BNUMBER: B-280803
DATE: November 19, 1998
TITLE: Intellectual Properties, Inc., B-280803, November 19, 1998
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Matter of:Intellectual Properties, Inc.
File:B-280803
Date:November 19, 1998
John C. McIntosh and Robert G. McIntosh for the protester.
William S. Zanca, Esq., Ballistic Missile Defense Organization, for
the agency.
John L. Formica, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest of agency's determination not to award the protester phase
II funding for a project the protester proposed under the Department
of Defense Small Business Innovation Research program is sustained
where the agency's determination was primarily based upon the
protester's lack of private sector funding for its phase II proposal,
which was inconsistent with the evaluation criteria set forth in the
solicitation.
2. Agency's post-award reevaluation of the protester's proposal and
determination that the proposal could have been rejected for a
completely different reason than originally asserted by the agency
does not establish that the protester was not prejudiced by the
agency's initial evaluation, which was inconsistent with the
solicitation's evaluation criteria, because the reevaluation was
prepared in the heat of an adversarial process and may not represent
the fair and considered judgment of the agency.
DECISION
Intellectual Properties, Inc. (IPI) protests the Ballistic Missile
Defense Organization's (BMDO) determination not to award it phase II
funding for a project IPI proposed under the Department of Defense
(DOD) Small Business Innovation Research (SBIR) program. IPI contends
that its proposal to perform research on "Passive Multistatic
Hitchhiking Array for Search and Track" would have been funded if BMDO
had evaluated IPI's proposal in a reasonable manner consistent with
the evaluation criteria set forth in the solicitation.
We sustain the protest.
The SBIR program is conducted pursuant to the Small Business
Innovation Development Act, 15 U.S.C. sec. 638 (1994 & Supp. II 1996),
which requires certain federal agencies to reserve a portion of their
research and development funds for awards to small businesses. The
program is made up of three phases.
The program description set forth in the solicitation provided that
"[p]hase I is to determine, insofar as possible, the scientific,
technical, and commercial merit and feasibility of ideas submitted
under the SBIR program." DOD Fiscal Year 1997 SBIR Program
Solicitation 97.1 at 1. The solicitation added with regard to phase I
that "[p]roposals should concentrate on that research or research and
development which will significantly contribute to proving the
scientific, technical, and commercial feasibility of the proposed
effort, the successful completion of which is a prerequisite for
further DoD support in Phase II." Id.
Firms that receive phase I awards may submit proposals for further
development work under phase II of the SBIR program. The
solicitation's program description provided that "[s]ubsequent Phase
II awards will be made to firms on the basis of results of their Phase
I effort and the scientific, technical, and commercial merit of the
Phase II proposal." Id.
Phase III contemplates, unlike phases I and II, that non-SBIR funds
will be used to pursue commercial applications of research and
development. Microexpert Sys., Inc., B-233892, Apr. 13, 1989, 89-1
CPD para. 378 at 1. Specifically, the program description on page 1 of
the solicitation stated with regard to phase III that "[u]nder Phase
III, the small business is expected to use non-federal capital to
pursue private sector applications of the research or development."[1]
Section 4.3 of the solicitation set forth the following evaluation
criteria for phase II proposals:
a. The soundness and technical merit of the proposed approach and
its incremental progress toward topic or subtopic solution.
b. The potential for commercial (government or private sector)
application and the benefits expected to accrue from this
commercialization.
c. The adequacy of the proposed effort for the fulfillment of
requirements of the research topic.
d. The qualifications of the proposed principal/key investigators
supporting staff and consultants. Qualifications include not
only the ability to perform the research and development but
also the ability to commercialize the results.
With regard to the term "commercialization," section 2.7 of the
solicitation specifically defined it as:
The process of developing markets and producing and delivering
products for sale (whether by the originating party or by
others); as used here, commercialization includes both government
and private sector markets.
Section 4.4 of the solicitation provided:
A Phase I or Phase II proposal's commercial potential can be
evidenced by:
(1)the small business concern's record of commercializing SBIR or
other research,
(2)the existence of second phase funding commitments from private
sector or non-SBIR funding sources,
(3)the existence of third phase follow-on commitments for the
subject of the research, or
(4)the presence of other indicators of commercial potential of
the idea.
