Contracts-Negotiation-Changes, etc.-Price Revision After Close

of Negotiations

Attempted late price reductions submitted by unsuccessful offeror after receipt of initial proposals were properly rejected, because RFP late proposal clause (See ASPR 7-2002.4 (1974 ed.)) provided generally for rejection of late proposals and modifications, and none of specified exceptions to general rule were satisfied. But Navy then erred in accepting late price increase from successful offeror, as this action constituted discussions with that offeror and discussions were not held with other offerors in competitive range.

Contracts-Negotiation-Competition-Discussion With All Offerors Requirement-Written or Oral Negotiations

Where award on basis of initial proposal substantially varying from RFP requirements has changed specifications and substantial uncertainties in initial proposals and improper acceptance of late price modification required written or oral discussions with all offerors in competitive range, protest is sustained. General Accounting Office recommends competition be renewed through discussions with offerors based on actual minimum requirements, disclosing information showing relative importance of price as evaluation factor. Depending on competition results, existing contract should be terminated for convenience, or, if contractor remains successful, contract should be modified pursuant to final proposal. Modified in part by 55 Comp. Gen. 972.

In the matter of the Corbetta Construction Company of Illinois, Inc., September 12, 1975:

Corbetta Construction Company of Illinois, Inc., and Joseph Legat Architects (hereinafter Corbetta) have protested against the award of a contract to Towne Realty, Inc., Woerfel Corporation and Miller, Waltz, Diedrich, Architect & Associates, Inc., a joint venture (Towne), under request for proposals (RFP) No. N62472-72-R-0298, issued by the Northern Division, Naval Facilities Engineering Command. The RFP sought offers to design and construct 210 family housing units at the Naval Training Center, Great Lakes, Illinois. Corbetta seeks termination of the Towne contract and an award to itself. Also, Corbetta claims its proposal preparation costs.

Corbetta's several submissions make numerous and detailed allegations of error by the Navy in the conduct of the procurement. For its part, the Navy has responded with detailed reports denying the protester's contentions. All of the issues raised have been considered, but this decision concentrates on the resolution of those issues which we believe are dispositive of the matter.

Corbetta's principal contentions are as follows:

The Navy improperly evaluated the Towne technical proposal by failing to adequately penalize it for not less than 124 deficiencies. By accepting a proposal which should have been judged unacceptable, the Navy improperly waived certain essential technical requirements of the RFP.

-In regard to the foregoing, the Navy failed to comply with the requirements of the Armed Services Procurement Regulation (ASPR)

(1974 ed.) concerning the conduct of discussions with all offerors within the competitive range.

-If the Navy had allowed Corbetta to compete upon the basis of the "relaxed" requirements applied to Towne, Corbetta could have made a substantial reduction in its offered price and its proposal would have become the most advantageous, price and other factors considered.

-Even accepting the results of the erroneous technical evaluation, Corbetta should have received the award for other reasons. The Navy improperly refused to consider three attempts by Corbetta, after the receipt of initial proposals, to substantially reduce its offered price. Nevertheless, the Navy accepted an extension of the Towne offer conditioned upon a $247,640 increase in its offered price. The acceptance of Corbetta's offered price reductions, either with or without considering the $247,640 Towne price increase, would have made Corbetta's the most advantageous proposal under application of the price/quality evaluation ratio stipulated in the RFP.

For the reasons which follow, we sustain the protest and recommend, inter alia, that the RFP be reinstated and negotiations opened with all offerors within the competitive range. In view of our recommendations, we see no need to consider further Corbetta's claim for proposal preparation costs.

BACKGROUND

The RFP, issued April 22, 1974, solicited "basic" proposals (including offered prices for the entire work set forth in the RFP), prices for four deductive items (specific items which might be deleted), and also allowed offerors to list other deductive items which were over the minimum requirements and which the offeror was willing to delete. Eight offerors submitted proposals. The proposals were identified only by number, but for purposes of clarity will be discussed here by name. One proposal was rejected for failure to submit a bid bond, and the remaining seven were evaluated.

Corbetta's basic proposal received the highest technical rating (772 out of a possible 1,000); Towne ranked second (647), and the remaining five offerors were ranked from 584 to 476. Towne's basic proposal price was lowest ($6,191,000); Corbetta was second lowest ($7,690,400) and the remaining five offerors' prices ranged from $7,790,000 to $8,949,500.

In this regard, the record does not reflect any formal determination of a competitive range. However, the Navy representative who attended the May 29, 1975, conference on the protest at our Office indicated that the seven offerors whose proposals were evaluated were considered to be within the competitive range for this procurement. In a report dated September 25, 1974, to the Commanding Officer,

Northern Division, Naval Facilities Engineering Command, the Navy Contract Evaluation and Selection Board recommended award to Towne. The Board's report recognized that Corbetta, considering both the basic proposal and the basic less all combinations of deductive items, provided "significantly more quality" than Towne. However, the Board noted that Towne's price was lower, and that the price/ quality ratio was roughly the same for both. In this regard, the Navy's Standard Technical Evaluation Manual (TEM) for Turnkey Family Housing provides for use of the price/quality ratio (price÷quality points) as an evaluation and selection technique, and that selection will normally be on the basis of the lowest price/quality ratio. As applied to Towne and Corbetta, the ratio yielded the following basic proposal dollars-per-points figures:

In this regard, we note that the modified version of the TEM which was released to the offerors did not disclose the Navy's use of the price/quality ratio or its significance in the evaluation and selection process, nor was this information contained in RFP section 1C.14, "Evaluation Criteria."

