TITLE:  Science Applications International Corporation, B-293601; B-293601.2; B-293601.3, May 3, 2004
BNUMBER:  B-293601; B-293601.2; B-293601.3
DATE:  May 3, 2004
**********************************************************************
Science Applications International Corporation, B-293601; B-293601.2;
B-293601.3, May 3, 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:   Science Applications International Corporation
    
File:            B-293601; B-293601.2; B-293601.3
    
Date:              May 3, 2004
    
James J. McCullough, Esq., Deneen J. Melander, Esq., Steven A. Alerding,
Esq., and Abram J. Pafford, Esq., Fried, Frank, Harris, Shriver &
Jacobson, for the protester.
Thomas L. McGovern, III, Esq., Michael J. Vernick, Esq., and Todd R.
Overman, Esq., Hogan & Hartson, for Lockheed Martin Services, Inc., an
intervenor.
Jonathan S. Baker, Esq., Environmental Protection Agency, for the agency.
Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Where agency acknowledges that awardee*s substantial involvement in
activities that are subject to environmental regulations could create a
conflict of interest in performing certain tasks contemplated by the
solicitation*s scope of work, and agency gave no consideration to the
impact of such potential conflicts in selecting awardee*s proposal for
contract award, agency failed to comply with Federal Acquisition
Regulation requirement that it *identify and evaluate potential
organizational conflicts of interest.*
DECISION
    
Science Applications International Corporation (SAIC) protests the U.S.
Environmental Protection Agency*s (EPA) award of a contract to Lockheed
Martin Services, Inc. under request for proposals (RFP) No. PR-HQ-02-11750
to perform various tasks, including those related to systems development,
data management, training, statistical services, and scientific
applications. SAIC protests that the agency failed to properly consider
Lockheed Martin*s potential organizational conflicts of interest.
    

   We sustain the protest.
    
BACKGROUND
    
The solicitation at issue here was published on May 21, 2003 and
contemplated award of an indefinite-delivery/indefinite-quantity contract,
under which cost-reimbursement and fixed-price task orders will be
issued.[1]  The solicitation stated that task orders will be issued for *a
wide variety* of systems engineering services, to be performed at various
locations, *to assist [EPA] in meeting its strategic objectives and
responsibilities under Federal legislation and executive orders.*  RFP at
C-2, C-3.  More specifically, section C of the RFP listed various *task
areas,* including *systems development, maintenance, and operation,* 
*application security support,* *IT architectural support,*  *data
management support,* *training,* *statistical services,* *geographic
information systems (GIS) support,* *high performance computing (HPC) and
visualization support,* and *scientific application and computational
science support.*  RFP at C-7 through C‑10. 
    
For each task area identified, the solicitation provided a more expansive
description of the particular activities contemplated.  For example, with
regard to *statistical services,* the solicitation stated that that the
contractor will:  *Develop surveys, samples, and questionnaires and
related documentation.*  RFP at C-9.  Similarly, with regard to the task
area entitled *scientific application, visualization and computational
science support,* the RFP provided that the contractor will:  *Provide
environmental modeling and application development; molecular modeling and
computational modeling; numerical algorithms and verification; code
optimizing, porting, tuning, and vectorizing; trouble shooting; parallel
computing; cluster porting; statistical analysis; data mining and large
scale statistical analysis; information engineering; and other scientific
application support.*  RFP at C-10.
     
Section C of the RFP identified the agency*s overall objectives related to
performance of this contract.  Among other things, this portion of the
solicitation stated that the agency intends to *[d]evelop a full
partnership relationship with the Offeror,* which will, among other
things, result in *significant business growth.*  RFP at C-3.  Consistent
with the objective to achieve *significant business growth,* the
solicitation stated that the agency intends for this contract to become
the *vehicle of choice* for the agency*s *clients* and *partners,* which
include *other Federal and state agencies,* as well as *local governments,
contractors, and researchers.*  RFP at C-2, C-4. 
    
The solicitation provided that the agency would select the proposal that
is *most advantageous* to the government, based on consideration of cost
and various non-cost factors, advising offerors that the non-cost factors
combined were *significantly more important* than cost.  RFP at M-1.  The
solicitation established the following non-cost factors that would be
subjectively point-scored:  management approach, key personnel, oral
presentations, task performance, software development center facilities
and organization, corporate experience and past performance, transition
approach, and small business utilization.  RFP at M-2 through M-3.  The
solicitation also provided that the agency would evaluate, on a
*pass/fail* basis, each offeror*s compliance with the solicitation*s
statement of objectives and the offeror*s conflict of interest (COI)
plan.[2]  RFP at M-3.   
    
