BNUMBER:  B-277051 
DATE:  August 22, 1997
TITLE: Voith Hydro, Inc., B-277051, August 22, 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:Voith Hydro, Inc.

File:     B-277051

Date:August 22, 1997

Michael Fischer, Esq., Timothy J. Saviano, Esq., Foley & Lardner, for 
the protester.
Sherry K. Kaswell, Esq., and Justin P. Patterson, Esq., Department of 
the Interior, for the agency.
John Van Schaik, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest is sustained where, although offeror indicated its intent to 
manufacture required items in a new plant, which the agency considered 
would give rise to unacceptable risk and therefore constituted the 
primary weakness in the firm's proposal, the agency failed to raise in 
discussions its concerns about use of that plant.

DECISION

Voith Hydro, Inc. protests the exclusion of its proposal from the 
competitive range under request for proposals (RFP) No. 
1425-96-SP-10-13640, issued by the Department of the Interior for 18 
hydraulic-turbine runners for the Grand Coulee Dam Powerplant. 

We sustain the protest based on our conclusion that Interior failed to 
conduct meaningful discussions. 

As amended, the RFP required that each offeror's technical proposal be 
submitted as a separate volume of the proposal and include "detailed 
information of the proposed manufacturing method and facilities to be 
used during the runner replacement and turbine rehabilitation work. . 
. ."  The technical volume of Voith's initial proposal did not state 
the manufacturing facility the firm would use.

After receipt and evaluation of initial proposals, the agency created 
a competitive range including Voith's proposal.  By letter of February 
12, the contracting officer informed Voith that its proposal was in 
the competitive range and provided the firm with questions and 
comments concerning the proposal, including:  "Where will the runners 
be manufactured?  Please provide information on the manufacturing 
capabilities of that location.  This is a deficiency, and--as 
such--will render your proposal unacceptable unless you provide the 
requested information."  (Emphasis omitted.)

The February 12 letter also scheduled an oral presentation/question 
and answer session with Voith and asked the firm to respond to the 
written questions and comments before the meeting.

In response to the above question, in a February 28 letter Voith 
stated:

     Voith Hydro companies have six (6) major hydro-turbine 
     manufacturing facilities throughout the world capable and 
     experienced in manufacturing and supplying runners to the 
     hydropower generation market.  Voith would therefore recommend 
     for a long term project such as Grand Coulee, that our commitment 
     be that the runners will all be manufactured at a Voith 
     manufacturing facility.  This would allow best management of 
     schedules and risks.  However, if this is not acceptable, Voith 
     will commit, as indicated in the proposal, that nine (9) runners 
     would be manufactured in China, which more specifically would be 
     our SHEC (Shanghai Hydro-Power Equipment Company, Ltd.) facility 
     in Shanghai, China.  The remaining nine (9) runners would be 
     manufactured at our Voith Hydro facility in York, Pennsylvania.  
     [Emphasis in original.]

Voith then made an oral presentation and participated in a question 
and answer session.  An agency memorandum dated March 5, under the 
heading "Manufacturing methods and facilities," describes the two 
options for manufacturing the runners which Voith proposed in its 
February 28 letter.  The memorandum then states "the proposed [SHEC] 
fabrication facility was the primary weakness in the offeror's 
proposal."  According to the memorandum, this was because SHEC is a 
start-up facility and will have a long learning curve before a high 
quality product can be produced consistently.  The memorandum also 
states that due to the critical need for high efficiency and 
uncompromised reliability from the Grand Coulee runners, the agency 
cannot afford the risk of an unproven facility with an inexperienced 
work force.  In addition, the memorandum states:

     The [contracting officer] informed the offeror that the 
     [evaluators] can only evaluate what is proposed and that given 
     several options they will have to assume the least favorable and 
     thus the proposal will be evaluated accordingly.  There was an 
     indication that Voith will commit to one of the two options.  
     Regardless of the option selected it appears to the [evaluators] 
     that Voith has committed to a new plant in China and that the 
     runners will be manufactured in this new plant that does not have 
     a proven record.  This is a deep concern to the [evaluators] . . 
     . .

Nonetheless, the agency left Voith's proposal in the competitive range 
and requested a best and final offer (BAFO) from Voith along with the 
other competitive range offerors.  The BAFO request letter to Voith 
included no questions or additional comments concerning the firm's 
proposal.

Voith's BAFO stated that the firm would supply nine runners 
manufactured at the SHEC plant.  Based on their review of Voith's 
BAFO, agency evaluators recommended that Voith's proposal be removed 
from the competitive range "due to the proposed use of an unproven 
manufacturing facility and an inexperienced workforce for nine of the 
runners."  In a letter excluding Voith's proposal from the revised 
competitive range, the contracting officer explained that the SHEC 
facility "was the primary weakness in [the firm's] proposal, and the 
cause of your removal from the competitive range."

