TITLE: HEROS, Inc., B-292043, June 9, 2003
BNUMBER: B-292043
DATE: June 9, 2003
**********************************************************************
HEROS, Inc., B-292043, June 9, 2003
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Decision
Matter of: HEROS, Inc.
File: B-292043
Date: June 9, 2003
Douglas L. Patin, Esq., and Claire K. White, Esq., Spriggs &
Hollingsworth, for the protester.
Annejanette K. Heckman, Esq., Scott Pickens, Esq., and John Rice, Esq.,
Pillsbury Winthrop, for Rolls Royce Corp., an intervenor.
Vera Meza, Esq., and Wade L. Brown, Esq., Department of the Army, for the
agency.
Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest is sustained where solicitation to overhaul helicopter engines
contemplates less than full and open competition, the agency has concluded
that the successor-in‑interest to the original equipment
manufacturer of the engine is the only entity that possesses adequate
information to successfully overhaul the engine, and the agency's view
regarding other potential offerors' ability to meet the agency's
requirements fails to reflect a reasonable level of advance planning as
required by the Competition in Contracting Act.
DECISION
HEROS, Inc. protests the Department of the Army's limitation on
competition in connection with request for proposals (RFP) No.
DAAH23-02-R-0566 to overhaul T63‑A‑720 turbine engines for use
in OH-58A/C *Kiowa* helicopters. Specifically, the RFP limits the field
of offerors to Rolls Royce Corporation (RRC) and RRC's authorized
maintenance centers (AMCs). HEROS maintains that the Army's exclusion of
all other offerors unduly restricts competition in violation of the
Competition in Contracting Act of 1984 (CICA), 10 U.S.C. S: 2304
(2000).
We sustain the protest.
BACKGROUND
On January 10, 2003, the Army published the RFP at issue here, seeking
proposals to overhaul a quantity of up to 300 T63-A-720 engines. Agency
Report, Tab B, RFP, at 6. The agency maintains that RRC, and only RRC,
possesses certain information--which is unknown to the Army--that is
necessary to successfully overhaul the T63-A-720 engine.
Previously, based on this same premise, the Army published a notice in the
Commerce Business Daily, dated January 13, 2001, disclosing an intent to
award a sole-source contract to RRC for the requirements at issue here.
Sabreliner Corporation protested that proposed award; our Office sustained
Sabreliner's protest. See Sabreliner Corp., B-288030, B-288030.2, Sept.
13, 2001, 2001 CPD P: 170. Among other things, we found that the Army's
documents purporting to support the sole-source award *contain so many
inconsistencies and inaccuracies that they cannot reasonably justify the
agency's intended sole-source contract,* id. at 5; we also noted that,
although the agency's procurement officials knew of the inaccuracies, they
made no effort to correct them. Id. at 7. We further found that the
agency's conclusion that only RRC possessed the information necessary to
overhaul the T63-A-720 engines was not reasonably supported. Id. at
10-11. Finally, based on the *specific and detailed testimony of Army
representatives* that the Army could develop data sufficient to compete
the overhauled services within 8 to 10 months *at the outside,* we
recommended, subject to certain determinations by the Army, that it
develop the data necessary and competitively procure the overhaul
services.[1] Id. at 11, 12; Sabreliner Hearing Transcript (Aug. 16, 2001)
at 23, 32, 145-46, 150-51, 157, 200-01.
Subsequent to issuance of our Sabreliner decision, the Army published the
solicitation at issue here, expanding the field of competition to include
RRC's AMCs.[2] The agency states that, in the event an AMC is the
successful offeror, RRC will provide that AMC with RRC's *secret*
information--that is, information that RRC asserts it possesses and which
cannot be otherwise obtained--thereby enabling the AMC to perform the
required overhauls.[3] However, in the event an AMC is selected for
award, the Army will be required to pay RRC a royalty fee of $14,361 per
engine. [4] Agency Report, Tab P-3, at 1. Further, under the Army's
agreement with RRC, this fee will similarly be paid for *all future T63
overhauls performed pursuant to future contracts awarded by the Army.*[5]
Id.
