TITLE:  Jones, Russotto & Walker, B-283288.2, December 17, 1999
BNUMBER:  B-283288.2
DATE:  December 17, 1999
**********************************************************************
Jones, Russotto & Walker, B-283288.2, December 17, 1999

Decision

Matter of: Jones, Russotto & Walker

File: B-283288.2

Date: December 17, 1999

Robert G. Jones, Esq., for the protester.

Richard A. Marchese, Esq., Department of Housing & Urban Development, for
the agency.

Jacqueline Maeder, Esq., and Paul I. Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Protest challenging contracting agency's decision to conduct competitive
procurement rather than exercising incumbent contractor's option is not for
consideration because the decision whether to exercise an option is a matter
of contract administration.

2. Protest by an incumbent contractor that solicitation does not present
adequate information to permit bidders to compete is denied where the
solicitation provides sufficiently detailed information on the agency's
requirements to enable bidders to intelligently prepare a bid on relatively
equal terms.

3. Protest that solicitation estimates for the number of anticipated real
estate closings are inaccurate is denied where the estimates are based on
rationally adjusted historical data and the record does not establish that
the estimates are unreasonable or not based on the best information
reasonably available to the agency.

DECISION

Jones, Russotto & Walker (Jones) protests the terms of invitation for bids
(IFB) No. B-PHI-00419, issued by the Department of Housing and Urban
Development (HUD) for real estate closing services in connection with the
sale of single-family properties owned by HUD within Virginia. [1] Jones, an
incumbent contractor, has raised a variety of objections to the IFB. The
crux of Jones's protest is that the new solicitation allegedly reflects the
agency's improper determination not to exercise the remaining options under
the predecessor contract. Jones's objections to the current IFB largely
reflect its view that HUD's failure to exercise the option under Jones's
contract is designed to "terminate prematurely without cause" the closing
services that Jones is performing under a contract that it was "led by HUD
to believe . . . would be renewed annually through October 31, 2001."
Protest at 1. Jones takes the position that the terms of the extant contract
should remain unchanged, and alleges that the solicitation is defective
because the information provided in the IFB is not adequate to permit
competition on an equal basis, the agency unreasonably divided the state
into six geographic service areas, and the estimates of the total number of
expected closings and the expected closings in each area are so unrealistic
as to prohibit the submission of meaningful bids.

We deny the protest.

The IFB, issued on June 30, 1999, as a small business set-aside, provides
for the award of up to six fixed-price, indefinite-quantity contracts, one
for each of six geographic service areas, for a base year with two 1-year
options. IFB amend. 5, sect. B-8. Each successful bidder is to close, within its
geographic service area, any sales transaction assigned to it by HUD's
management and marketing (M&M) contractor. [2] The six geographic service
areas initially outlined in the original IFB at section B-1 were identical
to those specified under the current contracts. These geographic areas were
redefined in amendment 3 at section B-1. The solicitation maintained the
same number of geographic areas, and the redefined areas were not named, but
simply numbered with the IFB listing the counties and the independent cities
included in each area. Amendment 3 also included a map of Virginia, which
showed each county and outlined and numbered each of the six redefined
areas. The prices paid per closing under current contracts for the
geographic service areas delineated under the prior solicitation were also
provided in the solicitation. IFB amend. 3, Cover Page. The amendment stated
that the six areas under the current contracts do not correspond to the
redefined areas under this IFB. Id.

