Link: GAO Opinion
Agency: Department of the Navy
Disposition: Protest sustained in part, denied in part.
1. Where, in connection with task order for dismantling ships, offerors are required to sell the scrap resulting from the ship dismantling, are permitted to retain the scrap sale proceeds, and are required to offset their proposed prices by the scrap sale proceeds, the determination of whether the task order is “valued” in excess of $10 million–as part of a determination of GAO’s jurisdiction to review a protest of the task order placed under an indefinite-delivery/indefinite-quantity contract–is not limited to consideration of offerors’ proposed prices but properly includes consideration of estimated ship scrap values.
2. Protest challenging the evaluation of technical proposals is denied where the record establishes that the agency’s evaluation was reasonable, consistent with the stated evaluation criteria, and adequately documented.
3. Affirmative determination of awardee’s financial responsibility under task order for ship dismantling services was not reasonable where, notwithstanding the fact that the awardee’s proposal expressly represented that it planned to tow and dismantle three ships simultaneously, the contracting officer nevertheless based his determination of adequate financial resources on the awardee incurring the towing and dismantling costs sequentially.
General Counsel P.C. Highlight:
As a preliminary matter, the Navy argues that GAO should dismiss ESCO’s protest for lack of jurisdiction because the task order issued to ISL is in the amount of $.06 and our jurisdiction to review task order protests is limited to those valued in excess of $10 million (except under certain limited circumstances not applicable here). ESCO disagrees, arguing that GAO has jurisdiction because the value of the task order should include consideration of the ship scrap values, which both offerors estimated to be in excess of $13 million and which offerors were required to factor into their proposed prices. GAO states that the Federal Acquisition Streamlining Act of 1994 (FASA), provides that [a] protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued. However, the National Defense Authorization Act of Fiscal Year 2008 (NDAA), modified FASA’s prior limitations on task order protests. Specifically, the NDAA provides that, in addition to previously permitted task order protests, a protest is also authorized with regard to an order valued in excess of $10,000.
Here, the protester does not allege that the task order will exceed the scope, period, or maximum value of the underlying indefinite-delivery/indefinite-quantity (ID/IQ) contract. Nor is there any dispute that offerors’ proposed prices for the task order are less than $10 million, while the sum of each offeror’s price and estimated scrap value was, in both instances, in excess of $10 million. Rather, the determination of GAO’s jurisdiction turns on the meaning of the term valued as used in the NDAA. The ordinary and commonly understood meaning of the term value is a fair return or equivalent in goods, services, or money for something exchanged, or an amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else. While an order’s value often may be synonymous with its price, under the procurement scheme here, GAO thinks it is proper to take into account the estimated scrap values when determining the value of the task order in question. The provisions of the underlying ID/IQ contracts require the contractor to sell or dispose of any scrap or reusable equipment/material removed from the ship as part of the dismantling efforts. Further, the contractor was to retain the proceeds of the scrap sales. Accordingly, the contractors were required to factor estimated proceeds from scrap sales into their task order prices for towing and dismantling services.
The task order issued here essentially provides the contractor with two different forms of payment for the towing and dismantling services being supplied to the Navy: 1) payment in appropriated funds (i.e., the price); and 2) payment-in-kind (i.e., the right to keep the scrap sale proceeds). As evidenced by their proposals, both ESCO and ISL valued the payment-in-kind at more than $13 million. In fact, the only reason the Navy received the prices that it did from ISL and ESCO was because of the additional $13 million in payments-in-kind that the contractor would receive as part of the task order. Under the payment scheme contemplated by the applicable statute and the ID/IQ contracts themselves, GAO thinks that the price of the task order does not represent the task order’s entire value, and that consideration of the estimated scrap value is also necessary to determine the task order’s value.
ESCO protests the agency’s evaluation of offerors’ proposals under the various technical evaluation factors as being unreasonable, inconsistent with the stated evaluation criteria, or inadequately documented. For example, ESCO protests that the Navy failed to provide ESCO with a fair opportunity to be considered for the task order by failing to expressly advise the firm that a landing craft would be left onboard the ex-Saipan for dismantling and/or salvage purposes. The protester maintains that it priced the task order with the understanding that the landing craft–a separate vessel–was not to be part of the dismantling effort, while ISL included the landing craft in its proposal.
