BNUMBER:  B-281664             
DATE:  March 18, 1999
TITLE: BMAR & Associates, Inc., B-281664, March 18, 1999
**********************************************************************

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:BMAR & Associates, Inc.

File:B-281664            
        
Date:March 18, 1999

Joan Fiorino, Esq., Douglas & Barnhill, for the protester. 
Richard B. Oliver, Esq., McKenna & Cuneo, L.L.P., James J. Griffin, 
Griffin Services, Inc., intervenors. 
Clarence D. Long, III, Esq., Department of the Air Force, for the 
agency. 
Michael R. Golden, Esq., Office of the General Counsel, GAO, 
participated in the preparation of the decision.

DIGEST

1.  Office of Management and Budget Circular No. A-76 and the Circular 
No. A-76 Revised Supplemental Handbook (March 1996) do not require 
that the government submit a "technical performance plan" (TPP) for 
evaluation under the first step of a two-step sealed bidding 
acquisition to determine the low bid for comparison with the 
government's in-house bid.  The Supplemental Handbook requires a TPP 
for evaluation purposes only where the private sector proposal is 
selected for cost comparison on the basis of a negotiated or best 
value procurement.

2.  Protest that fixed-price solicitation for civil engineering 
services subjects bidders to unreasonable risk due to requirement for 
lump sum price with no limitation on amount of work that can be 
ordered under various tasks is sustained where pricing scheme imposes 
unreasonable risk on the contractors, and thus unduly restricts 
competition. 

DECISION

BMAR & Associates, Inc. protests request for technical proposals 
(RFTP) No. F08651-98-R-0001, issued by the Department of the Air Force 
for civil engineering services at Eglin Air Force Base in Florida.[1]   
The acquisition is being conducted as a cost comparison study under 
Office of Management and Budget (OMB) Circular No. A-76 and 
supplements.  Memorandum for all Offerors, Oct. 27, 1998 (issued by 
contracting officer with RFTP, and hereinafter referred to as 
Memorandum).

We sustain the protest because we conclude that the lump-sum pricing 
approach in the RFTP is defective.

The RFTP was issued on October 27, 1998, as the first step of a 
two-step sealed bidding acquisition under Federal Acquisition 
Regulation (FAR)  sec.  14.5.  Under the first step, interested firms 
submit technical proposals which are evaluated to determine 
acceptability.  Under the second step, a formal invitation for bids 
(IFB) is issued only to those firms which have submitted acceptable 
technical proposals during the first step.  Only bids based upon 
technical proposals determined to be acceptable, either initially or 
as a result of discussions, will be considered for award; each bid in 
the second step must be based on the bidder's own technical proposal.  
Memorandum  para.  10; FAR  sec.  14.5.

The procedures for determining whether the government should perform 
an activity in-house, or allow the activity to be performed by a 
contractor, are set forth in OMB Circular No. A-76, and the Circular 
No. A-76 Revised Supplemental Handbook (March 1996) (the "Supplemental 
Handbook").  When an activity is considered appropriate for an 
in-house versus private-sector cost comparison, the Supplemental 
Handbook outlines the cost comparison process.  Supplemental Handbook 
ch. 3,  sec.  A.3.

For sealed bid procurements,[2] the contracting officer opens the 
bids, including the government's in-house cost estimate, and enters 
the price of the apparent low "offeror" on the cost comparison form 
(CCF).  After all necessary adjustments are made and the CCF is 
completed, the contracting officer announces the tentative decision, 
subject to evaluation of bids for responsiveness, responsibility, and 
resolution of possible administrative appeals.  Supplemental Handbook 
ch. 3,  sec.  J.1.  The Supplemental Handbook establishes an A-76 
administrative appeals process for parties seeking to challenge the 
results of the cost comparison.  Supplemental Handbook ch. 3,  sec.  K.

BMAR maintains that the RFTP violates the requirements for conducting 
the cost comparison because it does not require the government to 
submit a "technical performance plan (TPP)"[3] for evaluation under 
the first step provided for in section H of chapter 3 of the 
Supplemental Handbook.  The Air Force interprets the Supplemental 
Handbook as requiring a TPP only where the agency conducts a 
negotiated procurement.  According to the Air Force, since this 
acquisition is a two-step sealed bid, no TPP is required.

