BNUMBER:  B-281006 
DATE:  December 18, 1998
TITLE: RMG Systems, Ltd., B-281006, December 18, 1998
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Matter of:RMG Systems, Ltd.

File:     B-281006

Date:December 18, 1998

Daniel B. Abrahams, Esq., and Raymond Fioravanti, Esq., Epstein, 
Becker & Green, for the protester.
William H. Butterfield, Esq., Kilcullen, Wilson and Kilcullen, for 
Consolidated Safety Services, Inc., an intervenor.
Lt. Col. David S. Franke, Department of the Army, for the agency.
Marie Penny Ahearn, Esq., and John M. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Agency reasonably determined that awardee of contract for safety 
inspections and covert in-transit surveillance of carriers approved to 
do business with Department of Defense (DOD) did not have an inherent 
conflict of interest based on business relationships with carriers. 

DECISION

RMG Systems, Ltd. protests the award of a contract by the Military 
Traffic Management Command (MTMC), Department of the Army, to 
Consolidated Safety Services, Inc. (CSS) under request for proposals 
(RFP) No. DAMT01-98-R-2014.  The contract primarily calls for (1) 
safety inspections of passenger motor carriers that have been approved 
by MTMC to do business with the Department of Defense (DOD) or that 
are applicants for MTMC/DOD approval, and (2) covert in-transit 
surveillance of DOD hazardous cargo and munitions shipments 
transported by motor carriers and railroads, in order to evaluate 
compliance with safety and security regulations.[1]  RMG alleges that 
the award was improper due to organizational conflicts of interest.

We deny the protest.

The RFP contemplated award of a fixed-price, indefinite-delivery, 
indefinite-quantity contract for a 1-year base period with 4 option 
years.  It provided for award on a best-value basis with an evaluation 
based on price, technical, and past performance factors.  Of six 
offers received, two--CSS's and RMG's--were rated technically 
acceptable.  Both were rated excellent under the technical and past 
performance factors and were rated low risk.  The agency thus made 
award to CSS based on its low price ($9,591,507 versus $13,943,006 for 
RMG).  

The RFP contained the following conflict of interest provision:
 
     Ethics:  Government business shall be conducted in a manner above 
     reproach, with complete impartiality and without preferential 
     treatment.  The performance of these services requires a high 
     degree of public trust and an impeccable standard of conduct.  
     Contractor personnel must avoid strictly any conflict of interest 
     or even the appearance of a conflict of interest while performing 
     their duties.  Contractor employees shall not solicit or accept, 
     directly or indirectly, any gratuity, gift, entertainment, loan, 
     or anything of value from anyone receiving inspections and/or 
     under surveillance through this contract.  The offer or 
     acceptance of a bribe is prohibited by 18 U.S.C. 201, 10 U.S.C. 
     2207, 5 U.S.C. 7353, and 5 CFR Part 2635.

RFP, Performance Work Statement  sec.  1.2.6 at 3.  

In the past performance section of its offer, CSS noted that it had 
performed "annual safety fitness evaluations . . . to determine 
compliance levels with federal, state and local requirements" for 
Landstar Systems, Inc., which is a holding company for several 
DOD-approved munitions carriers that would be subject to the safety 
inspections and surveillance under the current contract.  CSS 
"recognize[d] that maintaining Landstar Systems, Inc. as a client 
could be a potential conflict of interest," and stated that it was 
"willing to discontinue [its] services with Landstar, upon award of 
this proposed contract."  CSS Offer, Past Performance Information 
(unpaginated).   The agency concluded that CSS's proposed plan would 
eliminate the cited potential conflict of interest.[2]  The proposal 
contained no other information bearing on potential conflicts.

RMG asserts that CSS will have a conflict of interest under the 
contract based on CSS's affiliation with the International Motor 
Carrier Audit Commission (IMCAC) (two of CSS's five principals own 
IMCAC), a private organization that performs the same type of safety 
inspections as under the awarded contract for private sector clients 
that would be subject to inspection under the awarded contract.[3]  
More specifically, according to RMG, because IMCAC is in the business 
of providing safety ratings and inspection services to carriers, and 
accepts payment from carriers (including MTMC/DOD carriers) in return 
for these ratings and services, CSS, by virtue of common ownership 
with IMCAC, will not be able to maintain its objectivity in performing 
DOD safety inspections and in-transit surveillance of the same 
carriers under this contract.  In this regard, RMG maintains that if 
IMCAC-rated carriers pass their inspections under CSS's contract, it 
will appear that they received special or more lenient treatment.  
Conversely, RMG contends, where carriers receive an unsatisfactory DOD 
inspection from CSS after opting not to seek and pay for an IMCAC 
rating, it will appear that they received a more rigorous inspection 
as retribution.  According to the protester, the agency failed to take 
reasonable steps to avoid, neutralize, or mitigate these alleged 
conflicts.