At section C, the IFB contained a 10-page statement of work (SOW) which
outlined the work to be performed and the time frames. The SOW required
contractors to provide the necessary services, personnel, equipment and
material to, among other things, establish and maintain case files, conduct
for each property a "lien and judgment" full title search covering the
preceding 10 years, and obtain and maintain files of homeowner association
and condominium documents. IFB amend. 3, sect. C-3. The SOW required contractors
to conduct all closings in person with the purchaser or the purchaser's
representative, id. sect. C-2(b), to ensure accurate payment of all closing
costs within 3 to 5 business days of the closing, id. sect. C-2(c)(2), and to
deliver a complete closing package to HUD within 2 business days of closing.
Id. sect. C-2(c)(4). The solicitation also required the HUD contractor to be
physically present at all closings being conducted by a third party and
provided that the contractor would receive only 50 percent of its fixed unit
price for third-party closings. [3] IFB amend. 5, sect. B-8(b). Finally, the SOW
specified the contractor's responsibilities at each closing and after each
closing, including, for example, explaining all documents to the purchaser,
executing all documents, depositing and verifying sales proceeds, filing the
deed, and maintaining complete records of each closing. IFB amend. 3,
sect.sect. C-3(c)(11), (12). The contractor was also to provide a weekly report of
all cases assigned to the contractor. The SOW provided specific information
that was to be included in the weekly report. Id. sect. C-3(c)(16).

The IFB pricing schedule provided an estimated number of closings for each
area for the base year and for each option year. IFB amend. 5, sect. B-8. The
IFB specified that HUD would order a minimum of 10 percent and a maximum of
not more than 150 percent of the annual estimated quantities. Id. sect. B-3.
Bidders were to provide, for each geographic service area on which they
submitted a bid, a unit price per closing and an extended price, based on
the estimates provided for evaluation purposes, for the base and each option
year. Bidders were also to submit a total price. Id. sect. B-8.

The agency received nine bids by the September 28 bid opening. Agency Report
at 3. Prior to bid opening, Jones filed a protest with our Office objecting
to the terms of the solicitation. [4] The agency has extended performance
under the existing contracts to January 31, 2000, and has not awarded
contracts under the solicitation, pending the resolution of the protest. Id.

FAILURE TO EXERCISE OPTIONS

While Jones styles its protest as a protest against defective
specifications, Jones principally challenges the agency's determination to
issue a new solicitation rather than exercise the options under the existing
contracts. Jones argues that HUD's decision to issue a new solicitation
constituted a premature termination of Jones's existing contract which was
arbitrary, capricious and without justification. Protest at 3. The protester
contends that HUD's failure to exercise the options shows bad faith on the
part of the agency, and that HUD should set the new solicitation aside until
the agency can prepare a sound replacement. Protester's Comments at 19.

The Federal Acquisition Regulation (FAR) defines an option as a "unilateral
right" of the government to elect to purchase additional supplies or
services or to extend the term of a contract, and makes clear that a
contracting agency is under no requirement to exercise an option. FAR sect.sect.
17.201, 17.207. Our Office will not consider an incumbent contractor's
protest of an agency's refusal to exercise an option under an existing
contract since this decision is a matter of contract administration outside
the scope of our bid protest function. American Consulting Servs., Inc.,
B-276149.2, B-276537.2, July 31, 1997, 97-2 CPD para. 37 at 9. We will not
consider the matter even where, as here, the protester alleges that the
agency's decision to not exercise an option in its contract was made in bad
faith. [5] Walmac, Inc., B-244741, Oct. 22, 1991, 91-2 CPD para. 358 at 2.

ADEQUACY OF THE INFORMATION PROVIDED IN THE SOLICITATION

Jones next argues that the solicitation does not allow all bidders to
compete on a fair and equal basis because firms that have not performed this
contract in the past will be unaware of the great increase in the amount of
work required here and, therefore, the current contract prices noted in the
solicitation are misleading and will result in unrealistically low bids from
unknowledgeable bidders. Protest at 4. The protester lists 22 additional
tasks, including, for example, the requirement that the closing agent obtain
home owners association and condominium documents, personally attend third
party closings, and perform a 10 year "lien and judgment" title examination,
which were not required under the prior solicitation. Id. at 5-6. Jones
argues that HUD has a duty to explain the changed requirements to all
bidders and disclose that the prices quoted in the solicitation do not
include all the tasks required under this solicitation. Id. at 6.

