TITLE: B-309955, Nautical Engineering, Inc., November 7, 2007
BNUMBER: B-309955
DATE: November 7, 2007
************************************************************
B‑309955, Nautical Engineering, Inc., November 7, 2007

   Decision

   Matter of: Nautical Engineering, Inc.

   File: B-309955

   Date: November 7, 2007

   Jacob B. Pankowski, Esq., John J. Field, Esq., and Marisa Miller, Esq.,
   Nixon Peabody, LLP, for the protester.

   John J. Ralston, Esq., U.S. Coast Guard, 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. Protest challenging consolidation of requirements previously provided
   under separate small contracts as improper bundling under the Small
   Business Act is denied where agency reasonably demonstrates that
   measurably substantial benefits to the government justify the
   consolidation.

   2. Protest challenging consolidation of requirements as a violation of the
   Competition in Contracting Act is denied where agency demonstrates that
   the consolidation is reasonable.

   DECISION

   Nautical Engineering, Inc. (NEI) protests the terms of request for
   proposals (RFP) No. HSCG85-07-R-6253PM, issued by the Department of
   Homeland Security (DHS), U.S. Coast Guard, for maintenance and repair of
   Coast Guard cutters based in Alameda, California. NEI contends that the
   RFP violates the Small Business Act by improperly bundling two types of
   maintenance and repair services that were previously provided under
   separate smaller contracts. The protester also contends that the
   consolidation of these services violates the Competition in Contracting
   Act of 1984 (CICA).

   We deny the protest.

   BACKGROUND

   The U.S. Coast Guard Maintenance and Logistics Command Pacific (MLCPAC) is
   the organization responsible for maintenance and logistics support for all
   Coast Guard missions throughout the Pacific Area. The solicitation seeks
   proposals to provide maintenance and repair services for three 378-foot
   Coast Guard high endurance cutters based in Alameda, California. This
   class of ship is generally referred to by the hull classification initials
   WHEC.[1] The WHEC cutters require periodic maintenance and repair services
   in two forms: (1) "dry dock" services, wherein the ship is removed from
   the water at a certified contractor facility, and (2) dockside services,
   wherein work is performed on the ship while it remains in the water. The
   cutters receive maintenance and repair service during scheduled
   "availabilities" during which they are removed from operational service.
   Each cutter is normally scheduled for one dry dock availability every 4
   years and one dockside availability every 3 years, in addition to any
   needed unplanned or emergency repairs. The agency currently obtains
   services for each WHEC cutter individually, with separate contracts for
   dry dock and dockside availabilities.

   In November 2004, the Coast Guard began a review to attempt to identify
   benefits that could be achieved by transitioning from the agency current
   model of awarding individual contracts for each service for each ship, to
   what is known as a "phased maintenance model," i.e. multi-year, multi-ship
   contracts that involve the contractor in both the long-term planning and
   performance of maintenance and repair services. Contracting Officer's (CO)
   Statement para. 12. Among these anticipated benefits are the reduction of
   costs from leveraging a large volume of work, learning curve efficiencies
   from repeat work on the cutters (as opposed to the current model, where
   contractors may not work on the same ship), better management of costs
   resulting from advanced planning, and decreased length of maintenance
   availabilities, which results in an increase in the ships' operational
   time. Agency Report (AR), Tab 27, Add. to WHEC Cutter Acquisition Plan
   (Bundling Analysis), 4-6.

   To implement its review, the Coast Guard proposed to use this phased
   maintenance approach for its WHEC cutters based in Alameda. As relevant
   here, the new phased maintenance approach included consolidating all
   maintenance and repair work, including the dry dock and dockside work,
   into a single contract. The agency's requirements for maintenance and
   repair were also subject to a geographic restriction: under Coast Guard
   regulations all work on the WHEC cutters based in Alameda must be
   performed within 75 miles of Alameda. AR, Tab 32, Coast Guard Pacific Area
   Instruction 3100.1E.

