TITLE:  Deutsche Bank, B-289111, December 12, 2001
BNUMBER:  B-289111
DATE:  December 12, 2001
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Decision

Matter of: Deutsche Bank

File: B-289111

Date: December 12, 2001

Stephen Sale, Esq., Claxton, Sale and Quinn, for the protester.

Richard J. Conway, Esq., and Bradley D. Wine, Esq., Dickstein Shapiro Morin
and Oshinsky, for Real Estate Recovery, Inc., an intervenor.

Peter F. Pontzer, Esq., Department of Housing and Urban Development, 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

Protest alleging that, in connection with procurement for loan support
services, the awardee had an organizational conflict of interest that was
not properly mitigated, is denied where the record shows that the
contracting agency reasonably determined that the awardee's proposal
adequately mitigated any conflict of interest through the use of a
subcontractor to perform loan servicing on those properties where the
awardee had previously been involved in handling administrative matters for
the agency related to the same properties.

DECISION

Deutsche Bank protests the issuance of a task order to Real Estate Recovery,
Inc. (RER) by the Department of Housing and Urban Development's (HUD) Office
of Multifamily Housing Assistance and Restructuring (OMHAR) under request
for quotations (RFQ) No. R-OPC-21968, issued to procure support services
related to loans issued in support of HUD's Mark-to-Market program. [1]
Deutsche Bank argues that the awardee has an organizational conflict of
interest that the agency has failed to properly mitigate. In addition, it
contends that the agency's evaluation was improperly based on a different
estimate of the number of properties than identified in the RFP.

We deny the protest.

The RFQ here was issued electronically on May 8, 2001, and anticipated
issuance of a fixed-price task order for loan and other asset servicing,
plus management of mortgages for multifamily housing projects, for a base
period of 18 months, followed by three 1-year options, and one 6-month
option. The solicitation advised that award would be made to the vendor
whose quotation represented the best value to the government, defined here
as the quotation demonstrating "the greatest potential to provide the most
timely, efficient, and cost-effective approach to servicing/ management of
assigned mortgages eligible for the [M2M program]." RFQ at 5. The
competition for this task order was limited to companies holding a Federal
Supply Schedule (FSS) contract (FSS No. SIN 621-4) with the General Services
Administration (GSA) for "Loan and Other Asset Servicing/Management
Services." Id. at 1.

By the May 25 closing date, HUD received quotes from four vendors. Upon
completion of an oral presentation by each vendor, followed by submission of
revised quotes, the agency's technical evaluation panel (TEP) assigned a
rating to each vendor in the areas of technical ability, prior experience,
and past performance, as well as an overall summary rating, none of which
are at issue in this protest. Because RER had the highest overall ratings
and the lowest total price, the TEP recommended issuance of the task order
to RER for its price of $15,604,621. The task order was issued on September
25, and this protest followed.

The protester's conflict of interest argument is based on RER's role as a
participating administrative entity (PAE) in HUD's M2M program. [2] The
statement of work (SOW) appended to this RFQ expressly advised potential
vendors that contractors who had served as PAEs for HUD would be allowed to
participate in this procurement, and that the agency would consider their
proposals about how any conflicts of interest arising from their dual role
might be mitigated, as follows:

Participation in the M2M program as a PAE, lender, or otherwise, will not
disqualify an offeror, provided that, in its response or prior thereto, the
offeror discloses all actual or appearance conflicts of interest and
proposes methods, acceptable to OMHAR/HUD in its sole discretion, that
satisfactorily mitigate such conflicts.

SOW at 16.

In alleging that RER has an organizational conflict of interest that has not
been properly mitigated, Deutsche Bank raises two arguments. First, it
argues that RER's role as a PAE places the company in the unique position of
overseeing its own performance, thus creating a conflict in RER's ability to
provide impartial assistance to the agency. Second, it argues that RER's
role as a PAE gave the company access to information not available to
non-PAE vendors, and that this information provided RER with an unfair
competitive advantage. Under either theory, Deutsche Bank argues that RER is
not eligible for award here.

