THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN REDACTED FORM ON MARCH 16, 1993 GRANTED: March 5, 1993 GSBCA 12240-P RAYTECH ENGINEERING, INC., Protester, v. DEPARTMENT OF THE NAVY, Respondent, and FORCE 3, INC., Intervenor. Andrew H. Mohr and Donn R. Milton of Cohen & White, Washington, DC, counsel for Protester. Robert C. Peterson, Michael S. Roys, and James L. Yohn, Office of Counsel, Naval Supply Center, Department of the Navy, Charleston, SC, and Eric A. Lile, Office of Counsel, Naval Supply Systems Command, Department of the Navy, Arlington, VA, counsel for Respondent. James A. List, Towson, MD, counsel for Intervenor. Before Board Judges PARKER, BORWICK, and WILLIAMS. WILLIAMS, Board Judge. On December 28, 1992, Raytech Engineering Inc. (Raytech) filed a protest challenging the Navy's award of a contract for Computer Assisted Medical Interactive Video System II (CAMIS II) to Force 3, Inc. (Force 3). The Navy filed a motion to dismiss the protest on the ground that the equipment being procured is not automatic data processing equipment (ADPE) within the meaning of the Brooks Act. We deferred ruling on the motion pending further development of the record. Specifically, the Navy contends that CAMIS II is not ADPE because its principal function is to provide a visual medium for training and it does not acquire information from an outside source. The Navy further claims that CAMIS II falls within the exemption to the Federal Information Resources Management Regulation (FIRMR) for "embedded FIP [federal information processing] equipment." Memorandum in Support of Respondent's Motion to Dismiss (Respondent's Motion) at 11-12. We reject the Navy's arguments and deny the motion to dismiss. On the merits, Raytech claims that Force 3's proposal did not meet a mandatory requirement of the solicitation for commercial off-the-shelf (COTS) products and that the Navy misled Raytech into raising its price in its best and final offer (BAFO). We grant both grounds of protest and revise the Navy's delegation of procurement authority (DPA) and direct it to terminate the award to Force 3, amend the solicitation to clarify when equipment had to be COTS, and solicit another round of BAFOs. Findings of Fact The Solicitation On April 6, 1992, the Naval Supply Center, Charleston, South Carolina, issued solicitation number N00612-92-R-0200 to acquire interactive videodisc systems for use in medical training. Protest File, Exhibit 1. In essence, the CAMIS II units are desktop computer systems with peripheral devices to provide interactive video capacity -- including a CD-ROM player, a videodisc player, a graphics overvideo board, and a touch- screen monitor.[foot #] 1 Protest File, Exhibit 1 at 13-14. The Navy's Director, Biomedical Communications Management, for the Naval Health Sciences Education and Training Command, described the CAMIS II system as a multimedia training system which would provide training for medical personnel at work sites seven days a week, twenty-four hours a day. Transcript at 17-18. He explained that the CAMIS II could not be used for other than its intended purpose: When we deploy the system, there will be a letter sent out, a policy letter, that indicates that the sites are restricted from using that device for anything other than training. ----------- FOOTNOTE BEGINS --------- [foot #] 1 CAMIS II can be used without any modification to run any MS-DOS or WINDOWS application software. Transcript at 23. ----------- FOOTNOTE ENDS ----------- In addition . . . when the system is delivered, . . . the first thing that they will be asked to do is to install a CAMIS shell. That shell only allows the student user to access training materials on that system. Id. at 19-20. The solicitation in Section B states in pertinent part: 1.2 Purpose. The purpose of CAMIS II is to support mission critical Navy medical training at all Navy Hospitals and selected Branch Medical Clinics worldwide. . . . The CAMIS II shall be used to develop and reinforce the required knowledge and skills by providing practical, hands-on interactive visual multimedia training. CAMIS II shall be an innovative, state-of-the-art system used to display dynamic training to achieve greater trainee comprehension of specified training objectives through the combined use of full motion, and still video and computer graphics creating an interactive training environment for the student. Protest File, Exhibit 1 at 6. The solicitation specifically described the system as follows: 3.1 . . . The CAMIS II shall be a desktop microcomputer based system with Microsoft Disk Operating System (MS-DOS) version 5.0 or equivalent system equipped Interactive Video Disc (IVD) workstation. It will be a low profile, small footprint configuration incorporating COTS industry standard components. It shall be an integrated system comprising at a minimum an Intel 80486 mother board, 8 megabytes (MB) Random Access memory (RAM), Laservision compatible Laser Disc Player, Super Video Graphic Array (SVGA) graphics over video from videodisc player, a minimum 100MB Hard Disc Drive, with both 3.5" 1.44 MB and 