BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION

A. Procedural History.

The Department of Community and Economic Development [DCED] issued a request for proposals [RFP] to manage the Made in Alaska [MIA] program. Make It Alaskan, Inc. [MIAI] and five other respondents submitted proposals. DCED issued a Notice of Intent to award the contract to Webb's Consulting & Management, Inc. [Webb]. MIAI filed a protest. DCED's procurement officer denied the protest and MIAI filed an appeal to the commissioner.

The commissioner denied the appeal and MIAI requested reconsideration. The commissioner granted an evidentiary hearing, and on the same day MIAI filed an appeal in the superior court. In response to the superior court appeal, the commissioner revoked his decision to grant an evidentiary hearing. MIAI filed a motion in the superior court requesting a remand to the agency. The court remanded the case to the commissioner. The commissioner assigned the case to the department's hearing officer to conduct an evidentiary hearing on remand.

MIAI appeared at the hearing and was represented by its attorney, Dan Sullivan; Marjorie Vandor, Assistant Attorney General, appeared on behalf of DCED. Steven Rouse (president of MIAI) testified on behalf of MIAI; Tom Lawson, (director of DCED's Division of Administrative Services), Philiciann Bennett (DCED procurement officer), and DCED Commissioner Deborah Sedwick testified on behalf of DCED.

The hearing was limited to two issues: (1) whether the language of the RFP concerning price was confusing; and (2) whether the RFP adequately described the relative weight to be afforded each important evaluation factor. Although other issues were raised in the initial protest or in the appeal, only these two issues were raised in the request for reconsideration and at the hearing on remand from the superior court. [1]

This proposed decision is based on the record in the case, which consists of the tape recorded hearing, the documents submitted to the Department of Administration in the appeal process, exhibits 1-10 (submitted by MIAI prior to the hearing), and A-C (submitted by MIAI at the hearing), and copies of all proposals (submitted by DCED at the request of the hearing officer after the hearing).

B. Applicable Legal Principles.

1. Standard of Review.

DCED argues [Prehearing Brief at 2-3] that the commissioner should uphold the decision of the procurement officer unless it was an abuse of discretion, or the agency acted in an arbitrary and capricious manner.

The cases cited by DCED address the standard of review used by the courts to review administrative decisions generally, or procurement appeals in particular. But the commissioner's role is not comparable to the role of a court on appeal of a final administrative decision. The commissioner's role is to make the final administrative decision: it is the final administrative decision, not the initial decision by a subordinate administrative official, that is entitled to deference in the courts.

Furthermore, the authority to determine facts is inherent in the authority to conduct an adjudicative hearing and render a decision based on the record developed at the hearing. Thus, in deciding a procurement appeal following a hearing the commissioner necessarily acts as the fact finder. Accordingly, the commissioner owes no deference to the factual findings of the procurement officer. In addition, as the official with statutory authority to promulgate the department's regulations, and as the chief executive officer of the Department of Administration, the commissioner has authority to interpret and apply the Procurement Code and the department's regulations in a protest appeal, subject to judicial review. See, In re Service Oil & Gas and Delta Fuel Company, at 6-7 (Dept. of Administration Nos. 98-02/03). Finally, the commissioner has statutory authority to render the final administrative decision on a protest appeal and to take "appropriate action" based on that decision. AS 36.30.575(b); AS 36.30.680. For all these reasons, I conclude that the commissioner may render a decision in a protest appeal that he deems appropriate under all the circumstances, consistent with the law and the facts as he finds them, and within the bounds of administrative discretion.

Under AS 36.30.210(c):

Only the "evaluation factors set out in the request for proposals", and no other "criteria", may be used in the evaluation. AS 36.30.250.

MIAI argues that under State, Department of Education v. Nickerson, 711 P.2d 1165 (Alaska 1985), all important evaluation factors must be listed. But Nickerson did not arise under the Procurement Code. The statute applicable in that case, contrary to the regulation applicable in this case,[2] required "assigning point values to factors considered by the agency",[3] and the RFP at issue had made no provision at all for consideration of one important element of the proposals. The case is thus distinguishable.

