TITLE: B-298533, Celadon Laboratories, Inc., November 1, 2006
BNUMBER: B-298533
DATE: November 1, 2006
******************************************************
B-298533, Celadon Laboratories, Inc., November 1, 2006
Decision
Matter of: Celadon Laboratories, Inc.
File: B-298533
Date: November 1, 2006
Lawrence A. Kessner, Esq., for the protester.
Douglas Kornreich, Esq., Department of Health and Human Services, for the
agency.
Katherine I. Riback, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Agency failed to determine whether the evaluators of the protester's
proposal under a Small Business Innovation Research program solicitation
had a conflict of interest, where the evaluators were employed by firms
that promote a type of technology that assertedly is directly challenged
by the type of technology offered in the protester's proposal.
DECISION
Celadon Laboratories, Inc. protests the decision of the Department of
Health and Human Services (HHS) not to fund its phase I proposal under the
Small Business Innovation Research (SBIR) program solicitation No. PHS
2006-1. Celadon asserts that the agency failed to reasonably consider
conflicts of interest that it contends likely impaired the objectivity of
the four members of the Special Emphasis Panel (SEP), which evaluated its
proposal.
We sustain the protest.
The SBIR program is conducted pursuant to the Small Business Innovation
Development Act, 15 U.S.C. sect. 638 (2000), which requires certain
federal agencies to reserve a portion of their research and development
funds for awards to small businesses. Firms first apply for a 6-month
phase I award to test the scientific, technical, and commercial merit and
feasibility of a certain concept. If phase I is successful, the firm may
be invited to apply for a phase II award to further develop the concept.
After the completion of phase II, firms are expected to obtain funding
from the private sector and/or non-SBIR government sources to develop the
concept into a product for sale in the private sector and/or military
markets. See Small Business Administration's SBIR Website,
http://www.sba.gov/sbir/.
To commence the program, the agency issues an SBIR solicitation that sets
forth research and development topics and subtopics that emphasize the
need for proposals with advanced concepts to meet specific agency
requirements, which may be general or narrow in scope, depending on the
needs of the agency. The object of this phase I procurement is to obtain
and evaluate small business proposals under stated evaluation criteria to
determine which small businesses should receive phase I contracts. During
phase I, the agency will determine the scientific and technical merit and
feasibility of the proposed effort and the quality of performance of the
small business concern with a relatively small agency investment before
consideration of further federal support in phase II. SBIR Program Policy
Directive para. 4(a).
On August 4, 2005, HHS issued this solicitation which identified a number
of research topics for the National Institutes of Health (NIH) and the
Centers for Disease Control. One of the topics included in the
solicitation was Topic 216, Development of Inhibitory Reagents for the
Study of Protein Function, which was a research topic of interest
requested by the National Cancer Institute (NCI), a division of NIH. The
purpose of this topic was to solicit proposals from small business
concerns to encourage the development and commercialization of new
technology for the generation of small molecules and novel mechanisms to
modulate protein function within a cancer cell. Solicitation at 33.
Proposals submitted in response to this solicitation were to be evaluated
by an SEP. The SEP is an independent peer review panel, which evaluates
the proposals, determines which small business concerns should receive
phase I contracts and makes specific recommendations related to the scope,
direction and/or conduct of the proposed research. Solicitation at 18.
In this instance, the SEP, assembled by the NCI, consisted of three
members from private industry and one from academia. According to the
agency, in preparation for their work on the SEP, prospective members were
mailed a copy of NIH's rules, including those relating to conflicts of
interest. Prior to their first meeting, the four members provided to HHS a
signed NIH Pre-Review Certification Form, in which each member certified
that he/she did not have a conflict of interest with the firms that had
submitted proposals for review, including Celadon. Additionally, according
to the agency, conflicts of interest were addressed in the SEP orientation
conference and at the beginning of the first review meeting.
On April 8, 2006, the protester's chief executive officer expressed
concern to the agency about the composition of the SEP, asserting that
each of its members had a real conflict of interest that would likely bias
their review of Celadon's proposal.[1] Agency Report (AR), Tab 6, Letter
from Celadon to NCI (April 8, 2006). In this letter, and in an April 19
letter, Celadon identified with specificity why each of the SEP members
had what Celadon considered a real conflict of interest. Id.; AR, Tab 10,
Letter from Celadon to NCI (April 19, 2006). Basically, Celadon asserted
that all four of the SEP members work for, or are associated with, a
segment of the industry, specifically vendors that rely on siRNA
technology, a technology that Celadon, without rebuttal, asserts was
directly competitive with the technology it offered in its proposal,
specifically siLNA technology. Celadon provided supporting details for why
it considered each of these evaluators to have a real conflict of interest
because of their employers' commitment to, and reliance on, siRNA
technology. AR, Tab 10, Letter from Celadon to NCI (April 19, 2006).
