TITLE:  Clearwater Instrumentation, Inc., B-286454.2, September 12, 2001
BNUMBER:  B-286454.2
DATE:  September 12, 2001
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Clearwater Instrumentation, Inc., B-286454.2, September 12, 2001

Decision

Matter of: Clearwater Instrumentation, Inc.

File: B-286454.2

Date: September 12, 2001

Jay P. Urwitz, Esq., and Barry J. Hurewitz, Esq., Hale and Dorr, for the
protester.

Stephen S. Kaye, Esq., and Rebecca A. Ford, Esq., Bryan Cave, for MetOcean
Data Systems Limited, an intervenor.

Talbot J. Nicholas II, Esq., Department of Transportation, for the agency.

Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Where agency took corrective action in response to an earlier protest by
amending the solicitation and reopening discussions, the prior disclosure of
protester's prices and the request for final proposal revisions did not
create an improper auction.

DECISION

Clearwater Instrumentation, Inc. protests the award of a contract to
MetOcean Data Systems Limited under request for proposals (RFP) No.
DTCG40-00-R-50012, issued by the Department of Transportation, United States
Coast Guard, for self-locating datum marker buoys, which are designed to be
deployed from aircraft and are oceanographic drifters that provide near
real-time surface current data during search and rescue missions. Clearwater
challenges the award to MetOcean, which submitted a technically equal,
lower-priced proposal.

We deny the protest.

BACKGROUND

Prior Protest

The RFP, issued on May 19, 2000, contemplated the award of a fixed-price
requirements contract. The RFP stated that the award would be made to the
responsible offeror whose proposal was determined most advantageous to the
government, considering technical evaluation factors (which included, in
descending order of importance, technical description; quality factors;
facilities/equipment; key personnel; corporate experience; and projected
workload), past performance, and price. The technical and past performance
evaluation factors were more important than price. The RFP price schedule
included contract line item No. (CLIN) B.0.11 for one separately priced
"approval drawing package in accordance with specification P-420-0349,
paragraph 3.8.3." RFP at 3. These drawings were required to show complete
manufacturing and engineering design data, and were to become the property
of the Coast Guard. RFP at 31.

On September 22, the agency awarded a contract to Clearwater, which
submitted a technically equal, lower-priced proposal. On September 27, the
agency modified Clearwater's contract by deleting the requirement
corresponding to CLIN B.0.11, after basically concluding that the drawings
would provide no useful information for future acquisitions by the Coast
Guard of more technologically advanced buoys. MetOcean subsequently
protested the award to Clearwater, arguing, among other things, that it was
prejudiced because it was not afforded an opportunity to revise its price in
light of the agency's decision to eliminate the CLIN B.0.11 requirement.

The General Accounting Office (GAO) attorney handling the MetOcean protest
conducted an "outcome prediction" alternative dispute resolution (ADR)
conference with the parties. See Inter-Con Sec. Sys., Inc.; CASS, a Joint
Venture--Costs, B-284534.7, B-284534.8, Mar. 14, 2001, 2001 CPD para. 54 at 2
n.1 (description of "outcome prediction" ADR). During this conference, the
GAO attorney expressed concern with the agency's conduct of the procurement.
Specifically, after reviewing the record, including the parties' arguments,
the GAO attorney found that MetOcean appeared to have been prejudiced by the
agency's failure to give that firm an opportunity to consider how the
decision not to procure the drawing package corresponding to CLIN B.0.11
would affect its price. As a result of the ADR conference, the agency
decided to terminate for convenience Clearwater's contract, to amend the RFP
to delete the CLIN B.0.11 requirement, and to reopen discussions with
MetOcean and Clearwater. GAO dismissed MetOcean's protest as academic based
on the corrective action. MetOcean Data Sys. Ltd., B-286454, Jan. 4, 2001.

Current Protest

On March 8, 2001, the agency issued amendment No. 6, which specifically
deleted from the RFP price schedule CLIN B.0.11, as described above. The
amended RFP stated that overall cost to the government would become the
determining factor for award as proposals became more equal based on
non-price factors.

In addition, by letters dated March 8, the agency advised MetOcean and
Clearwater that it was reopening discussions. (By this point, MetOcean and
Clearwater were aware of each other's proposed unit prices. MetOcean
received Clearwater's unit prices in the debriefing letter (dated September
29, 2000) provided by the agency after the initial award to Clearwater.
Clearwater saw MetOcean's total prices for the relevant line items, from
which unit prices could be calculated, in the agency's administrative report
responding to MetOcean's initial protest.) In these letters, the agency
pointed out to both firms the areas in their technical and price proposals
that needed to be addressed in their final proposal revisions in order for
the firms to be eligible for award.

