TITLE:  Dynamic Access Systems, B-295356, February 8, 2005
BNUMBER:  B-295356
DATE:  February 8, 2005
**********************************************************************
   Decision

   Matter of:   Dynamic Access Systems

   File:            B-295356

   Date:              February 8, 2005

   Katherine S. Nucci, Esq., and Timothy Sullivan, Esq., Thompson Coburn LLP,
for the protester.

   Angela T. Puri, Esq., Department of Housing and Urban Development, for the
agency.

   Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest arguing that an agency overstates its needs by limiting
competition to commercial off-the-shelf (COTS) loan software packages that
can be installed on agency computers is denied where the record shows that
requiring COTS software reasonably reflects the agency's need for a
reliable product with a low risk of unsuccessful performance.

   DECISION

   Dynamic Access Systems challenges the terms of request for proposals (RFP)
No.A Ra**DEN-01965, issued by the Department of Housing and Urban
Development (HUD) for a commercial off-the-shelf (COTS) software package
to replace HUD's current Loan Accounting System for Housing the Elderly
and Handicapped (LASHE), and for implementation and follow-on maintenance
services for the new software.  Dynamic argues that the RFP unduly
restricts competition in two ways--by requiring COTS software that can be
installed on HUD computers, and by requiring that offerors "must have
implemented their COTS package for at least one U.S. Federal Government
agency."  RFP at 3.

   We deny the protest.

   BACKGROUND

   HUD's current loan accounting software used in support of its elderly and
handicapped housing programs has been in place since 1993, is considered
by the agency to be antiquated, and has been a continual source of
problems for the agency in terms of processing and maintaining mortgage
loan information.  Agency Report (AR) at 2.  As the current software is
not COTS, HUD has had difficulty finding programmers who are familiar with
the software.  In addition, HUD's current software does not comply with
the functional requirements for direct loan systems mandated by the Office
of Management and Budget's Joint Financial Management Improvement Program
(JFMIP).[1]  The ways in which the HUD software is not compliant with
JFMIP requirements have been raised by HUD's Inspector General in recent
reports.  Id. at 3. 

   In planning for the purchase of a new loan accounting system, HUD
contracted for a review of the different available approaches.  This
review examined numerous options:  upgrading the current software,
outsourcing the function entirely, procuring COTS software, reengineering
current software to operate on a mainframe platform, and reengineering
current software to operate on a client-server platform.  AR at 4.  The
review also included market research, a feasibility study, a risk
analysis, and a cost-benefit analysis of the approaches identified.  At
the conclusion of the review, the results of the research and analyses
were summarized in a System Decision Paper, wherein HUD's contractor set
out each of the approaches and recommended one.  Ultimately, the review
recommended purchasing a specific COTS software package, known as
Nortridge Loan Software.  AR, Tab 9 (LASHE System Decision Paper) at 2-5. 
Despite this recommendation, the Decision Paper also acknowledged that the
Nortridge software would not meet all of HUD's requirements without
enhancement and advised that "[a]n open procurement may bring to light
other software packages that were not found or were not available during
the Feasibility Study."  Id. 

   After receipt of the study in May 2002, HUD's Office of the Chief
Financial Officer decided to use full and open competition to procure a
JFMIP-compliant COTS software package that could be installed onto HUD's
computers.  In addition, HUD decided to purchase support services for the
"installation, implementation, software maintenance/operations support,
post implementation support, minor software customization and training." 
AR at 5; see also RFP at 7.

   The RFP implementing this decision was issued on September 14, 2004, and
anticipated award of a fixed-price contract for a base period of 1 year
with four 1a**year options.  RFP at 1.  The RFP identified four evaluation
factors for the assessment of offers:  technical capability, project
management approach, past performance, and staffing and resources.  Id. at
2-3.  Of relevance here, the past performance evaluation factor advised
that the agency was looking for "[d]emonstrated successful past
performance for the same or highly similar work," and defined highly
similar work to mean that the offeror "must have implemented their COTS
package for at least one U.S. Federal Government agency."  Id. at 3.  The
RFP advised that award would be made to the responsible offeror whose
offer "presents the best overall value to the Government, price and other
factors considered."  Id. at 2. 

   Shortly before the due date for the submission of offers, Dynamic filed
this protest with our Office.

