BNUMBER:  B-274388
DATE:  December 6, 1996
TITLE:  Simplix

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Matter of:Simplix

File:     B-274388

Date:December 6, 1996

George Chisa for the protester.
Douglas G. White, Esq., and Robert R. Goff, Esq., Defense Information 
Technology Contracting Organization, for the agency.
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Objections to terms of revised license agreement for electronic 
data interchange value added network (VAN) services for the Federal 
Acquisition Computer Network on the basis that they impose too much 
risk on VAN providers are without legal merit as the government may 
impose substantial risk on its contractors.

2.  Revised license agreement for electronic data interchange value 
added network services for the Federal Acquisition Computer Network 
need not be set aside for exclusive small business participation, even 
though there are numerous small businesses that can provide these 
services, because the regulatory set-aside requirements do not apply 
to contractual arrangements, such as the license agreement, that do 
not involve the expenditure of appropriated funds.

DECISION

Simplix protests the terms of the final revised license agreement for 
electronic data interchange (EDI) value added network (VAN) services 
issued by the Defense Information Technology Contracting Organization 
(DITCO) of the Defense Information Systems Agency.[1]  The VAN license 
agreement (VLA) continues the implementation and operation of the 
Federal Acquisition Computer Network (FACNET) through the licensing of 
firms to serve as electronic conduits of acquisition information 
between government contracting activities and contractors or potential 
contractors.

We deny the protest.

Simplix has been a licensed EDI VAN provider under the current VLA 
(designated DCA200-94-H-0015) since March 1994.  DITCO has revised the 
VLA and is requiring licensed EDI VAN providers, such as Simplix, to 
reapply under the terms of the revised VLA.  The revised VLA was 
issued in a draft EDI VAN provider application package in June 1996 
(designated DCA200-96-R-0124).  Prospective EDI VAN providers under 
the revised VLA, including Simplix, were afforded an opportunity to 
comment on the terms of the draft EDI VAN provider application 
package.  On 
July 25, 1996, DITCO held a pre-solicitation conference, which Simplix 
attended and participated in.  

On August 21, DITCO issued the final EDI VAN provider application 
package for the revised VLA (designated DCA200-97-Z-(to be 
determined)).  Current and prospective EDI VAN providers, including 
Simplix, were invited to apply.  The application package contained no 
closing date for receipt of applications.  

By signing the revised VLA, a prospective EDI VAN provider agrees to 
all terms and conditions set forth in the application package.  The 
license agreement becomes effective upon being signed by both the 
prospective EDI VAN provider and the DITCO contracting officer, and is 
for a term of 1 year from the effective date and may be extended for 
1-year periods by the government.  

The prospective EDI VAN provider agrees to provide the government with 
the right to have access to the use of its EDI processing and VAN 
services at no cost to the government, and further agrees not to 
charge the government for any costs associated with the transmission 
of documents and transaction acknowledgments in an electronic format 
including but not limited to network, processing, or connection costs.  
On the other hand, the government expressly reserves the right to 
charge EDI VAN providers for access to the electronic commerce 
infrastructure at some future date.[2]  The government does not 
guarantee any minimum level of transaction activity.

The VLA states that the government may unilaterally change the terms 
of the VLA by giving the EDI VAN provider 30 days notice.  When a 
license agreement change is made by the government, the EDI VAN 
provider will have an additional 60 days to comply with the new 
requirement for a total of 90 days from notification to comply with 
the change.  The VLA may be terminated in whole or in part by either 
party upon 30 days written notice of the effective date of the 
termination.  The government has the right to terminate the VLA with 
an EDI VAN provider if the provider engages in conduct or practices 
which make termination in the best interest of the government, such as 
violating the terms of the VLA, failing to comply with any provision 
of the VAN certification process or EDI operations, and failing to 
implement license agreement changes within the required time frame.  
EDI VAN providers who fail to comply with the VLA and its operating 
conventions may be decertified following notice of the nature of the 
noncompliance and will be given the opportunity to respond before the 
effective date of decertification.

