TITLE: B-297398, Crane & Company, Inc., January 18, 2006
BNUMBER: B-297398
DATE: January 18, 2006
*************************************************
B-297398, Crane & Company, Inc., January 18, 2006
Decision
Matter of: Crane & Company, Inc.
File: B-297398
Date: January 18, 2006
John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Stephen D. Knight, Esq.,
and Erin R. Karsman, Esq., Smith Pachter McWhorter & Allen PLC, for the
protester.
Michael J. Davidson, Esq., Department of the Treasury, Bureau of Engraving
and Printing, 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
Agency's solicitation for distinctive currency paper is defective where it
provides for the award of a contract with a 6-year term in violation of 31
U.S.C. sect. 5114(c), which limits contracts for currency paper to periods
of not more than 4 years.
DECISION
Crane & Company, Inc. protests the terms of request for proposals (RFP)
No. BEP-06-0001, issued by the Department of the Treasury, Bureau of
Engraving and Printing (BEP), for the procurement of "distinctive currency
paper." Crane principally argues that the RFP provides for the award of
contracts which are 6 years in length, in violation of 31 U.S.C. sect.
5114(c) (2000), which, according to Crane, limits the total length of
contracts for distinctive currency paper to not more than 4 years. Crane
further argues that the solicitation improperly discriminates against
Crane, the incumbent contractor.[1]
We sustain the protest.
BACKGROUND
On September 9, 2005, the BEP issued the RFP inviting firms to submit
proposals to furnish all facilities, labor, and materials to provide
distinctive currency paper for the printing of U.S. currency in accordance
with requirements set forth in the RFP, including specific security
features. RFP at 21. The RFP provides for the award of up to two
indefinite-delivery/indefinite-quantity (ID/IQ) contracts and, depending
on the award scenario, discussed below, the award or awards will be for a
contract period of either 4 or 6 years. Specifically, the RFP provides for
the manufacture of three distinct types of currency paper, with varying
security features: (1) type I paper, which utilizes distinctive fibers as
its security feature and is used for printing $1 and $2 notes; (2) type
III, which is for printing new currency design 1996 series $5 and $100
notes with security features consisting of a watermark, embedded
denomination specific thread, and distinctive fibers; and (3) type IV,
which is for printing 2004 series $10, $20, $50 and $100 notes, and
provides for the same security features as found in type III paper.
Contracting Officer's Statement at 1.
Section B of the RFP provides for seven different potential award
scenarios, and depending on the award scenario selected, can result in a
contract for a period of either 4 or 6 years. Scenarios I and II are
limited to manufacturing the BEP's currency paper requirements for program
years 1 through 4, with a total contract period of 4 years. Scenarios III
through VII, in contrast, provide for a 24-month mobilization period
during program years 1 and 2, followed by a 4-year manufacturing period
during program years 3 through 6, with a total contract period of 6 years.
RFP at 2. These scenarios would allow firms without the current ability to
meet the agency's immediate need for paper in years 1 and 2, to "gear up"
for production during the 24-month mobilization period. Id. All award
scenarios other than award scenario I provide for split awards of the
currency paper requirements between two separate lots to two separate
offerors. The RFP explains that if the government makes a single award, it
will be made under award scenario I, consisting of lot 1 only, and that if
the government elects to make "an award to two separate offerors", only
one of the award scenarios (illustrated in the table below) will be
awarded. Id. The RFP further indicates that "[i]f an offeror proposes on
Scenario I, Lot 1, in order for the proposal to be considered, the offeror
must propose on all award scenarios." Id.
