BNUMBER:  B-280568; B-280569        
DATE:  October 19, 1998
TITLE: Day & Zimmermann/IMR L.L.C., B-280568; B-280569, October 19,
1998
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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:Day & Zimmermann/IMR L.L.C.

File:B-280568; B-280569       
        
Date:October 19, 1998

Stephen G. Anderson, Esq., Baker, Donelson, Bearman & Caldwell, for 
the protester. Brian A. Mizoguchi, Esq., Verner Liipfert Bernhard 
McPherson and Hand, for Royal Ordnance North America, Inc., an 
intervenor. 
Bradley J. Crosson, Esq., and Vera Meza, Esq., U.S. Army Materiel 
Command, for the agency. 
Andrew T. Pogany, Esq., and John M. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Award to offeror submitting higher-priced, technically superior 
proposal under a solicitation which stated that proposed price was 
more important than technical evaluation factors was unobjectionable 
where agency reasonably determined that the awardee's substantial 
technical advantage warranted payment of the price premium associated 
with its proposal.

DECISION

Day & Zimmermann/IMR L.L.C. (D&Z) protests the award of contracts to 
Royal Ordnance North America, Inc. (RONA) under request for proposals 
(RFP) Nos. DAAA09-97-R-0044 (RFP-0044) and DAAA09-98-0214 (RFP-0214), 
issued by the Department of the Army for explosives and a facility use 
contract for Holston Army Ammunition Plant (HSAAP), respectively.  D&Z 
principally argues that the agency misevaluated the proposals, and 
made improper awards based on a defective price/technical tradeoff.

We deny the protest.

BACKGROUND

Both solicitations were issued as two-step negotiated procurements.  
RFP-0044 sought proposals to award a fixed-price contract for RDX/HMX 
explosives and other products for 5 years.  RFP-0214 sought proposals 
to award a fixed-price facility use contract for HSAAP for a 25-year 
period.  The solicitations were issued together, contained, as 
amended, identical section M evaluation provisions, and provided that 
both contracts would be awarded to the same offeror.  (For the sake of 
simplicity, we therefore will refer to the solicitations as a single 
RFP.)[1]

The RDX/HMX products are used by all Department of Defense (DOD) 
services.  Because of the unique nature of RDX/HMX, such as requiring 
large amounts of acid production and recycling, and the commonality of 
the RDX/HMX in numerous end item applications, RDX/HMX has been 
procured as a bulk item.  AR, Tab E, at 3.  Due to the large quantity 
of RDX/HMX necessary in wartime, HSAAP was constructed in the 1940's 
for the sole purpose of manufacturing large quantities of explosives.  
HSAAP has been operated as a government-owned, contractor-operated 
(GOCO) facility since its completion.  Due to declining peacetime 
requirements for the RDX/HMX products, the agency found that the cost 
of maintaining HSAAP with only these requirements in production had 
become cost prohibitive to the Army and its customers.  The agency 
therefore decided to solicit industry's expertise in finding a 
solution to its problem, that is, to "compete the problem."  AR, Tab 
1, at 3.

On May 5, 1997, a pre-solicitation conference was held at which 
industry was provided with the definition of the "problem," a 
description of the proposed acquisition, a discussion of the 
requirements, both peacetime and replenishment,[2] a presentation on 
the availability of Armament Retooling and Manufacturing Support 
(ARMS) funding, and a description of the facility at HSAAP, among 
other things.  The problem as defined at this conference remained the 
same throughout the final selection of the successful contractor.  The 
problem had four parts:  (1) peacetime requirements for RDX/HMX; (2) 
replenishment requirements for these items; (3) need for development 
of new formulations of explosives, defined as research and development 
(R&D); and (4) a plan for the HSAAP facility itself, comprised of 
approximately 6,000 acres of acid manufacturing and explosives 
finishing equipment and buildings.  AR, Tab C.  In response, 
contractors then furnished "concept papers," which were unique to each 
contractor.  AR, Tab 1, at 3.  Because of the uniqueness of the 
contractor approaches, the agency decided to "'cut' a competitive 
range," so the agency could logically handle unique performance-based 
contracts and still maintain a competitive basis.  AR, Tab 1, at 4.

