THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN ITS ENTIRETY ON JULY 26, 1996 _____________________________________ GRANTED IN PART: July 12, 1996 _____________________________________ GSBCA 13147-C(13049-P) AUTOMATED SYSTEMS AND PROGRAMMING, INC., Applicant, V. DEPARTMENT OF THE TREASURY, Respondent. Timothy Sullivan, Katherine Nucci, Martin Fischer, and Jeanne Sullivan of Dykema Gossett, Washington, DC, counsel for Applicant. Thomas E. Dougherty, Office of Chief Counsel, U.S. Secret Service, Department of the Treasury, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (chairman), HYATT and VERGILIO. HYATT, Board Judge. Pursuant to Rule 35, Automated Systems and Programming, Inc. (ASPI) has filed an application seeking an award of the costs of pursuing its protest against the award by the United States Secret Service, a bureau of respondent, the Department of the Treasury, of a contract to Advanced Management, Inc. (AMI). ASPI also seeks to recover proposal preparation costs incurred in responding to the solicitation. The Secret Service concedes that it violated certain applicable regulations in the conduct of the procurement and supports DSTI's application in principle; it has objected that certain of the protest costs claimed by ASPI are inadequately documented and supported. For the reasons stated, we grant DSTI's application for its costs of pursuing the protest, limited to the amount permitted in the settlement agreement of the parties, but deny the request for proposal preparation costs. Background At issue in the underlying protest was an award by the United States Secret Service to AMI of a $23,466,314.96 indefinite quantity/indefinite delivery (IDIQ) contract to maintain mainframe facilities. The contract included a base year and four option years. The award was made on September 12, 1994; written notice of the award was mailed to the unsuccessful offerors on September 22, 1994. On September 19, 1994, before providing formal notice of award to the unsuccessful offerors, and after conducting negotiations with AMI, respondent issued modification 0001 to the contract, adding requirements to retain certain key personnel of the incumbent contractor. This modification added approximately twenty-one additional staff positions for a total of forty-four authorized contract staff, representing approximately 40,000 additional annual labor hours. The total contract value was potentially increased by approximately $12,000,000. On September 15, 1994, Decision Systems Technologies, Inc. (DSTI), one of the unsuccessful offerors, filed an agency-level protest alleging that the agency's evaluation of AMI's offer was materially flawed. On September 30, another unsuccessful offeror, NCI Information Systems, Inc., filed the first protest involving this procurement at the Board (GSBCA 12995-P). NCI averred that the Secret Service did not give timely notice of the award, and that AMI did not include certified employees in its proposal and engaged in bait-and-switch tactics. DSTI and ASPI intervened on October 3 and 5, 1994, respectively, adopting NCI's counts. Thereafter, DSTI filed an independent protest (GSBCA 13037-P) that adopted NCI's counts, alleged the facts and arguments raised in its agency-level protest, and alleged that the Secret Service had not used the criteria stated in the request for proposals, but rather selected AMI primarily on the basis of cost. ASPI also filed a separate protest (GSBCA 13049- P) on October 21, 1994, which it amended five days later. These complaints alleged bait-and-switch tactics, change of requirements, improper evaluation of proposals, lack of meaningful discussions prior to the submission of best and final offers (BAFOs), and improper post-BAFO discussions with AMI. NCI amended its protest on November 1, 1994, adding that the request for proposals did not reflect actual requirements. The parties eventually entered into a settlement agreement in which the Secret Service stipulated that it violated Federal Acquisition Regulation (FAR) 15.1001(c), requiring timely notice of award to losing offerors, and FAR 15.606(a), which addresses procedures to be followed in the event of changed requirements. Specifically, the Secret Service "in issuing Modification No. 0001 to the Contract awarded to AMI inadvertently and without intent, violated Federal Acquisition Regulation 15.606(a) in that the agency's minimum requirements articulated in the Solicitation . . . changed following the receipt of BAFOs." In connection with the changed requirements, the agency stipulated further that protesters were entitled to notification that the minimum requirements of the agency had changed. Joint Settlement Agreement at 6-7. As a corrective measure, the Secret Service revised and radically cut back the scope of modification 0001 to AMI's contract and agreed that no further modifications of that nature would occur.