Five proposals, including those of Lockheed Martin and SAIC,[3] were
submitted by the June 23 closing date; thereafter, each offeror made an
oral presentation to the agency.  The agency subsequently conducted
discussions with all five offerors and, thereafter, requested, received
and evaluated the offerors* final revised proposals.[4]  Lockheed Martin*s
and SAIC*s proposal both received ratings of *pass* with regard to their
conflict of interest plans and compliance with the solicitation*s stated
objectives.  With regard to the point-scored non-cost factors, SAIC*s
proposal received a score of [deleted]; Lockheed Martin*s proposal
received a score of [deleted].  SAIC*s proposal had an evaluated cost of
approximately [deleted] million; Lockheed Martin*s proposal had an
evaluated cost of approximately $706 million.[5]  Agency Report, Tab 11,
Source Selection Document, at 1.  On the basis of this evaluation, the
agency determined that Lockheed Martin*s proposal represented the best
value to the government; a contract was awarded on January 8.  This
protest followed.
    
DISCUSSION
    
SAIC first protests that Lockheed Martin failed to properly disclose, and
the agency failed to properly consider, Lockeed Martin*s potential
organizational conflicts of interest (OCI) associated with its performance
of the particular requirements of this contract.  More specifically, SAIC
protests that Lockheed Martin may suffer impaired objectivity in
performing some of the tasks contemplated under this solicitation, due to
Lockheed Martin*s multiple ongoing activities that are subject to, and
potentially in violation of, EPA regulations.[6]  
    
Contracting officers are required to identify and evaluate potential
conflicts of interest as early in the acquisition process as possible. 
FAR S: 9.504.  Situations that create potential conflicts of interest are
identified and discussed in FAR subpart 9.5, and they include situations
in which a contractor*s performance of contract requirements may affect
the contractor*s other activities and interests.  See FAR S:S: 9.505,
9.508.  That is, a contractor*s judgment and objectivity in performing the
contract requirements may be impaired if the substance of its performance
has the potential to affect other activities and interests of the
contractor.  Id.       
    
SAIC maintains that, in light of Lockheed Martin*s significant involvement
in activities that are subject to environmental regulations, including its
ownership and/or operation of various manufacturing and production
facilities dealing with hazardous materials,[7] Lockheed Martin failed to
properly disclose its ongoing involvement in such activities,[8] and the
agency failed to reasonably consider the extent to which such involvement
might impair Lockheed Martin*s judgment and objectivity in performing
certain tasks contemplated by the solicitation*s statement of work. 
    
Specifically, SAIC identifies various tasks contemplated by the
solicitation, including tasks associated with statistical services and
environmental modeling, maintaining that the agency failed to properly
consider the impact that the existence of Lockheed Martin*s other
environmentally-regulated activities*that is, Lockheed Martin*s ownership
or operation of various production or manufacturing facilities that
produce or handle various hazardous materials subject to federal, state
and local environmental regulations--may have on Lockheed Martin*s
judgment and objectivity in performing these tasks. 
    
The agency responds that it had no obligation to--and that it did
not--consider the impact that Lockheed Martin*s past and ongoing
environmentally-regulated activities may have on Lockheed Martin*s
performance of this contract because *this procurement is for computer
support/systems engineering services, not enforcement or regulatory
advice.*[9]  Agency*s Post-Hearing Brief at 2.  At the hearing conducted
by GAO in connection with this protest,[10] the  technical evaluator
offered by the agency to speak on behalf of the technical evaluation panel
(TEP), testified that the panel did not consider conflict of interest
issues.  Specifically, this evaluator testified as follows:
    
Q.    [C]an [you] provide us [with] what your understanding was with
regard to OCI and what the TEP did prior to source selection with regard
to OCI.
A.     Sure.  My focus was on the--on evaluating the capability of the
bidders.  And so[,] so far as the OCI itself, that was something that was
addressed by the contracting officer, and it wasn*t something that we
weighed in on or needed to weigh in on.  It was something that was outside
our particular focus. 
Q.    So prior to the source selection decision, the issue--was the issue
of conflict of interest discussed by the TEP at all?
A.     No, it was not. 
Hearing Transcript (Tr.) at 87-88.
    