An organizational conflict of interest occurs where, because of other
activities or relationships with other persons, a person is unable or
potentially unable to render impartial assistance or advice to the
government, or the person's objectivity in performing the contract work is
or might otherwise be impaired, or a person has an unfair competitive
advantage. Federal Acquisition Regulation (FAR) sect. 9.501. Contracting
officials are to avoid, neutralize or mitigate potential significant
conflicts of interest so as to prevent unfair competitive advantage or the
existence of conflicting roles that might impair a contractor's objectivity.
FAR sect. 9.504(a)(2); Knights' Piping, Inc.; World Wide Marine & Indus. Servs.,
B-280398.2, B-280398.3, Oct. 9, 1998, 98-2 CPD para. 91 at 5. To assist with
these judgments, the FAR counsels contracting officers to examine each
situation individually and to exercise "common sense, good judgment, and
sound discretion" in assessing whether a significant potential conflict
exists and in developing appropriate ways to resolve it. FAR sect. 9.505; Epoch
Eng'g, Inc., B-276634, July 7, 1997, 97-2 CPD para. 72 at 5. We will not
overturn a contracting officer's determinations in this area except where
they are shown to be unreasonable. SRS Techs., B-258170.3, Feb. 21, 1995,
95-1 CPD para. 95 at 9.

With respect to its argument that award of this contract to RER, together
with RER's ongoing status as a PAE, gives RER conflicting roles that will
bias its judgment, Deutsche Bank contends that RER's work as a PAE means it
will be in the unique position of overseeing its performance under this
contract, and that this conflict of interest cannot adequately be mitigated.
[3]

In response, HUD explains that there were potential conflicts of interest
for several of the vendors, including Deutsche Bank, and that the agency met
with each to discuss both the nature of its particular conflict and the
possible resolution of it. With respect to RER, HUD points out that the
company proposed using a subcontractor to manage any property for which RER
had served as the PAE. RER's quotation also indicated that the company would
create a firewall between it and the subcontractor by allowing the
subcontractor to report directly to HUD on those properties. In addition,
HUD advises that when it decided to allow PAEs to participate in this
procurement, it made adjustments to the nature of the relationship between
the contractor here and the agency to heighten agency control. For example,
instead of having the contractor serve as the project manager for certain
loans, as originally stated in the SOW, the agency had the contractor
provide support to HUD's project managers. Agency Report, Memorandum of Law,
at 13.

In our view, HUD reasonably concluded that the solution proposed by RER
adequately mitigates the conflict of interest arising from RER's dual roles
as PAE and loan servicer. SRS Techs., supra. In addition to the solution
itself, the record here contains a statement from the government's technical
representative, who also served on the TEP, explaining the considerations
and judgments leading to the conclusion that RER's approach was sufficient
to mitigate any conflict arising from its dual roles. Our review of this
statement reveals that the agency had a detailed and well-reasoned basis for
its conclusion that RER's approach was sufficient to mitigate the conflict
here, and the protester has offered no specific challenge to these
conclusions. For example, the technical representative explains that even
prior to considering RER's offer, when HUD first decided to permit PAEs to
participate in this procurement, the agency decided that one way to mitigate
potential conflicts would be to award more than one contract here, so that
properties that had been reviewed by a contractor in its role as a PAE could
be assigned to a different contractor for loan servicing. AR, Tab 3 at 6. We
note that RER's use of a subcontractor to interact directly with HUD
officials when needed addresses this situation in much the same way.

