BNUMBER: B-274566; B-274566.2
DATE: November 27, 1996
TITLE: Harris Corporation
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Matter of:Harris Corporation
File: B-274566; B-274566.2
Date:November 27, 1996
Dorn C. McGrath III, Esq., and Richard L. Moorhouse, Esq., Holland &
Knight, for the protester.
Kenneth S. Kramer, Esq., and Nancy R. Wagner, Esq., Fried, Frank,
Harris, Shriver & Jacobson, for Raytheon Electronic Systems, Raytheon
Company, an intervenor.
Vera Meza, Esq., and Walter Harbort, Jr., Esq., Department of the
Army, for the agency.
Linda S. Lebowitz, Esq., Office of the General Counsel, GAO,
participated in the preparation of the decision.
DIGEST
Where the solicitation required offerors to propose fixed prices and
provided that options, if exercised, would not necessarily be
exercised in a manner to guarantee continuous production, and where
the protester states in its best and final offer, after discussions
regarding these requirements, that it reserved the right to recover
additional costs associated with breaks in production in the option
periods, the protester's proposal is properly rejected as technically
unacceptable since the firm took exception to the solicitation's
material fixed-price and option requirements.
DECISION
Harris Corporation protests the award of a contract to Raytheon
Electronic Systems, Raytheon Company, under request for proposals
(RFP) No. DAAB07-96-R-A509, issued by the Department of the Army for
the fabrication, integration, test, and delivery of Tri-Band Tactical
Terminals (T3(H)s) for battlefield satellite terminal communications.
Harris challenges the rejection of its proposal as technically
unacceptable.
We deny the protests.
The RFP contemplated the award of a firm, fixed-price contract for the
T3(H) units for a basic contract period and five 24-month option
periods to the offeror whose proposal represented the best value to
the government, technical evaluation factors, price, and performance
risk considered.[1] As relevant to these protests, the RFP included
clause H-4, captioned "Option for Increased Quantity--Separately
Priced Line Item." Paragraph (e) of this clause provides that the
"[e]valuation of options will not obligate the Government to exercise
the option(s)," and paragraph (g) provides that:
"[t]he Government may exercise subsequent options if prior option
years are not exercised (i.e. [(sic)] if the Government does not
exercise Option I, the Government still has the right to exercise
Option II). Exercise of subsequent years is not dependent upon
exercise of the prior year option."
In its initial proposal, submitted in April 1996, under a section
captioned "Other Conditions and Assumptions," Harris addressed clause
H-4, stating that:
"The prices for the Option Period hardware CLINS/SLINS do not
contain startup or non-recurring cost[s] provided for in the
basic period, but are dependent upon steady work flowing through
the T3(H) Focused Factories. Consequently, Harris reserves the
right to recover cost[s] associated with breaks in the T3(H)
production flow associated with loss of learning, idle resources
and personnel disruptions." (Emphasis added.)
By letter dated June 24, the contracting officer notified Harris that
the agency had completed its initial evaluation. The contracting
officer enclosed with this letter, among other things, items for
negotiation (IFN) and responses to Harris's terms and conditions.
With regard to the above quoted condition in Harris's initial
proposal, the contracting officer stated that:
"The Government does not warrant that options will be exercised
so as to facilitate a steady production flow. As stated in RFP
Section H-4, Option for Increased Quantity--Separately Priced
Line Item, option quantities are not guaranteed and the 'exercise
of subsequent [option] years is not dependent upon exercise of
the prior year option.'" (Emphasis added.)
The contracting officer also enclosed with her June 24 letter a model
contract for Harris, explaining that "if [Harris] is the successful
offeror, [Harris] will be required to sign this document. Therefore,
please review the model contract and provide comments as necessary
with your IFN responses." Harris's model contract contained RFP
clause H-4, "Option for Increased Quantity--Separately Priced Line
Item," including paragraphs (e) and (g) as quoted above.[2] In
addition, in response to a previous question posed by Harris
concerning the submission of alternate proposals, the contracting
officer responded that "alternate proposals are acceptable with the
exception of: a) an alternate proposal that changes the contract
type." The contracting officer afforded Harris an opportunity to
revise its proposal by submitting proposal revision change pages.