Consequently, on August 1, 1997, the agency issued the first-step 
solicitation for the purpose of establishing a competitive range of 
the "technically acceptable offerors that will move on to the second 
and final step."  AR, Tab F, at 2.  The first-step solicitation 
contained the technical criteria of experience, technical capability, 
financial capability and past performance.  Selections were based on 
"best value," but price was not a factor at this stage.  AR, Tab F, at 
10.  Written submissions were not solicited; rather, the determination 
of the competitive range was based on oral presentations by all 
offerors.  On October 29, the agency established a competitive range 
which included the following contractors:  D&Z, RONA, and a third 
offeror.  AR, Tab H.

After the competitive range determination, and until the second-step 
solicitation was issued, the agency and the offerors engaged in ALPHA 
discussion,[3] visits to HSAAP, meetings, and informational exchanges 
to "flesh out" each offeror's plan, since each offeror would present a 
unique approach to the technical solutions of the peacetime, 
replenishment, facility use and R&D problems.[4]  AR, Tab 1, at 6.

The agency issued the second-step solicitation on April 1, 1998.  The 
RFP stated that the evaluation would consist of a best value 
determination, including cost/fund layout, which was more important 
than technical capability.  Cost was defined to include cost proposed 
by the contractor, and any corresponding government cost, such as 
layaway (i.e., "mothballing") expense, maintenance expense, cleanup 
and/or disposal expense, minus certain contractor revenue offsets.  
The RFP contained the following technical criteria:  (1) peacetime 
plan, including production capability (active and planned), critical 
skills; (2) replenishment plan, including type of activity at 
facility, critical skills maintained, location; (3) facility use plan; 
(4) R&D plan, including range of products, self-investment; and (5) 
flexibility.  AR, Tab K, RFP-0044 at 33.  The first three criteria 
were of equal weight and were a "much larger portion" of the technical 
area than the remaining elements.  Id.  The RFP also called for a risk 
assessment of each proposal, addressing the strengths and weaknesses 
of the proposals along with risk measurement and ranking of the 
proposals.  Id.  Technical proposals essentially were to consist of 
concept plans (2 pages for each plan) for peacetime production, 
replenishment, facility use, and R&D.  Cost would be reflected in 
matrices covering the peacetime requirements and the facility use 
contract.  AR, Tab K.

Offers were received on May 14.  Discussions were conducted, and best 
and final offers (BAFO) were received on June 10 and evaluated by the 
agency.  In its BAFO, D&Z proposed, in its peacetime plan, to layaway 
the explosives capability at HSAAP entirely, and to furnish the 
products of Expro, an explosives manufacturer in Canada.  AR, Tab Q-4.  
The agency found that Expro was a "cold" facility which had not 
manufactured RDX for approximately 6 years, and that its manufacture 
of HMX could not be validated.  AR, Tab Q-3.  D&Z's replenishment plan 
was to use HSAAP, as laid away, mobilizing sufficient critical skills 
for replenishment by increasing employment at HSAAP by a total of 
1,800 to 2,000 personnel.  AR, Tab Q-4.  The agency found that 
reactivation of a cold laidaway plant would take longer and cost more 
than expanding capability of a warm facility.  AR, Tab R, at 4.

In contrast, RONA, a British firm, proposed to modernize and 
rehabilitate HSAAP to make it the single domestic source of peacetime 
explosives and the sole NATO capability for replenishment quantities.  
AR, Tab Q-4.  RONA is a current explosives manufacturer at 
Bridgewater, United Kingdom, and already employs the critical skills 
necessary for both peacetime and replenishment.  RONA also proposed to 
bring all United Kingdom explosives requirements (along with DOD 
offshore production and other facilities use activities that had 
previously moved to Bridgewater) to HSAAP after the firm completed its 
project to modernize and resize HSAAP.  During the renovation period, 
RONA proposed to produce the explosives at Bridgewater.  Since its 
plan would employ the same site for both peacetime and replenishment, 
the agency found that reactivation and "ramp-up" would present the 
lowest risk and offered the best solution.  AR, Tab R, at 3.  (Only 
200 new employees would be needed for replenishment under RONA's 
plan.)  The evaluation results were as follows (AR, Tab Q):

         Offeror    Technical ScorePriceRisk

         RONA       37.83    $163 millionLow

         Offeror A  32.00    $167 millionModerate

         D&Z        25.17    $111 millionModerate
The agency's source selection authority (SSA) followed the 
recommendation of the agency evaluators and selected RONA for award, 
stating as follows:

     The advantages of RONA's technically superior plan are 
     significant, especially the element of Replenishment, Peacetime, 
     Facility Use . . . [which] justify the additional cost . . . . 
     RONA's offer is a low risk plan, and includes an investment in 
     the Army's critical explosives capability.  The Army gains a 
     modernized, efficient, peacetime facility with active critical 
     skills, that can be quickly ramped up to a replenishment 
     capability.

