TITLE:  COBRO Corporation, B-287578.2, October 15, 2001
BNUMBER:  B-287578.2
DATE:  October 15, 2001
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Decision

Matter of: COBRO Corporation

File: B-287578.2

Date: October 15, 2001

Roderic G. Steakley, Esq., and Donald H. Spencer, Esq., Sirote & Permutt,
for the protester.

Craig E. Hodge, Esq., and Brian E. Toland, Esq., U.S. Army Materiel Command,
for the agency.

Paul I. Lieberman, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest of cost comparison pursuant to Office of Management and Budget
Circular No. A-76 is sustained where the solicitation inviting
private-sector proposals erroneously required offerors to provide facilities
for new inventory rather than making available existing government
facilities, without the agency's having a reasonable basis for the
restrictive requirement--specifically, without having conducted the study
needed to justify the restriction.

DECISION

COBRO Corporation protests the Army Materiel Command's decision, pursuant to
Office of Management and Budget (OMB) Circular No. A-76, that it would be
more economical to perform T-53 series aircraft engine materiel management
functions in-house rather than to contract for these services with COBRO
under request for proposals (RFP) No. DAAH23-99-R-108. COBRO challenges the
adequacy of the agency's comparison of the performance provided under the
government's most efficient organization (MEO), as reflected in the
government's technical performance plan (TPP), with the performance offered
under COBRO'S proposal. COBRO primarily protests the solicitation's storage
facilities specification for new inventory, and the concomitant understated
inventory storage costs under the adjusted MEO, and also alleges that the
agency improperly failed to adjust the MEO costs to account for the
technical superiority offered under COBRO's proposal.

We sustain the protest.

BACKGROUND

On August 17, 1999, the Army Aviation and Missile Command, Redstone Arsenal,
issued the instant RFP as a total small business set-aside, to conduct a
competition between private-sector offerors as part of a government cost
comparison to determine whether accomplishing the specified work under
contract or by government performance was more economical. The RFP sought
proposals to provide all personnel, equipment, tools, material, supervision
and other items and services necessary to provide logistic support
requirements and priorities for the T-53 engine program, in accordance with
the solicitation's performance work statement (PWS). RFP sect. A, at 5. The PWS
included a requirement to provide new inventory storage, for which offerors
were required to supply their own facilities because the RFP provided that
existing government facilities were not available for this purpose.

The initial RFP stated that the successful offeror would be selected on the
basis of the proposal offering the best value to the government based on
technical, price and past performance factors, with the technical factor
more important than the other two factors combined. RFP sect.sect. M-2(A), M-4. The
RFP was amended to provide that proposals would be evaluated on these same
three factors, but with technical acceptability to be assessed on a "go/no
go" basis, and price and past performance approximately equal in importance.
RFP amend. 7, sect. M-3(A). As amended, the RFP stated that the successful
offeror was to be selected on the basis of the "proposal . . . determined to
offer the best overall value to the government based upon the evaluation
criteria." Id. sect.-M-5. After reading this amendment, one prospective offeror
raised the following point: "Our interpretation . . . is that, assuming the
Government-continuation option is more expensive than one or more offerors,
and one or more offerors meet the Technical 'GO' status, the determination
will go automatically to the lowest price. There really is no other 'Best
Value' consideration to provide a distinction between the lowest bidder and
all others." RFP amend. 8, at 4. The agency reply, provided by amendment to
the RFP, stated: "Award will be made to the offeror whose proposal is
determined to offer the best overall value to the Government based on the
evaluation criteria of Technical Acceptability, Price and Past Performance,
which is found in Section M. Therefore, award may be made to other than the
low offeror." Id.

