TITLE:  Kaneohe General Services, Inc., B-293097.2, February 2, 2004
BNUMBER:  B-293097.2
DATE:  February 2, 2004
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Kaneohe General Services, Inc., B-293097.2, February 2, 2004

   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:   Kaneohe General Services, Inc.
    
File:            B-293097.2
    
Date:              February 2, 2004
    
Timothy H. Power, Esq. for the protester.
Peter J. Lenhart, Esq., for KN Lawn Service, Inc., an intervenor.
Damon Martin, Esq., Richard G. Welsh, Esq., Robert Little, Esq., and Ron
R. Ashlock, Esq., Department of the Navy, Naval Facilities Engineering
Command, for the agency.
Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST

   Protest that agency improperly induced offeror to increase its price
during discussions is denied where record shows discussions were proper
and that protester increased its price in an exercise of its own business
judgment.
DECISION
    
Kaneohe General Services, Inc. protests the propriety of discussions held
with the firm under request for proposals (RFP) No. N62742-02-R-2211,
issued as a competitive section 8(a) set-aside by the Department of the
Navy, Naval Facilities Engineering Command, for grounds and tree
maintenance services at Pearl Harbor, Hawaii. The protester contends that
by releasing government estimate information during discussions, and
noting that some of Kaneohe*s line item prices differed from the agency*s
estimates, the agency unfairly misled it into believing its prices were
unreasonably low, and thus improperly induced the firm to increase its
overall price beyond the price of the contract ultimately awarded to KN
Lawn Service, Inc. under the RFP.
    

   We deny the protest.
    
The RFP called for award of a fixed-price contract with an
indefinite-quantity item for a base year and 4 option year periods.  The
two equally weighted factors for award were price and technical (which
included two equally weighted subfactors, past performance/experience and
execution). 
    
Eight proposals were received in response to the RFP.  Two rounds of
discussions were conducted and final proposal revisions were received from
five firms.  Kaneohe submitted the second lowest priced proposal, at
$11,988,000 (including option periods).  KN submitted the lowest priced
proposal, at $10,395,686.75.  KN*s proposal*s technical evaluation ratings
were higher overall than those assigned to the Kaneohe proposal. 
Determining that KN submitted the proposal that offered the best value to
the government, the agency awarded a contract under the RFP to KN on
October 17, 2003.  This protest followed.
    
Kaneohe contends that the agency misled it into believing that some of its
line item prices were unreasonably low and unfairly induced it to increase
its overall price during discussions to an amount only slightly higher
than that proposed by the awardee.  The protester alleges that if it had
not been induced to increase its price, its proposal, at its initial
price, would have been found to offer the best value to the agency.
    
Specifically, Kaneohe contends that it was improper for the agency during
the first round of discussions to inform the protester that several of its
line item prices were noticeably higher or lower than the government*s
estimates for those items.  In response to the first discussion letter of
September 12, Kaneohe increased its price for the work by more than
$[deleted] a year for the 5 years of performance contemplated under the
RFP.  The protester further argues that the agency*s release of the
government*s estimates during the second round of discussions with the
firm, by letter of October 1, confirmed for Kaneohe that it had properly
increased its price during the first round of discussions, since it
appeared to Kaneohe that the agency would evaluate prices for award by
comparison to the agency*s estimates.  Kaneohe did not revise its pricing
during the second round of discussions.
    
The agency contends that it conducted discussions with all offerors on an
equal basis, as all offerors were notified during the first round of
discussions about line item prices which were noticeably different from
the agency*s estimates (that is, prices which varied from the government
estimates by approximately 20 percent or more), and all offerors received
the agency*s estimates during the second round of discussions.  In this
regard, the agency reports that it released its estimates pursuant to
Federal Acquisition Regulation S: 15.306(e)(3), which generally provides
that an agency may, in its discretion, release prices it has identified as
reasonable for an anticipated acquisition.  The agency emphasizes,
however, that all offerors were notified that the government*s estimates
would not be controlling in a determination of price reasonableness, since
the price analysis of proposals was to be based on a comparison of the
offerors* prices proposed under the RFP.
    
As stated above, in its first discussion letter, the agency informed
Kaneohe that some of its prices were higher than, and others were lower
than, the agency*s estimates.  Kaneohe was specifically advised, as were
all offerors in their own discussion letters from the agency, not only
that the comparisons reflected *variance with the Government Estimate only
and not variance with other prices received,* but that the firm should
*[r]eview [its] proposal carefully to ensure [it] can perform the work
specified at the price proposed.*  Kaneohe Discussion Letter, Sept. 12,
2003, at 5.  In the agency*s second discussion letter of October 1,
Kaneohe, and all other offerors, received the agency*s estimates, along
with a notice that the estimates *in no way [relate] to other offerors*
prices.*  Kaneohe Discussion Letter, Oct. 1, 2003 at 1.  The agency also
reminded the firm that award was to be made to *the responsible offeror
whose offer provides the best value to the Government, price and other
factors considered . . . [and that as] a result, the Government performs
price analysis by comparison of proposed prices.*  Id.
    
It is a fundamental precept of negotiated procurement that discussions,
when conducted, must be meaningful and must not prejudicially mislead
offerors.  Trusted Hand Serv., Inc., B-285355, Aug. 21, 2000, 2000 CPD P:
136 at 4.  Specifically, an agency may not, even inadvertently, mislead an
offeror--through the framing of a discussion question or a response to a
question--into responding in a manner that does not address the agency*s
concerns; misinform the offeror concerning a problem with its proposal;
misinform the offeror about the government*s requirements; or, as is
pertinent to this case, mislead an offeror into raising its price.  Id.;
SIMSHIP Corp., B-253655.2, Dec. 2, 1993, 93-2 CPD P: 293 at 4.
    
Our review of the record here does not support the protester*s contention
that the agency misled it into increasing its price.  Although the agency
identified for Kaneohe and all other offerors during the first round of
discussions several instances where their prices differed from the
agency*s estimates, and then released its government estimates to all
offerors during the second round of discussions, the record does not
indicate that Kaneohe or any other offeror was requested or advised to
change its prices in any way.  Rather, it is clear from the record that
the agency*s release of the government estimates was for informational
purposes to assist offerors in their proposal preparation.  All offerors
were provided the government estimates and were advised to use the
information to review and confirm the accuracy of their prices; again, no
offeror was advised to revise its prices in any way.  Further, all
offerors were told not only that the agency*s price analysis would be
conducted by comparison to proposed prices (i.e., not by comparison to the
agency*s estimates), but that price would be an important factor for
award, as the RFP gave it equal weight to all technical factors combined. 
In this regard, we believe the agency*s discussion letters should have
provided an incentive to all offerors, including Kaneohe, to submit their
lowest possible prices to remain competitive under the RFP.  We thus do
not find persuasive the protester*s position that the agency*s discussion
letters unfairly induced it to increase its price in any way.  Rather, we
conclude that the protester*s decision to increase its overall price
during
discussions can be attributed only to an exercise of its own business
judgment, and not to any improper action on the agency*s part.
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel