BNUMBER:  B-277651 
DATE:  November 7, 1997
TITLE: Beldon Roofing & Remodeling Company, B-277651, November 7,
1997
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Matter of:Beldon Roofing & Remodeling Company

File:     B-277651

Date:November 7, 1997

Joseph A. Hackenbracht, Esq., Starfield & Payne, for the protester.
Ronald J. Garber, Esq., Shapiro, Fussell, Wedge, Smotherman & Martin, 
for Murton Roofing of South Carolina, Inc., an intervenor.
Col. Nicholas P. Retson, and Maj. Jonathan C. Guden, Department of the 
Army, 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

A solicitation for a requirements contract should be canceled and 
resolicited where the contracting agency cannot establish that the 
solicitation's quantity estimates are realistic and reflect the 
government's actual anticipated requirements.

DECISION

Beldon Roofing & Remodeling Company protests the rejection of its bid 
as unbalanced under invitation for bids (IFB) No. DAKF11-97-B-0006, 
issued by the Army for roofing repair and replacement.  Beldon argues 
that its bid is not unbalanced.  Alternatively, Beldon argues that the 
IFB is flawed since the quantity estimates in the solicitation do not 
reasonably reflect the government's needs.

We agree with Beldon that the solicitation is flawed and we sustain 
the protest on that basis.

The Army issued this solicitation for all labor, equipment, and 
materials necessary to repair and replace roofing on buildings at 
Forts McPherson and Gillem.  The IFB called for award of a 
requirements contract for a base year and 2 option years.  Section B 
of the solicitation listed 149 contract line items (CLIN) for each 
contract period, along with an estimated quantity for each CLIN.[1]  
Bidders were to supply a unit price for each CLIN, which was to be 
multiplied by the estimated quantity to determine an extended price 
for that CLIN.  The overall price of each bid was to be calculated by 
totaling the extended prices.

The Army received bids from Beldon, Murton Roofing of South Carolina, 
Inc., and American Renovation and Construction at the following 
overall prices:

         Beldon    $6,830,466

         Murton    $7,494,806

         American  $8,611,950
Agency officials concluded that Beldon's bid was mathematically 
unbalanced because it contained understated prices for some CLINs and 
overstated prices for others.  The agency also concluded that Beldon's 
bid was materially unbalanced, because, due to its mathematical 
unbalancing, there was a reasonable doubt that the bid would result in 
the lowest overall cost to the government.  The agency therefore 
rejected the bid pursuant to Federal Acquisition Regulation (FAR)  sec.  
15.814(b) and 52.214-19(d).  The contract was awarded to Murton.  Work 
on the contract has been suspended pending resolution of the protest.

As we explain in detail below, we agree with the Army that Beldon's 
bid was mathematically unbalanced.  However, we do not reach the issue 
of whether Beldon's bid was materially unbalanced.  Rather, we agree 
with Beldon's alternative contention that the quantity estimates in 
the IFB do not reasonably reflect the government's needs.

In determining whether a bid is impermissibly unbalanced, the bid must 
first be shown to be mathematically unbalanced, which involves the 
assessment of whether the bid is based on understated prices for some 
work and overstated prices for other work.  See Outer Limb, Inc., 
B-244227, Sept. 16, 1991, 91-2 CPD  para.  248 at 2.   Next, to be rejected 
as unbalanced, the bid must be materially unbalanced, that is, there 
must be a reasonable doubt that award to the bidder submitting a 
mathematically unbalanced bid will result in the lowest ultimate cost 
to the government.  USA Pro Co., Inc., B-220976, Feb. 13, 1986, 86-1 
CPD  para.  159 at 3.  

Turning first to the issue of mathematical unbalancing, as the agency 
explains, Beldon's bid included unit prices that were substantially 
below the government estimate on a significant number of CLINs.  For 
example, Beldon bid unit prices that were 25 percent of the unit price 
in the government estimate for wood board decking, 16 percent of the 
unit price in the government estimate for 1" x 6" wood fascia, 30 
percent of the unit price in the government estimate for hip and ridge 
slate shingles, 30 percent of the unit price in the government 
estimate for 16 oz. copper flashing, and 12 percent of the unit price 
in the government estimate for various types of copper elbows.  

