TITLE:  CHE Consulting, Inc.; Digital Technologies, Inc., B-284110; B-284110.2; B-284110.3, February 18, 2000
BNUMBER:  B-284110; B-284110.2; B-284110.3
DATE:  February 18, 2000
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CHE Consulting, Inc.; Digital Technologies, Inc., B-284110; B-284110.2;
B-284110.3, February 18, 2000

Decision

Matter of: CHE Consulting, Inc.; Digital Technologies, Inc.

File: B-284110; B-284110.2; B-284110.3

Date: February 18, 2000

L. James D'Agostino, Esq., Leigh T. Hansson, Esq., Jeff S. Robinette, Esq.,
and Richard L. Moorhouse, Esq., Reed Smith Hazel & Thomas, for CHE
Consulting, Inc.; and Robert A. Mangrum, Esq., and Paul S. Ebert, Esq.,
Winston & Strawn, for Digital Technologies, Inc., the protesters.

Joseph J. Petrillo, Esq., and Karen D. Powell, Esq., Petrillo & Powell, for
CCL Service Corp.; and David R. Hazelton, Esq., and Erica P. McFarquhar,
Esq., Latham & Watkins, for Federal Data Corp., intervenors.

H. Jack Shearer, Esq., and Robert R. Goff, Esq., Defense Information Systems
Agency, for the agency.

Paul E. Jordan, Esq., and Paul Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

In procurement of preventive and remedial maintenance for Department of
Defense computer equipment, solicitation requirement that offerors obtain
support agreements with original equipment manufacturers (OEM) to cover a
minimum of 65 percent of the equipment is not unduly restrictive of
competition. Record demonstrates that OEM support to that level reasonably
reflects agency need to ensure prompt repair and limited downtime of
critical computer resources.

DECISION

CHE Consulting, Inc. and Digital Technologies, Inc. protest the terms of
request for proposals (RFP) No.  DCA200-99-R-5011, issued by the Defense
Information Systems Agency (DISA) for on-site preventive and remedial
hardware maintenance on data processing equipment located at various
facilities throughout the United States. The protesters object to the RFP's
requirement that offerors obtain support agreements from original equipment
manufacturers (OEM) to cover a minimum of 65 percent of the equipment to be
maintained.

We deny the protests.

BACKGROUND

DISA Western Hemisphere is the principal information processing activity for
the Department of Defense. It operates five mainframe processing centers
(Defense Megacenters or DMC) and 18 regional support activities. These
processing centers directly support a variety of military missions and
support programs, and serve the military departments and major defense
agencies.

The primary contract vehicles for preventive maintenance and repair of
computer equipment at these facilities are currently two contracts, awarded
prior to DISA's assumption of responsibility for the facilities. Under one,
awarded by the Army, CCL Service Corporation functions as an integrator.
Under the other, awarded by the Air Force, TRW provides maintenance support
through its subcontractor, CHE. While neither contract requires OEM
maintenance support, CCL routinely obtains such support, while TRW/CHE does
not have OEM support agreements. The RFP at issue is DISA's second attempt
to consolidate preventive maintenance and repair requirements under a single
contract. In August 1998, DISA awarded seven contracts to CHE. CCL and PCC
Federal Systems protested these awards to the Court of Federal Claims,
alleging that CHE's proposal had failed to demonstrate its ability to
perform the contract. CCL Serv. Corp. v. United States, 43 Fed. Cl. 680
(1999). DISA ultimately took corrective action in the form of terminating
CHE's contracts for convenience and reverting to the use of the existing
contracts with CCL and TRW/CHE for maintenance and repair pending
resolicitation of the consolidated requirement.

The RFP, issued on September 3, 1999, contemplates the award of a
fixed-price, indefinite-delivery/indefinite-quantity contract in each of
four geographic regions in the continental United States. Proposals are to
be evaluated under three factors, listed in descending order of importance:
technical/management, past and present performance, and price. RFP sect. M.a.
Non-price factors are "significantly more important than price." Id. Award
in each region is to be made to the offeror whose proposal represents the
best overall value to the government, based upon an integrated assessment of
the proposals.

