TITLE:  American Management Systems, Inc., B-285645, September 8, 2000
BNUMBER:  B-285645
DATE:  September 8, 2000
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American Management Systems, Inc., B-285645, September 8, 2000

Decision

Matter of: American Management Systems, Inc.

File: B-285645

Date: September 8, 2000

Devon E. Hewitt, Esq., Dennis E. Pryba, II, Esq., and Alex D. Tomaszczuk,
Esq., Shaw Pittman, for the protester.

William A. Roberts, III, Esq., Phillip H. Harrington, Esq., and William S.
Lieth, Esq., Wiley, Rein & Fielding, for KPMG Peat Marwick, an intervenor.

Phillipa L. Anderson, Esq., Dennis Foley, Esq., and Phillip S. Kauffman,
Esq., Department of Veterans Affairs, for the agency.

Henry J. Gorczycki, Esq., and James Spangenberg, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Organizational conflict of interest does not exist in procurement for
financial management software where, while agency's integration contractor
that provides advice and assistance to the agency concerning available
software has an agreement with the selected software vendor to seek out
opportunities to join together in a prime contractor/subcontractor
relationship, that agreement does not apply to the protested procurement and
the integration contractor has no other relationship with the selected
vendor that creates a significant conflict of interest.

DECISION

American Management Systems, Inc. (AMS) protests a procurement by the
Department of Veterans Affairs (VA) under General Services Administration
(GSA) Federal Supply Schedule (FSS) contract No. GS-35F-4997H, for Joint
Financial Management Improvement Program (JFMIP) certified software. AMS
protests that assistance on this procurement given to VA by the agency's
system integration contractor, KPMG Peat Marwick, creates an impermissible
organizational conflict of interest.

We deny the protest.

Since 1992, VA has been using financial management software from AMS. Agency
Report at 2. In 1998, VA began planning improvements to the agency's
financial and logistical management systems, which the agency refers to as
the core Financial and Logistics System (coreFLS) project. Id. at 1-2. The
project was organized into four phases: Phase I--planning, Phase
II--business process reengineering, Phase III--acquisition of
commercial-off-the-shelf (COTS) financial software package, and Phase
IV--implementation of the software package. Agency Report, Tab 79,
Acquisition Methodology, at 1. VA intended to select an integration services
contractor for Phase II and, if the contractor performed successfully on
that task, that contractor would continue as the agency's integration
partner during Phases III and IV. Id.

On November 30, 1999, VA issued a White Paper on its website stating the
agency's intent to conduct separate procurements for integration services
and software. Agency Report at 2; Tab 64, White Paper Integrator IFMS, at 1.
VA's plan, which has since been implemented, was to acquire integration
services and JFMIP certified software from two separate vendors on GSA FSS
non-mandatory Schedule 70. Agency Report at 2; Contracting Officer's
Statement at 10. On December 22, after evaluating quotations from four
integration services vendors, the agency selected KPMG as its integration
services partner and issued a task order for integration support and
professional services under KPMG's FSS contract. [1] Agency Report, Tab 94,
Best Value Determination, at 7.

VA then identified four vendors on FSS Schedule 70 with COTS software
packages capable of meeting the agency's requirements. Agency Report at 1.
These vendors are AMS, PeopleSoft, Inc., Oracle Corporation and SAP America,
Inc. Id.
On March 30, 2000, VA issued another White Paper stating its intent to
acquire a COTS software package, identifying the agency's requirements, and
stating the selection criteria for awarding a blanket purchase agreement
pursuant to one of these vendors' FSS contract. Agency Report, Tab 144,
White Paper coreFLS. On April 7, VA issued pricing and software solution
surveys requesting that these vendors propose JFMIP certified software
solutions to the agency's requirements and to propose price adjustments to
their FSS contracts. Agency Report, Tabs 146-49, Pricing Surveys; Tab 150,
Third Party Software Solution Surveys.

AMS filed an agency-level protest on April 17, alleging that the services
provided by KPMG create a conflict of interest, given that KPMG assertedly
has significant business relationships with PeopleSoft, Oracle and SAP.
Agency Report, Tab 138, AMS's Agency-Level Protest, at 2-3. On June 2, VA
dismissed the protest as untimely, but nonetheless reviewed the facts and
determined that the relationships between KPMG and PeopleSoft, Oracle and
SAP did not create a conflict of interest. Agency Report, Tab 143. AMS filed
the present protest in our Office on June 12, prior to a selection decision
by VA. VA subsequently notified our Office of its determination that urgent
and compelling circumstances exist that significantly affect the interest of
VA and will not permit suspension of an award pending resolution of the
protest. On August 3, VA selected Oracle for award.

