BNUMBER: B-277260.2
DATE: March 25, 1998
TITLE: Techno-Sciences, Inc., B-277260.2, March 25, 1998
**********************************************************************
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Matter of:Techno-Sciences, Inc.
File: B-277260.2
Date:March 25, 1998
Minh N. Vu, Esq., Latham & Watkins, for the protester.
Mark Langstein, Esq., and Amy L. Freeman, Esq., Department of
Commerce, 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
Market survey undertaken in response to recommendation for corrective
action contained in prior decision, which sustained a protest because
the agency failed to properly determine whether a section 8(a)
contract was awarded at a fair market price, is not a reasonable
method of making this determination because the 8(a) contractor is not
performing all of the requirements that the respondents to the survey
were requested to price.
DECISION
Techno-Sciences, Inc. protests a market survey undertaken by the
National Oceanic and Atmospheric Administration (NOAA), Department of
Commerce to implement corrective action recommended in our decision in
Techno-Sciences, Inc., B-277260, Sept. 22, 1997, 97-2 CPD para. 115. That
decision sustained Techno-Sciences's protest of the award of a
contract to Research and Professional Services, Inc. (RPS) negotiated
through the Small Business Administration's (SBA) section 8(a)
set-aside program under request for proposals (RFP) No.
50-DDNE-7-90034, for software development, testing, and maintenance to
support the United States Mission Control Center (USMCC).
We sustain the protest.
BACKGROUND
As detailed in our prior decision, the USMCC is the United States's
component of the International Cospas-Sarsat satellite-based search
and rescue system that uses satellites to detect and locate emergency
beacons emitted by ships, aircraft, or individuals. Techno-Sciences
has been a NOAA contractor for software services supporting the USMCC
since 1990 and owns the proprietary software that supports the on-line
functions of the USMCC. After unsuccessfully attempting to purchase
the software from, and renegotiate the contract with, Techno-Sciences,
NOAA determined not to exercise Techno-Sciences's contract option
commencing May 10, 1996.
On November 11, 1996, NOAA issued a requisition for a contractor to
code and test nonproprietary software to operate the on-line functions
of the USMCC, which would replace Techno-Sciences's proprietary
software.[1] NOAA offered the requirement to the SBA to be performed
under the section 8(a) program and identified RPS as the recommended
contractor for this requirement. The contract was to have a 12-month
base period and three 12-month options at a total estimated value of
$500,000.[2] On November 26, the SBA nominated RPS as the 8(a)
contractor.
On March 14, 1997, following negotiations with RPS, and after
determining its cost was reasonable, NOAA awarded a
cost-plus-fixed-fee 8(a) contract to RPS at a total estimated cost of
$829,256, reflecting a base estimated cost of $323,650 and estimated
costs for the option years of $160,517, $168,472, and $176,617,
respectively. The basic contract price simply reflects the costs of
four computer programmers who would code and test the developed
replacement software. Section C.4 of the RPS contract statement of
work (SOW) described the USMCC on-line functions included in the
contract and section C.5.a stated that the contractor would code
modules following Program Design Specifications (PDS) provided by the
government.[3]
Meanwhile, at the International Cospas-Sarsat manufacturers meeting on
October 24, 1996, Techno-Sciences introduced its fourth generation
mission control center (MCC) software purportedly satisfying all of
the current Cospas-Sarsat requirements at an advertised price of
$100,000. In November 1996, Techno-Sciences informed NOAA of its
interest in participating in a competition for its USMCC software
development and maintenance requirement. On April 8, 1997,
Techno-Sciences presented NOAA with an unsolicited offer to provide
its fourth generation software at a price of $100,000.
Techno-Sciences protested that RPS's award price exceeded the fair
market price for the software in violation of Federal Acquisition
Regulation (FAR) sec. 19.806(b); that the agency did not conduct a proper
market survey as required by applicable regulations; and that the
agency did not consider Techno-Sciences's offered $100,000 fixed price
for its fourth generation MCC software, which assertedly meets the
agency's requirements.
