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Agency Reasonably Wanted Offerors to Propose Future Purchase Price for Leased Property; GAO B-417006, Second Street Holdings LLC

Protest challenging the terms of a request for lease proposals as unduly restrictive of competition and unrelated to the agency’s needs is denied, where the agency had a reasonable rationale for asking offerors to propose two fixed-price, assignable purchase options for the proposed properties. While the protesters found it less desirable to estimate a future purchase price to which they would be bound, this did not render the agency’s rationale unreasonable nor unduly restrict competition.

Second Street Holdings, LLC, 600 Second Street Holdings, LLC, Seven Hundred 2nd Street Holdings, LLC, and their managing agency Property Group Partners collectively protested the terms of a request for lease proposals issued by the General Services Administration’s Public Buildings Service, for the long-term lease of a property or properties to serve as the headquarters for the Securities and Exchange Commission. The protesters argued that the RLP is unreasonable, unduly restrictive of competition, unduly vague, and unfairly prejudicial to them because it requires an offeror to propose two fixed-price, assignable purchase options that the agency may choose to exercise 15 or 25 years in the future, respectively.

SEC currently leases headquarters space in three buildings owned by the protesters. The RFP in contention seeks to lease up to 1,274,000 square feet of office and related space for an initial term of 15 years, with a fixed-price option to renew the lease for 10 additional years for a total of 25 years. Additionally, the RLP required offerors to include two fixed-price, assignable purchase options for the leased property, one of which would be exercisable at the end of the initial 15-year lease term, and one of which would be exercisable at the end of the 10-year renewal term.

The RLP also included a draft lease specifying that any lease for a portion of the facilities to non-government parties should be cancellable as of the dates on which a transfer of ownership would occur, but that the government may negotiate a purchase price adjustment for any non-government leases with termination dates that extend beyond the transfer date.

The RLP provided that the net present value of the purchase options would be included in the evaluated price, and would be computed by taking 50 percent of the offered price, and then discounting that fraction at a 5 percent annual rate. The RLP also provided that if the facility were larger than the space required for the government’s use under the lease, the purchase option would only be included in the evaluated price pro rata based on the American National Standards Institute/Building Owners and Managers Association Office Area square footage occupied by the government.

The protesters did not challenge the inclusion of purchase options in the RLP, but objected to their fixed-price nature and assignability as inconsistent with industry practice and unrelated to a legitimate agency need. The protester argued that the requirement for offerors to propose fixed-price, assignable options that could be exercised 15 or 25 years in the future is inherently unreasonable because an offeror has no reliable way of determining the fair market value of its property in the distant future. The protesters also alleged that the nature of the options is not reasonably related to the government’s articulated need to potentially own the office space it plans to lease. As an alternative, the protesters suggested that a purchase option with a price to be negotiated at the time of exercise would be less burdensome and better aligned with the agency’s needs.

In response, the agency noted that the protesters did not object to the proposed methodology for estimating the fixed-price 10-year lease extension option, which could also be used for estimating a future purchase price. PBS noted that owning property is generally more cost-effective than leasing. Further, the agency concluded there is value in having a fixed-price purchase option so that the agency can plan and budget years in advance if it intends to exercise the option.

PBS also argued that the assignability of the options allows the agency to preserve the benefit of its bargain if circumstances should change. For example, if the leased property is no longer suitable as a headquarters for SEC at the time the option would be exercised, the agency could exchange the option to a third-party for reduced rent at a suitable facility. For these reasons, the agency has previously negotiated similar fixed-price purchase options in similar leases.

As a preliminary matter, GAO disagreed that the RLP compelled offerors to accurately predict the future fair market value of their property. Instead, GAO found that the RLP required offerors to set a price that they would willing to accept for the property 15 or 25 years in the future. GAO did not believe it was impossible for offerors to make such an estimate. The agency correctly noted that the same estimating tools that an offeror will use to compute the fixed-price rental option could be used to compute the purchase option price.

