BNUMBER:  B-273028
DATE:  November 13, 1996
TITLE:  Copy Graphics

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Matter of:Copy Graphics

File:     B-273028

Date:November 13, 1996

Edward W. Stivers for the protester.
Kerry L. Miller, Esq., Government Printing Office, for the agency.
Jacqueline Maeder, Esq., and Paul Lieberman, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protester's low bid was properly rejected as unbalanced where it 
contained mathematically unbalanced prices and the agency had a 
reasonable doubt, in light of the uncertainty associated with 
solicitation estimates, that award on the basis of the protester's bid 
would result in the lowest overall cost to the government.

DECISION

Copy Graphics protests the rejection of its low bid as unbalanced 
under invitation for bids (IFB) 717-S, issued by the United States 
Government Printing Office (GPO) for the printing and distribution of 
general wage determination reports of the Department of Labor.  Copy 
Graphics argues that its low bid was improperly rejected.

We deny the protest.

The IFB contemplated the award of a fixed-price requirements contract 
for the production of the reports.  Price entries were required for 
three groups of items:      (1) printing and binding; (2) 
packing--including bulk shipments and mailing; and,  (3) additional 
operations.  The printing and binding group contains two individual 
items, with two prices each and the packing group contains four items 
under bulk shipments and three items under mailing.  The additional 
operations group has two items:  upgrading the mailing list and 
handling undeliverable packages.  The IFB listed estimated 
requirements to produce 1 year's production for each of the 13 item 
prices required.[1]  As to packing specifications, while the IFB 
specified, among other things, a maximum weight of 40 pounds per 
container and the use of pallets when  shipping to GPO, it did not 
specify a minimum weight per container or a minimum or maximum number 
of containers to be shipped per pallet.[2]  Additionally, while the 
RFP specified the type of shrink-film wrap required, it did not 
specify any parameters for the number of pages to be included in each 
shrink-film wrapped package.  The contract was to be awarded to the 
bidder who submitted the lowest total price, calculated by multiplying 
the unit prices offered by the estimated quantities and adding each of 
those subtotals.  

Of the eight bids received, Copy Graphics's bid of $310,346 
represented the lowest evaluated overall price as follows:

   I.  PRINTING AND BINDING:
                                      Makeready Running Per
                                      and/or Setup1,000 copies
                                               (1)       (2)

     (a)  Weekly Updatesper page..........$NC      $NC
     (b)  Annual Report.per page..........$NC      $NC

   II.  PACKING:
   1.  Bulk shipments (other than by mail):
     (a)  Packing and sealing shipping container . . . per 
containers$NC
     (b)  Banding/shrink-film packaging . . . . per 100 
packages$150.00
     (c)  Individual mailing containersper containers$35.00 
     (d)  Palletizing...........per pallet.........$150.00

   2.   Mailing (prices must include affixing labels):
     (a)  Single copy in kraft envelope (up to 200 leaves) per 
envelope...........................................$NC
     (b)  Multiple copies in kraft envelope (up to 200 leaves) per 
envelope...........................................$NC
     (c)  Single or multiple copies over 200 leaves up to a maximum
           gross weight 18 kg (40 lbs) per container$60.00

   III.  ADDITIONAL OPERATIONS:

     (a)  Updating mailing listper address change/update$NC
     (b)  Undeliverable packagesper package........$NC
     
The contracting officer determined that some of Copy Graphics's prices 
were excessive and others were nominal.  Of particular concern to the 
contracting officer were, on the one hand, Copy Graphics's "no charge" 
(NC) entries for 9 of the 13 line items, including all of the most 
significant cost items relating to printing and binding and, on the 
other hand, Copy Graphics's prices for each of the remaining    4 
items relating to the packing and mailing of the publications, which 
were significantly higher than those of any other bidder.  For 
example, while Copy Graphics bid $150 to band/shrink-film 100 
packages, the other seven bids ranged from a high of $25 to a low of 
$10, with two $15 bids, a $12 bid and one "no charge" bid.  Similarly, 
while Copy Graphics bid $150 for palletizing, three vendors bid $10, 
one bid $20, one bid $25 and two bid "no charge."  Copy Graphics's 
remaining two line items were also significantly enhanced.  While Copy 
Graphics bid $35 for individual mailing containers and $60 for 
packaging single or multiple copies over 200 leaves up to 40 pounds, 
no other bid was greater than $1 for the individual mailing containers 
or $1.25 for the packaging of single/multiple copies up to 40 pounds.  
Based on this analysis, the contracting officer determined that Copy 
Graphics's bid was mathematically unbalanced.  

The agency also determined that there was a reasonable doubt that Copy 
Graphics's bid would result in the lowest overall cost to the 
government.  Specifically, since Copy Graphics was the incumbent, the 
contracting officer was concerned that the knowledge it had gained in 
performing the contract had given it particular insight which led Copy 
Graphics to enhance its prices on those line items over which the 
contractor, not the government, had control.  In particular, because 
the IFB did not specify a minimum weight per container, the contractor 
has the right under the solicitation to package relatively few copies, 
many copies (up to 40 pounds), or some quantity in between, in its 
containers.  Further, the IFB did not specify a minimum quantity of 
packages to be packed on pallets.  Thus, the contractor, rather than 
the government, controls how many containers or pallets are used.  
Since Copy Graphics could control the number of packages and pallets 
to be used in performing the contract and since the company's prices 
for packaging and palletizing were significantly inflated, the 
contracting officer concluded that the government might not receive 
the lowest overall cost under Copy Graphics's apparently low bid.  