DCED asserts that this case is more like Fairbanks North Star Borough School District v. Bowers Office Products, 851 P.2d 56 (Alaska 1993). However, in that case, too, the Procurement Code did not apply, and the purchasing agency was "under no legal duty to publish in a request for proposals the relative weights which will be applied to the evaluation factors contained in the request for proposals." Id., at 57. But it is precisely that requirement, expressly set forth in AS 36.30.210(b) and AS 36.30.250(a), that is at issue in this case: did the RFP "describe" and "set out" the relative importance of each evaluation factor? Fairbanks is therefore also distinguishable. [4]

MIAI's argument echoes language used in 41 U.S.C. §253a(c)(1)(A). That statute requires that a federal RFP must "include a statement of the relative importance assigned to the evaluation factors and subfactors" (emphasis added). In effect, MIAI asserts that under AS 36.30.210(b) each evaluation factor, whether labeled an "important factor" (the Nickerson terminology) or a "significant subfactor" (the federal terminology), must be separately included in a list of evaluation factors and its relative importance specified.

Specifically, MIAI argues that "the statutes and regulations expressly state that only 'evaluation factors' expressly listed as such in the RFP can be considered". [Brief at 8] But in fact state law does not expressly require a list: it expressly requires only that an RFP "provide a description of the factors that will be considered" (AS 36.30.210(b)) and that the evaluation factors be "set out" (AS 36.30.250(a)) in the RFP. The precise manner in which the factors are "described" and "set out" in an RFP is a matter of administrative discretion. While it would be within the commissioner's discretion to interpret AS 36.30.210(b) and AS 36.30.250(a) as requiring a list including each important evaluation factor and its relative weight, other interpretations are also reasonable. Interpreting these statutes would be an exercise of specialized administrative policy making that should be carried out following discussions with staff and if necessary by administrative regulation, rather than by administrative adjudication. I conclude that in the absence of a controlling administrative regulation, the failure to include each important evaluation factor and its relative importance in a list of evaluation factors is not per se a violation of state law.

A. Price Terms.

The original RFP twice stated that "The maximum amount of compensation to the contractor for the initial term of the contract shall not exceed $75,000". [RFP at 10, 12] But DCED asserts [Protest Report at 2] that there was no fixed cap on the amount of compensation to the contractor. The original RFP was thus clearly misleading. [5] DCED attempted to clarify this aspect of the RFP by issuing Addendum No. 2, which amended the RFP to state:

On appeal, MIAI argued that notwithstanding this addendum, the RFP remained confusing as to the maximum amount of compensation that was allowed during the first year. The commissioner's initial decision concluded that the amended RFP states with reasonable clarity that the $75,000 figure for contractor compensation during the initial one-year term of the contract was an estimate, not a fixed cap. In requesting reconsideration MIAI argued that some of the respondents did not understand that the $75,000 figure was an estimate rather than a fixed cap, and pointed out that three of the six proposals were at or under that amount.

In determining whether the terms of an RFP are reasonably clear, the primary consideration is the language itself. In this case, Addendum No. 2 states that the "maximum amount of compensation is estimated not to exceed $75,000" in the first year of the contract, "based on an estimated $25,000 in revenue per year. If more revenue is generated and based on the amount of revenue generated, the contract amount would increase accordingly." This language is not opaque. It is not, however, entirely free of ambiguity: a "maximum" is, by definition, a limit, but there was no fixed limit.

In assessing whether the amended RFP was sufficiently clear, the precise language used in Addendum No. 2 is not the only relevant consideration. In the final analysis, even though a careful reading of an RFP is required, clarity of language must be measured at least in part by its success in communicating the intended information: language is not "reasonably clear" when it fails that fundamental test.

In this case, it appears that three of the offerors understood that the $75,000 figure was not a fixed cap. The MIAI proposal was in excess of $75,000 and expressly addressed this issue. [MIAI Proposal at 30] Similarly, the proposals of Webb and Alaska International Adventures [AIA] were in excess of $75,000 and appear to reflect an understanding that compensation to the contractor could exceed $75,000 in the initial term.