[foot #] 1 The Secret Service acknowledged that the protesters were prevailing parties in the litigation. Finally, the settlement agreement provided that the protesters would move to have their protests dismissed with prejudice and would apply to the Board for awards of reduced amounts of protest and proposal preparation costs out of the permanent indefinite judgment fund. In an effort to offer additional support for the recovery of protest and proposal preparation costs by protesters, the agency's response to the cost applications elaborated on the circumstances of this procurement. According to the agency's response, after receipt of best and final offers from participating firms, the Secret Service realized that the request for proposals (RFP) did not state an express requirement to retain key employees of the incumbent contractor. Although there was apparently some concern that this could impact the transition process if an offeror that did not propose retention of some incumbent employees was selected, the Secret Service nonetheless continued with evaluation of offers. At the conclusion of the evaluation process, AMI, which did not propose to retain any ----------- FOOTNOTE BEGINS --------- [foot #] 1 In a cover letter accompanying the joint settlement agreement, the Secret Service explains the corrective action taken as follows: Consonant with the agency's specific confession of error regarding Modification 001, the Secret Service has agreed, and the awardee AMI will not object, to a revision of the modification placing the contract back as close as reasonably practicable to the status quo at award. In short, the contract will be reduced by approximately 40,000 annual labor hours, at a contract life cost reduction of more than $12,000,000. Only five specific positions have been retained under the modification in an effort to safeguard the jobs of innocent individuals hired by AMI at the behest of the agency pursuant to the modification. However, not a single additional labor hour above the maximum annual labor hours existing at award will be retained to accommodate these positions. ----------- FOOTNOTE ENDS ----------- incumbent contractor employees, was determined to be the lowest cost offeror but not the highest ranked offeror on a technical basis. After reviewing the higher ranked technical proposals to determine if the technical superiority of these proposals justified paying a higher price, the selection official determined that it did not and decided that AMI should receive the award. There is no basis in the record, the joint stipulation, or the statements of the Secret Service in its response to the cost applications, to find that the evaluation process leading to the selection of AMI for award was affected by the agency's belated concerns about the retention of some incumbent employees. In accordance with the joint motion of the parties, the Board dismissed ASPI's protest with prejudice on December 6, 1994. ASPI subsequently filed a motion pursuant to Rule 35. Under the settlement agreement, ASPI and the Secret Service agreed that ASPI would seek an award of costs comprised of attorney fees not to exceed $37,000 and proposal preparation costs not to exceed the amount of $32,300. These amounts are slightly less than the full costs actually incurred. In its application, ASPI seeks to be awarded costs totalling $76,441.50, which consists of $41,884.42 in attorney fees and disbursements attributable to pursuit of the protest and $33,397.08 in proposal preparation costs. Of the requested award of attorney fees, $2,052 represents effort expended in responding to the Secret Service's objections to ASPI's application for costs. Discussion The Board may award costs to "appropriate interested parties" where a statute, regulation, or delegation of procurement authority has been violated. 40 U.S.C. 759(f)(5)(B) & (C) (1988)[foot #] 2; Sterling Federal Systems, Inc. v. Goldin, 16 F.3d 1177, 1182 (Fed. Cir. 1994) (the Competition in Contracting Act (CICA) is a "permissive cost- shifting statute"). The Board has held that an "appropriate" interested party is one that can show it succeeded on a significant issue in the protest that achieved some benefit sought in bringing the suit. E.g., NCR Comten, Inc., GSBCA 8229- C(8091-P), 86-2 BCA 18,822, at 94,852, 1986 BPD 24, at 9-10. The Board's discretionary authority to award costs to a prevailing protester has not been construed to require that the Board have heard and ruled on the merits of a protest. Instead, costs may be awarded if some basis exists in the record, such as a stipulation of the parties, to support a finding 1) that the respondent has violated a material statute, regulation, or condition of a delegation of procurement authority (DPA), and 2) ----------- FOOTNOTE BEGINS --------- [foot #] 2 The term "appropriate interested parties" has been changed to "appropriate prevailing parties" with regard to protests filed on or after May 5, 1995. Pub. L. No. 103-355, 108 Stat. 3243, 3293 (1994); 60 Fed. Reg. 17,023-24 (1995). ----------- FOOTNOTE ENDS ----------- that respondent has provided some benefit to the protester, materially altering its position in favor