TITLE:  National Projects, Inc., B-283887, January 19, 2000
BNUMBER:  B-283887
DATE:  January 19, 2000
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National Projects, Inc., B-283887, January 19, 2000

Decision

Matter of: National Projects, Inc.

File: B-283887

Date: January 19, 2000

George D. Ruttinger, Esq., Ariel R. David, Esq., and Joseph W.C. Warren,
Esq., Crowell & Moring, for the protester.

Eric L. Wilson, Esq., Hensel Phelps Construction Co., and John E. Daniel,
Esq., Morgan, Lewis & Bockius, for Hensel Phelps Construction, Co., an
intervenor.

Lloyd R. Crosswhite, Esq., and Barbara Bear, Esq., U.S. Army Corps of
Engineers, for the agency.

Paula A. Williams, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Determination to cancel invitation for bids after bid opening is
unobjectionable where all bids exceeded the funding allocated for the
project, irrespective of any dispute concerning the validity of the
government estimate or the reasonableness of the price of the low responsive
bid.

2. Protest that agency conducted flawed discussions by not informing the
protester that its prices were too high is denied where the agency was not
required to do so and the record shows that the agency's conduct of
discussions was consistent with the regulatory requirement for discussions.

DECISION

National Projects, Inc. (NPI) protests the cancellation after bid opening of
invitation for bids (IFB) No. DACA63-99-B-0030, issued by the U.S. Army
Corps of Engineers, Fort Worth District, for construction of a railhead at
Fort Hood in Texas. NPI, the low bidder under the IFB, maintains that the
agency had no compelling reason to cancel and convert the IFB to a
negotiated procurement. NPI also argues that the subsequent discussions were
flawed.

We deny the protest.

As amended, the IFB contemplated the award of a fixed-priced construction
contract for a base bid (line item Nos. 0001 through 0010) and nine options
(line item
Nos. 0011 through 0019, respectively). IFB amend. 0003. The IFB also stated
that the agency reserved the right to exercise the options, "either
singularly or in any combination for up to 180 calendar days after award of
the Base Bid without an increase in the Offeror's Bid Price." IFB at
00010-7. The estimated construction cost for this project was between
$25,000,000 and $50,000,000. Id. at 00100-7.

At bid opening on September 17, 1999, the agency received five bids. The bid
prices and the independent government estimate (IGE) for the required work,
including options, were as follows:

Base Bid Total Bid

(base + options)

NPI $33,836,287 $42,108,745

MW Builders 34,777,000 43,788,000

Hensel Phelps 36,818,000 44,318,000

Bidder 4 38,371,154 48,608,095

Bidder 5 42,707,435 51,471,887

IGE 29,085,016 36,132,802

Supplemental Agency Report, exh. 1, Tab 2.

The contracting officer reviewed the bids, which included analyzing the line
item prices of each bid, and the IGE. This review revealed an extremely wide
disparity among various line item prices and the IGE for those line items;
each bid far exceeded the funds available for this project, which was
$32,300,000. Supplemental Agency Report, exh. 1, Tab 7. NPI, the apparent
low bidder, submitted a total bid of $42,108,745, which was significantly
above the IGE and the available funding level. The contracting officer asked
the Cost Engineering and Specifications Section to review the IGE for
reasonableness and accuracy. The Chief of the Section subsequently confirmed
the accuracy of the IGE. Supplemental Agency Report,
exh. 1, Tab 4.

Since all bids significantly exceeded the IGE and the amount of funds
available, the contracting officer decided to reject all bids as
unreasonably priced in accordance with Federal Acquisition Regulation (FAR)
sect. 14.404-1(c)(6), and to cancel the IFB. In addition, she decided to
complete the acquisition by negotiation consistent with FAR sect. 14.404-1(f).
Supplemental Agency Report, exh. 1, Tab 7. The project requirements were
revised, and the revised requirements were issued in request for proposals
(RFP) No. DACA63-99-R-0038 on September 21. The amended price schedule in
the RFP listed items of work identical to the work specified in the IFB,
except that line item Nos. 0003 and 0006 were deleted from the base bid

requirements and listed in the RFP as options 10 and 11 (line item Nos. 0018
and 0019, respectively). Additionally, line item No. 0010 under the IFB was
renumbered in the RFP as line item No. 0008 and broken into six sub-line
items. RFP at 00010-3 - 00010-6. As amended, the RFP also listed price as
the only evaluation criterion. RFP amend. 0001, at 00100-4. On September 22,
bidders were notified of the rejection of all bids, provided an explanation
for the determination, notified of the cancellation and conversion, and
furnished a copy of the RFP. [1] Supplemental Agency Report, exh. 1, Tab 8.

