TITLE:  Concepts Building Systems, Inc., B-281995, May 13, 1999
BNUMBER:  B-281995
DATE:  May 13, 1999
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Concepts Building Systems, Inc., B-281995, May 13, 1999

Decision

Matter of: Concepts Building Systems, Inc.

File: B-281995

Date: May 13, 1999

Ralph W. Spurlock for the protester.
George Barclay, Esq., and Jerry Ann Foster, Esq., General Services
Administration, for the agency.
Christina Sklarew, Esq., and Paul Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

  1. Agency rejection of offer under multiple-award Federal Supply Schedule

solicitation on the basis that the offered prices were not reasonable is
unobjectionable where the offeror increased its markup of supplier prices
after negotiations were concluded and failed to provide any explanation to
support the reasonableness of the increase, which called for a markup almost
twice as high as the rate established by the contracting officer as a
negotiation objective.

2. Contracting Officer reasonably rejected unacceptable offer without
engaging in further negotiations where agency had engaged in discussions
with offeror for more than a year in an attempt to bring offer into
compliance.

___________________________________________________________________________

DECISION

Concepts Building Systems, Inc. protests the rejection of its offer
submitted in response to request for proposals (RFP) No. 7FXG-P5-97-5406-B,
issued by the General Services Administration (GSA) for multiple-award
Federal Supply Schedule (FSS) contracts to supply and install prefabricated
storage buildings and outdoor storage structures. GSA rejected Concepts'
offer because the agency determined that Concepts had failed to establish
the reasonableness of its offered prices.

We deny the protest.

The RFP, issued on May 21, 1997, contemplated multiple awards of
indefinite-delivery, indefinite-quantity contracts at firm, fixed prices
with an economic price adjustment, under GSA's FSS program. This program, as
described in Subpart 8.4 of the Federal Acquisition Regulation (FAR),
provides federal agencies with a simplified process for obtaining commonly
used commercial supplies and services at prices associated with volume
buying. Items are typically listed by special item numbers (SINs), which
represent groupings of similar products. Contracting Officer's Statement at
1. Indefinite-delivery contracts are established with commercial firms to
provide supplies and services at stated prices for given periods of time.
FAR sect. 8.401. Here, the contract duration was 5 years, beginning at the time
of award, with multiple contracts to be awarded for similar items. RFP at
55.

The RFP sought offers for three SINs: prefabricated buildings (storage
buildings and smoking shelters), ancillary services (assembly, training,
consultation and design assistance), and installation and site preparation.
RFP at 2-3. The solicitation is open indefinitely and is updated as required
to include the most current contract clauses and provisions. The RFP
included General Services Administration Acquisition Regulation (GSAR)
clause 552.212-73, "Evaluation—Commercial Items (Multiple Award
Schedule) (Aug 1997)," advising offerors that multiple awards may be made
"to those responsible offerors that offer reasonable pricing, conforming to
the solicitation, and will be most advantageous to the Government . . . ."
RFP at 59; Agency Report, Tab 29, Letter from the Contracting Officer to
Concepts enclosure 2, at 5 (Dec. 15, 1998).[1] It also included several
clauses pertaining to the submission of cost or pricing information. FAR
Clause 52.215-41, "Requirements for Cost or Pricing Data or Information
Other than Cost or Pricing Data (Jan 1997) (Alternative IV—Oct 1995)
(Variation I—Aug 1997)," (RFP at 10; Agency Report, Tab 29, supra,
enclosure 2, at 3.) advised that offers were to be prepared and submitted in
accordance with GSAR clause 552.212-70, "Preparation of Offer (Multiple
Award Schedule) (Aug 1997)." GSAR clause 552.212.70 requires offerors to
provide two copies of the offeror's current published commercial descriptive
catalogs and/or price list(s) from which discounts are offered, for each
special item being offered; to identify the offered items in the published
catalogs or price lists by the special item number listed in the RFP; to
describe the discounts being offered; to describe any concessions being
offered which are not granted to other customers; and if the offeror is a
dealer/reseller, or will use dealers to perform any aspect of the contract,
to describe the functions that the dealer/reseller will perform. RFP at 56;
Agency Report, Tab 29, supra, enclosure 2,

at 4. In addition, FAR Clause 52.215-41 required offerors to provide "[a]ny
additional supporting information requested by the Contracting Officer to
determine whether the price(s) offered is fair and reasonable." Agency
Report, Tab 29, supra, enclosure 2, at 3.

