TITLE:  Liquidity Services, Inc., B-294053, August 18, 2004
BNUMBER:  B-294053
DATE:  August 18, 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: Liquidity Services, Inc.

   File: B-294053

   Date: August 18, 2004

   Craig A. Holman, Esq., Paul E. Pompeo, Esq., and Glenn I. Chernigoff,
Esq., Holland & Knight, for the protester.

   Brian A. Darst, Esq., Odin, Feldman & Pittleman, for Maximus, Inc., the
intervenor.

   Sharon Chen, Esq., Harmon R. Eggers, Esq., and Richard R. Butterworth,
Jr., Esq., General Services Administration, for the agency.

   Sharon L. Larkin, Esq., and David A. Ashen, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Price evaluation was unreasonable where comparison of offerors' "discount
rates" for transportation and warehousing did not reflect actual proposed
prices or the cost to the government for these services.

   DECISION

   Liquidity Services, Inc. protests the General Services Administration's
(GSA) award of a contract to Maximus, Inc., under request for proposals
(RFP) No. FAS-PP-03-0004, for the sale of federal surplus property. 
Liquidity challenges the evaluation of proposals.

   We sustain the protest.

   BACKGROUND

   The Federal Asset Sales (FAS) program seeks to improve and optimize how
agencies dispose of billions of dollars of unwanted assets.  GSA, the
"lead partner" on the FAS initiative, is responsible for developing,
implementing, and operating a successful solution in accordance with the
FAS program's "high-level" objectives, including:  (1) making it easier
for citizens and businesses to find and buy government assets, (2)
increasing net proceeds from asset sales, (3) decreasing agencies'
expenses related to asset sales, (4) reducing asset disposal time, and (5)
improving the personal property sales process.  RFP Sections A.5.1, A.5.2,
C.2.    

   The RFP contemplated award of a fixed-price
indefinite-delivery/indefinite-quantity contract to a single "service
aggregator" whose proposal best met the FAS program objectives.  Specific
categories of services to be provided under the contract were marketplace
services (including providing online and offline auction venues for
selling assets), pre- and post-sale value added services (such as
providing appraisals, packaging, and shipping services), marketing,
government system integration and security, and administration and
oversight services.  Id. Sections A.6, C.2.  The RFP provided for a
maximum 10-year contract period (2-year base period, with one 2-year
option, followed by two 3-year option periods), with a minimum guarantee
of $2,500 and a maximum contract ceiling of $500,000,000 in total revenue
to the service aggregator.  Id. at i. and Section A.1.

   The RFP stated that award would be made on a "best value" basis
considering the following factors and subfactors:[1]

   +------------------------------------------------------------------------+
|                                                           |Weight      |
|-----------------------------------------------------------+------------|
|Technical Approach                                         |45%         |
|-----------------------------------------------------------+------------|
|Related Experience                                         |20%         |
|-----------------------------------------------------------+------------|
|           |Marketplace (5%)                               |            |
|           |-----------------------------------------------|            |
|           |Value Added Services (5%)                      |            |
|           |-----------------------------------------------|            |
|           |Administration and Oversight (5%)              |            |
|           |-----------------------------------------------|            |
|           |Marketing (2.5%)                               |            |
|           |-----------------------------------------------|            |
|           |Performance Management (2.5%)                  |            |
|-----------------------------------------------------------+------------|
|Past Performance                                           |10%         |
|-----------------------------------------------------------+------------|
|           |Quality of the Services (2.5%)                 |            |
|           |-----------------------------------------------|            |
|           |Timeliness of Performance (2.5%)               |            |
|           |-----------------------------------------------|            |
|           |Business Relations/Customer Service (2.5%)     |            |
|           |-----------------------------------------------|            |
|           |Cost Control (2.5%)                            |            |
|-----------------------------------------------------------+------------|
|Price                                                      |25%         |
+------------------------------------------------------------------------+