But the evidence as a whole suggests that the three remaining offerors, all of whom submitted proposals at or under $75,000, were under the mistaken impression that $75,000 was a fixed cap, rather than an estimate. One firm, Gotcha Consulting, submitted a letter at the request of MIAI, stating that it had read the RFP as imposing a fixed cap of $75,000 in the first year. [Exhibit A] The proposal of a second firm, Alaska Business Development Center [ABDC], suggests that it had the same misunderstanding,[6] as does the third proposal, by Jessica Bury [Bury]. [7]

The RFP did not define "price",[8] and DCED received information throughout the procurement process indicating that all of the offerors had difficulty in correctly determining the price that was allowed or in calculating the price of their own proposals. [9] In light of all of the evidence, I find that the price terms of the RFP were insufficiently clear.

B. Evaluation Factors.

The RFP included a section entitled "Review of Proposals". Under the heading "Evaluation Process", this section stated "The evaluation will be based on the evaluation factors and values stated in this RFP. Evaluation factors not specified in this RFP may not be considered." [RFP p.13] Immediately following, under the heading "Evaluation Factors", is a list of evaluation factors, including "Management Plan and Methodology", worth 50 of the total of 100 points in the evaluation process.

With respect to "Management Plan and Methodology", proposers were told, in another section of the RFP [RFP p.11]:

The section of the RFP headed "Scope of Work Pertinent to the Proposed Contract", under the heading "Promotional Responsibilities" [RFP p.9] states:

These three sections of the RFP, read together, clearly advised respondents that one element that would be considered in the evaluation process was the manner in which proposals addressed promotional activities, with the goal of increasing participation in the program: (1) the "Evaluation" section specifies that one factor in the evaluation is the "Management Plan and Methodology"; (2) offerors were expressly directed to address, in their discussion of that factor, all elements of the scope of work; and (3) the "Scope of Work" section expressly advised offerors of their promotional responsibilities and of the goal of increasing the number of participants. Offerors' plans for promoting and growing the program ("marketing") were thus clearly within the scope of the "Management Plan and Methodology" evaluation factor. Even under federal law, which expressly requires that an RFP include a statement of significant subfactors and their relative importance, an agency may take into account specific, albeit not expressly listed, matters that are logically encompassed by the stated evaluation criteria. See, e.g., Novavax, Inc., No. B-286-167, B-286167.2 (Comp. Gen., December 4, 2000). I conclude that in this case, the RFP adequately "described" and "set out" marketing as an evaluation factor, and that the evaluators could include that element in their evaluations.

MIAI also argues that the RFP did not adequately "describe" or "set out" the relative importance of marketing, as required by AS 36.30.210(b), AS 36.30.250(a), and 2 AAC 12.260(b). Federal cases provide useful guidance on this issue. Despite the differences between federal and state law, the substance of the inquiry in both jurisdictions is fundamentally the same: did the RFP provide sufficient information so that an offeror would "know in advance what they have to do to satisfy the raters and how they are going to be graded." [10] As stated in Lloyd H. Kessler, Inc., B-284693 (Comp. Gen., May 24, 2000):

Id. [citations omitted; emphasis added]

As Kessler indicates, the primary consideration in determining whether the relative importance of a particular factor has been adequately described or set out in an RFP is whether the weight afforded by the evaluators was within the reasonable expectations of an offeror, based on the contents of the RFP as a whole.

The RFP advised the offerors that "The primary objective of the [new] contract is to provide existing and potential permit holders with the services they need to fully benefit from the MIA program" and charged offerors with "promoting and encouraging the purchase of MIA certified products". [RFP p.7] In a more specific discussion of the contractor's responsibilities, the RFP stated that the intent of promotional activities is "to increase the public's awareness of the MIA program and increase the number of MIA certified products [emphasis added]." [RFP at 9] Twice, the RFP mentioned "creativity" as an element to be considered in connection with promotional activities. [RFP at 9,11]

These provisions in the RFP clearly indicated that marketing, with the intent of growing the program, was an important factor in the evaluation. The RFP also clearly indicated that other matters within the scope of the "Management Plan and Methodology" evaluation factor would be important factors in the evaluation, including enforcement (e.g., identification, certification and protection of MIA product identity) and administration (e.g., maintenance of the database, reports to DCED). [11]

In the absence of any indication in the RFP that any one of these matters would be afforded significantly greater emphasis in the evaluation than the others, I find that a reasonable offeror would have understood the RFP as placing substantially equal emphasis on administration, enforcement, and marketing (including increasing participation in the program).