   Because the new approach involves consolidation of the dry dock and
   dockside services, some of which had been provided by small businesses
   such as NEI, the Coast Guard undertook an analysis of the potential impact
   on competition of its phased maintenance approach. The agency's analysis
   addressed whether the solicitation constitutes "bundling" under the Small
   Business Act. As discussed in detail below, the Small Business Act
   prohibits agencies from bundling two or more procurement requirements for
   goods or services that were previously provided under separate smaller
   contracts into a single solicitation that is likely to be unsuitable for
   award to a small business. 15 U.S.C. sect. 632(o)(2), see also Federal
   Acquisition Regulation (FAR) sect. 2.101. An exception to the prohibition
   on bundling exists when agencies can demonstrate that the government would
   receive "measurably substantial benefits" from the bundling valued at 10
   percent of the estimated contract or order value (including options), if
   the contract is $86 million or less (or valued at 5 percent of the
   estimated contract value if the contract is for more than $86 million). 15
   U.S.C. sect. 644(e)(2)(c); FAR sect. 7.107(b). The Coast Guard estimated
   the value of this contract at $11.4 million, and thus decided it would
   need to show a benefit of at least ten percent, or at least $1.14 million,
   to justify bundling this work. AR, Tab 34, Acquisition Plan, at 3.

   The Coast Guard also conducted market research in February-March 2005 to
   identify potential offerors for a contract that combines the two services.
   As relevant here, the agency identified two potential offerors for dry
   dock services in the Alameda area: Bay Ship and Yacht, a small business,
   and San Francisco Dry-Dock, a large business. AR, Tab 15, Contractor
   Survey Responses. The agency concluded that it was not likely to receive
   two or more proposals from responsible small businesses for the
   consolidated services, and therefore there was no basis to set aside the
   procurement. AR, Tab 16, Small Business Review Form.

   The Coast Guard initiated discussions with the Small Business
   Administration (SBA) regarding the determination not to set aside the
   procurement for small businesses, and regarding whether the consolidation
   of the dry dock and dockside services constituted an impermissible
   bundling. Although the Coast Guard initially took the position that the
   solicitation did not constitute bundling because the procurement was for a
   new requirement, it nonetheless prepared a justification for bundling on
   the basis that the consolidation of the dry dock and dockside services
   would provide measurably substantial benefits to the government.

   The Coast Guard's bundling analysis relied primarily on data prepared by
   the Department of the Navy to justify bundling maintenance and repair work
   for its DDG 51 class destroyers. Id.; AR, Tab 22, Navy Small Business
   Justification. The Navy's justification addressed the consolidation of
   maintenance and repair services for destroyers at Norfolk, VA and Mayport
   Basin, FL, and relied on earlier data from similar consolidations that
   took place at the San Diego and Puget Sound repair centers. The Navy data
   showed that the consolidation of services through use of a single
   contractor as a lead integrator for all services required for all ships,
   instead of multiple contractors for each ship, lead to cost savings based
   on increased flexibility with maintenance operations, advanced planning
   and scheduling, leveraging of costs over larger work volumes, and learning
   curve efficiencies gained on repetitive tasks. Id. at 17.

   The Coast Guard's bundling analysis concluded that the agency could also
   capture the benefits experienced by the Navy in consolidating its
   maintenance and repair operations. AR, Tab 27, Bundling Analysis, at 7.
   Specifically, the agency's analysis relied on two key findings in the
   Navy's justification for its destroyer maintenance and repair procurement.
   First, the Navy identified a potential cost savings equal to 5.29 percent
   of the estimated cost of its destroyer maintenance and repair contract
   that could be achieved through use of the phased maintenance approach. AR,
   Tab 22, Navy Small Business Justification, at 5-6, 17. Second, the Navy
   estimated a component of the 5.29 percent cost savings was derived from a
   decrease in the length of maintenance availabilities from 11 to 9
   weeks--an estimated 18 percent reduction. The Navy's analysis concluded
   that this reduction would lead to reduced maintenance costs because of
   fewer days during which maintenance and repair costs are incurred. Id. at
   16-17. The Coast Guard analysis applied the estimated 18 percent reduction
   in maintenance time in a different manner, however, reasoning that the
   reduced duration of a maintenance availability would translate into
   increased operational time for the WHEC cutters.[2] AR, Tab 27, Bundling
   Analysis,
   at 7.