Concepts submitted an offer on December 2, 1997, as a broker for NCI
Building Systems, since it had no commercial price list of its own, and had
no sales history in supplying or installing the buildings. When a dealer's
estimated contract sales will exceed $500,000 or when a dealer does not have
substantial commercial sales of its own, the RFP calls for the dealer to
present commercial sales practices (CSP) information from its manufacturer
and allows the offeror to use the manufacturer's price list as the basis for
an offer. RFP at 50. The RFP requested very specific CSP information for
each SIN being offered by a dealer, and stated that it could be supplied
directly by the manufacturer or submitted in the dealer's offer. Id.
Concepts did not provide any of this information in its initial offer, nor
did it fulfill other informational requirements, such as providing a
commercial warranty or a letter of commitment from its manufacturer.

The record contains a substantial body of correspondence between Concepts
and GSA commencing with Concepts' initial offer—December
1997—and extending to the submission of Concepts' final proposal
revisions—January 1999—that demonstrates a protracted effort on
the part of the agency to obtain this information and to enable Concepts to
establish the reasonableness of its offered prices. During this time, the
contracting officer sought various types of information, such as
clarification of the manufacturer's pricing policies and the manufacturer's
commercial price list and freight costs, and requested that written access
to the manufacturer's sales records be provided.

In September of 1998 the contracting officer determined that Concepts was
nonresponsible and, since Concepts is a small business concern, forwarded
the matter to the Small Business Administration (SBA) for consideration
under the certificate of competency (COC) procedures. Agency Report, Tab 15,
Letter from the Contracting Officer to SBA (Sept. 1, 1998). SBA declined to
issue a COC for Concepts. Agency Report, Tab 16, Letter from SBA to the
Contracting Officer (Oct. 1, 1998). Because the responsibility determination
had been made prior to negotiations, the contracting officer agreed to
reconsider the issue of Concepts' responsibility later, based on Concepts'
assurances that significant additional information would be provided to
establish Concepts' financial responsibility.

Concepts repeatedly sought to postpone the process of negotiations,
asserting that it was attempting to gain more favorable terms from its
manufacturer. On October 22, the contracting officer prepared a
prenegotiation memorandum, consistent with the GSAR requirement to
"establish negotiation objectives based on a review of relevant data and
determine price reasonableness." GSAR 538.270. In that memorandum, he noted
that the initial markup percentage offered by Concepts was 10 percent, which
he viewed as the maximum acceptable markup, and established a negotiation
objective of obtaining a 7 percent markup, based on commercial markups in
this industry generally and the level of effort required under this
contract. Agency Report, Tab 18, Prenegotiation Memorandum at 3.
Negotiations were finally held on December 15, 1998. During the
negotiations, Concepts mentioned that it wanted to raise its pricing from
"[c]ost plus 10 [percent]" to "[c]ost plus 16 [percent],"[2] based on its
belief that the Government would not make payments under the contract in a
timely manner, thereby incurring interest costs for the dealer. Contracting
Officer's Statement at 4. GSA responded by advising Concepts that this
increase was not considered reasonable, since the Prompt Payment Act allows
contractors to collect interest on any amounts not paid in a timely manner.
Agency Report, Tab 29, Letter from the Contracting Officer to Concepts 2
(Dec. 15, 1998). The contracting officer understood that the negotiations,
as concluded, would result in Concepts offering "a 10 percent addition to
the actual fixed price of the portable buildings and installation costs with
allowance for profit and overhead." Agency Report at 5.