With respect to RFP clause H-4 and the fixed-price contract-type
requirement of the RFP, Harris expressly continued to reserve the
right to recover additional costs associated with breaks in the T3(H)
production in the option periods.
In July and August, the contracting officer conducted three more
rounds of written discussions with Harris. During these discussions,
the contracting officer furnished additional IFNs to Harris and
responses to Harris's unresolved terms and conditions. As discussions
proceeded, the contracting officer also furnished any amendments to
the RFP and change pages to Harris's model contract to reflect terms
and conditions accepted by the agency. During this time, the
contracting officer did not issue any change pages involving RFP
clause H-4 or the fixed-price contract-type requirement of the RFP.
After each round of written discussions, Harris was afforded an
opportunity to revise its proposal by submitting proposal revision
change pages. As reflected in Harris's proposal revisions, after the
second round of discussions, Harris expressly continued to reserve the
right to recover additional costs associated with breaks in production
in the option periods; however, Harris's proposal revisions after the
last two rounds of written discussions were silent regarding this
condition.
In August, the contracting officer also conducted successive rounds of
oral discussions with Harris. The matters focused on during oral
discussions included, for example, previously unresolved terms and
conditions in Harris's proposal, the agency's responses thereto, and
the final dispositions. These matters were summarized and confirmed
by the contracting officer by letter dated August 13. At this time,
the contracting officer also furnished additional change pages to
Harris's model contract. None of the information in the contracting
officer's August 13 letter or in the change pages to Harris's model
contract reflected acceptance by the agency of Harris's condition
reserving the right to recover additional costs associated with breaks
in production in the option periods or a decision by the agency to
convert from a fixed-price contract to a cost reimbursable-type
contract. Harris's senior contracts manager "agree[d] with the
outcomes [contained in the contracting officer's August 13 letter],"
as evidenced by his signature in the confirmation signature block at
the end of this letter. Although afforded an opportunity prior to
confirming the subject matter of oral discussions to express any
disagreement with the contents of the contracting officer's August 13
letter, Harris did not contact the contracting officer "[to express
any] disagree[ment] with any of the outcomes listed [in the letter]."
By letter dated August 14, the contracting officer requested a best
and final offer (BAFO) from Harris. Harris was advised that major
revisions to its proposal were not anticipated, but should it revise
its proposal in any way, "complete and detailed support for each
revision must be provided. The Government reserves the right to
reject any proposal if this rationale is not submitted with a
revision, or, if submitted, is inadequate to establish the
acceptability of the revised offer." (Emphasis in original.) The
contracting officer warned that "[r]eductions or increases to the
[firm fixed price] . . . must be completely explained by element of
cost/price with narrative rationale substantiating the reductions or
increases. Generalized statements without this supporting rationale
are not sufficient." (Emphasis added.)
In its BAFO submitted on August 19, Harris again expressly reserved
the right to recover additional costs associated with breaks in the
T3(H) production in the option periods.[3] Harris also reduced its
BAFO price by more than $120 million, with a substantial portion of
this reduction, $64 million, attributable to materials and
subcontracts. In this regard, Harris provided a one paragraph, seven
sentence explanation of its significant BAFO price reduction based on
materials and subcontracts, with the pertinent language as follows:
"Preferred vendors were identified and tentative long term relations
were established. If a particular part was driving cost, substitutes
were found. If a substitute could not be found, where possible we
modified the design to eliminated [(sic)] the item."
The agency rejected Harris's BAFO as technically unacceptable because,
among other things, Harris failed to "adequately explain the rationale
for th[e] dramatic price adjustment as was clearly required by the
Government's request for BAFO." The agency determined to award a
contract to Raytheon, the offeror whose proposal was deemed to
represent the best value to the government.
