THIS OPINION, INITIALLY ISSUED UNDER PROTECTIVE ORDER, IS RELEASED IN REDACTED FORM ON MAY 22, 1995 ____________________________ GRANTED IN PART: May 4, 1995 ____________________________ GSBCA 13170-P, 13171-P DYNAMIC DECISIONS, INC., Protester, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Respondent, and SYLVEST MANAGEMENT SYSTEMS CORPORATION, and GOVERNMENT MICRO RESOURCES, INC., Intervenors. Paralee White, William F. Savarino, G. Brent Connor, and Russell J. Gaspar of Cohen & White, Washington, DC, counsel for Protester (GSBCA 13170-P). Michael A. Hordell and Laura L. Hoffman of Gadsby & Hannah, Washington, DC, counsel for Protester (GSBCA 13171-P). Barbara Robbins and Richard S. Brown, Office of the General Counsel, Department of Health and Human Services, Washington, DC, counsel for Respondent. Deniz H. Hardy, of Sylvest Management Systems Corporation, Lanham, MD; and Alex D. Tomaszczuk and Devon E. Hewitt of Shaw, Pittman, Potts & Trowbridge, McLean, VA, counsel for Intervenor Sylvest Management Systems Corporation (GSBCA 13170-P). Michael Tollinger, Director of Contracts of Government Micro Resources, Inc., Chantilly, VA, appearing for Intervenor Government Micro Resources, Inc. (GSBCA 13171-P). Before Board Judges NEILL, VERGILIO, and GOODMAN. VERGILIO, Board Judge. Dynamic Decisions, Inc. challenges actions of the Department of Health and Human Services (HHS and DHHS), Public Health Service (PHS) with respect to proposed awards under the 8(a) program of indefinite delivery, indefinite quantity (IDIQ) contracts to Sylvest Management Corporation (GSBCA 13170-P) and Government Micro Resources, Inc. (GMR) (GSBCA 13171-P), intervenors of right in the respective protests. The Board consolidated the two protests, so as to develop one evidentiary record. The counts of each protest, however, are peculiar to the facts surrounding the requirements underlying the proposed award at issue. Numerous counts contest actions (or inactions) of the contracting officer relating to the eligibility status of the proposed awardees. The Board concludes that the protester has failed to show any violation; therefore, it denies the related protest counts. The remainder of the counts challenge actions relating to the determination of requirements and dollar thresholds involved, and the determination to proceed with each acquisition on a sole- source basis. The Board concludes that PHS has ignored its true requirements and created artificial dollar thresholds in its attempt to hasten the procurements through sole-source awards. The Board grants the related protest counts. Findings of Fact The requirements and procurement authority 1. No later than February 1994, the Department of Health and Human Services, Public Health Service recognized a requirement of eight of its agencies[foot #] 1 to obtain microcomputer-based (desktop systems) workstations, scientific workstations, network resources, peripherals, software, maintenance and support. The project officer testified that in February and March 1994, "we were preparing the APR [agency procurement request] to submit, we were behind schedule. We were still looking for a competitive award at that time. We ----------- FOOTNOTE BEGINS --------- [foot #] 1 The eight PHS agencies are identified as the Agency for Health Care Policy and Research (AHCPR); Centers for Disease Control and Prevention (CDC) and Agency for Toxic Substances and Disease Registry (ATSDR); Food and Drug Administration (FDA); Health Resources and Services Administration (HRSA); Indian Health Service (IHS); National Institutes of Health (NIH); Substance Abuse and Mental Health Services Administration (SAMHSA); and Office of the Assistant Secretary for Health (OASH). Protest File, Exhibit 1 at 2. ----------- FOOTNOTE ENDS ----------- were well behind schedule. . . . So we made a decision to keep the maximum figure [for the procurement at] 24 and a half million." Transcript at 25. Further, a request for a DPA [delegation of procurement authority] in excess of 25 million would have required additional documentation to GSA [General Services Administration], through the Department to GSA. And our limited experience with procurements over 25 million was that it increased the time to get the DPA returned from GSA. So we felt that since we were already behind schedule, . . . we needed to do everything we could to accelerate the process and get back on schedule. Id. 2. An inquiry to user agencies revealed an estimate that they would seek to acquire approximately the same level of desktop computers under the proposed contract (over a three-year period) as under the existing contract. This was viewed in terms of dollars--approximately $20 million--not in terms of the quantity of any items. "When we surveyed the agencies to identify what products they wanted under the new contract, follow-on contract, they asked us to include scientific work stations. So we knew we had to add as much money as possible because we had no indication that the demand for PCs [personal computers] would go down." Transcript at 27-28. 3. A requirements analysis for the underlying acquisition was completed no later than March 18. Protest File, Exhibit 54, Requirements Analysis. The analysis identifies missions of the PHS agencies and identifies total office automation as a strategic goal. Id. at 1-4 ( A.4). A section captioned "assumptions and limitations" states, in part, that "in many PHS agencies, funds for the acquisition of office automation technology often are identified only at, or near, the end of the fiscal year" and "the FIP [federal information processing] budgets for the PHS agencies will not increase appreciably from their recent levels, and may decrease." Id. at 4-5 ( A.5). A "summary of issues raised by the project" explains why a new contract is necessary and why existing systems need to be replaced; both sections explain needs to improve efficiency and productivity, to use the new generation of software, and to obtain newer technology equipment because existing equipment will become more difficult and costly to manage and support. Id. at 11-13 ( 2). The requirements analysis specifies that a "deficit of approximately 19,000 workstations exists" and that "between 8,200 - 23,467 workstations acquired between FY [fiscal year] 87 - FY 91 already need to be replaced with current technology workstations." Id. at 8 ( C). Further, focusing on the need for replacement (and not considering the deficit), the report states: "Assuming a five-year mechanical life expectancy on workstations systems, PHS agency replacement needs for workstation systems will be approximately 17,000 in FY 95, 23,000 in FY 96, and 32,000 in FY 97." Id. at 11 ( 2.b.1.(a)). 