5.25" 1.2 MB Floppy Drives, Compact Disc - Read Only Memory (CD-ROM) Player ISO-9660 compatible equipped with all CDX extensions to DOS, standard 101 Key Keyboard and a Touch Screen Non-interlaced Multiscan Monitor with Red Green Blue (RGB) video capability. CAMIS II system shall meet the portability requirements of MIL-STD 1379, appendix D for hardware, command set and application interface mechanisms. Id. at 7. Award Criteria The solicitation contemplated the award of a firm fixed price contract and provided: The Government intends to make a single award to the responsive offeror whose total offer on all items is the most advantageous to the Government. Protest File, Exhibit 1 at 68. The solicitation contained the following award criteria: Award will be made based on the low price and technically acceptable offeror. Id. Solicitation Requirements for Pricing The solicitation in Section B asked for unit and extended pricing for 302 systems which were to be shipped within the United States (CONUS) and 63 systems to be shipped overseas (OCONUS). Protest File, Exhibit 1 at 2. Pricing for the individual components comprising the CAMIS II system was not requested. Id. The evaluated price was to be determined by totalling the extended price of the CONUS and OCONUS CAMIS II systems. Id. The COTS Requirement The Statement of Work (SOW) in Section 1.1, Scope, mandated that the CAMIS II consist entirely of COTS equipment, and that "the system shall be configured using standard COTS hardware and software." Protest File, Exhibit 1 at 6. In Section 3.2 of the SOW, the Navy elaborated: The CAMIS II shall be designed and configured in accordance with commercial practices used for the commercial items procured. All parts of the system shall be of the current manufacturing design. Any modifications (hardware, jumpers, software, etc.) needed to make any existing commercial products work in the CAMIS II configuration shall be documented and provided to the government for approval. Protest File, Exhibit 1 at 8. The solicitation did not expressly state at what point in time the CAMIS II products had to be COTS. Protest File, Exhibit 1. In Section 2.1 "Applicable Documents," the solicitation reiterated: This SOW covers acquisition of COTS items. All specifications and standards that apply to the production of the commercial items procured under this contract shall be applicable unless otherwise specified. Protest File, Exhibit 1 at 7. Section 3.12 "Hardware Design Requirements" provided: 3.12.1 Computer Assisted Medical Interactive-video System (CAMIS II). The CAMIS II shall be produced using COTS hardware. No CAMIS II unique equipment shall be provided. The design of the CAMIS II system shall be documented in the contractor developed operating system manuals. The COTS hardware items shall be documented in vendor operating/setup manuals. Protest File, Exhibit 1 at 11. Section 3.9 "General Design Requirements" included the following: 3.9.1 Reliability. The CAMIS II reliability shall be consistent with the reliability customary to commercial equipment of the type specified herein. . . . . 3.9.3 Operational Availability. The CAMIS II operational availability shall meet or exceed 90%, to commercial equipment of the type specified herein. Protest File, Exhibit 1 at 10. The RFP required a "Bid Sample Evaluation of Capability Demonstration," which included review of a completely assembled CAMIS II for conformance with the requirements as well as functional tests to "demonstrate and substantiate the performance of CAMIS II systems." Protest File, Exhibit 1 at 14-15. The solicitation required that all bid samples be submitted with "a copy of the test certification conducted by the Interactive Multimedia Association (IMA) or other IMA approved testing agency." Id. at 10, 14-15. IMA is an international association of "manufacturers, users, educators, systems analysts . . . involved in computer systems and audiovisual systems." Transcript at 78. The purpose of IMA certification is to ensure the compatibility of different manufacturers' components with IMA-developed specifications. Id. at 79-80. The Initial LTD Following the submission of initial proposals in July 1992, a Live Test Demonstration (LTD) was held. Protest File, Exhibits 5, 6, 12. Protest File, Exhibits 12 at 7, 9, 42 at 1. On August 12, 1992, the Navy issued Amendment 0004 to the solicitation requesting revised offers and providing, in pertinent part: The offeror will be required to present a COTS solution for the Video Graphic Overlay Board including associated product data in specific detail of how this deficiency will be corrected, i.e., what has to be changed, how it will be changed, and how long the effort will take. The successful contractor will at his own expense install items as presented and provide an IMA certification prior to delivery of the first unit(s) under contract. Protest File, Exhibit 8 at 2. Raytech's Response to the Deficiency Notice In response to the deficiency notice and Amendment 0004, Raytech proposed Protest File, Exhibit 28; Transcript at 101-02, 690. Force 3's Response to the Deficiency