TITLE: B-298627, eFedBudget Corporation, November 15, 2006
BNUMBER: B-298627
DATE: November 15, 2006
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B-298627, eFedBudget Corporation, November 15, 2006

   Decision

   Matter of: eFedBudget Corporation

   File: B-298627

   Date: November 15, 2006

   John E. Cleckner for the protester.

   James K. Kearney, Esq., and Holly Emrick Svetz, Esq., Womble Carlyle
   Sandridge & Rice, LLC, for RGII Technologies, Inc., an intervenor.

   Dennis J. Gallagher, Esq., Department of State, for the agency.

   Kenneth Kilgour, Esq., and Christine S. Melody, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Agency reasonably concluded that protester is not an acceptable source
   to perform a contract for maintenance and support of contracting agency's
   software system, where the record shows that use of proprietary software
   belonging to the incumbent contractor, and currently unavailable to any
   other firm, is necessary for successful performance of the contract.

   2. Protest of proposed sole-source award is sustained where the record
   shows that the agency did not satisfy its obligation to engage in
   reasonable advance planning and to promote competition.

   DECISION

   eFedBudget Corporation protests the proposed award of a contract on a
   sole-source basis to RGII Technologies, Inc. pursuant to presolicitation
   notice No. B-P-06, issued by the Department of State (DOS) for continued
   implementation, maintenance, enhancement, and support for DOS's worldwide
   budget and planning software systems. The protester asserts that the
   agency's decision to procure the software services on a sole-source basis
   was improper. Specifically, the protester argues that the required
   justification and approval (J&A) was deficient; that the agency
   unreasonably refused to consider the protester's approach of developing a
   non-proprietary software system; and that, in any event, the need for the
   sole-source procurement arose from the agency's lack of advance planning.

   We sustain the protest.

   BACKGROUND

   Under contract with DOS, beginning in 1997, RGII, with the protester as a
   subcontractor,[1] developed the central resource management system of the
   agency's Bureau of Resource Management, including the allotment control
   system, the budget control system, and the budget resource management
   system. For the past 9 years, the agency has relied on the services of
   RGII exclusively to maintain and enhance that budget and planning
   software. In 2000, the agency and RGII entered into a licensing agreement
   limiting the government's rights in the software that operates the budget
   and planning systems; [2] the original software was then copyrighted by
   RGII under the name "Monument."

   The scope of the license, however, is broader than simply the Monument
   software. Under the license agreement, "Licensed Product" means:

     any product made by, made for, used, sold, offered for sale, leased,
     offered for lease by Licensor that includes, combines, incorporates
     and/or implements the Software, and any modification or derivation
     thereof, with software and/or hardware provided by Licensor for purposes
     of adding to and/or increasing the value, functionality or utility of
     the Software.

   AR, Tab 1, License Agreement, at 2.

   The agreement provides DOS rights to use the licensed product only within
   the agency, precludes the combination of the licensed software with other
   software for the purpose of implementing the software, and precludes the
   agency from disclosing the licensed software to other contractors or to
   other government agencies. At the agreement's inception, the agency's
   expectation was that the agency "would benefit from receipt without
   additional cost of improvements that would be made to RGII's software," an
   expectation that has been "disappointed." Agency's Response to GAO
   Questions, Oct. 4, 2006, at 3. Either party may terminate the agreement
   with at least 90 days prior written notice; upon termination, the agency
   ceases to have any rights in the software. The licensing agreement
   continues in place, with one modification.[3]

   The agency published a presolicitation notice stating that the proposed
   sole-source award to RGII was for a "follow-on contract for continued
   implementation, maintenance, enhancement, and support for the [agency's]
   worldwide budget and planning systems" that are based on proprietary
   software packages owned by RGII, and that the contract period would be for
   a base year plus four 1-year options. The notice stated that the
   contractor "will be required to maintain and support legacy core systems
   and interfaces and to provide the services necessary to develop
   improvements which enhance the functionality and efficiency of the
   systems." AR, Tab 4, Modification of Presolicitation Notice, at 1.
   Although the estimated value of the services in the presolicitation notice
   was $19 million, the agency states that, currently, the estimated value is
   approximately $10 million, with the work now expected to focus on
   maintaining the existing software, with little emphasis on developing
   enhancements.

