TITLE:  KEI Pearson, Inc., B-294226.3; B-294226.4, January 10, 2005
BNUMBER:  B-294226.3; B-294226.4
DATE:  January 10, 2005

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   Decision

   Matter of:   KEI Pearson, Inc.

   File:            B-294226.3; B-294226.4

   Date:              January 10, 2005

   Scott T. Kragie, Esq., Robert E. Gregg, Esq., Karen R. Harbaugh, Esq., and
Margaret L. Maciulla, Esq., Squire, Sanders & Dempsey, and William F.
Savarino, Esq., and John J. O'Brien, Esq., Cohen Mohr, for the protester.

   Helaine G. Elderkin, Esq., Carl J. Peckinpaugh, Esq., and Charles S.
McNeish, Esq., Computer Sciences Corporation, an intervenor.

   George U. Lane, Esq., General Services Administration, and Kenneth J.
Densmore, Esq., Department of the Navy, for the agencies.

   Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Where the solicitation required that all items or services be on a Federal
Supply Schedule (FSS), the contracting agency improperly issued a task
order to a vendor whose quotation was based on purchasing software
products outside the framework of the FSS.

   DECISION

   KEI Pearson, Inc. protests the issuance of a task order to Computer
Sciences Corporation (CSC) under request for quotations (RFQ) No.
4TNG17044035, issued by the General Services Administration (GSA) for
phase II of the Navy Knowledge Online (NKO) system.(GSA conducted this
acquisition on behalf of the Department of the Navy, the user activity.)
KEI contends that GSA improperly issued the task order to CSC under that
vendor's Federal Supply Schedule (FSS) contract.

   We sustain the protest.

   The mission of the NKO system is to provide the entire Navy "enterprise"
(800,000 to 1.2 million users, with scalability up to 6 million users),
with greater access to training, education, and professional development. 
RFQ attach. 1, at 1.  The NKO system provides users with access to
training for technical and professional development, delivering
on-demand education and training 24 hours per day, 7 days per week, and
anywhere in the world.  The NKO system is required to operate using
commercial-off-the-shelf products for the majority of applications in a
"web-based environment" without "client side application."  Id.  As
explained at the hearing conducted by our Office,[1] a "web-based
environment" means that the "end user totally accesses all of these
products and services . . . via . . . a common installed browser, whether
it's at home or in the office environment or wherever [the user] might
be.  [The] whole concept was deliver training anytime, anywhere that the
person could get Internet access."  Tr. at 16.  As further explained at
the hearing, no "client side application" means that nothing "specific
[needs] to be loaded on [a user's] particular computer. . . . Basically[,]
if [the user] can log in and get to the Internet[,] [the user] can run
th[e] application without anything extra being installed."  Id.

   The RFQ contemplated the issuance of a combination fixed-price,
time-and-materials task order (with nine line items) for a 1-year base
period and four 1-year option periods to the vendor whose quotation
represented the "best value" to the government considering technical
evaluation factors and cost/price.  The RFQ stated that technical merit
would be considered significantly more important than cost/price and that
the task order could be issued to other than the vendor submitting the
lowest priced, technically acceptable quotation.  RFQ attach. 26,
at 1-2.[2]   

   In addition, in an undated document containing general questions and
clarifications, which was furnished to all vendors prior to the submission
of revised quotations, GSA provided the following information:

   All items or services acquired by the offeror for this delivery order must
either be on the GSA schedule, or acquired through a vendor that is on the
GSA schedule.  In the event that it is necessary to purchase an item
through a vendor, the offeror must insure that their cost proposal
properly accounts for all ancillary fees (e.g. pass through fees). 
Additionally, current GSA acquisition policy establishes an absolute
ceiling of $25,000.00[3] for the aggregate value of all open market items
purchased as part of this delivery order.

   General Questions and Clarifications, No. 12, at 49-50.

