TITLE: B-309930.2, Klinge Corporation, February 13, 2008
BNUMBER: B-309930.2
DATE: February 13, 2008
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B-309930.2, Klinge Corporation, February 13, 2008
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: Klinge Corporation
File: B-309930.2
Date: February 13, 2008
Richard P. Rector, Esq., and Seamus Curley, Esq.,with the law firm of DLA
Piper, for the protester.
Robert A. Farber, for Sea Box, Ltd., the intervenor.
David P. Ingold, Esq., and James McCloskey, Esq., U.S. Marine Corps, for
the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest that awardee's proposed large field refrigeration system (LFRS)
did not meet requirements of Trade Agreements Act is denied where agency,
after requesting further information from awardee, reasonably determined
that components of awardee's LFRS would be substantially transformed in
U.S. and thus qualify as a U.S.-made end product.
DECISION
Klinge Corporation protests the U.S. Marine Corps's (USMC) award of a
contract to Sea Box, Ltd., under request for proposals (RFP) No.
M67854-07-R-5060, for large field refrigeration systems (LFRS). Klinge
asserts that Sea Box's proposal should have been rejected as unacceptable.
We deny the protest.
The solicitation provided for award of an
indefinite-delivery/indefinite-quantity contract for a base period of 1
year, with four 1-year options, to furnish up to 300 LFRSs, as well as
spare parts and training. Each LFRS was to be comprised of two primary
components: (1) a 20-x-8-x-8-foot insulated container, compliant with
International Organization for Standardization (ISO) standards, with
double doors at one 8-x-8-foot end, and (2) (to be installed at the
opposite end of the container) an electrically-powered
refrigeration/freezing/heater unit (RU).
The solicitation included a performance specification that divided the
specified performance characteristics into Critical Performance Parameters
that "must be met for minimum acceptability," and other parameters that
were only objectives and were subject to tradeoff in the best value
analysis. RFP at 1; Performance Specification sections 1.0, 3.0, 3.1, 3.2.
The solicitation also incorporated the standard Trade Agreements Act (19
U.S.C. sect. 2501 et seq.) clauses requiring (1) that offerors certify,
"[f]or all line items subject to the Trade Agreements clause of this
solicitation," that "each end product to be delivered under this contract,
except those listed in paragraph (c)(2) of this provision, is a U.S.-made,
qualifying country, or designated country end product," Defense Federal
Acquisition Regulation Supplement (DFARS) sect. 252.225-7020, Trade
Agreements Certificate; and (2) that the contractor "deliver under this
contract only U.S.-made, qualifying country, or designated country end
products," absent exceptions not applicable here, DFARS
sect. 252.225-7021(c), Trade Agreements. In this regard, DFARS standard
clause 252.225-7021(a)(12), Trade Agreements, incorporated in the
solicitation, provided that:
U.S.-made end product means an article that --
(1) Is mined, produced, or manufactured in the United States; or
(2) Is substantially transformed in the United States into a new and
different article of commerce with a name, character, or use distinct
from that of the article or articles from which it was transformed.
Award was to be made to the offeror whose proposal represented the "best
value" based on four evaluation criteria: operational effectiveness, past
performance, supportability, and price. RFP, Federal Acquisition
Regulation (FAR) sect. 52.212-2, Evaluation--Commercial Items. Sea Box,
Klinge and three other offerors submitted proposals. Based on its
evaluation of the initial proposals, the Corps determined that Sea Box's
proposal represented the best value and made award to that firm on July
16, 2007.
Klinge filed a protest with our Office challenging the award, asserting
that (1) the agency had improperly determined Klinge's proposal to be
unacceptable for failure to satisfy a Critical Performance Parameter in
the performance specification--the requirement that the RU start and
operate in ambient temperatures from -25DEG Fahrenheit (F.) to +131DEG F,
Performance Specification sect. 3.9.1, and (2) Sea Box's proposal did not
comply with the Trade Agreements provisions included in the RFP. In
response to Klinge's protest, the USMC determined to take corrective
action; it suspended performance under Sea Box's contract, established a
competitive range of three offerors (including Klinge and Sea Box), and
conducted discussions. We dismissed the protest as academic (B-309930,
Aug. 27, 2007).