In summary, the Army maintains that it *is legally prevented from
providing full and open competition* for the engine overhauls because
*[RRC] has required that [the Army] only disclose [RRC's] proprietary T63
overhaul data to [an] AMC.* Agency Report, Legal Memorandum, at 2.
Although this Army statement suggests that the Army will receive RRC's
*secret* information, the record is to the contrary and indicates that RRC
intends to provide only a successful AMC with whatever, undefined,
information is necessary to perform the overhauls. Agency Report, Tab F,
at 1. The Army concedes that it *does not have knowledge of what [RRC]
proprietary data, if any,* has been or will be used in providing a
successful AMC with the allegedly necessary information.[6] Agency
Report, Tab F, at 6. Indeed, it does not appear that RRC's *secret*
information, if it exists, has yet been reduced to any tangible form.[7]
Video Hearing Record (May 8, 2003) at 13:53.
History of the T63-A-720 Engine
The T63-A-720 engines at issue here have been used to power OH-58 A/C
helicopters since the 1970s when the Army began acquiring those engines
from Detroit Diesel Allison (DDA), the original equipment manufacturer
(OEM).[8] The record establishes that the T63-A720 engine was
manufactured as part of the *family* of DDA/RRC's 250-C20 engines.[9] In
this regard, DDA/RRC's Configuration Management Plan for the T63-A-720
engine states, *the T63-A-720 engine is a minor variant of the
commercially developed DDA 250-C20B [engine]* and, conversely, describes
the 250-C20B engine as *a commercial counterpart of the T63-A-720.*
Agency Report, Tab A, DDA Engineering Department Report No. 8663, Rev. B
(May 7, 1980), at 22, 23.
Until the mid-1990s, the Army retained an *organic* (that is, in-house)
ability to overhaul the T63-A-720 engines. As part of its in-house
ability the Army maintained an instruction manual describing the
operations, procedures and practices required to overhaul the engines;
this type of manual is generally referred to as a *Depot Maintenance Work
Requirement* (DMWR). The Army maintained and updated the T63-A-720 DMWR
through amendments made by its own engineers, as well as receipt of
various publications issued by the OEM. In addition to supporting the
Army's in-house overhaul capabilities, the DMWR was used to facilitate
competitive procurements of engine overhauls from commercial vendors.[10]
In explaining the basis for its current perceived inability to perform a
competitive procurement, the Army states that it has failed to maintain
the DMWR; specifically, the Army states that it has not updated the DMWR
since 1993. Agency Report, Contracting Officer's Statement, at 2. The
Army maintains that its failure to update the DMWR has been due to the
*impending retirement of the OH-58 A/C [helicopter].* Id. at 3. Although
it is not clear when the Army first scheduled the OH‑58A/C for
retirement, a March 26, 2003 memorandum, written by the Director of the
Army's Scout Observation Directorate, states: *[The] OH-58A/C fleet has
for the past 15 years been downsized, scheduled for retirement and
allocated inadequate resources.* Agency Report, Tab F, at 1.
Regarding the actual retirement date--that is, the date after which the
Army will no longer operate OH-58A/C aircraft and, thus, have no ongoing
requirements to maintain and overhaul T-63-A720 engines--the Army's
statements have fluctuated radically. In creating documentation
purporting to justify the attempted sole-source award to RRC in 2001, the
agency represented that the OH-58A/C aircraft would be retired by the year
2004; however, during the course of our review of Sabreliner's protest, it
became apparent that the Army intended to retain and operate OH-58A/C
helicopters through the year 2020. Sabreliner Corp., supra.[11]
Here, in first responding to HEROS's protest, the Army again asserted that
the OH‑58A/C will be retired in the relatively near future, stating
*the actual retirement year for the OH-58A/C helicopter . . . is 2005.*
Agency Report, Contracting Officer's Statement, at 3. The referenced
authority for this representation is an Army memorandum, dated Dec. 28,
2001 and signed by the Army's Vice Chief of Staff, which states: *the
Army's primary OH-58A/C fleet is targeted for retirement by end‑FY04
[fiscal year 2004].* Agency Report, Tab H, at 1. Notwithstanding this
*targeted* retirement date, this same memorandum also states:
[N]ot later than FY05 125 aging OH-58A aircraft in the RAID [Reconnaisance
Air Interdiction Detachment] mission will either have to be replaced by a
newer series aircraft, or maintained at a significant and steadily
increasing cost using commercial parts and contract support for higher
level maintenance.