4. An APR with a date of March 15 specifies an acquisition strategy/approach which requests authority to make multiple awards, notes that the award(s) will be made using competitive procedures under the Small Business Administration's (SBA's) 8(a) program, and indicates that "[p]rospective bidders will be provided with functional specifications for hardware in the Statement of Work and will use these to propose configurations that will meet the identified requirements of the PHS agencies." Protest File, Exhibit 1 at 4 ( 5.a). The APR also identifies the resources to be acquired as including Intel-based (or equivalent) and non-Intel-based micro-computers, network resources, peripheral devices, software and support services. Id. at 2 ( 4). The project description states, in part: The Contractor will be responsible for selecting leading edge technology which fulfills the PHS requirements, as defined in the Statement of Work, in consultation with the Project Officer, Agency Project Officer Representatives, the Agency IRM [information resources management] Representatives and others as appropriate. The Contractor will be responsible for assuring internal compatibility and interoperability of all hardware and software, integration, delivery and installation, and may also be responsible for maintenance at any PHS Agency or PHS Agency designated location nationwide. Id. at 2 ( 2). Further, the APR anticipates a thirty-six month contract with a base contract period of twelve months and two option years. The APR estimates the total cost at $24,500,000, broken down (in thousands of dollars) by fiscal year (FY) as follows: FY95 FY96 FY97 TOTAL FIP Equipment $5,716 $5,716 $5,718 $17,150 FIP Software 1,225 1,225 1,225 3,675 FIP Support Services 1,225 1,225 1,225 3,675 TOTAL FIP $8,166 $8,166 $8,168 $24,500 Id. at 5 ( 6). However, the "cost estimates provided above are not intended to serve as a limit or minimum in any category." Id. Under "acquisition strategy," the APR states that a "guaranteed minimum procurement is planned"; it does not establish or suggest what that minimum is or how it may be calculated. Id. at 4 ( 5.a). 5. The Director, Division of IRM Approvals, HHS, submitted to GSA on March 18 the APR of March 15 (Finding 4) along with a requirements analysis (Finding 3) and an analysis of alternatives. Protest File, Exhibit 54; HHS Letter to Board (Apr. 11, 1995). 6. By letter dated May 26, 1994, GSA responded to the APR: Based on the information and certification contained in the APR, the [GSA] is providing a Delegation of Procurement Authority (DPA) for the acquisition of necessary resources to satisfy this requirement. . . . This DPA does not specifically approve or disapprove the planned acquisition strategy. It does require compliance with all applicable Federal statutes, policies, standards, and regulations governing the acquisition, management, and utilization of FIP [federal information processing] resources. Protest File, Exhibit 3 (Letter dated May 26). HHS provided internal redelegations of the procurement authority. Id. (Memoranda dated June 1 and 6, 1994). 7. The project officer testified that, by the summer of 1994, non-competitive acquisitions were the only viable method to continue to satisfy the underlying requirements of PHS agencies. Transcript at 33. A memorandum to the file prepared by the agency specifies that at a meeting on July 20, 1994: "It was agreed that the minimum amount for each contract would be under 3 million dollars." "It was left for program to decide how they wanted to break the requirement into 2 contracts[.]" Protest File, Exhibit 27. 8. The analysis of alternatives was revised as of August 22, 1994. Protest File, Exhibit 28. The analysis recommends establishing optional consolidated procurement mechanisms. Id. at 4. The "discussion" of this alternative states, in part: "There are economies of scale in acquiring a large volume of FIP resources under consolidated contracts compared to acquiring one or two systems at a time as has been done in the past." Further, There is a need for administrative ordering mechanisms which can be used to acquire FIP resources to meet both planned and unexpected needs, to support such things as the establishment of new organizations and/or major new initiatives within the PHS agencies. Establishment of optional consolidated procurement mechanisms to facilitate the acquisition of FIP resources will result in: 1. decreased administrative costs as duplicative contracts for similar products will no longer be awarded; and 2. agencies having the opportunity to secure the highest level of technology at the lowest possible price. This should result in an increase in the quality of work output due to increased levels of information access. Id. at 2-3. 9. A requirements analysis annotated "revised Aug 23 1994" identifies two acquisitions to satisfy the underlying needs--one for desktop/file server configurations and associated peripherals, the other for scientific workstations and high-end processors. Protest File, Exhibit 29. This analysis specifies: PHS currently does not have a contract in place for the acquisition of scientific workstations and high-end processors. These have been available from several sources including the National Aeronautics and Space Administration's Scientific and Workstation Procurement, on a limited basis. These requirements were discussed and documented in the current Information Technology System (ITS) Budget, Section 43B. This was submitted to OIRM/DHHS in the first quarter 1994. Id. at 1-2. No party has seen fit to introduce into the record the referenced discussion and documentation. 10. By memorandum dated September 9, 1994, the PHS requested from HHS an amendment to the internal DPA "to authorize multiple awards and change the acquisition strategy to directed awards." The first contract shall be for desktop/file server configurations, peripherals and software. The second contract shall be for scientific workstations/high-end processors and appropriate software. The contract amounts will be $15 Million and $9.5 Million respectively with a combined total of $24.5 Million. Protest File, Exhibit 4. An attachment to the memorandum in the record is an APR annotated "Revised 10/6/94." Id. The record contains no explanation which puts into context the notation on the APR, or which establishes the actual date that the revised APR was created, or which identifies the actual APR (and its contents) submitted with the request. The APR breaks down the estimated costs (in thousands of dollars) for the two anticipated contracts each for an estimated base contract period of twelve months with two option years for a total of thirty-six months: desktop/server FY95 FY96 FY97 TOTAL FIP Equipment $3,750 $3,750 $3,750 $11,250 FIP Software 750 750 750 2,250 FIP Support Services 500 500 500 1,500 TOTAL FIP $5,000 $5,000 $5,000 $15,000 scientific FY95 FY96 FY97 TOTAL FIP Equipment $2,372 $2,372 $2,371 $ 7,115 FIP Software 475 475 475 1,425 FIP Support Services 320 320 320 960 TOTAL FIP $3,167 $3,167 $3,166 $ 9,500 Id. at 5. Further, the APR states: A guaranteed minimum is planned for each indefinite- delivery/indefinite-quantity contract. The minimum guaranteed amount will be 20% of the base year of the contract. The total minimum guarantee shall be under $3 Million for each contract. Id. at 4 ( 5.a). Feeling constrained to remain within the $24.5 million total amount, the PHS made the decision to split the amount into the two allocations ($15 and $9.5 million). With the general reference to a projected need for $20 million in desktop systems and a need for scientific workstations, Finding 2, the PHS divided the figure as it deemed appropriate. Transcript at 26-29. 11. In a declaration, the contracting officer states that she: determined that the above referenced requirement should be contracted for as an indefinite-delivery, indefinite-quantity requirement because the government could not determine beyond the stated minimum, which HHS is fairly certain to order, if any further purchases would be made, and could not predetermine above the minimum the quantities the Government may order. This is particularly true since the Public Health Service is undergoing restructuring, "down- sizing" and budgetary uncertainty. . . . . The guaranteed minimum was determined by program officials and is set forth in its agency procurement request (APR) (as revised 10/6/94) for a delegation of procurement authority ([Protest File, Exhibit 4]). The APR states that the minimum guaranteed amount will be 20% of the base year of the contract and the total minimum guaranteed for each contract shall be less than $3 million. Declaration of Contracting Officer (Feb. 15, 1995) at 1-2 ( 2, 4). 