TITLE: B-293105.21; B-293105.22; B-293105.23, Greenleaf Construction Company, Inc., April 4, 2007
BNUMBER: B-293105.21; B-293105.22; B-293105.23
DATE: April 4, 2007
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B-293105.21; B-293105.22; B-293105.23, Greenleaf Construction Company, Inc., April 4, 2007
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: Greenleaf Construction Company, Inc.
File: B-293105.21; B-293105.22; B-293105.23
Date: April 4, 2007
Margaret A. Dillenburg, Esq., Alexander Brittin, Esq., and Jonathan D.
Shaffer, Esq., Smith, Pachter, McWhorter & Allen, for the protester.
James S. DelSordo, Esq., Argus Legal, L.L.C., for Chapman Law Firm
Company, LPA, for the intervenor.
Kimberly Y. Nash, Esq., and Robert J. Brown, Esq., Department of Housing
and Urban Development, 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
Protest asserting organizational conflict of interest is denied where
contracting officer reasonably determined that owner of management and
marketing (M&M) services contractor in Ohio had sold interest in closing
agent contractor for Ohio, the activities of which the M&M contractor will
oversee; mere fact that M&M owner initially was reluctant to forego
further compensation for his interest in closing agent did not require
contracting officer to question the veracity and reliability of notarized
documents that indicated that there had been a complete cessation of any
continuing financial ties between M&M owner and closing agent.
DECISION
Greenleaf Construction Company, Inc. protests the Department of Housing
and Urban Development's (HUD) award of a contract to Chapman Law Firm
Company, LPA (CLF), under request for proposals (RFP) No. R-OPC-22505, for
single-family home management and marketing (M&M) services. Greenleaf
primarily asserts that the award to CLF was precluded by an impermissible
organizational conflict of interest (OCI).
We deny the protest.
BACKGROUND
The solicitation, issued August 6, 2003, contemplated the award of
indefinite-delivery/indefinite-quantity, fixed-unit-price contracts in 24
geographic regions for M&M services in connection with the disposition of
single-family homes. These properties are acquired or retained in custody
by HUD pursuant to the Federal Housing Authority's (FHA) role in
administering the single-family home mortgage insurance program. FHA
insures approved lenders against the risk of loss on loans extended to
home buyers; in the event of a default on a loan insured by FHA, the
lender acquires title to the property through foreclosure or other
procedure, and then conveys the title to HUD in exchange for the payment
of insurance benefits. As a result of this program, HUD has a sizable
inventory of single-family homes that it needs to maintain and dispose of
through sale. The solicitation was issued to meet HUD's requirement to
maintain and sell these properties.
At issue in this protest is the contract for the properties in the
Ohio/Michigan area. For this area (as for 13 other areas), the RFP
provided that the award of the contract would follow a cascading procedure
under which any award would first be made on the basis of competition
considering only eligible small business concerns. If adequate competition
between small business concerns did not exist--that is, if there were not
"[a]t least two competitive offers . . . received from qualified
responsible business concerns at the tier under consideration," with award
to be made at "fair market prices as determined in accordance with
[Federal Acquisition Regulation (FAR) sect.] 19.202-6"--award then would
be made on the basis of unrestricted competition. RFP sect. M.9.b. Award
was to be made on a "best value" basis, with the technical factors
combined being significantly more important than price. There were six
technical factors (in descending order of importance): management
capability/quality of proposed management plan, past performance,
experience, proposed key personnel, subcontract management, and small
business subcontracting participation.
