THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN REDACTED FORM ON FEBRUARY 11, 1993 ______________________________________________ GRANTED: December 23, 1992 ______________________________________________ GSBCA 12021-P, 12028-P, 12041-P, 12042-P COMPUADD CORPORATION, Protester/Intervenor, and ELECTRONIC DATA SYSTEMS CORPORATION, Protester/Intervenor, and GOVERNMENT TECHNOLOGY SERVICES, INC., Protester/Intervenor, and APPLE COMPUTER, INC., Protester/Intervenor, and INTERNATIONAL DATA PRODUCTS CORPORATION, Intervenor, and AST RESEARCH, INC., Intervenor, v. DEPARTMENT OF THE AIR FORCE, Respondent, and ZENITH DATA SYSTEMS CORPORATION, Intervenor. Marie N. Doland and James J. Tierney of Kurz Koch Doland & Dembling, Washington, DC, counsel for Protester/Intervenor CompuAdd Corporation. David S. Cohen, Lisa R. Hovelson, and Donn R. Milton of Cohen & White, Washington, DC, and Daniel Parker of EDS Corporation, Herndon, VA, counsel for Protester/Intervenor Electronic Data Systems Corporation. Richard J. Conway, William M. Rosen, and Hilary S. Cairnie of Dickstein, Shapiro & Morin, Vienna, VA, counsel for Protester/ Intervenor Government Technology Services, Inc. John A. McCullough of Doyle & Bachman, Washington, DC, counsel for Protester/Intervenor Apple Computer, Inc. D. Oscar Fuster, Vice President of International Data Products Corporation, Gaithersburg, MD, appearing for Intervenor International Data Products Corporation. William W. Goodrich, Jr., Richard J. Webber, and John J. O'Brien of Arent Fox Kintner Plotkin & Kahn, Washington, DC, and Stephen F. Halsey of AST Research, Inc., Irvine, CA, counsel for Intervenor AST Research, Inc. Clarence D. Long, III, Joseph M. Goldstein, Major Michael R. Lund, and Captain Richard T. Trowbridge, Office of General Counsel, Department of the Air Force, Washington, DC, and Captain Eric J. Marcotte, Gunter Air Force Base, AL, counsel for Respondent. Laura K. Kennedy, Kevin P. Connelly, Daniel Marino, Daniel Pope, Trisa J. Thompson, and Grace Bateman of Seyfarth, Shaw, Fairweather & Geraldson, Washington, DC, counsel for Intervenor Zenith Data Systems Corporation. Before Board Judges HENDLEY, HYATT, and VERGILIO. HYATT, Board Judge. These protests concern an award by the Air Force, to Zenith Data Systems Corporation, of a contract to acquire microprocessor-based microcomputer systems and associated software, hardware, user-installable components, and warranties to satisfy general purpose desktop computer needs throughout the Department of Defense (DoD). This acquisition is commonly referred to as the Desktop IV procurement. The first protest, filed by CompuAdd Corporation on September 17, 1992, was followed by the protests of Electronic Data Systems Corporation (EDS), Government Technology Services, Inc. (GTSI) and Apple Computer, Inc.[foot #] 1 The protesters have challenged the award on several grounds, the most significant of which include the arguments that the Air Force did not properly consider the possibility of making a dual, or second, award and that the Zenith proposal misrepresented its ability to produce and deliver, in large quantities, microcomputer systems that are compliant with the requirements of the Trade Agreements Act of 1979. Apple and CompuAdd each challenge the propriety of the evaluations as applied to their proposals,[foot #] 2 and Apple alleges that the Air Force misled it to believe that its alternate technology would be seriously considered for award when in fact the Air Force had a decided preference for an award to Intel-based solutions. We grant the protests on the ground that the monitors proposed to be supplied by Zenith are not, under the assembly process described at the hearing, substantially transformed in a designated country so as to qualify as products of a designated end-country for purposes of the Trade Agreements Act of 1979. Accordingly, the monitors do not comply with a mandatory term of the solicitation. We conclude that the Air Force must terminate the award to Zenith and proceed in accordance with statute and regulation. We do not find, however, that Zenith must be disqualified from further participation in the procurement in the event that the Air Force decides to amend the solicitation to clarify its needs or to revise the language providing for a dual award, and permit another round of best and final offers (BAFOs). ----------- FOOTNOTE BEGINS --------- [foot #] 1 Following receipt of the protest file and answers to written interrogatories, protesters EDS and GTSI, on October 19, 1992, filed amended protests, elaborating on the initial protests and adding grounds of protest, such as the count alleging that Zenith's combined management and technical proposals exceeded the mandatory page limit established in the RFP. To a large extent, all protesters and intervenors have joined in the counts seeking disqualification of the Zenith proposal and challenging the Government's best value analysis in the context of the dual award provision of the RFP. [foot #] 2 Both CompuAdd and Apple submitted multiple proposals. ----------- FOOTNOTE ENDS ----------- Findings of Fact[foot #] 3 Overview 1. The subject request for proposals (RFP), number FO1620- 91-R-A212, was issued by the Air Force on July 3, 1991. The solicitation sought commercial automatic data processing hardware, software and support services. In particular, the RFP sought to acquire a maximum quantity of 300,000 microcomputer systems (MCSs) for the DoD and other Government agencies worldwide. Protest File, Exhibit 16. Federal agencies outside of the DoD could purchase up to ten percent of the total estimated contract value. Id. 2. The solicitation contemplated an award of a firm-fixed- price indefinite delivery, indefinite quantity contract to supply microcomputer systems to support general purpose applications for desktop computer needs. Protest File, Exhibit 16. The contract or contracts awarded would be for one base year and two option years, with option year prices to be evaluated. Id. An additional two years of support could also be purchased by the Government. Id. 3. The applications to be supported by Desktop IV systems included office automation functions such as word processing, database management, spreadsheet creation/manipulation, and business graphics. Protest File, Exhibit 16. The microcomputer systems to be purchased under the Desktop IV contract were set forth in four contract line items (CLINs): CLIN 0001-Basic System; CLIN 0002-Intermediate System; CLIN 0003-Advanced System; and CLIN 0004-Open Systems Common Applications Environment. Id. Other CLINs and sub-contract line items (SLINs) provided for the purchase of such items as separate software packages, printers, and back-up storage devices. Id. 4. This requirement was first identified in March 1991, when the Air Force Communications Command (AFCC) and the Standard Systems Command (SSC) were directed to put in place an alternative ----------- FOOTNOTE BEGINS --------- [foot #] 3 Citations to the record are mostly in the form of cites to testimony adduced in the hearing held from October 29, 1992, through November 10, 1992, and cites to the Protest File, which includes the documents assembled by the Government as required by the Board's Rule 4 and supplements offered into evidence by the other parties to the proceeding. Exhibits numbered in the 1000 series were introduced by EDS; exhibits numbered in the 2000 series were introduced by GTSI; exhibits numbered in the 3000 series were introduced by Zenith. To save time, a number of depositions were introduced into evidence in the form of exhibits to the Protest File. Finally, pages 207-77 of the deposition of Major Marian E. Quinn (Quinn Deposition) were introduced by CompuAdd. ----------- FOOTNOTE ENDS ----------- contract vehicle to Desktop III. The need for an alternative contract vehicle arose because of the unanticipated reluctance of the Desktop III contractor, Unisys, to deliver systems in excess of the minimum contractual requirement. Protest File, Exhibits 1, 2024. 5. AFCC and SSC initiated a streamlined acquisition process with the intent of awarding a contract within six months. This was to be accomplished by using a functional specification and by making award without discussions. Protest File, Exhibit 1; Transcript at 2836. 6. The Air Force included in the solicitation a provision allowing it to make either a single or dual award: The Government may elect to award the contract to one or two offerors based on an integrated assessment of each offeror's ability to satisfy the requirements of the solicitation. The Government will not award individual CLINs/SLINs on the contract to any one offeror, but may award all CLINs/SLINs to two offerors. Protest File, Exhibit 16 at 3. Section M of the solicitation further stated that the Source Selection Authority (SSA) would determine whether to make an award to an individual proposal or combination of proposals depending on which offered the "best overall value to the Government." Id. at 196. The Air Force did not intend, and so advised offerors, to make two awards to the same offeror. Transcript at 792. The ability to make more than one award was deemed important in part because of the need for a hedge against the possibility of an offeror, like the Desktop III contractor, being unable or unwilling to deliver in the quantities desired by the Air Force. Id. at 2833-34. The First Round 7. In response to the initial RFP, twenty-two vendors submitted a total of forty-nine offers. After the Air Force conducted evaluations, however, it concluded that all but two of the vendors had deficiencies in their proposals that disqualified them from an award without discussions. This left only two offerors that the Government deemed eligible for award. Awards were made to both offerors on November 9, 1991. Protest File, Exhibit 11. The proposals selected at that time offered a range of technical solutions and a wide disparity in prices.[foot #] 4 In addition, ----------- FOOTNOTE BEGINS --------- [foot #] 4 One contractor offered a mix of computers using Intel 286 and 386 microprocessors, and the other offered computers based on the 386 microprocessor. Transcript at 1117. The Air Force considered that the availability of both 286 and 396 processors was a strength in terms of making the dual award. (continued...) ----------- FOOTNOTE ENDS ----------- 8. The initial award was protested by eight losing vendors. That consolidated proceeding was eventually settled and dismissed after the Air Force agreed to terminate the initial awards and open discussions. Apple Computer, Inc. v. Department of the Air Force, GSBCA 11161-P, et al., 1992 BPD 9 (Jan. 8, 1992). The Second Round 9. On March 30, 1992, the Air Force issued amendment 4, which changed and clarified the initial solicitation. The provision for a dual award was retained: The Source Selection Authority (SSA) will determine, based on an integrated assessment of all eligible proposals, the individual proposal or combination of proposals that offer(s) the best overall value to the Government. Protest File, Exhibit 16. In responding to vendor questions received prior to making the first awards, the Air Force amplified that it reserved the right to award multiple contracts "when determined to be advantageous and in its best interest," but that all offerors must nonetheless "propose the maximum quantity of 300,000 systems." Protest File, Exhibit 3010. 10. At the same time, the Air Force made clear that a dual award would consist of two full contracts. The Air Force indicated ----------- FOOTNOTE BEGINS --------- [foot #] 4 (...continued) Id. The SSA's decision noted: __ Sysorex's offer when coupled with CompuAdd's offer provides a panoply of processors ranging from the lower to the higher end of available small computer technology. The unit prices offered by both offerors provide a comparable range of highly competitive prices. This range of choices provides the users an opportunity to satisfy all the varying small computer needs from the readily available sources at an economical overall cost. Id. at 1289-90. At that time, the Air Force expected that low- __ end users would buy the 286 machines and high-end users would select the 386 machines. Id. at 1292; Protest File, Exhibit __ 1002. ----------- FOOTNOTE ENDS ----------- that it would not split up the CLINs among various vendors, explaining that if "two [contracts] are awarded, all CLINs/SLINs will be awarded to both contracts and the minimum obligation of the Government in the first year will be divided by two." Protest File, Exhibit 3010. 11. The Air Force recognized that, if two awards were made, one advantage of the dual award provision would be to facilitate competition both prior to and after award. The Chairman of the Source Selection Advisory Committee (SSAC) testified that if the agency "had awarded to two offerors, I would anticipate the marketplace competition to probably cause one or the other offeror to readjust the proposal that had been provided . . . to offer changes in pricing, maybe change the technology." Transcript at 771-72.[foot #] 5 The solicitation contained an equipment modification/ substitution clause that authorized these types of adjustments after award. Protest File, Exhibit 16 at 63. 