   In calculating the benefit of the increased operational time, the Coast
   Guard's analysis relied on Commandant Instruction (COMDTIST) 7310.1I,
   which sets forth standard rates for assets such as cutters to be used in
   reimbursement agreements with other agencies. The COMDTIST stated that the
   "reimbursable" rate for a WHEC cutter is $7,437 per hour, or $178,488 per
   day. AR, Tab 27, COMDTIST 7310.1I,
   encl. 1. The analysis also noted that the Coast Guard published a separate
   rate for "variable and foreseeable costs" for these cutters of $1,641 per
   hour, or $39,384 per day. AR, Tab 27, Bundling Analysis, at 4; Coast Guard
   Variable Rate FY 06 Cost Tables, encl. 1. The variable costs consist of
   expenses not incurred during a maintenance availability such as fuel or
   other consumables. CO Statement para. 48; AR, Tab 27, Coast Guard Variable
   Rate FY 06 Cost Tables, encl. 1.

   Using these two rates, the Coast Guard calculated the benefit to the
   government of increased operational time. Based on the Navy's data, the
   Coast Guard assumed that the 333 days of maintenance and repair currently
   scheduled for the WHEC cutters could be reduced under the proposed
   contract by 18 percent, or 60 days--translating into 60 more days of
   operation for the cutters. AR, Tab 27, Bundling Analysis, at 4. At the
   reimbursable rate, the benefit to the government from the increased use of
   the cutters would be $10.7 million; at the variable rate, the benefit
   would be $2.3 million. Id. The Coast Guard's bundling analysis
   acknowledged a potential margin of error in adopting the Navy's approach,
   but concluded that regardless of the rate used, the proposed bundling
   would provide the statutorily-required "measurably substantial
   benefits."[3] Id.

   The SBA procurement center representative (PCR) assigned to review the
   small business plan and bundling analysis agreed with the Coast Guard's
   justification for its procurement approach. Although the PCR stated that
   the SBA believed that the proposed procurement constituted bundling, the
   SBA nonetheless agreed that the bundling was properly justified, and that
   there was no basis to set aside the procurement for small businesses. In
   this regard, the SBA stated:

     SBA concurs with your proposed full and open procurement, subject to no
     new countervailing information surfacing resulting from your actions
     seeking industry reaction. The justification for changing MLCPAC's
     procurement approach appears adequate by FAR 7.107 standards. A small
     business set-aside does not appear viable.

   AR, Tab 26, SBA Letter, Dec. 7, 2005, at 3.

   On November 23, 2005, the Coast Guard issued a "sources sought notice,"
   which advised potential offerors that the agency intended to issue a
   contract for a single maintenance integrator to perform services,
   including dry dock and dockside, on all WHEC cutters based in Alameda. AR,
   Tab 25, Sources Sought Notice. The agency requested that potential sources
   submit comments by December 8, 2005. Eventually, the agency received two
   comments from potential offerors in response to the notice. Puglia
   Engineering expressed concern that the consolidation of the dry dock and
   dockside work, combined with the geographic limits, might reduce
   competition; Tecnico Corp. requested an opportunity to address the issue
   but then did not provide further comments. AR, Tab 37, Email from Puglia
   to CO, Feb. 16, 2007, Tab 38, Email from Tecnico to CO, Feb. 16, 2007.

   On February 14, 2007, the Coast Guard issued a pre-solicitation notice for
   a "phased maintenance" contract for the three WHEC cutters. On May 24,
   2007, the Coast Guard issued the RFP, which anticipated award of a
   fixed-price, indefinite-quantity/indefinite-delivery (ID/IQ) contract for
   planning, dry dock and dockside maintenance and repair of the three
   cutters. The RFP anticipated the award of a contract with a base period of
   1 year, followed by four 1-year options. The RFP requires the successful
   offeror to establish and maintain mentoring or partnership agreements with
   at least two small business firms, and to subcontract not less than 25
   percent of all repairs ordered annually to small businesses, with not less
   than
   20 percent of the work given to the small business partners, and not less
   than
   5 percent to the HUBZone business partners. RFP at 23.

   NEI filed an agency-level protest on July 17, arguing that the
   solicitation improperly bundled the requirements. AR, Tab 40, NEI
   Agency-Level Protest. On August 2, NEI filed a protest with our Office; in
   light of this protest, the Coast Guard dismissed the agency-level protest.