While the protesters identified multiple factors that go into calculating the value of a property, GAO noted those factors would equally apply to the value of the property as a rental. For example, a building’s amenities and access to public transportation also would be considered in computing a fair market value for rent. Accordingly, GAO was not persuaded by the protesters’ objection to the requirement to estimate a future purchase price.

GAO also found the purchase option related to the agency’s needs. The protesters did not object to the agency’s need to potentially own the leased real estate at the end of the lease term, but argued that the fixed-price and assignable nature of the options are not rationally related to that goal. However, the agency identified capital planning and budget constraints that make a fixed-price purchase option clearly more suited to its needs than a negotiable purchase option. If the agency opted not to exercise the options, the ability to assign the options would allow the agency to derive some value from them. Because the requirements were not objectionable and were reasonably related to the agency’s needs, GAO denied these aspects of the protest.

Next, the protesters argued that the fixed-price options are both unduly restrictive of competition and impermissibly vague. According to the protesters, because less burdensome purchase option terms are available, the agency’s selection of a fixed-price, assignable purchase option unduly restricts competition. Additionally, they alleged that the requirement to estimate a purchase price so far in the future introduces significant uncertainty and inappropriate risk, such that offerors are unable to intelligently prepare their proposals and compete on a common basis.

However, GAO disagreed. In this case, the requirement that the agency have the option to purchase a facility in the future restricts competition to offerors who own the proposed buildings or would have the ability to facilitate their purchase. GAO was not convinced that a fixed-price or assignable purchase option is any more restrictive of competition than another variety of purchase option, because an offeror capable of responding to an RLP containing any purchase option could also respond to this RLP.

While the protesters find it less desirable to compete for this lease, that did not make the requirements unduly restrictive of competition. In fact, GAO noted the protesters did submit an offer. The fact the protesters did not like some of the RLP terms was not enough to render them unreasonable. GAO found the protesters’ argument that the requirements were vague similarly unavailing. GAO noted the RLP terms were not open-ended, but merely imposed a readily identifiable risk on offerors. An offeror need not offer any price it could not afford to accept in the future, but would accept the risk that it might not consider the price acceptable in 15 or 25 years.

Finally, the protesters argued they would be unduly prejudiced by the RLP’s terms. Specifically, the protesters argued that the inclusion of the NPV of the purchase options in the agency’s price evaluation for determining which offeror is the LPTA offeror will prejudice owners of higher-value buildings, because buildings that have a higher purchase option price will have a higher evaluated price and therefore be disadvantaged in the competition. Further, they argued that the requirement to ensure that any leases to non-government parties be cancellable as of the dates on which a transfer of ownership would occur unfairly prejudices owners of large buildings with non-governmental tenants, such as the buildings owned by the protesters, because it would significantly impair the ability of such an offeror to retain other tenants.

GAO acknowledged that an LPTA source selection scheme may not work to the benefit of offerors proposing properties with a higher value, but explained that the nature of an LPTA procurement is not inherently unreasonable. Because the inclusion of the fixed-price purchase options was reasonable, GAO found it reasonable for the options to be included in the price evaluation. The fact that another offeror may be able to propose a building that better fits the agency’s needs does not mean that the protesters were unfairly prejudiced.

Finally, GAO noted that while the RLP contemplated that leases to non-government tenants be cancelable, it also contemplated that these leases could run beyond the date on which the purchase option was exercised. Further, GAO found the provision is clearly and reasonably related to the agency’s need to potentially exercise the option, explaining that it is not unreasonable for the agency to require that it be able to take possession of a building it has purchased without having to absorb additional costs related to existing leases.

Second Street Holdings LLC is represented by Seamus Curley and Samantha Rubin of Stroock & Stroock & Lavan LLP. The government is represented by Adetokunbo Falade and Elizabeth H. Johnson, General Services Administration. GAO attorneys Michael Willems and Edward Goldstein participated in the preparation of the decision.

Solicitation Did Not Preclude Agency From Considering Personnel Experience as Satisfying Corporate Experience Requirements; GAO B-417136, Normandeau Associates Inc.

