BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION

 

In the Matter of:                               

                                                           

BACHNER COMPANY, INC. and           

BOWERS INVESTMENT CO. 

                                                           

Appellants. DGS RFP No. 2002-2500-2984

 Dept. of Administration Case Nos. 02.06/.07

 

 

RECOMMENDED DECISION

 

These consolidated protest appeals concern an RFP for a real estate lease, issued by the Department of General Services [DGS]. 

DGS issued a Notice of Intent to award the contract to McKinley Development, Inc. [McKinley] Bachner Company [Bachner] and Bowers Investment Company [Bowers] filed protests.  The protests were denied and Bachner and Bowers filed protest appeals.  Award of the contract was not stayed, and DGS gave notice to proceed.

Commissioner Duncan appointed a hearing officer.  A hearing was conducted in Fairbanks.  This preliminary decision is based on the exhibits and testimony submitted at the hearing and the materials submitted with the protest appeal.

A.                 Factual Findings.

1.            Contents of Solicitation.

RFP No. 2002-2500-2984 was issued by DGS on December 7, 2001.  It solicited proposals to lease approximately 23,000 square feet of office space and 1,000 square feet of cold storage in Fairbanks for use by the Department of Transportation and Public Facilities [DOT]. 

The “Lease Provisions” portion of the RFP provided for an initial 20-year term, with 10 two-year extension periods at the State’s option.  This section stated:

Adjustments in the lease rate may be made if requested in writing by the Lessor…Such adjustments may be made annually to reflect changes in the Lessor’s variable costs, and defined as all operational cost other than debt service and profit.  Operational costs…are equal to [35%] of the Base Monthly Lease Rate.

The monthly lease rate may be adjusted effective August 1, 2007.  Such adjustment will be made in accordance with the percentage change in the …Consumer Price Index [CPI]….

The Base Monthly Lease Rate is the “MONTHLY LEASE PRICE” offered in the PRICE PAGE of this Request for Proposal.  The formula is expressed as: [(35% x Base Monthly Lease Rate) x % change in CPI] + Base Monthly Lease Rate = Adjusted Monthly Lease Rate.

 

Part 3 of the “Award Criteria” portion of the RFP was headed “Evaluation Factors”.  The first part of the section stated:

3.1 Price: Shall consist of the “TOTAL OFFER” from the PRICE OFFER PAGE.  The lowest “TOTAL OFFER” will receive the maximum number of points allocated to price.  Other offers’ point allocations will be determined using the following formula…

…50 points maximum

 

            On the next page, this section of the RFP had a segment headed “Application of Present Value Formula”.  This segment stated:

FOR SCORING PURPOSES ONLY…Present Value Analysis will be applied to the cash flow to determine the present value of payments on the PRICE OFFER PAGE.  The use of Present Value should have no impact on how a offeror chooses to submit their offer but is a tool to ensure that the responses from ALL OFFERORS IS FAIRLY EVALUATED.

 

PRESENT VALUE FORMULA: PV = FV_n [1/(1+i)ⁿ]

 

Where FV = the future value of the investment at the end of n years

            n          = the number of years that the payment will be received

                               (firm term plus all renewal options)

            i           = the annual discount (or interest) rate is 6% for this solicitation

            PV       = the present value of the future sum of money

 

            The RFP then gave an example, showing the application of the formula to a hypothetical five-year lease for $100 per month ($1,200 per year).

            The other listed evaluation factors included 20 points for “Function, Planning and Design”, 10 points for “Appearance and Indoor Environment”, and 10 points for “Public Convenience”.

The “Price Offer Page” included four components: (A) Lease Cost (monthly cost x 480 months); (B) Leasehold Improvements Cost (monthly cost x 240 months); (C) Moving Cost; and (D) Headbolt Heater Outlets Cost.  The “Total Price Offer” consisted of the sum of those four elements. 

The Lease Cost section noted:

The above MONTHLY COST (+ allowable CPI adjustments) will be paid directly to the Lessor each month of the firm term and all renewal options.  The above MONTHLY COST will be used as the Base Monthly Lease Rate for CPI calculations…

 

            The Leasehold Improvements Cost section noted:

The above MONTHLY COST will be paid directly to the Lessor each month of the firm term only.  ALL leasehold improvements required to provide this lease, must be included in this item.  No CPI increases will be allowed on the LEASEHOLD IMPROVEMENTS COST.  DO NOT include this leasehold improvement cost in your monthly sf cost defined in “A”.  See Page 45 item 3.1 for further definition and clarification of Leasehold Improvements.

