BNUMBER:  B-274689.5 
DATE:  August 11, 1998
TITLE: Tidewater Homes Realty, Inc., B-274689.5, August 11, 1998
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Matter of:Tidewater Homes Realty, Inc.

File:     B-274689.5

Date:August 11, 1998

Howard W. Roth, III, Esq., Arthur Serratelli, Esq., and Daniel R. 
Weckstein, Esq., Vandeventer Black, for the protester. 
Anthony F. Radd, Esq., and Steven E. Heretick, Esq., and Glen M. 
Robertson, Esq., Payne, Gates, Farthing & Radd, an intervenor. 
Virginia Kelly Stevens, Esq., Department of Housing & Urban 
Development, for the agency. 
Charles W. Morrow, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Award based on a lower-priced, lower-rated offer rather than a 
higher-rated, higher- priced one under a procurement in which 
technical merit was worth more than cost/price is proper where the 
agency reasonably determined that the higher-rated offer was not so 
significantly superior to the lower-rated one as to be worth the 
associated cost premium. 

DECISION

Tidewater Homes Realty, Inc. protests the award of a contract to 
CitiWest Properties, Inc. under request for proposals (RFP) No. 
H03R95062400000, issued by the Department of Housing and Urban 
Development (HUD), for real estate asset manager services for 
single-family properties owned by HUD or in its custody in the 
Virginia Beach area.  

We deny the protest.

The RFP, issued June 1, 1995, provided for the award of a fixed-price 
indefinite- quantity contract for a base year with 3 option years on a 
best-value basis with technical factors worth more than cost/price.  
RFP  sec.  B, M.2.a.  The technical evaluation factors and corresponding 
values were as follows:

     1.  Demonstrated experience in the management of single-family 
     properties similar to and in a like area as those covered by this 
     solicitation.  [25 points]

     2.  Demonstrated experience in developing lists of needed 
     repairs, such as is required by HUD's Minimum Property Standards 
     (MPS), and estimating the cost of repairs.  [25 points]

     3.  Demonstrated experience in soliciting repair bids, 
     coordinating and overseeing repair work, and inspecting for 
     satisfactory work completion.  [15 points]

     4.  Demonstrated experience in managing a rental program, 
     including establishing fair market rentals and collections from 
     present and former tenants, for single-family properties.  [10 
     points]

     5.  Understanding of HUD objectives and the required tasks as 
     specified in the solicitation.  [10 points]

     6.  Evidence of adequate office--staffed with appropriately 
     trained staff and equipped appropriately (or the ability to 
     establish such), reasonably located so as to provide convenient 
     service to HUD and its clients in the area to be served, and to 
     carry out all duties specified in the solicitation.  [15 points]

RFP  sec.  M.3.  Among other things, the RFP required offerors to submit a 
completed Form 477, List of Repairs (included in RFP), for a specified 
property in Virginia Beach and cautioned that omission of the form may 
adversely affect the evaluation of the offeror's proposal under factor 
2.  RFP  sec.  L.2.b. 

Twelve proposals were submitted in response to the RFP.  Five 
proposals were included in the competitive range, including 
Tidewater's and CitiWest's.  After advising the offerors (except 
CitiWest) of the weaknesses/deficiencies in their proposals, HUD 
received BAFOs.  CitiWest's BAFO, at an evaluated unit price of 
$1,317, had no notable weaknesses/deficiencies and received a 
technical score of 91 points.  Tidewater's BAFO, at an evaluated unit 
price of $1,233, received a technical score of 47 points.  HUD made 
award to CitiWest on August 23, 1996, determining that its technically 
superior proposal was worth the additional cost.  CitiWest has been 
performing the contract since that time.

Tidewater protested this award, and in Tidewater Homes Realty, Inc., 
B-274689, Dec. 26, 1996, 96-2 CPD  para.  241, we sustained Tidewater's 
protest because the record evidenced that Tidewater's proposal was 
evaluated unequally vis-ï¿½-vis CitiWest's proposal, particularly under 
factors 2 and 6.  In this regard, as discussed in our decision, under 
factor 2, Tidewater's proposal, which contained similar information 
and detail as Citiwest's proposal, received 6 points, while Citiwest's 
proposal received 24 points, despite not submitting a Form 477 or 
assessing the Virginia Beach property specified in the RFP.  
Similarly, under factor 6, the agency awarded Tidewater's proposal 7 
points for being vague as to location of the office space and the 
division of responsibilities among staff members, even though its 
proposal addressed these matters, while CitiWest's proposal was 
awarded 12 points, despite lacking the detail that Tidewater's 
proposal was said to lack.  

