BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION

In the Matter of:

MAKE IT ALASKAN, INC., and
ALASKA CREATIONS,

Appellants.  DCED RFP No. 2002-0800-2876   Dept. of Administration Case Nos. 01.09/.10

This consolidated protest appeal concerns an RFP issued by the Department of Community and Economic Development [DCED] on September 19, 2001, for management of the Made In Alaska program.

Six proposals were submitted, including proposals from Make It Alaskan, Inc. [MIAI] and Alaska Creations. MIAI’s proposal was declared non-responsive due to a conflict of interest. The contract was awarded to Webb’s Management Services [Webb], the incumbent contractor.

MIAI and Alaska Creations filed protests. Both protests were denied. MIAI and Alaska Creations filed appeals with the commissioner, who granted a hearing and appointed a hearing officer. The hearing was conducted on March 22, 2002. This proposed decision is based on the documents filed with the protest appeal, the protest report and comments, and the evidence and testimony submitted at the hearing.

A. Findings of Fact.

1. Background.

The mission of the Made In Alaska [MIA] program is to increase the sale of products manufactured or made in Alaska, through identification and permitting of products and promotional activities. The phrase "Made In Alaska" is a registered trademark of the State of Alaska. The program was begun in 1986 by executive action and was established by law in 1992 under AS 45.65. Initially, the program was administered and managed by DCED personnel, with occasional assistance under grants to and temporary contracts with MIAI, a private non-profit corporation. Beginning in 1994, DCED entered into a contract with MIAI to manage the program for DCED. That contract was renewed for two years. In 1997, DCED issued an RFP for management of the program. It received only one proposal, from MIAI. MIAI was awarded the contract, which was renewed annually through June 30, 2000.

Steven L. Rouse was the person primarily responsible for MIA program management throughout the time MIAI had the contract. Mr. Rouse had been deeply involved in implementing the MIAI program in 1986 and had been a leader in the effort to establish the program under state law in 1992. Mr. Rouse has long standing professional ties with many MIA permittees resulting from his long association with the MIA program. [1] Mr. Rouse has worked very hard on behalf of the MIA program, demonstrating dogged determination over a long period of time in support of the program’s goals. He is a passionate advocate for the MIA program.

The Make It Alaskan Committee, organized in 1985, was a leader in the effort to establish a state program to promote the sale of Alaskan products. The group incorporated and in 1987, following establishment of the MIA program, the corporation was named Make It Alaskan, Inc. The mission of MIAI is to promote the purchase and use of Alaskan made products and services and to advocate for public and private sector policies that will help grow the Alaskan economy to the benefit of Alaskan businesses.

In 1988 and 1989, MIAI received grants from DCED to "identify and compile the first ever list of products made in Alaska." [Ex. 1 at 3] The result was the "Alaska Products Catalogue", the first two editions of which were produced by MIAI with DCED funding, as official MIA publications. In addition, MIAI received "periodic…contracts to assist [DCED] in enlisting participants" in the fledgling MIA program. [id.] The Display Alaska Trade Show was begun.

During 1991-93, before MIAI became the program manager, public funding for the MIA program was reduced and MIAI turned increasingly to private sector funding and support for its activities. During 1994-2000, while MIAI was the program manager, public funding for the MIA program (exclusive of program receipts) grew from $15,000 to $50,000 per year. By the end of 1999, MIAI was funded approximately 40% under the contract, 15% by MIA permit fee rebates, and 45% through private sector support. MIAI derived private sector revenues from grants, donations, advertising space in the "Alaskan Products Directory" and "Alaskan Services Guide", and fees for participation in the Make It Alaskan trade fair, as well as contributions in-kind from its corporate sponsors.[2]

During 1994-2000, reflecting its mix of public and private funds and other private support, MIAI activities included a mix of: (1) activities clearly within the course and scope of the MIA contract that were at all times considered as such by both MIAI and DCED; (2) activities that may have been within the scope of the MIA contract, but that MIAI at times treated as independent of the contract; and (3) activities clearly outside the course and scope of the MIA contract that MIAI and DCED have at all times treated as independent MIAI corporate activities.

In the first category were MIAI’s activities to maintain the database of MIA permit holders, issue and renew permits, conduct workshops and enforce the integrity of the MIA logo.

In the second category were MIAI’s establishment, operation and maintenance of a website, "madeinak.com", and the sale by MIAI of MIA promotional materials.

In the third category were MIAI’s production of an annual "Alaskan Products Directory" and the "Alaskan Services Guide", its establishment of an Internet presence separate from the "madeinak.com" site, under the domain name "makeitalaskan.com", the production of a quarterly MIAI newsletter, "Bear Facts", and sponsorship of the annual Make It Alaskan Festival (an annual tradeshow in Anchorage featuring MIA, Silver Hand, and Alaska Grown products). Throughout the time MIAI held the MIA contract, DCED was fully aware of these MIAI activities and did not object to them or assert that they were being carried out within the course and scope of MIAI’s contract to manage the MIA program.

