BNUMBER: B-274012
DATE: October 24, 1996
TITLE: Grunley Schlosser Joint Venture
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Matter of:Grunley Schlosser Joint Venture
File: B-274012
Date:October 24, 1996
Herman M. Braude, Esq., and Samuel M. Morrison, Jr., Esq., Braude &
Margulies, for the protester.
Douglas L. Patin, Esq., and Robert Symon, Esq., Spriggs &
Hollingsworth, for Morse Diesel International, Inc., an intervenor.
Emily C. Hewitt, Esq., Gary F. Davis, Esq., and Kathleen M. McCartney,
Esq., General Services Administration, for the agency.
Jacqueline Maeder, Esq., and Paul Lieberman, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Low bid under an invitation for bids calling for a base bid and
two options is not materially unbalanced where there is no basis to
conclude that the bid contains significantly overstated prices for the
base bid such that it could be considered mathematically unbalanced.
2. Base bid which is less than, two times greater, than the
government's estimate or the protester's next low bid is not so
front-loaded as to be tantamount to an improper advance payment that
would require rejection of the bid.
DECISION
Grunley Schlosser Joint Venture protests the award of a contract to
Morse Diesel International, Inc. under invitation for bids (IFB) No.
GS-11P-96-MKC-0015, issued by the General Services Administration
(GSA) for modernization of the Interstate Commerce Commission
(ICC)/U.S. Customs Service (USCS) buildings complex in Washington,
D.C. Grunley Schlosser argues that Morse Diesel's bid should have
been rejected as unbalanced.
We deny the protest.
The IFB, issued May 16, 1996, contemplated the award of a firm,
fixed-price contract for the modernization of the ICC building, the
USCS building and a connecting wing building. The renovation is to
proceed in several phases while the buildings remain partially
occupied. Bidders were required to provide a total price for a base
bid, option 1 and option 2. The base bid includes the replacement of
the mechanical and electrical systems in the connecting wing building
and associated work in the ICC building; option 1 includes ICC
building modernization, with unit prices for tenant fit-out and phased
occupancy of the finished buildings; and, option 2 includes the USCS
and connecting wing buildings modernization, with unit prices for
tenant fit-out, and phased occupancy of the finished buildings. Unit
prices were also solicited for specific line items under options 1 and
2 and for prices for separate options A through L which include
additional associated work for the base bid and options 1 and 2. The
contract was to be awarded to the bidder who submitted the lowest
total bid, computed by adding the base bid, option 1 with associated
unit prices, option 2 with associated unit prices and options A
through L.
At bid opening on August 7, four bids were received, ranging from
Morse Diesel's low bid of $118,900,000 to a high bid of $142,170,128;
Grunley Schlosser's bid of $128,409,024 was second low. The
government prepared two estimates for the work: a July 23, 1996
estimate which projected a total project cost of $110,098,469,
including an estimated base cost of $5,922,558; an August 27 estimate
which projected a total project cost of $117,948,337, including an
estimated base cost of $13,799,576. The adjusted estimate was
primarily based on a comparison to costs at another comparable project
and was increased to reflect the more realistic cost of a phased and
difficult project and to reflect cost escalation. The adjusted
estimate also included three addenda not included in the July 23
estimate. The four bids received were as follows:
Morse
Diesel Grunley
Schlosser Clark
Construction Blake
Construction
Base $21,000,000 $13,185,000 $16,895,000 $48,160,000
Option 1 $40,000,000 $52,052,450 $55,000,000 $36,607,556
Unit prices
Option 1
$1,264,131
$1,369,550
$1,570,145
$1,470,444
Option 2 $51,900,000 $56,463,000 $60,000,000 $50,397,000
Unit prices
Option 2
$1,712,391
$1,843,024
$2,089,940
$1,950,128
Options A
to L
$3,023,478
$3,496,000
$3,887,000
$3,575,000
Total $118,900,000 $128,409,024$139,442,085 $142,170,128
Grunley Schlosser contends that the award to Morse Diesel is improper
because Morse Diesel's bid is unbalanced. Specifically, the protester
asserts that Morse Diesel's price for the base bid is excessive, and
would give Morse Diesel an illegal advance payment[1] or a monetary
windfall if the options are not exercised. The protester takes the
position that the large pricing differential between Morse Diesel's
price for the base bid, the government's July 23 estimate and its own
base bid establish that Morse Diesel's bid is mathematically
unbalanced.
