BNUMBER:  B-277768 
DATE:  November 19, 1997
TITLE: Nomura Enterprise, Inc., B-277768, November 19, 1997
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Matter of:Nomura Enterprise, Inc.

File:     B-277768

Date:November 19, 1997

Al Weed, Esq., for the protester.
Joel R. Feidelman, Esq., Fried, Frank, Harris, Shriver & Jacobson, for 
Defense Research Incorporated, an intervenor.
Vera Meza, Esq., 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

1.  Where an agency uses a traditional responsibility factor, such as 
past performance, as a technical evaluation factor, the comparative 
evaluation of proposals under such factor does not involve a matter of 
responsibility subject to the Small Business Administration's 
certificate of competency procedures.

2.  In a negotiated, best value procurement, an agency may select a 
higher-rated, higher-priced proposal for award, where the agency 
reasonably determines in accordance with the stated evaluation 
criteria that the technical superiority of the higher-rated proposal 
outweighs the price advantage of the lower-rated proposal. 

DECISION

Nomura Enterprise, Inc. protests the award of a firm, fixed-price 
contract to Defense Research Incorporated under request for proposals 
(RFP) No. DAAA09-97-R-0126, issued by the Department of the Army for a 
quantity of missile warhead metal parts.  Nomura challenges as 
unreasonable the Army's decision to award to Defense at a 
significantly higher price than Nomura offered.  Nomura contends that 
the agency's selection decision was based on the firm's low past 
performance evaluation rating, which Nomura maintains essentially 
constituted a nonresponsibility determination that the agency should 
have referred to the Small Business Administration (SBA) for the 
possible issuance of a certificate of competency (COC).

We deny the protest.

The RFP was issued for warhead metal parts which the record shows are 
critical components of the Hawk missile.  The RFP provided that the 
award would be made to the offeror whose proposal was determined to 
represent the "best value" to the government based on an integrated 
assessment of two evaluation factors--price and recent, relevant past 
performance.  The past performance evaluation factor consisted of two 
equally important subfactors--on-time delivery and quality.  The RFP 
stated that in determining the best value, price was more important 
than past performance.

The agency received three offers, including proposals from Nomura and 
Defense.  The third firm, the prior producer of the item, failed to 
acknowledge a material solicitation amendment and the agency did not 
evaluate its offer.  Defense's price for the basic contract award was 
$2,418,536, and if all options were exercised, $9,086,519.  Nomura's 
price for the basic contract award was $1,639,449, and if all options 
were exercised, $5,616,198.[1]  The agency conducted a pre-award 
survey of Nomura.  The survey's program manager reported that 
"Nomura's product quality indicates a downward trend based on an 
increase in the number of product quality deficiency reports," and 
"Nomura [had] not provide[d] a plan for corrective action."  The 
surveying official concluded that Nomura was "technically capable of 
being awarded this contract but due to [the firm's] delinquency rate," 
she recommended no award to Nomura.

The pre-award survey was reviewed by the contract specialist who also 
reviewed the past performance information Nomura submitted in its 
proposal.  The contract specialist assigned Nomura a rating of "fair" 
under past performance.[2]  Under the on-time delivery subfactor, the 
contract specialist found that Nomura's recent, relevant contracts for 
similar items showed a consistent pattern of delinquency for various 
reasons, subcontractor and equipment problems, and relocation of the 
place of performance.  Under the quality subfactor, the contract 
specialist concluded that Nomura's workmanship on recent contracts had 
not been good.  She noted "multiple instances of late First Article 
Test Reports and failed First Article Tests."  She also noted numerous 
quality deficiency reports issued under recent contracts, including 
four quality deficiency reports on a single contract.  Further, when 
the agency surveyed Nomura's customers, only one stated it would do 
business again with Nomura without reservation, several stated they 
would not do business again with the firm, and several others stated 
they would need a convincing pre-award survey and also would have to 
closely monitor Nomura's performance.

The contract specialist rated Defense's past performance as excellent 
overall.[3]  Under recent contracts, Defense's delivery was always on 
time or early.  Also, concerning quality, the performance records 
showed that Defense's workmanship on recent contracts was excellent 
with no quality deficiency reports on the contracts reviewed.  The two 
customers surveyed by the agency stated that they would do business 
again with Defense without reservation and one noted that Defense was 
"an excellent contractor."

The record shows that the contracting officer, who was also the source 
selection official, reviewed all of the above-discussed information.  
The contracting officer selected Defense's offer at the higher price 
as providing the best value to the government based on her comparison 
of the past performance record of Nomura and Defense.  The contracting 
officer concluded that it was significantly more likely that Defense, 
rather than Nomura, would successfully complete the contract on-time 
and deliver a high quality product.  

