In the Matter of: ALASKA ARCHIVES, Appellant.

DCED/Alaska Tourism & Marketing Council RFP No. 98-0015 Case No. 97-005

The Alaska Tourism Marketing Council [ATMC] is a public corporation jointly managed by the Alaska Department of Commerce and Economic Development and the Alaska Visitors Association [AVA], a tourism trade industry association. [RFP at 16] ATMC markets Alaska as a visitor destination. ATMC issued RFP No. 98-0015, calling for proposals "to receive and respond to requests for information on Alaska that have been generated as a result of the ATMC's marketing program, and to manage the resulting database." [RFP at 6] The primary source of requests is business reply cards generated by magazine ads. [RFP at 17] Additional requests are generated by newspaper coupons, an 800 telephone number (separately contracted), reply cards in the state Official State Vacation Planner and other sources. [RFP at 17-18] The total volume of responses is roughly 500,000 a year, ranging from a low of 5-10,000 per month in the spring and summer, to up to 100,000 in peak winter months. [RFP at 18] The primary material sent in response was the vacation planner. [RFP at 19] The contractor would provide additional bulk mailing services as requested. [RFP at 18,23] These types of services are known in the trade as mail fulfillment services.

The RFP generated five responses. Two of the respondents, AKA Business Service [AKA] (the existing contractor), and Manus Direct Response Marketing [Manus] were from firms that have a lengthy history of providing large scale mail fulfillment service operations.[1] Both firms are located Outside. Three of the respondents, Alaska Archives, Kendrick Business Services/Intermedia JV [Kendrick], and Rapid Action Mailing Service, Inc. [Rapid Action] indicated limited or no prior experience in mail fulfillment services. [2] All three are Alaskan firms.

The proposals were given numerical ratings by a five member proposal evaluation committee, consisting of the ATMC executive director and four board members. The maximum number of points available was 100. Of these, 70 points were based on the evaluators' independent subjective judgment as to three factors: (1) Methodology and Management Plan (25 points); (2) Proposer's Organization, Experience, Performance Record and Resources (25 points); and (3) Project Manager/Key Personnel (20 points). The remaining 30 points for Cost (20 points) and Alaska Bidder preference (10 points) were awarded by formula. On the combined three categories subject to independent judgment and evaluation, four of the five evaluators ranked the responses in the same order: (1) AKA, (2) Manus, (3) Alaska Archives, (4) Rapid Action, (5) Kendrick. The other evaluator also ranked AKA and Manus first and second, respectively, but ranked Alaska Archives last.

Alaska Archives protested the notice of intent to award the contract to AKA, which had received the highest overall rating. The procurement officer denied the protest and Alaska Archives appealed. At a prehearing conference, it was agreed that there are no material facts at issue and that the matter can be determined on the existing record.

I have independently reviewed the RFP and each of the proposals in this matter. In my view the procurement officer's initial response and subsequent report have fully and correctly responded to each of the specific objections raised by Alaska Archives, and they are hereby adopted as my own for that purpose. I further conclude that there is substantial objective evidence in the record to support the evaluations provided and the determination that the proposal of AKA was "the most advantageous to the state taking into consideration price and the evaluation factors set out in the request for proposals." AS 36.30.250(a). However, the protest and appeal indicate that Alaska Archives' primary concern is not with these particulars.[3] Rather, Alaska Archives' primary contention is that the evaluation process was a charade [4] which masked a bias in favor of the existing contractor and an unwillingness to obtain additional direct knowledge of the capabilities of alternative sources.[5] Alaska Archives contends that ATMC failed to comply with the spirit and intent of Alaska statutes and regulations governing the procurement process by conducting a "paper evaluation" (i.e., an evaluation based on proposals as submitted) that, in Alaska Archive's view, was contrary to sound business practice, placed smaller Alaskan businesses at a disadvantage, and effectively favored the existing contractor. These broader concerns warrant a direct response.

A. Bias in Favor of an Incumbent Contractor.
Procurement by competitive proposal when there is an existing contractor is always subject to the criticism that the existing contractor has an unfair competitive advantage. Insofar as that advantage rests on its prior experience, its demonstrated performance capabilities, and its knowledge and understanding of the agency's needs, the advantage is not the product of anything illegal or unfair in the procurement process, so long as those elements are reflected in the factors and criteria for evaluation as listed in the RFP. In this case, the RFP specifically provides that prior similar experience was to be an important element in the consideration of the proposals. AKA's status and level of performance as the existing contractor could not be disregarded in assessing this element.[6] To the extent that its prior performance was considered superior by an evaluator, AKA had an unavoidable competitive advantage, just as it would have had an unavoidable competitive disadvantage if the evaluator had considered AKA's prior performance substandard.[7] If Alaska Archives believed that the RFP gave too much weight to this element, it was incumbent on it to bring this out prior to the closing date. AS 36.30.565(a); 2 AAC 12.615(a). I conclude that Alaska Archives has not demonstrated that the evaluators erred in considering the prior experience of AKA as the existing contractor, and that in any event, that objection has been waived.

While it was appropriate for the evaluators to consider the prior performance of the contractor in determining their ratings, it would have been improper for a member of the evaluation committee to approach the evaluation process with a bias either for or against the existing contractor. Bias is not established simply because an evaluator is familiar with the existing contractor's work.[8] Bias on the part of an individual evaluator is shown when the objective evidence clearly establishes that the evaluator could not reasonably be expected to evaluate the proposals "honestly and fairly". One objective fact that could suggest bias is the existence of a close working relationship between key personnel of the contractor and an evaluator during the course of the contract.[9] Such a working relationship can easily lead to personal ties that would be difficult to set aside during the evaluation process. Another objective factor that could suggest bias is a significant and unexplained disparity in the ratings. In this case, while ATMC's executive director managed the existing contract, it does not appear that his working relationship with key personnel of AKA was so close or substantial that he could not reasonably be expected to evaluate all of the bids "honestly and fairly". [10[ Furthermore, his ratings were in substantial conformity with the other evaluators' and the record provides ample support for the higher ratings given to AKA.[11] I find that the record does not establish bias on the part of any of the evaluators.[12]

B. Public Policy and Legislative Intent.
The public policy of enhancing opportunities for growth in the Alaska economy is reflected in the statutes and regulations applicable to the procurement process. Those provisions, of course, also incorporate other important public policy principles, including obtaining the best value for the state's taxpayers and treating all potential contractors, be they local or not, fairly and honestly. Determining whether the outcome of a particular procurement decision appropriately reflects these multiple, and at times divergent, public policy goals must begin with consideration of the applicable statutes and regulations.

Evaluations of competitive proposals must take into consideration whether the proposer qualifies as an Alaska bidder. AS 36.30.250(b). The department has implemented this mandate by requiring at least 10% of the weighted value of the factors considered in awarding contract by competitive proposal must be whether the proposer qualifies as an Alaska bidder. 2 AAC 12.260(e). Qualification as an Alaska bidder, however, is no guarantee that the work performed under the contract will be done in Alaska. See, AS 36.30.170(b). Accordingly, the department by regulation has established that a proposal may provide for consideration of a number of factors related to the ancillary benefits [13] to the state of doing business with in state contractors, regardless of whether they qualify as Alaska bidders. See, 2 AAC 12.260(e)(1)-(3). It is important that these factors, when applicable, be set forth in the RFP in order to encourage all respondents, whether they are entitled to the Alaska bidder preference or not, to perform the work out of a local office, using Alaska employees.

When proposals are issued with specifications or evaluation criteria that in the judgment of an Alaska vendor place too little emphasis on the factors set forth in 2 AAC 12.260(e)(1)-(3), they must raise this issue before the proposals fall due. AS 36.30.565(a); 2 AAC 12.615(a). This provides an opportunity for the procurement officer to consider whether alternative or additional criteria might be appropriate. However, once specifications and criteria are finally established the evaluators are prohibited by law from considering factors not set forth in the RFP, including the matters set out at 2 AAC 12.260(e)(1)-(3). AS 36.30.250(a).

In this case, Alaska Archives was not at a competitive disadvantage due to the fact that it is located in Alaska. Indeed, had site visits been made to local firms, Alaska Archives may have had a competitive advantage over similarly experienced firms from Outside, since the cost of visits to Outside proposers would likely not be justifiable. Alaska Archives' blanket contention that a paper evaluation is a poor business practice is rejected.[14] One advantage of a paper evaluation is that it places all potential contractors at an equal level (from the standpoint of location), whether they are based in Anchorage, Fairbanks, Juneau, Bethel or Outside.

The primary competitive disadvantage that Alaska Archives suffered in this case was that it does not have remotely comparable prior experience to two of the proposers.[15] To suggest that prior similar experience is an inappropriate consideration in the evaluation process is simply mistaken. As it happens, both of the proposals demonstrating substantial prior experience come from firms located Outside. However, had these firms been Alaskan, the same objection could be made: that emphasis on prior experience discriminates against smaller, less experienced firms.[16] Even though Alaska Archives did not have remotely comparable prior experience to the second highest rated proposer, it very nearly equaled that proposer in the final ratings, due to its Alaska bidder preference. This suggests that the Alaska bidder preference played an appropriate role in this case, given the criteria that were being utilized.

Alaska Archives' broad contention that the process in this case unfairly favored the existing contractor is rejected. Prior similar experience is an appropriate factor for consideration in the procurement process. Alaska Archives did not object to the weight given to this factor in a timely manner. There is no evidence that any of the evaluators had a bias for or against any of the bidders. Use of a paper evaluation was not contrary to sound business practice, and the evaluators properly declined to consider factors not set forth in the RFP. I conclude that the appeal should be denied.

DATED this 25th day of September, 1997.

______________________________
Andrew M. Hemenway
Hearing Officer

1. "AKA has provided direct response services, including mailing and fulfillment, to hundreds of...clients for over nearly three decades." [AKA Resp. at 13] It processes over 150,000,000 pieces of mail annually. [id. at 8] It has multiple clients that "are equal to or exceed the size and complexity of the ATMC program." [id. at 17] "Manus Direct has provided inquiry response services to many regional and national organizations for more than thirteen years. These services have included a wide variety of fulfillment requirements, ranging from a few hundred boxes per week containing promotional and display items, to hundreds of thousands of literature kits mailed annually. In 1996, our mailing center processed over 45 million pieces." [Manus Resp. at 3]

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2. Kendrick responds to inquires generated by a website [Kendrick Prop. at 11], but the volume of this service is not stated. It does not appear that the firm has substantial bulk mail experience, although it has sent out two small scale bulk mailings [id. at 15-16], which it describes as "fulfillment project[s]" [id. at 16]. Kendrick would have to purchase "all items necessary for implementation of the database" [id. at 14]. Alaska Archives' proposal establishes that it has substantial bulk mail experience, but does not identify any prior mail fulfillment services performed by the firm, although it does have a staff member who managed a mail fulfillment contract for a prior employer and it "has recently been awarded the fulfillment mailing contract for the Alaska Department of Revenue, Permanent Fund Division." [Alaska Archives Prop. at 18] The proposal does not indicate whether that contract was comparable to the RFP. Rapid Action, which was the lowest cost proposal, has substantial bulk mail experience, but its proposal identifies only one prior contract involving mail fulfillment services, on behalf of the Alaska Permanent Fund Corporation. [Rapid Action Prop. at 4] The proposal does not indicate whether that experience is comparable; an invoice submitted with the proposal for mailing a total of 2679 CD-ROMS is the only indication of the nature of the services provided. It is unclear if this contract is in fact the same contract that Alaska Archives was recently awarded.

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3. Ed Daugherty, Vice President of Alaska Archives, wrote the letter of appeal, which states, "the fine points of the law don't address the real problem." [App. at 2]

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4. "I choose not to call the [review of proposals] process an evaluation, because I believe no real evaluation took place." [App. at 1]

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5. "The evaluation board of ATMC simply chose a familiar vendor and elected not to inform themselves of any other options." [App. at 3]

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6. An existing contractor's prior performance may be included as a factor for consideration in the RFP process either implicitly, as it was in this case, or explicitly, for example by providing bonus points for superior performance on an existing contract or otherwise. In this case, 45 points in the ratings depended on factors for which the expressed rating criteria included prior experience as a substantial element. [RFP at 27 (5b,c,e,g), 28 (6a,b; 7a,b)] Prior experience, insofar as it would demonstrate the effectiveness of a proposed methodology and management plan, would also clearly impact the rating for another 25 points. Consideration of the prior performance of AKA as the existing contractor was implicit in this formulation.

