THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN REDACTED FORM ON DECEMBER 12, 1994 _____________________________________ DENIED: November 22, 1994 _____________________________________ GSBCA 12937-P AT&T GLOBAL BUSINESS COMMUNICATIONS SYSTEMS, Protester, v. DEPARTMENT OF THE ARMY, Respondent, and GTE GOVERNMENT SYSTEMS CORPORATION, Intervenor. James J. McCullough, Deneen J. Melander, and Lawrence E. Ruggiero of Fried, Frank, Harris, Shriver & Jacobson, Washington, DC; and Nathaniel Friends, Pamela H. Goldstein, and Steven W. DeGeorge of AT&T Global Business Communications Systems, counsel for Protester. Craig E. Hodge, Vera Meza, Walter Harbort, Jr., and Catherine S. Anderson, Office of Command Counsel, U.S. Army Materiel Command, Department of the Army, Alexandria, VA, counsel for Respondent. David V. Anthony, Joseph K. Wiener, Nanci S. Redman, and Mary Ita Snyder of Pettit & Martin, Washington DC, counsel for Intervenor. Before PARKER, BORWICK, and HYATT, Board Judges. HYATT, Board Judge. AT&T Global Business Communications Systems has protested the Department of the Army's intended modification of contract number DAAB07-91-D-E092 with intervenor GTE Government Systems Corporation. This contract is for the installation of modern digital central office telephone systems at various sites. The principal basis for AT&T's protest is that the proposed modification, to substitute Navy and Marine sites for Army sites that no longer are slated for replacement telephone systems, constitutes an out-of-scope change to the existing contract that violates the statutory requirement for full and open competition. For the reasons stated, we find that the substitution of Navy and Marine Corps sites for Army installations under this contract does not constitute a change outside of the scope of the contract. Accordingly, we deny the protest. Findings of Fact The Army's Telephone Modernization Program 1. Since 1983, the Army has had in place a program for the purpose of replacing outdated telephone switching systems with modern digital central office switching systems. Protest File, Exhibit 1. Originally referred to as the CONUS Telephone Modernization Program (CTMP), in 1990 the name was changed to the Major Command Telephone Modernization Program (MTMP), to reflect the fact that sites outside the continental United States might be selected for replacement systems. In all other respects, the program remained the same. Protest File, Exhibit 6; Transcript at 257-58, 265, 501. 2. Concurrent with the CTMP Program, other DoD services developed their own programs for replacement of outdated telephone switching systems. The Navy program was known as the Consolidated Area Telephone Service (CATS); the Air Force program was referred to as the Base Information Digital Distribution System (BIDDS). Transcript at 57-58, 133-34, 213, 224-27. 3. The MTMP program is administered by the U.S. Army Communications - Electronics Command (CECOM). Within CECOM, the project manager, Defense Communications Army and Switch Systems (DCASS), has immediate responsibility for implementation of the program. Transcript at 255-56. 4. In conjunction with the telephone modernization program, the Army developed a CTMP Priority List which identified and prioritized Army locations where switching system upgrades were required. Transcript at 60, 64, 229-30, 264, 499-502, 548-49. Initially, the Army awarded contracts to upgrade these locations on a single site basis. Transcript at 213-15, 529. Several of these contracts were awarded to AT&T. Transcript at 213-14. 5. In the 1986-87 time frame, the Army began to experience funding shortages, which prompted it to explore alternative contracting mechanisms. In approximately 1987, the Army awarded two contracts, one to AT&T and one to Bell-South, for the upgrade of telecommunications equipment at multiple Army installations located within broad geographic areas. Transcript at 47-48, 529- 30. Although substitution of sites scheduled for replacement systems occurred in these earlier contracts, the work performed was, to the best of AT&T's knowledge, exclusively at Army locations. Transcript at 158. 6. Funding shortages continued, prompting the Army to try yet another contracting mechanism. In the January 10, 1990 issue of the Commerce Business Daily (CBD) the Army announced its intention to issue a "Draft Request for Proposal for industry comment for the CONUS Telephone Modernization Program (CTMP)." The notice stated that: This acquisition is to provide for the replacement of nonsupportable, obsolete, Dial Central Office Telephone systems at up to 41 Army installations identified in the CTMP Priority List. The CBD notice also advised that the draft solicitation would be issued on or about January 29, 1990 and stated that industry comments were to be submitted by April 2, 1990. Protest File Supplement, Exhibit 38. 7. The draft request for proposals (RFP) for the CTMP contract was issued in January 1990 and provided to more than 120 potential offerors for comment. Protest File, Exhibit 1. Numerous comments were submitted in response to the draft solicitation. AT&T points out that many of these letters refer only to performance of work at Army installations, thus, in AT&T's view, evidencing an understanding that the work would be restricted to Army installations. See Protest File Supplement, Exhibit 37. AT&T's letter commenting on the draft solicitation similarly referred only to the possibility of Army installations: AT&T recognizes the Army's intent to train either Army personnel or Army contractor personnel on the Operations and Maintenance of this system. Protest File Supplement, Exhibit 37, at 5. 8. An internal Army memorandum explained the need for the multi-year, indefinite delivery-indefinite quantity (IDIQ) approach adopted in the CTMP solicitation: The Government will acquire commercially available, off the shelf (COTS) Federal Information Processing (FIP) digital telecommunication switching systems that can provide Integrated Services Digital Network (ISDN) capabilities at the 39 remaining sites in the CTMP Priority List. These systems will support the command and control of military forces at these sites via the Defense Switched Network (DSN) and the Defense Data Network (DDN). The successful contractor will be required to engineer, furnish, install, test, and cutover the new systems. . . . . It is therefore necessary to have a flexible contractual vehicle like the one proposed in order to be able to place sites on contract as dictated by priorities and available funding. In addition, the proposed approach is designed to reduce acquisition lead time, reduce proposal evaluation efforts, eliminate undue repetitive processing of solicitations and awards, reduce proposal preparation time and expense for prospective contractors, reduce contract administration efforts, and obtain economies of multiple site awards to a single contractor. The proposed contract vehicle also allows the Government to respond to changes in mission as well as fluctuations in funding. Protest File, Exhibit 1. The 1990 CTMP Solicitation and Resulting Contract 9. On July 18, 1990, the Army issued a CBD notice announcing its intention to issue a solicitation for the upgrade of switching systems at Army installations pursuant to the CTMP program. The notice stated that: This acquisition will provide for the replacement of nonsupportable, obsolete dial central office telephone systems at up to 42 Army installations identified on the CTMP Priority List. The notice continued, however, also stating that: Offerors will be required to perform an in- service product demonstration of their COTS ISDN Telecommunication Switching Systems to substantiate that the COTS hardware, software and firmware meets the Government's requirements. Protest File Supplement, Exhibit 38 (emphasis added). 