Nomura challenges the evaluation of its proposal, asserting that the 
evaluation of its past performance concerns a matter of its 
responsibility, which Nomura, as a small business concern, has a right 
to have reviewed by the SBA under its COC procedures.  We disagree 
with Nomura that the evaluation of its past performance under this RFP 
was a matter of responsibility subject to SBA's COC procedures.  An 
agency may use traditional responsibility factors, such as experience 
or past performance, as technical evaluation factors, where, as here, 
a comparative evaluation of those areas is to be made.  Dynamic 
Aviation--Helicopters, B-274122, Nov. 1, 1996, 96-2 CPD  para.  166 at 3.  A 
comparative evaluation means that competing proposals will be rated on 
a scale relative to each other, as opposed to a pass/fail basis.  Id.  
The record shows that the award here clearly was based on a 
comparative assessment of Nomura's and Defense's past performance 
records.  Where a proposal is downgraded or found deficient pursuant 
to such an evaluation, the matter is one of relative technical merit, 
not nonresponsibility which would require a referral to the SBA.  Id.; 
see also Smith of Galeton Gloves, Inc., B-271686, July 24, 1996, 96-2 
CPD  para.  36 at 7.

Next, Nomura argues that the agency made an unreasonable best value 
determination by awarding to a significantly higher-priced offeror.  
The government in a negotiated procurement is not required to make 
award to the lowest-priced, technically acceptable offeror unless the 
RFP specifies that price will be determinative.  See Miltope Corp.; 
Aydin Corp., B-258554.4 et al., June 6, 1995, 95-1 CPD  para.  285 at 14.  
In a best value procurement, price is not necessarily controlling in 
determining the offer that represents the best value to the 
government.  Rather, that determination is made on the basis of 
whatever evaluation factors are set forth in the RFP, with the source 
selection official often required to make a price/technical tradeoff 
to determine if one proposal's technical superiority is worth the 
higher price that may be associated with that proposal.  In this 
regard, price/past performance tradeoffs are permitted when they are 
reasonable and consistent with the RFP evaluation scheme.  See H.F. 
Henderson Indus., B-275017, Jan. 17, 1997, 97-1 CPD  para.  27 at 2-3.

Here, we think the best value determination is fully documented and 
reasonable.  The record contains the contracting officer's 
contemporaneous source selection statement.  The contracting officer 
explains that on-time delivery of the warhead metal parts is critical 
to on-time delivery of Hawk missiles to the Army's various 
customers--the Marine Corps, Korea, and the Netherlands.  The 
contracting officer further explains how the failure to obtain timely 
delivery will affect the fielding schedule of the Marine Corps and the 
readiness needs of Korea and the Netherlands.  The contracting officer 
also analyzes the past performance of Nomura and Defense, which was 
described in detail above, and concludes that the additional costs 
associated with Defense's offer are justified based on a comparison of 
each firm's past performance in the areas of on-time delivery and 
quality.  The contracting officer states that in her judgment, based 
on a comparison of past performance records, "[i]t is significantly 
more likely that [Defense] will successfully complete the contract 
on-time and deliver a high quality product."

In deciding not to award to Nomura at its low price, the contracting 
officer relied on the fact that Nomura has multiple instances of late 
deliveries and of delivery of deficient products, and that the firm 
had a contract terminated for default (which was reported initially in 
the pre-award survey as a pending action), negative customer surveys, 
and a pre-award survey which recommended no award because Nomura's 
recent product quality performance was declining and the firm's 
delinquency rate was increasing.  Nomura did not provide any 
explanation or defense of its past performance in its proposal and the 
firm failed even now in the protest to challenge the underlying 
findings concerning its past performance.  Given the documented 
excellent past performance record of Defense, in contrast to Nomura's 
documented declining past performance record, and the importance of 
timely delivery of quality products to meet the agency's program 
needs, we think the contracting officer reasonably decided that the 
award to Defense, even at a significant price premium, was 
justified.[4]

We deny the protest.

Comptroller General
of the United States  

1. The additional cost to award to Defense, rather than to Nomura, was 
thus $779,087 for the basic contract award; if all option quantities 
were purchased, the additional costs could be up to $3,470,321.

2. Under the agency's evaluation plan, an offeror assigned a "fair" 
rating has recent, relevant past performance; however, deliveries are 
seldom on-time and there is moderate doubt whether the offeror will 
perform in accordance with the delivery schedule.  

3. An offeror assigned an "excellent" rating has recent, relevant past 
performance where delivery is consistently on-time and there is no 
doubt that the offeror will perform in accordance with the delivery 
schedule.

4. Nomura asserts that award was made at an unreasonably high price.  
However, the agency points out that the prior producer's offer, though 
(as explained above) not considered for award here, was approximately 
$1,900 per unit, while Defense's offer for the basic quantity was 
$2,172.98 per unit and its offer for the option quantity was $1,997 
per unit.  Based on this comparison, the agency reasonably concluded 
that Defense's price was reasonable.