BNUMBER:  B-274973; B-274973.2
DATE:  January 15, 1997
TITLE:  Barnard-Slurry Walls, J.V.

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Matter of:Barnard-Slurry Walls, J.V.

File:     B-274973; B-274973.2

Date:January 15, 1997

Carter B. Reid, Esq., and Robert M. Fitzgerald, Esq., Watt, Tieder & 
Hoffar, L.L.P., and Brian M. Morris, Esq., and William L. Madden, 
Esq., Goetz, Madden & Dunn, P.C., for the protester.
Thomas J. Madden, Esq., Charles R. Marvin, Esq., and W. Craig 
Dubishar, Esq., Venable, Baetjer & Howard, L.L.P., for 
Solentanche-Inquip, JV, an intervenor.
Clark J. Hulce, Esq., and William L. Henson, Esq., Department of the 
Army, 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

Low bid for levee reconstruction work was properly rejected as 
materially unbalanced where the lump sum price for preparatory work 
line item was many multiples higher than the reasonable value of the 
work, such that the bid was grossly front-loaded, and the unit price 
for the levee reconstruction work was significantly less than the 
government estimate and other bid prices. 

DECISION

Barnard-Slurry Walls, J.V. protests the rejection of its bid as 
unbalanced under invitation for bids (IFB) No. DACW05-96-B-0066, 
issued by the United States Army Corps of Engineers, Sacramento 
District, for levee reconstruction work.  

We deny the protest.

The IFB, issued on August 13, 1996, contemplated the award of a firm, 
fixed-price contract for levee reconstruction at two sites in the 
Maryville/Yuba City area of California.  The project required the 
construction of an impervious slurry cut-off wall at the south levee 
of the Yuba river and at the east levee of the Feather river.  

The pricing schedule for the project contained nine separate contract 
line items (CLIN) as follows:  CLIN 0001 - Preparatory Work; CLIN 0002 
- Demolition; CLIN 0003 - Aggregate Base Course; CLIN 0004 - Erosion 
Control Seeding; CLIN 0005 - Slurry Cut-off Wall; CLIN 0006 - Soil 
Explorations; CLIN 0007 - Bituminous Surface Course; CLIN 0008 - 
Bituminous Prime Coat; and CLIN 0009 - Site Clean-Up.  All of the line 
items, except CLIN 0003 and CLIN 0005, requested a lump sum bid price.  
CLIN 0003 requested a per ton unit and extended price for an estimated 
6,400 tons of aggregate base course and CLIN 0005 requested a per 
square foot unit and extended price for constructing an estimated 
750,000 square feet of slurry cut-off wall.   

The technical specifications described the work to be performed and 
the method of payment for each CLIN.  With regard to the CLIN 0001, 
preparatory work, the IFB provided:

     "1.1  Scope:  Preparatory work shall consist of operations 
     including, but not limited to, those necessary for the movement 
     of personnel, equipment, supplies, and incidentals to the project 
     site; for the establishment of all facilities necessary for work 
     on the project, and for all other work and operations which must 
     be performed, or costs incurred prior to beginning work on the 
     various Contract items on the project site.

                    .     .     .     .     .
                            
     "7.  Measurement and Payment:  Measurement and payment  . . .  
     for . . . covered by this section . . . shall be made at the 
     contract lump sum price for "PREPARATORY WORK" . . . .

With regard to CLIN 0005, slurry cut-off wall, the IFB provided that 
the contractor was required to furnish "all necessary plant and 
equipment" to construct the slurry cut-off wall.  The IFB further 
provided that payment for the work covered by this CLIN would be made 
at the contract per square foot price for the measured work and that 
no separate payment would be made for work performed under this CLIN 
for materials and equipment.

The IFB incorporated the Payments under Fixed-Price Construction 
Contracts clause at Federal Acquisition Regulation (FAR)  sec.  52.232-5, 
which among other things authorizes progress payments.  The IFB also 
required the contractor to submit a project schedule (of values) if it 
expected to receive progress payments during the contract. 

The IFB contemplated award to the low responsive and responsible 
bidder, but cautioned that "any submitted pricing schedule determined 
to be unbalanced may be considered nonresponsive and cause the bidder 
to be ineligible for the award."  In this regard, the IFB required 
bidders to distribute their "indirect costs (overhead, profit, bond, 
etc.) over all the items in the" schedule.   