At issue is the following language in section H of chapter 3 of the 
Supplemental Handbook, entitled "Methods of Procurement."  The section 
provides as follows:

     1.  All competitive methods of Federal procurement provided by 
     the FAR are appropriate for cost comparison under the Circular 
     and this Supplement.  This includes:  sealed bid, two-step, 
     source selection and other competitive qualifications-based or 
     negotiated procurement techniques.
     2.  In selecting the method of procurement and contract type, the 
     contracting officer analyzes the PWS [Performance Work Statement] 
     and applies the guidance contained in OFPP [Office of Federal 
     Procurement Policy] Policy Letter 91-2 and FAR Part 16.
     3.  Source Selection or negotiated procurement techniques may be 
     used for some A-76 Cost Comparisons.  To ensure equity in the 
     cost comparison process, the following guidelines are provided:
        a.  In addition to the PWS, Management Plan and in-house cost 
        estimate, the Government, like the private sector offerors, 
        shall submit the Technical Performance Plan required by the 
        solicitation to the A-76 Independent Review Officer (IRO).  
        The Technical Performance Plan reflects the MEO and is sealed 
        prior to the consideration of any part of any contract offer.
        b.  As required by the FAR, the Government should establish a 
        Source Selection Authority, including assurances that there 
        are no potential conflicts of interest in the membership of 
        the Authority.
        c.  The Authority reviews contract and ISSA [Interservice 
        Support Agreement] offers and identifies that offer which 
        represents the "best overall value to the Government."  This 
        contract offer competes with the Government's in-house cost 
        estimate.

We agree with the Air Force that a TPP is not required under a 
two-step procedure.  Section H.1 of chapter 3 of the Supplemental 
Handbook clearly treats "two-step" as a competitive method different 
from "source selection . . . or negotiated procurement techniques."[4]  
The requirement that the government submit a TPP is found at chapter 
3, section H.3.a of the Supplemental Handbook, and that provision, by 
its language, addresses the use of "[s]ource [s]election or negotiated 
procurement techniques" and sets out guidelines, including the need 
for a TPP from the government, which apply to source selection or 
negotiated procurement techniques.  This guidance clearly relates to 
negotiated acquisitions under FAR Part 15, not to sealed bid 
procurements, including two-step sealed bid procurements.[5]

Further support for the Air Force's position is that the Supplemental 
Handbook, in discussing the cost comparison process in part II, 
chapter 3, section B, states that:

     2.  Contract types.

     a.  In determining the amount to be recorded as the contract 
     price, consider the contract type.  The following guidance is 
     provided in this regard.
     b.  In the case of a sealed bid, firm fixed price contract, the 
     price of the low responsible, responsive offeror will be entered.  
     If a firm fixed price contract is to be negotiated, the 
     negotiated price will be entered. 
Here, as in any sealed bid procurement, the price resulting from the 
two-step process is a sealed bid price, not a price achieved through 
negotiations under FAR Part 15.  The Supplemental Handbook here, 
again, recognizes the distinction.

Since we conclude that the TPP requirement in the Supplemental 
Handbook is not applicable to two-step bidding, the Air Force acted 
consistently with the Supplemental Handbook when it did not require 
the government to submit a TPP under this RFTP.  We note, however, 
that the government is required to submit information adequate to 
demonstrate, to the satisfaction of the independent review officer, 
that the MEO satisfies the requirements of the PWS.  See Supplemental 
Handbook ch. 3,  sec.  I.3.a.

BMAR also challenges, for two reasons, the 150-page limitation on 
technical proposals contained in the RFTP.  First, BMAR asserts that 
the government should prepare a TPP within this page limitation, since 
otherwise the government will have an unfair advantage, particularly 
where the government management plan[6] alone will exceed the 150-page 
limitation.  Second, BMAR objects to the page limitation on the basis 
that it restricts the offeror's ability to address the RFTP 
requirement to "demonstrate . . . that the proposer not only 
understands the requirements and commits to fulfilling them, but also 
understands the challenge of performance and has a sound approach to 
achieving it."  RFTP attach. 2, at 1; Protest at 5-6.

With respect to BMAR's first argument that the government should 
prepare a 
TPP within the RFTP's page limitation, this argument is academic 
because, as discussed above, we concluded that a TPP was not required 
for this competition.  With respect to BMAR's second argument, we 
think the agency had a reasonable basis to specify a 150-page 
limitation.  The agency points out that in mandating this limitation, 
it considered that by using two-step sealed bid procedures, the 
technical proposals in response to the RFTP under step one need only 
be acceptable to proceed to step two.  Offerors would not receive any 
credit for exceeding or expanding on the requirement; the offerors, as 
quoted above, need to establish an understanding of, and commitment 
to, meeting the RFTP requirements.  The RFTP also excluded the 
required quality control plan, resumes, and job descriptions from the 
page limitation count, which expands the total page count.  The agency 
further conducted a survey of the solicitations for this or a similar 
type of work and found the average proposal page limitation ranged 
from 75 to 150 pages, including solicitations involving best value 
selection criteria where, unlike this acquisition, it would be an 
advantage for proposals to exceed minimum standards.  Under these 
circumstances, we have no basis to question the agency's 150-page 
limitation.  In any event, since BMAR's competitors under step one are 
subject to the same page limitation, we fail to see how BMAR is 
competitively prejudiced by the RFTP's page limitation.