By April 25, the SEP had completed its evaluation of Celadon's proposal
and found it to be technically unacceptable. In response to the concerns
that had been expressed by Celadon, the agency took the following
measures:
The Contracting Officer asked the Project Officer to review the proposal
and the minutes of the SEP and provide a recommendation as to whether
the minutes reflect an accurate assessment of the proposal. The Project
Officer's response concurred with the assessment of the SEP and [he]
felt the minutes accurately reflected both the strengths and weaknesses
of the proposal. The Contracting Officer reviewed the conflict of
interest certifications, the minutes of the SEP and the recommendation
of the Project Officer and concluded that, in his opinion, there was no
bias exhibited in the review of the Celadon proposal.
Contracting Officer's Statement at 2.
On July 13, the agency informed Celadon that its proposal would not be
considered for award and on that same day, Celadon requested a formal
debriefing. The agency provided a debriefing on July 14, and Celadon filed
this protest on July 24.
The agency initially contends that Celadon's protest was untimely because
it was aware of the composition of the SEP prior to the rejection of its
proposal and it did not file a protest within 10 days of becoming aware of
the composition of the SEP.
Our Bid Protest Regulations contain strict rules for the timely submission
of protests. These timeliness rules reflect the dual requirements of
giving parties a fair opportunity to present their cases and resolving
protests expeditiously without disrupting or delaying the procurement
process. Peacock, Myers & Adams, B-279327, Mar. 24, 1998, 98-1 CPD para.
94 at 3-4; Professional Rehab. Consultants, Inc., B-275871, Feb. 28, 1997,
97-1 CPD para. 94 at 2. Under these rules, a protest such as Celadon's,
based on other than alleged improprieties in a solicitation, must be filed
not later than 10 days after the protester knew or should have known of
the basis for protest, whichever is earlier. 4 C.F.R. sect. 21.2(a)(2)
(2006). An exception to this general rule is a protest that challenges "a
procurement conducted on the basis of competitive proposals under which a
debriefing is requested and, when requested, is required." Id. In such
cases, with respect to any protest basis which is known or should have
been known either before or as a result of the debriefing, the protest
must be filed not later than 10 days after the date on which the
debriefing is held. Id.
Here, the protest was filed within 10 days of the debriefing Celadon
received, even though it knew its protest bases sometime earlier. The
above-mentioned exception to our timeliness rules, however, applies only
to procurements conducted on the basis of "competitive proposals," a term
not defined by our Bid Protest Regulations, nor by statute or
regulation.[2] See Systems Plus, Inc. v. United States, 68 Fed. Cl. 206
(2005). We have previously determined that the use of negotiated
procedures in accordance with Federal Acquisition Regulation (FAR) Part 15
and as evidenced by the issuance of a request for proposals, constitutes a
procurement conducted on the basis of competitive proposals. Professional
Rehab. Consultants, Inc., supra, at 2. Here, while this SBIR procurement
was not conducted under FAR Part 15 procedures, the solicitation requested
"proposals" to be judged under specified evaluation criteria.[3]
We need not resolve whether this procurement was conducted on the basis of
competitive proposals within the meaning of our timeliness rules because
we find that this protest is appropriate for consideration under the
significant issue exception to our timeliness rules. 4 C.F.R. sect.
21.2(c). What constitutes a significant issue is to be decided on a
case-by-case basis. Pyxis Corp., B-282469, B-282469.2, July 15, 1999, 99-2
CPD para. 18 at 4. We generally regard a significant issue as one of
widespread interest to the procurement community and that has not been
previously decided. Satilla Rural Electric Membership Corp., B-238187, May
7, 1990, 90-1 CPD para. 456 at 3. The issue here--the application of
conflict of interest regulations to peer review evaluators in SBIR
procurements--is not one that we have previously decided and is one that
can be expected to arise in future SBIR procurements. Accordingly, we
consider the issue raised to be a significant one that should be treated
on the merits.
Celadon protests that the agency failed to reasonably consider the real
conflicts of interest of each of the members of the SEP that would impair
the SEP's objectivity in evaluating its proposal. Celadon claims that all
three of the SEP members work for companies "whose economic lifeblood" is
the development and sale of proprietary siRNA technology, which would be
directly competitive with the technology proposed in Celadon's proposal.