   In support of the proposed award to RGII, the agency drafted a J&A citing
   as authority to proceed on a sole-source basis 41 U.S.C. sect. 253(c)(1)
   (2000), which states that an agency may use noncompetitive procedures only
   when the property or services needed by the agency "are available from
   only one responsible source and no other type of property or service" will
   satisfy the agency's needs. The J&A states that "[w]ithout seeking a
   follow-on contract with its current software vendor, the [agency] would
   experience an immediate and substantial time delay or actually be unable
   to fulfill its requirements to adequately meet agency budgeting and
   financial responsibilities," and lists several attributes of the incumbent
   that "make it a unique source for these services." AR, Tab 3, J&A, at 1,
   2.

   The J&A also describes the burden on the agency of adopting any other
   approach. Without continued support from the incumbent, according to the
   J&A, the agency "would need to redesign its budget and planning systems to
   work with another software product, redesign its interfaces and duplicate
   the requirements analysis, design, and development stages of
   implementation to accommodate a new software package to perform the
   business functions" of the current, proprietary software. Id. at 3. In
   this regard, at the hearing that our Office convened to consider the
   issues raised in this protest, the agency's program office representative
   indicated that the agency had considered the purchase of a replacement
   software system but that none was available as an off-the-shelf product.
   The program office representative asserted that the time commitment
   necessary for agency staff to properly determine the requirements for a
   new system--the first step in the process--would be a significant burden,
   even if the agency had the funds to procure the development of such a
   replacement system.

   Although the J&A states that "[l]icensing restrictions dictate that only
   RGII Technologies can do this work," id. at 2, it identifies no actions
   the agency has considered taking to remove or overcome any barriers to
   future competition resulting from the restrictive license, such as
   purchasing additional, broader license rights. The J&A notes only that
   RGII is "assessing the ability" to license other vendors to operate its
   software, and that the agency "will consider other application,
   maintenance, and support options based on the degree of success RGII
   achieves in these endeavors." Id. at 4.

   RGII had been providing support on a labor hours basis under a DOS task
   order that was set to expire October 31, 2006, but has been extended for 3
   months. The agency expects to complete the negotiation and award of a new
   contract with RGII before the expiration of that extension. The protester
   first filed an agency-level protest challenging the agency's plan to award
   the contract on a sole-source basis. After that protest was denied by the
   agency, this protest followed.

   DISCUSSION

   Although the overriding mandate of the Competition in Contracting Act of
   1984 (CICA) is for full and open competition in government procurements
   obtained through the use of competitive procedures, 41 U.S.C. sect.
   253(a)(1)(A), CICA permits noncompetitive acquisitions in certain
   circumstances, such as when the services needed are available from only
   one responsible source. 41 U.S.C. sect. 253(c)(1). When an agency uses
   noncompetitive procedures under section 253(c)(1), it is required to
   execute a written J&A with sufficient facts and rationale to support the
   use of the cited authority. 41 U.S.C. sect. 253(f)(1)(A), (B); FAR
   sections 6.302-1(d)(1), 6.303, 6.304. Our review of an agency's decision
   to conduct a sole-source procurement focuses on the adequacy of the
   rationale and conclusions set forth in the J&A. As a result, an agency's
   decision in this regard will not be questioned by our Office so long as
   the J&A sets forth reasonable justifications for the agency's actions.
   Lockheed Martin Sys. Integration--Owego, B-287190.2, B-287190.3, May 25,
   2001, 2001 CPD para. 110 at 10. Moreover, an agency has broad discretion
   to determine its needs and the method for accommodating those needs.
   Digital Controls Corp., B-255041.2, Mar. 28, 1994, 94-1 CPD para. 219 at
   12. Use of noncompetitive procedures is not justified, however, where the
   agency created the need for the sole-source award through a lack of
   advance planning. 41 U.S.C. sect. 253(f)(5)(A).

   The agency asserts that, because the licensing agreement restricts access
   to the software source code, its conclusion that the protester is not an
   acceptable source was reasonable. The protester argues, first, that the
   agency improperly refused to consider the protester's alternative
   proposal--that the agency replace the proprietary software system with a
   non-proprietary system--and, second, that the protester is able to perform
   the contract without holding a license to the proprietary software.

