TITLE:  S&K Electronics, B-282167, June 10, 1999
BNUMBER:  B-282167
DATE:  June 10, 1999
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S&K Electronics, B-282167, June 10, 1999

Decision

Matter of: S&K Electronics

File: B-282167

Date: June 10, 1999

Pamela J. Mazza, Esq., and Antonio R. Franco, Esq., Piliero, Mazza &
Pargament, for the protester.

Marc Rigrodsky, Esq., Department of Treasury, Roger D. Waldron, Esq.,
General Services Administration, and Kenneth W. Dodds, Esq., Small Business
Administration, for the agencies.

David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Decision whether to place procurement under 8(a) program is not subject
to General Accounting Office review where there is no showing of possible
bad faith on the part of government officials or that regulations may have
been violated.

2. Protest by 8(a) firm alleging improper bundling of desktop computing
requirements under General Services Administration's Seat Management
Services Program is denied where record shows Seat Management contracts
reflect qualitatively different approach from earlier acquisitions and
agency reasonably anticipated substantial technical benefits from use of
Seat Management contract to acquire broad range of computing requirements
under one contract.

DECISION

S&K Electronics (SKE) protests the Department of the Treasury's
determination to acquire information technology (IT) technical support
services--previously furnished by a section 8(a) contractor--as part of a
package of IT services, hardware and software under the General Services
Administration's (GSA) Seat Management Services Program. SKE asserts that
this approach violates Treasury's procurement regulations with respect to
section 8(a) contracts and constitutes improper contract bundling.

We deny the protest.

BACKGROUND

On October 4, 1997, GSA issued solicitation No. TFF-97-014, which provided
for multiple-award, non-mandatory indefinite-delivery/indefinite-quantity
task order contracts, for a period not to exceed 120 months, to furnish Seat
Management services. The statement of work (SOW) provided as follows:

Under the Seat Management concept, the Government will acquire integrated
services and the required components to include: (1) general purpose desktop
computers, servers and associated peripherals; (2) high performance
computational systems and associated peripherals; (3) local area and wide
area network capabilities; (4) commercial off-the-shelf (COTS) software; (5)
help desk services; (6) maintenance; (7) design and installation; and
(8) training.

The Contractor will provide the assets needed to provide Seat Management
Services and will hold title directly or indirectly to all assets provided.
. . . The Government intends to acquire desktop computing services and
support as a utility and pay for them on a per 'seat' basis. So that the
Government may benefit from the total cost savings, these services must be
acquired in an integrated fashion from a single source.

TFF-97-014, SOW sect. C1, at 1; see Commerce Business Daily, Sept. 30, 1997
(posted Sept. 24, 1997). The SOW emphasized that the services to be
furnished under the contracts will include "all the essential components and
resources to service and maintain the desktop computing environment," and
that "[c]omponents of Seat Management Services may not be purchased
independently." TFF-97-014, SOW sect.sect. C3, C4, at 2-3. The Seat Management
contracts were to include fixed ceiling prices, with the ordering agencies
free to negotiate lower prices for each task order. On June 30, 1998, GSA
awarded eight Seat Management contracts.

Treasury historically has acquired desktop computer supplies and services
from multiple vendors. In particular, desktop computer support services for
its departmental offices have been furnished for approximately 10 years by
8(a) firms--most recently by Uniband, Inc.--under the Small Business
Administration's (SBA) 8(a) program. Uniband's contract covered fiscal year
1994, contained options for fiscal years 1995-98, and was extended until
March 1999.

On September 28, SKE wrote to the SBA's Helena, Montana office to request
that Treasury's computer support services requirements be reserved for SKE
under the 8(a) program; that office, in turn, requested Treasury to consider
awarding an 8(a) contract for these services, to be performed by SKE. SKE
subsequently met with Treasury representatives on several occasions to
discuss the agency's intended procurement approach. Apparently dissatisfied
with the response received from Treasury, on December 21 SKE wrote to both
the SBA and Treasury to question the agency's intended approach to meeting
the requirement. SKE asserted that Treasury's intent to remove the
requirement from the 8(a) program, and to compete the effort among the GSA
Seat Management contractors, violated agency regulations. Agency Report,
Tab 20, Letter from SKE to SBA (Dec. 21, 1998), and Tab 21, Letter from SKE
to Treasury (Dec. 21, 1998). By letter of February 9, 1999, Treasury
responded to SKE:

This is in response to your December 21, 1998 letter regarding an expiring
technical support contract within Departmental Offices. As you noted, these
services are currently being supplied by Uniband in conjunction with TAMSCO.
You expressed a desire to be considered for a follow-on contract for these
services.