. . . . There are no replacement aircraft planned or programmed under the
current constrained funding levels. . . .
Agency Report, Tab H, at 1-2 (underlining added).
During the hearing conducted in connection with the Sabreliner decision,
an Army official testified that the retirement date for OH-58A/C
helicopters had been extended to the year 2020 *because they [Army
leadership] don't have [replacement] aircraft available . . . to do the
transformation they want to do.* Sabreliner Hearing Transcript at 195.
During the hearing conducted by GAO in connection with HEROS's protest,
the Army's Aircraft Sustainment Leader for the OH-58A/C aircraft testified
that *there has been movement among the units that have these aircraft to
retain them beyond [FY05],* and that a decision to extend the retirement
date for OH-58A/C helicopters currently involved in certain activities,
including drug interdiction efforts and pilot training activities, is
currently pending. Video Hearing Record (May 8, 2003) at 10:23‑24.
Finally, in its post-hearing submission, the Army lists the retirement
date for up to 143 OH-58A/C helicopters as *Close FY06-FY08.* Agency
Post-Hearing Brief, May 15, 2003, at 2.
Accordingly, in light of the various conflicting positions taken by the
Army on this issue, along with the Army Vice Chief of Staff's express
acknowledgement that *there are no replacement aircraft [for the OH-58A/C]
planned or programmed,* Agency Report, Tab H, at 1-2, it appears likely
that the Army will continue to operate OH‑58A/C aircraft beyond the
end of fiscal year 2004--and thus will continue to generate requirements
to overhaul T63-A-720 engines.
DISCUSSION
HEROS protests the Army's conclusion that only RRC, or one of RRC's AMCs,
is capable of successfully performing the Army's overhaul requirements
arguing, among other things, that the Army's activities related to this
procurement violate the statutory requirements of CICA. We agree.[12]
CICA generally requires that agencies engage in *full and open
competition* when conducting government procurements; specific exceptions
to this general requirement include a situation where the agency's
requirements can be performed by only one responsible source. 10 U.S.C. S:
2304(c)(1). However, under no circumstances may noncompetitive procedures
be used due to a lack of advance planning by contracting officials. 10
U.S.C. S: 2304(f)(5); New Breed Leasing Corp., B‑274201, B-274202,
Nov. 26, 1996, 96-2 CPD P: 202 at 6; TeQcom, Inc., B-224664, Dec. 22,
1986, 86-2 CPD P: 700. Our Office has recognized that, while the
requirement for advance planning does not mean that such planning must be
completely error‑free, see, e.g., Sprint Communications Co., L.P.,
B-262003.2, Jan. 25, 1996, 96-1 CPD P: 24, as with all procurement actions
taken by an agency, the advance planning required under 10 U.S.C. S: 2304
must be reasonable.
In enacting CICA, Congress explained: *Effective competition is
predicated on advance procurement planning and an understanding of the
marketplace.* S. Rep. No. 50, 98th Cong., 2d Sess. 18 (1984), reprinted
in 1984 U.S.C.C.A.N. 2191. The Senate Report also quoted with approval
the following testimony regarding the need for advance planning:
Opportunities for obtaining or improving competition have often been lost
because of untimely, faulty, or the total lack of advance procurement
planning. Noncompetitive procurement or inadequate competition also has
resulted many times from the failure to develop specifications . . . . By
requiring effective competition, Congress will serve notice on the
agencies that they will need to do more than the minimum to comply with
the statute.
S. Rep. No. 50, 98th Cong., 2d Sess. 19 (1984), reprinted in 1984
U.S.C.C.A.N. 2192.
Finally, in interpreting this statutory requirement, our Office has noted
that contracting officials have a duty to promote and provide for
competition and to obtain the most advantageous contract for the
government. Precision Logistics, Inc., B-271429, July 18, 1996, 96-2 CPD
P: 24 at 5; National Aerospace Group, Inc., B‑282843, Aug. 30, 1999,
99-2 CPD P: 43. In other words, contracting officials must act
affirmatively to obtain and safeguard competition; they cannot take a
passive approach and remain in a sole-source situation when they could
reasonably take steps to enhance competition.