   Our review of the record indicates that the agency reasonably chose not to
   accept the protester's proposed alternative. The protester's proposal
   presupposes a transition period during which the incumbent, RGII, would
   operate the existing systems while the protester develops non-proprietary
   software systems to replace them. Protester's Response to AR, Sept. 26,
   2006, encl. 2, at 10. An agency may restrict a procurement to a single
   contractor to ensure that one firm is responsible for a technical system
   so that the government is relieved of the need to analyze the source of
   technical problems and to avoid "finger pointing" between contractors, see
   Tucson Mobilephone, Inc., B-256802, July 27, 1994, 94-2 CPD para. 45 at 3,
   or to ensure the technical integrity and performance of a computer system.
   MASSTOR Sys. Corp., B-211240, Dec. 27, 1983, 84-1 CPD para. 23 at 3. Here,
   under the protester's alternative proposal, two firms who have an
   admittedly contentious relationship would share responsibility for the
   successful functioning of mission-critical software. Under these
   circumstances, we think that the agency properly considered the potential
   pitfalls in the protester's alternative proposal and reasonably decided
   that this approach would not meet its needs.

   The protester next asserts that, even if the agency properly rejected its
   proposal to develop a replacement system, it can perform the requirements
   of the proposed contract without holding rights under the license, and
   without violating the license. The agency and RGII both challenge that
   assertion. As explained below, we conclude that the protester has failed
   to show that the proprietary software is unnecessary to satisfactory
   performance of the contract here. See Federal Computer Int'l Corp.,
   B-251132, Feb. 24, 1993, 93-1 CPD para. 175 at 4; Hydra Rig Cryogenics,
   Inc., B-234029, May 11, 1989, 89-1 CPD para. 442 at 4.

   One of the agency's overriding concerns with the implementation of the
   protester's proposal to perform the contract without a license is the
   potential disruption to its performance of mission-critical tasks posed by
   the risk of litigation between the protester and RGII. Besides disagreeing
   over whether the extraction of DOS data necessary to perform as the
   protester proposes would violate the license agreement, RGII and the
   protester dispute at least three fundamental issues related to the scope
   of the license.[4] We find it reasonable for the agency to reject an
   alternative approach to meeting its needs that carries with it the serious
   possibility of litigation between two contractors. See Tucson Mobilephone,
   Inc., supra.

   The protester points to the successful development and launch of the
   Executive Dashboard (ED) software as proof that enhancements to the
   existing system can be created without access to RGII's proprietary source
   code.[5] The agency challenges that assertion on two grounds. The agency
   argues that the ED is a minor piece of software that merely displays data
   and is not required to interface with Monument, while at least some
   portion of the contract performance here would require creating software
   with such an interface. In addition, before the contractor could begin
   development of the ED software, a separate database containing the
   necessary DOS raw data had to be created by the agency's own IT
   personnel,[6] since extraction of data from the existing system by any
   unlicensed party would violate the license. The agency explains that a
   similar effort, and the corresponding burden on the agency's staff
   resources, would be required here, only this time on a much larger scale.
   In response, the protester states only that it "believes" that the
   extraction of data could be performed without violating the license. Video
   Hearing Transcript (VHT), Oct. 13, 2006, at 9:49.

   Further, even if the launch of ED supports the protester's position--and
   neither the agency nor the intervenor concedes that it does--the scope of
   work of the contract at issue here has shifted from creating virtually
   stand-alone enhancements for the software to maintaining and supporting
   it. The record shows that maintenance and support of the software systems
   would require not only that the protester extract data from the system,
   but restore and add data to the system, as well. For example, when the
   data is extracted from the current system for reuse in a program such as
   ED, the contractor constructs new fields and arranges the data in a manner
   suitable to that new program. In this case, however, if a contractor
   working without a license were required to add a new employee as part of
   its support responsibilities--that is, to add to and not extract data from
   the existing systems--that contractor will not know precisely into which
   existing fields the data pertaining to that individual should be added or
   how the existing fields are structured. VHT, supra, at 10:02-10:04.