Beldon's bid also included unit prices substantially above the unit 
prices in the government's estimate on a significant number of other 
CLINs.  For example, Beldon's unit price for roof flashing was 5 times 
the unit price in the government's estimate for that item, its unit 
price for gutters/downspouts was 10 times the unit price in the 
government's estimate, its unit price for ventilators, warehouse-76' x 
2' was 3 times the unit price in the government's estimate, its unit 
price for roll roofing-1 ply asphalt smooth surface was 3 times the 
unit price in the government's estimate, and its unit price for vent 
warehouse-aluminum 76' x 2' was 6 times the unit price in the 
government's estimate.

The Army explains that it derived the unit prices in the government's 
estimate from the R.S. Means Building Construction Cost Data, a trade 
publication which provides cost information on various construction 
projects.  Beldon has not argued that the unit prices used in the 
government estimate were in error or that the publication relied upon 
by the agency is not a reliable source of information on construction 
costs.  Under the circumstances, we conclude that the government 
estimate includes reasonable, good faith estimates of the actual unit 
cost to perform the work under each CLIN.  In light of the sharp 
disparity between Beldon's prices and the government's estimated 
prices, we agree with the Army that Beldon's bid included numerous 
understated unit prices and numerous overstated unit prices and, as a 
result, that the bid was mathematically unbalanced.

As explained above, the Army considered Beldon's bid materially 
unbalanced also.  The determination that Beldon's bid was materially 
unbalanced was premised upon the Army's belief that, given the 
inherent uncertainty of roofing estimates, its actual needs may 
deviate significantly from the estimated quantities in the IFB.  The 
Army contends that, while the quantity estimates in the IFB are the 
agency's best estimates, the actual quantities ordered will depend on 
a number of unpredictable variables, including funding, potential 
storm damage, and the impossibility of determining the exact roofing 
needs of a given building until the exterior of the roof is removed.  
The Army further contends that, due to the unpredictability of actual 
roofing needs, and the mathematical unbalance of Beldon's bid, the 
fact that Beldon's bid was low based upon the estimated quantities in 
the IFB did not mean that an award to Beldon would actually result in 
the lowest cost performance.
  
In order to determine whether Beldon's bid (rather than another bid) 
would result in the lowest cost of performance, the agency applied the 
competing bids' prices to recent past work and to future planned work.  
In reviewing recent work the agency examined the roofing work 
performed under two requirements contracts over the 3 previous years 
for Forts McPherson and Gillem and concluded that, had that work been 
done under the prices in Beldon's bid, the cost would have exceeded 
the government's estimate by $1,607,781.  The agency also calculated 
that the cost of that work under Murton's bid would have exceeded the 
government's estimate by only $99,857.  Concerning likely future work, 
the agency determined that performance of 11 known requirements under 
the prices in Beldon's bid would exceed the government's estimate for 
that work by $719,439, and performance of those requirements under 
Murton's prices would exceed the government's estimate by only 
$130,674.[2]  On the basis of this analysis, the agency concluded that 
there was a reasonable doubt that Beldon's bid would result in the 
lowest overall cost to the government and that, consequently, the bid 
was materially unbalanced.

Beldon argues that the agency's own analysis, although used to explain 
how Beldon's bid was determined to be materially unbalanced, actually 
demonstrates that the estimated quantities in the IFB were not 
prepared based on the best available information.  We agree.

The Army is correct in pointing out that in previous decisions 
concerning unbalanced bidding on solicitations for roofing work, we 
have recognized the inherent uncertainty of roofing estimates.  See, 
e.g., Alice Roofing & Sheet Metal Works, Inc., B-275477, Feb. 24, 
1997, 97-1 CPD  para.  86 at 5, and Beldon Roofing & Remodeling Co., 
B-253199, B-253199.2, Aug. 18, 1993, 93-2 CPD  para.  103 at 7.  The Army 
argues that due to that uncertainty, there should be no requirement to 
apply mathematically unbalanced bid prices to any type of actual 
requirements--either historical or prospective--in order to show that 
a mathematically unbalanced bid is materially unbalanced.  In other 
words, according to the Army, "for material unbalancing analysis in 
roofing cases . . . [there] is almost a 'per se' finding of material 
unbalance when a bid is found to be mathematically unbalanced."

While we have recognized the problems inherent in creating reliable 
quantity estimates for solicitations for roofing work, our prior 
decisions to not establish that a bid for a requirements contract for 
roofing work--or any other kind of work--may be found unbalanced 
simply based on a showing of mathematical unbalancing.  On the 
contrary, to be rejected, a mathematically unbalanced bid must be 
materially unbalanced, that is, there must be a reasonable doubt that 
award to the bidder submitting a mathematically unbalanced bid will 
result in the lowest ultimate cost to the government.  In fact, we 
specifically recognized this principle in the two decisions cited by 
the Army.  See Alice Roofing, supra, at 3, and Beldon Roofing, supra, 
at 3.  