The proposals of three offerors that certified themselves as small
business concerns, including those of Greenleaf, CLF, and a third firm,
were included in the initial competitive range. After a size status
protest by CLF resulted in Greenleaf being determined to be other than
small by the Small Business Administration (SBA), and HUD found that the
third offeror (which eventually withdrew its proposal) lacked the capacity
to perform, leaving only a single small business offeror, HUD cascaded the
competition to the full and open, unrestricted tier. Having determined
that Greenleaf's technically superior, low-priced proposal represented the
best value to the government, HUD awarded a contact to Greenleaf on
April 19, 2005. However, after CLF filed a protest with our Office,
asserting that the procurement should not have been cascaded to the
unrestricted tier, HUD terminated Greenleaf's contract and returned the
procurement to the small business tier. HUD then requested CLF to furnish
a certification that its proposal submitted January 20, 2005 remained
valid, and documentation showing that a conflict of interest arising from
CLF's ownership of Lakeside Title & Escrow Agency--the HUD closing agent
contractor for Ohio which CLF, as the M&M contractor for Ohio, was
prohibited under the RFP from owning--had been mitigated. Letter from HUD
to CLF, June 22, 2005, at 1. On September 30, after determining that CLF
was responsible, with adequate staffing and equipment and no impermissible
conflict of interest, Affirmative Determination of Responsibility,
Philadelphia Area 2, Sept. 26, 2005, the contracting officer made award to
CLF.
Greenleaf then filed a protest with our Office challenging the September
2005 award to CLF. In our decision Greenleaf Constr. Co., Inc.,
B-293105.18, B-293105.19, Jan. 17, 2006, 2007 CPD para. 19, we sustained
Greenleaf's protest on three grounds. First, we found that HUD's
evaluation of CLF's proposal was unreasonable because it was based on
aspects of CLF's proposed resources (employees) and technical approach
(electronic monitoring system) that, shortly after CLF certified to HUD on
June 22 that its January 2005 final proposal revision (FPR) remained
valid, had materially changed. We concluded that CLF was required to
advise the agency of the material changes in its proposal. Because CLF
failed to do so, the agency never evaluated CLF's actual resources and
technical approach as they existed at the time of award and the
evaluation, therefore, was unreasonable.
Second, we found that HUD had not reasonably considered or evaluated a
potential OCI on the part of CLF. In this regard, the RFP generally
provided that "[t]he Contractor shall not engage in or permit any conflict
of interest," and specifically identified the following as one prohibited
conflict:
M&M Contractors may not serve as contractors or subcontractors that
perform contract monitoring, oversight or other services related to any
of the tasks in this PWS. Excluded contract services include but are not
limited to . . . Closing Agents . . . .
RFP sections H.8, I.14(b).
At the time CLF submitted its initial proposal, Mr. Chapman, the owner of
CLF, also owned Lakeside, which is HUD's closing agent contractor for the
state of Ohio.[1] Consistent with the above prohibition, CLF agreed in its
proposal to transfer "full ownership" of Lakeside to another escrow and
title attorney. CLF FPR, Jan. 20, 2005, at 6. At HUD's request, CLF
furnished a notarized stock transfer agreement indicating that all shares
in Lakeside had been sold by Frank Chapman to Dennis O'Brien, and an
affidavit executed by Mr. Chapman stating that the "sale of all shares of
Lakeside Title . . . has been completed and I no longer have any ownership
interest or control over Lakeside Title." CLF Letter to HUD, June 22,
2005. Subsequently, HUD learned that the purchase agreement for Lakeside,
dated June 20, 2005, provided for a purchase price consisting of
$[REDACTED]. Purchase Agreement for Lakeside Title, June 20, 2005,
sect. 3.1.
The contracting officer advised Mr. Chapman that his continued receipt of
profits, as provided for under the purchase agreement, presented a
conflict that had to be resolved. Mr. Chapman responded by submitting an
amendment to the purchase agreement that deleted the above provisions and
substituted a clause providing that the purchase price would be
$[REDACTED], to be paid at the rate of $[REDACTED]. Amendment to Lakeside
Purchase Agreement, Sept. 2, 2005, sect. 3.1. The contracting officer
concluded that, because this amendment provided for a final fixed price
under which CLF would receive no future profits, it resolved the OCI.