12. A notice appeared in the Commerce Business Daily (CBD) of September 26, 1994: 70 - MICROCOMPUTER-BASED WORKSTATIONS, PERIPHERALS, SOFTWARE & MAINTENANCE SOL 213-95-0002 . . . The Department of Health and Human Services, Public Health Service (PHS) is seeking eligible 8(a) firms qualifying under Standard Industrial Classification (SIC) Code 3571 who are capable of supplying and maintaining desktop, file server, and scientific computer configurations; associated peripherals; and software. Eligible concerns must have technical expertise in integrating, testing, burning-in, installing and maintaining the required hardware and software. They must also have the financial resources and wherewithal to accomplish a multimillion- dollar acquisition and must have established relationships with major microcomputer manufacturers and software developers. Interested firms must submit capability statements documenting their technical expertise and financial capacity. They should also include letters of commitment and/or agreements evidencing their relationships with equipment manufacturers and software developers which would enable them to provide the hardware, software, and services required by the PHS. Within 15 days of the date of this synopsis, firms shall submit an original and 3 copies of their capability statements to the attention of . . . . No solicitation document is available. Protest File, Exhibit 5. 13. On September 29, the HHS sent to GSA a request for a modification to the DPA provided on May 26, Finding 6. Protest File, Exhibits 15 (Letter dated Nov. 3, 1994), 55. The APR submitted with the request to GSA for an amended DPA contains the following cost breakdown (in thousands of dollars) between the two envisioned contracts each for an estimated base contract period of twelve months with two option years for a total of thirty-six months: desktop/server FY95 FY96 FY97 TOTAL FIP Equipment $4,250 $4,250 $4,250 $12,750 FIP Software 750 750 750 2,250 FIP Support Services 0 0 0 0 TOTAL FIP $5,000 $5,000 $5,000 $15,000 scientific FY95 FY96 FY97 TOTAL FIP Equipment $2,692 $2,692 $2,691 $ 8,075 FIP Software 475 475 475 1,425 FIP Support Services 0 0 0 0 TOTAL FIP $3,167 $3,167 $3,166 $ 9,500 Protest File, Exhibit 55, APR at 5 ( 6). This APR shifts the dollars formerly attributed to support services to equipment. This APR also states that the "minimum guaranteed amount will be 20% of the base year of the contract. The total minimum guarantee shall be under $3 Million for each contract." Id. at 4 ( 5.a). 14. In October, while PHS was attempting to obtain a revised DPA, vendors responded to the CBD notice. Protest File, Exhibits 6, 7, 8, 10. In its submission, the protester specified that it is an 8(a) certified company with a primary SIC code of 3571. Id., Exhibit 6. Portions of the submissions of the intervenors are quoted in Findings 24 and 29. 15. Subsequent to the responses to the CBD notice, an internal memorandum dated October 13, 1994, signed by the project officer, states: "Although you can't tell it from the [CBD] notice, OASH will be awarding two IDIQ contracts - one for desktop workstations and one for scientific workstations. This was made clear on a recording available to vendors by the OASH contracts office." Protest File, Exhibit 32. The evidentiary record does not demonstrate, because it is silent on the matter, that the protester did not listen to the telephone message or that it was unaware of the contents of the message. 16. A team, consisting of agency personnel, reviewed the capability statements of the thirty-one firms responding. Protest File, Exhibit 10. In conducting the review, the team was instructed to keep in mind the following: 1. Is this an eligible 8(a) firm qualified under SIC Code 3571? 2. Is the firm capable of supplying desktop, file server and scientific workstations, associated peripherals, and software? 3. Does the firm have established working relationships with major microcomputer and software manufacturers? 4. Is the firm capable of providing the required support services--hardware and software maintenance, burn-in, testing and installation? 5. Does the firm have the financial capacity to handle this requirement? Id., Exhibit 9. The reviewing team was to identify the firms which warrant further consideration and the requirement (desktop and file server configurations or scientific configurations) which the firm may satisfy. Id. In reviewing the submissions, under item three, the team looked for affiliations with multiple manufacturers. Transcript at 44, 51-52, 59, 90, 93. Strengths and weaknesses of each response were determined, as were conclusions to the five questions above. Protest File, Exhibits 36, 37, 38, 39, 40, 51. 17. By letter dated November 3, 1994, GSA informed the Director, Division of IRM Approvals, Department of Health and Human Services: Based on the information contained in the letter, GSA is modifying the DPA for the acquisition of necessary resources to satisfy this requirement. This DPA does not specifically approve or disapprove your planned acquisition strategy. It does require your compliance with all applicable Federal statutes, policies, standards, and regulations governing the acquisition, management, and utilization of FIP resources. Except as indicated herein, all other terms and conditions of the DPA remain in effect. Protest File, Exhibit 15. 18. In November, the HHS approved the request for amendments to the internal DPA "to revise the acquisition strategy from a single competitive Small Business Administration 8 (A) set-aside to two directed SBA 8 (A) set-asides as described in your request." Protest File, Exhibit 15, Memoranda (Nov. 17 and 22, 1994). 19. As revealed in a memorandum dated November 4, the team concluded that a total of five firms were the "most qualified to meet the requirements of the contracts we plan to award" and should be invited to make oral presentations to the team. Protest File, Exhibit 10. The two intervenors were included in the group of five; the protester was not. Id. By letter dated November 15, the contracting officer notified the protester that it "was not selected for further consideration in satisfying this requirement." Id., Exhibit 11. 