In addition, section 1.3 of the solicitation noted that "[w]hen
several Phase II proposals receive evaluations being of approximately
equal merit, proposals that demonstrate such a commitment for
follow-on funding will receive extra consideration during the
evaluation process."
As indicated, IPI received a phase I award, and subsequently submitted
a proposal seeking phase II funding. IPI's phase II proposal
included, among other things, a letter from a private firm stating
that it has "teamed with [IPI] in their Phase II effort" and is
prepared to "contribute intellectual capital and other resources" in
support of IPI's phase II effort. Agency Report, Tab 2.
The record of the agency's contemporaneous evaluation of IPI's phase
II proposal consists of two completed evaluation forms. Agency
Report, Tab 3. These forms include a number of questions, and provide
spaces for the evaluator to respond to the questions as well as spaces
for the evaluator to recommend the acceptance or rejection of the
proposal. The questions set forth on the forms are as follows:
(1)How does the technology support BMDO?
(2)What (and how much) is the novelty?
(3)Did Phase 1 succeed?
(4) What technology will BMDO programs be able to leverage
during/after Phase 2?
(5)What is the future market potential and the firm's market
attitude?[2]
One of the evaluations, which is hand-written, one page in length, and
cursory in approach, recommended the rejection of IPI's phase II
proposal. Agency Report, Tab 3. This evaluator answered the question
as to whether phase I succeeded by stating only that "I no longer have
the Phase 1 proposal, but it seems as if it did succeed, although the
company also discovered all the difficulties now facing them." With
regard to the question concerning "future market potential and the
firm's market attitude," the evaluator provided only that "I'm not
sure how this technique improves on current market technology for the
applications it proposes."
The other evaluation, which is typewritten and approximately 1 1/2
pages in length, contained significantly more detail and ultimately
recommended that IPI's phase II proposal be accepted. Id. In
responding to the question asking whether Phase I succeeded, the
evaluation provided a relatively detailed explanation regarding the
tasks successfully completed by IPI during phase I and certain
experiments that were conducted and their results. The evaluation
stated here that "[t]he phase I effort exceeded its requirements."
The evaluation's response to the question concerning future market
potential and IPI's market attitude was similarly detailed, stating
that "[t]his technology has some commercial market potential, but has
a greater military potential." The evaluation briefly described how
the technology could be used by military and private sector interests,
and concluded that "[t]hese private sector applications have a good
market potential."
The protester was informed by letter from the cognizant BMDO Program
Manager that its phase II proposal had not been approved for funding.
Agency Report, Tab 1A. IPI requested a debriefing. Agency Report,
Tab 1B. The Program Manager responded by letter, Agency Report, Tab
1C, as follows:
This effort was not funded because your Phase II did not
exhibit a commercialization potential consistent with the
implementation of the BMDO SBIR Program. Although [a private
firm] provided a Letter of Support, which indicated that they
would contribute "intellectual capital and other resources,"
the degree and value of that support could not be clearly
defined within the context of the proposal. Furthermore,
there was no indication that your company would have any
viable commercial product at the conclusion of the effort that
would have an impact in the marketplace.
The record does not contain any other contemporaneous documentation as
to why the agency chose not to fund IPI's phase II proposal.
IPI argues that the agency did not properly apply the evaluation
criteria stated in the SBIR program solicitation in determining not to
fund IPI's phase II proposal. Specifically, IPI argues that the
letter it received from the BMDO Program Manager in response to its
debriefing request indicates that BMDO's decision not to fund IPI's
proposal was based solely on IPI's lack of private sector funding for
its phase II proposal, rather than a reasoned evaluation of IPI's
proposal under the criteria set forth in the SBIR program
solicitation.
Agencies have broad discretion to determine which proposals will be
funded under the SBIR program. Deborah Bass Assocs., B-257958, Nov.
9, 1994, 94-2 CPD para. 180 at 3; Microexpert Sys., Inc., supra, at 2.
Our Office will review such determinations to see whether they were
made consistent with the terms of the solicitation and any applicable
statutes or regulations, or whether the agency acted fraudulently or
in bad faith. Microexpert Sys., Inc., supra.
