TITLE:  GTSI Corporation, B-286979, March 22, 2001
BNUMBER:  B-286979
DATE:  March 22, 2001
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GTSI Corporation, B-286979, March 22, 2001

Decision

Matter of: GTSI Corporation

File: B-286979

Date: March 22, 2001

Kevin P. Connelly, Esq., Joseph J. Dyer, Esq., and Robert F. Pezzimenti,
Esq., Seyfarth Shaw, for the protester.

David R. Hazelton, Esq., and C. Thomas Powell, Esq., Latham & Watkins, and
Andrew E. Shipley, Esq., Northrop Grumman Corporation, for Federal Data
Corporation; and Michael A. Hordell, Esq., and Laura L. Hoffman, Esq.,
Kilpatrick Stockton, for PRC, Inc., intervenors.

Vera Meza, Esq., Department of the Army, for the agency.

Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Protest by an awardee of an agency's stated intent to take corrective
action in accordance with an agency-level protest decision holding that the
awardee's contract violated the terms of the solicitation and should be set
aside, is not premature, even though the agency has not yet announced
whether it will simply terminate the awardee's contract (leaving another
offeror as the only awardee) or reopen the competition among the awardee and
the remaining unselected offerors, because the awardee faces harm under
either of the corrective action options available.

2. The submission of a below-cost or low profit offer is not illegal and
provides no basis for challenging an award of a fixed-rate contract to a
responsible contractor.

3. Agency-level protest decision sustaining an offeror's challenge to an
award may not form the basis for agency corrective action where the agency
protest decision erroneously concludes that (1) the awardee's offer of $0.00
for certain contract line items (CLIN) violated the terms of the
solicitation, and (2) accepting the awardee's $0.00 prices, while advising
another offeror during discussions that it could not enter the acronym "NSP"
(not separately priced) for certain other CLINs, gave the awardee an
impermissible competitive advantage.

DECISION

GTSI Corporation protests a decision by the Department of the Army that
GTSI's indefinite-delivery/indefinite-quantity (ID/IQ) task order contract
for servers, workstations, accessories, and support was awarded improperly.
Specifically, GTSI challenges the Army's decision, rendered in response to
an agency-level protest to the Army Materiel Command (AMC), that GTSI's
proposal violated the terms of the solicitation, and that the violation
provided GTSI with an impermissible competitive advantage over other
offerors.

We sustain the protest.

BACKGROUND

GTSI's contract was awarded pursuant to request for proposals (RFP) No.
DAAB07-00-R-H254, issued by the Army's Communications-Electronics Command
(CECOM), for commercial-off-the-shelf servers, workstations, operating
systems, compilers, software applications, peripherals, local and wide area
networking, engineering and support services, managed environment support,
maintenance, system upgrades, training, leasing, documentation, and
consumables to meet world-wide requirements of the U.S. government. Source
Selection Decision at 1. The solicitation anticipated award of a fixed-price
ID/IQ task order contract, or contracts, to the offeror, or offerors, whose
proposal was determined to be the most beneficial to the government, as
assessed under five evaluation factors (which are not relevant to this
dispute). RFP sect. M at 1. Potential offerors were also advised that the
resulting contract(s) would be in place for a base period of 24 months,
followed by up to three 1-year options. Source Selection Decision, supra.
Ordering from the contract(s) was to be permitted by any federal agency,
including foreign military sales customers. Id.

Four provisions in section L of the RFP provide pricing guidance relevant to
this dispute. These provisions state that:

(1) Offerors must propose on all required CLIN/SLINs [1] and satisfy all of
the requirements of this solicitation, RFP sect. L at 2;

(2) All CLINs/SLINs shall be priced and shall be separately orderable, Id.
at 42;

(3) Pricing for any CLIN/SLIN must stand alone, and not be dependent upon
the authorization of any other CLIN/SLIN, Id. at 46; and

(4) Labor categories shall be priced using fully loaded fixed labor rates
for the life of the contract, exclusive of overtime, to be used for the term
of the contract under task orders requiring hourly, daily, weekly, monthly
and yearly work, as set forth in the Schedule. Id.

