BNUMBER:  B-280463.3 
DATE:  November 25, 1998
TITLE: Rel-Tek Systems & Design, Inc., B-280463.3, November 25, 1998
**********************************************************************

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective 
Order.  This redacted version has been approved for public release.

Matter of:Rel-Tek Systems & Design, Inc.

File:     B-280463.3

Date:November 25, 1998

Stephen S. Kaye, Esq., J. Michael Cooper, Esq., and Tina R. Tyson, 
Esq., Bryan Cave, for the protester.
Richard J. Conway, Esq., J. Andrew Jackson, Esq., Edward W. Kirsch, 
Esq., and Steven A. Alerding, Esq., Dickstein Shapiro Morin & 
Oshinsky, for Oracle Corporation, an intervenor.
Jill A. Eggleston, Esq., and Terry G. Sloan, Esq., Defense Finance and 
Accounting Service, for the agency.
Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Award is improper where awardee's proposal failed to conform to 
material solicitation requirements regarding acceptance, warranty, and 
software performance.

DECISION

Rel-Tek Systems & Design, Inc. protests the award of a contract to 
Oracle Corporation under letter of interest (LOI) No. MDA-L-97-0005, 
issued by the Defense Finance and Accounting Service (DFAS) for 
accounting software and related services.  Rel-Tek protests, among 
other things, that the award was improper because Oracle's proposal 
was ambiguous and failed to comply with material LOI requirements. 

We sustain the protest.

The LOI was issued on March 25, 1997, under the General Services 
Administration (GSA) Multiple Award Schedule (MAS) for Financial 
Management Systems Software (FMSS) for the procurement of commercial 
off-the-shelf (COTS) software and services.  The LOI required COTS 
software, software enhancements and modifications, system 
installation, training, technical support services, documentation, and 
maintenance.[1]  The LOI, as amended, included a detailed statement of 
work (SOW) which identified specifications to be met by each offeror's 
proposed software, as well as required contract terms, services, and 
deliverables.  Award of a fixed-price requirements contract for a base 
year and four 1-year option periods was to be made to the offeror 
submitting the proposal determined to offer the "greatest 
value"--where technical merit was moderately more important than 
price.  LOI Amendment No. 4,  sec.  L-1,  sec.  M-2.

Technical proposals were to be evaluated under two primary criteria:  
technical and functional operational capabilities; and ability to 
provide enhancements and to fully integrate the COTS system.  Id. at  sec.  
M-3.  Cost proposals were to be evaluated for realism.  Id. at  sec.  
M-6.1.

Four proposals were submitted by the closing date for receipt of 
proposals.  All four were included in the competitive range for 
written discussions; demonstration tests were conducted to validate 
each offeror's COTS software's level of performance and the need for 
enhancements to meet the SOW specifications.  (One offeror withdrew 
from the competition prior to the second round of demonstration 
tests.)  Final proposal revisions were submitted by the remaining 
three offerors, including Rel-Tek and Oracle, by March 13, 1998.

Clarification request letters were sent to all offerors on April 1.  
Among the many questions asked of Oracle were requests to clarify 
certain terms and assumptions in its March 13 final proposal revision 
submission, including perceived uncertainties in the Oracle proposal's 
license terms.  Oracle's April 3 response to the agency's April 1 
clarification request letter affirmed portions of its proposal, 
rephrased others, and noted, at 5, that Oracle believed that several 
categories of LOI requirements "would still need to be negotiated by 
the parties before executing a final contract," [deleted].

Although the other two offerors were found to have adequately 
responded to the agency's earlier request, the agency determined that 
additional "clarifications" were needed from Oracle to confirm the 
firm's compliance with the LOI requirements in the areas Oracle felt 
still needed to be negotiated, as well as other areas of its proposal.  
Accordingly, on May 1, DFAS issued, only to Oracle, another request 
for information; in this request, the agency informed Oracle that, 
although the firm identified LOI requirements it believed would need 
to be negotiated before award, the LOI terms were to remain unchanged.  
The agency also specifically asked Oracle to confirm if its software 
license and services agreement (SLSA), which was submitted as part of 
the firm's proposal, complied with the requirements of the LOI.

In its May 7 response to the agency request, Oracle stated as follows:  

     [deleted]  It has been Oracle's intent from the onset to 
     negotiate mutually favorable acceptance and performance terms for 
     the Government for the modification/customization required under 
     the LOI.  Oracle's SLSA is an extension of the LOI terms and 
     conditions and requirements which, among other things, details 
     licensing arrangements and warranties for the products and 
     services anticipated under this project.

The evaluators remained concerned that this statement did not confirm 
Oracle's compliance with all material solicitation terms--for 
instance, [deleted].  The evaluators also remained concerned that the 
SLSA proposed by Oracle did not mirror the LOI requirements for 
license, warranty terms, and software performance, and thus was 
technically unacceptable.  The matter was then forwarded for DFAS 
legal review, which concluded that the varying terms of the Oracle 
proposal did not render the proposal unacceptable.  Subsequently, the 
contracting officer found the Oracle proposal acceptable.

