TITLE:  	Walsh Distribution, Inc.; Walsh Dohmen Southeast, B-281904; B-281904.2, April 29, 1999
BNUMBER:  B-281904; B-281904.2
DATE:  April 29, 1999
**********************************************************************
Walsh Distribution, Inc.; Walsh Dohmen Southeast, B-281904; B-281904.2,
April 29, 1999

Decision

Matter of: Walsh Distribution, Inc.; Walsh Dohmen Southeast

File: B-281904; B-281904.2

Date: April 29, 1999

Scott M. Heimberg, Esq., Thomas P. McLish, Esq., and Andrea T. Vavonese,
Esq., Akin, Gump, Strauss, Hauer & Feld, for the protesters.

Frank M. Rapoport, Esq., Charles H. Carpenter, Esq., Daniel I. Prywes, Esq.,
and Donald J. Carney, Esq., Pepper Hamilton, for AmeriSource Corporation, an
intervenor.

Maura C. Brown, Esq., Melbourne A. Noel, Esq., Philip S. Kauffman, Esq., and
Phillipa L. Anderson, Esq., Department of Veterans Affairs, for the agency.

Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Agency reasonably rated protesters' and awardee's proposals similarly
under past performance factor where (1) although awardee had several minor
past performance problems, they had been resolved by consolidation of firm's
operations; (2) one protester, while having no negative information relating
to its past performance, had never performed on a scale comparable to that
required under the RFP; and (3) the second protester's proposal was rated
slightly higher than the awardee's, but only due to the limited geographic
area and dollar volume represented by its offer.

2. Agency's decision to make award to firm offering significant cost savings
was unobjectionable where protester's and awardee's proposals were rated
similarly under all non-cost criteria, and record shows agency was unwilling
to pay cost premium for protester's slight advantage in past performance.

DECISION

Walsh Distribution, Inc., and Walsh Dohmen Southeast protest the award of a
contract to AmeriSource Corporation under request for proposals (RFP) No.
M5-Q2-99, issued by the Department of Veterans Affairs (VA) for the
distribution of pharmaceuticals. The protesters maintain that the agency
misevaluated proposals and improperly made award to AmeriSource.

We deny the protests.

The RFP contemplated the award of one or more fixed-price contracts to
distribute the VA's pharmaceutical requirements for a base year and four
1-year options. The RFP was issued in connection with the agency's
Pharmaceutical Prime Vendor (PPV) program under which the PPV delivers
pharmaceutical products ordered by one of several agencies (including VA,
parts of the Department of Defense, the Bureau of Prisons, the Department of
Health and Human Services and the Immigration and Naturalization Service)
from various Federal Supply Schedule (FSS) contracts, VA national
pharmaceutical contracts, basic ordering agreements or other government
contract vehicles. The contract essentially provides a means for
approximately 568 medical and pharmaceutical clearinghouse facilities to
have their pharmaceutical requirements delivered in a timely manner. (The
agency estimates that these facilities collectively will order slightly more
than $1.5 billion in pharmaceutical products during each contract year.)
Firms could submit offers for one or more regions, or for the entire
national requirement. Prices were to be expressed as a percentage above or
below the FSS or national contract prices.

The evaluation factors, in descending order of importance, were past
performance, technical approach and price. RFP at 77. Within the technical
approach area, two equally-weighted subfactors were specified,
implementation plan and distribution and logistics management.[1] Id. The
agency employed an adjectival rating system (exceptional, highly acceptable,
acceptable, minimally acceptable or unacceptable) to assess proposals under
the non-price factors.

