TITLE:  Reece Contracting, Inc., B-285666, August 21, 2000
BNUMBER:  B-285666
DATE:  August 21, 2000
**********************************************************************
Reece Contracting, Inc., B-285666, August 21, 2000

Decision

Matter of: Reece Contracting, Inc.

File: B-285666

Date: August 21, 2000

S. Leo Arnold, Esq., Ashley, Ashley & Arnold, for the protester.

Robert M. Anderson, Esq., and Edward Goldstein, Esq., Army Corps of
Engineers, for the agency.

Christina Sklarew, Esq., and Paul I. Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Award based on bid that may have included unbalanced pricing is
unobjectionable where agency's comparison of bids along with analysis of
awardee's contract line item prices provided an appropriate basis for
determination that the prices were reasonable and did not present an
unacceptable level of risk to the government.

DECISION

Reece Contracting, Inc. protests the award of a contract to Merrick
Construction Co. by the Army Corps of Engineers under invitation for bids
(IFB) No. DACW38-00-B-0010 for a levee construction project. Reece alleges
that Merrick's bid should have been rejected because it contained unbalanced
pricing that presented the likelihood of an advance payment.

We deny the protest.

The IFB, issued in January 2000, sought fixed-price bids for the
construction of levees, drainage structures, closure structures, and levee
surfacing as part of a larger project in Catahoula Parish, Louisiana. The
IFB listed 18 contract line item numbers (CLIN) for the work to be
performed, and required bidders to submit lump-sum prices for certain CLINs
and unit prices for others. Reece's protest is directed only at Merrick's
prices for CLINs 0001 (mobilization and demobilization), 0002 (clearing and
grubbing), 0003 (turfing), and 0008 (compacted fill).

The Corps estimated $5,973,246.20 as the cost of performance, without
profit, and received twelve bids ranging $4,962,359 to $8,726,490.62. After
the apparent low bidder discovered a mistake in its bid and was permitted to
withdraw, Merrick's bid of $5,396,557.50 became low, and Reece's $5,428,398
bid was next low. Reece filed an agency-level protest against the possible
award to Merrick, alleging that Merrick's bid was impermissibly unbalanced
because its acceptance would allow an advance payment. Agency Report, Tab E,
Agency-Level Protest, at 3. On June 5, the agency denied Reece's protest
because the contracting officer determined that while Merrick's bid appeared
to be unbalanced, it did not present an unacceptable risk to the government;
award was made to Merrick on June 9. Agency Report, Tab L, Agency Protest
Decision, at 13. Reece then filed this protest with our Office.

In arguing that Merrick's bid is impermissibly unbalanced, Reece points to
the prices below:

 CLIN                       Gov't      Merrick     Reece
                            Estimate

 0001 (Mob & Demob)         $ 39,610   $300,000    $215,000

 0002 (Clearing &           $228,500   $550,000    $418,500
 Grubbing)

 0003 (Turfing)             $184,760   $ 10,000    $127,200

 0008 (Compacted Fill)      $399,747   $681,000    $354,120

The thrust of Reece's argument is that Merrick's price for CLIN 0003
(turfing) is significantly underpriced, therefore, the reasonable costs of
this work must have been shifted to other CLINs that would be performed
earlier, resulting in an advance payment. [1] The protester argues that
while it "cannot be determined with specificity exactly where in its bid
Merrick shifted the reasonable costs for turfing," Protest at 5, these costs
"appear to have been shifted by the low bidder into either line items 1, 2,
or 8, or a combination of these items." Protest at 3.

