BNUMBER:  B-275957; B-275957.2 
DATE:  April 23, 1997
TITLE: Cygnus Corporation, B-275957; B-275957.2, April 23, 1997
**********************************************************************

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 redacted or approved by 
the parties involved for public release.
Matter of:Cygnus Corporation

File:     B-275957; B-275957.2

Date:April 23, 1997

William M. Rosen, Esq., Hilary S. Cairnie, Esq., and Edward W. Kirsch, 
Esq., Dickstein, Shapiro, Morin & Oshinsky, L.L.P., for the protester.
Barbara S. Kinosky, Esq., Bean, Kinney & Korman, and James S. 
Phillips, Esq., and Leigh H. Turner, Esq., James S. Phillips, P.C., 
for Palladian Partners, Inc., an intervenor.
Michael Colvin, Department of Health & Human Services, for the agency.
Andrew T. Pogany, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  The presence of vested marital property rights of a government 
employee in the assets or income of an offeror controlled by the 
employee's spouse does not, by itself, establish that the government 
employee possesses substantial ownership or control of the offeror 
such that the matter constitutes a conflict of interest precluding a 
contract award to the offeror.

2.  Contracting agency may properly consider the experience of a 
firm's personnel in evaluating its organizational experience even 
where the solicitation defines the factor being evaluated in terms of 
corporate experience. 

3.  While an offeror's misrepresentation concerning personnel that 
materially influences an agency's consideration of its proposal 
generally provides a basis for proposal rejection or termination of a 
contract award based upon the proposal, where protest that awardee 
misrepresented experience of principals is not supported by the 
record, agency's award is not objectionable.   

DECISION

Cygnus Corporation, the incumbent contractor, protests the award of a 
level-of-effort, cost reimbursement contract to Palladian Partners, 
Inc. under request for proposals (RFP) No. N02-BC-66212-82, issued by 
the National Cancer Institute (NCI), National Institutes of Health 
(NIH), Department of Health & Human Services, as a total small 
business set-aside for technical support services for the Division of 
Basic Sciences (DBS), a component of NCI.  Cygnus principally alleges 
that a conflict of interest precluded award by the agency to 
Palladian; that Palladian made material and prejudicial 
misrepresentations in its proposal; and that both offerors' technical 
and cost proposals were misevaluated.

We deny the protest.

BACKGROUND

The RFP, issued July 10, 1996, and as amended, contemplated the award 
of the cost-plus-fixed-fee contract for a base period with 4 option 
years.  The technical support services to be furnished by the 
successful contractor to DBS include furnishing all skilled personnel, 
facilities, equipment, and supplies, except as otherwise specified, 
for editorial services (administrative support for the preparation of 
scientific manuscripts and research documents for publication), annual 
report preparation, arranging conferences, meetings and workshops, 
miscellaneous general support, and records management.

The RFP required the submission of separate technical and business 
proposals.  The RFP specifically reserved to the agency the right to 
"make an award [based on] the best advantage of the [g]overnment, cost 
and other factors considered."  The RFP stated that the technical 
proposals would receive "paramount consideration"; however, the RFP 
also stated that "[i]n the event that the technical evaluation reveals 
that two or more offerors are approximately equal in technical 
capability, then cost may become a significant factor in determining 
[award]."  The RFP listed the following major technical evaluation 
factors:  (1) technical approach (35 points); (2) related experience 
of company (35 points); and (3) personnel (program manager (15 points) 
and other personnel (15 points)).[1]

Concerning cost, the RFP required the offerors to submit a "Breakdown 
of Proposed Estimated Cost (Plus Fee) and Labor Hours."  For each 
separate cost estimate, the offerors were required to provide a 
breakdown by cost elements, including direct labor, fringe benefits, 
indirect costs, fee, and other costs.[2]  "Other Direct Costs" 
(defined in the RFP as materials/supply, travel, consultants, postage, 
reproduction communications, honoraria and other such costs) were 
"normalized" in the RFP at a total "assum[ed]" total cost of $614,477.  
Costs were to be evaluated for fairness and reasonableness.

