TITLE: B-298327, Praxair Inc., August 24, 2006
BNUMBER: B-298327
DATE: August 24, 2006
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B-298327, Praxair Inc., August 24, 2006

   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: Praxair Inc.

   File: B-298327

   Date: August 24, 2006

   Mark D. Colley, Esq., and David J. Craig, Esq., Holland & Knight LLP, for
   the protester.

   Robert J. Symon, Esq., and Douglas L. Patin, Esq., Bradley Arant Rose &
   White LLP, for Air Products and Chemicals, Inc., an intervenor.

   Vincent A. Salgado, Esq., and Michael I. Mark, Esq., National Aeronautics
   & Space Administration, for the agency.

   Charles W. Morrow, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest by agency's current supplier of liquid nitrogen (LN[2]) that
   agency's solicitation requesting proposals to construct a
   government-owned, contractor-operated plant to meet the agency's LN[2]
   requirements without considering as part of the procurement proposals for
   continuing to obtain LN[2] from the supplier or purchasing the supplier's
   facility, is denied, where the record establishes that the agency
   reasonably concluded that building a government source of LN[2] was
   necessary to meet its minimum needs.

   DECISION

   Praxair, Inc. protests the terms of request for proposals (RFP) No.
   NNL06153354R, issued by the National Aeronautics and Space Administration
   (NASA), Langley Research Center (LaRC), Hampton, Virginia, for building a
   government-owned, contractor-operated liquid nitrogen (LN[2]) plant.
   Praxair contends that NASA's decision to only solicit proposals for
   building a government-owned, contractor operated facility to produce
   LN[2], instead of also considering proposals for purchasing LN[2] from
   commercial sources, unduly restricts competition.

   We deny the protest.

   This RFP, issued May 3, 2006, is NASA's second effort to solicit proposals
   to build a government-owned, contractor-operated facility to produce an
   independent source of LN[2] for the National Transonic Facility (NTF)
   operated by LaRC. The NTF is a closed-circuit, fan-driven, pressurized
   wind tunnel operated by LaRC that utilizes LN[2] to test transonic
   aerodynamic flow. It is the only cryogenic wind tunnel in the United
   States and is utilized by NASA, the Department of Defense, and the
   aerodynamics industry to conduct aerodynamic research on scale model
   aircraft designs.

   Since 1984, to support the NTF's mission, NASA has acquired LN[2] via a
   pipeline from Praxair (and its predecessors), which operates an LN[2]
   plant near LaRC, under a sole-source requirements contract. The NTF
   requires large quantities of LN[2] over short periods in order to obtain
   high-fidelity data, but there are long stretches of time where no LN[2 ]is
   needed, because the actual tests using large quantities of LN[2] at the
   NTF are intermittent. Because of this, NASA has paid a premium to Praxair
   for LN[2] to support the NTF. Specifically, the current contract with
   Praxair costs NASA a weighted average price of $81 per ton (down from the
   previous contract price of $112 per ton).[1] After undertaking various
   studies to determine the feasibility of creating its own source of LN[2],
   NASA determined that it could potentially reduce its cost for LN[2] to
   [DELETED] per ton, and make its testing more affordable and available to a
   wider range of customers, if it built and operated its own source of
   LN[2]. See Kenco Ass'n, Inc.; Air Prod. and Chem., Inc., B-297503,
   B-297503.2, Jan. 25, 2006, 2006 CPD para. 24 at 2.

   NASA issued an RFP to construct a government-owned, contractor-operated
   LN[2] production facility in September 2005. However, based on numerous
   internal communications as well as discussions with Congressional
   representatives, NASA canceled the first RFP in October 2005 because of
   concerns regarding the feasibility of the project, and to consider and to
   resolve questions regarding its LN[2] requirements that were not
   considered at the time the agency issued the RFP.[2] The current RFP was
   issued after NASA undertook further study to determine the feasibility and
   scope of this project.

   This RFP solicited fixed-price proposals for constructing an LN[2] plant
   on government-provided land near LaRC. The RFP requires the contractor to
   "provide a `Turnkey' project; providing all materials, labor, and
   resources to: engineer, design, procure, fabricate, inspect, test,
   deliver, install, commission, train[,] document, and demonstrate
   performance of an LN[2] plant that meets the requirements set forth in
   this statement of work."[3] RFP Statement of Work para. 1.2.2.1.

   In its protest, Praxair essentially contends that the solicitation unduly
   restricts competition because it does not allow Praxair to submit a
   proposal offering to meet the agency's requirements for LN[2] under a
   supply contract or by selling the government its existing facility, so
   that the agency assertedly does not have a proper basis to determine which
   approach best satisfies the government's needs for a supply of LN[2].