20. The PHS scheduled the oral presentations for November 30, with each presentation limited to one hour. Protest File, Exhibits 12, 13. Those invited to the presentation received three pages captioned "Areas To Be Addressed During Oral Presentation." Id., Exhibit 46; Transcript at 116. The initial paragraph states that PHS intends to select two (2) qualified and eligible 8(a) firms and plans to award two (2) multi-million dollar, sole source IDIQ contracts. These contracts will provide various agencies, within the PHS, the ability to purchase hardware, software, and support service for their specific needs. One contract will provide desktop/file servers and associated software and peripherals and the other contract will provide scientific workstations and associated software and peripherals. Both contracts shall provide the PHS access to hardware and software products from various manufacturers. Protest File, Exhibit 14. The remainder of the document notifies the firm that it "shall demonstrate its abilities and experience in the following areas": 1. CORPORATE/MANAGEMENT CAPABILITY - Provide evidence of experience in successfully managing indefinite-delivery indefinite-quantity (IDIQ) contracts with the Federal Government. - Provide the names of the organizations for which the work was performed and the name and telephone number of the Project Officer(s). - Provide[] detailed descriptions of work performed, including staff used and resources provided. - Provide letters of commitment or other written evidence documenting the existence of relationships with manufacturers of desktop systems, file servers, and/or scientific workstations, and peripherals. Identify the type of buying agreement in place and what procurement level your firm has achieved with the manufacturers. Also, provide certification of the technical support level your firm has achieved with the manufacturers. - Provide letters of commitment or other written evidence documenting the existence of relationships with software manufacturers. Also, provide documentation of participation in manufacturers' site licensing/volume purchase discount programs, where applicable. 2. MANAGEMENT PLAN/UNDERSTANDING THE PROJECT - Demonstrate an understanding of the work involved in managing an IDIQ contract by describing how staff would be organized to support such a contract. The plan should include organization charts which clearly delineate lines of authority, staff responsibilities, decision-making authority, and relationships with other companies and/or consultants who would contribute to performance under an IDIQ contract. - Describe what steps will be taken to assure quality control and how problem resolution will be performed. 3. TECHNICAL APPROACH - Demonstrate the capacity to provide technical assistance in support of the acquisition, including: 1) consultation on configurations and compatibility of products; 2) integration, testing, and installation of hardware; and 3) the provision of maintenance. - Describe how your firm's project management could incorporate the use of electronic data interchange technology. - Describe an approach to establishing and operating an electronic bulletin board system for informing Public Health Service staff of available products and prices. - Describe your firm's experience in managing the receipt and processing of delivery orders, the purchasing and testing of products, and the delivery and installation of products. - Describe your firm's experience and approach in utilizing Technology Refreshment provisions (include some examples) - Describe the management information system available to track the receipt and processing of delivery orders, the purchasing of products and invoicing for products delivered and installed. Describe the management reports available to the Contracting Officer and Project Officer. 4. PERSONNEL - Demonstrate the availability of staff with relevant experience in performing the activities required in managing an IDIQ contract. Resumes of personnel with prior experience in managing IDIQ contracts must be provided. These should include education and training, prior employment (with names and addresses and/or telephone numbers of supervisors) and other qualifications demonstrating the individuals' ability to perform the activities required under an IDIQ contract. - For staff who will be used for providing maintenance, provide evidence of completed training for products avail[able] from manufacturers identified above. 5. FINANCIAL CAPACITY - Demonstrate the existence of sufficient financial resources to manage the contract. Please provide a copy of your firm's most recent audited financial statement, a year to date Revenue and Expense Statement and documentation of the existence of a revolving line(s) of credit. Id. 21. Oral presentations occurred. References were checked. Protest File, Exhibit 35. In light of the submissions and oral presentations of the five companies, and the reference checks, the program office, with the concurrence of the contracting officer, selected GMR and Sylvest to satisfy the needs relating to the desktop computer and scientific workstation requirements, respectively. Transcript at 116-17. 22. In a letter dated December 6, 1994, to the contracting officer, the protester states: In a conversation with you on November 30, 1994 we came to the understanding that the Public Health Service (PHS) intends to purchase microcomputer hardware, software and other items through a sole-source 8(a) set-aside under FAR [Federal Acquisition Regulation] 19.8111 (41 U.S.C. 253(c)(5)) using SIC [code] 3571. The reason for using a 3571 SIC [code] is because there are some integration requirements. Protest File, Exhibit 16 at 1. The letter makes no reference to the Walsh-Healey Act or FAR Part 22. 23. In a declaration, the contracting officer states: I made a determination that Sylvest and Government Micro Resources are manufacturers or regular dealers under the Walsh-Healey Act based upon their capability statements and information available from the SBA. In determining to set th[ese] acquisitions aside for the 8(a) program, I believed that the items being procured could be manufactured by a small business. Declaration of Contracting Officer (Feb. 15, 1995) at 2 ( 8, 9). Desktop workstations and GMR 24. In October 1994, GMR responded to the CBD notice, detailing its "corporate capabilities." Protest File, Exhibit 7. It states, in part, in the cover letter to the submission: We are an SBA 8(a) certified company, with experience providing both desktop/server and scientific workstation solutions to government agencies. [redacted redacted.] Id. GMR also provided PHS with information at and related to its oral presentation. Id., Exhibit 52. 25. By letter dated January 9, 1995, the Department of Health and Human Services informed the Small Business Administration: The Division of ADP and Telecommunications Management, OOMS/OASH has a requirement for the integrated acquisition of hardware, software, and associated support services for office automation and end-user computing to meet the consolidated requirements of the Public Health Service (PHS) agencies and other Department of Health and Human Services (DHHS) agencies. Protest File, Exhibit 17. In addition to referencing an attached twenty-three page statement of work, the letter specifies the applicable SIC code--3571--and the Government cost estimate--not to exceed $15 million with a guaranteed minimum of $3 million. Moreover, "This acquisition is designed to provide an optional indefinite-delivery, indefinite-quantity mechanism to acquire and install microcomputer-based workstations, associated peripherals, software and selected support services for the staff of the PHS/DHHS agencies." Id. The letter nominates GMR as the awardee, based on a review of "the qualifications of the 31 firms responding to its sources-sought synopsis" and the determination that GMR "has the predominant capability and facilities with which to provide the required equipment and services." Id. The letter does not state that the PHS had engaged five of the firms in oral presentations after each of the five had received a document specifying the areas of abilities and experience to be demonstrated, or that the PHS had undertaken reference checks prior to reaching its conclusions regarding GMR's strengths. Id. 26. The statement of work referenced in the above finding contains a section captioned "DETAILED SPECIFICATIONS." Protest File, Exhibit 17, Statement of Work at 5-23 ( IV). In addition to describing the requirements for hardware and software, a portion of what the contractor is to provide is identified under a paragraph captioned "integration, testing, burn-in, and installation requirements." Id. at 20-22 ( 14). Individuals employed by the PHS have testified that they have not shared the statement of work (in its current or a draft version) outside the Government, or themselves had never received a statement of work for the underlying requirements. Transcript at 96, 130. Nothing in the record suggests the contrary. 