TITLE: B-295455.3; B-295455.4, OTI America, Inc., August 10, 2005
BNUMBER: B-295455.3; B-295455.4
DATE: August 10, 2005
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B-295455.3; B-295455.4, OTI America, Inc., August 10, 2005

   DOCUMENT FOR PUBLIC RELEASE
   The decision issued on the date below was subject to a GAO Protective
   Order. This redacted version has been approved for public release.

   Decision

   Matter of: OTI America, Inc.

   File: B-295455.3; B-295455.4

   Date: August 10, 2005

   William M. Weisberg, Esq., and Jeffrey H. Francis, Esq., Sullivan &
   Worcester LLP, for the protester.

   Jennifer R. Seifert, Esq., U.S. Government Printing Office, for the
   agency.

   Henry J. Gorczycki, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Where agency uses contract options under parallel contracts to include
   or exclude contractors from continuing consideration for the development
   and production of electronic passport covers, the agency is conducting a
   limited competition between the multiple contractors, so that a protest of
   the agency's determination to eliminate a firm from the competition is
   within GAO's jurisdiction.

   2. Agency has a reasonable basis to eliminate protester from competition
   where the electronic passport covers it delivered to the agency for
   testing did not meet material contract requirements.

   DECISION

   OTI America, Inc. protests agency action under request for proposals
   (RFP)/contract No. EP-2004, issued by the U.S. Government Printing Office
   (GPO) for electronic passport book covers and related materials. OTI
   protests its elimination from a limited competition that the agency has
   been conducting among the firms that previously had been awarded
   contracts.

   We deny the protest.

   The Department of State (DOS), in cooperation with the GPO and the
   Department of Homeland Security (DHS), intends to issue a new type of
   passport to enhance the security of passports and to facilitate movement
   of travelers at ports of entry. The new "electronic passport" cover will
   contain an embedded contactless integrated circuit (IC) that will
   electronically store the personal information of the traveler to whom a
   passport is issued. The passport cover will also have an embedded antenna
   that together with the IC will permit wireless transmission of the
   traveler's personal information to electronic readers that will be located
   at border inspection stations, which can speed the movement of travelers
   through the border inspection process. RFP sect. C1.1. The electronic
   passport program is being implemented consistent with principles of
   international reciprocity so that United States passports will comply with
   the same requirements that the United States will impose by October 2005
   on citizens of foreign nations traveling to the United States. RFP,
   Abstract of Concept of Operations for the Integration of Contactless Chip
   in the U.S. Passport, at 1.

   The IC and antenna will be embedded in "inlays," which will be adhered to
   cover stock to form a laminated passport cover. Inner pages are
   subsequently adhered to the laminated cover to produce a complete
   electronic passport that retains the appearance of a traditional passport
   book. GPO is tasked with providing DOS with complete electronic passports.
   GPO will do this by procuring electronic passport covers from contractors
   in "cover sheets" consisting of three laminated covers per sheet. At its
   own facilities, GPO will use its "UNO book fabrication process" to adhere
   inner pages to a contractor's laminated cover sheets using
   contractor-supplied adhesive. The assembled sheets are then cut into three
   complete electronic passport books per sheet and delivered to DOS. Agency
   Report at 2-3.

   GPO issued the RFP on July 12, 2004, contemplating the award of multiple
   combined fixed-price, cost-reimbursable, time-and-materials contracts for
   a base period with 4 option years. The awards were to be made on a "best
   value" basis with price and technical considerations being equally
   important. The base period has 11 contract line item numbers (CLIN). Four
   of the CLINs are "mandatory," and the government is obligated to purchase
   at least the minimum prescribed amount. The remainder of the base period
   CLINs as well the option period CLINs are "optional."