The agency received 13 initial offers, 7 of which were included in the
competitive range. The agency engaged in discussions with the competitive
range offerors and solicited final proposal revisions (FPR). After receipt
and evaluation of the FPRs, the agency made award to AmeriSource for all but
4 regions which are not at issue in this protest. Walsh Distribution's
protest concerns region Nos. 6, 9, 19, 21 and 22; Walsh Dohmen's protest
concerns region Nos. 3 and 18.[2]

PAST PERFORMANCE

In the past performance area AmeriSource's proposal was rated highly
acceptable, Walsh Dohmen's exceptional and Walsh Distribution's highly
acceptable. Walsh Distribution asserts that, since its references all
provided outstanding recommendations, its proposal should have been rated
exceptional. Walsh Distribution also maintains that its past performance was
superior to AmeriSource's, and that this should have been reflected in a
rating higher than AmeriSource's. In addition, both protesters challenge
AmeriSource's highly acceptable rating. According to the protesters,
AmeriSource's past performance on VA requirements show that it encountered
performance difficulties, and that its proposal should have been downgraded
based on these shortcomings. The protesters further note that the agency
elevated AmeriSource's past performance rating from acceptable to highly
acceptable between the initial and final evaluations, even though the agency
did not address past performance during its discussions with AmeriSource and
did not obtain any additional information after the initial evaluation.

In reviewing an agency's evaluation of proposals, our Office will not
reevaluate or independently score the proposals; rather, our review is
limited to considering whether the evaluation was reasonable and consistent
with the solicitation's evaluation criteria. BFI Waste Sys. of Nebraska,
Inc., B-278223, Jan. 8, 1998, 98-1 CPD para. 8 at 2.

VA's past performance evaluation was reasonable and consistent with the RFP.
As for Walsh Distribution, the agency explains that it rated Walsh
Distribution's past performance highly acceptable (as opposed to
exceptional) primarily because, although the firm's references reported
consistently good performance, those references represented a much smaller
volume of business than contemplated under the solicitation for the regions
for which Walsh Distribution submitted an offer. Contracting Officer's
Statement at 4, 13. In this respect, the record shows that, of the nine
commercial contract references provided, Walsh Distribution's largest
commercial contract was for $[deleted] in sales volume, and that the
majority of the remaining contracts involved sales volume of $[deleted] or
less (four of its commercial contracts involved less than $[deleted] in
sales volume).[3] Walsh Distribution Past Performance Evaluation Report. In
contrast, the smallest region for which Walsh Distribution submitted an
offer has an annual estimated sales volume of approximately $50 million, and
the cumulative estimated annual sales volume for all regions for which it
proposed is $426,253,313, or almost [deleted] times the sales volume of
Walsh Distribution's largest commercial contract. Source Selection Decision
attach. A. The record also shows that the agency had Walsh's references
assign a numeric rating of from 1 (worst) to 5 (best) to the firm based on
its past performance. All nine references assigned ratings between 4 and 5,
and the average for all ratings was 4.65 points. Walsh Distribution Past
Performance Evaluation Report at 6th unnumbered page. In view of relative
volume of Walsh Distribution's prior commercial experience as compared to
the anticipated volume under this solicitation, and the numeric ratings
assigned by Walsh Distribution's references, we think the agency reasonably
rated Walsh Distribution's proposal highly acceptable for past performance.

As for AmeriSource, its proposal initially was rated only acceptable for
past performance, but upon review of the evaluation materials the agency
concluded that the rating should be changed to highly acceptable.
Contracting Officer Statement at 3. In this regard, while the record shows
that, in general, AmeriSource's references noted some minor problems
relating to inconsistent pricing from different distribution locations, they
also stated that these problems had been cleared up when AmeriSource
consolidated the number of its price loading centers from 14 to 4.[4]
AmeriSource Past Performance Evaluation Report, Cover Memorandum and at 10.
The references also stated that AmeriSource consistently met a fill rate
(the percentage of product supplied versus the product ordered) of
approximately 98 percent (whereas the solicitation re quires a fill rate of
only 97 percent), Id. at 5, and noted that AmeriSource had responded
adequately in all other respects, delivering products on time, responding to
emergency requirements in an expeditious manner, and processing corrections
to its billing and providing credits in a timely manner. AmeriSource Past
Performance Evaluation Report. The record further shows that VA had a high
level of confidence in AmeriSource's ability to meet the contract
requirements because, as the incumbent, it provided VA with approximately 83
percent of the total dollar volume for the entire PPV program in 1998,
servicing some 378 of the 568 facilities to be serviced under the current
RFP. Contracting Officer Statement at 3-4. Finally, the record shows that
all of the references contacted for AmeriSource assigned the firm numeric
ratings between 4 and 5, with the average being 4.31. AmeriSource Past
Performance Evaluation Report at 10.

