TITLE: American Water Services, Inc., B-295376, February 8, 2005
BNUMBER: B-295376
DATE: February 8, 2005
**********************************************************************
Decision
Matter of: American Water Services, Inc.
File: B-295376
Date: February 8, 2005
Sheila C. Stark, Esq., and Thomas C. Wheeler, Esq., DLA Piper Rudnick Gray
Cary US LLP, for the protester.
Kenneth A. Martin, Esq., Martin & Associates, for Hardin County Water
District #1, an intervenor.
Danica S. Irvine, Esq., Defense Logistics Agency, for the agency.
Edward Goldstein, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest alleging agency improperly assumed that regulated offerors
presented lower risk than non-regulated offerors in its evaluation of
proposals for privatization of wastewater and storm water utility systems
is denied where the solicitation provided that proposals would be
evaluated based on the degree to which long-term price and service
stability were enhanced as a result of regulation by an independent
federal, state, or local regulatory authority with jurisdiction over the
applicable utility service, and where the record shows that the agency
reasonably concluded that regulated utility offeror presented low risk
under evaluation subfactor relating to long-term price and service
stability. 2. Agency's determination that the awardee's prices for
wastewater and storm water utility services were fair and reasonable, that
the work could be performed at the prices proposed, and that the awardee's
proposal represented low risk for price realism was reasonable where the
agency based its conclusion on extensive consideration of the awardee's
pricing strategy, the elements of its pricing, and the detailed breakdowns
of its price structure, as well as the agency's comparison of the
awardee's price with the government's cost estimate and the agency's
consideration of the awardee's status as a regulated entity. 3. Offeror's
proposal for wastewater and storm water utility services was not rendered
unacceptable where it proposed rates that were contingent upon approval by
an independent regulatory body after contract award.
DECISION
American Water Services, Inc. (AWS) protests the award of a contract to
Hardin County Water District #1 by the Defense Energy Support Center
(DESC) under request for proposals (RFP) No. SP0600-01-R-0121 for the
privatization of the wastewater and storm water utility systems at Fort
Knox Army Installation in Kentucky. AWS argues that the agency applied
unstated criteria in its evaluation of proposals, the agency's price
realism analysis was improper, and that Hardin was not eligible for award
because it submitted a "qualified" offer.
We deny the protest.
BACKGROUND
DESC issued the subject solicitation on April 9, 2001 for the
privatization of the Army's wastewater and storm water systems located on
the Fort Knox Army Installation in Kentucky.[1] The authority to convey
these utility systems is provided by 10 U.S.C. S 2688 (2000), which
authorizes agencies to privatize, or convey, a utility system so long as
it is in the long-term economic interest of the government. In this
instance, the Army's privatization effort contemplated the sale of the
wastewater and storm water infrastructure and the concomitant acquisition
from the purchaser of the services associated with the operation,
maintenance, repair and upgrade of the systems for a period of 50 years.
Purchase of a commodity (i.e., water) was expressly not included in the
solicitation. RFP S C.2.1.
In essence, the RFP was a performance-based solicitation. Since the
ultimate awardee was to assume ownership of the utility systems, the
solicitation did not provide for required capital improvements, upgrades,
renewals, or replacements for the wastewater or storm water
infrastructure. Rather, the solicitation essentially catalogued the scope
and condition of the infrastructure maintained by the government and
required offerors to propose their plans for addressing the needs of the
system over the 50-year life of the contract.
Under the solicitation, award was to be made to the offeror whose proposal
represented the best value to the government based on five evaluation
factors:
(1) technical capability, including five subfactors of varying importance
(service interruption/contingency plan, operations and maintenance plan
and quality management plan, capital upgrades and renewals and
replacements plan, operational transition plan, and financial strength);
(2) past performance; (3) risk, including three subfactors of equal
importance (performance, assurance of long-term price and service
stability, and price realism); (4) socioeconomic plan; and (5) price. The
RFP stated that technical capability, past performance, and risk were of
equal importance, the socioeconomic factor was least important, and when
combined, these four factors were significantly more important than
price.
As it relates to the subject protest, under the second subfactor of the
risk factor, assurance of long-term price and service stability, the
solicitation stated:
Proposals will be evaluated on the degree to which it [sic] long-term
price and service stability are enhanced as a result of regulation by an
independent federal, state, or local regulatory authority with
jurisdiction over the applicable utility service.
RFP S M.3.
The solicitation also stated, under the third risk subfactor, price
realism, that realism would be based on an evaluation of the information
provided in support of the offered price "to determine if the prices
reflect a clear understanding of the requirements; are consistent with the
various elements of the offeror's technical proposal; are not unbalanced;
and are neither excessive nor insufficient for the effort to be
accomplished." RFP S M.3.