The RFP provided offerors with the opportunity to conduct site visits of all three ships, during which they could inspect the ships, take environmental samples, and review copies of ship-specific documentation. The RFP also identified a specific government point of contact (POC) for each site. In the case of the ex-Saipan, the Navy POC was the director of the NISMO Philadelphia facility. At the time of the site visit, the ex-Saipan had a landing craft (the ACU2-26) onboard its flight deck; it was the Navy’s intention that the landing craft was to remain onboard the ex-Saipan and become part of the ship dismantling effort. Further, for each ship being dismantled, the RFP included a list of specific materials that were not part of the dismantling effort and that the contractor was to remove and set aside for government pick-up. The material-removal list for the ex-Saipan included items such as the ship’s propellers, an air conditioning plant, and steam control valves; it did not include the landing craft. ESCO did not ask the contracting officer, the designated agency POC for the ex-Saipan site visit, or the Navy’s overall NISMO director whether the landing craft was part of the ex-Saipan dismantling effort. Instead, ESCO asked various NISMO contractor employees, who said that the landing craft onboard the ex-Saipan was to be removed, and thereby would not be part of the required dismantling effort. GAO states that oral advice does not operate to amend a solicitation or otherwise legally bind the agency. An offeror chooses to rely on oral explanations of the solicitation at its own risk.
Here, not only did ESCO choose to rely on oral advice regarding the RFP’s dismantling requirements, but it relied on oral advice from contractor employees, who were clearly private parties and not government representatives. Quite simply, if ESCO was unsure whether the landing craft was part of the ex-Saipan dismantling requirement, it should have raised the matter prior to the closing date with the contracting officer rather than faulting the Navy, after the fact, for not expressly advising offerors.
ESCO also protests the Navy’s evaluation of proposals under the facility workload and capacity evaluation factor. The protester argues that its shipyard has a greater capacity to handle ships than does ISL’s. ESCO also argues that it has made substantial improvements and innovations to its facilities–at the agency’s repeated urgings–for which it should have received credit in the evaluation of proposals. The protester further contends that the Navy’s evaluation does not address the substantial benefit to the government of its various improvements. GAO states that in reviewing an agency’s evaluation, it will not reevaluate offerors’ proposals; instead, GAO will examine the agency’s evaluation to ensure that it was reasonable and consistent with the solicitation’s stated evaluation criteria and procurement statutes and regulations.
The RFP instructed offerors to address their facility workload and capacity for ship dismantling during the proposed schedule; offerors were also to provide a summary of their current backlog and ability to dismantle additional ships, including the type of ship. The solicitation also established that the evaluation of facility workload and capacity would be based on the offeror’s capacity, including ships currently in backlog in addition to other potential awards. ISL’s proposal detailed its facility capacity to handle all three ships under the RFP here. Specifically, ISL’s proposal demonstrated that its larger slip could accommodate the largest ship (the ex-Saipan), and that its facility could handle all three ships simultaneously. ISL also had only one ship currently being dismantled, scheduled to be completed by August 28, 2009. Similarly, ESCO’s proposal detailed its facility capacity to work on 10 ships at a time as well as its ability to handle any award under the RFP. ESCO indicated that it had four ships in various stages of dismantling, with one to be completed by the May 1 and two others to be completed by May 31. The agency found both the ISL and ESCO proposals to be acceptable as to facility workload and capacity. The Navy determined that both offerors possessed adequate available facility capacity to successfully handle any possible award scenarios, including a three-ship award.
Here, GAO finds the agency’s evaluation of offerors’ proposals as to the facility workload and capacity factor to be reasonable and consistent with the stated evaluation criteria. The agency reasonably determined that both ISL and ESCO possessed available facility capacities that were adequate to perform the work; notwithstanding any backlog or other work, each possessed the ability to handle any or all of the ships being dismantled here.
ESCO protests the reasonableness of the cash-flow assessment that the Navy performed to determine ISL’s financial ability to perform at the proposed price of $.06. Specifically, the protester argues that the Navy’s cash-flow analysis was improperly premised on the assumption that ISL would generally work on only one ship at a time (and thereby incur the estimated upfront costs of performance sequentially), although ISL’s own proposed schedule stated otherwise. ESCO also argues that the Navy’s cash-flow analysis was improperly computed; thereby underestimating the total upfront costs that ISL was likely to incur in advance of any scrap sale proceeds. Since the total upfront costs that ISL would incur were substantially higher than the offeror’s documented line of credit, ESCO argues, the Navy’s determination that ISL possessed the financial ability to perform the task order at the price proposed was materially flawed.