Similarly, the contracting officer testified that, other than the
corporate OCI plan submitted by Lockheed Martin--which discussed the
general procedures Lockheed Martin will employ to identify future
conflicts, but did not address either its ongoing
environmentally-regulated activities or the particular requirements of
this contract--the agency gave no consideration to any potential conflicts
of interest created by Lockheed Martin*s prior or current activities.[11] 
Tr. at 10, 15‑18.  
    
For the reasons discussed below, we are unpersuaded that the agency could
reasonably conclude that it need not give any consideration to the
potential that Lockheed Martin may suffer impaired objectivity in
performing a portion of the contract requirements contemplated by this
solicitation due to its considerable involvement with activities and
facilities that are subject to environmental regulations. 
    
First, as SAIC points out, there are various portions of the statement of
work that directly conflict with the agency*s assertion that the contract
is unrelated to the agency*s environmental regulatory responsibilities. 
For example, with regard to the tasks to be performed in the area of 
*statistical surveys,* the solicitation states that the contractor will: 
*Develop surveys, samples, and questionnaires and related documentation.* 
RFP at C-9.  At the GAO hearing, one of SAIC*s contract managers testified
that, under the predecessor contract,[12] SAIC had been tasked with
developing a series of questionnaires designed to elicit information
concerning the testing and sampling practices used by certain public
drinking water systems.  Tr. at 178-79.  The surveys had been designed to
assess how often water was being sampled for various bacteria or other
pathogens and what kind of water treatment was being applied.[13]  Tr. at
179.   
    
Further, Lockheed Martin*s own proposal provides additional support for
SAIC*s assertions that the scope of work under this contract encompasses
various activities associated with EPA*s assessment of environmental
conditions.  Specifically, in responding to the *statistical surveys*
portion of the solicitation, Lockheed Martin*s proposal states:
    
We have designed and implemented questionnaires and surveys to meet EPA
requirements that are clear and concise.  For example, we evaluated
information collected from [deleted] along a potentially contaminated
river to determine long-term contaminant ingestion and corresponding
health effects.
Agency Report, Tab 4, Lockheed Martin Proposal, at III.2-32.
    
At the GAO hearing, agency personnel acknowledged that the scope of work
of this contract could reasonably include designing and implementing
surveys similar to the type described in Lockheed Martin*s proposal,
specifically testifying as follows:
    
Q.    Is it your position that under the [protested] contract, Lockheed
can be tasked with designing and implementing surveys to gather
information on things such as contaminant ingestions and health effects?
    
A.     I don*t see a reason why they couldn*t.
    
Tr. at 169. 
    
Upon further questioning, this government witness then testified that it
would be inappropriate for Lockheed Martin to be tasked with conducting
this type of survey if there were a Lockheed Martin production facility
located in the area being surveyed, concluding *this [the presence of a
Lockheed Martin facility] would clearly be a conflict of interest.*  Tr.
at 171-72. 
    
In defending against this protest, the agency argues that it intends to
engage in ongoing monitoring and supervision of Lockheed Martin*s contract
performance in a manner that will effectively neutralize potential
conflicts.  However, such post-award assertions do not negate the agency*s
pre-award obligation to *identify and evaluate potential organizational
conflicts of interest.*  See FAR S: 9.504.  As discussed above, the record
unambiguously establishes that the agency gave no consideration to
Lockheed*s past and ongoing performance of environmentally-regulated
activities and, similarly, gave no consideration to the impact those
activities could have on Lockheed Martin*s judgment and objectivity in
performing certain tasks that are reasonably within the scope of the
contract.  Our concern with the agency*s failure to consider the potential
conflicts of interest is heightened by the fact that both the agency and
Lockheed Martin are intent on experiencing substantial *growth* in the
contract--increasing both the volume of tasks to be performed and the
customer base that relies on this contract, specifically expressing the
intent to expand the base to EPA*s *clients* and *partners,* including
*other Federal and state agencies* and *local governments, contractors,
and researchers.*  RFP at C-2, C-4; Agency Report, Tab 4, Lockheed Martin
Proposal, at III.2-1.
    
On this record, we conclude that the agency could not reasonably determine
that it need not give any consideration to the potential conflicts of
interest created by Lockheed Martin*s substantial involvement in
environmentally-regulated activities while simultaneously performing
certain tasks under this contract, which the agency now concedes, at least
in certain circumstances, would clearly be a conflict of interest.[14] 
Tr. at 171-72. 
    