With regard to price, the RFP contemplated the possibility that both
regulated utilities and non-regulated entities would submit offers and
included different instructions for the submission of price proposals
depending upon an offeror's status. As a general matter, non-regulated
offerors were required to submit their prices using schedule B-1 and
various associated schedules. These schedules essentially captured four
separate cost components: (1) operation and maintenance (O&M); (2)
renewals and replacements (R&R); (3) initial capital improvement (ICI) and
(4) the offeror's purchase price for the utility systems.
For the O&M component, offerors were required to "provide detailed pricing
data for all labor (direct and indirect), materials and procurement costs,
insurance, equipment, general and administrative, overhead costs, and any
other cost identified by the offeror." RFP S L.7.5. Under the R&R
component, offerors were required to establish a 50-year schedule for
renewal and replacement of major system components. ICI consisted of
repairs, replacement, and improvement activities "required to bring the
utility system, as purchased, up to legally applicable regulatory
standards or the standards typically maintained by the Contractor . . .
." RFP
S C.11.2.1. The RFP provided that the offeror's purchase price would
serve as a credit against the service charges and that the credit would be
recovered over a set number of months as proposed by the offeror. The RFP
further provided that during the contract administration phase, prices
were subject to redetermination every
3 years after an initial period of performance. RFP S B.7, Federal
Acquisition Regulation (FAR) Clause 52.216-5, Price Redetermination -
Prospective (Oct. 1997).
The RFP also contemplated the submission of "alternate" price proposals by
regulated entities and anticipated that they would propose "established or
special tariff(s), schedule(s) and rate(s)." RFP S B.6.1. These offerors
were to submit their prices using schedule B-2 and were required to
provide "an explanation of each tariff, how each tariff will be applied,
the locations to which each tariff applies, and the rationale for applying
each tariff." RFP S L.7.5 at 74. As with non-regulated offerors, the RFP
provided that the regulated offerors were to separately submit their
prices for ICI and that the purchase price for the wastewater and storm
water systems would be credited towards the government's payments on a
monthly basis for the utility services provided. RFP S C. However,
unlike offerors using schedule B-1, regulated offerors were not required
to separately set forth their O&M or R&R pricing as these cost components
were presumably captured in the proposed tariff rate. RFP amend. 2,
Question 12, at 4. The RFP further provided that during contract
administration, changes to a tariff rate would be made in accordance with
FAR Clause 52.241-7, Change in Rates or Terms and Conditions of Service
for Regulated Services (Feb. 1995), which sets forth the procedures for
price adjustments through the life of the contract. RFP S G.3.2 Schedule
B-2.
Three offerors, including AWS and Hardin, submitted proposals in response
to the RFP.[2] AWS submitted its price using schedule B-1 and Hardin
submitted its proposal as a regulated entity using schedule B-2. In its
proposal, Hardin represented that it "is a political subdivision of Hardin
County, charged with providing water service to the northern part of the
county surrounding Fort Knox" and further indicated that its "rates to
Fort Knox will be regulated by the Kentucky Public Service Commission
(PSC). This agency acts on behalf of utility customers to protect their
rights." Hardin's Proposal at FPR-V-I-ES-2. Throughout its proposal,
Hardin highlighted the fact that it was regulated by the PSC. For
example, with regard to its O&M plan, Hardin's proposal stated:
The District, for example, is a regulated utility and its operations and
finances are monitored by the [PSC] in addition to the Kentucky Division
of Water (DOW). The PSC will even look at the District finances to assure
that funds are being properly spent and funds are being set aside for
renewals and replacements.
Hardin's Final Proposal, at V-I-2-36. See also Hardin's Final Proposal,
atA FPR-V-IV-2-8, 9 (outlining 15 protections afforded the government by
PSC regulation in connection with receiving service from Hardin).
After its initial evaluation of proposals, the agency held extensive
discussions with the offerors and during the course of these discussions
the agency raised numerous issues regarding the price aspects of Hardin's
proposal. AR, Tab 9, Technical Consensus Report, at 90-113. As it
relates to this case, Hardin's initial proposal included a unit price of
[deleted] per 1,000 gallons of water for the wastewater service and the
agency raised numerous questions about this rate during the course of
negotiations. One question concerned whether the rate had to be approved
by the PSC or whether the rate was already "official." In response,
Hardin explained that the rate had not been approved by the PSC and that
Hardin could not submit the rate for approval until it had executed a
contract with the government. According to Hardin, however, based on the
past practices and policies of the PSC, a contract executed in good faith
would be approved. Hardin added that it had discussed its proposal and
rate with the PSC, that it was confident the rate would be approved, and
that it planned to keep the PSC advised as to the progression of its
negotiations with the agency. AR, Tab 9, Technical Consensus Report, at
92.
