Matter of: DZS/Baker LLC; Morrison Knudsen Corporation
File:B-281224; B-281224.2; B-281224.3; B-281224.4; B-281224.5;
B-281224.6
Date:January 12, 1999
Joan K. Fiorino, Esq., Donald E. Barnhill, Esq., Valinda J. Astoria,
Esq., and Edgar Garcia, Esq., Douglas & Barnhill, for DZS/Baker LLC;
and Jacob B. Pompan, Esq., Gerald H. Werfel, Esq., and John P. Walsh,
Esq., Pompan, Murray, Ruffner & Werfel, for Morrison Knudsen
Corporation, the protesters.
Gregory H. Petkoff, Esq., and William D. Cavanaugh, Esq., Department
of the Air Force, 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
In a cost comparison study pursuant to Office of Management and Budget
Circular No. A-76, where 14 of 16 agency evaluators held positions
under the study and thus subject to being contracted out, a conflict
of interest that could not be mitigated was created, and protests
challenging the evaluators' conclusion that all private-sector offers
were unacceptable are therefore sustained.
DECISION
DZS/Baker LLC and Morrison Knudsen Corporation protest the decision of
the Department of the Air Force to cancel solicitation No.
F33601-98-B-9002 and to retain performance of civil operations and
maintenance services in-house (rather than contracting out) at
Wright-Patterson Air Force Base (AFB), Ohio. The agency canceled the
solicitation, a two-step sealed bid procurement issued as part of a
cost comparison study pursuant to Office of Management and Budget
(OMB) Circular No. A-76, after finding all step-one technical
proposals unacceptable. DZS/Baker and Morrison Knudsen challenge both
the conduct of the competition and the evaluation of proposals.
We sustain the protests.
The solicitation, issued on May 29, 1998, requested the submission of
initial technical proposals to perform maintenance, operation, repair,
and minor construction services with respect to facilities, utility
systems, grounds, and infrastructure at Wright-Patterson AFB and
specified off-base sites. Offerors submitting acceptable technical
proposals then would be furnished an invitation for bids. The
solicitation provided that compliance with, and demonstration of a
"complete understanding" of, the performance work statement
requirements would be evaluated in five areas--technical plan,
organization and management plan, quality control plan, transition
plan, and past performance--and that "[a]ny factor or sub-factor
judged to be unacceptable will render the entire area unacceptable."
Solicitation Attachment 2, Technical Proposal Evaluation Criteria, sec.
1.4.
Two technical proposals, DZS/Baker's and Morrison Knudsen's (in a
joint venture teaming arrangement with Parsons Brinckerhoff), were
received by the closing time on July 14. After advising each offeror
of the initial evaluation results, the Air Force requested revised
technical proposals. Based upon its evaluation of the revised
technical proposals, the agency determined that both were severely
deficient and thus technically unacceptable. Accordingly, the
contracting officer advised offerors on September 25 that "[s]ince no
offerors have exhibited sufficient expertise to perform the required
services, the ASC Executive Steering Group and I, after considering
the options outlined in [Air Force Pamphlet 26-12, Guidelines for
Implementing the Air Force Commercial Activities Program (AFP),
September 25, 1992], have determined that the solicitation will be
canceled and the Government's Most Efficient Organization (MEO) will
be implemented." Air Force Letters, Sept. 25, 1998; Contracting
Officer Statement (B-281224), Oct. 27, 1998, at 3-4. Following a
debriefing by the agency, DZS/Baker and Morrison Knudsen filed these
protests with our Office.[1]
DZS/Baker and Morrison Knudsen argue that the determination that their
proposals were technically unacceptable--that is, the determination on
which cancellation of the solicitation was based--resulted from a
failure to conduct meaningful discussions, and an unreasonable
evaluation of technical proposals by evaluators with an improper
conflict of interest. In this latter regard, the protesters note that
14 of 16 evaluators--4 of 6 core evaluators (5 designated core
evaluators and 1 evaluator considered by the evaluation team to be a
core evaluator) responsible for evaluating the entire proposals, plus
all 10 technical advisers responsible for evaluating specific portions
of the proposals--held positions that were under study as part of the
A-76 study. Air Force Statements, Nov. 24, Nov. 30 and Dec. 2, 1998.