BMAR also argues that the RFTP does not contain sufficient data on 
which to base a bid for civil engineer tasks and functions under CLIN 
0001.  Specifically, BMAR asserts that the RFTP does not contain 
historical data regarding the scope or frequency of the service calls 
that have been made in the past for this work or any detailed estimate 
of the projected future work.  Protest at 7-9; Protester's Comments, 
Jan. 22, 1999, at 11-12.  BMAR further argues that, because of the 
requirement to submit a lump-sum bid for CLIN 0001, the private sector 
offerors were asked to base their bids on an "ill-defined" RFTP that 
imposes an unjustifiable amount of risk on them.  

At issue here is CLIN 0001,[7] which covers "non-personal services" 
and requires offerors to:

     [p]rovide all personnel, equipment, tools, material, vehicles, 
     supervision, and other items and services necessary to perform 
     Civil Engineer tasks and functions IAW the Performance Work 
     Statement (PWS) and terms and conditions stated herein excluding 
     the Management and maintenance of Military Family Housing and 
     Civil Engineer Supply Store, Annex 1.  

RFTP Part I, The Schedule,  sec.  B.

Based on the Air Force's estimates, this CLIN represents [deleted] of 
the cost for CLINs 0001 and 0002 [deleted] for both CLIN.  Performance 
Requirements Summary.

The agency advises that under the PWS, the contractor is required to 
maintain a recurring work program (RWP) to ensure the maintenance of 
facilities and real property installed equipment.  RFTP attach. 3, 
PWS,  sec.  C-5.12.12.  Section C-5.12.12 of the PWS referenced Technical 
Exhibit 9, which lists "a representative sampling of the RWP 
requirements for the facilities and infrastructure listed in 
[technical exhibit] 2," and indicates the frequency of maintenance for 
each item.  Technical Exhibit 9 stated that it was not a complete list 
of RWP requirements, but that Technical Exhibit 2 contained workload 
estimates for each functional area.

For example, for facility 8100, maintenance was required on the 
"emergency light, site A-1, inside facility" on a monthly basis.  The 
agency asserts that based on the RWP, the list in Technical Exhibit 9 
and the workload estimate in Technical Exhibit 2, which provides 
location and frequency of maintenance, an experienced offeror could 
develop its own RWP by applying time standards (labor hours) to each 
activity and price each accordingly.

The agency also points out that in addition to the exhibits addressing 
the RWP, the RFTP included the number, type, and age of facilities, 
the unit of counts for major items, such as air conditioners, the 
number of culverts, the number of bridges, and the miles and types of 
roads.  RFTP attach. 3, PWS, technical exhs.  The Air Force also 
provided access to a computer terminal that allowed offerors to obtain 
information on current work orders.  High risk items, such as new 
construction items, were excluded from the lump-sum CLIN 0001.  The 
cost of materials, a government-reimbursed item, was also excluded 
from CLIN 0001.  Finally, the agency released a document that showed 
the agency currently is performing the PWS with 200 positions 
identified by grade.  The agency believes that the information it 
provided in the RFTP is sufficient to permit an offeror to prepare its 
proposal, and that "although some risk is transferred to the offeror, 
it is within reasonable bounds."  Agency Memorandum of Law at 14.

BMAR's primary concern with the RFTP is the agency's decision to 
delete the workload estimate for the direct scheduled work (DSW), 
defined as "[e]mergency, urgent, and routine maintenance and repair 
work required to keep the facility, appliances, utilities, and 
installed equipment in such a condition that it may be utilized at its 
optimal design capacity and efficiency."  RFTP attach. 3, PWS,  sec.  
C-2.2.49.  This historical information was included in the draft RFTP, 
but the Air Force deleted this information from the final RFTP.  The 
protester objects to the deletion of this information as preventing it 
from competing intelligently.

