TITLE:  Nutech Laundry & Textiles, Inc., B-291739, February 10, 2003
BNUMBER:  B-291739
DATE:  February 10, 2003
**********************************************************************
Nutech Laundry & Textiles, Inc., B-291739, February 10, 2003

   Decision
    
    
Matter of:   Nutech Laundry & Textiles, Inc.
    
File:            B-291739
    
Date:              February 10, 2003
    
Jack H. Robinson for the protester.
Mike Colvin, Department of Health & Human Services, and John W. Klein,
Esq., and Kenneth Dodds, Esq., Small Business Administration, for the
agencies.
Sharon L. Larkin, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Agency properly cancelled solicitation, issued as a small business
set-aside, where the agency could not determine that the protester's
proposed price, which exceeded the government estimate by more than 50
percent and was almost double the offer of a large business, was fair and
reasonable.
DECISION
    
Nutech Laundry & Textiles, Inc. protests the cancellation of request for
proposals (RFP) No. CC-02-07, issued as a small business set-aside, by the
National Institutes of Health (NIH), Department of Health & Human
Services, for laundry services.  Nutech contends that NIH improperly
cancelled the RFP based on its allegedly unreasonable determination that
the price of Nutech, the sole eligible small business offeror, was not
fair and reasonable. 
    
We deny the protest.
    
The RFP contemplated award of a fixed-price requirements contract for a
base year with four 1-year options.  Offerors were to provide unit pricing
for bulk linen and 21 other laundry service line items, based upon
estimated quantities provided by NIH.  Award was to be made to the small
business contractor that provided the *best overall value to the
Government,* cost and other factors considered. 
    
By May 29, 2002, two offerors, including Nutech, submitted proposals in
response to the RFP.[1]  Both proposals were found technically acceptable;
however, Nutech's price was more than twice that of the other offeror
(Offeror A) and well above the government estimate (dated February 21,
2002).  Discussions followed, during which Nutech was informed that its
*costs appear to be excessive* and was asked to *verify and reconsider*
its costs.  Protest, exh. 3, Letter from NIH to Nutech (June 28, 2002). 
Nutech reduced its price slightly.  Final pricing was as follows:
    

   +------------------------------------------------------------------------+
|            |Government Estimate     |Offeror A        |Nutech          |
|------------+------------------------+-----------------+----------------|
|Bulk linen  |$.33 per lb.            |$.30 per lb.     |$.54 per lb.    |
|------------+------------------------+-----------------+----------------|
|Base year   |          $ 977,151.76  |    $ 714,586.48 | $ 1,457,774.40 |
|------------+------------------------+-----------------+----------------|
|Total       |       $ 5,187,862.08   | $ 3,687,586.90  | $ 7,572,178.55 |
+------------------------------------------------------------------------+

    
NIH determined that Nutech's price, which was more than 50 percent above
the government estimate, was not fair and reasonable, and selected Offeror
A, whose price was determined to be fair and reasonable, for award. 
Supplemental Agency Report, encl. 5, Cost Analysis, at 10, 16.   However,
Offeror A was later determined ineligible for award because it was a large
business. 
    
NIH then reopened discussions with Nutech, informing it that its price was
still *substantially excessive* based upon the competitive market and
again requesting that Nutech reconsider its costs.  NIH stated that, at
Nutech's current price, the contracting officer could not make the
required determination that Nutech's price was fair and reasonable. 
Protest, exh. 9, Letter from NIH to Nutech (Sept. 18, 2002); see Federal
Acquisition Regulation (FAR) S: 15.402(a).  In response, Nutech did not
reduce its price, but argued that it believed its price was fair and
reasonable, primarily because it was similar to that in its incumbent
contract with NIH.[2]  Protest, exh. 10, Letter from Nutech to NIH (Sept.
23, 2002). 
    
However, NIH suspected that Nutech's price under its incumbent contract
might not be fair and reasonable, because there had been no price
competition (Nutech's had been the only acceptable proposal received). 
Supplemental Agency Report at 2.  Additionally, a November 2001 study,
performed by a laundry-linen management consultant retained by NIH,
concluded that the prices NIH paid under the incumbent contract were
*exorbitant* and recommended that NIH take steps to revise its procurement
practices to increase competition.  Agency Report, Tab 3, Linen Study, at
2. 
    
