BNUMBER:  B-278850 
DATE:  March 23, 1998
TITLE: Ervin and Associates, Inc., B-278850, March 23, 1998
**********************************************************************

Matter of:Ervin and Associates, Inc.

File:     B-278850

Date:March 23, 1998

John J. Ervin for the protester.
Michael J. Farley, Esq., Department of Housing and Urban Development, 
for the agency.
Tania L. Calhoun, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest that task order improperly exceeds the scope of the contract 
originally awarded is sustained; while the types of accounting support 
services required under the contract and the task order are quite 
similar, the scope of services under the contract is reasonably 
limited to serving the purpose for which the contract was awarded, 
which was distinctly different from the purpose for which the task 
order was issued.

DECISION

Ervin and Associates, Inc. protests the Department of Housing and 
Urban Development's (HUD) decision to issue a task order to Gardiner, 
Kamya & Associates, P.C. under contract No. DU100C000018477, for 
accounting support services.  Ervin argues that the task order is 
beyond the scope of Gardiner, Kamya's contract and that HUD should 
have conducted a competition for the acquisition.

We sustain the protest.

BACKGROUND

Gardiner, Kamya's Contract

On February 17, 1995, HUD issued request for proposals (RFP) No. 
DU100C000018424 as a set-aside for eligible firms under the Small 
Business Administration's (SBA) section 8(a) program.[1]  The 
solicitation anticipated the award of multiple indefinite quantity 
task order contracts that would be effective for a period of 24 
months.  

RFP  sec.  B-1 described the required services as "administrative, 
accounting, and analytical support services for a variety of planned 
or contemplated sales and/or restructuring of Federal Housing 
Administration (FHA) assets in accordance with [the RFP's statement of 
work (SOW)]."  The SOW, set forth in section C of the RFP, bore the 
title "[FHA] Asset Sales Support Services."  

The SOW's introductory section elaborated upon the description of 
services above by characterizing them as a "broad range" of such 
services.  RFP  sec.  C.I.  This characterization was followed by an 
example concerning a series of mortgage note sales from HUD's Single 
Family and Multifamily Mortgage Note Portfolios in the 1995-1996 time 
frame.  Id.  The contractor's services would "initially be required 
for activities which are involved in the conduct of a successful 
mortgage note sale" but, in addition, "restructuring and/or 
rehabilitation of projects in connection with sales to State Housing 
Finance Agencies may be required."  Id.

The SOW's background section, RFP  sec.  C.II., provided a context for the 
required services:

     Beginning in FY 1995, [HUD] will undertake a program of project 
     mortgage sales to reduce the size of the HUD-held mortgage 
     inventory. . . .  Most sales will occur in competitive, sealed 
     bid auctions, but some sales of subsidized mortgages, both 
     performing and nonperforming, will be negotiated with State or 
     local Housing Finance Agencies.

     The services of a Contractor are needed to assist HUD in 
     preparation for mortgage note sales transactions. 

     The Contractor shall be responsible for the performance of an 
     array of support services in support of four key HUD Headquarter 
     offices that will play an instrumental role in the planned note 
     sales . . . .

                    .    .    .    .    . 

     As other types of asset sales materialize, the Contractor may be 
     tasked to support other offices within the [FHA].

The SOW's requirements section, RFP  sec.  C.III., set forth seven 
categories of services, one of which was due diligence.  RFP  sec.  
C.III.B.  Due diligence was defined as the process of confirming and 
validating agency representations concerning the financial status and 
loan history of "notes offered for sale to the public."  Id.  The 
solicitation clearly stated that "[a]ll due diligence services shall 
be provided under a task order . . . in conjunction with a particular 
sale."  The remaining paragraphs under the due diligence heading 
described the activities and requirements the contractor might be 
tasked to perform "in support of HUD's Single Family and/or 
Multifamily loan sale programs."  These activities included such 
things as collecting and reviewing various documents related to 
projects for sale; conducting physical inspections, environmental 
reviews, and title searches of projects securing mortgages in 
auctions; providing services associated with borrower settlements in 
conjunction with a sale; assembling collected data into bid packages; 
and facilitating HUD's marketing of the loan sales, the recordation 
and analysis of bids, and loan sales closings.  Id.