Protest at 3. While the fourth panelist was an academic researcher,
Celadon contends that his work is supported by one of these companies
involved with siRNA technology.
Federal Acquisition Regulation (FAR) sect. 3.101-1 provides as follows:
Government business shall be conducted in a manner above reproach and,
except as authorized by statute or regulation, with complete
impartiality and with preferential treatment for none. Transactions
relating to the expenditure of public funds require the highest degree
of public trust and an impeccable standard of conduct. The general rule
is to avoid strictly any conflict of interest or even the appearance of
a conflict of interest in Government-contractor relationships.
NIH is required to have peer review evaluators of proposals for research
and development contracts. 48 C.F.R. sect. 315.305(a)(3)(ii)(F) (2005).
There are specific regulations governing scientific peer review of
research grant applications and research and development contract
projects, including "biomedical and behavioral research and development
contract project concepts and proposals for contract projects administered
by the National Institutes of Health," such as proposals in response to
this SBIR program solicitation. 42 C.F.R. Part 52h. Among other things,
this regulation defines apparent and real conflicts of interest for peer
review evaluators and generally prohibits evaluators with such conflicts
from evaluating proposals covered by 42 C.F.R. Part 52h.[4] 42 C.F.R.
sections 52h.1, 52h.5. This regulation specifically contains the following
definition of a "real conflict of interest":
Real conflict of interest means a reviewer or close relative or
professional associate of the reviewer has a financial or other interest
in an application or proposal that is known to the reviewer and is
likely to bias the reviewer's evaluation of that application or proposal
as determined by the government official managing the review (the
Scientific Review Administrator, or equivalent), as acknowledged by the
reviewer, or as prescribed by this part. A reviewer shall have a real
conflict of interest if he/she or a close relative or professional
associate of the reviewer:
(1) Has received or could receive a direct financial benefit of any
amount deriving from an application or proposal under review;
(2) Apart from any direct financial benefit deriving from an application
or proposal under review, has received or could receive a financial
benefit from the applicant institution, offeror or principal
investigator that in the aggregate exceeds $10,000 per year; . . .
(3) Has any other interest in the application or proposal that is likely
to bias the reviewer's evaluation of that application or proposal.
Regardless of the level of financial involvement or other interest, if
the reviewer feels unable to provide objective advice, he/she must
recuse him/herself from the review of the application or proposal at
issue. The peer review system relies on the professionalism of each
reviewer to identify to the designated government official any real or
apparent conflicts of interest that are likely to bias the reviewer's
evaluation of an application or proposal.
42 C.F.R. sect. 52h.2(q).
Celadon contends that each of these evaluators had a "real conflict of
interest" under paragraph (3) above in that they each had an "interest in
the application or proposal that is likely to bias the reviewer's
evaluation of that application or proposal," given that each of the
evaluators was employed by a firm whose "economic lifeblood" was directly
competitive with the technology proposed in Celadon's proposal. 42 C.F.R.
sect. 52h.2(q)(3).
The record shows that the agency's investigation of Celadon's allegations
consisted of verifying that each member of the SEP certified that he/she
had no conflict of interest with regard to Celadon, and reviewing the
evaluation record and finding no evidence of bias in the evaluation. While
it is true that the NIH regulations contemplate a self-assessment by
evaluators as to whether they think they have a real conflict of interest,
the regulations do not contemplate that a self-certification by the
evaluator is all that is ever needed to satisfy the requirement that he or
she does not have a real conflict of interest, particularly where, as
here, specific and colorable allegations of a real conflict of interest on
the part of the evaluators were brought to the attention of cognizant
agency officials. Under the circumstances present here, NIH was required
to specifically determine whether these evaluators had real conflicts of
interest under the applicable regulations. However, the record shows that
NIH made no such determination.