Price proposals were received from three of the five original bidders by the
September 27 due date. MW Builders submitted the lowest priced offer of
[DELETED] for the basic work and [DELETED] for the base plus eleven option
requirements, which remained significantly above the IGE and available
funding. Supplemental Agency Report, exh. 3. The contracting officer decided
to conduct discussions since all three offers exceeded the IGE and the
available funding. On September 27, discussion questions were sent to each
offeror, which focused on their proposed costs for the basic work
requirements (line item Nos. 0002, 0006, 0008E, 0008F), and for option 11
(line item No. 0019). Each offeror was asked to recommend any revisions to
the plans and specifications to reduce costs without reducing the scope of
work for each of the line items discussed. Id. exh. 5. After telephonic
discussions were concluded on September 28, the agency again revised the
scope of work by deleting options 1 through 9 (line item Nos. 0009-0017) and
by converting options 10 and 11 to options 1 and 2. Supplemental Agency
Report,      exh. 6, RFP amend. 0002. That same day, the amendment, along
with a request for final proposal revisions (FPR), was sent to each offeror
with a closing date of September 29. Id.

The FPRs, and the revised IGE for the reduced scope of work, were as
follows:

Basic Work Total Offer
(base + options 1 & 2)

Hensel Phelps $32,572,000 $33,397,000

MW Builders [DELETED] [DELETED]

NPI 32,993,790 34,073,502

IGE 28,151,706 28,995,226

Supplemental Agency Report, exh. 9.

MW Builders submitted the lowest priced FPR of [DELETED], which again
exceeded the IGE and the funds available. Id. On September 29, the
contracting officer requested additional funds from the Corps Headquarters
to cover award to MW Builders for the base and options work requirements;
the request was denied because a reprogramming action would have been
required. Supplemental Agency Report, exhs. 10 and 13. However, authority to
award the project not to exceed a total project funding level of $35,500,000
was granted. Id. at exhs. 11 and 12. The contracting officer determined to
award only the base requirement to Hensel Phelps, the low offeror for the
base requirement. The options would then be combined into a future follow-on
project and the funds remaining after award for the base requirement would
be used to cover contingencies, including modifications due to unforseen
site conditions. The contract was awarded to Hensel Phelps on September 30.
Supplemental Agency Report, exh. 13. This protest followed a
post-award debriefing.

NPI's protest centers around the Corps's rationale for canceling the IFB and
converting it to a negotiated procurement. Specifically, the protester
maintains that the agency lacked a compelling reason to cancel the IFB since
the agency's determination that its bid was unreasonably priced was based on
a flawed IGE. In addition, the protester alleges that the agency awarded a
contract to Hensel Phelps even though the circumstances that purportedly
supported the decision to cancel the IFB also were present during the
negotiated procurement. Protester's Comments at 12.

Once bids have been opened, award must be made to that responsible bidder
who submitted the lowest responsive bid, unless there is a compelling reason
to reject all bids and cancel the IFB. FAR sect. 14.404-1(a)(1). NPI challenges
the agency's determination that the bid prices were unreasonably high based
on the IGE because it believes the IGE does not accurately reflect the costs
involved for this construction project. Protester's Comments at 7-9.