Voith argues that Interior failed to conduct meaningful discussions 
because the agency failed to advise the firm that the SHEC facility 
was the major weakness in the firm's proposal, even though Voith's 
representatives specifically asked the contracting officer during 
discussions whether the agency had concerns about that facility.  
Voith notes that during discussions, instead of informing Voith of the 
agency's concerns about the SHEC plant, the contracting officer simply 
requested a firm commitment as to the facilities where Voith would 
manufacture the runners and Voith argues that it cured this 
deficiency.  Finally, Voith states, had the agency identified the SHEC 
facility as a major weakness in Voith's proposal, the firm would have 
proposed to manufacture the runners at one of its other five plants.

In negotiated procurements, contracting officers generally are 
required to conduct discussions with all offerors whose proposals are 
included in the competitive range.  Federal Acquisition Regulation 
(FAR)  sec.  15.610.  Although discussions need not be all-encompassing, 
discussions are required to be meaningful; that is, the agency must 
lead offerors into the areas of their proposals which require 
amplification or correction.  Serv-Air, Inc.; Kay and Assocs., Inc., 
B-258243 et al., Dec. 28, 1994, 96-1 CPD  para.  267 at 6.  In this regard, 
the agency is required to point out weaknesses, excesses, or 
deficiencies in a proposal unless doing so would result in technical 
transfusion or leveling.  FAR  sec.  15.610(c), (d) and (e); Innovative 
Training Sys., B-251225.3, Oct. 19, 1993, 93-2 CPD  para.  232 at 3.  
Discussions are not meaningful where the agency does not inform an 
offeror of the central deficiency in its proposal.  E.L. Hamm & 
Assocs., Inc., B-250932, Feb. 19, 1993, 93-1 CPD  para.  156 at 3-5.  In 
short, discussions cannot be meaningful unless they lead an offeror 
into those aspects of its proposal that must be addressed in order for 
it to have a reasonable chance of being selected for award.  Global 
Indus., Inc., B-270592.2 et al., Mar. 29, 1996, 96-2 CPD  para.  85 at 4-5.  
Under this standard, Interior should have advised Voith of the 
agency's concerns with the SHEC facility so that Voith would have an 
opportunity to decide whether to continue to propose that facility.

Interior does not argue that it raised this matter in discussions or 
that it otherwise placed Voith on notice of the agency's concerns 
regarding the SHEC plant.  On the contrary, the agency specifically 
states that it did not raise this issue during discussions because 
Voith's initial technical proposal did not commit the firm to 
manufacture runners at the SHEC facility, so agency officials were not 
aware of this possible deficiency in order to raise it in discussions.  
Thus, Interior argues that due to Voith's failure to provide the 
requested information in its initial proposal, Voith's proposal did 
not have the weakness until after it submitted its BAFO.  According to 
the agency, by seeking to keep its options open and by not providing 
the information required by the RFP--and specifically requested by the 
contracting officer--Voith effectively hid the weakness until it was 
forced to commit to a specific manufacturing facility, which it 
finally did in its BAFO. 

While we agree that Interior could reasonably conclude that Voith's 
initial proposal did not contain a contractually binding commitment to 
manufacture runners at the SHEC facility, during discussions and 
before BAFOs were requested, the agency had sufficient understanding 
that Voith planned to use the SHEC facility to raise the matter in 
discussions.[1]  Voith's February 28 letter clearly indicated Voith's 
commitment to production of nine of the runners at the SHEC facility.  
As explained above, although Voith recommended in that letter that it 
be permitted the option of manufacturing the runners at any Voith 
manufacturing facility, the letter also stated "if this is not 
acceptable, Voith will commit, as indicated in the proposal, that nine 
(9) runners would be manufactured in China, which more specifically 
would be our SHEC . . . facility in Shanghai, China."  Since the lack 
of a commitment to specific facilities in fact was not acceptable to 
the agency, we think a reasonable reading of that letter should have 
led (and, in fact, did lead) agency officials to understand that Voith 
planned to produce runners at the SHEC facility.  Accordingly, the 
agency was required to raise that major weakness in discussions with 
Voith.

In any event, the record shows that agency officials understood, 
before receipt of Voith's BAFO, that the firm was proposing to 
manufacture some of the runners at the SHEC facility.  As explained 
above, the agency's March 5 memorandum (written before BAFO's were 
received) stated that, given the options offered by Voith, the agency 
would "assume the least favorable" one.  The memorandum also stated 
"[r]egardless of the option selected it appears to the [evaluators] 
that Voith has committed to a new plant in China and that the runners 
will be manufactured in this new plant that does not have a proven 
record."  Finally the memorandum stated that the SHEC facility "was 
the primary weakness in the offeror's proposal."  Thus, although 
Interior now argues that at the time of discussions, Voith's proposal 
did not include the weakness at issue here, the contemporaneous record 
shows that, based on the February 28 letter, the agency's evaluators 
did understand during discussions that Voith's proposal included the 
plan to manufacture the runners at the SHEC facility.[2]

In addition to arguing that it was not aware of the weakness in 
Voith's proposal, Interior argues that it was not permitted to discuss 
with Voith the firm's plan to use the SHEC facility.  According to the 
agency, the contracting officer concluded that determining which 
facility to propose was a business decision properly left to Voith and 
that, had he discussed how the evaluators would rate the SHEC facility 
before Voith "committed" to using that facility, he would have engaged 
in "impermissible coaching," or technical leveling.  In this respect, 
the agency argues that it was each offeror's responsibility to decide 
where it would manufacture the runners and it would have been improper 
to seek to improve Voith's technically acceptable proposal through 
repeated rounds of discussions which coached the firm concerning the 
agency's view that Voith's particular proposed "approach" was not the 
desired way of meeting the agency's needs.

