TITLE:  Industrial Builders, Inc., B-283749, December 29, 1999
BNUMBER:  B-283749
DATE:  December 29, 1999
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Industrial Builders, Inc., B-283749, December 29, 1999

Decision

Matter of: Industrial Builders, Inc.

File: B-283749

Date: December 29, 1999

Philip L. Bruner, Esq., and William L. Roberts, Esq., Faegre & Benson, for
the protester.

Marvin T. Fabyanske, Esq., and Arlene D. Anderson, Esq., Fabyanske, Westra &
Hart, for Swanberg Construction Company, Inc., an intervenor.

Robert M. Andersen, Esq., Karen Da Ponte, Esq., and Steven P. Adamski, Esq.,
U.S. Army Corps of Engineers, for the agency.

Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Under invitation for bids (IFB) for construction of water control structure,
agency reasonably rejected bid as unbalanced where bidder failed to allocate
the cost of a cofferdam (a dewatering measure) among related work items
requiring dewatering measures, as provided in the IFB, and instead included
the cost of a cofferdam in its lump-sum line item price for a relatively
minor work requirement for clearing, grubbing, and snagging of debris on the
site, rendering the bidder's price for that line item many multiples higher
than the government's estimate for the item and the other bids received;
rejection of the bid was proper based upon agency's reasonable determination
that the unbalancing posed an unacceptable risk that the government would
make a substantial payment to the bidder upon completion of the required
clearing, grubbing, and snagging work, without any assurance that the bidder
would have constructed the cofferdam which was included in its price for
that line item.

DECISION

Industrial Builders, Inc. (IBI) protests the rejection of its bid as
unbalanced under invitation for bids (IFB) No. DACW37-98-B-0017, issued by
the U.S. Army Corps of Engineers, St. Paul District, for the installation of
a new water control structure at the outlet of a Lake Traverse flood control
reservoir, located on the Minnesota/South Dakota border.

We deny the protest.

The IFB contemplated the award of a fixed-price contract for the removal of
an existing structure, the construction of a new water control structure,
and associated work. IFB sect. 00100, para. 22, at 00100-6. The requirements were
divided among 30 contract line items (CLIN) set out in the IFB's bid
schedule, for each of which bidders were required to submit a lump-sum
price. [1] IFB sect. 00010, at 00010-3 through 00010-5. IBI's protest relates to
CLIN 0004, for clearing, grubbing, and snagging work. Section 02110 of the
IFB described the scope of the work required under CLIN 0004 as "clearing,
grubbing, snagging; disposal of cleared, grubbed, and snagged materials; and
filling of grubbing holes." IFB sect. 02110, para. 1.1, at 02110-2. [2] With respect
to payment for the CLIN 0004 work, bidders were instructed that such work
"will not be measured for payment and shall be performed on a job basis,
complete." Id. para. 1.5.

The agency's general requirements for water control measures during contract
performance were set out in the IFB's specifications, which provided that:

dewatering work/operations involved in the execution of the contract project
work includes primarily the drawdown of water table, but may also require
temporary barriers (small cofferdams, [3] earth diking, sheeting, or other
satisfactory type of barrier) to protect against the prevailing
creek/river/stream stages at outfalls.

IFB sect. 01000, para. 1.22.1, at 01000-20. Several IFB provisions specifically
referred to a need for dewatering equipment or barriers. For example, the
IFB provided that the new control structure would require temporary
barriers, and that dewatering operations were to be performed "so that
excavation, foundation preparation, cast-in-place concrete placement,
precast concrete installation, and backfilling for all structures are made
in the dry." Id. para. 1.22.3, at 01000-20. [4] There was no provision in the
IFB's dewatering specifications which specifically required dewatering
measures for the clearing, grubbing, and snagging work of CLIN 0004. The IFB
provided specific instructions to bidders regarding bid preparation and
payment for the contractor's dewatering work. In this regard, the IFB
provided the following instructions:

No separate payment will be made for dewatering protection work.
Compensation for performing the necessary dewatering work for various items
of the contract project permanent work such as outlet lines, interceptor
lines, manholes, inlets, gatewells, and closure structures shall be included
in the contract items for the work to which the dewatering operations
pertain.

Id. para. 1.22.7, at 01000-22 (emphasis added).