Proposals were submitted by two offerors, Radian and COBRO by the December
10, 1999, closing date. The agency conducted protracted discussions with the
offerors until February 2, 2001, after which revised final proposals were
requested and were received on February 7. COBRO's proposed price was
$11,389,427 and Radian's price was $26,406,361. The agency's source
selection evaluation team (SSET) evaluated the proposals and, based on the
SSET's recommendations, the contracting officer selected COBRO's proposal
for comparison with the MEO. The only basis for this selection contained in
the record appears in the agency material prepared for COBRO's debriefing,
and consists of a statement that "[l]ow price was the deciding factor as
both offerors were rated a 'Low Risk' for Past Performance and a 'Go' under
technical." [1] Agency Report (AR), Tab E, Debriefing, at 21. On March 12,
COBRO was notified that its proposal had been selected for comparison with
the MEO.

On March 23, the agency conducted a cost comparison between the COBRO
proposal and in-house performance under the MEO. The contracting officer did
not make any adjustments to the MEO because he believed that the "go/no go"
technical criterion under the RFP called for private-sector offerors to
satisfy the PWS requirements with a proposal that "only had to be minimally
acceptable." AR at 1. COBRO's price, after adjustments were made for certain
items contemplated under OMB Circular A-76, was calculated as $12,339,600,
and the cost of performance under the MEO was calculated as $6,163,311.
Because the cost under the MEO was lower than COBRO's adjusted proposed
price, the agency tentatively determined to perform the requirement
in-house. COBRO was notified of the cost comparison results on March 26, and
timely filed an administrative appeal with the Army on April 7, raising 11
issues.

The agency administrative appeals board (AAB) sustained several of COBRO's
objections in whole or in part. However, the AAB ratified the determination
to perform in-house even after concluding in its final decision that a
substantial increase in the cost of the MEO was required. Under the
recalculated cost comparison, based on the AAB's findings, the MEO costs
were increased to $8,996,289, and COBRO's adjusted price was $12,350,790.
Accordingly, the agency determination to perform the requirements in-house
was confirmed on the basis that the MEO cost remained $3,354,501 lower than
COBRO's adjusted price. COBRO was notified on June 26 of the final agency
decision and thereafter timely filed this protest with our Office.

DISCUSSION

COBRO's protest to our Office raises two primary allegations: that the RFP
improperly required private-sector offerors to propose their own facilities
to physically store, inventory and maintain newly acquired equipment, rather
than to utilize existing and available government facilities as was done
under the adjusted MEO calculations, and that the agency did not properly
account for the comparable costs under the MEO in making the cost
comparison; and that by the terms of the RFP and by its conduct of
discussions, the agency solicited offerors to propose technical performance
enhancements, but did not consider any evaluated enhancements in COBRO's
proposal in comparing the performance level provided under the MEO, which
allegedly did not even satisfy the minimum PWS requirements.

To preserve the integrity of the A-76 cost comparison, private-sector
offerors and the government must compete on the same scope of work. See
Revised Supplemental Handbook (RSH), part I, ch. 3 para.H.3.e; see also Aberdeen
Tech Servs., B-283727.2, Feb. 22, 2000, 2000 CPD para. 46 at 8. The MEO and the
private sector proposals must, first, comply with the minimum PWS
requirements, RSH, part II, ch. 2, A.1.b, then, where a "best-value"
approach is taken in evaluating private-sector proposals, the agency must
perform a direct comparison between the non-price aspects of the MEO and the
"best-value" private sector proposal. That is, the agency must compare the
MEO to the private-sector proposal to determine whether the successful
private-sector proposal offers quality and performance exceeding the PWS
requirements, such that the in-house offer must be brought up to the
private-sector proposal's level of performance and quality. RSH, part I, ch.
3, para. H.3.d ; Rice Servs. Ltd., B-284997, June 29, 2000, 2000 CPD para. 113 at 7.

New Inventory Facilities

It is undisputed that the solicitation required offerors to provide
facilities to store, inventory and maintain newly acquired equipment, and
indicates that no government facilities are available for these purposes.
COBRO states, and the agency does not dispute, that COBRO's costs associated
with satisfying this new inventory requirement amounted to [DELETED], out of
its total proposed price of $11,389,427. Protest at 8. The MEO contemplates
the use of existing government facilities to provide new inventory storage,
but the initial MEO cost estimate did not include any costs for new
inventory storage and maintenance, apparently based on the agency's view
that those costs could not be identified. The AAB determined that "[t]he MEO
inappropriately omitted the costs to physically store, inventory, and
maintain newly acquired equipment. Since such costs were required for
inclusion by the contractor and would be required for MEO performance, the
government must include these costs in their in-house cost estimate." AR,
Tab C1, AAB Decision, at 2.

