BNUMBER: B-278050
DATE: November 25, 1997
TITLE: Technology Services International, Inc., B-278050, November
25, 1997
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Matter of:Technology Services International, Inc.
File: B-278050
Date:November 25, 1997
Nancy O. Dix, Esq., Gray Cary Ware & Freidenrich, for the protester.
Gregory H. Petkoff, Esq., Department of the Air Force, for the agency.
John L. Formica, Esq., and Guy R. Pietrovito, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Apparent low bid was properly rejected as materially unbalanced where
the bid, submitted in response to a solicitation providing for the
award of a contract for telephone operator services for a base year
with 4 option years, included a front-loaded base period price and did
not become low until the third of 4 option years, thereby raising a
reasonable doubt that the bid would result in the lowest
ultimate cost to the government.
DECISION
Technology Services International, Inc. (TSI) protests the rejection
of its bid as materially unbalanced and the award of a contract to
TECHSECO, Inc., under invitation for bids (IFB) No. F09607-97-B0017,
issued by the Department of the Air Force for telephone operator
services at Moody Air Force Base, Georgia.
We deny the protest.
The IFB provided for the award of a firm, fixed-price contract for a
base with 4 option years. The successful contractor will provide
telephone switchboard services 24 hours a day, 7 days a week. The bid
schedule required bidders to submit, for each period of the contract,
a unit price for the services per month, and an extended price for the
services per year. Bidders were informed that the agency would
evaluate bids by adding the prices bid for the base and option
periods. The IFB also included the standard "Contract Award - Sealed
Bidding" clause, set forth at Federal Acquisition Regulation (FAR) sec.
52.214-10, which cautions that a bid may be rejected as nonresponsive
if the prices are materially unbalanced.[1]
The agency received 17 bids by the bid opening date, with TSI and
TECHSECO submitting the lowest-priced bids as follows:
TSI TECHSECO
Base Year $142,920 $116,640
1st Option $130,800 $116,640
2nd Option $ 89,760 $116,640
3rd Option $ 77,760 $116,640
4th Option $ 77,760 $116,640
Total $519,000 $583,200
The agency concluded that TSI's overall low bid was mathematically and
materially unbalanced and rejected TSI's bid in accordance with the
terms of the solicitation. Award was made to TECHSECO as the bidder
submitting the lowest-priced, responsive bid, and this protest
followed.
An examination of bid unbalancing has two aspects. First, the bid
must be evaluated mathematically to determine whether the bid is based
on understated prices for some work and overstated prices for other
work. The second aspect--material unbalancing--involves an assessment
of the cost impact of a mathematically unbalanced bid. Where there is
reasonable doubt that award to the bidder submitting the
mathematically unbalanced bid would result in the lowest ultimate cost
to the government, the bid is materially unbalanced and may not be
accepted. FAR sec. 14.404-2(g), 52.214-10(e); Westbrook Indus., Inc.,
71 Comp. Gen. 139, 140 (1992), 92-1 CPD para. 30 at 4; Solon Automated
Servs., Inc., B-206449.2, Dec. 20, 1982, 82-2 CPD para. 548 at 3.
With regard to service contracts that involve the evaluation of base
and option periods, and where the level of service for each period is
essentially the same, a large price differential between the base and
option periods, or between one option period and another, is prima
facie evidence of mathematical unbalancing. Westbrook Indus., Inc.,
supra, at 3; Professional Waste Sys., Inc.; Tri-State Servs. of Texas,
67 Comp. Gen. 68, 70 (1987), 87-2 CPD para. 477 at 3. However, the
assessment of whether a bid is mathematically unbalanced does not
merely involve a comparison of the percentage difference between the
base and option period prices. The determinative question is whether
the pricing structure is reasonably related to the actual costs to be
incurred in each year of the contract. FAR sec. 52.214-10(e);
Residential Refuse Removal, Inc., 72 Comp. Gen. 68, 70 (1992), 92-2
CPD para. 444 at 4.
Here, TSI's base year price is 59 percent higher than its price for
the second option period, and 84 percent higher than its price for
either the third or fourth option periods. Because the level of
services required during each year of this contract is the same, this
significant difference in TSI's prices indicates that its bid is
mathematically unbalanced. See Residential Refuse Removal, Inc.,
supra, at 3-4. Moreover, TSI has not shown that its bid's pricing
structure is reasonably related to the actual costs to be incurred in
each year of the contract.[2] Accordingly, the agency properly found
TSI's bid to be mathematically unbalanced.
In cases involving mathematically unbalanced bids which do not become
low until late in the contract term, including option years, we have
agreed that despite the initial intent of the agency to exercise the
options, intervening events could cause the contract not to run its
full term, which would result in an inordinately high cost to the
government and a windfall to the bidder. Under this type of factual
situation, an agency could reasonably determine that there was a
reasonable doubt whether the mathematically unbalanced bid would
ultimately provide the lowest cost to the government. Professional
Waste Sys., Inc.; Tri-State Servs. of Texas, supra, at 4. Here, TSI's
bid does not become low until the fourth year of a possible 5-year
contract. Although TSI argues that the agency has not identified any
"evidence" that it would not exercise all the contract options,[3]
TSI's significant front-loading provides the agency with sufficient
reasonable doubt that the acceptance of TSI's bid would actually
provide the lowest ultimate cost to the government. Westbrook Indus.,
Inc., supra, at 4. Consequently, the agency reasonably rejected TSI's
bid as materially unbalanced.
The protest is denied.
Comptroller General
of the United States
1. This clause states that a bid "is materially unbalanced when it is
based on prices significantly less than cost for some work and prices
which are significantly overstated in relation to cost for other work,
and if there is a reasonable doubt that the bid will result in the
lowest overall cost to the Government." FAR sec. 52.214-10(e).
2. TSI argued in its protest that its bid was not mathematically
unbalanced, because its higher initial year prices included "start-up
costs, necessary travel, management oversight and required training to
ensure quality performance." In accordance with our Bid Protest
Regulations, the agency requested that the protester provide any
documents it possessed that supported this assertion. 4 C.F.R sec.
21.3(d) (1997). The protester complied with this request, and the
agency subsequently argued in its report that "[t]he cost breakdown
submitted by TSI merely shows the total labor cost for performance of
the service and provides no real justification for its unbalanced
bid." TSI did not respond to the agency's argument or otherwise
support its initial protest claims regarding the front-loading of its
bid.
3. The agency identified several possibilities that could preclude the
agency's exercise of the option periods of this contract, including
the loss of contract funding, a termination for default, or the
solicitation of telephone switchboard services on a regional basis,
which is estimated to offer a higher cost savings to the government
than obtaining the services on a base-by-base basis as has been done
here.