BNUMBER:  B-275783 
DATE:  March 27, 1997
TITLE: Matter of:T. Head and Company, Inc. 

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DOCUMENT FOR PUBLIC RELEASE
A protected decision was issued on the date below and was subject to a 
GAO Protective Order.  This version has been approved for public 
release.
Matter of:T. Head and Company, Inc.

File:     B-275783

Date:March 27, 1997

Laura L. Hoffman, Esq., and Michael A. Hordell, Esq., Gadsby & Hannah, 
for the protester.
Dennis J. Gallagher, Esq., Department of State, for the agency.
Marie Penny Ahearn, Esq., and John M. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Elimination of small business firm's offer from competitive range as 
unacceptable under past performance evaluation factor, without 
referring matter to Small Business Administration (SBA) for 
certificate of competency review, was proper where unacceptable rating 
was consistent with comparative evaluation scheme set forth in RFP and 
did not result from pass/fail evaluation. 

DECISION

T. Head and Company, Inc. (THI), a small business, protests the 
rejection of its proposal as technically unacceptable under Department 
of State (DOS) request for proposals (RFP) No. S-OPRAQ-96-R-0600.  The 
solicitation sought proposals to provide mail processing and handling 
services for DOS's Diplomatic Pouch and Mail Division.

We deny the protest.

The RFP, issued as a total small business set-aside, sought proposals 
on a fixed-price basis, with some indefinite quantity line items.[1]  
It  provided for award on a best value basis, with price equal in 
weight to the two technical factors, technical approach and corporate 
experience/past performance.  There were three corporate 
experience/past performance subfactors:  (1) "performance history-how 
well offeror has performed on previous contracts," (2) "cost 
management-whether offeror has provided quality services at reasonable 
prices," and (3) "termination history-whether offeror has had previous 
contracts terminated for default or otherwise terminated due to 
customer dissatisfaction."  Proposals were to be rated exceptional, 
acceptable, marginal, or unacceptable.  

Nine proposals were received.  THI's offered price was low and, 
initially, the agency evaluated THI's proposal as exceptional under 
the technical factor and acceptable under past performance.  The past 
performance rating was based on past performance surveys for four of 
THI's past contracts, including DOS contract      No. 1026-950172 for 
mail and messenger services, performed from March 1, 1989 to August 
31, 1994.  Based on this initial evaluation, THI's proposal would have 
been ranked third.  However, the agency subsequently received an 
offset notice from the Department of Justice (DOJ) requesting that DOS 
liabilities to THI under the DOS contract be paid to DOJ to offset a 
civil judgment and criminal fine against the firm.  In this regard, 
DOJ advised DOS that THI had been convicted of 39 counts of false 
claims under 18 U.S.C.  sec.  287 (1994) (the False Claims Act)[2] and was 
subject to a $256,546.56 civil judgment (entered October 3, 1995 in 
favor of the United States) and a $9,750 criminal fine/special 
assessment (imposed April 19, 1996).  Specifically, THI was found 
guilty of inflating time records and labor costs under an 
Environmental Protection Agency (EPA) contract.  In light of this 
information, the contracting officer requested a reevaluation of THI's 
past performance, including a resurvey of THI's performance under the 
DOS contract and a Dun & Bradstreet supplier evaluation.  

Based on the reevaluation, the evaluators determined that THI's past 
performance was unacceptable; under the performance history subfactor, 
they noted that THI's actions under the EPA contract reflect a history 
of "mismanagement of contract administration requirements"; under the 
cost management subfactor, they noted the false claims under the EPA 
contract and the Dun & Bradstreet supplier evaluation rating of high 
risk;[3] and under the termination history subfactor, they noted that 
THI's DOS contract for courier messenger services "is in dispute for 
cost/inconsistencies."  In this last regard, the cognizant DOS 
contract specialist noted that "[f]inal invoice payments were rejected 
due to insufficient obligations because of cost overruns," and that 
certain disputed contract costs were the subject of an audit 
report.[4]  The contracting officer concluded that THI's past 
performance was unacceptable, and that this warranted excluding the 
firm's proposal from the competitive range.  

THI asserts that the rejection of its proposal based on unacceptable 
past performance was improper because this determination amounted to a 
finding that THI was not a responsible prospective contractor, and the 
matter thus had to be referred to the Small Business Administration 
(SBA) for review under the certificate of competency procedures.