In its September 6 letters opening discussions, the agency requested that
Klinge and Sea Box (1) "[p]lease provide specific test data or analysis
that supports your claim of meeting the 131 degrees F. operating
temperature Critical Performance Parameter"; and (2) "specifically
identify the country of origin for each line item number and . . . address
your compliance with DFARS 252.225-7021," Trade Agreements. Discussion
Letters to Klinge and Sea Box, Sept. 6, 2007. Thereafter, the USMC
requested final proposal revisions (FPR). Based upon its evaluation of
FPRs, the agency again determined that Sea Box's proposal offered the best
overall value. In this regard, while both Sea Box's and Klinge's proposals
received acceptable ratings for the operational effectiveness and
supportability evaluation factors, Sea Box's proposal was evaluated as
offering four value added features and five exceptional attributes, while
Klinge's was evaluated as offering only two "value added" features and
three exceptional attributes. Further, while Sea Box was rated low risk
for past performance based on 57 outstanding, 4 satisfactory, 15 meets
expectations, and 8 neutral past performance ratings from 12 references,
Klinge was rated moderate risk for past performance based on
3 satisfactory, 3 meets expectations, 8 unsatisfactory, and 1 neutral
rating from 3 references. Overall, Sea Box's proposal was evaluated as
technically superior to Klinge's, and its evaluated price ($[REDACTED])
was lower than Klinge's ($[REDACTED]). Upon learning of the resulting
award to Sea Box, Klinge filed this protest with our Office.
We have considered each of Klinge's arguments and find that they are
without merit. We discuss Klinge's primary arguments below.
TRADE AGREEMENTS REQUIREMENTS
LFRS
Klinge asserts that Sea Box's proposal should have been rejected for
failure to demonstrate compliance with the Trade Agreements requirement in
the solicitation requiring that the offeror provide "only U.S.-made,
qualifying country, or designated country end products." DFARS
sect. 252.225-7021(c).[1] We find Klinge's protest in this regard to be
without merit.
Both Sea Box and Klinge proposed to utilize insulated containers
manufactured (by the same company) in China, which is neither a qualifying
country, nor a designated country. However, both proposals as revised
included the DFARS sect. 252.225-7020 Trade Agreements Certificate in
which, by inserting "NA" or "None," Sea Box and Klinge certified that
"each end product to be delivered under this contract, except those listed
in paragraph (c)(2) of this provision, is a U.S.-made, qualifying country,
or designated country end product." DFARS sect. 252.225-7020(c)(1).
Klinge proposed to ship the Chinese containers to the U.S., where a
special chemical agent resistant coating (CARC) paint would be applied and
U.S.-made Klinge RUs would be mounted onto and integrated into the
containers to form the LFRS end products. In contrast, Sea Box stated in
its discussion response that it would (1) acquire RUs made (by a
subsidiary of United Technologies) in Singapore, a designated country; (2)
ship the RUs to China; (3) there, the RUs "will ultimately be mechanically
and electrically integrated within the basic ISO container structure";
(4) "[f]ollowing integration," ship the containers to the U.S.; (5) and
there, perform "all additional and necessary manufacturing processes
(e.g., electrical, CARC . . . painting, finishing) and parts integration
as well as quality assurance testing and preparation for inspection and
final shipment to the government." Sea Box Discussions Response, Sept. 12,
2007, at 3.
As discussed above, the solicitation required an offeror either to (1)
produce an item in the United States (or other designated or qualifying
country), or (2) show that the item was substantially transformed in the
U.S. DFARS sect. 252.225-7021(a)(12). Since one of the two primary
components of Sea Box's proposed LFRS--the insulated container--was
manufactured in China, which is neither a designated nor a qualifying
country, and the two components were first joined in China before being
shipped to the U.S., it is clear that, for Sea Box's proposed LFRS to be
compliant with the Trade Agreements requirements in the solicitation, the
LFRS must qualify as a U.S.-made end product through a substantial
transformation of the Chinese-made insulated container in the U.S.