When Concepts submitted its final proposal revision on January 14, its
pricing had been modified to "cost plus 13 [percent]." Agency Report, Tab
34, Final Proposal Revisions. The proposal did not provide any explanation
or basis for the increase from "cost plus 10 [percent]," nor did it provide
any additional information (as promised) to demonstrate or support Concepts'
claim that it was financially responsible. Finding no other explanation for
the increase in price, which now provided for a markup that was almost
double the agency's negotiation objective of a 7 percent markup, the
contracting officer believed that it was based on Concepts' anticipation
that payment delays were likely and that Concepts would thereby incur costs
associated with the assignment of purchase orders issued under the contract;
he rejected this as unreasonable, since it represented an increase in cost
that did not provide any additional value to the Government, and rejected
Concepts' offer.[3] Agency Report, Tab 35, Letter from the Contracting
Officer to Concepts (Jan. 28, 1999). Concepts requested that its rejection
be reconsidered, which request the contracting officer denied. This protest
followed.

Concepts alleges that GSA's review and rejection of Concept's final offer
were improper. In essence, Concept argues that GSA has not shown that the 3
percent increase in markup included in Concepts' final offer was
unreasonable.[4]

Before awarding any multiple-award FSS contract, the contracting officer
must determine whether offered prices are fair and reasonable. GSAR
sect. 538.271(b). A determination concerning price reasonableness is a matter of
administrative discretion involving the exercise of business judgment by the
contracting officer; therefore, we will question such a determination only
where it is clearly unreasonable or there is a showing of bad faith or
fraud. See M. S. Ginn Co., B-215579, Dec. 26, 1984, 84-2 CPD para. 701 at 3. A
contracting agency may reasonably conclude that offered prices are
unreasonable under a multiple-award FSS procurement where the vendor
provides insufficient data to support the allowance of such costs. American
Seating Co., B-230171.36, Aug. 31, 1989, 89-2 CPD para. 195 at 5-6.

Here, GSA properly requested pricing and discount information, analyzed the
discount/markup arrangement offered by Concepts and established negotiation
objectives, including a target markup of 7 percent and a maximum acceptable
markup of 10 percent, based on the information submitted and the contracting
officer's knowledge of the industry. Agency Report, Tab 18, Prenegotiation
Memorandum

at 2-3. While the contracting officer concluded that achieving those
negotiation objectives would result in prices that were considered fair and
reasonable, those objectives were, in fact, not achieved. Concepts alleges
that the agency has arbitrarily imposed a limit on the percentage of its
markup of the manufacturer's prices when it rejected the unexplained
post-negotiation increase in markup. We find no merit to this claim. Rather,
the markup amount was analyzed and assessed with respect to the services
that the dealer would provide and costs he would incur in supplying the
goods he obtained from the manufacturer, and was determined to be excessive.
Concepts argues that "[t]he additional 3% [in markup] is not additional
profit to be enjoyed by the respondent," Protester's Comments at 5, but
fails to provide any reasonable explanation for its increase. The only
explanation, offered in Concepts' comments in response to the agency report,
is that a clause that was added to the RFP, GSAR clause 552.232-70, "Invoice
Payments (Jul 1998)," was "considered . . . to be escalatory and [we]
adjusted our offer to include what we felt would be additional overhead
costs." Protester's Comments at 2.

First, no such explanation was included when the increase was submitted to
the contracting officer; more to the point, we do not see how this clause
justifies the increase. The clause in question provides a timetable for
invoice payments to be made; establishes processes for full cycle electronic
commerce (an Internet-based invoice process); and states that "all other
provisions of the Prompt Payment Act (31 U.S.C. 3901 et seq.) and Office of
Management and Budget (OMB) Circular A-125, Prompt Payment, apply." Agency
Report, Tab 29, supra, enclosure 4, at 1-2. Concepts' reference to this
clause does not provide a valid justification or reasonable basis for its 3
percent across-the-board increase in markup; to the contrary, Concepts'
reliance on this clause appears to support the contracting officer's
conclusion that the increase was intended to cover costs associated with an
assignment of payments. Although Concepts insists, in its response to the
contracting officer's rejection of its offer (Agency Report, Tab 36, Letter
from Concepts to the Contracting Officer (Feb. 1, 1999)), and in its
response to the agency report (Protester's Comments at 4) that the amended
solicitation "plac[ed] yet another new requirement on the respondent in the
event of a contract award," Concepts fails to specify what that requirement
is, or explain how it could justify any increase in markup. In short, the
protester has not provided any basis to call into question the contracting
officer's determination that Concepts' offered price was unreasonable
because of the excessive proposed markup.[5]