In response to our decision, HUD convened a new technical evaluation 
panel (TEP) to reevaluate the previously submitted BAFOs.  CitiWest's 
proposal received a score of 81 points.  Under factor 2, the proposal 
received 25 points, despite the absence of a Form 477, because the TEP 
found that CitiWest otherwise demonstrated its experience in 
identifying needed repairs and estimating costs in accordance with HUD 
standards.  However, the TEP downgraded the proposal under factor 5 to 
a score of 8 points because CitiWest did not submit a Form 477 on the 
specified Virginia Beach property.  In addition, the proposal was 
downgraded under factor 6 to a score of 7 points because it merely 
reported on the office it obtained after award and reflected that 
CitiWest had not selected an office as of the time of award.  

Tidewater's proposal received a score of 99 points and two other 
proposals were scored at 97 points.  Based on the differences in point 
scores, the proposals of CitiWest and another lower-scored offeror 
were eliminated from the competitive range.  Tidewater's lowest-priced 
proposal of those included in the competitive range was then selected 
for the award as the best value.

CitiWest then protested that HUD treated it unfairly and unequally 
because while the other offerors were given the opportunity to improve 
their proposals through discussions, CitiWest had not been provided a 
similar opportunity prior to its exclusion from the competitive range.  
We agreed in CitiWest Properties, Inc., B-274689.4, Nov. 26, 1997, 
98-1 CPD  para.  3, sustaining CitiWest's protest and finding that HUD 
failed to conduct meaningful discussions with Citiwest with regard to 
the weaknesses/deficiencies in its proposal indicated in our initial 
decision, which were the reasons given by HUD for downgrading 
CitiWest's proposal, but had not been brought to CitiWest's attention 
during the discussions leading to the initial award.  We recommended 
that HUD reopen and conduct appropriate discussions with all offerors 
in the initially established competitive range, including CitiWest, 
request BAFOs, and make a new source selection.

In response to this decision, HUD conducted another round of 
discussions with the competitive range offerors, pointing out the 
weaknesses/deficiencies in each offeror's proposal, including 
CitiWest's, and requested revised BAFOs by February 3, 1998.  
CitiWest's BAFO, at the lowest total price of $1,423,200, received a 
point score of 90 points.  The TEP awarded CitiWest 9 additional 
points under factor 1 due to experience it had gained while performing 
the contract, but declined to upgrade CitiWest's BAFO under factors 5 
or 6.  The score on factor 5 did not change because even though 
CitiWest had submitted a Form 477 on the specified property, the TEP 
found that it could not modify the original score because the property 
was no longer in the original condition.  The score on factor 6 did 
not change because the necessary details relating to CitiWest's office 
were established after award had been made of the initial contract, 
and the TEP did not believe it could consider CitiWest's post-contract 
award status in evaluating this factor, but only CitiWest's undefined 
description in its previous BAFO.  Tidewater's BAFO, at the third 
lowest total price of $1,639,200, received the highest technical score 
of 100 points.  Two other proposals received point scores of 97; one 
of these proposals had a slightly lower price than Tidewater's.[1]

The contracting officer determined that CitiWest's lowest-priced BAFO 
represented the best value to the government because the difference 
between the scores of the higher-rated proposals was found not to 
represent a material superiority in these offerors' ability to perform 
the contract and did not provide significant technical superiority 
which would justify paying the approximately 15 percent price premium.  
The contracting officer specifically noted that CitiWest's proposal 
received maximum point scores on four of the six technical factors, 
including factors 1 and 2, which were the most important, and that 
although CitiWest's proposal was downgraded under factors 5 and 6, it 
had submitted an acceptable report on an alternate property reflecting 
its ability to estimate repairs, and was currently operating in 
acceptable office space for the contract.  The source selection 
official concurred with the contracting officer's determination and 
the award to CitiWest was confirmed.  

Tidewater now protests that HUD misevaluated CitiWest's proposal under 
factors 1, 2, 5, and 6.  Specifically, Tidewater asserts that it was 
improper for the TEP to credit CitiWest for experience it obtained 
while performing the contract.  Tidewater also argues that CitiWest's 
proposal should not have received the maximum point score under factor 
2 and should have been further downgraded under factor 5, since it did 
not submit a meaningful Form 477 on the property specified in the RFP 
which had been previously repaired.  Tidewater contends the alleged 
misevaluation of CitiWest's proposal resulted in an improper 
cost/technical tradeoff and best value decision.