In its report on the protest, the BEP sets forth the following table
illustrating the various award scenarios:
+------------------------------------------------------------------------+
|Scenario|Lot|Type I| Type | Type |Type I| Type | Type |Type |Type |Type |
| | | | III | IV | | III | IV | I | III | IV |
|--------+---+--------------------+--------------------+-----------------|
| | |Program Years 1 and |Program Years 3 and | Program Years 5 |
| | | 2 | 4 | and 6 |
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
| I | 1 | A-100% | A-100% | A-100% | A-100% | A-100% | A-100% | | | |
|----+----+--------+--------+--------+--------+--------+--------+--+--+--|
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
|II |2 | A-30% year 1 |A-100% |A-100% | |A-100%|A-100%||||
|---+--+-------------------------+-------+-------+------+------+------+++|
| |3 |B-70% year 1/ 100% year 2| | |B-100%| | ||||
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
| III | 4 | A-100% | A-100% | A-100% | A-70% | A-100% |A-100% | | | |
|-----+---+--------------------------+-------+--------+-------+------+-+-|
| | 5 | mobilization period | B-30% | | |B-30% | | |
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
| IV | 6 | A-100% | A-100% | A-100% | A-50% | A-100% |A-100% | | | |
|----+---+--------------------------+-------+--------+-------+-------+-+-|
| | 7 | mobilization period | B-50% | | |B-100% | | |
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
| V | 8 | A-100% | A-100% | A-100% | | A-100% |A-100% | | | |
|---+---+--------------------------+--------+--------+-------+-------+-+-|
| | 9 | mobilization period | B-100% | | |B-100% | | |
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
|VI |10 |A-100% |A-100% |A-100% | | |A-100% | | ||
|---+---+-----------------------+-------+-------+-------+-------+-------+|
| |11 | mobilization period |B-100% |B-100% | |B-100% |B-100% ||
+------------------------------------------------------------------------+
+------------------------------------------------------------------------+
|VII|12|A-100%|A-100%|A-100%|A-50%|A-100%| A-100% | || |
| | | | | | | | ($10/$50) | || |
|---+--+--------------------+-----+------+-------------+-----++----------|
| |13|mobilization period |B-50%| |B-100% ($20) |B-50%|| B-100% |
| | | | | | | || ($20) |
+------------------------------------------------------------------------+
Contracting Officer's Second Statement at 2.[2]
As noted above, the mobilization periods are designed to allow firms
unable to start production in years 1 and 2 an opportunity to compete. In
addition, the mobilization periods provide offerors with time within which
to satisfy any required "first article" testing requirements. In this
regard, the RFP requires offerors to submit a 100,000-sheet material
sample for each type of paper included in their proposal. While
"identical" samples are preferred, the RFP allows firms to submit a
"representative" sample, which is defined as "a material sample produced
at an alternate facility using the same or similar equipment as a proposed
facility and does not contain distinctive security features." RFP at 74.
If award is made to a firm submitting a representative sample, the RFP
provides that the awardee will be required to submit first article
material samples for government approval prior to the placement of
delivery orders. According to the RFP, the first article samples must
conform to the requirements set forth in the specifications and must be
produced at the same facility and on the same equipment as production
material in performance of the contract; however, the RFP expressly states
that first articles "are not part of the production quantity." RFP at 43.
Under the first article approval clause set forth in the RFP, an awardee
with a first article requirement must deliver for government approval at
least 200,000 sheets of each paper type for which representative samples
were submitted during the proposal evaluation phase within 730 calendar
days (24 months) from the date of contract award--the length of the
mobilization period under lots 5, 7, 9, 11, or 13. RFP at 53. If the first
article samples are not approved, or the contractor fails to deliver any
first article on time, the contractor shall be deemed to have failed to
make delivery within the meaning of the default clause of the contract.
Id. Moreover, the RFP explains that if a contractor has a 24-month
mobilization period and the first article is approved prior to the end of
its mobilization period, delivery orders will not be issued until the end
of the full mobilization period--the beginning of program year 3. RFP at
43. Further reinforcing the 4-year ordering period limitation, the RFP
expressly provides that "[t]he total contract ordering/ manufacturing
period for any contract award shall not exceed four years." RFP at 2.
