TITLE: B-310941, Eisenhower Real Estate Holdings, LLC, March 18, 2008
BNUMBER: B-310941
DATE: March 18, 2008
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B-310941, Eisenhower Real Estate Holdings, LLC, March 18, 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: Eisenhower Real Estate Holdings, LLC
File: B-310941
Date: March 18, 2008
Fernand A. Lavallee, Esq. and J. Philip Ludvigson, Esq., DLA Piper, for
the protester.
Robert A. Hauser, Esq., General Services Administration, for the agency.
Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest of reasonableness of agency's cost-benefit analysis that served as
basis for agency determination that government cannot expect to recover
through competition substantial relocation or duplication costs involved
in award of lease to other than incumbent lessor is denied where record
shows cost-benefit analysis was reasonably based, and protester provides
no persuasive support for assertion that a lease for its property would
provide cost savings exceeding agency's relocation or duplication costs.
DECISION
Eisenhower Real Estate Holdings, LLC protests the decision by the General
Services Administration (GSA) to award a sole-source lease to the
incumbent lessor of office space for the headquarters location of the Drug
Enforcement Administration (DEA). The protester, which asserts that it can
provide an acceptable alternative property offering cost savings to the
agency, challenges the reasonableness of the cost-benefit analysis cited
as the basis for GSA's justification for the use of noncompetitive
procedures and its determination that there is only one responsible source
that can satisfy the needs of the agency.[1]
We deny the protest.
GSA's existing lease for office space for DEA's headquarters location (in
two buildings constructed 20 years ago for DEA's use) is expiring. The
current protest involves the agency's plan to award a 10-year lease to the
incumbent lessor for continued use of the property based on a cost-benefit
analysis that demonstrated that substantial relocation expenses would not
be recovered through competition for the award of the lease.[2]
On June 29, 2006, the agency issued a presolicitation notice seeking
expressions of interest from potential lessors for a 10-year lease of
approximately 593,100 rentable square feet (RSF) of office and related
space in northern Virginia. The notice, which provided general
requirements for a secured site meeting government safety standards and
setback distances with proximity to a Metrorail station, was reissued on
April 2, 2007; both notices specifically advised potential offerors that
the agency would evaluate expressions of interest in terms of availability
of alternative properties and the relocation costs involved in moving DEA
to determine whether the agency would remain at the existing property or
relocate. Expressions of interest were to describe the potential lessor's
property and identify the amount of space available, date the property
will be available, expected rental rate per RSF (capped by the lease
prospectus at $35 per RSF), cost and amount of available on-site parking,
tenant improvement allowance, and available services and amenities. Six
responses were received after the first notice, and two firms, the
protester and the incumbent, revised their responses after the second
notice.[3] Both the protester's and incumbent's properties were considered
acceptable in terms of meeting the minimum requirements set out in the
notices, and both were found to meet the applicable $35 per RSF rental
rate maximum.[4]
The agency, through its broker for the lease acquisition, then performed a
comparative review of the properties in a cost-benefit analysis evaluating
the estimated costs of remaining at the present location versus
relocating. The analysis revealed that relocation costs associated with a
move to the protester's property (including required security upgrades,
telecommunications cabling, design fees and build-out costs, fixtures,
furniture and equipment, and the physical move[5]) would be substantial,
totaling more than $86 million over the 10-year lease term. The agency
considered the incumbent's and the protester's comparable rental rates
(both were evaluated at [deleted] per RSF), as well as the lower parking
costs at the protester's property (which presented more than [deleted]
million in savings compared to the cost of parking at the incumbent's
location over the 10-year lease period), and minor restoration costs for
required repairs upon departure of the incumbent's site, and concluded
that the government would save $77 million over the 10-year lease term by
remaining at the existing location.[6] Based on the cost-benefit analysis
of the expressions of interest, the agency concluded that it cannot expect
to recover the substantial relocation costs through competition and thus
intends to negotiate a sole-source "succeeding" (follow-on) lease with the
incumbent lessor.