   Offerors were required to propose pricing for at least one of two pricing
models described in the RFP:  a fee-for-service price model (Model 1) and
an incentive-aligned price model (Model 2).[2]  Under the fee-for-service
model (Model 1), the agency will select the services to be performed from
a menu of services offered by the contractor, including online and offline
marketplace services, value added services, and payment collection
services.  The contractor will be paid a fee based on a percentage of
gross proceeds obtained for each of the services selected under the
contract.  In addition, the contractor will be reimbursed on a fixed
unit-cost basis for transportation, warehousing, and refurbishing services
expended.  Offerors were required to specify both their proposed fee and
fixed unit prices in "Model 1 bid forms" submitted with their proposals
for the base and option years, and for different volumes of gross proceeds
specified in the RFP.  RFP amend. 2, Section B.

   Under the incentive-aligned model (Model 2), which is a performance-based
model, the offerors choose the services to be provided when selling
property.  Under this model, the contractor will receive a fee based on
the percentage of net proceeds, that is, the difference between gross
proceeds realized from the sale of property and all direct costs of
managing, transporting, protecting, improving, and marketing property. 
Transportation, warehousing, and refurbishing services are not
reimbursable under Model 2, but are considered an element of the fee paid
to the contractor.  Therefore, offerors were to specify only their fees in
"Model 2 bid forms" for the base and option years, for differing volumes
of net proceeds specified in the RFP.  Id. 

   The RFP provided that in conducting the price evaluation, GSA would use
"standard financial and business analytical techniques and methodologies"
to evaluate pricing approaches under nine equally weighted issue areas: 
maximizing net proceeds, the risks to the government, best
practices/proven model, agency acceptance (that is, increasing the
likelihood individual agencies will provide assets for sale),
administrative costs, business viability, reasonableness of proposed
pricing, minimizing up-front investment, and time to implement.  The RFP
stated that, in performing this analysis, GSA would make an "integrated
assessment" of all the required components of the written price
proposal--including completed "bid forms" for the pricing models proposed,
narrative descriptions of the nine issue areas to be evaluated under the
RFP, and the offeror's "operational/financial business model"[3]-- and
information provided in oral presentations or during discussions.  The RFP
provided that the narrative and business model would be used "only to
assess the extent to which the [offeror's] proposed pricing approach
reflects a consistent and well-structured approach to the contract; the
specific assumptions regarding data elements included (e.g., property
volume, services provided, etc.) in the Operational/Financial Business
Model will not be part of the evaluation."  RFP amend. 2, Section
F.8.2.4.     

   Maximus and Liquidity were among three offerors whose proposals were found
to be in the competitive range.  The agency held several rounds of
discussions with offerors, and each offeror made an oral presentation to
the agency.  Final proposal ratings for Maximus and Liquidity were as
follows:

   +------------------------------------------------------------------------+
|                                           |Weight|Maximus   |Liquidity |
|-------------------------------------------+------+----------+----------|
|Technical Approach                         |45%   |3.00[4]   |3.00      |
|-------------------------------------------+------+----------+----------|
|Related Experience                         |20%   |2.38      |2.63      |
|-------------------------------------------+------+----------+----------|
||Marketplace (5%)                          |      |2.00      |1.00      |
||------------------------------------------+------+----------+----------|
||Value Added Services (5%)                 |      |2.00      |3.00      |
||------------------------------------------+------+----------+----------|
||Administration and Oversight (5%)         |      |3.00      |3.00      |
||------------------------------------------+------+----------+----------|
||Marketing (2.5%)                          |      |2.00      |4.00      |
||------------------------------------------+------+----------+----------|
||Performance Management (2.5%)             |      |3.00      |3.00      |
|-------------------------------------------+------+----------+----------|
|Past Performance                           |10%   |3.00      |4.00      |
|-------------------------------------------+------+----------+----------|
||Quality of the Services (2.5%)            |      |3.00      |4.00      |
||------------------------------------------+------+----------+----------|
||Timeliness of Performance (2.5%)          |      |3.00      |4.00      |
||------------------------------------------+------+----------+----------|
||Business Relations/Customer Service (2.5%)|      |3.00      |4.00      |
||------------------------------------------+------+----------+----------|
||Cost Control (2.5%)                       |      |3.00      |4.00      |
|-------------------------------------------+------+----------+----------|
|Price Score                                |25%   |4.00      |4.00      |
|-------------------------------------------+------+----------+----------|
|Weighted Average Score                     |      |3.13      |3.28      |
|-------------------------------------------+------+----------+----------|
|Overall Adjectival Rating                  |      |Acceptable|Acceptable|
+------------------------------------------------------------------------+

