BNUMBER: B-276704
DATE: July 18, 1997
TITLE: Orincon Corporation, B-276704, July 18, 1997
**********************************************************************
Matter of:Orincon Corporation
File: B-276704
Date:July 18, 1997
Nancy O. Dix, Esq., Gray Cary Ware & Freidenrich, for the protester.
James H. Haag, Esq., Department of the Navy, for the agency.
David R. Kohler, Esq., and Susan L. Sundberg, Esq., Small Business
Administration.
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Where a proposal is unacceptable as submitted for failing to comply
with the small business set-aside solicitation's subcontracting
limitation, and would require major revisions to become acceptable,
the proposal may properly be excluded from the competitive range and
the contracting agency is under no obligation to conduct discussions
with the offeror.
DECISION
Orincon Corporation protests the actions of the Department of the
Navy, Space and Naval Warfare Systems Command in eliminating Orincon
from the competition for the small business set-aside contract to be
awarded under request for proposals (RFP) No. N00039-96-R-0086(Q), for
technology, analytical, engineering, program management, and
administrative services in support of agency command, control,
communications, computers, and intelligence programs.
We deny the protest.
The RFP, issued on June 10, 1996, contemplated the award of a
cost-plus-fixed-fee level-of-effort contract for a base year with 3
option years to the responsible offeror offering the best overall
value to the government, technical and management approach and price
considered. In the procurement information section of the RFP cover
sheet, the Navy checked the boxes indicating that the procurement is
100 percent set aside for small business.
As issued, however, the RFP omitted the clause found at Federal
Acquisition Regulation (FAR) sec. 52.219-6, Notice of Total Small
Business Set-Aside, which is required by FAR sec. 19.508(c) to be
inserted in solicitations for total small business set-asides. This
clause, among other things, provides that "[o]ffers are solicited only
from small business concerns" and that "[a]ny award resulting from
this solicitation will be made to a small business concern." The RFP,
as issued, also omitted the clause found at FAR sec. 52.219-14,
Limitations on Subcontracting, which FAR sec. 19.508(e) requires to be
inserted in the solicitation for a small business set-aside, and which
reads, in relevant part, as follows:
(b) By submission of an offer and execution of a contract, the
Offeror/Contractor agrees that in performance of the contract in
the case of a contract for--
(1) Services (except construction). At least 50 percent of
the cost of contract performance incurred for personnel shall
be expended for employees of the concern.[1]
The RFP informed offerors that the government intended to evaluate
proposals and award a contract without discussions, but reserved the
right to conduct discussions if necessary with offerors determined to
be in the competitive range.
The Navy received proposals, including Orincon's, by August 7.
Orincon, which certified itself to be a small business concern,
proposed to team with two subcontractors, also small businesses, to
perform 70 percent of the work under the contract. During the course
of evaluating Orincon's proposal, the contracting officer discovered
that Orincon's proposal indicated that it would not itself incur at
least 50 percent of the personnel costs of performance with its own
employees. Thereupon, the contracting officer reviewed the
solicitation and realized that the required Notice of Small Business
Set-aside and Limitations on Subcontracting clauses had been
inadvertently omitted from the RFP.
On February 4, 1997, the Navy issued amendment 0005 to Orincon and the
other offerors to incorporate those two clauses into the solicitation.
The amendment informed offerors that any proposal updates directly
caused "by this action" were to be received by the Navy by February
18, and that no other proposal updates would be considered. According
to the Navy, Orincon was the only offeror which needed to take
advantage of the opportunity to revise its proposal in response to
amendment 0005.
Orincon, however, did not revise its proposal. The contracting
officer then determined that Orincon was "nonresponsible" for
proposing to subcontract out more than 50 percent of the work under
the contract, and, on February 26, referred his nonresponsibility
determination to the Small Business Administration (SBA) pursuant to
Certificate of Competency (COC) procedures.[2] SBA contacted Orincon
to advise it that the contracting officer had determined Orincon to be
nonresponsible and to provide Orincon with an opportunity to appeal
the contracting officer's determination by applying for a COC.