As the result of having experienced extended outages of critical computer
equipment maintained under the current contracts, DISA included the
following requirement calling for offerors to obtain, and submit with their
proposals, written agreements with OEMs for back-up support:

The contractor must have OEM agreements which cover a minimum of 65% of the
equipment inventory . . . within each region covered by its proposal.
Primary emphasis should be to obtain OEM agreements covering mainframe and
midtier CPU's, Communication Devices (Routers, Front End Processor, and
Channel Extenders), and high densities of equipment from a single OEM. All
OEM agreements with the contractor must be written and co-signed and
describe the relationship between the contractor and OEM to assure the
Government that the OEM will respond with whatever service necessary, to
include parts, diagnostics, and expertise to effect repair. The cost of OEM
assistance is the responsibility of the contractor.

Statement of Work (SOW), as amended, sect. C.7.1.

The RFP also required offerors to propose, for remedial maintenance, a
maximum repair time of 4 hours. SOW sect. C.7.3. As contemplated by the SOW, if
a contractor has not diagnosed a malfunction and initiated repairs within
the proposed repair time, the contractor must secure OEM support from those
OEMs with which it has written agreements. If there is no written agreement
covering the equipment, the contractor must attempt to secure OEM support.
If the contractor cannot secure that support, the government reserves the
right to obtain OEM support to effect the repairs. Charges levied by the OEM
will be deducted from the amount due the contractor. SOW amend., sect. C.7.1.

OEM support is to be evaluated as one of six "relatively equal" technical
subfactors (OEM support, response time, repair time, technical support
experience/training, diagnostics, and microcode changes). RFP sect. M.b.1.a-f.
Specifically, the government will evaluate the "breadth and depth" of the
OEM agreements, which "must address the proposed level of OEM service, to
include response and repair times, parts, diagnostics, and expertise" and
the circumstances under which the OEM will be called in for support. RFP
sect. M.b.1.a. The agency also will evaluate offerors' stated rationales for why
the proposed OEMs were chosen. Id.

Prior to the closing date of November 19, CHE and Digital filed protests
challenging various aspects of the 65 percent OEM agreement requirement as
being unduly restrictive of competition. [1] CHE contends that any OEM
agreement requirement is overly restrictive because third party maintenance
providers are capable of performing the majority of the contract without OEM
assistance. While Digital agrees that an OEM requirement is valid, it argues
that the 65 percent equipment level is overly restrictive. [2]

ANALYSIS

Procuring agencies are required to specify their needs in a manner designed
to permit full and open competition, and may include restrictive
requirements only to the extent they are necessary to satisfy the agencies'
legitimate needs (or as otherwise authorized by law). 10 U.S.C. sect.sect.
2305(a)(1) (A)(i), (B)(ii) (1994); Container Prods. Corp., B-280603.2, Nov.
4, 1998, 98-2 CPD para. 106 at 3. Where a protester challenges a specification
as unduly restrictive, the agency must establish that the requirement is
reasonably necessary to meet its needs; we will not question an agency's
determination of its actual needs unless that determination has no
reasonable basis. Instrument Specialists, Inc., B-279714, July 14, 1998,
98-2 CPD para. 18 at 2; Innovative Refrigeration Concepts, B-272370, Sept. 30,
1996, 96-2 CPD para. 127 at 3. Here, we find the agency has demonstrated
reasonable bases for the challenged requirements.

The DMCs that use the equipment covered by this solicitation operate 24
hours a day, 365 days a year serving the military departments and major
defense agencies, including the Defense Logistics Agency and the Defense
Finance and Accounting Service. The centers directly support military
logistics for ongoing military operations and future force projections all
over the world. Their applications include combat simulations, war games,
research, development, test and evaluation programs, weapon system status
data, and military and civilian pay. Agency Report at 9.