The last category of services was for the refinancing/restructuring of 
HUD-held and insured mortgages.  RFP  sec.  C.III.G.  Under this heading, 
the solicitation explained that, "[t]o facilitate the refinancing or 
restructuring (workout) of current and delinquent mortgages, due 
diligence services may be required to complete" various listed tasks.  
Id.
 
Offerors' proposals were to include responses to two sample task 
orders.  The first of these was entitled "Sale of Multifamily 
Unsubsidized Non-Performing Mortgages in the Northeast," and the 
second was entitled "Sale of HUD-Held Single-Family Mortgages."  The 
specific tasks under each sample task order related to mortgage sales.  
RFP Attachment J-5.

HUD awarded three contracts to the SBA under this solicitation, each 
of which was subcontracted to a different firm.  The contract at issue 
here, with a maximum value of $30 million, was subcontracted to 
Gardiner, Kamya effective July 28, 1995.

The Portfolio Reengineering/Mark-to-Market Program

HUD, through the FHA, insures mortgages on both single-family homes 
and multifamily rental housing properties for lower- and 
moderate-income households.  In addition to mortgage insurance, many 
FHA-insured multifamily properties receive rental subsidies linked to 
multifamily apartment units (project-based subsidies) for low-income 
families under HUD's section 8 program.  Long-standing problems exist 
with the segment of the insured multifamily portfolio that both has 
FHA-insured mortgages and receives project-based section 8 rental 
subsidies.[2]  In May 1995, HUD proposed to address these problems 
through a process it called "mark-to-market."  This process involved 
resetting (marking) rents to market levels and reducing mortgage debt 
if necessary, terminating FHA's mortgage insurance, and replacing 
project-based section 8 subsidies with portable tenant-based 
subsidies.  Multifamily Housing:  Effects of HUD's Portfolio 
Reengineering Proposal (GAO/RCED-97-7, Nov. 1, 1996) at 19; see 
generally Multifamily Housing:  HUD's Mark-to-Market Proposal 
(GAO/T-RCED-95-230, June 15, 1995).  In April 1996, HUD modified its 
mark-to-market proposal and renamed the process "portfolio 
reengineering."  

Section 210 of the Departments of Veterans Affairs and Housing and 
Urban Development, and Independent Agencies Appropriations Act of 1996 
authorized HUD to initiate a demonstration program designed to explore 
various approaches for restructuring the financing of projects in its 
insured section 8 portfolio.  Pub. L. No. 104-134, 110 Stat. 1321, 
1321-257, 1321-285-1321-288 (Apr. 26, 1996).  This demonstration 
program was to be initiated between October 1, 1995 and October 1, 
1997.  Id.  Sections 211 and 212 of the Departments of Veterans 
Affairs and Housing and Urban Development, and Independent Agencies 
Appropriations Act of 1997 repealed the previously authorized 
demonstration program and authorized the conduct of a new one.  Pub. 
L. No. 104-204, 110 Stat. 2874, 2895-2904 (Sept. 26, 1996).  The 
Mark-to-Market/Portfolio Reengineering Demonstration Program 
authorized by the first Act was implemented on July 2, 1996, 61 Fed. 
Reg. 34,644 (1996), and the Portfolio Reengineering Demonstration 
Program authorized by the second Act was implemented on January 23, 
1997.  62 Fed. Reg. 3,566 (1997).

Task Order Number 5     

On July 25, 1997, two days before the expiration of Gardiner, Kamya's 
contract, HUD issued task order number 5, for "Due Diligence (DD) 
services to support HUD's Mark-to-Market Demonstration Program."  The 
task order was for a not-to-exceed amount of approximately $15 million 
over a 1-year period.

The task order's SOW bore the title "Due Diligence Services for 
Portfolio Reengineering/Mark-to-Market Program."  The SOW's 
background, at section I, explained that: 

     [HUD] is conducting a Demonstration Program to restructure 
     mortgages insured by FHA for projects that receive above-market 
     rental assistance under Section 8 in response to direction from 
     Congress.   

     The Demonstration Program is intended to test approaches that 
     reduce the cost of the ongoing Federal subsidy for FHA-insured, 
     Section 8-assisted housing, while preserving this critical 
     affordable housing resource in good physical and financial 
     condition, to the maximum extent practicable.  After the 
     restructuring, the debt service and operating expenses, including 
     adequate reserves, attributable to the multifamily projects can 
     be supported.

