TITLE:  Enco Dredging, B-284107, February 22, 2000
BNUMBER:  B-284107
DATE:  February 22, 2000
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Enco Dredging, B-284107, February 22, 2000

Decision

Matter of: Enco Dredging

File: B-284107

Date: February 22, 2000

Christopher T. McRae, Esq., McRae & Metcalf, for the protester.

Stephen R. Miller, Esq., Miller Law Firm, for L.W. Matteson, Inc., an
interested party.

Sherry K. Kaswell, Esq., Department of the Interior, for the agency.

Wm. David Hasfurther, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Bid was responsive notwithstanding bidder's failure to limit its
mobilization/demobilization price to 5 percent of total bid price where
limit was not mandatory, and solicitation provided for payment of amount
above 5-percent limit only after the contract work had been substantially
completed.

2. Bid was not unbalanced where agency reasonably concluded that, even if
prices were unbalanced, there was no unacceptable risk to government, since
total price for work that was ordered was low and would remain low for any
additional quantities ordered.

DECISION

Enco Dredging protests the award to L.W. Matteson, Inc. of an
indefinite-delivery, indefinite-quantity contract under invitation for bids
(IFB) No. 99-SI-34-0412, issued by the Yuma (Arizona) Area Office of the
Bureau of Reclamation (BOR), Department of the Interior, to obtain
maintenance dredging of the Colorado River above the Imperial Dam. Enco
basically contends that Matteson's bid should have been rejected as
nonresponsive.

We deny the protest.

The IFB requested the submission of a lump-sum price for line item No. 1,
mobilization/demobilization, and unit and extended prices for the two
sub-items of line item No. 2. Prices were to include the furnishing of all
labor, material, equipment, and incidentals required for the dredging and
for the delivery of the dredged material to a designated disposal site. The
first sub-item (2a) covered 400,000 cubic yards of dredging and the second
sub-item (2b) covered up to 850,000 additional cubic yards of dredging.
Bidders were guaranteed a minimum of the 400,000 cubic yards of dredging,
with the possibility of delivery orders for up to the additional 850,000
cubic yards of dredging if funding became available. IFB, Foreword, at 1.
Bids were to be evaluated based upon the total bid, and award was to be made
to the responsible bidder submitting the lowest responsive total bid. IFB,
sect. L.12(a), at L-9, and sect. M.2(a), (b), at M-1.

The IFB also contained the clause at Federal Acquisition Regulation (FAR)
sect. 52.214-19, which is applicable to construction solicitations. Paragraph
(d) of that clause provides as follows:

The Government may reject a bid as nonresponsive if the prices bid are
materially unbalanced between line items or subline items. A bid is
materially unbalanced when it is based on prices significantly less than
cost for some work and prices which are significantly overstated in relation
to cost for other work, and if there is a reasonable doubt that the bid will
result in the lowest overall cost to the Government even though it may be
the low evaluated bid, or if it is so unbalanced as to be tantamount to
allowing an advance payment.

IFB sect. L.12, at L-9.

The IFB also provided that the line item No. 1 price "should not exceed 5%
of the total contract price" and that payment of these costs would be
governed by the section H-- "Payment for Mobilization and Preparatory
Work"--clause. Id., sect. B.1(h), at B-1. Subsection H.3, which provides for the
manner in which these costs would be paid--both in instances where the price
bid for line item No. 1 constituted no more than 5 percent of the total
price bid and where the price bid exceeded the 5-percent limit, states in
pertinent part as follows:

(a) General. The contract line item for mobilization and preparatory work
should not exceed 5 percent of the total contract amount (see (d)(3), (4),
and (5) below concerning payments exceeding 5 percent) and shall be used by
the Government to make payment to the Contractor in accordance with this
clause . . . .

. . . . .

(d) Payment. Payment for mobilization and preparatory work under paragraph
(a) of this clause shall be made at the contractor lump-sum price bid for
this item as contained in the Schedule. Progress payments for mobilization
and preparatory work shall be made as follows--

. . . . . .

(3) When progress payments totaling 5 percent of the total original contract
amount have been made by the Government for all other work accomplished
under the contract, the Government shall pay the Contractor 50 percent of
the mobilization and preparatory work contract line item amount or 2.5
percent of the total original contract amount (whichever is lower) exclusive
of any payment already made to the Contractor for performance and payment
bond premiums and specified insurance under subparagraph (d)(1) of this
clause.

(4) When progress payments totaling 10 percent of the total original
contract amount have been made by the Government for all other work
accomplished under the contract, the balance of the amount for the
mobilization and preparatory work contract line item or 2.5 percent of the
total original contract amount (whichever is lower) shall be paid to the
Contractor.

(5) If the amount bid for mobilization and preparatory work exceeds the
total of the payments allowed under (3) and (4) above, the balance shall be
paid when the contract is substantially complete as determined by the
Contracting Officer.

Id., sect. H.3 (a) and (d)(3), (4), (5), at H-3 to H-4. This provision basically
provides that a contractor that has priced the line item for
mobilization/demobilization in excess of 5 percent of the total contract
amount will recover no more than the 5 percent until the contracting officer
has determined that the contract has been substantially completed.