   As relevant here, KEI (which was teamed with the phase I incumbent
contractor) and CSC submitted quotations for phase II.[4]  In its revised
final cost/price quotation, dated May 28, 2004, CSC provided a chart
captioned "Other Direct Procurements by Vendor," in which CSC listed six
items/services with corresponding costs and GSA schedule references.  The
primary focus of this protest involves the following line in CSC's May 28
quotation:

+------------------------------------------------------------------------+
|Other Direct Procurements by Vendor                                     |
|------------------------------------------------------------------------|
|Item/Service        |Cost              |GSA Schedule                    |
|--------------------+------------------+--------------------------------|
|BEA[5]              |$[deleted]        |Non-Schedule (See Note)         |
+------------------------------------------------------------------------+

   The referenced note, as contained in CSC's May 28 quotation, stated as
follows:

   Note:  BEA sells this product via a number of resellers under GSA
schedules, to include for example:  Merlin (GSA schedule GS-35F-0783M). 
However, BEA and CSC have an Alliance Agreement wherein we are able to
procure this product at a significant savings to the Government.  If
required by the Government, CSC will purchase this product via a
Government authorized source.

   As confirmed at the hearing by the witnesses for GSA, the Navy, and CSC,
the cost of buying BEA products pursuant to the non-schedule "alliance
agreement" between CSC and BEA--the $[deleted] amount cited in the chart
reproduced above--would be lower than the cost of buying the BEA products
through a reseller holding an FSS contract.  Tr. at 135-39.  However,
while CSC's quotation clearly indicated that purchasing the BEA products
through the FSS would cost more than the $[deleted] amount quoted as a
non-schedule buy, nowhere in its quotation did CSC indicate how much the
government would have to pay if the government were to require CSC to
obtain the BEA products through the FSS.[6]

   In its May 26 document[7] captioned "Fair and Reasonable Price
Determination," GSA stated, in relevant part, as follows:

   The Contractor [CSC] has certified that all ODC [other direct cost]
procurement[s] will be against a GSA Schedule for each ODC vendor.  The
only ODC procurement that is not through . . . a Schedule is "Telcom,"
which the ODC procurement is under the $25K threshold.  GSA has validated
that the ODC GSA Schedule cost[s] are at or below published schedule
prices.  The following is a Chart 2 of the planned ODC cost[s] and
subcontractors.

   The relevant line in Chart 2, as prepared by GSA, showed as follows:

+------------------------------------------------------------------------+
|Other Direct Procurements by Vendor                                     |
|------------------------------------------------------------------------|
|Item/Service        |Cost              |GSA Schedule                    |
|--------------------+------------------+--------------------------------|
|BEA                 |$[deleted]        |GS-35F-0783M[8]                 |
+------------------------------------------------------------------------+

   On June 2, GSA determined that CSC's cost/price was fair and reasonable.

   Out of a possible 100 points, CSC's technical score was 70 and KEI's
technical score was 55.  CSC's evaluated cost/price ($22,806,569) was
$248,418, or approximately 1 percent, higher than KEI's evaluated
cost/price ($22,558,151).  GSA determined that CSC's higher technically
rated, higher cost/price quotation represented the best value to the
government.  On June 9, GSA issued the task order to CSC.  The "grand
total" of the CSC task order was $21,470,101.54.  CSC's Task Order, June
9, 2004, at 2.  The task order stated that the total of non-schedule other
direct cost items was below the $25,000 amount and that "[n]o other
non-schedule items are authorized under this task order."  Id.  The task
order also stated that the "[c]ontractor's most recent updated proposal in
response to this solicitation [i.e., CSC's May 28 quotation] is hereby
incorporated into this task order."  Id.

   KEI protests,[9] among other things, that GSA could not properly issue the
task order to CSC because, according to CSC's revised final cost/price
quotation of May 28, the BEA products were not being purchased by CSC
through a vendor's FSS contract, but rather were being purchased by CSC
pursuant to a non-schedule "alliance agreement" between CSC and BEA, which
was not in accordance with the rules governing the use of the FSS and the
terms of the RFQ.  We agree.

   The FSS program, directed and managed by GSA, gives federal agencies a
simplified process for obtaining commonly used commercial supplies and
services.  FAR S 8.401(a).  The procedures established for the FSS
program satisfy the requirement for full and open competition.  41 U.S.C.
S 259(b)(3); FAR S 6.102(d)(3);  Sales Res. Consultants, Inc., B-284943,
B-284943.2, June 9, 2000, 2000 CPD P 102 at 3-4.  Non-FSS products and
services may not be purchased using FSS procedures; instead, their
purchase requires compliance with the applicable procurement laws and
regulations.  Symplicity Corp., B-291902, Apr. 29, 2003, 2003 CPD P 89 at
4; Pyxis Corp., B-282469, B-282469.2, July 15, 1999, 99-2 CPD P 18 at 4.