   The electronic passports were to undergo four stages of testing. Stage 1
   was to determine whether technical proposals are compliant with the
   solicitation requirements. Stage 2 begins after the contract awards and
   involves a number of tests by several agencies. Most relevant to the
   current protest is the GPO Book Fabrication Process, during which GPO will
   observe and record how each offeror's product passes through and performs
   in the GPO UNO book fabrication process. GPO then sends the complete
   electronic passport books to DOS for personalization and other tests and
   inspections. Essentially, DOS will enter dummy data into the electronic
   passports, and will observe and record how the passports perform. DOS will
   also send electronic passports to the National Institute of Standards and
   Technology (NIST) for durability testing. Stage 3 will be field testing
   during a pilot program to be conducted in cooperation with DHS and a
   number of foreign governments. Stage 4 will be testing conducted when
   passports are in full production and used in normal operations. RFP
   sect. C7.2.3.1, sect. M.2.2.

   The mandatory CLINs for 7 personalization system test kits, 700 electronic
   passport book cover sheets for test book production, and adhesive are
   needed for the Stage 2 testing. The optional base period CLINs and the
   option year CLINs correspond to the purchase of cover sheets and other
   items for Stage 3 and Stage 4 testing, as well as for the full production
   of passports with associated services and warranties. The RFP contemplated
   the exercise of the optional CLINs for participation in the Stage 3 pilot
   program based on whether a contractor's products delivered under the
   mandatory CLINs passed the Stage 2 tests, and contemplated the exercise of
   the remaining optional CLINs and option years of the contracts based on
   the contractors' performance during Stage 2 and Stage 3 tests. RFP
   sect. B2, sect. C1.2.6[1], sect. M.2.2. The RFP also stated:

   Under the terms of this contract, GPO has the right to place orders for
   deliverables in any quantity, to any of the awardees, at any time.
   Furthermore, GPO is not obligated to order any quantities beyond the
   minimum quantities prescribed in this contract. It is GPO's intention, at
   its discretion, to make multiple awards to Offerors whose covers with
   embedded inlays, when integrated in passport books, have been determined
   to meet the technical and business needs of both GPO and the DOS. GPO
   plans to make a high volume purchase of book covers with inlays from one
   awardee and lower volume purchases of book cover inlays from the other
   awardees. Purchased quantities associated with this distribution will be
   made at the discretion of GPO.

   RFP sect. C1.2.8.

   A number of contract awards were made. Initially, GPO did not award a
   contract to OTI, and OTI protested to our Office on November 23, 2004. The
   agency subsequently decided to award a contract to OTI, and OTI withdrew
   that protest.

   Contract performance then commenced and the multiple awardees, including
   OTI, delivered the 700 test cover sheets to GPO for Stage 2 testing. GPO
   has twice identified material defects in OTI's twice-submitted covers and
   for this reason eliminated OTI from the competition.

   In its first submission, OTI's covers were found to exceed the thickness
   requirement (i.e., RFP sect. C7.2.1[2]), and also to have a
   software-related problem.[3] The contracting officer notified OTI of these
   defects in a "cure notice," and provided the firm with the opportunity to
   resubmit revised cover sheets for the testing process within 10 working
   days. The letter also stated that, due to time constraints in the program
   schedule, continuous retesting would not be possible, and that "[i]f the
   adjusted product fails to pass testing a second time, GPO will no longer
   consider OTI's products for use" in the Stage 3 pilot testing. Letter from
   GPO to OTI (Mar. 16, 2005).

   OTI subsequently submitted a revised batch of cover sheets. However, the
   laminated layers of the revised covers began to separate following GPO's
   fabrication of test passport books and submission to DOS for lab testing.
   As a result, DOS rejected and returned the test books to GPO prior to any
   DOS testing. GPO's inspection revealed that all but 8.49 percent of the
   covers on the passports were visibly separating. Agency Report at 5-6.

   The contracting officer then notified OTI that, due to the separation of
   the layers, OTI's revised covers failed to meet contract requirements and
   that further testing would not be conducted. Citing OTI's repeated failure
   to deliver a product that complied with contract requirements and the
   government's needs to meet program goals for deploying electronic
   passports, the contracting officer stated that the agency's attention must
   focus on the remaining contractors' products and that "GPO does not
   contemplate any further orders will be forthcoming for the OTI product for
   use in . . . any future phases of the EP-2004 contract, as a result of
   your product's current and previous deficiencies." Letter from GPO to OTI
   (May 18, 2005). This protest followed.