3. 2000 RFP.

In May, 2000, DCED issued a second RFP for management of the Made In Alaska program to begin July 1, 2000. It received six proposals, including one from MIAI. DCED issued a notice of intent to award the contract to Webb Consulting & Management Services, Inc. [Webb] MIAI filed a bid protest, which was denied. DCED elected not to stay award of the contract, and Webb took over management of the program effective July 1, 2000. MIAI filed a protest appeal. Following an evidentiary hearing, the protest was sustained on appeal. In re Make it Alaskan, Inc. (Department of Administration, April 30, 2001). DCED was directed to issue a new RFP. Pending the new solicitation, Webb continued as the program manager.

4. MIAI Activities, July 1, 2000-September 19, 2001.

After losing the MIA contract, effective July 1, 2000, MIAI experienced a significant reduction in revenues. At the same time, with the loss of MIA program management responsibilities, MIAI was no longer required to perform the core MIA program management tasks of administration (issuance and renewal of permits, site inspections, etc.) or certain promotional activities, such as conducting MIA workshops and distributing promotional materials. However, the MIAI mission remained the same, and in addition, until its protest appeal was decided MIAI anticipated reinstatement as the program manager. Accordingly, in August, 2000, MIAI wrote to MIA permit holders and indicated that it would try to provide substantially the same benefits to MIAI members that it previously had, with the exception of the core MIA administrative functions (issuance and renewal of permits, site inspections, etc.) and promotional activities such as workshops and sale of MIA promotional materials.

Consistently with that letter, MIAI published the 2000-01 "Alaska Products Directory" and "Alaska Services Guide" in substantially the same format as in prior years. MIAI also continued to operate the website, "madeinak.com", that it had previously characterized as the official MIA website during the time that MIAI was the program manager. Beginning with its August, 2000 letter, however, MIAI consistently described the website as belonging to MIAI.[3] [Ex. 15 at p. 4; Ex. 12 at p. 3, 6; Ex. 13, p.1] In addition, MIAI continued to produce its corporate newsletter, "Bear Facts", which solicited membership in MIAI and touted the benefits of MIAI membership. MIAI also solicited information from MIA permit holders who offered wholesale pricing, for MIAI’s use in its proprietary database. MIAI’s solicitation represented that MIAI maintained "the most comprehensive and accurate database of MIA permit holders, products and business information."

After the protest appeal was decided (in April, 2001) in MIAI’s favor, MIAI realized that it would not be reinstated as the contractor, and would have to compete under a new RFP. A final edition of "Bear Facts" was produced in May, 2001. In it, MIAI announced that it would no longer provide complimentary services (other than listing in the directory) to MIA permit holders who were not MIAI members, ending its practice of providing non-members with a website listing, the MIAI newsletter, category listing in the directory, or advertising. Reflecting that announcement, both the newsletter and the 2001-02 "Alaskan Products Directory" represented that MIAI membership afforded benefits not available under the MIA program. The directory, published in mid-2001, continued to list all MIA permit holders, but it no longer included an MIA application form, or an MIAI "membership" form. Sometime after August, 2001, MIAI stopped soliciting memberships, but it continued to operate the "makeitalaskan.com" website.

In addition to administering the permit issuance and renewal process, maintaining the MIA database, conducting workshops and other activities, during this period the new MIA program manager produced an MIA program newsletter, "Bear Necessities" (January & May, 2001); completed two surveys of MIA permit holders, including one "questioning the feasibility of a Made in Alaska catalogue"; and established (January, 2001) a new official MIA website, "madeinalaska.org".

After Webb took over management of the program on July 1, 2000, DCED became more cognizant of the potential for conflicts between MIAI as a private corporation, and as the MIA program manager. Highlighting DCED’s increased concern was a dispute that arose between DCED and MIAI concerning ownership of the website "madeinak.com". DCED made several demands on MIAI to transfer ownership of that website which were rebuffed. In addition, during the course of preparation of the prior RFP DCED had learned that MIAI had retained funds derived from the sale of MIA promotional products that DCED believed should have been included as MIA program receipts. Also, DCED was disturbed by the similarity between MIAI’s corporate name and DCED’s trademark, "Made In Alaska". Finally, DCED was aware, as a result of MIAI’s lengthy term as the program manager, that Mr. Rouse had strong opinions regarding the manner in which the MIA program should be run that DCED did not always share.

DCED formed the opinion, in light of these circumstances, that some MIAI activities outside the scope of its duties as the MIA program manager had the potential to compete with, conflict with, or adversely impact the MIA program. DCED had a good faith belief that MIAI’s objectivity, analysis, and performance of duties as the MIA program manager might be significantly affected by MIAI’s corporate goals and activities. In addition, DCED realized that it needed to more clearly provide for the identification of and accounting for MIA program funds and activities in order to avoid financial conflicts of interest.