12. In response to its request for BAFOs in the second round, the Air Force received thirty-nine proposals from seventeen offerors. Protest File, Exhibit 20. The proposals were identified by letters for purposes of evaluation. For example, the winning proposal submitted by Zenith was identified as [;] the proposal submitted by EDS was [;] one of the GTSI proposals was identified as [;] and one of the CompuAdd proposals was identified as Id., Exhibit 19. Applicable Provisions of the RFP User Environment 13. The solicitation defined the "general user environment" in the following manner: These microcomputer systems will be used primarily in a networked office environment by basic, intermediate, and advanced users. Basic users range from computer illiterate to moderately computer literate. Intermediate users, while not necessarily having more computer knowledge, will have a greater working knowledge of ----------- FOOTNOTE BEGINS --------- [foot #] 5 Several of the offerors testified that the dual award provision had a significant influence on their decision to submit a proposal and on how their proposals were structured. Transcript 1677-81; 1734-36. Most offerors fully expected a second award and recognized that the clause permitting substitution of equipment, under a dual award scenario, would encourage vendors to offer the latest technology to the Air Force at attractive prices. Transcript at 1679, 1931. ----------- FOOTNOTE ENDS ----------- applications software and will develop more complex documents and perform more advanced functions. Advanced users have a detailed understanding of microcomputers and applications. All users should have a system that is easily unpacked, quickly set up and ready for immediate operation with all software loaded. Protest File, Exhibit 16. The Basic System, CLIN 0001, is described as a system that "will be used primarily to prepare correspondence using a word processor." Id. The RFP goes on to state: Other frequently performed functions will include E- mail, a simple data base (e.g., address/telephone number, file management or inventory), a due date tracking system, and a stand-alone or network calendaring package. Spreadsheets, graphics, and larger data bases will be used occasionally. Processor and memory provided should be sufficient to provide responsive, concurrent operation of the Contractor- provided user interface and at least one of the Contractor-provided O/A [office automation] applications while the system is also monitoring a network for E-mail. Id. The RFP also defined the Intermediate System (CLIN 0002): In addition to the functions and capabilities for the basic user, the intermediate users will build documents incorporating graphics and text from other applications packages, build presentations with a graphics package, build moderately large spreadsheets that may involve complex mathematical operations and create/maintain larger and more complex data bases. The intermediate user will use Government developed software applications that are typically data base intensive. Processor and memory should be sufficient to provide responsive, concurrent operation of the Contractor- provided user interface and at least two of the Contractor-provided OA applications while simultaneously monitoring a network for E-mail. Disk storage should be adequate to store a minimum of 60 megabytes of Government data and applications software after loading the Contractor-provided software (e.g., operating system, user-interface software, suite of office automation software, system management software, etc.). Id. In addition to the functions and capabilities of the intermediate system, users of the advanced system would require a much broader range of functions involving complex mathematical operations and graphical simulations. The RFP provided that for this system processor and memory should be sufficient to provide responsive, concurrent operation of the contractor-supplied user interface and at least four OA applications while simultaneously monitoring for E-mail. Id. Software 14. For the general user environment, the RFP called for the provision of an operating system, user interface, and system management software on the CLINs applicable to the basic, intermediate and advanced users. Protest File, Exhibit 16 at 31- 33. All parties to the protest, with the exception of Apple, offered the same graphical user interface (GUI), Windows 3.1 preloaded, for the user interface software. Protest File, Exhibit 19. In addition, the RFP required the offerors to propose a suite of office automation software to include word processing, spreadsheet, database, graphics, communications, and a personal information manager. Id., Exhibit 16 at 33. 15. Systems could be purchased with or without the bundled suite of OA software. CLINs 0001-0003 AA were the systems bundled with OA software. CLINs 0001-0003 AB were for systems that came only with the operating system, user interface and system management software. The Government estimated that the majority of systems would be purchased with the OA suite of software. Protest File, Exhibit 16 at 161-90. 16. The OA software could also be purchased separately. As a general proposition, the line item for separately orderable software accounted for roughly eight percent of the total dollar value of individual offers. Protest File, Exhibit 20 at 14, 44. 17. Another provision of the RFP specified that software updates and upgrades would be provided to users: Users shall have the current commercially-available versions of all Contractor-provided software and documentation throughout the base year and first two option years of the contract. The contractor shall provide each user of ordered software and documentation the latest versions of the software and documentation at no additional cost. Protest File, Exhibit 16. Profile of Desktop IV Buyers 18. The Desktop IV contract will be available for the use of many hundreds of federal activities scattered throughout numerous locations in the United States and the rest of the world. Protest File, Exhibit 16 at 20; Transcript at 1200-01. Although the SSC will maintain an oversight administrative responsibility over the contract, individual buying decisions will be made independently by the various user organizations themselves, based on their own assessments of their processing environment, their particular hardware and software requirements, and their budget constraints. Transcript at 1201-03, 2267-70, 2858-59. Many DoD organizations are affected by shrinking budgets, especially for computer acquisitions. Id. at 2272-73. Price will likely be an important consideration in assessing what equipment and software should be ordered. Id. 19. Government users would be entirely free to order whatever units best fit their needs. Transcript at 1213-14. In the event of a dual award, each awardee would be guaranteed half of the minimum amount of the award of $4.75 million apiece in the base year. Protest File, Exhibit 16 at 2. Trade Agreements Act Requirements 20. The RFP made applicable the requirements of the Trade Agreements Act of 1979 (TAA). In April 1992, the Air Force clarified this requirement through questions and answers, explaining to offerors that the TAA requirements applied to all components of the microcomputer systems, such as monitors and keyboards, as well as to the central processing units. As such, all of these components were required to be manufactured in a TAA approved country: The basic system on all CLINs includes a system unit, monitor, keyboard, and pointing device. The Government does not interpret the bundling of these items as creating a "new and distinct article of commerce" under the Trade Agreements Act (TAA). We believe that each item listed above retains its independent character and, therefore, must independently comply with the TAA. Note that, unlike the BAA [Buy American Act], the TAA does not embrace a cost based test to determine compliancy. The determining factor is not whether more than 50 percent of the cost of the system is composed of TAA compliant products. The test - if products from several countries are used - is whether component parts have been substantially transformed within an appropriate country. We do not view merely packaging products into a system as a substantial transformation. Protest File, Exhibit 2175. Page Limits on Proposals 21. Proposals were to be submitted in four separate volumes: (1) management; (2) technical; (3) contract and associated information; and (4) cost/price information. Protest File, Exhibit 16. 22. The RFP established a mandatory forty page limit for the combined management and technical portions of each proposal. If an offeror exceeded this limit, the additional pages were to be extracted from the proposal and would not be provided to the evaluation teams. Protest File, Exhibit 16; Transcript at 101- 02. Certain materials, such as front matter, executive summaries and appendices, were not counted toward the page limit. One appendix required the submission of evidence of financial capability, to consist of "a current financial statement . . . of the individual firm or corporation, certified by an independent accounting firm, or by an officer of the organization." Protest File, Exhibit 16 at 138, 146. 23. In the Zenith proposal selected for award, the final section of the management proposal, relating to financial capability, states: The following pages provide evidence of Zenith Data Systems' [ZDS'] financial capability to perform on the Desktop IV contract. To further demonstrate the overall capability of ZDS and our suppliers, we have included letters of commitment from our major suppliers which demonstrate their support for the program. The referenced letters from suppliers appear in the proposal just after the conclusion of this final section of the management proposal and just before the annual financial report of Zenith's parent company, which was supplied as the mandatory appendix. Protest File, Exhibit 27. Zenith's proposal manager testified that she regarded the letters as additional evidence of Zenith's financial capability, which could properly be included in the appendix. Protest File, Exhibit 3048 at 18, 24. 24. If these letters are treated as proposal pages, rather than as an appendix or miscellaneous matter, Zenith's combined management and technical proposals would total fifty-six, rather than forty, pages. Had the last sixteen pages of Zenith's technical proposal been treated as exceeding the page limit, portions of the proposal addressing such matters as common applications environment (CAE) software, CAE run time software, printers, storage requirements, removable storage requirements, user installable components, and applicable standards would not have been evaluated. Protest File, Exhibit 28. 25. Zenith's management and technical proposal pages were printed on blue paper, while front matter and appendices, including the financial appendix and supplier commitment letters were on white paper. Transcript at 94. In addition, each page of the management and technical proposals appeared in a particularized format -- i.e., printed in dual columns, with section numbers in the left hand corner and the RFP number in the upper right hand corner. Protest File, Exhibits 27-28. Although no tab had been included to separate the letters and appendix from the proposal pages, the contracting officer concluded from the circumstances that this was merely an omission. As such, the contracting officer did not deem these letters to constitute part of the Zenith "proposal" for purposes of the page limit, and thus did not extract the last sixteen pages of the technical proposal from the materials supplied to the evaluation teams. Transcript at 89-94. 26. Other offerors also provided letters of commitment from suppliers, generally as miscellaneous matter submitted after the cover letter, or the like. Transcript at 104, 119. None of these letters were counted toward the mandatory forty page limit. Id. According to the area chief for this aspect of the evaluations, the letters were not evaluated and had no impact on the ratings received by Zenith or other offerors. Id. at 667. General Evaluation Provisions 27. The RFP provided that the acquisition would be governed by Air Force Regulation (AFR) 70-15, Formal Source Selection for Major Acquisitions, Air Force Federal Acquisition Supplement, Appendix AA, with some specific exceptions, which are identified in the solicitation. Protest File, Exhibit 16. 28. The RFP authorized evaluation standards to be written based on the evaluation criteria of Section M. Protest File, Exhibit 16. These evaluation standards are referred to as the Proposal Evaluation Guide (PEG). Id. The contents of the PEG were not disclosed to the Desktop IV offerors. 29. Section M provided that offerors would be evaluated in three specific areas: management; technical; and cost/price. Management and technical were each more important than cost/price. Protest File, Exhibit 16 at 196. At the same time the RFP stated: Although Cost/Price is listed last, it will be a significant criteria for award as part of an integrated assessment with the management and technical areas. The Government reserves the right to award a contract(s) at other than the lowest proposed price after consideration of all factors. Id. 30. The Management Area was composed of five items, listed in descending order of importance: (1) warranty support, (2) production and delivery capacity, (3) life cycle support, (4) commerciality, and (5) performance and experience. Under each item, the RFP described what the Government would be evaluating within that item. Protest File, Exhibit 16. These descriptions formed the basis for the standards that were developed and used in the PEG. Id., Exhibit 10. Specifically with respect to "production and delivery capacity" the RFP states that "[t]he contractor should have the capability to produce and deliver the quantities of systems to meet fluctuating Government requirements" and that The Government will evaluate the Offeror's capability to produce and deliver the ordered systems and components in a timely manner to locations throughout the world. Special emphasis will be given to current production and delivery capacity, and the percent the historical Government requirement is of the Offeror's production and delivery capacity.[foot #] 6 Id., Exhibit 16 at 30, 198. In an attachment to the RFP, a historical ordering trend for the Defense Department was provided for informational purposes. Id. at 30. The RFP also defines "microcomputer system" as a system unit (i.e., processor), keyboard, and monitor. Id., at 237. "Microcomputer delivery capacity" is defined as Physical capacity of offeror (or any subcontractor proposed to perform a delivery function for this solicitation) to deliver microcomputer systems to customers. Delivery capacity includes any production, delivery, integration, or shipping limitations as well as any other factor that limits the offerors [sic] capacity to provide microcomputers to users. ----------- FOOTNOTE BEGINS --------- [foot #] 6 The area chief for evaluation of management proposals construed the term "current" as used in the RFP to mean as of the time of proposal submission. Transcript at 530-31. ----------- FOOTNOTE ENDS ----------- Id. This definition was used in performing evaluations. Transcript at 533. 