27. By letter dated January 10, the SBA informed the contracting officer of the preliminary acceptance of the offer for the 8(a) program. Protest File, Exhibit 19. 28. By letter dated February 1, the SBA informed the contracting officer of SBA's acceptance of the offering for integrated acquisition of hardware and software with SIC code 3571 on behalf of GMR. Protest File, Exhibit 22. The letter specifies: Please note that if the Statement of Work (SOW) is changed, SBA will have to re-determine the appropriateness of the SIC Code, and the acceptability of this offer for the named 8(a) Participant. Please be advised, there are items indicated in the Statement of Work for this requirement which may not be the product(s) that was/were manufactured or produced in the United States by a small business concern. If not, in accordance with [statutes] these items may require you to obtain an individual "non-manufacturer rule" waiver issued by SBA's Administrator prior to contract acceptance. Id. Scientific workstations and Sylvest 29. In October 1994, Sylvest responded to the CBD notice. Protest File, Exhibit 8 at 2. It stated, in part, in the cover letter to the submission: Sylvest is a certified 8(a) company, qualifying under Standard Industry Classification Code 3571 as specified in the CBD synopsis. Sylvest has a wide range of experience in delivering and maintaining desktop, file server, and scientific computer configurations. Under SIC code 3571, Sylvest has the technical expertise to integrate, test, burn-in, install, and maintain a variety of multivendor hardware and software. [redacted redacted]. Id. at 1. Sylvest also provided PHS with information at and related to its oral presentation. Id., Exhibit 53. 30. By letter dated January 9, 1995, the Department of Health and Human Services informed the Small Business Administration: The Division of ADP and Telecommunications Management, OOMS/OASH has a requirement for the integrated acquisition of hardware, software, and associated support services for office automation and end-user computing to meet the consolidated requirements of the Public Health Service (PHS) agencies and other Department of Health and Human Services (DHHS) agencies. Protest File, Exhibit 18. In addition to referencing an attached fourteen page statement of work, the letter specifies the applicable SIC code--3571--and the Government cost estimate--not to exceed $9.5 million with a guaranteed minimum of $1.9 million. Moreover, "This acquisition is designed to provide an optional indefinite-delivery, indefinite-quantity mechanism to acquire and install microcomputer-based workstations, associated peripherals, software and selected support services for the staff of the PHS/DHHS agencies." Id. The letter nominates Sylvest as the awardee, based on a review of "the qualifications of the 31 firms responding to its sources-sought synopsis" and the determination that Sylvest "has the predominant capability and facilities with which to provide the required equipment and services." Id. The letter does not state that the PHS had engaged five of the firms in oral presentations after each of the five had received a document specifying the areas of abilities and experience to be demonstrated, or that the PHS had undertaken reference checks prior to reaching its conclusions regarding Sylvest's strengths. Id. 31. The statement of work referenced in the above finding contains a section captioned "SPECIFICATIONS." Protest File, Exhibit 18, Statement of Work at 7-14 ( IV). In addition to identifying the type and class of scientific workstations, systems, servers, and expansion hardware that may be required, a portion of what the contractor is to provide is identified under a paragraph captioned "integration, testing, burn-in, and installation requirements." Id. at 12-13 ( 13). Individuals employed by the PHS have testified that they have not shared the statement of work (in its current or a draft version) outside the Government, or themselves had never received a statement of work for the underlying requirements. Transcript at 96, 130. Nothing in the record suggests the contrary. 32. By letter dated January 12, the SBA informed the contracting officer of the preliminary acceptance of the offer for the 8(a) program. Protest File, Exhibit 20. 33. By letter dated February 9, the SBA informed the contracting officer of SBA's acceptance of the offering for hardware/software integration with SIC code 3571 on behalf of Sylvest. Protest File, Exhibit 23. The letter specifies: Please note that if the Statement of Work (SOW) is changed, SBA will have to re-determine the appropriateness of the SIC Code, and the acceptability of this offer for the named 8(a) Participant. Id. The protests 34. On January 31, 1995, the protester filed these protests. It filed amendments to each; the final amendments were filed on March 3. Discussion The Board discusses each remaining count of each protest. GSBCA 13170-P Count 2: Walsh-Healey determination The protester asserts that the contracting officer failed to conduct a Walsh-Healey inspection; that is, the contracting officer did not investigate Sylvest's status as a manufacturer. Protester's Post-hearing Brief at 26. Regarding this allegation, the protester contends: "The PHS's failure to conduct an investigation . . . is particularly distressing since the PHS knew or should have known that the integration skills boasted of by Sylvest do not constitute manufacturing. Walsh-Healey requires that there be significant and substantial fabrication in order to qualify as a manufacturer." Id. at 25. The protester maintains that the contracting officer violated FAR 19.803(a), 19.804[-1](f) and 22.606. Regulation dictates: "For each solicitation that may result in a contract subject to the [Walsh-Healey] Act, the contracting officer shall obtain a representation from the prospective contractor that it is a manufacturer or regular dealer of the supplies offered (see 22.610(a))." 48 CFR 22.608-1 (1994). As to the determination of eligibility, which rests in the first instance with the contracting officer: The contracting officer shall investigate and determine the eligibility of the offeror and not rely on the offeror's representation that it is a manufacturer or regular dealer in the following circumstances: (1) The contracting officer has knowledge that raises the question of the validity of the representation. (2) A protest has been lodged pursuant to 22.608- 3. (3) The offeror that is in line for contract award has not previously been awarded a contract subject to the Act by the individual acquisition office. (4) A preaward investigation or survey of the offeror's operations is otherwise made to determine the technical and production capability, plant facilities and equipment, and subcontracting and labor resources of the offeror. 