In order to address these issues, DCED decided to significantly strengthen the conflict of interest provisions in the new RFP. It did so with MIAI specifically in mind, with the specific intent to preclude MIAI from participation in the solicitation unless MIAI alleviated DCED’s concerns.

The new RFP, which is the subject of this protest appeal, was issued September 19, 2001. Proposals were due on October 15. The RFP included DCED’s standard conflict of interest provision, with additional language crafted for this particular RFP that was specifically aimed at MIAI (italicized):

6. MIAI Actions, September 19-October 30, 2001.

After the RFP was issued, on September 19, with its pointed reference to certain specific objectionable activities, MIAI became aware of the need to take steps to eliminate any existing conflicts of interest with the MIA program, as mandated by the RFP. Therefore, on October 4, 2001, MIAI informed DCED that it had deactivated the "madeinak.org" website as requested by DCED, although it continued to claim ownership of the site.

DCED received seven proposals by the October 15 due date. After reviewing the proposals, DCED issued Addendum No. 2 on October 24. Addendum No. 2 provided respondents with the opportunity to amend their proposals no later than October 31 with respect to three issues: (1) conflicts of interest; (2) price; and (3) Alaska bidder preference. The addendum generated a telephone call from MIAI to DCED as well as an exchange of emails. In addition to seeking information regarding the types of matters that might be considered conflicts, MIAI asked for additional information regarding the revenues and expenses of the current contractor during FY 2001 and indicated that a delay in issuing the contract might result in changes to its price term. DCED advised MIAI that "anything" might be a conflict, that MIAI should make no assumptions, and that it was MIAI’s responsibility to disclose all potential conflicts. DCED declined to provide the FY 2001 information and indicated that MIAI should base its price on the RFP and addendum as written, and should not assume that the contract issue date would change.

MIAI decided to submit a revised proposal. Prior to the due date for the revised proposals, Mr. Rouse instructed MIAI’s webmaster to remove the MIAI "products section" application form from MIAI’s "makeitalaskan.com" website.

One section of MIAI’s revised proposal directly addressed conflicts of interest. [MIAI Proposal at 2-3] In general, that section of the proposal denied the existence of any conflict, on the ground that MIAI’s corporate goals and the goals of the MIA program were identical, and on the ground that Mr. Rouse, its key employee, had been a long-time supporter of the MIA program who would not do anything to harm the MIA program’s interests. In addition, the proposal denied that MIAI was at that time engaged in any of the specific activities identified in the RFP as warranting a presumption of a conflict.

As late as November 1, DCED personnel were able to access the "madeinak.org" site, which still contained an MIAI products section application form. As of March 12, 2002, DCED was the registered owner of the domain name "madeinak.com", and Squire Consulting was the owner of the domain names "madeinak.net" and "madeinak.org". Mr. Rouse was the president of Squire Consulting at the time it obtained the rights to those domain names.

8. Webb’s Asserted Conflict of Interest.

Webb provides consulting and management services to a variety of clients. Among other activities, Webb operates, under contract, the outdoor Downtown Saturday Market, a summer fixture in Anchorage, and the Northway Mall Wednesday Market. Each of those markets rents vendor stalls to a wide range of retailers offering an equally wide range of products, without restriction as to Alaska residency, base of operations or place of manufacture.

In its capacity as the operator of the Downtown Saturday Market, Webb provided Internet listings for vendors at the market. Through the MIA newsletter and otherwise, Webb solicited MIA permit holders to purchase space at the Market; Webb also provided space at the market for exclusive use by MIA permit holders, each of whom paid a fee of $65 to the Market for use of the space. [4] DCED was not informed of the arrangement that Webb had made for use of the space by permit holders, and Webb did not offer the space to the MIA program for joint use by MIA permit holders. Fees paid by the permit holders were not included by Webb in its accounting of MIA program receipts.

The MIA space at the Market consisted of three adjacent stalls, each featuring a banner emblazoned at one end with the MIA logo and at the other the Downtown Saturday Market logo, with the words "MADE IN ALASKA" between them. The placement of the two logos was separate and distinct. The placement of the logos identified the stalls as the "MADE IN ALASKA" space at the Downtown Saturday Market. Based on the evidence, I do not find that the banner incorporated the MIA logo into the logo of the Downtown Saturday Market; I do not find that the placement of the MIA logo on the banner was misleading.

In addition to acting as the MIA program manager, Webb is engaged in a variety of other work activities. None of his other clients or activities presents a material or significant conflict of interest within the meaning of the RFP, although incidental conflicts were a possibility and might require cost allocation. The fact that other obligations may at times occupy the program manager’s attention and time during periods when the MIA program needs are greatest is a matter to be considered in the evaluation, but is not a disqualifying conflict of interest within the meaning of the RFP.

