BNUMBER:  B-280398.2; B-280398.3 
DATE:  October 9, 1998
TITLE: Knights' Piping, Inc.; World Wide Marine & Industrial, B-
280398.2; B-280398.3, October 9, 1998
**********************************************************************

Matter of:Knights' Piping, Inc.; World Wide Marine & Industrial 
          Services

File:     B-280398.2; B-280398.3

Date:October 9, 1998

Brian K. Knight for Knights' Piping, Inc., and A.J. Hammond for World 
Wide Marine & Industrial Services, the protesters.
Sharon Hershkowitz, Esq., Frank A. Putzu, Esq., and Paul W. Tyler, 
Esq., Department of the Navy, for the agency.
Linda C. Glass, Esq., and Paul I. Lieberman, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Contracting agency's inadvertent inclusion of emerging small 
business set-aside notice in solicitation does not prohibit award to 
large business where solicitation otherwise indicated that no 
set-aside was intended, there is no legal requirement that the 
contract be set aside for emerging small business concerns, and no 
bidder was prejudiced as a result.

2.  Contracting agency properly awarded contract to firm possessing 
both a Master Ship Repair Agreement and an Agreement for Boat Repair 
(ABR) where solicitation was restricted to ABR holders.

3.  Protest that a conflict of interest exists where agency awarded a 
contract for the planned availability of the USS THOMAS S. GATES to 
the contractor who is the planning yard for this class of ship and who 
prepared the availability analysis is denied where agency reasonably 
determined that adequate safeguards were in place to mitigate or 
neutralize any conflict and also properly executed a waiver of the 
possible organizational conflict of interest as being in the best 
interest of the government.

4.  Protest that submission of an allegedly below-cost offer 
constitutes a "buy-in" does not provide a valid basis to challenge an 
award.

DECISION

Knights' Piping, Inc. and World Wide Marine & Industrial Services 
protest the award of a contract to Ingalls Shipbuilding, Inc. under 
request for proposals (RFP) No. N62795-98-R-0023, issued by the 
Supervisor of Shipbuilding, Conversion and Repair, Department of the 
Navy, Pascagoula, Mississippi (SUPSHIP) for the performance of certain 
repairs and alterations to a guided missile cruiser, USS THOMAS S. 
GATES.  Both protesters argue that the award to Ingalls, a large 
business, was improper because the RFP was set aside for emerging 
small businesses (ESB); that the RFP was restricted to firms holding a 
current Agreement for Boat Repair (ABR) and Ingalls was ineligible 
because it holds both an ABR and a Master Ship Repair Agreement 
(MSRA); and that Ingalls had an unfair competitive advantage because, 
as the planning yard for guided missile CG-47 class ships, it had 
information regarding the RFP in advance of other offerors.  

We deny the protests.

The RFP, issued April 15, 1998, stated that it was restricted to those 
firms having a current ABR and also stated that in "accordance with 
Department of Navy policy competition is restricted to ABR/MSRA 
holders within a 75 mile radius of vessel's homeport.  Firms which do 
not possess a MSRA/ABR (as applicable) are ineligible for award unless 
adequate time exists to permit the Navy to perform an assessment of 
their MSRA/ABR application and to execute the applicable MSRA/ABR 
without impacting the vessel's availability dates."  RFP  sec.  A-6.  The 
RFP also contained Federal Acquisition Regulation (FAR)  sec.  52.219-20, 
Notice of Emerging Small Business Set-Aside which provides that the 
procurement was restricted to ESB concerns.  RFP  sec.  L-2-7.  The RFP 
provided for award of a firm, fixed-price contract using a best value 
determination based upon the evaluation factors of past performance 
and price.  RFP  sec.  M-6.  The past performance evaluation factor 
consisted of the following subfactors:  technical (quality of 
product); schedule; and management.  Past performance was to be rated 
as exceptional, very good, satisfactory, marginal or unsatisfactory.  
Offerors without a record of relevant past performance or for whom 
information on past performance was not available were to receive a 
neutral rating.  The RFP stated that "Past Performance is 
approximately equal to Price, with Past Performance being more 
important than Price."  RFP 
 sec.   M-6(c)(1).  