of full and open competition. Ungermann-Bass Networks, Inc. v. Department of the Navy, GSBCA 13005-C(12977-P), 95-1 BCA 27,344, 1994 BPD 271; IMS Services, Inc. v. Department of the Navy, GSBCA 12922- C(12830-P), 94-3 BCA 27,271, 1994 BPD 204. To this end, the Board may consider a showing of a violation on the record such as a stipulation of the parties that a violation occurred. Compare Xerox Corp. v. Government Printing Office, GSBCA 12408- C(12322-P), 93-3 BCA 26,227, 1993 BPD 221 (accepting stipulation of parties that violation occurred) with Storage Technology Corp., GSBCA 9272-C(8810-P), 88-1 BCA 20,409, 1987 BPD 283 (granting no costs where there was no such showing). The fact that the parties have stipulated to the amounts of costs they consider to be reasonable and recoverable, however, does not preempt the Board's exercise of its independent judgment in determining if the agreed upon award is appropriate. See, e.g., ICF Severn, Inc. v. National Aeronautics & Space Administration, GSBCA 11552-C-R(11334-P), 94-3 BCA 27,162, 1994 BPD 153; Systemhouse Federal Systems, Inc., GSBCA 9446-C(9313-P), 89-2 BCA 21,773, 1989 BPD 118. ASPI's Protest Costs The joint settlement agreement states that the Secret Service violated FAR 15.1001(c) and 15.606(a) and describes the relief obtained by the protesters to remedy these violations. ASPI successfully demonstrated that the agency failed to provide timely notification of award and challenged the contract modification by which the agency would have satisfied its requirements without obtaining competition. Based on this stipulation and the relief afforded to ASPI therein, we find that ASPI is a prevailing party for purposes of recouping its costs of pursuing the protest. The settlement agreement further stipulates that the amount of reimbursable costs, including attorney fees, of pursuing the protest to be recovered, will not exceed the amount of $37,000. The Secret Service objects to any award exceeding the amount of $37,000, and also raises some specific objections to ASPI's application for protest costs. With respect to the mutually negotiated ceiling, ASPI contends that the amount it agreed to was "based on the best estimates of ASPI's counsel available at the time," and that it did not anticipate the amount of time required to assemble documentation for its costs. ASPI points us to no authority, however, supporting an award of costs for more than an amount agreed upon by settlement of the parties. Because $37,000 is the amount negotiated by ASPI and the Secret Service, we adopt it as a ceiling on the recovery of protest costs. See Data/Ware Development, Inc., GSBCA 9945-C(9792-P), 90-2 BCA 22,742, 1990 BPD 47 (granting amount of costs agreed to by parties in settlement agreement, although actual costs incurred substantially exceeded that amount). The Secret Service has objected to particular elements of the protest costs applied for by ASPI and requested an opportunity to review the original time sheets of counsel from which billing statements were generated, claiming that this is the only way to determine the reasonableness of the charges. In its reply, counsel for ASPI points out that the documents provided for the record are copies of final bills and that time entries therein are identical to "pre-bill" statements generated by the firm's computerized accounting system. These statements reveal the date and description of all services performed, as well as the names of those who performed them, and particular costs for which reimbursement is sought. This is sufficient detail for an inquiry into the reasonableness of charges. Respondent also objects to ASPI's request for costs incurred after the date of the settlement agreement, urging that "ASPI could have negotiated such fee arrangements . . . but did not." These costs fall into two categories -- costs incurred in participating in such activities as telephone conferences convened by the Board after receipt of the settlement agreement, and costs incurred in preparing the cost application. ASPI, responding to this objection, points out that the Board may grant costs incurred in preparing and defending a protest cost case and that these charges are considered to be included under the rubric of "costs of filing and pursuing a protest." HSQ Technology, Inc. v. National Aeronautics & Space Administration, GSBCA 12681- C(12616-P), 94-2 BCA 26,944, at 134,176, 1994 BPD 92, at 9; see also Grumman Data Systems Corp. v. Department of Air Force, GSBCA 11799-C (11635-P), 93-2 BCA 25,773, 1993 BPD 16; Aspect Communications v. Department of Treasury, GSBCA 11399-C(11250-P), 93-1 BCA 25,423, 1992 BPD 245. The settlement agreement does not expressly limit the recoverable costs to those incurred up to the date of its execution. Thus, subject to the negotiated ceiling amount, and the Board's independent determination that the costs claimed are reasonable and allowable, such costs are potentially recoverable. The Secret Service also contends that counsel for ASPI had "failed to provide any