Three bids were received by the scheduled bid opening on May 28, 1999. IBI
submitted the apparent low total bid, $1,294,860; Swanberg Construction
Company submitted the next low bid, $1,328,500; and the third bid was
$1,442,580. Agency Report at 1. The government estimate, initially set at
$919,815, was revised after bid opening to $1,171,145. [5] Id. at 1-2. IBI's
CLIN 0004 price, however, was significantly higher than the other bids
received for that item, as follows:

 IBI                              $397,000

 Swanberg                         $ 3,000

 Bidder No. 3                     $ 5,000

 Government Estimate (revised)    $ 1,900

The contracting officer notified IBI of his concerns regarding IBI's
apparently inflated price for CLIN 0004. By letter of June 7, IBI verified
its bid, explaining that, since the IFB did not provide a CLIN for
mobilization or water control, IBI chose to include those costs ($70,000 for
mobilization, and $320,000 for water control, including $312,000 for a
cofferdam) in its line item price for CLIN 0004. [6] Letter from IBI to
Contract Specialist (June 7, 1999). From this information, the agency was
able to calculate that $7,000 remained under IBI's CLIN 0004 bid price to
reflect the firm's work for the clearing, grubbing, and snagging required
under that CLIN. Agency Report at 3 n.3. In its June 7 letter, IBI further
explained that, since its mobilization and water control costs would be
expended early in the performance of the contract, the firm included those
costs in a CLIN (CLIN 0004) that would be performed early in the contract
period. After additional post-bid opening communications, the agency and IBI
agreed to incremental payments for CLIN 0004 work as the work progressed. On
the basis of that payment agreement, the agency determined that its concerns
that IBI's bid was "unbalanced and that the Government would be paying an
unreasonably high price for contract performance" were alleviated.
Determination and Findings, June 21, 1999, at 2. The agency awarded a
contract under the IFB to IBI on June 23.

Swanberg, the bidder next in line for award, protested the IBI award to the
agency, contending that the bid was unbalanced under CLIN 0004 compared to
the other bids received and the agency's estimate for the work item. The
agency sustained the protest, finding that IBI improperly failed to spread
the cost of the firm's cofferdam among the IFB's CLIN items to which the
dewatering operations relate, as required by the IFB. Agency Protest
Decision, Sept. 9, 1999, at 8-11. Consequently, the agency determined that,
by including all of its cofferdam costs in the firm's CLIN 0004 item price,
IBI submitted a nonresponsive bid with an inflated CLIN 0004 price greatly
exceeding the value of the work required under CLIN 0004. Id. That decision
pointed out that under the IFB's terms, payment for the CLIN 0004 work was
to be made on a lump-sum basis at the total price bid by IBI for the
CLIN--here, $397,000--which represents a price more than 200 times higher
than the agency's estimate of the value of the work described under that
CLIN item. Id.; Agency Report at 5.

In sustaining Swanberg's protest, the agency determined that acceptance of
IBI's bid would be tantamount to an advance payment, in light of the fact
that payment at the full CLIN 0004 price would have to be made early in the
contract performance period when the clearing, grubbing, and snagging work
was completed, regardless of whether the cofferdam was constructed at the
time, since a cofferdam was not specifically required by the IFB for CLIN
0004. Agency Protest Decision at 11. Consequently, the agency rejected the
bid and terminated IBI's contract for the convenience of the government.
This protest followed.

IBI contends that, since the IFB did not provide a separate CLIN for water
control operations, the "bid specification . . . left to [IBI] the
allocation of the cost of cofferdam installation to the first CLIN work
[cleaning, grubbing, and snagging under CLIN 0004] that could not be
completed without the cofferdam being in place . . . because 51 [percent] of
the area to be grubbed was under water." [7] Protest at 4-5. In its protest
submission, IBI summarizes its position on the issue as follows:

Inclusion of the cost of the cofferdam in CLIN 0004 (1) was reasonable, (2)
was directly related to [IBI's] planned sequence of construction, (3) was
intended to assure that [IBI] would not be obliged to borrow much money to
build the cofferdam, (4) had as its objective the creation of a balanced
cash flow throughout the project, (5) was not precluded by the bid
specifications, and (6) does not result in any payment to [IBI] in advance
of performance of the work.

Protest at 5.

We have considered each of IBI's contentions in support of its protest and,
as discussed further below, we find that the record supports the
reasonableness of the contracting officer's rejection of the IBI bid as
unbalanced.