During the pendency of these protests, the agency argued that Harris's
reserving in its BAFO of the right to recover additional costs
associated with breaks in the T3(H) production in the option periods
constituted exceptions to the RFP's material fixed-price and option
requirements. The agency maintained that such exceptions provide
independent bases upon which to reject Harris's proposal as
technically unacceptable. We agree.[4]
In a negotiated procurement, a proposal which fails to conform to one
or more of an RFP's material terms or conditions is technically
unacceptable and cannot form the basis for an award. Marine Pollution
Control Corp., B-270172, Feb. 13, 1996, 96-1 CPD para. 73 (requirement for
fixed prices is a material term or condition of an RFP requiring such
pricing, and a proposal that does not offer fixed prices cannot be
accepted for award); Peckham Vocational Indus., Inc., B-257100, Aug.
26, 1994, 94-2 CPD para. 81 (mandatory option provisions are material
terms of a solicitation).
In its BAFO, Harris took exception to two material requirements of the
RFP. First, Harris conditioned its option prices "upon steady work"
with no breaks in production in the option periods. This condition is
contrary to RFP clause H-4 which did not guarantee the sequential
exercise of options to ensure a continuous production schedule.
Second, Harris's reservation of the right, in the event of a break in
production in the option periods, to recover additional costs
associated with a loss of learning, idle resources, and personnel
disruptions is inconsistent with the fixed-price contract contemplated
by the RFP. Under a fixed-price contract, the risks associated with
performance are to be borne by the contractor, not the government.
See Cardinal Scientific, Inc., B-270309, Feb. 12, 1996, 96-1 CPD para. 70.
Harris's attempt to shift these risks from itself to the government is
not in accordance with the RFP. Accordingly, we conclude that Harris
took exception in its BAFO to the RFP's fixed price and option
requirements, both of which are material terms of the RFP, thereby
rendering its BAFO technically unacceptable and making the firm
ineligible for award.
Harris contends that it was misled in discussions concerning the RFP's
fixed-price and option requirements. Harris states that on June 26,
1996, 2 days after the contracting officer initiated written
discussions by providing Harris with a model contract which included
RFP clause H-4, by stating that the government would not warrant the
exercise of options so as to facilitate a steady production flow, and
by stating that alternate proposals would be accepted so long as they
did not change the RFP's fixed-price contract type, three of Harris's
contract negotiators had a phone conversation with the contracting
officer to explain the firm's approach regarding RFP clause H-4.
According to Harris, the contracting officer told these individuals
that there was "no problem [and that she] underst[ood] and [would] get
back [to Harris] if [she] need[ed] more info[rmation]."[5] Since
there were no further conversations concerning RFP clause H-4, Harris
states that it believed its condition had been accepted by the agency
and would not be a basis upon which the agency could subsequently
reject its proposal as technically unacceptable.
Harris's position that discussions were misleading is belied by the
extensive record of discussions. Reading the record in a light most
favorable to Harris by assuming that RFP clause H-4 was discussed with
the contracting officer on June 26, we believe that Harris was clearly
on notice that the agency had not accepted its proposed condition
reserving for itself the right to recover additional costs in the
event of noncontinuous production in the option periods.
Specifically, Harris's model contract as initially issued during the
first round of written discussions on June 24 contained RFP clause
H-4. During this round of discussions, the contracting officer
specifically responded to Harris's proposed condition by stating that
the government would not warrant the exercise of options to facilitate
a steady production flow, citing RFP clause H-4 and would not accept
alternate proposals that made changes to the fixed-price contract type
contemplated by the RFP. At no time after the June 26 conversation
did the contracting officer take any action which could be deemed to
evidence acceptance by the agency of Harris's condition. In this
regard, the contracting officer did not issue any change pages to
Harris's model contract addressing either RFP clause H-4 or the
fixed-price contract type contemplated by the RFP. Further, these
requirements were not the subject of any amendments to the RFP.
Because RFP clause H-4 was in Harris's model contract from the
beginning of discussions through the request for BAFOs and because the
RFP's fixed price contract type was never amended, we think Harris
reasonably should have been aware that the agency never agreed to
Harris's proposed condition for the reimbursement of additional costs.