   Revised Final Consensus Summary Report (Revised FCSR), at 69. 

   As indicated by the weighted average score, Liquidity's proposal received
a higher overall numerical rating.  However, GSA nevertheless found
Maximus's proposal overall to be more advantageous to the government. 
This is because the agency found Maximus's approach to be superior under
the technical approach and price factors notwithstanding the equal ratings
under those factors.  For example, GSA determined that Maximus's proposal
was stronger in several of the nine issue areas evaluated under the price
factor--including maximizing net proceeds, risks to the government, and
agency acceptance--because it provided more attractive pricing
(particularly in the option periods) over various scenarios considered by
the agency, and offered very successful sales channel options.  Id. at
72-73. 

   GSA determined that Maximus's proposal superiority under the two highest
weighted factors (technical approach and price) was more significant to
the agency than Liquidity's superiority under the lesser weighted related
experience and past performance factors.  Given Maximus's proposal
strengths under the technical approach and price factors, the agency
determined that the firm had a "greater likelihood of performing the FAS
contract successfully, with the least degree of risk to the Government,"
and thus presented the best value to the government.  Id. at 73.  Upon
learning of the resulting award to Maximus, Liquidity filed this protest.

   DISCUSSION

   Liquidity challenges GSA's evaluation of its and Maximus's proposals under
the price evaluation factor. Specifically, it contends that it proposed
less expensive transportation and warehousing services than Maximus, and
that GSA improperly diminished this price advantage in its evaluation.

   Where an evaluation is challenged, our Office will not reevaluate
proposals, but instead will examine the record to determine whether the
agency's judgment was reasonable and consistent with stated evaluation
criteria and applicable statutes and regulations.  Sam Facility Mgmt.,
Inc., B-292237, July 22, 2003, 2003 CPD Paragraph 147 at 3.  Agencies have
considerable discretion in determining the particular method used in
evaluating cost or price; however, the method used should, to the extent
possible, accurately measure the cost to be incurred under competing
proposals.  Eurest Supp. Servs., B-285813.3 et al., July 3, 2001, 2003 CPD
Paragraph 139 at 7.  Where a source selection decision is based on figures
that do not reasonably represent the differences in costs to be incurred
under competing proposals, this source selection is not reasonably based. 
Preferred Sys. Solutions, Inc., B-292322 et al., Aug. 25, 2003, 2003 CPD
Paragraph 166 at 9.  Based on our review of the record, we find that the
agency's price evaluation was unreasonable because it did not reflect the
actual cost to the government of the offerors' approaches.

   As an initial matter, we note, and GSA confirms, that this was a "close"
competition between "two very strong offerors" who submitted "two
exceptional pricing proposals" in response to a complex solicitation. 
Tr., Vol. 1, at 156-57, 226, 257; Tr., Vol. 3, at 90.   The offerors'
price proposals were evaluated using a complicated analytical scheme,
further described below, where the agency made certain assumptions that we
view to be unreasonable.  Because the outcome of the price analysis turned
on the evaluation of transportation and warehousing costs, we focus on
that aspect of the analysis.  In this regard, the record shows that
Liquidity's transportation and warehousing prices were significantly lower
than Maximus's.  However, as we find below, GSA's approach to evaluating
the proposed pricing for these services effectively eliminated much of
Liquidity's price advantage.  Although the agency asserts that only a
small portion of the contract will involve transportation and warehousing,
nevertheless, because this was a close competition, the errors with
respect to the evaluation of transportation and warehousing pricing could
affect the outcome of the competition. 