The agency received 12 proposals by the closing date, including 
proposals from Cygnus and Palladian.  The agency convened a technical 
evaluation panel (TEP) which evaluated the technical proposals 
received.  Based on this evaluation of initial proposals, the agency 
made a competitive range determination which included only the three 
top-ranked offerors.  The initial evaluation results concerning these 
firms were as follows:

Offeror         Technical Score Total Price     Adjectival Rating

Palladian       94.8            $1.8 million    Acceptable

Cygnus          [Deleted]       [Deleted]       Acceptable

Offeror A       [Deleted]       [Deleted]       Acceptable[3]
The TEP, in its evaluation of initial proposals--upon which, as stated 
previously, the competitive range determination was made--found that 
Cygnus had submitted an excellent proposal.  The TEP noted that Cygnus 
was the incumbent and had "demonstrated a full and clear understanding 
of the DBS and NCI mission and of services required by this contract."  
The TEP also noted that "Cygnus has an excellent understanding of DBS 
services [and has] experience with many biomedical support services 
[resulting in excellent experience].  The TEP also found Cygnus's 
project manager to be excellent with "good capabilities in managing 
costs and tasks and show[ing] signs of flexibility in management of 
tasks of varying degrees."  The TEP noted relatively few "weaknesses" 
in Cygnus's otherwise excellent and detailed proposal:  [Deleted].

Concerning Palladian, the TEP found as follows:

     "[Palladian has] extended the 'average technical approach['] by 
     making advances in technology with web based interactions.  
     [Palladian] show[s] extreme capability to perform all tasks even 
     though the company is new.  Palladian presented strong proposals 
     from each of its subcontractors which are proposed.  The proposal 
     is highly evolved and motivated [and has a] [g]ood understanding 
     of the biomedical missions of the DBS and NCI.  [The project 
     manager] has worked with one of the key players from Base 10 [a 
     firm identified in Palladian's proposal] in a previous company 
     [while employed by Cygnus[4]], so working relationship has 
     already been established.  Technical proposal was complete and 
     excellent."

The TEP also found that Palladian listed nine references, as well as 
its work performance "sources."  The TEP specifically noted that 
"[a]lthough most of [Palladian's] experience comes from other 
companies, the core personnel have worked together as a team for many 
years [and] have direct experience with biomedical projects in the 
incumbent contract."  The TEP also found that the firm's program 
manager was very highly qualified and that the key personnel had 
"excellent credentials and a large amount of biomedical support 
experience."  The TEP questioned (as "weaknesses") whether Base 10 
would be available as a "subcontractor" since there appeared to be 
lack of "clarity of Base [10] in the administrative structure" and 
whether multiple subcontractors would be "troublesome."  Finally, the 
TEP noted that Palladian "is [a new company] and may take a bit of 
time to work out experience with ASI [a firm also identified in 
Palladian's proposal] and personnel in a new company structure."

In the ensuing competitive range discussions, the agency provided the 
following in writing to Cygnus:

     [Deleted]

Following oral discussions, which with Cygnus were limited to the 
matters set forth above, the agency received BAFOs.  These BAFOs were 
not scored but were "review[ed by] the Contract Specialist and TEP 
Chairperson [who] saw no changes in the BAFO which affected the 
initial evaluation."[5]  Proposed costs in the BAFOs, as received by 
the agency, were $1.8 million from Palladian and [deleted] from 
Cygnus.  The agency selected Palladian for award because that firm had 
"received the highest average technical score from the TEP and 
submitted the lowest cost BAFO."  The agency also states, and the 
protester does not dispute, that the agency had also determined to 
award the contract to Palladian, based primarily or exclusively on the 
original evaluation scoring, because Palladian had submitted the 
[deleted].[6]  This protest followed.