However, if the first article is approved, a contractor "[m]ay deliver the
approved first article as a part of the contract quantity, provided it
meets all contract requirements for acceptance and was not consumed or
destroyed in testing." RFP at 54.
ANALYSIS
At the outset, we recognize that this protest arises as a direct result of
the BEP's effort to increase competition for its purchase of currency
paper.[3] Contracting Officer's Statement at 1. For more than 125 years
the United States has purchased virtually all of its paper for printing
currency from a single supplier, Crane.[4] In an effort to reduce barriers
to competition for the procurement of currency paper, the BEP issued the
subject solicitation to allow for the award of a contract with a 2-year
mobilization period in addition to a 4-year ordering period, potentially
resulting in the award of a 6-year contract.[5]
Crane asserts that, that no matter how well intentioned, the BEP's
approach to increasing competition by allowing for the award of a 6-year
contract under Lots 5, 7, 9, 11, or 13, is in direct violation of 31
U.S.C. sect. 5114(c), which, in relevant part, states as follows: "The
Secretary [of Treasury] may make a contract for a period of not more than
4 years to manufacture distinctive paper for United States currency and
securities." [6] (Emphasis added.) Crane further contends that the RFP
unfairly discriminates against Crane in two respects. First, the RFP
unfairly requires Crane to propose for all award scenarios, while
permitting other offerors to pick and choose among the various award
scenarios and lots. Protest at 14. Second, the RFP limits Crane to a
4-year contract, while extending to other offerors the possibility of
receiving a 6-year contract. Protest at 15.
The principal issue in this case concerns a matter of statutory
interpretation, specifically, whether the RFP, which provides for the
award of a 6-year contract, violates 31 U.S.C. sect. 5114(c).[7] It is
well established that "when the statute's language is plain, the sole
function of the courts--at least where the disposition required by the
text is not absurd--is to enforce it according to its terms." Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 147 L.
Ed. 2d 1, 120 S. Ct. 1942 (2000). See Caminetti v. United States, 242 U.S.
470, 485 (1917) ("Where the language is plain and admits of no more than
one meaning, the duty of interpretation does not arise, and the rules
which are to aid doubtful meanings need no discussion."). We believe that
the plain language of section 5114(c) resolves the protest here.
The relevant portion of section 5114(c) expressly provides that the BEP
may enter into a contract "for a period of not more than four years" for
the manufacture of currency paper. The RFP provides for the award of a
currency paper contract with a total period of 6 years. The BEP argues
that while the RFP allows for the award of contract for a period of 6
years, such an award does not violate section 5114(c) because the
manufacturing period of such a contract would be limited to 4 years, and
that the additional 2 years are merely a mobilization period, rather than
a manufacturing period. The agency's argument, however, does not comport
with the limiting language of section 5114(c), which modifies the length
of the contract period, not the period of any specific activity under the
contract. The phrase in section 5114(c)--"to manufacture distinctive paper
for United States currency and securities"--simply describes the type of
contract whose term is limited to a 4-year period.
Moreover, we note that contrary to suggestions by the BEP, during an
applicable mobilization period, the awardee will likely be engaged in the
manufacture of currency paper. Specifically, the contractor would be
manufacturing specific quantities of currency paper (200,000 sheets) to
the extent it is required to pass first article testing requirements for
types I, III, or IV paper. The conclusion that contractors are engaged in
manufacturing currency paper during the mobilization period is further
supported by the fact that the RFP permits a contractor to use paper
produced during the mobilization phase for first article approval to
satisfy government orders during the ordering phase of the contract,
provided that the paper meets required specifications and has not been
destroyed during testing. RFP at 54.