The VLA requires that in accordance with Federal Acquisition 
Regulation
(FAR)  sec.  4.503,[3] all contractors--designated trading partners under 
the FACNET system--must register with the government before conducting 
electronic commerce with the government, and provides that EDI VAN 
providers must support the registration of all trading partners 
interested in receiving government EDI transactions by providing any 
interested trading partner with specific information on how to 
register as a trading partner with the government as well as the 
capability to register.

A document defining the technical requirements and operating 
procedures for participating EDI VAN providers was also incorporated 
into the VLA.  Among other things, this document defines operating 
parameters; formatting requirements; and interface requirements 
between the government, VAN, and trading partners.

DITCO requires a prospective EDI VAN provider to be determined 
responsible and to be certified before a VLA is executed.  According 
to the certification procedures incorporated into the VLA, this 
process includes a request for certain technical information, a 
possible on-site visit to inspect and evaluate the prospective EDI VAN 
provider's equipment, and tests to ensure that (1) the provider and 
the government can communicate effectively and efficiently, (2) the 
provider is complying with specified transaction conventions, and (3) 
the provider is capable of handling various operational requirements.  
Upon successful completion of the tests, an EDI VAN provider is deemed 
technically certified, and DITCO may proceed to execute the license 
agreement and to notify the provider of the date the agreement becomes 
operational.

On August 28, Simplix filed this protest.  DITCO subsequently 
established a closing date of October 9 for the receipt of 
applications to operate as an EDI VAN provider under this VLA and 
notified providers under the former agreement that failure to timely 
apply would result in termination.  As of October 10, 44 firms, 
including all currently certified VANs, had begun the certification 
process under the terms of the revised VLA.

Simplix first objects that the revised VLA reserves the right of the 
government to, at some future date, charge VAN providers for access to 
the electronic commerce infrastructure.  Notwithstanding Simplix's 
assertions that it is unfair to charge current EDI VAN providers 
because of their investment in the FACNET system and the government's 
failure to properly or adequately use the system, the current VLA 
notifies VANs that the government will annually review all the terms 
and conditions contained in the licensing agreement, including the no 
cost provision, and reserves the right to procure the EDI VAN services 
on a competitive basis.[4]  We are unaware of any law or regulation 
that would be violated by the imposition of such charges.  Nor are we 
aware of anything that would prevent an EDI VAN provider from limiting 
its risk that the government might impose fees by providing in its 
agreements with its subscribers that it reserves the right to pass on 
any costs imposed by the government to its subscribers.  

Many of Simplix's other complaints focus on what Simplix believes is 
an unfair allocation of risks between the government and the EDI VAN 
provider, particularly because, in Simplix's view, the government has 
not been fulfilling its side of the bargain under the current VLA.  
Simply stated, Simplix asserts that the EDI VAN provider is expected 
to assume the bulk of the responsibilities and risks.  Simplix 
complains in this regard that VANs already carry all costs associated 
with failures of the electronic commerce infrastructure, including 
accounting for lost transactions, and face the burden of marketing the 
government's EDI system, yet the government makes no adequate 
guarantees regarding its technical obligations in operating the EDI 
system.  Risks are inherent in procurements and the government may 
properly impose substantial risks on firms contracting with the 
government and minimal risks upon itself; firms are reasonably 
expected to use their professional and business expertise and judgment 
in anticipating and handling these risks.  Total Procurement Servs., 
Inc., supra.  Simplix has not shown that this allocation of risks has 
unduly inhibited prospective EDI VAN providers from submitting 
applications.

Simplix makes a number of meritless assertions that the VLA provisions 
are vague and unfair.  For example, while Simplix asserts that EDI VAN 
providers should be provided with a longer time than 90 days to comply 
with government imposed changes to the VLA, it has not shown why 90 
days is insufficient, given the government's need to expeditiously 
implement changes to the VLA.  Simplix also contends that the VLA 
provisions regarding license termination and decertification are vague 
and may be unfairly enforced; however, the VLA designates the specific 
types of conduct or practices which may lead to termination, and 
provides a mechanism for EDI VAN providers to respond to a proposed 
decertification.

