TITLE:  Kruger Construction, Inc., B-286960, March 15, 2001
BNUMBER:  B-286960
DATE:  March 15, 2001
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Kruger Construction, Inc., B-286960, March 15, 2001

Decision

Matter of: Kruger Construction, Inc.

File: B-286960

Date: March 15, 2001

Thomas S. Finegan, Esq., Goetz Fitzpatrick Most & Bruckman, and William J.
Thompson, Jr., Esq., Thompson & Waldron, for the protester.

Marion T. Cordova, Esq., Department of Agriculture, for the agency.

Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

In a sealed bid procurement which provided for adding the prices for option
items to the price bid for the basic item to determine the total evaluated
bid price, except where it was not in the best interests of the government,
the procuring agency could not properly add together the price of two
alternate option items in its price calculation, where the agency knew that
it could not exercise both options.

DECISION

Kruger Construction, Inc. protests the intended award of a contract to Danco
Contractors, Inc. under invitation for bids (IFB) No. 8273-3K15-00, issued
by the Agricultural Research Service, Department of Agriculture, for
construction services at the Plum Island Animal Disease Center, Greenport,
New York. Kruger argues that it offered the lowest evaluated price for the
actual work to be performed, after proper application of the evaluation
preference for small disadvantaged business (SDB) concerns.

We sustain the protest.

The IFB provided for the award of a contract for one basic item--the
construction of a new power plant at the Plum Island Animal Disease
Center--with five option items covering additional services. Option items
Nos. 4 and 5 were as follows:

Option Item No. 4-- Hazardous material abatement and demolition of Building
103.

Option Item No. 5-- Same as Option Item No. 4 above except include crushing
building rubble (concrete and CMU) and stockpiling on the island in lieu of
removal from the island.

IFB sect. B.2. Bidders were instructed to bid on all line items. [1]

The IFB included the standard Evaluation of Options clause, Federal
Acquisition Regulation (FAR) sect. 52.217-5, which provides:

Except when it is determined in accordance with FAR 17.206(b) not to be in
the Government's best interests, the Government will evaluate offers for
award purposes by adding the total price for all options to the total price
for the basic requirement. Evaluation of options will not obligate the
Government to exercise the option(s).

IFB sect. M.2. The IFB also included a Notice of Price Evaluation Adjustment for
SDB Concerns, FAR sect. 52.219-23, which provides that for evaluation purposes
the agency would add 10 percent to the price of bids from other than SDB
concerns (and other bid categories that are not relevant to this case). IFB
sect. I.11. The IFB also incorporated by reference the Contract Award--Sealed
Bidding--Construction clause of FAR sect. 52.214-19, which provides that the
agency will award a contract to the conforming bid found to be most
advantageous to the government, considering only price and price-related
factors specified in the IFB. IFB sect. L.1.

At bid opening, Agriculture received nine bids, including those of Kruger
(an SDB concern) and Danco Contractors (not an SDB concern), which were the
apparent

two lowest-priced bids. As verified, Danco's and Kruger's bids were as set
forth in the table on the following page: [2]

                            Danco           Kruger

 Base item                  $10,942,000     $11,263,503

 Option item No. 1          883,960         1,185,305

 Option item No. 2          31,310          69,000

 Option item No. 3          86,690          126,620

 Option item No. 4          580,630         939,148

 Option item No. 5          535,630         919,148

 TOTAL                      $13,060,220     $14,502,724

Legal Memorandum at 4.

To account for Kruger's SDB preference, Agriculture added 10 percent
($1,306,022) to Danco's total bid price indicated above (which included both
its option item Nos. 4 and 5 prices) to calculate an evaluated price of
$14,366,242. Because Danco's evaluated total bid price was still lower than
Kruger's $14,502,724 bid price, the agency determined that Danco should
receive award of the contract. This protest followed. Contract award has not
been made pending our decision in this matter.

The crux of Kruger's protest is that Agriculture erred in adding the firms'
prices for all option line items to the basic line item prices to determine
the total evaluated bid price, because, as the agency acknowledges,
Agriculture cannot exercise both option item Nos. 4 and 5, inasmuch as they
are alternate options. Protest at 4-5; Legal Memorandum at 2. Kruger states
that under any reasonable evaluation that considered the firms' prices to
perform the work for either option item No. 4 or option item No. 5, Kruger's
evaluated bid price would be lower than Danco's evaluated price (after
adjustment for Kruger's SDB evaluation preference). Under such an
evaluation, the firms' evaluated bid prices (with the addition of the SDB
evaluation of preference) would be as set forth in the table on the
following page:

                Kruger                     Danco

                Option 4 Option 5          Option 4 Option 5

 Base           $11,263,503  $11,263,503   $10,942,000  $10,942,000

 Option 1       1,185,305    1,185,305     883,960      883,960

 Option 2       69,000       69,000        31,310       31,310

 Option 3       126,620      126,620       86,690       86,690

 Option 4       939,148                    580,630

 Option 5                    919,148                    535,630

 Total          $13,583,576  $13,563,576   $12,524,590  $12,479,590

 Evaluated
 Price

 (Considering   $13,583,576  $13,563,576   $13,777,049  $13,727,549
 SDB
 preference)

Protest, exh. F, at F.2.