We agreed and found that FAR sec. 19.807(b), which requires the
contracting officer to "use cost or price analysis and consider the
commercial prices for similar products and services" in estimating the
fair market price of an 8(a) contract, obligated the agency to
undertake a current investigation of the marketplace in order to
determine commercial prices for possible nonproprietary solutions to
its software needs. Although NOAA asserted that Techno-Sciences's
software could not meet the minimum needs of NOAA, we found that other
than its general disagreement, the agency had not offered evidence
demonstrating the unacceptability of Techno-Sciences's software or of
Techno-Sciences's offer to supply nonproprietary software to meet the
USMCC requirements, as amplified by NOAA in its agency report, for
approximately $140,000, which was substantially less than the 8(a)
award price. Thus, we concluded that the agency had not reasonably
determined that the RPS award was at a fair market price.
We recommended that the agency review its fair market price estimate,
specifically considering Techno-Sciences's MCC software, including
enhancements and annual upgrade prices. If it was determined that the
RPS contract costs exceeded a fair market price for a similar product
and service meeting the agency's needs, we recommended that NOAA
terminate RPS's contract, withdraw the 8(a) set aside, and fulfill its
requirements under an unrestricted procurement.
To implement our recommendation, NOAA commenced a market survey on
November 6, 1997, by issuing a request for information (RFI) to
various industry sources, including Techno-Sciences, requesting the
prices of the MCC nonproprietary software product as modified to
satisfy NOAA's requirements, documentation detailing the design, data,
and file structures of the software, and a hard copy of the source
code of the software. Responders were advised that the proposed MCC
software must satisfy the requirements contained in sections 1 through
10 of the attached "Fourth Generation United States Mission Control
Center (FG USMCC), Functional Requirements Analysis (FRA), dated
October 17, 1997, Version 1.0." Among the requirements in the FRA
were that the software perform local user terminal (LUT) pass
scheduling in section 5 and search and rescue (SAR) mapping in section
6. Responses were due by November 24.
Techno-Sciences filed an agency-level protest against the market
survey on November 20. Techno-Sciences protested that sections 1
through 10 of the FRA were not a valid basis on which to conduct the
market survey because the FRA was not a part of the RPS contract.
Techno-Sciences asserted that the FRA contained requirements in
addition to those specified in section C.4 of the RPS contract SOW,
and that several of the requirements in sections 1 through 10 related
to off-line functions of the USMCC, which were beyond the scope of the
RPS contract that only covered the software's on-line functions.
Techno-Sciences also noted that NOAA never referenced or produced the
FRA during the course of the original protest, notwithstanding that
the requirements to be satisfied by the RPS contract were a specific
issue of that protest. Finally, Techno-Sciences argued that the
requests for documentation detailing the design, data, and file
structures of the software, and a hard copy of the source code of the
software were unreasonable in the context of a market survey.
Techno-Sciences responded to the market survey on November 24, but
only in accordance with the requirements expressly listed in the RPS
contract SOW.
NOAA denied Techno-Sciences's agency-level protest on December 3. The
contracting officer advised that "whether providing the FRA would have
benefitted the resolution of the previous protest, the fact that NOAA
did not is irrelevant . . . [since] (1) the FRA existed prior to award
of the contract and (2) RPS is coding software to specifications based
upon the FRA." In this regard, she explained that the FRA is the
requirements document from which the specifications in the PDS were
derived, and that this document was not required to be included in
RPS's contract. Further, she explained that the description of
functions contained in section C.4 of the SOW was not a comprehensive
list of specific USMCC requirements, and that section C.5.a
specifically stated that the contractor would be developing the
software in accordance with a PDS provided by the government. NOAA
advised that sections 1 through 10 of the FRA did not contain any
"off-line" functions,[4] and that the agency needed the source code
and related documentation to ensure that it can determine whether its
requirements are met and to evaluate the maintainability of the
software. NOAA extended the due date for responses to the market
survey to December 8.
On December 5, Techno-Sciences requested that NOAA provide it with a
copy of the PDS in order to determine what, if any, enhancements to
Techno-Sciences's MCC software were necessary to meet the agency's
requirements. Techno-Sciences continued to argue that the FRA was
not an appropriate document to use for the market survey and
complained that the FRA was unclear regarding the agency's software
requirements, inasmuch as it was not possible to determine which
requirements were to be newly developed and which requirements were
not.[5]
On December 9, the contracting officer advised Techno-Sciences that,
although the PDS was not needed to respond to the market survey
because the PDS contained the details of implementing the requirements
in sections 1 through 10 of the FRA, the PDS would nevertheless be
provided, but that Techno-Sciences should respond to the survey
utilizing the requirements contained in the FRA.[6] She also stated
the following:
Every statement in Sections 1-10 of the FRA which contains the
word "shall" is a mandatory requirement of the survey.