In addition to comparing Nutech's price to Offeror A's price and the
government estimate, NIH also compared Nutech's proposed price to that of
another laundry services contract that Nutech was performing for the
Department of the Navy in the immediate geographical vicinity to where the
NIH contract would be performed.  NIH found that Nutech's unit price for
bulk linen under the Navy contract was approximately $.29 per pound, which
was barely half of Nutech's proposed unit price for the NIH effort, yet
was similar to Offeror A's proposed unit price and the government
estimate.  Contracting Officer's Statement at 8-9.  Nutech was asked to
explain this apparent discrepancy, and it informed the agency that the
Navy effort required fewer manhours because it required *more presorting
on site,* *less sideloader work,* *less hand folding,* *better quality
linens,* and fewer deliveries.  Protest, exh. 14, Nutech's Navy Contract
Analysis.  NIH did not find that these differences credibly justified the
massive price differential between the Navy contract and the NIH
contract.  Supplemental Agency Report at 2.   
    
Nutech also explained that its proposed NIH contract price was higher
because its price was based upon its understanding of the work as the
incumbent, rather than the actual requirements of the RFP.  According to
Nutech, the real requirements to provide laundry services are
substantially in excess of those specified in the RFP.  NIH disagreed.  In
support of this contention, Nutech provided an analysis that reflected the
alleged *efforts in excess* of what was stated in the RFP that Nutech
asserted had to be performed to successfully meet NIH's laundry
requirements.
    
Thereafter, NIH informed Nutech that it would not be awarded the contract
because NIH believed Nutech's proposed price was not fair and reasoanble. 
NIH stated it would be canceling the RFP and recompeting the work via
unrestricted full and open competition.  Protest, exh. 1, Letter from NIH
to Nutech (Nov. 19, 2002). 
    
Nutech protests NIH's determination that its price was not fair and
reasonable.[3]  Specifically, it objects to NIH's reliance on the linen
study, Offeror A's proposed price, and Nutech's price under its Navy
contract, as a basis of comparison in determining that its price was not
fair and reasonable.[4]  Nutech argues that its proposed price is per se
reasonable because it is similar to its price under its incumbent NIH
contract. 
    
A procuring agency has broad authority to cancel a solicitation issued
under negotiated procedures and need only establish a reasonable basis for
cancellation.  Bahan Dennis, Inc., B-249496.3, Mar. 3, 1994, 94-1 CPD P:
184 at 3.  If an agency cannot purchase at a *fair and reasonable* price,
as required by the FAR, then cancellation is warranted.  Id.; see FAR S:
15.402 (price must be *fair and reasonable*).  A determination of price
reasonableness is a matter of agency discretion, involving the exercise of
business judgment, which our Office will not question unless it is shown
to be unreasonable.  Selecta Corp., B-252182, May 26, 1993, 93-1 CPD P:
421 at 2; Sletager, Inc., B-240789.6, Oct. 11, 1991, 91-2 CPD P: 328
at 2.  In determining price reasonableness, an agency may consider a
number of factors, including prior contract history (if price
reasonableness can be established), courtesy bids from ineligible large
business contractors, and the government estimate.  Vitronics, Inc.,
B-237249, Jan. 16, 1990, 90-1 CPD P: 57 at 2; see FAR S: 15.404-1(b).  In
this regard, we have found cancellations proper where the protester's
price exceeded the government estimate by as little as 7.2 percent.  See
Building Maint. Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD P:
233 at 4. 
    
Based upon our review of the record, we find no basis to find unreasonable
NIH's determination that Nutech's price was not fair and reasonable.  As
noted above, NIH compared Nutech's price to the government estimate and,
given that Nutech's price was more than 50 percent above the government
estimate, we think the agency could reasonably conclude Nutech's price was
excessive based on this analysis alone.  See Bahan Dennis, Inc., supra, at
3 (cancellation reasonable based solely on comparison to government
estimate).  Significantly, Nutech does not specifically challenge the
reasonableness of this government estimate.
    
In fact, Nutech's own pricing analysis seemingly confirms the validity of
the government estimate for the work actually called for by the RFP.  As
previously noted, Nutech tried to justify its pricing to NIH by arguing
that the RFP did not reflect all of the agency's actual requirements, even
though Nutech's price included these requirements, and provided NIH with a
pricing analysis to illustrate its argument.[5]  Nutech's analysis
calculated that its price to perform the requirements without the *efforts
in excess* of the RFP would be $978,075.27, which included $.33 per pound
for bulk linen.[6]  This approximates the government estimate and is also
in line with Offeror A's proposed price and Nutech's unit price under its
Navy contract.  Protest, exh. 15, Nutech's NIH Pricing Analysis. 
    