   JURISDICTION

   GPO alleges that, since this protest concerns agency action after the
   agency issued contracts to the protester and other offerors, the protest
   concerns a matter of contract administration not for consideration by our
   Office. We disagree.

   Where, as here, an agency uses parallel contracts for the development and
   production of products to conduct a competition among the contractors
   resulting in the elimination of one or more contractors as sources for the
   agency's requirements for the duration of the contracts in question, we
   will consider protests concerning that competition and the decisions to
   eliminate contractors. Electro-Voice, Inc., B-278319, B-278319.2, Jan. 15,
   1998, 98-1 CPD para. 23 at 5; Fermont Div., Dynamics Corp. of Am.,
   B-257373.3, et al., Dec. 22, 1995, 96-1 CPD para. 78 at 1-2 n.1; Mine
   Safety Appliances Co., B-238597.2, July 5, 1990, 90-2 CPD para. 11 at 4;
   see Westinghouse Elec. Corp., B-189730, Mar. 8, 1978, 78-1 CPD para. 181
   at 6. In the above cited cases, there was a "downselection" of a
   contractor based on a limited competition among the contract holders, as
   contemplated by the terms of the parallel contracts, and this
   downselection was implemented by issuing or not issuing delivery orders
   under the contracts, or exercising or not exercising contract options.

   Here, the agency is using the options under these contracts to determine
   which firms will continue to be considered for GPO's procurement of
   electronic passport covers. Options corresponding to the pilot program
   would be exercised on a go/no-go basis based on passing the Stage 2 tests.
   RFP sect. C1.2.6. Ultimately, the agency would select one primary
   production contractor and secondary production contractors based on a
   best-value determination. Agency Report at 2, 8; RFP sect. C1.2.8. Thus,
   this is a limited competition between the firms awarded contracts under
   the RFP. While GPO argues that the decision protested is a matter of
   contract administration because OTI was eliminated from further
   consideration after it was awarded a contract, the substance of what is
   occurring--regardless of its contractual form--is a multi-step competition
   for a contract to produce electronic passport covers. Because OTI timely
   protested its elimination from that competition, we conclude that our
   Office has jurisdiction to consider the protest.

   In considering protests against an agency's evaluation resulting in a
   downselection, we do not evaluate competing technical solutions anew in
   order to make our own determinations as to their acceptability or relative
   merits. Instead, we examine the record to determine whether the evaluation
   was fair, reasonable, and consistent with stated evaluation factors.
   Electro-Voice, Inc., supra, at 5-6.

   DISCUSSION OF PROTEST

   The agency eliminated OTI from this limited competition because it twice
   failed to deliver passport cover sheets that complied with material
   solicitation requirements. The first was the thickness requirement clearly
   stated at RFP sect. C7.2.1. The second--the separation of the layers of
   the cover--failed to comply with the durability requirement stated at
   sect. C7.2.2.2:

   The inlay protective envelope shall be of a material that will securely
   and durably adhere to the book cover stock and book end sheets so that the
   finished [electronic passport] maintains its physical integrity as well as
   or better than the current book.

   While OTI offers no justification for its initial failure to deliver
   covers that complied with the thickness requirement, the protester states
   that the separation in its second submission was caused by the fact that
   its adhesive supplier provided it with defective adhesive that weakened as
   it cured; OTI attributed this problem to a chemical labeling error.[4] OTI
   further states that this defect has been identified and resolved, and is
   not a systematic problem in OTI's product. The protester alleges that it
   is unreasonable for the agency to use the second defect as the basis to
   eliminate OTI, because the problem was the result of a "clerical error,"
   and OTI has since corrected it and would be able to submit a new batch of
   compliant cover sheets for Stage 2 testing.