[Techno-Sciences] should analyze the FRA requirements against its
commercial software solution to determine whether it will or will
not satisfy these requirements and provide an estimate of the
cost for any modifications to satisfy these requirements.
Rather than submitting an amended response, Techno-Sciences filed this
protest on December 15 challenging the market survey. Techno-Sciences
makes essentially the same objections to the market survey that it did
in its agency-level protest, that is, that the FRA is not an
appropriate document upon which NOAA may conduct the market survey
because there is no evidence that the agency considered the
requirements in the FRA in estimating the costs of RPS's contract and
because the FRA includes requirements not being satisfied by RPS under
its contract.[7] Techno-Sciences argues that all of the agency's
actions reflect the agency's bad faith toward Techno-Sciences and have
been designed to eliminate Techno-Sciences from the USMCC program.
PRELIMINARY ISSUES
NOAA first contends that Techno-Sciences's protest allegation that the
market survey inappropriately considers requirements beyond the scope
of the RPS contract is untimely. NOAA argues that Techno-Sciences's
should have been aware that the work under the RPS contract would
exceed the SOW because the agency "consistently took the position that
the items specifically listed in the RPS contract [SOW] did not
represent the full scope of the RPS effort" in the prior protest, such
that Techno-Sciences should have realized that there was additional
documentation of what was really included in that contract that it
should have diligently pursued at that time.
The agency's request for dismissal of the protest as untimely is
meritless. In this regard, although the developing FRA was relevant
to the issues of the prior protest, the agency did not mention or
refer to this document or specifically produce any concrete evidence
that the requirements of the software were other than as reflected in
the SOW in the RPS contract. Because NOAA possessed the FRA, but
failed to produce it or otherwise divulge its contents until the
market survey, there is no basis to find that Techno-Sciences's
arguments related to this information are untimely.[8] In any event,
the protest concerns the propriety of the market survey undertaken by
NOAA to implement the corrective action recommended in our prior
decision, such that Techno-Sciences's protest, filed within 10 days of
receipt of its denial of its timely agency-level protest of the nature
of the market survey, is timely. 4 C.F.R. sec. 21.2(a)(2), (3) (1997).
NOAA next argues that Techno-Sciences's protest should be dismissed
because Techno-Sciences is not an interested party under our
Regulations. An interested party is an actual or prospective bidder
or offeror whose direct economic interest would be affected by the
award of a contract or by the failure to award a contract, which the
protester is required to demonstrate. 4 C.F.R. sec. 21.0(a), 21.1(a).
NOAA argues that the requirement to consider commercial prices in
connection with FAR sec. 19.807 only requires that the agency consider
the commercial prices of commercial items as defined under FAR sec.
2.101. NOAA argues that there is no evidence that Techno-Sciences's
nonproprietary MCC software is a commercial item because the protester
has not shown that the software has been sold or offered for sale to
the general public. NOAA therefore argues that Techno-Sciences is not
an interested party since it would not have been a qualified
respondent to the survey.
We disagree. Even assuming that Techno-Sciences's product is not a
commercial item, there is nothing in the FAR that suggests that the
term "commercial price" used in FAR sec. 19.807(b) is limited to the
prices for commercial items. Since the purpose behind estimating fair
market price is to ensure that the government is not paying 8(a)
contractors more than the fair market value of goods and services, it
would be inconsistent with the purpose of the regulation to only
compare the 8(a) contract price to prices of commercial items. Thus,
we find that Techno-Sciences, which develops and sells commercial MCC
software that it sells worldwide, is an interested party because it
may have the opportunity to compete for the agency's requirements if
it is determined that the RPS award was not made at a fair market
price.