Departmental Offices has determined that its needs have changed since the
award of the previous contract and has decided to satisfy these new
requirements through the General Services Administration's Seat Management
program. GSA's Seat Management Program includes ample opportunities for
small and minority-owned businesses. Therefore we no longer have a need for
the type of support services currently supplied by UNIBAND.

Agency Report, Tab 22, Letter from Treasury to SKE (Feb. 9, 1999). On
February 25, GSA issued Treasury's task order request (TOR) (No. TFC-9902)
to the Seat Management contractors; the closing date for receipt of
proposals was March 29. Upon learning of issuance of the TOR, SKE filed this
protest with our Office on March 2.

DISCUSSION

8(a) Set-Aside

It remains SKE's position that meeting the requirement here under the Seat
Management program is inconsistent with Department of the Treasury
Acquisition Regulation (DTAR) sect. 1019.803(c), which provides that

[o]nce a product or service has been acquired successfully by an acquisition
office on the basis of an 8(a) set-aside, all future requirements of that
office for that product or service shall be acquired using 8(a) set-aside
procedures. If a [contracting officer] determines there is no longer a
reasonable likelihood that an offer can be obtained from a qualified 8(a)
concern and award can be made at fair market prices, the repetitive
set-aside must be withdrawn, using the procedures at 1019.506, prior to
proceeding with the procurement on another basis.

Under our Bid Protest Regulations, we will not review a decision whether to
place a procurement under the 8(a) program absent a showing of possible bad
faith on the part of government officials or that regulations may have been
violated. 4 C.F.R. sect. 21.5(b)(3) (1999).

Here, SKE has made no showing of possible bad faith on the part of procuring
officials in their determination to remove Treasury's computer support
services requirements from the 8(a) program. Nor has SKE shown a violation
of the cited regulation, DTAR sect. 1019.803(c). That provision presupposes a
follow-on procurement of the same product or service that has been acquired
successfully by an acquisition office on the basis of an 8(a) set-aside.
GSA's Seat Management program, however, represents a new and different
approach to acquiring IT services, under which an agency will acquire all of
its desktop IT requirements--including hardware, software and services--as a
package of services from a single contractor that would retain title to the
hardware and software. As emphasized in the Seat Management SOW, all the
essential components and resources to service and maintain the desktop
computing environment are to be furnished by the selected GSA Seat
Management contractor, and components of the Seat Management services cannot
be purchased independently. TFF-97-014, SOW sect.sect. C3, C4, at 2-3. This unified,
integrated procurement approach is qualitatively different from a model
based on purchasing (and obtaining title to) hardware and software from a
different contractor than the contractor(s) furnishing computer support
services. Since Treasury is acquiring a different product or service than
that previously procured on the basis of an 8(a) set-aside, DTAR
sect. 1019.803(c) does not require a continued 8(a) set-aside here. [1]

Bundling

SKE also argues that Treasury's action amounts to a bundling of its IT
requirements, in violation of the provisions of the Small Business Act, 15
U.S.C.A. sect. 631(j)(3) (West Supp. 1999), requiring agencies to avoid
unnecessary and unjustified bundling of contract requirements that precludes
competition by small businesses. The Competition in Contracting Act of 1984,
41 U.S.C. sect. 253a(a) (1994), generally requires that solicitations permit
full and open competition and contain restrictive provisions or conditions
only to the extent necessary to satisfy the needs of the agency. Since
bundled, consolidated, or total-package procurements combine separate,
multiple requirements into one contract, they have the potential for
restricting competition by excluding firms that can furnish only a portion
of the requirement. The Urban Group, Inc.; McSwain and Assocs., Inc.,
B-281352, B-281353, Jan. 28, 1999, 99-1 CPD para. __ at 7; Aalco Forwarding,
Inc., et al., B-277241.12, B-277241.13, Dec. 29, 1997, 97-2 CPD para. 175 at 6.
Furthermore, as noted by the protester, the Small Business Act, 15 U.S.C.A.
sect. 631(j)(3) (West Supp. 1999), states that, "to the maximum extent
practicable," each agency shall "avoid unnecessary and unjustified bundling
of contract requirements that precludes small business participation in
procurements as prime contractors." We will review such solicitations to
determine whether the approach is necessary and justified to satisfy the
agency's needs. See The Urban Group, Inc.; McSwain and Assocs., Inc., supra;
Aalco Forwarding, Inc., et al., supra.

