TITLE: Matter of: OfficeMax, Inc.
BNUMBER: B-299340.2
DATE: July 19, 2007
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B‑299340.2, OfficeMax, Inc., July 19, 2007
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: OfficeMax, Inc.
File: B-299340.2
Date: July 19, 2007
Lee P. Curtis, Esq., Troy E. Hughes, Esq., and Eric A. Aaserud, Esq.,
Perkins Coie LLP, for the protester.
Kristen E. Ittig, Esq., Arnold & Porter LLP, for Corporate Express, an
intervenor.
David K. Barnes, Esq., and Lori R. Larson, Esq., Internal Revenue Service,
for the agency.
Jonathan L. Kang, Esq., and Ralph O. White, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Agency reasonably determined that vendor's quotation was technically
unacceptable where it failed to comply with a mandatory solicitation
requirement.
2. Protest that agency failed to provide meaningful discussions is denied
where protester cannot establish prejudice because the record shows that
protester's ordering systems for office supplies did not comply with a
mandatory solicitation requirement, and shows that the protester did not
plan to become compliant.
DECISION
OfficeMax, Inc. protests the award of a contract to Corporate Express
under request for quotations (RFQ) No. TIRNO-06-Q-00031, issued by the
Internal Revenue Service (IRS) for delivery of office supplies. The
protester contends that the IRS unreasonably determined that its quotation
was technically unacceptable, and also failed to conduct meaningful
discussions.
We deny the protest.
This office supply procurement protest involves a single issue--an RFQ
requirement for an ordering management system that the IRS has termed its
"fill or kill" policy, and the protester's commitment to comply with this
policy in its quotation. The policy, in essence, requires the vendor to
provide an order management service (in addition to providing the office
supplies) that either completely "fills" each line item of an order for
office supplies, or "kills," i.e. completely rejects, any line item that
cannot be filled entirely, so that the purchasing entity can seek the
supplies from another vendor. Simply put, the IRS wants no
partially-filled line items. Ultimately, this decision concludes that: (1)
the fill or kill policy was a material requirement of the RFQ; (2) the
OfficeMax quotation was reasonably rejected for its failure to comply with
this requirement; (3) the IRS did not advise OfficeMax during discussions
that its failure to comply with this policy was a deficiency that would
result in the disqualification of its quotation; and (4) OfficeMax was not
prejudiced by the lack of discussions, since the record indicates that
OfficeMax could not provide the fill or kill service the agency required.
BACKGROUND
On April 28, 2006, the IRS issued this RFQ seeking quotations to provide
next-day-desktop delivery of office supplies to approximately 6,500 order
points (defined in the solicitation as IRS employees authorized to place
orders) at 800 IRS facilities in the 48 contiguous United States. The RFQ
anticipated issuance of one or more blanket purchase agreements (BPAs)
with a 1-year base term, and four 1-year options. Competition was limited
to vendors who hold contracts under General Services Administration
Federal Supply Schedule (FSS) contract No. 75 II A, Office Supplies
Products and Equipment. The solicitation advised vendors that award of a
BPA would be made to "the offeror or offerors whose quote contains the
combination of technical and price features offering the best overall
value to the IRS." RFQ, Statement of Work (SOW), sect. 11.0.
As relevant to the protest, the SOW contained a fill or kill policy,
defined as follows:
Orders faxed, placed by telephone, or transmitted electronically before
2:00 p.m., each day, for which acknowledgement from the contractor is
received by the IRS, are subject to the "fill or kill" policy. "Fill" is
the requirement that all supplies ordered be delivered within 24 hours of
the order placement. "Kill" is the requirement that those supplies not
available for next day delivery are canceled from the order. Thus, there
will be no back orders on individual orders.
RFQ, SOW, sect. 2.0.
The RFQ identified the fill or kill policy as a "specific requirement,"
and, by amendment, later clarified that vendors were prohibited from
partially filling orders or backordering items:
If the initial vendor chosen by the order point cannot fill the entire
quantity of a line item being ordered then that line item must be
"killed." The remainder of the order (other line items whose complete
quantity can be supplied) will be filled by the initial vendor. No partial
quantities of line items are to be filled. The order point may then
utilize another vendor's BPA to fulfill the requirement for the items
"killed" off the initial order. This arrangement eliminates the need for
backordering thus backordering will not be allowable.