Six bids were received by bid opening on September 21, 1999. Matteson
submitted the low total price of $3,541,500; Enco submitted the second low
total price of $4,724,000. The mobilization/demobilization prices submitted
by Matteson and Enco were $748,000 and $225,000, respectively. Agency
Report, Tab 8, Abstract of Offers--Construction, at 1. Since Matteson's
total bid price was approximately 45 percent lower than the government
estimate and 26 percent lower than the next low bid, the contracting officer
requested Matteson to verify its price or, if a mistake had occurred, to
submit a request either to correct, along with appropriate evidence to
establish the mistake and the intended bid price, or to withdraw the bid.
Agency Report, Tab 9a, Letter from Contracting Officer to Matteson (Sept.
24, 1999). Matteson confirmed its bid price. Agency Report, Tab 9b, Letter
from Matteson to Contracting Officer (Sept. 24, 1999).

The contracting officer subsequently requested Matteson again to review, and
confirm if correct, its price--this time after it had reviewed its line item
No. 1 price compared to the government estimate and the bids submitted by
the other bidders and reviewed the pertinent IFB provisions, including
subsection H.3 provision concerning the payment for mobilization. Agency
Report, Tab 9c, Letter from Contracting Officer to Matteson (Sept. 28,
1999). Matteson again confirmed its bid price. It stated that "[o]ur
understanding of ‘substantially completed' is when the original
400,000 cubic yards has been dredged." Agency Report, Tab 9d, Letter from
Matteson to Contracting Officer (Sept. 29, 1999). Contract award was made on
September 30 and, on the same date, a delivery order was issued to Matteson
for 746,200 cubic yards of dredging. Agency Report, Tab 9f, Contract No.
99-C-34-0412, and Tab 9e, Order for Supplies or Services.

Enco filed an agency-level protest on October 12. Agency Report, Tab 9h,
Letter from Protester to Contracting Officer (Oct. 12, 1999). On October 25,
pursuant to FAR sect. 33.103(f)(3), BOR issued a Determination and Findings
authorizing continued contract performance notwithstanding Enco's protest.
Agency Report, Tab 9j, Determination and Findings to Support Continued
Performance Notwithstanding a Protest (Oct. 25, 1999). The agency
subsequently denied Enco's protest. Agency Report, Tab 9i, Letter from
Contracting Officer to Protester (Oct. 29, 1999). Enco then protested to our
Office.

Enco contends that, because Matteson's mobilization/demobilization price
exceeded 5 percent of its total price, its bid was nonresponsive and the
award was improper. Protest at 1. [1] Enco asserts that the agency's intent
to strictly apply the 5-percent limit is shown by the agency's response in
an amendment in which the agency refused a request by Matteson to delete the
5-percent limit. Protester's Comments at 2-3.

Enco's contention that Matteson's bid was nonresponsive is premised on its
view that the IFB language prohibited bidders from pricing
mobilization/demobilization above the 5-percent level. The precise language,
however, provides merely that "mobilization costs should not exceed 5
percent of the total contract price." As the agency correctly points out,
the language is not stated in the imperative--"shall not" or "cannot." See,
e.g., FAR sect. 2.201 ("shall" denotes the imperative). The IFB contains no
language that the failure to adhere to the limit would result in rejection
of the bid. Accordingly, we agree with the agency that the "should not"
language constituted guidance, but not a firm requirement, that mobilization
be priced within the 5-percent limit. The reasonableness of this position is
confirmed by the IFB's inclusion of subsection H.3, which addressed payments
where the price for line item No. 1 was more than 5 percent of the total
contract price. This provision obviously contemplates that bids could
properly exceed this limitation. Under these circumstances, we conclude that
there was no basis to reject Matteson's bid for exceeding the 5-percent
limit.2 [2]

Enco also argues that Matteson's bid should be rejected as unbalanced
because its mobilization/demobilization price is twice the government
estimate for that line item, more than three times Enco's line item No. 1
price, and more than four times the 5-percent limit. Protester's Comments at
4; Protester's Supplemental Comments, Jan. 5, 2000, at 2. Enco asserts that
the Matteson bid is materially unbalanced because reasonable doubt exists
that Matteson's bid will result in the lowest cost to the government and
because the bid is front-loaded and will result in an impermissible advance
payment. Enco notes that its price is lower than Matteson's until
618,000 cubic yards of the awarded 746,200 cubic yards have been dredged,
and that a bid is considered unbalanced where the bidder's price will not
become low until late in the contract term. Protester's Comments at 5;
Protester's Supplemental Comments, Jan. 5, 2000, at 3-4.

FAR sect. 15.404-1(g) provides that unbalanced pricing exists where,
notwithstanding an overall low price, the price of one or more contract line
items is significantly overstated as indicated by the application of cost or
price analysis techniques. FAR sect. 15.404-1(g)(2) requires that offers with
separately priced line items or sub-line items be analyzed, using cost or
price analysis techniques, to determine if the prices are unbalanced and, if
an offer is found to be unbalanced, the contracting officer shall consider
the risk that award of the contract will result in paying unreasonably high
prices for contract performance. An offer 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).