Agriculture does not dispute that Kruger's bid offered the lowest evaluated
price, if either option item no. 4 or no. 5 were considered, but not both.
Moreover, as noted above, Agriculture acknowledges that both options cannot
be exercised, but are alternate options. The agency argues, however, that
the RFP provided for including the prices of both option items to determine
the total evaluated bid price, and that Kruger's post-bid-opening protest of
the solicitation evaluation scheme is an untimely challenge to an apparent
solicitation impropriety. Agency Request for Dismissal at 3.

Kruger responds that the agency's request for dismissal ignores the standard
FAR Evaluation of Options clause, which provides that the agency would
evaluate offers for award by adding the total price for all options to the
total price for the basic requirement, unless the agency determined it not
to be in the government's best interests. Kruger argues that it is not in
the government's best interest to evaluate the prices of both option items
Nos. 4 and 5, where the two options cannot both be exercised or performed.
Response to Request for Dismissal at 4.

We disagree with Agriculture that Kruger's protest is untimely. As
indicated, the IFB provided that the agency would add the price of all
options to the price for the basic item, unless the agency decided that to
do so was not in the government's best interest. The FAR provides one
example of a situation where it may not be the government's best interests
to evaluate all options, that is, where "there is a reasonable certainty
that funds will be unavailable to permit exercise of the option." FAR sect.
17.206(b). Similarly, we have noted that not all options should be evaluated
under the standard Evaluation of Options clause, where the contracting
officer

knows with "reasonable certainty" that not all the options will be
exercised. See, e.g., Charles J. Merlo, Inc., B-277384, July 31, 1997, 97-2
CPD para. 39 at 3. Here, as the agency was well aware, both option item Nos. 4
and 5 cannot be exercised. Under the circumstances, it is not the inclusion
of the standard FAR Evaluation of Options clause that triggers the time for
Kruger's protest, but the agency's implementation of the clause. Thus,
Kruger's protest is timely.

Agriculture argues that it is proper to include the prices of both option
item Nos. 4 and 5 in its total evaluated price because it did not know (and
still does not know) which of the two options will be exercised. Legal
Memorandum at 11-12. The agency also argues that it is not in the best
interest of the government to exclude consideration of the price of one or
the other of the two options where this would result in the award of a
contract to a higher-priced bidder (that is, Kruger, if its price is
considered without application of the SDB evaluation preference). Id. at 12.

We disagree with the agency that it is not in the best interests of the
government to make award to a firm entitled to an SDB evaluation preference
at a price higher than that offered by a firm that is not entitled to such
an evaluation preference. See Legal Memorandum at 12. This argument ignores
the government's interest in promoting awards to SDB concerns. See FAR sect.
19.201. Indeed, the use of an evaluation preference in favor of SDB concerns
contemplates that an award may be made to an SDB concern at a price that is
higher than offered by a competing, non-SDB concern. See AMI Constr.,
B-286351, Dec. 27, 2000, 2000 CPD para. 211 at 5; Vitronics, Inc., B-237249,
Jan. 16, 1990, 90-1 CPD para. 57 at 2, aff'd, Interstate Commerce
Commission--Recon., B-237249.2, Apr. 16, 1990, 90-1 CPD para. 391.

We find that Agriculture could not reasonably determine that it was in the
government's best interests to evaluate both of these alternate options to
determine the total evaluated price. In this regard, as noted above,
Agriculture knew it would not exercise both options. Given that Kruger's bid
price, after application of the SDB evaluation preference, would be low,
regardless of which option is evaluated and exercised, we conclude that only
Kruger's bid could be determined most advantageous to the government,
considering price and price-related factors.

We sustain the protest and recommend that Agriculture make award to Kruger
based upon that firm's low evaluated bid price, if the agency otherwise
concludes that the bid price is fair and reasonable and that the firm is
responsible. We also recommend that the protester be reimbursed the
reasonable costs of filing and pursuing the protest, including attorney's
fees. 4 C.F.R. sect. 21.8(d)(1) (2000). The protester should submit its
certified claim for such costs, detailing the time expended and the costs
incurred, directly to the contracting agency within 60 days after receipt of
this decision.

Anthony H. Gamboa

General Counsel

Notes

1. Prior to bid opening, Kruger called the contracting officer regarding how
to price option items Nos. 4 and 5, because "Building 103 could not be
demolished twice." Kruger was instructed to fully price each line item.
Contracting Officer's Statement at 3; Protest at 4. Kruger also contends
that the contracting officer stated that the apparent price duplication for
demolishing Building 103 would be accounted for during the bid price
evaluation. Protest at 4. The agency denies that this statement was made.
Contracting Officer's Statement at 3.

2. Both firms made errors in accounting for the pricing of option items Nos.
4 and 5. Danco only indicated for its option item No. 5 price the amount of
reduction from its option item No. 4 price ($45,000), and Kruger priced
option item No. 5 but did not include that price in its total bid price
calculation. The table shows the intended bids.