TITLE:  L. W. Matteson, Inc., B-290224, May 28, 2002
BNUMBER:  B-290224
DATE:  May 28, 2002
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Decision

Matter of:   L. W. Matteson, Inc.

File:            B-290224

Date:              May 28, 2002

Richard W. Miller, Esq., for the protester.
Edward T. Goldstein, and Robert M. Anderson, Esq., U.S. Army Corps of
Engineers, for the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Under invitation for bids for dredging, agency reasonably rejected bid as
unbalanced where bidder failed to include cost of preparing a site for
disposal of dredged sediment in its unit price for dredging sediment, for
which payment would be made over the term of the project, and instead
included disposal site costs in its lump sum price for grubbing and
clearing, a minor work item, such that the disposal site costs comprised 99
percent of the price for grubbing and clearing; rejection of the bid was
proper based on the agency's reasonable determination that the unbalancing
posed an unreasonable risk that bidder would receive substantial up-front
payment upon completing the grubbing and clearing work, whether or not it
had completed the site preparation work.

DECISION

L. W. Matteson, Inc. (LWM) protests the rejection of its bid as unbalanced
under invitation for bids (IFB) No. DACW37-01-B-0012, issued by the U.S.
Army Corps of Engineers for dredging work and placement of rockfill at
backwater lakes in Pool 10 of the Upper Mississippi River, near Prairie du
Chien, Wisconsin.  LWM disputes the agency's determination that its bid was
unbalanced.

We deny the protest.

The IFB sought fixed-price bids for dredging approximately 180,000 cubic
meters of sediment from the lakes and safely transporting and disposing of
the dredged material; clearing (felling, trimming and cutting of trees, as
well as disposal of trees and other vegetation); grubbing (removal of stumps
and large roots); stripping (removal of surface humus and material); and
placing a geotextile underlayer and 310 metric tons of rockfill.  The
requirements were divided among eight contract line items (CLIN), including
CLINs 0001 and 0008, requesting fixed, per-cubic-meter unit prices for
dredging sediment, and lump sum CLIN 0003, for clearing and grubbing the
rockfill site.  The Corps received two bids:  LWM's was low at $1,511,020,
and J. F. Brennan's was second low at $1,544,270.  Both bids were in excess
of the (revised) government estimate ($1,247,307).

The contracting officer's review of bids revealed that LWM's price for CLIN
0003, for clearing and grubbing, was unusually high in comparison to the
government estimate and the other bid; while the government estimate for
CLIN 0003 was $1,720, and J.F. Brennan's price was $1,000, LWM's price for
the item was $298,500.  In response to the contracting officer's
notification that its price for CLIN 0003 was considered to be ?extremely
high,? and his request for bid verification, Letter from Corps to LWM, Oct.
2, 2001, at 2, LWM explained that its CLIN 0003 price largely reflected the
cost for preparing a site at which the dredged sediment could be deposited.
Specifically, according to LWM:

Our intentions on bid day were to develop the Kapinus site as our primary
disposal site.  Use of this site will require considerable earth moving
(over 120,000 yards by our estimate) and, two road crossings.  It is the
development of that disposal site, which will come long before any dredging
will take place, that makes up 99% of our bid for the clearing and grubbing
bid item.
When I was putting the bid together, I was confused as to which bid item
would pay for the disposal site development.  [Specification] Section
02327??Disposal of Dredge Material has no payment clause.  That being the
case, I looked for a lump sum bid item that had something to do with
disposal site development and could come early in the project. . . .
Section 02325 ?Dredging? does not mention paying for site development
either.
Letter from LWM to Corps, Oct. 10, 2001, at 1.

The contracting officer interpreted the IFB as providing that disposal of
the dredged material was not to be separately priced, but instead was to be
included in the unit prices for dredging under CLIN 0001 (and under the very
limited CLIN 0008 option item).   The contracting officer determined that
LWM's bid thus was materially unbalanced in that the CLIN 0003 price was
excessive, bearing no relation to the actual cost of the clearing and
grubbing work, and might constitute an advance payment.  Upon learning of
the resulting rejection of its bid, LWM filed an agency?level protest.  The
agency denied that protest, finding that LWM's price for CLIN 0003 was so
unreasonably high that it constituted an advance payment and posed an
unreasonable risk to the government.  LWM thereupon filed this protest with
our Office.  LWM asserts that including the site preparation costs for the
disposal site in its CLIN 0003 bid price was not inconsistent with the terms
of the solicitation, and did not warrant rejecting its bid as unbalanced.