   DISCUSSION

   NEI argues that the solicitation improperly bundles the dry dock and
   dockside maintenance and repair requirements in violation of the Small
   Business Act, and that the agency justification for the bundling is
   unreasonable. The protester also argues that the consolidation of these
   two requirements violates the Competition in Contracting Act (CICA), 41
   U.S.C. sect. 253a(a) (2000), which prohibits unnecessary consolidation of
   an agency's requirements. The protester contends that as a result of the
   consolidation, small business offerors such as NEI who can provide
   dockside services but who do not have dry dock facilities will be excluded
   from competing for the contract. For the reasons discussed below, we
   conclude that both of the protester's arguments lack merit.[4]

   A. Bundling in Violation of the Small Business Act

   The Small Business Act, as amended, states that, "to the maximum extent
   practicable," each agency shall "avoid unnecessary and unjustified
   bundling of contract requirements that precludes small business
   participation in procurements as prime contractors." 15 U.S.C. sect.
   631(j)(3) (2000). To implement this restriction, the Small Business Act
   defines bundling as:

     consolidating 2 or more procurement requirements for goods or services
     previously provided or performed under separate smaller contracts into a
     solicitation of offers for a single contract that is likely to be
     unsuitable for award to a small-business concern due to--

     (A) the diversity, size, or specialized nature of the elements of the
     performance specified;

     (B) the aggregate dollar value of the anticipated award;

     (C) the geographical dispersion of the contract performance sites; or

     (D) any combination of the factors described in subparagraphs (A), (B),
     and (C).

   15 U.S.C. sect. 632(o)(2); see also FAR sect. 2.101.

   The Small Business Act's statutory prohibition against bundling
   requirements is not absolute, however, as an agency may determine that
   consolidation of requirements is "necessary and justified if, as compared
   to the benefits that would be derived from contracting to meet those
   requirements if not consolidated, the Federal Government would derive from
   the consolidation measurably substantial benefits, including any
   combination of benefits that, in combination, are measurably substantial."
   15 U.S.C. sect. 644(e)(2)(B). The FAR states that these benefits may be
   identified as follows:

     Measurably substantial benefits may include, individually or in any
     combination or aggregate, cost savings or price reduction, quality
     improvements that will save time or improve or enhance performance or
     efficiency, reduction in acquisition cycle times, better terms and
     conditions, and any other benefits. The agency must quantify the
     identified benefits and explain how their impact would be measurably
     substantial. Except as provided in paragraph (d) of this section, the
     agency may determine bundling to be necessary and justified if, as
     compared to the benefits that it would derive from contracting to meet
     those requirements if not bundled, it would derive measurably
     substantial benefits equvalent to--ten percent of the estimated contract
     or order value (including options) if the value is $86 million or less.

   FAR sect. 7.107(b).

   The agency argues that, as a threshold matter, the consolidation of the
   dry dock and dockside services does not constitute bundling for two
   reasons: (1) the solicitation represents a new requirement not subject to
   the bundling rules because of the addition of planning services to the
   consolidated requirements, and (2) the agency's market research shows that
   at least one small business offeror has a dry dock, and therefore the
   procurement is suitable for award to "a small business." With regard to
   the latter argument, the agency contends that the Small Business Act
   should be interpreted to mean that if a single small business offeror is
   capable of performing the consolidated requirements, the solicitation is,
   by definition, not "unsuitable for award to a small-business concern." The
   protester argues that the agency is incorrect with regard to both
   arguments.[5]

   We need not resolve whether the Coast Guard is correct as to the
   interpretation of the term "a small business concern" because we conclude
   that the Coast Guard reasonably decided that the government will receive
   measurably substantial benefits that justify bundling of the requirements
   in any event.

   1. Measurably Substantial Benefits

   NEI argues that the Coast Guard's bundling analysis is flawed in several
   respects. The protester first argues that the Coast Guard's reliance on
   the Navy's bundling justification is not reasonable because the Coast
   Guard did not adequately explain why it can expect the same efficiencies
   for the WHEC cutters the Navy claimed for its destroyers. The protester
   further argues that the Coast Guard unreasonably assumes that it will
   experience the same level of savings as the Navy, and thus the assumption
   of a similar 5.29 percent savings is not reasonable.

