BNUMBER:  B-277315.2 
DATE:  October 15, 1997
TITLE: Tri-State Government Services, Inc., B-277315.2, October 15,
1997
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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:Tri-State Government Services, Inc.

File:     B-277315.2

Date:October 15, 1997

Nicholas A. Della Volpe, Esq., Wagner, Myers & Sanger, for the 
protester.
Fred T. Hanzelik, Esq., Hanzelik & Associates, for Associated 
Environmental Services, Inc., an intervenor.
Robin Walters, Esq., Defense Logistics Agency, for the agency.
Jacqueline Maeder, Esq., and Paul Lieberman, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Where solicitation price schedule required offerors to submit 
single unit prices for estimated line item quantities, a proposal 
which split many of the agency's estimated line item quantities and 
separately priced these quantities in a manner economically 
advantageous to the offeror was improperly selected for award.  
Awardee's noncompliant pricing scheme obtains excessive early payments 
and limits offeror's economic risks in the event the agency does not 
purchase its full estimated item quantities, thus affording the 
awardee an unfair pricing advantage over offerors using the required 
price schedule.

2.  Agency improperly conducted discussions with awardee after the 
submission of  best and final offers to allow awardee to explain and 
provide prices for required quantities beyond the estimated quantities 
set forth in the solicitation. 

DECISION

Tri-State Government Services, Inc. protests the award of a contract 
to Associated Environmental Services, Inc. under request for proposals 
(RFP) No. SP4400-96-R-0023, issued by the Defense Reutilization and 
Marketing Service (DRMS), Defense Logistics Agency (DLA) for the 
removal, transportation, and disposal of hazardous and nonhazardous 
waste items located at various DRMS sites.  Tri-State argues that the 
awardee's offer did not comply with the RFP terms for submission of 
offers and that the agency improperly engaged in discussions with the 
awardee.

We sustain the protest.

The RFP, issued as a small business set-aside on September 27, 1996, 
contemplated the award of a firm, fixed-price requirements contract 
for an 18-month base period with 2 option years.  The RFP called for 
firms to provide hazardous waste management and disposal services for 
specifically identified generators and various pickup points. 

The RFP, which required the submission of separate technical, price, 
and past performance proposals, cautioned offerors that proposals 
which did not provide the required information in the prescribed 
format could be excluded from consideration.  The RFP provided that 
award would be made to the offeror whose proposal, conforming to the 
solicitation, was determined to be most advantageous to the government 
and identified, as evaluation factors, price, past performance, 
socioeconomic plan, and Mentoring Business Agreement participation.  
Price and past performance were of equal importance and significantly 
more important than the value of the other two factors combined.

The solicitation price schedule divided the work to be performed into 
94 contract line items (CLIN) in each contract period, specifying the 
agency's estimated quantities for each CLIN.  The line items were 
grouped into "special requirements" and the removal of different waste 
types, including, for example, "ignitable wastes," "corrosive wastes," 
"reactive wastes," "toxicity characteristic wastes," and "spent 
solvent wastes."  Offerors were required to insert a single unit price 
in the space provided for each CLIN, multiply the unit price by the 
agency's estimated quantity to arrive at an extended price for each 
CLIN, and then add together the amounts for each CLIN to arrive at a 
total line item amount.  The RFP provided that an offeror's total 
price for both options would be added to its total price for the basic 
requirement to calculate the total contract price.

Eleven offerors submitted initial proposals by the October 31, 1996, 
closing date.  The proposals were reviewed by contracting personnel 
and, based on this review,
five proposals, including Tri-State's and Associated's, were included 
in the competitive range.  DLA held discussions with these five 
offerors and requested best and final offers (BAFOs) by April 7, 1997.  
DLA requested second BAFOs from the competitive range offerors by May 
16.  DLA evaluated 4 of the 5 offerors' BAFOs, including Tri-State's 
and Associated's, as "good" under past performance evaluations and 
"good" under their best value composite ratings and price essentially 
became determinative.  Associated offered the low price of $3,296,500;  
Tri-State's price was second low at $3,443,189.30.
  
In its second BAFO, Associated for the first time used a pricing 
methodology different from that called for by the RFP.  Instead of 
submitting single unit prices for each CLIN as requested by the RFP 
price schedule, for 18 CLINs in the base period and 14 CLINs in each 
of the option periods, Associated split the agency's estimated 
quantities listed on the price schedule and submitted one price for a 
number that it designated the "first" quantities ordered and a 
different price for what it designated the "next" quantities ordered.  
Associated did this by lining through the estimated quantity figure 
for the particular CLIN and printing in its own quantities and prices 
for both the "first" and "next" quantities in lieu of the single 
existing pricing block for that particular CLIN in the solicitation 
price schedule form.  In effect, Associated created an extra line item 
for each of the affected CLINs.  For example, under CLIN 6613AC, 
Cleaning/Service Charge for Oil Water Separators, instead of one CLIN 
price for the estimated quantity of 22, Associated offered a unit 
price of $600 for the "first 12" and a unit price of $50 for the "next 
10."  Under CLIN 6615BB, Providing Storage Containers, 20 Cubic Yard 
Rolloff, the awardee offered a unit price of $800 for the "first 2" 
and a unit price of $50 for the "next 4."  Under CLIN 6615CC, Provide 
Storage Containers, 30 Cubic Yard Rolloff, Associated offered a unit 
price of $800 for the "first 2" and a unit price of $30 for the "next 
28."[1]  DLA treated Associated's pricing strategy as a minor 
irregularity and awarded the contract to Associated on June 12.  This 
contract contains a "note of understanding" which reads as follows:

     Incremental pricing as indicated in the bid schedule, is 
     understood between parties, that in any instance where the 
     quantity exceeds the government estimate, the last price of the 
     incremental priced CLIN in any performance period, will be the 
     price used for the balance of performance.