Federal Acquisition Regulation (FAR) sect. 14.404-2(g) provides that a ?bid may
be rejected if the prices for any line items or subline items are materially
unbalanced (see [FAR sect.] 15.404-1(g)(1)).?  Unbalanced pricing exists when,
despite an acceptable total evaluated price, the price of one or more
contract line items is significantly overstated or understated, as indicated
by the application of cost or price analysis techniques.  FAR sect.
15.404-1(g)(1).  While unbalanced pricing may increase risk to the
government, agencies are not required to reject an offer solely because it
is unbalanced.  Id.  Rather, where the contracting officer receives an
unbalanced offer, the contracting officer is required to consider the risks
to the government associated with the unbalanced pricing in making the award
decision, and whether a contract will result in unreasonably high prices for
contract performance.  FAR sect. 15.404?1(g)(2).  An offer properly may be
rejected if the contracting officer determines that the lack of balance
poses an unacceptable risk to the government.  Id.; see HSG Philipp Holzmann
Technischer Service GmbH, B?289607, Mar. 22, 2002, 2002 CPD para. __ at 5.[1]

Our analysis in this case begins with consideration of whether the disposal
site preparation costs included in LWM's CLIN 0003 price instead should have
been included under CLIN 0001, as the agency argues; if it was improper to
include these disposal costs under CLIN 0003, then, given that these costs
represented 99 percent of LWM's CLIN 0003 price, LWM's bid included a
significantly overstated contract line item price and thus satisfied the FAR
definition of an unbalanced bid.  We agree with the Corps that CLIN 0003
clearly was not to include the disposal site preparation costs.  The CLIN
0003 clearing and grubbing work was defined in the IFB as follows:

Clearing shall consist of the felling, trimming, and cutting of trees into
sections and the satisfactory disposal of the trees and other vegetation
designated for removal, including down timber, snags, brush, and rubbish
occurring in the areas to be cleared.
Grubbing shall consist of the removal and disposal of stumps, roots larger
than 75 millimeters in diameter, and matted roots from the designated
grubbing areas.
Specification 02230, sect.sect. 1.1.1, 1.1.2.  Not only does clearing and grubbing
appear to differ substantially in character from the extensive earth moving
and road crossings contemplated by LWM as part of disposal site preparation,
but the clearing and grubbing was to be undertaken within the limits of the
rockfill area, that is, in a different location than the contemplated
disposal site.  Amend. 0001, sect. 7.

It is equally clear from our review of the solicitation that disposal site
preparation costs were to be included under CLIN 0001.  In this regard,
Specification 02325, Dredging, sect. 1.14, in discussing payment for dredging,
provided that:

Payment under this [dredging] item shall include all costs for dredging work
and satisfactory disposal (placement) of dredged material in the Contractor
selected disposal (placement) area(s).  No separate payment will be made
for:  . . . disposal (placement) area sitework . . . .
We conclude that there was no reasonable basis for LWM's including its costs
for disposal site preparation in CLIN 0003 rather than CLIN 0001.  Id.  It
follows that the agency properly determined that LWM's price was unbalanced.
[2]

By including its disposal site preparation costs in its CLIN 0003 price
rather than under CLIN 0001, LWM's pricing approach created the potential
that LWM could recover a disproportionate share of the overall contract
price early in the performance period.  Although LWM has expressed its
intention to incur the disposal site preparation costs at the beginning of
the project (asserting that development of the disposal site is a necessary
prerequisite to beginning dredging), neither the IFB nor its bid obligated
it to do so.  As a result, the agency concluded, in the event of early
termination of LWM's contract, the agency would have expended a substantial

sum for CLIN 0003 work that had not been performed.  Indus. Builders, Inc.,
supra,
at 7-8.  We think the agency reasonably found that this was an unacceptable
risk to the government; this risk warranted rejecting LWM's bid as
unbalanced. [3]

The protest is denied.

Anthony H. Gamboa
General Counsel

-------------------------

[1] Although previous versions of the FAR provided for rejection of
unbalanced bids where their acceptance would be tantamount to an advance
payment, that term no longer appears in the discussion of unbalanced pricing
in revised part 15 of the FAR, applicable here.  (It is not clear why
references to ?advance payment? remain in FAR sect. 52.214-19, which was
included in the IFB.  Enco Dredging, B?284107, Feb. 22, 2000, 2000 CPD para. 44,
at 6 n.3.)  Thus, while the agency expressed an advance payment concern, we
will consider its determination in terms of its analysis of the risk that
LWM's pricing poses to the government.  Indus. Builders, Inc., B-283749,
Dec. 29, 1999, 99-2 CPD para. 114 at 6; see Reece Contracting, Inc., B-285666,
Aug. 21, 2000, 2000 CPD para. 135 at 2-3.
[2] LWM argues that it was fundamentally unfair to allow recovery of
up-front disposal site preparation costs only over the term of the project.
This argument is untimely; such protests of the terms of a solicitation must
be filed prior to bid opening.  4 C.F.R. sect. 21.2 (a)(1) (2002).

[3] We note that, since LWM's CLIN 0003 price was many times higher than the
actual value to the government of the work required under the CLIN, the
agency also had an adequate basis to reject LWM's entire bid as unreasonably
priced.  FAR sect. 14.404-2(f) (entire bid may be rejected due to the
unreasonableness of the prices of individual line items).  Indus. Builders,
Inc., supra, at 7 n.9.