The Navy’s determination that ISL’s financial resources were sufficient to meet estimated total upfront costs was premised on the assumption that ISL would incur the estimated upfront costs sequentially. Contrary to the agency’s assumption, however, ISL’s proposal included a work schedule indicating that the three ships essentially would be towed and dismantled simultaneously: the towing and dismantling of the ex-Saipan was to occur from May 6, 2009, to July 7, 2010; the towing the dismantling of the ex-Austin was to occur from June 3, 2009, to April 21, 2010; and the towing and dismantling of the ex-Fort Fisher was to occur from June 3, 2009, to July 7, 2010. Moreover, ISL’s schedule indicated that the towing of all three ships would occur before the point in time at which the Navy estimated that ISL would begin to realize returns on the sales of scrap from any ship. As computed by the Navy, the upfront costs for all three ships total $3,037,300, substantially higher than ISL’s $[DELETED] line of credit.
Further, in computing the dismantling costs that ISL would incur before realizing the sale of any scrap, the Navy utilized an average dismantling cost of $126 per ton. This figure was apparently derived by dividing the dismantling costs for the ex-Camden by its tonnage. In fact, the $2,611,617 figure represented only the direct dismantling costs for the ex-Camden, and did not include the contractor’s costs for hazardous waste services, overhead, and general and administrative (G&A) expenses. Using this per ton figure, the upfront dismantling costs computed by the Navy as part of ISL’s cash-flow assessment were understated by a total of $567,980, thereby resulting in an adjusted total estimated upfront cost for all three ships of $3,605,280.
The record shows that the Navy’s decision to perform a cash-flow assessment was done to ensure that ISL [was] financially responsible at the price they proposed. Responsibility is a contract formation term that refers to the ability of a prospective contractor to perform the contract for which it has submitted an offer; by law, a contracting officer must determine that an offeror is responsible before awarding it a contract. Consistent with this statutory and regulatory framework, once an offeror is determined to be responsible and is awarded a contract, there is no requirement that an agency make additional responsibility determinations during contract performance. While there likewise exists no requirement that an agency conduct an additional responsibility determination when placing a task order under an ID/IQ contract, neither is an agency precluded from doing so, as the Navy chose to do here. Since the determination of whether a particular contractor is responsible is largely a matter within the contracting officer’s discretion, GAO, as a general matter, will not consider a protest challenging an affirmative determination of responsibility, except under limited, specified circumstances–where it is alleged that definitive responsibility criteria in the solicitation were not met or evidence is identified that raises serious concerns that, in reaching a particular responsibility determination, the contracting officer unreasonably failed to consider available relevant information or otherwise violated statute or regulation. GAO thinks the circumstances here warrant its review of the reasonableness of agency’s responsibility determination regarding ISL.
The Navy’s determination that ISL had sufficient financial resources to cover estimated upfront costs for all three ships was premised on the assumption that ISL would incur the estimated upfront costs. In making this assumption, the Navy ignored the information in ISL’s own proposal which clearly indicated that the offeror planned to tow and dismantle the three ships simultaneously, and would thereby incur the estimated upfront costs for each ship largely simultaneously. This erroneous assumption was key to the contracting officer’s affirmative responsibility determination. When it is corrected to account for ISL’s plan to service the ships simultaneously, it appears from the record that, using the Navy’s own method of calculation, ISL does not in fact have adequate financial resources to cover the estimated upfront costs of all three ships simultaneously. In addition, the Navy’s analysis underestimated by half the upfront dismantling costs that ISL would occur for each ship. When corrected, at the point in time at which the Navy estimated that ISL would first begin to realize returns on the sales of scrap, the contractor would have total upfront costs of approximately $3,153,838–towing costs of $2,469,280 plus $684,558 in upfront dismantling costs for the ex-Saipan. GAO concludes that by ignoring what ISL actually proposed and instead basing his determination of financial responsibility on information contradictory to what the offeror has proposed, the contracting officer unreasonably failed to consider available relevant information and ignored information that, by its nature, would be expected to have a strong bearing on whether the awardee should be found responsible. As a result, GAO sustains the challenge to the affirmative responsibility determination. The protest is sustained in part and denied in part.