   Here, the agency had a reasonable basis for eliminating OTI from the
   competition, given that OTI twice delivered a product that was materially
   defective. We do not agree with OTI's contention that its deviations were
   not material, given that they can only be addressed by remanufacturing the
   700 passport cover sheets.[5] While OTI states that it has provided the
   agency with samples that correct the problem, these samples have not been
   tested, and even if they are compliant, they are not a substitute for the
   delivery of 700 compliant coversheets--a task on which OTI has twice
   failed. Given the fair warning that GPO gave OTI concerning repeated
   failure, we believe the agency was justified in eliminating OTI from the
   competition.[6]

   OTI finally alleges that GPO treated contractors unequally because it has
   allowed other contractors to cure more significant defects or has given
   other contractors more than two chances to cure defects. However, the
   record shows that while the agency could not even test OTI's product
   because of the material nature of its defects, it was able to proceed with
   testing of those products that remained in the competition. The record
   also shows that the agency has eliminated all contractors that have twice
   submitted non-compliant products, or products that have failed to pass the
   same test twice. Agency Report, Tab 17, Testing Matrix. Thus, we find that
   OTI was not treated unfairly by not receiving more chances to submit a
   product that could be tested.

   The protest is denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] RFP sect. C1.2.6 stated the following:

   Based on the results of the testing conducted upon the test passports, GPO
   will determine to which awardees it will exercise [optional] CLIN 0005 . .
   . to supply passport cover material with embedded inlays for the purpose
   of producing passports for the Special Issuance Agency pilot. If more than
   one awardee's products pass the testing regimen, GPO may elect to exercise
   CLIN 0005 to more than one awardee.

   [2] RFP sect. C7.2.1 stated the following:

   The total thickness of the [electronic passport] Book Cover shall be 0.70
   mm +/- 10%. The total thickness is the thicknesses of the . . . [c]over
   material, the inlay, and the adhesive to glue the cover material to the
   inlay. This thickness is specified so that [the Consular Affairs Division
   of DOS]'s several hundred Toppan printers can be modified to handle
   personalization of the [electronic passport] without major redesign.

   [3] The software-related item was that the electronic manifest program
   import was not in XML file format.

   [4] The protester attempts to shift the responsibility for the adhesive
   defect to OTI's supplier. While the ultimate source of that defect may be
   significant to OTI, it does not affect the reasonableness of the agency's
   decision to eliminate OTI for twice delivering a defective product.

   Also, OTI initially alleged that the separation of its cover was due, at
   least in part, to improper operation of GPO equipment by GPO personnel.
   Protest 2-3. The protester now "concedes that the adhesive, compounded
   with the mislabeled chemical, failed to adhere properly." Protester's
   Supplemental Comments at 1-2. In any event, the record provides no support
   for the allegation that GPO actions contributed to the separation problem.
   A small number of OTI's coversheets were damaged during the agency's
   calibration process (required for each new product), but the agency
   replaced the damaged sheets and did not consider them in evaluating OTI's
   cover sheets. Agency Report, Tab 20, Declaration of GPO's Printing
   Services Specialist, exh. 2. Additionally, the agency reserved some cover
   sheets from each contractor that were never run through GPO machinery, and
   the adhesive on the reserved OTI cover sheets also failed. Id.; Agency
   Report, Tab 22, Declaration of GPO's Chief Technology and Evaluation
   Officer, at 2.

   [5] While OTI alleges that agency personnel assured OTI that the
   separation issue was a minor problem that would not be cause for
   elimination, the agency denies that any such statement was made. However,
   even if such a statement were made, it would not render unreasonable, for
   the reason stated above, the agency's decision to eliminate OTI from the
   competition. Oral statements by government employees generally do not bind
   the government; a competitor relies on oral statements at its own risk.
   Crown Support Servs., Inc., B-287070, Jan. 31, 2001, 2001 CPD para. 33 at
   3 n.1.

   [6] The agency's Electronic Passport Selection Guide--an internal agency
   document outlining among other things the plan for evaluating the
   products--stated that the agency would eliminate a product from further
   consideration if it failed more than once in the same test phase. The
   protester states that this constitutes an undisclosed evaluation
   criterion. The policy to eliminate products with multiple failures in the
   same phase is not in itself a testing standard or an evaluation criterion,
   but only the agency's policy that, while it may allow correction of one
   product failure, it would not continue to keep in the competition firms
   with multiple failures in the same test phase. As noted above, the agency
   gave fair warning in the cure notice advising OTI that its product would
   be eliminated from the competition if its resubmission was not acceptable.