   In response to this protest, GSA states that "all costs that [were]
evaluated [for CSC] were GSA schedule costs."   Tr. at 135.  More
particularly, GSA states that the "alliance agreement" amount in CSC's
quotation was never taken into consideration.  In fact, GSA maintains that
the "alliance agreement" amount "represented in [CSC's] proposal [was]
actually [a] schedule item price.  [CSC] gave us that notice . . . just to
let us know that they could get it to us at a cheaper rate via the
[a]lliance [agreement] versus [a] schedule."  Tr. at 136.

   We believe, however, that GSA's position is not supported by the language
in CSC's May 28 quotation that was incorporated into the June 9 task
order, and that GSA's evaluation of CSC's quotation was not in accordance
with the rules governing the use of the FSS and the terms of the RFQ.  In
this regard, CSC's quotation clearly shows that CSC quoted a non-schedule
"alliance agreement" price for BEA products, which the quotation indicated
represented "a significant savings" relative to a price from an FSS source
for these products.  In fact, CSC recognized its non-compliance with the
terms of the RFQ, as reflected by the statement in its quotation that
"[i]f required," CSC would purchase the BEA products from a "Government
authorized source," which presumably meant a vendor that could provide the
BEA products under an FSS contract.  While there is no dispute that it was
CSC's clear intention to give GSA the best possible price for the BEA
products, CSC nevertheless had to do so in accordance with the rules
applicable to FSS purchases and the terms of the RFQ, which meant that CSC
had to provide the BEA products through a vendor holding an FSS contract,
and GSA could only consider a quotation in the framework of the FSS for
these products.  While GSA and CSC point out that the note in CSC's
quotation refers to Merlin as holding an FSS contract under which it is an
authorized reseller of BEA products, the fact remains that on the face of
CSC's quotation, CSC did not quote a reseller/schedule price, but rather
quoted a non-schedule price based on its "alliance
agreement"/non-schedule arrangement with BEA.  Tr. at 134-52.[10]  On
this record, we conclude that GSA did not reasonably evaluate, in
accordance with the rules governing the use of the FSS and the terms of
the RFQ, CSC's May 28 quotation and, therefore, GSA could not properly
issue the task order to CSC based on that quotation.

   At the hearing, for the reasons just discussed, GSA recognized that it
could not issue a task order to CSC without addressing the non-schedule
price quoted by CSC.  GSA explained that

   when we were making a final decision based upon the information we had at
that time, we conducted a GSA-to-CSC discussion.  And we would not award
. . . unless all of these other direct costs, these license items, were
licensed off of the GSA schedule. . . . And in our fair price
determination . . . we go through that.  And in particular, the BEA was
given to us by CSC, this information from CSC, that they were going to
purchase that item off of [Merlin's] GSA Schedule [GS-35F-0783M].  And at
that time this was the information given to us by CSC.  And we rejected
. . . wholeheartedly the idea of this Alliance Agreement. . . . [T]hat
whole issue was settled back on June the eighth [i.e., the day before the
task order was formally issued to CSC]. . . . So that number, [$]
[deleted], was valid per the GSA schedule, even though [CSC's] proposal,
what [CSC] submitted as [its] proposal, was in fact had that clause in it,
when we went, the inner communication between GSA and CSC before we
finalized the last document which was the Fair Price Justification, that's
where we went through that issue.

   Tr. at 140-42.

   Based on this testimony, to the extent that GSA believed that it had cured
the problem of CSC's non-conforming quotation by engaging in a
"GSA-to-CSC discussion" or by having an "inner communication" with CSC
prior to the issuance of the task order to CSC, we have some concern that
GSA may have engaged in improper communications solely with CSC for the
purpose of enabling CSC to conform a material aspect of its defective
quotation to the terms of the RFQ.[11]  Moreover, we point out that there
is no contemporaneous evidence in the record that these communications, in
fact, resolved the matter of conforming CSC's quotation to the terms of
the RFQ prior to GSA's issuance of the task order to CSC.  We also point
out that at the hearing, apparently recognizing that its communications
with CSC did not actually resolve the matter, GSA went on to testify that
"after we made the decision [in June to issue the task order to CSC], then
we started talking to CSC specifically about fixing those problems
specifically with the GSA schedule and so on."  Tr. at 150.