The record shows that the DSW workload estimates were deleted from the 
final RFTP because the Air Force concluded that the data could not be 
relied upon or tracked.  Responses/Answers to Contract Inquiries, Nov. 
19, 1998.  The contracting officer explains that each DSW action 
represented a group of small jobs.  As a result, the DSW data did not 
provide a record of the true number of services calls (the actual 
category, type, and number of DSWs).  Contracting Officer's Statement 
at 4.  We have no basis to question the agency's decision to delete 
this information because it was not an accurate record of DSWs.  In 
any event, as the agency points out, the protester has the DSW numbers 
and is aware of the problem with the reliability of the information.  
The agency notes that the protester could statistically sample the 
data and use it in conjunction with other provided information to 
estimate a more accurate number.  Based on this record, we believe the 
agency made a good faith effort to furnish reliable information in the 
RFTP; however, this conclusion is not dispositive of the protester's 
challenge to the RFTP's pricing scheme for CLIN 0001.

In support of its contention that the solicitation's pricing scheme 
subjects bidders to unreasonable risk and is restrictive, BMAR relies 
on our decision in Four Star Maintenance Corp., B-240413, Nov. 2, 
1990, 91-1 CPD  para.  70.  In that case, we found that a fixed-price 
solicitation for family housing maintenance subjected the contractor 
to unreasonable risk due to requirements for lump-sum prices with no 
limitations on the amount of work orders under the lump-sum portion of 
a building maintenance contract.  Id. at 3-4.  We believe this 
solicitation suffers from the same defect.

As in Four Star, we find that the pricing structure in this RFTP does 
not meet the test of reasonableness.  As we explained in the 
referenced decision:

     [W]e think that the requirement to perform most of the work under 
     the contract at a fixed monthly price involves risks to the 
     contractor and the government that outweigh any advantage it 
     might offer by deterring some unnecessary work.  First, if the 
     contractor builds into its prices contingencies to cover the 
     possibility that the work required will exceed the RFP estimates, 
     and the agency ultimately requires less than the estimated work, 
     the government will pay more for the work than if payment were 
     based upon fixed quantities or unit prices.  Under this scenario, 
     the contract would not result in the lowest cost to the 
     government.  Conversely, if the contractor bids based on the cost 
     of performing the estimated work, without including the cost of 
     work in excess of the estimates, and the agency ultimately 
     requires work in excess of the estimates, the contractor would be 
     required to perform all additional work at no cost.  We think 
     this is unfair and unwarranted where not necessitated by some 
     strong agency need.  In addition, the RFP pricing structure 
     affords the government an obvious, and we think improper, 
     advantage in the A-76 cost comparison.  As Four Star notes, while 
     the government is required to prepare its offer based upon the 
     same estimated quantities as the other offerors, the government 
     need not increase its price to provide for the contingency that 
     the required work will exceed the RFP estimate.  Thus, firms 
     cannot effectively compete with the government under the lump sum 
     pricing scheme.

     In sum, since the lump sum pricing scheme . . . may not result in 
     the lowest possible cost to the government; subjects the 
     contractor to inordinate risk; and puts offerors at a competitive 
     disadvantage versus the government in the cost comparison 
     process, it is unreasonable, and as such is inconsistent with the 
     statutory requirement for full and open competition.  We have 
     previously recommended to the Air Force that solicitations of 
     this type include estimates of the amount of work expected and 
     provide for unit and extended prices rather than a single fixed 
     price.  Offers should be evaluated on the basis of extended 
     prices, and the solicitation should state that payment will be 
     based on the unit prices offered multiplied by the actual 
     quantity of work required.  AWD Mehle GmbH, B-225579, Apr. 16, 
     1987, 87-1 CPD  para.  416, recon. denied, B-225579.2, June 11, 1987, 
     87-1 CPD  para.  584.  This format will help prevent offerors from 
     including in their prices large contingencies to cover the 
     possibility that they may be required to perform work greatly in 
     excess of that listed in the RFP for the fixed price offered and, 
     as a result, likely will reduce the cost to the government.  Id.

Four Star Maintenance Corp., supra, at 4-5.  

As the Air Force points out, in two subsequent decisions, our Office 
distinguished the Four Star decision based on our finding that the 
solicitations in each of those later cases contained reasonable 
limitations on the amount of work that the selected contractor could 
be required to perform on a lump-sum basis, and therefore on the 
amount of risk that the contractor would bear.  See Steel Circle Bldg. 
Co., B-245749, Feb. 3, 1992, 92-1 CPD  para.  134; Tumpane Servs. Corp., 
B-242221, Apr. 12, 1991, 91-1 CPD  para.  369.  In those cases, limitations 
were placed on the amount of potentially expensive work or on the 
required service calls.  One way to prevent unreasonable risk on the 
contractor is by providing that the fixed price will cover the 
quantity of service calls estimated in the solicitation and that 
additional calls will be ordered under a separate, indefinite-quantity 
line item.  See, e.g., J&J Maintenance, Inc., B-272166, July 29, 1996, 
96-2 CPD  para.  56 at 1-2.