   DISCUSSION

   Dynamic argues that HUD overstates its needs by limiting this competition
to COTS loan software packages that can be installed on HUD's computers,
and by requiring that offerors have "implemented" their COTS package for
at least one federal government agency.[2]  Dynamic contends that the
study of available options by HUD's contractor does not support the
agency's decision to buy a COTS software package because the study failed
to properly consider the option of using Dynamic's hosted solution.[3] 
Dynamic contends that without the requirement for COTS software it could
meet HUD's functional requirements with a hosted solution using software
it developed for other HUD programs, but does not sell commercially. 

   While a contracting agency has the discretion to determine its needs and
the best method to accommodate them, Mark Dunning Indus., Inc., B-289378,
Feb. 27, 2002, 2002 CPD P 46 at 3-4; Parcel 47C LLC, B-286324; B-286324.2,
Dec. 26, 2000, 2001 CPD P 44 atA 7, those needs must be specified in a
manner designed to achieve full and open competition; solicitations may
include restrictive requirements only to the extent they are necessary to
satisfy the agency's legitimate needs.  41 U.S.C. SSA 253a(a)(1)(A),
(2)(B) (2000).  Where a protester challenges a specification as unduly
restrictive, the procuring agency has the responsibility of establishing
that the specification is reasonably necessary to meet its needs.  The
adequacy of the agency's justification is ascertained through examining
whether the agency's explanation is reasonable, that is, whether the
explanation can withstand logical scrutiny.  Chadwick-Helmuth Co., Inc.,
B-279621.2, Aug. 17, 1998, 98-2 CPD P 44 at 3.  A protester's mere
disagreement with the agency's judgment concerning the agency's needs and
how to accommodate them does not show that the agency's judgment is
unreasonable.  See AT&T Corp., B-270841 et al., May 1, 1996, 96-1 CPD P
237 at 7-8. 

   As an overlay to our standard review of a protester's allegation that an
agency has included a restrictive requirement not necessary to satisfy the
agency's needs, we note that the Federal Acquisition Streamlining Act of
1994, Pub. L. No. 103-355, established a preference for the acquisition of
commercial items.  For civilian agencies this preference is now codified
at 41 U.S.C. SA 264b (2000).  Specifically, the statute directs agencies
to state their requirements in terms of functions to be performed,
performance requirements, or essential physical requirements, so that
commercial items--or to the extent that commercial items are not
available, nondevelopmental items--may be used to meet agency
requirements.  41 U.S.C. SA 246b(a)(1), (2). 

   As a preliminary matter, we think Dynamic's challenge to HUD's decision to
require COTS software that can be installed on HUD computers, in essence,
raises two issues--the requirement for commerciality, and the requirement
that the software be installed on HUD computers.[4]  Although this protest
necessarily reaches our Office as a challenge to the solicitation term
that excludes Dynamic from the competition--i.e., that the offered
software be a COTS package that can be installed on HUD computers--the
groundwork for this dispute was laid long before the solicitation was
issued.  In essence, HUD reviewed the major options for reworking its
LASHE program almost 3 years ago, and concluded that the needs of the
program would be best met through the purchase of COTS software that
operates at HUD.  This solicitation implements that choice of approach. 
Thus, while Dynamic is challenging a specific solicitation term, it is
also challenging the overall approach the agency has chosen in meeting its
needs.   

   With respect to its challenge to the 2002 review of available options, the
protester argues that the review does not support the conclusion that the
agency needs COTS software that can be installed on HUD computers.  In
this regard, Dynamic argues that the review is flawed because its
consideration of Dynamic was limited to a consideration of using a
completely outsourced solution that Dynamic provides for other HUD
programs. 

   Our review of the record here shows that Dynamic has been providing
noncommercial loan accounting services since 1985 in support of other HUD
programs, like the agency's Federal Housing Administration (FHA)
multifamily portfolio.  Initial Protest at 7-8; Protester's Comments at 8;
AR at 11-12; AR, Tab 6 (LASHE Feasibility Study) at 4-5.  As the protester
explains, its wholly-owned subsidiary, DP Service LLP, provided HUD with a
hosted solution for its FHA multifamily portfolio from 1985 to 1998, while
loan servicing was provided by approximately 45-50 HUD staffers.  Since
1998, HUD has outsourced this function entirely.  Under this approach, HUD
pays for access to Dynamic's proprietary software, and pays for
approximately 30 DP employees who perform the outsourced functions. 
Protester's Comments at 8. 