   In addition, based on post-hearing documents furnished by GSA and CSC,
the record shows that CSC did not revise its quotation in order to comply
with the rules governing the use of the FSS and the terms of the RFQ until
October 19, 2004--after this protest was filed--when CSC submitted a
revised cost/price quotation to GSA.  In its October 19 quotation, CSC
agreed to "purchase the Software Licenses directly from [its] proposed
Team Members (. . . BEA Systems, Inc.) in support of the technical
efforts outlined [in the RFQ].  These products are available under GSA
schedules . . . GS-35F-0783M. . . . CSC's revised proposal represents
[the] best value to the government for the services in support of the
referenced [RFQ]."[12]  Cover Letter to CSC's Revised Cost/Price
Quotation, Oct. 19, 2004.

   In sum, considering the referenced testimony and the post-hearing
documentation, we conclude that only during performance did CSC comply
with the rules governing the use of the FSS and the terms of the RFQ by
submitting a revised quotation that contained a price from an FSS source
for the BEA products.  This testimony and the post-hearing documentation
provide further support for our underlying conclusion, as discussed above,
that GSA improperly issued the task order to CSC on June 9 based on CSC's
non-conforming May 28 quotation.[13]

   We sustain the protest.  Ordinarily, in these circumstances, we would
recommend that GSA reevaluate quotations in accordance with the terms of
the RFQ and, if necessary, hold discussions with both CSC and KEI in order
to address those areas in their respective quotations that render the
quotations non-conforming and, therefore, ineligible as the basis for the
issuance of the task order.  However, this recommendation is not feasible
here because GSA determined that urgent and compelling circumstances would
not permit the work under CSC's task order to be suspended pending our
decision and because CSC has substantially performed the task order
requirements.  Accordingly, we recommend that GSA reimburse KEI for its
quotation preparation costs.  We further recommend that GSA reimburse KEI
for the costs of filing and pursuing its protest, including reasonable
attorneys' fees.  Bid Protest Regulations, 4 C.F.R. S 21.8(d)(1)
(2004).  KEI's certified claim for costs, detailing the time expended and
costs incurred, must be submitted directly to the contracting agency
within 60 days of receiving this decision.  4 C.F.R. S 21.8(f)(1).

   The protest is sustained.[14]

   Anthony H. Gamboa

   General Counsel

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

   [1] Our Office conducted a hearing in order to close the gaps in the
underlying factual record as presented in GSA's administrative report. 
The primary hearing witnesses were procurement officials from GSA and the
Navy and representatives from CSC and two of its subcontractors.  At the
hearing, GSA referred to documents that had not been produced in the
administrative report; at GAO's request, these documents were subsequently
furnished by GSA, as well as supplemented by CSC.  In this decision,
references to a hearing transcript (Tr.) relate to the hearing conducted
by our Office. 

   [2] Even though GSA was using the FSS, GSA handled the selection of a
vendor for the issuance of the task order much like a negotiated
procurement pursuant to Part 15 of the Federal Acquisition Regulation
(FAR).  For example, as reflected in this decision, GSA refers to the
vendors' submissions as "proposals."  See, e.g., GSA's New Best Value
Determination, Sept. 2004.

   [3] It is not clear from this record the basis for GSA's authority to
permit non-FSS purchases for this amount.

   [4] As explained at the hearing, phase I was a pilot phase where the Navy
"generally go[es] off lessons learned and then [it] build[s] in [its]
business practices and rules and those kinds of things that are going to
lead to the mature end product.  So the emphasis of Phase II was to take
what [the Navy] had learned under the pilot and build the mature model of
that in the product that would live the life of the system."  Tr. at 14.

   [5] The complete corporate name of BEA is BEA Systems, Inc.  As relevant
to this protest, Merlin Technical Solutions, Inc. is an authorized
reseller of BEA software products (licenses and maintenance) via Merlin's
FSS contract GS-35F-0783M.

   [6] While this protest was pending, GAO made numerous inquiries of GSA and
CSC (e.g., through pre-hearing interrogatories and through repeated
questions at the hearing) concerning what the higher schedule price for
the BEA products would be.  Prior to the filing of post-hearing comments,
GAO received no clear answer from either GSA or CSC.  In its post-hearing
comments, GSA, for the first time, indicated that the use of the higher
schedule price for the BEA products would result in an upward adjustment
to CSC's quotation of at least $[deleted], an amount that we believe is
not de minimis.  GSA's Post-Hearing Comments at 7.

