TITLE:  Daisung Company, B-294142, August 20, 2004
BNUMBER:  B-294142
DATE:  August 20, 2004
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   Decision

   Matter of:   Daisung Company

   File:            B-294142

   Date:              August 20, 2004

   Robert K. Tompkins, Esq. and Michael J. Nardotti, Jr., Esq., Patton Boggs,
and Byoung Kook Min, Esq., First Law Offices Of Korea, for the protester.

   Maj. Gregg A. Engler, Department of the Army, for the agency.

   Jacqueline Maeder, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Contracting officer's determination that protester was not a responsible
prospective contractor was reasonable where the determination was based on
audit and criminal investigation that resulted in specific findings of
improper conduct by protester under recent contract for same requirement.

   DECISION

   Daisung Company protests the determination that it was not a responsible
prospective contractor due to an unsatisfactory record of integrity and
inadequate operational controls, under request for proposals (RFP) No.
DABP01-03-R-0061, issued by the Department of the Army, Army Contracting
Command, Korea, for inspection, cleaning and renovation of
government-owned mattresses and box springs. The Army determined that
Daisung was nonresponsible, and rejected its offer, based on Army Audit
Agency (AAA) and Army Criminal Investigation Division (CID) findings.

   We deny the protest.

   In February 2003, the AAA in Korea initiated a performance audit on
Daisung under its contract for mattress renovation services.  During an
April 22 unscheduled visit to the protester's mattress repair facility,
the auditors observed that Daisung was not fulfilling its renovation
responsibilities.  Agency Report (AR), Tab 5, Final CID Report, exh. 12,
at 1, exh. 14, at 1; AR, Factual Summary, at 2-5.  Specifically, while the
contract required Daisung to "renovate" each mattress by inspecting the
inside of the mattress, and, if necessary, removing and replacing the old
felt material with new material, the auditors observed Daisung's workers
simply replacing the old mattress covers with new covers, without
inspecting or renovating the mattresses.  To confirm these observations,
the auditors examined a mattress the workers had presented to them as
fully renovated, and found that the inside of the mattress was filled with
old material that should have been replaced.  AR, Tab 5, Final CID Report,
exh. 14, at 1; AR, Factual Summary, at 3-4.  The auditors found that only
the mattress cover had been changed.  AR, Tab 5, Final CID Report, exh.
14, at 1.

   Additionally, the auditors discovered that Daisung was renovating cheaper
mattresses to look like more expensive mattresses and then improperly
charging the agency the rate for the more expensive mattress renovation. 
AR, Factual Summary, at 4.  Specifically, the price to renovate a twin
"blue and white striped" mattress under contract line item number (CLIN)
9AA was approximately $27 lower than the price to renovate a twin
"yellow-flowered" mattress under CLIN 9AM.  AR, Tab 5, Final CID Report,
exh. 12, at 1.  The auditors reported that Daisung was replacing the 9AA
striped mattress covers with 9AM flowered covers, returning the 9AA
striped mattresses to the units as 9AM flowered mattresses, and improperly
charging the agency for the renovation at the higher 9AM price.  The
auditors noted that this improper activity was facilitated by the Daisung
supervisor's picking up mattresses for renovation directly from individual
Army units, rather than through the installation's property book office,
as required under the contract.  AR, Tab 5, Final CID Report, exh. 14, at
1.  Additionally, the auditors found that the contracting officer had not
been "monitoring the performance of the contract correctly, if at all,"
and that Daisung was "taking advantage" of this lack of government
oversight. 
AR, Tab 5, Final CID Report, exh.A 12, at 1; AR, Factual Summary, at 4-5.

   On September 18, CID initiated a criminal investigation based on the
information obtained from the AAA auditors.  The CID agents collected
sworn statements and physical evidence, which were found to substantiate
Daisung's improper actions under the contract.  CID found that Daisung's
improperly substituting 9AM mattress covers for less expensive 9AA covers
resulted in overcharges to the Army of approximately $93,000.  AR, Tab 5,
Final CID Report, exh. 12, at 1; AR, Factual Summary, at 5.   The results
of the CID investigation were reviewed by legal counsel who determined
that probable cause existed to believe Daisung had committed the criminal
offenses of false claim, false official statement, fraud and larceny of
government funds.  AR, Tab 5, Final CID Report, exh. 16, at 1. 