Tri-State protested the award to our Office on July 7.[2]  

Tri-State contends that the awardee improperly modified the agency's 
price schedule and that, therefore, its offer should not have been 
considered for award.  Tri-State complains that the awardee used 
pricing options which were not made available to all offerors on line 
items representing over two-thirds of the contract waste removal 
quantities and one-fourth of the special service requirements.[3]  
Tri-State contends that this pricing variation gave Associated an 
unfair advantage relative to the other offerors and that, if the 
methodology was acceptable, all offerors should have been given the 
same opportunity to use incremental pricing in their offers.  
Tri-State also contends that the agency improperly engaged in 
discussions with the awardee after the second round of BAFOs.  The 
protester argues that DRMS re-opened discussions with Associated to 
negotiate prices for any quantities ordered above the estimates given 
in the solicitation.  The protester argues that it was unclear from 
Associated's offer if the firm had agreed to provide quantities 
greater than the estimates and, even if Associated had agreed to 
provide services beyond the estimated service, the offeror's price for 
these services was not clear from its BAFO.     

The agency responds that the awardee submitted pricing for each 
service required by the RFP and did not deviate from or vary any term 
or condition contained in the solicitation.  The agency contends that 
nothing in the RFP prohibited the awardee's pricing strategy.  
Accordingly, the agency views the split pricing methodology as a minor 
irregularity, consistent with the RFP.  The agency argues that the 
protester was not prejudiced by the awardee's pricing strategy because 
all proposals were evaluated based on the total estimated quantities 
of services, and contends that its acceptance of this pricing strategy 
is consistent with our decisions allowing agencies to accept pricing 
strategies that vary from the solicitation but offer the lowest cost 
to the government.  See, e.g., Holmes and Narver, Inc., B-196832, Feb. 
14, 1980, 80-1 CPD  para.  134 at 7-9; Keco Indus., Inc., 54 Comp. Gen. 967, 
969-70 (1975), 75-1 CPD  para.  301 at 3-5.

We conclude that the agency improperly accepted the awardee's offer.  

A proposal that fails to conform to material terms and conditions of a 
solicitation should be considered unacceptable and may not form the 
basis for an award and the fact that the awardee may, after award, 
agree to be bound to the conditions of the solicitation does not 
render the proposal acceptable or the award proper.  Multi-Spec Prods. 
Group Corp., B-245156.2, Feb. 11, 1992, 92-1 CPD  para.  171 at 3-4; Martin 
Marietta Corp., 69 Comp. Gen. 214, 219 (1990), 90-1 CPD  para.  132 at 7.  
Where, as here, an irregularity in an offer results in benefits to an 
offeror not extended to all offerors by the solicitation, and is 
prejudicial to other offerors, the offer is unacceptable.  See Valix 
Fed. Partnership I, B-250686, Feb. 1, 1993, 93-1 CPD  para.  84 at 4.  

Although the RFP contained no separate, specific instructions stating 
that only single unit prices could be submitted for each CLIN, it is 
clear from the structure of the price schedule which provides a single 
space for a unit price next to the estimated quantity, that a single 
price is called for.  This is reinforced by the RFP warning that 
proposals which do not provide the required information in the 
prescribed format may be excluded from consideration.[4]  

The pricing format substituted by Associated deviated from the RFP 
price schedule for 46 line items by splitting the estimated line item 
quantity and pricing the designated smaller quantities separately, 
effectively converting each affected CLIN into two CLINs.  While this 
type of pricing structure can yield a total offer for evaluation 
purposes, the substantially higher unit prices for "first" quantities 
afford Associated the opportunity to realize more revenue and profit 
at the earlier stages of contract performance.  Associated thereby 
capitalized on the possibility that the agency will need less than the 
total estimated quantities of services, and front-loaded the payments 
associated with the "first" orders.  Contrary to the agency's 
contention that Associated's pricing offered the lowest cost to the 
government, our analysis of Associated's pricing shows that the 
awardee's pricing is not low in all circumstances.  Specifically, if 
the agency requires only the "first" quantities in Associated's offer, 
the offer is not low in the base and first option periods and not low 
overall.  Indeed, using only the "first" quantities on the split 
CLINs, Associated's prices for the base period and option periods are 
$1,281,563, $862,363, and $822,453, respectively.  Tri- State's 
prices, based only on Associated's "first" quantities, are $1,192,402, 
$815,923, and $823,153, respectively.  Tri-State's total price would 
thus be only $2,831,478, while Associated's would be $2,966,379.  