B. Applicable Principles of Law.

A purchasing agency may, in a solicitation, provide for the disqualification of vendors for a material and significant actual or potential conflict of interest. The purchasing agency may utilize information from any source in determining whether a conflict of interest as described in the RFP exists or is likely to exist in the future, subject to the obligation to provide a hearing in conformity with the Procurement Code. The purchasing agency’s determination is reviewed by the commissioner for abuse of discretion.[5] Disqualification for a conflict of interest is an abuse of discretion if the evidence at the hearing [6] does not support a finding that: (1) actual or potential conflicts may reasonably be anticipated; and (2) as a whole, the reasonably anticipated conflicts are significant and material. Conversely, the failure to disqualify for a conflict of interest is an abuse of discretion if the evidence does not support a finding that material and significant conflicts are not reasonably foreseeable.

The "Made In Alaska" logo may not be used in a manner that is false or misleading, and may not be incorporated into any business logo or label. 3 AAC 58.045(c), (d). An MIA agent may use the "Made In Alaska" logo in the performance of the agent’s duties, which include promoting and advertising the MIA program. 3 AAC 58.045(b); -.055(a)(1). DCED has exclusive responsibility for enforcement of 3 AAC 58, and its legal conclusion that a particular use of the logo is in violation of 3 AAC 58.045 is not subject to review in this forum.

Use of a trademark phrase, or of a phrase substantially similar, without the permission of the trademark owner is a violation of law. The use for business purposes of a phrase substantially similar to a trademark constitutes unfair competition as a matter of law.

C. Issues on Appeal.[7]

1. Did DCED abuse its discretion in disqualifying MIAI for conflict of interest?

2. Did DCED abuse its discretion in not disqualifying Webb for conflict of interest?

3. Did DCED abuse its discretion in failing to disclose financial information?

D. Analysis.

DCED added language to the RFP that was intended, according to DCED, to preclude participation by any "competing" private sector entity. However, while that may have been DCED’s intent, it is not what the RFP says. To the contrary, although the additional language of the RFP states that the existence of competition in the specified forms creates the presumption of a conflict, the RFP also says that to disqualify a participant, DCED must find that a conflict is material and significant. I conclude that the "presumption" is not a conclusive one, and the fact that a private sector entity "competes" with the MIA program is not a basis for precluding it from participating in the solicitation unless the conflicts resulting from the competition are significant and material.

The RFP required potential proposers to identify potential areas of conflict within ten days of the date of issue, provided for a response by DCED prior to the due date, and enabled potential respondents to address DCED’s concerns in their proposal or by formal protest. The RFP expressly asked for proposals to explain how any potential conflict could be mitigated. It also allowed, at DCED’s discretion, discussions with offerors deemed reasonably susceptible of award. However, the RFP specifically states that the failure of a proposal to identify the areas of conflict may in itself by grounds for a finding of non-responsiveness.

Taken as a whole, the RFP is structured to avoid categorical exclusion of a "competitor", but to require disclosure of areas of potential conflict and to afford both the proposer and DCED the opportunity to address them both before and after a proposal is submitted, with DCED ultimately having the right, in its discretion, to preclude participation when the reasonably foreseeable conflicts are material and significant, and the solutions proposed are unsatisfactory. Given that reading of the RFP, whether MIAI was properly disqualified depends on the extent to which MIAI disclosed actual and potential areas of competition and conflict, any proposed mitigation measures, and the actual and potential conflicts that can be reasonably foreseen.

a. Similarity of Missions.

MIAI’s mission encompasses, but is not limited to, the goals of the MIA program. The MIAI mission includes promoting the sale of products manufactured and made in Alaska, but also includes promoting Alaska-based businesses offering services only, and promoting Alaska-based businesses offering products not manufactured or made in Alaska. MIAI’s broader mission creates an inherent potential conflict between MIAI and MIA promotional activities: activities supporting only MIA products could conflict with activities supporting Alaskan retailers who sell only non-MIA products; activities supporting the sale of MIA products by non-Alaskan retailers could conflict with activities supporting Alaskan retailers.

Furthermore, to the extent that MIAI and MIA share identical goals there is an inherent potential for conflicts between MIAI in its role as the program manager and its role as a private corporation. That conflict consists not in any difference in goals, but rather in their identity. Differences of opinion between DCED and MIAI regarding the best way to achieve goals shared by MIAI and MIA, for example, could create conflicts between MIAI in its role as the program manager and in its status as a private corporation.

The similarity in names between MIAI and MIA creates a significant potential for confusion on the part of the general public and others as to the identity of the sponsoring entity for promotional and other activities. The corporate name "Make It Alaskan, Inc." is easily mistaken for or identified with MIA’s trademark, "Made In Alaska". In addition to the potential for confusion among the public at large, as well as among permit holders, the inherent similarity of these names creates an unavoidable conflict of interest between MIAI and the MIA program: MIAI’s use of its own name in its corporate role detracts from the trademark’s unique quality as an identifier for the MIA program.

c. MIAI Products Directory.