Here, the contracting officer considered the potential risk in Matteson's
pricing and concluded that it did not pose an unacceptable risk to the
government, both because of the firm's verification of its bid and because
the government was ordering the additional quantities under line sub-item
2b. Agency Report, Tab 6, Award and Price Reasonableness Determination, at
5.

We review the contracting officer's determination regarding the risk of
unbalancing for reasonableness, and we conclude that the determination here
was reasonable. As the protester recognizes, the agency ordered considerably
more than the minimum amount, and Matteson's bid was low for the amount of
the actual delivery order (and remains low for any additional quantities
ordered under the contract). Thus, there could be no reasonable doubt that
Matteson's bid would result in the lowest overall cost to the government.
With respect to the allegation that Matteson's bid would result in an
improper advance payment, we find that, given the provisions of the
subsection H.3 payment clause, there is simply no possibility of any advance
payment: the amount by which Matteson's line item No. 1 price exceeds 5
percent of the total price will be paid only at the time the contract has
been substantially completed. [3]

Finally, Enco objects to the contracting officer's multiple requests that
Matteson verify its prices. Protest at 2; Protester's Comments at 5.
According to Enco, in responding to the second request, Matteson was given
an opportunity not given to other bidders to define substantial completion
as constituting the dredging of 400,000 cubic yards no matter what amount of
dredging was awarded, and therefore was able to avoid a risk to which other
bidders were subjected. Protester's Comments at 5. Enco argues that by being
paid its entire mobilization price upon the completion of the guaranteed
400,000 cubic yards, Matteson will be able to recover the inflated portion
of that price up front and thereby negate the payment provisions of
subsection H.3. Protester's Supplemental Comments, Jan. 5, 2000, at 2.
Matteson explains that when it submitted its verification letter, it assumed
that the order would be for the guaranteed minimum of 400,000 cubic yards,
not for the larger amount that actually was subsequently ordered.
Supplemental Agency Report, Feb. 9, 2000, Letter from Contracting Officer to
Matteson (Feb. 8, 2000). Enco also objects to this postaward clarification
of Matteson's intent. Protester's Supplemental Comments, Feb. 14, 2000, at
1-3.

In cases where a contracting officer has reason to believe that a mistake
may have been made, the bidder must be requested, after the suspected
mistake is brought to the bidder's attention, to verify the correctness of
its prices. FAR sect. 14.407-1. This is exactly what the contracting officer
did. Matteson's bid was significantly lower than the government's estimate
and the other bidders' prices. Therefore, the agency reasonably requested
verification of Matteson's bid. After receiving Matteson's first
verification, the agency apparently still remained concerned that Matteson
did not understand the effect of the payment provisions in the IFB and the
agency decided to again request verification and point out the payment
provision concerning the 5-percent limit to ensure that Matteson understood
it would receive its line item No. 1 costs in accordance with the payment
provisions that prevented front-loading. While in its second verification
Matteson indicated that the "substantially complete" language related to the
guaranteed minimum of 400,000 cubic yards, since at the time of verification
this was the amount that it reasonably believed would be awarded, we do not
view this statement as an attempt to condition its bid or change the
contract. [4]

The protest is denied.

Comptroller General

of the United States

Notes

1. Enco also suggests that Matteson received some type of assurance as a
result of its concurrent contract performance on another BOR project that it
could ignore the 5-percent limit. Protester's Comments at 3; Protester's
Supplemental Comments, Feb. 3, 2000, at 1. Enco has provided no support for
this allegation. Environmental Affairs Management, Inc., B-277270, Sept. 23,
1997, 97-2 CPD para. 93 at 4. Further, to the extent that Enco may be objecting
to Matteson having obtained an advantage on this procurement through the
other contract, the mere existence of a prior or current contractual
relationship between a contracting agency and a bidder does not create an
unfair competitive advantage. Optimum Tech., Inc., B-266339.2, Apr. 16,
1996, 96-1 CPD para. 188 at 7.

2. Enco's further argument concerning the agency's decision to refuse
Matteson's request to delete the 5-percent limit that was memorialized in an
amendment does not alter our conclusion. The agency's decision merely meant
that the terms originally set out in the IFB continued to apply; the
amendment did not revise the IFB provisions in any way.

3. We note that, under the recently revised unbalanced pricing provision in
FAR sect. 15.404-1(g), neither the term "advance payment" nor the concept is any
longer used in discussing unbalanced pricing. It is not clear why the term
has been retained in FAR sect.sect. 52.214-10 and 52.214-19.

4. During the pendency of the protest, the agency confirmed that the
determination of whether performance was "substantially complete" would be
based on the total quantity of work ordered (not the 400,000 cubic year
minimum). Since the IFB reserves that determination to the contracting
officer's discretion, we view the agency's statement in this regard as
binding. Therefore, even if we assume that Enco is correct in arguing that
Matteson was trying to change the contract terms, the agency could still
properly make award to Matteson with confidence that the contracting
officer's determination regarding substantial completion would govern. In
any event, since the agency ordered far more than the minimum, the
protester's concern on this issue, like its concern about unbalanced
pricing, is academic.