BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION

 

In the Matter of:                               

                                                           

J & S SERVICES, INC.               

                                                           

Appellant.            DNR RFP No. 2002-1000-2936    Dept. of Administration Case No. 02.01

 

 

 

PROPOSED DECISION

 

 

This procurement appeal concerns an RFP issued by the Department of Natural Resources [DNR] to lease an aircraft for use in fire suppression activities.            DNR received four proposals, two from each of two offerors, J&S Services, Inc. [J&S] and TORAM Capital Ventures, LLC [Toram].

An evaluation committee reviewed the proposals and recommended accepting one of the Toram offers.  Notice of Intent was issued and J&S filed a protest.  DNR did not stay award of the contract, which was executed four days before DNR formally denied the protest.  J&S has appealed.

J& S’s primary argument on appeal was that the evaluation scores for its proposal were unreasonable.  After filing the appeal, J&S notified DNR that it believed that one of the members of the proposal evaluation committee might have had a conflict of interest. 

Commissioner Duncan initially denied the appeal, finding that the evaluation scores were not unreasonable and that there was no evidence of impropriety.  J&S requested reconsideration, arguing that in the absence of any evidence of actual impropriety, there may still be an appearance of impropriety.  On reconsideration, the commissioner granted a hearing.

By order of the hearing officer, the hearing was restricted to determining whether there was any impropriety.  The hearing was conducted on May 22 in Anchorage.  This proposed decision is based on the protest appeal, protest report and comments, and the testimony and evidence presented at the hearing.

A.                 Factual Findings.

1.            Solicitation Process.

DNR issued RFP No. 2002-100-2936 on November 5, 2001.  The RFP solicited proposals for a 10-year lease of a Shrike Twin Commander 500S or 500U airplane, with a buy-out option at various intervals throughout the lease.  The Shrike was to be outfitted for use in fire fighting operations, and the RFP contained a comprehensive list of specifications for outfitting the aircraft to meet DNR’s needs.  Matt Tomter, the director of aviation for DNR, worked with Doug Burts, DNR’s chief pilot, and Rod Russell, its chief mechanic, to prepare the specifications.  Meeting these specifications would require extensive modifications to the aircraft prior to delivery, because of DNR’s unique requirements.  Proposals were due on November 27. 

Ron Fellows was the DNR procurement officer for the solicitation.  The RFP instructed offerors to contact him with questions about the RFP or contractual documents, or Matt Tomter, the Project Manager, with technical questions.  It noted that only Mr. Fellows would have authority to make changes, clarifications, or amendments to the RFP.

The solicitation was posted online and advertised in the Juneau, Fairbanks and Anchorage newspapers.  It was not advertised outside of Alaska. 

Doug Burts and his wife are co-owners of a firm in the business of selling and leasing aircraft, known as Ram Air, Inc. [Ram Air].  When Mr. Burts became employed by DNR, he disclosed his relationship with Ram Air and agreed to dissociate himself from the management of the business and not to perform maintenance work on aircraft under lease to DNR.  At that time, Ram Air had one aircraft under lease to DNR.

Over a period of time after Mr. Burts became employed by DNR, Mrs. Burts formed the opinion that her husband’s working relationship with his supervisor, Mr. Tomter, was suffering as a result of issues that had arisen between DNR and Ram Air with respect to the aircraft lease.  Because she did not want to expose her husband to problems in his employment capacity, Ram Air terminated its aircraft lease in the spring of 2001.  Nonetheless, when the new RFP was issued, Ram Air considered submitting a proposal.[1] 

Mrs. Burts contacted Mr. Fellows and asked if Ram Air would be able to submit a proposal, in view of Mr. Burts’ employment.  Mr. Fellows initially responded that Ram Air could submit a proposal.  Mrs. Burts then contacted Merlyn Instruments and obtained pricing information concerning the modifications required by the RFP.  Shortly thereafter, Mr. Fellows realized that Mr. Burts had been actively involved in preparing the specifications for the RFP and that he would be a member of the evaluation committee.  DNR informed Mrs. Burts that Ram Air would be precluded from submitting a proposal unless DNR granted a waiver of the conflict of interest, and Mrs. Burts abandoned any thought of submitting a proposal.