10. Request for proposals DAAB07-90-R-M046 required the successful offeror to engineer, furnish, install, test and cutover commercially available off-the-shelf DTS systems capable of providing integrated services digital network capability at up to thirty-nine selected sites and to provide logistics support, training, and associated data. Protest File Supplement, Exhibit 2. 11. The RFP called for an IDIQ contract with a base year and nine option years. Offerors were asked for firm fixed prices on ten installations at which the Army had conducted site surveys and prepared detailed specifications. The effort associated with the remaining installations was to be priced on a hybrid time and materials/firm-fixed price basis since only generic specifications were available. Protest File Supplement, Exhibit 2. 12. The solicitation's executive summary described the procurement as follows: The proposed contract action is to provide for the replacement of nonsupportable, obsolete Dial Central Office Telephone Systems at selected Army Installations identified in the CTMP Priority List. . . . . Currently, there are 40 sites on the CTMP Priority List. The proposed contract will provide for the upgrade of these sites over a ten (10) year period. It should be noted that the CTMP priority list is subject to change based on the CTMP funding profile and changes in operational requirements. This contract will be an Indefinite Delivery- Indefinite Quantity type contract. . . . The Government will implement upgrades at as many of the 40 CTMP sites as priorities and funding allow. Protest File Supplement, Exhibit 2. 13. The solicitation set forth the same generic specifications as had been used in prior CTMP acquisitions. The scope section of the specifications stated that the specifications applied to upgrades of "Army telephone systems." Protest File Supplement, Exhibit 2. 14. The solicitation contained no geographical limitations and, to provide the flexibility needed to respond to changes in the CTMP Priority List and funding fluctuations, contemplated the substitution of sites. Transcript at 508-09. Initially, attachment 6 to the solicitation, entitled the "CTMP Priority List," enumerated forty[foot #] 1 installations that respondent planned to upgrade throughout the ten-year contract period. In this regard, clause H.60 of the solicitation provided: H.60 CTMP PRIORITY LIST Attached in Section J are the sites on the current CTMP Priority List. The Government intends to accomplish upgrades at the 40 sites listed thereunder. The contractor is advised that this list is subject to change. Sites may be added and/or deleted at the discretion of the Government as funding and priorities dictate. The contractor is advised that no more than 40 sites will be upgraded under this contract. In the event that a site or sites are added to the CTMP Priority List and the Government elects to upgrade that site(s), the Delivery Order will be negotiated utilizing the Forward Pricing schedule of Site Preparation Materials, Switching System Hardware/Software (Family 1 and Family 2) and the Composite Labor Rates for each Labor Category for the Program Year in which the work is to be performed. Protest File Supplement, Exhibit 2. 15. Solicitation clause H.29 informed offerors that sites would be validated "via the CTMP Priority List" prior to the issuance of a delivery order for work at that site. Protest File Supplement, Exhibit 2; Transcript at 282-84. 16. Through amendment 8, dated November 8, 1990, clause H.60 (which became clause H.34 of the GTE contract), entitled "CTMP Upgrade List," was broadened:[foot #] 2 ----------- FOOTNOTE BEGINS --------- [foot #] 1 The RFP, when initially issued, contemplated forty sites. That number was adjusted several times. At the time of contract award, the maximum number of sites to be upgraded was thirty-nine. Protest File, Exhibit 5. [foot #] 2 At that time the term "priority" list was changed to "upgrade" list. The priority list had originally included all the Army sites earmarked for replacement switches. Gradually, the Army realized that the term "priority" had led to a misunderstanding that the first location on the list would be done first, the second location would be next, and so on. To (continued...) ----------- FOOTNOTE ENDS ----------- H.60 CTMP UPGRADE LIST Attachment No. 6 (Revised as of 31 Oct 90) in Section J are the sites on the current CTMP Priority List. The Government intends to accomplish upgrades at the 39 sites listed thereunder. The contractor is advised that this list is subject to change. Sites may be added and/or deleted at the discretion of the Government as funding and priorities dictate. The contractor is advised that no more the [sic] 39 sites will be upgraded under this contract. Offerors are advised that the CTMP Priority List is for information purposes only. The Government may or may not implement upgrades at all the sites on the CTMP Priority List in the order set forth. The 10 Firm Fixed-Price sites set forth in Section B may be placed on contract as funding and priorities dictate. Also, the Government may elect to implement upgrades, in any contract year, at any one or more of the 29 outyear (Non-FFP) sites, as funding and priorities dictate. Further, this contract will allow the Government the flexibility to swap out any one or more of the 29 year outyear sites for other sites not yet set forth on the list, as funding and priorities dictate. These sites will be placed on contract utilizing the Delivery Order Procedures set forth in Section H of the RFP. Protest File Supplement, Exhibit 2; see also Protest File, Exhibit 5, Clause H.34. Historically, as of the date the solicitation was issued, the locations included on the CTMP priority list had only been Army installations. Transcript at 230. 17. At the same time, while work had been performed only at Army locations to that date, the Army had contemplated that work could be performed for other DoD organizations, although the Army would retain responsibility for the contract. Transcript at 258- 59. The Army did not explicitly communicate this view to ----------- FOOTNOTE BEGINS --------- [foot #] 2 (...continued) clarify the agency's intent, and make clear that the order of replacement was flexible, the list was renamed the "upgrade list." Transcript at 264. Sometime after award of the contract, the MTMP upgrade list was replaced by the "Installation Sequence List" (ISL). This list functions in the same manner as the upgrade list, however. Transcript at 270-71. Since the list of sites is provided for information purposes only, and is not made a part of the contract, the Army did not modify or change its contract with GTE to replace the upgrade list with the ISL. Transcript at 271-72. The three terms, "priority list," "upgrade list," and "ISL," are used synonymously in this decision. ----------- FOOTNOTE ENDS ----------- potential offerors because it did not consider that the solicitation limited the ways in which the services could be used. Transcript at 262. Thus, Army witnesses conceded that potential offerors were never expressly informed that the MTMP contract might be used to perform upgrades at sites other than Army installations. Transcript at 262, 542. Questions and Answers 18. After the issuance of the RFP, the Army received an inquiry from a potential offeror concerning the priority of sites on the CTMP priority list. Question number 1009 asked whether priority would be given to the ten fixed price sites as opposed to the 29 outyear sites, which would be priced on a hybrid fixed price (for equipment) and time and materials (for labor) basis. The Army stated in response: The Army may choose any site at any time, to be upgraded. It may be one or more of the 10 FFP sites or one or more of the 29 outyear sites. The amended CTMP list is based on Army needs and does not necessarily list the order in which the Army will implement those upgrades. Protest File Supplement, Exhibit 2, Amendment 5. 19. Via question and answer number 587, on October 26, 1990, the Army announced that it was deleting a previously listed site from the CTMP priority list and adding DMATS (Defense Metropolitan Area Telephone Systems), St. Louis, Missouri, to the list. A revised CTMP priority list including the DMATS, St. Louis site was provided to offerors on November 9, 1990. Protest File Supplement, Exhibits 2, 26, Amendments 7, 9, Attachment 6 to the solicitation. The Defense Metropolitan Area Telephone Systems Program 20. DMATS, or Defense Metropolitan Area Telephone Systems, is a DoD entity established under Department of Defense Directive 4640.5. The directive describes DMATS as a mechanism to "provide consolidated unsecure voice and dial-up switching telecommunications service to subscribers to achieve improved and economical service through effective single management." The Assistant Secretary of Defense for Command, Control, Communications and Intelligence is responsible for providing general policy and guidance with respect to management, operation, and support of DMATS. Financial responsibilities for DMATS, including budgeting and accounting, rest with the Assistant Secretary of Defense (Comptroller). Protest File Supplement, Exhibit 28. 21. The responsibility for managing, operating, and supporting telecommunications systems within a designated metropolitan area is assigned to the Army for St. Louis and Boston and to the Air Force for Dayton, Ohio. Protest File Supplement, Exhibit 28; Transcript at 275, 535-37. The Army's responsibilities with respect to DMATS-St. Louis include acquisition, installation, and maintenance of telephone equipment and services for all DMATS subscribers in the St. Louis metropolitan area. Protest File Supplement, Exhibit 28; Transcript at 275-76. Expectations of Potential Offerors 22. An AT&T witness testified that although the solicitation provided for the swapping of sites on the CTMP priority list, and he understood that changes in the rankings and selections of sites could change at any time, AT&T still envisioned that the substitution of locations for telecommunications modernization would be within the Army. AT&T did not construe references to the Army in some places, and to the Government in others, to mean that other agencies could obtain services under this contract. Rather, reading the solicitation as a whole, AT&T interpreted the terms synonymously to refer only to the Army. Given the history of the program, the existence of comparable programs at other DoD entities, and AT&T's reading of the solicitation, AT&T did not believe that agencies other than the Army would be able to procure telephone equipment and services through the CTMP contract. Transcript at 66, 158-60. 23. A witness employed at the time by VMX, another potential offeror, testified that VMX also interpreted the solicitation as limited to upgrades at Army installations. VMX's understanding of the RFP was based on the overall language of the solicitation itself, particularly the executive summary, see Finding 12, and the fact that other services had their own programs of a similar nature. Transcript at 133-34. 24. The addition of DMATS-St. Louis to the CTMP priority list did not cause AT&T to believe that the contract would include other than Army sites because AT&T was familiar with this DoD program and was aware that it was managed by the Army. Transcript at 68-69. 25. GTE initially regarded this RFP as an Army program and expected that upgrades would be located at CTMP sites, which at that time were exclusively Army locations. Transcript at 611-13, 616-17. Following the issuance of amendments to the solicitation, however, GTE's national account manager, who served on the GTE acquisition team that pursued the MTMP contract, testified that he construed the solicitation more broadly, to mean that installations could be ordered for other DoD services and entities. Because the specifications were military (DoD) in origin, the GTE witness did not believe that civilian agencies could use the contract. Transcript at 575-77, 621. 26. In particular, the inclusion of DMATS-St. Louis on the CTMP upgrade list signified to GTE that the contract was not limited solely to Army sites. This is because GTE understood that while the Army managed DMATS-St. Louis, this DoD entity serviced a variety of users in the metropolitan area. Transcript at 577-79. 27. Although GTE came to the conclusion that the procurement might be open to non-Army locations, it nonetheless employed the term "Army" in its proposal to describe the sites where telecommunications equipment and services would be supplied. Transcript at 626-28. AT&T's No-Bid Decision 28. AT&T seriously considered bidding on the CTMP contract. A team of AT&T employees reviewed and analyzed the solicitation to determine how best to respond in a competitive manner. During the review process, AT&T initiated contacts with the Army, including the competition ombudsman, hoping to resolve some of the pricing risks and other issues that concerned AT&T. Eventually, after considering the risks, AT&T decided it was not in its best interests to bid for this work. Transcript at 160- 66. 29. locations of about 10,000 lines, which would have resulted in a non- competitive price. Transcript at 168-69, 172-73. 30. Although AT&T made efforts to persuade the Army to modify the technical requirements of the solicitation, the requirements were not changed sufficiently to satisfy AT&T's concerns. Intervenor's Hearing Exhibits 4-7; Transcript at 71. Principally, AT&T was concerned that the Army continued to require central office switches at all locations. Thus, AT&T decided not to seek this contract. Transcript at 72-73. 31. At the time AT&T decided not to submit a proposal in response to the solicitation, it recognized that it was foregoing the opportunity to win a ten year contract worth approximately $500 million. Transcript at 166. AT&T was confident that this was the case because in AT&T's experience, if an agency planned to procure services for agencies other than itself, the solicitation would generally explicitly so state. Transcript at 218-19. Although AT&T had, at that time, sold only a relatively small amount of telecommunications equipment to the Army, its revenue stream from Navy sales was significant. Transcript at 73, 172-73, 223-25, 645. 32. In particular, AT&T has developed smaller versions of its central office switches which can be used more cost-effectively with smaller line sizes. Transcript at 174-75, 187-88, 232-33. The Original Delegation of Procurement Authority 33. On May 10, 1991, the Army requested a Delegation of Procurement Authority (DPA) from the General Services Administration (GSA) for its acquisition of telecommunications equipment under the MTMP procurement. The Army's Agency Procurement Request (APR) advised GSA that the Army had complied with the requirements for full and open competition, although only one offer was received in response to its solicitation. The APR also identified 39 sites where telecommunications equipment were to be installed. Total contract costs for all 39 sites were estimated to be $479 million. Protest File, Exhibit 2. 34. GSA reviewed the Army's APR and determined that the acquisition had been conducted competitively in accordance with FAR Part 6.3. AT&T's Hearing Exhibit 4 at 2. In response to the Army's APR, on August 1, 1991, GSA issued DPA No. KMA-91-0270 to the U.S. Army Information Systems Selection and Acquisition Activity (ISSAA), in the amount of $479.1 million, for the MTMP project. The DPA authorized the acquisition of commercial off the shelf (COTS) digital telecommunications switches (DTSs) with ISDN capability for sites on the CTMP priority list. The DPA was redelegated to CECOM by ISSAA on August 12, 1991. Protest File, Exhibits 3, 4. The DPA provided that an amendment was required whenever there was a material change from the basis on which the DPA was issued. For example, an amendment to the DPA was required if there was a change in the contracting officer or contracting office. Protest File, Exhibit 3; Transcript at 444- 45. Award to GTE 35. Because of questions from interested vendors, particularly AT&T, the closing date was extended at least once to provide more time to respond and thereby maximize potential competition. CECOM expected that AT&T would submit a proposal and that several distributors of Telecom equipment might also compete for the contract. In addition, CECOM was aware of interest by Harris Corporation. Transcript at 261. 36. The closing date for receipt of proposals was January 16, 1991. GTE was the only company that submitted an offer. Protest File, Exhibit 1; Transcript at 261. This occurred because, inter alia, AT&T decided not to compete; GTE and one of the other main potential competitors, Northern Telecom, decided to enter into a teaming arrangement to compete for the work jointly; and other potential competitors, like AT&T, elected to pursue other business. The contracting officer considered the matter and determined that under the circumstances there was free and open competition. This decision was based on the Army's belief that the requirements and specifications did not preclude other companies from submitting offers. In addition, a number of changes were made to the solicitation requirements and technical specifications to accommodate AT&T. Transcript at 286-89, 313-14; see also Transcript at 533-34. 37. On September 30, 1991, CECOM awarded contract number DAAB07-91-D-E092 to GTE Government Systems Corporation for the procurement of DTS systems in support of the Army's CTMP program. The contract guaranteed that a minimum of one site would be ordered, and provided for a maximum of thirty-nine sites that could be upgraded. Protest File, Exhibit 5. 38. Promptly after it received the MTMP contract award, GTE, acting on its belief that other DoD services could order from this contract, began marketing this vehicle to the Navy. One of the bases for GTE's understanding that the contract could be used by the Navy and the Air Force was the fact that it contains a generic specification which met all aspects of the Defense Switch Network Specifications. Transcript at 587-91. The Navy's Interest in Using the MTMP Contract 39. In approximately August of 1993, the assistant project manager, DCASS, was contacted by the Navy concerning the availability of the MTMP contract to upgrade switching systems at Navy installations. After conferring with his commanding officer, the assistant project manager for the MTMP contract contacted the contracting officer to discuss how the Army might proceed to obtain permission to allow the Navy to use this contract. Transcript at 362. The Amended DPA 40. Beginning some time in August 1993, in response to inquiries from other DoD components as to whether they might make use of the MTMP contract, the project manager for the contract initiated actions to issue delivery orders under the contract on behalf of the Navy and Marine Corps. Transcript at 362. On the advice of ISSAA, CECOM requested an amendment to the DPA to clarify that the DPA as issued permitted the use of the MTMP contract by all DoD activities. CECOM's request explained that: The decrease in the number of Army sites which require upgrade, coupled with the fact that many of these upgrades can be accomplished via refurbishment and reutilization of excess Government switches, has made it even more feasible for other services to use this contract without the loss of contract availability and delegated procurement authority by the Army. Protest File, Exhibit 6 at 4th page of unnumbered Enclosure 1. The request further stated that nothing in the contract prohibited its use by other DoD components and noted that DMATS- St. Louis, a DoD activity, was on the CTMP priority list. Protest File, Exhibit 6.[foot #] 3 41. Due to errors in cost estimates provided to GSA, the amended DPA issued to the Army reduced the ceiling from $479.1 million to $460.7 million. Although the Army had not intended this to occur, it does not present a problem since there is no risk that the new ceiling will be exceeded. In fact, cutbacks in the Department of Defense and additional base closures make it likely that even the new ceiling will never be reached. Transcript at 306, 309, 313, 556-57. ----------- FOOTNOTE BEGINS --------- [foot #] 3 In deciding it would be appropriate to seek an amended DPA, CECOM satisfied itself that in fact the MTMP contract vehicle in fact provided a good value for the Government. The costs incurred under GTE's contract have been audited several times by the Defense Contract Audit Agency (DCAA). Generally, a large portion of costs incurred at a given site is for switching equipment. The Army compared GTE's costs to discounts on Northern Telecom equipment purchased under other contracts and also compared costs to a GSA contract for switching systems. From the perspective of equipment costs, the MTMP contract compared favorably to the other two contracts. Transcript at 331. The Army also considered site preparation costs, which are negotiated separately, on a time and materials basis, for each location, and which may comprise a significant percentage of the contract cost. Transcript at 375-76, 391. These labor costs are dictated by wages established under the Davis-Bacon Act. Finally, a smaller portion of labor costs is attributable to white collar workers. The assistant project manager explained that there was no comparable contract vehicle with which to compare these time and material labor costs. Transcript at 373. After considering the costs incurred under the GTE contract, however, the Army found no basis to conclude that these costs were unduly expensive or other than fair and reasonable. Transcript at 332-33. ----------- FOOTNOTE ENDS ----------- 42. Upon review of its equipment needs, the Army later found that the number of Army sites requiring equipment upgrades had decreased due to base closures and realignments. Additionally, equipment upgrades at many of the Army sites could be accomplished through refurbishment and reutilization of excess Government equipment. Therefore, the Army determined that "[t]he Army alone would never approach or utilize their entire delegated procurement authority within the contract term." Protest File, Exhibit 6, Enclosure 1. Specifically, the Army found that [I]t is not foreseeable that the Government will contract for 39 Army installations under this contract. The total number of sites and the ceiling contained in the contract would only be approached if the contract is utilized for upgrades at sites within all of the DoD. Protest File, Exhibit 6, Enclosure 2 at 6. This is borne out by actual experience under the MTMP contract -- after three years, delivery orders have been issued for only 15 sites, with expenditures of $130 million. Protest File, Exhibit 13. 43. Although the contracting officer held the view that the contract terms permitted use of the MTMP contract by all DoD activities, it was unclear to her whether the scope of the DPA encompassed all DoD activities. Transcript at 321-22. Because the DPA specifically referenced only the Army locations, it was determined that an amendment to the DPA should be requested to specify non-Army sites. Transcript at 296-97; AT&T Hearing Exhibit 7. 44. By letter dated February 8, 1994, the Director of ISSAA requested an amendment to DPA No. KMA-91-0270 to clarify authorization of the DPA for contract use by DoD components. The Army did not request a change to the DPA ceiling amount or any other term or condition of the DPA. Protest File, Exhibit 7. 45. GSA reviewed the Army's request for an amendment and determined that it lacked the necessary information to perform a meaningful analysis of the requested amendment. Protest File, Exhibit 8; Transcript at 431. Accordingly, GSA informed the Army that it needed information regarding: (a) the specific locations where the equipment would be installed; (b) the relationship between the MTMP contract and other DoD contracts; and (c) maintenance of the equipment procured through the MTMP contract. AT&T Hearing Exhibit 5. 46. GSA also requested that the contracting officer provide either a "within-scope" determination or a justification and approval for the request. Transcript at 322. The contracting officer did not agree that the substitution of Navy and Marine Corps sites constituted a change to, or modification of, the MTMP contract, and so informed GSA. Nonetheless, a within-scope determination was prepared and was signed in April 1994. A similar determination was prepared by the project manager, as well. Transcript at 299-300; Protest File, Exhibits 9, 10. 47. By letter dated June 6, 1994, ISSAA submitted a revised APR, as well as the requested additional supporting information, to GSA requesting an amendment to the MTMP DPA. Protest File, Exhibit 14. The Army again advised GSA that the projected funding for Army locations was less than the initial DPA amount. Protest File, Exhibit 14 at 5(b). Among other things, the Army provided GSA with a list of four Marine Corps locations and thirteen Navy locations proposed for inclusion under the DPA. Protest File, Exhibit 14 at 2(d). In addition, the Army stated that the estimated cost for upgrading all 13 Navy sites was $15 to $30 million while the estimated cost for the four Marine Corps locations was $26 million. Protest File, Exhibit 14 at 2(e). These were locations at which equipment upgrades might be performed. Upgrades were not contemplated at all twenty-three Army, thirteen Navy, and four Marine Corps sites. Transcript at 381-82. 48. By May 20, 1994, delivery orders under the MTMP contract totalled only $130,652,936. Based on its requirements, the Army estimated that its future needs would not exceed $330 million. Therefore, the revised estimated contract cost for the Army's switching systems was estimated to range from $420,652,936 to $460,652,936. Protest File, Exhibit 13; Transcript at 306. These estimates were based upon a cost analysis performed by the Project Manager, DCASS. Transcript at 338. 49. The Army did not request any increase to the original DPA ceiling. Protest File, Exhibit 13; Transcript at 387. The Army did not seek such an increase in the DPA amount because replacement of Army sites by Navy sites would have no effect on the contract costs. Transcript at 514-16, 559. There is nothing unique about a Navy site which would necessarily result in its pricing being different from an Army site. Transcript at 312. An analysis was performed by DCASS which evidenced that the cost of Army and Navy sites would be approximately the same. Transcript at 514, 559. 50. The June 6, 1994 APR revised the estimated contract cost from $479.1 million to $460.7 million. Protest File, Exhibit 14 at 6; Transcript at 329-30. This revised estimate corresponded to the total cost for Army FIP resources. Transcript at 306. Elsewhere in the APR, the Army advises that the estimated cost for Marine Corps sites was approximately $26 million and that estimates for Navy sites ranged from $15-30 million. The Army witnesses who testified at the hearing could not conclusively explain how the adjusted ceiling was determined by GSA, or whether the Navy or Marine Corps estimated costs were included in the $460 million estimate. These witnesses did testify, however, that the revised contract cost estimate could in fact be a combination of both Army and Navy requirements. Transcript at 330. 51. GSA assigned the Army's request for an amended DPA to a desk officer. The desk officer reviewed the Army's June 6, 1994 APR as well as previous case files related to the MTMP DPA. Transcript at 487. After review and analysis of the Army's APR and prior case files, the desk officer prepared a memorandum for the branch chief, GSA Acquisition Reviews Branch A. The desk officer advised the branch chief that "the estimated contract cost, even with the additional users of the contract, has been revised downward." AT&T's Hearing Exhibit 6 at 2. This determination was based upon the net effect on contract costs of the decrease in Army utilization combined with the substitution of Navy and Marine Corps sites for Army locations. Transcript at 460, 463. 52. Based on its review of the APR, GSA determined that the requested amendment was "within the dollar value of the existing contract," that it was within the original contract performance period, and that it applied to DoD sites and provided the supporting documentation required by GSA. Transcript at 418-19. 53. Due to base closures and realignments within DoD, substitution of sites is a routine matter on contracts. Transcript at 440. Nonetheless, such substitution is considered to require an amended DPA. Transcript at 444-45. 54. In processing requests for DPA amendments, GSA normally relies on the contracting officer's within-scope determination. Transcript at 421. Similarly, GSA relies on the agency's cost estimates. Transcript at 422. 55. When a request for amended DPA does not increase the delegated amount, anyone with signature authority in GSA's Acquisition Reviews Branch can sign the amended DPA. Transcript at 417, 419-21, 491. The branch chief who signed the revised DPA had such signature authority. Transcript at 417. 56. GSA issued an amended DPA on July 5, 1994. Protest File, Exhibit 16. The amended DPA revised the dollar threshold from $479 million to $460.7 million. In addition, the amended DPA included the seventeen specific Navy and Marine Corps locations that had been identified as possible candidates for switch replacements under the contract. Protest File, Exhibit 17. The Proposed Delivery Orders 57. The type of work to be performed under the proposed delivery orders for Navy and Marine Corps sites will be the same as that described for the Army and DMATS-St. Louis sites listed on the CTMP priority list. As the assistant project manager for the MTMP contract testified: [T]he MTMP specification as written today is what we will use when we go to the Navy and Marine Corps sites. Our contract calls for that specification to be used, I have no intention of using any other specification or relaxing any of the requirements in the MTMP specifications. So that when we go to a Navy or [Marine Corps] site, they will get the same switching system as if it was an Army site. It would be the same specification, it would be the same switching equipment. The only thing different would be the color of the uniform of the people operating the switch. Transcript at 371. 58. There is no reason to believe that the performance of contract work at Navy rather than Army sites will have a significant impact on cost. The only factors affecting price at Navy sites versus Army sites would be site-specific factors such as outside plant work, the amount of cable work required, and things of that nature. These costs would vary regardless of whether the location is an Army or other DoD location. Transcript at 312. In any event, the adjusted contract ceiling under the new DPA will not be exceeded. Transcript at 330. 59. For the Navy to use the MTMP contract, the first step will be to negotiate a memorandum of agreement between the Navy and the project manager, DCASS. The Navy has agreed that it will use the Army specifications; the Army will manage the project and will provide all necessary engineering and contract support. Transcript at 314-15. 60. A CBD notice was issued on June 16, 1994, for the Marine Corps' procurement of telecommunications equipment and services at its Cherry Point, North Carolina installation. Protest File, Exhibit 15. Following issuance of the amended DPA, a second CBD notice was published, on August 3, 1994, canceling the Cherry Point procurement and announcing that the Government would meet its needs by ordering off the MTMP contract. Protest File, Exhibit 18. Discussion The issuance of the CBD notice canceling the proposed Cherry Point procurement prompted the filing of AT&T's protest. The protest as initially filed challenged the Army's decision to permit the use of its MTMP contract to accomplish replacements of telephone systems at Navy and Marine Corps installations, characterizing the proposed action as "beyond the scope of the [MTMP] contract" and arguing that the proposed action should be "made the subject of full and open competition." After obtaining discovery, on September 15, 1994, AT&T amended its protest to add a count alleging that because the contract allows only for Army- funded work the procurement of equipment and services for the Navy and Marine Corps is unlawful. Finally, on September 20, 1994, AT&T filed a second amended protest alleging that the revised DPA obtained by the Army was invalid because it was based on erroneous information supplied by the Army and was signed by a GSA employee who lacked the requisite signature authority. The Scope of the MTMP Contract Specifically, AT&T maintains that the decision to have the Army procure telecommunications equipment and services for Navy locations constitutes an out-of-scope change to the contract. The legal standard to be applied in cases involving this issue has recently been enunciated by the United States Court of Appeals for the Federal Circuit in AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201 (Fed. Cir. 1993). There, the Court observed that although the Competition in Contracting Act (CICA) requires executive agencies to "obtain full and open competition through the use of competitive procedures," 41 U.S.C. 253(a)(1)(A) (1988), this does not mean that every contract modification requires an agency to conduct a new procurement. Rather, the test is whether "the contract as modified materially departs from the scope of the original procurement." Id. at 1205 (citing Neil R. Gross & Co., B-237434, 90-1 CPD 212, at 2-3 (Feb. 30, 1990), aff'd on reconsideration, B-237434.2, 90-1 CPD 491 (May 22, 1990)). The Court also stated that "[a] modification generally falls within the scope of the original procurement if potential bidders would have expected it to fall within the contract's changes clause." Id. Finally, the Court explained that "[t]he analysis thus focuses on the scope of the entire original procurement in comparison to the scope of the contract as modified. Thus a broad original competition may validate a broader range of later modifications without further bid procedures." Id. Although the Court of Appeals, in Wiltel, recognized that the expectations of potential bidders is relevant to a determination of whether an intended contract modification requires the conduct of a new procurement in order to meet statutory requirements for full and open competition, notably, the factual context of that case differs substantially from the circumstances presented in this protest. In WilTel, the issue was whether a proposed change to the FTS 2000 contract, adding a technically advanced dedicated transmission service, was beyond the scope of the contract as competed. In reviewing the overall scope of the contract, the Court noted the substantial breadth of the overall effort, the existence of a contract "service improvements" clause encouraging the proposal of improved services under the contract, and the standard changes clause, and concluded that the breadth of the overall effort was such as to put offerors on notice that the contract might well be modified to include such services. Id. at 1205-07. Given Wiltel's acknowledgement of the importance of the expectations of potential offerors, in light of how adequately the solicitation advised these offerors of the potential for the type of change that in fact occurred, AT&T submits that potential offerors could not reasonably have been expected to have anticipated the substitution of other DoD sites for Army bases and installations on the upgrade list. In support of its position, AT&T points to the CBD notice, and the language in both the draft solicitation and the solicitation as issued, to the effect that "Army installations" would be identified on the CTMP priority list. AT&T construed this language, and consistent statements throughout the RFP to the effect that the procurement would apply to replacement of switches at selected "Army" installations and would satisfy "Army needs," as clearly circumscribing the contract to performance of work at Army installations. In addition to the contract language itself, AT&T cites other reasons why its interpretation should be deemed reasonable. For example, AT&T raises the existence of independent programs pursued by the different services to replace obsolete telephone equipment as a factor weighing against the likelihood that these services would attempt to make use of the Army's contract.[foot #] 4 Finally, AT&T asserts that the long history of the CTMP procurements also supports its conclusion that this would be "just one more contract which the Army intended to award in a long line of Army contracts under the CTMP program." See Dynamac Corp., B-252800, 93-2 CPD 37 (July 19, 1993) (past history of a competition may provide evidence as to whether a contract modification departed materially from the scope of the original procurement).