This argument is without merit.  THI is correct that the Small 
Business Act,         15 U.S.C.  sec.  637(b)(7)(A) (1994), provides that 
the SBA has conclusive authority to determine the responsibility of a 
small business concern, and that when a procuring agency finds a small 
business concern nonresponsible it must refer the matter to the SBA 
for a final determination.  Flight Int'l Group, Inc., 69 Comp. Gen. 
741 (1990), 90-2 CPD  para.  257.  In a negotiated procurement, however, SBA 
referral is mandatory only where a traditional responsibility-type 
factor, such as past performance, is evaluated on a pass/fail basis 
and the contracting agency has determined that a small business's 
proposal should be rejected for failure to "pass" that factor; this is 
so because the agency is viewed as having made a nonresponsibility 
determination notwithstanding its use of and reliance on a technical 
evaluation criterion.  Docusort, Inc., B-254852, Jan. 25, 1994, 94-1 
CPD  para.  38.      

The agency's rejection of THI's proposal was not tantamount to a 
nonresponsibility determination that had to be referred to the SBA.  
While the past performance factor did encompass traditional 
responsibility considerations, the RFP provided for a comparative 
(i.e., best value)--rather than a pass/fail--evaluation under this 
factor, and the record shows that the agency evaluated THI's proposal 
in accordance with this scheme.  Specifically, the agency did not 
automatically reject THI's proposal but, rather, considered the effect 
of the new information on the proposal in the context of the three 
past performance subfactors.  The proposal ultimately was assigned the 
lowest of the four available adjectives--unacceptable--based on the 
agency's conclusion that the substantive problems revealed in 
connection with the EPA (primarily) and DOS contracts, as well as the 
Dun & Bradstreet rating, were substantial.  The agency then eliminated 
the proposal from the competitive range based on its conclusion that, 
with the unacceptable past performance rating, THI's overall 
evaluation rating was too low for the firm to have a reasonable chance 
for the award.  As this conclusion was reached precisely in accordance 
with the best value evaluation scheme set forth in the RFP, there is 
no basis for concluding that it amounted to a pass/fail determination.  
See Dynamic Aviation--Helicopters, B-274122, Nov. 1, 1996, 96-2 CPD  para.  
166; Smith of Galeton Gloves, Inc., B-271686, July 24, 1996, 96-2 CPD  para.  
36.
      
There also is no basis for questioning the agency's finding that THI's 
proposal was unacceptable under the corporate experience/past 
performance factor, since the considerations that led the agency to 
this conclusion clearly were encompassed by the factor.  In this 
regard, we will review a proposal evaluation only to ensure that it 
was reasonable and consistent with the RFP.  Professional Software 
Eng'g, Inc., B-272820, Oct. 30, 1996, 96-2 CPD  para.  193.  The performance 
history subfactor encompassed how well an offeror had performed on 
prior contracts; THI's performance under the EPA contract, including 
its fraudulent overbilling, therefore  properly was considered under 
this subfactor.  The cost management subfactor encompassed whether the 
offeror had provided quality services at reasonable prices.  THI's 
fraudulent overbilling was directly related to the reasonableness of 
its prices under the EPA contract, and also indicated that THI's cost 
management controls had been deficient.  Indeed, the fraudulent 
overbilling was particularly relevant given that THI's proposed 
project manager, Mr. Head was found personally responsible for the 
intentional false overbilling, and the subject solicitation includes 
indefinite quantity items that could be overbilled.  The Dun & 
Bradstreet high risk rating also was encompassed by the subfactor 
since it indicated late payments to suppliers under prior contracts, 
which, again, could suggest lax cost management.[5] 

As for the termination history subfactor, we agree with THI that 
because the concerns relating to the DOS contract did not involve an 
actual termination, as contemplated by the subfactor, THI's 
performance under that contract technically should not have been 
considered under this subfactor.  However, since it is clear that 
THI's performance under the DOS contract properly could be considered 
under the performance history and cost management subfactors (i.e., 
since it was a prior contract and the problems uncovered concerned 
undocumented claimed costs), these concerns properly were factored 
into the agency's reevaluation conclusion.  Nothing in the record 
suggests, and there is no reason to believe, that consideration of the 
DOS contract under different subfactors would have led the agency to 
reach a different conclusion regarding the acceptability of THI's past 
performance.  
 
The protest is denied.  

Comptroller General
of the United States
  
1. The basic services required during normal hours of operation were 
to be priced on a monthly basis, with after-hours services and 
seasonal services separately priced on a labor hours basis for 
estimated hours.  The RFP also called for a fixed price to cover 
phase-in.  

2. Additionally, Mr. Toney Head, president and sole owner of THI, was 
individually convicted of the same false claims under 18 U.S.C.  sec.  287.

3. The Dun & Bradstreet high risk supplier rating appears primarily to 
be based on average payments to suppliers being 25 days beyond terms, 
in contrast to an industry average of 9 days beyond terms.

4. The record indicates that the disputed contract costs on THI's DOS 
contract pertain to inadequate documentation of claimed costs, notably 
transportation costs unsupported by usage logs.

5. While the protester argues that unspecified sections of the Dun & 
Bradstreet supplier evaluation are based on data several years old, it 
does not dispute that its average payments were past due considerably 
more days than the industry average.