MIAI argues that the RFP understated the emphasis that was given to marketing in the evaluation. MIAI supports its argument by reference to the comments of the evaluators, and to a letter prepared by DCED procurement staff prior to the evaluation. [Ex. B] [12]

Clearly, this letter indicates an intent to place significant emphasis on marketing in the new contract. However, this does not necessarily mean that DCED intended to place more importance on marketing than on administration or enforcement. In fact, the record suggests that the letter reflects merely an intent to place greater emphasis on program growth in the new contract than had been the case under the old contract. [14]

The PEC consisted of five members: three DCED employees (the deputy commissioner, the director of the division with program oversight, and the program manager), one federal employee, and a private sector representative (presumably, a permit holder). Of the five evaluators, three provided comments explaining their ratings (two employed by DCED and one federal employee).

All of the comments clearly indicate that the higher ranking for the Webb proposal over the MIAI proposal was, for those individuals, the result of the perceived relative strength of the Webb proposal in the area of marketing. However, none of the comments establish that any of the evaluators placed more emphasis on marketing than on administration or enforcement.

The comments by the DCED evaluators are consistent with an understanding that marketing had more significance under the RFP than it had been given in the prior contract. However, this is not the same as affording more significance to marketing than to administration or enforcement. I find that the DCED evaluators' comments do not establish that they placed more emphasis on marketing than on administration or enforcement. [15]

The only non-DCED evaluator to submit comments was the federal evaluator. That evaluator, like the DCED evaluators, also emphasized the relative strength of the Webb proposal in the area of marketing. To the extent that he "downgraded" the MIAI proposal for emphasizing enforcement, his comments do not establish that he did so inconsistently with the terms of the RFP. [16]

Based on my review of the evaluators' comments and the proposals, I find that to the extent the evaluators rated the Webb proposal higher than others with respect to the evaluation factor "Management Plan and Methodology", their ratings are consistent with the relative importance afforded to marketing in the RFP. I also find that that the evidence does not establish that the evaluators placed greater emphasis on marketing than on other factors, such as administration and enforcement, beyond the reasonable expectations of an offeror based on the terms of the RFP as a whole.

The basis for this protest is MIAI's complaint that the language of the RFP was not sufficiently clear. Ultimately, the question to be determined in that regard is whether there was full, fair and adequate competition. Competition may be "fair" to the offerors when a careful reading of the terms of the RFP will reveal their intended meaning. However, competition is likely not "full" when a majority of the offerors misunderstand a material term of the RFP, and it may not be "adequate" when only a small number of proposals are submitted with a correct understanding of all the material terms.

In this case, it appears that none of the offerors submitted proposals with a full understanding of the price terms of the RFP. Three of the six respondents (ABDC, Bury, and Gotcha) apparently believed there was a fixed cap of $75,000 during the first year, and a fourth (AIA) grossly miscalculated the amount of revenues that could be generated. Some of the offerors, including Webb, apparently assumed there was a $50,000 cap on direct expenses, which was not the case. MIAI's proposal expressly states its confusion at the price provisions.

In addition, the evaluation system, by awarding higher scores to the lowest price proposal, discouraged proposals that would significantly increase program participation if that would at the same time increase price. Under the percentage of revenue price structure used by all of the proposals, this was an inherent disincentive to an "ambitious marketing plan", contrary to the intent of the procurement as set forth in DCED's letter requesting reduction in the price factor. ABDC's proposal [at p. 49] expressly identified this aspect of the RFP as problematic. These facts suggest that the structure of the RFP substantially reduced competition with respect to the marketing component of the proposals. The commissioner may take such considerations into account in determining what action is appropriate in a protest appeal. [17]

For all these reasons, I recommend that the commissioner grant the appeal and direct DCED to issue a revised RFP for these services commencing at the conclusion of this fiscal year or such extension of the exiting contract as may be necessary in order to complete a new procurement.