On October 18, 2007 (later amended on November 9), Eisenhower filed an
agency-level protest of the proposed sole-source award to the incumbent
claiming that, since Eisenhower has an acceptable alternative property, it
was unreasonable for the agency to conclude that only one source exists
that will satisfy the agency's requirements. In responding to that
protest, the agency explained to the protester that it decided to award a
sole-source lease to the incumbent based on the results of the
cost-benefit analysis which was performed pursuant to the GSA regulations
(GSAR) regarding succeeding leases, 48 C.F.R. subpart 570.4. Specifically,
under GSAR sect. 570.402-5(b), "if the cost-benefit analysis indicates
that the Government cannot expect to recover relocation costs and
duplication of costs through competition, [the agency is to] prepare a
justification for approval in accordance with FAR 6.3 and 506.3.[7]" The
agency further explained that a justification for the proposed sole-source
award was prepared pursuant to the exception to full and open competition
requirements at Federal Acquisition Regulation (FAR) sect. 6.302-1 (which
provision references as statutory authority, the Competition in
Contracting Act (CICA), 41 U.S.C. sect. 253(c)(1)), since the cost-benefit
analysis showed that only one responsible source will meet the agency's
needs. Agency Report in Response to Agency-Level Protest, Nov. 1, 2007, at
2, 4. The agency-level protest official dismissed the protest as an
untimely challenge to the terms of the presolicitation notices, and, to
the extent the protest questioned the proposed sole-source award of a
succeeding lease to the incumbent, denied the protest on the basis that
the agency had complied with the requirements of GSAR sect.
570.402-1(b)(2) for a cost-benefit analysis prior to making the
sole-source determination for the lease.[8]
On December 13, Eisenhower filed its protest with our Office, stating that
it
protests as unreasonable and contrary to procurement law and regulations
applicable to leasing the [a]gency's intent to make award to the
incumbent without competition, the [c]ost-[b]enefit analysis . . .
purportedly conducted by the [a]gency . . . and the [j]ustification for
[o]ther than [f]ull and [o]pen [c]ompetition based upon the erroneous
[cost-benefit] analysis and underlying market survey.
Protest at 2. In its protest, Eisenhower also only generally contends that
no exception to full and open competition in the FAR and the GSAR applies
here, and that "no rational basis exists to justify the [a]gency's
determination that there is only one responsible source."[9] Protest at 5,
10, and 11.
In its comments filed 6 weeks after the protest, Eisenhower, for the first
time, provided specific challenges to the agency's use of the CICA
exception at 41 U.S.C. sect.253(c)(1) and its implementing regulations at
FAR sect. 6.302-1, and contended that the agency's reliance on the
cost-benefit analysis required by the GSAR is not controlling here, since,
according to Eisenhower, the GSAR does not authorize the use of the cited
statutory exception.[10] The agency argues that Eisenhower's protest of
the legal authority relied on in support of the agency's justification for
the sole-source award, first advanced with any specificity in its
comments, should be dismissed as untimely. We agree.
The record shows that, despite knowing the legal authority relied on by
the agency for its justification for the sole-source award (information
shared with the protester as early as in the agency's report in response
to the firm's agency-level protest), the detailed comments purporting to
support Eisenhower's earlier broad allegations were not filed until 6
weeks after the protest. A protester has an obligation to set forth its
grounds of protest and the factual and legal basis for its complaint
within the time constraints of our timeliness rules. 4 C.F.R. sect.
21.1(b) (2007). Our Bid Protest Regulations do not contemplate the
piecemeal presentation or development of protest issues through later
submissions citing examples or providing more specific legal arguments
missing from earlier general allegations of impropriety. The later, more
specific arguments cannot be considered unless they independently satisfy
the timeliness requirements under our Bid Protest Regulations. See
Foundation Eng'g Sciences, Inc., B-292834, B-292834.2, Dec. 12, 2003, 2003
CPD para. 229 at 6-7. Since Eisenhower did not raise its challenge to the
legal authority of the sole-source determination with the requisite degree
of specificity until it filed its comments weeks after learning the basis
for the challenge, it is untimely and will not be considered.[11] 4 C.F.R.
sect. 21.2(a)(2); see Advanced Communication Sys., Inc., B-283650 et al.,
Dec. 16, 1999, 2000 CPD para. 2 at 12.