From 1994-2001, DCED chose not to provide funding for a products directory. During that time, with DCED’s knowledge and consent, MIAI published an annual "Alaska Products Directory" and "Alaska Services Guide" as independent MIAI publications.[8] The directory included forms for MIAI membership and for MIA permit renewal, but it expressly stated that MIAI membership was optional and was not required for MIA permit holders. The directory listed all MIA permit holders, as well as Alaskan-based service providers, and it promoted both MIAI and the MIA program, as well as the Silver Hand program and the Alaska Grown program, two other State of Alaska programs supporting Alaska Native handcrafted products and Alaskan agricultural products, respectively. DCED did not claim a right to any of the advertising proceeds generated by the directory.[9]

The MIAI-produced "Alaska Products Directory" did not compete with the MIA program: DCED had elected not to produce a similar publication. However, the RFP called for the new program manager to publish a products list. Clearly, the new MIA products list would compete with the "Alaskan Products Directory" previously published by MIAI, if MIAI were to continue to produce it.

However, it is unreasonable to read the MIAI proposal as indicating that, if awarded the contract, MIAI would produce and distribute its own, independent, competing "Alaska Products Directory", in addition to the Alaska products listing required by the RFP. To the contrary, the proposal clearly indicates that MIAI would produce only a single directory, in the format requested by DCED. [10] The only evidence relied on by DCED to establish that such competition is likely to continue is that MIAI previously produced a directory, but Mr. Rouse testified that MIAI did not plan to continue doing so, and it had only done so previously with DCED’s knowledge and consent at a time when DCED did not want to produce an MIA directory. I conclude that conflicts from a products directory are not reasonably foreseeable.

During the time MIAI held the MIA contract, its newsletter promoted both MIAI and MIA, and DCED did not object to its content. However, after MIAI lost the contract, and MIAI began differentiating between the services it provided to "members" and those provided to MIA permit holders, the newsletter began to tout the benefits offered by MIAI to MIAI members but not to MIA permit holders. DCED argues that because the newsletter touted the superiority of MIAI’s services, it competed with the MIA program and created an unacceptable conflict of interest on the part of MIAI.

The thrust of DCED’s concern appears to be that MIAI’s touting of the services it provided could damage the attractiveness of MIA certification and erode the number of permit holders. But that is an unreasonable reading of the prior MIAI newsletters as a whole. Read fairly, the newsletters suggested that MIA permit holders should retain their permits and also join MIAI in order to take advantage of the additional services not offered by the MIA program, such as (at the time) the "Alaska Products Directory", and a database that included geographical sorting, wholesale information, and other valuable information. In any event, MIAI ceased publication of a corporate newsletter in 2001, and Mr. Rouse testified that it did not intend to resume publication. I conclude that conflicts from a corporate newsletter are not reasonably foreseeable.

e. MIAI Websites.

Clearly, a website bearing a name similar to the MIA official website, or to the trademark, and offering information or links similar to the official MIA website, would compete with MIA’s website. The evidence suggests that MIAI, through Mr. Rouse, had control over several domain names of value to the MIA program, and MIAI has made no commitment as to their use. In addition, at the time the RFP was issued, and apparently continuing through the date of the hearing, MIAI operated a website under the domain name "makeitalaskan.com", which is similar to name of the official site, "madeinalaska.org" and to the MIA trademark, "Made In Alaska". Furthermore, although it has deactivated the "madeinak.com" website, that site is still accessible. Finally, MIAI continues to claim ownership of "madeinak.com" even though MIAI established the site as the "official" MIA site, and MIAI vigorously disputed DCED’s claim to the site at the very time that MIAI was competing for the MIA program manger contract. The evidence clearly suggests that MIAI does not recognize the potential for conflicts regarding websites. I conclude that conflicts of interest resulting from MIAI’s websites are reasonably foreseeable.

In return for the "membership" fee, MIAI members who were MIA permit holders received extra listing in the directory, MIA promotional materials, advertising space in the directory, and other similar benefits. DCED suggests that MIAI’s solicitation of memberships might cause some MIA permit holders to forego MIA membership in order to join MIAI, or that the cost of MIAI membership would be onerous to individual MIA permit holders. I find this speculation unpersuasive. [11] I see no evidence that MIAI’s practice of soliciting membership had an adverse impact on permit holders, or on the MIA program.

Furthermore, the MIAI "membership" fee is not at all comparable to the MIA permit fee. MIAI sold "membership" for an annual fee of $25, $50, or $100. Any business could pay a fee and become a "member" of MIAI. But MIAI fee payers received no ownership interest in MIAI and had no role in the management of the business, and the fee was in substance a fee for services and benefits, not a "membership" fee. Eligibility for the MIA permit, by contrast, is restricted by law and the fee is in substance a licensing fee, for which the fee payer receives the right to identify products as "Made In Alaska".