   The 2002 review of different approaches for changing HUD's loan servicing
program referred to one of the options--the outsourcing option--as
"Outsourcing Servicing to Private Industry (DP Services)."  AR, Tab 6
(LASHE Feasibility Study) at 4-3 to 4-5.  In reviewing the cost of this
option, the study assigned much higher recurring costs to
outsourcing--which it again refers to as the DP Services option--than to
other options.  AR, Tab 5 (LASHE Cost/Benefit Analysis) at 4-3.  The
protester points out--and the Cost/Benefit Analysis confirms--that the
costs are higher because the study is focused on the cost of outsourcing
all services.  See, e.g., id.  There is no evidence that HUD's review
included the option of using only DP's hosted software, separate and apart
from outsourcing the loan servicing entirely.  See id. at 3-1 to 3-3,
entitled "Description of Alternatives." 

   In Dynamic's view, HUD's failure to consider any option related to DP
other than complete outsourcing means that the review of options was
flawed, and did not consider the lower costs of DP's hosted
solution--which would involve only the use of DP's software, and not the
cost of the DP employees providing loan servicing.  As indicated above,
while we think the record supports the protester's contention that the
review did not consider Dynamic's hosted solution, we are not convinced
that this matter invalidates the review, or the solicitation's requirement
for a COTS software package that can be installed on HUD computers.

   We start by noting that HUD's review of available options--despite its use
of proper names, such as DP's, as shorthand for describing the outsourcing
option--examined broad categories of possible solutions for the agency's
need to upgrade its loan accounting system; the analysis was not about
whether to select, or not select, DP to perform those services.  In
addition to outsourcing, other options reviewed included upgrading
existing agency software, procuring COTS software, developing a new
client-server application, or developing a new mainframe application.  AR,
Tab 6 (LASHE Feasibility Study) at 4-1.  Nothing raised by Dynamic
suggests that the agency should not have considered these options,
including the outsourcing option.  In addition, nothing raised by Dynamic
suggests that the conclusions reached about these broad options, when
compared to each other, were wrong.  Instead, Dynamic has simply
identified a hybrid of one of the options that was not considered--i.e.,
its hosted, but not fully-outsourced, solution provided to the agency
between 1985 and 1998.

   In our view, HUD's 2002 review of the available options for upgrading its
loan accounting system adequately explores categories of major
possibilities the agency might pursue, even if we agree with the protester
that the review might have considered other options as well.  More
importantly, we do not think that the only support for the agency's
decision to procure COTS software is found in the pages of the 2002
study.  Instead, we think the record offers other support for the agency's
determination of its needs.  Specifically, the report explains that HUD's
need for a COTS software application is driven by its desire for a
reliable product with a low risk of unsuccessful performance, which it
presumes a COTS product is more likely to provide.  AR at 7.  In addition,
HUD expresses a desire to reduce the need for software maintenance, and to
make it easier to find programmers who are familiar with the software,
which it explains has been a problem with its reliance on dated
proprietary software.  HUD also expresses a desire to avoid the costs
associated with developing new software.  Id. 

   Dynamic's answer to HUD's views about its need for a COTS software
application is, essentially, that its hosted solution has met the agency's
needs for many years, and there is no reason to believe it could not
continue to do so.  In addition, Dynamic answers many of the concerns
identified in the 2002 review which--while part of the review's analysis
of an outsourced solution--were addressing features of a hosted solution,
wherein the proprietary software and the agency's loan data remain
resident at the contractor's facility.  See, e.g., AR, Tab 6 (LASHE
Feasibility Study) atA 4-3 to 4-5. 

   We do not think Dynamic has shown that the agency's determination to
procure a COTS software package was unreasonable, or that its hosted
solution must be viewed as the functional equivalent of a COTS software
package.[5]  Dynamic answers the concerns identified by the agency both in
the current agency report, and in the 2002 review, in a detailed sworn
declaration submitted by Dynamic's president.  Even accepting at face
value the representations of Dynamic's president about the extent of the
modifications needed to meet the functional requirements of the agency, we
believe that the agency had a reasonable basis for concluding that there
are certain advantages associated with the purchase of COTS products that
Dynamic simply does not offer.  

