TITLE:  First Enterprise, B-292967, January 7, 2004
BNUMBER:  B-292967
DATE:  January 7, 2004
**********************************************************************
First Enterprise, B-292967, January 7, 2004

   Decision
    
    
Matter of:   First Enterprise
    
File:            B-292967
    
Date:              January 7, 2004
    
Sam Z. Gdanski, Esq., for the protester.
Kenneth B. MacKenzie, Esq., and Phillipa L. Anderson, Esq., Department of
Veterans Affairs, for the agency.
Louis A. Chiarella, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Determination to cancel invitation for bids after bid opening is
unobjectionable where the bids exceeded the funding allocated for the
construction project, irrespective of any dispute concerning the validity
of the government estimate.
DECISION
    
First Enterprise protests the cancellation after bid opening of invitation
for bids (IFB) No. 600-249-03RT, issued by the Department of Veterans
Affairs (VA) for the construction of a prosthetic and eye clinic center as
part of the VA Greater Los Angeles Healthcare System, Los Angeles,
California.  First Enterprise, the bidder in line for award under the IFB,
maintains that the agency had no compelling reason to cancel and convert
the IFB to a negotiated procurement. 
    
We deny the protest. 
    
The solicitation, issued on August 6, 2003 as a Small Business
Administration (SBA) 8(a) set-aside, contemplated the award of a
fixed-price contract.[1]  The IFB required bidders to submit prices for
all the required work (the *main bid item*), as well as prices for five
deductive bid alternates.  The construction project had approved funding
in the amount of $3,510,190.
    
At bid opening on September 4, the VA received bids from First Enterprise,
Ace Engineering, Inc., DJM Construction Co., Inc., and Stronghold
Engineering.  The bid prices for the required work, including the
deductive alternate items, were as follows:
    

   +------------------------------------------------------------------------+
|                  |First Enterprise |Ace        |DJM        |Stronghold |
|------------------+-----------------+-----------+-----------+-----------|
|Main Bid Item     |$3,884,495       |$3,592,994 |$4,100,000 |$3,997,127 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #1 |$3,814,845       |$3,562,994 |$4,070,000 |$3,967,127 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #2 |$3,708,985       |$3,557,994 |$4,060,000 |$3,955,127 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #3 |$3,760,985       |$3,514,394 |$4,010,000 |$3,915,127 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #4 |$3,752,345       |$3,484,394 |$3,930,000 |$3,895,127 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #5 |$3,680,895       |$3,464,394 |$3,900,000 |$3,885,127 |
+------------------------------------------------------------------------+

    
Agency Report (AR), Tab D, Abstract of Offers, Sept. 4, 2003.
    
The contracting officer reviewed the bids and determined that Ace was the
apparent low bidder.  The agency subsequently undertook steps to make
award of Alternate Item #5 to Ace at a price of $3,464,394.  On September
15, Ace notified the contracting officer of a mistake in its bid and asked
to withdraw the bid.  By letter dated September 24, the agency permitted
Ace to withdraw its bid.
    
The VA then decided to reject all remaining bids and to cancel the IFB
because, among other reasons, all remaining bids exceeded the amount of
funding available.  The contracting officer also decided to complete the
acquisition by negotiation, consistent with FAR S: 14.404-1(f).  AR, Tab
E, Determination and Findings, at 1-2. 
    
On September 23 the VA amended the solicitation, informed the remaining
bidders that all the prices received were in excess of the available
funding, and converted the IFB to a request for proposals.  While the
construction project requirements remained the same, the amended
solicitation also included a sixth alternate deductive item, in order to
maximize the potential for a contract award.
    
Three offerors, including First Enterprise and DJM, submitted proposals by
the September 25 closing date.  The offerors' prices and the independent
government estimate (IGE) were as follows:
    

   +------------------------------------------------------------------------+
|                  |First Enterprise |DJM        |Offeror 3  |IGE        |
|------------------+-----------------+-----------+-----------+-----------|
|Main Bid Item     |$3,762,558       |$4,008,000 |$3,949,100 |$3,596,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #1 |$3,727,271       |$3,982,000 |$3,919,100 |$3,566,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #2 |$3,711,506       |$3,969,000 |$3,907,100 |$3,556,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #3 |$3,666,666       |$3,921,000 |$3,867,100 |$3,513,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #4 |$3,656,466       |$3,837,000 |$3,847,100 |$3,494,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #5 |$3,613,986       |$3,796,000 |$3,827,100 |$3,471,111 |
|------------------+-----------------+-----------+-----------+-----------|
|Alternate Item #6 |$3,111,216       |$2,989,000 |$3,627,100 |$3,121,111 |
+------------------------------------------------------------------------+

    
AR, Tab G, Abstract of Offers, Sept. 25, 2003.
    
The contracting officer subsequently decided to award Alternate Item #6 to
DJM at the price of $2,989,000.   This protest followed.
    
First Enterprise's protest centers around the VA's decision to cancel the
IFB and convert it to a negotiated procurement.  Specifically, the
protester argues that after permitting Ace to withdraw its bid, the agency
should have made award to First Enterprise, the next lowest bidder.  First
Enterprise essentially contends that the VA did not have a reasonable
basis to cancel the IFB, particularly since bidders' prices had already
been disclosed.  The VA responds that, after permitting Ace to withdraw
its bid, all remaining bids exceeded the available funding, and thus it
did not have sufficient funding to make award to the next lowest bidder.
    
