BNUMBER:  B-277260 
DATE:  September 22, 1997
TITLE: Techno-Sciences, Inc., B-277260, September 22, 1997
**********************************************************************

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

Date:September 22, 1997

Minh N. Vu, Esq., Latham & Watkins, for the protester.
R. P. Sharma, Ph.D., Research and Professional Services, an 
intervenor.
Alden F. Abbott. Esq., and Amy Freeman, Esq., Department of Commerce, 
and Audrey H. Liebross, Small Business Administration, 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

Agency did not properly determine that the price for a contract for 
nonproprietary software development and maintenance services 
noncompetitively awarded under the Small Business Administration's 
section 8(a) program did not result in a cost to the agency that 
exceeded a fair market price where the agency's estimate of fair 
market price did not consider the protester's price for already 
developed nonproprietary commercial software that may satisfy the 
agency's requirements. 

DECISION

Techno-Sciences, Inc. protests 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,[1] 
under request for proposals (RFP) No. 50-DDNE-7-90034, issued by the 
National Oceanic and Atmospheric Administration (NOAA) for software 
development, testing, and maintenance.  Techno-Sciences contends that 
the price at which the contract was awarded to RPS exceeds the fair 
market price.

We sustain the protest.

NOAA initiated this procurement to obtain nonproprietary software to 
replace Techno-Sciences's proprietary software that currently operates 
the United States Mission Control Center (USMCC).  The USMCC is the 
United States' component of the International Cospas-Sarsat 
satellite-based search and rescue system that uses satellites to 
detect and locate emergency beacons carried by ships, aircraft, or 
individuals.[2]  The system was the product of an international 
agreement between the United States, France, Canada, and the former 
Soviet Union, and today encompasses 23 additional nations; it is 
comprised of a network of satellites, ground stations, mission control 
centers (MCC), and rescue coordination centers.  When an emergency 
beacon is activated the signal is received by a satellite and relayed 
to a ground station (local user terminal (LUT)), which processes the 
signal and calculates the position of the signal.  The position is 
then transmitted to an MCC which transmits an alert message to the 
appropriate rescue coordination center based on the geographic 
location of the signal.  The USMCC must also perform certain unique 
national requirements beyond the International Cospas-Sarsat 
requirements.[3]  

NOAA originally developed an IBM mainframe-based USMCC in 1986.  In 
1990, NOAA contracted with Techno-Sciences for the LUT and MCC 
maintenance services.  In 1992, NOAA modified that contract to have 
Techno-Sciences create software to operate the USMCC from a PC 
(personal computer)-based system; under that contract Techno-Sciences 
had ownership of the software.  In May 1994, NOAA let a sole-source 
contract priced at $1,978,044 to Techno-Sciences for a base year with 
four option periods for corrective and adaptive maintenance of the 
software, including continuously upgrading Techno-Sciences's software 
to comply with the dynamic USMCC requirements, including those of 
Cospas-Sarsat; this contract contained guaranteed minimum prices of 
$200,000 for each option period.

To eliminate the government's reliance upon proprietary software to 
operate the USMCC, NOAA began ongoing negotiations with 
Techno-Sciences in February 1995 to obtain proprietary rights in its 
software; these negotiations were unsuccessful.[4]  Between February 
and April 1996, the agency and Techno-Sciences again undertook 
negotiations regarding data rights in the software, during which 
Techno-Sciences proposed to provide NOAA with a licensed copy of its 
proprietary source code for "unrestricted use by NOAA in the 
development and administration of the USMCC" at no additional charge 
under its contract.[5]  In exchange for the source code and other 
promises, Techno-Sciences requested that NOAA exercise all the 
remaining options under its current contract (priced at $600,000).  
The record reflects that it was anticipated that these discussions 
were to continue.  In the interim, NOAA attempted to negotiate a 
reduction to the guaranteed minimum price contained in 
Techno-Sciences's contract because the government believed the price 
to be higher than the value of the potential services to be rendered.  
No agreement was reached between the parties and NOAA determined that 
exercising the option for the period May 10, 1996, to May 9, 1997, was 
not in the government's best interest.