Rel-Tek's technical proposal was rated [deleted] overall (with a total 
score of [deleted], compared to Oracle's technical proposal's overall 
score of [deleted], out of a possible [deleted] total points).  Final 
Technical Evaluation Report, Executive Summary of Results, at 1.  
[deleted]  Rel-Tek's proposal was evaluated at a price of $[deleted]; 
Oracle's proposal's evaluated price was $[deleted]. [deleted]  Award 
was made to Oracle on June 22.  Rel-Tek's protest of the award 
followed.

In negotiated procurements, any proposal that fails to conform to 
material terms and conditions of the solicitation should be considered 
unacceptable and may not form the basis for an award.  Barents Group, 
L.L.C., B-276082, B-276082.2, May 9, 1997, 97-1 CPD  para.  164 at 10; 
Martin Marietta Corp., B-233742.4, Jan. 31, 1990, 90-1 CPD  para.  132 at 7.  
Rel-Tek contends that certain terms of the LOI, including requirements 
regarding warranty, acceptance, and compliance with performance 
specifications, are material requirements that must be met without 
qualification--regardless of whether the solicitation sets them out as 
minimum requirements--because they affect the government's rights 
under the resulting contract.  We agree.  See Scientific-Atlanta, 
Inc., B-255343.2, B-255343.4, Mar. 14, 1994, 94-1 CPD  para.  325 at 9; 
Montgomery Furniture Co., B-229678, Mar. 1, 1988, 88-1 CPD  para.  212 at 2.  
The remaining question, therefore, is whether Oracle's varying 
proposal terms in these areas demonstrate that the proposal does not 
comply with the stated requirements.  As discussed below, the record 
here shows that Oracle's proposal did not comply with material 
requirements of the LOI, and thus was unacceptable.

The LOI included two acceptance periods that are relevant to this 
protest.  The acceptance period requirements under the LOI,  sec.  C-3.1 of 
Amendment No. 0008, at 2, stated that the agency would "notify the 
contractor of acceptance or rejection of the FMSS by written 
notification within 120 calendar days of receipt."  Notification of 
the acceptance or rejection of the Department of Defense Agency 
License to be delivered with the FMSS would be received within "30 
calendar days of receipt of such."  Id. at 3.

Our review of the Oracle proposal submissions and the firm's response 
to the agency's request for information shows that Oracle did not 
clearly commit to the LOI's required 120-day acceptance provision 
regarding the FMSS.  Rather, the firm continued, up until the time of 
award, to offer its own acceptance provisions.  For instance, in its 
final proposal revision submission of March 13, Oracle generally 
stated that it accepted amendment No. 0008's 120-day acceptance period 
for the FMSS (the firm's proposal also indicated acceptance of the 
amended LOI's 30-day acceptance period for the license).  In its April 
3 correspondence, however, Oracle essentially retracted any commitment 
it may have earlier made to the required 120-day acceptance terms for 
the FMSS by indicating its intent to instead negotiate the acceptance 
period terms of any resulting contract.  By letter of May 1, the 
agency informed Oracle that the acceptance (and other) terms of the 
LOI would remain unchanged; the agency's letter also sought 
confirmation from Oracle as to the firm's compliance with LOI 
provisions.  In its May 7 response, Oracle, "offer[ing] . . . comments 
and clarifications," stated that "[a]cceptance of COTS Programs shall 
be in accordance with standard commercial practices, as set forth in 
the next paragraph."  The next paragraph of that letter discussed the 
30-day acceptance period for each "Program license."  The evaluators 
were concerned, and we believe reasonably so, that Oracle was now 
applying the 30-day acceptance period, which under the LOI was 
applicable to the license, to the FMSS itself, thus shortening the 
LOI's 120-day acceptance period for the FMSS.  As one evaluator 
pointed out, Oracle's SLSA at times uses the term "program license" to 
refer to the actual software program, rather than only to the license 
to use the program (e.g., the SLSA, regarding the performance of the 
program for warranty purposes, refers to performance of the "Program 
license."  SLSA at  sec.  5.2.A).