   While a contracting agency has the discretion to determine its needs and
   the best method to accommodate them, Mark Dunning Indus., Inc., B-289378,
   Feb. 27, 2002, 2002 CPD para. 46 at 3-4; Parcel 47C LLC, B-286324;
   B-286324.2, Dec. 26, 2000, 2001 CPD para. 44 at 7, those needs must be
   specified in a manner designed to achieve full and open competition;
   solicitations may include restrictive requirements only to the extent they
   are necessary to satisfy the agency's legitimate needs. 10 U.S.C.
   sections 2305(a)(1)(A)(i), (B)(ii) (2000). Where a protester challenges a
   specification as unduly restrictive, the procuring agency has the
   responsibility of establishing that the specification is reasonably
   necessary to meet its needs. The adequacy of the agency's justification is
   ascertained through examining whether the agency's explanation is
   reasonable, that is, whether the explanation can withstand logical
   scrutiny. Chadwick-Helmuth Co., Inc., B-279621.2, Aug. 17, 1998, 98-2 CPD
   para. 44 at 3. A protester's mere disagreement with the agency's judgment
   concerning the agency's needs and how to accommodate them does not show
   that the agency's judgment is unreasonable. See Dynamic Access Sys.,
   B-295356, Feb. 8, 2005, 2005 CPD para. 34 at 4.

   As noted above, this RFP culminated from various studies and market
   research undertaken by NASA since 1992 specifically to determine how to
   reduce the high costs associated with acquiring LN[2] from Praxair (and
   its predecessors), which were passed on to the customers of the facility,
   and to consider how to improve the productivity of the NTF wind tunnel.
   These high costs and the lack of optimum productivity were found to
   threaten the long term economic viability of the NTF because they
   inhibited customers' use of the wind tunnel. The studies all found that
   NASA could potentially reduce the cost of operating the NTF and improve
   its productivity by building a government-owned LN[2] plant on site. See
   Agency Report, Tab Nos. 8, 9-15, 17, 19, 20, 21, 62, and 77.

   Specifically, based on these studies, NASA estimated that it could obtain
   LN[2] as low as [DELETED] per ton if it built its own facility, as opposed
   to the approximately $100 per ton rate historically charged by Praxair and
   its predecessors. This would make the facility far more economical to
   customers of the facility.

   NASA also concluded based on these studies that a government-owned LN[2]
   production facility should have a production output of 370 tons per day
   during testing, which is a significantly higher level than the 262 tons
   per day Praxair has been providing under its contract. NASA found that
   this increased daily LN[2] production would increase the productivity of
   the NTF wind tunnel. NASA explains that the projected future use of LN[2]
   would continue in the 50,000 tons per year range, but that the increased
   LN[2] production output during testing would allow the current 3-week
   cryogenic test cycle time necessitated by the current LN[2] supply
   arrangement with Praxair to be reduced to 2 weeks, which would double the
   number of test days available for the facility and thus increase its
   productivity.[4] This increased production level would allow tests to be
   more efficiently conducted because there would be fewer interruptions and
   downtime because of the need to refill the storage tanks, which would
   optimize "the multimode testing for models requiring air and cryogenic
   tests without changing calibration baselines and lost time due to changing
   the model," and allow the facility to be run on a "nearly continuous
   basis." See Contracting Officer's Statement at 25; Agency Report, Tab 20,
   National Institute of Aerospace Report (Apr. 2005).

   The agency found that customers would gain from the reduced overall test
   costs, resulting from both lower LN[2] costs and more efficient testing
   procedures, and that the agency would gain from more productivity, since
   more customers could be attracted/accommodated, which would result in a
   reduction of the overall cost of the program because the cost of the
   facility can be distributed over a wider base.

   In addition, the agency advises that its market research established that
   other firms were unwilling to compete to supply LN[2] to NASA under a
   supply contract because of the competitive advantages enjoyed by Praxair
   due to its close proximity to the NTF facility and the unavailability of
   privately owned land on which a competing facility could be built. In
   fact, Praxair's contract to provide LN[2] has necessarily been on a
   sole-source basis. The agency also reports a recent case where the needs
   of the agency were not completely met, since Praxair was unwilling to
   furnish LN[2] at the level needed to meet the needs of a customer above
   the maximum order limitation under its contract, except at a cost of
   [DELETED] per ton, which caused the customer to curtail some of its tests
   and extend its test cycle.[5] See Contracting Officer's Statement at 8-9,
   23.