Here, the solicitation does not provide a reasonable limitation to the 
contractor's risk of cost exposure relating to emergency, urgent, and 
routine service calls, which the record shows represent a significant 
portion of the contract effort under CLIN 0001.  Government Estimate 
Backup Documents at 39.  While quantity estimates may, when reasonably 
accurate, reduce such risk, that is not the case here where, as 
discussed above, the historical data for the DSW was unreliable.  In 
fact, the agency performance work statement team found the DSW data 
for service calls "was way low."  Agency Report, Tab 10, E-mail 
Message, Sept. 8, 1998, at 2.  Unlike in the cases cited above, here, 
the RFTP's bid schedule places no limits on service calls covered by 
CLIN 0001's fixed price, and the solicitation excludes from CLIN 0001 
only a limited number of items to be ordered as indefinite-quantity 
line items (the costs of these items, primarily relating to new 
construction, are relatively small compared to the overall [deleted] 
estimate for CLIN 0001).  Further, in response to the protest, the 
agency provides no reason for adopting this pricing approach.  We 
conclude that the agency has not adequately justified the inordinate 
risks to the contractor arising from the lump-sum pricing approach, 
which may, in our view, unduly restrict competition.

Thus, we sustain the protest of CLIN 0001 as defective.  We recommend 
that the agency amend the solicitation in accordance with our decision 
and the cases cited therein by, for example, placing labor hour or 
dollar ceilings on the contractor's liability for DSWs under the 
fixed-price line item.  We also recommend that BMAR be reimbursed for 
its costs of filing and pursuing the protest of the ground sustained, 
including reasonable attorneys' fees.  Bid Protest Regulations, 4 
C.F.R.  sec.  21.8(d)(1) (1998).  BMAR should submit its certified claim 
for costs, detailing and certifying the time expended and costs 
incurred, to the Air Force within 60 days of receiving this decision.  
4 C.F.R.  sec.  21.8(f)(1).

Comptroller General
of the United States

1. The services include management of family housing and dormitories, 
military family housing maintenance, facility maintenance, and repair 
of facilities and roads at the Eglin Air Force base test range site, 
waste water treatment plant operation, and the contractor-operated 
civil engineering supply store.  Contracting Officer's Statement at 1; 
RFTP  sec.  C-5.

2. For a negotiated or best value procurement, after selection of the 
private sector's most advantageous proposal, and all necessary 
adjustments have been made to ensure that the government's in-house 
cost estimate and the winning private sector's proposal are based upon 
the same scope of work and performance standards, the contracting 
officer completes the cost comparison form and makes the selection 
decision.  Supplemental Handbook ch. 3,  sec.  J.3; See NWT, Inc.; 
PharmChem Labs., Inc., B-280988, B-280988.2, Dec. 17, 1998, 98-2 CPD  para.  
158 at 4-5.

3. The Supplemental Handbook does not define the term "technical 
performance plan," but states that it "reflects the MEO (most 
efficient organization)" and is "required by the solicitation."  
Supplemental Handbook ch. 3,  sec.  H.3.a.

4. FAR subpart 14.5, two-step sealed bidding, identifies two-step 
sealed bidding as "a combination of competitive procedures designed to 
obtain the benefits of sealed bidding . . . ."  FAR  sec.  14.501.  While 
step one "consists of the request for, submission, evaluation, and (if 
necessary) discussion of a technical proposal," pricing is not 
involved.  Conformity to the technical requirements is resolved in 
this step.  FAR  sec.  14.501(a).  Step two involves submission of sealed 
bids priced by firms which submitted acceptable technical proposals in 
step one; award is based on the bids.  FAR  sec.  14.501(b).

5. Since the requirement for a TPP appears to apply to all negotiated 
procurements, it would apply even to those procurements where award is 
to be made to the firm offering the low-priced, technically acceptable 
proposal.  It is not clear why a TPP would be required in such a 
procurement, but not in a two-step procurement.  While the Air Force 
suggests that the requirement for a TPP is meant to apply only to 
negotiated procurements where a cost-technical tradeoff is permitted 
(that is, "best value" procurements), the Supplemental Handbook does 
not make that clear.

6. This document outlines the changes that will result in the 
government's MEO to perform a commercial activity.  It provides the 
staffing patterns and operating procedures that serve as a baseline 
for in-house cost estimates.  Supplemental Handbook app. 1, Definition 
of Terms, at 36.

7. CLIN 0002 covers military family housing.  RFTP Part 1, The 
Schedule,  sec.  B.