The agency received four offers by the May 15 closing date.  The past 
performance evaluation team (PPET) rated each offeror's past 
performance using existing relevant past performance information.  
Ingalls was rated neutral because no relevant past performance data 
was available at this SUPSHIP and Knights' Piping was rated 
satisfactory based on available relevant past performance data.  World 
Wide Marine was rated unsatisfactory based on relevant past 
performance data.  A best value advisory committee (BVAC) performed a 
best value analysis using pricing information and the PPET analysis of 
relevant past performance data.  The BVAC ranked the offers as 
follows:

CONTRACTOR          OVERALL RATING      PRICE PROPOSED

Ingalls                 Neutral             $2,914,857
Knights' Piping       Satisfactory          $4,311,252
Offeror A             Unsatisfactory        $2,933,780
World Wide Marine     Unsatisfactory        $4,444,537

The contracting officer determined that although Knights' Piping had a 
higher past performance rating, Ingalls represented the best value 
because of its lower proposed price, and Ingalls was awarded the 
contract on June 12.  Neither Knights' Piping nor World Wide Marine 
requested a debriefing, and on June 16, both filed agency-level 
protests that were denied on June 26.  On July 2, Knights' Piping 
filed its protest with our Office and World Wide Marine filed its 
protest on July 6, both raising essentially the same issues.
 
First, the protesters argue that the Navy improperly awarded the 
contract to Ingalls because, as a large business, Ingalls is 
ineligible for award under an ESB set-aside.  The Navy maintains that 
the FAR  sec.  52-219-20 set-aside provision was inadvertently included in 
the solicitation, and argues that there is no provision for setting 
aside a procurement of this dollar value for an ESB.  The Navy also 
points out that neither Knights' Piping nor World Wide Marine 
indicated that its proposed prices would have changed had it known 
that large businesses were going to be allowed to compete.

The record supports the agency's position that inclusion of the notice 
of ESB set-aside was inadvertent.  The RFP cover sheet at block 5 is 
explicitly and appropriately marked in the space which designates that 
the procurement is unrestricted, while the space providing for a 
set-aside is not marked.  This unrestricted designation is consistent 
with other RFP provisions suggesting that the procurement is 
unrestricted (e.g., the inclusion of both small and large business 
progress payment rates), except for the inclusion of FAR  sec.  52-219-20 
at paragraph L-2-7.  FAR  sec.  19.1007(b) calls for the inclusion of FAR  sec.  
52.219-20 in solicitations in accordance with FAR  sec.  19.1006(c).  FAR  sec.  
19.1006(c) provides that acquisitions in  the four industry groups 
identified in FAR  sec.  19.1005(a)(4), which includes nonnuclear ship 
repair, with an estimated value equal to or less than the ESB reserve 
amount established by the Office of Federal Procurement Policy (OFPP) 
shall be set aside for ESBs:  "provided that the contracting officer 
determines that there is a reasonable expectation of obtaining offers 
from two or more responsible ESB's that will be competitive in terms 
of market price, quality, and delivery."

If no such reasonable expectation exists and the acquisition value is 
over $25,000 then, in accordance with FAR  sec.  19.1006(b), the 
requirement shall not be considered for small business set-asides.  
The standard industrial classification (SIC) code for this procurement 
is 3731, RFP  sec.  K-17, for which OFPP has established $25,000 as the 
reserve amount.  58 Fed. Reg. 19,849, 19,852 (1997).  Here, the 
government estimate for this acquisition was in excess of $2.4 million 
and both protesters' offers were over $4 million, substantially in 
excess of the applicable ESB reserve amount of $25,000.  Under the 
circumstances, it is clear that the inclusion of FAR  sec.  52.219-20 was 
inadvertent and as a result there was no prohibition on making award 
to a large business bidder like Ingalls.  See Northwest Piping, Inc., 
B-239404, Aug. 16, 1990, 90-2 CPD  para.  133 at 2-4.