As a general rule, a procuring agency must give sufficient detail in a
solicitation to enable bidders to compete intelligently and on a relatively
equal basis. Service Technicians, Inc., B-249329.2, Nov. 12, 1992, 92-2 CPD
para. 342 at 2. Specifications must be free from ambiguity and describe the
minimum needs of the procuring activity accurately. Hero, Inc., B-213225,
Dec. 14, 1983, 83-2 CPD para. 687 at 3. There is no legal requirement, however,
that a competition be based on specifications drafted in such detail as to
eliminate completely any risk for the contractor or that the procuring
agency remove all uncertainty from the mind of every prospective bidder.
Analytics Inc., B-215092, Dec. 31, 1984, 85-1 CPD para. 3 at 4-5. Here, the IFB
provides sufficiently detailed information to allow bidders to compete
intelligently and on a relatively equal basis.

The IFB provided every prospective bidder with detailed descriptions of each
task to be performed under the contract. As noted above, these tasks
included services such as obtaining condominium documents, attending third
party closings, explaining closing documents to purchasers, preparing weekly
reports, and maintaining a complete record of each closing. IFB amend. 3, sect.
C-3. Moreover, in many instances, the IFB outlined exactly what the agency
required under each of the tasks. For example, for third-party closings, the
SOW listed eight tasks the contractor was expected to perform, including,
for example, forwarding a letter to the third party closing attorney
outlining HUD's requirements and time frames, preparing a deed and
forwarding the deed for signature, depositing sale funds into HUD's escrow
account and arranging a wire transfer of the funds to HUD's Treasury
account, ensuring proper deed recordation, and forwarding the closing
package to the M&M contractor. Id. sect. C-3(c)(10). Similarly, the SOW listed
eight responsibilities the contractor was expected to perform at closing and
four responsibilities the contractor was expected to perform after closing.
Id. sect.sect. C-3(c)(11), (12). Moreover, as noted above, other bidders submitted
bids without protest. In our view, this detailed information regarding HUD's
current requirements contained in the IFB was adequate to permit prospective
bidders to apply their own cost data to the requirements described by the
IFB and calculate a bid price with which they could compete intelligently
and on an equal basis with all other bidders. While the historical prices
per closing provided in the IFB may not reflect the cost of performance of
the present scope of work under the IFB, this should not materially
influence the preparation of bids since the current stated requirements
should guide bidders in preparing their bids rather than the historical cost
figures. International Resources Corp., B-248050.3, Feb. 16, 1993, 93-1 CPD
para. 138 at 3.

OTHER CHALLENGES

Jones next challenges the redefined geographic areas, the estimate for the
total number of closings and the estimates for the closings in each of the
six individual areas, arguing that the redefined areas and unrealistic
estimates prohibit bidders from preparing informed bids and thus inhibit
competition. Protester's Comments at 11.

Redefined Geographic Areas

Jones argues that the redefined areas are generally larger than the areas
they replace, resulting in unmanageable distances to be covered by closing
agents, and that the agency has redefined the state so that the majority of
anticipated closings will occur in two areas. Id. at 6. The agency states
that it considered many factors in dividing the state into service areas,
including, for example, input from current contractors, and determined to
divide the state so as to try to increase competition. Agency Report at 8.
Specifically, amendment 3 significantly reduced the size of what had been
the two largest areas, making the redefined areas more uniform in size. The
agency believes the reduced size of the larger areas will likely increase
competition because more prospective bidders will be capable of handling a
smaller geographic area. Id. Additionally, the contracting officer states
that the agency wanted to decrease travel distances for buyers, especially
first-time buyers in urban areas, so the agency tried to make the closing
agents' offices more convenient to buyers. Supplemental (Supp.) Agency
Report, Contracting Officer's Supp. Statement (COSS), Nov. 9, 1999, at 6.
While HUD also tried to decrease the distance its closing agents may have to
travel to third-party closings, the contracting officer states that the
agency determined to put the greater travel burden on the agent rather than
on the buyer because the agent could build travel expenses into its bid. Id.
at 7.