AR, Tab R, at 4.

This protest followed a debriefing; performance has not been stayed 
because the protester did not file its protest with our Office within 
5 days after the debriefing.

D&Z's principal argument is that the agency's price/technical tradeoff 
was unreasonable because of an allegedly excessive premium paid to 
RONA.  D&Z also raises several evaluation issues which we discuss 
first.

We review an agency's evaluation of proposals to ensure that it is 
reasonable and consistent with the evaluation criteria stated in the 
solicitation.  Wind Gap Knitwear, Inc., B-261045, June 20, 1995, 95-2 
CPD  para.  124 at 3.

PEACETIME PRODUCTION EVALUATION

D&Z argues that use of the HSAAP facility for peacetime production 
improperly was taken into account by the agency in evaluating 
proposals, since the technical portion of the evaluation was 
specifically addressed to the capability of the contractor, and 
nowhere did the solicitation indicate that preference would be given 
to offerors proposing to manufacture peacetime requirements at HSAAP, 
a factor that has nothing to do with a contractor's capability.  D&Z 
states that, if the Army had a strong preference for having production 
occur at HSAAP, it should have advised all offerors of that fact.

This argument is based on a mischaracterization of the RFP's 
evaluation criteria.  The criteria for peacetime production 
specifically included evaluation of active and planned production 
capability as well as critical skills.  All offerors were free to 
choose any methodology for meeting the agency's peacetime production 
needs.  RONA proposed to perform peacetime production from active 
production facilities, at the same site as its planned replenishment 
site.  As the intervenor argues, the advantage of putting the two 
together--the use of an active facility for peacetime production and 
the synergistic efficiencies and risk mitigation benefits of relying 
upon the same warm base--should not have been difficult for any 
offeror to understand from the solicitation terms.  In short, the 
record shows no unstated evaluation preference for peacetime 
production at HSAAP; rather, the record shows that the agency, 
consistent with the evaluation criteria, credited RONA's proposal for 
an active peacetime production capability at a warm facility.[5]

Also concerning peacetime production, the protester argues that its 
proposal should have received the maximum points for this factor 
because, like RONA, it proposed to use an existing, operating RDX 
facility (Holston for D&Z Bridgewater for RONA) to maintain interim 
production capacity until the plant intended for long-term peacetime 
requirements was operable.  However, while the agency looked at 
interim production, and the evaluation criteria included consideration 
of whether the production facility was active, the focus of the 
evaluation was the needs of the agency over the life of the contract.  
The fact remains that Expro is a cold facility which has not produced 
RDX for 6 years, and that its production of HMX could not be 
validated.  In contrast, RONA proposed continued long-term performance 
at HSAAP, a warm facility with many years of RDX/HMX production.  We 
conclude that the agency reasonably downgraded D&Z's proposal on the 
basis that it had no plant active and capable of producing the 
required explosives.

REPLENISHMENT EVALUATION

D&Z asserts with respect to replenishment that its proposed plan 
envisioned as a first step increased production at Expro (which has a 
maximum production rate of 17,000 pounds of RDX per day), and then a 
reactivation of the RDX plants at HSAAP.  According to the protester, 
one production line at HSAAP would be operating within 5 months, and a 
total of three lines would be operating 24 hours a day, 7 days a week, 
within 9 months, which would be sufficient to provide the maximum 
replenishment rate specified (160,000 pounds per day).  Consequently, 
the protester believes its proposal should have received a higher 
technical score under the replenishment evaluation criterion.

The replenishment criterion encompassed the type of activity at the 
facility, the critical skills maintained and the location.  The agency 
found during its evaluation that the protester's replenishment plan 
had a great deal of risk, especially since D&Z estimated its 
additional employment needs for replenishment to total 1,800 to 2,200 
personnel (versus RONA's requirement for only 200 personnel), and 
itself recognized the difficulty associated with importing sufficient 
critical skills.  The agency also noted that reactivation of a cold 
laidaway plant takes much longer and costs more to expand than it does 
to expand the capability of a warm facility.  We have no basis to 
disagree with the agency's assessment of the time, effort and cost 
associated with a replenishment plan using a cold facility, compared 
to one using a warm facility.  Accordingly, the evaluation in this 
area was reasonable.[6]

PRICE/TECHNICAL TRADEOFF

D&Z asserts that the cost premium associated with RONA's proposal 
simply was too great to be offset by the evaluated technical 
advantages.  The protester notes in this regard that the three 
proposals included in the step-two evaluation had already been found 
technically acceptable; price was the most important factor in the   
step-two evaluation; the offer accepted by the Army was 48 percent, or 
$52 million, higher than the protester's; and that neither the source 
selection plan nor the source selection decision contains any criteria 
for assessing the value of any particular difference in technical 
scores.  D&Z concludes that the tradeoff decision was irrational.