For unbalancing in requirements contracts such as this one, the 
accuracy of the solicitation estimates--and in particular the accuracy 
of the relative quantity mix among CLINs--is critical, since the 
unbalanced bid will become less advantageous than it appears only if 
the government ultimately requires a greater quantity of the 
overpriced items and/or a lesser quantity of the underpriced ones.  
Alice Roofing, supra, at 4.  

While there is no requirement that IFB estimates be absolutely 
correct, FAR  sec.  16.503(a)(1) requires that a solicitation for a 
requirements contract state realistic estimated total quantities and 
that these estimates be based on the most current information 
available.  Duramed Homecare, 71 Comp. Gen. 193, 198 (1992) 92-1 CPD  para.  
126 at 6.  Although we recognize, as we stated in Alice Roofing, 
supra, at 5, that the actual quantities ordered under a roofing 
contract, in particular, are dependent upon unpredictable and unique 
variables, the solicitation must nonetheless contain a reasonably 
accurate statement of the agency's anticipated requirements.  Here, 
our review of the record in this case leads us to agree with Beldon 
that the IFB quantity estimates do not meet that standard.

The reason that the agency concluded that Beldon's bid was materially 
unbalanced was that, under the mix of CLINs in both the agency's 
actual past and likely future requirements, Beldon's bid would not be 
low--yet under the mix of CLINs set out in the IFB, Beldon's bid was 
low.  We agree with Beldon that, if the quantity estimates in the IFB 
reflected neither past nor future requirements, there is doubt as to 
their reasonableness.

Our review reveals substantial disparities between the historical 
information to which Beldon's bid was compared and the quantity 
estimates in the IFB.  For instance, of the 149 CLINs in the IFB, most 
(86 of the 149) were not used at all under the two earlier contracts 
to which Beldon's bid was compared in the agency's material 
unbalancing analysis.  

Concerning anticipated future requirements, as Beldon notes, the 
quantities of 17 of the CLINs in the 11 known requirements were at 
least twice the estimated annual quantities of those items in the IFB.  
In addition, as Beldon notes, 106 of the items in the IFB (out of a 
total of 149) are not required at all in the 11 known requirements.  
Moreover, although the agency notes that the cost of those known 
requirements was $719,431 higher based on Beldon's prices than based 
on the prices in the government's estimate, Beldon points out that 
most of that difference is accounted for by only two CLINs.  The 
quantities of those two CLINs in the agency's known requirements are 
89 and 77 times the estimated annual quantities for those CLINs in the 
IFB.   

Because of the disparity between the IFB quantity estimates and the 
agency's actual past and anticipated future needs, our Office sought 
more detailed information from the agency as to how the IFB quantity 
estimates were derived.  In response to that request, the Army 
explained that when the government estimate was developed in early 
1997 there were 32 roofs known to need work that could be ordered 
under this contract, and referenced an attachment, Enclosure 4.  That 
enclosure, which was described by the Army as "Field Estimates used to 
derive original quantities," included, for each of the 32 buildings, a 
breakdown of required line items, a description of each line item, the 
required quantity of each line item, unit prices, extended prices (for 
each line item, the required quantity multiplied by unit price), and 
total prices for each of the 32 buildings.

The contracting officer explained that the quantities for each of the 
various line items were totaled and those totals were transferred to 
another working paper.  That working paper, "Enclosure 1," included a 
list of all of the line items covered by the IFB and two columns of 
handwritten quantities for the line items.  The cover page to 
Enclosure 1 stated, "Numbers on the left are quantities based upon the 
total of all field estimates in Enclosure 4."

As the contracting officer explained, the estimated cost of the 32 
roofing projects in Enclosure 4 was approximately $25 million.  
Divided into 3 years--the base and 2 option years covered by the 
contract--each year's estimated requirement was approximately $8.2 
million.  The Army reports that agency officials knew from experience 
that the agency would not receive funding at that level.  As a result, 
the agency reduced the estimated quantities to bring the contract in 
line with historical funding levels; the overall government estimate 
for the 3 years was reduced to approximately $7.3 million and each 
contract year to about $2.5 million.  The contracting officer explains 
that these reductions in the estimated quantities were done both on an 
"across the board" basis and based on the judgment of an experienced 
estimator of the type of work that was likely to be funded during the 
contract period.  The agency stated that the result of this process 
was the estimated quantities in the IFB.