From November 12-21, J&S made a number of inquiries to Mr. Fellows concerning the specifications, asking for clarification of the RFP, suggesting changes in the specifications, and requesting additional information.  On November 26, J&S requested an extension of time for submission of proposals in order to resolve financing issues it had encountered.  DNR granted the request and extended the date for responses to December 4.

On November 27, J&S again contacted Mr. Fellows, this time asking that the time for responses be shortened to November 29 or 30.  DNR denied the request.  From November 27 through December 4, J&S made several more inquiries to Mr. Fellows concerning the terms of the RFP and its offer.

Only two potential respondents had registered for the RFP prior to the original due date, J&S and one other.  Mr. Tomter called Mrs. Burts about the time proposals were originally due, on November 27 or 28.  He told her that it appeared only one proposal would be submitted, and that the person submitting it was “a pain in the ass.”  He asked if she knew of anyone who might be interested in submitting a proposal.  She suggested Aero.  Mr. Tomter asked if she would give them a call.  Mrs. Burts did call Aero, and was informed that Aero was not interested.

A day or two after the call from Mr. Tomter, Mrs. Burts received a telephone call from a man named Russ Torrison, asking about the RFP.  Mr. Torrison told Mrs. Burts he had obtained the name of Ram Air from the state’s vendor list.[2]  The aircraft leasing business is highly competitive, and Mrs. Burts thought it unusual to receive such a call.  Because Ram Air was no longer considering submitting a proposal, Mrs. Burts gave Mr. Torrison information concerning the Shrike aircraft that were available, as well as pricing information she had obtained from Merlyn Instruments regarding the required modifications.  Mrs. Burts advised him not to make any other inquiries with prospective bidders in order not to harm his competitive position, since each prospective respondent would be very interested in learning who their potential competitors might be, and what information they had.  In addition, Mr. Torrison informed Mrs. Burts that he was acquainted with Mr. Tomter, and Mrs. Burts advised him to “stay clear” of Mr. Tomter in order to “make this an honest bid”.    

Four proposals were submitted on December 4, two by Toram and two by J&S.  Three planes were offered, including one offered by both Toram and J&S. 

J&S is an established aircraft and equipment supplier located in Fairbanks.  It has previously sold aircraft and leased various types of equipment to the State of Alaska, but it had never previously leased aircraft.  Toram was established for the sole purpose of responding to this RFP.  It is a limited liability company owned by two individuals: Russ Torrison and Mark O’Neil.  Mr. Torrison is a financial advisor and a pilot, with over 5000 hours of flight time.  Mr. O’Neil is a bank executive.  Neither Mr. Torrison nor Mr. O’Neill had any prior experience in the sale or leasing of aircraft.  Toram registered for the solicitation on November 30 (after the initial period had expired).

A proposal evaluation committee consisting of Matt Tomter, Rod Russell, and Doug Burts reviewed the proposals on December 6.  The committee, and Mr. Fellows, found the J&S proposals unclear.  On behalf of the committee, Mr. Fellows telephoned J&S to ask for clarification, and in addition Mr. Fellows prepared a list of 8 questions for J&S in an attempt to clarify certain aspects of the proposal.  The questions were submitted on December 11, and J&S responded the same day.  The next day the committee reconvened to score the proposals.

 On December 17, DNR issued a Notice of Intent to award the contract to Toram.

2.            Appearance of Impropriety.

Mr. Torrison and Mr. Tomter are friends who became acquainted in 1989, when both were attending Big Bend Community College (Mr. Burts was also a student there).  For a period of time Mr. Tomter and Mr. Torrison were roommates.  The two had remained in contact since they met, regularly conversing by telephone.  For a period of time, they were both employed by Cape Smythe aircraft, Mr. Tomter operating out of Nome and Mr. Torrison out of Barrow.  They continued to stay in touch after Mr. Tomter became employed by DNR in February, 1999.  In the summer of 2001, Mr. Tomter, Mr. Torrison, and Rodney Russell went hunting together out of Nome.  Mr. Tomter had also hunted with Mr. Torrison on another occasion.  Mr. Tomter does not know Mr. O’Neil. 

From September 15 through October 31, Mr. Tomter charged eight calls on his DNR telephone account to Mr. Torrison, for a total of 28 minutes.[3]  Subsequently, the number of telephone contacts between the two escalated.  From November 1 through November 26, Mr. Tomter placed 12 calls on his DNR account to Mr. Torrison for a total of 87 minutes.  During the one-week extension, from November 27 through December 4, Mr. Tomter placed 15 calls on his DNR account to Mr. Torrison, for a total of 56 minutes.  During the time that the evaluation committee had the Toram proposal under consideration, from December 5-12, Mr. Tomter placed 7 calls on his DNR account to Mr. Torrison, for a total of 28 minutes.  Mr. Tomter continued to regularly contact Mr. Torrison on his DNR business account after the committee completed the evaluation: prior to the date the Notice of Intent was issued, during the time the protest was under consideration, and after this appeal was filed.[4]   

Mr. Tomter testified that during their conversations, Mr. Torrison had questions about the technical aspects of the RFP, but he did not specifically recall what those questions were.  Mr. Tomter testified that all his conversations with Mr. Torrison were “purely professional” and entirely appropriate, and that his calls to Mr. Torrison were generally in response to a call from Mr. Torrison.  In addition to the telephone conversations, at some time while the solicitation was pending, Mr. Tomter was in Washington on business, and he met with Mr. Torrison and discussed the solicitation.

The procurement officer was unaware of Mr. Tomter’s relationship with Mr. Torrison prior to the hearing, and Mr. Tomter did not disclose his telephone conversations with Mr. Torrison to the procurement officer until the date of the hearing.[5] 

Mrs. Burts testified in a forthright, direct and convincing manner.  I found her a credible witness.  Mr. Burts’ demeanor was that of a reluctant but truthful witness.  He appeared to be under substantial real or imagined pressure with regard to his testimony.  I found his testimony credible, but in light of his demeanor, tone and appearance, at times less than fully forthcoming, particularly when it could be taken as indicating impropriety on the part of Mr. Tomter. [6]  Mr. Tomter faced hostile questioning that directly challenged both his integrity and his credibility.  I viewed his demeanor and the tenor of his testimony as appropriate under the circumstances.  Nonetheless, I find that his testimony was at times less than fully forthcoming and I find his denial that his conversations with Mr. Torrison were in any way inappropriate unpersuasive.[7]

B.                 Applicable Legal Principles.

In the absence of actual impropriety that may reasonably be perceived to have affected the outcome of a solicitation, the purchasing agency is not legally liable to a bidder for damages for breach of the implied contract of full and fair consideration of bids.  See, e.g., Dynalectron Corp. v. United States, 4 Ct. Cl. 424, 429-430 (1984).  However, even in the absence of actual impropriety or liability for breach of the implied contract, the appearance of impropriety may warrant discretionary remedial action by a purchasing agency.  Paul Wholesale, B.V./Hols Trading, GMBH, J.V. v. State, Department of Transportation and Public Facilities, 908 P.2d 994, 1003-1004 (Alaska 1995) (“We need not and do not decide…whether [the protestor’s] assertions of impropriety were valid.  It is enough that [the protestor’s] assertions were not patently frivolous.”); Dick Fischer Development No. 2, Inc. v. Department of Administration, 838 P.2d 263, 267 (Alaska 1992) (“We hold…that the concern over impropriety in the bidding process was sufficient to support the State’s decision to cancel the project.”); NKF Engineering, Inc. v. United States, 805 F.2d 372, 376 (Fed. Cir. 1986).

Whether an appearance of impropriety exists is a factual question which the commissioner determines de novo.  If an appearance of impropriety is found, the commissioner may take “appropriate action”.  AS 36.30.680.  The remedies that may be considered include award of bid or proposal preparation costs; termination of an existing contract; declining to exercise options under an existing contract; resolicitation; re-evaluation; and other “appropriate action”.  Cf., 4 C.F.R. §21.8.  Other appropriate action could include referral to the Attorney General for investigation under the Ethics Act; referral to departmental personnel officials for consideration of disciplinary proceedings; additional procurement training; and consideration of revisions to applicable statutes, regulations, the administrative manual, or other procurement policies and procedures.  There is no statutory authority for an award of attorney’s fees.  See, Appeal of Human Resources, Inc., No. 97.09 at 3-4 (Dept. of Administration, October 22, 1997).  The factors set forth in AS 36.30.585(b) must be considered.  See generally, Appeal of Waste Management of Alaska, Inc., No. 01.08 at 17-20 (Dept. of Administration, April 25, 2002).

C.                 Analysis.

1.      An Appearance of Impropriety May Warrant Remedial Action.

DNR asserts that in the absence of actual impropriety that had an impact on the outcome of the solicitation, a protest must be denied.  Based on this reasoning, DNR argues that the protest appeal should be denied and that no remedial action is appropriate. 

DNR’s position is contrary to the purposes of the Procurement Code as well as established federal and state procurement law.  One of the central purposes of the Procurement Code is to maintain public confidence in the integrity of the procurement system.[8]  In order to ensure that the system not only operates fairly, but also is perceived to do so, it is at times necessary to provide relief based on the appearance of impropriety, even though there has been no showing of actual impropriety:

The sanctity of the public contracting process is too vital a concern to require proof of actual irregularity.  The perception that any one procurement was contrived to thwart or avoid the competitive bidding process fundamentally maligns the integrity of the public procurement process.  The law of public contracting is clear: Procedures or devices which lead the public to believe it was denied the benefits of public advertising and bidding, which lead contractors to feel cheated of a fair and equal bidding opportunity, or which lead the public to believe itself deprived of its right to have public officials conduct public affairs with propriety simply cannot be tolerated.

 

1985 Op. Att’y. Gen. No. 3 at 16-17 (July 2, 1985). 

Of course, as noted by the dissent in Paul Wholesale,[9] the implied contract of full and fair consideration imposes an obligation on purchasing agencies not to undermine the integrity of the procurement process by providing relief for insubstantial[10] or immaterial allegations of impropriety.  Where the line should be drawn is necessarily a matter of case by case consideration.  In determining where to draw the line, the purchasing agency should consider the degree to which there is an appearance of impropriety in relation to the Keco[11] factors: (1) subjective bad faith by the procurement officials; (2) the basis for the administrative decision; (3) the degree of discretion involved; and (4) applicable statutes and regulations.  In addition, the agency should consider the degree to which the outcome of the solicitation could have been affected.

What is more, the relief that is available and appropriate in a protest appeal is not limited to contractual remedies.  In some cases, administrative remedial actions might be appropriate, such as employee disciplinary action, retraining, limitations on delegated procurement authority, revisions to the administrative manual or administrative code, or statutory changes.  In view of these administrative remedies, the commissioner’s authority to take “appropriate action” following a protest appeal necessarily includes cases in which the alleged impropriety had no actual affect on the outcome of the particular solicitation.

2.            An Appearance of Impropriety Exists.

In this case, DNR has acknowledged that there is an appearance of impropriety.[12]  This appearance is created by undisputed facts.  Throughout the period of time the RFP was pending, Mr. Tomter was in regular contact with Mr. Torrison, including during periods of time when technical questions to him in his capacity as the Program Manager would not have been in order, such as during the time the proposal was under review by the evaluation committee.  It is inappropriate for an evaluator to engage in such contacts, precisely because it creates an appearance of impropriety.[13]  Because the telephone calls were charged to the DNR account, no personal reason for the calls can be claimed.  While a significant number of technical questions from Toram was to be expected, the timing, frequency, and failure to disclose the calls is troubling in light of Mrs. Burts’ testimony that she advised Mr. Torrison to “steer clear” of Mr. Tomter.  Under the circumstances, there is a clear appearance of impropriety based on the “hard fact” that multiple calls were made when technical questions to Mr. Tomter as Program Manager were not in order.

In addition, Mr. Tomter’s social relationship with Mr. Torrison was sufficiently close to create an appearance of impropriety,[14] given Mr. Tomter’s central role in the procurement.[15]  In the small universe of Alaskan aviation, personal, social and professional ties are to be expected, and do not in all cases create an appearance of impropriety.  However, while a degree of personal, social and professional interaction is normal, the social relationship between Mr. Tomter and Mr. Torrison was atypical.  The social relationship was substantial and not casual, it predated their Alaskan residency, it extended to non-professional contacts, and it continued after Mr. Torrison left Alaska.  Hunting partners in Alaska typically forge close personal bonds.  The evidence, taken as a whole, indicates that there is a close social and personal relationship between Mr. Tomter and Mr. Torrison that goes well beyond the casual relationships that are common in the Alaskan aviation industry.

The appearance of impropriety arising from the undisputed facts concerning Mr. Tomter’s social relationship with Mr. Torrison and their contacts after proposals were submitted and prior to the Notice of Intent is highlighted by other factors.  Clearly, Mr. Tomter did not adequately disclose the extent of his relationship with Mr. Torrison, even if he did mention a casual friendship with a potential respondent.[16]  Had Mr. Fellows known the full facts, he might still have included Mr. Tomter on the evaluation committee, but he undoubtedly would not have authorized Mr. Tomter to engage in undocumented verbal communications with Mr. Torrison while the RFP was pending, even with respect to technical matters. 

Furthermore, on the question whether Mr. Tomter disfavored J&S as a contractor, Mr. Tomter denied any unfavorable feeling towards J&S.  However, Mrs. Burts testified, and I found her testimony on this point credible, that Mr. Tomter stated that the only prospective respondent (who was J&S) was “a pain in the ass.”  Mr. Burts testified, with a demeanor that indicated a distinct reluctance to say more, that he had heard “rumors” that J&S was not a desired respondent because it was a “hassle” to deal with.  I find Mr. Tomter’s testimony regarding his view of J&S unpersuasive and insufficient to dispel the appearance of bias.

Regarding the Keco factors, the “hard facts” could reasonably be deemed to support an inference of subjective bad faith by Mr. Tomter (favoritism for Toram and bias against J&S), as well as of a violation of AS 36.30.240 and 2 AAC 12.290 (a) (fair and equal treatment in discussions with offerors).  However, the facts do not create a substantial issue regarding the reasonableness of the decision to award the contract to Toram (whose proposal was clearly superior),[17] and the evaluation of proposals is an area in which procurement officials have a substantial degree of discretion.

3.      Appropriate Action

There is no direct evidence that Mr. Tomter provided advance information to Mr. Torrison, that he disclosed confidential information, that his scoring was biased, or that he improperly assisted Toram in the preparation of a proposal.  In the absence of direct evidence of bad faith, the presumption of good faith is not overcome.  However, Mr. Tomter’s denial of any inappropriate discussions was unpersuasive, and his contacts with Mr. Torrison during the time the proposal was under review by the evaluation committee were improper regardless of their content.  In that light, and in light of Mr. Tomter’s social relationship with Mr. Torrison, the frequency and timing of their contacts, and Mr. Tomter’s failure to disclose those contacts or the extent of his relationship with Mr. Torrison, there is a substantial and material appearance of impropriety.  I see no appearance that Mr. Tomter acted contrary to the Ethics Act, however, as there is no indication that he had any personal or financial interest in matter.

An appropriate remedy should be implemented pursuant to AS 36.30.585(b).  Under all of the circumstances, and taking into consideration that the procurement has been completed, the aircraft is uniquely outfitted for DNR, the Toram proposal was clearly superior, and that there is no direct evidence of bad faith, I conclude that it would be inappropriate to cancel the existing contract between Toram and DNR.  However, in light of the seriousness of the deficiencies identified, I recommend J&S be awarded its proposal preparation costs.  Attorney’s fees are not available.

It also appears that administrative measures may be appropriate to safeguard the integrity of the procurement process in similar circumstances in the future.  In particular, it may be appropriate to revise the Evaluators’ Guide to advise evaluators that personal and social contacts, as well as financial conflicts of interest, should be considered in deciding whether it is appropriate to participate in an evaluation, and that such relationships should be disclosed to the procurement officer in all cases.  (Currently, the Evaluators’ Guide simply refers to the Ethics Act, which addresses personal and financial conflicts of interest that are different from social and personal relationships that may create an appearance of favoritism or bias.)  In addition, it may be necessary to give this topic additional emphasis in training sessions.  Finally, DNR’s procurement officer should review the facts and consider whether a referral to DNR’s personnel officials would be appropriate.  In the absence of any evidence that Mr. Tomter had any personal or financial interest in the matter, referral to the attorney general’s office under the Ethics Act is inappropriate.

 

DATED September 16, 2002.

 

                                    ______________________________

                                                                        Andrew M. Hemenway

Hearing Officer