ALLEGED CONFLICT OF INTEREST

Cygnus contends that NCI, a component of NIH, improperly awarded the 
contract to Palladian because that firm is effectively controlled by 
an NIH official through a substantial and material financial interest 
in the firm.  Cygnus states that Mrs. Marion Millhouse Barker is the 
co-president and co-owner of Palladian and that Cygnus has recently 
discovered that she is married to an NIH official, Dr. Jeffrey Barker, 
who was one of four guarantors of a line of credit submitted with 
Palladian's proposal that was secured by an indemnity deed of trust on 
real estate (Dr. and Mrs. Barker's house/private residence).[7]  
According to the protester, Dr. Barker "resides in one of Palladian's 
offices" (his own house) which he risks losing, will financially 
benefit from the income and a share of the profits of Palladian, as 
well as the increased value of Palladian, and that Dr. Barker's 
"legally cognizable financial interests [under Maryland marital 
property law] in income and profits (which will likely exceed 
$100,000), provides compelling evidence of control over Palladian to 
constitute an actual conflict of interest or at a minimum the 
appearance of a conflict."  Further, the protester states that absent 
the requisite financial resources, including Dr. Barker's guaranty, 
Palladian is not a responsible offeror and is not a "viable 
business."[8]  Finally, Cygnus complains that NCI failed to follow 
regulations by not submitting this matter to higher authority to 
determine whether award to Palladian under these circumstances would 
have been appropriate; Cygnus, from a legal standpoint in support of 
this protest ground, principally relies on our decision Revet Envtl. & 
Analytical Labs., Inc., B-221002.2; B-221003.2, July 24, 1986, 86-2 
CPD  para.  102, for its contention that Palladian should have been excluded 
from the competition.

The contracting officer responds as follows:

     "Dr. Barker's relationship with Palladian is limited to serving 
     as one of four guarantors for a line of credit.  Marion Barker 
     used the family residence to help secure the line of credit[,] 
     and it was necessary for both husband and wife to sign as 
     guarantors because they co-own the house. . . .  Dr. Barker is 
     not an officer or employee of the corporation and does not 
     participate in its operations [or exercise any control over 
     corporation matters]. . . .  [While] we were not aware that Dr. 
     Barker was an NIH employee when Palladian was selected for 
     award[,] . . . had we been aware and pursued the issue, we would 
     have found that    Dr. Barker is employed by NIH's National 
     Institute of Neurological Disorders and Stroke rather than NCI 
     (the procuring Institute).  The NCI contracting and program staff 
     involved in this procurement are not acquainted with Dr. Barker 
     and work in different buildings from him in the Rockville and 
     Bethesda, Maryland area.  Dr. Barker has no involvement with the 
     NCI programs for [which] the contract services are being procured 
     and was not involved in developing the contract requirement."[9]

The agency principally relies on our decision, H H & K Builders, Inc., 
B-238095,   Feb. 23, 1990, 90-1 CPD  para.  219, as authority for its 
determination that this matter involves a familial relationship which, 
by itself, is not a sufficient basis to find either an actual conflict 
of interest or an impermissible appearance of a conflict.
   
As a general matter, we have recognized that the responsibility for 
determining whether a firm competing for a contract should be excluded 
from the competition in order to avoid actual or apparent favoritism 
or preferential treatment as a result of a conflict of interest rests 
primarily with the contracting agency.  Revet Envtl. & Analytical 
Labs., Inc., supra at 3.  Similarly, we have held that whether or not 
an agency's established rules of conduct have been violated is a 
matter of policy for resolution by the agency, not this Office.  Big 
Sky Resource Analysts; Paul Ronaldo and Norman Fortunate, B-224888; 
B-224888.2, Jan. 5, 1987, 87-1 CPD  para.  9, at 3.  We will uphold the 
agency's judgment in these matters so long as its determination is 
reasonable.  John Peeples, B-233167, Feb. 21, 1989, 89-1 CPD  para.  178, at 
2.

We think that the agency's determination that the award to Palladian 
does not involve a conflict of interest warranting excluding Palladian 
from the competition was reasonable.  The record shows that Mrs. 
Barker has engaged in her own business career for many years, while 
Dr. Barker is a medical doctor and scientist at the National Institute 
of Neurological Disorders and Stroke, an institute separate from NCI.  
In an affidavit filed with our Office, Dr. Barker states that he "was 
requested to be a guarantor on the line of credit . . . because the 
bank desired me, as the spouse of one of the two owners of Palladian 
Partners, Inc., to agree to the use of the Barker family assets as 
part of the collateral for the line of credit."  He further stated 
that he does not assist in any way in the business of Palladian.