We have reviewed each of Eisenhower's challenges to the cost-benefit
analysis and find that none of them provides a basis to conclude the
cost-benefit analysis lacks a reasonable basis. For instance, Eisenhower
initially alleges that its rental rate is [deleted] per RSF lower than the
rate paid by GSA under the incumbent's current lease; the protester
estimates that this difference gives it an almost [deleted] million
advantage in terms of cost savings to the government. The agency reports,
however, that Eisenhower's initial rental rate of [deleted] is in fact
higher than the rates paid under the incumbent's lease, and that the
subsequent rate information provided by the two firms showed their
properties are indeed comparable in terms of rent. The record supports the
agency's position.
The protester next argues that since its expression of interest noted that
the firm would like to discuss paying for the [deleted] costs, it should
have received credit against the [deleted] costs amount in the
cost-benefit analysis. The record supports the reasonableness of the
evaluation, however, since, despite the firm's failure to quantify its
claimed credit for such costs, or confirm that it would pay all such costs
rather than just a portion, the agency applied an industry standard amount
for such costs [deleted]; the protester has not shown that the standard
amount is unreasonable. Moreover, Eisenhower has not shown in any way
that, given the substantial relocation and duplication costs assessed
against it in the cost-benefit analysis, even if the full amount of the
[deleted] costs calculated here (approximately [deleted] million) had been
credited to the firm in the analysis, it would have made any material
change to the outcome of the analysis.
Eisenhower also claims that its lease location should be viewed as
presenting additional benefits exceeding the agency's stated minimum
requirements, thus warranting cost credits in the comparison of the
expressions of interest; examples include the ability to provide
[deleted]; providing space in a newly refurbished building capable of
supporting state-of-the-art equipment the agency may choose to purchase
for its new space; providing a convenient location, accessible by highways
and Metrorail, with more generous setback distances; and the ability to
design the layout of the space to consolidate office space or accommodate
growth. As a preliminary matter, to the extent that the protester asserts
that the value of the additional intangible benefits its location
allegedly offers was not quantified by the agency, the protester itself
has provided no support for the dollar value associated with the claimed
benefits. Further, to the extent Eisenhower suggests that the alleged
benefits were ignored by the agency, as the agency reports, these
elements, while not quantified, were considered in the cost-benefit
analysis.
For instance, while the agency noted that Eisenhower could provide
additional [deleted], it considered the current amount [deleted] at the
incumbent location acceptable as it met the agency's actual needs. While
Eisenhower asserts that the incumbent's parking presents a greater
security risk because of its below-building location, Eisenhower is
essentially disagreeing with the agency's judgment that there is
sufficient security at the incumbent site. Similarly, while the
protester's location offers newly refurbished space, the record shows that
the agency's space and equipment needs are met at its current upgraded
location. Regarding the claimed convenience associated with the
protester's location, the agency points out that the incumbent's location
is also accessible by highways and Metrorail. As to the additional setback
distance for the protester's property, since the incumbent's property has
been government-approved for setbacks and apparently otherwise meets the
agency's security requirements, we do not find persuasive the protester's
general contention that the shorter setback distance at DEA's current
location presents a security risk, or one that has not been resolved
through other effective security measures.[12] In short, there is no
showing in the record that the cost-benefit analysis challenged by the
protester was unreasonable.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] Eisenhower also generally asserts that GSA lacks statutory authority
to use noncompetitive procedures here; as discussed below, this allegation
is untimely in light of the fact that the specific arguments in support of
the protester's initial general challenge were not raised until the firm
filed comments 6 weeks after the protest was filed.
[2] GSA reports that the existing property has been updated and customized
for DEA at substantial government expense, that the useful life of the
upgrades will exceed the expiration of the current lease, and that the
substantial costs for the upgrades would be duplicated in a relocation to
the protester's property; noted upgrades include the construction of
command, communication and conference centers, chambers and courtrooms,
secured work areas, a museum, cafeteria, fitness center and health unit,
and an auditorium.
[3] The other responses received were evaluated but ultimately were not
considered for award.
[4] In this regard, the incumbent's rate of [deleted] was found compliant
with the $35 per RSF cap (and was evaluated at $35 per RSF) due to the
anticipated application of lease and broker contract terms providing for
the government to receive the additional [deleted] as commission in the
form of free rent. [deleted].
[5] Physical move expenses [deleted] were considered relatively minor
overall (constituting approximately $1.6 million of the estimated $86
million relocation costs).