Here, the Army's actions over the past several years fail to comply with
CICA's statutory mandate for reasonable advance planning. As discussed
above, the agency has, repeatedly, taken the position--when attempting to
justify limiting competition for this requirement--that retirement of the
OH-58A/C aircraft is imminent. Based on this assumption, agency officials
have declined to conduct any detailed or documented analysis regarding the
time and costs associated with obtaining competition as compared to the
cost savings likely to flow from enhanced competition. Video Hearing
Record (May 8, 2003) at 14:30-33. Here, as in our prior Sabreliner
decision, scrutiny of the agency's initial position regarding the schedule
for retirement of the OH-58A/C aircraft indicates that elimination of this
aircraft, along with the associated engine overhaul requirements, is
unlikely to occur on the schedule initially presented by the agency. The
bottom line, as reflected in the record here and in the prior Sabreliner
record, is that there are no ready replacements for these helicopters; yet
a substantial number of these aircraft are being used to perform
activities that constitute ongoing requirements. Notwithstanding these
facts, the agency has failed to perform any reasonable and documented
analysis regarding the costs and benefits associated with obtaining
competition that takes into consideration a realistic assessment of the
length of time the OH‑58 aircraft will continue to fly.
Further, as discussed above, the agency has failed to update the DMWR
since 1993. Since nothing in the record suggests that the OH-58A/C was
ever scheduled for retirement before 2004, we view the Army's apparent
abandonment of this document--which the agency considers critical to its
ability to conduct full and open competition for the engine
overhauls--more than 10 years prior to the earliest projected retirement
date as, itself, reflecting a lack of advance planning. In any event,
during the hearing conducted in connection with this protest, the
contracting officer acknowledged that the agency could issue a full and
open competitive solicitation without relying on either the outdated DMWR
or RRC's *secret* information--provided the Army performed qualification
testing on the overhauled engines initially produced under such a
contract. Video Hearing Record (May 8, 2003) at 13:47-50. The
contracting officer stated that such qualification testing would add
approximately one year to the procurement cycle. Id. Although the agency
has considered itself to be wholly dependent on RRC's *secret* information
for considerably longer than the single year that this approach would add
to the procurement cycle, the agency apparently rejected this alternative
with little or no comparative analysis of the costs and/or time associated
with obtaining the overhauls from RRC and/or RRC's AMCs. Id. To the
extent any such analysis was performed, it was based on a projected
retirement of the engines in 2005. Id.
Finally, the record associated with this procurement demonstrates that the
agency has failed to reasonably consider alternative methods of meeting
its requirements. Specifically, the record shows that, since 1995, a
significant number of OH-58A/C aircraft powered by T63-A-720 engines have
been transferred to non-Army organizations, including public sector local
law enforcement agencies. In connection with the ongoing requirements to
maintain and overhaul the T63-A-720 engines, these other organizations
have sought input from RRC. In response, RRC has expressly recommended
that the T63-A-720 engines be overhauled using the commercially available
overhaul manuals for the series 250-C20 engines.[13] Specifically, on
August 18, 1998, RRC issued a Commercial Service Letter, stating:
[RRC] has received numerous questions from commercial recipients of these
military T63 engines regarding parts, technical support, maintenance
requirements, and overhaul
requirements. The purpose of this Commercial Service Letter is to provide
the operators of T63 engines with answers to the most commonly asked
questions and [RRC's] policy regarding our support of those engines.
. . . . .
3. Overhaul Requirements:
. . . . Allison recommends that the closely equivalent commercial manuals
listed below be utilized when overhauling the engine:
Engine Model Publication
Pub P/N
. . . . .
T63-A720 250-C20 Overhaul Manual 10W3
Agency Report, Tab K-6, RRC Commercial Services Letter 1209, at 5-6.