In establishing the 65 percent requirement, DISA sought to balance between
its need to provide critical information processing services in support of
national security with minimal downtime and its desire to afford maximum
competition. To this end, the RFP allows third-party [3] maintenance
contractors to provide all required maintenance without the use of OEMs, but
requires that OEM agreements be in place for 65 percent of the equipment in
order to minimize downtime when the contractor is unable to effect repairs
within the 4-hour repair time. According to the agency, a requirement
covering less than 65 percent of the equipment represented an unacceptable
risk of prolonged service disruption for essential equipment. Agency Report
at 25.

The agency based its determination on its most recent experience under the
current contracts for this service. While third-party maintenance providers
were able to adequately maintain older equipment, DISA found that new,
state-of-the-art equipment could not be constantly maintained without OEM
participation for diagnostics, trained personnel, repair parts, and current
firmware. Agency Report at 35. During the period of October 1997 through the
end of November 1999, DISA experienced 517 incidents of outages on equipment
under the hardware maintenance contracts, with 18 of the outages considered
critical. All involved third-party maintenance providers. For example,
during this period, CHE was not always able to diagnose and repair equipment
malfunctions on its own and had to obtain assistance from OEMs [deleted]. In
a few instances, DISA intervened to replace CHE with an OEM for repair
service. In this regard, in March 1999, a [deleted] platform malfunctioned.
After CHE spent 35 hours diagnosing the problems, ordering, receiving, and
installing replacement components, the platform still could not be made to
function. An OEM technician properly diagnosed and resolved the problem
within 2 hours of arriving on site. The total time of the outage was 53
hours. Agency Report at 27. In another instance, CHE performed upgrades on a
direct access storage device at DMC Columbus. After eight upgraded units
were returned to service, DISA experienced iterative errors for some 24
hours, resulting in a non-operational condition. DISA then called in the
OEM, whose technician diagnosed all equipment, effected repairs and returned
all equipment to an operational state. The total outage time was 47.5 hours,
adjusted to deduct the time spent waiting for the OEM to arrive. DMC
Columbus estimated that its customers lost upwards of

$4 million as a result of this service outage. [4] Agency Report at 27-28.

In view of the critical nature of the work performed at the DMCs on the
equipment to be maintained, the potential detriment to defense missions from
extended outages of that equipment, and the agency's own experience using
contracts without OEM support, we believe the agency reasonably determined
that OEM agreements represent an actual and legitimate need. Instrument
Specialists, Inc., supra.

While the protesters contend that the equipment is not "critical," they have
submitted no evidence to rebut the agency's determination that service
disruptions critically affect the ability of the military departments to
perform their missions. Agency Report at 10. Their mere disagreement does
not make the agency's determination unreasonable. Instrument Specialists,
Inc., supra. Likewise, while CHE maintains that it is capable of performing
maintenance and repair without OEMs in the great majority of potential
outages, the fact that OEM support is not always required does not make the
requirement any less reasonable. Tidewater Marine, Inc., B-271999, July 25,
1996, 96-2 CPD para. 45 at 2 (specified contractor capability which is
infrequently, though legitimately needed, represents a minimum, not a
"maximum," need). Further, the other protester, Digital, states that it
"does not dispute the agency's need to require OEM support." Digital's
Comments at 8.

However, Digital contends that it is unreasonable for the agency to require
65 percent of the equipment in each region to be covered by the OEM support
agreements. In Digital's view, such a high percentage provides an unfair
competitive advantage to those offerors able to secure exclusive agreements
with some of the OEMs. [5] We disagree.

