BNUMBER:  B-277384 
DATE:  July 31, 1997
TITLE: Charles J. Merlo, Inc., B-277384, July 31, 1997
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Matter of:Charles J. Merlo, Inc.

File:     B-277384

Date:July 31, 1997

Timothy A. Sullivan, Esq., Starfield & Payne, for the protester.
William A. Lubich, Esq., Department of the Army, for the agency.
Behn Miller, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Where the cognizant funding official advised the contracting officer 
that funding necessary to award the solicitation's option quantities 
was expected to be included in future appropriations legislation, or 
else would be allocated from other available operation and maintenance 
funds, the contracting officer reasonably determined that funding 
would be available to exercise the option quantities; under these 
circumstances, contracting officer properly determined that there was 
no basis to exclude option quantity pricing from the bid evaluation.

DECISION

Charles J. Merlo, Inc. protests the proposed award of a contract to 
Mosites Construction Company under invitation for bids (IFB) No. 
DACW59-97-B-0009, issued by the Army Corps of Engineers for 
rehabilitation of the Stoneycreek River in Johnstown, Pennsylvania.  
Merlo contends that the Army performed an improper pricing evaluation.

We deny the protest.

The IFB was issued by the Army Corps of Engineers' Pittsburgh District 
on April 28, 1997, as part of the Johnstown Channel Improvement flood 
control/rehabilitation project, and contemplated the award of a 
fixed-price contract for 42 "Basic Contract Items" and 22 "Awardable 
Option Items" to be performed over a 2-year period.

Of significance to this protest, the IFB set forth the standard 
"Evaluation of Options" clause, Federal Acquisition Regulation (FAR)  sec.  
52.217-5, which advised bidders that the government would "evaluate 
offers for award purposes by adding the total price for all options to 
the total price for the basic" items, unless the government determined 
in accordance with FAR  sec.  17.206(b) that evaluation of option 
quantities was not in its best interests.  The IFB also advised 
bidders that "[o]nly the basic contract items . . . will be awarded 
initially" since the operation and maintenance (O&M) funding necessary 
to award the option items was not yet available, but was "expected" to 
be appropriated by Congress in "future fiscal years."

At the June 18 bid opening, Merlo's price of $4,732,303 was the lowest 
of the eight bids received for the basic items; however, Mosites' 
total bid price of $6,162,905 for both the basic and option items was 
the lowest overall.[1]

Shortly after bid opening, the contracting officer learned that Merlo 
intended to file a bid protest if the agency failed to invoke the 
"best interests" provision set forth in FAR  sec.  17.206(b).  That 
regulation provides, in relevant part:

     The contracting officer need not evaluate offers for any option 
     quantities when it is determined that evaluation would not be in 
     the best interests of the Government . . . .  An example of a 
     circumstance that may support a determination not to evaluate 
     offers for option quantities is when there is a reasonable 
     certainty that funds will be unavailable to permit exercise of 
     the option.

On June 24 and 25, the contracting officer met with several Corps of 
Engineers officials from the Pittsburgh District to ascertain whether 
funding for the option items was available.  The Assistant Chief, 
Operations and Readiness Division, of the  Pittsburgh District 
(Assistant Chief)--who is the manager of the Johnstown Channel 
Improvement project's O&M budget, the source for any option quantity 
funding--advised the contracting officer that he expected Congress to 
provide funds for the IFB's optional contract items in both the fiscal 
year (FY) 1998 and FY 1999 appropriations legislation, as requested by 
the Army.  The Assistant Chief also advised the contracting officer 
that in the event the option quantity funding was not included in 
either the FY 1998 or FY 1999 appropriations legislation, or the 
amount appropriated was insufficient to cover the full option quantity 
award amount, he would allocate other O&M funds to cover award of the 
option items.

Based on these assurances, the contracting officer decided that 
funding for the solicitation's option quantities was reasonably 
certain, and, consequently, the bid evaluation should include the 
option item pricing.  On June 30, after learning that the Army 
intended to include option pricing in the bid evaluation--which 
rendered Mosites the apparent low bidder--Merlo filed this protest.