   The RFP at issue here was issued on November 20, 2003, during the course
of the investigations.  It contemplated the award of a fixed-price
requirements contract for a base year, with four 1-year options, and
provided for award to the offeror submitting the lowest-priced,
technically acceptable proposal.

   The agency received nine proposals, including Daisung's, by the
DecemberA 8 closing date.  Following proposal evaluation and review of the
AAA and CID findings, the contracting officer (CO) determined that Daisung
was not a responsible prospective contractor and, by letter dated March
22, 2004, notified Daisung that its proposal had been eliminated from
consideration for award.  The letter stated that Daisung was determined to
be nonresponsible because of its "unsatisfactory record for integrity and
inadequate operational controls," and explained that the AAA and CID
investigations had found that

   [Daisung employees had] merely replaced the mattress covers without
refurbishing, cleaning and sanitizing the mattresses as required by
contract specifications.  In addition, you failed to correct the
identification code on delivery orders for different types of mattresses
submitted by various U.S. Army units, which inflated the cost to repair
the mattresses and made them look like more costly mattresses.

   AR, Tab 12, Nonresponsibility Letter, at 1.  After a debriefing, the
protester filed an agency-level protest, which the agency denied, and on
June 2 filed this protest with our Office.

   Daisung challenges the agency's factual findings, arguing that the record
does not support the determination, and concludes that the
nonresponsibility determination lacks a rational basis.     

   The Federal Acquisition Regulation (FAR) provides that, in order to be
found responsible, a prospective contractor must have, among other things,
a satisfactory performance record; a prospective contractor that is or
recently has been seriously deficient in contract performance shall be
presumed to be nonresponsible unless the contracting officer determines
that the circumstances were properly beyond the contractor's control or
that the contractor has taken appropriate corrective action.  FAR SS
9-104-1(c), 9-104-(c);  Saft Am., Inc., B-270111, Feb. 7, 1996, 96-1 CPD P
134 atA 4a**5.  A nonresponsibility determination may be based upon the
agency's reasonable perception of inadequate prior performance, even where
the agency did not terminate the prior contract for default, and the
contractor disputes the agency's interpretation of the facts or has
appealed a contracting officer's adverse determination.  MCI Constructors,
Inc., B-240655, Nov. 27, 1990, 90-2 CPD P 431 at 4.  Nonresponsibility
determinations are matters where the contracting officer is vested with
broad discretion in exercising his or her business judgment.  Accordingly,
our review is limited to considering whether such a determination was
reasonable when it was made, given the information the agency had before
it at the time.  Kilgore Flares Co., B-292944 et al., Dec. 24, 2003,
2004A CPD P 8 at 8.   

   We find that the CO's negative determination of Daisung's responsibility
was reasonable.  The CO based his determination on the findings from the
detailed, yeara**long AAA and CID investigations, including, for example,
sworn statements by the AAA auditors, dated February 10 and 18, 2004,
interviews with Daisung repair shop personnel, dated May 13 and 14, 2003,
an interview with the president of Daisung, affirmed by him as true on
November 4, 2003, and photographs taken during the unscheduled visit to
the Daisung facility.  AR, Tab 5, Final CID Report, exhs. 8, 12, 14, and
2G.  We have reviewed these documents, and find they contain information
from which the CO reasonably could conclude that Daisung's conduct under
its recent contract raises serious doubt as to the company's integrity. 
Specifically, as noted above, the investigators found that Daisung, among
other things, did not properly renovate mattresses by inspecting and
replacing worn filling with new filling, improperly switched mattress
covers, and improperly billed at the higher price work performed on the
lower-priced mattresses.  Additionally, the record contains more than one
statement by Daisung representatives confirming that Daisung employees
replaced the blue-striped mattress covers with the more expensive flowered
covers.  AR, Tab 5, Final CID Report, exh. 2G, Interviews with Repair Shop
Personnel, at 4, 9.  For example, when one Daisung representative was
asked what happened to the "old, blue and white striped mattresses that
the units turn in," the auditors reported that he responded, "the mattress
contractor takes and renovates them into the yellow-flowered kind
.A .A .A ."  AR, Tab 5, Final CID Report, exh.A 2G, at 4.  CID report
information such as this properly may be used as the basis for a
nonresponsibility determination, without the need for the contracting
officer to conduct an independent investigation to substantiate the
accuracy of the report.  Energy Mgmt. Corp., B-234727, July 12, 1989, 89-2
CPD P 38 at 4; Becker and Schwindenhammer, GmbH, B-225396, Mar. 2, 1987,
87-1 CPD P 235 at 4.  The contracting officer's determination was
reasonable given the information provided by AAA and CID.