The record indicates that the USMC determined that, under Sea Box's
proposed approach, a substantial transformation would occur in the U.S.
such that its LFRS would qualify as a U.S.-made end product. Klinge
challenges that determination, asserting that, under Sea Box's proposal,
the Chinese insulated container was to be substantially transformed into
the LFRS in China, not in the U.S. In support of its position, Klinge
primarily relies upon the language in Sea Box's discussion response
stating that the Singapore refrigeration unit would be "mechanically and
electrically integrated within the basic ISO container structure" in
China.[2]
When a bidder or offeror represents that it will furnish end products of
designated or qualifying countries (including domestic end products) in
accordance with the Trade Agreements Act, it is obligated under the
contract to comply with that representation. If prior to award an agency
has reason to believe that a firm will not provide compliant products, the
agency should go beyond the firm's representation of compliance with the
Act; however, where the contracting officer has no information prior to
award that would lead to such a conclusion, the contracting officer may
properly rely upon an offeror's representation without further
investigation. Leisure-Lift, Inc., B-291878.3; B-292448.2, Sept. 25, 2003,
2003 CDP para. 189 at 8. Where an agency is required to investigate
further, we will review the evaluation and resulting determination
regarding compliance with the requirements of the Act to ensure that they
were reasonable. See Pacific Lock Co., B-309982, Oct. 25, 2007, 2007 CPD
para. 191 at 4; cf. General Kinetics, Inc., Cryptek Div., B-242052,
B-242052.2, May 7, 1991, 91-1 CPD para. 445 at 7 (GAO reviews the
evaluation and resulting determination of country of origin under the Buy
American Act to ensure they were reasonable).
The agency's evaluation and resulting determination of compliance was
reasonable. As we noted in a recent decision, Pacific Lock Co., supra, at
3, neither the FAR nor DFARS provides guidance or examples to illustrate
the circumstances under which an article is "substantially transformed"
into a new and different item. Here, the contracting agency, in
determining whether under Sea Box's proposal there would be a substantial
transformation in the U.S., looked to whether significant work or
processes necessary to the functioning as a refrigerated container system
would occur in the U.S. Agency Supplemental Report, Jan. 24, 2008, at 13.
In this regard, our review of the record supports the agency's
determination that the information available to contracting officials
concerning Sea Box's production process indicated that significant
production activity would take place in the U.S. before Sea Box's LFRS
could be delivered to the agency. Specifically, as noted by the agency,
while the work breakdown structure included in Sea Box's FPR allotted
5 days for "Final Assembly" after the Chinese manufacturer of the
containers received the first 3 refrigeration units, 10 days were allotted
to "Install[ing] Interior components" after the joined refrigeration units
and containers were received at Sea Box's facility in the U.S. (in New
Jersey). Sea Box FPR, Work Breakdown Structure, at 1-2. Likewise, as noted
above, Sea Box's discussion response stated that once the joined
refrigeration units and containers were received in the U.S., Sea Box
would perform "all additional and necessary manufacturing processes (e.g.,
electrical, CARC . . . painting, finishing) and parts integration as well
as quality assurance testing and preparation for inspection and final
shipment to the government." Sea Box Discussions Response, Sept. 12, 2007,
at 3. Further, Sea Box estimated in its discussion response that "[t]he
parts, materials and labor for those manufacturing processes which Sea Box
performs in New Jersey so as to render the end item into a
fully-functioning LFRS," accounted for a significant portion of the
overall cost of LFRS, amounting to approximately [REDACTED] percent, with
the cost of the Singapore refrigeration unit accounting for another
[REDACTED] percent of overall cost and the "cost of the basic [Chinese]
ISO container" itself accounting for [REDACTED] percent of the overall
cost. Id.