PROTEST ISSUES
To comply with the recommendation in our September 22, 1997, decision,
NOAA was only required to provide Techno-Sciences with the information
necessary for it to provide a price based upon the same work used to
estimate the price of RPS's contract. The agency's decision to issue
an RFI to any interested vendor was not unreasonable. However,
requesting responses based upon a statement of requirements that is
materially different from the RPS contract was not a reasonable method
to determine whether RPS's contract is at a fair market price.
We granted the protester's request for a hearing since the record did
not clearly reflect that the FRA contained the same requirements for
the MCC software as those contained in the RPS contract, which cast
doubt on the propriety of utilizing the market survey as a basis to
determine whether the RPS award was at a fair market price. On the
day before the hearing, the agency advised that the primary witness,
NOAA's contracting officer's technical representative, who was
responsible for deciding to acquire the MCC software from RPS,
drafting the RPS contract SOW, estimating the fair market price for
the RPS contract, and using the FRA as the basis for the market
survey, Tr. at 106-07, 143, 150, 177-79, would be unable to attend
because he had health problems caused by the nature of the allegations
raised in this protest. The medical documentation submitted after the
hearing reports that this individual was suffering from job related
stress that would require him to take leave for 3 weeks. Our Office
offered the agency the opportunity to produce this witness at a later
date, but the agency declined to do so.
Testimony was obtained from the NOAA systems analyst who worked with
the contracting officer's technical representative. He testified that
the FRA in draft form was in existence in September 1996; that it was
reissued in October 1996; that it was revised and reissued in July
1997; and that following further review and revision it was reissued
in October 1997. Tr. at 14-15, 21-26. He testified that the FRA
underwent several changes to the requirements, after negotiation and
award of the RPS contract; although he claimed these changes were
minor in the context of the total FRA requirements, he also admitted
that many of the changes involved critical aspects of the software and
in some instances FRA requirements were deleted.[9] Tr. at 26-28, 32,
60-70. He also testified that the requirements in the FRA for LUT
pass scheduling and SAR mapping were not being developed by RPS under
its contract, since the agency intended to use existing software. Tr.
at 38-39, 41, 107-08. He could not say for certain whether other
already coded aspects called for in the FRA, such as the automated
output communication capability produced by SSAI as part of a
work-around to the current USMCC software, would be re-used as part of
the upgraded fourth generation USMCC, such that the code need not be
written by RPS. Tr. at 100.
The protester argues that, since the FRA has been significantly
modified from the time the RPS contract was awarded, the FRA cannot
fairly be used as the basis for the market survey to ascertain whether
the RPS award price was at a fair market price. We disagree.
The details of implementing our protest recommendations for corrective
action are generally within the sound discretion and judgment of the
contracting agency. QuanTech, Inc., B-265869.2, Mar. 20, 1996, 96-1
CPD para. 160 at 2. Given this flexibility, we agree with NOAA that the
FRA need not match the exact requirements contemplated to be performed
under the RPS contract as of the time of contract award because NOAA's
USMCC requirements have understandably evolved. The market survey
could be based on NOAA's current requirements that are to be satisfied
under the RPS contracts, see BNF Techs., Inc., B-254953.4, Dec. 22,
1994, 94-2 CPD para. 258 at 3-5, as long as the revised requirements
document is the same baseline on which the fairness of RPS's contract
price is judged. That is, if the agency is going to obtain commercial
prices based on the updated FRA, which includes various changes made
since contract award, it must also reassess RPS's contract price in
view of the changed requirements.[10] Similarly, to compare prices to
the current RPS contract price estimate, the commercial prices must be
based upon the same material requirements as those in the RPS
contract.
As noted, the systems analyst testified that some of these FRA
requirements, i.e., LUT pass scheduling and SAR mapping, are not being
met under RPS's contract. Yet, our review of the record shows that
the LUT pass scheduling and SAR mapping requirements of sections 5 and
6 are mandatory; each requirement and the various elements of these
requirements is preceded by the word "shall." As the contracting
officer unequivocally advised Techno-Sciences, this made these
requirements "mandatory" to respondents to the survey. Also, the
systems analyst admitted that respondents to the survey would not have
known that their software did not have to perform LUT pass scheduling
or SAR mapping. Tr. at 107-10. Our review of the nature of the LUT
pass scheduling and SAR mapping requirements indicates that they are
material to the MCC software development project, particularly given
the overall scope and value of the RPS contract work.