Both protesters maintain that regardless of whether its inclusion was 
inadvertent, because the ESB set-aside provision was included, it must 
be enforced.  As explained above, the FAR does not provide for an ESB 
set-aside here and prohibits the use of small business set-asides for 
procurements of this nature.  Under these circumstances, particularly 
since the solicitation also provided clear notice in other sections 
that the procurement was not set aside, the protesters' contention is 
without merit.  Knights' Piping also maintains that had it known that 
the FAR  sec.  52.219-20 ESB set-aside notice was not going to be enforced 
it would not have participated in this procurement.  However, since 
Knights' Piping certified in its offer that it is not an ESB, Knights' 
Piping is not an appropriate party to raise this issue on behalf of 
ESBs, a class to which it apparently does not belong.  Priscidon 
Enters., Inc., B-238370, Mar. 30, 1990, 90-1 CPD  para.  345 at 4.

Second, the protesters argue that because Ingalls has both an MSRA and 
ABR, it should have been excluded from the competition because this 
places offerors with ABRs only at a competitive disadvantage.  The 
agency reports that in order to perform repair work of any kind on 
Navy ships a prospective contractor must enter into an advance 
agreement with the Navy, called a master agreement for repair and 
alteration of vessels (MARAV).  The MSRA and ABR are the two types of 
MARAVs and they differ according to the nature of the work the 
contractor is qualified to perform.  A contractor holding an MSRA is 
eligible to perform extensive and complex work on ships of 500 tons or 
larger.  An ABR allows a contractor which lacks the capability to 
perform the more extensive work on larger vessels to compete for 
repair work on smaller vessels and, where designated by the Navy, for 
work of limited scope on the larger vessels.  MSRA holders are 
automatically issued an ABR since they can perform the less complex 
work. 

Here, the contracting officer determined that the minimum 
qualification for eligibility to compete for the contract was 
possession of an ABR.  The competition was then opened to any firm 
with an ABR and since Ingalls met this minimum qualification 
requirement, Ingalls properly was allowed to participate in this 
acquisition.  As previously stated, the RFP specifically stated that 
it was restricted to ABR holders or, if adequate time existed to 
perform an assessment of MSRA/ABR application and to execute the 
applicable MSRA/ABR without affecting the vessels' availability dates, 
to firms that did not possess an MSRA/ABR.  Thus, it was the agency's 
stated intent to allow all ABR holders to participate, and Ingalls as 
an ABR holder was properly allowed to participate.  We see no merit in 
the protester's position that possession of an MSRA as well as an ABR 
somehow renders a firm ineligible to compete for procurements for 
which only an ABR was required.  Clearly, Ingalls' possession of both 
simply means that it met and exceeded the stated eligibility 
requirement.

Next, the protesters argue that Ingalls had an unfair competitive 
advantage because as the planning yard for guided missile CG-47 class 
ships, it had information regarding the solicitation prior to other 
offerors. Knights' Piping also contends that the solicitation was 
partially prepared by Ingalls.

An organizational conflict of interest occurs where, because of other 
activities or relationships with other persons, a person is unable or 
potentially unable to render impartial assistance or advice to the 
government, or the person's objectivity in performing the contract 
work is or might otherwise be impaired, or a person has an unfair 
competitive advantage.  FAR  sec.  9.501.  Contracting officials are to 
avoid, neutralize, or mitigate potential significant conflicts of 
interest so as to prevent unfair competitive advantage or the 
existence of conflicting roles that might impair a contractor's 
objectivity.  FAR  sec.  9.504(a)(2); CH2M Hill, Ltd., B-259511 et al., 
Apr. 6, 1995, 95-1 CPD  para.  203 at 14.  The responsibility for 
determining whether an actual or apparent conflict of interest will 
arise, and to what extent the firm should be excluded from the 
competition, rests with the contracting agency.  We will not overturn 
the agency's determination in this regard except where it is shown to 
be unreasonable.  SRS Techs., B-258170.3, Feb. 21, 1995, 95-1 CPD  para.  95 
at 9.

The Navy reports that Ingalls developed the detail design and was the 
lead shipbuilder for the CG-47 class ships and as a result the Navy 
contracts with Ingalls to accomplish Planning Yard services to support 
the integrated maintenance and modernization process for the CG-47 
class ships.  Initially the Planning Yard contract required Ingalls to 
provide input into bid specifications by developing work items to 
support alteration installation and repair efforts.  The Navy included 
a special organizational conflict of interest clause in the Planning 
Yard contract identifying this effort as creating an organizational 
conflict of interest.  However, 6 months after contract award, Ingalls 
was instructed to stop work associated with this portion of the 
statement of work and SUPSHIP assumed the task of preparing bid 
specifications and, according to the agency, Ingalls has not developed 
work items or specifications to support alteration installation or 
repair efforts regarding CG-47 class availabilities for which Ingalls 
may compete.  