At the conclusion of the competition, CECOM made awards to GTSI and
IBM-Global Services Federal for estimated prices of $857.2 million and
$617.6 million, respectively. Agency Report, Memorandum of Law, at 8. During
debriefings on the award decisions, the two unsuccessful offerors, Federal
Data Corporation (FDC) and PRC, Inc., learned for the first time that GTSI
entered "$0.00" for certain CLINs that required hourly, daily, weekly,
monthly, and yearly rates for a program manager. After their debriefings,
both FDC and PRC filed an agency-level protest to AMC. Among other issues,
FDC argued that GTSI's pricing approach for the project manager CLINs
violated the solicitation's requirement that all labor rates be
fully-burdened. [2]

In sustaining FDC's challenge to GTSI's pricing approach, the AMC decision
noted that during discussions, CECOM sent several deficiency letters to FDC
to advise it that its entry of "NSP" (an acronym for "not separately
priced") for certain hardware CLINs was not permitted. Though not explained
in the decision, the record shows that these deficiency letters advised FDC
that its approach violated the RFP's requirement that all CLINs be
"separately orderable." Agency Report, Tab 9. As a result, FDC provided
prices for those CLINs in its revised proposal. AMC Decision at 6. The AMC
Decision also noted that no such letter was sent to GTSI with regard to its
entry of $0.00 for the 15 CLINs for program manager services. Id.

Based on these facts, the AMC decision reasons that GTSI was granted
"pricing flexibility not allowed to other offerors" and that this
flexibility provided the company "a significant competitive advantage." Id.
at 7. The decision concludes that GTSI's award should be set aside because
"[t]his inconsistent application of the RFP ground rules violated the
express terms of the solicitation and provided GTSI with an impermissible
competitive advantage over the protesters." [3] Id. To remedy this
competitive advantage, the decision directs CECOM to take "appropriate
corrective action." Id. at 12. Specifically, the decision advises that:

[s]hould the agency elect to continue to pursue multiple awards under this
solicitation, we recommend that it reopen the competition to allow for
proposal revisions from GTSI, PRC, and FDC in accordance with the ground
rules contained in the solicitation.

Id. Upon receipt of the agency-level decision, GTSI filed this protest with
our Office.

DISCUSSION

GTSI argues that the AMC decision erred as a matter of law, because GTSI's
entry of $0.00 for 15 program manager CLINs violates no statute, regulation,
or provision of the solicitation. In addition, GTSI argues that there was no
inconsistency in CECOM's decision to accept GTSI's $0.00 pricing for the
program manager CLINs, while advising FDC that the solicitation did not
permit the use of "NSP" for certain hardware CLINs.

In response, the Army argues that GTSI's protest is premature and should be
dismissed. The Army also argues that the AMC protest decision properly
concluded that GTSI's pricing approach violated the terms of the
solicitation, was ambiguous, and gave GTSI an impermissible competitive
advantage. FDC and PRC, the successful protesters before AMC, have
intervened in support of the Army's position.

With respect to its assertion that this protest is premature, the Army
argues that GTSI's award has not been terminated, and CECOM has not yet
announced its intended corrective action. On the other hand, the Army also
takes the position that CECOM has been directed to take corrective action,
and that, despite the delay to date, CECOM has no discretion about whether
to do so. As set forth below, we think the issues raised by GTSI's protest
should not be dismissed as premature.

Our reading of the AMC decision is that the Army's protest authority has
concluded that GTSI's pricing approach cannot be accepted under the terms of
this solicitation. AMC Decision at 7 (the protest is sustained because
"[t]his inconsistent application of the RFP ground rules violated the
express terms of the solicitation . . . ."). To remedy this situation, the
recommendation portion of the decision, quoted above, grants CECOM the
discretion to decide whether to continue to pursue multiple awards. Should
CECOM decide to abandon its intent to make multiple awards, GTSI's contract
will be terminated on the basis that it was improperly awarded, leaving only
IBM as the awardee. Should CECOM continue its pursuit of multiple awards,
the competition will be reopened among GTSI, FDC, and PRC, which might also
result in the loss of GTSI's award (although we recognize that other
possibilities are reselection of only GTSI after the reopened competition,
or reselection of GTSI along with one or both of the other offerors).

Thus, the AMC decision puts GTSI on notice that its contract will either be
terminated, or recompeted. In addition, because of the conclusions in the
decision, if the competition is reopened GTSI is on notice that it will not
be allowed to use "$0.00" for the program manager CLINs, and that it will
have to reprice its proposal in an environment where the other offerors have
been given access to GTSI's prices during their debriefings. Since GTSI
views the AMC decision as legally incorrect, and since the company faces
harm from the application of this allegedly incorrect decision under either
of the options available to CECOM, its challenge here is not premature.