The Small Business Act, 15 U.S.C.A. sect. 644(e)(2)(A), states that, before
proceeding with an acquisition strategy that could lead to a contract
containing consolidated procurement requirements, the head of an agency
shall conduct market research to determine whether consolidation of the
requirements is necessary and justified. An agency may determine that
consolidation of requirements is "necessary and justified if, as compared to
the benefits that would be derived from contracting to meet those
requirements if not consolidated, the Federal Government would derive from
the consolidation measurably substantial benefits, including any combination
of benefits that, in combination, are measurably substantial." 15 U.S.C.A. sect.
644(e)(2)(B). Such benefits may include (1) cost savings, (2) quality
improvements, (3) reduction in acquisition cycle times, (4) better terms and
conditions, or (5) any other benefits. Id. [2]

Treasury reports that it projects achieving substantial technical benefits
from consolidating its IT requirements, including the requirement here,
under  the Seat Management program. For example, Treasury expects that
having a single contractor responsible for all of its desktop IT
requirements--rather than continuing to rely on the current fragmented
approach of using different sources for hardware/software and services--will
result in significant quality improvements as a result of (1) having a
single contractor responsible for infrastructure interoperability and
product compatibility, (2) eliminating the confusion, delays and denials of
responsibility for service interruptions or installation problems, and (3)
facilitating consistent, timely upgrades and refreshment of technology.
Treasury Reports, Apr. 2, 1999, at 25-26, Apr. 28, 1999, at 5-6, and
Apr. 30, 1999, at 1-2; Agency Report, Tab 26, Acquisition Plan, Feb. 9,
1999, at 3, 9.

SKE has not rebutted the basis for Treasury's determination to procure the
services in question under the Seat Management contract; it has made no
showing that Treasury in fact had no reasonable expectation of
achieving  substantial technical benefits from consolidating these IT
requirements under the Seat Management contract. Thus, there is no basis for
finding that the agency's approach violates the prohibition against improper
bundling. [3]

SKE's protest is based largely on its view that the requirement should be
made available to SKE under the 8(a) program because it could "establish
teaming relationships with vendors to provide the agency with the latest
technology," and "provide the needed expertise for Treasury's new
technological environments by, among other things, subcontracting with
concerns with the specialized skills to meet Treasury's needs." In this way,
SKE asserts, it could satisfy all of the agency's desktop computing needs
and furnish the agency with the same benefits that are available under the
Seat Management program. SKE Comments, May 5, 1999, at 7. However, whether
SKE can in fact satisfy all of Treasury's desktop computing needs is of no
legal relevance here. Even if true, SKE has not shown how this claim would
provide a basis to challenge the agency's decision to shift from the limited
scope of Uniband's contract under the 8(a) program to the qualitatively
different acquisition concept of the Seat Management contract. Furthermore,
the claim that SKE could satisfy all of Treasury's desktop computing
requirements would appear to undercut

its argument that there has been a bundling of contract requirements here
that precludes small business participation as a prime contractor.

The protest is denied.

Comptroller General
of the United States

Notes

1. We note that SKE and Treasury disagree as to whether DTAR sect. 1019.803(c),
which has not been published in the Federal Register, is an agency
acquisition regulation such that a violation of that provision would furnish
a basis for our sustaining the protest. In view of our conclusion that no
violation has been shown, we need not resolve this dispute.

2. The reduction of administrative or personnel costs alone is not a
justification for bundling contract requirements, unless the cost savings
are expected to be substantial in relation to the dollar value of the
procurement requirements to be consolidated. 15 U.S.C.A. sect. 644(e)(2)(C).

3. Treasury also expects to achieve cost savings from consolidating its IT
requirements under the Seat Management program. Based on Treasury's
distributed computing environment requirements and the ceiling rates under
two of the Seat Management contracts, GSA calculated that the cost to
support Treasury's requirements under the Seat Management program at $4,390
to $5,098 per seat per year (depending on the level of service chosen) in
fiscal year 1999; when discounted 20 percent to account for lower prices
from competition among the Seat Management contractors, the projected fiscal
year 1999 cost per seat ranged from $3,513 to $4,078. (Treasury received six
proposals in response to the TOR; the agency reports that the initial price
proposals received were consistent with the expected discounted rates.
Treasury Report, Apr. 28, 1999, at 4.) In contrast, Treasury's actual
support service costs for fiscal year 1998 appears to have been $4,319 per
seat; when increased by 3 percent to account for inflation, the fiscal year
1999 cost per seat would total $4,449. Although SKE questions the agency's
savings estimates, we need not consider its challenge in this regard since,
as discussed above, there is no basis for questioning the reasonableness of
the agency's forecast of substantial technical benefits from consolidating
its IT requirements. Treasury Report, Apr. 28, 1999, at 1-4; Agency Report,
Tab 26, Acquisition Plan, Feb. 9, 1999, at 4-5.