Notwithstanding a solicitation's emphasis on technical merit, an 
agency may properly select a lower-priced, lower-technically rated 
proposal if it decides that the cost premium involved in selecting a 
higher-rated, higher-priced proposal is not justified, given the 
acceptable level of technical competence available at the lower price.  
See Research Triangle Inst., B-278254, Jan. 12, 1998, 98-1 CPD  para.  22 at 
6.  The determining factor is not the difference in technical merit, 
per se, but the contracting agency's judgment concerning the 
significance of that difference.  In this regard, evaluation scores 
are merely guides for the source selection authority, who must use his 
or her judgment to determine what the technical difference between 
competing proposal might mean to contract performance, and who must 
consider what it would cost to take advantage of it.  In making such a 
determination the source selection authority has broad discretion, and 
the extent to which technical merit may be sacrificed for price, or 
vice versa, is limited only by the requirement that the tradeoff 
decision be reasonable in light of the established evaluation 
criteria.  Where, as here, cost is secondary to technical 
considerations, selection of a lower-priced, lower-rated proposal over 
a higher-rated proposal requires an adequate justification, i.e., one 
showing that the agency reasonably concluded that the higher technical 
score did not reflect actual technical superiority or that the higher 
technical score was not worth the cost premium.  Id. at 6-7.

Here, the record reflects that although three proposals were rated 
higher than CitiWest's, HUD reasonably did not consider any technical 
superiority reflected in Tidewater's and the other higher-ranked 
proposals to be worth the associated cost premiums.  

First, we believe that the agency can properly credit CitiWest's 
proposal for experience it has obtained and the office it has set up 
since the award of the contract.  In this regard, when an agency 
undertakes to implement corrective action resulting from an improper 
award, it generally has the discretion to permit offerors to update 
certain aspects of their proposal due to changed circumstances, and to 
evaluate the updated proposals.  See NavCom Defense Elecs., Inc., 
B-276163.3, Oct. 31, 1997, 97-2 CPD  para.  126 at 3; BNF Techs., Inc., 
B-254953.4, Dec. 22, 1994, 94-2 CPD  para.  258 at 4.  Here, the best value 
determination states that CitiWest has been successfully performing 
this contract since 1996 and that CitiWest's office has been 
appropriately equipped and located since contract performance 
commenced, and that this shows that CitiWest has the ability to 
successfully perform the contract.  Source selection officials are not 
bound by the recommendations or evaluation judgments of lower-level 
evaluators, even though the working-level evaluators may normally be 
expected to have the technical expertise required for such 
evaluations.  Research Triangle Inst., supra, at 9.  Here, we cannot 
find unreasonable or improper the source selection official's decision 
to discount the evaluated technical advantages of the other proposals, 
based on CitiWest's current contract performance, in making the award 
selection.  See Veda, Inc., B-278516.2, Mar. 19, 1998, 98-1 CPD  para.  112 
at 11-12.    

Similarly, while Tidewater contends that CitiWest's proposal was not 
sufficiently downgraded for its failure to provide a Form 477 on the 
property designated in the solicitation before that property was 
repaired, the source selection determination shows complete cognizance 
of this problem in CitiWest's proposal as well as a discounting of 
this problem since the proposal otherwise demonstrated a complete 
ability to list and estimate repairs based on an inspection (albeit on 
another property and another form).  While the RFP warns that offerors 
may not receive full credit if they fail to provide a Form 477 on the 
designated property, it also provides that proposals would not be 
rejected for failing to do so.  RFP  sec.  L.2.b.  Under the circumstances, 
we cannot say the agency failed to adequately account for CitiWest's 
failure to provide a Form 477 on the designated property before it was 
repaired.

In sum, we find that HUD made a permissible best-value determination, 
since it reasonably explained and documented the justification for 
making award to CitiWest.  In this regard, the record reflects that 
the contracting officer and source selection official reasonably 
considered the weaknesses in CitiWest's proposal that resulted in its 
lower technical score and concluded that the technical differences 
between it and the higher-ranked proposals, including Tidewater's, 
were not significant enough to justify selection of the higher-rated, 
higher-priced offers. 

The protest is denied.

Comptroller General
of the United States

1. The other proposal was scored at 67 points.