 
prices for the same items, and comparison with an independent 
government cost estimate.  FAR  sec.  15.805-2.  

Here, the agency used these three techniques to evaluate Ainslie's 
proposed prices.  While Ainslie's price overall was lower than 
Hughes's by more than $4 million, this was primarily due to Ainslie's 
lower unit prices for the production units.  For first articles for 
the AN/UAS 12c and their subsequent overhaul, the BSAs, and cable 
assemblies, Ainslie's prices were the highest of all those proposed.  
Ainslie's unit prices also were 5 to 15 percent higher than those 
under Hughes's and its team member's prior contracts for the same 
items.  While Ainslie's price was lower than the government's estimate 
by 10 to 11 percent, the agency explains that these differences were 
well within the 15-percent (up or down) margin of error in the 
estimate.  Under these circumstances, we see no basis to object to the 
agency's conclusion that Ainslie's prices were reasonable. 

Hughes contends that the agency's evaluation also failed to take into 
account the fact that Hughes lost money on its contract and that 
Ainslie's prices are not high enough to make up the difference, 
especially in view of Ainslie's lack of experience, and that the 
agency failed to consider the drastic price increase in germanium, 
which is used in the production of the night sights.  In essence, 
Hughes is simply arguing that Ainslie has submitted a below cost 
offer.  However, the submission of a below cost offer is not itself 
legally objectionable.  See H. Angelo & Co., Inc., B-244682.2, Oct. 
30, 1991, 91-2 CPD  para.  407.  Whether a contract can be performed at the 
offered price is a matter of the offeror's responsibility.  Virginia 
Mfg. Co., Inc., B-241404, Feb. 4, 1991, 91-1 CPD  para.  113.  In this 
regard, the pre-award survey team found that Ainslie possessed 
sufficient financial capability to perform the contract and the SBA 
conclusively determined that Ainslie was responsible to perform.[5]  
Further, neither Hughes's mere disagreement with the agency's judgment 
nor its identification of alternative price evaluation methods 
available to the agency establish that the price evaluation was 
unreasonable.  See Payco Am. Corp., B-253668, Oct. 8, 1993, 93-2 CPD  para.  
214.  

Finally, Hughes challenges the agency's price/technical tradeoff 
determination as unreasonable and insupportable based upon its 
contentions that Ainslie's proposal was technically unacceptable and 
offered unreasonably low prices.  Since we find no errors in the price 
or past performance risk evaluations, these contentions provide no 
basis for overturning the award determination and we find no other 
basis for objecting to the selection decision.   

Since the RFP provided that the government could select an offeror for 
award whose price was not necessarily the lowest, but whose total 
proposal was most advantageous to the government, the SSA was required 
to determine whether Hughes's past performance rating was worth the 
higher price associated with Hughes's proposal.  See Oshkosh Truck 
Corp., B-252708.2, Aug. 24, 1993, 93-2 CPD  para.  115.  In making her 
determination of best value, the contracting officer considered that 
Ainslie's lower price was slightly more important than its unknown 
past performance risk and that the SBA had determined that Ainslie was 
responsible.[6]  She determined that a justification could not be made 
for paying Hughes's higher price to obtain the associated lower 
performance risk.  Such a determination is within the sound discretion 
of selection officials, subject to objection only if the determination 
is unreasonable or inconsistent with the evaluation criteria.  General 
Servs. Eng'g, Inc., B-245458, Jan. 9, 1992, 92-1 CPD  para.  44.  Here we 
see nothing unreasonable with this determination or inconsistent with 
the evaluation criteria.  Accordingly, we have no basis to object to 
the contracting officer's selection of Ainslie's proposal.

The protest is denied.

Comptroller General 
of the United States

1. The protester submitted a number of arguments in support of these 
and other protest grounds; the agency responded to each argument, 
justifying its actions.  We have reviewed the entire record, 
considered all of the arguments, and find no basis for sustaining the 
protest.  However, we will discuss only the more significant arguments 
in this decision.

2. One of the MICOM technical personnel found there was a high risk 
that Ainslie might not meet the first article acceptance date, but 
otherwise was convinced that Ainslie possessed sufficient positive 
attributes to outweigh that risk.  He recommended that Ainslie receive 
the award.  

3. While Hughes contends that the agency should have evaluated 
Ainslie's past performance as other than "unknown," it does not allege 
and the record does not disclose any negative past performance 
information about Ainslie.  All of Ainslie's listed contracts were 
started and completed (or projected to be completed) on time at the 
contracted price.  Since such past performance was favorable and its 
consideration would have entitled Ainslie to receive something better 
than a neutral risk rating, Hughes certainly was not prejudiced by the 
agency's rating of Ainslie's proposal as "neutral."

4. Hughes argues that our Office should review the matter because the 
agency withheld vital information from the SBA.  See Joanell Labs., 
Inc., B-242415.16, Mar. 5, 1993, 93-1 CPD  para.  207.  Hughes contends that 
the agency withheld "vital" information concerning alleged 
unrealistically low pricing proposed by Ainslie.  However, as 
discussed below, the agency did not evaluate Ainslie's prices as 
unreasonably or unrealistically low.  Hughes's own assessment of its 
competitor's pricing strategy does not qualify as "vital" information.  
The record provides no basis to conclude that the agency in any way 
misled the SBA.

5. In addition, after the award of the contract the agency verified 
that Ainslie had a supplier and a firm price for germanium.

6. Hughes apparently would have the contracting officer use the 
pre-award survey to disqualify Ainslie.  However, as discussed above, 
the survey assessed Ainslie's responsibility.  Once the SBA issued 
Ainslie a COC, the issue of Ainslie's responsibility was conclusively 
determined, thereby making improper any negative use of the survey in 
the tradeoff analysis.