   Daisung cites several of our prior decisions for the proposition that we
should examine the validity of the AAA and CID findings and documents in
determining the reasonableness of the agency's determination here. 
However, the facts of the cited cases are materially different from those
here.  In one case, R. J. Crowley, Inc., Ba**229559, Mar. 2, 1988,
88a**1A CPD P 220, for example, the nonresponsibility determination was
based on a pre-award survey finding that the protester had not met a
definitive responsibility criterion contained in the solicitation.  We
determined that the agency had misinterpreted the criterion, finding that
there was no reasonable basis for the agency to conclude that the
protester had not met the criterion as properly read, and that the
nonresponsibility determination therefore was unreasonable.  The case here
involves no definitive responsibility criteria, and there is nothing in
the record--aside from Daisung's denial of wrongdoing--that calls into
question AAA's and CID's basic findings that the protester failed to
properly renovate the mattresses, switched mattress covers, and
overcharged the government.  Thus, as stated above, our review in cases
such as this is limited to determining whether the contracting officer's
nonresponsibility determination was reasonable given the information
provided by AAA and CID; we will not question that information.  Kilgore
Flares Co., supra, at 8.      

   The protester alleges certain factual errors in the AAA and CID
documentation, including, for example, that Army personnel, rather than
its employees, initiated the pick-up and delivery of the mattresses
directly from and to the individual units, and that Army personnel in the
various units preferred the 9AM mattresses, and Daisung

   was simply complying with their requests.  Protester's Supplemental
Comments atA 5a**6.  These arguments focus on facts or discrepancies in
the record not related to the relevant investigative findings, and thus do
not establish that the agency's nonresponsibility determination was
unreasonable.  Specifically, as noted above, the agency's determination
rested on the findings that the protester did not properly renovate the
mattresses, improperly replaced the less expensive white and blue striped
mattress covers with the more expensive flowered covers, and overcharged
the agency.  These findings are not affected by the protester's disputing
which party initiated the change in the pick-up and delivery locations, or
by Army personnel's expressed preference for the 9AM mattresses. 

   Daisung also contends that numerous delivery orders and inspection reports
indicate that authorized Army personnel "asked for, received and accepted
the AA to AM mattress exchange," id. at 5, suggesting that this shows that
the agency essentially approved the conversion of AA mattresses into AM
mattresses.  However, the work orders, delivery orders and inspection
reports merely reflect requests that CLIN 9AM mattresses be renovated;
nothing in these documents instructed the contractor to replace 9AA
mattress covers with 9AM covers.  AR, Tab 5, Final CID Report, exh. 2C, at
7-9; Supplemental Agency Report, at 14.  Moreover, one of the AAA/CID
findings was that the delivery orders and inspection reports were simply
being signed by agency personnel, without verification of the type of
mattress being sent for renovation, AR, Tab 5, Final CID Report, exh. 2A,
at 9; Supplemental Agency Report, at 15; thus, there is no support in the
record for Daisung's suggestion that the Army knowingly had it cover less
expensive mattresses with the more expensive covers.      

   Finally, Daisung argues that the agency failed to consider mitigating
circumstances, including, for example, that the incumbent contract was
"hopelessly vague" and that the agency failed to properly monitor the
contract.  However, the protester has pointed to no contract provisions
that arguably allowed it to recover mattresses without renovating them,
replace the less expensive white and blue striped mattress covers with the
more expensive flowered covers, and improperly charge the agency for work
on more expensive mattresses.  The Army's failure to monitor the contract
properly in no way altered Daisung's contractual responsibilities, and
thus is irrelevant here. 

   We conclude that the Army had a reasonable basis to determine Daisung
nonresponsible for a perceived lack of integrity and inadequate
operational controls based on the AAA and CID investigation report
information.  

   The protest is denied.

   Anthony H. Gamboa

   General Counsel