 

A cover letter accompanying the RFP, under the signature of Jan Madson, the contracting officer for this solicitation, stated:

Re: Changes to the RFP Solicitation Document

I am pleased to announce that we have made modifications to our lease procurement documents to better identify costs to the State of Alaska. 

These changes are found on page 45, item 3.1 particularly dealing with Present Value formula and on the page 51 – Price Offer Page, items A and B particularly dealing with leasehold improvements and those costs.

These items will be discussed in the Pre Bid Conference….

 

2.            Submission and Consideration of Proposals.

The pre-bid conference was conducted on December 14.  At the conference, the question of the occupancy date was raised.  Ms. Madson stated that the occupancy date stated in the RFP reflected the expiration date of the current lease and was firm, but that a 60 to 90 day extension of the lease term was possible.   In early January DGS obtained the agreement of the current DOT landlord, Bowers, to extend the lease for up to 90 days on a month-to-month basis, i.e., through October 31.  The July 31 occupancy dated stated in the RFP was not changed.

Eight proposals were submitted by the due date, February 4.  Four were from Bachner, each offering the same existing building, but with differing additional new construction and with different pricing.  Two, from McKinley and Blomfield, offered wholly new buildings.  Bowers and Fountainhead Development both offered an existing building; the Bowers building was the existing DOT facility.  To prepare proposals for submission, Bachner incurred $50,000 in costs and Bowers incurred $30,000 in costs.

A proposal evaluation committee convened on February 5-7, 2002.  The committee included John Bennett, Bruce Senkow and Jim Weed of DOT, Andy Donovan of DGS, and Ms. Madson as the chair.  Ms. Madson provided the members of the committee with the Evaluators’ Guide.  She also provided a memorandum that outlined the process to be followed, and at the beginning of the meeting she briefly covered the written materials.  Ms. Madson also, during her opening comments, remarked on the past performance of Bowers and Bachner, both of whom have broad and lengthy experience as lessors to the State of Alaska, and both of whom she had substantial direct experience with in her capacity as a contracting officer.  Her observations regarding both Bachner and Bowers were favorable, but were particularly complimentary of Bachner.  Both Mr. Weed and Mr. Bennett were struck by the tenor of her comments and considered them inappropriately effusive with respect to Bachner; the others did not have that reaction.

Before scoring the proposals, under the direction of Ms. Madson the committee contacted MACS (the Fairbanks municipal bus system) to inquire about bus service to the McKinley and Fountainhead properties, which were not currently on a MACS bus route.  With respect to the Fountainhead proposal, the committee confirmed that there was currently no bus service to the property and that MACS did not anticipate extending service there.  With respect to the McKinley property, the committee confirmed that although there was no existing bus service to the property, MACS anticipated providing service if the DOT facility was built there.  Because no bus service was presently available or contemplated at the Fountainhead location, Ms. Madson deemed the Fountainhead proposal non-responsive and directed that it not be scored.[1] 

Evaluators scored the proposals three times.  Following a preliminary review by Ms. Madson, the evaluators independently reviewed the proposals.  Following their review, they independently scored the proposals.  The scores were marked on a blackboard but not tallied or ranked.  (#1)  Next, the evaluators discussed their scores and the proposals, affording each evaluator the opportunity to consider and respond to comments by the others.  They then reviewed the proposals again and made a second score.  (#1A)  During the next two days the evaluators visited the sites of the existing and proposed buildings.  After those visits, and following further discussions, they independently scored the proposals for the final time.  (#2)  The final scores were tallied and ranked by the contracting officer outside the presence of the evaluation committee.

In round #1, Ms. Madson ranked the four Bachner proposals highest, and the McKinley proposal lowest.  All the other evaluators ranked the McKinley and Blomfield proposals first or second; Jim Weed and John Bennett ranked the four Bachner proposals last.  During the discussion that ensued after the initial round of scores was posted, Jim Weed questioned Ms. Madson’s scores for the Bachner facility.  In Mr. Weed’s view, Ms. Madson’s scores were inappropriate and unreasonable in light of the listed criteria.  Ms. Madson’s explanation of the basis for her scores struck Mr. Weed as inadequate.[2]  It was his unexpressed opinion, at the time, that Ms. Madson’s favorable impression of Bachner as a landlord had inappropriately affected her scores, resulting in higher scores for the Bachner proposals than could reasonably be justified consistently with the evaluation criteria.[3]  