After reviewing RMG's protest, the contracting officer requested CSS 
to provide a written response to the organizational conflict of 
interest issues and, if conflicts existed, a plan for eliminating or 
substantially ameliorating the conflicts or appearance of such 
conflicts, and for complying with the RFP's Ethics provision at 
paragraph 1.2.6.  In its response to the agency, CSS acknowledged 
common control of CSS and IMCAC, but generally maintained that, 
because the business activities of CSS and IMCAC do not significantly 
overlap, there would be no significant potential for conflicts of 
interest.  However, CSS did propose a mitigation plan to eliminate 
certain possible conflicts.[4]  The agency agreed with CSS that there 
are no material conflicts and concluded that, to the extent conflicts 
might otherwise arise, CSS's mitigation plan eliminated that 
possibility.  RMG maintains that conflicts of interest remain.  

Federal Acquisition Regulation (FAR) subpart 9.5, which sets forth 
guidance governing organizational conflicts of interest, provides that 
a conflict arises 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 be 
     otherwise 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 bias a 
contractor's judgment (i.e., impair a contractor's objectivity).  FAR  sec.  
9.504(a)(2), 9.505.  Substantial facts and hard evidence are necessary 
to establish a conflict; mere inference or suspicion of an actual or 
potential conflict is not sufficient.  Chemonics Int'l, B-222793, Aug. 
6, 1986, 86-2 CPD  para.  161 at 7.  The responsibility for determining 
whether an actual or apparent conflict of interest will arise, and to 
what extent a firm should be excluded from the competition, rests with 
the contracting agency.  SRS Techs., B-258170.3, Feb. 21, 1995, 95-1 
CPD  para.  95 at 9.  Because conflicts may arise in factual situations not 
expressly described in the relevant FAR sections, the regulation 
advises contracting officers to examine each situation individually 
and to exercise "common sense, good judgment, and sound discretion" in 
assessing whether a significant potential conflict exists and in 
developing an appropriate way to resolve it.  FAR  sec.  9.505.  We will 
not overturn the agency's determination except where it is shown to be 
unreasonable.  D.K. Shifflet & Assocs., Ltd., B-234251, May 2, 1989, 
89-1 CPD  para.  419 at 5.

We find that the agency reasonably determined that alleged conflicts 
do not exist. 
CSS explained in its response to the agency that IMCAC was established 
in    August 1996 for the purpose of providing an independent source 
of motor carrier safety ratings based on safety performance data.[5]  
The IMCAC safety rating--a numerical rating from 1 (the highest) to 
5--consists of the accident rate and vehicle-out-of-service rate, 
which are calculated from publicly available information maintained by 
the FHWA in a database known as the Motor Carrier Management 
Information System (MCMIS), and cannot be manipulated by IMCAC.[6]  
Carriers previously inspected and approved by MTMC/DOD or FHWA pay 
IMCAC $300 for the initial rating (to cover administrative costs), and 
thereafter the rating is updated semi-annually based on updated MCMIS 
information, for no additional cost.  For carriers not inspected by 
any federal authority within the last 3 years, IMCAC performs on-site 
safety inspections of carrier facilities and vehicles for a fee which  
would range from $1,500 to more than $4,800, depending on the size of 
the carrier's fleet.  After the inspection, the carrier thereafter is 
rated as described above. 

CSS maintained in its response to the agency that, since the IMCAC 
rating is calculated objectively from publicly available information, 
its providing such ratings to carriers which CSS may be called upon to 
inspect under the contract does not give rise to a conflict of 
interest.  We agree.  It is not apparent how CSS's objectivity in 
performing inspections and surveillance tasks under the contract would 
be impaired by IMCAC's safety rating business.  Not only are the IMCAC 
ratings objective rather than subjective, but carriers that have been 
inspected pay only a one-time, up-front fee for the rating, and thus 
do not have an ongoing business relationship with IMCAC such that it 
could be in CSS's financial interest to favor carriers with an IMCAC 
rating.  More specifically, since a rated carrier would make no 
further payments to IMCAC for future updated ratings, CSS would have 
no reason to improperly approve or disapprove the carrier in hopes of 
influencing the carrier to purchase additional IMCAC rating 
services.[7]  

Similarly, we see no conflict involving IMCAC's providing safety 
inspections.  If a carrier pays for and receives an IMCAC inspection 
and rating, and subsequently seeks a MTMC/DOD inspection from CSS, it 
is not apparent how CSS would benefit from providing an improper 
approval or disapproval of the carrier.  Since the carrier already 
would have purchased IMCAC's services, CSS could not use the approval 
process to influence the carrier to do further business with IMCAC.  
Where a carrier first seeks MTMC/DOD approval through CSS, there 
could, at least theoretically, appear to be an opportunity for CSS to 
use the threat of disapproval to influence the carrier to seek an 
IMCAC rating.  However, the only financial incentive to IMCAC in this 
situation would be the one-time $300 administrative fee, and this 
simply does not appear to be an inducement of a magnitude that 
warrants assuming that CSS would be influenced to proceed improperly 
under its contract.[8]                                 