Turning to the merits of this dispute, the Army's report to our Office
argues that GTSI's pricing approach violated the terms of the solicitation,
was ambiguous, and gave GTSI an impermissible competitive advantage. We
disagree. As explained in detail below, we reach this conclusion based on
our review of the holding in the AMC decision that GTSI's pricing approach
violates the solicitation's requirement that labor categories be "priced
using fully loaded fixed labor rates." RFP sect. L at 46. We also conclude that
none of the other solicitation provisions applicable to this dispute is
violated by GTSI's approach, nor does the Army's acceptance of the approach
provide GTSI with an impermissible competitive advantage. Finally, we
conclude that none of the other reasons set forth by the Army in its report
support its decision to set aside GTSI's award (via either termination or
reopening).

The foundation of our approach to this analysis is our long-standing premise
that a below-cost bid or offer is permissible in a fixed-price environment.
Even in cases, like here, where an offeror proposes labor rates that are
below cost, we have held that the submission of a below-cost or a low-profit
offer is not illegal and provides no basis for challenging an award of a
firm, fixed-rate contract to a responsible contractor, since fixed-rate
contracts are not subject to adjustment during performance, barring
unforeseen circumstances. ORI, Inc., B-215775, Mar. 4, 1985, 85-1 CPD para. 266
at 4. In addition, we have applied this principle in cases like this one
where the solicitation expressly requires that the labor rates be
fully-burdened. See, e.g., Pulau Elecs. Corp., B-280048.4 et al., May 19,
1999, 99-2 CPD para. 99 at 11 (where, in a protest sustained on other grounds,
we denied a challenge to an agency's acceptance of an offeror's discounted
prices for fixed-price orders despite an RFP requirement that the labor
rates used in computing prices be fully-burdened).

Similarly here, we conclude that there is nothing about the solicitation's
requirement that labor categories be priced using fully-loaded labor rates
that bars a price of $0.00 for a particular CLIN. [4] In our view,
provisions like this one in a fixed-price environment serve not as an
absolute bar to below-cost pricing, but rather as an up-front admonition to
potential offerors to be sure to include all applicable costs in the price
of each CLIN in their proposal because the agency will not entertain claims
for those costs after award. See ORI, Inc., supra.

We turn next to the other requirements of section L that provide guidance to
offerors about pricing their proposals. These guidelines, quoted above and
summarized here, state that: (1) offerors must propose to perform all
required CLINs, (2) all CLINs must be priced, and must be separately
orderable, and (3) pricing for any CLIN must stand alone, and not be
dependent upon the authorization of any other CLIN. RFP sect. L at 2, 42, 46. In
our view, GTSI's pricing approach violates none of these requirements.

As a preliminary matter, we note that most of our guidance in this area has
arisen in the context of sealed bid procurements. In that context, we have
held that bidders who will perform a portion of the work without charge must
make some kind of entry at the appropriate place on the bid schedule to
establish without doubt their affirmative intent to be bound to perform the
work covered by the CLIN. AUL Instruments, Inc., B-220228, Sept. 27, 1985,
85-2 CPD para. 351 at 2. In a negotiated procurement, as in the context of
sealed bids, GTSI's entry of $0.00 for the program manager CLINs, as a legal
matter, signaled its awareness of the requirement, and its agreement to be
bound to perform it, thus satisfying the RFP's requirement that offerors
propose to perform all required CLINs. Integrated Protection Sys., Inc.,
B-229985, Jan. 29, 1988, 88-1 CPD para. 92 at 2.

Next, the GTSI approach includes a price for the CLIN, albeit $0.00, and
takes no issue with the requirement that the CLIN be separately orderable.
See id. (protester expressly argued that $0.00 is not a price, and its
contention was denied). Nor does GTSI's entry of $0.00 suggest that the CLIN
is dependent on the agency's authorization of any other CLIN. Thus, GTSI's
pricing is in no way inconsistent with the RFP's requirements that all CLINs
be priced, separately orderable, and not dependent on ordering any other
CLIN.

