____________________________ DENIED: September 25, 1992 ____________________________ GSBCA 11938-P CORPORATE SYSTEMS RESOURCES, INC., Protester, v. TENNESSEE VALLEY AUTHORITY, Respondent. Paralee White and Donn Milton of Cohen & White, Washington, DC, counsel for Protester. Peter K. Shea, William L. Osteen, Edwin W. Small, and Michael L. Wills, Office of General Counsel, Tennessee Valley Authority, Knoxville, TN, counsel for Respondent. Before Board Judges DEVINE, HYATT, and VERGILIO. VERGILIO, Board Judge. On July 23, 1992, Corporate Systems Resources, Inc. (CSR), filed a protest with this Board. The respondent, the Tennessee Valley Authority (TVA), had selected protester as a candidate for a sole-source 8(a) contract with the Small Business Administration (SBA) to satisfy certain requirements of the agency. After receiving protester's proposal, the agency decided against an award involving protester and sought to obtain a proposal from a different company for a sole-source 8(a) award. Protester contends that the agency improperly refused to negotiate with it concerning the proposed subcontract, and failed to give its proposal the fair consideration required by statute. The agency concluded that protester failed to add sufficient value to the contract to justify negotiations with, or pursuit of an award to, protester. This conclusion served as one of two bases upon which the agency relies in support of its actions. Protester has not proven that the agency conclusion was arbitrary, capricious, or otherwise unreasonable, or that it in any way violated statute, regulation, or the conditions of procurement authority. Therefore, the Board denies the protest. Findings of Fact 1. The agency required maintenance of Optigraphics Corporation equipment already in place and required additional optical scanning hardware, software, and services. By letter dated February 27, 1992, to the SBA, protester requested that the agency requirement be set aside as an 8(a) procurement for protester. Protest File, Exhibit 52. 2. By letter dated March 16, 1992, the agency informed the SBA that it desired to enter into a contract with the SBA under the 8(a) program. The agency described the proposed procurement as an IQT contract in the estimated amount of $4.5 million. The agency requested that the SBA consider protester for the subcontract. It proposed to negotiate directly with protester and to keep the SBA informed as the negotiations progressed. Protest File, Exhibit 2. 3. At the time the agency was considering setting aside the procurement and after the determination was made to propose protester as the subcontractor, some individuals at the agency (a project engineer, in particular) expressed concern with utilizing protester to satisfy the agency requirement. E.g., Protest File, Exhibit 5 (memorandum dated Apr. 6, 1992) (if not possible to compete the requirement, "could we change from [protester] and negotiate a contract with Sylvest Management Systems?"), Exhibit 8 (memorandum dated May 4, 1992) ("I understand that there are some concerns expressed by [the project engineer] about the capabilities of [protester] who does not currently have an OEM agreement with Optigraphics"); Transcript at 87-89, 135. 4. By memorandum dated April 16, 1992, to a specialist of the agency's Office of Small Disadvantaged Business Utilization (OSDBU) the agency project engineer memorialized a discussion with that individual: Subsequent to the meeting with the President of CSR I had a meeting with Optigraphics' Vice-president of Sales and Marketing to discuss Optigraphics' position on doing business with 8(A) firms. I felt this meeting was necessary since TVA has a substantial investment in its scanning systems supplied by Optigraphics. Optigraphics will not support an award to CSR for the procurement, maintenance, and/or installation of existing/new hardware. This decision was based on review of the documentation of CSR's experience and products list. Optigraphics will however support an award to Sylvest Management Systems. Sylvest and Optigraphics have recently had successful partnerships and both companies would entertain further ventures. Based on the aforementioned meeting, on my intention to protect TVA's current investment, and to support TVA's commitment to participate in the 8(A) program, I request that you cancel the CSR offering letter and issue an offering letter for Sylvest to the Small Business Administration. Protest File, Exhibit 10. The SBA refused to withdraw protester as the proposed awardee or to switch to Sylvest. The SBA instructed the agency to request a proposal from protester. Transcript at 90, 153. 5. A letter dated April 22, from an individual at Optigraphics to the agency project engineer states that Optigraphics "would not be interested in supporting any 8(a) firm other than Sylvest. . . . We would not feel comfortable with a project of this cost and complexity relying on a firm whose expertise is in other areas." Protest File, Exhibit 11. 6. Under cover letter dated May 6, the agency OSDBU specialist provided protester with the solicitation. In addition to instructing protester to complete and return the solicitation for the agency to evaluate, the letter advised protester: "Also, we kindly request that CSR send us a letter addressed from Optigraphics Corporation advising that they will support CSR on the mainframe should CSR be awarded this TVA contract." Protest File, Exhibit 13. The solicitation provides that "each initial offer should be submitted on the most favorable terms from a price and technical standpoint." Id., Exhibit 25, Solicitation at 5. 7. In a letter to the agency dated May 13, an Optigraphics' Vice President reveals his concerns with having to deal with protester: Furthermore, the subcontracting of services through Optigraphics would incur us with more expense administrating the contract than would have occurred if we had dealt with TVA direct. This approach is particularly unpalatable, in view of the fact that CSR is expecting us to discount our products, thereby, involving us in more effort administrating the contract for less revenue. In light of the above, Optigraphics would much rather deal with an 8(a) that can offer value added services, and thereby generate their revenue without requiring Optigraphics to sacrifice its margins in order to provide them with what appears to me as an artificial method of generating revenue. We will continue to deal with CSR providing they can furnish us with specific details of their award. Protest File, Exhibit 40. 8. Optigraphics continued to deal with protester. By letter dated May 14, Optigraphics informed protester: [P]lease find enclosed Optigraphics product brochures. We have more detailed information, but did not want to release same until such time as our two companies have a business relationship established. I look forward to hearing from you in the near future. In the meantime, please be advised that Corporate Systems Resource Inc. is not empowered to bid Optigraphics equipment, or represent to a third party that they are an authorized remarket[e]r of Optigraphics equipment. Protest File, Exhibit 41 (emphasis added). By letter dated May 21, protester notified Optigraphics that it had used the materials in preparing a quotation in support of the contract with the Government. The letter concludes with the following sentence: "There are many things which we will need to discuss prior to finalizing a business arrangement, so if you would call me as soon as you have had an opportunity to examine the materials, I would appreciate it." Id., Exhibit 42. 9. Under cover letter dated June 2, protester submitted the system description volume of its proposal to the agency. Protest File, Exhibit 20. The proposal expressly states that protester offers the Optigraphics line of image scanning and manipulation components. Id., at 1. The information in that volume indicates that protester would provide almost exclusively the Optigraphics line of equipment. Id.; Transcript at 93-94. 10. By letter dated June 3, Optigraphics informed the agency OSDBU specialist that it was working with protester to enable protester to respond to the solicitation. The letter highlighted a concern of Optigraphics that it lacked a business relationship with protester. It also suggested that the agency "may want to verify with the selected 8-A that they do, in fact, have the appropriate authorization and agreement with the other vendors they represent." Protest File, Exhibit 21. 11. A follow-up letter from Optigraphics, dated June 4, to the agency OSDBU specialist advised "that no contractual relationship exists between CSR and Optigraphics. Accordingly, they are not currently empowered to remarket Optigraphics products or services and there is no guarantee they will be in the future." Protest File, Exhibit 22. 12. The principal evaluator of the first submitted volume of protester's proposal was the agency project engineer who had expressed concerns regarding protester's ability to perform the contract. Transcript at 148-49. An internal agency memorandum dated June 9, 1992, to the agency OSDBU specialist, reveals that based upon a conversation with the project engineer, the CSR proposal is not acceptable due to the following: 1. The proposal did not contain a letter of agreement stating a contractual relationship between CSR and Optigraphics Corporation. 2. The proposal does not appear to add value to the contract in that CSR does not perform maintenance, integration services or training on hardware. 3. There appears to be a misrepresentation in the proposal because CSR is offering Optigraphics equipment, yet, they have no contractual relationship with Optigraphics. Protest File, Exhibit 23. These conclusions were reached prior to receipt of the entire CSR proposal, and were reached without negotiations with protester. Id., Exhibits 32, 51 at 16 ( 22- 24) and 1-3 (amended 12); Transcript at 117. At the hearing on the merits, the contracting officer testified that had the agency received a letter from Optigraphics authorizing protester to remarket Optigraphics' equipment and services, from a technical standpoint she would have initiated discussions. Transcript at 119. 