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.