As a preliminary matter, IBI argues that, since the IFB did not provide a
specific CLIN for the firm's cofferdam price, or provide payment terms for
cofferdams in particular, the firm was free to include it in its price for
CLIN 0004, which CLIN IBI states it planned to perform at the same time
(early in the contract period) that it would build its cofferdam. In fact,
the IFB did provide guidance to bidders regarding payment for cofferdams.
The dewatering provisions at IFB sect. 01000, para. 1.22.1, at 01000-20, quoted
above, specifically reference the use of cofferdams by the contractor in its
dewatering efforts. Consequently, the IFB dewatering payment provision, id.
para. 1.22.7, at 01000-22, also quoted above, which calls for the bidder's costs
for measures like a cofferdam to be spread over the CLINs requiring
dewatering, governs the payment terms for IBI's cofferdam. Similarly, we
find unreasonable IBI's argument that the firm's inclusion of its total
cofferdam price in a minor CLIN item for clearing and grubbing work is
acceptable simply because the IFB did not specifically prohibit it. Rather,
IBI, in an exercise of its own business judgment, based upon its admitted
desire to limit its own financial obligations to construct the cofferdam,
and despite solicitation language to the contrary, failed to allocate, as
instructed, its substantial dewatering costs among relevant items in the
IFB. The opportunity for a lump-sum payment for the dewatering work early in
the contract period, as included in IBI's bid, simply was not contemplated
by the IFB, or extended to any other bidder in preparation of its bid.

Federal Acquisition Regulation (FAR) sect. 14.404-2(g), provides that any "bid
may be rejected if the prices for any line items or subline items are
materially unbalanced (see [FAR sect.] 15.404-1(g))." Unbalanced pricing exists
where, as here, the price of one or more contract line items is
significantly overstated, despite a relatively low total evaluated price.
FAR sect. 15.404-1(g)(1). Offers with separately priced line items must be
analyzed to determine if the prices are unbalanced by, for example,
comparing offered prices with prices in other bids or with an independent
government estimate. FAR sect. 15.404-1(b), (g)(2). A bid "may be rejected if
the contracting officer determines that the lack of balance poses an
unacceptable risk to the Government." FAR sect. 15.404-1(g)(3). While the agency
here analyzed the unbalancing in terms of an "advance payment," that term
does not appear in the discussion of unbalanced pricing in the revised Part
15 of the FAR, which applies to solicitations issued after January 1, 1998,
such as the subject IFB. We believe, however, that the agency's analysis
remains valid when couched in terms of the risk that IBI's pricing poses to
the government.

Specifically, our review of the record confirms that there is nothing
improper in the agency's decision to reject the bid, since the agency had a
reasonable basis for concluding that IBI's pricing for CLIN 0004 was
unbalanced. The agency's price analysis shows that IBI's CLIN 0004 price of
$397,000 is many multiples higher than the other bids received for the item
($3,000 and $5,000) and the agency's estimate ($1,900). Although IBI stated
after bid opening that its CLIN 0004 price includes $320,000 for water
control costs related to the construction of a cofferdam, it has cited to no
provision in the IFB, and we have not found one, that required the
construction of the cofferdam under CLIN 0004's work requirements, or
authorized payment for it under that CLIN. See Barnard-Slurry Walls, J.V.,
B-274973, B-274973.2, Jan. 15, 1997, 97-1 CPD para. 23 at 5. Rather, the IFB
here specifically instructed bidders that dewatering work would not be paid
for separately and that such costs were to be "included in the contract
items for the work to which the dewatering operations pertain." [8] IFB
section 01000, para. 1.22.7, at 01000-22.

IBI states that it structured its bid based upon its anticipated sequence of
construction, and that it did so to receive early payment for the cofferdam
and not have to finance the costs of constructing it. IBI's performance
approach and its desire to limit its own monetary risks or obligations
simply do not resolve the unbalancing of the IBI bid, given that IBI
prepared its bid contrary to the IFB's terms, in order to benefit from a
competitive advantage not shared by the other offerors that were willing to
compete on the agency's terms. See Barnard-Slurry Walls, supra, at 4-5.