Following the group discussion of the round #1 scores, the evaluators provided their round #1A scores.  On round #1A, Mr. Weed lowered his scores on each of the four Bachner proposals by an amount greater than the change in any other evaluator’s change on any of the proposals.  He lowered his combined score on the Bachner A proposal by 12 points, from 24 to 12; on the Bachner B, C and D proposals, he lowered his combined score by 7, 7, and 6 points respectively.  Only one other evaluator changed their score by as much as 4 points on a single proposal.[4]  In response to questions at the hearing, Mr. Weed provided no explanation for lowering his scores on the Bachner proposals other than the group visit to the sites, which, because the visit occurred after round #1A, could not have been the reason for the change in scores between rounds #1 and #1A.  In light of all the evidence and testimony, I find that on round #1A, Mr. Weed improperly lowered the scores he had previously awarded to the Bachner facilities in order to counteract what he perceived as Ms. Madson’s favoritism for that offeror.[5]  

After completing the round #1A scoring, the evaluators visited the sites proposed.  They then prepared a final round of scores, round #2.  On the final round, Ms. Madson ranked the Bachner A proposal first, Blomfield second and McKinley third.  Again, the others gave first or second ranking to McKinley or Blomfield; three ranked the Bachner A proposal last and one ranked it fifth.     

3.            Price Scoring.

None of the evaluators had access to the price components of the proposals, which had been submitted under separate cover.  After the evaluation was completed, the contracting officer awarded the maximum 50 points to the lowest priced offeror (the Bachner A proposal), and awarded lesser points to each of the others based on the formula set out in the RFP.  Prior to awarding points, the stated price of each proposal was adjusted by reducing the “Total Price Offer” as set out on the “Price Offer Page” to present value by application of the formula set out in the RFP, PV = FV_n [1/(1+i)ⁿ], using a spreadsheet designed for that purpose.  Although the RFP did not clearly explain that the stated “price” would not control the award of the contract, reduction to present value for evaluation purposes was reasonably foreseeable by a prudent offeror.

On the spreadsheet used to determine present value, the total payments shown on the Price Offer Page as components of the “Total Price Offer”, including Lease Cost and Leasehold Improvements Cost (in years 1-20), were added together and reduced to present value using the formula set forth in the RFP.  The spreadsheet did not adjust the Lease Cost upward to reflect allowable CPI adjustments (which could not reasonably be expected not to occur) before reducing the “Total Price Offer”.

A present value analysis is used in the real estate industry to adjust anticipated future payments under a long-term lease to their present value.  Present value analysis is applied to the cash flow in an income stream occurring over time.  The standard formula in the industry for determining present value is the formula set out in the RFP.  In that formula, the FV term (“future value”), in standard industry practice, would include an adjustment for any anticipated increases in the actual cash paid.  Under a long-term lease including a CPI provision, a reasonably prudent lessor will routinely apply for CPI increases when they become available.  Inflation historically has occurred at an average rate of approximately 3-4%, and reasonably prudent lessors and lessees anticipate similar inflation over the lifetime of a long-term lease.  In standard industry practice, a “present value analysis” applied to the “cash flow” on a long-term lease including a CPI adjustment provision would include an upward adjustment for future payments in order to accurately reflect the “future value” of the anticipated future payments.  Because the purpose of a present value analysis is to determine the present value of anticipated future payments, the failure to include reasonably anticipated increases in those payments is contrary to the purpose of the analysis.  For these reasons, a lessee’s failure to include such an upward adjustment in a present value analysis purporting to reflect cash flow for a long-term lease would not be anticipated by a reasonably prudent lessor.  Accordingly, I find that DGS did not apply the present value formula in a manner consistent with a reasonably prudent offeror’s understanding of the RFP.[6]

4.            Post Evaluation Proceedings.

After calculating the point totals, Ms. Madson notified Fountainhead that its proposal was non-responsive.  On February 13 she notified the participants that she anticipated issuing a Notice of Intent by February 22, following review by the Chief Procurement Officer and, likely, the Department of Law.  On February 19, she asked for clarification from McKinley regarding the categorization of costs on its offer, together with financial and corporate information (this information is typically used to determine responsibility of the prospective awardee).  On February 26 Ms. Madson wrote a memo to the file describing the evaluation process, and on February 28, after receiving the requested information from McKinley, she issued a Notice of Intent identifying McKinley as the prospective awardee.