evidence demonstrating the reasonableness" of fees charged by various attorneys who worked on the case or that the fees are the same as those charged to the firm's other clients. Counsel for ASPI has elaborated that its standard fees ranged from $235 an hour for the senior partner assigned to the matter to $100 an hour for the junior associate. The Board has held that the applicable standard is whether the hourly rate claimed is "in line with those prevailing in the community for similar services by lawyers of reasonably comparable skills, experience and reputation." NCR Comten, Inc., 86-2 BCA at 94,850, 1986 BPD 24, at 6 (quoting Blum v. Stenson, 465 U.S. 886, 895 n.11 (1984)). Counsel's hourly rates are well within the range of hourly rates charged by Washington area attorneys who practice at the Board. See, e.g., Science Applications International Corp. v. National Aeronautics & Space Administration, GSBCA 12696-C(12600-P), 94-2 BCA 26,943, 1994 BPD 94; Integrated Systems Group, Inc. v. Department of the Army, GSBCA 12622-C(12527-P), et al., 94-2 BCA 26,819, 1994 BPD 65. Accordingly, we find that the hourly fees were reasonable. Respondent also specifically objects to payment for time that applicant's counsel expended in consultation with other protesters' counsel. The Secret Service argues that paying for combined litigation efforts against the Government would be unfair and that the Government should not be, in effect, "triple- charged" for such time in applications by each of the parties. In response to this argument, ASPI points out that such consultations permitted counsel to more quickly and efficiently comprehend the facts and issues presented in the protests and divide up work to the extent practicable. Absent such consultation and cooperation, redundancy of efforts by individual counsel could have resulted in greatly increased costs. The Board has recognized that some degree of coordination among counsel for multiple protesters promotes efficiency and will help to avoid, rather than give rise to, duplication of effort. Government Technology Services, Inc. v. Department of the Air Force, GSBCA 12277-C (12041-P), 94-3 BCA 27,008, 1994 BPD 128. As such, these amounts are allowable. An examination of ASPI's counsel's charges do not reveal excessive charges for coordination with other counsel. Thus, we find no basis to disallow these amounts. Having independently reviewed counsel's hourly charges and out-of-pocket disbursements, we find that the costs of pursuing the protest are properly documented. The remaining issue is whether the costs accrued, and the ceiling amount negotiated by the Secret Service and ASPI, are reasonable and properly allowable. Although the overall fee charged by ASPI's counsel is considerably higher than that charged by counsel for the other protesters, some of this disparity is due to generally higher hourly rates of counsel. ASPI's counsel had available, and devoted to the protest, more resources than did the other protesters. Much of the time charged relates to efforts to achieve a settlement of the protest, an endeavor in which ASPI assumed a "laboring oar." Cordant, Inc. v. Department of the Navy, GSBCA 12226-C(12011-P), 94-1 BCA 26,275, 1993 BPD 210. All circumstances considered, we conclude that the costs, as limited by the settlement agreement, are reasonable. We thus award ASPI the amount of $37,000. Proposal Preparation Costs The Board has recognized that proposal preparation costs should not be awarded, even if the protester prevailed in some part of its protest, where "the costs are too distantly related to the private enforcement of full and open competition in Government procurement, where the cause for incurring the costs was unrelated to the protest, and where the protester has not demonstrated that the respondent caused it to incur unnecessary expenses." U.S. West Information Systems, Inc., GSBCA 9114- C(8995-P), et al., 89-2 BCA 21,774, at 109,555, 1989 BPD 119, at 4-5; accord Communications Resource Group, Inc. v. General Services Administration, GSBCA 11038-C(10998-P), 92-2 BCA 24,769, at 123,576-77, 1992 BPD 29, at 3-4. In exercising the discretion to award proposal preparation costs, the Board has required a showing that the costs were wasted or rendered unnecessary as a direct result of the Government's violation of a statute or regulation. E.g., RMTC Systems, Inc. v. Nuclear Regulatory Commission, GSBCA 11893-C (11734-P), 93-3 BCA 26,147, at 129,986, 1993 BPD 216, at 6; Xerox Corp. v. Government Printing Office, GSBCA 12408-C(12322-P), 93-3 BCA 26,227, 1993 BPD 221; Recognition Equipment Inc., GSBCA 9408-C(9363-P), 89-1 BCA 21,281, 1988 BPD 228. ASPI prevailed in its protest to the extent that the agency admitted that it failed to provide timely notice of award and that the modification issued immediately after award was improper and violated an applicable procurement regulation. ASPI did not expend any costs in competing for the work covered by this contract modification, however. Its protest succeeded in causing the agency to radically reduce the scope of the modification, with the result that the procurement was essentially restored to the level of effort which had been competed and evaluated under the solicitation. Thus, ASPI has not demonstrated that the agency violated statute or regulation in awarding the underlying contract. Under the joint settlement agreement, the applicant and other protesters permitted that award to remain in place without challenge. Under these circumstances, we conclude that an award of proposal preparation costs would not be appropriate. ASPI's proposal preparation costs were incurred in responding to the initial solicitation which formed the basis for the contract now being performed by AMI.