Nothing in the record supports the protester's contention that the redefined
geographic areas are improper. A comparison of two maps prepared by the
protester shows striking differences between the redefined areas and the
original areas. Under the original boundaries, two areas cover approximately
two-thirds of the state. In contrast, the redefined areas are relatively
equal in geographic size, with the two areas under the original boundaries
which covered approximately two-thirds of the state significantly reduced in
size. Because no one area is significantly larger than the others, and all
appear relatively manageable in terms of travel, it is reasonable to expect,
as the agency hypothesized, that more prospective bidders will be capable of
handling the more uniform areas. Moreover, while Jones complains about the
divisions, the protester offers no alternative, other than maintaining the
original six areas which, as clearly illustrated by the protester's own map,
are not at all equal in size and, for the areas covering two-thirds of the
state, would require burdensome travel by buyers and by closing agents. As
to Jones's contention that the majority of closings will occur in only two
areas, we note that any state has more populated urban centers and less
populated rural areas. Given the size of the state and the various locations
of the major cities, it is not feasible to evenly allocate major urban areas
across all six redefined geographical areas. Accordingly, the record
provides no reason to object to the redefinition.

Estimates

Jones argues that the estimate for the total number of closings is
unreliable, pointing out that the number of closings handled by the M&M
contractor is significantly less than the agency's estimate. Specifically,
Jones states that HUD's own published records indicate that under the M&M
contract which included Virginia and which was terminated for default in
September, only 2,261 homes were sold in 21 states and the District of
Columbia in 6 months. Supp. Protest at 2. Based on these figures, Jones
argues that HUD's estimated total of 3,620 closings for Virginia in one year
is "wildly incorrect." Id. The protester also argues that the agency's use
of inventory figures as a "check" on its estimate is unreliable because the
anticipated number of closings using this formula varies from 2,088 to
12,570. Protester's Comments at 3. In addition, Jones challenges the
estimates for each of the six individual geographic areas, noting, for
example, that only 1 percent of the population of the state lives in the
major urban region of area 3 yet the agency estimates 1,200 closings for
area 3, the largest estimate for any area. Id. at 8-9. Because HUD has no
historical numbers for the redefined areas, Jones argues that the agency
should base its area estimates on county-by-county and city-by-city data.
Id. at 3. Finally, Jones argues that the agency should include an estimate
for the anticipated number of third-party closings.

Id. at 4.

HUD takes the position that it used the best information available to
establish both the total estimate and the estimates for each individual
area. The agency reports that, in developing the total estimate for the
number of closings, while it considered a number of variables, including the
experience and expertise of the HUD staff, the agency relied primarily on
the historical number of closings in the state and on inventory numbers.
Supp. Agency Report, COSS, Nov. 9, 1999, at 3. Specifically, according to
HUD, its computerized Single Family Asset Management Systems (SAMS) shows
that between March 1998 and March 1999, HUD closed on 3,269 single-family
properties in Virginia. [6] Id. Additionally, HUD staff used its inventory
as a "check" on the accuracy of the estimated quantity of closings. Supp.
Agency Report, Nov. 19, 1999, at 2. The agency has determined from practice
and experience that generally it is realistic to expect that its inventory
at any given time will turn over twice in a given 12-month period. Id. Here,
the January 1999, inventory for Virginia was 1,647 single-family properties,
on the basis of which the agency expected to close on 3,294 single-family
properties (1,647 times 2) over the next 12 months. Supp. Agency Report,
COSS, Nov. 9, 1999, at 15. Similarly, the February 1999 inventory was 1,689,
on the basis of which the agency expected to close on 3,378 single-family
properties over the next year. Id. at 16. While HUD concedes that this
formula is "necessarily simplistic" and "far from an exact science," it is
based on actual agency experience. Supp. Agency Report, Nov. 19, 1999, at 2.