In a letter dated March 10 to the contracting officer, Orincon
complained that the belated addition of the Limitations on
Subcontracting clause by amendment 0005
had the effect of leaving offerors such as Orincon with no
opportunity to adequately restructure its entire proposal to
respond to this clause, and potentially makes Orincon's proposal
nonresponsive, despite the fact that it clearly exceeds the
intent of the requirement with 70 percent of the work being
performed by small businesses.
Orincon also requested "a waiver from the express requirement of FAR sec.
52.219-14, that the offeror must itself perform 50 percent of the
work."
The contracting officer denied Orincon's request for a waiver from the
limitation on subcontracting in a letter dated March 18, explaining
that, although the omission of the limitation on subcontracting clause
from the original solicitation was an administrative oversight, he had
no authority to waive this statutory requirement, and that "[t]he law
requires that any proposal not meeting the requirement be deemed
nonresponsible."
SBA declined to issue Orincon a COC, explaining in correspondence
dated March 31 that it could not reverse the contracting officer's
determination of nonresponsibility, because Orincon's proposal did not
comply with the requirement of the solicitation's Limitations on
Subcontracting clause that a concern must perform at least 50 percent
of the cost of the contract incurred for personnel with its own
employees.
The Navy then rejected Orincon's proposal. This protest followed.
The Navy states that it has neither made a competitive range
determination nor conducted discussions with any of the offerors, and
has not yet decided whether it will award the contract without
discussions, as permitted by the solicitation.
Orincon argues that its proposal was in fact acceptable and that it
did not need to take any action in response to amendment 0005 because
under the terms of the Limitations on Subcontracting clause itself,
Orincon, by submitting an offer, agreed that in performing the
contract at least 50 percent of the cost of contract performance
incurred for personnel would be expended for its own employees.
As a general matter, an agency's judgment as to whether a small
business offeror will comply with the subcontracting limitation is a
matter of responsibility, and the contractor's actual compliance with
the provision is a matter of contract administration. Ann Riley &
Assocs., Ltd., B-271741.2, Aug. 7, 1996, 97-1 CPD para. 120 at 3; Global
Assocs. Ltd., B-271693; B-271693.2, Aug. 2, 1996, 96-2 CPD para. 100 at 5.
However, where a proposal, on its face, should lead an agency to the
conclusion that an offeror could not and would not comply with the
subcontracting limitation, we have considered this to be a matter of
the proposal's technical acceptability; a proposal that fails to
conform to a material term and condition of the solicitation such as
the subcontracting limitation is unacceptable and may not form the
basis for an award. National Medical Staffing, Inc.; PRS Consultants,
Inc., 69 Comp. Gen. 500, 502 (1990), 90-1 CPD para. 530 at 3-4; Ann Riley
& Assocs., Ltd., supra.
Here, it is undisputed that Orincon's proposal on its face showed that
Orincon would not incur at least 50 percent of the personnel costs of
performance with its own employees. Indeed, the protester itself
admits that "the percentage of work required by the Limitations on
Subcontracting clause was not met by Orincon's proposed
performance."[3] Thus, Orincon's proposal did not offer to comply
with the Limitations on Subcontracting clause incorporated into the
amended RFP. Since Orincon's proposal took exception to the RFP's
mandatory subcontracting limitation, which could not be waived,
Orincon's proposal was unacceptable as submitted. See National
Medical Staffing, Inc.; PRS Consultants, Inc., supra, at 4.
Orincon nevertheless contends that, given the Navy's belated addition
of the Limitations on Subcontracting clause to the RFP after Orincon
had already submitted its proposal, the Navy had an obligation to
conduct discussions so as to provide Orincon an opportunity to revise
its proposal, rather than simply determining that Orincon was
nonresponsible and referring the matter to SBA for a COC.