Grunley Schlosser also argues that because Morse Diesel's bid does not
become low until the agency exercises the first option, it is
materially unbalanced in that there is a reasonable doubt that the
offer actually represents the lowest cost to the government. Grunley
Schlosser cites International Shelter Sys., Inc., 64 Comp. Gen. 519
(1985), 85-1 CPD para. 549 and Lear Siegler, Inc., B-205594.2, June 29,
1982, 82-1 CPD para. 632 and argues that these cases suggest that an
agency's expectation that it will exercise the options is immaterial
and such a bid must be rejected as materially unbalanced. The
protester also contends that because option 1 will not be exercised
until completion of the tenant fit-out design documents and the
relocation of current tenants, there is no reason to believe the
government will exercise the options under this solicitation.
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;
if the bid is based on nominal prices for some work and inflated
prices for other work, it is mathematically unbalanced. The second
aspect--material unbalancing--involves an assessment of the cost
impact of a mathematically unbalanced bid. A bid is materially
unbalanced if there is a reasonable doubt that award to the bidder
submitting the mathematically unbalanced bid will result in the lowest
ultimate cost to the government or where it is so grossly front-loaded
that its acceptance would be tantamount to allowing an advance
payment. Rust Int'l Corp.; ABB Susa, Inc./Brown & Root, a Joint
Venture, B-256886.2 et al., Aug. 30, 1994, 94-2 CPD para. 84.
The record simply does not establish that Morse Diesel's bid is
mathematically unbalanced. Grunley Schlosser's argument is primarily
based on a comparison of the government's estimate and its own bid
with Morse Diesel's. However, pricing involves subjective business
judgments and comparison of a competitor's prices with one's own
prices or with the government's estimate is not by itself sufficient
to establish price enhancement. OMSERV Corp., B-237691, Mar. 13,
1990, 90-1 CPD para. 271. Despite Grunley Schlosser's assertion that
Morse Diesel's base prices are overstated relative to the government's
estimate and relative to Grunley Schlosser's prices, in fact, there is
no basis to conclude that Morse Diesel's base price is significantly
enhanced or internally inconsistent. Indeed, Morse Diesel's base
price is not significantly higher than the base price of any of the
offerors: it is only 37 percent higher than the protester's base bid
price, 24 percent higher than Clark's base price and less than half of
Blake's base bid price. Similarly, Morse Diesel's base price is only
approximately one-third higher than the adjusted government estimate.
Moreover, Morse Diesel provided GSA a detailed breakdown of its
estimated costs for the base bid and explained that its relatively
higher base bid reflects its judgment that labor costs will be
relatively higher due to the inefficiencies caused by the working
conditions. The record simply does not show that Morse Diesel's bid
is mathematically unbalanced.
Even if Morse Diesel's bid were mathematically unbalanced, the
acceptance of the bid would not be objectionable unless the bid is
also materially unbalanced, that is, unless there is reasonable doubt
whether acceptance of the bid would result in the lowest overall cost
to the government. DGS Contract Servs., Inc., B-245400, Dec. 30,
1991, 92-1 CPD para. 16. Our material unbalancing analysis focuses on
various factors, including, contrary to the protester's assertion,[2]
whether the government reasonably expects to exercise contract
options, see G.L. Cornell Co., B-236930, Jan. 19, 1990, 90-1 CPD para. 74,
and whether the bid is so extremely front-loaded that it does not
become low until late in the contract term, including options. DGS
Contract Servs., supra. Here, as noted above, Morse Diesel's bid
becomes low relative to all of the bids received with the exercise of
the first option, and under the circumstances here[3] there is no
reasonable doubt that Morse Diesel's bid will result in the lowest
overall cost to the government.
There are certain limited situations where a mathematically unbalanced
bid, even though it represents the lowest overall cost to the
government, is grossly front-loaded and should be rejected because
payments made under a contract awarded pursuant to such a bid would
amount to an improper advance payment. We have found bids to be
grossly front-loaded where the front-loaded prices were many multiples
higher than the value of the work to be performed or the remaining
contract prices. See, e.g., Riverport Indus., Inc. , 64 Comp. Gen.