There is no merit to this argument, which would, in effect, foreclose 
the government from obtaining the best offers for needed goods and 
services.  Technical leveling--which is often referred to as improper 
coaching--occurs when an agency, through successive rounds of 
discussions, helps to bring a proposal up to the level of another 
proposal by pointing out weaknesses that remain in the proposal due to 
an offeror's lack of diligence, competence, or inventiveness, after 
having been given an opportunity to correct them.  FAR  sec.  15.610(d); 
CBIS Fed. Inc., 71 Comp. Gen. 319, 324-328 (1992), 92-1 CPD  para.  308 at 
7-9.  As we concluded above, the weakness remained in Voith's proposal 
simply because agency officials never pointed out that they considered 
the SHEC facility to be a weakness, not because of a lack of 
diligence, competence, or inventiveness on Voith's part.[3]

Finally, Voith challenges Interior's evaluation that the firm's 
proposed use of the SHEC facility entailed unacceptable risk.  We will 
question an agency's evaluation of proposals only if the record 
demonstrates that it was unreasonable or inconsistent with the RFP's 
evaluation criteria.  Microwave Solutions, Inc., B-245963, Feb. 10, 
1992, 92-1 CPD  para.  169 at 2.  Here, there has been no such showing.  
Voith has not argued that the evaluation was inconsistent with the 
evaluation criteria and we have no basis to challenge the evaluators' 
concern that, due to the critical need for efficiency and reliability 
from the runners, the agency cannot afford the risk of an unproven 
facility.  Nonetheless, as we explain above, had the agency identified 
the SHEC facility as a major weakness in Voith's proposal, it appears 
likely that the firm would have proposed one of its other five 
facilities for manufacturing the runners.

We recommend that the agency provide Voith the opportunity to amend 
its proposal to substitute another plant for the SHEC facility.  If 
Voith does so, we recommend that the agency then reassess whether the 
revised proposal should be included in the competitive range and 
considered for award.  We also recommend that the protester be 
reimbursed its costs of filing and pursuing its protest, including 
reasonable attorneys' fees. Bid Protest Regulations, 4 C.F.R.  sec.  
21.8(d)(1) (1997).  The protester should submit its certified claim 
for costs to the contracting agency within 60 days of receiving this 
decision.  4 C.F.R.  sec.  21.8(f)(1). 

The protest is sustained.

Comptroller General
of the United States

1. Voith argues that two references in Voith's initial proposal 
reasonably should have placed agency officials on notice that the firm 
planned to manufacture some of the runners at that facility.  First, 
under the heading "Listing of Possible Sub-Contractors," the proposal, 
in a volume other than the technical volume, listed the SHEC facility 
in Shanghai, China for "Runner Fabrication."  Second, also not in the 
technical volume, Voith's proposal included the standard "Buy American 
Act--Trade Agreements--Balance of Payments Program Certificate" filled 
out to indicate that Voith would supply items manufactured in China to 
meet the requirements of line item number five of the RFP.  That line 
item is for designing and furnishing nine of the runners required 
under the contract.  As we explain below, we conclude that Voith's 
February 28 letter should have led the agency to raise in discussions 
its concerns about the SHEC facility.  Consequently, we need not 
decide whether the references in Voith's initial proposal should have 
led the agency to raise this matter in discussions.

2. Interior is correct that the RFP called for offerors to provide 
detailed information on the proposed manufacturing facilities and 
Voith's initial proposal failed to provide that information.  
Nonetheless, this does not excuse Interior from its obligation under 
the FAR to conduct meaningful discussions once the agency included 
Voith's proposal in the competitive range, received Voith's February 
28 letter, and proceeded to conduct a face-to-face session with Voith 
in early March.

3. Interior also appears to believe that it would have constituted 
technical transfusion to have discussed with Voith "the desirability 
of using a proven manufacturing facility as its competitors had 
proposed."  Disclosure of one offeror's approach to another is unfair 
and is prohibited as technical transfusion.  See FAR  sec.  15.610(e); CBIS 
Fed. Inc., supra, at 8.  Here, however, to have advised Voith that the 
agency had serious concerns about the SHEC facility would have told 
Voith nothing about its competitors' proposals and therefore would not 
have constituted technical transfusion.