RFQ amend. 8, SOW, sect. 3.2.
OfficeMax's initial quotation explained its approach to the fill or kill
policy as follows: "[A]ll orders . . . will be `filled' (delivered next
day) or `killed' (items not in stock or that cannot be delivered next day.
These items will be canceled)." AR,
Tab 9.1, OfficeMax Quotation, at 8-9. In response to a request for
clarification by the agency regarding a different solicitation
requirement, however, OfficeMax indicated that its ordering systems
allowed partial fills of orders: "For example, if you order 10 of
something and we ship 9, that entire order line is counted as not filled."
AR,
Tab 9.2, OfficeMax response, Sept. 6, 2006, at 2.
The IRS initially issued BPAs on December 22, 2006 to OfficeMax and
Corporate Express. On January 3, 2007, Office Depot, Inc. protested the
issuance of the BPAs; the agency subsequently took corrective action by
canceling the BPAs and amending the solicitation, and our Office
accordingly dismissed the protest. On February 9, 2007, the IRS issued
solicitation amendment No. 9 to formally rescind the earlier BPA issuances
and to implement the agency's corrective action in response to Office
Depot's protest.
RFQ amendment No. 9 revised the technical evaluation factors. Evaluation
factor 1 stated that quotations must comply with "all of the minimum
requirements of the Statement of Work ("SOW")." RFQ amend. 9, SOW, sect.
10.1. Evaluation factor 1 was to be evaluated on a pass/fail basis, and
the RFQ stated that "[f]ailure to pass this factor on the final revised
quotes will result in the specific quote being considered non-responsive
by the IRS. . . [and the quote] will be eliminated from further
consideration and evaluation by the IRS." Id. The RFQ did not define the
term "minimum requirements" and did not specifically identify any of the
SOW requirements as "minimum requirements." All other evaluation
factors--including factor 3, the fill or kill policy--were to be evaluated
on a relative merit basis.
Also on February 9, the IRS provided the vendors a "Technical Evaluation
Worksheet" addressing the agency's evaluation of their
previously-submitted quotations. The worksheet provided to OfficeMax
advised that its quotation received a "fail" rating for factor 1 because
it did not comply with three "minimum requirements" under the SOW. AR, Tab
4.5, Evaluation Worksheet for OfficeMax, at 1. The IRS did not list the
fill or kill policy as one of the three SOW requirements with which
OfficeMax's quotation failed to comply; instead, the worksheet stated that
the protester's approach to the fill or kill policy was a "weakness":
"Fill or Kill" capability in accordance with [SOW] 3.2. Score: 2
Weaknesses: Section A, page 3 -- They do not count partially filled lines.
If 10 items are ordered, they will partially fill 9 but that line does not
count as filled. This goes against our "Fill or Kill Policy," where the
entire line is to be "Killed" if it can not be filled completely.
Id. at 3-4.
The Contracting Officer (CO) explains that at the time of the February 9
discussions, the agency considered the protester's approach to the fill or
kill policy as a weakness, rather than a deficiency, because the CO did
not yet understand that OfficeMax did not intend to comply with the
policy, or could not do so. CO Statement at 10; Agency Memorandum of Law
at 5.
In response to RFQ amendment No. 9, OfficeMax submitted a revised
quotation. With regard to the fill or kill policy, the quotation
explained: "Since this contract is a Fill or Kill requirement, no
backorders will be allowed and all items that cannot be sourced for next
day delivery will be cancelled." AR, Tab 9.3, OfficeMax revised quotation,
Mar. 2, 2007, at 6. Following this response, the CO still questioned
whether OfficeMax understood the fill or kill policy, CO Statement at 10,
and again requested clarification:
We are seeking additional clarification as we review the wording of our
"fill or kill" policy requirement and your response. . . . Your proposal
wording appears to us that you are trying to assure us that all items that
can't be delivered the next day, will be "killed." This still leaves the
question of whether your intent for this is, for instance, if we've asked
for 10 of an item and you can deliver 8 of them the next day, that you
will deliver the 8 and not backorder the remaining 2. If this is the case,
we haven't clearly stated our intent for the policy. In the instance
given, we would want either 10 or 0, nothing in between. Will you please
review your response to the weakness noted under Evaluation Factor 7,
"Fill or Kill" capability in accordance with 3.2, and clarify this for us?