[foot #] 5 ----------- FOOTNOTE BEGINS --------- [foot #] 4 [foot #] 5 AT&T's points with respect to the historical context of the procurement and the separate programs pursued by other DoD agencies are well-taken. These arguments are not sufficient to establish conclusively that we should determine that offerors could not reasonably have foreseen the possibility that the Army would issue delivery orders on behalf of other DoD services, however. For example, while the CTMP procurements historically were limited to installation of replacement switches at Army bases, the subject contract itself represented a significant departure from the Army's prior practice in obtaining replacement switches. Earlier procurements were short-term, fixed price contracts for the replacement of switches at one or a (continued...) ----------- FOOTNOTE ENDS ----------- AT&T also asserts that the placement of DMATS-St. Louis on the CTMP upgrade list was not sufficient to put potential offerors on notice that users other than Army bases might be contemplated. In support of this position, AT&T points out that even though DMATS-St. Louis is a DoD activity, this activity is managed and "hosted" by the Army in St. Louis. Thus, offerors familiar with the concept, as AT&T was, would not infer from its placement on the list that non-Army sites would be covered by the CTMP contract.[foot #] 6 The inclusion of DMATS-St. Louis on the CTMP upgrade list can not be so easily dismissed as a factor that might or should have affected potential offerors' expectations, however. First, although DMATS-St. Louis is indeed, for purposes of unsecure telecommunications matters, managed by the Army, that location services, and thus acquires telecommunications equipment for, a number of DoD and Coast Guard activities located in the St. Louis area. These non-Army locations, which included Air Force and Navy, would obviously be obtaining telecommunications equipment through an Army contract, and not through the contract vehicles available to their services. In fact, what is proposed with respect to the Marine Corps and Navy installations is not entirely dissimilar to the DMATS scenario. Essentially, the Army, on behalf of the Navy, will be performing virtually all of the functions called for under its contract. It is not proposing to let other services order off the contract, but is agreeing to fulfill their requirements itself by issuing delivery orders and administering the performance of those delivery orders by GTE. Although factually not on all fours with the subject protest, respondent and intervenor both argue that the reasoning of a recent case decided by the Board, Pacific Bell v. National Aeronautics and Space Administration, GSBCA 12814-P, 1994 BPD 136 (July 6, 1994), is apropos. Pacific Bell involved a NASA contract to upgrade telecommunications at the agency's Ames Research Center, located at Moffett Field. The contract had been awarded to Nortel Federal Systems. At the time of contract award, Moffett Field was also the location of a number of Navy components. Due to base closures, NASA had expanded the Ames Research Center to occupy buildings previously occupied by the Navy. NASA eventually modified its contract with Nortel to upgrade telecommunications in the former Navy buildings, which had been taken over by the Ames Research Center. ----------- FOOTNOTE BEGINS --------- [foot #] 5 (...continued) few sites. The move to a multi-year, multi-site IDIQ format signified that the Army was moving away from its prior approach and that reliance on those past practices might no longer be justified. [foot #] 6 GTE's witness testified that, in fact, GTE deduced that this would be the case from the addition of DMATS to the upgrade list. Transcript at 578. ----------- FOOTNOTE ENDS ----------- In considering Pacific Bell's protest, the Board examined four factors. These included (1) the type of work the contractor would be performing; (2) the effect on pricing; (3) the effect on the schedule for delivery of services; and (4) whether, during the competition, potential offerors reasonably would have anticipated the changed work to be within the scope of the contract. 1994 BPD 136, at 31-32; see also MCI Telecommunications Corp. v. General Services Administration, GSBCA 11963-P, 93-1 BCA 25,541, 1992 BPD 287. The Board rejected the protester's argument that the contract contemplated telecommunications work only for the Moffett buildings occupied by NASA at the time the competition was conducted. In reaching this conclusion, the Board noted that the contract contained no geographical limits or prohibitions on expansion. This was the case even though original cost estimates were based exclusively on needs projected for the then-NASA buildings and did not include a margin for NASA expansion into other buildings. Significantly, the Board rejected protester's contention that in order to determine that the disputed work was within the scope of the contract it was necessary to find that at the time of the competition the offerors contemplated that NASA would expand into Navy-occupied areas. Rather, the Board reasoned, offerors could not be charged with anticipating how the Ames Research Center would grow, or that it would expand into buildings previously occupied by the Navy, but recognized instead that the terms of the solicitation and resultant contract nonetheless contemplated expansion. Here, the solicitation specifically contemplated the substitution of different sites for those listed on the upgrade list, and there was no explicit restriction that replacement sites could only be Army sites. The solicitation was fundamentally different from, and broader than, predecessor contracts which were more restrictive in nature. Additionally, the MTMP technical specifications were not Army-specific, but incorporated DoD-wide specifications which could be used at any military site. Further, during the solicitation stage there were questions and answers which evidenced that the Army could order work beyond simply Army sites and, in fact, the Army did place a DMATS site on the upgrade list. These factors, among others, evidence that performing upgrades at Navy sites is not an out-of- scope change. The work performed at Navy and Marine Corps sites will be the same as that performed at Army sites. GTE's product and pricing will not change and the contract terms will not change as a result of substituting Navy and Marine Corps sites for Army sites. The factual pattern in the subject protest contrasts significantly with that presented to the Federal Circuit in WilTel. Here, the overall extent of the effort is virtually unchanged. The fundamental nature of the work itself will be wholly unaffected -- no change to the Army equipment specification is contemplated. Finding 57. Pricing is similarly unaffected, except to the extent that the overall ceiling has been slightly lowered under the amended DPA.[foot #] 7 Finding 56. The maximum number of sites that may be upgraded under the contract is similarly unchanged. The same Army personnel will oversee and manage the project. The same Army contracting officer will administer the contract, including delivery orders for Navy and Marine Corps locations. As the assistant project manager observed: "The only thing different would be the color of the uniform of the people operating the switch." Finding 57. From the standpoint of GTE, the "change" to Navy and Marine Corps, given the right of the Army to swap out sites at any time, has no appreciable effect.