48 CFR 22.608-2(a), (b) (1994). The contracting officer had a statement from Sylvest that it is qualified under SIC code 3571, the code specified for this procurement. Finding 29. The contracting officer has determined that the protester is a manufacturer or regular dealer. Finding 23. The protester has not demonstrated the existence of any of the four conditions enumerated in the above-quoted regulation which require the contracting officer to conduct an investigation. The regulations which the protester cites as having been violated do not place any greater affirmative duty on the contracting officer. Accordingly, the Board denies this count of protest. In denying this count of protest, the Board is not determining that Sylvest is Walsh-Healey compliant for purposes of obtaining the contract at issue. That determination does not rest with this Board. To the extent that the protester seeks to have the Board resolve the status of Sylvest as a manufacturer under the Walsh-Healey Act, the protester is in the incorrect forum. The protester could have a lodged a protest pursuant to FAR 22.608-3, as stated in the above-quoted regulation. As that regulation specifies, such a protest would have required the contracting officer to take particular actions. Count 3: Lack of determination that items cannot be manufactured by a small business In this protest count, the protester maintains that the issuance of a contract to Sylvest would violate FAR 19.102(f)(5)(iii), because the contracting officer failed to determine that there is no small business that can manufacture the required products. The protester maintains: "if the PHS had announced its intent to contract for a 'shopping list' of products from various manufacturers, including large business, it would not have been able to make 8(a) directed awards." Protester's Post-hearing Brief at 31-32. The contracting officer has stated in a declaration that she believed that the items being procured could be manufactured by a small business. Finding 23. Hence, the contracting officer has made the determination the protester alleges had not been made. To the extent that the protester is challenging the status of Sylvest as a manufacturer under Small Business Act provisions, or the appropriateness of the classification of this procurement, the protester is in the wrong forum. 48 CFR 19.302, 19.303 (1994). The protester has failed to demonstrate that the contracting officer violated the referenced regulation. Accordingly, the Board denies this count of protest. Count 4: Anticipated contract value exceeds $5 million such that the requirement must be competed The protester asserts that the anticipated contract value exceeds $5 million, such that the requirement must be competed; the failure to compete the requirement violates statute, 15 U.S.C. 637(a)(1)(D), and regulation, FAR 19.805-1. The PHS contends that because an IDIQ contract is involved, the guaranteed minimum value of the contract is the relevant figure; because that amount is below $5 million, a sole-source award is appropriate. 13 CFR 124.311(a)(2) (1994); Electronic Systems & Associates, Inc., GSBCA 11291-P, 91-2 BCA 24,254, 1991 BPD 175. The Business Development Reform Act (BDRA) contains specific findings of Congress, including the following: (3) too few concerns that have exited the [Small Business and Capital Ownership Development] Program have been prepared to compete successfully in the open marketplace on competitive procurements, and many concerns have developed an unhealthy dependency on sole-source contracts by the time they are required to leave the Program; . . . . ; and (10) it is imperative that increased competition and other substantial reforms be accomplished in the Program in order to promote the Congressionally mandated business development objectives and purposes. Pub. L. No. 100-656, 101(a); 15 U.S.C. 636 note (1988). In terms of the declaration of policy, the BDRA deleted the phrase "sole source" from the following: "that the power to let sole source Federal contracts pursuant to section 637(a) of this title can be an effective procurement assistance tool for development of business ownership among groups that own and control little productive capital." The BDRA expressly mandates competition for contracts (meeting given dollar thresholds) awarded pursuant to the SBA's authority: "A contract opportunity offered for award pursuant to this subsection shall be awarded on the basis of competition restricted to eligible program participants if--" (II) the anticipated award price of the contract (including options) will exceed $5,000,000 in the case of a contract opportunity assigned a standard industrial classification code for manufacturing and $3,000,000 (including options) in the case of all other contract opportunities. 15 U.S.C. 637(a)(1)(D) (1988). In light of this statutory provision, the Administrator of SBA promulgated the regulation, relied upon by the PHS, which dictates the definition of "anticipated award price" in IDIQ contracts awarded under the 8(a) program: "For purposes of indefinite quantity/delivery contracts, the thresholds will be applied to the guaranteed minimum value of the contract." 13 CFR 124.311(a)(2) (1994). Moreover, only with specific approval, which "will be granted on a limited basis," will an agency be permitted to compete a procurement where the anticipated award price is not expected to exceed the stated dollar amounts. Id. 124.311(d). The Board has upheld the regulatory language which equates the guaranteed minimum value of an IDIQ with "the anticipated award price of the contract (including options)." Electronic Systems, GSBCA 11291-P. Although, consistent with the suggestion in Electronic Systems & Associates, Inc. v. Department of the Air Force, GSBCA 11883-P, 93-1 BCA 25,278, 1992 BPD 187, the protester urges the Board to revisit the question of the validity of the regulation and conclude that the regulation is inconsistent with the dictates of statute (and the expressed Congressional intent), the Board need not reach that broad question here. The record demonstrates that the requirements analyses and establishment of the dollar value of the given procurement are artificial. The initial total dollar value of the procurement, $24.5 million, was not reached because of any established budgetary limitations or because of any true analysis of requirements, but because of the expedience of avoiding a level of review by GSA. Findings 1, 2.[foot #] 2 The analysis undertaken by the PHS, working backward from dollar limitations and thresholds, is inconsistent with the guidance of the FIRMR. 