On November 11, 1996, NOAA issued a requisition to purchase 
development of nonproprietary software to replace Techno-Sciences's 
proprietary software.  On November 18, 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.[6]  On November 26, 1996, the SBA 
nominated RPS as the 8(a) contractor.  On March 14, 1997, following 
negotiations with RPS, and after determining its costs to be 
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 $160,518, 
$168,472, and $172,617, respectively.

Meanwhile, at the International Cospas-Sarsat manufacturers' meeting 
on October 24, 1996, Techno-Sciences introduced its fourth generation 
MCC software purportedly satisfying all of the current Cospas-Sarsat 
requirements at an advertised price of $100,000.   Several NOAA 
officials were in attendance and had general conversations with 
Techno-Sciences about the software.  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.  On May 
9, NOAA informed Techno-Sciences of the award to RPS and subsequently 
disclosed the award price in response to Techno-Sciences's Freedom of 
Information Act request.  This protest within 10 calendar days of 
being apprised of RPS' award price followed.

Techno-Sciences contends that RPS' award price exceeded a fair market 
price for the software and the agency did not conduct a proper market 
survey as required by applicable regulations, given 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.

"An 8(a) contract, sole source or competitive, may not be awarded if 
the price of the contract results in a cost to the contracting agency 
which exceeds the fair market price."  Federal Acquisition Regulation 
(FAR)  sec.  19.806(b).  A "fair market price" is defined as a "price based 
on reasonable costs under normal competitive conditions and not on 
[the] lowest possible cost."  FAR  sec.  19.001.  FAR  sec.  19.202-6(b) 
provides that "[f]or 8(a) contracts, both with respect to meeting the 
requirement at [FAR  sec. ] 19.806(b) and in order to accurately estimate 
the current fair market price, contracting officers [are required to] 
follow the procedures at [FAR  sec. ] 19.807."  The FAR  sec.  19.807 procedures 
state that "[t]he contracting officer shall estimate the fair market 
price of the work to be performed by the 8(a) contractor" and that:

     [i]n estimating the fair market price . . . the contracting 
     officer shall use cost or price analysis and consider commercial 
     prices for similar products and services, available in-house cost 
     estimates, data (including cost or pricing data) submitted by the 
     SBA or the 8(a) contractor, and data obtained from any other 
     Government agency. 
FAR  sec.  19.807(a) - (b) (emphasis added).  Given this direction, 
agencies are expected to gather reliable, accurate, and current 
information upon which they may reasonably base an estimate of the 
prices at which the required items or services could be obtained from 
commercial sources.  See Government Contracting Resources, B-243915, 
Aug. 15, 1991, 91-2 CPD  para.  153 at 4.

Our Office will not question an agency's fair market price 
determination unless it
is not reasonably based or there is a showing of fraud or bad faith.  
Id.  Here, we find that the agency's determination that RPS' contract 
price did not exceed a fair market price was not reasonably based, 
inasmuch as the agency did not reasonably follow the FAR  sec.  19.807(b) 
procedures for determining fair market price.
  
The record shows that rather than estimating a fair market price, NOAA  
determined RPS's price to be reasonable by comparing RPS' hourly 
unloaded direct labor rates for programmer/analysts to other unloaded 
labor rates of assertedly similar skilled employees under other NOAA 
contracts, including a current RPS contract with the agency.[7]  RPS 
proposed a labor rate of $[DELETED] and the comparison rates were 
$[DELETED].[8]  Thus, the agency found RPS' cost to be reasonable, 
after considering the other cost factors in RPS' proposal, and the 
contract's estimated level of effort.  NOAA did not consider the 
prices that may be offered by commercial sources of MCC software, or 
through any other means.

NOAA argues that it was justified in not exploring commercial sources 
for prices because it was familiar with the manufacturers of MCC 
software and knew that none produced nonproprietary software, 
including Techno-Sciences.[9]  NOAA argues that given the lack of 
nonproprietary MCC software in the marketplace, the agency's fair 
market price analysis was reasonable, inasmuch as the 8(a) contract 
price did not exceed that for software development, testing, and 
maintenance.  Techno-Sciences responds that NOAA incorrectly assumed 
that its fourth generation software was proprietary when in fact this 
software is nonproprietary and that for a fixed price of $100,000 NOAA 
would have received complete ownership rights in the software, 
including source code, object code, executable code, documentation and 
related data.  