The Corps received three bids at the September 12 bid opening.  
Barnard submitted the apparent low bid of $4,827,500, 
Solentanche-Inquip, JV, submitted the next low bid of $5,342,500, and 
Geo-Con submitted the third low bid of $5,918,300.  The government 
estimate for the project was $5,579,000.[1]  Barnard's CLIN 0001 price 
was $2,114,000, while the other bids for this CLIN were $350,000 and 
$585,000, respectively; the corrected government estimate for this 
CLIN was $250,000.[2]  Barnard's CLIN 0005 unit price was $3.25 per 
square yard for an extended price of $2,437,500, while the other bids 
for this CLIN were both $6.35 per square yard for an extended price of 
$4,762,500, and the government estimate for this CLIN was $6.65 per 
square yard.

By letter dated October 2, the Corps rejected Barnard's bid as 
unbalanced.  The Corps found that Barnard's CLIN 0001 price grossly 
overstated the cost of the work for that item--8.4 times the 
government estimate and 6 times the next low bid--such that payment of 
this item would be tantamount to an advance payment, while Barnard's 
slurry cut-off wall unit price in CLIN 0005 significantly understated 
the cost for work under that line item.  Consequently, the Corps made 
award to Solentanche, the next low bidder.
 
A bid which is materially unbalanced must be rejected as 
nonresponsive.  FAR  sec.  14.404-2(g) (FAC 90-29); Howell Constr., Inc., 
66 Comp. Gen. 413 (1987), 87-1 CPD  para.  455; The Ryan Co., B-238932, June 
13, 1990, 90-1 CPD  para.  557.  Pursuant to FAR  sec.  15.814(b)(2) (FAC 90-37), 
a bid is materially unbalanced and should be rejected, if it is 
mathematically unbalanced, and if the bid is grossly unbalanced such 
that its acceptance would be tantamount to allowing an advance 
payment, even if the bid represents the lowest cost to the 
government.[3]  ACC Constr. Co., Inc., B-250688, Feb. 16, 1993, 93-1 
CPD  para.  142; F & E Erection Co., B-234927, June 19, 1989, 89-1 CPD  para.  
573.  A bid is mathematically unbalanced "if it is based on prices 
which are significantly less than cost for some contract line items 
and significantly overstated in relation to cost for others."  FAR  sec.  
15.814(b).  We have only found bid prices to be grossly front-loaded 
where the front-loaded price(s) are many multiples higher than the 
value of the work to be performed or the remaining contract prices.  
Rust Int'l Corp.; ABB Susa, Inc./Brown & Root, J.V., B-256886.2 et 
al., Aug. 30, 1994, 94-2 CPD  para.  84 at 6, and cases cited therein.

FAR  sec.  15.814(b)(2) is based on two concerns.  First, where during 
performance the bidder will receive payments based on inflated prices 
for bid items for which it will receive payment early in the 
performance of the contract, there is a legitimate concern that the 
bidder has received an improper competitive advantage.  By accepting 
such a grossly unbalanced bid, the agency affords that bidder an 
advantage not enjoyed by its competitors for the award--the use of 
interest-free money.  Second, by receiving early payments which exceed 
the value of work performed, the contractor will have a reduced 
incentive to properly complete the work.  ACC Constr. Co., Inc., 
supra.
 
Here, Barnard's bid for the preparatory work is many multiples higher 
than the reasonable value of the work to be performed, as indicated by 
the government estimate and the other bidders' prices, and Barnard's 
unit price for the slurry cut-off wall is less than half the 
government estimate and the other bids.  