13. On June 11, apparently after protester had deposited the rest of its proposal with Federal Express, the agency informed protester that it had withdrawn the procurement from the 8(a) program. Protest File, Exhibit 36.[foot #] 1 ----------- FOOTNOTE BEGINS --------- [foot #] 1 The agency relies upon testimony of protester's president, Transcript at 48-49, to assert that protester was aware of the agency's determination on June 10, such that the agency protest was untimely submitted. Agency Post-hearing Brief at 25-26. An agency document dated July 17, drafted prior to this protest, is more credible than the testimony of protester's president. Protest File, Exhibit 36 ("TVA notified CSR on June 11, 1992, that the procurement was (continued...) ----------- FOOTNOTE ENDS ----------- 14. Under cover letter dated June 12, protester submitted the three remaining volumes of its proposal (standard form contract; response to system requirements; and cost proposal) to the agency. Protest File, Exhibit 25. As of June 12, when the complete proposal was due, protester lacked the authority to remarket Optigraphics products or services. Id., Exhibits 47, 54 ( 4). Protester had provided the agency with no assurance that it could deliver the offered Optigraphics goods and services. Transcript at 56-58. However, throughout the period of proposal preparation, Optigraphics provided protester with information (including diskettes and pages of company confidential product descriptions and prices) to be used in the formulation of the proposal volumes. Id., Exhibits 43-46; Transcript at 66- 69.[foot #] 2 15. For each of the fifty-seven priced line items, protester's proposal specifies an Optigraphics model number. Protest File, Exhibit 25 (Cost Proposal at 1). For these line items, the record permits the Board to compare the GSA schedule prices of Optigraphics (or list price, if schedule price is not ----------- FOOTNOTE BEGINS --------- [foot #] 1 (...continued) being withdrawn from CSR."). Moreover, at no time before its post-hearing brief has the agency asserted that it notified protester prior to June 11 of the adverse actions, nor did any agency official testify that notification occurred prior to June 11. [foot #] 2 A letter from Optigraphics to protester dated June 12 concludes with the following: [W]hen TVA asked about the status of our relationship with CSR, Optigraphics felt obliged to tell them what we told you and what CSR knows is still the case, namely, that CSR and Optigraphics have no existing contractual relationship and the CSR is not empowered to remarket our products or services. (Your letter of June 11 confirms that no contractual relationship exists.) . . . We do not believe it would be productive to have further discussions with CSR at this time. Protest File, Exhibit 47. A letter dated August 14, from counsel for Optigraphics to counsel for protester states: "If CSR prevails on those issues [before the Board] and is reinstated as the 8(a) supplier for the TVA project, Optigraphics will consider the negotiation issue at that time. At this time, however, the issue is moot . . . ." Id., Exhibit 57. ___ ----------- FOOTNOTE ENDS ----------- indicated) with the proposed prices submitted by protester for forty-nine line items (1-31, 33, 36-38, 40-41, 43-52, 55-56) each of which has a unit price and a monthly maintenance price. For only eight of these line items does the protester propose prices below the Optigraphics' GSA schedule price. Regarding those eight line items, as protester explained during the hearing, although the four-volume proposal specifies particular Optigraphics' model numbers for each line item, protester intended actually to provide other suppliers' equipment. Transcript at 73 ("even though we used Optigraphics' part number as a reference, we were furnishing part of the underlying turnkey workstation"). For the remaining forty-one line items, protester proposed prices approximately ten percent in excess of the GSA schedule (or list) price. Protest Files, Exhibits 25 (Cost Proposal), 39, 45. 16. A review of protester's entire proposal does not make apparent what value protester would add to the procurement. For example, protester acknowledges that the solicitation does not require program management; however, protester proposed labor in this area because it felt that it "had to have somebody who was responsible for making everything happen." Transcript at 77. At the hearing, the project engineer explained his conclusion that protester failed to add sufficient value to justify negotiations: It seemed to me that it was, instead of an enhancement or value add, or anything, it was a value subtract to me because the normal course of business had been, for the past three years, TVA contacted Optigraphics directly, and talked with specific technical people in specific areas, and here was a situation where I was going to go through a third party. I didn't find that palatable. Transcript at 93-94, 100 ("I do know that we didn't request that service in the RFP. The only thing we asked for in the RFP was a point of contact and, in my mind, that meant similar to the existing relationship that we have."). 17. Without further support in the record, protester's reliance upon its own calculations of the "value added" by protester, Protest File, Exhibit 53, is misleading. First, the calculations are made considering fewer than half of the line items, and utilize only a quantity of one for each of those line items. Thus, the calculations do not necessarily reflect the true, expected purchasing by the agency. Second, the calculations treat as a "value added" the approximate ten percent charge levied by protester to Optigraphics' GSA schedule (or list) prices. That extra charge may well be the antithesis of a value added. Third, protester has not discredited the conclusions of the project engineer, finding 16, that certain personnel support charges do not reflect added value to the procurement. 18. Protester filed a protest with the agency on June 25, objecting to the agency's refusal to negotiate with protester and its determination not to pursue an award to protester. Protest File, Exhibit 29. The agency denied the protest by letter dated July 6, which protester received on July 9. Id., Exhibits 34, 39. 19. Both before and after the protest was filed with the agency, throughout mid-June and early July, the agency was once again exploring with the SBA the possibility of satisfying the protested requirement utilizing a competitive procurement or by switching to Sylvest under a sole-source 8(a) set-aside. Protest File, Exhibits 28, 30-31, 49; Transcript at 122-23, 144, 146. A letter dated June 18, from the agency OSDBU specialist to the SBA states: The subject proposal was initially set aside for 8(a) procurement recommending [protester] as the subcontractor. After review of [protester's] proposal, it is apparent they will be providing little or no add-value to this requirement, also the firm did not provide us with the assurance that they are authorized by Optigraphics Corporation to remarket its products. As indicated by the enclosed letters from Optigraphics Corporation, we believe there is little use in continuing to pursue this 8(a) requirement since CSR is not empowered to market Optigraphics products or services. Accordingly, we request CSR be withdrawn from further consideration and Sylvest Management Systems Corporation, Greenbelt, Maryland, be considered for this 8(a) procurement. We believe Sylvest has the capability to fulfill this requirement. Please contact our office as soon as possible regarding this request, if you concur. We propose to negotiate directly with Sylvest and keep you informed as negotiations progress. Protest File, Exhibit 28. 20. By letter dated July 13, the SBA informed the agency OSDBU specialist that the SBA had preliminarily accepted the offer into the 8(a) program. Protest File, Exhibit 35. Further, Your offering letter and supporting documentation have been forwarded to the appropriate SBA field office for compliance review and final acceptance, pending a determination of suitability, on behalf of the nominated firm [i.e., Sylvest]. You may commence contract negotiations only after you are notified of final acceptance of this offer by the cognizant SBA field office. Protest File, Exhibit 35. The letter does not take any exception to the agency's determination to proceed no further with protester in an attempt to make an award, Finding 19. At no point has SBA certified that protester is competent and responsible to perform the contract at issue. 21. On July 23, protester filed its protest with this Board. Protest File, Exhibit 38. Discussion In its protest, protester alleges that by refusing to negotiate with protester, the agency exceeded the authority it had received from the SBA pursuant to regulation, 48 CFR 19.808- 1(b). Further, it asserts that by refusing to negotiate and to provide protester a reasonable opportunity to revise its proposal, the agency failed to give the proposal fair consideration, thereby violating statute, 15 U.S.C. 631(a), (f)(2) (Supp. III 1991). Corporate Systems Resources, Inc. v. Tennessee Valley Authority, GSBCA 11938-P, 1992 BPD 218, at 3-4 (Aug. 20, 1992) (motion for summary relief denied). Protester has focused its assertions now to maintain that the agency's rejection of its proposal is improper for two reasons. First, the determination that the proposal was incapable of being made acceptable was made prematurely and was incorrect. Second, the determination that protester was not adding value to the procurement was made without reviewing the entire proposal and without permitting protester to demonstrate the value that it would be adding. Protester's Post-hearing Brief at 14. Moreover, in its post-hearing brief, at 14, protester asserts: "Given that TVA had predetermined that CSR could not win this award, CSR was thus asked to submit a useless proposal. Therefore, if CSR is eliminated from this procurement, CSR is entitled to both its proposal costs and its costs of pursuing this protest." Although protester asserts that the agency improperly determined that protester's proposal was incapable of being made acceptable, protester relies upon a standard without providing specific statutory or regulatory support. The agency proceeded with the procurement as a sole-source, 8(a) set-aside. 15 U.S.C. 637 (Supp. III 1991). The agency did not utilize techniques of competitively negotiated procurements, which dictate procedures applicable to a competitive range determination. 41 U.S.C. 253, 253a, 253b (1988); 48 CFR Part 15 (1991). The regulations applicable to the given procurement action suggest that an agency may dispense with negotiations and drop an offeror even if a proposal is capable of being made acceptable: If . . . other information available to the contracting officer raises substantial doubt as to the firm's ability to perform, the contracting officer should refer the matter to the SBA for its consideration in deciding whether SBA should certify that it is competent and responsible to perform. This is not a referral for Certificate of Competency consideration under Subpart 19.6. Within 15 working days of the receipt of the referral or a longer period agreed to by the SBA and the contracting activity, the SBA Assistant Regional Administrator for Minority Small Business and Capital Ownership Development in the regional office which services the 8(a) firm will advise the contracting officer as to the SBA's willingness to certify its competency to perform the contract using the 8(a) concern in question as its subcontractor. The contracting officer shall proceed with the acquisition and award the contract to another appropriately selected 8(a) offeror if the SBA has not certified its competency within 15 working days (or a longer mutually agreeable period). 48 CFR 19.809 (1991). Without any support in the record for a different standard applicable to conducting (or not) negotiations under an 8(a) sole-source procurement, the Board utilizes the standard of "fair consideration" in reviewing agency actions. 15 U.S.C. 631 (Supp. III 1991); KOH Systems, Inc., GSBCA 9388-P, 88-2 BCA 20,664, 1988 BPD 38. Here, the agency based its determination not to negotiate or pursue an award with protester on two independent grounds. First, protester did not provide a letter establishing a contractual relationship between itself and Optigraphics. Ancillary to this is the possible misrepresentation by protester of its relationship with Optigraphics. Second, the proposal does not add value to the contract. It is only the second of these grounds upon which the Board need focus. The agency decided not to pursue negotiations with protester, in part, because the agency concluded that protester failed to add value to the contract. Finding 12. Protester has not demonstrated that it would in fact add value to the contract or that the agency's conclusions and actions were unreasonable. To the contrary, the record supports the conclusion of the agency that protester had not proposed to add sufficient value to the contract to justify further agency involvement with protester. In particular, protester specified Optigraphics' model numbers for each of the priced line items at prices generally higher than those already available to the agency. Findings 15, 17. In terms of the services portion of the proposal, protester has not revealed why it was improper or unreasonable for the agency to conclude that protester's proposal added insufficient value. Finding 16. Protester had the opportunity to submit its most favorable offer, Finding 6; the agency concluded that insufficient value would be added by protester to justify further action. The agency exercised its discretion in eliminating protester from further consideration in the procurement. Protester has failed to demonstrate with the entirety of its proposal and with the record as a whole how the agency actions and conclusions constituted other than fair consideration, or violated any statute or regulation. The protest is premised on the assumption that once protester was accepted into the 8(a) program to satisfy the particular agency requirement, the agency was obligated to engage in negotiations or otherwise take actions which would result in protester obtaining a contract. Protester has not established what prohibited the agency from reasonably concluding that award to this offeror, in essence, would not be in the best interests of the Government and abandoning protester as a potential awardee. The contracting officer exercised discretion. The facts do not compel a contrary action, even if a different contracting officer may have pursued negotiations with protester prior to making a determination regarding protester's ability to add value to the contract. Given this conclusion regarding the reasonableness of the agency's actions and the conclusions regarding the lack of sufficient value added, the Board need not determine whether the lack of authorization from Optigraphics could serve as a reasonable basis to justify the agency's conclusions and actions. Finally, protester has failed to demonstrate any agency predetermination not to effectuate an award to protester. Despite concerns of certain agency personnel throughout the procurement process, no actions improperly precluded protester from submitting an offer which would have compelled further consideration by the agency and/or the SBA. Decision Protester has failed to meet its burden of proof; namely, protester has not demonstrated that the agency violated any statute, regulation or condition of procurement authority by determining not to proceed with negotiations and not to pursue an award involving protester. Accordingly, the Board denies the protest. The previously entered suspension of procurement authority lapses by its terms. Corporate Systems Resources, Inc. v. Tennessee Valley Authority, GSBCA 11938-P, 1992 BPD 206 (Aug. 10, 1992). ________________________ JOSEPH A. VERGILIO Board Judge I concur: _________________________ CATHERINE B. HYATT Board Judge DEVINE, Board Judge, dissenting. I disagree with the result reached by the majority and therefore dissent. Once protester was accepted into the 8(a) contracting program, it was the duty of the contracting officer to enter into negotiations with it with respect to the agency's ADPE requirements. The contracting officer began the proper process but went astray when she required protester to establish that it had a contractual arrangement with Optigraphics, the firm that had supplied the optical scanning equipment whose maintenance and support was the subject matter of the proposed contract, and the firm that was presently maintaining and supporting the equipment. Optigraphics was also the primary source of replacement equipment, parts and expertise. The majority asserts and relies on a second ground which it finds the contracting officer relied on to justify breaking off negotiations. This was the idea that protester's proposal failed "to add value to the contract." This expression apparently means that someone else can do the job cheaper. In this case that was Optigraphics, the manufacturer of the equipment at issue. Optigraphics controlled the cost of replacement equipment, replacement parts, and the price of its expertise. It therefore could set a floor on many of the prices that protester had to use in its proposal. It could also defeat award to a given offeror by allowing better prices to a competitor such as Sylvest. When the contracting officer required protester to supply a document that it was within Optigraphic's power to withhold, she delivered protester into the hands of its most potent competitor. Optigraphics wanted to continue the relationship with the agency that then existed. Although it would ultimately supply the parts and replacement equipment, and perhaps even the maintenance services, for the existing scanners, even though the agency hired a middleman, it much preferred to do the whole job itself for the simple reason that it could thereby make a lot more money. And if it had to have a middleman it much preferred to have a friendly middleman which it could control and share profits with under an existing partnership agreement, such as Sylvest. This is why Optigraphics furnished enough confidential pricing and product information to allow protester to make up a proposal while at the same time hedging on whether it was going to authorize protester to sell its products. Optigraphics was waiting to see which way the agency was going to jump. It obviously wanted the parts supply and maintenance business no matter who the middleman was and did not therefore wish to irritate either the agency or protester any more than it had to. As it turned out the contracting officer's refusal to negotiate further with protester unless it could produce a letter of authorization from Optigraphics, played right into Optigraphic's hands, and sank protester's chances for good. Without that requirement Optigraphics would have had no say in the matter, negotiations would have continued and protester would or would not have been awarded the contract based on valid reasons uninfluenced by its competitor Optigraphics. We can speculate (as the contracting officer did) that an award to protester would be a waste of time because Optigraphics might withhold its equipment and expertise, thus causing protester to default. We can also speculate that once protester had the contract Optigraphics would have come around one hundred percent because it had a reputation to uphold and wanted its equipment handled and maintained properly. The point is that we will never know because the contracting officer cut off negotiations with her improper request. I would grant this protest. To do otherwise is to allow Optigraphics, instead of the contracting officer, to decide who is to get this contract. _________________________ DONALD W. DEVINE Board Judge