[foot #] 8 As such, the proposed action does not result in a "new contract for which a competition should have been held." Memorex Corp., B-200722.2, 82-1 CPD 349, at 1 (Apr. 16, 1982). ----------- FOOTNOTE BEGINS --------- [foot #] 7 AT&T argues strenuously that if the maximum cost ranges estimated for the remaining Army sites and Marine Corps and Navy sites are added together, the DPA ceiling would in fact be exceeded. Whether this is the case or not, the Army has made it clear that it will not order work that would result in exceeding the ceiling. Nor does the Army expect that the funding to perform all of the work will be forthcoming. Thus, the Army does not expect to reach even the lower price ceiling established under the amended DPA, and in any event the maximum price under the contract will not be changed. Findings 41, 48, 58. [foot #] 8 AT&T argues that a pre-CICA case decided by GAO is virtually identical to the fact pattern here and demonstrates that the proposed action is illegal. In Tymshare, Inc., 60 Comp. ______________ Gen. 268 (1981), the Department of Health and Human Services (HHS) sought to provide ADP support to an HHS component under an existing HHS contract. The proposed modification roughly doubled the cost of the existing contract and was not authorized under GSA's delegation of procurement authority for the existing contract. GAO concluded that the solicitation had not adequately advised offerors that the particular component could be added. The solicitation had specifically identified the HHS components that were covered by the existing contract. Although this case would appear to be comparable to the subject protest at first blush, it is distinguishable. In addition to the doubled cost of the work to be performed, there apparently was no "swap out" clause in the HHS contract that would have informed offerors of the possibility that other HHS components might be covered. Moreover, although not addressed by any of the parties, the action here is somewhat analogous to the situation where the Economy Act is employed by an agency to obtain supplies or services under another agency's contract. GAO has held that competitors for a requirements contract are on constructive notice of the Economy Act and its potential application to such a procurement so as to permit the use of a resulting contract by other agencies. Liebert Corp., B-232234.5, 91-1 CPD 413 (Apr. ____________ 29, 1991). ----------- FOOTNOTE ENDS ----------- Contractual Authority to Place Orders for Navy and Marine Corps Locations In its first amended protest, AT&T alleges that respondent lacks authority under the contract to include Navy and Marine Corps sites on the installation sequence list (ISL), the successor to the MTMP upgrade list. This is because, according to AT&T, only Army-funded work may be reflected on the ISL. At the same time, AT&T asserts, the contract requires that sites be validated by inclusion on the ISL before the Army has the authority to issue a delivery order to GTE. Since there is no plan to include the non-Army sites on the ISL, AT&T reasons, these sites cannot be validated as required by the contract, and thus cannot be serviced. The Army responds that the appearance of the Navy or Marine Corps sites on the ISL is entirely irrelevant to whether proposed delivery orders are within the scope of the contract. The upgrade list, now the ISL, was not included as part of the contract, but was provided for information purposes only. The ISL is not, and has never been intended to be, part of the MTMP contract. Rather, it is an internal document which prioritizes Army installations which may be recipients of services under three discrete but interrelated telecommunications programs. Offerors were firmly advised that the list would not be static but would be "subject to change." The Government was, under the clause, given the flexibility to swap out any of the 29 outyear sites with sites not currently on the list. As such, respondent properly notes, from an offeror's standpoint the list had little contractual significance; indeed, the list is not part of the contract. The DPA Issues AT&T's second amended protest alleges that the amended DPA is invalid because GSA relied on inaccurate cost estimates provided by the Army in its APR and because the GSA employee who signed the DPA lacked the requisite authority. Thus, according to AT&T, the amended DPA is void and the Army cannot place valid orders for Navy and Marine Corps sites. See CACI, Inc. v. Stone, 990 F.2d 1233 (Fed. Cir. 1993). In essence, AT&T argues that the cost estimates of all the work, properly added up, result in a higher total contract cost than the original ceiling of $479.1 million. Since the Army failed to make this clear to GSA, the DPA was, in AT&T's view, improperly issued.[foot #] 9 ----------- FOOTNOTE BEGINS --------- [foot #] 9 AT&T also maintains that the Army did not perform a proper value analysis, as requested by GSA, demonstrating that the use of the GTE contract vehicle would present a good value for the Navy. The Army did compare equipment prices. Since the actual labor required for preparing the sites was not ascertainable, the Army explained that (continued...) ----------- FOOTNOTE ENDS ----------- Additionally, since the branch chief did not have authority to sign a DPA that exceeded the previously authorized ceiling, AT&T maintains that the DPA is void on that ground as well. The testimony on the cost estimates supplied to GSA is murky at best. See Finding 50. The record simply does not establish, one way or the other, whether full costs were included for Army and Navy and Marine Corps sites in the revised APR furnished to GSA. It appears that the Army did not intend to suggest that the ceiling could be lowered, although this is what GSA construed the amended APR to indicate. Regardless, however, the testimony does clearly establish that the Army has no intention of exceeding the new limit -- in fact, it does not expect that orders under the contract will reach the revised ceiling. As the Army points out, these estimates are not firm because of the significant time and material costs to be determined with respect to installations at various sites. Moreover, there is no obligation to place the maximum number of orders. As the contract is structured, the Army may order replacements at up to 39 sites, if the ceiling will not be exceeded.[foot #] 10 The Army is prepared to abide by the lower ceiling and not exceed its limitations. See Findings 41, 58. Although there is some evidence that by adding the high estimates for both Army and Navy sites the ceiling could be exceeded, there is no evidence in the record that the Army ever intended to seek an increase in the original DPA amount. As such, there is no basis to hold that the amended DPA is void. ----------- FOOTNOTE BEGINS --------- [foot #] 9 (...continued) comparisons were not particularly feasible and pointed out that Davis Bacon wages would in any event apply wherever replacements were performed. Finding 40 n.3. AT&T has not shown that the study performed was so flawed that its conclusions could not reasonably be accepted by GSA. [foot #] 10 AT&T urges that this argument should be rejected because it renders meaningless the requirement for cost estimates in the context of IDIQ type contracts. Here, the evidence is not clear that the estimates for all of the potential work would in fact exceed the ceiling. Thus we cannot definitively conclude that GSA was misled so as to warrant a finding that the revised DPA is void. Moreover, AT&T's argument that the Army's approach would enable agencies to triple and quadruple estimated costs so long as minimum ordering quantities remain the same ignores the effect of the ceiling. In fact, the total cost of orders under the contract can never exceed the ceiling established. ----------- FOOTNOTE ENDS ----------- Decision The protest is DENIED. _______________________________ CATHERINE B. HYATT Board Judge We concur: ________________________________ ________________________________ ROBERT W. PARKER ANTHONY S. BORWICK Board Judge Board Judge