DATED April 30, 2001

1. MIAI's letter to the commissioner did not request reconsideration of his decision concerning payment terms or ownership of the madeinak.com website. At the hearing, MIAI argued that the language in the RFP concerning ownership of the website was misleading, but withdrew its claims that DCED abused its discretion in structuring the evaluation committee and that the members of the PEC were biased.
              MIAI's protest and appeal asserted that funding for the contract during the first year was limited to $75,000. The hearing officer ruled prior to the hearing that this issue was outside the scope of a protest in this case, because the RFP made no reference to funding sources. A standard term of the RFP stated that payment was subject to the appropriation of funds by the legislature. [RFP at App. D-10]
   
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2. See, 2 AAC 12.260(b):
   (b) The evaluation must be based only on the evaluation factors set out in the request for proposals. The relative importance or weighting value of each evaluation factor shall be set out in the request for proposals. Numerical rating systems may be used, but are not required. If a numerical rating system is not used, the procurement officer, or each member of the evaluation committee, as applicable, shall explain his or her ranking determination in writing. [emphasis added]
   
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3. AS 36.98.040(a), applicable in Nickerson, stated: "The evaluation shall consist of assigning point values to factors considered by the agency.... Each proposal...must be evaluated using the same factors as those set out in the request for proposals."
   
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4. See also, Gunderson v. University of Alaska, Fairbanks, 922 P.2d 229 (Alaska 1996). In Gunderson the court found the language in an RFP concerning evaluation factors sufficient. That case, too, did not arise under the Procurement Code, and it provides little factual detail or analysis.
   
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5. DCED admits only that the original RFP was ambiguous, because it also stated: "The contract amount for the initial one-year term is estimated to be $75,000." [RFP at 7] This clause, however, does not state that $75,000 is a maximum amount. It states DCED's view as to the anticipated contract amount, but it does not purport to limit the amount of the contract, or the amount that may be proposed.
   
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6. The ABDC proposal [p.49] refers to Addendum No. 2 and then states: "The RFP Addendum states the maximum amount of compensation the Contractor may receive for the first year is $75,000." ABDC did not allude to the description of the "maximum" as an "estimate".
   
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7. The Bury proposal [p.12] states: "The contractor estimates that the current maximum amount of compensation, $75,000.00, will be sufficient based on $20,000.00-$30,000.00 in revenue. If the contractor successfully increases the number of permit holders and the program generates more than $30,000.00 in revenue over the contract year, the contractor will request that the DCED increase the maximum amount of compensation accordingly." This language appears to reflect an understanding that $75,000 was a fixed cap: if $75,000 were not a fixed cap, there would be no need to request an increase if program revenues resulted in compensation in excess of $75,000.
   
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8. Offerors were required to submit a budget, and were advised that "compensation" included all income to the contractor, including the percentage of revenues retained. DCED treated the "price" of a proposal as the amount of "compensation" to the contractor. But it would not be unreasonable to define "price" as the out of pocket cost to DCED, i.e., the sum of reimbursement for direct expenses, plus service fees, and excluding the percentage of revenues retained. Both the Gotcha and the Bury proposals appeared to use that definition of price [Bury proposal at p.16 (budget); Gotcha at p.1 ("proposal cost includes wages and directs [sic] expenses]), p.12].
   