In response to this explanation, Beldon noted that there were 
substantial discrepancies between the quantities in Enclosure 4 and 
the total quantities listed in the left hand column in Enclosure 1.  
For example, Beldon noted that Enclosure 1 listed 33,000 square feet 
as the total amount of perlite 1" insulation, while in Enclosure 4 the 
field estimates included a total of 2,116,360 square feet of Perlite 
1" insulation.  Beldon's calculations show that there were 
discrepancies between the Enclosure 4 field estimates and the 
Enclosure 1 totals for all of the listed line items.  
Our review of the record confirmed that there were substantial 
discrepancies between the quantities in Enclosure 4 and the total 
quantities listed in the left hand column in Enclosure 1.[3]  When 
asked to explain these discrepancies, the Army conceded that, although 
it previously had explained that the line items in the field estimates 
in Enclosure 4 were totaled to obtain the total quantities in 
Enclosure 1, that explanation was erroneous.  The Army now explains:

     The file submitted as [Enclosure] 4 represents the working file 
     as it existed on 22 September 1997.  Field estimates have been 
     added to and deleted from the working file since the field 
     estimates were used to develop the government estimate in early 
     1997.  Field estimates are not generally dated.  It is, 
     therefore, impossible to tell exactly which field estimates were 
     used to develop the government estimate. 

The agency's position is now that the "Army can't identify the 
documents that it used to develop the numbers in the left-hand column 
of [Enclosure] 1."  The agency thus admits that the field estimates 
used to create the estimated quantities in the IFB cannot be 
identified.  Moreover, the agency's material unbalancing analysis 
demonstrated that the IFB quantity estimates were inconsistent with 
both the agency's historical requirements and its anticipated future 
needs.  Given the discrepancies between the historical information and 
the anticipated orders, on the one hand, and the estimates in the IFB, 
on the other hand, and given the Army's inability to document the 
development of those estimates, we conclude that the IFB's quantity 
estimates were not realistic estimates and thus did not meet the 
standard of FAR  sec.  16.503(a)(1).

The Army argues that, notwithstanding the problems with the quantity 
estimates in the IFB, there is no compelling reason to cancel and 
resolicit this requirement because Beldon was not prejudiced, since it 
bid on the same basis as the other bidders.  According to the Army, 
due to the inherent uncertainty in roofing estimates, nothing would be 
accomplished by canceling and resoliciting.  In this regard, the Army 
notes that FAR  sec.  14.404 requires a "compelling reason" to cancel an 
invitation for bids after bids have been opened and prices exposed, 
and argues that there is no compelling reason to cancel the 
solicitation. 

Without reasonably reliable quantity estimates in a solicitation for a 
requirements contract, firms have no reasonable basis to prepare their 
bids and the government cannot determine which bid will actually 
result in the low overall cost of performance.  See Duramed Homecare, 
71 Comp. Gen. 193, 198-99 (1992), 92-1 CPD  para.  126 at 7; Edward B. 
Friel, Inc., 55 Comp. Gen. 231, 238-240 (1975), 75-2 CPD  para.  164 at 
9-10.  It is for this reason that our decisions in this area, 
including decisions involving roofing work, state that the accuracy of 
the solicitation's quantity estimates is critical.  See, e.g., Alice 
Roofing, supra, at 4.  Because the quantity estimates in the IFB at 
issue here are questionable to the point that they do not inform 
bidders of the government's actual anticipated needs and it is not 
possible to determine which bid represents the lowest cost of 
performance, we conclude that cancellation is the only appropriate 
course of action here.

We recommend that the Army cancel the IFB, review its estimates based 
upon the most current information available, and resolicit its 
requirements under a solicitation that sets forth realistic estimated 
quantities.  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. The solicitation's CLINs were grouped according to the tasks 
associated with repairing and replacing different types of roofing 
systems.  Thus, for example, for each contract period, the IFB 
contained 9 CLINs for demolition, 6 CLINs for carpentry, 13 CLINs for 
insulation, 9 CLINs for shingles, 6 CLINs for gutters, 8 CLINs for 
metal roofing, and 9 CLINs for built up roofing.  There was also an 
additional line item for each contract period for bonds.

2. The Army reports that these 11 unfunded requirements were 
considered by the agency's project engineer to be the most likely 
projects to be funded in the coming months.

3. As noted above, the Army represented that the left hand column was 
a total of the quantities of each line item from all 32 of the 
projects listed in Enclosure 4.