Moreover, the systems analyst stated that there may be other FRA
requirements that will not be satisfied under the RPS contract and
that the contracting officer's technical representative or SSAI
employees may be aware of such discrepancies. Tr. at 100, 109-10.
Although not critical to our decision, because the agency did not
produce, as requested, the contracting officer's technical
representative or other witness with knowledge of these matters, we
assume that other requirements mandated by the FRA, with which
respondents were required to comply, are inconsistent with the work
required under the RPS contract.[11] 4 C.F.R. sec. 21.7(f); see Guardian
Techs. Int'l, B-270213 et al., Feb. 20, 1996, 96-1 CPD para. 104 at 9-11.
NOAA nevertheless argues that no MCC manufacturer would have been
prejudiced by not knowing what specific requirements were being met
under RPS's contract, since all current manufacturers of MCC software
have systems that currently perform SAR mapping and because
Techno-Sciences should have known from its prior experience that
software was already available for LUT pass scheduling. Tr. at 38-42,
108. NOAA argues that it was clear from the market survey that if a
commercial MCC system already performed a required function, the
respondent could simply note that fact and would not need to provide
an estimate of the cost for the enhancement. Id. NOAA also
references the statement in the FRA, "the applications software for
the FG USMCC shall require new development, but where possible,
algorithms used currently by the USMCC shall be used," which it argues
put Techno-Sciences on notice that some of the FRA requirements could
be satisfied by software already developed by the government.
From our review of the RFI and FRA, we cannot determine how a
respondent would be able to submit a price ignoring FRA requirements
that are not required to be coded because current NOAA software will
be used for this purpose. In this regard, the FRA provided no
guidance as to which algorithms or other FRA requirements may not be
required,[12] Tr at 107-10, and when the contracting officer was asked
for guidance by Techno-Sciences, she stated that all "shall"
statements are mandatory requirements of the survey. Thus, the FRA
and the implementing instructions from the agency were at best
confusing as to which FRA requirements had to be satisfied.
More fundamentally, the agency's essential argument, that respondents
should ascertain for themselves what FRA requirements will actually be
satisfied under the RPS contract, ignores the reason for the
survey--to determine whether the RPS contract price was reasonable.
In order for such an analysis to have validity, it must be made on a
common baseline. Specifically, if the survey requests prices for work
beyond that required of RPS, we do not understand how the results of
the survey will fairly show whether the contract price is reasonable.
Techno-Sciences protests that the RFI's request that respondents
provide the source code and related documentation goes beyond the
purpose of the market survey because it is not necessary to evaluate
Techno-Sciences's price for providing software that meets the agency's
requirements. While the agency claims that it needs this information
to determine whether commercial software could meet all of the
requirements of the USMCC and to evaluate the potential costs of
maintaining a particular respondent's software, Techno-Sciences
asserts that there are alternatives short of providing this highly
sensitive documentation that would satisfy the agency's requirements.
Techno-Sciences also argues that although the agency now states that
it is willing to negotiate a non-disclosure agreement with
Techno-Sciences regarding this information, this protection may be
insufficient given the agency's bad faith conduct in attempting to
exclude Techno-Sciences from its program. Finally, Techno-Sciences
notes, and the record confirms, that the agency has been
unsuccessfully trying to obtain this information from Techno-Sciences
at a cost.
The agency has not provided a cogent explanation why it needs all of
the requested highly sensitive information, given that it is only
being provided to assess whether the RPS award price is reasonable,
and it may be that some lesser amount of information may be sufficient
to satisfy the purposes of the agency's request--for example, a
product demonstration or some more summary description of the offered
software may be sufficient for the purposes of a market survey. See
generally Aspen Sys. Corp., B-272213.2, Oct. 22, 1996, 96-2 CPD para. 153
at 2-3 (agency reasonably found that a market survey should not
require detailed proposals from small businesses to determine whether
to set aside a procurement for small business). Nevertheless, on this
record, given the agency's willingness to enter into a non-disclosure
agreement, we cannot conclude that the agency does not, in fact,
require the information for the purposes stated. Moreover, we cannot
say that the agency will not honor a non-disclosure agreement or that
the agency has acted in bad faith. However, since we otherwise
sustain this protest, the agency will have the opportunity to reassess
whether the requested information is actually required.