Notice [foot #] 2 [foot #] 3 Response to the Deficiency Notice ----------- FOOTNOTE BEGINS --------- [foot #] 2 ----------- FOOTNOTE ENDS ----------- [foot #] 3 After this protest was filed an advertisement was submitted for publication, but withdrawn. Transcript at 251; Intervenor's Hearing Exhibit 2. Protest File, Exhibit 42. The Navy's Response to the Various Proposals Regarding the VGA Board [foot #] 4 Transcript at 212-13. The Second LTD From September 1-3, 1992, the Navy conducted a second LTD for Protest File, Exhibits 14, 70. At the second LTD, Force 3 demonstrated a system that included its as well as its Transcript at 237-38. This equipment received IMA certification on August 26, 1992. Id. at 238. During Force 3's second LTD was not taken out of the chassis when the Navy reviewed it. Transcript at 544, 664. Navy representatives did discuss this board with Force 3 and representatives at that time. Id. at 543-44, 577-78. Following the second LTD, the Navy determined offerors to be technically compliant. Protest File, Exhibit 14. The deficiencies noted were stated to be minor in nature, and on September 22, 1992, offerors were advised that revised proposals had to be received on October 5, 1992. Protest File, Exhibit 15. In a memorandum dated October 7, 1992, the chairperson of the CAMIS II bid sample evaluation team advised the contracting officer that a review of the revised technical proposals had been conducted on October 6, 1992, and all offerors were found to meet ----------- FOOTNOTE BEGINS --------- [foot #] 4 sales manager credibly testified that he was "very positive that the Navy told us that they would not accept the solution." Transcript at 218, 229. ----------- FOOTNOTE ENDS ----------- the minimum requirements of the solicitation. He further determined that no additional capability demonstrations were deemed necessary. Protest File, Exhibit 16. By amendment dated October 15, 1992, offerors were asked for their best and final offers on October 23, 1992. BAFOs were received from and on December 17, 1992, award was made to Force 3 as the low cost, technically compliant offeror. The Navy's Interpretation of When Products had to be COTS The Navy's technical consultant who drafted the statement of work testified that to comply with the solicitation a product had to be COTS as of the submission of initial offers as well as at BAFO and award. Transcript at 524, 526, 530-32. The Navy's technical evaluation team chief testified as follows regarding when products had to be COTS: Q Isn't it true that it was your understanding that a product had to be COTS as of the submission of initial offers under the solicitation? A No, that is not true. Q I asked at your deposition: "By what point in the procurement process did a product have to be COTS to qualify as acceptable?" You answered: "It had to be the entire time from the draft to the statement of work." Question: "So it had to be COTS as of submission of initial proposals?" You answered: "That is correct." . . . . Q Now, in the deposition you said it had to be COTS as of initial proposal. Are you changing your testimony now? A That is correct. Q Why are you doing that? A Because I did not understand the question during deposition. What I answered was not the question. That answer is to the fact when did I decide that a product needed to be commercial. It was my intention from the beginning of the statement of work that the products be commercial. THE COURT: . . . [I]n your capacity as chief of the evaluation team, prior to Amendment Four, what was your understanding as to when [products had to be COTS]: THE WITNESS: Prior to deliver[y]. THE COURT: Even before Amendment Four. THE WITNESS: It wasn't so stated, but. BY MR. MOHR: Q It wasn't so stated in the solicitation? A That seems to be correct, yes. Q So the solicitation didn't state that it had to be COTS as of delivery, did it? A No, it did not. Q Just to clarify the record on this point, you just said that Amendment Four clearly states to you now here today that the products did not have to be COTS until delivery. Is that correct? A Until delivery. . . . . Q But a week ago I asked you this question: "So it's not your understanding that a product had to be COTS as of award to be awarded under the contract?" Answer: "I would say yes, it has to be COTS to be awarded, the solution needs to be COTS." A The solution has to be COTS. That's not the physical hardware. The solution was their proposal on how they could provide us with a COTS product was also acceptable. I think you are reading something into it that is not there. That's certainly not what I meant. Transcript at 637-46. The contracting officer testified that items were required to be COTS as of the time of award. Transcript at 457. The Navy's Efforts to Verify that Offered Products were COTS The Navy's outside technical consultant was charged with determining whether products met the COTS requirement in the solicitation.