Notwithstanding NOAA's asserted familiarity with the marketplace 
regarding MCC software, we believe that FAR  sec.  19.807(b) obligated the 
agency to undertake a current investigation of the marketplace in 
order to determine whether a nonproprietary solution to its software 
needs existed before it proceeded to award of the 8(a) contract.  See 
Logics, Inc., B-237412, Feb. 13, 1990, 90-1 CPD  para.  189 at 5.  In this 
regard, FAR  sec.  19.807(b) requires contracting officers to "consider 
commercial prices for similar products [or] services" in determining 
fair market price.  

Here, the record is devoid of any evidence that NOAA investigated the 
current marketplace in any way for purposes of determining a 
commercial price for the requirement, such as through a survey of the 
manufacturers of the similar nonproprietary software, by contacting 
nations that operate MCC's, or by considering other similar commercial 
software developers outside of NOAA.[10]  Given the rapid pace change 
takes place in the marketplace, we find that the agency's simple 
reliance upon its asserted familiarity with the marketplace to avoid 
making a current market survey as to the availability of 
nonproprietary software was unreasonable.  See generally McSwain & 
Assocs., Inc., et al., B-271071 et al., May 20, 1996, 96-1 CPD  para.  255 
at 3-4; ACCU-Lab Medical Testing, B-270259, Feb. 20, 1996, 96-1 CPD  para.  
106 at 4 (agency is required to consider current market conditions 
when making a small business set-aside decision).

NOAA nevertheless argues that Techno-Sciences's position in the 
protest that its fourth generation software is nonproprietary is 
inconsistent with its prior dealings with the agency, such that NOAA 
still doubts whether this software is, in fact, nonproprietary.  
However, as indicated above, Techno-Sciences previously offered to the 
agency various concessions regarding rights in the software, including 
providing its source code (albeit at a cost that was not then 
acceptable to the agency).    Moreover, time had passed since the 
prior unsuccessful negotiations with Techno-Sciences[11] up to when 
the agency executed the RPS contract, during which time market 
conditions and the relationship of the parties had changed and 
Techno-Sciences began marketing its fourth generation MCC software for 
$100,000.  Under the circumstances, we are not persuaded that the 
agency's prior dealings with Techno-Sciences reasonably leads to the 
conclusion that the agency could not obtain complete ownership in 
Techno-Sciences fourth generation MCC software, and think that FAR  sec.  
19.807 required the NOAA to at least explore whether Techno-Sciences's 
offer of its fourth generation MCC software could or would offer a 
nonproprietary solution to the agency before NOAA discounted that 
possibility.  See Logics, Inc., supra, at 5.  On this record, there is 
no evidence to dispute Techno-Sciences's assertions that its fourth 
generation MCC software is nonproprietary and that the agency only 
incorrectly assumed otherwise by not inquiring[12]--this is exactly 
the scenario that could have been avoided had NOAA surveyed the 
current market in determining fair market price as required by the FAR  sec.  
19.807.

NOAA also asserts that the price for Techno-Sciences's software should 
not be the measure for determining fair market price because the 
software allegedly cannot meet the minimum needs of NOAA because of 
the unique requirements associated with operating the USMCC and that 
$100,000 is not a reasonable price for these services in any case.  
The record simply does not support the agency's assertions in this 
regard.  Well prior to this protest, Techno-Sciences, the developer of 
the software currently operating the USMCC, publicly represented its 
price for the MCC software to be $100,000 under ordinary competitive 
circumstances.  Moreover, Techno-Sciences asserts that it has examined 
the RPS contract specifications, which only call for the replacement 
of Techno-Sciences's software and that its software will meet the 
requirements listed therein, and that in any event it could have 
modified its software to meet the unique enhancements not in the 
current USMCC software noted by the agency in this report (but not 
specifically apparent from specifications included in RPS' contract) 
for an additional $40,000.  Other than its general disagreement, the 
agency has not offered evidence demonstrating the unacceptability of 
Techno-Sciences's software or that Techno-Sciences would not be able 
to supply nonproprietary software upgraded to meet the USMCC's unique 
requirements for approximately $140,000.  In any case, at the very 
least, Techno-Sciences's fourth generation MCC software reasonably 
should be considered to be a sufficiently similar product to look at 
in determining a fair market price.