   The protester asserts that through a quick and fairly simple system of
   trial and error, it will be able to make additions to the database. The
   agency argues that such modifications to the database happen repeatedly
   throughout the day, every day, and are sometimes very complex. The agency
   maintains that delays will inevitably result from a contractor who is
   learning data field locations and structure by trial and error and that
   those unknown delays are a burden that the agency may reasonably choose to
   avoid. We agree. The protester itself estimates that, in the instances
   where issues with the software require the contractor to write new
   programs, the new programs could take as little as a day or as long as 3
   weeks to write. The protester's own estimation is that operating without
   access to the proprietary software would increase the time necessary to
   write programs to generate needed reports by 10 to 15 percent, VHT, supra,
   at 9:44, or, in some instances, more than 2 days.

   We conclude that the protester has not met its burden of demonstrating
   that the contract could be performed without access to the source code and
   without violating the license agreement. In fact, the record demonstrates
   the need for any contractor other than RGII to have access to the
   proprietary software, by means of a license from RGII, to adequately
   perform the full scope of work. An agency may properly take into account
   the existence of software licenses when determining whether only one
   responsible source exists. FAR sect. 6.302-1(b)(2); see AAI ACL Techs.,
   Inc., B-258679.4, Nov. 28, 1995, 95-2 CPD para. 243 at 6; Marconi
   Dynamics, Inc., B-252318, June 21, 1993, 93-1 CPD para. 475 at 5. The
   protester does not have license rights to the existing system, and we thus
   find reasonable the agency's determination that eFedBudget was not an
   acceptable alternative source. MFVega & Assocs., LLC, B-291605.3, Mar. 25,
   2003, 2003 CPD para. 65 at 4. As explained below, however, we also
   conclude that the agency has failed to satisfy its statutory obligation to
   engage in reasonable advance planning before proceeding with a sole-source
   award to RGII.

   Under CICA, 41 U.S.C. sect. 253(a)(1)(A), contracting officers have a duty
   to promote and provide for competition and to provide the most
   advantageous contract for the government. In their role of promoting and
   providing for competition, contracting officials must act affirmatively to
   obtain and safeguard competition; they cannot take a passive approach and
   remain in a noncompetitive position where they could reasonably take steps
   to enhance competition. VSE Corp., Johnson Controls World Servs., Inc.,
   B-290452.3 et al., May 23, 2005, 2005 CPD para. 103 at 8; HEROS, Inc.,
   B-292043, June 9, 2003, 2003 CPD para. 111 at 7; National Aerospace Group,
   Inc., B-282843, Aug. 30, 1999, 99-2 CPD para. 43 at 8. See also S. Rep.
   No. 98-50, at 18 (1984), reprinted in 1984 U.S.C.C.A.N. 2174, 2191
   (stating that CICA requires agencies to "make an affirmative effort to
   obtain effective competition").

   CICA further provides that under no circumstance may noncompetitive
   procedures be used due to a lack of advance planning by contracting
   officials. 41 U.S.C. sect. 253(f)(5)(A); Signals & Sys., Inc., B-288107,
   Sept. 21, 2001, 2001 CPD para. 168 at 9. Although the requirement for
   advance planning is not a requirement that such planning be successful or
   error-free, see Abbott Prods., Inc., B-231131, Aug. 8, 1988, 88-2 CPD
   para. 119, at 8, the advance planning must be reasonable. Signals & Sys.,
   Inc., supra, at 13. Here, we conclude that the agency has failed to comply
   with the CICA mandate for reasonable advance planning.

   With regard to the feasibility of alternatives to a sole-source award, the
   agency principally focuses on the difficulties associated with either
   acquiring a new software system, or having another firm perform the
   required services without license rights to the RGII software. The agency
   also asserts that its advance planning efforts have been reasonable in
   that it has taken steps to avoid expansion of its reliance on RGII. In
   this regard, the agency notes, for example, that it has been considering
   using a program developed by another agency office, the Bureau of European
   Affairs, to meet its needs here, instead of contracting with RGII for the
   development of additional proprietary software. Agency's Response to GAO
   Questions, supra, at 4.