Affirmative Determination of Responsibility, Philadelphia Area 2, Sept.
26, 2005, at 3.
We disagreed with the contracting officer's determination, finding that he
had failed to reasonably consider or evaluate the potential OCI arising
from the fact that the owner of CLF would be receiving payments from the
owner of the closing agent, the activities of which CLF would be
overseeing. Specifically, it appeared that CLF's judgment and objectivity
in performing the contract could be impaired if its performance could
potentially affect the ability of the owner of the closing agent
contractor to make the payments owed to CLF's owner.
Finally, we sustained Greenleaf's protest on the basis that the
contracting officer's determination of CLF's responsibility--specifically,
that CLF possessed adequate financial resources to perform the
contract--was based on information that the contracting officer knew was
inaccurate. In this regard, despite knowing that Mr. Chapman had sold
Lakeside, the contracting officer based her responsibility determination
on a financial capability assessment by the Defense Contract Audit Agency
that was based in significant measure on financial resources of Lakeside.
We recommended that HUD reevaluate CLF's proposal, ascertaining and taking
into account whether the proposal otherwise represented the resources that
CLF would use in performing the contract. We also recommended that the
agency consider, and document its findings with respect to, the potential
OCI discussed above. We further recommended that the contracting officer
make a new determination of CLF's responsibility, taking into account the
fact that Mr. Chapman had sold Lakeside, as well as any changes in the
resources that CLF would have available to perform.
In response to our decision, HUD initially commenced the reevaluation, but
then canceled the original solicitation with the intention of resoliciting
the requirement. On April 27, 2006, CLF filed suit in the United States
Court of Federal Claims challenging HUD's actions, and HUD decided to
reinstate CLF's contract and request a revised proposal from only CLF, as
the only remaining small business firm. However, the prior determination
by SBA that Greenleaf was not a small business had been reversed by SBA's
Office of Hearings and Appeals on February 16, 2006 and, considering this
fact, the court rejected HUD's proposed corrective action and held that
the agency instead should reopen discussions and request updated proposals
from both CLF and Greenleaf.
In response to the court's ruling, HUD amended the solicitation and
requested FPRs from both CLF and Greenleaf by July 17. A second round of
FPRs was received on November 8, which HUD evaluated as follows:
+------------------------------------------------------------------------+
| | Greenleaf | CLF |
|-----------------------------------+-----------------+------------------|
|Technical Factors | | |
|-----------------------------------+-----------------+------------------|
|Management Capability | Excellent | Good |
|-----------------------------------+-----------------+------------------|
|Past Performance | Good | Good |
|-----------------------------------+-----------------+------------------|
|Experience | Excellent | Good |
|-----------------------------------+-----------------+------------------|
|Key Personnel | Excellent | Excellent |
|-----------------------------------+-----------------+------------------|
|Subcontract Management | Excellent | Excellent |
|-----------------------------------+-----------------+------------------|
|Small Business Subcontracting | Excellent | Excellent |
|-----------------------------------+-----------------+------------------|
|Overall Technical Rating | Excellent | Good |
|-----------------------------------+-----------------+------------------|
|Price | $[REDACTED] | $132,303,150 |
+------------------------------------------------------------------------+
The SSA concluded that, while Greenleaf's proposal was technically
superior to CLF's, with a very low risk of unsuccessful performance versus
CLF's low risk, Greenleaf's technical superiority was not worth a
$[REDACTED] (or [REDACTED] percent) price premium. In addition, the
contracting officer determined that CLF was a responsible contractor, with
adequate financial resources and no impermissible OCI. Upon learning of
the new award to CLF, Greenleaf filed this protest with our Office.
We have reviewed all of Greenleaf's timely arguments and find that none
furnishes a basis for questioning the award to CLF. We discuss several of
the arguments below.