                    .    .    .    .    .    

     The Contractor will provide its services for up to 1,500 assets 
     secured by projects throughout the United States. . . .  [HUD] 
     will assign the assets to the Contractor over a [1] year period 
     of time, although not necessarily proportionally over the time 
     period. . . .  [T]here is no assurance that the Contractor's 
     services will be required for the maximum number of assets 
     provided in this task order.

The SOW's scope of services, at section II, stated that "[t]he Due 
Diligence Contractor for the selected assets contemplated by this 
[SOW] shall provide all due diligence and support services . . . in 
order to assist HUD or its Designee in the design and execution of the 
assets."  The SOW's work requirements, at section III, listed the 
contractor's due diligence responsibilities.  The specific tasks are 
very similar to those listed under the RFP, as described above, but 
lack the references to sales and include a new requirement related to 
section 8 subsidies.  Section III.8.   

PROTEST

Prompted by rumors he had heard, on October 9 Ervin's president 
telephoned the Director of the Program Support Division in HUD's 
Office of Procurement and Contracts to determine what task order 
Gardiner, Kamya was currently performing under this contract.  His 
October 10 follow-up letter states that he did not get an answer to 
his question and was instructed, instead, to file a Freedom of 
Information Act request.  His October 10 letter included a request for 
the task order.  By letter dated October 31, Ervin's president advised 
the Director that he thought he might have heard from her after their 
telephone conversation the prior week regarding the requested 
information, but he had not.  Moreover, his October 30 and 31 voice 
mail messages to her had not been returned.  He explained that he was 
hoping to obtain clarification on the matter prior to filing an 
agency-level protest.

On November 3, Ervin filed an agency-level protest in which he stated 
he had learned that HUD may have issued a task order to Gardiner, 
Kamya under its due diligence contract to perform services related to 
the Portfolio Reengineering/Mark-to-Market program.  He explained that 
he had tried to confirm rumors to this effect with the contracting 
officer, but his calls had not been returned and he had no alternative 
but to file a protest.  HUD denied the agency-level protest on 
December 3, and Ervin filed essentially the same protest in our Office 
on
December 12.  Ervin primarily alleges that the task order improperly 
exceeds the contract's scope of work.[3]  

DISCUSSION

Timeliness

HUD argues that Ervin's protest should be dismissed as untimely 
because it failed to set forth all the information establishing its 
timeliness and because Ervin knew or should have known the basis for 
its protest more than 10 days before filing its agency-level protest.  
We disagree.

Protests based on other than alleged solicitation improprieties must 
be filed within 10 days of the time the basis is known or should have 
been known.  Bid Protest Regulations, 4 C.F.R.  sec.  21.2(a)(2) (1997).  
If an agency-level protest was previously filed, any subsequent 
protest to our Office filed within 10 days of actual or constructive 
knowledge of the initial adverse agency action will be considered, 
provided that the agency-level protest was filed within 10 days of the 
time the basis was known or should have been known.  Id. at  sec.  
21.2(a)(3).  Our Office retains the discretion to dismiss a protest 
that fails to include all information establishing its timeliness.  
Id. at  sec.  21.1(c)(6); 21.2(b).  When timeliness disputes arise, we 
will resolve any reasonable doubt in favor of the protester.  Eastern 
Trans-Waste of Maryland, Inc., B-250991, Mar. 2, 1993, 93-1 CPD  para.  192 
at 2-3.

There is no dispute that Ervin's protest to our Office was filed 
within 10 days of HUD's denial of its agency-level protest, and that 
this fact was apparent from the face of its protest here.  In 
addition, Ervin's protest to our Office included its October 31 letter 
to HUD indicating that the firm had requested information on the task 
order to no avail; its November 3 agency-level protest stating that it 
had heard about the task order and attempted to confirm this rumor 
with the contracting officer, to no avail; and HUD's December 3 denial 
of Ervin's protest, which did not dispute its timeliness but addressed 
its merits.  In our view, Ervin's protest to our Office contained 
sufficient information to establish its timeliness under our Bid 
Protest Regulations.

HUD is incorrect when it asserts that Ervin's October 10 letter is 
evidence that the firm knew its basis of protest by that date.  The 
letter is evidence of nothing more than Ervin's earlier attempt to 
ascertain the basis for its protest, and underscores both the firm's 
diligent efforts to obtain this information from HUD and HUD's failure 
to provide this information expeditiously.  HUD's belief that Ervin 
possessed the basis of its protest when it learned rumors regarding 
this task order is mistaken.  A protest grounded upon mere speculation 
or rumor provides no basis for questioning the propriety of a 
procurement.  See King-Fisher Co., B-256849, July 28, 1994, 94-2 CPD  para.  
62 at 3.  That Ervin was eventually forced to file a protest based 
upon these rumors because HUD did not provide it with more concrete 
information does not make the protest untimely.   

Ervin's Argument

Ervin argues that the task order--for due diligence services in 
support of HUD's Portfolio Reengineering/Mark-to-Market Demonstration 
Program--is beyond the scope of the contract for FHA asset sales 
support services.  Ervin asserts that since HUD was in the midst of 
planning its mark-to-market proposal at the time the solicitation was 
issued, if HUD had intended for the contract's support services to 
extend to this program, it would have said so in the solicitation.  
Ervin contends that HUD is improperly utilizing the contract's 
reference to requiring a "broad range" of support services to fit 
whatever work HUD wants under the contract.   

HUD's Argument

HUD argues that Ervin has failed to analyze the similarities between 
the due diligence services required under both the contract and the 
task order and is erroneously focusing on the programs such services 
support.  Citing the solicitation's requirement for a "broad range" of 
services to support "both HUD's 'planned or contemplated sales and/or 
restructuring of [FHA] assets,'" Agency Report at 12; RFP  sec.  B-1, 
C-I., and its more specific requirement for restructuring, RFP  sec.  
C.III.G., HUD argues that the contract clearly anticipated the 
performance of due diligence services in support of a program to 
restructure assets, such as the Portfolio Reengineering/Mark-to-Market 
Demonstration Program. 

Analysis

The Competition in Contracting Act (CICA) requires "full and open 
competition" in government procurements as obtained through the use of 
competitive procedures.  41 U.S.C.  sec.  253(a)(1)(A) (1994).  Once a 
contract is awarded, GAO generally will not review modifications to 
that contract, such as a task order, because such matters are related 
to contract administration and are beyond the scope of GAO's bid 
protest function.  4 C.F.R.  sec.  21.5(a); MCI Telecomms. Corp., 
B-276659.2,
Sept. 29, 1997, 97-2 CPD  para.  90 at 7.  An exception to this rule is 
where it is alleged that the task order is beyond the scope of the 
original contract, since the work covered by the task order would 
otherwise be subject to the statutory requirements for competition 
(absent a valid determination that the work is appropriate for 
procurement on a sole source basis).  Indian and Native Am. Employment 
and Training Coalition, 64 Comp. Gen. 460, 461 (1985), 85-1 CPD  para.  432 
at 2; MCI Telecomms. Corp., supra; Data Transformation Corp., 
B-274629, Dec. 19, 1996,
97-1 CPD  para.  10 at 6.  

In determining whether a task order is beyond the scope of the 
contract originally ordered, GAO looks to whether there is a material 
difference between the task order and that contract.  MCI Telecomms. 
Corp., supra; see AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d 
1201, 1205 (Fed. Cir. 1993).  Evidence of such a material difference 
is found by reviewing the circumstances attending the procurement that 
was conducted; examining any changes in the type of work, performance 
period, and costs between the contract as awarded and as modified by 
the task order; and considering whether the original contract 
solicitation adequately advised offerors of the potential for the type 
of task order issued.  Indian and Native Am. Employment and Training 
Coalition, supra; Data Transformation Corp., supra.  The overall 
inquiry is "whether the modification is of a nature which potential 
offerors would reasonably have anticipated."  Neil R. Gross & Co., 
Inc., 69 Comp. Gen. 292, 294 (1990), 90-1 CPD  para.  212 at 3, cited in 
AT&T Communications, Inc. v. Wiltel, Inc., supra, at 1207.