As a result of its negotiations with the agency, Hardin changed its unit
pricing structure (the [deleted] per 1,000 gallons rate) for wastewater to
a fixed monthly charge of $234,329. Hardin made the change in an effort
to address the agency's stated concerns about cost variability resulting
from varying flow rates of the water system. Hardin's Final Proposal, at
FPR-V-IV-2-6, 7; AR, Tab 13, Cost Realism Final Report, atA 3. Hardin's
storm water charge remained a fixed rate at $34,505 per month and in its
final proposal Hardin guaranteed the monthly and annual prices for the
first 3A years of performance. Hardin's Final Proposal, at
FPR-V-IV-2-10.
During discussions the agency also raised several questions about the cost
elements of Hardin's prices. More specifically, the agency informed
Hardin that its R&R costs appeared low. AR, Tab 9, Technical Consensus
Report, at 72. In response, Hardin provided an extensive explanation of
its R&R plan, indicating, in part, that it did not provide for R&R in
areas where Fort Knox planned to redevelop base housing since all the
utilities were to be replaced by the military. Id. at 73; Hardin's
Proposal at AT-23-1, 2. Hardin further indicated that its R&R plan
budgeted for replacing 6,658A linear feet (LF) and rehabilitating an
additional 6,658 LF of line per year. Id. The total annual budget for
Hardin's R&R plan was [deleted], which included $1,127,475 for replacing
6,658 LF and rehabilitating 6,658 LF of line per year. Hardin's proposal
provided the most extensive R&R plan of the three offerors, addressing a
total of 758,500 LF of line. AR, Tab 2, Burns & McDonnell Report,[3]
atA III-4.
With regard to other cost issues, the agency asked Hardin to provide a
more detailed breakdown of its storm water charge, to explain its proposed
cost for providing "radio telemetry," and detail the services included
under its price for Geographic Information System (GIS) mapping of the
sewer and storm water systems, as well as various other price-related
issues. As a result, Hardin's final price proposal included a detailed
breakdown of its R&R budget, ICI, and O&M costs for each of the two
systems.
Hardin's detailed ICI cost breakdown totaled $1,415,876 (this total cost
was spread over a 2-year period) and included, among other items, a permit
transfer cost of $30,000, GIS mapping of the water systems for $166,000,
repairing 336 manholes at a cost of $244,400, and sewer line repairs at a
cost of $200,000. Similarly, the breakdown of the annual O&M budget
proposed by Hardin included line item prices for costs such as "salaries
and benefits," "vehicle costs," "laboratory and industrial pretreatment
program," "chemicals," and "business costs."[4] Hardin's Final Proposal,
at FPR-V-IV-2-7.
AWS's proposed privatization solution and pricing differed from that of
Hardin. AWS proposed the least extensive plan for replacing and repairing
system lines, addressing only 422,000 LF. AR, Tab 2, Burns & McDonnel
Report, at III-4. In addition, AWS included the cost for replacing and
repairing a significant portion of the system lines as part of its ICI
plan over a 5-year period and, as a consequence, AWS's total ICI cost was
[deleted], significantly higher than the ICI cost proposed by Hardin,
which, as noted above, was $1,415,876 covering a 2-year period. In
addition, AWS's ICI price included "transition" costs [deleted] for
personnel/human resources expenses, vehicle purchases, and tools and
equipment purchases. AWS Proposal, Vol. IV-Price Proposal, at 1,
5-6.
Final proposal revisions were submitted on August 30, 2004. Based on the
agency's evaluation of the final proposals, AWS and Hardin received the
following evaluation ratings:
AWS HARDIN
OVERALL TECHNICAL CAPABILITY ACCEPTABLE ACCEPTABLE
Service Interruption/Contingency Plan Acceptable Acceptable
Q&M/Quality Management Plan Acceptable Acceptable
Capital Upgrades and R&R Plan Acceptable Acceptable
Operational Transition Plan Acceptable Acceptable
Financial Strength Acceptable Acceptable
OVERALL RISK LOW LOW
Performance Low Low
Assurance of Long-Term Price & Moderate[5]
Low
Service Stability
Price Realism Low
Low
PAST PERFORMANCE VERY GOOD/ EXCELLENT/
SIGNIFICANT HIGH
CONFIDENCE CONFIDENCE
SOCIOECONOMIC
GOOD EXCELLENT
PRICE
$108,020,091 $73,764,920
With regard to the agency's evaluation of proposals, two of the subfactors
under the risk factor are relevant to the subject protest, specifically,
assurance of long-term price and service stability, and price realism. In
its evaluation of Hardin's proposal under the long-term price and service
stability subfactor, the evaluators noted that Hardin was regulated by the
Kentucky PSC and concluded that Hardin's proposal represented a low risk.