   Our review of the Coast Guard analysis shows that the agency does not
   directly compare the details of its maintenance and repair operations to
   the Navy's operations. Instead, the analysis focuses on the benefits of
   adopting the phased maintenance model to address inefficiencies in the
   current practice of making single-contract awards. See AR, Tab 27,
   Bundling Analysis, at 3-4. Based on our review, we think the Coast Guard's
   approach of identifying similar problems and adopting similar solutions to
   those identified and adopted by the Navy, was reasonable. Furthermore, the
   Coast Guard's analysis did not assume, as the protester argues, that the
   same precise savings will result. Rather, the analysis relied on the
   combination of the projected cost savings as well as other benefits,
   discussed below, to conclude that the overall benefit to the government
   would exceed 10 percent of the value of the contract. See id. at 4. On
   this record, we believe that the Coast Guard's reliance on the Navy data
   was reasonable.[6]

   Next, NEI argues that the Coast Guard's use of the Navy's data resulted in
   a double counting of "savings" by relying on both the 5.29 percent cost
   savings and the 18 percent reduction in the length of maintenance
   availabilities. The protester correctly notes that the Navy's
   justification relied on the 18 percent reduction in the length of
   maintenance availabilities as a contributing factor to the overall 5.29
   percent cost savings, and argues that it would not be appropriate to
   conclude that a transition by the Coast Guard to the phased maintenance
   model would result in both a 5.29 percent cost savings plus an additional
   18 percent cost savings. The Coast Guard's justification did not, however,
   rely on the Navy's data in this way. Instead, as discussed below, while
   the 18 percent reduction in maintenance time was a component of the 5.29
   percent cost savings for the Navy, it was also separately relied upon by
   the Coast Guard as a basis to conclude that the WHEC cutters would be
   available for more operational time.

   The Navy's bundling justification for the destroyers did not attempt to
   quantify the benefit to the government from having additional operational
   time for the ships as a result of the decreased length of maintenance
   availabilities. Instead, the 18 percent savings in the Navy's analysis
   represented costs saved by avoiding 2 weeks of maintenance costs; these
   savings were thus a component of the overall 5.29 percent savings
   anticipated by the Navy. See AR, Tab 22, Navy Small Business
   Justification,
   at 17.

   The Coast Guard, however, chose to use the Navy's data to quantify an
   additional benefit to the government from the increased operational time
   for the WHEC cutters. The Coast Guard's analysis notes that although the
   Navy was "reluctant to quantify the benefits of returning a ship to
   operational status sooner," the agency believed that "the benefits to
   [the] Coast Guard of increasing the available operational time for WHEC's
   can be quantified." CO Statement para. 46. In this regard, the intention
   of the new acquisition strategy was based on the "central goal of reducing
   the period of time for performance of maintenance tasks," and thereby
   increasing "the number of days that the WHEC's are available to perform
   national defense and homeland security missions." Id. Thus, this benefit,
   although quantified, was not a calculation of "cost savings." Put
   differently, the Coast Guard's justification relied on two different
   benefits to the government: decreased maintenance and repair costs
   (quantified as a savings of 5.29 percent), and increased time that the
   WHEC cutters will be performing their duties (18 percent more time).

   The Coast Guard's identification of two benefits is consistent with the
   FAR, which states that measurably substantial benefits "may include,
   individually or in any combination or aggregate, cost savings or price
   reduction, quality improvements that will save time or improve or enhance
   performance or efficiency, reduction in acquisition cycle times, better
   terms and conditions, and any other benefits." FAR sect. 7.107(b). NEI's
   argument thus incorrectly characterizes the Coast Guard's identification
   of benefits as a double-counting of "anticipated savings." Protester's
   Comments on AR at 22. The two benefits identified by the Coast Guard are,
   however, distinct, and each is an appropriate measure under the FAR. We
   find no basis on this record to challenge the reasonableness of the Coast
   Guard's determination.

   Finally, NEI argues that the agency inappropriately relied on the
   "reimbursable" rate of $178,488 per day to quantify the benefit to the
   government from increased operational time of the WHEC cutters. COMDIST
   7310.1I states that the components of the reimbursable rate "should not be
   used to calculate reimbursement for [the Federal Emergency Management
   Agency] and foreseeable costs related to contracting actions," because the
   rate contains "both fixed and variable components." AR, Tab 27, COMDIST
   7310.1I, at 2. Instead, the COMDIST states that "[r]ates for these
   purposes shall be promulgated separately." Id. As noted in the facts
   above, the agency did separately promulgate rates for "variable and
   foreseeable costs" for the cutters of $39,384 per day. See AR, Tab 27,
   Coast Guard Variable Rate FY 06 Cost Tables, encl. 1.