[foot #] 5 Transcript at 542, 679-80. The consultant's determination as to whether a product was COTS was based upon his review of specification sheets and equipment at the demonstration. Transcript at 535, 537-38. In the installation manual accompanying the represented: "This is the installation manual for installing the retrofit kit for the Protest File, Exhibit 53. The manual also stated: "This kit has been used by more than one vendor to develop their IMA-certified multimedia offerings." Id.; Transcript at 549. The Navy's consultant accepted that statement at face value in determining that this was a COTS product. Transcript at 550. He never called any of the manufacturers to verify whether or not the products proposed by Force 3 were COTS. Id. No one on the technical review panel verified the COTS status of the Force 3 or products, other than by observing the unit produced for the demonstration. Id. at 536. Price: The Government Estimate The contracting officer testified that in February 1992 the Navy developed a total estimated price of price of for a CAMIS II system. The Government did not revise its estimate during the course of the procurement. Transcript at 493-94. However, the estimate in the Navy's memorandum of its November 26, 1991, advanced planning meeting was for 365 CAMIS II systems, or per system. Protest File, Exhibit 58. Offerors' Pricing In their proposals submitted in July 1992, and revised in September and October 1992, were: July 1992 Protest File, Exhibit 12 at 6. September 1992 ----------- FOOTNOTE BEGINS --------- [foot #] 5 The Navy's consultant who reviewed the products for COTS compliance was not an electrical engineer, but had a background in logistics support. Transcript at 542. ----------- FOOTNOTE ENDS ----------- Protest File, Exhibit 19. October 1992 Id. The October 15 Telephone Call to Raytech In September 1992, the Contract Review Committee determined that if Raytech's September price which was the lowest of the did not "come in line with the next proposal, [the Navy] would advise [Raytech] that [its] price was unrealistic." Transcript at 474. In October 1992, the contracting officer, with the concurrence of the Contract Review Board, decided to inform Raytech that its price was unrealistic because "they were not in the same price range of the other offerors, and they were way below the Government estimate." Transcript at 493. At that time, Raytech's price was -- some below the next low offeror and some below the Government's February 1992 estimate. The contracting officer testified that the term unrealistic meant "that their price was out of line from all the other offerors . . . below the Government estimate. . . . out of the range of the other prices." Transcript at 483. In deciding to call Raytech about its prices, the contracting officer did not verify what the prices of Raytech's components were. Id. at 495. The contracting officer was aware at that time that there were rumors in the marketplace that other vendors would be dropping their prices at BAFO. Id. at 495. The Navy's internal business clearance memorandum which preceded the October negotiations stated: Raytech will be advised that its price is not realistic. There are some indications that the market for this item has changed; and, as a result, other offerors will be dropping their prices. Protest File, Exhibit 19, at 4. The contracting officer related her October 1992 conversation with Raytech as follows: I told them I could tell them their price was unrealistic or too high and he told me he did not understand that. Then I told him that his price is not too high. I just told him it was unrealistic. Q. You were trying to tell him it was on the low end? A. I couldn't tell him that. I could say it was unrealistic or too high. Q. But you told him it could be too high or unrealistic, and it wasn't too high? A. Yes. Transcript at 489-90. As a result of the conversation with the contracting officer, Raytech's president understood that Raytech's offer was "extremely low," and the Government possibly felt that Raytech's "pricing was messed up somehow." Transcript at 697. Following the conversation with the contracting officer, Raytech reviewed its pricing. As a result, Raytech concluded that its numbers were sound. Transcript at 109. Nonetheless, Raytech raised its prices "out of a concern that we would not be considered to be within the competitive range." Id. at 110. Raytech's consultant explained: Basically, the price would have been left alone because we had no other correspondence from any of our suppliers that there was any change in any of the component price--components that they were providing to us. So this was the only outside information that we had that challenged our pricing. Id. at 110. The final BAFO pricing for the was: Total Unit Price Overseas U.S. Protest File, Exhibit 20. Raytech's president explained Raytech's price changes over the course of this procurement: A . . . It started at went down to went one time as low as in that range, and the price before [the contracting officer's] call was . Q Why had your price been dropping? A In our business we deal with computer parts and products all the time. We have to keep abreast of how the pricings on different things are going. During