As stated above, the agency's price analysis shows that the protester's CLIN
0004 price is significantly overstated, by many multiples, for the work
described by the IFB for that line item due to the inclusion of IBI's
cofferdam price. The IFB, however, did not specifically require the
cofferdam for the performance of CLIN 0004, and did not authorize payment
for it as part of the work to be performed under that CLIN. The IFB required
a lump-sum payment for CLIN 0004, but provided no means for the agency to
compel construction of the cofferdam IBI included in its price under that
CLIN. Accordingly, we find that the agency acted reasonably in concluding
that it faced substantial risk in any award of the contract on the basis of
IBI's unbalanced bid. Specifically, the agency reasonably concluded that it
could be faced with payment to the contractor at a significantly inflated
price for a minor work item, as soon as the nominal clearing, grubbing, and
snagging work was completed, regardless of whether the cofferdam had been
constructed. [9] Thus, in the event of early termination of the contract,
the agency would find itself having expended a substantial sum
(approximately a third of the contract price) at the time of payment for the
clearing, grubbing, and snagging work, without receiving the

majority of the work sought under the IFB. See Barnard-Slurry Walls, J.V.,
supra; Sawadi Corp., B-265740, B-265741, Dec. 21, 1995, 95-2 CPD para. 279 at 4.
Accordingly, given the reasonableness of the agency's risk assessment of
IBI's unbalanced bid, we see no reason to question the propriety of its
rejection of that bid.

The protest is denied.

Comptroller General
of the United States

Notes

1. Some CLINs, not relevant to the protest, which were not priced on a job
basis, also required unit prices.

2. Clearing consisted of felling, trimming, cutting, and disposal of trees
and other vegetation, including "down timber, snags, brush, and rubbish
occurring in the areas to be cleared." Id. para. 1.3.2. Grubbing consisted of
"the removal and disposal of stumps, roots, buried logs, old piling, old
paving, and other objectionable matter, below the ground surface not
classified as excavation." Id. para. 1.3.3. Snagging consisted of "the removal
and disposal of snags . . . [such as] dead and broken trees and portions of
trees that may be lodged in bodies of water." Id. para. 1.3.4.

3. A cofferdam is "a temporary watertight enclosure built in the water and
pumped dry to expose the bottom so that construction . . . may be
undertaken"; cofferdams may be constructed of dirt and earth, or supported
by steel sheet piling, depending on the desired strength. Agency Report at 2
n.1, citing Webster's II New Riverside University Dictionary 278 (1988).

4. This provision included other examples of the type of contract work, in
addition to the construction of the new structure, which similarly required
dewatering protection equipment and barriers (e.g., temporary sheeting and
earth barriers), including new gage house wells, foundation preparation, and
concrete placement. Id. at 01000-21.

5. The agency explains that after the agency noted that its original
estimate failed to include certain dewatering costs, $200,000 was added, on
a pro rata basis, over several "wet" line items which would benefit from
dewatering, such as CLIN 0026, for the new control structure, and CLIN 0012,
for bedding for riprap. Another $300 was added to the agency's estimate for
work under CLIN 0004 for the cost of pulling any dead trees and logs out of
the water. Agency Report at 2.

6. IBI's inclusion of its mobilization costs in its CLIN 0004 item price has
not been challenged by the agency, which reports that it did not object to
the IBI bid in that regard, since although the IFB gave instructions to the
bidders regarding inclusion of their dewatering costs in their prices for
work items which relate to the dewatering efforts, the IFB provided no
instruction to bidders as to where to include mobilization costs in their
bids. Agency Report at 3 n.2.

7. The agency reports that it is "aware of little, if any, clearing and
grubbing work that would be performed in the area IBI identified as under
water." Contracting Officer's Statement at 9-10. Our decision, as discussed
below, rests upon the protester's failure to follow the IFB's bidding
instructions for the distribution of dewatering costs among related CLIN
items, as opposed to IBI's inclusion of such costs in one minor CLIN item.
Accordingly, we need not resolve the factual issue regarding the extent of
underwater clearing and grubbing work at the site, since, even if the
cofferdam, was necessary for clearing and grubbing, its total cost was not
to be included under CLIN 0004; rather, the cost of any dewatering work was
to be spread among the bidder's prices for all the CLINs in the contract
that would involve the need for the same water control effort. See IFB
sect. 01000, para. 1.22.1, at 01000-20.

8. In its comments, IBI, for the first time, argues that the "dewatering"
payment provisions should not apply to its cofferdam, which is designed to
accomplish "unwatering" efforts. We will not consider this argument, since
it is untimely filed, as

it could have been included in the initial protest submission, but was not.
See 4 C.F.R. sect.  21.1(a)(2) (1999). In any event, we note that the IFB does
not distinguish between these terms, and the agency has provided evidence of
industry use of the term dewatering to include IBI's definition of
unwatering. Agency Supplemental Report at 1-3.

9. We note in this regard that the contracting officer would appear to have
had an adequate basis to reject IBI's bid as unreasonable as to the price of
CLIN 0004. See FAR sect. 14.404-2(f) (bid may be rejected due to the
unreasonableness of the prices of individual line items).