[6] While the protester suggests that its expression of interest should
have been evaluated at a rental rate lower than $35 per RSF, Eisenhower
has not shown that, but for the agency's evaluation on this basis, its
property would have been found to offer overall cost savings to the
government compared to the costs of remaining at the incumbent's location.
In light of the substantial relocation costs for security upgrades and
customization of the property, as well as telecommunication cabling,
equipment and services, it is clear that even if Eisenhower's rental rate
had been calculated as low as [deleted] per RSF (reflecting the
protester's initial rate of [deleted] with an additional [deleted] credit
per RSF for commission as free rent), the amount of its evaluated rental
rate over the 10-year lease period would be reduced by only slightly more
than [deleted] million, representing a comparatively minor reduction in
the overall cost savings of $77 million associated with remaining at the
incumbent's property.
[7] The reference to "506.3" is to a provision in the GSA Manual (GSAM)
setting out internal agency acquisition policy. That provision
(specifically, GSAM sect. 506.303-1), sets out internal procedural steps
relevant to situations where a justification for the use of other than
full and open competition is proposed for a class, or is based on
industrial mobilization issues, national emergency, or the public
interest. The parties have not suggested that GSAM sect. 506.303-1 is
relevant here.
[8] GSAR sect. 570.402-1(b) provides that "[i]f a succeeding lease will
exceed the simplified lease acquisition threshold, [the agency] may enter
into the lease [if] . . . (2) [the agency] identify[ies] potential
acceptable locations, but a cost-benefit analysis indicates that award to
an offeror other than the present lessor will result in substantial
relocation costs or duplication of costs to the Government, and the
Government cannot expect to recover such costs through competition."
[9] Shortly after the protest was filed, the agency requested dismissal of
the protest on the ground that that it was an untimely challenge to the
terms of the presolicitation notice that advised potential offerors of the
analysis to be performed to determine whether the agency would compete the
lease requirement; our Office denied the request, since the terms of the
presolicitation notice did not convey a final determination regarding the
agency's intention to conduct a sole-source procurement. A copy of the
justification prepared by the agency in support of the use of
noncompetitive procedures for the lease was submitted with the agency's
dismissal request. The justification cited as its legal authority CICA's
exception to full and open competition at 41 U.S.C. sect. 253(c)(1),
regarding the availability of only one responsible source that will
satisfy the agency's requirements. Shortly thereafter, our Office asked
the parties to discuss the legal authority supporting the use of this
exception where the determination appeared to be based on cost factors
alone. As discussed further in this decision, the agency now requests
dismissal, as untimely, of the protester's challenge to the agency's
reliance on the exception to full and open competition in 41 U.S.C. sect.
253(c)(1). The fact that our Office raised the issue during the initial
development of the protest has no bearing on the timeliness of the issue,
which instead turns on whether, and if so, when, the protester raised the
issue as part of its protest.
[10] For instance, Eisenhower specifically argues for the first time in
its comments that the agency's determination that leasing space from the
incumbent will be less costly does not provide a basis for the agency to
conclude there is only one source that can meet the agency's needs, and
that CICA's "only one responsible source" exception, as implemented by FAR
sect. 6.302-1, does not apply to follow-on lease acquisitions.
[11] Accordingly, we express no view on the propriety as a general matter
of GSA's reliance on the one responsible source exception to full and open
competition where, as here, it concludes that award to other than the
incumbent lessor would result in substantial costs which it cannot expect
to recover through competition. Rather, our review is limited to the
matter timely protested with sufficient specificity--the reasonableness of
the agency's evaluation of the expressions of interest in conducting its
cost-benefit analysis under GSAR sect. 570.402.
[12] In its comments, the protester argued that its property appeared more
advantageous in terms of potential expenses considered under an alternate
cost-benefit analysis prepared by the agency. The agency explains,
however, that those cost figures were inaccurate as they were prepared
under the assumption that the agency would have to pay close to [deleted]
for repairs to DEA's current leased buildings and move its employees
between temporary office spaces during those repairs. This assumption is
factually incorrect, as the lessor is expected to pay for most if not all
of the repairs and, the agency reports, no additional space for employee
moves will be necessary during the required repairs.