441 (1985), 85-1 CPD para. 364, aff'd, B-218656.2, July 31, 1985, 85-2 CPD para.
108 (first article unit prices were $185,000 and the production unit
prices were $250); ACC Constr. Co., Inc.,
B-250688, Feb. 16, 1993, 93-1 CPD para. 142 (line item bid price of $2.2
to $3.2 million higher than the government's estimate and other bids);
F&E Erection Co., B-234927, June 19, 1989, 89-1 CPD para. 573 (line item
bid price of $75,000 compared to government's estimate of $13,741);
Islip Transformer & Metal Co., Inc., B-225257, Mar. 23, 1987, 87-1 CPD para.
327 (first article prices were $15,000 and the production unit prices
were $408.90); Nebraska Aluminum Castings, Inc., B-222476, June 24,
1986, 86-1 CPD para. 582, aff'd, B-222476.2, Sept. 23, 1986, 86-2 CPD para.
335, reaff'd,
B-222476.3, Nov. 4, 1986, 86-2 CPD para. 515 (first article prices were
$22,510 and the production unit prices were $19.17); Edgewater Mach. &
Fabricators, Inc., B-219828, Dec. 5, 1985, 85-2 CPD para. 630 (first
article prices were $125,000 and the production unit prices were
$301). On the other hand, front-loaded bids which are not grossly
front-loaded may be accepted. See Integrated Protection Sys., Inc.,
B-254457.2;
B-254457.3, Jan. 19, 1994, 94-1 CPD para. 24 (installation price less than
three times the government's estimate and not even two times greater
than the next low bidder's price); Dodge Romig Tex Corp., B-241810,
Mar. 5, 1991, 91-1 CPD para. 246 (first article prices approximately three
times the production unit price); Aydin Corp., B-245461, Jan. 13,
1992, 92-1 CPD para. 51 (first article units priced approximately twice
the production unit price).
Here, while Grunley Schlosser argues that Morse Diesel's bid is so
grossly front-loaded that it cannot be accepted, for the same reasons
that we concluded there was no mathematical unbalancing, we view the
differentials to be simply insufficient to render the bid grossly
front-loaded. Morse Diesel's base bid is not even two times greater
than the government's adjusted estimate or the protester's next low
bid. We see no basis for finding gross front-loading in these
circumstances.[4]
The protest is denied.
Comptroller General
of the United States
1. An advance payment occurs when a payment under a contract to
provide services or deliver an article is more then the value of the
services already provided or the article already delivered.
Integrated Protection Sys., Inc., B-254457.2; B-254457.3, Jan. 19,
1994, 94-1 CPD para. 24.
2. The protester's reliance on International Shelter Sys., Inc. and
Lear Siegler, Inc., is misplaced. We did not find in either of these
decisions, as Grunley Schlosser suggests, that the agency's intent to
exercise options is immaterial to the determination of whether a bid
represents the lowest cost to the government. Rather, in both
decisions, we found that even though the agency expected to exercise
the options, the bids in question did not become low until the
exercise of the last option year. Therefore, because the bids were
not low until late in the last option periods, there was a reasonable
doubt that the bids would result in the lowest ultimate cost to the
government.
3. The record contains GSA's unequivocal statement that it intends to
exercise option 1 under this contract, and the minutes of two pre-bid
conferences during which agency personnel announced that it had
obtained funding for the base contract and option 1 and that funding
for option 2 was anticipated for another year.
4. In response to the protest, GSA also reviewed the timing of the
work to be performed under the base bid and option 1 to determine when
the contractor would be paid for base bid work. Based on that review,
GSA determined that advance payments will be precluded under the
contract because only a limited amount of base bid work can be
accomplished before the contractor will be performing both the base
bid work and option 1 work. Although the protester argues that this
analysis is incorrect and contrary to the terms of the solicitation,
we need not address this issue since, as explained above, we do not
find Morse Diesel's base bid unbalanced regardless of when the work
will be performed and the contractor will be paid.