The AAB directed the activity to develop cost estimates for the physical
storage, inventory and maintenance of T-53 equipment. Because the activity
used and would continue to use the Defense Logistics Agency (DLA) for
services associated with T-53 inventory control, a cost estimate was
developed using the "total occupied cost" for fiscal year 2000 that DLA
charged the Aviation and Missile Command, and extrapolating T-53 costs on
the basis of the cubic footage requirement associated with T-53 inventory in
relation to the total aviation and missile inventory. This cost was
calculated as $2,721,987.65, which the AAB directed the activity to add to
the cost of MEO performance for cost comparison purposes. Id.

In its administrative appeal, COBRO also argued that the government should
have made the existing government inventory storage facilities available to
offerors under the RFP because these facilities were included under the MEO
on a no-cost basis. The AAB recognized that the RFP inappropriately required
that offerors propose their own facilities because the existing government
facilities had to be made available unless an appropriate study determining
otherwise had been conducted, and the activity had not conducted any such
study. Id. at 5. Nonetheless, the AAB denied COBRO's appeal in this regard
and declined to direct any correction on the basis that this aspect of the
appeal was untimely because the facilities requirement had been spelled out
in the RFP and COBRO had failed to protest the requirement before submitting
its proposal. Id. at 5-6. The AAB also noted that "the board is not
empowered to direct adjustments that result in a change to the government's
requirements." Id. at 6.

As the AAB stated in its analysis:

Paragraph 4-7a of [Army Regulation] 5-20 states "Facilities and equipment.
According to general policy set forth in the FAR, the government will offer
or not offer existing facilities and equipment to a contractor depending on
which is in the government's best interest. Offering the facilities and
equipment on hand, and programmed for use by the MEO, to prospective
contractor[s] is normally in the government's best interest as the most
economical and competition-enhancing alternative. The decision not to offer
existing facilities and equipment to prospective contractors will be based
on a comprehensive, documented analysis of the costs and benefits of
offering versus reprogramming the facilities and equipment. (DA [Department
of the Army] Pam 5-20, paragraph 3-10)."

Id.

The agency now concedes the impropriety of the RFP's failure to offer the
existing government facilities to the private-sector offerors without the
agency having undertaken the required documented analysis, stating that it
"now realizes that its interpretation of the . . . regulatory guidance was
[most] likely inaccurate and a comprehensive cost benefit analysis should
have been conducted and documented." AR at 5-6. However, the agency contends
that the protester's allegation in this regard was properly dismissed as
untimely by the AAB and is similarly untimely in this protest to our Office.
AR at 6. We disagree.

Our regulations require that any solicitation impropriety that is apparent
prior to the time set for receipt of proposals must be protested prior to
the closing time set for proposal submission. 4 C.F.R. sect. 21.2(a)(1) (2001).
However, here the solicitation impropriety at issue was not apparent prior
to the closing date. As the AAB decision recognizes, under the applicable
guidance, the agency properly could have determined not to offer the
existing government facilities to the private-sector offerors as long as the
agency conducted the requisite comprehensive analysis. While, as the parties
agree, the solicitation clearly provided that these facilities would not be
made available, nothing in the solicitation, or elsewhere in the record,
provided prospective offerors with any reason to believe that the agency had
improperly failed to complete the requisite study to justify this
restriction. Thus, COBRO first learned of the basis to object to the
facilities restriction when it was disclosed by the agency, after the
competition had been completed, in the AAB decision, that the agency had
failed to undertake the required study. In light of our long-standing view
that doubts over timeliness issues should be resolved in favor of
protesters, the circumstances presented here warrant us to conclude that
this challenge to the terms of the solicitation is timely raised by COBRO in
its protest to our Office. See N&N Travel & Tours, Inc., et al., B-285164.2,
B-285164.3, Aug. 31, 2000, 2000 CPD para. 146 at 7.