We recognize that an offeror's use of "NSP" pricing may cast doubt on the
offeror's commitment to provide the CLIN in question separately and
independent of orders of other CLINs. Federal Sys. Group, Inc., B-261781,
Sept. 28, 1995, 95-2 CPD para. 155 at 4. While NSP pricing generally is
considered synonymous with an entry of $0.00 for purposes of establishing a
bidder's intent to be bound, AUL Instruments, Inc., supra, these entries do
not have an equivalent meaning with regard to whether they are inconsistent
with a solicitation provision requiring that CLINs be separately orderable.
On the contrary, while an entry of NSP, by its terms, means that the item in
question is "not separately priced" and therefore suggests that it may not
be orderable separate from other CLINs, an entry of $0.00 does not raise any
such question about the offeror's intent to provide the CLIN without a
separate purchase of another CLIN.

With respect to the second conclusion of the AMC decision--that GTSI was
given an impermissible competitive advantage when it was permitted to enter
$0.00 for program manager CLINs, while FDC was not permitted to enter "NSP"
for certain hardware CLINs--we again disagree. As discussed above, GTSI's
pricing strategy did not violate the terms of the solicitation, or any of
the applicable caselaw. Thus, GTSI did only that which it was allowed to do.
In addition, we think the agency appropriately advised FDC, during
discussions, that its entry of "NSP" for certain hardware CLINs would
violate the solicitation's requirement that all CLINs be separately priced,
and separately orderable. Put simply, an offer for a given CLIN that is "not
separately priced," by definition, runs afoul of this requirement. Federal
Sys. Group, Inc., supra. Although the conclusion that accepting GTSI's $0.00
pricing strategy while simultaneously advising FDC of problems with its
"NSP" strategy, seems initially counterintuitive, our view on reflection is
that CECOM acted properly on both fronts. See Computer Data Sys., Inc.,
B-223921, Dec. 9, 1986, 86-2 CPD para. 659 at 5-6, recon. denied, B-223921.2,
Jan. 7, 1987, 87-1 CPD para. 22 (upholding an agency's rejection of a proposal
that used "NSP" in a procurement where zero pricing was expressly
permitted). Thus, we find that the AMC decision, in both its conclusions,
was legally wrong.

In addition to the AMC decision, the Army's report to our Office in response
to this protest raises two other arguments that it contends support its
decision to overturn GTSI's contract award. Both arguments involve matters
not considered by the AMC protest decision (nor by the underlying procuring
command). One is that the GTSI offer was ambiguous; the other is that the
offer raises the specter of performance risk, as considered by our Office in
The Orkand Corp; Department of the Navy--Recon., B-224466.2, B-224466.3,
Jan. 23, 1987, 87-1 CPD para. 88 (reversing SMC Info. Sys., B-224466, Oct. 31,
1986, 86-2 CPD para. 505). Agency Memorandum of Law at 11-13.

With respect to whether the GTSI proposal was ambiguous, there is no
evidence in this record of any such concern. As indicated above, the
contracting command made written findings about GTSI's pricing approach, set
forth below, which make no mention of any concern about ambiguity, and which
conclude that GTSI has agreed to provide program manager services as
required. In addition, there is nothing in the AMC decision suggesting that
the Army's protest authority had such concerns. Rather, the first instance
in the record of any concern about ambiguity is found in the Memorandum of
Law prepared by the agency attorney.

While we think the agency attorney may properly argue ambiguity as a legal
matter, this argument, in essence, merely revisits the contention that
GTSI's $0.00 offer for program manager CLINs will not be separately
orderable without ordering other equipment and services. As indicated above,
our review of the applicable caselaw, and GTSI's proposal leads us to
conclude that GTSI's $0.00 prices were not ambiguous. GTSI's proposal, on
its face, commits the company to provide program manager services, prices
those services at $0.00, and does not tie purchase of the services to
purchase of any other goods or services in the contract. [5] See Integrated
Protection Sys., Inc., supra (holding that zero is a price, and that there
is nothing improper about accepting a price of zero).

Similarly, the agency's Memorandum of Law raises for the first time a
concern that GTSI may minimize the use of program manager hours in
performing task orders under this contract. Thus, the agency argues that
concerns about performance risk, as faced by our Office in Orkand, support
its conclusion that GTSI's award should be overturned. Again, we disagree.

Our decision in Orkand reversed a prior decision, SMC Info. Sys., supra,
where we sustained a protest challenging the Navy's rejection of a bid that
used "NSP" for the labor categories of program manager and group manager. In
the initial decision, we held that using "NSP" was equal to bidding $0.00,
the bid established SMC's intent to be bound, and there was no basis to
reject the bid. SMC, supra at 4. On reconsideration, we reversed SMC based
upon the Navy's documented concerns that acceptance of the bid would subject
the government to unacceptable cost and performance risks. Orkand--Recon.,
supra, at 2-4.

