TITLE:  Diversified Capital, Inc., B-293105.4; B-293105.8, November 12, 2004
BNUMBER:  B-293105.4; B-293105.8
DATE:  November 12, 2004
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   Decision

   Matter of:   Diversified Capital, Inc.

   File:            B-293105.4; B-293105.8

   Date:              November 12, 2004

   Joseph P. Hornyak, Esq., Sonnenschein Nath & Rosenthal, for the protester.

   Margaret A. Dillenburg, Esq., for PEMCO, Ltd., an intervenor.

   R. Rene Dupuy, Esq., Department of Housing and Urban Development, for the
agency.

   Paul E. Jordan, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest of alleged unbalanced pricing is denied where challenged prices
were not significantly overstated and agency evaluated them as reasonable.

   DECISION

   Diversified Capital, Inc. (DCI) protests the award of a contract to PEMCO,
Ltd. under request for proposals (RFP) No. R-OPC-22505, issued by the
Department of Housing and Urban Development (HUD) for management and
marketing services for single-family housing and other property owned by
HUD.  DCI asserts that the agency should have rejected PEMCO's proposal
due to unbalanced pricing.

   We deny the protest.

   The solicitation contemplated the award of indefinite-delivery,
indefinite-quantity, fixed-unit-price contracts in 24 geographic regions
for management and marketing services in connection with the disposition
of single-family homes owned by, or in the custody of, HUD.  At issue in
this protest is the contract for the Santa Ana Area 1, which covers
properties located in 11 counties in Southern California.  The RFP advised
offerors that the agency would make award on a "best value" basis,
considering price and specified non-price factors, with the non-price
factors considered significantly more important than price. 

   Offerors were required to submit unit prices (expressed as a lump-sum fee,
but payable in four equal monthly installments) for their property
management fee and their vacant lot management fee (contract line item
numbers (CLIN) 0001 and 0002); a price for the firm's marketing fee
(expressed as a percentage of the net sale price of a single-family home)
(CLIN 0003); a monthly fee for maintenance of "held off market"
properties, that is, properties which, due to unusual circumstances, are
not being marketed by the contractor (CLIN 0004); and a monthly fee for
maintenance of properties not owned, but held in custody, by HUD (CLIN
0005).  For purposes of calculating the offerors' total evaluated prices,
fixed unit prices were to be multiplied by the estimated quantities
included in the solicitation.  Prices also were to be evaluated for
reasonableness.

   Thirteen firms, including DCI and PEMCO, submitted proposals for the Santa
Ana Area 1 requirement.  After the initial evaluation and the
establishment of a competitive range, the agency engaged in discussions
and obtained final proposal revisions (FPR).  Based on the FPR evaluation,
the agency rated both DCI and PEMCO's proposals excellent with very low
risk.  The agency concluded that the two proposals were essentially
technically equal, and thus made award to PEMCO based on its lower
evaluated price--$103,432,502.88 versus DCI's $116,660,784.  After a
written debriefing, DCI filed this protest. 

   DCI asserts that PEMCO's prices were impermissibly unbalanced. 
Specifically, it maintains that PEMCO's price for CLIN 0001 (property
management) was disproportionately high, and that its price for CLIN 0003
(marketing) was very low.  DCI's Comments at 10.  DCI infers that PEMCO
improperly allocated a significant portion of its CLIN 0003 costs to its
CLIN 0001 price.  DCI maintains that, since the CLIN 0001 fee would be
paid during the first 4 months of the contract, PEMCO's pricing was
front-loaded and its proposal therefore should have been rejected.[1]

   Unbalanced pricing exists where the price of one or more CLINs is
significantly overstated, despite an acceptable total evaluated price
(typically achieved through underpricing of one or more other line
items).  Ken Leahy Constr., Inc., B-290186, June 10, 2002, 2002 CPD P 93
at 2; see Federal Acquisition Regulation (FAR) SA 15.404a--1(g)(1). 
Unbalanced pricing does not automatically preclude award; rather, an
agency lawfully may award a contract on the basis of a proposal with
unbalanced pricing, provided it concludes that the pricing does not pose
an unacceptable level of risk, and the prices the agency is likely to pay
under the contract are not unreasonably high.  FAR S 15.404-1(g)(2);
Citywide Managing Servs. of Port Washington, Inc., B-281287.12,
Ba--281287.13, Nov. 15, 2000, 2001 CPD P 6 at 7.