Finally, Mr. Rouse testified that MIAI ceased offering "membership" in August, 2001. The evidence does not indicate that it intends to resume that practice in the future under any circumstances, much less that it would do so over DCED’s objection if it obtained the MIA program management contract. In any event, even if MIAI charged a membership fee, the nature and extent of any conflict would depend on the nature of the services provided to members, not on the label given to the fee charged.[12] I conclude that conflicts resulting from the existence of a membership fee are not reasonably foreseeable.

g. Accounting for MIA Proceeds.

The shared goals and mission of MIAI and the MIA program create the possibility that activities undertaken on behalf of MIA, using DCED funds, would benefit MIAI financially. Given the similarity of name and mission, there is clearly a potential for conflicts of interest with respect to the identification of sources of funding for MIAI activities and the allocation of revenues generated by MIAI as between MIAI and MIA. [13]

MIAI’s proposal says that it will fully account for all program receipts, but that commitment completely fails to address the question of how MIAI intends to decide which of its revenues should be allocated to DCED: MIAI had made the same commitment during its prior tenure as the program manager, but a conflict had nonetheless arisen with respect to revenues generated by the sale of promotional materials.

In light of past experience and the similarity of name and mission, DCED could reasonably foresee the potential for financial conflicts of interest.

1. DCED Did Not Abuse its Discretion.

a. Estoppel.

MIAI argues that because DCED did not object to MIAI’s independent activities during the time that MIAI was the program manager, DCED is estopped to rely on those activities as a basis for disqualification, or, at least, that MIAI’s failure to address those activities in its RFP should be excused. But the RFP clearly identified certain activities as presumptively unacceptable, required disclosure of any and all potential conflicts, and placed all bidders on notice that DCED intended to review this issue carefully. MIAI, in particular, was specifically advised prior to the due date, through direct communications with DCED, that it should not assume anything. DCED’s prior failure to object does not estop DCED from finding a disqualifying conflict based on activities it had not previously objected to.

b. Disclosure.

MIAI’s proposal states that MIAI is a "an Alaska non-profit corporation focussed on promoting the purchase and utilization of Alaska goods and services", with "members who pay an annual fee" and that "in exchange for that fee…we provide various services to those members." The proposal denies that MIAI’s services "include identification or promotion of products and/or business", stating only that MIAI does "educate and help our members promote their products and services by various means", including encouraging their participation in the Made In Alaska program and other small business assistance programs. The proposal also denies that MIAI "identif[ies]or promote[s]…products and/or specific businesses." In substance, the proposal denies that MIAI activities create any area of actual or potential conflict with the MIA program.

These denials are untenable. It is the stated mission of MIAI to promote the purchase of Alaskan products. For MIAI to assert, as the proposal does, that it does not promote products or businesses is to say that it has completely failed in its mission. The MIAI corporate name is highly similar to the MIA program name, and the MIAI and MIA missions are substantially related, creating an obvious potential for competition, conflicts of interest, confusion in the public at large, and financial gain to MIAI from activities occurring under MIA auspices. As these observations suggest, rather than identifying, acknowledging and addressing DCED’s legitimate concerns as clearly expressed in the RFP, the portion of MIAI’s proposal directly addressing conflicts of interest ignored the obvious.

MIAI suggests that DCED abused its discretion because it failed to make inquiries to MIAI regarding the nature of MIAI’s activities at the time the proposal was submitted, or regarding its plans in the event MIAI were awarded the contract. However, the RFP in this case clearly placed the primary burden on respondents to identify and disclose any potential conflict, and it expressly stated that the failure to disclose was grounds for a finding of non-responsiveness. Accordingly, the primary responsibility was clearly on MIAI to fully address the issue in its proposal, by describing its non-MIA activities, acknowledging the disadvantages as well as the advantages that might flow from them, and proposing mechanisms under which DCED’s legitimate interests in financial oversight, programmatic control and administrative supervision could be accommodated. DCED’s failure to inquire, therefore, does not excuse any failure of MIAI to adequately disclose its own activities. Furthermore, MIAI’s failure to adequately address the conflicts issue in the RFP and its continued denial that there is any potential for such conflicts are evidence that it would be unable to identify such conflicts should they arise. Finally, this hearing provided a full and fair opportunity for MIAI to address DCED’s concerns, and cured any failure of DCED to make inquires at an earlier date.

c. Mitigation

MIAI’s proposal could have substantially alleviated DCED’s concerns over potential conflicts. For example, with respect to the patent similarity of names, MIAI might have proposed operating as a d/b/a or changing its corporate name, as it previously had done. With respect to MIAI’s privately funded or supported activities, MIAI could have offered, after full disclosure, to incorporate them in the MIA program, transfer them to another entity, or discontinue them if deemed by DCED to materially and substantially conflict with the MIA program. To provide assurance that all program receipts would be properly accounted for, MIAI could have offered to provide an independent accounting of its corporate finances for review by DCED.