a seven-month period the Intel CPU 486 DX ranged from a price of in the quantity of 1,000 to in the quantity of . . . . . The hard drive had a range drop difference also at the six-month period. . . . . We were looking at 106 meg which fluctuated somewhere between and also the RAM . . . prices went up dramatically to around and before that they were, like, at . Transcript at 700-01. Discussion Is CAMIS II ADPE? The Navy does not dispute that the CAMIS II units are desktop computer systems with peripheral devices to provide interactive video capacity. Respondent's Posthearing Brief at 16. Rather, the Navy contends that the CAMIS II is not ADPE because its principal function is "to perform as a visual medium for purposes of student and courseware interactive instruction." Respondent's Memorandum at 6. The Navy argues that for a system to be ADPE its users must enter "new" information "with a goal of utilizing that new information to manipulate and manage its present information so as to produce a conclusion or solution that exceeds its predetermined range of possibilities" -- which CAMIS II cannot do. Respondent's Posthearing Brief at 16. In essence, the Navy argues that because it has dedicated what would otherwise be generic off-the-shelf computer equipment and peripherals to a training function which does not require entering new data, that generic computer equipment does not constitute ADPE. This novel approach for interpreting the term ADPE fails to acknowledge that the agency is purchasing equipment which squarely falls within the Brooks Act's definition: For purposes of this section, the term "automatic data processing equipment" means any equipment or interconnected system or subsystems of equipment that is used in the automatic acquisition, storage, manipulation, management, movement, control, display, switching interchange, transmission, or reception, of data or information-- (i) by a Federal agency, or (ii) under a contract with a Federal agency which- - (I) requires the use of such equipment, or (II) requires the performance of a service or the furnishing of a product which is performed or produced making significant use of such equipment. (B) Such term includes-- (i) computers; (ii) ancillary equipment; (iii) software, firmware, and similar procedures; (iv) services, including support services; and (v) related resources as defined by regulations issued by the Administrator for General Services. 40 U.S.C. 759(a)(2)(1988). The United States Court of Appeals for the Federal Circuit recently emphasized that in determining whether a product is ADPE within the meaning of the Brooks Act, the Board must look to the nature of the products specified in the solicitation. Best Power Technology Corp. v. Austin, Nos. 92-1118 and 1254 (Jan. 21, 1993). Here, the solicitation described the system being acquired as a desktop microcomputer-based system using MS-DOS and having a workstation with interactive video capability. Respondent would have us ignore the obvious ADPE characteristics of the products being solicited and look instead exclusively to the contemplated use of those products in determining whether they are ADPE. In so arguing, the Navy has tried to suggest that the CAMIS II system falls within the FIRMR exemption from the Brooks Act of products containing embedded ADPE in 41 CFR 201-39.101-3(b)(5)(i) and (ii):[foot #] 6 (5) The FIRMR does not apply to the acquisition, management, and use of products containing embedded FIP equipment when: (i) the embedded FIP equipment would need to be substantially modified to be used other than as an integral part of the product; or (ii) the dollar value of the embedded FIP equipment is less than $500,000 or less than 20 percent of the value of the product, whichever amount is lower. Embedded FIP equipment is FIP equipment that is an integral part of the product, where the principal function of the product is not the "automatic acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information." 41 CFR 201-39.101-5 (1992). The Navy's characterization of the entire CAMIS II system as itself being "embedded" into some other unnamed "product" whose primary function is not ADPE, but training, would take this exception far beyond its literal terms. Indeed, in FIRMR Bulletin A-1, GSA delineated examples of products which often contain embedded FIP equipment and are subject to the FIRMR exception. The Bulletin, in relevant part, provides: The Federal Government frequently acquires products containing embedded FIP equipment. Such products are designed and produced to function using the FIP equipment (most commonly microprocessors) as an integral part of the product. The FIRMR, at 201-1.002 [and 201-39.101-3(b)(5)], describes the parameters to ----------- FOOTNOTE BEGINS --------- [foot #] 6 As we recognized in S&W Associates ________________ International, Inc., GSBCA 12118-P, 1992 BPD 412 at 7 (Dec. 18, ___________________ 1992): The Administrator of the General Services Administration [GSA] has issued the Federal Information Resources Management Regulation (FIRMR) to implement the Brooks Act. 41 CFR 