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9. MIAI complained to DCED prior to the time for responses that, contrary to the RFP, the "estimated maximum" of $75,000 was not "sufficient" to do the job properly, since it had been contributing without charge a substantial amount of time [Email, 6/7/00], and expressed confusion regarding price in its proposal. [MIAI proposal at 30] DCED noted that a number of the proposals reflected an "incorrect assumption" that there was a "$50,000 direct payment expense". [6/19/00 Memo] Even though it had issued addenda addressing price in response to questions from Webb and MIAI, DCED still found the price of those proposals unclear. [6/19/00 Memo] Of the proposals whose price DCED deemed "clear", Gotcha and Bury apparently equated "price" with out of pocket expense, and AIA's price was based on a clearly unreasonable estimate of revenue from permit renewals during the first year. [AIA proposal at p.7] (Total revenue from permit fees over the seven-year period of the MIA program was only $155,425 [RFP at 6], and AIA estimated $86,875 in one year.)
   
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10. Nickerson, 711 P.2d 1165, 1169
    
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11. The RFP [p.13] required that each evaluation factor be "specified" in the RFP. This means that only matters within the scope of an expressly stated evaluation factor may be considered. To read the requirement of "specificity" in the RFP as precluding consideration of marketing as an evaluation factor would also preclude consideration of the administrative or enforcement elements of the Management Plan and Methodology. This is clearly not what DCED intended or what a respondent could reasonably expect.
    
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12. This exhibit contains underlining added by MIAI. The hearing officer has disregarded the underlining.
    
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13. Pursuant to AAM §81.470(3), price is generally afforded 40% of the total evaluation. The letter was a routine request to lower the importance of price to 20% of the total. Such requests are routinely made and granted for professional services RFP's.
    
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14. The terms of the RFP hint at this, because in describing the prior contract no reference was made to "growing the program" as a marketing goal, [p.5-6] while that element was clearly and expressly included as a goal of marketing efforts under the new contract. Furthermore, since under the existing contract the price was capped at $75,000, while under the RFP it was not capped, the RFP (read correctly) plainly allowed room for program growth that had not existed under the prior contract.
    
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15. Evaluator Poland commented generally: "Most of the proposals seemed to focus on the administration of the program and [d]id not display a great deal of creativity in terms of how to 'grow' the program.... Significant differences in the proposals were centered on now to get more businesses to participate in the program..." [Poland evaluation] His comments about specific RFP's indicate that he found most of the proposals demonstrated an ability to administer the program, but only two proposals (Webb and Bury) demonstrated strength in marketing, i.e., "growing" the MIA program.
               Evaluator Beck also noted the marketing strength of the Webb and Bury proposals, and mentioned their "creativity", while noting that the MIAI proposal was strong in enforcement, but lacked "creativity". Her higher rating for the Webb and Bury proposals, in light of these comments, is consistent with the RFP: she found those proposals strong marketing and did not find them weak in enforcement; she found MIAI strong in enforcement and found it weak in "creativity", i.e., marketing.
    
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16. This evaluator considered it a "plus" that the Webb proposal focussed on "program growth and education - not on enforcement", and that it was a "minus" for the MIAI proposal that it was "Heavily focussed on enforcement". MIAI argues that this means that the evaluator viewed marketing as more important than enforcement. However, the evaluator also noted that the Webb proposal was "very detailed" as to enforcement, and that the MIAI proposal lacked "creativity". Taken as a whole, the comments are consistent with a view that the Webb proposal, although focussed on marketing, was adequate in the area of enforcement, while the MIAI proposal, notwithstanding its strength regarding enforcement, was deficient in marketing. Such a view would warrant a higher rating for Webb than MIAI, and would be consistent with the terms of the RFP.
    
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17. Other matters also may be considered. For example, it appears that DCED did not utilize an equal basis for price comparison. DCED compared price using each offeror's separate projection of gross revenues. Arguably, an equal comparison must be based on a common assumption of gross revenues.
               In addition, the RFP did not provide for evaluation of the overall price of proposals, including the option years, even though the RFP did not preclude proposals that would alter the payment structure during those years, and DCED anticipated exercising the options. One proposal, by Gotcha, included a reduction on price during the option years. [Gotcha proposal at p.9]
               Finally, Addendum No. 2 was a substantial clarification to the RFP, if not a material change, and it therefore should have resulted in an extension of the time for responses to the RFP. See, 2 AAC 12.295. MIAI identified this aspect of the procurement as problematic. [Comments, page 5]
    
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