With respect to price, Clearwater was told that "[n]o issues to be
addressed. However, [the firm was being] given the opportunity to revise
[its] pricing when [it] submit[s] [its] final proposal revision." Agency
Report (AR), Tab 19, Discussion Letter from Contracting Officer to
Clearwater 2 (Mar. 8, 2001). MetOcean was notified that its prices were
considered unbalanced and too high for CLINs B.0.2 (first article test buoy
live) and B.0.3 (first article test buoy dummy) based on the prices of other
proposals received for the same items and the fact that the price proposed
for CLIN B.0.3 (an item without electronic components) was higher than the
cost of the production buoys. The agency advised MetOcean that its proposal
could be rejected if it did not correct the unbalanced pricing and that "[it
was being] given the opportunity to reduce [its prices] for [the
above-referenced] items [in its] final proposal revision." AR, Tab 20,
Discussion Letter from Contracting Officer to MetOcean 2 (Mar. 8, 2001). At
the time discussions were reopened, and as relevant here, MetOcean and
Clearwater had priced these two CLINs, on a unit price basis, as follows:

                MetOcean    Clearwater

 CLIN B.0.2     $10,155     $2,640

 CLIN B.0.3     $1,995      $1,494

AR, Tab 6, MetOcean Debriefing Letter 1 (Sept. 29, 2000).

MetOcean and Clearwater submitted final proposal revisions, including
technical and price revisions, by the March 29 closing time. For CLINs B.0.2
and B.0.3, MetOcean and Clearwater submitted the following revised unit
prices:

                MetOcean    Clearwater

 CLIN B.0.2     $2,900      $2,365

 CLIN B.0.3     $1,844      $1,219

AR, Tab 31, Clearwater Debriefing Letter 1 (July 5, 2001).

MetOcean's total proposed price of $1,385,556 was approximately 5 percent
lower than Clearwater's total proposed price of $1,460,531. AR, Tab 28,
Addendum to Price Negotiation Memorandum, at 7. This difference in price
between the two offerors was primarily the result of MetOcean's proposing a
lower price for the production units. [1] The final proposal revisions of
MetOcean and Clearwater were evaluated as follows:

                         MetOcean     Clearwater

 Technical (200          195.4        184.4
 maximum)

 Past Performance        93           97

 (100 maximum)

 Price (50 maximum)      46           43

 TOTAL                   334.4        324.4

Id. at 4, 6, 9.

The contracting officer, who served as the source selection authority,
determined that the proposals of MetOcean and Clearwater were essentially
technically equal, with each firm offering similar approaches, proposing a
good product, and demonstrating a clear understanding of the technical
requirements. Under these circumstances, the contracting officer selected
MetOcean's technically equal, lower-priced proposal for award. AR, Tab 27,
Source Selection Decision, at 1-3.

ISSUES AND ANALYSES

Improper Auction

Clearwater argues that the reopened competition amounted to an improper
auction since its prices, particularly for CLINs B.0.2 and B.0.3, were
revealed to MetOcean following the initial award. In Clearwater's view, the
only reasonable explanation for MetOcean's dramatic price reductions, which
secured the award for that firm, was that MetOcean knew the likely range of
Clearwater's lower prices. Protester's Comments at 4.

Since the Federal Acquisition Regulation (FAR) sect. 15.306(e)(3) does not
prohibit auctions, and where, as here, corrective action taken by the
agency--the reopening of the competition--was not improper, the prior
disclosure of proposal information, including prices, did not preclude the
corrective action, and the request for revised price proposals did not
constitute an improper auction. RS Info. Sys., Inc., B-287185.2, B-287185.3,
May 16, 2001, 2001 CPD para. 98 at 4. [2] In these circumstances, Clearwater has
failed to demonstrate a violation of law or regulation by the agency in
reopening this competition.

Price Evaluation

Clearwater complains that the agency failed to assess the reasonableness of
MetOcean's lower price. Protester's Comments at 5-10. However, Clearwater's
complaint is not supported by the record. [3]

The record shows that in evaluating the reasonableness of the proposed
prices, the agency compared the prices proposed by MetOcean and Clearwater
to each other (and to the lowest-priced, minimally acceptable proposal
submitted by a third offeror) and to the government estimate. AR, Tab 28,
Addendum to Price Negotiation Memorandum, at 7-8. (All three firms submitted
prices significantly less than the government estimate, which was based on
prices for prototypes.)