AR, Tab 5.2, Request for Clarifications, Mar. 29, 2007, at 1.
In response, OfficeMax stated that its ordering systems did not provide
fill or kill capabilities in the manner required by the solicitation, but
stated that the company would consider whether it might be able to change
its systems in the future:
OfficeMax Government Solutions strives to fill all orders to the fullest
extent possible before we cancel any order. This is reflected by our order
fill rate which is consistently 98% or better. Our fill rate is so high
because our supply chain model builds in several layers of inventory check
before an item goes on backorder. Our supply systems are set up to fill
all orders to the fullest extent possible. Therefore our systems are not
set up to [deleted]. Our system will check all inventory levels possible
(OfficeMax distribution centers and wholesalers) and [deleted]. . . .
OfficeMax Government Solutions will continue to look at this requirement
and see if any changes to our systems could be accommodated. However
currently our systems work as stated above.
AR, Tab 4.7, OfficeMax Response to Request for Clarifications, Apr. 2,
2007, at 1.
Upon receipt of this response, the IRS concluded that the protester's
quotation was technically unacceptable. CO Statement at 10. Specifically,
the agency found that the protester's quotation merited a "fail" rating
under factor 1 because it did not comply with the SOW provision for the
fill or kill policy. AR, Tab 10.7, OfficeMax Final Evaluation, at 1. The
IRS advised OfficeMax on April 6 that its quotation had been excluded from
award, and this protest followed.
DISCUSSION
OfficeMax challenges the IRS's determination that its quotation was
technically unacceptable because it did not commit to comply with the fill
or kill policy in the solicitation. The protester argues that the fill or
kill policy was not a minimum or mandatory requirement under the
solicitation, and also argues that the agency did not provide meaningful
discussions regarding this matter. For the reasons set forth below, we
deny the protest.
Where, as here, an agency conducts a formal competition under the FSS
program for the issuance of a BPA or task order, we will review the
agency's actions to ensure that the evaluation was reasonable and
consistent with the solicitation and applicable procurement statutes and
regulations. Worldwide Language Res., Inc.,
B-297210 et al., Nov. 28, 2005, 2005 CPD para. 211 at 3; COMARK Fed. Sys.,
B-278343,
B-278343.2, Jan. 20, 1998, 98-1 CPD para. 34 at 4-5. In reviewing an
agency's evaluation, we will not reevaluate vendors' quotations, and an
protester's mere disagreement with the agency's evaluation is not
sufficient to render the evaluation reasonable. Advanced Tech. Sys., Inc.,
B-296493.5, Sept. 26, 2006, 2006 CPD para. 147 at 5.
Compliance with the Fill or Kill Policy was Mandatory
OfficeMax first argues that the fill or kill policy of the RFQ was not a
minimum or mandatory solicitation requirement, and that the IRS erred when
it decided to reject its quotation for failing to comply with this
requirement. The protester primarily argues that the RFQ stated that only
technical evaluation factor 1, regarding minimum SOW requirements, would
be evaluated on a pass/fail basis and that, in contrast, all others
evaluation factors, including the fill or kill policy, were to be
evaluated on the basis of relative merit. Thus, the protester contends
that its failure to comply with the fill or kill policy could not provide
a basis for determining that a quotation was technically unacceptable. We
disagree with the protester's interpretation of the solicitation.
The protester's argument confuses the issue of whether a solicitation
identifies a requirement as mandatory with the issue of how that
requirement will be evaluated. A solicitation need not state that a
requirement will be evaluated on a pass/fail basis in order for that
requirement to be mandatory. See AT&T, B-250516, Mar. 30, 1993, 93-1 CPD
para. 276 at 7 (agency unreasonably interpreted solicitation provision
that was to be evaluated on relative, rather than a pass/fail basis, as
non-mandatory where solicitation clearly indicates that offerors were
required to demonstrate compliance with the provision). Put differently,
the fact that a solicitation states that certain mandatory requirements
will be evaluated on a pass/fail basis does not mean that a vendor cannot
be found technically unacceptable for failing to comply with mandatory
requirements that are not the subject of pass/fail evaluations. See id.