The record here contains conclusions diametrically opposite those expressed
by the Navy in SMC and Orkand. Specifically, as set forth in response to the
AMC protest, the CECOM selection authority stated that he accepted GTSI's
pricing approach after reviewing the company's June 14 proposal submission,
which explained the company's approach to pricing these CLINs. Source
Selection Authority and Source Selection Evaluation Board Chairman's
Statement at 13. Based on this review, the selection authority made findings
of possible risk associated with accepting GTSI's decision to price program
management at $0.00. In these findings, at 15, the selection authority
determined that there was no unacceptable risk to the government in the
approach because:

(a) GTSI's letter dated 14 June 2000 has assured the Government that Program
Management hours will be included as required in individual delivery orders
and that they will utilize individuals with the requisite qualifications as
stated in the RFP.

(b) The 14 June 2000 letter also stated that costs for the Program
Management hours are included in the overhead charges (which was verified by
the 13% increase in all other labor rates at the time of the submission of
the $0.00 Program Management rate).

(c) The Program Manager provided will meet the RFP requirements in the
Performance Specification paragraph 11.1.

(d) The award was priced reasonably (in light of the comparison of GTSI's
overall price to the competition) and posed no unacceptable risk to the
Government.

Given these express determinations in the record by the selection authority,
we have no basis to accept an argument made in the agency report to our
Office based on unsubstantiated (and in fact, flatly refuted) concerns that
a risk of poor performance justifies overturning GTSI's award. See ITT Fed.
Servs. Int'l Corp., B-283307, B-283307.2, Nov. 3, 1999, 99-2 CPD para. 76 at
5-6; Boeing Sikorsky Aircraft Support, B-277263.2, B-277263.3, Sept. 29,
1997, 97-2 CPD para. 91 at 14-15.

RECOMMENDATION

Since we conclude that the AMC protest decision was legally wrong, and since
the Army has shown no other valid basis for overturning GTSI's award, we
recommend that the agency abandon its intent to take corrective action in
accordance with the AMC protest decision. Since CECOM has not yet terminated
GTSI's contract, or reopened the procurement, we recommend that the agency
leave the contract in place, and permit GTSI to compete with the other
awardee, IBM, for future task order awards under the contract. 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.

The protest is sustained.

Anthony H. Gamboa

General Counsel

Notes

1. The acronym SLIN used in these quotes is a reference to a sub-line item,
which is a further breakdown of a CLIN (contract line item).

2. We note that PRC also challenged GTSI's entry of $0.00 for these CLINs,
arguing that GTSI's approach rendered its proposal unbalanced. The AMC
decision expressly did not reach PRC's contention. AMC Protest Decision,
Dec. 4, 2000, at 7.

3. The remainder of the two protests was denied.

4. In applying this principle to the instant dispute, we recognize that
there is a continuum of possibilities between a price of $0.00 and a price
that is slightly less than full cost. None of the parties here (nor our
Office) has identified any case or principle suggesting that there is a
point in this continuum below which an offeror's "below-cost" price becomes
so low that it must be rejected as a matter of law. Instead, we have held
that such matters involve bidder or offeror responsibility, and we have
recognized that these judgments are largely matters of discretion. Pacific
Fabrication, B-219837.2, Aug. 30, 1985, 85-2 CPD para. 263 at 2.

5. In addition, we note for the record that during the course of this
protest GTSI reaffirmed its intent to provide program manager services for
$0.00, even if the services are ordered separately. Declaration of GTSI's
Vice President for Business Development and Technical Solutions, Jan. 30,
2001, at 1-2. In this Declaration, GTSI acknowledged that it anticipates
that, in most instances, procuring agencies will not buy program manager
services from an awardee that is not also providing hardware. On the other
hand, the company explained that it would welcome separate orders of program
manager services, despite its price of $0.00, because it would put a GTSI
employee on a site where the company previously had no access, and would
probably increase long-term sales. We further note that this is a commercial
procurement and that GTSI explains that its commercial practice is not to
charge separately for its program managers, but to recover these costs in
its overhead. GTSI's explanation that this approach is consistent with its
commercial practice, and its reaffirmation of its willingness to provide
program managers separately, if asked, further reinforce the agency's
initial interpretation, and our view, that GTSI's offer for these services
stands alone.