Simplix contends that the revised VLA should be set aside exclusively 
for small business participation because many of the prospective EDI 
VAN providers are small business concerns.  However, we find no law or 
regulation requiring that the VLAs be reserved for small business 
concerns.  While the Small Business Act,
15 U.S.C.  sec.  644(a) (1994), requires the Small Business Administration 
and contracting agencies to take steps to assure that a "fair 
proportion" of total purchases and contracts for property or services 
be placed with small business concerns, the FAR small business 
set-aside requirements implementing this requirement apply only to 
procurements requiring the expenditure of appropriated funds.  Good 
Food Serv., Inc., B-253161, Aug. 19, 1993, 93-2 CPD  para.  107 (FAR 
set-aside provisions do not apply to procurement of concession 
services because expenditure of appropriated funds would not be 
involved).  Here, as described above, EDI VAN services are being 
provided at no cost to the government, and as the government is not 
expending appropriated funds for this acquisition of EDI VAN services, 
we find no basis to require the revised VLA to be set aside for small 
business concerns. 

Simplix has also requested a variety of changes to the terms of the 
revised VLA that  would slow down or prevent the certification of new 
VANs.  For example, Simplix thinks that in order to be determined 
responsible, any prospective EDI VAN provider which is not currently 
certified or any current EDI VAN provider with only a minimal share of 
total FACNET volume should be required to show that it has processed a 
"significant" volume of electronic transactions within the last 
12 months.[5]  Simplix also thinks that the revised VLA should specify 
a minimum speed for the transmission of data between an EDI VAN 
provider and the government if the provider is connected through the 
Internet rather than through a dedicated line.  Our Office will not 
consider these types of contentions--that specifications or other 
terms and conditions should be made more restrictive--since our role 
in reviewing bid protests is to ensure that the statutory requirements 
for full and open competition are met, not to protect any interest a 
protester may have in more restrictive specifications.  Petchem Inc., 
B-228093, Sept. 8. 1987, 87-2 CPD  para.  228.

Finally, Simplix takes issue with the government's efforts to 
establish its own Internet-based CCR system through which trading 
partners will register directly with the government, instead of 
through EDI VAN providers, because under the current and revised VLAs, 
EDI VAN providers are already required to facilitate the registration 
of trading partners and Simplix has already devoted resources to 
establishing its own registration system.  We will not consider an 
objection to this aspect of the government's implementation of the 
FACNET system because it does not involve whether an award or proposed 
award of a contract complies with statutory, regulatory, and other 
legal requirements; our bid protest function does not encompass policy 
decisions of contracting agencies, such as the establishment of a 
separate CCR registration system.  Dictaphone Corp., B-216264 et al., 
Feb. 25, 1985, 85-1 CPD  para.  229.

The protest is denied.

Comptroller General
of the United States

1. We assume jurisdiction here since under the Competition in 
Contracting Act of 1984, 31 U.S.C.  sec.  3551-3556 (1994), as amended by 
Pub. L. No. 104-106,  sec.  4321(d), 5501, 5603, 110 Stat. 186, 674, 698, 
700 (1996), our bid protest jurisdiction encompasses the procurement 
of property or services by federal agencies and beneficial services 
will be provided to the government by the licensees.  See Total 
Procurement Servs., Inc., B-255934.3, Aug. 16, 1994, 94-2 CPD  para.  74.

2. The current VLA does not provide for charging the EDI VAN provider.

3. FAR  sec.  4.503, Contractor registration, provides that in order for a 
contractor to conduct electronic commerce with the government, the 
contractor must provide registration information to the Central 
Contractor Registration (CCR).

4. To the extent Simplix may claim monetary damages because of some 
claimed breach of the government's obligations under the current VLA, 
this is a matter of contract administration not within the bid protest 
jurisdiction of our Office.  Bid Protest Regulations,  sec.  21.5(a), 61 
Fed. Reg. 39039, 39045 (1996) (to be codified at
4 C.F.R.  sec.  21.5(a)); Alpha Q, Inc., B-270517, Mar. 14, 1996, 96-1 CPD  para.  
150.

5. Simplix also thinks that any currently certified EDI VAN provider 
which provides more than a minimum percentage of the total FACNET 
transactions should be automatically considered as responsible.  
However, if a current EDI VAN provider lacks adequate financial 
resources, has an unsatisfactory performance record, or does not have 
the necessary technical equipment, facilities, or capabilities, we see 
no reason why the agency should be required to contract with it.