We agree with the protesters that the evaluation process was
fundamentally flawed as a result of a conflict of interest.[2]
OMB Circular No. A-76 describes the executive branch policy on the
operation of commercial activities that are incidental to performance
of government functions. It outlines procedures for determining
whether commercial activities should be operated under contract by
private companies or in-house using government facilities and
personnel. While our Office does not review internal agency decisions
regarding matters not the subject of a solicitation, where, as here,
an agency has conducted an A-76 competition, thus using the
procurement system to determine whether to contract out or perform
work in-house, we will consider a protest alleging that the agency has
not complied with the applicable procedures or has conducted an
evaluation that is inconsistent with the solicitation criteria or
otherwise unreasonable. See NWT, Inc.; PharmChem Labs., Inc.,
B-280988, B-280988.2, Dec. 17, 1998, 98-2 CPD para. 158 at 5-6; Alltech,
Inc., B-237980, Mar. 27, 1990, 90-1 CPD para. 335 at 3-4.
In setting out the standards of conduct that apply to government
business, Federal Acquisition Regulation (FAR) sec. 3.101-1 states:
Transactions relating to the expenditure of public funds require
the highest degree of public trust and an impeccable standard of
conduct. The general rule is to avoid strictly any conflict of
interest or even the appearance of a conflict of interest in
Government-contractor relationships.
The standards contained in FAR subpart 3.1 are explicitly applicable
to the actions of government personnel.[3] Id.
FAR subpart 3.1 does not provide specific guidance regarding
situations in which government employees, because of their job
positions or relationships with particular government organizations,
may be unable to render impartial advice to the government. However,
as we noted in our decision in Battelle Memorial Inst., B-278673, Feb.
27, 1998, 98-1 CPD para. 107 at 6-7, and as discussed below, FAR subpart
9.5 addresses analogous situations involving contractor organizations.
Accordingly, although FAR subpart 9.5, by its terms, does not apply to
government agencies or employees, we believe that in determining
whether an agency has reasonably met its obligation to avoid conflicts
under FAR sec. 3.101-1, FAR subpart 9.5 is instructive in that it
establishes whether similar situations involving contractor
organizations would require avoidance, neutralization or mitigation.
Id.
FAR sec. 9.501(d) provides that a conflict of interest exists when,
"because of other activities or relationships with other persons, a
person is unable or potentially unable to render impartial assistance
or advice to the Government, or the person's objectivity in performing
the contract work is or might be otherwise impaired." Likewise, FAR sec.
9.505-3 generally prohibits a contractor from evaluating its own
products or services, or those of a competitor, without proper
safeguards to ensure objectivity to protect the government's
interests.
In addition, FAR sec. 9.504 provides general direction to contracting
officers, stating:
(a) Using the general rules, procedures, and examples in this
subpart, contracting officers shall analyze planned acquisitions
in order to--
(1) Identify and evaluate potential organizational conflicts
of interest as early in the acquisition process as possible;
and
(2) Avoid, neutralize, or mitigate significant potential
conflicts before contract award.[4]
Where, as here, a private-sector offeror submits a technical proposal
as part of an A-76 cost comparison study for work currently performed
in-house by an agency, and agency personnel holding positions under
the study and thus subject to being contracted out are involved in
evaluating the commercial offeror's proposal, it seems self-evident
that, as addressed in FAR sec. 9.501(d), the agency evaluators are
potentially unable to render impartial assistance or advice to the
contracting officer--their objectivity in performing the evaluation
may be impaired. Indeed, as addressed analogously in FAR sec. 9.505-3,
in this situation agency evaluators are in effect evaluating a
competitor's proposal. Accordingly, a conflict of interest exists
which calls for the agency to take appropriate remedial action. Our
conclusion in this regard appears to be consistent with that of the
contracting officer, who reports that "[i]n my opinion, the potential
for an inherent conflict of interest by the technical evaluation team
performing the evaluation required extra surveillance of the process
on my part." Contracting Officer's Statement (B-281224), Oct. 27,
1998, at 10; see Contracting Officer's Statement (B-281224>.2), Oct.
