TITLE:  Keystone Ship Berthing, Inc., B-289233, January 10, 2002
BNUMBER:  B-289233
DATE:  January 10, 2002
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Decision

Matter of: Keystone Ship Berthing, Inc.

File: B-289233

Date: January 10, 2002

Lars E. Anderson, Esq., and Paul N. Wengert, Esq., Venable, Baetjer &
Howard, for the protester.

Daniel W. Wentzell, Esq., and Sean M. Costello, Esq., Department of the
Navy, for the agency.

Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Where layberth services are critical to maintaining the mission readiness of
ships, the agency reasonably included in the solicitation a risk allocation
clause that serves as an incentive to the contractor to anticipate
contingencies and to act in a manner that will minimize any disruptions in
contract performance.

DECISION

Keystone Ship Berthing, Inc. (KSB) protests the "reduction in contract"
clause included in request for proposals (RFP) No. N00033-01-R-5300, issued
by the Department of the Navy, Military Sealift Command (MSC), for
fixed-price, per diem layberth services for seven Large Medium Speed
Roll-On, Roll-Off (LMSR) government-owned, contractor-operated vessels that
provide sealift capacity for unit equipment, including vehicles and rotary
wing aircraft, in support of Army divisions and other units. The LMSRs are
normally maintained at a reduced operating status at layberths for extended
periods until deployed. KSB maintains that the RFP's reduction in contract
clause is directly contrary to, and in effect nullifies, provisions in the
Federal Acquisition Regulation (FAR) addressing post-award contract
administration matters.

We deny the protest.

The RFP, issued on July 10, 2001, included the following clause:

H-3 REDUCTION IN CONTRACT

(a) In the event that the layberth becomes unfit for the safe berthing of
the vessel, or the Contractor becomes unable to control access to or
security of the facility for any reason not due to the fault of the
Government or the Government's contractors, or in the event the contractor
fails to maintain the facility to the standards required by the terms of
this contract, the per diem rate specified in Section B shall be reduced for
each day that the facility is unfit or the Contractor has failed to comply
with requirements set forth above and elsewhere in this contract, by an
amount to be determined by the Contracting Officer to reflect the reduced
value of the services provided under this contract or to reflect the reduced
value of the facility to the Government. In no event will the amount of the
reduction exceed the contractor's per diem as specified in Section B of this
contract. In the event that the pier becomes unsafe or unusable and the
Government is required to move the vessel(s) to a safe berth, not due to the
fault of the Government or the Government's contractors, payment of the
per diem rate specified in Section B of this contract shall cease entirely
until such time as the pier becomes safe and the vessel is able to resume
layberth at the pier. All costs associated with such a move, including the
cost of the replacement layberth shall be for the account of the Contractor.

RFP at 46.

KSB, which is currently providing layberth services to MSC in Baltimore,
Maryland, under a contract containing clause H-3, argues here that clause
H-3 is directly contrary to, and in effect nullifies, the termination for
default clause at FAR sect. 52.249-8(c), which provides that "the [c]ontractor
shall not be liable for any excess costs if the failure to perform the
contract arises from causes beyond the control and without the fault or
negligence of the [c]ontractor." [1] FAR sect. 52.249-8(c) lists nine examples
of causes beyond the control and without the fault or negligence of the
contractor that would excuse the contractor's failure to perform; these
examples are as follows: acts of God or of the public enemy; acts of the
Government in either its sovereign or contractual capacity; fires; floods;
epidemics; quarantine restrictions; strikes, freight embargoes; and
unusually severe weather. KSB maintains that under clause H-3, MSC will be
able to monetarily penalize a contractor for occurrences which are beyond
the control and without the fault or negligence of the contractor and which
would otherwise excuse a contractor's failure to perform under the
FAR termination for default clause. Hearing Transcript (Tr.) at 15. KSB
believes that the RFP's reduction in contract clause is unduly burdensome on
competition since it requires a contractor to assume the risk of
nonperformance under circumstances that would otherwise excuse a contractor
from having its contract terminated for default.

The determination of the needs of the government and the best method of
fulfilling those needs is primarily the responsibility of the contracting
agency. We will not question the agency's determination unless it is shown
to be unreasonable. Tracor Jitco, Inc., B-220139, Dec. 24, 1985, 85-2 CPD para.
710 at 4.

At the hearing, the contracting officer explained that a layberth service
contract supports MSC's surge mission, that is, "when a balloon goes up and
there's a crisis somewhere in the world that requires military action or
potential military action, . . . these ships have so many days to get
underway, . . . and they load up with all types of equipment, ammunition,
aircraft, whatever supports Army units." Tr. at 10. The contracting officer
stated that a layberth service contract is vital to supporting the readiness
posture of the ships, specifically, that "ships [cannot be] in a readiness
posture without well-functioning layberth service contracts," and that if a
layberth becomes inoperable for any reason, this would detrimentally affect
mission requirements. Tr. at 11.