The current provisions of the Federal Acquisition Regulation (FAR) governing
unbalanced pricing provide that unbalanced pricing exists where, despite an
acceptable total evaluated price, the price of one or more contract line
items is significantly overstated or understated. FAR sect. 15.404-1(g)(1).
Although prior FAR Part 15 provisions called for rejection of an unbalanced
offer if it was so grossly unbalanced that its acceptance would be
tantamount to allowing an "advance payment," FAR sect. 15.814(b)(2) (June 1997),
the recent revisions to FAR Part 15 eliminated any reference to "advance
payments," instead requiring a procuring agency to perform a risk analysis
to determine whether award on the basis of an apparently unbalanced offer
would result in paying unreasonably high prices or would otherwise present
an unacceptable level of risk to the government. FAR sect. 15.404-1(g)(2). [2]
The required risk analysis entails the agency's determination of price
reasonableness for the various line items, which we review for
reasonableness. [3] J&D Maintenance and Serv., B-282249, June 18, 1999, 99-2
CPD para. 28 at 7. If our review of that determination results in our conclusion
that it is unobjectionable, there is no separate basis for concern about a
possible proscribed advance payment since, if it is true that the government
is paying a reasonable price for each of the various line items (and
overall), it follows that the government is not paying more than the value
of the good or service being provided under each of the line items. Duke
Eng'g & Sons, Inc., B-284605, May 17, 2000, 2000 CPD para. ___.

Here, after reviewing Merrick's bid, the contracting officer concluded that
it appeared unbalanced. Agency Report at 4. In particular, the contracting
officer noted that Merrick's bid of $10,000 for turfing appeared to be
significantly understated when compared with the government estimate of
$184,760 and with other bids, such as Reece's $127,200 bid for this CLIN.
Id. The agency also considered the allegations raised by Reece in its
agency-level protest, and after reviewing Merrick's CLIN pricing, as
outlined below, concluded that notwithstanding the possibility of unbalanced
pricing, Merick's bid did not present an unacceptable risk to the
government.

The agency considered each of the three CLINs that Reece cites as possibly
having overstated prices. The first of these, CLIN 0001, involved
mobilization and demobilization, for which Merrick bid $300,000, Reece bid
$215,000, and the government estimate was $39,610 (without profit). The
agency recognized that the cost for this item is dependent upon a number of
factors, including the location of the bidder and the way in which the work
would be performed, and notes that the bids submitted for this CLIN varied
significantly, ranging from 62 percent below to 1036 percent above the
government estimate. The agency also points out that the RFP included
Defense FAR Supplement clause 252.236-7004, which specifically allows the
contracting officer to limit payment for mobilization and demobilization to
a contractor's actual costs and postpone payment until final payment where
the contracting officer determines that the lump-sum price for this CLIN
does not bear a reasonable relation to the cost of the work. Agency Report,
Tab L, Agency Protest Decision, at 4-5. Moreover, the clause provides that
where the contractor has failed to justify its price for this portion of the
bid, the contracting officer's determination of the actual costs is not
subject to appeal. Id. at 5. This clause effectively minimizes the risk that
the government will make an early payment of an unreasonably high price for
this portion of the work.

With respect to the second CLIN cited by Reece as possibly overstated, CLIN
0002 for clearing and grubbing, the Corps notes that prices also varied
widely among bidders, ranging from $185,000 (19 percent below the government
estimate) to $1,225,000 (436 percent above the government estimate). Id. The
contracting officer reasonably concluded that Merrick's $550,500 bid for
this CLIN was not overstated as it was broadly in line with other bids and
was, in fact, not much higher than Reece's $418,500 bid. We see no basis to
object to this conclusion.

Regarding CLIN 0008 for compacted fill, the protester points out that bids
for this item were submitted as unit prices, which were then extended by the
agency's estimate of the number of cubic meters of fill that would be
required. Reece hypothesizes that if the agency has underestimated the
required fill quantity, a relatively high unit price would have a
determinative impact on total price. Reece thus argues that Merrick's $10
per cubic meter price for this item, in comparison to Reece's $5.20 price
and the government estimate of $5.87, is sufficiently overstated that if the
actual requirement overruns the quantity estimate of 68,100 cubic meters by
slightly less than 10 percent, Merrick's price would no longer be low.
Protest at 6.

Reece describes the work to be performed under CLIN 0008 as part of the
construction of a levee embankment across a bayou for a distance of
approximately 160 meters in water approximately 2 meters deep. As a first
step, the contractor must construct two uncompacted fill dikes across the
bayou and pump the water out from between the two dikes; then the mud is
removed and replaced by a 1.5 meter-thick layer of stone, under CLIN 0011.
Compacted fill material, covered by CLIN 0008, is then placed to a specified
elevation. Protest at 3. Reece argues that the quantity of material that
must be placed under CLIN 0008 could vary substantially from the estimated
quantity. Further, Reece alleges that the foundation under the stone layer
consists of the bayou bottom "which is subject to subsidence or settlement,"
and contends that the inclusion of a provision in the RFP permitting the
placement (at the contractor's option and expense) of settlement gages to
measure the amount of any additional fill material required indicates that
the potential for settlement is great. Protester's Comments at 4.