During the August 16, 2001 hearing conducted in connection with
Sabreliner's protest, testimony was presented that Sabreliner had
successfully overhauled a quantity of T63-A-720 engines under a contract
with the Department of the Navy-- without access to RRC's *secret*
data--by relying on the commercially available manuals for the 250-C20B
engine. Sabreliner Hearing Transcript (Aug. 16, 2001) at 407-08. This
contract apparently called for Sabreliner to, in effect, convert the
T63‑A‑720 engine to a 250-C20B engine. Id. Nonetheless, at
the May 8, 2003 hearing conducted in connection with HEROS's protest, the
Army engineer associated with this procurement testified that he did not
know how non-Army owners of the T63‑A‑720 engines met their
engine overhaul requirements, and that information in that regard had not
been sought. Video Hearing Record (May 8, 2003) at 12:32-35. In this
regard, the Army acknowledges that it has not obtained current versions of
the commercially available manuals for overhauling the 250-C20B engines.
Video Hearing Record (May 8, 2003) at 14:49. Finally, the record suggests
that, with regard to overhauling the T63-A-720 engines, RRC may be
attempting to extract an unusually high price for its assistance and/or
services.[14] In the context of all these facts, the agency has failed to
seek information regarding other T63-A-720 engine owners' experience in
obtaining engine overhauls, which might have obviated the perceived need
for limiting competition. Based on all of the facts discussed above, we
conclude that the agency has failed to meet CICA's requirements regarding
a reasonable level of advance planning.
The protest is sustained.[15]
RECOMMENDATION
Consistent with our discussion above, we recommend that the agency reach a
realistic, supportable, and documented conclusion regarding its future use
of the OH-58A/C helicopter.[16] Based on that determination, we recommend
that the agency conduct a documented cost/benefit analysis reflecting the
costs associated with obtaining full and open competition, either through
updating the DMWR, issuing a full and open solicitation that includes
qualification testing, or overhauling the engine to 250-C20B
specifications. In connection with this effort, we recommend that the
agency obtain information from non-Army owners of the OH‑58A/C
aircraft, including law enforcement agencies, regarding their experience
in overhauling the T63-A-720 engines. To the extent the Army views its
intended use of the aircraft as materially different from other non-Army
users, thereby mandating differing performance specifications, we
recommend that it document the basis for that conclusion. We also
recommend that HEROS be reimbursed its cost of filing and
pursuing this protest including reasonable attorneys' fees. 4 C.F.R. S:
21.8(d)(1) (2003). The protester should submit its certified claim for
such costs, detailing the time expended and costs incurred, directly to
the agency within 60 days of receipt of this decision. 4 C.F.R. S:
21.8(f)(1).
Anthony H. Gamboa
General Counsel
------------------------
[1] In resolving Sabreliner's protest, GAO conducted a hearing on August
16, 2001. A written transcript of that hearing was prepared, and that
transcript was provided to counsel for the parties in the HEROS's protest,
subject to GAO's protective order, as part of the HEROS's protest record.
In connection with HEROS's protest, GAO conducted another hearing on May
8, 2003; that hearing was videotaped and a copy of the video record was
provided to counsel for the parties. To avoid confusion, citations to the
August 16, 2001 Sabreliner hearing transcript are identified as
*Sabreliner Hearing Transcipt (Aug. 16, 2001) at ___*; citations to the
video record of HEROS's May 8, 2003 hearing record are identified as
*Video Hearing Record (May 8, 2003) at ___.*
[2] AMCs must sign an RRC-prepared agreement in order to qualify as an
AMC. RRC Comments on Agency Report, Apr. 28, 2003, at 8.
[3] The reference to RRC's *secret* information is intended to
differentiate between RRC's proprietary information that has been provided
in the record and the undisclosed information that RRC asserts it
maintains--and which forms the basis for the limitation on competition.
[4] The fee amount is calculated as reflecting [deleted]. Agency Report,
Tab P-3, at 1.
[5] The record indicates that the Army may subsequently require as many as
700 overhauls of T63-A-720 engines. Agency Report, Tab I, at 9. RRC's
per engine royalty fees for 700 engines would total over $10 million.
[6] RRC has prepared a *draft* overhaul manual for review by the Army,
Agency Report, Tab P-15; however, neither the Army nor RRC has identified
any information in that document which is not otherwise available in
commercial publications.