With regard to Hardin's regulatory status, the agency stated:
Regulation of utility services is seen as an enhancement to price and
service stability. A utility provider generally has a monopoly on a
service area, and regulation provides a means to represent the
consumer[']s interest in setting appropriate rates and quality of
service. Regulation by an independent authority provides the greatest
representation for the consumer, whereas non-independent authorities
provide some representation for the consumer but also represent the
interests of the utility service provider. For the purposes of utility
privatization, the Government is selling the utility distribution or
collection system to a single entity. This in effect is creating a
monopoly for that entity in providing service. Therefore the degree of
regulation has an impact on the level of risk associated with long term
price and service stability.
AR, Tab 9, Technical Evaluation Consensus Report, at 89.
The source selection authority reiterated the evaluator's conclusion that
Hardin's status as a regulated entity presented its proposal with a low
risk under this subfactor and stated:
The PSC is a State agency designated to protect and assure customers they
are receiving quality services at a fair price. It will have jurisdiction
over the rates charged and the services offered by Hardin County
throughout the contract term. Accordingly regulation by the PSC provides
reasonable assurance of price and service stability.
AR, Tab 10, Source Selection Decision Document, at 4.
With regard to AWS, the source selection authority further concluded that
because its prices were redeterminable and AWS was not subject to an
independent regulatory authority, AWS's proposal presented a moderate risk
under this subfactor. Id.
In evaluating Hardin's proposal under the price realism subfactor, the
technical evaluators concluded that Hardin presented low risk. AR, Tab 9,
Technical Evaluation Consensus Report, at 90. The agency documented its
price realism evaluation for Hardin in a final report, which compared
Hardin's price with the government's cost estimate and cited excerpts of
the various pricing concerns raised by the government during its
discussions with Hardin and Hardin's responses to those concerns and noted
that Hardin's responses were satisfactory. See AR, Tab 13, Cost Realism
Final Report; see also AR, Tab 9, Technical Evaluation Consensus Report,
at 90-114 (documenting the agency's pricing concerns and Hardin's
responses).
Based, in part, on the responses provided by Hardin, and "the tariff
approval process enforced by the PSC," the report concluded that Hardin's
prices "reflect a clear understanding of the requirements, are neither
excessive nor insufficient for the effort to be accomplished, and are
consistent with the elements of Hardin County's proposal." Id. at 9. The
source selection authority agreed with the report's assessment and
expressly stated that Hardin's rates were effectively guaranteed to be
fair and realistic by virtue of their being monitored and subject to
review by the PSC. AR, Tab 10, Source Selection Decision Document, at
4-7.
While it found both proposals to be overall technically acceptable, the
source selection authority concluded that Hardin's offer was more
advantageous given that AWS was lower rated under the past performance and
socioeconomic factors and Hardin's price was substantially lower and
presented less risk given that Hardin's rates were regulated. AR, Tab 10,
Source Selection Decision Document, at 6. Upon being notified of the
agency's award decision, AWS filed this protest with our Office.
Subsequent to the filing of this protest, Hardin submitted its contract
for privatization of the Fort Knox wastewater and storm water systems to
the Kentucky PSC for approval. The contract expressly provided that if
Hardin failed to obtain PSC approval, the contract could be terminated
without cost to either party. AR, Tab 15, Preamble to Hardin Contract.
Upon its review of the contract, the PSC issued a ruling approving
Hardin's acquisition of the Fort Knox wastewater system, indicating that
Hardin's operation of the system would be subject to the commission's
jurisdiction and approving Hardin's proposed rates for wastewater service
as reasonable. Protester's Comments, encl. 2, Kentucky PSC Ruling, PP 17,
19, at 10. The PSC, however, further concluded that it did not have
jurisdiction over Hardin's provision of storm water services and that
Hardin did not require approval of the proposed storm water service rate.
The PSC's ruling also raised "concerns" about Hardin's legal authority to
provide storm water services--advising Hardin to "carefully review its
legal authority to provide such service" and if necessary petition the
state legislature for revisions to applicable laws. Id. P 18, n.9, at 10.
DISCUSSION
AWS challenges the agency's evaluation of proposals under the subfactor
relating to
long-term price and service stability and contends that the agency's price
realism analysis was flawed. AWS also argues that Hardin's proposal was
not eligible for award because it was conditioned upon approval by the
Kentucky PSC.