AMS essentially alleges that KPMG provided technical assistance, advice
and/or acquisition support services to VA that either influenced, or had the
potential to influence, the procurement process to favor one of the FSS
software vendors with which KPMG had significant business relationships.
Protest at 7-10; Protester's Comments at 3-14. AMS asserts that KPMG's
alliances with those vendors create either actual or potential
organizational conflicts of interest that cannot be avoided, neutralized or
mitigated unless either VA eliminates from the competition the three
software vendors that have alliances with KPMG (which would leave only AMS),
or the agency begins the acquisition process anew with an integration
partner other than KPMG. Protest at 10; Protester's Comments at 13-15.

Federal Acquisition Regulation (FAR) Subpart 9.5 sets forth the regulatory
guidance governing organizational conflicts of interest, and defines the
term as follows:

Organizational conflict of interest means that because of other activities
or relationships with other persons, a person is unable or potentially
unable to render impartial assistance or advice to the Government, or the
person's objectivity in performing the contract work is or might be other
impaired, or a person has an unfair competitive advantage.

FAR sect. 9.501. Contracting officials are to avoid, neutralize or mitigate
potential significant conflicts of interest so as to prevent unfair
competitive advantage or the existence of conflicting roles that might
impair a contractor's objectivity. FAR sect.sect. 9.504(a), 9.505.

The responsibility for determining whether an actual or apparent conflict of
interest will arise rests with the contracting agency. SRS Techs.,
B-258170.3, Feb. 21, 1995, 95-1 CPD para. 95 at 9. Because conflicts may arise
in factual situations not expressly described in the relevant FAR sections,
the regulation advises contracting officers to examine each situation
individually and to exercise "common sense, good judgment, and sound
discretion" in assessing whether a significant potential conflict exists and
in developing an appropriate way to resolve it. FAR sect. 9.505. We will not
overturn the agency's determination except where it is shown to be
unreasonable. D.K. Shifflet & Assocs., Ltd., B-234251, May 2, 1989, 89-1 CPD
para. 419 at 5.

The situations in which organizational conflicts of interest arise, as
addressed in both FAR subpart 9.5 and the decisions of our Office, can be
broadly categorized in three groups: unequal access to information cases,
biased ground rules cases, and impaired objectivity cases. Aetna Gov't
Health Plans, Inc.; Foundation Health Fed. Servs., Inc., B-254397.15 et al.,
July 27, 1995, 95-2 CPD para. 129 at 12-13.

Unequal access to information cases arise in situations where a firm has
access to nonpublic information as part of its performance of a government
contract and where that information may provide the firm a competitive
advantage in a later competition for a government contract. Id. at 12; FAR
sect. 9.505-4. The concern in such situations is generally limited to the risk
of the firm gaining an unfair competitive advantage in the later
competition; there generally is no issue of the firm's objectivity or
ability to render impartial assistance or advice to the government during
performance of the incumbent contract. Aetna Gov't Health Plans, Inc.;
Foundation Health Fed. Servs., Inc., supra, at 12.

Biased ground rules cases arise in situations where a firm, as part of its
performance of a government contract, has in some sense set the ground rules
for another government contract by, for example, writing the statement of
work or the specifications for that other contract. Id. at 13. The primary
concern in such situations is one of unfair competitive advantage in that
the firm could skew the competition for the other contract, intentionally or
not, in its own favor. Id.; PricewaterhouseCoopers LLP, B-284470, Apr. 24,
2000, 2000 CPD para. __ at 7; FAR sect.sect. 9.505-1, 9.505-2.

Impaired objectivity cases arise in situations where a firm's work under one
government contract could entail the firm evaluating itself through either
assessment of its own performance under another contract, or evaluation of
its own and/or competitors' proposals in a procurement process. Aetna Gov't
Health Plans, Inc.; Foundation Health Fed. Servs., Inc., supra, at 13; FAR sect.
9.505-3. The concern here is that the firm's ability to render impartial
advice to the government could appear to be undermined by its relationship
with the entity whose work product is being evaluated. Aetna Gov't Health
Plans, Inc.; Foundation Health Fed. Servs., Inc., supra, at 13; FAR sect.
9.505-3.

We view AMS's allegations as raising concern about both biased ground rules
and impaired objectivity in that the protester contends that, as a result of
business relationships that KPMG has with PeopleSoft, Oracle and SAP, KPMG
will, or has the potential to, influence the agency's selection of a
software package to favor one of these three vendors over AMS. In this
regard, the overriding interest of AMS here is presumably to ensure that its
competitors in this software procurement do not have an unfair competitive
advantage. As discussed below, based on our review, we find that no
significant organizational conflict of interest exists here.