The Competition in Contracting Act generally requires that solicitations
permit full and open competition and contain restrictive provisions or
conditions only to the extent necessary to satisfy the needs of the
government. 10 U.S.C. sect.sect. 2305(a)(1)(A), (B) (1994); Virginia Elec. and Power
Co.; Baltimore Gas & Elec. Co., B-285209, B-285209.2, Aug. 2, 2000, 2000 CPD
para. 134 at 11. Here, the Army, without adequate justification, improperly
imposed the solicitation restriction that the existing government facilities
(whose use was assumed in the MEO) would not be made available to the
private sector offerors. In our view, the specifications were materially
defective because the agency had no reasonable basis to conclude that the
facilities restriction placed in the RFP (which, as noted above, the agency
concedes simply resulted from its misunderstanding of the Army regulation)
represented the agency's actual needs.

Significantly, this specification defect substantially compromised the
private-sector competition and the resulting public/private cost comparison
as well. COBRO's technical approach emphasizes technical procedures and
enhancements relating to efficient new inventory storage and handling, which
are directly related to the storage facilities. As noted above, COBRO
states, without dispute, that nearly half of its total proposal costs relate
to inventory storage, for which government facilities should have been made
available. Accepting, arguendo, the accuracy of the agency's $2,721,987.65
adjustment for the costs of inventory storage which was omitted from the MEO
(an amount which COBRO argues is incomplete and understated), this
constitutes almost one-third of the final adjusted MEO costs. In view of
this substantial impact of inventory storage facilities on total cost, as
well as on the technical approach adopted by COBRO (and presumably by the
other private-sector offeror), we conclude that the agency's inclusion of an
unjustified restriction in the RFP prejudiced COBRO. Moreover, the selected
COBRO proposal cannot reasonably be considered to fairly represent either
the technical approach or the price that would have resulted had the
competition been conducted on the basis of the government's actual needs,
that is, if the existing government facilities had been made available.

In addition, there is no way to ascertain what effect this restriction may
have had on the field of competition: other small business competitors may
have been willing and able to participate if the government facilities had
been made available; those offerors who did compete may have submitted
substantially different proposals, or even elected not to compete. In these
circumstances, there is no adjustment to the MEO that could compensate for
the effect of the deficiency in a manner that would result in a valid cost
comparison, since it is not possible to determine what the selected
private-sector proposal would have been under specifications which properly
reflected the agency's actual needs. Because the agency failed to properly
solicit a private-sector proposal that could provide a reasonable basis for
comparison with the MEO, the protest is sustained.

Enhancements

While we sustain the protest on the basis of the above-explained
solicitation impropriety, we briefly address the evaluation criteria issue
because we believe that the agency should make the criteria clearer under a
revised solicitation. COBRO asserts that its technical proposal
substantially exceeded the PWS requirements and that the agency failed to
make the requisite adjustments to the MEO to bring it up to a comparable
level as is required under an A-76 cost comparison. See Rice, supra, at 7.
The agency agrees that no such adjustments were made to the MEO, but takes
the position that none were required to an MEO that satisfied minimum PWS
requirements because the private-sector competition was conducted under a
solicitation with a go/no go technical factor and, therefore, did not call
for any cost/technical tradeoff, and simply required proposals to similarly
satisfy the minimum PWS standards.