Concepts also alleges that "the length of time that this offer stayed with
the GSA without a final decision being rendered was excessive, unnecessary
and served to deplete the resources of a small woman owned business . . ."
Protester's Comments

at 4. While we agree that the agency appears to have spent an extended
period of time attempting to obtain a complete offer from the protester, we
see no impropriety on the agency's part. The record demonstrates that the
protester submitted the requested information in a piecemeal fashion after
multiple requests and repeatedly requested extensions of deadlines for
negotiations. Agency Report, Tab 26, Letter from Concepts to the Contracting
Officer (Dec. 7, 1998); Tab 30, Letter from Concepts to the Contracting
Officer (Dec. 17, 1998); Tab 32, Letter from Concepts to the Contracting
Officer (Jan. 6, 1999). The record also demonstrates that, even now, there
is little likelihood that various remaining informational deficiencies in
Concepts' offer can be quickly or easily corrected. For example, in its
comments on the agency report, Concepts asserts that the solicitation did
not include installation and that "[t]hese buildings are not portable and
they are not installed," Protester's Comments at 4, and alleges that the
agency "applies an active imagination to the misguided assumption that
[Concepts] offered to install/erect this product." Protester's Comments at
5. In fact, the RFP clearly requires installation and site preparation,
listed as a separate SIN (RFP at 3), and Concepts checked the appropriate
box in its proposal to indicate that it was offering this SIN. Protester's
proposal at 3. In addition, Concepts expressly informed the contracting
officer during the process of clarifications that its proposal included
"[a]n offer to provide INSTALLATION AND SITE PREPARATION, required by the
solicitation, page 3 of 80." Agency Report, Tab 6, Letter from Concepts to
the Contracting Officer 1 (Jan. 30, 1998)(revised 3/5/98).The contracting
officer explained to the protester by letter of October 28, 1998 (Agency
Report, Tab 20), that any contract awarded as a result of the RFP would
contain only prices for buildings, with installation to be priced by the
contractor on the basis of the statement of work provided by the customer
agency (i.e., the agency purchasing off the FSS). The contracting officer
further explained that the RFP permitted contractors to subcontract
installation. Nevertheless, Concept fails to recognize that its submission
did include an offer for this SIN. Since the prime contractor is required to
accept full responsibility and liability for all work performed by
subcontractors under a resultant contract, GSA reasonably took this into
account in assessing Concepts' proposal. In these circumstances, where more
than a year has been spent attempting to arrive at a complete and reasonable
offer and where the protester's financial responsibility is seriously in
question, we see no basis to object to the contracting officer's decision to
terminate the process and reject the offer.

Concepts also alleges that the RFP did not specifically require vendors to
demonstrate financial responsibility. This position is untenable. Before
awarding a contract, a contracting officer must make an affirmative
determination that the prospective contractor is responsible. FAR 9.103(b);
Carter Chevrolet Agency, Inc., B-270962, B-270962.2, May 1, 1996, 96-1 CPD
para. 210 at 5. The RFP included GSAR clause 552.212-73,
"Evaluation—Commercial Items (Multiple Award Schedule)," which
provides that award would be made to "those responsible offerors that offer
reasonable pricing . . ." RFP at 59. Moreover, FAR Part 9, "Contractor
Qualifications," provides that "[n]o purchase or award shall be made unless
the contracting officer makes an affirmative determination of
responsibility." FAR sect.9.103(b). While the protester argues that Part 9 was
not included in the solicitation, FAR sect. 9.100 states

that subpart 9.1 prescribes policies, standards, and procedures for
determining whether prospective contractors are responsible, and FAR 9.102
provides that subpart 9.1 "applies to all proposed contracts with any
prospective contractor . . . in the United States . . . ." Accordingly,
Concepts' complaint in this regard, as with the other matters which it
raises, is without merit.

The protest is denied.

Comptroller General
of the United States

Notes

1. Many of the FAR clauses included in the RFP were changed slightly during
the course of the procurement; updated versions of the clauses were
substituted by change to the solicitation prior to the request for best and
final offer. The clauses are cited in this decision in their updated
versions as provided at Tab 29 of the Agency Report.