Protest challenging the agency’s evaluation of the awardee’s experience is denied, where the solicitation did not prohibit the agency from considering the experience of individual personnel during the evaluation of corporate experience.

Normandeau Associates Inc. protested the U.S. Army Corps of Engineers’ award of a contract for fish counting and related services to Four Peaks Environmental Science and Data Solutions, arguing that the agency should have found the awardee’s proposal unacceptable under the solicitation’s experience related factors.

Normandeau argued that the agency improperly considered the experience of Four Peaks’ personnel under the technical and management experience factors, because the solicitation stated the agency would evaluate the experience of the offeror. According to Normandeau, the RFP’s use of the phrase “Offeror’s experience” limited the agency to consideration of Four Peaks’ direct organizational experience without regard to the experience of its personnel.

During the evaluation, the agency found that Four Peaks did not identify direct organizational experience performing adult fish counting. However, some of Four Peaks’ proposed key staff had adult fish counting experience as well as experience with 24-hour operations of activities similar to fish counting (smolt monitoring). Under the management experience factor, the agency found that Four Peaks’ proposed key staff had experience managing personnel levels and training personnel in fish identification and counting methods. Overall, the agency concluded that Four Peaks met the minimum requirements.

GAO rejected the protester’s contention that the agency was not allowed to consider the experience of Four Peaks’ personnel. The solicitation generally provided that the agency would consider the offeror’s experience, but did not include any further limitation regarding the consideration of an offeror’s personnel, or a provision establishing that the agency would separately consider the experience of personnel or subcontractors. The general reference to the offeror afforded the agency the discretion to consider the experience of an offeror’s personnel or subcontractors, in addition to the experience of the offeror as an organization.

Normandeau Associates Inc. is represented by Kenneth A. Martin of The Martin Law Firm, PLLC. Four Peaks Environmental Science and Data Solutions is represented by Brent Finley of Finley Legal, PLLC. The government is represented by Theresa Hampson and Zachary Jacobson, Department of the Army. GAO attorneys Heather Self and Edward Goldstein participated in the preparation of the decision.

Solicitation Prohibited Proposing Certain Positions As Subcontract Costs; GAO B-416985, Summit Construction & Environmental Services

Protest challenging the agency’s rejection of a proposal as nonresponsive is denied, where the solicitation clearly advised offerors that they must provide certain mandatory positions as well as fully burdened labor rates for those positions, and the protester did not do so. While the protester argued the missing position was included as a subcontract cost, the solicitation prohibited offerors from proposing any of the mandatory positions as subcontractors, because the contract was subject to a collective bargaining agreement.

Summit Construction & Environmental Services protested the General Services Administration’s award of a contract for building operations, maintenance, and janitorial services to DelSur SDAV Joint Venture LLC, challenging various aspects of the procurement process, including the agency’s determination that Summit’s proposal failed to comply with material solicitation requirements.

When evaluating Summit’s proposal, the agency concluded that the price proposal did not comply with certain solicitation requirements. The agency found that Summit’s manning tables omitted any reference to the mandatory position of maintenance electrician and, accordingly, Summit’s proposal contained no labor rate or burden cost information for that position. The proposal also omitted recycling removal costs.

Despite this missing information, the agency performed a price realism assessment of the costs of the omitted items, in order to determine the potential impact of those omissions on Summit’s performance. Based on its review, the agency concluded that the additional costs Summit would be required to incur in performing the omitted items would render its proposed price unrealistically low, resulting in a high probability that the contract would fail. Accordingly, the agency found the proposal unacceptable.

Summit made several arguments, including that its proposal properly included the cost of a maintenance technician under a line item for subcontracted costs. The protester also argued that while the position was required, there was no indication in the solicitation that it needed to be separately priced.