   The Coast Guard's bundling analysis calculated the benefit to the
   government of increased operational time for the cutters based on the full
   reimbursable rate of $178,488 per day. AR, Tab 27, Bundling Analysis at 4.
   However, the analysis also noted that using the lower variable rate still
   results in measurably substantial benefits to the government that
   justifies bundling. AR, Tab 27, Bundling Analysis,
   at 3. Thus, the analysis concludes, that even the rate of $39,384 per day
   yields a benefit to the government of $2,363,040--approximately 20 percent
   of the estimated contract value.

   Although the protester only challenges the agency's reliance on the
   $178,488 per day rate, rather than the $39,384 rate, we think that neither
   of these rates on their own is a reasonable measure of the benefit to the
   government for 1 day of use of a WHEC cutter. In this regard, the variable
   rate represents costs that the government will avoid during a maintenance
   availability, such as fuel. See CO Statement para. 48; AR, Tab 27, Coast
   Guard Variable Rate FY 06 Cost Tables, encl. 1. Thus, the variable rate of
   $39,384 per day represents costs avoided, rather than the increased
   benefit to the government from an additional day of operation for a
   cutter.

   During the course of this protest, the CO conceded a better calculation of
   the benefit to the government is achieved by subtracting the variable rate
   from the full reimbursable rate. CO Statement para. 48. Thus, in the CO's
   view, the benefit to the government of an increased day of use for a
   cutter is $178,488 per day, less the variable costs of $39,384. Id. We
   think that this approach appears reasonable because it captures the
   quantifiable benefit to the government from the operation of ship, less
   the costs of operation. Further, this approach is consistent with COMDIST
   7310.1I, which states that the reimbursable rate should not be used to
   calculate foreseeable costs relating to contracting actions because of its
   inclusion of both fixed and variable costs. AR, Tab 27, COMDIST 7310.1I,
   at 2. This calculation of a benefit to the government falls between the
   two calculations cited in the Coast Guard's bundling analysis, but in any
   event well exceeds 10 percent of the value of the contract. Id.

   In sum, we conclude that even if the consolidation of the dry dock and
   dockside requirements constituted bundling under the Small Business Act,
   the Coast Guard reasonably justified any such bundling by identifying
   measurably substantial benefits to the government from the consolidation.
   Even allowing for some margin of error in adopting the Navy's estimates,
   the record supports the Coast Guard's determination that the consolidation
   of the requirements will result in measurably substantial benefits to the
   government equal to at least 10 percent of the anticipated contract
   value.[7]

   2. Procedural Issues with Bundling Justification and Approval

   NEI also alleges that the agency's bundling justification contained
   several procedural errors. First, the protester argues that the agency
   failed to advise the SBA of negative responses from small business
   offerors, and that this failure voided the SBA's approval of the proposed
   bundling. As quoted above, the SBA's letter approving the Coast Guard's
   procurement approach stated that the SBA concurred with the bundling
   analysis "subject to no new countervailing information surfacing resulting
   from your actions seeking industry reaction." AR, Tab 26, SBA Letter,
   Dec. 7, 2005, at 3.

   NEI argues that at least two potential small business offerors expressed a
   negative reaction to the Coast Guard's proposed procurement approach. As
   discussed above, Puglia expressed concern that the consolidation of the
   dry dock and dockside work, combined with the geographic limits, might
   reduce competition; Tecnico also expressed a desire to comment on the
   procurement, but did not submit substantive comments. AR, Tab 37, Email
   from Puglia to CO, Feb. 16, 2007, Tab 38, Email from Tecnico to CO, Feb.
   16, 2007. NEI contends that receipt of these comments obligated the Coast
   Guard to seek a new approval from the SBA.

   A review of the context of the comments leads us to conclude that these
   comments do not provide any new information regarding the bundling
   analysis. The Coast Guard's bundling analysis and the SBA's approval, both
   noted that the consolidation of the services could preclude small business
   offerors without a dry dock in the Alameda area from submitting proposals
   as prime contractors. AR, Tab 27, Bundling Analysis, at 8; Tab 26, SBA
   Letter, Dec. 7, 2005, at 2-3. Thus, the substance of the comments by
   Puglia and Tecnico do not raise any concerns regarding the assumptions or
   analyses in the Coast Guard's bundling justification, or provide new
   information for the SBA to consider. On this record, we do not believe
   that the Coast Guard's failure to provide this information to the SBA
   provides a basis to sustain the protest.