   Although not disclosed in the RFP, the agency's "integrated" price
evaluation included three components:  a "qualitative" evaluation of each
offeror's proposal assessing strengths and weaknesses under the nine issue
areas, a "quantitative" analysis of offerors' proposed pricing under
various scenarios developed by the agency, and a "comparative" analysis of
offerors' price proposals based on the qualitative and quantitative
assessments.  Price Evaluation Methodology at 1-2. 

   In its quantitative analysis, the agency compared the offerors' proposed
pricing percentages, or fees, under approximately 128 complex scenarios[5]
reflecting an array of service volumes expected for the FAS program.[6] 
As noted above, these fees were based on gross proceeds under Model 1, and
net proceeds under Model 2.  Also for Model 1, the agency compared
offerors' fixed unit prices for transportation and warehouse costs, as
these were cost-reimbursable items under the RFP for this model only. 
This comparison of transportation and warehousing was done using "discount
rates" that were calculated by the agency.  However, the "discount rates"
did not reflect discounts in the literal sense, but instead reflected the
relationship between the two offerors' pricing, as further described
below.

   As the agency explained during a hearing conducted by our Office, it
calculated "discount rates" for transportation and warehouse costs based
on the percentage that Liquidity's proposed fixed unit prices were lower
than Maximus's.  For example, if Maximus proposed (hypothetically) a unit
price of $1,000 and Liquidity proposed $250, the discount rate would be 75
percent.  Narrative of GSA's Price Analyst, July 23, 2004, at 1.  The
agency adjusted these discount rates based on certain agency assumptions,
and then averaged the two discount rates (one for transportation and one
for warehousing) to obtain an overall discount rate to use in the
quantitative evaluation.  Id. at 3; Hearing Transcript (Tr.), Vol. 3, at
34, 63.  This is further illustrated below.

   For transportation, Liquidity proposed fixed prices for "short hauls"
(less than or equal to 200 miles) and "long hauls" (greater than 200
miles), with different prices for full truckloads and less-than-full
truckloads.  Liquidity Price Proposal, Narrative, Section A.3.2.1.5; Model
1 Bid Form.  Maximus also proposed "short haul" and "long haul" rates,
using different truck sizes and weights, which were higher than
Liquidity's.  Maximus Price Proposal, Narrative Section 5.0.  The agency
explains that it calculated discount rates comparing offerors' proposed
pricing (for the base year) at various distances and at various load
weights.  These discount rates, which reflected Liquidity's lower prices,
ranged from [redacted] percent to [redacted] percent, and averaged
[redacted] percent, considering all distances and load weights.  GSA
Hearing Exh. T, Transportation Cost Analysis, at 3; Tr., Vol. 3, at 25. 
GSA reduced this average to a range of [redacted] percent (and thus
reduced Liquidity's price advantage) by excluding all long haul and at
least some full truckload weights from the computation based on its
assumption that most of the transportation provided under the contract
would be short hauls at less than full truckload weights.  Narrative of
GSA's Price Analyst, July 23, 2004, at 3; Tr., Vol. 3, at 24. 

   For warehouse services, Liquidity proposed (for the base year) a fixed
price of $[redacted] per square foot per month, while Maximus proposed
$[redacted].  Liquidity Price Proposal, Model 1 Bid Form; Maximus Price
Proposal, Model 1 Bid Form.  The discount rate here is [redacted]
percent.  However, the agency explains that it reduced this rate to a
range of [redacted] percent because it found that Maximus's warehouse
price included additional services not offered by Liquidity; the reduction
in rate, the agency explains, was so that it could compare "apples to
apples."  Narrative of GSA's Price Analyst, July 23, 2004, at 3; Tr., Vol.
3, at 31-32.