27, 1998 at 3.
We note that, according to the contracting officer, although "I could
not help but be aware of the potential for a conflict of interest from
the Technical Evaluation Team," nevertheless, "due to the requirement
for expertise in the performance requirements, there was no one else
available and qualified to perform as part of the technical evaluation
team." Contracting Officer's Statement (B-281224.2), Oct. 27, 1998 at
3. Notwithstanding the contracting officer's statement, for which no
support was offered, it seems implausible that there were no other
personnel available in the Department of the Air Force who were
qualified to evaluate proposals for installation civil operations and
maintenance services.
The Air Force argues that it took reasonable precautions to ensure the
integrity of the evaluation process in light of this conflict,
including the appointment of a procurement analyst whose position was
not subject to the A-76 study as the technical evaluation team chief;
physical segregation of the evaluators; and increased training and
surveillance by the contracting officer. Contracting Officer's
Statement (B-281224), Oct. 27, 1998 at 10-11; Contracting Officer's
Statement (B-281224.2), Oct. 27, 1998, at 3-5; Memorandum of Law
(B-281224.2), Oct. 27, 1998, at 6. We do not agree that these steps
were adequate to eliminate or mitigate the conflict. Notwithstanding
these actions, 14 of 16 agency evaluators, including 4 of 6 core
evaluators, continued to hold positions that were under study and at
risk of being contracted out in the event that a private-sector
contractor's proposal was determined acceptable. This represented a
substantial conflict for all but two of the evaluators, and draws into
question the objectivity of their individual and collective evaluation
findings.
In our view, given the breadth and severity of the conflict of
interest here, the conflict could not be mitigated by any action short
of reconstituting the evaluation team. Aetna Gov't Health Plans,
Inc.; Foundation Health Fed. Servs., Inc., B-254397.15 et al., July
27, 1995, 95-2 CPD para. 129 at 17. So long as contracting officials
relied on the evaluators for their expertise and input, we fail to see
how, in this situation, mere additional oversight of the evaluation
process would be adequate to mitigate a conflict of interest.
Accordingly, in this context, assigning an individual without a
conflict to be the evaluation team chief, while a step in the right
direction, is insufficient to mitigate the conflict. Finally, while
segregation may resolve a conflict of interest relating to an
offeror's unfair access to information, it is virtually irrelevant to
a conflict of interest involving potentially impaired objectivity.
Id. at 16.[5]
The Air Force contends that there is no evidence that evaluators
holding positions under the A-76 study were more inclined to find the
proposals unacceptable than those not under it. This argument is
unpersuasive. As an initial matter, we note that there is a
presumption of prejudice to competing offerors--here, the
private-sector offerors--where a conflict of interest, other than a de
minimis or insignificant matter, is not resolved. Id. at 19.
Moreover, while it may well be that the ratings of the two evaluators
suggest that a team of impartial evaluators would arrive at the same
evaluation judgments as the team here, this can only be confirmed by
actually having an evaluation performed by an impartial team. In
light of the potential adverse impact on the integrity of the process,
we think all offerors are entitled to such an evaluation instead of
mere speculation that the evaluation may have been objective.[6]
We conclude that, in light of this significant conflict of interest on
the part of the evaluators, the evaluation was invalid and did not
furnish a proper basis for cancellation of the solicitation.[7] We
therefore sustain the protests. We recommend that the agency rescind
the cancellation of the solicitation, constitute a new technical
evaluation team, the composition of which is consistent with this
decision, and reevaluate the step-one technical proposals. We also
recommend that DZS/Baker and Morrison Knudsen be reimbursed their
costs of filing and pursuing the protests, including reasonable
attorneys' fees. 4 C.F.R. sec. 21.8(d)(1) (1998). DZS/Baker and Morrison
Knudsen should submit their certified claims for costs, detailing and
certifying the time expended and costs incurred, to the Air Force
within 60 days of receiving this decision. 4 C.F.R. sec. 21.8(f)(1).