    The protest is sustained.[15]
    
RECOMMENDATION
    
We recommend that the agency perform a thorough assessment of Lockheed
Martin*s environmentally-regulated activities in the context of the entire
scope of work to be performed under this contract, and perform a
reasonable, documented assessment that identifies and evaluates the
potential conflicts that may arise due to Lockheed Martin*s
environmentally-regulated activities and interests.[16]  With regard to
areas of contract performance creating significant conflicts, the agency
should establish and document a course of action that will effectively
avoid, neutralize or mitigate the conflict.  See FAR S:S: 9.504, 9.506. 
In the event the agency determines that a potential conflict exists which
cannot be avoided, neutralized or mitigated, it should either terminate
the contract with Lockheed Martin and award a contract to the offeror
whose proposal represents the best value to the government, consistent
with the terms of the solicitation and applicable law and regulation or,
alternatively, amend the solicitation and seek revised proposals from all
offerors.  We further recommend that the agency reimburse SAIC for the
costs of filing and pursuing its protest, including reasonable attorney*s
fees.  SAIC*s certified claim for costs, detailing the time spent and cost
incurred, must be submitted to the agency within 60 days of receiving this
decision. 4 C.F.R. S: 21.8(f)(1) (2004). [17]
    
Anthony H. Gamboa
General Counsel
    
    