   Having determined the discount rate for transportation to be [redacted]
percent, and the discount rate for warehousing to be [redacted] percent,
GSA states that it took the average of those rates ([redacted] percent) to
use as the overall discount rate for comparing offerors' transportation
and warehouse costs in its quantitative analysis.  By using this rate in
its analysis, the agency found that Maximus was more likely to maximize
net proceeds and offered more favorable pricing under both Model 1 and
Model 2.  In other words, by decreasing the overall discount rate to
[redacted] percent, GSA effectively decreased Liquidity's price advantage
in the competition. 

   During the protest hearing, we asked the agency to further explain the
basis for its selection of a [redacted] percent discount rate.  The
agency's price analyst explained that there is no contemporaneous
documentation of this discount rate calculation.  Tr., Vol. 3, at 67.  He
further stated that the rate was based on agency assumptions that were
made because the agency "didn't want their decision to be governed by the
warehousing and transportation elements of things" since it believed that
these services would only constitute 2-5 percent of the contract.  Tr.,
Vol. 3, at 19, 21.  However, even assuming that the services would only
constitute 2-5 percent of the contract, the analyst admitted that
"changing the parameters [for transportation and warehousing] could change
the outcome," as Liquidity had a "significant advantage" in terms of
transportation and warehousing pricing under Model 1 that could offset any
pricing advantage Maximus had under Model 2.  Id. at 19-20. 

   We find that GSA's pricing analysis was unreasonable because the
comparison of offerors' "discount rates" did not reflect the actual
proposed prices or cost to the government for these services.  While
Maximus's warehouse price may have included additional services not
offered by Liquidity, the fact remains that the price to the government
for Maximus's warehouse space will be higher than the price for an
equivalent amount of Liquidity warehouse space, and the price evaluation
did not reflect this difference in cost to the government.  (In this
regard, the agency did not find that the additional warehouse services
allegedly offered by Maximus would result in quantifiable savings in costs
that the government would otherwise incur.) 

   Furthermore, we find that the agency's rationale for reducing Liquidity's
price advantage for warehouse services is unsupported by the
contemporaneous record.  While the agency explains that the reduction in
discount rate from [redacted] percent to [redacted] percent was due to
differences in proposal approaches, the contemporaneous record does not
demonstrate that the agency evaluated the asserted differences in
warehousing services.  Indeed, the agency's current assertion that it did
so is inconsistent with the remainder of its pricing analysis, which did
not take into account any differences in offerors' proposal approaches
under any of the other service areas considered in the price evaluation. 
For example, Liquidity's price proposal states that many of its
warehousing services are included with its value-added-services pricing,
yet GSA did not make any adjustments to the value-added-services pricing
to take into account this proposal difference, as it did with
warehousing.  In fact, we note that the agency asserts, in response to
other protest challenges to the price evaluation, that differences in
proposal approaches were to be evaluated only under the technical approach
factor, and not the price factor.  See, e.g., Agency Report, July 2, 2004,
at 3.      

   We also find that GSA erred in calculating its discount rate for
transportation services.  Although it may have been reasonable to assume
that most of the transportation provided would be short hauls at
less-than-full truckloads, there is no basis for excluding all of the long
distances from consideration, as if no long haul services would be used. 
The agency does not claim that no long haul services would be used, the
RFP does not specify that long hauls would not be required or considered
in the evaluation, and, consistent with the RFP, both offerors proposed
prices for both long and short hauls.  On these facts, we find that the
agency must consider in its price evaluation all of the costs of long haul
transportation that it reasonably expects to use during contract
performance, and, moreover, should disclose to offerors the basis for its
evaluation of these costs prior to proposal submission.