We conclude that Harris was not misled during discussions, but rather,
unreasonably failed to express any concern to the contracting officer
during discussions that its model contract had not changed to reflect
its proposed condition.
Further, to the extent Harris complains about the contracting
officer's "use of very loose 'model contracts'" as "some sort of
control document putting each offeror on notice as to the status of
all proposed terms and conditions," its post-award complaint is
untimely since Harris is essentially challenging a defect in the
procurement process which should have been raised well before
discussions were concluded and an award was made. Bid Protest
Regulations, section 21.2(a)(1), 61 Fed. Reg. 39039, 39043 (1996) (to
be codified at 4 C.F.R. sec. 21.2(a)(1)). We do agree, however, with
Harris's characterization of a model contract as a type of "control
document" so that an offeror, like Harris, would know precisely what
the terms and conditions of the contract would be if the firm were
selected for award. In light of the successive rounds of written and
oral discussions held with Harris, we think it was incumbent upon
Harris to take advantage of the opportunities afforded during
discussions to seek clarification of any matters in its model contract
that it did not understand or did not agree with prior to the
conclusion of discussions, not after the award had been made.
Because Harris's BAFO is properly rejected as technically unacceptable
on the basis that Harris took exception to the RFP's material
fixed-price and option requirements, both of which were subject to
discussions, we need not address Harris's allegations concerning the
reasonableness of the agency's evaluation of its BAFO.[6]
The protests are denied.
Comptroller General
of the United States
1. The RFP contemplated a fixed-price contract with an economic price
adjustment for the T3(H) units during the fourth option period and a
time-and-materials contract for contractor support services.
2. In the model contract, RFP clause H-4 was redesignated as clause
H-9. However, there were no substantive changes to the RFP clause.
3. Harris contends that it never removed this condition from its
proposal during the last two rounds of written discussions only to
reinsert the condition in its BAFO. However, from the first round of
discussions through the request for BAFOs, the contracting officer
requested the submission of proposal revision change pages only. In
light of these instructions, we think if Harris did not intend to
remove this condition from its proposal, there would have been no need
for Harris to expressly include this condition in any submission after
its initial proposal, including its BAFO.
4. During the course of a protest, an agency may justify its rejection
of an offeror's proposal on the basis of new or additional grounds so
long as those grounds would have provided proper support at the time
the proposal was rejected as technically unacceptable. See Bannum,
Inc., B-271075 et al., May 22, 1996, 96-1 CPD para. 248.
5. The contracting officer maintains that during the June 26
conversation, RFP clause E-4 involving production qualifications
testing, not RFP clause H-4 involving the exercise of options, was
discussed. (Following this conversation, on June 27, RFP clause E-4
was amended and this amendment was reflected in a change page to
Harris's model contract.) In any event, during these protests, Harris
submitted declarations from the individuals who participated in the
conversation with the contracting officer. The contracting officer
points out a number of internal inconsistencies in these declarations.
In response, Harris simply states that these individuals "stand by
their statements" and offers no substantive rebuttal.
6. Harris's protest submissions are replete with mischaracterizations
and distortions of the contents of its proposal and the agency's
evaluation record. For example, Harris states that when it lowered
its BAFO price, the agency "unreasonably assumed" that the firm
changed its technical proposal, "making a series of unilateral
assumptions, while refusing to read, or acknowledge, the Harris
statement in its BAFO that '[t]here [were] no changes to'" its
technical proposal. We point out that the "no changes" statement
appears in the cover letter to Harris's BAFO and is explicitly
contradicted by Harris's brief BAFO narrative attributing a
substantial portion of its BAFO price reduction to parts
substitutions/eliminations and design modifications. We think the
agency reasonably read the substantive content of Harris's BAFO and
reasonably concluded that Harris did not provide the requisite
"complete and detailed" explanation for this price reduction. We
agree with the agency that Harris did not identify in its BAFO the
"parts" that were substituted/eliminated (and we note that Harris did
not specify "piece parts" or "electronic piece parts") or explain how
its design was modified to achieve such savings without compromising
its technical approach which, prior to the submission of its BAFO, was
considered technically acceptable.