MIAI’s proposal included no such general safeguards, did not expressly and fully disclose MIAI’s non-MIA related activities, and did not describe in any detail the services and benefits that MIAI intended to provide to MIA permit holders, if any, outside the course and scope of the MIA contract. Nonetheless, in some specific areas, the proposal does include features that would mitigate potential conflicts. For example, MIAI proposed establishing (for the first time) a separate office and telephone number for the MIA program manager. This feature, while clearly appropriate, is only a minimal safeguard that primarily impacts public perception rather than providing an internal safeguard: separating the offices and telephone numbers would completely fail to mitigate in any substantive way the underlying potential for conflicts created by the similarity of names and mission.

With respect to the significance and materiality of the alleged conflicts, DCED’s procurement officer and program manager testified that they were primarily concerned with "competition" and conflicts arising from: (1) claims to represent MIA permit holder interests (i.e., similarity of mission); (2) similarity of name; (3) the MIAI products directory; (4) the MIAI newsletter; (5) MIAI’s websites; (6) MIAI’s membership status; and (7) financial accountability.

I have concluded that DCED could reasonably foresee conflicts in four of these areas: (1) similarity of mission; (2) similarity of name; (3) MIAI’s websites; and (4) financial accountability. Taken together, particularly in light of the similarity of name and mission, the potential conflicts in these areas could reasonably be deemed significant and material.

There is a point at which the risks arising from potential conflicts of interest outweigh the benefits of experience, enthusiasm, commitment, and hard work. Where that line should be drawn is within the discretion of DCED. In this case, MIAI has a lengthy prior history of close involvement with the MIA program, and its corporate goals are substantially similar to the goals of the MIA program. Inherent in these close and longstanding ties and similar missions is a potential for differences of opinion, judgment and analysis that clearly could affect the delivery of services under the proposed contract. Whether DCED chose wisely by disqualifying an experienced, capable and highly committed entity, rather than attempting to resolve potential conflicts through contract negotiations[14] , pre-award discussions or otherwise, is not at issue, and the programmatic impacts of DCED’s choice is for DCED’s managers and other interested observers to assess. From the procurement perspective, I cannot conclude, particularly in light of MIAI’s apparent inability to recognize the obvious potential for conflicts, that DCED abused its discretion in determining that significant and material conflicts of interest were reasonably foreseeable.

DCED did not abuse its discretion in finding that Webb’s proposal was responsive.

In light of: (1) the potential conflicts between MIAI’s interests in pursuant of corporate goals, and MIA’s interests as defined by DCED; and (2) the failure of MIAI’s proposal to recognize and acknowledge potential conflicts and propose safeguards against them, DCED could reasonably conclude that there are reasonably foreseeable potential material and significant conflicts on the part of MIAI that "could affect the objectivity, analysis and/or performance of the contract". I conclude that DCED did not abuse its discretion in disqualifying MIAI. [15]

Nonetheless, it is not clear that DCED would have chosen to forgo discussions and disqualify MIAI if it had properly interpreted the RFP as requiring significant and material conflicts (rather than any "direct competition"), and if it had known that conflicts from the newsletter, directory and "membership" were not reasonably foreseeable. Furthermore, although I do not find that DCED acted in bad faith, one could reasonably find that the evidence as a whole creates the appearance that disqualification was primarily based on DCED’s confirmation of its pre-existing (and substantially correct) understanding of MIAI’s past activities, rather than on a full and fair assessment of the likelihood of future conflicts and of the ability of the parties to manage them. Because DCED’s action was based on an improper reading of the RFP, and on incorrect information concerning the reasonably foreseeable potential conflicts, it is appropriate to provide DCED the opportunity to reconsider its decision. Accordingly, I recommend that the commissioner remand this matter to DCED for reconsideration in light of this decision.

DATED August 8, 2002.

Andrew M. Hemenway

1. Included as part of MIAI’s proposal was a petition signed by the holders of 97 Made In Alaska permits (slightly under 10% of the total number), supporting selection of MIAI as the Made in Alaska program manager, as well as letters of recommendation from influential past and present members of the Alaska legislature, several leading producers of Made In Alaska products, and other permit holders. .
   
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2. Funding under the contract was limited to $75,000 (including up to $25,000 in program receipts), indicating total MIAI revenues of approximately $187,500 ($75,000 = .4 x $187,500). Total permit revenue in FY 1999 was $28,125, or precisely 15% of $187,500. This suggests that MIAI generated $103,125 in private funding, including memberships, advertising revenues, donated services, plus the income from promotional materials that MIAI did not treat as MIA program receipts ($103,125 = .55 x $187,500). The 1999-2000 Alaskan Products Directory listed 327 MIAI members at the $25 level, 74 at $50, and 42 at $100, indicating membership revenue of $16,075, which suggests advertising and other cash revenues of approximately $37,000, and donated services of approximately $50,000. The directory listed 40 corporate sponsors recognized for substantial contributions of funds or services, indicating average donations or in-kind contributions slightly over $1,000 apiece. [Ex. 3 at 3-5].
   