   Next, NEI argues that the Coast Guard was required to obtain approval for
   its bundling justification from the DHS deputy secretary.[8] The Coast
   Guard Small and Disadvantaged Business Utilization Specialist (SADBUS)
   assigned to the procurement recommended that approval for the bundling
   should be obtained from the DHS Deputy Secretary, in accordance with FAR
   sect. 7.107(c) and Homeland Security Acquisition Manual (HSAM) sect.
   3007-107(b). AR, Tab 28, E-mail from SADBUS to CO, Feb. 6, 2006. In this
   regard, FAR sect. 7.107(c)(1) states that a civilian agency must obtain
   approval at the deputy secretary level for any proposed bundling where
   "[t]he expected benefits do not meet the thresholds in paragraphs (b)(1)
   and (b)(2) of this section but are critical to the agency's mission
   success." The CO disagreed with the SADBUS's recommendation because the
   relevant regulations require such approval only where the bundling is not
   justified by the requisite savings identified in FAR sect. 7.107(b). AR,
   Tab 31, CO Memorandum, Feb. 16, 2006. We agree with the CO's conclusion
   that, because the Coast Guard's analysis reasonably determined that any
   bundling would result in measurably substantial benefits to the government
   in excess of 10 percent of the anticipated contract value, referral to the
   DHS Deputy Secretary for approval was not required.

   Finally, NEI argues that the Coast Guard failed to provide adequate notice
   to small businesses of the agency's intention to bundle the maintenance
   and repair requirements. Agencies contemplating issuance of a solicitation
   containing bundling must provide at least 30 days notice to affected
   incumbent small business concerns before release of the solicitation. FAR
   sect. 10.001(c). The Coast Guard argues that potential offerors, including
   NEI, were placed on notice of the agency's intention to consolidate the
   requirements by the sources sought and pre-solicitation notices. We agree.
   The sources sought notice, issued on November 23, 2005, stated that the
   agency intended to issue a solicitation for a phased maintenance contract
   in support of the WHEC cutters. AR, Tab 25, Sources Sought Notice. The
   notice advised potential offerors that the agency anticipated that the
   solicitation will create a "complete paradigm shift" by replacing the
   agency's current "single ship contracting program in favor of [a]
   multi-ship, multi-option" type of contract, and that successful offerors
   would "need to either possess their own USCG certified dry dock facility
   or have access to a USCG certified dry dock facility in the Bay Area." Id.
   at 1-2. The pre-solicitation notice, issued on Feb. 14, 2007, also
   provided this information. AR, Tab 36, Pre-Solicitation Notice. These two
   notices were issued well in advance of the solicitation on May 24, 2007.
   On this record, we believe that the agency met its obligation to inform
   offerors of its intended procurement approach.[9]

   B. Bundling in Violation of CICA

   NEI argues that even if the Coast Guard's approach of consolidating the
   maintenance and repair services does not violate the Small Business Act's
   prohibitions on bundling, the solicitation violates CICA's prohibition on
   improperly consolidating requirements. CICA generally requires that
   solicitations permit full and open competition and contain restrictive
   provisions and conditions only to the extent "necessary to satisfy the
   needs of the executive agency." 41 U.S.C. sect. 253a(a)(2)(B). Since
   bundled or consolidated procurements may combine separate, multiple
   requirements into one contract, they have the potential for restricting
   competition by excluding firms that can furnish only a portion of the
   requirement. Aalco Forwarding, Inc., et al., B-277241.12, B-277241.13,
   Dec. 29, 1997, 97-2 CPD para. 175 at 6. In interpreting CICA, we have
   looked to see whether an agency has a reasonable basis for its contention
   that bundling is required, and we have sustained protests only where no
   reasonable basis is demonstrated. Phoenix Scientific Corp., B-286817, Feb.
   22, 2001, 2001 CPD para. 24 at 10.

   Here, the agency concluded that the combination of the dockside and
   shipside maintenance and repair work will result in measurably substantial
   benefits to the government. As discussed above, we conclude that these
   benefits, including maintenance and repair cost savings and increased
   operational time for the WHEC cutters based on reduced duration of
   maintenance availabilities, justified bundling under the Small Business
   Act. In our view, these benefits also provide a reasonable basis to
   justify the consolidation of the two requirements for purposes of CICA.
   See Teximara, Inc., B-293221.2, July 9, 2004, 2004 CPD para. 151 at 8-9.