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

   [1] Offerors were told to assume that approximately 90 percent of the task
orders would be issued on a cost-reimburseable basis.  RFP at L-19.
[2] The solicitation required offerors to submit a *corporate COI plan,*
that would describe the procedures a company uses to identify and report
future conflicts; however, the solicitation specifically provided that
such plans need not be *contract or program specific.*  RFP at M-4. 
Separate and apart from the requirement to submit a corporate plan
describing the procedures for identifying and reporting future conflicts,
the solicitation required each offeror to certify that it was *not aware
of any information bearing on the existence of any potential
organizational conflict of interest.*  RFP at K-11, L-7.  
[3] SAIC is the incumbent contractor under the predecessor contract for
these requirements.
[4] The proposals submitted by the three offerors other than Lockheed
Martin and SAIC are not relevant to resolution of this protest;
accordingly, they are not further discussed.  
[5] In evaluating Lockheed Martin*s proposal, the agency noted Lockheed
Martin had stated its intent to *[g]row the annual revenue under the
contract by [deleted] a year* and to *[a]dd [deleted].*  Agency Report,
Tab 4, Lockheed Martin Proposal at III.2-1 (italics in original).  The
agency commented favorably on these portions of Lockheed Martin*s
proposal, characterizing the proposal as reflecting *an extremely clear
commitment to growth* and *an excellent analysis of business opportunities
in other agencies.*  Agency Report, Tab 11, Source Selection Decision, at
3.   
[6] The record contains a document printed from EPA*s website, titled
*Enforcement & Compliance History Online,* which identifies numerous
Lockheed Martin facilities across the country that are subject to EPA
inspection and, potentially, enforcement actions.  Protester*s
Post-Hearing Comments, attach. B, exh. 1.
[7] Neither Lockheed Martin nor the agency disputes the fact that Lockheed
Martin has substantial interests in multiple activities and facilities
that are subject to EPA regulations.  For example, in its post-hearing
comments, the agency refers to *Lockheed*s status as a potentially
responsible party (PRP) at Superfund sites,* as well as *the fact that it
[Lockheed Martin] still performs manufacturing activities which are
subject to EPA regulations.*  Agency*s Post-Hearing Comments at 2.  In
this regard, the 2003 annual report filed by Lockheed Martin Corporation
with the Securities and Exchange Commission, states: 
[W]e have property that is subject to environmental matters. . . . We are
responding to three administrative orders issued by the California
Regional Water Quality Control Board in connection with our former
facilities in Redlands, California.  We are also coordinating with the
U.S. Air Force, which is working with the aerospace and defense industry
to conduct preliminary studies of the potential health effects of
perchlorate exposure associated with several sites across the country,
including the Redlands site.    
Protester*s First Amended Protest, attach. A, at 69. 
[8] There is no dispute that Lockheed Martin submitted a certification
with its proposal, as required by sections K and L of the RFP,
representing that it was *not aware of any information bearing on the
existence of any potential organizational conflict of interest.* 
[9] The agency maintains that approximately 70-75 percent of the work to
be performed under this contract will deal with *administrative* systems,
such as payroll, personnel, and grants management.  Agency*s Post-Hearing
Brief at 3. 
[10] In resolving this protest, GAO conducted a hearing on the record,
during which testimony was provided by various government and SAIC
witnesses, including:  the agency*s contracting officer, a technical
evaluator, contract transition manager, and internal cost auditor; and two
SAIC managers under the predecessor contract.
[11] The contracting officer noted that, because a significant portion of
this contract calls for information technology (IT) support, there were
three other contracts involving IT support--a *software development
contract,* an *architectural support contract,* and an *advisory and
assistance* contract--that the agency reviewed for purposes of identifying
potential conflicts caused by offeror involvement in those contracts.  Tr.
at 8-9. 
[12] In responding to SAIC*s initial protest, the contracting officer
specifically referenced the manner in which work had been performed under
the predecessor contract as indicative of the manner in which this
contract will be performed.  Contracting Officer*s Statement, Feb. 19,
2004, at 4.  Accordingly, we view prior task orders issued under the
predecessor as relevant to the type of task orders that may be issued
under this follow-on contract. 
[13] The portion of the GAO hearing during which testimony was elicited
regarding the type of work performed under the preceding contract, was
conducted in a somewhat unusual manner.  In essence, GAO moderated a
*panel discussion* consisting of two SAIC participants and three agency
participants, all of whom had been involved with performance of the
preceding contract.  Each of the participants was given an opportunity to
hear and react to other participants* testimony.  Although the agency
participants questioned the significance of the above-referenced survey,
there was no dispute that SAIC was, in fact, tasked to perform the work
described.   
[14] SAIC has identified various additional areas in the solicitation*s
statement of work that may similarly create conflicts of interest,
including, for example, tasks associated with environmental modeling, and
systems development, maintenance, and operation.  Further, as noted above
the volume of work and customer base are likely to expand substantially. 
Accordingly, our concerns regarding potential conflicts of interest are
not limited to those specifically discussed above.  Consistent with our
recommendation below, we expect the agency to perform a thorough,
documented, review regarding all potential conflicts, not limited to those
discussed here. 
[15] In its initial protest and first supplemental protest (filed on
January 23 and 30, 2004, respectively) SAIC argued that the procurement
was flawed for various additional reasons, including that the agency
improperly evaluated SAIC*s oral presentation,  failed to conduct
meaningful discussions, and failed to properly evaluate Lockheed Martin*s
proposed direct labor rates.  SAIC subsequently expressly withdrew some of
these allegations.  To the extent the allegations were not withdrawn, we
have considered them and conclude that they do not provide additional
bases for sustaining the protest.  In contrast, on March 4, SAIC submitted
a second supplemental protest, challenging the agency*s evaluation of
Lockheed Martin*s proposal with regard to certain proposed indirect rates
which were [deleted].  Based on the record provided, including the
testimony of the EPA*s cost evaluator, we have concerns regarding the
agency*s evaluation of Lockheed Martin*s proposed indirect rates.  For
example, although the solicitation expressly provided that [deleted]
information must be provided, Lockheed Martin*s proposal did not include
that information for some of its proposed rates.  Further, although the
record indicates that the contracting officer believed that the Defense
Contract Audit Agency had verified all of Lockheed Martin*s proposed
rates, this was not the case.  Tr. at 48-49; 288-89, 313-14, 320-21. 
Finally, the agency*s cost auditor repeatedly testified that, rather than
focusing on whether there was a basis to accept Lockheed Martin*s proposed
rates, she focused on whether there was a basis to *question* the rates. 
Tr. at 289, 295, 296-99, 301, 303, 305, 310-12.  In light of our
recommendation, below, regarding the potential conflict of interest, we
suggest that the agency revisit the basis for determining that Lockheed
Martin*s proposed indirect rates--that will be applied to performance of
this contract, valued in excess of $700 million, where the agency projects
that 90% of the tasks orders will be issued on a cost-reimbursable
basis--were reasonable and realistic.    
[16] It is not clear whether the agency will need to request additional
information from Lockheed Martin in making this assessment.  As SAIC has
demonstrated in pursuing this protest, there appears to be a substantial
amount of publicly available information regarding the scope of Lockheed
Martin*s activities.  Nonetheless, we leave this matter to the agency*s
reasonable discretion.   
[17] We note that the agency determined to proceed with contract
performance, notwithstanding the protest, on the basis that performance is
in the best interests of the government, citing to FAR S:
33.104(c)(2)(i).  Letter from EPA to GAO (Jan. 29, 2004).  We also note
that, pursuant to the Competition in Contracting Act of 1984, when our
Office sustains a protest following an agency*s determination to proceed
with contract performance on the basis of the *best interests of the
United States,* we are statutorily required to make our recommendation
*without regard to any cost or disruption from terminating, recompeting,
or reawarding the contract.*  31 U.S.C. S: 3554(b)(2) (2000).