OCI
Greenleaf asserts that HUD's OCI inquiry following our prior decision--to
ensure that there was no continuing relationship between Mr. Chapman and
CLF and Lakeside--was too limited and thus unreasonable.
The Federal Acquisition Regulation (FAR) instructs agencies to identify
potential OCIs as early as possible in the procurement process, and to
avoid, neutralize, or mitigate significant conflicts before contract award
so as to prevent unfair competitive advantage or the existence of
conflicting roles that might impair a contractor's objectivity. FAR
sections 9.501, 9.504, 9.505; PURVIS Sys., Inc., B-293807.3, B-293807.4,
Aug. 16, 2004, 2004 CPD para. 177 at 7. The responsibility for determining
whether a contractor has a conflict of interest and should be excluded
from competition rests with the contracting officer, who must exercise
"common sense, good judgment and sound discretion" in assessing whether a
significant potential conflict exists and in developing appropriate ways
to resolve it. FAR sections 9.504, 9.505; Aetna Gov't. Health Plans, Inc.;
Foundation Health Fed. Servs., Inc., B-254397 et al., July 27, 1995, 95-2
CPD para. 129 at 12. We find no abuse of discretion by the contracting
officer here.
Following our decision sustaining Greenleaf's protest, in part, on the
basis of CLF's potential OCI, CLF submitted a letter to HUD, signed by
Mr. Chapman, stating that Mr. Chapman had agreed to suspend payments for
the sale of Lakeside, and had further agreed that, upon CLF's resuming M&M
contract operations, he would modify the Lakeside sales contract to
renounce all future payments. CLF Letter to HUD, Jan. 27, 2006, at 9.
However, the new HUD contracting officer (who replaced the prior
contracting officer for this procurement) determined CLF's response to be
inadequate on the basis that it did not establish that the payments had
been "completely ameliorated"; according to the contracting officer, CLF
was not eligible for award until it resolved the OCI. OCI Memorandum, Nov.
3, 2006, at 1. On October 16 and 19, at the request of the contracting
officer, CLF furnished HUD: (1) an amendment to the Lakeside sales
agreement releasing Lakeside and its purchaser from any obligation to make
further payments towards the unpaid balance of the sales price; and (2) a
sworn declaration executed by Mr. Chapman and the purchaser (Mr. O'Brien),
stating as follows:
[Mr. Chapman] does not hold any reversionary or any remainder interest
in Lakeside Title and all financial ties have been completely and
irreversibly severed and there are no circumstances under which Chapman
has a repurchase right as to all or a portion of the ownership of
Lakeside Title or a right to receive any interest or any other type of
earnings from Lakeside Title or any principal of Lakeside Title.
CLF Letter to HUD, Oct. 16, 2006; CLF Letter to HUD, Oct. 19, 2006.
In addition, the record indicates that the contracting officer reviewed
the personnel working on Lakeside's Ohio closing agent contract to
determine whether any of the persons listed in CLF's M&M contract were
playing key roles in performing Lakeside's contract. The contracting
officer noted that the individual proposed by CLF as its [REDACTED]
([REDACTED]) had been identified as attorney and general counsel for
Lakeside. However, in response to the contracting officer's inquiry as to
[REDACTED]'s financial ties to Lakeside, CLF responded (and furnished a
sworn declaration from [REDACTED] to the effect) that [REDACTED] had
withdrawn from representation of Lakeside in all legal matters (and,
indeed, no longer represented Lakeside in any capacity), had no financial
ties to Lakeside, and had never had an ownership interest in Lakeside. CLF
Letter to HUD, Oct. 19, 2007; Contracting Officer's Statement, Feb. 8,
2007, at 10; Agency Report at 17. Based on CLF's responses, the
contracting officer determined that CLF no longer had any apparent
financial ties to Lakeside that would impair its objectivity in overseeing
Lakeside's closing agent contract. OCI Memorandum, Nov. 3, 2006, at 4.