Additionally, under the Planning Yard contract, Ingalls develops Ship 
Alteration Records, which provide definition of a Navy proposed 
military improvement or change for the ship class, and Ship Alteration 
Installation Drawings, which contain the detailed design for the 
change.  When Ingalls expressed an interest in competing for CG-47 
class ship repair availabilities, the Navy established a process to 
neutralize or mitigate any organizational conflict of interest 
associated with these efforts.  First, in order to preclude the 
introduction of any "yard specific" characteristics into Planning Yard 
products, drawing packages are developed by the Planning Yard in 
accordance with strict standard formats prescribed by the Navy's Fleet 
Modernization Program Manual.  All drawing packages are then submitted 
to the Navy for review and approval.  After approval by the Navy, 
drawing packages are available upon request to any interested party 
wishing to bid on the package and notice of availability of these 
drawing packages is posted on the Internet.

Further, the Navy reports that notwithstanding its mitigation efforts, 
since it could still be perceived that Ingalls had an organizational 
conflict of interest, in accordance with FAR  sec.  9.503, the head of the 
contracting activity determined that it was in the best interest of 
the Navy to grant a waiver to the organizational conflict of interest 
provisions.  On December 24, 1997, a waiver was granted with respect 
to Ingalls to allow Ingalls to continue providing Planning Yard 
services for CG-47 and other ship classes, and to compete on upcoming 
availabilities for those classes of ships.

The record does not support the protester's contention that Ingalls 
should have been excluded from competing because of an organizational 
conflict of interest.  While the potential for such a conflict exists, 
numerous safeguards were built into the process by the agency to 
ensure that Ingalls' assistance when it develops installation drawings 
and ship alteration records or prepares feasibility studies does not 
result in undue prejudice to potential competitors when it competes 
for the CG-47 class ship availabilities.  SUPSHIP, not Ingalls, 
developed the specifications and the specifications are provided to 
all potential offerors.  Moreover, in any case, because the agency 
concluded that the potential for a conflict still existed 
notwithstanding its mitigation efforts, in accordance with FAR  sec.  
9.503, the agency properly executed a waiver to the organizational 
conflict of interest provisions of FAR  sec.  9.505.  Where a procurement 
decision such as the waiver in this case is committed by statute or 
regulation to the discretion of agency officials, our Office will not 
make an independent determination of the matter.  Rather, we will 
review the agency's explanation to ensure that it is reasonable and 
consistent with applicable statutes and regulations.  See Lawlor 
Corp.--Recon., B-241945.2, Mar. 28, 1991, 91-1 CPD  para.  335 at 3.  In our 
view, the agency acted reasonably in determining that it was in the 
best interest of the Navy that, notwithstanding a potential 
organizational conflict of interest, Ingalls, the only source for the 
planning yard efforts, be allowed to perform planning yard functions 
and compete for CG-47 class ship availabilities.  Accordingly, the 
agency's determination to award to Ingalls notwithstanding its 
Planning Yard services work is unobjectionable.

Finally, the protesters' contention that Ingalls submitted a 
below-cost or "buy-In" bid provides no basis for protest.  The 
allegation that a below-cost offer has been submitted does not in 
itself provide a basis to challenge the validity of a contract award.  
This is so because below-cost pricing is not prohibited and the 
government cannot withhold an award from a responsible offeror merely 
because its low offer is below cost.  Norden Sys., Inc., B-227106.9, 
Aug. 11, 1988, 88-2 CPD  para.  131 at 5.  Further, as to whether Ingalls is 
a responsible offeror, our Office will not review a contracting 
officer's affirmative determination of responsibility absent a showing 
of possible fraud or bad faith or that definitive responsibility 
criteria have not been met, neither of which are alleged here.  Trak 
Eng'g, Inc., B-231791, Oct. 28, 1988, 88-2 CPD  para.  402 at 6.  

The protests are denied.  

Comptroller General
of the United States