TITLE:  Lockheed Martin Systems Integration--Owego--Costs, B-287190.5, March 20, 2002
BNUMBER:  B-287190.5
DATE:  March 20, 2002
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Decision

Matter of: Lockheed Martin Systems Integration--Owego--Costs

File: B-287190.5

Date: March 20, 2002

Thomas P. Humphrey, Esq., and Jonn E. McCarthy, Jr., Esq., Crowell & Moring,
for the protester.

Raymond M. Saunders, Esq., Maj. Howard W. Roth, III, and Capt. Richard L.
Hatfield, Department of the Army, for the agency.

Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Costs associated with responding to requirement for common avionics
architecture system did not constitute proposal preparation costs where
agency did not solicit proposals but, rather, was investigating requester's
viability as potential source; costs incurred thus are not proposal
preparation costs, and General Accounting Office has no authority to
recommend their reimbursement.

DECISION

Lockheed Martin Systems Integration--Owego (LMSI-O) requests that we
recommend that the Department of the Army reimburse the firm the costs
associated with its efforts to obtain a contract with the 160th Special
Operations Aviation Regiment, Airborne (SOARA) for a common aviation
architecture system (CAAS) software package for its fleet of helicopters.

We deny the request.

LMSI-O's request arises from the activities of SOARA in connection with its
acquisition of a CAAS software package; this is our third decision regarding
that purchase. As discussed in detail in our first decision, Lockheed Martin
Sys. Integration--Owego, B-287190.2, B-287190.3, May 25, 2001, 2001 CPD para.
110, the agency was interested in replacing the software systems deployed on
its fleet of five different models of helicopters. LMSI-O's product--the
Integrated Avionics Software system--was installed on two of the five
models, while Rockwell Collins's product--the Cockpit Management System
(CMS)--was installed on the other three models.

In an effort to determine LMSI-O's and Rockwell's ability to meet the
requirement, the agency engaged in a series of meetings with the firms.
SOARA expressed its requirements to the firms verbally over an extended
period of time and obtained information on their technical approaches,
costs, and schedules for designing and installing the CAAS software package.
At the conclusion of those meetings, the agency determined that only
Rockwell could meet the requirement within cost and schedule constraints,
see 10 U.S.C. sect. 2304(c)(1) (2000), and awarded two sole-source delivery
orders to Rockwell.

LMSI-O protested to our Office on the basis that the agency had improperly
concluded that LMSI-O could not meet the requirement. We sustained the
protest, finding that SOARA had misled LMSI-O with respect to its actual
requirements. In particular, we found that, during one of the meetings with
LMSI-O, SOARA's project manager had identified as requirements several
features of the CAAS development effort that the record showed were beyond
the agency's actual requirements. As a consequence, LMSI-O abandoned one
technical approach in favor of another in its effort to meet the agency's
stated requirements. The record further showed that LMSI-O's initial
approach met the agency's actual requirements and was comparable to
Rockwell's approach in terms of cost and schedule, whereas the approach it
adopted after being misled was not competitive from a cost and schedule
standpoint. We concluded that the agency's sole-source determination was
invalid.

Because the agency had determined that urgent and compelling circumstances
existed, and had continued performance in the face of the protest on this
basis, we considered it inappropriate to recommend that the agency compete
the requirement. We instead recommended that the agency "determine whether
it is practicable" to provide LMSI-O "an opportunity to respond to the
agency's requirement," and then "take action consistent with its
determination." Decision at 16. In response to our recommendation, SOARA
advised us that "it is impracticable at this juncture to provide [LMSI-O] an
opportunity to respond to [the] requirement due to potential disruption to
schedule and substantial additional costs if Lockheed were to participate."
Letter from United States Special Operations Command, Nov. 13, 2001, at 1.

LMSI-O now asks that we recommend that the agency reimburse its costs
incurred in responding to the agency's requirement. [1] LMSI-O maintains
that the agency's actions amounted to an "illegal competition," and that the
costs it incurred in responding to the competition amount to reimbursable
proposal preparation costs. LMSI-O Response to Agency Submission, Dec. 21,
2001, at 4.

Under the Competition in Contracting Act (CICA), where our Office finds that
an agency's procurement activities fail to comply with the requirements of
statute or regulation, we "may declare an appropriate interested party to be
entitled to the costs of . . . filing and pursuing the protest . . . ; and .
. . bid and proposal preparation." 31 U.S.C. sect. 3554(c)(1) (2000). [2] Bid or
proposal preparation costs are defined in Federal Acquisition Regulation
(FAR) sect. 31.205-18 as costs incurred in preparing, submitting and supporting
bids or proposals on potential contracts.