In making this determination, the contracting officer reviewed Copy 
Graphics's bid and the actual billings submitted for Copy Graphics's 
current contract for the same services.  The contracting officer found 
that while the government's estimate of Copy Graphics's price for the 
contract term (52 orders) totaled $299,443, the agency had actually 
paid $395,836 for 42 orders.  In particular, while the agency had 
estimated the need for 1,842 containers for the contract term for 
multiple copies over 200 leaves, Copy Graphics billed for 4,379 
containers for 36 orders, an increase of approximately 238 percent 
over the estimate.  Based on this analysis, the contracting officer 
determined that Copy Graphics's bid might not result in the lowest 
cost to the government and awarded the contract to Goodway Graphics, 
the second low bidder.

An examination of bid unbalancing has two aspects.  First, the bid 
must be evaluated mathematically to determine whether each item 
carries its share of the cost of the work plus overhead and profit, or 
whether the bid is based on nominal prices for some work and enhanced 
prices for other work.  Unbalancing typically arises either between 
base period prices and option period prices, or, in a 
requirements-contract solicitation, between line items for different 
goods or services.

If a bid is found to be mathematically unbalanced, it must be 
evaluated to determine the cost impact of the price skewing.  Where 
there is reasonable doubt that award to the bidder submitting the 
mathematically unbalanced bid would result in the lowest ultimate cost 
to the government, the bid is materially unbalanced and may not be 
accepted.  Federal Acquisition Regulation  sec.  52.214-10; Westbrook 
Indus., Inc., 71 Comp. Gen. 139 (1992), 92-1 CPD  para.  30.  

In requirements contracts, the accuracy of the solicitation estimates 
is critical, since the unbalanced bid will become less advantageous 
than it appears if the government ultimately requires a greater 
quantity of the overpriced items and/or a lesser quantity of the 
underpriced ones.  Duramed Homecare, 71 Comp. Gen. 193 (1992), 92-1 
CPD  para.  126.  Where an agency has reason to believe that its actual 
needs may deviate significantly during performance from the 
solicitation estimates, it may reasonably view a mathematically 
unbalanced bid as not clearly representing the lowest cost to the 
government and therefore as materially unbalanced.  Custom Envtl. 
Serv., Inc., B-252538, July 7, 1993, 93-2 CPD  para.  7; Outer Limb, Inc., 
B-244227, Sept. 16, 1991, 91-2 CPD  para.  248.

Here, the contracting officer had a reasonable basis to find Copy 
Graphics's bid mathematically unbalanced.  Copy Graphics's "no charge" 
price entries for items which include the core and most expensive 
contract requirements are obviously below cost, while Copy Graphics's 
prices for packaging, palletizing, and shrink-film wrapping are 
significantly higher than those of any other bidder.  Copy Graphics 
does not dispute that its prices for these items are enhanced, and 
merely argues that it bid in a similar manner under the previous 
solicitation and that it believes that its bid offers the lowest cost 
to the government.[3]

The critical question in the determining if there is material 
unbalancing here is whether the actual mix of line items provided is 
likely to be substantially different from that set forth in the IFB 
estimates, and, in particular, if it is likely that the awardee will 
deliver proportionately more containers, shrink-film wrapping and 
palletizing, for which Copy Graphics bid an enhanced price, than what 
was indicated in the IFB estimates.  The record makes clear that the 
actual mix is unpredictable even though the estimates appear to be 
based on the best available information, because the solicitation 
placed no minimum on the weight of each container, the number of 
pallets a contractor could use or the number of pages contained in a 
shrink-film wrapped package.  As a result of the specifications, the 
awardee is placed in the position of exercising control over the 
quantities delivered and the agency can neither foresee nor control 
the actual ratio of underpriced work (the printing and binding) to the 
overpriced work (the packaging and shipping).  Accordingly, because 
the amount of packaging, shrink-film wrapping and palletizing vary 
significantly from the IFB estimates, the agency properly rejected 
Copy Graphics's mathematically unbalanced bid on the basis that there 
was reasonable doubt that the bid would ultimately prove to represent 
the lowest cost to the government.[4]

The protest is denied.

Comptroller General
of the United States

1. For example, the agency estimated 61,776 pages for makeready and/or 
setup for the weekly updates and 10,711 pages for makeready and/or 
setup for the annual report.  Similarly, the agency estimated that the 
contractor would pack and seal 6,728 containers, update the mailing 
list 132 times and have 25 undeliverable packages.   

2. The RFP specified only a minimum of 2-container layers per pallet.

3. The fact that Copy Graphics's similar bid was accepted under a 
prior procurement is irrelevant to the determination of whether its 
bid was properly rejected under the current procurement; each 
procurement stands on its own.  Discount Machinery & Equip., Inc., 
B-248321, July 22, 1992, 92-2 CPD  para.  44.

4. As noted above, the uncertainties concerning the estimates in this 
IFB result because the IFB specifications place the awardee in the 
position of exercising control over the quantity of containers and 
pallets used and the amount of shrink-film wrapping performed.  In 
this respect, the agency explicitly acknowledges that in administering 
this contract under these specifications, the government has been 
vulnerable to the overuse of pallets and packing and the resulting 
"overbilling."  This problem can be alleviated if in future 
procurements the agency imposes some control over what the contractor 
can supply.