The BEP alternatively argues that the 4-year limitation in section 5114(c)
does not apply to its purchase of currency paper because it is purchasing
the currency paper using "no-year" funds under the agency's revolving fund
appropriation established by 31 U.S.C. sect. 5142 (2000). Agency Report at
4. In reaching this conclusion the BEP argues that section 5114(c) must be
understood in light of the agency's funding at the time of enactment. When
Congress enacted section 5114(c) in 1916, the agency was funded by annual
appropriations, and, absent specific authority to enter into multiyear
contracts, it was unable to enter into contracts for requirements in
excess of one fiscal year.[8] According to the agency, the effect of
section 5114(c) thus was to authorize the agency to enter into multiyear
contracts for the purchase of currency paper (albeit limiting the period
of such contracts to 4 years), notwithstanding the fact that the agency at
the time was funded by annual appropriations.
In 1951, however, Congress enacted the provision now codified at 31 U.S.C.
sect. 5142, which created the Bureau and Printing Fund--a "revolving
fund"--with the result that the BEP's funds were now to be available
without fiscal year limitation.[9] According to the BEP, by creating a
revolving fund with funds available without fiscal year limitation, the
effect of section 5142 was to relieve the BEP from the restrictions tied
to annual appropriations--including the general prohibition against
multiyear contracting absent specific authority.[10] Thus, the BEP argues,
enactment of section 5142, as a practical matter, obviated the need for
the specific multiyear contract authority set forth in section 5114(c) to
enter into multiyear currency paper contracts.[11] Consequently, according
to the BEP, section 5114(c) would only apply if Congress were to: "(a)
create an annual appropriation for distinctive currency paper, and (b)
require BEP to finance its acquisition of distinctive currency paper with
that one-year appropriation." Agency Report at 5.
In our view, the agency's position, that the application of section
5114(c) is limited solely to those circumstances where the agency is using
annual funds, is inconsistent with the plain language of the statute.
Section 5114(c) states that the BEP may enter into "a contract for a
period of not more than four years" and is silent as to the type of funds
to which it applies. Nowhere else, whether in section 5142 or any other
statute, has Congress indicated that the plain words of section 5114(c)
are limited by implication or otherwise.[12] See Sturges v. Crowninshield,
17 U.S. 122, 202, 4 Wheat. 122, 4 L. Ed. 529 (1819) ("It would be
dangerous in the extreme to infer from extrinsic circumstances that a case
for which the words of an instrument expressly provide, shall be exempted
from its operation"). Thus, there is no valid basis to infer from either
section 5114(c) or section 5142 that Congress meant to limit the
applicability of the 4-year contract period limitation for distinctive
currency paper to situations where the agency uses annual appropriations
to fund the contract.
In sum, we conclude that the solicitation is inconsistent with 31 U.S.C.
sect. 5114(c) to the extent that it contemplates the award of contracts
for a period of more than 4 years.[13]
As a final matter, we address the agency's contention that Crane has
failed to establish prejudice as a consequence of the solicitation defect.
According to the BEP, the only harm suffered by Crane as a result of
allowing for the award of a 6-year contract is the possibility of
increased competition, which does not constitute the type of prejudice
necessary to sustain a protest.
Prejudice is an essential element of any viable protest and even where the
record establishes a procurement deficiency, we will sustain a protest on
this basis only where it results in competitive prejudice to the
protester. See Johnson Controls World Servs., Inc., B-285144, July 6,
2000, 2000 CPD para. 108 at 3; Hughes Missile Sys. Co., B-272418 et al.,
Oct. 30, 1996, 96-2 CPD para. 221 at 14; A-1 Postage Meters and Shipping
Sys., B-266219, Feb. 7, 1996, 96-1 CPD para. 47 at 4. Here, Crane
affirmatively maintains that it "is not concerned at all with how many
bidders pursue this RFP." Crane's Submission on Prejudice at 3.[14]
Rather, Crane argues, in part, that by providing for the award of a
contract with a 2-year mobilization period under lots 5, 7, 9, 11, and
13--and thereby providing for the award of a contract with a 6-year term
in violation of 31 U.S.C. sect. 5114(c)--Crane is placed at a competitive
disadvantage in competing for these lots vis-`a-vis firms that actually
require a mobilization period. Crane maintains that because the assets and
facilities necessary to produce currency paper are highly specialized and
cannot be redeployed to other markets or products, and because, as the
incumbent contractor, Crane has already invested in the necessary assets
for the manufacture of currency paper, its normal pricing would be
increased as a result of considering the cost of maintaining this
specialized equipment and operations idle during the mobilization period;
Crane does not need a mobilization period and the RFP expressly would
preclude the BEP from placing orders under the contract in advance of the
expiration of the mobilization period.[15] We conclude that the harm
articulated by Crane presents a sufficient showing of prejudice in the
context of its allegation that the terms of the solicitation are in
violation of the express statutory provision limiting currency contracts
to periods of not more than 4 year.