   [7] It is not clear why this document was dated 2 days prior to the date
of CSC's revised final cost/price quotation.

   [8] Chart 2 as prepared by GSA is not consistent with CSC's quotation.  In
this regard, the schedule referenced by GSA in this chart is a Merlin
schedule, not a BEA schedule.  Furthermore, the cost figure referenced by
GSA in this chart is the CSC/BEA lower "alliance agreement" non-schedule
price, not Merlin's higher schedule price.  Tr. at 137-38.  The record is
clear that at the time this chart was prepared by GSA, CSC had not quoted
a Merlin schedule price for the BEA products.

   [9] This protest follows GSA's decision to take corrective action in
response to an earlier protest filed by KEI, in which KEI raised in its
comments on GSA's administrative report the issue addressed in this
decision.  GSA's corrective action generally involved a reevaluation of
the cost/price quotations submitted by KEI and CSC.  In taking corrective
action, GSA did not request another round of revised quotations. 
Corrective Action Letter from GSA to GAO, Aug. 6, 2004.  Following
corrective action, in September 2004, GSA made a new best-value
determination in which it again determined that CSC's higher technically
rated, higher cost/price quotation represented the best value to the
government.  The approximate 1-percent, or $248,418, difference in the
evaluated costs/prices of the two vendors, as discussed above, is based on
the analysis in GSA's new best-value determination.  GSA's New Best Value
Determination, Sept. 2004, at 1.

   [10] At the hearing, CSC stated that "the pricing note [in its quotation
was] inartfully written, but that [did not] make the proposal invalid to
the extent that there's some ambiguities in the inartful writing because
everything in fact worked out that way."  Tr. at 146; see also Tr. at
149-52.

   [11] There is information in the record that suggests that KEI also could
have benefited from additional communications with GSA.

   [12] At the hearing, CSC explained that the BEA products ultimately were
"acquired through the schedule, and it is consistent with the proposal to
buy the BEA software through the Merlin schedule at that price.  And
that's in fact what happened."  Tr. at 147.  This testimony is
consistent with CSC's post-protest, October 19 revised cost/price
quotation which shows that CSC ultimately purchased the BEA products under
Merlin's FSS contract, with Merlin appearing to honor for CSC an "alliance
agreement" non-schedule price for the BEA products.

   [13] In its post-hearing comments, GSA includes a declaration from its
contracting officer, who also served as the source selection official, who
states that "[i]t is my understanding that [GSA] may have committed an
error in the cost analysis of the [CSC] and [KEI] proposals."  GSA
Contracting Officer's Declaration, Dec. 13, 2004.  (In GSA's post-hearing
comments, GSA made cost/price adjustments to both the CSC and KEI
quotations.)  The contracting officer continues that, "[b]ecause of those
possible errors[,] there may be concerns that this would have affected the
Best Value determination."  Id.  The contracting officer then considers
the higher revised premium associated with CSC's quotation, considering
the additional post-hearing cost/price adjustments that were made, and
concludes that "[i]t is clear to me that even with this greater trade off
amount, the superiority of the CSC technical proposal still makes the CSC
proposal the best value to the government."  Id.  To the extent that GSA
submitted this declaration from its contracting officer to show that KEI
was not prejudiced by any defects in the evaluation and source selection
process, we accord little or no weight to evaluation conclusions reached
by an agency after a protest has been filed, that is, in the heat of
litigation.  Boeing Sikorsky Aircraft Support, B-277263.2, B-277263.3,
Sept. 29, 1997, 97-2 CPD P 91 at 15.

   [14] KEI also argued that CSC's proposed technical solution did not comply
with the RFQ's no "client side application" requirement.  This issue was
thoroughly addressed at the hearing, with credible testimony from the Navy
procurement officials and from representatives of CSC and its
subcontractors.  Tr. at 13-87.  Neither at the hearing nor in its
post-hearing comments has KEI, in any meaningful way, established any
instance in which CSC took exception in its quotation to any of the RFQ's
technical requirements, including those addressing the need for a
commercial, web-based, no "client side application" solution.
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