In its challenge to the agency's OCI determination, Greenleaf essentially
asserts that it was unreasonable for the contracting officer to accept
without further investigation the amended sales agreement for Lakeside,
and the sworn declaration of Messrs. Chapman and O'Brien. Greenleaf
maintains that the contracting officer was required to investigate whether
Mr. Chapman was obtaining Lakeside funds by some other means, such as
payments to his children.
This argument is without merit. Greenleaf has not demonstrated, nor is it
otherwise apparent from the record, that the contracting officer was on
notice of material information that reasonably would have brought into
question the veracity and reliability of the notarized documents that
indicated that there had been a complete cessation of any continuing
financial ties between Mr. Chapman and Lakeside. The mere fact that, as
noted by the protester, Mr. Chapman initially was reluctant to forego
further compensation for his interest in Lakeside did not require the
agency to proceed as if the arrangement between Mr. Chapman and Lakeside
which severs Mr. Chapman's financial ties with Lakeside was, essentially,
an artifice. Nor do we believe the agency was required to assume that the
prior relationship between Mr. Chapman/CLF and Lakeside was unchanged. In
this regard, while the record indicates that Mr. Chapman and CLF's office
manager audited Lakeside's books until approximately September 2006, and
that the CLF office manager prepared documents and assisted at closings
for Lakeside through the summer of 2005, Declaration of CLF Office
Manager, Feb. 15, 2007; Declaration of Frank Chapman, Feb. 15, 2007, at
4-7, these interactions occurred prior to October 2006, when Mr. Chapman
finally renounced all current and future interest in Lakeside. Greenleaf
has not shown, nor does the record otherwise indicate, that Mr. Chapman's
subsequent actions were inconsistent with his October 2006 renunciation of
all current and future interest in Lakeside.
Greenleaf asserts that the contracting officer unreasonably failed to
consider the fact that CLF had proposed to hire Lakeside personnel to
perform the M&M contract. We disagree. As discussed, the record shows that
the contracting officer did examine the personnel working for Lakeside and
the persons proposed for CLF's M&M contract. The contracting officer found
that CLF proposed only one key employee--[REDACTED]--who was involved in
the Lakeside contract. Again, however, the contracting officer ascertained
that [REDACTED] had withdrawn from representation of Lakeside in all legal
matters, no longer represented Lakeside in any capacity, and had no
financial ties to Lakeside. While a number of other personnel proposed by
CLF had worked for Lakeside, the contracting officer did not view the
employment of former Lakeside employees as calling into question CLF's
objectivity in performing the M&M contract. Contracting Officer's
Statement, Feb. 8, 2007, at 7. We find no basis for questioning the
contracting officer's position, since there was no indication in the
available information--and Greenleaf has not shown here--that the Lakeside
employees would continue to work for Lakeside after being hired by CLF. We
conclude that the agency reasonably determined that CLF did not have an
impermissible OCI.
MISREPRESENTATION
Greenleaf asserts that CLF's proposal misrepresented the availability of a
proposed consultant. In this regard, CLF's November 7, 2006 FPR listed Mr.
Robert Kolitz, President of Golden Feather Realty Services, Inc., as an
M&M quality assurance consultant; according to the proposal, "Mr. Kolitz
has agreed to be readily available to [CLF] as a consultant regarding any
issues that may arise in the transition and operations of the M&M
contract." CLF Technical Proposal at 135. Greenleaf's assertion of a
misrepresentation is based on a January 25, 2007 declaration in which
Mr. Kolitz stated as follows:
Some time ago, I made the business decision that I would not commit my
services, or the services of my company to act as an employee or a
subcontractor on any other HUD M&M contract, other than the contracts
that my company was performing as the prime contractor.
I cannot recall having any discussions with Mr. Frank Chapman during the
last year about my company assisting his company in any manner with any
HUD M&M contract.
I have not signed any document that would indicate my willingness to act
as an employee or a subcontractor to any other company.