Finally, the record indicates that the agency verified with Sea Box prior
to award that significant, essential production activity remained to take
place in the U.S. In this regard, agency counsel contacted Sea Box's
director of contracts, who had prepared the firm's discussion response, to
reconcile the detailed information showing substantial production activity
in the U.S. with the general reference in Sea Box's discussion response to
the Singapore RU's being "mechanically and electrically integrated within
the basic ISO container structure" in China. The record indicates that
counsel for the agency was advised by Sea Box's director of contracts,
apparently after verification by the company's president, that, in fact,
no work other than bolting the refrigeration unit in place onto the
container was to be accomplished at the Chinese container factory.
Declaration of Agency Counsel, Jan. 24, 2008.[3] Agency counsel advised
the contracting officer of this clarification. Declaration of Contracting
Officer, Jan. 29, 2008. The agency ultimately concluded that the joined
unit subsequently shipped to the U.S. amounted to only two components
bolted together, and not an LFRS, since, absent the significant work
performed at the Sea Box facility in New Jersey, the two components could
not perform as a refrigerated container system. Agency Report, Jan. 24,
2008, at 13.
Thus, it appears from the record that the information available to the
contracting agency prior to award concerning Sea Box's contemplated
production process indicated that the Singapore refrigeration units would
be simply bolted to the Chinese containers in China, and that the work and
processes necessary to combine the two components into a functioning
refrigerated container systems, which would be substantial in terms of
effort (whether measured by time required or cost), instead would first
occur in the United States. Based on this information, the USMC determined
that the components of Sea Box's LFRS would be substantially transformed
in the U.S. and thus meet the U.S.-made end product requirement. Given the
information available to the agency, the agency's ultimate determination
that there was no basis on which to question Sea Box's Trade Agreement
Certificate of compliance with the Trade Agreements requirements was
reasonable.[4]
Spare Parts
Klinge asserts that language in Sea Box's proposal also called into
question Sea Box's commitment to provide "only U.S.-made, qualifying
country, or designated country" end products under Contract Line Item
Number (CLIN) 0003, under which offerors were to propose and price a parts
support package sufficient to support the LFRSs for a period of up to 2
years operation at a rate of 600 hours per year. DFARS sect.
252.225-7021(c). Klinge notes that Sea Box stated in its discussion
response that its package "is comprised of 32 discrete parts or items,
substantially every one of which is manufactured in the United States."
Sea Box Discussions Response, Sept. 12, 2007, at 4. Klinge asserts that
each individual part in the support package was required to be U.S.-made,
or the product of a qualifying or designated country, and that the
"substantially every one of which" language called into question Sea Box's
commitment to furnish only compliant parts.
We have no reason to question the agency's determination that the
reference in Sea Box's FPR, when discussing the parts support package, to
"substantially every one of which is manufactured in the United States,"
did not call into question Sea Box's commitment to furnish a compliant
parts support package as reflected in Sea Box's overall certification that
"each end product to be delivered under this contract . . . is a
U.S.-made, qualifying country, or designated country end product." Defense
Federal Acquisition Regulation Supplement (DFARS) sect. 252.225-7020,
Trade Agreements Certificate. Not only did the "substantially every one of
which" language not clearly evidence an intention to take exception to Sea
Box's overall certification of compliance, but, in addition, Sea Box
specifically stated in its discussion response that "one hundred percent
(100%) of the CLIN 0003 2-Year Parts Support Package cost represents
manufacturing efforts performed in the U.S." Sea Box Discussions Response,
Sept. 12, 2007, at 4.[5]
AMBIENT TEMPERATURE REQUIREMENT
Klinge asserts that the agency unreasonably determined that Sea Box's
proposed LFRS satisfied a Critical Performance Parameter in section 3.9.1
of the performance specification--the requirement that the RU "start and
operate in ambient external temperatures from -25DEG F. to +131DEG F."
Specifically, Klinge questions whether the agency had a basis for
determining that Sea Box's LFRS could start and operate in ambient
temperatures up to 131DEG F.