Merlo contends that "it is an abuse of the contracting officer's 
authority not to make a determination under FAR  sec.  17.206(b)" to 
exclude option pricing from the bid evaluation because there is no 
current funding for the option quantities.  Without current funding, 
Merlo maintains, the option quantities will probably not be exercised 
and, as a result, "the strong possibility exists that an award based 
on [the overall bid price] will result in the Government spending 
$319,727 more for the base bid work" (the difference between Merlo's 
and Mosites' base quantity bid price) than if award were based only on 
the base contract item quantity.

As a general rule, a contracting agency is required to include option 
quantities in  its evaluation for contract award where, as here, it 
has been determined prior to soliciting offers that the government is 
"likely to exercise" the options.  FAR  sec.  17.206(a).  However, FAR  sec.  
17.206(b)--which, as noted above, was referenced in the IFB's 
"Evaluation of Options" clause--authorizes an agency not to evaluate 
option quantities in making an award (even where the solicitation 
informs bidders or offerors that options will be evaluated) where the 
agency properly determines that evaluation of options is not in the 
best interests of the government.  See Mobile-Modular Express, Inc., 
B-250790, Feb. 22, 1993, 93-1 CPD  para.  159 at 2.  However, unless a 
contracting officer knows with "reasonable certainty" that not all 
options will be exercised or that evaluation on the basis of all 
option prices is otherwise not in the government's best interests, the 
FAR establishes a clear preference for evaluation of bids on the basis 
of all options.  See FAR  sec.  17.206(a); Crowley Co., Inc., B-258967, 
Feb. 21, 1995, 95-1 CPD  para.  105 at 4.

In this case we see no basis to object to the contracting officer's 
determination not to invoke the FAR  sec.  17.206(b) "best interests" 
exception for excluding option quantities from the bid evaluation.  
Given the Pittsburgh District Assistant Chief's representations that 
the Army had both requested and expected funding for the option 
quantity items to be made available in the FY 1998 and FY 1999 
appropriations, as well as this official's alternate 
assurance--confirmed in an affidavit submitted with the agency 
report--that other available O&M funds would be utilized in the event 
the anticipated appropriations did not materialize or did not suffice, 
the contracting officer could not know with reasonable certainty that 
funding would be unavailable to award the option quantities.  See 
Federal Contracting, Inc., B-250304.2, June 23, 1993, 93-1 CPD  para.  484 
at 6 (where there were indications from the agency's internal funding 
documents that additional funding could become available during the 
120-day period following award, there was no basis to object to 
contracting officer's determination to evaluate options).

Merlo speculates in its comments on the agency report that unforeseen 
"emergencies" may require the Corps to allocate funding for this 
contract's option quantity items to another contract or flood control 
project, and thus contends that the Assistant Chief's assurances do 
not constitute a reasonable basis for the contracting officer's 
conclusion that option funding will be available.  FAR  sec.  17.206(b) 
does not require the Army to be clairvoyant in forecasting the 
availability of option quantity funding.  Instead, the regulation's 
application hinges solely upon a contracting officer's assessment of 
"reasonable certainty" with regard to the availability of option 
funding.

Because the contracting officer was advised that funding for the 
option quantity items would be allocated from future appropriations[2] 
or existing O&M funds, and since the Army expects to require the 
option quantity items, the contracting officer reasonably concluded 
that there is no present reasonable certainty that not all options 
will be exercised, or that evaluation on the basis of all options is 
not in the government's best interest.

The protest is denied.

Comptroller General
of the United States

1. The breakdown of Mosites' and Merlo's bid prices was:

                 Basic Contract Optional Contract
Bidder           Items Subtotal  Items SubtotalTotal Bid Price
Mosites              $5,052,030             $1,110,875              
$6,162,905
Merlo                  4,732,303              1,431,185                
6,163,488

2. In its comments on the agency report, Merlo argues that there is no 
reasonable likelihood of sufficient funding for the option quantities 
since the FY 1998 appropriations legislation does not allocate 
sufficient funding to cover the amount of the awardee's bid for these 
items.  Since the Army has made it clear that it will also rely on FY 
1999 appropriations to fund the option quantity item award, and that 
the Assistant Chief intends to use other existing O&M funds to cover 
any amount not included in the appropriations, we find this argument 
unpersuasive.