   In sum, based on these studies and after coordinating the decision with
   the Office of Management and Budget, NASA determined that its minimum
   needs were for a government-owned, contractor-operated LN[2] production
   facility located near the LaRC that was capable of producing an estimated
   50,000 tons of LN[2] per year and 370 tons of LN[2] per day during
   testing. NASA reasonably found that it needed such a facility to allow the
   NTF to be more viable, cost-effective, and productive.

   While Praxair challenges the validity (alleging various erroneous facts
   and/or assumptions) and objectivity of the various studies that NASA
   relied upon to determine that building a government-owned facility was
   necessary to satisfy its requirements, we find these studies reasonably
   support NASA's decision to build its own plant and the asserted flaws in
   these studies are not such as to render NASA's exercise of its discretion
   in this regard unreasonable. See Dynamic Access Sys., supra, at 5-6
   (agency's failure to consider an alternative pointed out in the protest in
   its study, on which basis it determined its minimum needs, does not
   invalidate the agency's determination). Indeed, in our view, the record
   demonstrates that NASA reasonably determined that producing its own source
   of LN[2] was the best method to ensure that it would have more control
   over its LN[2] costs, and that a plant built according to its
   specifications would increase the productivity and viability of the NTF
   wind tunnel. Under the supply contract approach of satisfying its LN[2]
   requirements, which has been based on a sole-source contract with Praxair
   with no evidence of possible competition from other suppliers, the agency
   has had to pay a premium for the LN[2], NASA's NTF needs have not always
   been met, and this arrangement has not allowed for the optimum utilization
   of the NTF wind tunnel.

   Praxair argues that the agency did not appreciate the capabilities of
   Praxair's facility to meet the government's requirements, asserting that
   its facility is capable of meeting the government's requirement of
   producing 370 tons per day of LN[2] or more with [DELETED] particularly if
   [DELETED] at its facility are used. Praxair also asserts that it was
   unfair for the agency to consider in its analyses the short-term pricing
   with no guaranteed minimum contained in Praxair's contract, or to
   completely discount the possibility of a long-term supply arrangement with
   Praxair.[6] Praxair also points out that the government's studies never
   considered the possibility of purchasing the Praxair plant rather than its
   current approach, and states that it is willing to offer lower prices to
   compete with NASA's government-owned plant approach to meeting its LN[2]
   requirements.[7] Praxair argues that by restricting the competition to
   preclude a supply alternative the agency will miss the opportunity to
   benefit from the pressures of competition on both Praxair and other
   potential offerors.

   On February 27, 2006, prior to releasing this RFP, the agency issued a
   "sources sought" notice requesting industry, including Praxair, to provide
   information on the best approach to meet its proposed LN[2] requirements
   to include a supply system of 370 tons per day that can be provided for 10
   2-week cycles. In response, Praxair did not propose to [DELETED],[8] nor
   did it reveal that it was willing to provide LN[2] at the terms it now
   proposes in this protest. While Praxair asserts that it was limited by the
   terms of the sources sought notice from making such offers, we find no
   limitation in this notice soliciting information "from industry regarding
   potential sources and alternatives [to satisfying the agency's requirement
   for a facility to] deliver at least 370 tons of LN[2] per day." Agency
   Report, Tab 66, Sources Sought Notice. Moreover, Praxair's response to
   this notice only indicated a capacity of providing 262 tons of LN[2] per
   day under its contract and did not indicate a willingness or capability to
   provide 370 tons of LN[2] per day, except by [DELETED].[9]

   Given the purpose of the sources sought notice and Praxair's desire to
   continue to provide LN[2] for the NTF facility, we find Praxair's failure
   to explain its willingness and capability of satisfying the 370 ton
   requirements in its response could reasonably lead to the inference that
   Praxair was unable or unwilling to meet this requirement. While Praxair
   contends that it otherwise apprised NASA of its capabilities or that NASA
   should have more thoroughly considered its facility's capabilities, we
   find no basis to find unreasonable the agency's decision to solicit
   proposals only for a government-owned, contractor-operated facility based
   upon the studies it made that indicated this was needed to satisfy its NTF
   requirements. As indicated above, it is within the contracting agency's
   discretion to determine its needs and the best method of accommodating
   them, and an agency does not have to consider every possible alternative
   (particularly when they have not been presented except in this protest)
   when it determines its minimum needs, so long as the record otherwise
   shows that it has a reasonable basis for its determination. See Dynamic
   Access Sys., supra, at 3-6.