We review challenges to an agency's evaluation only to determine whether
the agency acted reasonably and in accord with the solicitation's
evaluation criteria and applicable procurement statutes and regulations.
American States Utilities Servs., Inc., B-291307.3, June 30, 2004, 2004
CPD P 150 at 4. Here, as explained below, we see no basis to question the
agency's evaluation.
Assurance of Long-Term Price and Service Stability
AWS asserts that the agency failed to evaluate proposals in accordance
with the terms of the RFP under the subfactor relating to assurance of
long-term price and service stability. According to AWS, instead of
considering the degree to which an offeror's status as a regulated utility
may have enhanced its price and service stability as required by the RFP,
the agency improperly assumed that regulated offerors represented a lower
risk. Protester's Comments at 2. AWS argues that this assumption led to
an undisclosed evaluation methodology whereby only regulated offerors
could receive a "low" risk rating, and unregulated offerors could do no
better than a "moderate" rating.
Based upon our review of the record, we find that the agency's evaluation
of Hardin's proposal was both reasonable and consistent with the
solicitation provisions regarding evaluation of proposals in this area.
The RFP stated that proposals would be evaluated "on the degree to which
it [sic] long-term price and service stability are enhanced as a result of
regulation by an independent federal, state, or local regulatory authority
with jurisdiction over the applicable utility service." RFP S M.3. In
evaluating Hardin's proposal, the agency expressly noted the price and
service advantages afforded by Hardin's regulation by the PSC.
Specifically, agency evaluators considered the fact that by virtue of
privatization, the agency would essentially be granting a particular
contractor a monopoly over the utility systems--effectively eliminating
any future competition for service of the utilities. In this regard, the
agency concluded that regulation of Hardin by the PSC offset the concerns
stemming from the contractor being a monopoly because Hardin would be
prohibited from seeking future price increases that were unreasonable or
unfair. In the agency's view, this served to enhance the stability of
Hardin's price over the long term. AWS's proposal, on the other hand,
which provided for price renegotiation every 3 years, simply did not
afford any comparable protections. The agency also noted that the quality
of Hardin's service would be overseen by the PSC, thus providing the
agency with further assurance of Hardin's long-term service stability. In
our view, this analysis and evaluation demonstrate that the agency
specifically considered how PSC regulation of Hardin was advantageous from
a long-term price and service standpoint and provided a rational basis for
assigning Hardin a rating of low risk under this subfactor.[6]
AWS also argues that Hardin's rating of "low" risk under this subfactor
improperly was based upon the agency's erroneous assumptions about PSC
regulation of Hardin's prices. Principally, AWS points to the fact that
the PSC has expressly found that it does not have jurisdiction over
Hardin's storm water pricing. Because Hardin's storm water rate was not
actually subject to PSC regulation, Hardin's rating of "low" risk as a
result of its regulated status was thus, in the protester's view,
improper.[7] In addition, AWS challenges the evaluation for failing to
adequately question the guarantee in Hardin's proposal that its prices
would be fixed for the first 3 years. This guarantee, as AWS emphasizes,
has been expressly rejected by the PSC, which has ruled that it retains
the authority to adjust or modify the rates proposed by Hardin during the
first 3 years of the contract if they are found to be "unjust,
unreasonable, insufficient, unjustly discriminatory or otherwise in
violation of [state law]." Protester's Comments, encl. 2, Kentucky PSC
Ruling, P 20 at 10.
In addressing this issue, it is significant to recognize that the PSC
ruling, upon which AWS bases its argument that the agency's evaluation was
unreasonable, was not issued until after the agency had completed its
evaluation and made award to Hardin. The protester suggests that despite
the representations made by Hardin in its proposal regarding its prices
being subject to PSC authority, the agency should have, nonetheless,
anticipated the concerns raised by the PSC ruling and accounted for these
risks as part of its evaluation of Hardin's proposal. The protester,
however, does not explain why the agency should have anticipated these
issues as part of its evaluation in advance of the PSC's ruling.