Before setting the minimum equipment coverage level, DISA first excluded
from RFP coverage most, but not all, of the equipment manufactured by two
OEMs (Amdahl Corp. and StorageTek (STK)), intending to obtain maintenance
from blanket purchase agreements negotiated under the General Services
Administration (GSA) Federal Supply Schedule. Its rationale for excluding
these OEMs' equipment is their history of entering into exclusive support
agreements and the agency's desire to keep such OEMs from exercising a
disparate influence on the competition. In setting the minimum OEM support
level for the remaining equipment covered under the RFP, DISA "eliminated"
the equipment of OEMs that each represented less than 1 percent of the RFP
inventory. These OEMs account for approximately 12 percent of the total.
DISA also "eliminated" another 14.5 percent of the RFP inventory, which
accounts for the STK and Amdahl equipment remaining in the RFP inventory.
[6] Agency Report at 44-45. Together, the "eliminated" equipment accounts
for approximately 26.35 percent of the RFP inventory. This leaves more than
73 percent of the equipment manufactured by OEMs from which offerors could
obtain non-exclusive support agreements. Agency Report at 45. Rather than
require offerors to obtain agreements covering all 73 percent of the
inventory, DISA set the minimum at 65 percent. The agency arrived at the
lower minimum based on its calculation that slightly more than 64 percent of
the equipment was manufactured by nine OEM's, none of which (to the agency's
knowledge) would require exclusive agreements. Agency Report at 43. Under
these circumstances, the agency has taken reasonable steps to determine and
establish a minimum acceptable level of coverage that is not unduly
restrictive of competition. [7]

Digital argues that the agency should completely exclude the remaining STK
and Amdahl equipment because it alleges that the two offerors that have
already submitted proposals each have an exclusive agreement with one of
these OEMs. Digital argues that these offerors have an unfair competitive
advantage over other offerors because they can obtain their 65 percent
coverage more easily, and having those agreements will enhance those
offerors' evaluation under the "breadth and depth" subfactor. In Digital's
view, offerors without agreements with these OEMs will also have to add a
risk factor into their price proposals to cover the potential cost, should
DISA require the OEM to perform certain maintenance.

While Digital's speculation on the consequences of inclusion of STK and
Amdahl equipment may prove true, such possible consequences do not
constitute an unfair competitive advantage that the agency is required to
eliminate. Any competitive advantage enjoyed by those offerors with
exclusive agreements is not the responsibility of DISA. An agency is not
required to cast its procurements in a manner that neutralizes the
competitive advantages some firms may have by virtue of their own particular
circumstances. Precision Photo Labs. Inc., B-251719, Apr. 29, 1993, 93-1 CPD
para. 359 at 3. Here, each offeror is responsible for negotiating OEM support
agreements and the agency is not responsible for any OEM's decision to enter
only exclusive agreements. [8] Further, by ensuring that offerors may reach
the 65 percent minimum without agreements with these OEMs, the agency has
taken reasonable steps to alleviate any perceived advantage. With regard to
any advantage in the "breadth and depth," evaluation subfactor (RFP
sect. M.b.1.a), we note that it is one of six equal subfactors. Thus, any
competitive advantage enjoyed by one contractor in this area could be
overcome by excelling under another technical subfactor or under the three
management subfactors. [9]

CHE also argues that the requirement restricts competition because the
majority of equipment in some regions is manufactured by a single OEM. For
example, since IBM is the OEM for some 44 percent of the equipment in Region
1, any offeror wishing to compete for that contract must obtain an OEM
support contract with IBM. CHE explains that it attempted to obtain such an
agreement, but found that IBM (as well as other OEMs) would only enter an
agreement whereby the OEM, not CHE, would be the primary maintenance
provider on OEM equipment. Affidavit of CHE's President, Jan. 3, 2000, para.para.
9-19. Since we have found that the agency's requirement for OEM support
represents an actual need of the agency, CHE's stated difficulty in meeting
that requirement does not provide a basis for finding it unreasonable. [10]
Instrument Specialists, Inc., supra, at 3.

Further, while the RFP contemplates and allows third-party maintenance
providers to perform primary maintenance, nothing in the RFP prohibits an
offeror from agreeing to allow an OEM to perform that maintenance. Moreover,
Federal Data Corporation (FDC), an offeror and intervenor in this matter,
explains that it was able to obtain non-exclusive OEM support agreements
with all the OEMs identified by CHE and was able to obtain agreements under
which the OEMs would serve in a subordinate role. Affidavit of FDC
Representative, Jan. 11, 2000, para.para. 3-5. In this regard, FDC's representative
acknowledged that many OEMs desire to be the primary maintenance provider
and some are reluctant to agree to nonstandard terms and conditions. Id. para.
3. However, through "complex negotiations" over several weeks, thereby
arriving at "the right price and on the right terms," FDC was able to secure
non-exclusive support agreements with [deleted] OEMs. Id. para.para. 4-5. Thus, it
appears that CHE's difficulty in obtaining the necessary agreements also
reflects a matter of its business judgment in negotiating with the OEMs, and
does not evidence an overly restrictive solicitation requirement.