As to the estimates for each of the six individual geographic areas, the
agency states that it relied, again, on the experience and expertise of its
staff, and assigned larger estimates to those areas with historically larger
inventories and smaller estimates to those areas with historically smaller
inventories. Supp. Agency Report, COSS, Nov. 9, 1999, at 4. Because the six
geographic areas were redefined, the agency had no directly applicable
historical data to use to make its determination. In response to the
protester's argument that the agency should have determined its estimates
based on county-by-county and city-by-city calculations, the agency explains
that such an analysis would require a line-by-line review of hundreds of
computer print-out pages and that its personnel would have to manually
categorize each closing by city and county. Supp. Agency Report, Nov. 19,
1999 at 3. The agency points out that this enormously time-consuming process
would have served little purpose in view of the inexact nature of estimating
the anticipated closings over the next year and the myriad number of factors
that impact this estimate, including, for example, the national and local
economy, employment rates, the performance of the M&M contractor, and the
personal preferences of buyers. Id.

When an agency solicits bids on the basis of estimated quantities to be
ordered over a given period, as here, those quantities must be compiled from
the best information reasonably available and must present a reasonably
accurate representation of the agency's anticipated needs; however, there is
no requirement that they be absolutely correct. Custom Envtl. Serv., Inc.,
B-241052, Jan. 15, 1991, 91-1 CPD para. 38 at 3.

Nothing in the record supports the protester's contention that any of the
estimates are defective or not based on the best reasonably available
information.

Specifically, we find reasonable both the agency's use of the adjusted
historical number of closings for the prior year and the "check" the agency
performed using inventory figures as a basis to establish the total closings
estimate. As noted above, the total number of closings for Virginia for the
prior year was 3,457, the inventory "check" using January and February 1999
figures indicated that HUD could expect to close 3,294 or 3,378
single-family properties, and the estimate given in the IFB for total
closings was 3,620. The estimate, therefore, is only slightly higher than
the historical number of closings and the anticipated number of closings
based on current inventory. As noted above, the IFB guarantees as a minimum
10 percent of the estimated number of closings and as a maximum 150 percent
of the estimated number of closings. Given the estimates and the guaranteed
minimum and maximum, we believe that the solicitation provides bidders
sufficient information to intelligently prepare their bids. The protester's
concern that the estimate for the total number of closings in a year is
unreliable because it varies significantly from the actual number of
closings completed by the M&M contractor covering Virginia is misplaced
because these numbers reflect transition and performance anomalies
associated with a particular M&M contractor. However, as noted above, the
initial M&M contract has been terminated and a new M&M contractor has begun
performing those duties. The agency states that it anticipates that the new
M&M contractor will greatly increase sales of single-family properties over
the next few years. As to the range of closings that Jones calculates using
HUD's inventory "check" formula, the higher figures are the result of
inventory build-ups in Virginia after March 1999 when HUD transitioned to
the M&M contracts, coupled with the inability of the prior M&M contractor
covering Virginia to satisfactorily perform the work.

As for the estimates for the six individual areas, especially area 3 which
Jones argues is high based on the population of the urban area in that
region, the agency notes that its estimate for area 3 is 33 percent of the
total and that while it has no data for any of the newly created areas, HUD
assigned relatively larger estimated quantities of closings to those areas
which had historically shown larger inventories and thus more expected
closings. Moreover, as noted above, the guarantees provided in the
solicitation provide a reasonable range of the number of anticipated
closings and sufficient information for bidders to use to determine their
bids. While Jones disagrees with this determination, we have no basis to
object to the agency's conclusions.

With respect to third-party closings, the agency states that it did not
include an estimate for this type of closing in the solicitation because it
does not maintain accurate records of third-party closings in its automated
system. Supp. Agency Report, COSS, Nov. 9, 1999, at 4. Moreover, the agency
states that any estimate of third-party closings is extremely speculative
since this factor is affected not only by the economy and employment
figures, but also by the choices made by the buyers of HUD properties.
Agency Report at 6. Indeed, the agency states that the number of third-party
closings could even be affected by the relationship between HUD's closing
agent and real estate agents and the reputation of the HUD agent because
real estate agents may steer buyers away from closing agents with whom they
have a poor relationship or who have poor reputations. Id.