The agency, in its report, essentially concedes that IPI's lack of
private sector funding was the primary reason for the agency's
determination not to fund IPI's phase II proposal. For example, the
agency refers to the letter submitted by IPI from the private firm
described above and argues that "this letter did not fulfill the SBIR
[solicitation] and BMDO requirements that 'commercialization
potential' be demonstrated." Agency Report at 7. The agency points
out that the letter's "language did not commit [the firm] in any
manner to any capital infusion or anything firm enough to even
remotely suggest a financial commitment had been undertaken," and that
because of this, the agency determined that "IPI had not provided
adequate evidence that IPI met the Phase II requirement for 'potential
for commercial (government or private sector) application' as stated
in paragraph 4.3 and re-iterated throughout the [solicitation] and its
implementing guidance." Id.
The agency argues that its determination not to fund IPI's phase II
proposal because of IPI's lack of private sector funding was
appropriate. In this regard, the agency first points to the
"potential for commercial (government or private sector) application
and the benefits expected to accrue from this commercialization"
evaluation criterion, and asserts that this criterion requires that
the commercial potential of an offeror's proposal be assessed during
the evaluation process. The agency next points to section 4.4 of the
solicitation, which, as quoted above, addresses the assessment of the
commercial potential of proposals, and provides at section 4.4(2) that
a proposal's commercial potential can be evidenced by "the existence
of second phase funding commitments from private sector or non-SBIR
funding sources." The agency thus concludes that because the
solicitation provided for the evaluation of commercial potential, and
stated that commercial potential could be demonstrated by the
existence of private sector funding, its evaluation of IPI's phase II
proposal and determination not to fund it because it lacked private
sector funding were consistent with the terms of the solicitation.
We agree with the agency that, as the result of the above two
sections, the SBIR Program solicitation, while not a model of clarity,
can reasonably be read as providing for an agency's consideration of a
firm's private sector funding commitments (or lack thereof) for its
phase II proposal in determining whether it should award the firm
phase II funding. However, while such a consideration appears
permissible, the solicitation does not, by its terms, allow for an
offeror's lack of private sector funding to be the only consideration
in determining the "commercial potential" of an offeror's phase II
proposal. That is, section 4.4 provides that a phase II (or I)
proposal's commercial potential may also be demonstrated by, among
other things, "the presence of other indicators of commercial
potential of the idea." There is no indication that the agency, in
determining not to fund IPI's phase II proposal ever considered
whether there were "other indicators of commercial potential of
[IPI's] idea."
In sum, we agree with the agency that consideration of IPI's lack of
private sector funding for its phase II proposal was appropriate.
However, the agency's reliance on this consideration as the primary
basis for its determination not to fund IPI's proposal, without
consideration of whether there were other indicators of commercial
potential for IPI's idea, was inconsistent with the terms of the
solicitation.[3]
In its report, the agency argues that, in addition to IPI's lack of
private sector funding for its phase II proposal, its proposal was
rejected because there was no "other data in the proposal to support
any reasonable expectation of possible government sector application."
Agency Report at 7. It is unclear from the record whether the
agency's assertion here is related to its comment in the debriefing
letter to IPI that "[f]urthermore, there was no indication that your
company would have any viable commercial product at the conclusion of
the effort that would have an impact in the marketplace," or
constitutes a new reason for rejecting IPI's proposal raised for the
first time in the agency's report. In either case, this assertion is
unsupported by the record, and because of this, we simply cannot
determine whether the agency had a reasonable basis for this
conclusion. Matrix Int'l Logistics, Inc., B-272388.2, Dec. 9, 1996,
97-2 CPD para. 89 at 5.
Specifically, IPI's phase II proposal includes a section entitled
"Anticipated Benefits/Potential Commercial Applications of the
Research or Development" which summarizes the potential military and
commercial uses of its effort.[4] Agency Report, Tab 2, IPI Phase II
Proposal, Appendix B. This section appears to describe indicators of
commercial potential consistent with the definition of
commercialization stated in the solicitation. As mentioned
previously, one evaluator, in responding to the evaluation question
"What is the future market potential and firm's market attitude?"
discussed in some detail the proposed technology's potential military
and civilian applications. Agency Report, Tab 1C.