The negative information contained in the record relating to AmeriSource's
performance at VA facilities related almost exclusively to the pricing
problems noted by the other vendors and involved only a small number of
facilities. Agency Report, exh. No. 40. The agency further notes that, as
with AmeriSource's commercial customers, these pricing problems were largely
resolved when the firm consolidated its operations. Accordingly, we conclude
that AmeriSource's past performance reasonably was rated highly acceptable.

INTERESTED PARTY STATUS OF WALSH DISTRIBUTION

Walsh Distribution also argues that the agency misevaluated AmeriSource's
technical proposal, improperly decided to award all of the CMOP facilities
to a single vendor and made an improper cost/technical tradeoff. We find
that Walsh Distribution is not an interested party for purposes of these
arguments. See 4 C.F.R. sect. 21.0(a) (1998). As discussed, we find the agency
reasonably assigned Walsh Distribution's proposal a past performance rating
of highly acceptable. The record shows that the proposal of another offeror,
[deleted], received technical and past performance ratings identical to
Walsh Distribution's, and offered a lower price. Source Selection Decision
attach. A. (Walsh does not contend that the agency misevaluated [deleted]
proposal.) This being the case, even if Walsh Distribution were to prevail
in these additional arguments, [deleted], not Walsh Distribution, would be
in line for award in every region for which Walsh Distribution submitted an
offer. See Kongdan Kumnan Restaurant/Good Food Serv., B-276846.2, Feb. 23,
1998, 98-1 CPD para. 57 at 5. Under these circumstances, Walsh Distribution
lacks the direct economic interest necessary to maintain this aspect of its
protest; accordingly, we dismiss the remainder of Walsh Distribution's
protest.

TECHNICAL EVALUATION

RF Warehouse Management System

Walsh Dohmen contends that its radio frequency (RF) warehouse management
system should have been rated superior to AmeriSource's because it has
certain enhanced capabilities that make it both more user friendly and more
efficient. The agency responds that it viewed this requirement as a matter
of technical acceptability rather than as part of the relative assessment of
the proposals, and that both the protester's and awardee's systems provide
the capabilities required.[5]

The evaluation in this area was reasonable. While Walsh Dohmen asserts that
it should have received additional credit under the subelements for the
distribution and logistics management evaluation subfactor, this position is
not supported by the record. The subelements were (1) next-day delivery
(described in the RFP as an assessment of the offerors' method for ensuring
timely delivery of ordered pharmaceuticals); (2) accuracy of prices in
automated (electronic) ordering system (described as an assessment of how
the offeror will ensure that all prices in its electronic data base are
correct); (3) emergency delivery procedures (described as an assessment of
the offerors' procedures to ensure that emergency deliveries will be made
within 12 hours); and (4) disaster recovery contingency plan (described as
an assessment of how the offeror proposes to recover from possible disasters
such as acts of God or computer system failure). RFP at 72. These subfactors
are performance-related, and while offerors were required to have an RF
system in place, the subfactors simply do not provide for an assessment of
the relative merits of each offeror's RF system. Under these circumstances,
and given the fact that Walsh Dohmen does not allege that AmeriSource's RF
system is unacceptable for some reason, the agency reasonably determined
that this was not a discriminator in the evaluation.