As noted above, the solicitation stated that offerors would be evaluated
as to whether they met all "minimum requirements" of the SOW, but did not
define which SOW requirements were minimum or mandatory. The SOW
identified the fill or kill policy as a "specific requirement," and
explained that orders must be completed in full or cancelled entirely. RFQ
amend. 8, SOW, sect. 3.2. Specifically, the RFQ stated that "[i]f the
initial vendor chosen by the order point cannot fill the entire quantity
of a line item being ordered then that line item must be `killed,'" and
further that "[n]o partial quantities of line items are to be filled." Id.
On this record, we conclude that the RFQ clearly advised vendors that the
fill or kill policy was a mandatory requirement because the solicitation
cannot be reasonably interpreted to allow a vendor whose quotation did not
commit to comply with the policy to receive a BPA.
We further conclude that the IRS reasonably determined that OfficeMax did
not comply with this requirement. The agency stated that it did not
understand, based on the protester's initial quotation and its September
26, 2006 clarification response, that OfficeMax could not comply with the
fill or kill requirement. In its April 2, 2007 clarification response,
however, the protester stated, as discussed above, that its "systems are
not set up to [deleted]. AR, Tab 4.7, OfficeMax Response to Request for
Clarifications, Apr. 2, 2007, at 1. Based on this final round of
clarifications, the IRS understood that OfficeMax's approach did not
comply with the fill or kill requirement. AR, Tab 10.7, OfficeMax Final
Evaluation, at 1. We agree with the agency's ultimate conclusion that
OfficeMax was not offering to comply with the RFQ's fill or kill
requirement because OfficeMax clearly advised that its systems could not
kill orders where some inventory was on hand, and would instead [deleted].
Discussions Regarding Fill or Kill Requirement
OfficeMax next argues that the IRS never advised the company that its
approach to the fill or kill requirement was unacceptable. As discussed
below, we agree. To the extent the protester argues that it did not
receive meaningful discussions on this issue, however, we think the
protester cannot show that it was prejudiced in this regard because,
despite numerous indications that the IRS was concerned about this issue,
OfficeMax advised that it did not have the service that the agency
required. Additionally, the protester has never clearly stated that it
could or would have revised its quotation had it been advised of this
issue.
Federal Acquisition Regulation (FAR) sect. 15.306 describes a spectrum of
exchanges that may take place between an agency and an offeror during
negotiated procurements.[1] Clarifications are "limited exchanges" between
the agency and offerors that may allow offerors to clarify certain aspects
of proposals or quotations or to resolve minor or clerical mistakes. FAR
sect. 15.306(a)(2). Discussions, on the other hand, occur when an agency
indicates to an offeror significant weaknesses, deficiencies, and other
aspects of its proposal or quotation that could be altered or explained to
materially enhance the proposal or quotation's potential for award. FAR
sect. 15.306(d)(3). When an agency engages in discussions with an offeror,
the discussions must be meaningful, i.e., they must reasonably lead an
offeror into the areas of its proposal or quotation requiring correction
or amplification. Metro Mach. Corp., B-295744, B-295744.2, Apr. 21, 2005,
2005 CPD para. 112 at 19.
In the February 9 discussions with vendors in conjunction with RFQ
amendment
No. 9, the IRS advised OfficeMax that its approach to the fill or kill
requirement "goes against" the solicitation requirement. In the
protester's view, this admonition fell short of advising that the
quotation was fatally flawed for two reasons. First, as the protester
notes, OfficeMax's rating under factor 1 clearly stated that its quotation
failed to comply with three minimum SOW requirements, but did not identify
the fill or kill policy as one of those requirements; rather, the
protester's approach to the fill or kill requirement was described as a
"weakness." Second, as the IRS acknowledges, the CO did not yet understand
at the time of the February 9 discussions that OfficeMax's quotation did
not comply with the fill or kill requirement, and thus had no basis to
communicate to the protester that it was at risk of being found
technically unacceptable. CO Statement at 10; Agency Memorandum of Law at
5, 7. On this record, we agree with the protester's assertion that it was
never advised explicitly during discussions that its quotation was viewed
as unacceptable for its failure to comply with the fill or kill
requirement.