The presence of vested marital property rights of a government 
employee in the assets or income of an offeror controlled by the 
employee's spouse does not, by itself, establish that the government 
employee possesses substantial ownership or control of the offeror, 
see B-167036, Feb. 18, 1970, and there is no evidence in the record to 
show any control here by Dr. Barker over the corporation's affairs.  
In this regard, the record shows only that each spouse has had 
separate and independent careers.  Accordingly, the fact that Dr. 
Barker financially assisted his wife by personally guaranteeing a line 
of credit with a deed of trust on his own home does not provide a 
basis for a finding of a conflict of interest.

We note that in Revet, relied upon by the protester, the government 
employee was president of the bidding corporation, was the sole 
incorporator of the corporation, was listed in the corporation's 
articles of incorporation as president, treasurer and member of the 
Board of Directors, and owned all of its stock.  The government 
employee then transferred all assets to his wife and resigned from the 
corporation.  The agency excluded the company from the competition 
because the circumstances demonstrated the appearance of a conflict of 
interest.  We upheld the exclusion as reasonable.

We think Revet is inapposite.  There has been no showing that Dr. 
Barker was ever in control of or even associated with his wife's 
business; his financial involvement now reflects no more than what a 
spouse reasonably could be expected to do under the circumstances.  We 
therefore find this protest ground to be without merit. 

ALLEGED MISEVALUATION OF PALLADIAN'S COMPANY EXPERIENCE

Cygnus alleges that the agency misevaluated proposals under the 
criteria concerning "related experience of company" and "personnel," 
both of which were contained in section M of the RFP.  The former 
criterion, among other things, required evaluation of the "experience 
of the company in work that is related to the proposed work" and 
required offerors to "provide examples of documents and materials that 
have been prepared by their organization in the recent past on related 
projects."  The latter criterion required evaluation of "the 
qualifications of personnel," including the program manager and other 
personnel.  Cygnus complains that the agency substituted individual 
personnel experience for company experience in the evaluation of 
Palladian's proposal that resulted in double counting (under two 
separate criteria) the personnel resources proposed by Palladian.  
Cygnus also questions whether Palladian, a newly formed company, has 
any "related experience" as a viable and functional corporate entity.

The record shows that on July 24, 1996, the agency issued amendment 
No. 001, which contained questions from offerors and the agency's 
responses, including the following:

     "16.  Under the evaluation criteri[on], 'Related Experience of 
     the Company,' can the related experience of the company's staff 
     be considered along with the related contract experience of the 
     organization?  Newer companies may have experienced staff who 
     have worked on related contracts, but the 'company' may not 
     necessarily have a long history of related contract experience. . 
     . .  Would the [g]overnment consider amending the criteria to 
     also consider the related contract experience of key staff?

     "Yes, related experience of the company's staff can be considered 
     along with the related contract experience of the organization, 
     however, evidence must be provided showing that the company works 
     efficiently as a unit.  The [g]overnment feels that emphasis on 
     historical data is important for the immediate function of the 
     contract upon award.  The criteria will not be revised."

We agree with the agency that this amendment reasonably put offerors 
on notice that staff experience would be considered under the company 
experience criterion.  Moreover, a contracting agency may properly 
consider the experience of a firm's personnel in evaluating its 
organizational experience even where the solicitation defines the 
factor in terms of corporate experience.  Scipar, Inc., B-220645, Feb. 
11, 1986, 86-1 CPD  para.  153, at 10; Energy and Resource Consultants, 
Inc., B-205636,    Sept. 22, 1982, 82-2 CPD  para.  258, at 3.  The agency, 
as previously stated, found as follows:

     "Although most of [Palladian's] experience comes from other 
     companies, the core personnel has worked together as a team for 
     many years.  The company, as comprised of [its] proposed 
     personnel, has direct experience with biomedical projects in the 
     incumbent contract.  The write-up of relevant experience of staff 
     is impressive and fulfills the RFP requirement."

Based on the RFP amendment and our precedents, we have no legal basis 
to object to the agency's evaluation of Palladian's staff as 
fulfilling company experience requirements.  Indeed, under the terms 
of the RFP, as amended, "double counting" of personnel experience was 
reasonable.