Hardin clearly put the agency on notice that its prices had to be approved
by the PSC--this was inherent to the regulated nature of Hardin's
proposal. It does not appear, however, that either Hardin or the agency
anticipated that the PSC would not take jurisdiction over the storm water
pricing, nor is it clear what consequence this will have under the terms
of the agency's contract with Hardin. In addition, the regulatory scheme
to which Hardin and the contract are ultimately subject and the
consequences of regulation will be manifest only during the agency's
administration of the contract with Hardin. Because the question of
whether Hardin's proposed pricing and service may or may not be subject to
regulation or modification by the PSC is essentially one to be addressed
post-award, the protester's concerns in this regard are effectively
rendered matters of contract administration, which we do not review. See
4 C.F.R. S 21.5(a) (2004).
Moreover, even assuming that the agency had recognized the concerns raised
by the protester in its evaluation of Hardin's proposal, there is no
reasonable basis for concluding that Hardin's rating under the subfactor
would have been other than low. The wastewater system constituted the
bulk of the privatization effort in terms of the infrastructure and the
pricing of the proposals. As the agency notes, based upon Hardin's final
proposal, the storm water portion of the contract represented less than 15
percent of the total annual price. Agency's Supplemental Report at 4.
Moreover, regulation of Hardin's prices by the PSC during the initial 3
years of the contract was not inconsistent with the agency's conclusions
about the long-term price and service advantages associated with
regulation by the PSC given the contract's 50-year term, especially where
the PSC's authority to adjust or modify the price was limited to
situations where the price was essentially found to be unjust or unfair.
Price Realism
The protester argues that the agency's under the price realism subfactor
was flawed. According to AWS, the agency failed to account for the fact
that Hardin's transition costs and costs for R&R were "suspiciously low"
when compared to AWS's pricing for the same cost elements.[8] The
protester's challenge in this regard, however, is misplaced as AWS
misapprehends and misstates Hardin's pricing elements for transition and
R&R.
While agencies are required to perform some sort of price analysis or cost
analysis on negotiated contracts to ensure that the agreed-price is fair
and reasonable, where, as here, the award of a fixed-price contract is
contemplated, a proposal's price realism is not ordinarily considered,
since a fixed-price contract places the risk and responsibility for
contract costs and resulting profit or loss on the contractor. OMVA Med.,
Inc.; Saratoga Med. Ctr. Inc., B-281387 et al., Feb. 3, 1999, 99-1 CPD P
52 at 5. However, an agency may provide for a realism analysis in the
solicitation for such purposes as measuring an offeror's understanding of
the solicitation requirements, The Cube Corp., B-277353, Oct. 2, 1997,
97-2 CPD P 92 at 4, or to avoid the risk of poor performance from a
contractor who is forced to provide services at little or no profit.
Ameriko, Inc., B-277068, Aug. 29, 1997, 97-2 CPD P 76 at 3. The depth of
an agency's realism analysis is a matter within the sound exercise of the
agency's discretion. Volmar Constr., Inc., B-272188.2, Sept. 18, 1996,
96-2 CPD PA 119 at 6.
As an initial matter, the record reflects that the agency's realism
analysis was based on its extensive discussions with Hardin regarding its
pricing, the cost elements of its pricing, and the detailed breakdowns of
Hardin's price structure, as well as the agency's comparison of Hardin's
total pricing with the government cost estimate, and Hardin's regulatory
status. These considerations formed the basis for the agency's
conclusions that Hardin's prices and costs were fair and reasonable, that
the work could be performed at the respective prices, and that Hardin's
proposal represented low risk. In our view, the agency's realism analysis
was sufficient. SeeA FAR S 15.404-1(d)(3).
AWS, however, essentially challenges the depth of the agency's analysis.
In support of its challenge the protester first contends that Hardin's
costs for transition were "suspiciously low" since Hardin's proposal
included only $30,000 for "permit transfer," addressing only one of the
seven required transition activities, while its own proposal included a
line item under its ICI price for "transition costs" of [deleted] covering
personnel expenses and the purchase of vehicles, tools, and equipment.
Protester's Comments at 12.
AWS's comparison of its transition costs with Hardin's much lower cost for
permit transfer, however, is unwarranted and mischaracterizes Hardin's
prices. First, while the RFP set forth seven transition activities that
offerors had to address in their technical proposals,[9] the RFP did not
provide for offerors to separately identify their costs for these
activities and Hardin's proposal did not separate these costs in its price
proposal. While the $30,000 identified by Hardin pertains to a transition
element (permit transfer), Hardin simply stated this as a cost under its
ICI. Thus, AWS's characterization of Hardin's proposal as including only
$30,000 for transition misstates Hardin's proposal.
In addition, to the extent that AWS identified more than [deleted] for its
transition cost under its proposed ICI price, several significant elements
of this cost (e.g., vehicle and equipment purchases) were independent of
and unrelated to the seven transition activities identified in the
solicitation. As the agency notes, the majority of the items to be
addressed in transition generally involved only personnel costs, which
Hardin included under its O&M pricing. Supp. Agency Report at 5. In
addition, Hardin captured its costs for vehicles and equipment under its
O&M price instead of its ICI price, which is where AWS included these
costs, based on the agency's request. See n.3, supra. Thus, the $30,000
figure cited by AWS does not support the basis of comparison suggested by
AWS, and it does not raise concerns about the agency's evaluation of
Hardin's proposal for price realism.
