TITLE:  Overstreet Electric Company, Inc., B-284691, May 12, 2000
BNUMBER:  B-284691
DATE:  May 12, 2000
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Overstreet Electric Company, Inc., B-284691, May 12, 2000

Decision

Matter of: Overstreet Electric Company, Inc.

File: B-284691

Date: May 12, 2000

Timothy A. Sullivan, Esq., Starfield & Payne, for the protester.

Robert W. Pessolano, Esq., Department of the Army, for the agency.

Katherine I. Riback, Esq., and James Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Agency's cancellation of solicitation after bid opening on the basis that
all bids received are unreasonable in price is proper where the protester's
low bid exceeded the government estimate by 32 percent and the protester has
not shown that the government estimate was materially understated.

DECISION

Overstreet Electric Company, Inc. protests the cancellation of invitation
for bids (IFB) No. DACW27-00-B-0002, issued by the United States Army Corps
of Engineers. The Army canceled the IFB because it determined that the bids
received were unreasonably high as compared to the government estimate.
Overstreet contends that the government estimate was unreasonably low.

We deny the protest.

The Army issued the IFB on December 6, 1999 for the rehabilitation of the
Little Calumet River pump stations. At the January 5, 2000 bid opening, the
Army received three bids. The three bids and the government estimate,
without profit, were as follows:

Overstreet $4,638,400

Bidder A $4,773,545

Bidder B $4,827,770

Government Estimate $2,915,265

Agency Report at 2.

After bid opening, the agency reviewed the government estimate and revised
it to $3,510,910. Id. Overstreet's bid exceeds the revised government
estimate by 32.1 percent, Bidder A's bid exceeds the revised government
estimate by 36 percent, and Bidder B's bid exceeds the revised government
estimate by 37.5 percent.
The contracting officer determined that all bids received were at
unreasonably high prices as compared to the government estimate, pursuant to
Federal Acquisition Regulation (FAR) sect.sect. 14.404-1(c)(6), 14.404-1(e)(1),
14.404-1(f), cancelled the IFB
and proposed to complete the acquisition by negotiation. Agency Report, Tab
10, Contracting Agency Findings and Determination; Tab 11, RFP amend. No. 3.
This protest of the cancellation followed.

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). A compelling
reason to cancel the IFB exists when it is determined that all otherwise
acceptable bids are at unreasonable prices. FAR sect. 14.404-1(c)(6).

Overstreet argues that the revised government estimate was unreasonably low
because it failed to include or understated various necessary elements of
costs of this project in a manner inconsistent with applicable Corps
regulations regarding the development of government estimates. As a result
of these alleged cost understatements and omissions, Overstreet argues that
the government estimate should be upwardly revised to a range of $3.9
million to $4.3 million. Overstreet further argues that since its bid was
within 25 percent of a proper government estimate (i.e., $3.9 million to
$4.3 million), it is entitled to award under 33 U.S.C. sect. 624 (1994), which
states:

No works of river and harbor improvement shall be done by private contract
. . . [where] the contract price is more than 25 per centum in excess of
what [the Chief of Engineers] determines to be a fair and reasonable
estimated cost of a well-equipped contractor doing the work.

Citing Bean Dredging Corp. v. U. S., 19 Cl. Ct. 561 (1990), the protester
asserts that under this statute if its price is within 25 percent of a fair
and reasonable government estimate, the agency is mandated to award it, the
low responsive bidder, the contract. Protester's Comments, Mar. 31, 2000, at
8-10.

In Atkinson Dredging Co., Inc.--Recon. B-250965.2, B-250967.2, July 19,
1993, 93-2 CPD para. 31 at 3-4, we found that, while 33 U.S.C. sect. 624 clearly
prohibits the
Corps from awarding a dredging contract to a bidder whose bid price exceeds
a fair and reasonable government estimate by more than 25 percent, it does
not mandate that the Corps award a dredging contract to a bidder whose price
is within
25 percent of that government estimate where the agency does not believe the
bid price is fair and reasonable. We expressly discussed the court's holding
in Bean and found that if the court held that the Corps could not reject
bids within 25 percent of the government estimate as unreasonably high where
33 U.S.C. sect. 624 is applicable, this was not consistent with the plain
language of the statute, which only limits the agency's ability to award
contracts where all the bids received are not within 25 percent of the
government estimate, and would infringe upon the agency's ability to
reasonably exercise its discretion under FAR sect. 14.404-1(c)(6) in determining
price reasonableness.

Overstreet responds that Atkinson did not consider the legislative history
behind 33 U.S.C. sect. 624, which states:

Section 2 clarifies the procedure for determining whether a contract bid on
the civil works program of the Corps of Engineers is fair and reasonable.
This section affects all civil works functions of the
Corps of Engineers. In making such an estimate, the corps is to take into
account labor and material costs, depreciation of plant, supervisory and
over-head expenses, workmen's compensation, general liability insurance.
State and local taxes, interest on capital, and such other expenses and
charges as the Secretary determines to be appropriate. With the exception of
State and local income taxes, these costs are presently included in corps
estimates. To qualify, the lowest bid must be no more than 25 percent above
this cost base.

Senate Report No. 95-722, at 3 (1978), reprinted in, 1978 U.S.C.C.A.N. 652,
654. This legislative history in no way contradicts the plain meaning of the
statute, which only requires the rejection of bids if they exceed the
government estimate by more than 25 percent and does not in any way limit an
agency's ability to determine that a price is unreasonable, even if it is
within 25 percent of the government estimate.

As noted, Overstreet contends that the government estimate should be within
$3.9 million to $4.3 million. However, even though it was requested to do
so, the protester has failed to include calculations that demonstrate how it
arrived at these figures. Thus, we give little weight to this contention.
Even if the government estimate is adjusted upward to $3.9 million or $4.3
million as asserted by the protester, Overstreet's bid is still 18 percent
to 8.6 percent higher than the government estimate. Since a contracting
officer may reject a bid as unreasonably priced when the bid exceeds the
government estimate by as little at 7.2 percent, we see no basis to object
to the contracting officer's determination of price unreasonableness. See
Atkinson Dredging Co. Inc.--Recon., supra, at 2; Building Maintenance
Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD para. 233 at 4.

In any event, from our review of the protester's specific allegations
challenging the revised government estimate and the agency's detailed
responses, we cannot find the revised government estimate to be materially
understated or developed in a manner inconsistent with applicable
regulations. For example, the protester argued that the subcontractor's
overhead and profit are a cost to the prime contractor and were incorrectly
omitted from the government estimate. Protester's Comments at 6. The agency
agrees that the cost of the subcontractor's overhead and profit is part of
the total cost to the prime contractor for the work performed, but notes
that the subcontractors' quotes in the government estimate already contain
the subcontractors' overhead and profit, as well as the direct cost
features, and, therefore, accurately represents the total direct cost to the
prime contractor for this subcontracted work. Agency's Supplemental Report
at 4. We find the agency's explanation of this and the other challenged
aspects of the government estimate to be reasonable and consistent with its
regulations concerning the development of government estimates.

The protest is denied.

Comptroller General
of the United States