201 (FIRMR 201). The FIRMR is applicable to federal information processing (FIP) resources, which are defined to mean the same thing as what the Brooks Act defines as ADPE. Childress & ___________ Associates v. Action, GSBCA 11768-P, 92-2 BCA 24,997, ____________________ at 124,589, 1992 BPD 103, at 5. Products subject to the FIRMR, therefore, may also be subject to the Brooks Act. ----------- FOOTNOTE ENDS ----------- be applied when determining FIRMR applicability to products containing embedded FIP equipment. Some examples of products that often contain embedded FIP equipment are electronic clocks, and watches, automobiles, elevators, blood analyzers, and drill presses using numerical control. FIRMR Bulletin A-1, Attachment A at 2-3 (1991) (emphasis added). As this list illustrates, the Navy's attempt to characterize "training" as a "product" into which the CAMIS II system is "embedded" is a sophism.[foot #] 7 In sum, we conclude that the agency's intended use of general purpose ADPE equipment for training does not alter the equipment's character or remove it from the Board's jurisdiction. Cf. Computervision Corp., GSBCA 8709-P, 87-1 BCA 19,518 at 98,650, 1986 BPD 217 at 12 (". . . [T]he test of whether equipment is special or general purpose does not rest on its stated intended use. The ultimate test rests in an assessment of its actual capabilities."). Did the Navy Improperly Award to a Non-COTS Solution? Protester urges us to conclude that Force 3 did not offer COTS equipment. In so arguing, protester contends that the solicitation clearly required that products had to be COTS prior to award. Protester's Posthearing Brief at 23-29. Respondent contends that the solicitation did not require equipment to be COTS until the time of delivery or 120 days after award -- and that a claim of Force 3's noncompliance is premature. Respondent's Posthearing Brief at 32. Intervenor agrees that the time for determining COTS compliance was at delivery, and adds that it reasonably relied on the Navy's determination that its products were compliant. Intervenor's Posthearing Brief at 15, 23. We have previously interpreted a solicitation which did not clearly state when its commercial availability requirement came into play in Chesapeake and Potomac Telephone Co. (C&P), GSBCA 9297-P, 90-1 BCA 22,335, 1989 BPD 299. There, we recognized that in interpreting a solicitation we "read the document as a whole so as to give meaning to all of its provisions." Id. at 112,262, 1989 BPD 299 at 37 (citations omitted). Here, the solicitation's numerous references to the mandatory provision of COTS products, "commercial equipment," ----------- FOOTNOTE BEGINS --------- [foot #] 7 Moreover, nothing in the statute requires manipulation or entry of data as the Navy would; indeed, the Brooks Act defines ADPE to include equipment used in the display or transmission of data or information. 40 U.S.C. 759(a)(2) (1988). ----------- FOOTNOTE ENDS ----------- "commercial items" and "standard COTS hardware and software," coupled with the requirement for a capability and functional demonstration, indicate that the COTS status of products would be determined during the evaluation process. In C&P, 90-1 BCA at 112,263, 1989 BPD 299 at 38, we held that the date of completion of the technical evaluations was the date by which the equipment had to meet the commercial availability requirement. In so holding, we noted that the solicitation contained a provision which would enable the Government to verify at some point before contract award that the offered equipment was capable of performing as offerors claimed it could. In light of the clauses requiring demonstrations, the Board "reject[ed] any notion that the 'availability of equipment' provision of the solicitation . . . was applicable only as of the date of installation of equipment, or indeed, any time after award." Id. at 112,263, 1989 BPD 299 at 37. The instant procurement also contains a requirement for capability demonstration in Section 4 of the SOW, "Bid Sample Evaluation of Capability Demonstration." In this section the solicitation required proof of conformity of equipment, and provided that a capability demonstration evaluation would be conducted by a review team and would encompass all areas, major assemblies, and subassemblies of the completely assembled CAMIS II. In addition, this solicitation required functional tests to "demonstrate and substantiate the performance of CAMIS II systems," strongly suggesting that COTS compliance would be required by the end of the evaluation. Protest File, Exhibit 1 at 14-15. Amendment 0004 also supports this conclusion, rather than respondent's and intervenor's contention that COTS compliance is required as of the time of delivery. Amendment 0004 provides: The offeror will be required to present a COTS solution for the Video Graphic Overlay Board including associated product data in specific detail of how this deficiency will be corrected, i.e., what has to be changed, how it will be changed, and how long the effort will take. The successful contractor will at his own expense install items