[7] With RRC's comments to our Office, responding to the agency report,
RRC provided declarations from two of its employees containing various
factual assertions relevant to the protest issues. Upon concluding that a
hearing would be necessary to resolve HEROS's protest, we requested that
RRC provide, as witnesses at the hearing, the two employees who had
submitted declarations for GAO's consideration. RRC refused to provide
any witnesses, including the two specifically requested. As discussed at
the hearing, one of the matters about which GAO would have sought
information from the RRC witnesses was whether or not its *secret* data
has been reduced to any tangible form; our review of the record, along
with RRC's refusal to permit any cross-examination of its declarents on
this or any other issue, leads us to conclude it has not. See 4 C.F.R.
S: 21.7(f) (2003) (*If a witness whose attendance has been requested by
GAO fails to attend the hearing . . . GAO may draw an inference
unfavorable to the party for whom the witness would have testified.*); see
also Guardian Techs. Int'l, B-270213 et al., Feb. 20, 1996, 96-1 CPD P:
104 at 9-11; Du & Assocs., Inc., B-280283.2, Dec. 22, 1998, 98-2 CPD P:
156.
[8] In the mid-1990s, DDA, a division of General Motors Corporation, was
acquired by RRC; accordingly, RRC has become the successor-in-interest to
the OEM.
[9] The 250-C20 series of engines includes the 250-C20B, 250-C20C,
250-C20F, 250-C20J, 250-C20R, and 250-C20W.
[10] Although most of the agency's requirements were performed organically
at the Corpus Christi Army Depot facility in Texas, competitive
procurements to overhaul the T63-A-720 engine were conducted by the Army,
using the DMWR, in 1990 and 1993. In 1990, a contract was awarded to
Pacific Turbine Pty, LTD, to overhaul 102 engines; a second contract was
also awarded to Aeromaritime Mediterranean to overhaul 78 engines. In
1993, a contract was competitively awarded to Dallas Airmotive to overhaul
50 engines. Agency Report, Contracting Officer's Statement, at 2.
[11] Shortly after the Sabreliner decision was issued, the contracting
officer signed a memorandum, dated November 21, 2001, stating that the
retirement date for the OH‑58 A/C helicopter was 2019. Agency
Report, Tab L-3, at 79.
[12] RRC asserts that HEROS's protest was not timely filed. We disagree.
The protest challenges the solicitation's limitation on potential offerors
and was filed prior to the closing date for submission of initial
proposals. Accordingly, the protest was timely filed. 4 C.F.R. S:
21.2(a)(1) (2003).
[13] As noted above, DDA/RRC's own Configuration Mangement Plan describes
the 250‑C20B engine as the *commercial counterpart* to the T63-A-720
engine.
[14] The contracting officer testified that the Army has engaged in
*heated discussions* with RRC, during which RRC essentially refused to
assist the Army in conducting any competition that would permit proposals
from non-AMCs, and that the price quoted by RRC with regard to [deleted]
was *very high.* Video Hearing Record (May 8, 2003) at 14:11-12.
[15] In responding to HEROS's protest, the Army and RRC have argued that
GAO should conclude that HEROS does not have standing to bring this
protest based on the Army's and RRC's assertions that HEROS lacks the
necessary resources and/or qualifications to perform the required
overhauls; accordingly, RRC and the Army assert that we should dismiss the
protest. It is undisputed that, in December 1988, HEROS was issued
Federal Aviation Administration (FAA) Air Agency Certificate No. HEFR202K,
which refers to the overhaul of *Allison 250-C18, C20, C28, and C30
engines.* Agency Report, Tab A, HEROS Protest, Ex. 7. While we do not
view this or any other document submitted in this matter as establishing
that HEROS is qualified to perform the required services, we also decline
to conclude that, as a matter of law, HEROS is not. Accordingly, we
reject the requests to dismiss the protest.
[16] In the event the Army concludes that use of the OH-58 A/C will be
eliminated in the near future, we recommend that the documentation
supporting that determination discuss the requirements currently being
performed by these aircraft and address how and/or whether those
requirements will continue to be met.