As described above, the evaluation criteria under the original solicitation
called for a best-value selection which clearly required a cost/technical
tradeoff. Amendment 7 changed the technical criteria to go/no go, while
still calling for a tradeoff and a best-value award. In the protester's
view, the amended solicitation, and the agency's answer to the evaluation
criteria question contained in amendment 8, suggested that the agency would
evaluate the degree of technical acceptability among the competing
proposals. Moreover, the protester points to discussion questions in which
the agency, rather than advising COBRO that the enhancements the firm
proposed were uncalled for, asked for substantiation of the technical
enhancements that COBRO proposed, thus suggesting that the agency viewed
those enhancements as of value. [2] Essentially, COBRO's position is that
the agency's actions led the firm to submit a proposal that exceeded the
minimum technical requirements of the solicitation, and that the record
establishes that COBRO's proposal was, in fact, evaluated as providing
technical enhancements beyond the PWS requirements. [3]

Because we are sustaining the protest on other grounds and recommending that
the agency issue a revised solicitation, we need not resolve the dispute
between the parties on this issue. In implementing our recommendation,
however, the Army should take care to avoid any confusion, either in the
revised solicitation or in the conduct of discussions, about whether the
agency is interested in proposals exceeding the minimum technical
requirements. That clarity is important because, once an agency makes clear
that it is not requesting more than the solicitation's required minimum
level in a specific regard (or, as was apparently intended here, in the
entire technical area), the agency need not (and, indeed, should not)
consider any enhancements in choosing among competing private-sector
proposals, nor should it take steps to bring the MEO up to the level of
performance or quality implicit in enhancements included in the
private-sector proposal that is selected.

RECOMMENDATION

Because the record provides no basis for the agency decision not to make
existing government facilities available to offerors, we recommend that the
agency prepare a new RFP for private-sector competition making these
government facilities available. In the event that the specification does
not merely reflect a misunderstanding and the agency actually believes that
the existing government facilities should not be offered, it should conduct
the study required to make a reasoned determination of whether it properly
can issue the solicitation without making the facilities available. In
either instance, a new MEO and in-house cost estimate should be prepared,
taking into account the inventory storage costs; the private-sector
competition should be conducted under an RFP which makes clear whether the
selection will be based on a cost/technical tradeoff or on the basis of the
lowest technically acceptable proposal; and an appropriate comparison should
be made with the revised MEO and in-house cost estimate.

Our Office will recommend that the protester be reimbursed its proposal
preparation costs under 4 C.F.R. sect. 21.8(d)(2), where we sustain a protest of
a procurement in which the protester had a substantial chance for receiving
an award and is prevented from having the opportunity to compete. The
Hamilton Tool Co., B-218260.4, Aug. 8, 1985, 85-2 CPD para. 132 at 2. Normally
we do not recommend preparation costs where a protester is given an
opportunity to compete under a corrected solicitation. Id. Here, however,
nearly 2 years have elapsed since the initial 1999 closing date. The
protester expended substantial cost and effort on a proposal which may have
virtually no value under a recompetition, particularly since the reissued
solicitation is likely to represent a requirement that is fundamentally
different from that which was presented under the defective solicitation.
Under these circumstances, we recommend that COBRO be reimbursed for its
proposal preparation costs. See Aerospace Design & Fabrication, Inc.,
B-278896.2 et al., May 4, 1998, 98-1 CPD para. 139 at 20. 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). The protester's
certified claim for costs, detailing the time spent and costs incurred, must
be submitted to the agency within 60 days of receiving this decision. 4
C.F.R. sect. 21.8(f)(1).

The protest is sustained.

Anthony H. Gamboa

General Counsel

Notes

1. The agency has confirmed that no written selection document was prepared.

2. Thus, for example, among the questions that the agency asked COBRO were:
"What technology enhancements and service improvements will [COBRO] bring to
the Government? Show examples." (AR, Tab E4, attach. 1, Discussion
Questions, at 3); "What quick reaction commercial practices will COBRO use
to procure parts?" (Id. at 4); "What is COBRO's understanding of meeting or
exceeding Government outputs?" (Id. at 5); and "How will the materiel
handling and storage capabilities of CatLogistics provide a 'No-Risk'
solution to the management of the T-53 engines? (Id.)

3. Supporting the protester's position is, for example, language in the
evaluation summary listing as a "strength" that "COBRO provided a thorough
explanation of how they would meet and exceed the required Service Standards
. . . . [indicating] their complete understanding of the importance of these
standards, for both the customers in the field and to COBRO." AR, Tab E2,
Overall Summary Evaluation, at 1-2.