as presented and provide an IMA certification prior to delivery of the first unit(s) under contract. Protest File, Exhibit 8 at 2. Because the first sentence which contains the COTS requirement uses the terms offeror and correction of deficiency, both of which apply in the evaluation, not the post-award, context, we interpret the amendment as requiring COTS compliancy as of the conclusion of the technical evaluation. In contrast, in the next sentence in the amendment, "successful contractor," "installation," and IMA certification all occur after award but prior to delivery. An interpretation like that of respondent and intervenor that a COTS requirement did not have to be met until after award was rejected in AUL Instruments, Inc., B-186319, 76-2 CPD 212. There, the protester argued that a requirement for commercial equipment did "not prohibit a 'build-from-scratch' approach where a commercially available product would result by the time of delivery." Id. at 4. The Comptroller General held otherwise, finding that the purpose of the commerciality requirement is "to avoid the risks associated with new equipment." Id. at 6. In sum, reading the solicitation as a whole and following C&P, we conclude that here products were required to be COTS as of the conclusion of the technical evaluations. We next address what COTS compliance entailed here. In interpreting what the solicitation meant by COTS compliance, we look to the FAR definition of commercial products. The Comptroller General has repeatedly held: "The interpretation of a solicitation's commercial product requirement should be consistent with the meaning of the term 'commercial product' as used in the Federal Acquisition Regulation." Hershey Foods Corp., B-245250.3, 92-1 CPD 133 at 3; Senstar Corp., B-225744, 87-1 CPD 373 at 3-4. Commercial Product means a product, such as an item, material, component, subsystem, or system, sold or traded to the general public in the course of normal business operations at prices based upon established catalog or market prices (see 15.804-3(c) for explanation of terms). 48 CFR 11.001 (1992). The FAR definition clearly indicates that for an item to be deemed a commercial product it had to have been previously sold to the general public. The Comptroller General has noted that an item is not a commercial product when its only use is for the Government instead of the general public, or when it has been offered for sale commercially but no sales other than to the Government have actually occurred." American Seating Co., B-229915, 88-1 CPD 408 at 5-6 (citations omitted); Hicklin GM Power Co., B-222538, 86-2 CPD 153. Given that in order to be COTS, a product must have been sold to the general public prior to award, the proposed by Force 3 for CAMIS II are clearly not COTS products.[foot #] 8 Not only has the never been sold to the general public, it has never been sold at all. Nor has the ever been advertised for sale. ----------- FOOTNOTE BEGINS --------- [foot #] 8 Nor would the offered by Force 3 constitute a permissible "modification" within the meaning of solicitation Section C.3.2 since complete documentation of the changes was not provided and an informed "approval" was not given. ----------- FOOTNOTE ENDS ----------- That the is not a COTS product is further evident from the mounting that broke at the hearing, the bent pins, and the cut trace. The suffers from the same defect as the prior to award the had never been sold. The was also evolving as late as January 1993, at which time it would not fit in Force 3's CAMIS II chassis. Award was made to a non-compliant offer.[foot #] 9 This ground of protest is granted. We address the remedy below. Did the Contracting Officer Mislead Protester into Raising Its Price at BAFO? Raytech claims that the October 15, 1992, telephone call to its president notifying him that Raytech's price was "unrealistic" induced Raytech to raise its price at BAFO. But for that call, Raytech claims it would not have raised its price and would have won the contract. We recognize that in evaluating cost or price realism, the Government must exercise its informed business judgment about the adequacy of the cost and prices proposed and that such judgment will only be disturbed if unreasonable. Program Resources, Inc., GSBCA 8879-P, 87-2 BCA 19,816 at 100,253, 1987 BPD 65 at 13. That judgment was unreasonable here. The record in this case indicates that the contracting officer proceeded from a well- intentioned, but erroneous, belief that Raytech had an unrealistically low price. The contracting officer concluded Raytech's price was unrealistic based upon the fact that Raytech's price was some below the next low offeror and some below the February 1992 Government estimate. These circumstances were not sufficient information on which to base a finding that Raytech's price was unrealistic in the context of this procurement. This procurement was for a firm, fixed price contract for commercial off-the-shelf desktop computer systems and peripherals. The systems were to be priced as entire units and not by their individual components; price realism was not emphasized in the evaluation scheme.