Cancellation of a solicitation after bids have been opened and prices have
been exposed is only permitted where a compelling reason exists to
cancel. 
FAR S: 14.404-1(a)(1); Robert Hall Assocs., Inc., B-261849, Oct. 25, 1995,
95-2 CPD
P: 189 at 1; Michelle F. Evans, B-259165, Mar. 6, 1995, 95-1 CPD P: 139 at
3.  An agency's determination that funds are not available for contract
obligation is a sufficient reason to cancel a solicitation, Robert Hall
Assocs., Inc., supra, as agencies cannot award contracts which exceed
available funds.  31 U.S.C. S: 1341(a)(1)(A) (2000); FAR S: 32.702;
DynaLantic Corp., B-274944.5, Aug. 25, 1997, 97-2 CPD P: 75 at 6. 
Additionally, it is not our role to question the unavailability of funds. 
The management of an agency's funds generally depends on the agency's
judgment concerning which projects and activities should receive increased
or reduced funding and a contracting agency has the right to cancel a
solicitation when, as a result of its allocation determinations,
sufficient funds are not available.  Michelle F. Evans, supra;
Kato/Intermountain Elec., A Joint Venture, B-245807, B-245925, Jan. 30,
1992, 92-1 CPD P: 129.
    
At a hearing that our Office conducted in this protest, the VA explained
that the budget and the available funding for the prosthetic and eye
clinic center project here were as follows:
    
Construction Cost:                           $3,218,781
Construction Contingency:             $   241,409
Impact Cost:[2]                                     $     50,000
Total Construction Cost:                 $3,510,190
Design Cost:                                      $   406,394
Total Project Cost:                            $3,916,584
    
Hearing Transcript at 10:32-33; AR, Tab K, Minor Project Application, at
1; Tab P, 2003 Minor Operating Plan Spending.  Consequently, after the
agency permitted Ace to withdraw its bid, all the remaining bids,
including the $3,680,895 bid of First Enterprise for Alternate Item #5,
exceeded the maximum amount of funding available for the construction
project.  Given the lack of adequate available funding, the VA clearly
acted properly in rejecting all remaining bids after the withdrawal of
Ace's bid and canceling the IFB. 
    
First Enterprise does not dispute that, after Ace's withdrawal, all
remaining bids exceeded the $3,510,190 in available funding for the
construction project here.[3]  Instead, the protester argues that the
agency improperly failed to assess the validity of the underlying
government estimates and that such failure cannot be excused by an
assertion of a lack of funding.  First Enterprise contends that if the IGE
was erroneous and the available funding was premised on the inaccurate
estimates, the VA had an affirmative duty to seek an increase in funding
in order to make award under the IFB.  We disagree. 
    
A contracting agency has the right to cancel a solicitation when
sufficient funds are not available regardless of any disputes concerning
the validity of the IGE, National Projects, Inc., B-283887, Jan. 19, 2000,
2000 CPD P: 16 at 4; J. Morris & Assocs., Inc., B-256840, July 27, 1994,
94-2 CPD P: 47 at 2 n.1, as agencies cannot create obligations that exceed
available funds.  Further, the VA is precluded by law from obligating or
expending funds in excess of $4 million total for any medical facility
project without express Congressional approval.  See 38 U.S.C. S:S: 8101
et seq. (2000).   Since the VA previously had obligated $366,228 for the
design aspect of the project here, the contracting officer could not have
made contract award to First Enterprise after the withdrawal of Ace's bid,
even if it had sought to obtain additional funds.  Accordingly, the VA's
decision to cancel the IFB after determining that all bids not withdrawn
exceeded available funding was proper.
    
To the extent that First Enterprise also contends that DJM's price for
Alternative Item #6 was unreasonably low and that the agency should have
considered whether the price reflected a lack of understanding of the
solicitation requirements, the protest is without merit.[4]  An allegation
that DJM submitted an unrealistically low offer provides no basis for
protest because there is no prohibition against an agency accepting a
below-cost offer on a fixed-price contract.  M-Cubed Info. Sys., Inc.,
B-284445, B-284445.2, Apr. 19, 2000, 2000 CPD P: 74 at 8.  While an agency
may elect to perform a realism analysis in the award of a fixed-price
contract, in order to assess an offeror's risk or to measure an offeror's
understanding of the solicitation's requirements, it need not do so unless
required by the solicitation, AST Envtl., Inc., B-291567, Dec. 31, 2002,
2002 CPD
P: 225 at 2, which is not the case here.
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    

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

   [1] Section 8(a) of the Small Business Act, 15 U.S.C. S: 637(a) (2000),
authorizes the SBA to enter into contracts with government agencies and to
arrange for performance through subcontracts with socially and
economically disadvantaged small business concerns.  These subcontracts
may be awarded on a competitive or noncompetitive basis.  See Federal
Acquisition Regulation (FAR) S: 19.800.
[2] Impact costs represent the incidental expenses of project
construction, such as moving and relocation costs.
[3] First Enterprise requests, however, that our Office assess costs
against the VA as a sanction because of the agency's failure to act
promptly to establish the meaning of the various agency budget and funding
documents in advance of the hearing we conducted.  Our Regulations do not
specifically authorize costs as a sanction for delays in furnishing, or
clarifying, documents.  See H. Watt & Scott Gen. Contractors,
Inc.--Request for Declaration of Entitlement to Costs, B-257776.3, Apr. 6,
1995, 95-1 CPD P: 183 at 3.  Moreover, we do not think that the facts
would merit such a sanction in any event.
[4] The discussion of this issue in the initial protest was limited to
conclusory statements offered without support, and at a minimum should
have more clearly articulated the basis of the protester's complaint on
this point.  See Protest at 3.   A more detailed discussion of the
protester's argument on this point was not provided until the protester's
comments on the agency report, filed more than 10 days after this basis
for protest was or should have been known.  See Bid Protest Regulations,
4 C.F.R. S: 21.2(a)(2) (2003).  We need not decide whether the issue was
timely raised, however, since, even if the initial protest is interpreted
as adequately raising it, this basis for protest is clearly without merit.