Notwithstanding the September 1974 recommendation of an award to Towne, the Navy report to our Office indicates that no award was possible at that time. This was because all offerors' proposed prices, even with all deductives, exceeded the applicable statutory cost limitation. In this regard, section 502(b) of Public Law 93-166, November 29, 1973, 87 Stat. 675, provided that the average unit cost for each military department for all units of family housing constructed in the United States shall not exceed $27,500. The statutory cost limitation as applied to this procurement (210 units X $27,500) was therefore $5,775,000. The Towne basic proposal with deductives, priced at $5,923,000, reflected an average cost per unit of $28,205. As noted supra, all other proposals were higher in price.

The Navy report indicates, however, that in September 1974 Congress was considering the fiscal year 1975 military construction authorization bill, and it was anticipated that the average unit cost limitation would be raised to $30,000. On this basis, the statutory cost limitation for the project would be $6,300,000. The selection board relied on the expected future limitation in recommending award to Towne.

Between September 30, 1974, and October 15, 1974, Corbetta submitted three unsolicited reductions to its offered price, which the Navy

rejected. In the meantime, the Navy requested all seven offerors to extend their offers to December 6, 1974, because the fiscal year 1975 authorization bill had not yet been enacted. All offerors granted the extension; Towne's extension was conditioned upon a $247,640 increase in its price "due to the current economic situation," in Towne's words. Further extensions through January 6, 1975, were sought and obtained from the offerors without changes in the offers. Public Law 93-552, enacted December 27, 1974, 88 Stat. 1757, provided for an average cost limitation of $30,000. A notice of contract award, dated January 6, 1975, was issued to Towne. The award, which reflected the above Towne price increase, was made at a total price of $6,235,840 for the basic proposal with certain deductives.

The record does not indicate that any written or oral discussions were conducted with the offerors at any time up to the award. The Navy report indicates that the accepted $247,640 increase in Towne's price was the only change to the proposals as originally evaluated. TECHNICAL EVALUATION OF TOWNE PROPOSAL

REQUIREMENT TO CONDUCT DISCUSSIONS

Before considering specific issues in this area, it is useful to describe generally some of the contents of the RFP and what offerors were asked to submit. In this regard, the RFP Standard Form 21, Modified Proposal Form, contained a "CAUTION" that "PROPOSALS SHOULD NOT BE QUALIFIED BY EXCEPTIONS TO THE CONDITIONS CITED IN THE REQUEST FOR PROPOSAL.” Page 1 of the RFP, bearing the heading NAVFAC SPECIFICATION NO. 04-72-0298, stated "This specification consists of 143 pages." Further, section 1A.2 stated:

The specification and attachments outline the criteria and requirements to be used by proposers in submitting their proposal. Proposals must be submitted in accordance with this specification and include the "Required Data," as specified herein.

Section 1C.2 sets forth the required data to be submitted with proposals. Among this information was "required technical data" (section 1C.13), including specifications (showing, among other things, quality of materials and fixtures); drawings (showing overall site layout, site plan, floor plans, elevations, and other features); and an equipment schedule (identifying equipment size, capacity, manufacturer, model, and other information).

In addition, section 1C.13 cautioned that failure to submit all data might be cause for determining a proposal "nonresponsive"; section 1C.8 mentioned "failure to comply with technical features" as an illustration of a circumstance which might result in a proposal being held "nonconforming" and ineligible for award.

In addition to the requirements applying to submission of proposals, section 1B.22 (a) provided that after award the contractor would be required to submit construction drawings, specifications, and design calculations:

The contractor shall submit for review within 60 days after award six copies of final construction drawings and specifications, which will be in accordance with the requirements of the RFP, the contractor's proposal, and all other terms and conditions affecting contract award. Upon completion of Navy review of the plans and specifications, the contractor shall furnish one reproducible copy of the drawings and specifications. Design calculations shall be submitted for mechanical, electrical, structural (particularly wind loading analysis and design) and plumbing work, pavements, all utilities, storm drainage, heat transmission coefficients, and as otherwise necessary for a complete review of all engineering design work. Electrical design calculations shall include voltage drop computations, short circuit analysis, load calculations, and lighting calculations. Design calculations which are developed for standardized or repetitive features of the housing units shall be extended, as may be appropriate, to account for non-standard siting features such as building orientation, "end unit" requirements in multi-unit buildings and variations in terrain which impact housing water service pressure and drainage characteristics. Final drawings and any subsequent changes to these drawings shall be approved by a registered professional architect or engineer before submittal for review. Such review does not constitute approval or acceptance of any variations from the RFP or from the proposal unless such variations have been specifically pointed out in writing by the contractor and specifically approved in writing by the Navy.

As noted supra, Corbetta has argued that the Navy failed to properly evaluate the Towne technical proposal as regards 124 omissions, deficiencies or other shortcomings, and that in so doing the Navy in effect waived certain requirements of the RFP.

The Navy's position is that the RFP did not require the proposals to be final designs of the housing project, but only that they be in sufficiently concrete form so as to be susceptible of evaluation under the factors stated in the RFP. Thus, the Navy is of the view that the technical evaluators properly would not object to missing details or nonconforming items in initial proposals, as RFP section 1B.22(a), supra, contemplated that the final design will be accomplished during contract performance. The Navy indicates that upon reviewing the contractor's submission of data under section 1B.22, it will insure that all "inchoate" elements of the Towne proposal conform to the RFP requirements.

In contrast to a proposal with "missing details or nonconforming items," the Navy report notes that "Obviously clarification will be sought and obtained at the proposal stage when the proposal affirmatively and significantly deviates from the requirements of the RFP." Consideration of applicable legal principles must begin with 10 U.S. Code § 2304 (g) (1970) which establishes a general requirement to conduct written or oral discussions with all responsible offerors within a competitive range in a negotiated procurement. The statute and implementing regulations (see ASPR § 3-805.1 (1974 ed.)) pro