   Based on this record, which reasonably shows that NASA reasonably
   determined that its actual requirements were for the construction of an
   LN[2,] production facility, we find that Praxair has not shown that the
   RFP's failure to consider Praxair's proposed alternatives unduly
   restricted competition.[10] In fact, as pointed out by the agency, Praxair
   is in the business of building LN[2] plants, and Praxair has stated that
   it could make an offer here (although Praxair asserts that this offer
   might not be competitive because it would be forced to close its current
   plant and might include these costs in its proposal).

   The protest is denied.

   Gary L. Kepplinger

   General Counsel

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

   [1] Historically, the prices have exceeded $100 per ton.

   [2] To this effect, NASA decided to reassess/update the technical
   requirements for LN[2] for the NTF, including estimating LN[2 ]needs for
   the long term, 15 years; the impact of a new third LN[2] storage tank; the
   possibility of trucking LN[2]; the possibility of offering a site near the
   NTF on LaRC property for the construction and commercial operation of a
   new LN[2] plant; and the impacts of all the scenarios on the LN[2]
   facility operations costs and the NTF capacity. See Kenco Ass'n, Inc.; Air
   Prod. and Chem., Inc., supra, at 3.

   [3] The previous RFP not only requested proposals to design and construct
   an LN[2] production facility, but also provided for the operation of this
   facility by the contractor which constructed the facility. The current RFP
   was limited to the design, construction and commissioning of the facility.
   The record indicates that NASA plans to have another contractor operate
   the facility after being trained by the contractor who designed and built
   the plant.

   [4] The test cycle for cryogenic testing is defined by the combination of
   a fixed number of test days and fixed number of storage refill days. As
   the LN[2] production rate increases, the time needed for LN[2] storage
   refill decreases. Contracting Officer's Statement at 25.

   [5] While Praxair asserts that it has always met its contract requirements
   but at times NASA has requested far more LN[2] than Praxair was
   contractually obligated to provide, and that its facility can satisfy all
   the operational requirements that the newly constructed facility will
   provide, the fact is that NASA needs to increase the future productivity
   and cost effectiveness of the NTF and has been unable to optimally and
   economically satisfy its operational requirements under Praxair's
   sole-source supply contract. We need not resolve whether this problem was
   Praxair's or NASA's fault, given the enhanced operational requirements for
   the newly constructed facility.

   [6] With respect to the high costs associated with its supply contract,
   Praxair argues that NASA is partly to blame because its high prices have
   been a direct consequence of NASA's refusal to make a long term or
   volumetric purchase commitment. In addition, Praxair maintains that its
   prices to NASA have been in line with what it charges its other commercial
   customers for the LN[2].

   [7] In a sworn statement, Praxair advises that in order to compete with
   the prospect of NASA taking over LN[2] production, it is prepared to
   offer:

     [DELETED] /ton for 370 TPD [tons per day] or [DELETED] TPY [tons per
     year], with no volume commitment.

     [DELETED] /ton for 370 TPD or [DELETED] TPY, with an annual [DELETED]
     ton minimum take-or-pay commitment.

     Tiered Pricing of [DELETED]/ton for [DELETED] tons and [DELETED] /ton
     for [DELETED] tons, for 370 TPD or [DELETED] TPY, with an annual
     [DELETED] tons minimum take-or-pay commitment.

     [DELETED]

   See Protester's Comments at 12.

   [8] There were apparently several prior informal inquiries from Praxair as
   to whether NASA would be interested in purchasing the facility. NASA
   reports that because of the age and limitations of Praxair's facility, as
   compared to constructing a current state of the art facility, it does not
   believe this option is viable.

   [9] Based on its studies, NASA considered the option of adding storage to
   meet its NTF mission needs and rejected it. While Praxair contends that
   NASA's consideration of this option was not reasonable, NASA has provided
   cogent reasons why adding storage is a less desirable option than
   providing a higher daily rate of providing LN[2] for testing. NASA
   explains, "What appears to be short-term gain in product volume eventually
   requires a sacrificially long refill time." In addition, NASA found that
   increased storage only increases LN[2] unit costs, increases "boil-off
   losses of cryogenic liquid," and raises additional safety and security
   concerns. Contracting Officer's Statement at 26-28.

   [10] Praxair argues that since LN[2] is a commercial item, the agency was
   required to comply with the requirements applicable to the acquisition of
   commercial items before issuing this RFP. However, contrary to Praxair's
   arguments, this procurement is for the construction of a government-owned,
   contractor-operated facility that will manufacture LN[2] and does not
   provide for the supply of LN[2,], and therefore does not involve the
   acquisition of a commercial item. See Federal Acquisition Regulation sect.
   2.101(b).