LMSI-O's characterization of the agency's actions as an illegal competition
is incorrect. We did not find in our prior decision that the agency
conducted an improper competition. To the contrary, we found that the
agency's proceeding without a competition was unwarranted because it
improperly had determined that LMSI-O was not a viable potential source.
LMSI-O's position here does not persuade us otherwise. The agency never
requested proposals or otherwise indicated to the requester that the
briefings and informal meetings in which it participated would result in a
contract. Further, the record shows that neither the agency nor the
requester viewed the activities as proposal-related. In this regard, the
record shows that the agency considered its activities to be in the nature
of market research. See, e.g. Hearing Transcript (Tr.) at 250; Agency
Report, exh. 78. LMSI-O also did not view its activities during this time as
proposal preparation activities. At the hearing we conducted in connection
with the protest, a LMSI-O employee described the firm's activities as
follows:

At that time, we were still hearing we're going to have a competition, okay?
We're going to try to influence the competition, as good contractors do,
before it happens, but we're not ready to give a [cost] number out when
we're in the mind-set that we're going to have a competition here.

Tr. at 201-202. That same witness also testified: "We're trying to do
anything, we're trying to be proactive. We're trying to find out what is
going on here. . . . We're floating trial balloons in front of the
government." Tr. at 230. It appears from LMSI-O's own description of its
activities that, rather than "preparing, submitting or supporting a proposal
for a contract," LMSI-O was engaged in "direct selling" activity, attempting
to influence a possible future competition. See FAR sect. 31.205-38(c). [3]

Given the nature of the meetings and the parties' own characterization of
their activities, we believe the agency's meetings and discussions with
LMSI-O were in the nature of market research, or a presolicitation exchange
of information, for the purpose of determining whether LMSI-O was a viable
potential contractor for the requirement, and how best to proceed with the
acquisition. Such presolicitation activities are encouraged by the FAR as a
means of improving understanding of the government's requirements and as
well as a means of exploring prospective offerors' capabilities to meet the
agency's need. FAR sect. 15.201 expressly permits market research (as described
in FAR part 10), and one-on-one meetings with potential offerors for these
purposes.

Accordingly, since LMSI-O's costs were not incurred in the preparation of a
proposal, we cannot properly recommend that they be reimbursed. 31 U.S.C.
sect. 3554(c)(2); see AT&T Technologies, Inc. v. U.S., 18 Cl. Ct. 315, 325
(1989) (selling costs and bid preparation costs are distinct, and the former
may not properly be paid as the latter); see also Bell & Howell Co.,
B-180199, May 1, 1975, 75-1 CPD para. 273 (prior to CICA, request for proposal
preparation costs denied where costs were incurred by firm in submitting an
unsolicited proposal in an attempt to influence the acquiring activity to
broaden the competition for a requirement, and firm had no reasonable
expectation of being awarded a contract).

The request is denied.

Anthony H. Gamboa

General Counsel

Notes

1. The agency maintains that LMSI-O's request that we modify our
recommendation should have been filed within 10 days after receipt of our
decision, and therefore is untimely. However, such a request would have
merely anticipated that the agency's ultimate decision would be adverse to
LMSI-O's interests, and therefore would have

been premature. See The Analytic Sciences Corp., B-218074, Apr. 23, 1985,
85-1 CPD para. 464 at 8. Since LMSI-O's request was filed within 10 days after
it learned of SOARA's determination, it was timely. 4 C.F.R. sect. 21.2(a)(2)
(2001).

2. In contrast to our limited and clearly defined authority regarding
reimbursement of costs, we have broader authority with respect to remedies
to address flaws that our Office identifies in a procurement. There, we are
authorized to "implement such other recommendations as the Comptroller
General determines to be necessary in order to promote compliance with
procurement statutes and regulations." 31 U.S.C. sect. 3554(b)(1)(G).

3. "Direct selling" costs are defined in FAR sect. 31.205-38(c)(1) as costs
associated with a contractor's efforts to induce particular customers to
purchase particular products or services from the contractor, including,
typically: person-to-person contact, including familiarizing potential
customers with the contractor's products or services, negotiation, liaison
between government and contractor personnel and the provision of technical
and consulting expertise. In our view, this fairly describes the nature of
LMSI-O's activities in connection with responding to the agency's CAAS
requirement, and appears to comport with the firm's understanding of what it
was doing as well.