We do not object to the agency's decision not to provide an estimate of
third-party closings, since no records are maintained regarding these
closings. Although Jones argues that this information should be disclosed,
the protester never specifically identifies, other than complaining about
the price differential between regular and third-party closings, why this
subfactor of the total number of closings is so critical. Because Jones is
an incumbent with some knowledge of the number of third-party closings from
previous years, it is in a better position to estimate the number of
third-party closings than other bidders. Thus, we fail to see how Jones is
harmed by the agency's failure to disclose in the IFB this estimate for a
subfactor of the total number of closings. [7]

In sum, Jones's arguments are without merit and, in fact, they appear to
simply reflect the protester's dissatisfaction with HUD's transition to M&M
contractors and, in particular with the agency's resulting determination not
to obtain performance through the exercise of options under the prior
contracts, a determination which, as explained above, is not for our review.
Accordingly, the protest is denied.

Comptroller General
of the United States

Notes

1. HUD insures single-family mortgages under a number of programs. Where
mortgagors default on their HUD-insured loans, HUD reimburses the lender the
balance due on the loan, secures possession of the property and resells the
property. Single-family properties are defined to include properties of one
to four units. IFB amend. 3, sect. C-2(a).

2. In February 1999, HUD significantly revised its disposition process by
awarding multiple M&M contracts under which various contractors would
perform many of the functions previously handled by HUD staff in maintaining
and selling homes owned by the agency as a result of foreclosures. Agency
Report at 1. On September 22, HUD terminated for default the M&M contractor
covering Virginia. A new M&M contractor began performing the required duties
on September 29. Agency Report at 1 n.2.

3. Third-party closings are closings where the buyer elects to use someone
other than HUD's contractor as the closing agent.

4. As a preliminary matter, the agency argues that the protest should be
dismissed because Jones did not submit a bid and therefore is not an
interested party eligible to protest under our Bid Protest Regulations. We
find no merit in HUD's argument. A protester is an interested party to
allege that an IFB is restrictive or otherwise defective where the firm
would have an opportunity to bid if the procurement is solicited without the
defective specifications. Remtech, Inc., B-240402.5, Jan. 4, 1991, 91-1 CPD
para. 35 at 3.

5. We note that Jones has provided no evidence, and there is no evidence in
the record, to support its assertion of bad faith. On the contrary, the
record shows that the agency has significantly altered the way it processes
its closings of single-family housing and modified its work requirements,
and this was the basis of its determination to resolicit under a revised
IFB.

6. The 3,269 figure was reported in the agency's first supplemental report
and includes 2,469 closings in the Richmond area, which, until March, 1999,
encompassed all of Virginia except for the Northern Virginia area, which was
included in HUD's Washington, D.C. office. In the Northern Virginia area,
HUD closed on approximately 800 single-family units. Together, the closings
total 3,269. Supp. Agency Report, COSS, Nov. 9, 1999, at 3. Subsequently, in
a second supplemental report, the contracting officer corrected these
figures and reported that its SAMS closed case report for the year indicated
that there were 2,493 (rather than 2,469) single-family closings in Virginia
and 964 (rather than 800) single family closings in Northern Virginia,
totaling 3,457 closings for the year. Supp. Agency Report, Nov. 19, 1999, at
1-2.

7. Jones also makes numerous allegations of unreasonable or unworkable
requirements, and argues that many of the tasks added under the solicitation
are burdensome. For example, Jones argues that additional information that
is to be submitted in the weekly reports is burdensome, that requirements
concerning third-party closings are defective in various respects, and that
the 10-year lien and judgment search requirement is unworkable. While we
will not discuss these allegations in the decision, we have reviewed all of
the specifications at issue and the agency's explanation for the
requirements and find that the agency has demonstrated reasonable bases for
the challenged requirements.