In addition to the government estimate, NIH properly considered Offeror
A's proposed price and Nutech's Navy contract price as a basis of
comparison.  As stated above, Offeror A's status as a large business did
not preclude consideration of its price as evidence of reasonableness. 
Vitronics, Inc., supra, at 2.  Also, we find no evidence that Offeror A
submitted a *low ball* price, as Nutech contends, because Offeror A's
price was close to the government estimate.  Similarly, Nutech's unit
price under its Navy contract was remarkably close to the unit price in
NIH's government estimate, and thus appears to be another reasonable
indicator of unit pricing for bulk linen laundry services.  Based upon our
review of the record, we do not think that Nutech's explanations of
performance distinctions between the NIH and Navy efforts adequately
justify why Nutech's proposed NIH unit pricing was almost double that of
the Navy contact.   
    
Nutech argues that the linen study should have been ignored because the
consultant is a competitor and therefore had a *conflict of interest.* 
However, we find no evidence in the record to support this allegation. 
Furthermore, a review of the consultant's web site reveals that it
provides only consulting and management services, and does not perform
laundry services.  We recognize that Nutech disagrees with the
consultant's conclusions, but we cannot say, based upon the record before
us, that NIH's reliance on this study was unreasonable. 
    
Finally, we disagree with Nutech that its incumbent contract price
requires a determination that its proposed price is per se reasonable. 
Indeed, FAR S: 15.404-1 identifies that previous contract prices *may* be
considered *if both the validity of the comparison and the reasonableness
of the previous price(s) can be established.*  Here, as NIH explains,
price competition did not occur under the prior procurement and, as noted
in the linen study, NIH may have been paying *exorbitant* costs for
laundry services as a result.  Based upon this information, we think NIH
had sufficient reason to question the reasonableness of Nutech's incumbent
contract price. 
    
Nutech was repeatedly warned that NIH considered its price excessive and
was provided a number of opportunities to reduce its price.  It failed to
do so and, therefore, NIH concluded that it could not find Nutech's price
to be fair or reasonable.  Accordingly, we think the agency had a
reasonable basis to cancel the RFP.  See Bahan Dennis, Inc., supra, at
3.   
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    

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

   [1] Nutech is the incumbent contractor.
[2] Nutech also provided an alternative pricing structure, offering a flat
weekly rate for all services, which was not contemplated by the RFP.
[3] Nutech also argues that, once issued as a small business set-aside,
the RFP may not be recompeted under full and open competition.  This is
incorrect.  FAR S: 19.506 expressly provides for the withdrawal of small
business set-asides where the award would be detrimental to the public
interest--for example, where the award would involve the payment of more
than a fair market price.  See Fluid Power Int'l, B‑278479, Dec. 10,
1997, 97-2 CPD P: 162 at 2 (RFP properly cancelled as small business
set-aside and resolicited on unrestricted basis where agency received no
acceptable offers from small business concerns); Tender Loving Care
Ambulance & Ambulette Co., Inc., B-276571.2, July 17, 1997, 97-2 CPD P: 25
at 2 (only eligible small business was not entitled to award where
cancellation was reasonable and in government's best interest).  NIH is
required, however, to give notice to the Small Business Administration
(SBA) of its intent, before withdrawing this requirement from the
set-aside program, so that the SBA can appeal this determination.  FAR
S: 19.506.  In this regard, we note that the SBA's submissions to our
Office support the protester's position.        
[4] Nutech also alleges that Offeror A engaged in acts of fraud and
misconduct, and that the contracting officer acted in bad faith towards
Nutech.  These allegations are not supported by the record and appear
completely unfounded.  See E.F. Felt Co., Inc., B-289295, Feb. 6, 2002,
2002 CPD P: 37 at 3-4 (protester has heavy burden of proving bad faith and
must provide *convincing evidence* of malicious intent to harm the
protester).    
[5] To the extent that Nutech contends that the RFP did not reflect NIH's
actual requirements, this argument concerns an alleged solicitation defect
and is untimely.  See 4 C.F.R. S: 21.2(a)(1) (2002) (protest of
solicitation defect must be filed prior to date set for receipt of initial
proposals).
[6] Significantly, Nutech did not offer to perform the work for this
reduced price.