In our opinion, the Oracle proposal, read as a whole, is, at best, 
ambiguous as to whether the firm committed to accept the LOI's 120-day 
acceptance period for the FMSS.  This is a material ambiguity, since 
shortening the FMSS acceptance period from 120 to 30 days limits the 
agency's rights in this regard.  The other offerors agreed to meet the 
LOI's acceptance terms, and, in so doing, took on the associated 
additional risks, while Oracle did not and thereby limited its 
risk.[2] 

Next, the record demonstrates that Oracle also failed to commit to the 
LOI's warranty requirements.  Section 3.7 of the SOW states that the 
offeror's "warranty shall begin the day of final inspection and 
acceptance by the [agency] and shall continue to be in effect for 360 
[calendar] days from the issuance date of such."  (Emphasis added.)  
Oracle's SLSA, however, provides for a [deleted] warranty to begin 
upon [deleted] of the warranted product to the agency.[3]  As 
discussed above, the LOI's acceptance period requirement for the FMSS 
program provides for acceptance or rejection of the FMSS within 120 
days of delivery.  Oracle's SLSA warranty is inconsistent with the LOI 
warranty period requirement, since, under the clear terms of the LOI, 
the required 360-day warranty period is not to commence until final 
acceptance--well after (as much as [deleted] after) [deleted] of the 
product.  In other words, Oracle's [deleted] warranty will cease as 
much as [deleted] before the end of the warranty period required by 
the LOI.  Oracle's failure to commit to the LOI's material warranty 
terms limits the government's rights in this area.  See Montgomery 
Furniture, supra, at 2.  

Further, in its April 3 response to the agency's questions about its 
final proposal revision, Oracle listed section H-6 of the LOI, 
regarding software performance, as one of the issues that still had to 
be negotiated.  Section H-6 of the LOI, at 16, provides:

     Any software furnished or modified under this contract must 
     conform to and perform in accordance with DFAS's specifications 
     and requirements as set forth in this letter of interest and all 
     other . . . core requirements must be met.

Subsequently, in its May 7 response to the agency's May 1 letter 
reiterating that the LOI terms were to remain unchanged, Oracle 
suggested that section H-6 be deleted, and stated:  "The COTS Programs 
provided under this [LOI] or any subsequent orders stemming from this 
[LOI] are warranted for a period of [deleted] as further set forth in 
the [GSA] schedule . . . and [Oracle's] SLSA (Sections 5.2 and 5.3)."

The technical evaluators questioned the technical acceptability of 
Oracle's proposal based on this qualification regarding section H-6; 
the agency's legal review, however, concluded that the proposal was 
acceptable despite the qualification, without elaborating on the basis 
of that determination.  We agree with the evaluators' 
determination--the materiality of the requirement (performance in 
accordance with all required specifications) is clear, as is the fact 
that Oracle never stated prior to award that it accepted the required 
performance terms.  On the contrary, the record shows that Oracle 
indicated an intention not to be bound by the performance requirements 
of  sec.  H-6, and committed itself only to performance in accordance with 
the [deleted] terms of its own SLSA.  [deleted]

Although the agency had earlier informed Oracle that all LOI 
requirements remained unchanged, the firm continued to propose its own 
terms for performance of the stated requirements.  The record shows 
that Oracle, although it had been questioned by the agency about its 
intended compliance with material terms of the solicitation, did not 
clearly state that it would comply with stated material requirements 
regarding acceptance, warranty, and software performance.  
Accordingly, we sustain the protest.

We recommend that the DFAS conduct discussions with all offerors whose 
proposals were in the competitive range at the time of award, request 
best and final offers, and proceed with the source selection 
process.[4]  If, after the selection process has concluded, another 
offeror's proposal is determined to offer the greatest value to the 
government under the terms of the LOI, the DFAS should terminate 
Oracle's contract, and award to that offeror.  We also recommend that 
the protester be reimbursed the reasonable cost of filing and pursuing 
its protest, including attorneys' fees.  4 C.F.R.  sec.  21.8(d)(1) (1998).  
The protester should submit its claim for costs, detailing and 
certifying the time expended and costs incurred, with the contracting 
agency within 60 days after receipt of this decision.  4 C.F.R.  sec.  
21.8(f)(1).

The protest is sustained.

Comptroller General
of the United States

1. The LOI was issued in support of the Defense Procurement Payment 
System, Program Management Office, formed to standardize and modernize 
contractor and vendor payment, grant, and entitlement systems.  

2. In its comments responding to the agency's report, Oracle argues 
that, since its May 7 response added language asking that the agency 
"[p]lease delete" the LOI requirement, the submission was only a 
precatory suggestion by the offeror that the agency change its 
requirement, and that it cannot be interpreted as taking exception to 
the requirement.  Intervenor's Comments, Sept. 28, 1998, at 21.  
Although, in some instances, an offeror's precatory request for 
different requirements may convey only a desire for certain contract 
terms, without indicating the offeror's noncompliance with original 
solicitation requirements, see, e.g., GMI, Inc., B-239064, July 3, 
1990, 90-2 CPD  para.  8 at 3, that is not the case here, where award was 
made to a firm that had not committed to comply with all acceptance 
periods included in the LOI.

3. The Oracle SLSA, which provides [deleted].

4. Rel-Tek also raised additional protest issues--i.e., regarding the 
realism of Oracle's proposed price, the adequacy of discussions, and 
an alleged conflict of interest arising from the recent employment by 
Oracle of a former DFAS senior executive.  Our corrective 
recommendation for the most part renders these additional issues 
academic.  Nonetheless, we have reviewed these issues and, based on 
the protest record, we conclude that they are without merit.