   For example, HUD argues that the accounting requirements for the direct
loan programs at issue here are different from the loan accounting
services Dynamic's software currently handles, and that the Dynamic
software has never undergone an audit to determine whether it can properly
be deemed JFMIP-compliant.  AR at 12.  Dynamic concedes that the program
it is currently involved with "is not a direct loan program and does not
have the same budgetary reporting requirements" as here, Protester's
Comments, Dec. 14, 2004, Declaration of Dynamic's President at 6, but
contends that the required modifications will be minimal.  These budgetary
reporting requirements are related to whether or not the software can be
called JFMIP-compliant.  While Dynamic contends that that it will not need
to make major changes to its software to be JFMIP-compliant, it also
concedes the agency's point that its software has not undergone an audit
to determine its compliance.  Id.  The protester's representations on this
issue--regardless of the good faith with which they made, or the accuracy
of the predictions about the extent of the modification effort
needed--cannot provide the same level of expected reliability that comes
with the purchase of COTS software that has already been found
JFMIP-compliant.  As a result, we conclude that Dynamic has not
established that the agency must treat its software as the functional
equivalent of COTS software. 

   As a final matter, we note that Dynamic argues that HUD's review of
available options prepared in 2002 should be viewed by our Office as, in
essence, an attempt to justify a sole-source procurement.  Id. at 7.  As
explained above, while the review of options ultimately recommended
purchase of a specific name-brand software, the review also acknowledged
that there might be other packages available by the time this procurement
was completed.  AR, Tab 9 (LASHE System Decision Paper) at 2-5.  In
addition, the protester itself acknowledges that there now appear to be
two COTS software packages that will meet the agency's needs here. 
Initial Protest, Nov. 2, 2004, at 10.  Also, HUD's report advised that it
received "several" proposals that appear to meet the agency's
requirements.  AR at 17.  While these facts alone cannot

   establish that this solicitation was not unduly restrictive, they do
refute any suggestion that the procurement at issue here was effectively a
sole-source acquisition.  On the contrary, the record shows that the
agency achieved competition among multiple offerors with COTS products.

   The protest is denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] JFMIP is a joint and cooperative undertaking of the Government
Accountability Office, the Department of Treasury, Office of Management
and Budget, and Office of Personnel Management, which, among other things,
tests and certifies core financial management system software.  See
Savantage Fin. Servs., Inc., B-292046; Ba**292046.2, June 11, 2003, 2003
CPD PA 113 at 2 n.1.

   [2] Since we deny Dynamic's argument that this solicitation improperly
limited competition by requiring a COTS software package that can be
installed on HUD's computers, we do not reach Dynamic's second basis of
protest--i.e., that the agency has improperly construed language in the
solicitation regarding "implementation" to require offerors to demonstrate
past performance by showing that their COTS package actually has been
installed at a federal agency.  Without a COTS software package, Dynamic
is not an interested party under our Bid Protest Regulations to challenge
the restrictiveness of the past performance evaluation factor.  See 4
C.F.R. SA 21.0(a) (2004).

   [3] As described by Dynamic, its hosted solution provides HUD employees
access from their workstations to its loan accounting software, as well as
HUD's loan data.  Both the software and the loan data would reside at the
company's data center in Silver Spring, Maryland.  The company also
provides access via a web-based interface for owners, agents and
accounting firms.  Initial Protest, Nov. 2, 2004, at 8. 

   [4] For the record, we recognize that, in some sense, a requirement for a
COTS software package means, by definition, software that can be purchased
and loaded on the purchaser's computer.  Thus, to some readers, a
requirement for a COTS software package automatically excludes software
that is resident on a contractor's computer that is only accessed by the
user.  Nonetheless, to be clear about the nature of the dispute here, we
thought it useful to note the two ways in which the solution Dynamic
offers does not meet the agency's stated requirements--it is not
commercial, and it cannot be installed at HUD.  With respect to
installation at HUD, Dynamic concedes that its software would have to be
rewritten in a different computer language before its software could
operate on HUD computers.  Dynamic also advises that the cost of rewriting
its software would be too costly for the company to prevail in any
competition.  Initial Protest, Nov. 2, 2004, at 10 n.2. 

   [5] In some sense, Dynamic's assertion that its hosted solution must be
seen as the functional equivalent of a COTS software package asks our
Office to overrule the agency's determination that it prefers to purchase
goods (a software package) rather than services (the protester's hosted
processing of HUD loan data)--a matter largely within the agency's
discretion.  To the extent, however, that Dynamic argues that it has been
unfairly excluded from this competition because its hosted solution offers
all the same benefits as a COTS software package, we agree that it has
been excluded, but--as set forth in the decision--we find reasonable the
agency's position that Dynamic's hosted solution does not offer the same
benefits as COTS software.