In this regard, market research conducted by the agency prior to issuance
of the solicitation led the agency to conclude that it was "uncertain"
whether Klinge and Sea Box could meet the ambient temperature requirement
with a commercial product. Market Research, LFRS, at 12. However, Sea Box
included in its initial proposal a specification matrix indicating "[f]ull
compliance" with respect to the ambient temperature requirement. Sea Box
Initial Proposal, Specification Matrix. In its discussion letter to Sea
Box (after the agency undertook discussions as part of its corrective
action in response to Klinge's initial protest), the USMC referred to a
Carrier specification for the Carrier refrigeration unit proposed by Sea
Box that had not been included in Sea Box's proposal. Agency Report,
Dec. 10, 2007, at 3-4. Noting that this specification indicated an
"Ambient Range" of -22DEG F. to +130DEG F., Carrier Container
Refrigeration Unit Technical Specifications, ThinLine Model 69NT40-541,
the agency requested that Sea Box, "[p]lease provide specific test data or
analysis that supports your claim of meeting the 131 degrees F. operating
temperature Critical Performance Parameter." Discussion Letter to Sea Box,
Sept. 6, 2007. (The agency likewise asked in its discussion letter to
Klinge that it "[p]lease provide specific test data or analysis that
supports your claim of meeting the 131 degrees F. operating temperature
Critical Performance Parameter." Discussion Letter to Klinge, Sept. 6,
2007.) In response, Sea Box furnished a letter from Carrier stating that
the refrigeration unit it was supplying to Sea Box had the ability to
maintain the required temperatures in an ambient temperature of up to
132DEG F. because Sea Box's proposed container had a better "heat leakage"
rate than a standard container. Sea Box Discussion Response, Letter from
Carrier to Sea Box, Sept. 10, 2008. Sea Box's proposal was found to be
compliant with the ambient temperature requirement.
Klinge asserts that the Carrier letter did not furnish a reasonable basis
for finding Sea Box's proposal compliant with the ambient temperature
requirement. We disagree. Although Klinge maintains that Sea Box was
required to support its stated compliance with test data (similar to the
data Klinge supplied in its own proposal), the language in the discussion
letter on which Klinge relies did not establish a solicitation requirement
for an offeror to furnish test data in support of its proposal such that
failure to furnish such data required rejection of the proposal as
unacceptable. Instead, as noted above, the agency's discussion letter
simply requested that Sea Box (and Klinge) "[p]lease provide specific test
data or analysis." Discussion Letters, Sept. 6, 2007. Here, consistent
with the request, Sea Box furnished an analysis supporting its statement
of compliance with the ambient temperature range requirement. In this
regard, we conclude that, given that the Carrier standard commercial
specification for Sea Box's proposed refrigeration unit had indicated an
ambient range of up to 130DEG F., only 1 degree below that required,
Carrier's explanation that because Sea Box's proposed container had a
better "heat leakage" rate than a standard container, the resulting LFRS
would have a higher (and thereby compliant) ambient temperature range than
otherwise, provided the agency with a reasonable basis for finding Sea
Box's proposed LFRS compliant with the ambient temperature requirement.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] Designated countries are listed at DFARS sect. 252.225-7021(a)(3);
qualifying countries are listed in DFARS sect. 225-872-1. China is not
included on either list.
[2] Klinge also asserts that because Sea Box indicated in its FPR that
testing would occur in China, the LFRS must have been essentially complete
by that time. Sea Box's FPR, however, also provided for substantial
testing to occur in the U.S., including 6 days of "Contractor Testing,"
after the 10 days allotted to "Install[ing] Interior components." Sea Box
FPR, Work Breakdown Structure, at 1-2. In any case, Klinge's additional,
testing argument was raised for the first time in Klinge's December 20,
2007 submission, which was filed more than 1 month after counsel for
Klinge had received a copy of Sea Box's FPR on November 16 (and after
Klinge had made a filing responsive to the November 16 document
distribution and the agency had filed its report). As a general matter,
under our Bid Protest Regulations, protests based on other than
solicitation improprieties must be filed within 10 calendar days of when
the protester knew or should have known their bases. 4 C.F.R. sect.