In its report, the agency submitted an additional evaluation of IPI's
proposal prepared in response to the protest, which recommends
"Rejection for lack of technical merit." Agency Report, Tab 8. The
agency notes here that the "results of this re-evaluation are not
being used by BMDO to justify the basis for the non-award, nor to
justify the BMDO's position that the original decision was proper."
Agency Report at 12. The agency states that "the re-evaluation was
done because of the lack of clear information on the technical
viability of [IPI's] original Phase II proposal," and that, "even if
it is determined that commercialization was not a proper concern,
award would still not be recommended to IPI at this time because of
the original technical concerns as confirmed by the supplemental
issues raised by the second set of evaluators." Agency Report at
12-13.
It is apparent from the record that this post-protest evaluation was
performed to demonstrate that the protester was not prejudiced by the
agency's initial rejection of IPI's phase II proposal. The agency is,
in effect, contending that, even if it did fail to evaluate IPI's
phase II proposal consistent with the evaluation criteria set forth in
the solicitation, this failure did not harm IPI, since the agency
would have rejected the proposal for lack of technical merit.
We are not persuaded by the agency's argument that there was no
reasonable possibility of prejudice. Although our Office considers
the entire record in determining the reasonableness of an agency's
evaluation and award decision, including statements and arguments made
in response to a protest, we accord greater weight to contemporaneous
materials rather than judgments made in response to protest
contentions, such as the agency's reevaluation here. Boeing Sikorsky
Aircraft Support, B-277263.2, B-277263.3, Sept. 29, 1997, 97-2 CPD para.
91 at 15.
As pointed out above, the agency does not believe that it erred in its
initial evaluation and rejection of IPI's phase II proposal. Rather,
the agency is attempting to defend, in the face of a bid protest, its
prior rejection of IPI's phase II proposal through the submission of a
new evaluation that, according to the agency, justifies the rejection
of IPI's proposal on an entirely different basis (lack of technical
merit) from that previously asserted (inadequate commercialization
potential because of lack of private sector funding). The lesser
weight we accord the agency's post-protest reevaluation reflects the
concern that, because it was prepared in the heat of an adversarial
process, it may not represent the fair and considered judgment of the
agency, which is a prerequisite of a rational evaluation and source
selection process.[5] Id. Here, not only has the protester responded
in detail to the agency's after-the-fact technical evaluation, but
that post-protest evaluation also conflicts with the initial,
relatively detailed evaluation of IPI's proposal.
Accordingly, we sustain the protest. We recommend that the agency
reevaluate IPI's phase II proposal in a reasonable manner consistent
with the evaluation criteria set forth in the solicitation, and
reconsider whether IPI's phase II proposal should be funded. We also
recommend that IPI be reimbursed the costs of filing and pursuing its
protest. Bid Protest Regulations, 4 C.F.R. sec. 21.8(d) (1998). IPI's
certified claim for such costs, detailing the time and costs incurred,
should be submitted 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. There is also provision, in section 4.5 of the solicitation, for
"fast-track" awards for companies that obtain funding commitments from
other sources during Phase I. This protest does not involve an award
under the fast-track program.
2. We note that the evaluation form questions do not appear to
encompass all of the evaluation criteria set forth in the SBIR Program
solicitation. For example, the forms do not provide for any
consideration of the solicitation's "qualifications of the proposed
principal/key investigators supporting staff and consultants"
evaluation criterion.
3. While, as noted above, the solicitation also provided that private
sector funding would be a tie-breaker to decide among approximately
equal phase II proposals, there is no indication that the provision
played this role here.
4. Our discussion here is deliberately vague regarding the actual
contents of IPI's phase II proposal because of its proprietary nature.
We also note that the protest pleadings point to a number of potential
military and civilian applications for IPI's proposed technology.
5. The agency also attempts to support its initial rejection of IPI's
phase II proposal by asserting in a supplemental report that "[w]hile
the Program Manager may have ended up with a consideration of the
public or private financing, that issue alone was not determinative of
the decision. The decision was about commercial potential."
Supplemental Report at 3. The agency's arguments here are made by
agency counsel without supporting documentation from either the
Program Manager or any agency evaluators, and like the reevaluation
discussed above appear to constitute new analysis in an effort to
defend the agency's prior decision. As such, these assertions do not
render the agency's prior determinations reasonable.