Finally, CHE contends that the RFP is ambiguous because the agency's
requirement for a 4-hour maximum repair time is inconsistent with its
additional requirement that contractors maintain equipment in good operating
condition as defined by the OEM. SOW sect. C.7. CHE bases this claim on
unidentified situations in which some OEMs require more than 4 hours for
certain repairs. CHE Protest at 8. From our reading of the record, there is
nothing ambiguous or inconsistent in these provisions.

First, there is no ambiguity with regard to the RFP's required repair time.
The SOW plainly sets it as 4 hours (SOW sect. C.7.3) and the agency reiterated
the requirement in answers to potential offeror questions that raised the
alleged ambiguity (RFP sect. J-13, Question Nos. 85-87). Second, there is no
inconsistency among the cited provisions. CHE bases its inconsistency claims
on its position that OEMs "require" certain repair times for equipment.
While the record indicates that OEMs "propose" some repair times (Agency
Report at 55), these are average times for repair and not absolute.
Declaration of CCL President, Jan. 10, 2000, para. 2, at 1. Here, CHE has not
submitted any OEM literature that specifies a required repair time. We also
note that the 4-hour repair time is only relevant to remedial maintenance,
that is, repairs of malfunctioning equipment. For preventive or scheduled
maintenance (SOW sect. C.2.d) and "predictive maintenance" ("Fix before Fail
Concept") (SOW sect. C.2.c), there is no stated time. Thus, a contractor is free
to spend longer than 4 hours on these maintenance operations. Finally, the
penalty for failure to meet the established repair time for remedial repairs
is a "downtime credit" equal to 25 percent of the monthly maintenance rate
proposed for the piece of equipment requiring service. SOW sect. C.15.a.2. Thus,
to the extent an OEM "requires" a certain period longer than 4 hours to make
a particular repair, nothing prevents an offeror from taking this into
account in preparing its price proposal for that equipment.

The protests are denied.

Comptroller General
of the United States

Notes

1. The protesters also alleged that there was insufficient time to obtain
the required agreements and that certain of the RFP provisions were
ambiguous. These alleged ambiguities included a failure to identify the
relative importance of the evaluation factors, how the 65 percent of
equipment to be covered by OEM support agreements should be calculated, and
how the agency would determine when repairs were initiated. To address and
remedy these allegations, DISA amended the RFP (amendment No. 07) extending
the due date for proposals an additional month and by clarifying certain of
the RFP's provisions. We have reviewed these matters and agree with the
agency that amendment 07 cured the alleged solicitation flaws that it
addressed.

2. Both protesters have raised a number of additional issues. We have
reviewed them all and find that none has merit. This decision will address
only the more significant matters raised.

3. A third-party maintenance provider is a contractor who has the capability
to repair and maintain equipment that it did not manufacture.

4. CHE maintains that the number of outages cited by DISA is de minimis when
compared with the more than 3,000 service requests for maintenance and that
CCL, another contractor which ostensibly used OEM support, had outages that
lasted even longer than those cited by DISA. CHE Comments, Jan. 3, 2000, at
8-9. The agency explains that, even assuming that number of maintenance
requests, the important consideration is whether the outages were critical.
Of the 18 critical outages in 1998-99, 16 involved equipment maintained by
CHE and required longer than the contract repair time. Supplemental Agency
Report at 5. Moreover, the agency explained that outages on CCL-maintained
equipment were not considered critical and the times for repair were, in
fact, far shorter than indicated in the agency's documents. Supplemental
Agency Report at 9-11.