Barnard nevertheless argues that its bid could not reasonably be 
considered either mathematically or materially unbalanced because its 
pricing did not result from overstating or understating costs, but 
reflected its legitimate costs based upon an innovative approach to 
the work.  Barnard explains that the government estimate and other 
bids were based upon the traditional approach to slurry wall work, 
which requires substantially more material handling, extensive 
hauling, and slower production rates, whereas Barnard's bid was based 
on using a track-mounted, slurry/soil processing and batching unit 
that would follow the excavation.  Barnard asserts that its unique 
approach called for "up front" costs to be incurred for design, 
acquisition, erection of the equipment, personnel, assembly and 
testing, which it contends had to be included under the preparatory 
work CLIN.[4]  

Whatever business reasons are offered to justify a particular bid, the 
government may not pay more for an item or service than its reasonable 
value.  Sawadi Corp., B-265740; B-265741, Dec. 21, 1995, 95-2 CPD  para.  
279.  Preparatory or start-up costs generally are not permitted to 
carry a disproportionate share of the total contract price, unless 
explicitly contemplated by the IFB.  Id.; cf. Rust Int'l Corp.; ABB 
Susa, Inc./Brown & Root, J.V., supra (low bid, which allocated all 
costs of acquiring and shipping construction equipment to the 
mobilization line item, was not mathematically or materially 
unbalanced because the IFB expressly instructed bidders to so allocate 
their equipment costs).

Here, contrary to the protester's arguments, the preparatory work CLIN 
did not specifically authorize the inclusion of the extensive 
equipment and overhead costs which Barnard allocated to this line 
item.  CLIN 0001 only authorized the costs of movement of personnel 
and equipment to the site or costs which must be incurred prior to 
beginning work on the various contract items.  Under the IFB, we think 
the up-front equipment and set-up costs associated with Barnard's 
"innovative" method of constructing the slurry cut-off wall work 
should more properly have been allocated to CLIN 0005.  In this 
regard, CLIN 0005 expressly states that the equipment associated with 
the performance of constructing the slurry cut-off wall was to be 
allocated to that CLIN.  

Barnard argues that construction contracts are not subject to the same 
concerns ordinarily associated with an advance payment because the 
government will be protected by the progress payment clause, and the 
requirement in the contract to submit a schedule of values.  We 
disagree.  Here, the IFB required bidders to submit individual prices 
for separate CLINs and this breakdown is incorporated into the 
contract.  Pursuant to the progress payment contract provision at FAR  sec.  
52.232-5, the contractor will receive progress payments based on the 
amount it bid for the particular line item.  Since Barnard's bid for 
the lump-sum preparatory work CLIN is far in excess of the value of 
the work to be performed under that CLIN, the progress payments based 
on this line item will not reflect the value of the work performed.  
ACC Constr. Co., Inc., supra.  

Due to the gross unbalancing of its bid, we think the agency properly 
rejected Barnard's bid.  Under the IFB's terms, which anticipate 
completion of and payment for the preparatory work independent of the 
other contract work, particularly the construction of slurry cut-off 
wall, award to Barnard may result in early inflated progress payments.  
Award based on Barnard's bidding structure grants Barnard the use of 
interest-free money, a competitive advantage not enjoyed by other 
bidders which submitted bids which more reasonably reflected the cost 
of each line item.  Id.  Moreover, award on the basis of Barnard's 
grossly front-loaded bid poses an unacceptable risk of performance 
since it provides a disincentive to the protester to promptly and 
properly complete the work.  Id.  Finally, by allocating costs as it 
did, Barnard improperly shifted costs from the slurry cut-off wall 
estimated quantity CLIN, whereunder Barnard would only be paid based 
on the square yard of construction actually completed, to the 
fixed-price preparatory work CLIN that was to be paid upon completion 
of the preparatory work scheduled to be performed before the other 
contract work commenced. 

The protest is denied

Comptroller General
of the United States.

1. After receipt of bids, the Corps revised the original government 
estimate of $3,706,000 after it was determined that the estimates for 
certain CLINs were in error.  

2. The original erroneous estimate for CLIN 0001 was $66,500.   

3. Under FAR  sec.  15.814(b)(1), a bid is also materially unbalanced if it 
is mathematically unbalanced and if "there is a reasonable doubt that 
the offer would result in the lowest overall cost to the [g]overnment, 
even though it is the lowest evaluated offer."  This provision is 
inapplicable to the present case.

4. Barnard did not contend that its preparatory work bid was the 
result of an innovative construction method until it commented on the 
agency's report.  The agency's contemporaneous notes reflect that 
Barnard initially indicated that it had failed to allocate certain 
costs among the line items.