41 CFR 201-20.1 (1994). The approach makes a mockery of the competition requirements established by statute, 15 U.S.C. 637(a)(1)(D) (1988), and the implementing regulations, 13 CFR 124.311(a)(2). Once the PHS thus established the $24.5 million total, the further breakdown--among equipment, software and services, and between the two anticipated contracts--again reflects a manipulation of dollars without a tie to true requirements. The analyses of requirements and alternatives indicate a requirement for scientific workstations and peripherals well in excess of the minimum guaranteed amount of 20% of the base year of the contract amount. Findings 3, 8-10, 13. The true requirement appears to be for a minimum amount of $9.5 million. This determination does not attempt to impose Board views on the PHS. In Data General Corp. v. United States, 915 F.2d 1544, 1551 (Fed. Cir. 1990), the Court expressly noted that "the Brooks Act specifically prohibits the board from imposing on the agency its own views of the agency's data processing needs." Rather, the facts dictate that the PHS has requirements which are not reflected accurately in the conclusions expressed in the requirements analyses. The artificial establishment of requirements here only serves to conceal or mask the actual requirements. ----------- FOOTNOTE BEGINS --------- [foot #] 2 Applicable regulation dictates that when the dollar value of the acquisition is $25 million or more, the agency is required to provide additional information. Further, "the estimated contract cost of the acquisition is to be identified by type of FIP resource for the contract life and includes all anticipated optional quantities, resources, and periods." Federal Information Resources Management Regulation (FIRMR) Bulletin C-5, Attachment A ( 1.c, 6). ----------- FOOTNOTE ENDS ----------- Regulation directs: "Agencies shall not fragment requirements for FIP resources in order to circumvent established delegations of procurement authority thresholds." 41 CFR 201- 305(b)(2) (1994). To ignore true requirements, in order to circumvent established thresholds, is a variety of fragmenting requirements, and is likewise improper. Given that the minimum requirement appears to exceed the $5 million threshold, proceeding with the procurement on a sole- source basis is contrary to the statute and regulation referenced by the protester. Accordingly, the Board grants this count of protest. Count 5: Proposed award would be inconsistent with the procurement The protester contends in this count that Sylvest is not the manufacturer of commercially available, off-the-shelf, high-end scientific class workstations or servers in current production and that Sylvest does not meet other requirements of Section C. Because, the protester concludes, Sylvest is not a qualified company, the PHS has violated a condition of its DPA which states that only qualified companies will be considered. Further, asserts the protester, the PHS has violated FAR 6.204, because it has restricted competition to other than eligible firms, and FAR 19.804-1(f) and 19.803(a), because it has proposed to award to a firm that cannot perform in accordance with stated requirements. The protester premises this claim on its conclusion that Sylvest is not a manufacturer but an integrator. The protester is, once again, attempting to challenge Sylvest's eligibility to receive an award to satisfy the PHS's underlying requirements. As noted above, the Board is not the appropriate forum for such a challenge. The protester has failed to establish the premise and consequently has failed to demonstrate a violation of the referenced regulations by the contracting officer. The Board denies this count of protest. Count 6: PHS lacks a realistic basis for the maximum quantity In this count, the protester maintains that PHS has no realistic basis for its estimate of the quantities of scientific workstations required; hence, the protester concludes that the proposed award violates FAR 16.504(a)(1). The referenced provision discusses indefinite-quantity contracts: (a) Description. An indefinite-quantity contract provides for an indefinite quantity, within stated limits, of specific supplies or services to be furnished during a fixed period, with deliveries to be scheduled by placing orders with the contractor. (1) The contract shall require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services and, if and as ordered, the contractor to furnish any additional quantities, not to exceed a stated maximum. The contracting officer may obtain the basis for the maximum from records of previous requirements and consumption, or by other means, but the maximum quantity should be realistic and based on the most current information available. 48 CFR 16.504 (1994). The regulation also specifies: (b) Application. An indefinite-quantity contract may be used when the Government cannot predetermine, above a specified minimum, the precise quantities of supplies or services that will be required during the contract period, and it is inadvisable for the Government to commit itself for more than a minimum quantity. An indefinite-quantity contract should be used only when a recurring need is anticipated. Funds for other than the stated minimum quantity are obligated by each delivery order, not by the contract itself. 48 CFR 16.504 (1994). The PHS established a maximum dollar figure for the IDIQ contract in question--$9.5 million. As discussed under count 4, the record establishes that the PHS lacked a reasonable basis in establishing this figure, such that the maximum quantity is not "realistic and based on the most current information available." Hence, the Board grants this count of protest. Count 7: PHS misrepresentation of amount of work to be performed by Sylvest The protester maintains that the PHS misrepresented the amount of work to be performed by Sylvest in manufacturing supplies; hence, it violated FAR 19.804-2. In support of this allegation, the protester refers to a regulation which states that "a manufacturer must perform at least 50 percent of the cost of manufacturing the supplies, not including the cost of material." 13 CFR 124.314 (1994). Further, the protester states that Sylvest has no intention of manufacturing the supplies on the contract, much less performing fifty percent of the cost of manufacture. Protester's Post-hearing Brief at 28. The protester disagrees with the conclusions of the contracting officer that Sylvest is compliant with SIC code 3571 and is eligible to satisfy the stated requirements. In this count, the protester largely rephrases its underlying challenge to the eligibility of Sylvest. Such an eligibility determination does not rest with this Board. Regarding what remains of the allegation, the protester has demonstrated no misrepresentation by the contracting officer. Accordingly, the Board denies this count of protest. Count 8: PHS improperly relies upon a determination that Sylvest is a regular dealer In this count, the protester contends that to the extent that the PHS is relying on a determination that Sylvest is a regular dealer, it violated FAR 6.204 and 19.804-2(a)(3). The FAR specifies, "To fulfill statutory requirements relating to section 8(a) of the Small Business Act . . ., contracting officers may limit competition to eligible 8(a) contractors (see Subpart 19.8)." 48 CFR 6.204(a) (1994). The protester has not demonstrated that Sylvest has been deemed ineligible to receive the contract award, or any impropriety by the contracting officer in relying on the statements of Sylvest. Counts 2, 3, 5 and 7. As a result, the protester has not demonstrated a violation of FAR 6.204 by the contracting officer. The FAR also specifies that, after determining the extent to which a requirement should be offered in support of the 8(a) program, "the agency shall notify the SBA of the extent of its plans to place 8(a) contracts with the SBA for specific quantities of items or work." One item the notification is to include is "the SIC code that applies to the principal nature of the acquisition." 