In sum, we find that NOAA failed to properly estimate the fair market 
price in accordance with FAR  sec.  19.807(b) and as a consequence did not 
properly determine that the contract price of RPS' 8(a) award did not 
result in a cost to the agency that exceeded a fair market price, as 
required by FAR  sec.  19.806(b).  In this regard, Techno-Sciences's offer 
of apparently acceptable nonproprietary software for a fixed price of 
approximately $140,000 is much less than the $323,650 estimated cost 
for developing this software in RPS' 8(a) contract.  While NOAA argues 
that the award price represents a reasonable price for software 
development and maintenance services, it has offered no persuasive 
explanation for why it may ignore the price of already developed 
software products that arguably can satisfy the agency's needs.  
Therefore, we sustain the protest.

We recommend that the agency review its fair market price estimate, 
specifically considering Techno-Sciences's MCC software, including 
enhancements and annual upgrade prices.  If it is determined that the 
RPS' contract cost exceeds a fair market price for a similar product 
and services meeting the agency's needs, then NOAA should terminate 
RPS' contract, withdraw the 8(a) set aside,[13] and fulfill this 
requirement under an unrestricted procurement.  In addition, we 
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) (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. Section 8(a) of the Small Business Act, 15 U.S.C.  sec.  637(a), 
authorizes the SBA to contract with government agencies and arrange 
for performance of those contracts by awarding subcontracts to small 
socially and economically disadvantaged businesses.

2. Cospas is the acronym for cosmicheskaya sistyema poiska avariynich 
sudov, which means space system for the search of vessels in distress 
in Russian.

3. These unique requirements include the following:  (1) message 
production for applications involving the Department of Defense for 
pilots in distress, NASA for astronauts in distress, the Department of 
Energy, the Drug Enforcement Agency, and several state governments; 
(2) interface with the NOAA Central Environment Meteorological 
Satellite Computer System; (3) processing of instrument telemetry data 
for the instruments on board the NOAA satellites; (4) handling for 
instrument commands and command verifications; (5) data interfaces to 
the unique data bases of the USMCC; and (6) message production for the 
Rescue Coordination Centers of the United States Coast Guard and Air 
Force.

4. NOAA has produced typed notes documenting an oral conference call 
held with Techno-Sciences which reflect that Techno-Sciences would not 
agree to a contract to sell ownership of its software and would only 
part with the source code for $2 million.

5. During the negotiations, Techno-Sciences offered, among other 
things, to grant NOAA rights to access maintenance, development, and 
modification of the software for use at USMCC, and the right to 
disclose the software to its contractors for this purpose, provided 
that the contractors agreed to nondisclosure.  As discussed below, 
NOAA argues that these proposals were unacceptable because of NOAA's 
need to possess ownership of the software.

6. There is no contemporaneous documentation reflecting the agency's 
methodology for arriving at this original fair market price estimate; 
however, in an affidavit in response to the protest NOAA explains that 
this estimate was inadequate and understated because it was based upon 
faulty assumptions.  NOAA asserts that it used an old "rule of thumb" 
that it cost $50,000 per programmer year, which resulted in an 
estimate of $200,000 for system development and $100,000 annually for 
out-year system maintenance.  It now argues that this estimate was 
unreasonable in light of RPS' proposal and the agency's revised fair 
market price estimate.  

7. None of these contracts pertained to the USMCC software or 
maintenance contract but involved some form of software development or 
support.

8. The protester notes that none of these rates actually appear in 
these comparison contracts and the agency admits that these rates that 
were used for comparison purposes did contain minor errors.

9. At least three other companies develop and sell MCC software.  They 
are CAL Corporation, CEIS TM and Morsviazsputnik.

10. The agency now argues that its actions are reasonable because it 
contacted one manufacturer following the protest who confirmed that it 
has not and would not produce nonproprietary MCC software and that a 
survey involving some of the other nations has shown its award price 
to be reasonable.  However, we think this information only highlights 
that the agency failed to undertake the action at the time it was 
estimating the fair market price which could have been instrumental in 
estimating an appropriate fair market price.  

11. The record shows that these discussions were interrelated with 
other issues, for example, whether Techno-Sciences's contract options 
would be exercised.

12. For example, Techno-Sciences states that it previously has 
provided nonproprietary software to India.

13. There is no evidence that any other qualified 8(a) firm could 
provide the requested software development services or the 
nonproprietary software itself at a cost less than RPS'.