While the agency contends that the conflicts identified by the protester
are too remote to be considered real conflicts of interest, it has not
explained why this is the case in light of the protester's specific
documented allegations that each of the members of the SEP, by virtue of
their employment or financial relationship with a firm that promoted siRNA
technology, would not be able to objectively evaluate Celadon's proposal
that offered siLNA technology.[5] We have recognized that an actual or
apparent conflict of interest may arise when an agency employee has both
an official role in the procurement process and a personal stake in the
outcome. For example, we sustained a protest because of a conflict of
interest that invalidated the evaluation where, in the course of a
competitive sourcing study conducted pursuant to the procedures of Office
of Management and Budget Circular A-76, 14 of the 16 agency employees who
were responsible for evaluating private-sector proposals also held
positions that were subject to the study (and could be affected by the
outcome of their evaluation). DZS/Baker LLC; Morrison Knudsen Corp.,
B-281224 et al., Jan. 12, 1999, 99-1 CPD para. 19 at 5. While we do not
decide whether the evaluators here had real conflicts of interest, the
record shows that the agency failed in its obligation to determine whether
these individuals' employment caused them a real conflict of interest that
could bias their evaluation of Celadon's proposal as contemplated under
its applicable regulation.[6]
The agency's determination that there is no evidence of actual bias on the
part of the evaluators in the evaluation of Celadon's proposal does not
address the concerns arising from a conflict of interest. The strict
limitations on both actual and apparent conflicts of interest reflect the
reality that the potential harm flowing from such situations is, by its
nature, frequently not susceptible to demonstrable proof of bias or
prejudice. Department of the Navy--Recon., B-286194.7, May 29, 2002, 2002
CPD para. 76 at 11. Thus, where the record establishes that a conflict of
interest exists on the part of the evaluators, to maintain the integrity
of the procurement process, we will presume that the protester was
prejudiced, unless the record establishes the absence of prejudice. The
Jones/Hill Joint Venture, B-286194.4 et al., Dec. 5, 2001, 2001 CPD
para. 194 at 14. Indeed, where the majority of the evaluators have
conflicts, as is alleged to be the case here, we have consistently
presumed prejudice in the evaluation. The Jones/Hill Joint Venture, supra;
DZS/Baker LLC; Morrison Knudsen Corp., supra.
We would ordinarily recommend that the agency consider whether there is a
conflict of interest on the part of the evaluators in accordance with
42 C.F.R. sect. 52h and take appropriate corrective action if a conflict
of interest on the part of the evaluators was determined to exist.
However, here the agency has stated that all the SBIR funds for the fiscal
years have been allocated and it has no funds for additional awards under
the SBIR solicitation.[7] Under the circumstances, we recommend that it
reimburse Celadon its proposal preparation costs. We also recommend that
the agency reimburse Celadon for the costs of filing and pursuing its
protest, including reasonable attorney's fees. Celadon's certified claim
for costs, detailing the time spent and costs incurred, must be submitted
to the agency within 60 days of receiving this decision. 4 C.F.R. sect.
21.8(f)(1).
The protest is sustained.
Gary L. Kepplinger
General Counsel
------------------------
[1] During the course of this procurement, the protester had been informed
by an NCI official of the identity of the SEP members.
[2] We note, however, that Federal Acquisition Regulation (FAR) sect.
6.401(b), "Competitive Proposals," begins with the reference, "See Part 15
for procedures."
[3] We note that the agency cited FAR Part 15 in offering Celadon a
debriefing. AR, Tab 14, Letter from NCI to Celadon (July 14, 2006).
[4] The regulation also provides that the Director may waive any
requirements relating to a "real conflict of interest," if the Director
determines that there are no other practical means for securing
appropriate expert advice on the particular matter, and that the real
conflict of interest is not so substantial as to be likely to affect the
integrity of the advice to be provided by the reviewer. 42 C.F.R. sect.
52h.5(b)(4). There was no such waiver here.
[5] In support of this proposition the agency cites Grassetti v.
Weinberger, 408 F.Supp. 142 (N.D. Cal. 1976). The plaintiff in that case
argued that the three members in the peer review panel had a conflict of
interest in that these individuals, or the institutions with which they
were associated, were recipients of NCI funded grants. The court found the
alleged conflicts were too remote, and granted the defendant's motion for
summary judgment on the grounds that the record failed to show any
violation of law in the denial of the plaintiff's grant application.
[6] We disagree with the agency's characterization of Celadon's protest as
being limited to a complaint about the "balance" of the SEP and thus not
for consideration by our Office. See University Research Corp.,
B-253725.4, Oct. 26, 1993, 93-2 CPD para. 259 at 7 (GAO will not generally
review objections to the composition of a peer review panel absent a
showing of possible abuse of discretion because of a conflict of interest
or actual bias on the part of the evaluators). In fact, the focus of
Celadon's protest is on the alleged conflicts on the part of all of the
evaluators, a matter that the agency has not yet adequately investigated.
[7] Moreover, it does not appear that it would be feasible to disturb the
awards already made under this solicitation.