Similarly, the concerns raised by AWS with regard to Hardin's R&R pricing
are premised on a mischaracterization of Hardin's proposal. In support of
its contention that Hardin's R&R costs were "suspiciously low," AWS
attempts to draw a comparison between its R&R pricing and Hardin's;
however, in making this comparison, AWS misstates Hardin's R&R costs. The
protester asserts that it proposed to replace or repair 30 percent of
tested lines and 80 percent of tested manholes and included approximately
[deleted] million in its proposal for this work, while Hardin included
only approximately $440,000 for this same required work. Protester's
Comments at 12.
The record reflects that AWS's R&R plan proposed to address approximately
40A percent of the systems' lines, while Hardin's R&R plan, on the other
hand, proposed to address approximately 80 percent of the lines over the
life of the contract by replacing, on average, 6,658 LF of sewer line per
year and also repairing, on average, the same amount of line, at an annual
cost of [deleted] for 50 years.[10] The $440,000 figure cited by the
protester simply represented Hardin's proposed cost under its ICI plan for
addressing immediate repairs to lines ($200,000) and manholes ($244,400),
which Hardin determined were necessary to bring the utility system up to
applicable standards, and therefore does not form a basis for comparing
the [deleted] figure cited by AWS, which, as the protester notes,
represents costs for its own R&R plan.
AWS also argues that Hardin's proposal was based on a different scope of
work because Hardin indicated in its proposal that it would not replace
lines for areas where housing redevelopment had been planned because it
anticipated that the utilities in those areas were going to be replaced by
the government. According to AWS, the solicitation did not notify
offerors of this fact; rather, the solicitation sought offerors' plans for
addressing 922,870 LF of sewer line on the base. AWS further notes that
during discussions, it was encouraged by the agency to address replacement
of the entire wastewater system. The protester's contentions, however,
are unfounded.
First, Hardin's R&R plan provided for addressing approximately 80 percent
of the lines--twice that proposed by AWS. Thus, it is patently
unreasonable for AWS to contend that it suffered any competitive harm as a
result of Hardin's allegedly having competed under a different scope of
work. Second, there is no indication in the record that offerors were
provided with unequal information regarding the solicitation's
requirements. The agency correctly notes that the RFP set forth the scope
of the utility systems for privatization and required offerors to provide
their plans for addressing the needs of the systems. It did not require a
particular solution for repairing or replacing the systems in their
entirety. Hardin, evidently aware of future proposed plans for base
housing, simply sought to refrain from replacing or repairing lines that
it believed were already slated to be replaced by the government. To the
extent that the agency noted during discussions that AWS failed to address
R&R for the entire system, this was in the context of the agency's
concerns that AWS only addressed 40 percent of the system and failed to
sufficiently set forth the costs of the plan per year and the components
of the costs. In the face of this concern, AWS retained its 40 percent
R&R plan, as noted above. Thus, AWS's suggestion that its discussions
with the agency resulted in its submitting a proposal based on a scope of
work different from that of Hardin is without merit.
Contingent Offer
Finally, the protester asserts that Hardin's proposal was rendered
unacceptable because the offer was conditioned upon PSC approval of the
contract. In its proposal Hardin represented that its rates would be
subject to PSC approval and the contract between Hardin and the government
provided that, if Hardin failed to obtain PSC approval, the contract could
be terminated without cost to either party. AR, Tab 15, Preamble to
Hardin Contract. Citing our decision in Sabreliner Corp.,
B-218033, Mar. 6, 1985, 85-1 CPD P 280, AWS contends that "qualified"
offers are inherently unacceptable. Our decision in Saberliner, however,
does not stand for the proposition suggested by AWS and is clearly
distinguishable from the case at hand. In Sabreliner, which arose in the
context of an invitation for bids, we simply held that an agency
improperly accepted a bid where the bid was rendered nonresponsive by
virtue of an ambiguity in its price. Sabreliner does not suggest that a
proposal submitted in response to an RFP is rendered unacceptable per se
where its price is contingent upon approval by an independent regulatory
body.
In this case, PSC approval was a regulatory process to be addressed after
contract award and the consequences of approval or disapproval were
ultimately matters of contract administration--they were not elements of
the agency's evaluation of proposals and did not factor in the selection
process. Moreover, to conclude that Hardin's proposal was rendered
unacceptable based on the need for post-award
regulatory approval of the contract rates by the PSC would have
effectively precluded regulated utilities from competing under the
solicitation. Such a result was not contemplated by the RFP, which
expressly anticipated the submission of tariff rates by regulated
offerors.