Computer Systems

Walsh Dohmen maintains that the agency failed to credit its proposal for
offering a superior computer system (its WalshNet system), which it claims
is superior to AmeriSource's system. The agency explains that it basically
agrees with Walsh Dohmen, and notes that, based on this superiority, it
assigned the firm's proposal a better rating than AmeriSource's under the
accuracy of prices in automated (electronic) ordering systems
subelement--exceptional compared to acceptable. Final Consensus Technical
Proposal Rating for Walsh Dohmen at 7; Final Consensus Technical Proposal
Rating for AmeriSource at 9. As with the RF system requirement, however,
Walsh Dohmen insists that it should have received additional credit under
the other distribution and logistics management subelements, and also under
the implementation plan subfactor.

The evaluation in this area was reasonable since the pricing accuracy
subelement appears to be the only evaluation area under which the
superiority of a firm's computer system reasonably could be assessed. The
protester does not explain, and it is not apparent from the record, how its
WalshNet system enhances its capabilities under the other subelements. For
example, under the emergency delivery subelement, offerors were required to
outline their procedures for accomplishing deliveries within 12 hours, for
example, by explaining how the offeror would traverse the distance between
its facility and the receiving facility in a timely fashion (e.g., by air
transportation). Clearly, the relative superiority of a firm's computer
system has nothing to do with its meeting this aspect of the requirement.

Similarly, evaluation of the computer systems would not have been
appropriate under the implementation plan subfactor, since under that
evaluation area the agency was measuring the offerors' ability to become
fully operational under the contract. Specifically, for purposes of this
subfactor, offerors were required to describe how they would install all
electronic equipment, apply bar code labels to facilities, train government
personnel in the use of their system, load up all pricing information,
prepare their internal inventory and distribution systems and execute
contract vehicles with all necessary pharmaceutical manufacturers in a
timely manner. RFP at 71-72. These considerations simply do not encompass
computer system capabilities.

Walsh Dohmen also suggests that the agency improperly applied the evaluation
criteria inconsistently. In this regard, the protester asserts that the
agency rated AmeriSource's proposal to open new distribution centers a
strength, while at the same time downgrading Walsh Dohmen's proposal for
offering to open a new distribution center. The record does not support this
argument. Contrary to Walsh Dohmen's assertion, the evaluation record shows
that, in fact, its ratings were increased based on its proposal to open a
new facility. Specifically, the agency's final consensus evaluation report
narrative for the implementation plan subfactor states:

Based on the plan submitted for the opening of the distribution center in
Raleigh, NC, the offeror's ability to meet the requirements has been
enhanced and reduces the risk to the Government of non-performance. . . .
The offeror's FPR further strengthened [its] proposal, which was originally
rated as acceptable [but now is rated highly acceptable].

Final Consensus Technical Proposal Rating Report for Walsh Dohmen at 4. The
report shows that the agency also gave the proposal credit in several other
evaluation areas for proposing to open a new warehouse. Id. at 6, 9.

COST/TECHNICAL TRADEOFF

Walsh Dohmen argues that the agency improperly made award to AmeriSource
despite its proposal's relative inferiority due to its lower price.
According to the protester, the agency's award decision was inconsistent
with the terms of the solicitation, which required the agency to give
paramount consideration to past performance and the technical evaluation
criteria.[6]

Agency source selection officials are afforded broad discretion in making
cost/technical tradeoffs, and our review is limited to considering whether
an agency's award decision is rational and consistent with the evaluation
scheme; agencies may properly select a lower-rated, lower-priced proposal
where they conclude that the cost premium involved in selecting a
higher-rated proposal is not justified in light of the acceptable level of
technical competence available at a lower price. Tidewater Homes Realty,
Inc., B-274689.5, Aug. 11, 1998, 98-2 CPD para. 40 at 4.