Given that VA has now selected Oracle's proposal for a COTS software
package, the relevant relationship for determining whether an actual or
potential organizational conflict of interest existed is that between KPMG
and Oracle. [2] During the agency-level protest, KPMG gave VA a copy of an
agreement between KPMG and Oracle entitled "Marketing Alliance Agreement for
the Federal, Higher Education and State & Local Marketplaces" to show its
business relationship with Oracle. This document stated the following
purpose for this agreement:

WHEREAS, It is the intention of both parties to work closely together and
coordinate their efforts to pursue the public services marketplace for
financial systems believing that their core competencies enable them to
accomplish more together than individually,

NOW THEREFORE, [Oracle] and KPMG enter this Agreement to define common
objectives, market goals and procedures for engagement that will ensure a
commitment to their alliance and desire to work together in the public
services marketplace.

Agency Report, Tab 141, KPMG's Response to Allegations of Conflict of
Interest, Agreement with Oracle, at 1. Essentially, the agreement sets forth
a structure for submitting proposals under a prime contractor/subcontractor
relationship where the parties agree to do so, and provides a formula for
splitting revenues under contracts resulting from such proposals. Id. at
2-4.

VA reviewed this relationship and determined that a financial relationship
does not exist, nor does the relationship between the firms otherwise create
a significant conflict of interest here. Agency Report, Tab 143, VA Response
to Agency-level Protest, at 1. We think this determination is reasonable. In
this regard, VA's approach of procuring integration services and software
separately effectively prevented submission of proposals with a prime
contractor/subcontractor relationship between KPMG and Oracle; indeed, no
such relationship was proposed during either procurement by either firm.
Moreover, the agreement expressly states that the parties remain independent
contractors and that no partnership, joint venture or agency relationship is
created between them. Agency Report, Tab 141, KPMG's Response to Allegations
of Conflict of Interest, Agreement with Oracle, at 6. There is no
relationship arising from this agreement that is applicable to either KPMG
or Oracle with regard to the integration services procurement, the software
procurement, or either firm's resulting contract performance for VA.

AMS alleges that the relationship arising from this agreement is a "more
elusive" financial interest than the express terms of the agreement
indicate. Protester's Comments at 11. The protester essentially contends
that KPMG will benefit in the long run from Oracle software being used in
the federal marketplace, and from Oracle establishing a past performance
record and customer relationships in the federal marketplace, because it
will create a greater demand for Oracle software in the federal market
resulting in more opportunities in the future for KPMG to benefit from its
marketing alliance agreement with Oracle. Id. at 11-12.

We find the potential benefit to KPMG here is speculative and too remote
from the present procurement to establish a significant organizational
conflict of interest that the contracting agency must avoid, neutralize or
mitigate pursuant to FAR Subpart 9.5. Compare Professional Gunsmithing Inc.,
B-279048.2, Aug. 24, 1998, 98-2 CPD para. 49 at 3-4 (entitlement of consultant
employed by the agency to help evaluate proposals to trademark royalties
from awardee on products other than those to be provided under the contract
is an interest that is speculative and too remote to create a significant
conflict of interest) and International Management and Communications Corp.,
B-272456, Oct. 23, 1996, 96-2 CPD para. 156 at 4 (awardee's interest in
receiving repayment of debt owed to its affiliate organization by a
potential recipient of advice and assistance under the awarded support
services contract is not a significant conflict of interest because the
relationship between the awardee/contract and the repayment of the debt is
indirect) with Aetna Gov't Health Plans, Inc.; Foundation Health Fed'l
Servs., Inc., supra, at 13-17 (significant organizational conflict of
interest exists where a corporate affiliate of a major subcontractor under
one proposal evaluates proposals for the procuring agency).

The protest is denied.

Anthony H. Gamboa

Acting General Counsel

Notes

1. The task order for the integration services contemplated KPMG providing
source selection services for the JFMIP certified software procurement.
Agency Report at 6. The agency states that, although KPMG drafted an
acquisition plan for the software procurement, that plan was not used and
KPMG has not performed source selection services. Id. at 5-6; Contracting
Officer's Statement at 5. The extent and effect of KPMG's participation in
this protested COTS software procurement is disputed. At a minimum, VA
states that KPMG's services relating to this protested procurement include
providing VA with technical guidance and insight as to industry standards
and best practices with respect to COTS software. Agency Report at 6.

2. Given VA's selection of Oracle, we need not discuss the alleged
organizational conflicts of interest arising from KPMG's relationships with
PeopleSoft and SAP, since they have been rendered academic by the selection.