In light of the criticality of layberth services for purposes of maintaining
the mission readiness of ships--a matter not meaningfully disputed by
KSB--the agency explained that the RFP's reduction in contract clause has
been included in solicitations for layberth services for approximately 12
years, basically as an incentive to the contractor to anticipate
contingencies and to act in a manner that will minimize the duration of any
disruptions in contract performance, even where the circumstances causing a
disruption were not the result of the contractor's fault or negligence.
Tr. at 18, 27-29. [2] In what he characterized as "temporary" or "interim"
circumstances, where the layberth is not "total[ly]" out of commission, the
contracting officer explained that it would be administratively less
burdensome to invoke clause H-3 and to assess per diem contract reductions
for a limited period of time when layberth services are not being provided
by the contractor than to terminate the contractor for default, since the
agency still requires these critical services and intends for the contractor
to do whatever is necessary (including securing replacement layberth
facilities) in order to continue to provide MSC with the services
contemplated by the RFP. Tr. at 29-30, 46-49. According to the contracting
officer, only if the contractor's failure to perform is "permanent" would
the agency proceed to terminate the contract. Tr. at 48-50.

In addressing KSB's specific argument that clause H-3 is unduly burdensome
on competition, requiring a contractor to assume the risk of nonperformance
under circumstances that would otherwise excuse a contractor from having its
contract terminated for default, MSC maintains that the remedies for
nonperformance available to the government are not circumscribed by the FAR
termination for default clause. Tr. at 57. Pointing to FAR sect. 52.249-8(h),
which provides that "[t]he rights and remedies of the Government in this
[termination for default] clause are in addition to any other rights and
remedies provided by law or under this contract," (emphasis added), the
agency states that it is "seeking to bargain for additional remedies when
there's not a default." Tr. at 55. In other words, MSC maintains that clause
H-3 is not inconsistent with the FAR termination for default clause, but
rather provides under the terms of the contract for additional remedies
necessary for the agency to satisfy its requirements for critical layberth
services. Tr. at 57. Accordingly, it is MSC's position that where the RFP
sets forth how risks will be allocated between the government and the
contractor, a potential contractor can intelligently decide whether, in the
exercise of its business judgment, to accept such risks by submitting a
competitive proposal. Tr. at 33-34, 50. [3]

On this record, we have no basis to disagree with MSC's position, as set
forth above, that clause H-3 is not inconsistent with the FAR provisions
addressing post-award contract administration matters (e.g., the FAR
termination for default clause). Moreover, we conclude that in challenging
clause H-3 as unduly burdensome on competition, KSB does no more than
express disagreement with MSC's decision on how to allocate post-award risks
between the government and the contractor under a contract for the
performance of critical mission requirements. KSB has failed to demonstrate
that MSC abused its discretion or otherwise acted in an unreasonable manner
in determining to shift risks to the contractor from the agency. Tracor
Jitco, Inc., supra, at 5. In this respect, the mere presence of risk in a
solicitation does not make the solicitation inappropriate or improper. Id.
at 4-5. We further point out that during the pendency of this protest, MSC
received initial proposals from five to ten offerors, including KSB, Tr. at
11-13, [4] which evidences that clause H-3 was not so burdensome as to
preclude competition. Tracor Jitco, Inc., supra, at 5.

Finally, to the extent KSB speculates that MSC will unconscionably invoke
clause H-3, MSC acknowledges that it has a duty to mitigate a contractor's
liabilities under this clause, just as it would if it were to terminate the
firm's contract for default. Tr. at 34. In the context of this protest of an
alleged solicitation impropriety, however, we are not willing, or able, to
anticipate all of the possible scenarios that could arise where MSC would
have to decide whether to invoke clause H-3. If circumstances arise where a
contractor believes that MSC is not reasonable in its invocation of clause
H-3 during contract performance, that is a matter of contract
administration, which is for review by a cognizant board of contract appeals
or the Court of Federal Claims, not our Office. Bid Protest Regulations,
4 C.F.R. sect. 21.5(a) (2001).

The protest is denied.

Anthony H. Gamboa

General Counsel

Notes

1. KSB also argues that clause H-3 is directly contrary to, and in effect
nullifies, the termination for convenience clause at FAR sect. 52.249-2 and the
changes clause at FAR sect. 52.243-1.

2. In the approximate 12-year period that clause H-3 has been included in
layberth service contracts, the contracting officer could not recall any
circumstances where clause H-3 had been invoked to penalize an innocent
offeror. Tr. at 19, 24-25. In fact, the contracting officer could remember
only one instance where MSC considered, but ultimately decided against
invoking clause H-3 because the government, not the contractor, was the
primary cause of the disruption in the performance of the layberth services.
Tr. at 19. (This example is consistent with the contracting officer's
representation that clause H-3 would not be invoked if the circumstances
leading to a contractor's inability to perform were caused by the
government. Tr. at 47.) In addition, under its current layberth services
contract in Baltimore, KSB reports that the agency has never invoked clause
H-3. Tr. at 24.

3. MSC suggests that a potential contractor can contingently price and/or
obtain insurance to cover the possible risks associated with clause H-3. Tr.
at 21. Other than disputing the agency's suggestion by generally asserting
that "insurance is unavailable for most of the events and potential
liabilit[ies] of [clause] H-3, Protester's Post-Hearing Comments at 5; Tr.
at 23, 37-38, KSB does not provide any meaningful, substantive support for
its assertion.

4. We note that other than the protest filed by KSB, no other offeror
protested, even to the agency, the terms of the RFP, including clause H-3.
Tr. at 13-14.