21.2(a)(2) (2007). Moreover, where a protester initially files a timely
protest, and later supplements it with independent grounds of protest, the
later-raised allegations must independently satisfy the timeliness
requirements. FR Countermeasures, Inc., B-295375, Feb. 10, 2005, 2005 CPD
para. 52 at 9. Likewise, where a protester raises a broad ground of
protest in its initial submission but fails to provide details within its
knowledge until later, so that a further response from the agency would be
needed for us to adequately review the matter, these later, more specific
arguments and issues cannot be considered unless they independently
satisfy the timeliness requirements under our Regulations. Planning and
Development Collaborative Int'l, B-299041, Jan. 24, 2007, 2007 CPD para.
28 at 11; Biospherics, Inc., B-285065, July 13, 2000, 2000 CPD para. 118
at 12-13. Accordingly, Klinge's additonal argument, filed more than 10
days after it learned the basis for the argument, is untimely.
[3] As further explained by Sea Box in response to the protest, the
Chinese container is manufactured with one end open; the refrigeration
unit is seated in a metal panel and the panel is simply bolted to the end
of the container so as to close off the container and thereby facilitate
shipment to the U.S. According to Sea Box, no work is performed in China
other than bolting the panel to the container for shipment purposes; all
other required work, including the addition of all other necessary parts
and all mechanical and electrical labor operations and integration, is
performed at Sea Box's facility in the U.S. Sea Box Comments, Dec. 24,
2007, at 3-4.
[4] Klinge asserts that the communications between agency counsel and Sea
Box's director of contracts, which occurred after the closing time for
receipt of FPRs, amounted to discussions such that the agency was required
to reopen discussions with Klinge as well. Klinge states that, had it been
provided further discussions, "this would have included another
opportunity to potentially revise its pricing and, perhaps more
importantly, to address past performance, which was an area where the
agency raised a concern and essentially discredited all explanatory
information supplied in Klinge's written discussion responses." Klinge
Comments, Jan. 28, 2008, at 19. Competitive prejudice is an essential
element of a viable protest; where the protester fails to demonstrate
that, but for the agency's actions, it would have had a substantial chance
of receiving the award, there is no basis for finding prejudice, and our
Office will not sustain the protest. Trauma Serv. Group, B-254674,
B-254674.2, Mar. 14, 1994, 94-1 CPD para. 199 at 6; see Statistica, Inc.
v. Christopher, 102 F.3d 1577 (Fed. Cir. 1996). Here, the protester's
general contention that it might have "potentially revise[d] its pricing"
during further discussions is insufficient to show competitive prejudice.
M & M Investigations, Inc., B-299369.2, B-299369.3, Oct. 24, 2007, 2007
CPD para. 200at 5 n.3; see Myers Investigative and Sec. Servs., Inc.,
B-286971.2, B-286971.3, Apr. 2, 2001, 2001 CPD para. 59 at 3. In this
regard, we note that Klinge, having already reduced its initial pricing in
its FPR by [REDACTED] percent, makes no claim that it would have proposed
during reopened discussions the still larger further reduction
(approximately [REDACTED] percent absent a further reduction by Sea Box)
required to displace Sea Box's low price. Likewise, Klinge had already
been afforded an opportunity to address the very significant reported
deficiencies in its past performance, and the protester has made no
showing that there was additional, previously unavailable information that
it could have furnished that would have shown the reports of
unsatisfactory performance to be erroneous so as to overcome Klinge's
significant evaluated disadvantage in this area.
[5] In contrast, as noted by the agency, Klinge's proposed list of 23
spare parts (appendix F to its proposal), included two parts that were
described in a separate list in its proposal (appendix B) as being
"Non-Designated Country" parts and non-U.S. parts, which would appear to
render its proposal not compliant with the Trade Agreements Act. Klinge
Comments, Jan. 23, 2008, at 3. In response to questions from GAO during
this protest, Klinge explained that while it intended to use two
Chinese-made parts in the LFRSs it would deliver to the agency, the two
parts when included in the CLIN 0003 parts support package instead would
be made in the U.S. or Mexico (a designated country). Klinge Comments,
Jan. 23, 2008, at 3. Klinge's claimed intention was not apparent from its
proposal.