In lieu of challenging the specific conclusions described above, Deutsche
Bank argues that the agency did not take sufficient action to secure for
itself the protections outlined in RER's quotation because the task order
award does not include contractual language implementing the mitigation
steps offered in the quotation, and because there is no separate contract
between HUD and RER's subcontractor. We disagree on both fronts. Given that
RER's quotation clearly details its approach of assigning to its
subcontractor the loan servicing on any property for which RER has served as
the PAE, we see no reason why the agency cannot control this situation as a
matter of contract administration. See SRS Techs., supra, at 9-10.
Similarly, we know of no reason why there must be a direct contract between
HUD and RER's subcontractor for RER's proposed approach to work. See Epoch
Eng'g, supra, at 7 n.6. In summary, as indicated above, we think HUD has
taken sufficient and appropriate measures to mitigate the conflict of
interest raised by award to RER, and none of the arguments raised by
Deutsche Bank compels a contrary conclusion.

With respect to Deutsche Bank's contention that RER received an unfair
competitive advantage through access to HUD data made available to PAEs (but
not to other vendors), this issue is untimely. It is undisputed that PAEs
received access to one or more internal HUD databases, which were not
available to non-PAE vendors, in order to perform their administrative
functions for the agency. There is also no dispute that PAEs were known
within the industry to have had access to this information. Since we have no
reason to conclude that Deutsche Bank was unaware of this matter prior to
responding to this RFQ, and since the RFQ specifically stated that PAEs
would be allowed to compete, this contention involves an alleged impropriety
apparent on the face of the solicitation that had to be filed prior to the
time set for the receipt of quotes. 4 C.F.R. sect. 21.2(a)(1)).

Finally, Deutsche Bank contends that the evaluation here was improper
because HUD used an estimate of the number of properties to evaluate costs
different from the one it identified in the RFQ. Here, again, the RFQ, on
its face, advised that HUD reserved "the right to use the most current
projections in performing the cost evaluation." RFQ at 4. Since the agency
clearly disclosed its intent to evaluate quotes using different projections
from those identified in its solicitation, Deutsche Bank was required to
raise any challenge to HUD's intended evaluation approach

prior to the closing time set for the receipt of quotations. 4 C.F.R.
sect. 21.2(a)(1). Since Deutsche Bank did not first raise this matter until
after award, this challenge is untimely and will not be considered.

The protest is denied.

Anthony H. Gamboa

General Counsel

Notes

1. HUD's Mark-to-Market program (referred to by HUD as the "M2M program")
exists to reduce rent payments to market levels under the agency's rental
housing subsidy program, referred to as "Section 8 housing." Agency Report,
Memorandum of Law, at 1-2.

2. HUD operates the M2M Program using private contractors, referred to under
the program's terminology as "participating administrative entities" or
PAEs. An overview of the operation of the M2M program is included in the
report, "Multifamily Housing: Issues Related to Mark-to-Market Program
Reauthorization," GAO-01-800 (July 2001), Appendix I. As explained therein,
PAEs are "responsible for making a complete and ongoing assessment of the
eligibility of the [property] owner and the project" and for shepherding
properties through the debt restructuring process. Id. at 35.

3. As noted above, the RFQ specifically put vendors on notice that PAEs
would be allowed to compete. Accordingly, an argument that, because of its
role as a PAE, RER is ineligible for award under any circumstances, would
involve an alleged impropriety on the face of the RFQ and therefore would
have had to be raised before the closing time set for receipt of quotations
to be timely. Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(1) (2001);
International Sci. and Tech. Inst., Inc., B-259648, Jan. 12, 1995, 95-1 CPD
para. 16 at 2-4. On the other hand, Deutsche Bank has timely raised the more
limited argument that RER's organizational conflict of interest will not be
adequately mitigated, since the RFQ clause leaves open the possibility that
a PAE vendor, like RER, will be ineligible for award if it fails to
adequately disclose or mitigate any organizational conflict of interest it
has. Similarly, Deutsche Bank has the direct economic interest necessary to
qualify as an interested party to challenge the adequacy of RER's proposed
mitigation since, if we were to sustain the protest on this ground and
conclude that RER was ineligible for award, Deutsche Bank would be next in
line for award. See 4 C.F.R. sect. 21.0(a).