ALLEGED MISREPRESENTATIONS IN PALLADIAN'S PROPOSAL

Cygnus alleges that Palladian's proposal contains numerous 
misrepresentations which are material and were relied upon by the 
agency in favorably evaluating Palladian's proposal.  Specifically, 
Cygnus states that Palladian misrepresented the experience of its two 
principals, Marion Millhouse Barker and Cate Timmerman Freeza, former 
Cygnus employees, with respect to their responsibilities on the 
predecessor contract and on other contracts, as well as their 
respective responsibilities to Cygnus.  Cygnus further states that 
"[a]t a minimum, Palladian has overstated in numerous places in its 
proposal the qualifications and/or experience of various individuals 
which it proposed to work on the contract."  We give two examples of 
Cygnus's allegations contained in a table submitted with its comments:

     "Palladian Misrepresentation

     "1.  Proven project staff commitment and experience in meeting 
     the quick turnaround requirements of this contract.

     "Actual Facts [according to the protester]

     "The commitment and experience referred to was that of [Cygnus],  
     and not that of any individual employees who performed on behalf 
     of Cygnus.

     "2.  Excellent editorial staff with experience . . . preparing 
     NCI annual reports.

     "Actual Facts [according to the protester]

     "The majority of persons involved in preparing NCI annual reports 
     are still with Cygnus.  No one individual or subset of people 
     prepared NCI Annual Reports; those reports were prepared by a 
     team of Cygnus employees.  It would be inaccurate and misleading 
     to suggest that NCI Annual Reports were prepared by any one 
     person or group other than the entire team that actually prepared 
     such reports."

An offeror's misrepresentation concerning personnel that materially 
influences an agency's consideration of its proposal generally 
provides a basis for proposal rejection or termination of a contract 
award based upon the proposal.  Prospect Assocs., Inc., B-260696, July 
7, 1995, 95-2 CPD  para.  53, at 4.  A misrepresentation is material where 
an agency has relied upon the misrepresentation and that 
misrepresentation likely had a significant impact on the evaluation.  
Id. at 4-5.

Here, we think the protester's allegation concerns reasonable 
judgmental disagreements as to the extent of involvement of 
Palladian's principals in Cygnus's prior work as Cygnus employees.  At 
most, we think Palladian's alleged "misrepresentations" amount to 
"puffery" and do not, in our view, constitute material 
misrepresentation.  As the agency states, "[i]t is neither surprising 
nor significant that a former employer would, after the fact, offer a 
different view of the duties and accomplishments of two former 
employees, when the former employees have become his direct 
competitors."  We also find it persuasive that Cygnus itself submitted 
letters of commendation in Appendix C of its technical proposal that 
the firm previously received for prior work; 5 of the 11 letters were 
addressed to currently proposed Palladian personnel.  In effect, 
Cygnus's own proposal showed that the proposed Palladian personnel 
previously performed significant work under the predecessor contract 
for Cygnus and gained corresponding experience.

MISCELLANEOUS ISSUES

Although we have reviewed the entire record and Cygnus's lengthy 
submissions, the protester raises other numerous issues which we will 
discuss only in summary fashion.  Cygnus contends that the agency 
failed to adequately evaluate information contained in Cygnus's BAFO 
which would have raised its score and ranking.  We agree with the 
agency that the discussion items quoted above concerned minor or 
relatively minor matters of two excellent proposals.  [Deleted].  In 
response to other items, Cygnus provided certificates of current cost 
or pricing data and a certificate of procurement integrity.  In short, 
we find reasonable the agency's position that the protester's BAFO did 
not involve any major changes whatsoever that could have affected its 
evaluation score.  Moreover, the agency states that the BAFOs were in 
fact reviewed in sufficient detail by competent and qualified 
personnel.  We have no basis to disagree.

Cygnus also alleges that the agency failed to conduct a proper cost 
realism and reasonableness analysis because, for example, the agency 
failed to evaluate the cost of Palladian's "high technology approach" 
(a new Internet web site resulting in a total initial cost of 
$20,000).  As to this contention, we think the amount is de minimis to 
the overall cost of the contract; moreover, the protester acknowledges 
that the government "normalized [in the RFP] the Other Direct Costs 
[such as the website]," and we think the agency was required to follow 
this solicitation evaluation scheme which called for the normalization 
of Other Direct Costs.  See, e.g., Quality Sys., Inc., B-235344; 
B-235344.2, Aug. 31, 1989, 89-2 CPD  para.  197, at 7.  