Even under a solicitation which states that proposed price is more 
important than technical evaluation factors, the contracting agency is 
not required to make award to the firm offering the lowest price; the 
agency retains the discretion to select a higher-priced, technically 
higher-rated proposal, if doing so is in the government's best 
interest and is consistent with the solicitation's stated evaluation 
and source selection scheme.  See University of Kansas Medical Ctr., 
B-278400, Jan. 26, 1998, 98-1 CPD  para.  120 at 6; Nomura Enter., Inc., 
B-277768, Nov. 19, 1997, 97-2 CPD  para.  148 at 2-5.  There is no 
requirement that the value of technical differences be quantified in 
dollar terms.  University of Kansas Medical Ctr., supra.

The tradeoff here was reasonable.  Simply put, and as stated by the 
SSA, the Army, in selecting RONA, gains a "modernized, efficient, 
peacetime facility with critical skills that can be quickly ramped up 
to a replenishment capability." AR, Tab R, at 4.  The record shows 
that D&Z's offer, although lower in evaluated cost, includes 
maintenance of an inactive site with little or no investment towards 
capability.  Further, the record shows that the SSA determined that 
D&Z's replenishment plan had significant disadvantages in the area of 
reactivation cost, risk, and number of personnel required to 
accomplish reactivation with a cold facility.  Based on these 
considerations, the tradeoff was consistent with the RFP and therefore 
proper.

The protest is denied.

Comptroller General
of the United States

1. The contracting officer states that the requirements were split 
into two solicitations solely because of the different longevity of 
the resulting contracts and the differing contract types (fixed-price 
supply versus fixed-price services).  Agency Report (AR), Tab 1, at 
10.  We note in passing that we know of no reason why the agency could 
not have issued a single solicitation combining the requirements.

2. Replenishment refers to replenishing available stockpiled 
explosives depleted due to an armed conflict or war.  The 
replenishment effort is of much greater magnitude than meeting 
peacetime requirements.

3. The definition of ALPHA discussions is the "active participation of 
the offerors in crafting the solicitation requirements."  AR, Tab 1, 
at 6 n.5.  An article previously published in an Army periodical was 
distributed to the offerors to describe this process.  Also, before 
the second-step solicitation was issued, the contracting officer sent 
a letter to the offerors identifying the cost and technical criteria, 
discussed below, to be included in the solicitation.  The evaluation 
scoring methodology was not revealed.

4. The Army emphasizes that it did not attempt to influence any 
offeror into one plan or another.  Rather, the entire acquisition 
assumed that industry was best equipped to determine how best to solve 
the Army's problem, and how to have this solution fit the industry's 
own strategic initiatives.  AR, Tab 1.

5. The protester also argues that RONA's plant at Bridgewater is 
incapable of producing Type II RDX, as specified, during the interim 
production at Bridgewater while the modernization of HSAAP is 
completed.  The record shows that this allegation is simply factually 
erroneous.  RONA, at Bridgewater, uses the Woolwich process to produce 
RDX, rather than the Bachman process used by D&Z to produce the 
explosive.  Both processes yield the same product--Type II RDX that 
meets specifications.  The protester also argues that the agency 
ignored the Canadian Commercial Corporation (CCC) guarantee of Expro's 
performance.  The protester argues that CCC (an agency of the Canadian 
government) retains full responsibility to the purchaser for the 
performance of the contract.  The protester has submitted literature 
which shows that the CCC, as prime contractor, could have the work 
completed by another contractor in the event of default by Expro, as 
well as provide financial guarantees.  Protester's Comments, Exhibit 
A.  We agree with the agency that the guarantee by CCC of performance 
is essentially a financial guarantee; it does not reduce the risk of 
unsuccessful, unsatisfactory, and untimely performance by Expro.  The 
agency therefore reasonably declined to accord D&Z's proposal 
evaluation credit based on the guarantee.

6. We have reviewed other evaluation issues raised by the protester 
and find them to be without merit.