The price evaluation approach used by the agency was consistent with
FAR sect. 15.404-1(a)(1), (b)(2), which lists various price analysis techniques
(e.g., comparison of proposed prices received in response to the
solicitation and comparison of proposed prices with the independent
government estimate) that an agency may use, singly or in combination with
other techniques, to ensure that a final price is fair and reasonable.
Contrary to Clearwater's suggestion, there is no requirement that an agency
use all of the price analysis techniques listed in the FAR to determine that
an offeror's price, such as MetOcean's, was reasonable. In fact, FAR sect.
15.404-1(b)(2)(i) provides that "[n]ormally, adequate price competition
establishes price reasonableness." Here, considering that the prices
proposed by the three competitors were relatively consistent and in line
with each other, we have no basis to disagree with the agency's conclusion
that the prices proposed by MetOcean and Clearwater were reasonable and that
MetOcean's proposal would result in the lowest price to the government. AR,
Tab 28, Addendum to Price Negotiation Memorandum, at 8-9. [4]

Integrity of Unit Prices

Clearwater complains that MetOcean's pricing scheme, particularly its
dramatic price reduction for CLIN B.0.2 as reflected in its final proposal
revision, violated the clause at FAR sect. 52.215-14, captioned "Integrity of
Unit Prices," which was included in the RFP. (This clause requires that
offerors distribute costs within contracts on a basis that ensures that unit
prices are in proportion to actual costs and prohibits methods of
distributing costs to line items that distort unit prices. Astrosystems,
Inc., B-260399.2, July 11, 1995, 95-2 CPD para. 18 at 8 n.1.) Clearwater
maintains that MetOcean reduced its price for CLIN B.0.2 solely in response
to the agency's removal in amendment No. 6 of CLIN B.0.11, the drawing
package, which Clearwater characterizes as an "unrelated" item, and based on
the disclosure of Clearwater's prices after it was initially awarded the
contract. Protester's Comments

at 11-12. [5]

To prevail in a protest of an alleged violation of the referenced FAR
provision, the protester must establish both that the violation exists and
that the protester was prejudiced by the improper pricing methods.
Astrosystems, Inc., supra. Here, Clearwater's argument amounts, in part, to
a restatement of its improper auction argument, which was addressed above.
In addition, Clearwater has not articulated any meaningful basis to question
the reasonableness of the agency's determination that the award to MetOcean
will result in the lowest price to the government. Under these
circumstances, where Clearwater has failed to make the required showings, we
have no basis to question the integrity of MetOcean's unit prices.

CONCLUSION

We conclude that consistent with the terms of the RFP, which provided that
overall cost to the government would become the determining factor for award
as proposals became more equal based on non-price factors, the agency
reasonably selected MetOcean's technically equal, lower-priced proposal for
award.

The protest is denied.

Anthony H. Gamboa

General Counsel

Notes

1. For three production CLINs, MetOcean's unit prices were $1,854 each and
Clearwater's unit prices were $1,994 each. Clearwater does not challenge
MetOcean's prices for the production units.

2. We note that when the competition was reopened, MetOcean and Clearwater
were competing on a level playing field since each firm had knowledge of the
other's relevant unit prices, as discussed above.

In addition, to the extent Clearwater argues that there was no reasonable
basis to conduct new technical evaluations as part of the agency's
corrective action, this argument, raised after the new selection decision
was made, is untimely. Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(2)
(2001). In any event, we point out that Clearwater benefited from the new
technical evaluation as its revised technical score was higher than its
initial technical score.

3. Clearwater also complains that MetOcean "bought in." This matter,
however, constitutes a challenge to the submission of a below-cost or low
profit proposal. These types of proposals are not illegal and provide no
basis for challenging an award of a fixed-price contract to a responsible
contractor, like MetOcean, since fixed-price contracts are not subject to
adjustment during contract performance, barring unforeseen circumstances.
SatoTravel, B-287655, July 5, 2001, 2001 CPD para. ___ at 4-5 n.3. Here, in the
absence of unforeseen circumstances, MetOcean, not the agency, will bear all
financial risks, including a low profit margin.

4. The record further shows that the agency considered the technical risks
associated with the proposals submitted by MetOcean and Clearwater. With
respect to MetOcean, this firm also had a contract with the Navy; the agency
recognized that if performance under the Navy contract were expedited, such
action could affect MetOcean's performance of the Coast Guard contract. Id.
at 5. With respect to Clearwater, the agency considered that this firm's
quality assurance program did not appear to be institutionalized; that this
firm did not discuss subcontractor facilities; and that this firm did not
provide adequate details of projected workload. Id. While acknowledging
these risks, the agency nevertheless concluded that from a technical
perspective, these matters would not impede performance of the contract by
either MetOcean or Clearwater.

5. In its initial protest, Clearwater argued that MetOcean's prices were
unbalanced, citing FAR sect. 15.404-1(g). In its administrative report, the
agency addressed this matter. In its comments on the agency report,
Clearwater did not offer any meaningful response to the agency's position.
(For example, Clearwater did not allege that prices for particular line
items in MetOcean's proposal were significantly overstated or understated,
and it did not show that the award to MetOcean would result in the agency
paying unreasonably high prices to MetOcean for contract performance. See
South Atlantic Constr. Co., LLC, B-286592.2, Apr. 13, 2001, 2001 CPD para. 63 at
3-5.) Accordingly, we deem this ground for protest to be abandoned. See
Heimann Sys. Co., B-238882, June 1, 1990, 90-1 CPD para. 520 at 4 n.2.