   The protest is denied.[10]

   Gary L. Kepplinger
   General Counsel

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

   [1] The three WHEC cutters are the Boutwell, Morenthau, and Sherman. A
   fourth cutter, the Munro, was initially part of the agency's intended
   procurement, but was deleted from the procurement prior to the issuance of
   the solicitation due to its assignment to a different home port.

   [2] As discussed below, and noted by the protester, the Navy chose not to
   attempt to quantify the value of increased operational time gained from
   reduced maintenance and repair time. AR, Tab 22, Navy Small Business
   Justification, at 17.

   [3] In addition to the two categories of substantial benefits discussed
   above, the Coast Guard's analysis also concluded that the agency would
   benefit from increased "quality and effectiveness" in ship repair. AR, Tab
   27, Bundling Analysis, at 4. The agency did not attempt to quantify this
   benefit.

   [4] Our Office provided the SBA an opportunity to submit comments on the
   protest and the Coast Guard's agency report. The SBA advised our Office
   that it did not wish to submit comments.

   [5] In particular, the protester contends that the agency's interpretation
   of the phrase "a small business concern" could lead to the conclusion
   that, for example, a consolidation of requirements that precludes 99 out
   of 100 small business offerors from submitting proposals is not bundling
   in violation of the Small Business Act.

   [6] The protester also argues that the Coast Guard's reliance on the data
   cited in the Navy's justification was unreasonable because the record does
   not indicate whether the SBA approved the Navy's bundling justification
   for its destroyer maintenance and repair solicitation. We believe that
   this argument is unavailing: the Coast Guard's bundling analysis relied
   upon the underlying data cited in the Navy's justification, and not
   whether the SBA actually approved the Navy's use of that data in its own
   justification. In any event, as relevant here, the SBA approved the Coast
   Guard's bundling justification for this procurement.

   [7] Although the protester did not address the role of the WHEC cutter
   Munroe in the Coast Guard's bundling analysis, we note that the agency's
   justification assumes that this ship would be part of the procurement. The
   Munro accounted for one of the eight scheduled maintenance availabilities,
   but was subsequently removed from the procurement based on its change of
   home ports. CO Statement para. 26; AR, Tab 34, Acquisition Plan, at 3.
   Although the agency's bundling analysis was not redone after the deletion
   of the Munro, the record shows that this change would not have affected
   the Coast Guard's conclusion that the phased maintenance approach would
   result in measurably substantial benefits to the government in excess of
   10 percent of the anticipated contract value.

   [8] NEI also contends that certain internal Coast Guard forms approving
   the procurement, including small business plan, did not have the proper
   signatures. The balance of the record shows that the small business plan
   and justifications were adequately documented by the CO, and that the SBA
   agreed with the Coast Guard's proposed procurement. To the extent any
   individual form lacked a signature, we view this as a procedural defect
   that was not prejudicial to NEI. See Military Agency Servs. Pty., Ltd.,
   B-290414 et. al., Aug. 1, 2002, 2002 CPD para. 130, at 8. In this regard,
   our Office will not sustain a protest absent a 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).

   [9] Even if we were to conclude that the pre-solicitation notice did not
   meet the agency's requirement to provide the 30-day notice to potentially
   affected small business firms, the protester has not demonstrated any
   potential prejudice here. McDonald-Bradley, supra; see Statistica, Inc.,
   supra. In this regard, NEI was able to file a timely protest challenging
   the terms of the solicitation.

   [10] In pursuing this protest, NEI has raised various collateral issues.
   For example, as an alternative to its primary grounds of protest, the
   protester argues that even if the bundling was justified, the RFP should
   have been set aside for small businesses. NEI contends that the agency's
   market research shows that at least two small business offerors exist who
   could meet the agency's requirements: (1) Bay Ship & Yacht, which
   possesses a dry dock, and (2) NEI, which can perform the dockside work.
   NEI Comments on AR at 27, n.13. NEI misstates, however, the so-called
   "rule of two," which requires an agency to set aside procurements over
   $100,000 when it has a reasonable expectation of receiving proposals from
   at least two responsible small business offerors and that award will be
   made at fair market prices. FAR sect. 19.502-2(b). The set-aside
   requirement clearly does not apply here because there was no reasonable
   expectation that two or more responsible small businesses offerors would
   submit responsible proposals in response to the solicitation, i.e.
   proposals for both the dry dock and dockside work. We have reviewed all of
   the protester's arguments, and conclude that none provides a basis for
   sustaining the protest.