The protest is denied.
Anthony H. Gamboa
General Counsel
------------------------
[1] DESC is a field activity of the Defense Logistics Agency and enters
into utility privatization contracts on behalf of the Army and Air Force
installations. Contracting Officer's (CO) Report at 2.
[2] The agency's evaluation of the third offeror is not relevant to our
decision in this case.
[3] The agency contracted with the firm Burns & McDonnell to prepare an
independent government estimate and to provide a report concerning the
costs and benefits associated with privatization of the wastewater and
storm water systems. The final report included a comparative analysis of
the proposals received by the agency.
[4] Hardin's various O&M costs include references to required equipment.
See Hardin's Final Proposal, at FPR-V-IV-2-16. Initially, Hardin included
its costs for tools, safety equipment, and other similar items under its
ICI pricing. At the agency's request, however, Hardin instead included
these items under its O&M pricing. Hardin's Final Proposal, at
FPR-V-I-ES-2.
[5] There is some question in the record as to whether the agency's
technical evaluators scored AWS as "low" or "moderate" under the assurance
of long-term price and service stability subfactor. In several places in
the record, AWS appears to have received a score of "low" from the
technical evaluators. See AR, Tab 9, Technical Consensus Report, at 7 and
135. In addition, a debriefing document provided to AWS reflected a
rating of "low" for this subfactor. AR, Tab 12, Debriefing of AWS, at 2.
On the other hand, the source selection authority, without making
reference to the technical evaluator ratings, rated AWS as presenting
"moderate" risk under this subfactor. AR, Tab 10, Source Selection
Decision, at 3. According to the agency, the rating of "low" reflected in
the debriefing document provided to AWS was a typographical error. As
more fully discussed below, we need not resolve the question of AWS's
rating under this subfactor as any alleged error in this area did not
prejudice AWS.
[6] To the extent AWS also argues that it too should have received a low
risk rating instead of a rating of moderate under this subfactor, we need
not address this issue since the record shows that AWS suffered no
prejudice as a result of any alleged error in this area. As explained
above, both offerors received an overall rating of "low" under the risk
factor, and we see no basis to question either Hardin's low risk rating
under the subfactor challenged by AWS, or its overall low risk rating.
With regard to AWS's risk rating, even if the "moderate" rating it
received under the stability subfactor was erroneous, it would have no
effect on AWS's overall risk rating, which already was the best rating
available. Given the offerors' equal risk ratings (and equal ratings
under the technical capability factor), together with Hardin's superior
ratings under the other two evaluation factors (past performance and
socioeconomic factors), as well as Hardin's substantially lower price,
there is no reasonable possibility that a change in AWS's risk rating
under the stability subfactor would have affected the award decision.
Prejudice is an essential element of every viable protest, and where none
is shown or otherwise apparent, we will not sustain a protest, even if the
agency's actions may arguably have been improper. Citrus College; KEI
Pearson, Inc., B-293543 et al. , Apr. 9, 2004, 2004 CPD P104 at 7.
[7] AWS also contends that it was improper for Hardin to have submitted
its storm water pricing using schedule B-2, because, based on the PSC's
ruling, Hardin's storm water pricing is not in fact a regulated tariff
rate. The record, however, reflects that regardless of which schedule was
used, both Hardin and AWS submitted essentially equivalent pricing
information for both of their wastewater and storm water plans and there
is no indication of any prejudice resulting from this alleged error.
[8] AWS also challenges the agency's evaluation of Hardin's initial
[deleted] per 1,000 gallon rate. This issue is of no consequence because
it is not based on Hardin's final proposed pricing. Rather, Hardin
abandoned this variable rate in favor of a fixed monthly rate, a fact that
the protester failed to address in its challenge of the agency's price
realism analysis.
[9] Under the technical capability factor, subfactor 4, operational
transition plan, offerors were required to address the following seven
areas: (1) performance start date; (2) connection requirements; (3) new
meter requirements; (4) permits and procedures; (5) inventory transfer
requirements; (6) initial meter reading; and (7)A authorized personnel and
points of contact.
[10] Hardin addressed manholes in two ways. Under its ICI plan, Hardin
proposed repairing 326 manholes during the initial 2 years of the contract
and, under its R&R plan, Hardin included the cost of repairing or
replacing 24 manholes per year during the 50-year life of the contract.
Hardin's Final Proposal at FPR-V-I-2-52, FPR-V-I-3-88.