2. Because Concepts as a dealer has no commercial price list on which to
base its offer, and has not had substantial sales of the item being offered,
it must base its offer on the manufacturer's commercial price list. Here,
however, the manufacturer uses a computerized pricing model instead of a
printed price list, Agency Report, Tab 18, Prenegotiation Memorandum at 2,
and Concepts' offer is based on obtaining the items through the
manufacturer's broker. Id. Concepts bases its pricing on its own costs
through the broker, plus a markup percentage. Prices are fixed for the
length of the contract, as is the amount of markup. CO's statement at 5.

3. The contracting officer noted that while the solicitation permitted
payment to be assigned to third parties on individual orders issued under
any resultant contract, it did not require the Government to pay additional
costs to facilitate such assignments. Id.

4. Concepts' initial protest submission included a number of other general
complaints that do not allege any violation of regulation or statute or
otherwise provide any legal basis for protest, such as "[t]otal maximum
liability to the Government in awarding a contract to the responder is
$100"; and "GSA breaks procurement rules in stated requirements of the
solicitation . . . the Government is only entitled to whatever price
competition obtains." Protest at 2. Similarly, in its comments to the agency
report, Concepts lists a number of general questions as "issues," such as
"What is the real intent of Solicitation 7FXG-P5-97-5406-B?" Protester's
Comments at 6. These are dismissed for failure to state a legally sufficient
basis for protest. Bid Protest Regulations, 4 C.F.R. sect. 21.5(f) (1998).

5. The RFP includes GSAR clause 552.216-71, "Economic Price Adjustment (Feb
1996) (Alternate I—Jan 1989)(Deviation)," which provides for increases
and decreases in price under certain conditions, such as an increase in
catalog price, thus protecting the contractor in the event of escalating
costs by preserving its markup percentage. RFP at 18.

Concepts also alleges that "the length of time that this offer stayed with
the GSA without a final decision being rendered was excessive, unnecessary
and served to deplete the resources of a small woman owned business . . ."
Protester's Comments

at 4. While we agree that the agency appears to have spent an extended
period of time attempting to obtain a complete offer from the protester, we
see no impropriety on the agency's part. The record demonstrates that the
protester submitted the requested information in a piecemeal fashion after
multiple requests and repeatedly requested extensions of deadlines for
negotiations. Agency Report, Tab 26, Letter from Concepts to the Contracting
Officer (Dec. 7, 1998); Tab 30, Letter from Concepts to the Contracting
Officer (Dec. 17, 1998); Tab 32, Letter from Concepts to the Contracting
Officer (Jan. 6, 1999). The record also demonstrates that, even now, there
is little likelihood that various remaining informational deficiencies in
Concepts' offer can be quickly or easily corrected. For example, in its
comments on the agency report, Concepts asserts that the solicitation did
not include installation and that "[t]hese buildings are not portable and
they are not installed," Protester's Comments at 4, and alleges that the
agency "applies an active imagination to the misguided assumption that
[Concepts] offered to install/erect this product." Protester's Comments at
5. In fact, the RFP clearly requires installation and site preparation,
listed as a separate SIN (RFP at 3), and Concepts checked the appropriate
box in its proposal to indicate that it was offering this SIN. Protester's
proposal at 3. In addition, Concepts expressly informed the contracting
officer during the process of clarifications that its proposal included
"[a]n offer to provide INSTALLATION AND SITE PREPARATION, required by the
solicitation, page 3 of 80." Agency Report, Tab 6, Letter from Concepts to
the Contracting Officer 1 (Jan. 30, 1998)(revised 3/5/98).The contracting
officer explained to the protester by letter of October 28, 1998 (Agency
Report, Tab 20), that any contract awarded as a result of the RFP would
contain only prices for buildings, with installation to be priced by the
contractor on the basis of the statement of work provided by the customer
agency (i.e., the agency purchasing off the FSS). The contracting officer
further explained that the RFP permitted contractors to subcontract
installation. Nevertheless, Concept fails to recognize that its submission
did include an offer for this SIN. Since the prime contractor is required to
accept full responsibility and liability for all work performed by
subcontractors under a resultant contract, GSA reasonably took this into
account in assessing Concepts' proposal.