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.