Cygnus also alleges that various additional evaluation errors 
(concerning cost and technical issues) were committed by the agency, 
such as alleged misevaluation of Palladian's indirect rate, unequal 
treatment of offerors [deleted] and other numerous arguments.  NCI has 
responded to each argument, justifying its actions; the awardee 
responded as well.  We have reviewed the entire record, including all 
relevant evaluation and award decision documents, and find no merit to 
these protest grounds.

Finally, the protester alleges that the selection decision was faulty.  
The agency determined that Palladian was the low offeror [deleted] in 
order to prevail on this final allegation, Cygnus must show that its 
proposal was so technically superior to Palladian's proposal that the 
agency was required to pay a [deleted] to Cygnus based on such 
technical superiority.  We find no such technical superiority from 
this record.  That being so, cost here became the determinative factor 
when the agency effectively determined that the protester and 
Palladian were essentially equal technically.  Ogilvy, Adams & 
Rinehart, B-246172.2, Apr. 1, 1992, 92-1 CPD  para.  332, at 5; Lockheed 
Corp., B-199741.2, July 31, 1981, 81-2 CPD  para.  71, at 8-9.  Accordingly, 
the award to Palladian is unobjectionable.
 
The protest is denied.

Comptroller General
of the United States

1. Thus, the maximum number of possible technical points attainable 
was 100 points.  In addition to the evaluation criteria listed above, 
the RFP contained a mandatory qualification criterion that the 
contractor be located within 60 minutes ground transportation travel 
time from the agency for "fast turnaround" requirements.  Both Cygnus 
and Palladian met this criterion.

2. The RFP also provided for evaluation of each offeror's "Total 
Compensation Plan" (salary and fringe benefits of professional 
employees) to ensure that this compensation reflected a "sound 
management approach and an understanding of the requirements to be 
performed."

3. The fourth ranked offeror had a technical score of [deleted] with a 
                                                cost of [deleted].  We 
                                                will henceforth limit 
                                                our discussion to the 
                                                proposals submitted by 
                                                Cygnus and Palladian.

4. The principals of Palladian are former employees of Cygnus.

5. According to the protester, the contracting officer informed the 
firm at the debriefing that technical rescoring of BAFOs was not 
required since the discussion questions were related to areas which 
the TEP knew the firms either understood or were capable of performing 
so that the original scoring had already taken these factors into 
account.  The agency states that "[i]t should be readily apparent to 
an outside observer that the [discussion questions] were relatively 
minor and, consequently, unlikely to have a major impact on the 
relative standing of offerors."

6. The contracting officer states that "[a]fter review of BAFOs all 
offerors in the competitive range were determined to be technically 
equal [and] therefore, cost became the determining factor in 
compliance with the RFP."  The protester states that "to make a 
determination of technical equivalency based upon initial proposals 
and in advance of receiving responses to technical questions" was 
improper without properly and thoroughly reviewing and evaluating [the 
protester's] BAFO and properly increasing its score because it 
submitted a "perfect BAFO."  According to the protester, since "the 
[a]gency determined that Cygnus and Palladian were technically equal 
and then conducted oral and written negotiations [with subsequent 
BAFOs,] it was obligated [to] rescore proposals in those instances 
where Cygnus addressed and resolved the basis of any weakness assigned 
by the [g]overnment."

7. The line of credit was also secured by the cash value of Mr. 
Barker's life insurance policy.

8. Cygnus states that:

            "Mr. Barker may be more likely to become involved during 
            times of stress rather than at the present time where 
            Palladian has just received its first contract award. . . 
            . Should Palladian receive a show cause letter and be 
            threatened with a termination for default,         Mr. 
            Barker may find the temptation great--and possibly 
            irresistible--to contact his compatriots and lunch-room 
            buddies [at] NIH in view of the fact that his home and the 
            cash value of his life insurance are at risk."

9. The contracting officer states that the NCI and NIH Ethics Offices 
orally informed her after the fact that "there are no actual or 
apparent conflicts of interest or any other grounds resulting from Dr. 
Barker's guarantorship of the line of credit and/or his marriage to 
Marion Millhouse Barker for excluding Palladian from the competition."