Associated was awarded the contract on the basis of its evaluated low 
price under a unique and nonconforming price schedule which benefits 
the offeror and minimizes the risks associated with estimated 
quantities.  In these circumstances, we find without merit the 
agency's contention that, even if Associated's pricing was improper, 
Tri-State was not prejudiced.[5]  The agency improperly accepted 
Associated's nonconforming offer, and this acceptance of Associated's 
offer was prejudicial to the other offerors.

Next, regarding the protester's allegation that the agency improperly 
conducted discussions with only Associated after receipt of the second 
BAFOs, the agency responds that the contracting officer believed that 
it was "reasonably clear" that Associated had offered its "next" 
pricing for all quantities exceeding the precise number of "first" 
units specified and that the contracting officer sought clarifications 
from Associated solely to confirm this reading of the pricing scheme 
and "avoid any future disputes or claims based on an alleged 
ambiguity."  

Discussions occur when the government communicates with an offeror for 
the purpose of obtaining information essential to determine the 
acceptability of a proposal or provides the offeror with an 
opportunity to revise or modify its proposal.  Federal Acquisition 
Regulation (FAR)  sec.  15.601.  In contrast, clarifications are merely 
inquiries for the purpose of eliminating minor irregularities, 
informalities, or apparent clerical mistakes in a proposal and do not 
give an offeror the opportunity to revise or modify its proposal.  Id.  
If a procuring agency holds discussions with one offeror, it must hold 
discussions with all offerors whose proposals are in the competitive 
range, whereas clarifications may be requested from just one offeror.  
Global Assocs. Ltd., B-271693, B-271693.2, Aug. 2, 1996, 96-2 CPD  para.  
100 at 4.

Here, we agree with the protester that the communications of the 
agency and the awardee as to the prices for services beyond the 
estimated quantities constituted discussions.  Specifically, we do not 
concur with the agency's assessment that the price for additional 
services beyond the estimates was "reasonably clear" from Associated's 
BAFO.  Associated's BAFO explicitly states a specific price for a 
specified number of "first" quantities and a specific price for a 
specified number of "next" quantities.  Associated's offer is silent 
as to its price for any other quantities, that is, for quantities 
above the estimated amounts.  This may raise a question as to whether 
Associated was obligated to provide additional quantities above the 
estimated quantities, as required by the RFP, and raises doubt about 
the prices for these additional services.  Associated's prices on 
these additional quantities could have been its "first" quantity 
prices, its "next" quantity prices, or, a third, unknown price.[6]  
Under these circumstances, the information sought by the agency, that 
is, the offeror's agreement to supply additional waste removal 
services above the estimated quantities at a specified price was 
essential to determining the acceptability of the proposal.  In fact, 
this information was used to modify the award to Associated in the 
form of the "note of understanding" discussed above.   Because the 
communications between the agency and Associated involved the exchange 
of information necessary to determine the acceptability of 
Associated's
proposal, those communications constituted discussions .  FAR  sec.  
15.601, Global Assoc. Ltd., supra.  

DLA did not suspend performance of Associated's contract because it 
found that urgent and compelling circumstances existed which 
significantly affected the interest of the United States.  However, 
Associated has performed only 4 months of the 18-month base contract.  
Given this level of performance and the nature of the services to be 
performed, we recommend that the agency terminate the awardee's 
contract and award to Tri-State, if otherwise appropriate.  Bid 
Protest Regulations 
4 C.F.R.  sec.  21.8(a), (b) (1997).  We also recommend that the protester 
be reimbursed its costs of filing and pursuing its 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 costs incurred, directly 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. In most instances, the awardee's prices on the split CLINs were 
higher for "first" quantities and lower for "next" quantities.  
However, two CLINs under the base period and one CLIN under each 
option period were priced lower for the "first" quantities and higher 
for the "next" quantities.

2. Tri-State initially protested this procurement on June 23.  On June 
25, we dismissed that initial protest, B-277315, as legally 
insufficient because the protester alleged improper agency evaluation 
based "on information and belief" and did not submit any supporting 
explanation or documentation.  

3. The protester calculates that 3,143,900 pounds of the total 
4,692,828 pounds of waste the agency estimates will be removed are 
included in those line items for which Associated offered split 
prices.  

4. The protester states that, subsequent to the filing of this 
protest, DRMS issued amendments to two other solicitations advising 
offerors that more than one price, a range of prices, or a "split bid" 
with respect to any contract line item will be considered by the 
agency as a material deviation from the bid schedule and/or a 
nonconforming proposal that will be excluded from further 
consideration.  

5. Our Office will not sustain a protest unless the protester 
demonstrates a reasonable possibility that it was prejudiced by the 
agency's actions, that is, unless the protester demonstrates that, but 
for the agency's actions, it would have had a substantial chance of 
receiving the award.  McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 
CPD  para.  54 at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 
1581 (Fed. Cir. 1996).

6. In contrast, a single unit price, as called for by the 
solicitation, leaves no doubt:  all quantities--including requirements 
greater than the estimates--are offered at the single, stated price.