31. The Technical Area was comprised of three items, all listed in descending order of importance: (1) system performance, capacities, and environment, (2) ease of use and functionality, and (3) compatibility, consistency, and compliancy. Each item was broken down into one or more subitems which were explained in more detail in the RFP. Protest File, Exhibit 16 at 218-23. 32. Each cost proposal was evaluated in terms of the Present Value (PV) Most Probable Total Contract Cost (MPTCC) over the total contract period. In addition, the Air Force evaluated the realism, reasonableness, completeness, accuracy/trackability, and risk of each offeror's prices. Protest File, Exhibit 16. The RFP stated that The Government will evaluate the realism of each Offeror's proposed prices by comparing them to the Government's Total Contract Cost (GTCC) estimate and to GSA [General Services Administration] or commercial prices. This will include an evaluation of the extent to which each Offeror's proposed costs indicate a clear understanding of the requirements of the program. Prices which represent a probable loss position for the Offeror will be judged unrealistic and may be grounds for eliminating a proposal from competition whether on the basis that the Offeror does not understand the requirement or has made an improvident proposal. If it is determined that an Offeror's estimates are unexplainably low, that offeror may be eliminated from the competition. . . . Id. at 223. The Evaluation Process -- Generally 33. Evaluations were conducted in the first instance by the Source Selection Evaluation Board (SSEB), using the PEG as an objective yardstick against which all proposals were measured. Transcript at 839. The SSEB consisted of five teams, including three teams which reviewed the management, technical and cost areas of the RFP and developed the standards set forth in the PEG. Within each standard, there were three letter grades, representing varying levels of capability. The letter grade "A" indicated that a particular aspect of a proposal "exceeded the standard"; a grade of "C" meant it "met the standard" and a grade of "E" meant that the aspect fell short of the standard. Protest File, Exhibit 10 at 59. The PEG provided that "the proposal must fully meet the level of capabilities indicated for a particular grade before that grade can be assigned, otherwise the next lower grade will be assigned." Id. at 59. The area chief for evaluation of management proposals testified that there was no discretion to give an A to a proposal that did not fully meet all of the capabilities of an A, no matter how close it came to an A. Quinn Deposition at 259. 34. The PEG was developed in June 1991. The technical team developed standards by reviewing functional requirements and the technology that was commonly available in the marketplace. The team ascertained the level of technology that could adequately perform the required functions and used those specifications as the "C" standard. Protest File, Exhibit 2026 at 19, 31-32. Although considerable time elapsed between the drafting of the PEG and evaluation of the second round of proposals, the SSEB was of the view that the PEG could still serve its function as an objective yardstick against which to measure proposals. Id. Thus, the PEG was not amended for the second round of evaluations.[foot #] 7 35. In addition to submission of written proposals detailing the offeror's management and technical proposals, offerors were required to prepare, as an appendix, matrices setting forth in chart form the salient features of their proposed microcomputer systems, software, peripherals, warranties, production capabilities and the like. Protest File, Exhibit 16 at 130-31, 174-94. Each evaluator read and evaluated the entire proposal for the assigned area, including the matrices. Transcript at 525. 36. In evaluating proposals, the management and technical team evaluators reviewed assigned letter grades for each relevant standard in the PEG. The area chiefs reviewed the letter grades that the evaluators assigned and compared them to the requirements of the PEG to ensure that the ratings were consistent with the proposal and the PEG. The area chiefs then rolled-up the ratings into colors for each item. Item colors ----------- FOOTNOTE BEGINS --------- [foot #] 7 The settlement agreement entered into to resolve the first protest had specifically authorized the Air Force to amend the PEG: The Air Force may revise its Proposal Evaluation Guide (PEG) for this procurement by adopting within each standard set forth in the PEG, where it deems appropriate, individual criteria which if substantially met by the offeror would merit the appropriate rating for those particular criteria, without necessitating lowering the evaluation for that factor or item merely because every element of the standard is not met. Protest File, Exhibit 13. ----------- FOOTNOTE ENDS ----------- were then rolled-up into a color for each area. Transcript at 626-27; Protest File, Exhibit 2026 at 61-62. The color ratings, in descending order, were blue, green, yellow, and red. The PEG, in accordance with AFR 70-15, defined blue and green as follows: Blue Exceeds specified performance or capability in a beneficial way to the Air Force; and has high probability of satisfying the requirement; and has no significant weakness. Green Meets evaluation standards; and has good probability of satisfying the requirement; and any weakness can be readily corrected. Protest File, Exhibit 10 at 138. Evaluation of the Management Proposals 37. The evaluation team reviewed and rated management proposals in accordance with the criteria set forth in the RFP and in the PEG. Transcript at 620-21. The PEG was used as a point of comparison. Id. at 907. Warranty 38. The most important criterion under management was the warranty. The RFP stated that the Air Force was particularly concerned with the length of the initial warranty. In all, offerors were required to offer five years of warranty service, with a minimum one year initial warranty. Protest File, Exhibit 16. Section M of the RFP stated that the Air Force would evaluate proposals for the offeror's "proposed warranty support solution and the degree to which warranty support is provided to customers in the United States and overseas locations." Id. at 198. 39. The PEG provided, inter alia, that on-site/on-call warranty support for the continental United States (CONUS) and mailback within the region for areas outside the CONUS (OCONUS) exceeded requirements or rated an A; mailback and carry in for CONUS and OCONUS met the requirement and would receive a C. Protest File, Exhibit 10 at 59. A three year initial warranty rated an A; a two year warranty a C; and one year an E. Id. at 60.[foot #] 8 ----------- FOOTNOTE BEGINS --------- [foot #] 8 Again, offerors were not informed in the solicitation of the agency's particular preferences as stated in the PEG. ----------- FOOTNOTE ENDS ----------- 40. In its winning proposal, Zenith offered a on all items under the contract. EDS offered a Protest File, Exhibit 1103 at 39. CompuAdd offered Protest File, Exhibit 43 at 88; Transcript at 250-52, 1694. 41. With respect to extended warranties, the PEG provided for an A rating where all components (CLINS 0001-0015) had the same coverage as under an offeror's initial warranty and a C rating where all systems (CLINs 0001-0004 and 0006-0009) had the same coverage. Protest File, Exhibit 10 at 63. Id., Exhibit 16 at 130; Transcript at 1695; Quinn Deposition at 256. Protest File, Exhibit 16; Transcript at 1696. The area chief testified that although the RFP does not permit an offeror to cost the Air Force expected this feature to be offered to obtain an A on this item. Quinn Deposition at 252-53. [Finding 42, deleted in entirety] Id. at 18. Production and Delivery Capacity 43. The RFP required that offerors have the "capability to produce and deliver the quantities of systems [needed] to meet fluctuating Government requirements." Protest File, Exhibit 16 at 30. The RFP included a summary of DoD's historical ordering trends which revealed that the Air Force ordered an average of 133,000 systems a year under Desktop II and 8,000 systems a month under Desktop III. The RFP further stated: This pattern has stabilized and is expected to continue. The resultant pattern consists of ten months of ordering at an average monthly rate of 8,000 systems and two surge months of ordering at a monthly rate of 20,000 systems for an annual DOD demand of approximately 120,000 systems. Id., Attachment 6 at 1. The cost evaluation was based on the assumption that the Government would order 300,000 systems over a three-year period.[foot #] 9 44. To achieve an A rating for production and delivery capacity, the PEG required that offerors be able to produce (either itself or through suppliers) and deliver 20,875 systems per month, with 40 percent or less of these systems being sold to the Government. A C rating would be given to offerors capable of producing 13,950 systems a month with 60 percent sold to the Government. Protest File, Exhibit 10 at 64. The Government considered that if an existing facility was idle, this could present a start-up risk. Id., Exhibit 20. 45. In addition to existing production capacity, the PEG evaluated for "expanded production capacity," which measured an offeror's ability to expand its output of microcomputer systems using additional shifts, but without using additional facilities. Transcript at 540-41. An offeror with expanded production and delivery capacity of 50,000 per month, with no more than 40 percent sold to the Government, received an A under the PEG. The PEG assigned a C rating to an offeror with expanded capacity of 33,350 systems per month and 60 percent capacity for the Government. Protest File, Exhibit 10 at 64-65. The evaluation of an offeror's expanded production capacity did not take account of the ability to use third party manufacturers to produce essential components unless the identity of that manufacturer was provided in the proposal. Transcript at 541-42. 46. Zenith's winning proposal was assigned a for production and delivery capacity. This was based on Zenith's statements in its proposal that its production and delivery ----------- FOOTNOTE BEGINS --------- [foot #] 9 The area chief testified that based on historical records, the Air Force has never ordered more than 20,000 systems in a month. Quinn Deposition at 234. Nor are there any estimates prepared by the Air Force that would indicate the Government is likely to need to order more than 20,000 systems per month, even in surge periods. Id. __ ----------- FOOTNOTE ENDS ----------- capacity was microcomputer systems per month and that its expanded production and delivery capacity was microcomputer systems per month. Protest File, Exhibit 19 at 21; Exhibit 27. 47. Zenith also asserted in its winning proposal that it could supply systems in the first month of the contract and systems thereafter. In its proposal Zenith stated: In anticipation of the award of the Desktop IV contract, ZDS has already begun planning the necessary processes needed to accommodate contract production surges. We have selected quality suppliers who can provide the shortest product lead times available, and we have alerted our suppliers to potential delivery dates. For products that do require longer lead times, we have begun ordering to ensure availability. . . . [W]e have forecasted production schedules both with and without the Desktop IV production numbers. These planning efforts will enable us to accommodate production levels of MCSs per month in initial contract ordering. The ability to produce MCSs per month at contract start up and ramp to over MCSs per month guarantees the elimination of backorders. Protest File, Exhibit 27 at 24-26. Based on these assertions, the Air Force assigned Zenith an rating for the minimum delivery commitment standard, which contributed to its grade for this item. Id., Exhibit 31 at 63. 48. In response to an Air Force clarification request concerning Zenith's use of the term "units" in its proposal, Zenith stated that it had "obtained commitments from all component suppliers (including monitor, keyboard and mouse suppliers) to ship at the volumes specified." Protest File, Exhibit 31 at 9. The Air Force asserts that it did not rely on this statement, however, in assigning a rating to the item. Transcript at 650-51. 49. In evaluating production and delivery capabilities, the Air Force, for each offeror, evaluated the capabilities of the entity itself, if it was a manufacturer, such as Zenith, CompuAdd or AST Research. It did not consider the manufacturing capabilities of the component suppliers. Transcript at 556, 767- 77. 50. CompuAdd stated in its proposal that it had a production and delivery capacity of systems per month, which the Air Force determined represented a split between commercial and Government sales. Protest File, Exhibit 43 at 105. Although the range stated by CompuAdd straddled the PEG standard the Air Force never asked for clarification, but simply assigned a for this item.[foot #] 10 Transcript at 1701; Quinn Deposition at 258. [Finding 51, deleted in entirety] Evaluation of Technical Proposals 52. Under the RFP, system performance, capacities, and environment was the most important item to be evaluated within the technical area. Protest File, Exhibit 16 at 200. The performance and capacities of the offered system units was the most important subfactor under this item, as explained in the RFP: Special emphasis will be placed on the microprocessor type, clock speed, wait states, floating point capability and caching; system memory size; and disk systems capacity, transfer rate and access time. Additionally, the Government will evaluate the resolution, amount of video memory and size of available color palette of the offered video interface; the number and type of offered ports; and the expansion capability (e.g., memory, number and type of available slots, drive bays and number and type of drives supported) of the offered system units. Id. The PEG established quantitative standards for the system CLINs for the three special emphasis categories: microprocessor, cache and floating point capability (T-1-1-1); base memory (T-1- 1-2); and hard drive (T-1-1-3). Id., Exhibit 10 at 75-80. 53. The PEG's evaluation standards for the Basic System- CLIN 0001 and the Intermediate System-CLIN 0002 are based on the 386 microprocessor chip. Protest File, Exhibits 10, 2026. For CLIN 0001, an offeror would receive a grade of "C" for a system using a 386 SX/20, and an "A" for a 386 DX/25 (in terms of microprocessors only). For CLIN 0002, a grade of "C" would be given for a 386 DX/25 and an "A" for a 386 DX/33 (in terms of microprocessors only). Id., Exhibit 10 at 75. For CLINs 0001 and 0002, the PEG makes no mention of 486 microprocessors. ----------- FOOTNOTE BEGINS --------- [foot #] 10 ----------- FOOTNOTE ENDS ----------- [Finding 54, deleted in entirety] 55. The Zenith, EDS and CompuAdd technical proposals were rated overall. Protest File, Exhibit 19. 56. The Apple proposal was rated green overall in the technical area. Protest File, Exhibit 19. In Apple's view, this was because although the functional specification permitted its technology, the PEG was effectively geared to favor the features commonly found on Intel-based equipment. For example, Apple's systems provide smaller video displays with higher resolution for its monitors. Under the PEG, Apple was penalized for the smaller size of its monitors, since the higher ratings were given only to the larger monitors. Protest File, Exhibit 10 at 87-88; Transcript at 1788-90, 2331-37. In response to Apple's inquiry as to what room was left in the PEG to account for different approaches such as these, the Desktop IV deputy program manager responded that the only tailoring was in the central processing unit (CPU) standards. There was no allowance to account for offerors who offered more ease of use or functionality than was required to obtain an A. Id. at 2319-31. Apple also contends that its alternative architecture was penalized in the areas of drive bays and expansion slots and ports. Id. at 1756-86. The Cost Evaluation 57. The cost team was responsible for determining whether proposed prices were fair and reasonable. The team performed this function on both a line item and total contract basis. Transcript at 246. Prices were evaluated for reasonableness, realism, completeness, accuracy, and trackability. Id. at 214. 58. For reasonableness, the cost team looked at the prices that were contained in the offerors' proposals from the aspect of whether they were too high for the equipment and services being offered in the proposal. For realism, the cost team attempted to ensure the prices were not too low and did not represent a buy- in. To do this, the team looked at GSA and commercial prices, which offerors were required to submit with their proposal when available, and compared the Government estimate when possible. On occasion, the team also looked at prices in outside sources such as PC Magazine. Transcript at 214-17. To the extent it was not possible to obtain a basis of comparison, the team exercised its judgment. Id. at 215. 59. It was not uncommon for an offeror's CLIN and SLIN prices to be considerably below the Government estimate and commercial and GSA prices. The cost evaluation team was not troubled by this, however, because they expected the prices to be lower given the number of systems that were being procured under the Desktop IV contract, the rapid changes in technology in the industry and the volatility of prices in this market. Transcript at 265-67. 60. The cost team concluded that all prices offered were reasonable and realistic, except for those of one offeror whose prices were deemed to be excessively high. Transcript at 267. 61. admitted in response to protesters' interroga- tories that Protest File, Exhibit 1062 at 17. The cost team area chief testified that his review of the proposals did not alert him to the fact Transcript at 247-48. [Finding 62, deleted in entirety] [foot #] 11 63. The cumulative impact of these items would be about one percent of the estimated contract cost. Protest File, Exhibit 1119 at 36; Transcript at 2619, 2768. Id. at 2767. ----------- FOOTNOTE BEGINS --------- [foot #] 11 The RFP cautioned that the quantities projected in the B tables and L exhibits were for purposes of cost evaluations only and that it is likely the actual yearly ordering schedule will vary. Protest File, Exhibit 16. GTSI and EDS, as well as Zenith, developed forecasts of anticipated Desktop IV sales in pricing their proposals. Transcript at 2758. ----------- FOOTNOTE ENDS ----------- 64. Had members of the cost team realized for those items, they would have looked at the particular items in issue to determine the magnitude of those items in the context of the total contract. Whether any risk would be presented to the Government would depend on . Transcript at 249. The Source Selection Decision Process 65. The SSAC consisted of senior Air Force managers and technical experts and a representative from GSA. The SSAC was chaired by the then vice commander of the SSC. This individual was responsible at that time for managing, among numerous other programs, the Desktop III contract. Transcript at 827-35. 66. Following completion of evaluations by members of the SSEB, the SSAC met for four days at Gunter Air Force Base in Alabama, from August 18 to 21, to analyze the evaluation results compiled by the SSEB. Upon arrival at Gunter, each member of the SSAC was provided with binders containing the results of the SSEB's evaluations of the thirty-nine proposals received in response to the second round request for BAFOs. Protest File, Exhibit 1103. 67. The SSAC was briefed by members of the SSEB on August 18. The briefing consisted of an overview of the process, a description of the evaluation methodology, including the approach used by area chiefs to arrive at area color roll-ups, and the results of the individual evaluations of proposals. The SSEB presented a set of seven slides for each offeror, highlighting significant technical and management features, color grades and risk ratings, and costs. Protest File, Exhibit 20; Transcript at 727-43. 68. In addition to the slide presentation, the SSEB, at the direction of the SSAC, had prepared an electronic spreadsheet that included detailed characteristics of the management and technical portions of each offerors proposal, as well as color ratings and risk assessments. Transcript at 747. The spreadsheet reflected most, if not all, of the key management and technical features set forth in the matrices that accompanied all proposals. Id. at 856. This spreadsheet served as the primary tool for analysis and comparison of proposals, although the SSAC sought additional information from the SSEB members when it had questions relating to risks and strengths of various proposals. Id. at 747. 69. In the words of the SSAC chair, with the use of the electronic spreadsheet and the notebooks provided by the SSEB, the SSAC reviewed and compared the features, strengths, and weaknesses of each proposal in "excruciating detail." Transcript at 857. In the view of the SSAC, the technical and management teams had "properly characterized the features of the proposal that would highlight the strengths and weaknesses." Id. The evaluators and selection officials relied upon more than the color-coded results throughout the process. 70. The first step taken by the council was to order the proposals by color. Transcript at 858. After sorting alphabetically for all proposals that were ranked "blue-blue" in management and technical, the SSAC looked within that group to rerank according to the bluest of the blue, which it determined to be, "at least on the surface," Id. at 793-95. Within the blue-blue set of proposals, the SSAC then looked at cost to set an upper limit on reasonable cost for the higher quality represented by the blue-blue ranking. The upper limit on reasonable cost was established as the price of the proposal.[foot #] 12 In addition, the SSAC looked at the green-green proposals and selected the proposal, submitted by , as the lowest cost green-green proposal. Id. at 803-15. 71. Eventually, the SSAC narrowed the field down to what it described as six offers constituting "better value." Four of these proposals had been submitted by Zenith. The SSAC first compared these four and concluded that of those, [one in particular] represented the best value. The SSAC then compared the proposal against the proposal, and the other proposal in the top six, . Transcript at 862- 72. Essentially, the SSAC compared costs against characteristics, assessing the added cost of a stronger, higher color-ranked feature offered by each proposal to adjudge whether it made more sense to spend the additional money. After completing this exercise, the SSAC concluded that the proposal represented the "best value" to the Air Force. Id. at 760. 72. The SSA attended the last two days of the SSAC meeting. He received a briefing from the SSAC with respect to their analysis of the evaluations and comparisons of the various proposals. Toward the end of the second day of briefings, the SSA polled the members of the SSAC to obtain their views with respect to whether a dual award should be made. The Chairman of the SSAC testified that no one recommended a dual award: There were some comments from members, expressing frustration about not seeing an obvious second award, ----------- FOOTNOTE BEGINS --------- [foot #] 12 ----------- FOOTNOTE ENDS ----------- because some of us still had concerns about a single award, but there was no -- in my mind -- and I reflected that to him [the SSA] -- that I still did not want to be held hostage, but in fact, [in] my own judgment, I did not see an obvious second award and recommended, therefore, a single award. Transcript at 763. In response to the Board's query as to what he would consider to be an obvious second award the SSAC Chair elaborated: We had talked earlier about alternate technologies. If an alternate technology had been worth the value, then I might have recommended that. In Round 1, we had looked at complementary technologies in the sense of a broader spectrum of units from the same technology. CompuAdd and Sysorex had three levels of processor chips, actually probably more, and so there was some complementary-ness there. Also, the prices had seemed to fit between one proposal and the other, my view was that AX, by itself, when you compared it with the other proposals in the six that we had, that if I award it to somebody else, he would not get the business, because at least the prices were better for proposal and the technology was better. So, in that context, I saw no complementary award made since I felt comfortable with my own management judgment, even though my intuition was that I would have preferred to have two awards. Id. at 763-64. 73. The SSA left Gunter AFB at the conclusion of the briefing. On September 2 and 3, the SSA met with the Desktop IV program manager and reviewed that SSAC report again in detail. Thereafter, the Desktop IV program manager prepared a draft source selection decision document (SSDD), which was reviewed and revised by the SSA. The decision to award a single contract to Zenith was announced on September 9, 1992. Protest File, Exhibit 25. 74. The source selection decision set forth the rationale for the award. In the decision document, the SSA stated that "based on the criteria established in Section M of the RFP and [his] integrated assessment of all proposals provided in response to the RFP," he determined that Zenith's proposal AX represented "the best overall value solution to satisfy Department of Defense needs." Protest File, Exhibit 1103 at 1. [Findings 75-77, deleted in entirety] [foot #] 13 [Finding 78, deleted in entirety] ----------- FOOTNOTE BEGINS --------- [foot #] 13 ----------- FOOTNOTE ENDS ----------- [Findings 79-81, deleted in entirety] [Finding 82, deleted in entirety] Consideration of Dual Award 83. The SSDD itself does not discuss the possibility of a dual award, nor does it address the advantages or disadvantages of awarding a second contract. Protest File, Exhibit 1103; Transcript at 1205-06. The SSA, when questioned about the consideration given to the possibility of a dual award, testified that some consideration was given in his briefing session with the SSAC: A: As I said, throughout the analysis that was made, although there wasn't any specific or direct assessment of dual awards or single awards, I think -- I sense[d] that everyone was conscious of that being an option. And then at the conclusion of our review . . . we called back some of the other proposals on the screen, in order to look particularly at the alternative technologies to ascertain whether we felt there was an advantage in making an award to one of the alternative technologies. Q: When was there a discussion about whether to make one or two awards at the SSAC? Thursday or Friday? A: That was a Friday, toward the end -- after we had completed this analysis. Transcript at 1139-40. The SSA recalled that the SSAC briefly considered the possibility of a second award to an alternate technology and, to this end, reviewed an Apple proposal, based on a Motorola chip, and a Sun SPARC proposal. Id. at 1140-41. The SSA testified that, in his view, the alternate technology was not so desirable as to merit a second award. He explained that the Air Force's focus was on satisfying three elements -- "delivery, capacity and ability to get a contract that met our desires at a reasonable price. We found those things to be available in the single award, offering an exceptional technical and management proposal at what I considered to be a very attractive and reasonable price." Id. at 1223-26.[foot #] 14 ----------- FOOTNOTE BEGINS --------- [foot #] 14 The SSA, in response to questions from counsel for Apple, commented that both the Apple and Sun SPARC-based proposals considered by himself and the SSAC at the briefing session were priced higher than the Intel-based proposals that remained in the "top six." This led to the following colloquy: Q If you had already gone through this whole series of best value analysis whereby you eliminated certain proposals because they were too high cost and lower value and eliminated others, why at this point would you come back and look at other proposals again [which] had already been eliminated long before? A We were honestly interested in the alternative technology. I think it's fair to say that there are many users who are very partial to the Apple computer, and we wanted to be sure that we gave Apple every possible consideration as well as the other alternative technology. (continued...) ----------- FOOTNOTE ENDS ----------- 84. In addition to consideration of an alternative ----------- FOOTNOTE BEGINS --------- [foot #] 14 (...continued) Q Those users who were interested in Apple, are they within the Air Force? A Yes. Q Can you elaborate on that a bit? A Action officers, and others who have used Apple machines in the past, like the machine and expressed interest in having an opportunity to obtain it. Q If they have an interest in having an opportunity to obtain it, why isn't it better value to make one award to an Intel based architecture and then have the option available for those people who have expressed an interest to buy the Apple architecture? Why isn't that better value than simply one award, one choice? A In my opinion, based on the criteria, the area and items, and the factors that we specified in the contract in the RFP and the cost and the evaluation, it was none of these two alternative technologies. They did not provide a better value in terms of that total integrated assessment of all of the elements that we were committed to consider during our analysis. Q I am not saying right now that they provide the single best value. I am suggesting that even if 80 to 85 percent of your users wanted the Intel based technology, there might be a percentage that desired to have the option, the opportunity, to acquire the Apple technology. Why wouldn't that be better value, even if it was a higher price, if it wasn't worth the extra value they wouldn't buy it. They would buy the Intel technology from Zenith, GTSI, EDS, whoever is the offeror. If the individual users wanted that, why isn't that better opportunity when you have sort of a multiple award schedule type of ordering agreement? A Because that was not, in our view, consistent with the kind of analysis that we had indicated to the offerors that we would do. Transcript at 1222-25. ----------- FOOTNOTE ENDS ----------- technology, the SSA was queried about his consideration of the desirability of a multiple award within the Intel family: Q In looking at one award versus two awards, did you consider this time around the factor that you looked at last time around -- that is providing customers with a broader range of system units in the Intel family, depending upon their needs? A No. That did not, this time, enter into my deliberations, particularly because of the strength of the Zenith proposal in offering the most advanced microprocessor that Intel makes. Transcript at 1153-54. 85. When pressed, the SSA and other Government officials who testified, including the deputy program manager, identified as the major downside to a second award, in the absence of a second "best value," the added cost of managing two awards. The SSC will be charged with administering orders placed under the Desktop IV contract or contracts. The SSAC chairman, who at the time of the conduct of evaluations and the rendering of the award decision, was in charge of the SSC, conjectured that it might possibly be necessary to double the staff dedicated to the contract, at an approximate cost of $500,000. Transcript at 767- 78. Other considerations, such as proliferation of warranty and maintenance arrangements were of little significance given that these matters will be handled at the level of the buying unit. Finally, it was acknowledged that the high degree of interoperability of the alternate technologies would alleviate any concern that proliferation of systems would impede the ability of different systems to interface and coordinate within a particular location. Id. at 767-87. Trade Agreements Act Issues 86. The monitors initially proposed by Zenith were to be produced by After the Air Force made clear that bundling of non-TAA products with compliant processors would not be acceptable, Finding 20, Zenith entered into negotiations with both of these suppliers to find a means by which their monitors could qualify as TAA-compliant. Transcript at 2733. The 87. Zenith proposed the same monitor for CLINs 0001, 0003 and 0004. Protest File, Exhibit 28 at 44. Initially, Zenith planned to obtain these monitors from factory in which is a non-designated country for purposes of the TAA. Protest File, Exhibit 3047 at 100. 88. After April 1992, Zenith informed that it could not purchase monitors manufactured in for the Desktop IV contract, and asked to provide a quote for the requisite quantity number of monitors manufactured in a TAA-compliant country. 89. In May 1992, replied that it would perform final assembly of the monitors at its facility in for quantities of up to a month and that it would have to find a third party manufacturer in the United States to provide additional quantities. Protest File, Exhibit 1032. At that time, the facility did not have a line to assemble monitors; it was limited to providing service repair. Id., Exhibit 1033; Transcript at 332. 90. The record is inconclusive as to the exact extent of a commitment on the part of to produce United States manufactured monitors in the quantities and time frame required by Zenith. The Vice President of Manufacturing and Distribution for United States operations testified, however, that while considered itself committed to provide monitors, this commitment did not necessarily extend to particular volumes and delivery dates with respect to the Desktop IV requirement. Transcript at 355-56, 451. 91. Zenith's Vice President of Federal Systems testified that he understood to be fully committed to providing all 300,000 monitors required under Desktop IV, manufactured in the United States, up to monitors per month. Transcript at 2739. With respect to capacity to achieve this, this individual testified that in his view there was "no problem": Well, as I mentioned earlier, we were quite open in our discussions with that their own existing facilities in were inadequate to manufacture those quantities inside of their own facilities. They could make a month there, not the monitors a month that we required for this contract. So it was fully understood between the two of us that they would provide all of the components necessary to manufacture these monitors, they provided the manufacturing know-how, and procedures and processes to be able to manufacture them. They would select one of the many available third party electrical assembly locations to do the actual work, and they would stand behind the quality. Id. at 2741-42. One reason that Zenith may have believed it could supply the requisite quantities of monitors in a timely fashion was the RFP provision for acceptance testing, which had to be passed before any units could be ordered under the contract. Protest File, Exhibit 16.[foot #] 15 92. To meet the requirement for TAA-compliant monitors, planned to assemble its monitors in the United States using components shipped in the form of semi-knockdown (SKD) kits. Protest File, Exhibit 3028. The SKD kits consist of thee boxes of subassembled materials. Transcript at 387-89. One box contains a subassembly consisting of the cathode ray tube (CRT), front bezel, and degaussing coil, already connected to the back cover for safe shipping. Id. at 388, 395. Another box contains the monitor's electronic board assembly -- a video board, main electronics board, and some cable, already assembled together. Id. at 388-89. The last box contains miscellaneous items such as labels, user guides, power cables, tape, screws, and warranty cards. Id. at 396. 93. The kits are prepared by removing subassemblies from the assembly factory prior to final assembly. Approximately 30 to 32 minutes of the 40 minute assembly process has already been performed by the time the parts are taken off the line, packed and shipped to the United States in SKD kits. Transcript at 511-14. Every part necessary to final assembly of the monitor is included in the SKD kit. Id. at 504-05. 94. When the kits arrive at the United States plant, the boxes are unpacked. The back cover is removed from the CRT and front bezel. The CRT subassembly moves down the approximately twelve stations on the assembly line where the electronic boards and other parts are inserted, cabled, and adjusted. The unit is then placed in the burn-in room for a 24 hour period. Following that the monitor is tested further and, finally, is aligned and adjusted. Transcript at 390-93, 480-95. Due to inefficiencies in start-up, the assembly process itself will take about 12 minutes to complete initially. Testing and alignment takes about 15 minutes. Id. at 405. 95. is a large company with a proven track record in producing monitors. Given enough time and money it was capable of assembling monitors in the United States. Transcript at 337-44. As of the time of Zenith's BAFO submission, the lead time ----------- FOOTNOTE BEGINS --------- [foot #] 15 We note that both EDS and GTSI relied to some extent on similar types of representations made to them by their monitor supplier, Transcript at 1983; Protest File, Exhibit 3042 at 12. ----------- FOOTNOTE ENDS ----------- for to produce monitors in the United States in large quantities was at a minimum. Protest File, Exhibit 3047 at 294-95. had informed Zenith that it would take at least to ramp up to monitors per month. Transcript at 413-14. Other than for acceptance test units, no orders were placed for monitors prior to Protest File, Exhibit 3031. The 96. For its CLIN 0002 monitors, Zenith initially proposed to supply a unit manufactured by In April 1992, Zenith informed that it needed a quote to supply TAA compliant monitors. Protest File, Exhibit 3047. As of July 1992, the method by which would manage to provide TAA compliant monitors was by no means decided, although Zenith amended its BAFO to designate three potential locations -- -- where the monitors could be produced. Id., Exhibit 27 at 6. As of that point in time, itself had no suitable manufacturing facilities in a TAA compliant country, nor had it located a third-party vendor that would commit to assemble compliant monitors at an acceptable price. Protest File, Exhibits 1122, 3047; Transcript at 1010-11; 2746, 2800. 97. As of the time of contract award, still had no definite plans for how it would supply the requisite number of TAA-compliant monitors to Zenith under Desktop IV. Protest File, Exhibit 1113. In mid-September, after it knew that Zenith would actually place orders, instituted negotiations with , a United States vendor, to assemble monitors from SKD kits in a manner similar to that planned by . Transcript at 1030. After further negotiations between Zenith and , Zenith finally accepted an quote, in October 1992, providing for of lead time. Protest File, Exhibit 1101. The purchase order issued by Zenith provided for the supply of monitors by sometime in Id., Exhibit 3031. The Zenith Facility in Michigan 98. Zenith has a large manufacturing facility in St. Joseph, Michigan that is currently capable of producing CPUs per day, per month and in excess of per year. Transcript at 2719. This current production capability exceeds by a factor of the volumes of units that Zenith indicated it could deliver to the Government in its proposal. Id. 99. In addition to the ability to produce large numbers of CPUs, Zenith has the capacity, by using an idle fourth assembly line located in its Michigan facility, to produce Desktop IV monitors per month. Transcript at 2726. The assembly line could be quickly activated to assemble monitors using the SKD kits from Id. at 2730. Zenith developed a back-up plan under which it would begin to produce its own TAA compliant monitors within in the event its suppliers could not otherwise meet their commitments. Protest File, Exhibit 1123 at 38-39. The Expert Testimony Intel 386 Versus 486 Technology 100. The Board received considerable testimony, both from experts and from individuals employed by the offerors who are versed in computers with respect to the better value presented by various 386 and 486 machines proposed by the numerous vendors who participated in the second round. E.g., Transcript at 1347-76, 1515-74, 1600-54, 1686-88, 1888-89, 2110-13. Based on that testimony, we conclude that the 486 based microprocessor systems are generally more powerful and better able to process existing software packages, as well as the future generations of software updates which, based on historical trends in this industry can be expected to use even more power and memory than existing versions available in today's marketplace. At the same time, we do not accept the contentions of certain experts that the 386 technology is all but obsolete such that an award to an offeror whose CLINs 0001 and 0002 machines are based on the less powerful 386 chip would be irrational or would fail to satisfy actual and projected user requirements. See Transcript at 1493-94, 1598-1600. 101. Protesters adduced considerable testimony in support of the proposition that the 386 chip is still in the mainstream of current technology and is being used and purchased by the Government to meet its requirements. Transcript at 1111-12, 2860, 2870-71. The large majority of offerors who read the functional description of users of CLIN 0001 and 0002 systems proposed 386 systems to satisfy those users' needs. Protest File, Exhibits 19, 20. This includes Transcript at 913-14, 2860. Expert Testimony on Dual Award Analyses 102. Protesters, through experts, introduced studies designed to show that it would be possible, through a dual award, to achieve the technical and management advantages desired by the Government while achieving cost savings as a result of the ability of buyers to purchase less expensive CLINs offering similar products from the second awardee. Transcript at 1515-1654. These would be in addition to the less easily quantified benefits such as additional delivery capabilities to serve as a hedge against unforeseen events which might hinder the ability of a single awardee to provide units in the quantities desired and the benefits of post award competition which would likely induce the second awardee to make improvements to its offerings in order to garner additional business. Transcript at 1741-47. Although these studies are by no means perfect or dispositive of potential benefits to a second award, they support the conclusion that it might be possible to attain benefits from a second award that were not considered by the Air Force, particularly with respect to lower costs. Discussion The protesters have attacked the award to Zenith on essentially two fronts: (1) they have alleged for several reasons that the Zenith proposal is flawed and should be disqualified for award, and (2) they have challenged the evaluations and the conduct of the "best value" analysis leading to the Air Force's decision to make a single award. The bases for disqualification of Zenith's proposal are threefold -- protesters claim that (1) Zenith's proposal exceeded the page limits for the combined management and technical areas; (2) Zenith's proposal contained line items that and (3) Zenith misrepresented its ability to produce[foot #] 16 and deliver quantities of microcomputer systems that comply with the Trade Agreements Act, again leading to a flawed evaluation of this proposal. Protesters also urge that the Air Force's best value analysis failed to adhere to the solicitation's provision that it would assess whether a combination of proposals or a single proposal would be most advantageous to the Government. Moreover, protesters argue that the best value analysis as performed shows that the Air Force de facto changed its requirements after receipt of BAFOs without notifying offerors. In addition, CompuAdd asserts that the Government's utilization of the proposal evaluation guide (PEG) in evaluating its proposal unduly penalized its creative approach to the functional specifications, and Apple alleges that the utilization of the PEG resulted in unfair evaluation of its alternative technology. Finally, Apple believes that its alternative technology was misscored as a result of the Government's preference for Intel-based equipment. ----------- FOOTNOTE BEGINS --------- [foot #] 16 As noted above, the PEG refers to the ability to produce microcomputer systems either through use of suppliers or the offeror's own facilities. ----------- FOOTNOTE ENDS ----------- The Mandatory Page Limit Protesters GTSI and EDS contend that the evaluation of Zenith's winning proposal was improper because the letters of commitment from Zenith's suppliers were technically part of the management proposal and should have caused the last sixteen pages of the technical proposal to be removed from the materials supplied to the evaluation teams. See Finding 22. See also, Infotec Development, Inc., B-238980, 90-2 CPD 58 (July 20, 1990). Zenith and the Air Force respond that many offerors, in various locations in their proposals, offered supplier commitment letters. None of these were, regardless of where located, counted against the mandatory page limit. We agree with Zenith and the Air Force that the supplier commitment letters were not required to be counted against the mandatory page limit. The RFP simply does not require the rigid interpretation advanced by the protesters. Many, if not all, of the offerors included miscellaneous materials of this nature somewhere in their proposals, and none were penalized by the Air Force for doing so. The solicitation did not require that these letters of commitment be counted toward the maximum page limitation. The agency's actions were proper. See TRW, Inc., GSBCA 11309-P, 92-1 BCA 24,389, at 121,787, 1991 BPD 205, at 8. This count is, therefore, denied. The solicitation stated that the Government would evaluate the cost realism of each offer. Finding 32. Protesters allege that the cost evaluation performed by the Government did not comply with the requirements of the applicable Federal Acquisition Regulation (FAR) 15.805-3. As a result, according to protesters, the Air Force failed properly to take into account the risks associated with . The offerors' prices were compared against the Government estimate, GSA schedule prices, and commercial prices to the extent available. The area chief of the cost evaluation team testified that these comparisons were hampered by volatility of prices in this industry and that the cost evaluators were not troubled by seeing prices quoted by Desktop offerors because they expected such a trend. Finding 58. The cost team nonetheless concluded that the prices were reasonable, given the rapidly changing price structure of this industry, which is a factor the applicable regulation itself identifies as a consideration to be accounted for. See FAR 15.805-2. The record does not persuade us that the Air Force's performance of the cost analysis was flawed. The Board, in recognition of the complexities and difficulties inherent in performing such evaluations, does not hold the Government to a standard of perfection: [D]eterminations of cost realism are by their nature business judgments which call for the exercise of discretion by Government officials. Unless such a judgment is clearly defective we will not upset it even if the protester's contrary opinion is not unreasonable. Program Resources, Inc., GSBCA 8879-P, 87-2 BCA 19,816, 1987 BPD 65. Accord Softech, Inc. v. Department of the Air Force, GSBCA 11708-P, 92-2 BCA 24,877, 1992 BPD 116. There is absolutely no basis, on the record before us, to conclude that the Government's cost analysis was "clearly defective." The solicitation does not mandate rejection of an offer merely because line items . Finding 32. Although certain of , the area chief for cost evaluations credibly testified that the cost evaluation team had no reason to believe that there was any . Findings 61-63. As such, the record simply does not support a conclusion that . See, e.g., Bulloch International, Inc., GSBCA 10997-P, 91-2 BCA 23,736, 1991 BPD 23. The Trade Agreements Act Issues Protesters urge that Zenith misrepresented its ability to produce and deliver, in large quantities, compliant microcomputer systems as of the date of award. Specifically, they argue that Zenith has no firm commitments from its monitor suppliers that they will be in a position to supply monitors that comply with the requirements of the TAA in the time frame contemplated by the contract and by Zenith's representations. Protesters contend that this "misrepresentation" requires the Board to disqualify Zenith from further participation in this procurement. Planning Research Corp. v. United States, 971 F.2d 736 (Fed. Cir. 1992); University Systems, Inc. v. Department of Health & Human Services, GSBCA 12039-P, 1992 BPD 380 (Nov. 19, 1992); Sterling Federal Systems, Inc., GSBCA 10381-P, 90-2 BCA 22,802, 1990 BPD 70. Protesters also contend that if Zenith had been more forthcoming about the fact that its monitor suppliers had no existing facilities in the United States, or in any other TAA- designated country, for the immediate production of monitors, Zenith would not have been rated as for the production and delivery capabilities item of the management area. This is so because the Air Force had a strong concern that existing production lines be in place so as to ensure that the contractor would be prepared to deliver as soon as the contract was awarded. As such, allege protesters, the Zenith proposal was improperly evaluated and, on this basis, the award cannot stand. We address first the contention that Zenith deliberately misrepresented its ability to produce compliant microcomputer systems in the quantities stated. This contention is based on the fact that the monitors are a necessary component of those microcomputer systems and that if TAA compliant monitors are not readily available in the same quantities as are required to be shipped, presumably, Zenith would not be in a position to ship as promised. Zenith vehemently contends that its reliance on the commitments of these third party manufacturers was reasonable in the circumstances. Although neither had existing facilities in the United States, the record reflects that both suppliers are large competitors in this market and have the wherewithal to either expand existing facilities or contract with third party vendors for assembly in the United States on an expedited basis. Thus, Zenith urges, its confidence that it could produce the quantities it claimed it could, given the anticipated delay inherent in the acceptance testing process, which Zenith had to pass before Desktop IV orders could even be placed, was not misplaced. This was particularly so since, in a pinch, it could set up an assembly operation at its Michigan facility. In addition, Zenith points out, what the Government evaluated was its production capacity in the Michigan facility, and not the capacity of its monitor suppliers. In any event, Zenith further argues, it has established its present ability to supply the requisite numbers of monitors through the issuance to of purchase orders which have been accepted by those suppliers. Zenith relies on Automated Business Systems & Services, Inc., GSBCA 9213-P, et al., 88-1 BCA 20,405, 1987 BPD 279, to support its contention that the circumstances here do not necessitate invalidation of its award. In that case the offeror had certified that it would supply monitors produced in Japan. After proposal submission, but before award, the production of the monitors was shifted from Japan to Taiwan, a non-designated country. The Board denied the protest, ruling that despite the fact that monitors were not actually being made in Japan at the time of award, the awardee had nonetheless successfully arranged in the interim to have the monitors for that contract produced in Japan. The Board reasoned that since the awardee could in fact perform, the requirements of the TAA had in fact been met. 88-1 BCA at 103,225, 1987 BPD 279, at 15. Zenith thus contends that since it has established, through its issuance of post-award orders to the monitor suppliers, that it can perform as required, under Automated Business Systems this protest count must be denied. In our view, Automated Business Systems is not dispositive of the present dispute. The principal issue in that case was whether the TAA had been and would be complied with. The evidence was that at the time of certification the monitors were being produced in Japan. Subsequently, the supplier moved its facilities to Taiwan, but the awardee managed to arrange to have its monitors continue to be produced in Japan. Thus, the certification was legitimate, and the record revealed that actual production could coincide with that certification. Moreover, the invalidation of the award would serve no purpose under such circumstances, where no aspect of the changed conditions were attributable to the actions of the awardee. Here, however, the issue raised by protesters is not that circumstances changed, thereby making Zenith's proposal noncompliant. What protesters allege is that Zenith improperly received a rating for its production and delivery capacity which was improperly inflated in light of the actual lack of production facilities extant in the United States or other TAA eligible country. GTSI and EDS contend that Zenith lacked firm commitments from either [of its suppliers] that it could reasonably rely on to justify its representation that it could produce upwards of units at contract start and thereafter. Absent the actual presence of its suppliers in the United States through facilities of their own or arrangements with third party manufacturers, as of the time of submission of BAFOs, protesters point out that under the standards applied by the Government in evaluating capacity, Zenith's ability to produce the stated quantities of systems should have been in significant doubt. Based on the evidence of record, we cannot conclude that Zenith intentionally misrepresented its abilities to meet its contractual obligations. Zenith employees have testified that while they did not have firm written contracts with their vendors to supply TAA compliant monitors for a firm price, they had had numerous discussions and had reached oral understandings that they believed, based on prior business dealings, were trustworthy and could reasonably be relied on. Moreover, as long as they could obtain the semi-knockdown kits in a timely fashion, Zenith felt confident of its ability to rapidly get up to speed at its Michigan facility using its idle fourth line. The real issue underlying this count of the protest, then, is not that Zenith's proposal contains intentional misrepresentations, but that it did not inform the Government of the fact that the monitors were not presently being produced in the United States, and would not be until after contract award, since this is a factor that could add considerably to the risk that Zenith might not, at least at the outset, be in a position to deliver as many units as the Government might order. We note that reliance on idle facilities caused the Government to express concern about the risk of start-up delays in at least one instance. Finding 44. As such, we must conclude that knowledge of the full circumstances would have affected the risk analysis and resultant scoring of Zenith's winning proposal.[foot #] 17 The next issue raised by protesters with respect to the plan to assemble monitors in the United States from semi-knockdown kits is that this does not constitute "substantial transformation" within the meaning of the Trade Agreements Act. As such, the monitors, according to protesters, are not in fact TAA compliant. To the extent this is true, protesters are correct that Zenith's proposal would be noncompliant with a material term of the RFP and would not be eligible for award.[foot #] 18 See Sysorex Information Systems, Inc., GSBCA 10642-P, et al., 90-3 BCA 23,181, 1990 BPD 193. The evidence adduced in hearing establishes that the assembly process in the United States would require the United States assembler to unpack three boxes, remove the back cover from the CRT and front bezel of the monitor, insert various boards, cables and other parts, adjust the monitors, subject the monitors to burn in and, finally, to align the monitors. Under the express terms of the solicitation, as well as FAR 25.401, a "designated country end product" is one that has been substantially transformed into a new and different article of commerce: "Designated country end product," as used in this subpart, means an article that (a) is wholly the growth, ----------- FOOTNOTE BEGINS --------- [foot #] 17 To the extent that the Air Force argues that this information is immaterial to evaluations, then it appears that not all offerors were in fact treated equally. If an offeror was regarded to be an integrator, the Government looked to the capacity of its major suppliers to determine its ability to supply the requisite quantities under Desktop IV. It would seem that to compare "apples" with "apples," then, the Government would have to consider the same capacity of suppliers to the extent that a manufacturer such as Zenith necessarily relies on a supplier for a significant part of the systems it is obligated to deliver. [foot #] 18 The Air Force urges that the Board should not look into the issue of whether the monitors are actually TAA compliant under the "substantial transformation" doctrine because this is a matter of contract administration, not formation. This argument has already been rejected by the Board. Rocky Mountain ______________ Trading Co., GSBCA 10894-P, 91-1 BCA 23,619, 1990 BPD 430. ___________ ----------- FOOTNOTE ENDS ----------- product or manufacture of the designated country, or (b) in the case of an article which consists in whole or in part of materials from another country or instrumentality, has been substantially transformed into a new and different article of commerce with a name, character, or use, distinct from that of the article or articles from which it was so transformed. 48 CFR 25.401 (1991). The legislative history of the TAA provision upon which this regulation is based indicates that the "rule of origin" is derived from customs law used to determine whether and at what rate imported products are dutiable.[foot #] 19 Zenith argues that the result of the assembly process performed in the United States is to transform the components into a new article of commerce, a monitor, with a name, character, and use different from the components themselves. This constitutes "manufacturing" within the meaning of the Buy American Act (BAA) as that concept has been developed in GAO protests. See General Kinetics, Inc., B-242052.2, 91-1 CPD 445 (July 6, 1991); Hamilton Watch Co., B-179939, 74-1 CPD 306 (May 7, 1974). Zenith urges that in the absence of controlling Board precedent as to how the term "substantial transformation" should be applied, the Board should look to the BAA "manufacturing" cases and find that the assembly processes to be performed by [Zenith's suppliers] are sufficient to constitute "substantial transformation" within the meaning of the TAA. The "manufacturing" standard of the BAA is not the equivalent of the "substantial transformation" standard of the TAA, however. Under customs law, to which the legislative history of the TAA directs us for interpretive guidance, it has been expressly recognized that the term "manufacture" connotes something less than the more stringent "substantial transformation" required to establish such matters as country of origin. Tropicana Products v. United States, 789 F. Supp. 1154, 1158 (Ct. Int'l Trade 1992). We look, then, to cases construing the term "substantial transformation." In Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989), the United States Court of Appeals for the Federal Circuit affirmed the holding of the Court of Interna- tional Trade that certain operations performed in Canada, using wholly Spanish components, did not substantially transform the components. There, the importer brought Spanish wire rod into Canada, had the wire rod drawn into wire which it shipped to its United States ----------- FOOTNOTE BEGINS --------- [foot #] 19 See S. Rep. No. 249, 96th Cong., 1st Sess. ___ 140, reprinted in 1979 U.S. Code Cong. & Admin. News 381, 526. ____________ The Comptroller General has recognized that customs law is applicable to this determination. Becton Dickinson AcuteCare, B- __________________________ 238942, 90-2 CPD 55 (July 20, 1990). ----------- FOOTNOTE ENDS ----------- facility. The Court of International Trade considered the transformation of wire rod into wire to be minor rather than substantial, and concluded that there was no change in character or use, although there was a slight change in name. Accordingly, it concluded that wire and wire rod were different stages of the same product. Id. at 1414. The Comptroller General, in a recent decision construing the requirement for substantial transformation under the TAA, rejected the argument that the folding of articles, manufactured elsewhere, into an innerwrap and insertion into envelopes which are then sealed within the TAA-compliant country constituted substantial transformation. Becton Dickinson AcuteCare, B-238942, 90-2 CPD 55 (July 6, 1990). In another recent case, the Court of International Trade rejected the notion that assembly of components, whose use was predetermined prior to importation into the United States, constituted a substantial transformation of the product. The court stated: The use of the imported articles was predetermined at the time of the importation. Each component was intended to be incorporated in a particular finished mechanic's hand tool. . . . For example, Exhibit F was intended to be used as the speeder handle bar and was in fact used as a speeder handle bar in the finished tool. There was, therefore, no change in use as a result of the processing performed in the United States. National Hand Tool Corp. v. United States, 26 Cust. B. & Dec. 47, 50-51 (Ct. Int'l Trade 1992). Similarly, the use of the components shipped by will be predetermined as of the time of importation. In essence, although there is arguably a change in name (from monitor components to monitor), under existing precedent, there would not appear to be the type of change in character, use, and name (whether viewed conjunctively or disjunctively) to warrant a finding that substantial transformation has occurred. The minor change in name in Superior Wire was discounted as a basis to find "substantial transformation."[foot #] 20 Looking at the totality of the circumstances, see Findings 92-94, 97, we must conclude that protesters are correct when they assert that the monitors proposed by Zenith will not comply with the requirements of the TAA. The Zenith BAFO leading to award was not acceptable, even if capable of being made acceptable. Having so found, the award to Zenith cannot stand. ----------- FOOTNOTE BEGINS --------- [foot #] 20 EDS points out that the bezel and CRT are in fact referred to as monitors by , despite the lack of installed electronics. Protest File, Exhibit 1108. ----------- FOOTNOTE ENDS ----------- Best Value/Dual Award Issues Although we need not now expressly decide the protesters' allegation that the Air Force failed to follow the requirements of the solicitation in its approach to the dual award criteria, we consider that it would nonetheless be useful to address this issue since the Air Force may choose to make an award decision based on the offers it now has in hand, or may choose to amend the solicitation. To that end, we note that the best value analysis performed by the Air Force relying on the guidelines established in recent Board precedent[foot #] 21 failed to account for the differences between those procurements and the one it was actually conducting. An essential principle underlying all such analyses is that the award selection must be made in accordance with the criteria set forth in the solicitation. See Centel Federal Systems, Inc. v. Department of the Navy, GSBCA 12011-P, et al., 1992 BPD 350 (Nov. 16, 1992). Here, the Air Force applied a best value analysis appropriate not to the terms of the Desktop IV solicitation and the type of contract contemplated to be awarded -- which in many respects is comparable to a schedule contract -- but suited instead to the type of procurement where the agency is making a purchase intended to fulfill a particular mission, and the award criteria provides for only one award. See, e.g., Computer Sciences Corp., GSBCA 11497-P, 92-1 BCA 24,703, 1992 BPD 6 (1991). As such, the Air Force's reliance on the recent "best value" cases is inapposite. The selection criteria provided that the Air Force would determine, based on an integrated assessment, the combination of proposals, or single award, that would offer it the best value. The Air Force never devised a means for examining the possible advantages, in a best value context, of the dual award, or combination of proposals. That is, the Air Force effectively evaluated the proposals looking for a single best value which, on the information it had, it deemed to be the Zenith AX proposal. It then looked to see whether there might be another best value proposal that should be considered for a second award and concluded that none of the other proposals offered sufficiently compelling advantages such as to warrant award to a second contractor. Much of the underlying rationale for this appears to be that the remaining proposals offered 386 solutions for CLINs 0001 and 0002 and thus were deemed undesirable because by that point the Air Force was of the view that it (and the rest of DOD, as well as any civilian agencies purchasing off the Desktop IV contract) should not purchase any ----------- FOOTNOTE BEGINS --------- [foot #] 21 See Grumman Data Systems Corp. v. Department of ___ ___________________________________________ the Air Force, GSBCA 11635-P, 92-2 BCA 24,999, 1992 BPD 100. _____________ International Business Machines Corp., GSBCA 11359-P et al., 1991 _____________________________________ BPD 227 (Sept. 25, 1991). ----------- FOOTNOTE ENDS ----------- more 386 machines. As a result, as protesters point out, the Air Force never made the ultimate comparison called for by the language of the solicitation -- whether a combination of proposals might offer better value than a single proposal. This is because the Air Force never seriously considered that a second award, although not a better value than Zenith across the board, might nonetheless afford technological parity or advantages at lower prices on particular CLINs over the life of the contract. A combined award could well be most advantageous to the Government. In defense of its posture, the Air Force points to the analysis made, contends that that analysis was reasonable, and points to what the Board has said is a great deal of discretion vested in the agency to decide what is most advantageous, or provides the best value, to the Government: [W]here the RFP does not set forth specific weights to be applied in trading off cost and technical factors, agencies are accorded "great discretion" in determining which proposal is most advantageous to the Government. The SSA is paid to exercise discretion within the bounds of the award criteria set forth in the RFP. It is not the function of this Board to "second guess" the decision of the SSA. Our job is to ensure that the SSA applied the appropriate criteria, and that the ultimate decision was reasonable. TRW, Inc., GSBCA 11309-P, 92-1 BCA 24,389, at 121,786, 1991 BPD 205, at 14. The Air Force, relying on the process it followed in reaching the award decision, see Findings 83 - 85, states that the decision to select only Zenith's proposal AX is justified and reasonable in light of the record it developed, and insists that it was required to go no further. The issue raised in this count, we emphasize, is not the agency's underlying process in evaluation of proposals, or even the steps it took to identify the single "best value" proposal.[foot #] 22 As we have stated, the difficulty is that the best value analysis approach adopted in this procurement is predicated on making a single award procurements and ignores the distinctive provision in ----------- FOOTNOTE BEGINS --------- [foot #] 22 Indeed, in the course of the hearing, the Board complimented the Air Force on the thoroughness of its evaluation process, particularly with respect to the preparation of the electronic spreadsheet which allowed the SSAC to compare individual items for proposals across the Board. The Board also recognized that if the award criteria had specified a single award, the best value analysis in light of the results of evaluations of proposals was indisputably well supported. ----------- FOOTNOTE ENDS ----------- the Desktop IV solicitation providing that a combination or combinations of proposals would be considered against a single award.[foot #] 23 Although not made applicable in this procurement, the concept of multiple award procurements, pursuant to FAR 52.214- 22, would seem at least analogous. The Board noted in Rocky Mountain Trading Co., GSBCA 8845-P, 87-2 BCA 19,725, 1987 BPD 42, that under FAR 52.216-34, an agency is required to make multiple awards if to do so would be most advantageous to the Government: The solicitation does not dictate that proposals are to be prepared and awarded on an all or none basis; paragraph L.22(c) indicates just the opposite. Further, DOE is required to determine that it makes the award to the responsible source most advantageous to the Government. 