The tradeoff here was reasonable. The record shows that, for region 3, both
the protester's and the awardee's proposals received the same highly
acceptable rating under the technical evaluation factors. Source Selection
Decision attach. A. In region 18, AmeriSource's proposal was rated
technically superior to Walsh Dohmen's, with a rating of exceptional/highly
acceptable, compared to Walsh Dohmen's highly acceptable. Id. In both
regions, the protester's proposal was rated exceptional for past
performance, while AmeriSource's was rated only highly acceptable. Id. The
record therefore shows that, in the final analysis, the agency considered
both proposals very good, with Walsh having a slightly superior score under
the past performance criterion and AmeriSource having either an equal or
slightly superior score under the technical evaluation criterion. At the
same time, AmeriSource enjoyed a significant price advantage over Walsh
Dohmen. In region 3, AmeriSource's proposal represented an estimated overall
savings of $6,368,450 over the life of the contract, and in region 18, the
overall savings to the government amounted to $3,780,000. Source Selection
Decision attach. A, B. The agency ultimately reasoned that AmeriSource's
lower cost offset Walsh Dohmen's superior past performance, as reflected in
the source selection decision:

It was decided that the Government should not trade cost for past
performance and/or technical superiority unless the cost trade off is less
than $1 million/region for a five-year period. This rationale was based on
the fact that the past performance and/or technical ratings are not more
than one adjectival rating apart in any instance; and in many cases, they
are only one-half adjectival rating apart. Since the ratings for past
performance and technical approach are close together for all offerors
remaining in the competitive range, the importance of price increases. For
all regions . . . it was evident . . . that the superiority of the past
performance and/or technical ratings compared to AmeriSource's prices was
not sufficient to warrant the cost trade off.

Source Selection Decision at 2. Aside from the fact that, as indicated
above, agencies always properly may make reasonable tradeoffs between
competing proposals, the

RFP here expressly permitted the agency to give increased consideration to
price where the proposals were closely rated. RFP at 77. Under these
circumstances, the tradeoff clearly was proper.[7]

The protests are denied.

Comptroller General

of the United States

Notes

1. The distribution and logistics subfactor included four subelements:
next-day delivery, accuracy of prices, emergency delivery and contingency
plan. RFP at 77.

2. Region Nos. 18, 19, 21 and 22 were for VA consolidated mail outpatient
pharmacy (CMOP) facilities. These facilities provide direct mailing of
prescription drugs to eligible VA outpatients. The RFP provided that the
agency could make award on an individual basis for the CMOPs, or could award
all of the CMOPs to a single concern. RFP at 78. The VA elected to award all
of the CMOPs to AmeriSource, whereas the protesters submitted offers for
individual CMOPs.

3. Walsh Distribution suggests in its comments that contract size was not
properly a consideration under the terms of the RFP. We disagree. The RFP
specifically provided: "In addition, the offeror will be evaluated on the
depth, breadth and relevance of its experience and performance under
procurements of a same or similar nature to the proposed requirement." RFP
at 78. We read this language as clearly
permitting the agency to consider the similarity of past contracts in any
relevant respects, including size and complexity of the contract.

4. Prices change relatively frequently for the products being delivered and
the contractor is responsible for "loading" the prices onto its central
computer system.

5. Walsh Dohmen also maintains that AmeriSource does not have something
referred to as a "split screen satellite ordering system." However, the
record shows that this capability was not required for the regions for which
Walsh Dohmen submitted an offer. RFP at 22. Consequently, the evaluation in
this regard is irrelevant.

6. Walsh Dohmen also contends that the agency was required to consider the
"administrative cost savings" associated with the greater efficiency of its
computer system and RF warehouse management system. This argument is
specious. The RFP required the agency to consider only the administrative
costs associated with administering more than one contract, that is, the
added costs incurred by having, for example, more than one administrative
contracting officer. RFP at 79. To the extent that Walsh Dohmen's systems
produce a cost savings, that should have been reflected in the firm's
offered price.

7. Walsh Dohmen also asserts that the agency never intended to award the
CMOP regions separately, and at all times intended to award a single
contract for them. The protester asserts that, as a result, it was misled
into wasting its resources in preparing a proposal for region 18 when it had
no chance of receiving award for that region on a stand-alone basis. This
assertion is without merit, since, as discussed above, AmeriSource's
proposal actually was rated technically superior to Walsh Dohmen's in region
18; thus, no matter the agency's intentions, AmeriSource was entitled to the
award.