In response, the agency explained that the solicitation did not allow offerors to subcontract for the mandatory staffing requirements. Further, even if the solicitation permitted an offeror to provide a subcontractor’s full-time employee to perform the maintenance electrician requirement, Summit’s proposal failed to include the labor rate and labor burden costs for that position. Because the solicitation specifically advised offerors to submit labor rate and labor burden cost information and cautioned that failing to do so would render a proposal nonresponsive, the agency argued that its rejection of the proposal was reasonable.

GAO agreed, finding the solicitation clearly required this information, because the contact was subject to a collective bargaining agreement. Because Summit’s proposal did not include this information, GAO denied the protest.

Summit Construction & Environmental Services is represented by David A. Edelstein and Allison Geewax of Asmar, Schor & McKenna, PLLC. The government is represented by Benjamin D. Lorber, General Services Administration. GAO attorneys Glenn G. Wolcott and Christina Sklarew participated in the preparation of the decision.

GSA Not Required to Weigh In on Contract Dispute Involving FSS Task Order, When Underlying Contract Terms and Conditions Not in Contention; CBCA 5866, immixTechnology Inc. on behalf of Software AG Governments Solutions Inc. v. Department of the Interior

Government’s motion to dismiss an appeal for lack of jurisdiction is denied, where the dispute involved a task order issued under the appellant’s Federal Supply Schedule contract but not the terms and conditions of the FSS contract itself, and therefore GSA was not required to issue the final decision. The board also held that the Copyright Act’s Preemption Provision did not deprive it of jurisdiction to hear the appeal, which involved a claim the agency breached the terms of its contract by exceeding the number of software licenses it acquired.

immixTechnology Inc. appealed the Department of Interior’s denial of its claim that the Small Business Administration breached various software licensing terms in a task order issued by DOI under a General Services Administration Federal Supply Schedule contract. The agency moved to dismiss, arguing that immix’s complaint is a copyright infringement claim that is not subject to the board’s jurisdiction, and that the DOI CO was not authorized to issue a decision in a dispute involving the terms of an FSS contract.

DOI issued immix a task order for software licenses and support services, on behalf of the Small Business Administration. Shortly thereafter, SBA began planning an infrastructure update. As part of this effort, SBA engaged in discussions with immix’s software vendor, Software AG Government Solutions, to determine what software and maintenance SBA would need for the hardware refresh. These discussions led to Software AG submitting to SBA a budgetary cost proposal, which identified and priced those items.

The DOI CO explained these items were obtained via a modification to immix’s existing order, which incorporated a quote from immix. According to the CO, while immix’s quote contained the same items, it made no reference to Software AG’s budgetary cost proposal, specific processor core types or operating systems. The CO further stated that the items in the Immix quote were expressly identified as being licensed on a ‘CPU’ [central processing unit] basis.

Immix contested this interpretation of the modification. According to immix, SBA representatives admitted to exceeding the software licenses contained in this modification. When negotiations between the parties to resolve the matter failed, immix submitted its certified claim alleging that SBA exceeded the number of software licenses purchased and used the software on unlicensed servers, on an unlicensed operating system, and in unlicensed system environments. When the DOI CO denied the claim, immix appealed. 4

The agency moved to dismiss, arguing that CBCA lacked jurisdiction over the claim, which amounted to a copyright infringement dispute. DOI also argued the CO should have referred the matter to GSA for a final decision.

First, the board rejected the agency’s assertion that it lacked jurisdiction to hear the case. The board found nothing in the Copyright Act’s Preemption Provision to support this argument. The board held the Copyright Act does not preempt other federal rights-conferring statutes such as the Contract Disputes Act, which creates a statutory right for contractors to appeal the final decisions of contracting officers. Further, the Copyright Act could not preempt the CDA because Congress’ power to “preempt” a law is based on the Supremacy Clause of Article VI of the United States Constitution, and one federal statute does not preempt another.

Next, the board considered DOI’s assertion that the claim should have been reviewed by GSA for a final decision, because the dispute involved an FSS contract. Specifically, DOI asserted that the dispute pertained to the terms and conditions of the schedule contract, and therefore the CO was obligated to comply with GSA’s referral requirements. Under the provision cited by DOI, all disputes requiring interpretation of the schedule contract go to the schedule CO, even if those disputes also require interpretation of the order, or involve issues of performance under the order. Accordingly, the board would require a final decision of the cognizant GSA CO to maintain jurisdiction.

However, CBCA disagreed with the agency’s characterization of the dispute as involving interpretation of the underlying schedule contract. Further, once the agency made this assertion, immix submitted its claim to GSA for its decision. The GSA CO denied the claim, explaining that the items in dispute relate to DOI’s delivery order, not immixTechnology’s Schedule 70 contract.

CBCA held that the terms of the modification would guide the resolution of the appeal. The board found that the schedule contract is silent regarding the following issues at the core of the dispute: (1) the number of licenses granted to the ordering agency, (2) the environments in which the licenses allowed the software to be run, (3) the processor types covered by the licenses, and (4) the operating systems covered by the licenses. In contrast, the modification indicated the number of software licenses, the licensed environments, and restrictions on processor types. Accordingly, the board concluded that the license-conferring document was the modification.

A central issue in the dispute is whether the licenses granted to DOI/SBA are on a per-CPU or per-processor core basis. The modification defines CPU, processor core, and operating system, and how the software was licensed for deployment on certain operating systems. The schedule contract terms did not address whether the software was licensed for installation on a CPU or core processor basis.

The agency argued that immix’s references to provisions of the schedule contract in its claim were sufficient to require a final decision from GSA, but the board disagreed. The fact that immix included a provision from its schedule contract in its claim did not raise a jurisdictional issue, since the ordering agency can apply undisputed provisions of the schedule contract without referring the dispute to GSA. The board noted that the schedule contract is not irrelevant to the dispute, but explained that the actual terms of the schedule contract were not themselves in dispute.

immixTechnology Inc. is represented by Tenley A. Carp, Sara M. Lord, and Samuel M. Shapiro of Arnall Golden Gregory, LLP. The government is represented by Murphy H. Peterson, Jr., Office of the Solicitor, Department of the Interior; and Sam Q. Le, Office of General Counsel, Small Business Administration.

Agency Unreasonably Assessed Weakness to Protester’s Proposal Based on its Compliance with Technical Document Supplied in Solicitation; GAO B-416980, Bristol Environmental Remediation Services LLC

Protest challenging the agency’s evaluation of the protester’s proposal is sustained, where the agency eliminated the protester’s proposal from consideration for award based on concerns about its technical approach while ignoring similar evaluator concerns about one of the awardee’s proposals. GAO also found the agency unreasonably assessed a weakness to the protester’s proposal based on its compliance with a technical document provided by the agency. GAO found that either the weakness itself was unreasonable, based on the solicitation requirement that offerors comply with the technical document, or that the agency’s discussions were not meaningful, because the agency did not inform the protester that its compliance with the document had created concerns about its technical approach.

Bristol Environmental Remediation Services Inc. protested the U.S. Army Corps of Engineers’ rejection of its proposal for environmental remediation and munitions response services.

Bristol challenged each of the weaknesses assessed to its proposal and argued that its proposal warranted an acceptable rating under the sample project technical approach factor.

As an initial matter, GAO noted that the five weaknesses that formed the basis for the marginal rating were not significant weaknesses or deficiencies. Rather, it was the consideration of all five weaknesses in combination that apparently led the agency to assign the marginal rating.

During the protest, the agency conceded that three of the weaknesses were improperly assigned. GAO then addressed the remaining two weaknesses.

The sample project required the offeror to provide a comprehensive plan to respond to a trench that contained potentially unexploded ordnance; to excavate the trench and remove the UXO; and to remediate the trench and a surrounding 60-acre area. Offerors were required to describe how they would render the site acceptable for unlimited use and unrestricted exposure. As part of the remediation effort, the contractor would have to perform soil sampling and to identify a “unit of decision” (U/D). A U/D is a specific “lot” size (for example, one acre), and the offerors were required to identify the U/D size, and then explain how sampling would be performed within each U/D.