[foot #] 3 Those costs are not directly related to the grounds of the protest on which the applicant prevailed by stipulation and for which relief enhancing ----------- FOOTNOTE BEGINS --------- [foot #] 3 One protester, seeking to explain why it should recover these costs, suggests in its application that proposal preparation costs were in fact wasted because the agency's award was not based on its actual requirements, which is what it should have competed. Moreover, according to that protester, it would not have been practicable for the competition to be reopened so as to permit all offerors to compete for the changed requirements since AMI had already employed certain key incumbent employees who might thus no longer be available to other competitors. This is speculative; the joint stipulation in no way addresses this issue. Moreover, to the extent the award did not reflect the agency's needs, there is no explanation, from any party, as to why it might not have been feasible to reopen the competition, at least for option years, to correct the situation. ----------- FOOTNOTE ENDS ----------- full and open competition in Government procurements was obtained.[foot #] 4 Nor were these costs incurred as a consequence of the violation that was expressly admitted by the Secret Service in the joint stipulation of the parties. Rather, as ASPI itself acknowledges in its application, the effect of the remedial action taken will, for the most part, "re-establish the agency requirements that were set forth in the solicitation and upon which all offerors, including the protesters, competed." ASPI's proposal preparation costs were incurred in responding to a solicitation and evaluation process which in and of itself did not violate the law, so far as we can determine on the record before us and the stipulations in the settlement agreement signed by the parties. As such, the costs constitute a normal business expense, which is not recoverable. See Computer Consoles, Inc., GSBCA 8450-C(8134-P), 87-1 BCA 19,440, at 98,255, 1986 BPD 183, at 4. Finally, we note that, to support the award of proposal preparation costs, the Secret Service, relying on CACI, Inc.- Federal v. United States, 719 F.2d 1567 (Fed. Cir. 1983), argues that procurements carry a built-in covenant of fair dealing, which the agency violated in this procurement. The CACI case, in which the underlying award had been shown to have been made arbitrarily, is inapposite. Given the stipulations in this case, if the agency violated the obligation to deal in good faith it was in the issuance of the modification to the contract shortly after award. Protesters incurred no proposal preparation costs in connection with that modification, which was effectively cancelled as a result of the protests. There is no requisite showing that AMI received the award as a result of flawed evaluations. To the extent that the Secret Service did not adequately state its needs in the underlying solicitation, the applicant has permitted it to proceed with the contract it competed rather than to reopen that competition to obtain the additional services. As a consequence, there is no basis for awarding proposal preparation costs. Decision ASPI's motion is GRANTED IN PART. ASPI is awarded protest costs in the amount of $37,000. This award is to be paid, ----------- FOOTNOTE BEGINS --------- [foot #] 4 Even assuming, arguendo, that the award is defective because the agency should have promptly notified the parties of its desire to have incumbent employees retained for a smooth transition, and called for a new round of best and final offers, it does not follow that ASPI should recoup its proposal preparation costs. As stated above, the contract remains in place by agreement of all parties to the protest. An award of these costs, payable not from the agency's appropriated funds, but rather from the permanent indefinite judgment fund, would not, in such circumstances, serve the statutory objective to enhance the integrity of the procurement system. ----------- FOOTNOTE ENDS ----------- without interest, from the permanent indefinite judgment fund, 31 U.S.C. 1304 (1988). ___________________________ CATHERINE B. HYATT Board Judge We concur: ______________________________ ___________________________ STEPHEN M. DANIELS JOSEPH A. VERGILIO Board Judge Board Judge