Declaration of Robert Kolitz, Jan. 25, 2007.
An offeror's material misrepresentation in its proposal can provide a
basis for disqualifying the proposal and canceling a contract award based
on the proposal. A misrepresentation is material where the agency relied
on it and it likely had a significant impact on the evaluation.
Integration Techs. Group, Inc., B-291657, Feb. 13, 2003, 2003 CPD para. 55
at 2-3; Sprint Communications Co. LP; Global Crossing Telecommunications.,
Inc.--Protests and Recon., B-288413.11, B-288413.12, Oct. 8, 2002, 2002
CPD para. 171 at 4; AVIATE L.L.C., B-275058.6, B-275058.7, Apr. 14, 1997,
97-1 CPD para. 162 at 11.
There is no basis for finding a material misrepresentation here. As an
initial matter, we note that, in response to Greenleaf's protest, CLF has
furnished a January 18, 2005 letter in which Mr. Kolitz, on behalf of
Golden Feather, wrote as follows:
In connection with your bid for the HUD [M&M] Contract in Area P2
[--Ohio and Michigan--] (as well as any other area in which you have
submitted a bid and may be awarded), this letter serves to confirm that
Golden Feather would be interested in exploring a relationship as a
consultant or subcontractor for your company as your needs may arise.
In addition, CLF has furnished a declaration in which Mr. Chapman states
that his discussions with Mr. Kolitz culminated in Mr. Kolitz's letter of
January 18, 2005, and that Mr. Kolitz thereafter never advised CLF that he
was no longer willing to serve as a consultant or subcontractor.
Declaration of Frank Chapman, Feb. 15, 2007, at 12-13. Further, we
afforded Greenleaf an opportunity to explain the apparent discrepancy
between Mr. Kolitz's declaration and his January 18 letter. Greenleaf
provided no further explanation and specifically replied that Mr. Kolitz
was unavailable to address any discussions with Mr. Chapman concerning
participation in performing any M&M contract CLF might receive.
Furthermore, we find no basis to question HUD's assertion that the
inclusion of Mr. Kolitz in CLF's proposal was not material to the
evaluation. In this regard, as noted by the agency, neither Golden Feather
nor Mr. Kolitz, who was listed in CLF's proposal as one of nine brokers or
consultants, was referenced in the final technical evaluation panel (TEP)
report or in the source selection decision (SSD). We conclude that
Greenleaf has failed to establish that CLF misrepresented Mr. Kolitz's
availability.
EVALUATED WEAKNESSES
Greenleaf maintains that the agency improperly failed to take into account
two evaluated weaknesses in CLF's technical proposal. In this regard,
CLF's proposal was assigned a significant weakness under the management
capability evaluation factor on the basis that [REDACTED]. TEP Report at
70. In addition, CLF's proposal was assigned a significant weakness under
the experience factor on the basis that [REDACTED]. Id. at 79.
This argument is without merit. Contrary to Greenleaf's assertion, the
record shows that the agency reasonably accounted for both weaknesses in
the final evaluation and source selection. Both the TEP report and the SSD
explain Greenleaf's higher rating of excellent (versus CLF's rating of
only good) under the management capability factor as being based in part
on [REDACTED]. SSD at 1-2; TEP Report at 90. Likewise, it is evident from
the evaluation documentation that the difference between Greenleaf's
excellent rating under the experience factor and CLF's good rating was due
in significant part to [REDACTED]. SSD at 2; TEP Report at 90. Thus, the
agency did in fact consider CLF's weaknesses regarding [REDACTED] and
[REDACTED].
In sum, we have no basis to question the agency's selection decision.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] Closing agents obtain title information about properties that HUD
seeks to sell so that HUD can convey clear and marketable title; meet with
buyers and buyers' brokers to have closing documents executed; and receive
funds for closings on behalf of HUD and then, after the closing, transmit
those funds to HUD.