5. In a related argument, Digital contends that the agency could have
alleviated offerors' difficulty in obtaining OEM agreements if it allowed
them to offer GSA supply schedule prices for those vendors which had entered
into exclusive teaming agreements with other offerors. Digital Protest at 5.
The agency correctly observes that Digital essentially wanted the agency to
act as its agent in obtaining the services, an arrangement that would defeat
the purpose of a consolidated maintenance contract. In its comments, CHE
observes that the agency could have given the protester permission to use
the GSA schedule under the authority of Federal Acquisition Regulation
(FAR), Part 51. CHE Comments at 9 n.6. CHE's reliance is misplaced.
Contracting officers may authorize contractors to use government supply
sources only under limited circumstances, none of which is present here. FAR
sect. 51.101.

6. In Region 4, STK's equipment accounts for approximately 19.52 percent and
another 3.55 percent represents equipment of a third OEM which Digital
asserts will only enter an exclusive agreement. OEMs each providing less
than 1 percent of equipment account for another 3.8 percent. Agency Report
at 45 n.10. While this accounts for just over 27 percent of the equipment,
offerors may still obtain 65 percent coverage without contracting with any
of these OEMs.

7. Digital also argues that, by removing critical, state-of-the-art
equipment from the requirement and obtaining OEM coverage through BPAs, the
remaining equipment must not be "critical" and thus, the agency's need to
maintain critical equipment is not served by requiring OEM agreements.
Digital Comments at 3. We disagree. First, the agency does not state that
all critical equipment was removed from the solicitation requirement. Agency
Report at 19. Rather it removed most of the equipment of contractors that
historically entered exclusive agreements. (see note 9, infra). Second, to
the extent Digital is arguing that setting the OEM support level at less
than 100 percent implies that the requirement for OEM support is not truly
critical, it ignores the agency's rationale for setting the 65 percent
minimum support level. As observed by DISA, based on the critical nature of
its mission, it "may well have been justified to demand OEM support
agreements for all hardware equipment maintenance." Agency Report at 35.
Instead, it sought to maximize competition by allowing third party
maintenance with support agreements covering a minimum percentage. Agency
Report at 35-36. The agency's willingness to maximize competition through
the least restrictive implementation of a justifiable need does not imply
that the need is not legitimate.

8. CHE and Digital also contend that the requirement for OEM agreements
"encourages antitrust activities by the offerors and the OEMs." CHE Comments
at 16; Digital Comments at 18. Even if we assume, arguendo, that the
agency's requirement for obtaining OEM support agreements or the fact that
some OEMs may desire to enter exclusive agreements raises issues of possibly
encouraging violations of the antitrust statutes, allegations of restraint
of trade and possible violations of antitrust laws are outside the scope of
the bid protest process and should be referred to the Department of Justice,
since the interpretation and enforcement of such laws are functions of the
Attorney General and the federal courts. MR Resources, B-242475, Feb. 14,
1991, 91-1 CPD para. 176 at 2.

9. Moreover, there is nothing unreasonable about DISA's inclusion of STK and
Amdahl equipment notwithstanding the potential for exclusive agreements. The
agency explains that some of this equipment is not covered under the GSA
schedules; that the equipment is not as critical as other OEMs' newer
equipment, making some delays in repair more tolerable; and that the
alternative would be to execute a number of separate agreements, instead of
consolidating as much maintenance as possible in this procurement. Agency
Report at 19.

10. Digital similarly argues that offerors with exclusive OEM agreements
covering large percentages of equipment are able to satisfy the 65 percent
requirement with fewer agreements, placing other offerors at a competitive
disadvantage. Digital Comments at 9. While Digital estimates that it "may
have to obtain as many as 68 agreements" (id.) to meet the requirement, it
does not explain how it arrived at this estimate. On the contrary, the
record indicates that it is possible to meet the requirement with ten or
fewer agreements with those OEMs responsible for approximately 65 percent of
the equipment (Agency Report at 47-48). Digital's choice to obtain OEM
agreements with manufacturers of smaller percentages of equipment is a
matter that reflects its business judgment, and is not the result of a
restrictive specification or an unfair competitive advantage.