The protests are sustained.
Comptroller General
of the United States
1. Where there is an established appeals process available for review
of an A-76 cost comparison, our Office will consider a protest
alleging deficiencies in the cost comparison only where the protester
has exhausted the agency's appeals process, and we will not review any
objections to a cost comparison not specifically appealed to the
agency. Madison Servs., Inc., B-277614, Nov. 3, 1997, 97-2 CPD para. 136
at 9; Professional Servs. Unified, Inc., B-257360.2, July 21, 1994,
94-2 CPD para. 39 at 3. Here, however, the Air Force has determined that
its actions with respect to the cost comparison study are not subject
to review under the agency appeals procedure. In this regard, the Air
Force notes that OMB Circular No. A-76, Revised Supplemental Handbook,
Mar. 1996, provides that "[f]ollowing a tentative waiver or A-76 cost
comparison decision, the A-76 Administrative Appeals process is
invoked," Part I, Ch. 3, sec. K.1; according to the agency there was no
waiver, and the agency was unable to perform a cost comparison due to
the lack of any acceptable technical proposals from commercial
offerors. Air Force Administrative Appeals Decisions, Nov. 2, 1998;
Contracting Officer Statement (B-281224), Oct. 27, 1998, at 3; see
Omni Corp., B-281082, Dec. 22, 1998, 98-2 CPD para. 159 at 4 (A-76
administrative appeal procedures do not apply to questions concerning
the selection of a private-sector offer for comparison with the
government's cost estimate).
2. In light of our conclusion, we need not address the arguments
concerning the conduct of discussions or the evaluation of proposals.
3. We note as well that, when "Source Selection or negotiated
procurement techniques" are used for an A-76 cost comparison, the OMB
Circular A-76, Revised Supplemental Handbook provides the following
guidance:
As required by the FAR, the Government should establish a Source
Selection Authority, including assurances that there are no
potential conflicts of interest in the membership of the
Authority.
Part I, Ch. 3, sec. H.3.b.
4. FAR sec. 9.505 further provides that:
Each individual contracting situation should be examined on the
basis of its particular facts and the nature of the proposed
contract. The exercise of common sense, good judgment, and sound
discretion is required in both the decision on whether a
significant potential conflict exists and, if it does, the
development of an appropriate means for resolving it.
5. In this regard, we note that in January 1996 Air Force commercial
activities program managers were furnished with a background paper
advising them that "[t]o ensure a clean and pure technical evaluation
is conducted in negotiated acquisitions, have individuals from outside
the function (from [Headquarters] and possibly other bases) sit on the
evaluation team." Supplemental Guidance for AFI [Air Force
Instruction] 38-203, Commercial Activities Program, and AFP 26-12,
Guidelines for Implementing the Air Force Commercial Activities
Program, and Miscellaneous Background Information, Jan. 3 1996,
Attachment 12, at 2.
6. Indeed, given the fact that, according to the agency, "both the
initial evaluation rating and the final evaluation rating were by
consensus," Supplemental (Legal) Memorandum (B-281224.2), Nov. 10,
1998, at 4, it is not apparent how the effects on the agency's overall
evaluation judgments of the conflict of interest on the part of 14 of
16 evaluators could be reliably determined.
7. DZS/Baker protests the Air Force's refusal to disclose, outside of
the protective order issued by our Office, the agency's management
plan, MEO and all supporting documentation. However, the failure to
release documents does not state a basis for protest.