We agree with the protester that where discussions are contemplated or
conducted, an offeror's compliance with the subcontracting limitation
is an appropriate topic for discussions so as to allow the offeror to
modify or clarify its proposal in this regard. See, e.g., Ann Riley &
Assocs., Ltd., supra, at 5-6; Global Assocs. Ltd., supra at 4-6;
Diversified Computer Consultants, supra, at 7. However, where a
proposal is technically unacceptable as submitted and would require
major revisions to become acceptable, the agency is not required to
include the proposal in the competitive range.[4] Laboratory Sys.
Servs., Inc., B-256323, June 10, 1994, 94-1 CPD para. 359 at 2; Yankee
Mach., Inc., B-249183, Oct. 29, 1992, 92-2 CPD para. 294 at 3.
As described above, Orincon itself admits that its proposal could not
conform to the subcontracting limitation without major revisions.
According to Orincon, this was the reason that it elected not to
modify its proposal when it was provided the opportunity to do so by
amendment 0005. Thus, because Orincon's proposal was unacceptable as
submitted and would require major revision to become acceptable, the
proposal could properly be excluded from any competitive range that
may be established and the Navy would be under no obligation to
conduct discussions with Orincon regarding its proposal's
noncompliance with the RFP's mandatory subcontracting limitation.[5]
The protest is denied.
Comptroller General
of the United States
1. This provision implements 15 U.S.C. sec. 644(o)(1) (1994), which is
designed to prevent small business concerns from subcontracting to
large businesses the bulk of a contract set aside for small
businesses. Diversified Computer Consultants, B-230313; B-230313.2,
July 5, 1988, 88-2 CPD para. 5 at 6.
2. FAR sec. 19.602-1 requires a contracting officer to refer a
nonresponsibility determination involving a small business to SBA.
SBA now considers compliance with the limitations on subcontracting an
element of responsibility and applies its COC procedures, where, as
here, a contracting officer determines noncompliance, the procurement
is a full or partial small business set-aside, and the contracting
officer refers the matter to SBA for a COC. 13 C.F.R. sec. 125.6(c), (f)
(1997). SBA previously considered compliance with the limitations on
subcontracting to be a component of size eligibility. See CSR, Inc.,
B-260955, Aug. 7, 1995, 95-2 CPD para. 59 at 4.
3. Orincon argues that because it and two other small business
contractors would perform 70 percent of the contract that it complied
with the "intent" of the limitation of subcontracting clause, which is
designed to prevent a small business awarded a set-aside contract from
subcontracting the bulk of the work to a large business. However, the
plain language of both the statutory and regulatory limitations on
subcontracting require that the offeror itself, not merely small
businesses, incur at least 50 percent of the personnel costs of
contract performance. 15 U.S.C. sec. 644(o)(1); FAR sec. 52.219-14.
4. FAR sec. 15.609(a) defines the competitive range as including all
proposals that have "a reasonable chance" of being selected for award,
that is, those proposals which are technically acceptable as submitted
or which are reasonably susceptible of being made acceptable through
discussions. DBA Sys., Inc., B-241048, Jan. 15, 1991, 91-1 CPD para. 36
at 5.
5. We note that SBA states that its regulations "assume that ultimate
responsibility is determined after discussions have been completed
with offerors in the competitive range and an apparent successful
offeror has been selected." See 13 C.F.R. sec. 125.5(c)(1) (requires
referral to SBA of a contracting officer's determination that "an
apparently successful offeror" that has certified itself to be a small
business lacks any element of responsibility). However, SBA also
states that it will consider a referral of a small business concern
that is not the apparent successful offeror where the concern's offer
will not receive further consideration because the contracting officer
has determined the concern to be nonresponsible. Here, even if
Orincon believes that the Navy referred the matter of Orincon's
responsibility to SBA prematurely, Orincon (which, we note,
participated in the COC process without objection) was not prejudiced
by the agency's or the SBA's actions, because its proposal could
properly be eliminated from the competitive range unless SBA issued a
COC.
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