The subsequent exchanges with OfficeMax on March 29 were expressly limited
by the IRS to "clarifications," i.e. an opportunity to address minor
issues. By definition, these exchanges were not discussions because the
protester was not allowed to materially revise its quotation. FAR sect.
15.306(d)(3); see National Beef Packing Co.,
B-296534, Sept. 1, 2005, 2005 CPD para. 168 at 11.
It was only after the protester's April 2 response to the March 29
clarification request that the IRS first concluded that OfficeMax's
quotation was technically unacceptable for not complying with the fill or
kill requirement. AR, Tab 10.7, OfficeMax Final Evaluation, at 1. Hence,
OfficeMax never had an opportunity to revise its quotation after the
agency concluded that its fill or kill approach did not comply with the
solicitation requirement. As set forth below, however, we need not
address, whether the protester was entitled to receive an opportunity to
revise its quotation at this point in the procurement.
As the IRS and intervenor both argue, even if the protester was entitled
to receive an opportunity to revise its quotation following its April 2
response, the protester cannot demonstrate prejudice because it did not
have--and was not offering--the required service. We agree. In this
regard, our Office will not sustain a protest absent a reasonable showing
of competitive prejudice, that is, unless the protester demonstrates that,
but for the agency's actions, it would have a substantial chance of
receiving award. McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 CPD para.
54 at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 1681 (Fed.
Cir. 1996).
Here, the contemporaneous record does not indicate that, if the IRS had
given OfficeMax the opportunity to revise its quotation following the
April 2 clarifications, the protester would have changed its ordering
systems to comply with the fill or kill requirement--in fact, the record
suggests just the opposite. The protester's response to the agency's
request for clarification clearly stated that its systems "are not set up
to [deleted]" and that the systems would, contrary to the fill or kill
requirement, [deleted]." AR, Tab 4.7, OfficeMax Response to Request for
Clarifications, Apr. 2, 2007, at 1. Moreover, the protester stated that it
"will continue to look at this requirement and see if any changes to our
systems could be accommodated. However currently our systems work as
stated above." Id. In fact, despite repeated inquiries about whether the
protester could comply with the requirement--albeit, inquiries that did
not expressly advise that the protester was at risk of being found
unacceptable--the protester never advised that it could, or would, comply.
At best, OfficeMax offered to explore modifications to its ordering
systems at some later date.
Even during the course of this protest, OfficeMax has not clearly
indicated that if it had received an opportunity to revise its quotation
following its April 2 clarifications response, it would have modified its
ordering systems to comply with the fill or kill requirement. In its
initial protest, OfficeMax stated, consistent with its response to the
IRS's request for clarifications, that its "current process is set up to
[deleted]." Protest at 7. In its comments, OfficeMax finally stated that
it "can modify its current process in order to avoid the partial
fulfillment of an order." Protester's Response to Motion to Dismiss, at 4.
This statement, however, falls well short of establishing that OfficeMax
could or would have complied with the fill or kill requirement during the
course of the procurement.[2] On this record, we conclude that although
the IRS never clearly advised OfficeMax that its failure to comply with
this mandatory solicitation requirement would result in rejection of its
quotation, the protester suffered no prejudice as a result. See
CRAssociates, Inc., B-297686, Mar. 7, 2006, 2006 CPD para. 61 (protest
denied where record shows that protester could not remedy deficiencies in
its proposal had it been given opportunity for discussions).
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] This procurement was conducted under the FSS provisions of FAR subpart
8.4, and thus the negotiated procurement provisions of FAR part 15 do not
directly apply. However, our Office has held that where agencies use the
negotiated procurement techniques of FAR part 15 in FSS buys, such as
discussions, we will review the agency's actions under the standards of
negotiated procurements to ensure that offerors are treated reasonably and
fairly. Digital Sys. Group, Inc., B-286931,
B-286931.2, Mar. 7, 2001, 2001 CPD para. 50 at 6.
[2] For purposes of determining prejudice, we assume that any requirement
to conduct discussions would have been first triggered when the IRS
realized, as a result of OfficeMax's April 2 clarifications response, that
the protester could not comply with the fill or kill requirement.