[foot #] 10 In National Biosystems, ----------- FOOTNOTE BEGINS --------- [foot #] 9 We have considered and rejected protester's argument that Force 3 intentionally misrepresented the COTS status of its board. [foot #] 10 This case is distinguishable from Food ____ Services, Inc., B-241408, 91-1 CPD 150, where the Comptroller ______________ General concluded that the Navy's decision to conduct discussions with protester regarding its labor prices was appropriate when those prices were lower than the current labor cost, and were not (continued...) ----------- FOOTNOTE ENDS ----------- Inc., GSBCA 10332-P, 90-1 BCA 22,459 at 112,758, 1989 BPD 354 at 12, this Board recognized in dicta in a cost-type procurement: "A disparity in prices, standing alone, however, does not indicate that the lower price is unrealistic. The reasons why one firm's price may be lower than another's are myriad." It is what the contracting officer failed to consider that rendered her realism conclusion unreasonable. First, the unrealistic price determination occurred after the Navy had found Raytech's proposal technically acceptable. Protest File, Exhibit 19. As we recognized in Chesapeake & Potomac Telephone Co., GSBCA 9297-P, 90-1 BCA 22,335, 1989 BPD 299: Cost realism bears little relationship to a fixed-price contract, except in those instances in which an agency may want to evaluate price proposals in terms of cost realism in order to measure an offeror's understanding. Id. at 112,267, 1989 BPD 299 at 44; see also 48 CFR 15.608(a)(1) (1992) (price evaluation is to be used in part "to determine the offeror's understanding of the work"); 48 CFR 52.222-46(c) (1992) ("compensation that is unrealistically low . . . may be viewed as evidence of failure to comprehend the complexity of the contract requirements"). Here, since Raytech's offer had already been found technically acceptable, there was no reason to question its understanding of the requirements. Second, the contracting officer ignored the fact that Raytech's pre-BAFO price was in fact than the Navy's November 26, 1991, estimate of . Protest File, Exhibit 58. Third, the contracting officer ignored the fact that the market price for the components comprising the CAMIS II system were dropping, and that prices would likely go down in BAFOs. Protest File, Exhibit 19. Fourth, the contracting officer made no attempt to check the prices of the components in Raytech's system. Finally, the ultimate award price of $2,490,760 to Force 3, which was considered a competitive price, was within of Raytech's "unrealistic" pre-award BAFO price. In sum, the contracting officer acted unreasonably in concluding that Raytech's price was unrealistic. The discussions were, therefore, improper. Further, given Raytech's president's and consultant's credible testimony that but for that telephone call Raytech would not have raised its price, we find the discussions to also have been misleading; Raytech did not submit its BAFO on an equal footing with other offerors. The ----------- FOOTNOTE BEGINS --------- [foot #] 10 (...continued) justified in its proposal. ----------- FOOTNOTE ENDS ----------- contracting officer violated the requirement for meaningful discussions in FAR 15.610. What Should the Remedy Be? Having concluded that both grounds of protest should be granted, we now turn to the appropriate remedy. We conclude that the Navy's interpretation of the solicitation as requiring COTS compliance after award was erroneous. The Navy's action in accepting Force 3's COTS solution was error. Competition was not achieved. We do not, however, direct award to Raytech. We cannot speculate what Raytech's price would have been had it been given a meaningful opportunity to submit a BAFO. The proper remedy is for the agency to amend the solicitation, clarify by what date equipment must be COTS according to the agency's true needs, and give all offerors an opportunity to respond to the amendment and submit another BAFO. The call for another BAFO will also rectify the agency's illegal discussions with Raytech. We recognize that Force 3's price has been disclosed, which could create an auction. We deem the prejudice to be insubstantial, given that offerors may choose different technical solutions to respond to the clarified or revised COTS requirement. In any event, another round of BAFOs is a necessary evil to correct the Navy's prejudicial errors in this procurement. Decision Respondent's motion to dismiss is DENIED. The protest is GRANTED. The Board revises respondent's DPA to direct it to terminate the award to Force 3, amend its solicitation to clarify by what date equipment has to be COTS consistent with the agency's needs, solicit another round of BAFOs, or otherwise proceed in accordance with statute and regulation to meet its current needs. The Board's suspension of the agency's DPA lapses by its terms. _____________________________ MARY ELLEN COSTER WILLIAMS Board Judge We concur: ____________________________ ____________________________ ROBERT W. PARKER ANTHONY S. BORWICK Board Judge Board Judge