   We also find that these errors in the agency's evaluation prejudiced the
protester.  Competitive prejudice is an essential element of every
protest; where the record does not demonstrate that the protester would
have had a reasonable chance of receiving award but for the agency's
actions, we will not sustain a protest, even if deficiencies in the
procurement process are found.  Leisure-Lift, Inc., B-291878.3,
B-292448.2, Sept. 28, 2003, 2003 CPD Paragraph 189 at 10; Statistica v.
Christopher, 102 F.3d 1577, 1581 (Fed. Cir. 1996).  Here, GSA's price
analyst testified that when the discount rate rises above [redacted]
percent, the outcome of the price evaluation would "flip" in favor of
Liquidity.  Tr., Vol. 3, at 51.  Based on the discussion above, if GSA
repeated its quantitative analysis, adjusting upward only the warehouse
price to reflect the actual discount rate of [redacted] percent, and not
making any changes to the transportation discount rate of [redacted]
percent (the midpoint of the agency's range for less-than-full truckloads
and short hauls), the overall discount rate would increase to [redacted]
percent, which apparently alters the outcome in favor of Liquidity. 
Narrative of GSA's Price Analyst, July 23, 2004, at 4.  Adding in some
portion of the long hauls and full truckloads that were not considered in
the price evaluation would increase Liquidity's price advantage even
further.  The errors in the agency's price evaluation thus prejudiced
Liquidity.  

   In considering the appropriate remedy here, we note that Liquidity has
also raised a number of other protest challenges to the price evaluation,
including that GSA's quantitative scenario analysis (1) relied on improper
assumptions concerning gross proceeds and net proceeds, (2) failed to take
into account differences in offerors' operational/financial business
models or recovery rates, (3) improperly estimated the relative amount of
services to be performed (for example, that transportation and warehousing
services amounted to only 2-5 percent of the contract), and (4) improperly
weighted the base and option years.  Liquidity also challenges the
evaluation of Maximus's proposed performance measures under the technical
approach and related experience factors, and argues that GSA held improper
discussions with Maximus over these measures.  Our review of the
solicitation indicates that the RFP is unclear with respect to these areas
and does not adequately inform offerors how proposals will be evaluated. 
We recommend that GSA address these issues in its corrective action.

   In view of our findings above, we recommend that GSA amend its
solicitation to clarify how transportation and warehouse costs will be
evaluated, how the pricing scenarios will be analyzed, and how the agency
will evaluate performance measures.  We further recommend that after
revising the solicitation, the agency seek revised proposals, hold
discussions if appropriate, and reevaluate proposals.  We also recommend
that Liquidity be reimbursed the expenses of filing and pursuing its
protest, including reasonable attorneys' fees.  4 C.F.R. Section
21.8(d)(1) (2004).  In accordance with section 21.8(f)(1) of our Bid
Protest Regulations, Liquidity must file its certified claim for costs,
detailing the time expended and costs incurred, directly to the agency
within 60 days of receipt of this decision.

   The protest is sustained.

   Anthony H. Gamboa

   General Counsel

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

   [1] Although the RFP did not specify the weighted percentages applied to
the factors and subfactors (this information was included in the source
selection plan), the solicitation did state that technical approach was
more important than related experience, which was more important than past
performance; and combined, these factors were "significantly more
important than price."  The RFP also stated that the related experience
subfactors were listed in descending order of importance, with the first
three and last two of equal importance, and the past performance
subfactors were of equal importance.  RFP Section F.8.2. 

   [2] In addition, offerors were permitted to submit alternative pricing
models that could better meet the RFP's objectives, including specifically
the agency's desire to maximize net proceeds.  RFP amend. 2, Section
C.9.1.

   [3] Offerors' operational/financial business models were presented in the
form of  spreadsheets that projected gross proceeds, net proceeds, and
direct costs to the government based on the offerors' expectations as to
how they would perform.

   [4] Proposals received scored ratings from one to four, which equated to
ratings of unacceptable, marginal, acceptable and exceptional.

   [5] These scenarios, and the array of expected service volumes, were not
disclosed to offerors in the RFP.   

   [6] The services volumes used in the scenarios were based on agency
assumptions, and not based on offerors' anticipated gross or net proceeds
as reflected in their operational/financial business models.  The agency
explains that this is because offerors' assumptions were "data elements,"
which the RFP stated would not be evaluated.  RFP amend. 2, Section 
F.8.2.4.