   PEMCO's prices were not unbalanced, since any overstatement of its CLIN
0001 price was not significant.  PEMCO's CLIN 0001 price was only 23
percent higher than the government's estimate; this is not an amount
significant enough to require that the offer be considered unbalanced. 
Cf. Baxter Healthcare Corp.; Abbott Labs.--Recon., Ba--253455.3,
Ba--253455.4, May 10, 1994, 94a--1 CPD PA 301 at 4, n.2 (base year price
44 percent above option year prices did not constitute impermissible
frontloading).  In any case, the agency fully discussed the CLIN 0001
pricing with PEMCO, and ultimately determined that it was reasonable; this
satisfied the agency's obligation to ensure that the pricing did not pose
an unacceptable risk.  See PharmChem, Inc., B-291725.3 et al., July 22,
2003, 2003A CPD PA 148 at 8.[2] 

   OTHER ISSUES

   In its initial protest, DCI asserted that HUD unreasonably failed to
downgrade PEMCO's proposal under the first and third technical factors
because PEMCO allegedly lacked the knowledge, connections with local
listing brokers, and experience in the Southern California real estate
industry necessary to meet the RFP's requirements.  Protest at 4.

   Our Bid Protest Regulations, 4 C.F.R. S 21.1(c)(4) and (f) (2004), require
that a protest include a detailed statement of the legal and factual
grounds for protest, and that the grounds stated be legally sufficient. 
These requirements contemplate that protesters will provide, at a minimum,
either allegations or evidence sufficient, if uncontradicted, to establish
the likelihood that the protester will prevail in its claim of improper
agency action.  Robert Wall Edge--Recon., B-234469.2, Mar. 30, 1989,
89a--1A CPD P 335.  Here, DCI provided nothing to support its challenge to
the evaluation of PEMCO's proposal.  In this regard, it had no access to
PEMCO's proposal and there is no evidence that PEMCO's proposal failed to
meet the RFP's requirements.  Instead, DCI's assertions were based solely
on its alleged general familiarity with the local real estate industry and
its speculation about the contents of PEMCO's proposal.  DCI's speculation
that PEMCO could not meet the RFP's requirements is insufficient to form a
valid basis for protest.   ECG, Inc., Ba--277738, Oct. 20, 1997, 97-2 CPD
PA 153 atA 10.

   DCI also asserted in its protest that the agency treated it and PEMCO
unequally with regard to CLIN 0003 pricing and that, during discussions,
HUD misled DCI into raising its price for CLIN 0003.  Protest at 4.  The
agency provided a detailed response to these aspects of the protest in its
report to our Office and, in its comments responding to the report, DCI
did not rebut the agency's position.  Where, as here, an agency submits a
detailed response to protest arguments, and the protester makes no further
mention of an issue, or merely references an issue but does not
substantively reply to the agency's detailed position, we deem the issues
abandoned.  Citrus College; KEI Pearson, Inc., B-293543 et al., Apr. 9,
2004, 2004 CPD P104 at 8.

   The protest is denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] DCI also notes that PEMCO's CLIN 0003 percentage price is lower than
the agency's estimate, and DCI asserts that it is not feasible for
performance.  However, low prices (even below-cost prices) are not
improper and do not themselves establish (or create the risk inherent in)
unbalanced pricing.  See Islandwide Landscaping, Inc., Ba--293018, Dec.
24, 2003, 2004A CPD P 9 at 3.

   [2] Moreover, there is no evidence that PEMCO improperly allocated CLIN
0003 marketing costs to its CLIN 0001 property management price.  While
PEMCO's FPR indicated that a portion of the fee to be paid its listing
agents was allocated under CLIN 0001, this was because PEMCO's approach
was based on having listing agents perform duties associated with property
management under CLIN 0001.  AR, Tab 7.  According to PEMCO, while it
proposed to have CLIN 0001 and 0003 services performed by the same
persons, it allocated the costs of performing these different services
under the appropriate line items.  PEMCO Supplemental Comments at 4. 
Nothing in the RFP prohibited offerors from structuring their performance
or their prices in this manner.
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