The FHA asset sales support services solicitation makes no mention of 
the possibility of performing due diligence services in support of the 
Portfolio Reengineering/Mark-to-Market Demonstration Program.  While 
the types of services required under both the due diligence portion of 
the RFP and the task order are quite similar, potential offerors could 
reasonably anticipate that the scope of services under the contract 
would be limited to serving the purpose for which the contract was 
awarded.  The RFP makes it clear that the contractor would be 
supporting a program of project mortgage sales to reduce the size of 
the HUD-held mortgage inventory, and that its services were needed to 
assist in the preparation of mortgage note sales transactions.  The 
RFP specifically stated that all due diligence services would be 
provided under a task order in conjunction with a particular sale and, 
moreover, the specific due diligence tasks were couched solely in 
terms of note sales.  

The RFP makes no reference whatsoever to the Portfolio 
Reengineering/Mark-to-Market Demonstration Program, or even to the 
general issue of the insured
section 8 portfolio.  This is not surprising, since HUD's formal 
proposal on the matter post-dated the issuance of the solicitation, 
and since the demonstration program the task order is designed to 
support was not even authorized at the time the contract was awarded.  
We do not believe that the asset sales support services contract 
contemplated providing support for the demonstration program; 
certainly there was nothing in the RFP which reasonably advised 
offerors of this possibility.  

In this regard, we are not persuaded by HUD's assertion that the 
solicitation's requirement for a "broad range" of services to support 
"a variety of planned or contemplated sales and/or restructuring of 
FHA assets," and its specific requirement for restructuring services, 
were sufficient to put offerors on notice that the contract's support 
services would be extended to cover this demonstration program which, 
undisputedly, involves restructuring.  

HUD cannot rely upon the contract's "catch-all" phrases--such as a 
"broad range" of services or a "a variety" of sales and/or 
restructuring--in order to justify a modification which could not 
reasonably have been anticipated by the potential offerors.  In 
addition, the references to restructuring must be read in the context 
of the solicitation as a whole.  As discussed above, HUD issued this 
solicitation for the express purpose of obtaining asset sales support 
services, and the few references to restructuring in the solicitation 
appear wholly in the context of asset sales support.  As a result, the 
only reasonable reading of the language cited by HUD is that the 
solicitation requires restructuring services in support of asset 
sales.  See Indian and Native Am. Employment and Training Coalition, 
supra, 64 Comp. Gen. at 465,
85-1 CPD  para.  432 at 8-9; Sprint Communications Co., B-278407.2, Feb. 13, 
1998, 
98-1 CPD  para.     at 8.  A contracting agency cannot extract isolated 
words and phrases--such as restructuring--from a contract or stretch 
such contract's "explicit flexibility" in order to justify a 
modification whose nature would not reasonably have been anticipated 
by potential offerors; to countenance such a justification "would 
eviscerate CICA."  CCL, Inc. v. U.S., No. 97-721C, 1997 Fed. Cl. LEXIS 
297,
at *16 (Fed. Cl. Dec. 23, 1997).    

We recommend that HUD terminate the Gardiner, Kamya task order and 
conduct a competitive acquisition to meet its needs for these 
services.[4]  We also recommend that the protester be reimbursed the 
reasonable costs of filing and pursuing its protest, including 
attorneys' fees.  4 C.F.R.  sec.  21.8(d)(1).  Ervin's certified claim for 
such costs, detailing the time expended and the costs incurred, must 
be submitted directly to the agency within 60 days after receipt of 
this decision.  

The protest is sustained.

Comptroller General
of the United States

1. Section 8(a) of the Small Business Act, 15 U.S.C.  sec.  637(a) (1994), 
authorizes the SBA to contract with government agencies and to arrange 
for the performance of such contracts by awarding subcontracts to 
socially and economically disadvantaged small businesses. 

2. A detailed discussion of these problems and HUD's 
Mark-to-Market/Portfolio Reengineering Program can be found in 
Multifamily Housing:  Effects of HUD's Portfolio Reengineering 
Proposal (GAO/RCED-97-7, Nov. 1, 1996). 

3. In view of our conclusion that the task order does improperly 
exceed the contract's scope of work, we need not address Ervin's 
remaining allegations.

4. It appears that HUD is presently conducting competitive 
acquisitions for these and other due diligence services under RFP Nos. 
DU100C000018561 and DU100C000018600.