RECOMMENDATION
We recommend that the agency amend the solicitation in a manner that is
consistent with 31 U.S.C. sect. 5114(c). We also recommend that the agency
reimburse the protester's reasonable costs of filing and pursuing the
protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1)
(2005). The protester should submit its certified claim for costs,
detailing the time expended and costs incurred, directly to the
contracting agency within 60 days after the receipt of this decision. 4
C.F.R. sect. 21.8(f)(1).
The protest is sustained.
Anthony H. Gamboa
General Counsel
------------------------
[1] Crane withdrew several other grounds of protest based on changes to
the solicitation implemented by the BEP.
[2] In amendment 5 to the RFP, dated January 13, 2006, the agency added a
requirement for "Type V" paper for the "Next Generation" $100 note, for
100 percent of the agency's requirement for years 1-4. Agency Letter of
Jan. 13, 2006, at 1. This change to the solicitation is not at issue in
the protest and has no bearing on the outcome. In addition, the table
submitted by the agency has been updated in part to reflect changes in
award scenarios II and VII caused by amendment 5.
[3] The Government Accountability Office (GAO) has addressed the BEP's
efforts to obtain competition for currency paper in two reports: (1)
Currency Paper Procurement: Competition Unlikely Under Current Conditions
(GAO/GGD-98-181, Aug. 28, 1998) (henceforth "1998 Report"); and Currency
Paper Procurement: Additional Analysis Would Help Determine Whether a
Second Supplier Is Necessary (GAO-05-368, Apr. 29, 2005) (henceforth "2005
Report").
[4] See Protest at 3 and Agency's 2nd Report at 1. See also 2005 Report at
1.
[5] It appears that in providing for a 6-year contract period, which
includes a 2-year mobilization period, the BEP was seeking to address
specific barriers to competition identified in the 1998 GAO report cited
above. In that report, GAO noted that, according to some paper
manufacturers, a 4-year contract length for currency paper is insufficient
to recover necessary capital investment and that the start-up periods set
forth in prior BEP currency paper contracts (which were substantially less
than 2 years) were too short. See 1998 Report at 9, 22, 27, 28-29, 32,
45-46.
[6] As originally enacted, the statute read as follows: "The Secretary of
the Treasury is authorized, in his discretion, to enter into a contract
for the manufacture of distinctive paper for a period not to exceed four
years." Act of July 1, 1916, ch. 209, 39 Stat. 277.
[7] In light of our decision sustaining the protest on this ground, we
need not address the remaining issues raised by Crane.
[8] Because multiyear contracts cover requirements or needs of more than
one fiscal year, an agency may engage in multiyear contracting only where
the agency has (1) no-year funds or multiple-year funds covering the
entire term of the contract or (2) specific authority. Cray Research, Inc.
v. United States, 44 Fed. Cl. 327, 332 (1999); 67 Comp. Gen. 190, 192
(1988); B-171277, Apr. 2, 1971 (multiyear contract permissible under
no-year trust fund). An agency may enter into a multiyear contract with
fiscal year appropriations (or for a term exceeding the period of
availability of a multiple year appropriation) only if it has specific
statutory authority to do so. See 71 Comp. Gen. 428, 430 (1992); B-259274,
May 22, 1996.
