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
******************************************************************************************
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.