   While, as discussed above, it is reasonable to conclude that, given the
   restrictive nature of the agency's current licensing agreement with RGII,
   only RGII can now meet its needs, the agency's arguments simply do not
   address the issue of whether the agency's acquisition planning--in the
   face of those restrictions--was reasonable, given the requirement that the
   agency make an affirmative effort to obtain competition. The agency has
   produced no record of any steps that it has taken to end its reliance on
   the services of the incumbent to maintain the existing software systems;
   in fact, this latest proposed sole-source award has a potential term of 5
   years. It is possible, for example, that the agency could purchase
   additional rights to the proprietary software in order to promote
   competition, see Environmental Tectonics Corp., B-248611, Sept. 8, 1992,
   92-2 CPD para. 160 at 5, rights that the government relinquished nearly 6
   years ago. In this regard, the protester asserts that in 2004 RGII offered
   the agency a source code license to multiple copies of Monument for less
   than $1.2 million, and that at the time RGII stated that the value of
   Monument was less than $1 million. Protest, Tab E, Letter from Protester
   to Agency, Aug. 7, 2006, at 2. Further, the agency acknowledges that the
   "value of the software may in fact now be quite limited." Agency's
   Response to GAO Questions, supra, at 3.

   Under the circumstances here--where the agency ceded substantial rights in
   the software created by RGII under the development contract, and where
   there is no indication that the agency has explored the possibility of
   acquiring additional rights from RGII--we think that, to satisfy its
   obligation to engage in reasonable advance planning and to promote
   competition, the agency was required to consider whether the costs
   associated with a purchase of additional license rights, or some other
   alternative, outweigh the anticipated benefits of competition. See HEROS,
   Inc., supra, at 7, 10.

   RECOMMENDATION

   Consistent with our discussion above, we recommend that the agency conduct
   a documented cost/benefit analysis reflecting the costs associated with
   obtaining competition, either through purchasing additional rights to the
   proprietary software or some other means, and the anticipated benefits. If
   the cost/benefit analysis reveals a practicable means to obtain
   competition, we recommend that the agency proceed with a competitive
   procurement.

   We also recommend that the protester be reimbursed for the expenses it
   incurred in filing and pursuing its protest. Bid Protest Regulations, 4
   C.F.R. sect. 21.8(d)(1) (2006). In accordance with section 21.8(f)(1) of
   our Regulations, eFedBudget's certified claim for such costs, detailing
   the time expended and the costs incurred, must be submitted directly to
   the agency within 60 days after receipt of this decision.

   The protest is sustained.

   Gary L. Kepplinger
   General Counsel

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

   [1] The protester, whose principals had left RGII by the end of 2004 under
   less than amicable circumstances, asserts that its principals wrote more
   than 50 percent of the code implemented at DOS for this system. Protest
   at 7.

   [2] The parties recognized that the government was relinquishing the broad
   rights it otherwise would have had in the software, in exchange for
   receiving full use of any enhancements and modifications to the software
   developed in the future by RGII. Agency Report (AR), Tab 1, Contract
   Modification No. 6, at 1-2; see also Federal Acquisition Regulation (FAR)
   sections 27.404(f)(iv), 52.227-14(c)(1).

   [3] In 2004, prior to having its own personnel perform the task of
   extracting DOS data from the software system for use in developing another
   software program called the "Executive Dashboard," discussed further
   below, the agency entered into a memorandum of understanding with RGII
   that modified the license agreement. That memorandum specifically granted
   the agency the "right to receive and use the Source Code solely to allow
   its direct-hire personnel to construct a staging database that extracts
   and separates State Department data from RGII software for use in a
   separate executive reporting application." AR, Tab 2, Memorandum of
   Understanding, at 1.

   [4] First, the protester maintains that the license does not prohibit
   third party "use" of the proprietary software, only DOS "disclosure" of
   the same. Second, the protester and RGII disagree on the extent to which
   the protester may use its staff's knowledge of the software, gained
   through their prior employment relationship with RGII, in performing the
   contract. Third, the protester asserts that RGII has waived its right to
   assert that certain information is proprietary because RGII has placed it
   in the public domain, and that therefore the protester may rightfully use
   that information.

   [5] The contract for the development of the ED was awarded to Booz Allen
   Hamilton; the protester served as a subcontractor.

   [6] Before the agency could begin constructing the database, the agency
   and RGII had to resolve licensing issues surrounding access to that data.
   See note 3, supra.