As an initial matter, although the agency's cancellation notice states that
the IFB was canceled because the bid prices received were unreasonably high
in comparison to the IGE, the contemporaneous record shows the Corps also
canceled the solicitation because the bid prices exceeded the funds
available for the project. The protester does not dispute that all five bids
exceeded the $32,300,000 allocated for this project. Protester's Comments at
11 n.6. In addition, the protester "acknowledges an agency's authority to
cancel a solicitation because of insufficient funds." Id. A contracting
agency has the right to cancel a solicitation when sufficient funds are not
available, regardless of any disputes concerning the validity of the IGE or
the reasonableness of the low responsive bid price. J. Morris & Assocs.,
Inc., B-256840, July 27, 1994, 94-2 CPD para. 47 at 2 n.1; Armed Forces Sports
Officials, Inc., B-251409,    Mar. 23, 1993, 93-1 CPD para. 261 at 2-3, recon.
denied, B-251409.2, May 24, 1993, 93-1 CPD para. 402. We therefore conclude that
the agency had a compelling reason to reject all bids and to cancel the
solicitation.

Nonetheless, NPI questions the Corps's decision to obtain additional funds
to make award to Hensel Phelps when "just a few days before," the agency
found NPI's bid was unreasonably high and that the available project funds
were insufficient, but declined to request additional funding. Protester's
Response to the Corps's Reply, Dec. 13, 1999, at 6. In other words, NPI
insists that the contracting officer should have sought an increase in
project funds in order to make award to NPI under the IFB. Protester's
Comments at 11 n.6.

The management of an agency's funds generally depends on that agency's
judgment concerning which projects and activities shall receive increased or
reduced funding. Armed Forces Sports Officials, Inc., supra. The fact that
the contracting officer subsequently elected to seek an increase in funds
after discussions were concluded does not render the initial agency decision
to cancel unreasonable. Here, the record shows that the agency converted to
a negotiated procurement to obtain reduced prices. The agency conducted
discussions with the firms for the line items where the agency believed the
offerors' prices were too high. The agency also asked the firms to recommend
ways to reduce the project costs without reducing the scope for each of the
line items discussed. After these discussions, the agency deleted a number
of line items. It was only after discussions, and submission of final
revised prices that again exceeded the available funds, that the contracting
officer decided to seek additional funds. We see nothing unreasonable in the
agency's decision to attempt through negotiations to obtain prices in line
with its funding, or when that failed, to seek additional funds.

NPI also objects to the conduct of discussions during the subsequent
negotiated procurement. In this regard, the protester contends that the
agency conducted flawed discussions by not advising the firm whether its
prices were too high, and that it was not treated fairly. Protester's
Response to the Corps's Reply, Dec. 13, 1999, at 6-8.

As noted above, this solicitation was issued after the January 1, 1998
effective date
of the revised discussion rules of Part 15 of the FAR. Those revised rules,
at
sect. 15.306(e)(3), provide that "the contracting officer may inform an offeror
that its price is considered by the Government to be too high, or too low,
and reveal the results of the analysis supporting that conclusion."

This language clearly gives the contracting officer the discretion to inform
the offeror that its price is too high, but does not require that the
contracting officer do so. The agency's written discussion questions did
advise the protester of the agency's concern about the prices for specific
line items. For instance, the protester was asked to support its costs for
line item No. 0002, for which it submitted a price of [DELETED], since the
IGE for this work was approximately [DELETED]; as to line item No. 0008F,
the protester was asked to verify its price of [DELETED] as the IGE was
approximately [DELETED]. We think these discussion questions reasonably
should have put NPI on notice that the agency considered its prices for the
stated line items high. Further, since the agency had canceled the IFB
because prices were too high, and the agency conducted discussions with the
offerors concerning their prices, we think the protester reasonably should
have known from these agency actions that its prices still were considered
high.

Moreover, we have reviewed the discussion questions given to the other
offerors, and we find that these offerors were in the same position as NPI.
That is, for each line item identified in the discussion questions given to
Hensel Phelps and MW Builders, the agency provided basically the same
information regarding the IGE for the corresponding line item. On this
record, we conclude that the protester's arguments concerning unequal
discussions is without merit.

The protest is denied.

Comptroller General
of the United States

Notes

1. On September 24, NPI filed an agency-level protest objecting to the
cancellation of the IFB and challenging the contracting officer's
determination that the bid prices were unreasonable on the grounds that the
IGE was inaccurate. Supplemental Agency Report, exh. 1, Tab 10. The Corps
denied the agency-level protest by letter dated September 29. Supplemental
Agency Report, exh. 7.