[9] The legislative history of the fund indicates that it was intended to
provide "a revolving fund method of financing the operations of the [BEP],
placing all operations of the Bureau on a completely reimbursable basis."
H.R. Rep. No. 81-2541 (July 13, 1950). Absent statutory authority to the
contrary, all funds received for use of the United States must be
deposited into the Treasury as miscellaneous receipts. 31 U.S.C. sect.
3302(b). An exception to this requirement is a revolving fund, created by
statute, under which receipts may be credited directly to the fund and are
available, without further appropriation by Congress, for expenditures to
carry out the purposes of the fund. See 69 Comp. Gen. 260, 262 (1990); see
also GAO, Principles of Federal Appropriations Law, vol. 1, 3rd ed.,
GAO-04-261SP at 2-17 (Washington, D.C.: Jan. 2004). Moreover, 31 U.S.C.
sect. 5142(a)(2) affirmatively states that the amounts in the fund "remain
available until expended," thus clearly indicating that the funds remain
available for obligation for an indefinite period, without fiscal year
limitation--a "No-year appropriation." See GAO, Principles of Federal
Appropriations Law, vol. 1, 3rd ed., supra, at 2-14.
[10] As explained in note 8, supra, because multiyear contracts cover
requirements or needs of more than one fiscal year, an agency may engage
in multiyear contracting only where the agency has no-year funds or
multiple-year funds covering the entire term of the contract, or specific
authority.
[11] In support of its argument, the agency cites a GAO appropriations law
decision, Bureau of Customs and Border Protection-Automated Commercial
Enviromental Contract, B-302358 (Dec. 27, 2004), for the proposition that
because the agency is not relying on the authority of section 5114(c) to
conduct the procurement, it is not bound by the statute's 4-year
limitation. The decision in Bureau of Customs and Border Protection,
however, is inapposite. In that case, the principle issue was whether a
contract issued by the agency was an ID/IQ contract or a multiyear
contract for the purpose of determining the correct amount to record as
the agency's obligation under the contract. It did not address the
question of whether specific statutory authority defining the reach of an
agency's contractual authority can be limited by implication, as suggested
by the agency.
[12] We also note that there is no legislative history in connection with
the enactment of the provisions set forth in 5114(c).
[13] We recognize that the effect of the statutory language may be
anticompetitive, but, as explained in our decision, we have no choice but
to follow the plain language of the statute. Our understanding of the
statute's impact here is consistent with GAO's reports, which have noted
the anticompetitive effect of the statute. Thus, in the 1998 report, GAO
advised Congress that it "may wish to consider lengthening the 4-year
limit" provided by 31 U.S.C. sect. 5114(c) in order "[t]o assist the
Secretary in obtaining competition from domestic sources." 1998 Report at
9, 48. GAO's 2005 report similarly advises Congress that the 4-year limit
on the length of currency paper contracts set forth in 31 U.S.C. sect.
5114(c), a "barrier[] to competition," is a "legislative provision[ ] that
would require congressional action to change." 2005 Report at 9-10.
[14] At the request of our Office, Crane further addressed the question of
its prejudice in connection with the allegation that the solicitation
violates 31 U.S.C. sect. 5114(c).
[15] The agency suggests that Crane's facilities would not remain idle if
the BEP were to award Crane a mobilization lot because the agency would be
forced to issue Crane a sole-source contract for the first 2 production
years, given that the agency does not expect any firm other than Crane to
submit an offer on a lot for the first 2 years of production. See Second
Agency Report at 12. The agency's contention is premised on an assumption
about the result of a competition which has yet to occur and is therefore
speculative, particularly in light of a solicitation which on its face
seeks full and open competition for all award scenarios and lots.