We reject the protester's view, essentially, that CSS's conflict is 
inherent and unremediable because, whether or not correctly, carriers 
may assume that DOD is endorsing IMCAC, or that they must do business 
with IMCAC in order to obtain favorable treatment from CSS under its 
contract here.  As discussed, CSS in fact will have no financial 
interest in failing to provide honest inspections (and the CRB 
represents a check on CSS's discretion to deny approval in any case).  
Further, although CSS will be performing inspections similar to the 
IMCAC inspections, the two inspections are distinct and CSS will not 
be reviewing IMCAC's work; thus, there is no reason to assume that CSS 
would be inclined to tailor its inspection results to match the 
results of an IMCAC inspection.  See Parameter, Inc., B-241652, Feb. 
28, 1991, 91-1 CPD 229  para.  at 4.  

Under these circumstances, we conclude that there is no more than a 
remote, theoretical possibility of risk of CSS performing with 
impaired objectivity.  Accordingly, RMG has not shown any impropriety 
in the award to CSS.

The protest is denied.

Comptroller General 
of the United States

1. The solicitation is a follow-on procurement to two separate 
contracts for these services.  CSS was the incumbent for the safety 
inspections and Stanley Associates for in-transit surveillance.

2. RMG questions whether the conflict has been mitigated, since there 
is no evidence in the record that the letter of agreement between CSS 
and Landstar, executed in February 1997, has been terminated.  
However, CSS states that it has no contract with Landstar for 1998, 
and that its last payment from Landstar was received in November 1997 
for work completed pursuant to the February 1997 agreement.  There is 
no indication that the work covered by the agreement has not been 
completed, or that there has been some further agreement between the 
firms to continue their relationship in contravention of CSS's pledge.  
Under these circumstances, the agency reasonably could conclude that 
the pledge was sufficient to mitigate the potential conflict.

3. While FAR subpart 9.5 does not explicitly address the role of 
affiliates in organizational conflicts of interest, there is no basis 
to distinguish between a firm and its affiliates, at least where 
impaired objectivity is at issue.  Aetna Gov't Health Plans, Inc.; 
Foundation Health Fed. Servs., Inc., B-254397.15 et al., July 27, 
1995, 95-2 CPD 129 at 13.  Here, there is no dispute among the parties 
that IMCAC and CSS are affiliates for purposes of addressing any 
conflict of interest.   

4. Under the mitigation plan, IMCAC's president "pledge[d that IMCAC 
will] . . . take no money from and do no business with any carrier 
that is, or later may become, DOD approved" while CSS holds the 
current contract.  This pledge included both ratings and inspection 
services.  Affidavits of W. Dennis Lauchner, Sept. 28 and Oct. 19, 
1998.  In light of our view that the IMCAC ratings and inspections do 
not present a conflict of interest, the mitigation plan is not 
critical to our decision.

5. CSS explained that the IMCAC rating system was envisioned to 
provide relief to the Department of Transportation, Federal Highway 
Administration (FHWA) rating system, which has been unable to meet the 
demand for such ratings.  CSS characterized the IMCAC rating system as 
a voluntary system designed to provide carrier safety information in 
the same manner that credit and financial information is provided by 
companies such as Dun & Bradstreet, with payment to IMCAC coming 
primarily from consumers who would use the ratings.  IMCAC is governed 
by a board of governors, which includes two FHWA advisory members.

6. The MCMIS database contains a list of all reportable accidents 
involving the carrier.  From this information and information supplied 
by the carrier in its IMCAC application, the number of accidents per 
million miles traveled is calculated.  The MCMIS data also contains a 
list of all vehicle inspections conducted by state law enforcement 
authorities, with the results of each inspection.  From this 
information, IMCAC calculates the carrier's out-of-service rate, which 
reflects the number of vehicles placed out of service in relation to 
the number inspected in a 12-month period.    

7. This also is not a situation where there would be potential for 
IMCAC to obtain commercial work directly as a result of the judgments 
made by CSS in performing  the current contract.  See Radiation Safety 
Servs., Inc., B-237138, Jan. 16, 1990, 90-1 CPD  para.  56 (under contract 
to survey general Nuclear Regulatory Commission licensees who use 
equipment containing radioactive material, protester was determined to 
have a conflict of interest based on its providing consulting services 
to those licensees and performing service work on the equipment in 
question).

8. Further, as a practical matter, it seems unlikely that a conflict 
situation would arise under CSS's contract.  CSS asserts that because 
the current number of
MTMC/DOD-approved motor carriers is a small percentage of the total 
carriers in the United States--only 440 out of 450,000--it is only 
remotely possible that it could be requested to inspect a carrier 
under the awarded contract that had previously been inspected by 
IMCAC.  CSS states further that to date there has been no conflict of 
interest (under its incumbent contract), noting that, out of 37 
requests for IMCAC ratings, only 5 have been for MTMC/DOD-approved 
carriers, and it has conducted no vehicle inspections of any carriers.