41 U.S.C. 253b(d)(4) (Supp III. 1985); 41 CFR 201-11.001 (1986); 48 CFR 15.611 (1986). Thus, if multiple awards will be most advantageous to the Government, and they are not prohibited by the solicitation, multiple awards should be made. . . . . The solicitation was reasonably interpreted to mean that DOE would make multiple awards if such would be most advantageous to the Government. The record contains no indication that DOE either informed offerors during negotiations that an all or none award was contemplated or determined that the system offered by RMTC and cartridges offered by Univation would not satisfy its needs expressed in the solicitation. The vehicle of this negotiated procurement permitted DOE the opportunity to make these latter inquiries and determinations. By failing to determine that it was making the award most advantageous to the Government, DOE violated statute and regulation. In another case the Board observed that an agency must consider and make multiple awards even in the absence of the ----------- FOOTNOTE BEGINS --------- [foot #] 23 If one assumes that the approach adopted by the Air Force represented a reasonable construction of the dual award criteria, we would still conclude that the Air Force, in the face of solicitation language susceptible to more than one interpretation, was required to effect the interpretation that favored maximum competition, which is the interpretation advanced by protesters. See, e.g., Hughes Advanced Systems Co., GSBCA _____ ____ _____________________________ 9601-P, 89-1 BCA 21,276, 1988 BPD 253. ----------- FOOTNOTE ENDS ----------- relevant FAR clause in order to fulfill its statutory mandate to make the award that is most advantageous to the Government: If the absence of 48 CFR 52.215-34 were to invalidate the notice which is otherwise made clear by the solicitation, the requirement of 48 CFR 15.407(h) would prevent respondent from complying with 10 U.S.C. 2305(b)(4)(D) by precluding it from awarding a contract to the responsible source whose proposal is most advantageous to the United States. It is axiomatic, however, that a regulatory requirement, the purpose of which is to explain how a statute will be [implemented], cannot override the mandate of a statute itself. In compliance with the statute, the agency consequently must make multiple awards if doing so will be most advantageous. International Business Machines Corp., GSBCA 9293-P, 88-1 BCA 20,512, at 103,700, 1988 BPD 16, at 8. Zenith contends that the Rocky Mountain and IBM cases requiring multiple awards are entirely distinguishable on two bases: they involve award criteria providing for award to the lowest price or lowest cost, technically acceptable offeror, and they permit separate contracts for individual CLINs or SLINs. Thus, these cases involve procurements seeking an award based on lowest aggregate cost, in contrast to the instant procurement, which provides for award on the basis of best value and also provides that technical and management are more important than cost. In the context of this solicitation, however, we believe, for the reasons stated below, that these cases, although not entirely "on all fours," have some application. The cases relied upon by the Air Force, e.g., Grumman, Computer Sciences Corp., GSBCA 11497-P, 92-1 BCA 24,703, 1992 BPD 6 (1991), and International Business Machines, all contained provision for a single award. Here a dual award was expressly recognized. As such, analysis of the dual award possibilities was required to make the "best value" analysis conform to the terms of the solicitation. The potential benefits of a dual award are particularly pertinent here where the Desktop IV microcomputer systems, software, peripherals and services are destined for the use of individual buying entities throughout the Air Force, the other Armed Services, the remainder of DoD, and various civilian agencies as well. All of these buying units have varying needs, which are not presently known to, or readily forecasted by, the SSC. Indeed, this award in many ways will resemble a schedule contract against which a buyer organization may purchase its general purpose office automation needs if they are so available. Against this backdrop, the RFP contains a mechanism under which the agency reserved the right to make a dual award if that was determined to be most advantageous to the Government. We simply cannot agree that the analysis performed was sufficient. In short, the agency has failed to consider the BAFOs in combinations to determine if a multiple award might, in fact, be more advantageous than a single award. Given variations in technology and products available under various combinations of offers, a combination with or without the highest ranked offeror, might well be more advantageous than a single award to the highest ranked offeror. We do not necessarily disagree with the Air Force's conclusion that among all of the individual proposals, Zenith's presented the individual best value. We differ with the contention that the subsequent cursory review, designed to determine only if a second best value award existed from among remaining proposals, satisfied the agency's obligation under the RFP. It did not. The review performed by the Air Force served at most to support its determination that no other proposal, standing alone, was a better value than the Zenith proposal, standing alone. This, however, is not what the Air Force informed offerors that it intended to do. The Air Force never performed an analysis that compared combinations of proposals against a single award to Zenith, taking into account cost savings potentially available in the out years, as well as the base year, based on the ability of buyers to pick and choose among the various options of both awardees in all three years of the contract, to consider whether the same or a higher level of technical superiority could be obtained at a better overall price. Other potential advantages could include the convenience to buyers of a ready means to obtain alternative technologies.[foot #] 24 The evidence presented by protesters' experts supports the notion that distinct price benefits could be obtained (even without assuming that a second award would encourage post-contract award competition between the two Desktop IV vendors) without the necessity for sacrificing the higher level of technology provided in CLINs 0001 and 0002 of the Zenith proposal. Should this be the case, statute dictates that the Air Force make a second award. 10 U.S.C. 2305 (1988). At the same time, the only real cost that the Air Force has been able to identify in opposition to making a second award to another vendor is the ----------- FOOTNOTE BEGINS --------- [foot #] 24 An Apple witness pointed out that one benefit to existing users of its technology would be the availability of an easier mechanism for purchasing Apple equipment. Transcript at 1747. ----------- FOOTNOTE ENDS ----------- administrative cost of managing a second contract.[foot #] 25 It speculates that this cost could be in the neighborhood of $500,000, assuming the staff needed to accomplish the extra work would double the size of the staff presently expected to administer a single contract. We are unpersuaded by the Air Force's assertion that protesters have failed to prove that a combination of proposals would provide a better value than the Zenith proposal standing alone. Credible testimony provided in the hearing that a two award scenario might well prove to be in the Government's advantage by permitting offerors to choose the line items on the second award that compared favorably to Zenith's proposal -- . Presumably the individual buying units that will order off the contracts will buy systems and associated hardware and software according to their best interest. Thus, for example, one need not assume that these buyers would buy 386 machines for the CLIN 0001 user, even in out years, to the extent that 486 machines are available at only slightly more expensive prices. The Air Force makes much of existing precedent that provides that the Board may not, in reviewing protested procurements, second guess an agency's assessment of its minimum needs. Data General v. United States, 915 F.2d 1544 (Fed. Cir. 1990). This point, while entirely correct, nonetheless misses the mark -- the issue is not that the Board disagrees with the Air Force's assessment of its needs. The Air Force has made a convincing case that the 486 microprocessor is generally superior to the 386 machines and would be the machine of choice even for CLIN 0001 users because of its ability to process newer generations of software packages more rapidly. The problem is that these needs evolved during the course ----------- FOOTNOTE BEGINS --------- [foot #] 25 The Air Force also complains that a full comparison of all thirty-nine proposals in various combinations to ascertain whether a second award would offer better value than a single award would require it to examine countless permutations and "would not be practical." We do not necessarily advocate that the Air Force go this far to examine the possibility of a second award that would enable it to take advantage of lower costs on various CLINs, while either improving the technological features offered, or at least not sacrificing any such features. We note that the impressive electronic spreadsheet already prepared should give the Air Force a head start on performing an appropriate dual award analysis. Moreover, the fact that it may not be convenient or "practical" to follow the terms of the solicitation in making an award decision does not absolve the Government of its duty to adhere to the announced scheme. Centel. ______ ----------- FOOTNOTE ENDS ----------- of the procurement, and particularly following receipt of BAFOs, when the Air Force learned to its surprise and delight that a reasonably priced 486-based solution had been offered. The Air Force never informed offerors that its needs, or perception of its needs, had changed from the desire to acquire a wide range of technology to satisfy the low-end through high end user to a desire to acquire only the more powerful, higher-end technology.[foot #] 26 Nor did it communicate that the distinctions between a CLIN 0001 user and 0003 user in terms of the level of machine required were virtually nonexistent, since at least in the minds of some Air Force officials involved in the program, the units had to be readily interchangeable in the event a machine used by a basic user had to be reassigned to an advanced user.[foot #] 27 Had this shift in preference been fairly communicated to offerors, there is the possibility that other offerors as well would have recognized the desirability of providing an all 486-based solution, and might have actually rivalled the Zenith proposal. At least the Government would have had a better idea of the competitive prices for this solution. CompuAdd's and Apple's Challenges to the Evaluations CompuAdd asserts that the PEG was applied "woodenly" in a fashion that penalized its creative solutions in the area of the warranty, and was not based on the Government's historical requirements with respect to requirements for production and delivery capacity. Apple objects that the PEG's technical standards were geared in favor of Intel technology and penalized ----------- FOOTNOTE BEGINS --------- [foot #] 26 The Air Force's contention that under no circumstances should Desktop IV buyers be permitted to purchase 386 machines because there are already sufficient 386 machines that may be reassigned to those users who want them merely highlights the extent to which it misled offerors with an RFP that purported to seek a low-end and high-end solution. If the Air Force truly believed that high powered machines were equally needed by low end and high end users to process existing and future software applications then it should not have structured the RFP to imply that a range of machines was called for. This is particularly so in light of the round one awards, made less than one year ago, in which the Air Force in fact was fully prepared to buy a combination of 286 and 386 technology. [foot #] 27 Nor did it communicate that the distinctions between a CLIN 0001 user and 0003 user in terms of the level of machine required were virtually nonexistent, since at least in the minds of some Air Force officials involved in the program, the units had to be readily interchangeable in the event a machine used by a basic user had to be reassigned to an advanced user. Transcript at 2261. ----------- FOOTNOTE ENDS ----------- its "differing" approaches to satisfying the users needs. We agree that the PEG, given the lack of discretion to assign the higher grade to any feature that fell short of the standard in any way, probably operated to the disadvantage of Apple and CompuAdd. At the same time, the Board, in the recent Grumman decision noted that AFR 70-30 provides that such standards be established. The parties here, like the protester in Grumman, were aware that the Air Force had permitted itself to create undisclosed, quantitative standards and did not challenge its right to do so. 92-2 BCA at 124,607, 1992 BPD 100 at 42-43. To the extent the PEG removed discretion in the assignment of letter grades, we note that the accompanying assessments of strengths and weaknesses were intended to, and did, permit the Air Force to look beyond those letter grades to consider superior features of each offer that did not perhaps receive full credit under the PEG. On this record, we cannot find that the evaluation process as a whole failed to give due consideration to the strengths of these offerors' proposals. The Remedy We emphasize that we do not lightly overturn the award to Zenith, but believe we have no choice under the circumstances. As the Board stated in a recent decision: We are cognizant, in reaching our decision as to the appropriate form of relief to be ordered, of the fact that the [respondent] has spent millions of dollars in conducting this procurement . . . . Obviously, if the procurement is to continue even more funds will be devoted to the project. The expenditure of a large sum of money is not a license to violate procurement laws, however. Each offeror has also spent a considerable amount of money in seeking the contract. . . . If companies cannot have confidence, before embarking on such an extensive competition, that the Government will live by its own rules, how many firms will want to do business with the Government? And then how much will the few firms that do choose to offer goods and services be able to charge the taxpayers? Centel Federal Systems, Inc. v. Department of the Navy, GSBCA 12011-P, et al., 1992 BPD 350, at 34 (Nov. 16, 1992). In Centel, the Board recognized that the remedy fashioned should, in accordance with the dictates of the Brooks Act, "accord due weight to the policies of [the Act] and the goals of economic and efficient procurement." Id. at 34-35. Keeping in mind these policy considerations, we conclude that the award to Zenith cannot stand. The Air Force may proceed with award based on an analysis of remaining proposals if it believes these proposals can satisfy its needs. In doing so, it must give due consideration to combinations of proposals, which, given likely ordering patterns, may lead to the best overall value to the Government, assuming no loss of technical advantages and the ability to save money. Undoubtedly, before proceeding, the Air Force will determine if its needs are appropriately satisfied by the stated technical requirements and dual source provisions. Should the Air Force prefer to revise the solicitation to clarify its needs and revisit the dual award language, it may adopt this course as well, or proceed in any other fashion that accords with applicable statute and regulation. The Air Force's delegation of procurement authority is revised accordingly. Decision The protests are GRANTED. The suspension of respondent's delegation of procurement authority lapses by its terms. _____________________________ CATHERINE B. HYATT Board Judge We concur: ______________________________ _____________________________ JAMES W. HENDLEY JOSEPH A. VERGILIO Board Judge Board Judge