48 CFR 19.804-2(a)(3) (1994). The PHS provided a SIC code to the SBA. Finding 30. The protester has demonstrated no violation of regulation in this count of protest which the Board, therefore, denies. Count 9: Because the PHS conducted a formal technical evaluation, it had to compete this acquisition Count 10: Because the PHS conducted informal assessments of more than several 8(a) firms, it had to compete this acquisition Count 11: Because the PHS conducted informal assessments of more than several 8(a) firms and released the statement of work, it had to compete this acquisition In these counts, the protester asserts that an agency is prohibited from making a sole-source 8(a) award if the agency conducts a formal technical evaluation, if the agency conducts an informal assessment of more than several 8(a) firms, or if the agency has released the statement of work. The protester contends that PHS engaged in each of these three activities and failed to so inform the SBA. The protester concludes that PHS has violated regulations, 13 CFR 124.308(g) and FAR 19.802-2(a), and that PHS must recommend that the requirement be competed, FAR 19.804-2(a)(14). The first-cited regulation provides: Formal technical evaluations. SBA will not authorize formal technical evaluations for sole source 8(a) contracts. If a procuring agency requires the performance of a formal technical evaluation among more than one 8(a) concern, the procuring agency must request that the requirement be a competitive 8(a) award. . . . Agencies may, however, conduct informal assessments of several 8(a) firms' capabilities to perform a specific requirement, provided that the statement of work for the requirement is not released to any of the participating 8(a) firms. 13 CFR 124.308(g) (1994). The next-cited regulation states: After completing its evaluation [regarding the extent to which a requirement should be offered in support of the 8(a) Program], the agency shall notify the SBA of the extent of its plans to place 8(a) contracts with the SBA for specific quantities of items or work. The notification must identify the time frames within which prime contract and subcontract actions must be completed in order for the agency to meet its responsibilities. The notification must also contain the following information applicable to each prospective contract: [Fifteen numbered items of information follow.] 48 CFR 19.804-2(a) (1994). The fourteenth item states: "A recommendation, if appropriate, as to whether the acquisition should be competitive or sole source." Id. 19.804-2(a)(14). The PHS provided the five companies invited to make oral presentations with the equivalent of a section M, evaluation factors for award, 48 CFR 15.406-5(c) (1994), although no relative weights are suggested, and with the encompassing statement that the contractor "shall provide the PHS access to hardware and software products from various manufacturers." Finding 20. The PHS evaluated the responses (including the oral presentations) and made reference checks. Finding 21. The PHS based its selection of Sylvest (and of GMR) on the responses (including the oral presentations) and the reference checks. Id. These actions constituted formal technical evaluations. 48 CFR 15.605, 15.608 (1994). The PHS did not inform the SBA of these PHS actions. Findings 25, 30. The conduct of these evaluations is contrary to regulation. 13 CFR 124.308(g). To recommend sole-source awards, in light of the evaluations, and without mention of such procurement actions, is contrary to regulation as well. FAR 19.804-2(a)(14). Accordingly, the Board grants these grounds of protest. GSBCA 13171-P Count 1: Lack of determination that items cannot be manufactured by a small business This count of protest parallels count 3 in the protest involving Sylvest.[foot #] 3 As to the merits, the discussion in count 3 above is equally applicable here. The Board denies this count of protest for the reasons set forth in count 3 above. Count 2: Anticipated contract value exceeds $5 million such that the requirement must be competed This count of protest parallels count 4 in the protest involving Sylvest.[foot #] 4 Although the dollar values related to this requirement are different from those ----------- FOOTNOTE BEGINS --------- [foot #] 3 The agency has moved to dismiss the count of protest as premature. The record demonstrates that the contracting officer has made the determination the protester contends was not made. As explained relating to the parallel protest, the ground of protest is timely. Dynamic Decisions, Inc. v. Department of Health & Human ----------- FOOTNOTE BEGINS --------- Services, GSBCA 13170-P, et al., 1995 BPD 51 (Feb. 28, 1995). ________ The Board denies this portion of the agency's motion. [foot #] 4 The agency contends that this basis of protest is frivolous and should be summarily denied. As the Board has determined in the parallel protest, this basis of protest is one for which relief can be granted and is not frivolous. Dynamic. The Board denies this portion of the _______ agency's motion. ----------- FOOTNOTE ENDS ----------- related to the scientific workstations, the analysis is identical. Accordingly, the Board grants this count of protest. Count 3: The correct contract value threshold is $3 million; the requirement must be competed In this count, the protester asserts that the correct contract value threshold is $3 million such that the requirement must be competed. The protester relies upon statute, 15 U.S.C. 637(a)(1)(D), and regulation FAR 19.805-1, which require the competition of non-manufacturing contracts within the 8(a) program if the anticipated contract value exceeds $3 million. The protester maintains that because GMR will not be providing its own product and the contract value exceeds the threshold, the requirement must be competed. The HHS moves to dismiss this ground of protest for lack of jurisdiction, because the protest challenges the SIC code assigned by the contracting officer. The protester has failed to establish any violation by the contracting officer in assigning the SIC code to this requirement or in pursuing the procurement under the given SIC code. Although the SBA has suggested than small businesses may not be manufacturing or producing some of the products required to satisfy the requirements, no final determination has been presented which would dictate contrary action by the contracting officer. Accordingly, the Board denies this count of protest. Count 5: Because the PHS conducted a formal technical evaluation, it had to compete this acquisition Count 6: Because the PHS conducted informal assessments of more than several 8(a) firms, it had to compete this acquisition Count 7: Because the PHS conducted informal assessments of more than several 8(a) firms and released the statement of work, it had to compete this acquisition These counts parallel counts 9, 10, and 11 in the protest relating to Sylvest. The analysis above is applicable equally here. Accordingly, the Board grants these grounds of protest. Decision The Board GRANTS IN PART each of the protests, as indicated above. The PHS may not proceed with satisfying its underlying requirements in contravention of the requirements of statute and regulation. Because the PHS has obtained the existing DPA without regard to its true requirements, the existing DPA is revoked. 40 U.S.C. 759(f)(5)(B) (1988). The previously entered suspension of procurement authority lapses by its terms. 40 U.S.C. 759(f)(2) (1988); Order (Feb. 8, 1995). ________________________ JOSEPH A. VERGILIO Board Judge We concur: _________________________ _________________________ EDWIN B. NEILL ALLAN H. GOODMAN Board Judge Board Judge