RECOMMENDATION
We recommend that the agency review its fair market price estimate,
considering Techno-Sciences's MCC software, including enhancements and
annual upgrade prices. In so doing, the agency should fairly describe
for Techno-Sciences the material requirements upon which RPS's
comparison contract price is based. In this regard, if the agency
wants to update its statement of requirements to reflect its currently
existing requirements for the software, the impact of the cost of the
existing requirements on the RPS contract price must also be
determined.[13] If it is determined that the RPS contract cost
exceeds a fair market price, then NOAA should terminate RPS's
contract, withdraw the 8(a) set aside, and fulfill this requirement
under an unrestricted procurement. We also recommend that the
protester be reimbursed its costs of filing and pursuing the protest,
including reasonable attorneys' fees. 4 C.F.R. sec. 21.8(d)(1). The
protester should submit its certified claim for such costs, detailing
the time expended and the costs incurred, directly to the contacting
agency within 60 days of receiving this decision.
The protest is sustained.
Comptroller General
of the United States
1. Science Systems and Applications, Inc. (SSAI) is the contractor
responsible for the software for the off-line functions of the USMCC.
2. There was no contemporaneous documentation reflecting the agency's
methodology for arriving at this original fair market price estimate;
however, during the protest the agency argued that the estimate was
understated based upon RPS's proposed costs.
3. The government was to provide the PDS within 90 days of award. The
record shows that the government has only provided draft portions of
the PDS to RPS, and does not know when the PDS will be completed.
Hearing Transcript (Tr.) at 125-26.
4. We understand the off-line functions here to be those not integral
to the existing MCC.
5. Techno-Sciences also made the following offer that was rejected by
the agency:
Assuming the PDS fairly represents the [RPS] contract
statement of work (and without having seen the PDS),
[Techno-Sciences] will agree to give NOAA unlimited
ownership rights to its [FG MCC] and to do any
enhancements required by the PDS for a total not to exceed
80 [percent] of the RPS contract price.
6. NOAA provided Techno-Sciences a copy of the PDS, which was
incomplete and in draft form on December 12, and granted
Techno-Sciences's request to submit an amended response to the market
survey.
7. Techno-Sciences alleges that certain of the requirements in the FRA
are being met by NOAA's contractor, SSAI, which performs maintenance
and support of the off-line functions of the USMCC.
8. There is no evidence that Techno-Sciences was otherwise cognizant
of the contents of the FRA prior to its receipt of the RFI. The fact
that the FRA was on NOAA's local area network to which Techno-Sciences
had access does not put that firm on notice of its contents.
9. These changes were primarily made to the alert processing
requirements, which is the heart of the USMCC on-line system, and were
adaptive, legislative, and user driven changes, many of which required
additional coding. Tr. at 34-35, 60-68.
10. We also note that NOAA's failure to provide the PDS within 90 days
as contemplated by the contract may also affect RPS's contract price
by extending the level of effort for a longer period.
11. We also note that the FRA was not mentioned during the course of
the previous protest, despite its obvious relevance.
12. NOAA also argues that there is no practical way in which NOAA
could have published a list of algorithms that would have been useful
to all manufacturers, since this would have been contingent upon a
manufacturer's specific software design. This argument ignores the
fact that the survey should, in accordance with the recommendation
contained in our prior decision, have been primarily to evaluate
Techno-Sciences's price for a customized version of its fourth
generation MCC software as well as other sources' MCC software. From
this record, we think that there is a reasonable possibility that
Techno-Sciences's software uses the same or similar algorithms that
may have already been developed to support the USMCC, since
Techno-Sciences's software currently operates the USMCC on-line
functions.
13. As noted, the agency's pricing of the RPS contract was simply
based on using four computer programmers with no other analysis of the
effort needed to develop the replacement software. There are software
engineering methodologies and models that currently are used in the
industry that allow for an independent party to separately validate
the derivation of software development and coding costs. See Medicare
Transaction System--Success Depends Upon Correcting Critical
Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 1997) at
51-53.