We do not find these arguments persuasive. Reece did not challenge the
accuracy of the estimates prior to bid opening, and the mere inclusion of a
clause providing a measuring methodology for an increased quantity of fill
material does not, in our view, reflect any probability that the requirement
will, in fact, exceed the initial estimate. The Corps acknowledges that
there are potentially greater risks to the government where prices are based
upon quantity estimates, but concluded here that the risk was not
unacceptable because the dirt fill quantity estimates are reasonably
certain. Agency Report at 7. The chief of the Corps's cost engineering
section associated with this project assessed the fill requirement and
determined that there was no basis to conclude that there were any possible
estimate variances that were likely to cause Merrick's actual price to
become greater than Reece's. Agency Report, Tab M, Technical Analysis, at 1.
This assessment pointed out that the estimate is based on the best
information available, which is reflected in the IFB plans and
specifications that permit accurate calculation of the required fill, and
that there is an equal possibility that the quantity required will be less
than the estimate. The engineer further noted that this CLIN involves
filling and closure of areas that the contractor itself would have excavated
under CLIN 0010 and that the specifications require that upon completion of
the excavation of the soft material, the area will be surveyed to determine
the pay quantities of the fill material based on the theoretical volume.
Thus, any increase in the quantity of CLIN 0008 would be the direct result
of a soft material over-excavation of CLIN 0010, [4] and any overrun in
quantity of the fill material (CLIN 0008) will be equal to the quantity of
overrun in the soft material excavation (CLIN 0010), where the overrun is a
result of the lowering of the foundation elevation. Id. at 1-2. Since
Reece's unit price for the excavation work was $14 per cubic meter, while
Merrick's price was $5, if there were any overruns for these two CLINs, the
agency reasonably concluded that Reece's overall price would remain higher
than Merrick's. Agency Report at 8.

In sum, the protester has not shown any basis to conclude that the
requirement under CLIN 0008 is likely to be greater than the estimate
reflects, and the agency analyzed the requirement and the awardee's pricing
and reasonably determined that award to Merrick would not result in payment
of unreasonable prices and that there was not an unacceptable risk
associated with Merrick's pricing of this CLIN and of the other CLINs at
issue. In our view, the agency has satisfied the FAR requirements regarding
Merrick's possibly unbalanced pricing by reasonably determining that the
risks presented by Merrick's pricing structure were not significant enough
to render its low bid unacceptable. Red River Serv. Corp., B-282634,
B-282634.2, July 15, 1999, 99-2 CPD para. 31 at 2-3. The fact that the protester
disagrees or can construct a hypothetical situation under which the
awardee's bid might not be low does not call into question the
reasonableness of the agency's conclusion.

The protest is denied.

Robert P. Murphy

General Counsel

Notes

1. To the extent that Reese's allegation is actually nothing more than that
Merrick's price for CLIN 0003 is unreasonably low, the protest is not for
consideration on the merits as there is no legal basis to object to the
submission or acceptance of a below-cost offer. Stocker & Yale, Inc.,
B-249466.2, Jan. 29, 1993, 93-1 CPD para. 88 at 4, n.3.

2. FAR sect. 14.404-2(g) makes these considerations applicable to sealed bids,
providing that a bid may be rejected if prices for any line items or subline
items are materially unbalanced using the FAR sect. 15.404-1(g) risk analysis.

3. FAR sect. 14.408-2 provides that the price analysis performed in making the
required determination that a bid is reasonable shall consider whether the
bid is materially unbalanced under FAR sect. 15.404-1(g).

4. While Reece disputes this conclusion, arguing that an increased
requirement under CLIN 0008 could be the result of subsidence of the
foundation, it offers no explanation why this should occur, beyond its
allegation that "[g]iven the nature of the work required by Bid Item 8 . . .
it is likely that it will substantially overrun the estimated quantity."
Protest at 6.