The agency assessed its first weakness after concluding that Bristol’s proposed U/D size of from one to two acres was too large to accomplish sampling in a manner that would render the site acceptable for UU/UE under applicable law. Bristol argued that this conclusion was unreasonable, and reflected disparate treatment in comparison to the evaluation of one of the awardees’ proposals.

GAO did not review the scientific basis for the agency’s conclusion, but agreed the evaluated reflected disparate treatment. The agency identified a similar weakness in an awardee’s proposal based on the adequacy of its response to the sampling requirement. While this resulted in the lowering of its rating from acceptable to marginal for this factor, the source selection authority changed the rating back to acceptable. While both offerors were criticized by the evaluators for the adequacy of their sampling protocols, the agency made award to one firm while eliminating Bristol from consideration for award. GAO found this amounted to disparate treatment.

The second weakness related to how Bristol proposed to excavate the munitions trench and remove possible UXO. Bristol proposed to have UXO technicians enter the trench with an array of hand-held tools for munitions and metal detection and survey a discrete area of the trench to determine the existence of “anomalies” in order to detect the presence of possible munitions to a depth of 12 inches. Once it was determined that there were no anomalies present to a depth of 12 inches, the trench would be excavated using earth moving machinery by removing soil to a depth of six inches. During this process, all UXO technicians would exit the trench, and one remaining UXO technician would be present near the trench as a “spotter” to observe. Once the 6-inch lift was accomplished, the UXO technicians would return to the trench to again perform a survey of the work area to a depth of 12 inches to ensure it was clear of any anomalies. Another 6-inch lift would be performed, and so on, until all anomalies were detected and removed, or until the trench was excavated to the specified depth.

In the event an anomaly was detected, the trench would be excavated using hand tools rather than the EMM to ensure that no anomaly would be inadvertently struck. Bristol proposed to excavate entirely by hand whenever an anomaly was discovered within 12 inches of the surface, and to remove any uncovered munitions by hand.

During the evaluation, the agency expressed concern about this approach. The evaluators noted that some of the possible buried munitions could include a bomb described as a type of munitions with the greatest fragmentation distance. The agency evaluators were concerned that, should such a bomb be struck during excavation, the armoring on the EMM would be inadequate to protect its operator, and personnel in or around the trench (more specifically, the UXO technician spotter) could be injured or killed. The agency evaluators therefore expressly concluded that robotic excavation equipment would be the appropriate solution.

During discussions, the agency asked Bristol how its personnel would be protected from an accidental detonation of this type of bomb. Bristol responded to the question by largely reiterating the methodology described above. The agency continued to assess the weakness based on Bristol’s failure to propose robotic equipment instead of human technicians to perform the excavation.

In its protest, Bristol argued that its methodology was consistent with the engineering guidance included in the RFP and therefore this approach could not be considered a weakness. Alternatively, Bristol argued the agency failed to provide meaningful discussions, since apparently only a robotic equipment solution would have been acceptable to the evaluators and such an approach was at variance with the guidance included in the RFP.

GAO agreed that Bristol’s proposed approach appears consistent with the guidance included in the RFP. The solicitation specifically incorporates, and requires compliance with, an agency-issued publication entitled “Explosives Safety and Health Requirements,” which describes the procedure for intentionally removing buried munitions using an armored EMM, and limiting the use of the EMM to circumstances where any identified anomaly is at least 12 inches below the area being excavated, after which excavation is to be performed by hand.

Accordingly, GAO found that Bristol’s proposal complied with the express terms of the RFP, and that either the weakness was unreasonable or the agency’s discussions were not meaningful. Based on that determination, GAO again sustained the protest.

Bristol Environmental Remediation Services LLC is represented by S. Lane Tucker of Stoel Rives LLP. The government is represented by Stacy K. Birkel, Department of the Army. GAO attorneys Scott H. Riback and Tania Calhoun participated in the preparation of the decision.

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