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3. This was not the first time MIAI had represented the “madeinak.com” website as its own. A 1999 MIAI “Bear Facts” newsletter identified that site as MIAI’s, [Ex. 5 at p.12] and the summer 2000 “Bear Facts” described “madeinak.com” as MIAI’s “products” website, and “makeitak.com” as its “services” website. [Ex. 6 at p.1, 8] However, the 2000-01 Alaska Products Directory, which had been prepared prior to July 1, 2000, continued to describe the “madeinak.com” site as the “official” MIA site. The 2001-02 directory did not reference the “madeinak.com” site as the official MIA site, nor did it claim that the site belonged to MIAI. [Ex. 12 at p. 6]
   
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4. Mr. Webb did not testify at the hearing, and the parties did not provide testimony or evidence establishing whether that fee was equal to the fee paid by other Market participants, whether the space made available for that fee was equal to the space provided to other Market participants, or whether Webb or the Downtown Saturday Market was the beneficiary of the fees paid. I am unable to make any findings, therefore, regarding whether the space was made available to MIA permit holders on the same terms as all other Market participants.
   
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5. See generally, Appeal of Waste Management of Alaska, Inc., at 9-13 (Department of Administration, April 25, 2002).
   
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6. DCED argues that evidence of past activities demonstrating a potential and actual conflict is sufficient to establish a reasonable probability that the same activities will continue, and that it need not consider other evidence bearing on the likelihood that the same conduct would continue. This is clearly incorrect, as it is the potential for future conflicts, not the existence of past conflicts, that provides a ground for a finding of non-responsiveness. If DCED wishes to preclude a party from participating in a solicitation based on evidence of prior activities alone, a debarment proceeding, rather than a responsiveness determination, is the appropriate mechanism.
   
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7. MIAI’s protest asserted that DCED failed to provide due process when it barred MIAI from participation in the solicitation without a prior hearing. It is generally true a hearing is required before a deprivation of property. However, a post-deprivation hearing generally cures the lack of a prior hearing for purposes of the validity of the action taken. Thus, assuming that MIAI’s ability to submit a proposal was a property interest entitled to due process protection, this hearing suffices and MIAI’s objection is moot.
   
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8. “The Services Guide was added in 1993 and became a separate section in 1997.” [Ex. 6 at p.1] The 1995-96 edition was entitled “Made in Alaska Products Directory & Alaskan Services Guide”. [Ex. 1] Subsequent editions apparently dropped the term “Made In Alaska”. [Ex. 2, 3]
   
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9. DCED provided direct funding to MIAI under the MIA contract for MIA permit renewals. Because the directory included a permit renewal form, it could have been characterized as in part an element of the MIA program, with the additional cost of including a permit renewal form included as a direct cost of the MIA program and a proportional share of the advertising revenues generated by directory being considered as program receipts. But inclusion of the renewal form in the directory could also be characterized as a donation, which is apparently how MIAI treated it, and DCED has made no claim that it should have been treated differently. However, MIAI’s inclusion of the permit renewal form in the directory illustrates the problematic nature of MIAI’s purportedly “independent” activities for purposes of financial accounting, in the absence any express agreement between MIAI and DCED concerning the allocation of costs and revenues associated with those activities.
   
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10. “One of the cornerstones of [MIAI’s prior promotional efforts] has been the production and distribution of a comprehensive Directory,…. [MIAI] is proud to be the only entity in the history of the program to produce such a comprehensive and nationally distributed listing of MIA program participants. Per DCED request, we will create a new and functional format while maintaining a cost conscious approach to the RFP requirement.” [RFP §3.2 at 20]
    
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11. It is extremely unlikely that an MIA permit holder would give up the permit in order to join MIAI, since the permit, and the associated logo, is the primary benefit of the MIA program. The suggestion that the nominal annual cost of membership in MIAI would be unduly onerous to MIA permit holders is unpersuasive, and in any event that is a decision for individual businesses to make, not DCED.
    
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12. To the extent that the solicitation of membership did not have any adverse impact on permit holders or on the MIA program, precluding any “membership” based organization from the solicitation was unnecessary, and this requirement was unduly restrictive.
    
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13. For example, with respect to MIAI’s proprietary database, it would be possible for MIAI to obtain information under MIA auspices that it could incorporate in its own proprietary database, or make it unnecessary. Would DCED be entitled to a portion of any proceeds generated by use of the MIAI proprietary database, or by MIAI’s use of the MIA database? In the past, MIAI included MIA permit renewal and application forms in its “independent” publication, the Alaska Products Directory. Was the cost of including that form an MIA expense, and would DCED be entitled to a proportional share of the advertising revenues generated by “independent” MIAI publications that include MIA-related materials?
    
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14. When asked if the reasonably foreseeable conflicts might have been addressed through contractual provisions, the contracting officer stated, “Anything is possible.” DCED also testified that if MIAI had a different name, the potential for conflicts would be significantly reduced.
    
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15. Because of this conclusion, it is unnecessary to address MIAI’s argument that DCED erred in failing to disclose financial data.
    
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