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7. AKA's proposal, in fact, acknowledged that its status as the existing contractor might work for it or against it, depending on the agency's perception. [AKA Prop. at 28]

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8. Individual evaluators serving on a procurement evaluation committee are not acting in a quasi-judicial adjudicative capacity. They are not required to approach the evaluation process with a blank slate. Rather, they are required to consider the proposals "honestly and fairly." See, e.g., KILA v. State, Department of Administration, 876 P.2d 1102, 1105 (Alaska 1994). The fact that individual evaluators have independent knowledge regarding the manner in which an existing contractor has performed does not prevent them from considering all bids "honestly and fairly." They are entitled to exercise their independent judgment, "honestly and fairly", regarding the past performance of the existing contractor even though it is based on personal knowledge, rather than on an independent assessment by the agency, an outside auditor, or a third party.

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9. The possibility of such bias can be eliminated by establishing a procurement evaluation committee composed of individuals within the agency who are not directly involved in the management or oversight of the contractor and individuals from outside the agency. While these persons may not have the same degree of familiarity with specific agency concerns, they may have equal or greater knowledge of the services or products under consideration. The committee can be provided with direct input from the managers of the existing contractor to ensure that it has sufficient information regarding past performance.

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10. AKA's project manager spends approximately 35% of his time on "Alaska tourism clients and programs including the ATMC fulfillment account." [AKA Prop. at 20] ATMC's executive director is one of only three ATMC employees and he has multiple responsibilities. [RFP at 16]

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11. AKA's proposal was by far the most thorough and detailed in describing its methodology and operations and the most aggressive in marketing its perceived strengths, which AKA asserted included superior in house computer expertise, a service-oriented focus, and a commitment to quality control.

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12. Even if the record indicated bias in favor of the existing contractor on the part of a majority of the evaluators, this does not necessarily mean that the contract award should be set aside. Alaska Archives finished well behind Manus, which has not contested the outcome of the process.

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13. The advantages to the state of doing business with in state vendors, assuming other factors are equal, are substantial. They include job creation, the multiplier effect of spending state funds within the state, and the development and enhancement of those sectors of the local economy. See generally, e.g., Ch. 59, SLA 1994, Sec. 1.

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14. Paper evaluations are standard in the procurement process. It would be impracticable to require on site and in person evaluations in all cases. In particular, where a proposer lacks substantial prior experience in the performance of the services which are the subject of the contract, and where prior experience is an important factor in the ratings process under the express provisions of the RFP, evaluators have no obligation to investigate further.

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15. "Alaska Archives is in the business of inquiry response services. All aspects of our business and all dealings with customers are directly involved with fulfilling requests." [Alaska Archives Resp. at 3] It has prior experience as a commercial records center, which "involves responding to requests for storing incoming records and requests for retrieval of records." [id.] It "is also experienced in mailing time-sensitive, valuable information."' [id.] Its proposed project manager had three years' experience "operating a fulfillment mailing service, responding with information packages for drugstores throughout the United States." [id.] In describing its activity in the specific field of "Fulfillment Mailing", which is the precise service requested in the RFP, Alaska Archives indicates only that it "has recently been awarded the fulfillment mailing contract for the Alaska Department of Revenue, Permanent Fund Division." [id. at 18] Alaska Archives gives no indication that this contract is similar in volume, time sensitivity or otherwise to the services requested in the RFP. At page 22 of its Proposal, Alaska Archives stresses prior experience in fulfilling requests for records; the evaluators could reasonably conclude that this experience is not substantially equivalent to the services requested in the RFP.

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16. The fact that Alaskan firms lack experience in a particular market segment does not make prior experience a less appropriate factor for consideration in the procurement process. It may, however, be a reason for providing enhanced consideration in the procurement process to the factors set forth in 2 AAC 12.260(e).

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