That same day, Ms. Madson contacted McKinley to initiate planning for the contract, identifying matters to be addressed and stressing the need for McKinley to maintain close contact with her. 

On March 8 and 11, Bachner and Bowers, respectively, filed protests. Bachner’s protest asserted that the preference for employers of the disabled had been miscalculated – to Bachner’s disadvantage.  The Bowers protest asserted that the same preference had been miscalculated – to Bachner’s advantage.  Bowers also asserted that the present value analysis should not have been applied in calculating price, and that rounding the price evaluation scores impermissibly exaggerated price differentials.

On March 12, Ms. Madson reviewed the protests and determined that the award of the contract should not be stayed.  She found that the protests were not likely to be sustained and that it was in the best interest of the State of Alaska to proceed in order to allow sufficient time for completion of the construction prior to expiration of the current lease.

On March 14, 18 and 19, before a decision was issued, Bachner supplemented its protest by asserting that DGS had erred by failing to include any adjustment for CPI increases when it performed the present value analysis used in the price evaluation.

On March 22, Ms. Madson denied both protests.  She found that all the bid preferences had been properly applied and that rounding was acceptable.  She concluded that the application of present value analysis was “clear”.  She did not consider Bachner’s objection to the failure to include a CPI adjustment in the present value analysis, although she did note that “[T]he overall point scoring does not change with the application of…CPI”, and that “No CPI options were applied…as they are not always applied for”.           

In conjunction with the denial, Ms. Madson again determined not to stay award, on the ground that the protests did not have merit and because “We would have to move to temporary facilities if the [extended lease date] is not met”, due to the seasonal constraints of the Fairbanks construction season, and to allow sufficient lead time for steel construction.  On March 26, she provided notice of award and notice to proceed with the contract.

Bachner and Bowers filed their appeals on March 28 and April 2, respectively.  The Bachner appeal raised the two issues: (1) the failure to include a CPI adjustment in the price evaluation (first raised in a supplement to the protest); and (2) application of the preference for employers of disabled persons.  The Bowers appeal raised three issues previously raised in its protest: (1) use of the present value formula for purposes of price evaluation; (2) rounding; (3) and application of preferences.  In addition, Bowers raised a new issue, asserting that (4) there was an appearance of impropriety, in that two members of the evaluation committee had indicated that the contracting officer had exhibited favoritism towards Bachner.

In pursuing their protests and the appeals as provided by law, Bachner and Bowers incurred substantial additional costs, including attorney’s fees, expert witness fees, and the value of the time devoted to the matter by their principals.

B.                 Issues on Appeal.

1.                  Is there actual impropriety or an appearance of impropriety?

2.                  Does the RFP provide for application of a present value analysis in the price evaluation?

3.                  Does the RFP exclude CPI adjustments from the present value analysis?

4.                  Were preferences calculated in conformity with applicable law?

5.                  Did DGS abuse its discretion in rounding scores?

C.                 Applicable Legal Principles.

With respect to evaluation of proposals, the agency must adequately inform prospective offerors of the bases upon which their proposals will be evaluated.  See generally, Appeal of Make It Alaskan, Inc., No. 00.11 at 5-10 (Department of Administration, May 1, 2001).  An RFP is interpreted as a whole in light of all the evidence.  “To be reasonable, and therefore valid, an interpretation must be consistent with the solicitation when read as a whole and in a reasonable manner.”  Fox Development Corp., No. B-287118.2 (Comp. Gen., August 3, 2001). 

Whether an appearance of impropriety exists is a factual question which the commissioner determines de novo.  If an appearance of impropriety is found, or actual impropriety, the commissioner may take “appropriate action”.  AS 36.30.680.

D.             Analysis.

1.      Timeliness of Issues Raised.    

DGS argues that the issue raised by Bowers regarding the use of a present value formula in the price evaluation was untimely and should not be considered, on the ground that the issue concerns “alleged improprieties or ambiguities in a solicitation” and should have been raised prior to the due date for proposals, pursuant to AS 36.30.565(a).  DGS makes the same argument with respect to the issue of CPI adjustments, raised by Bachner in a supplement to its protest.

AS 36.30.565(a) is intended to require prospective respondents to bring apparent defects in a solicitation to the attention of the purchasing agency before bids or proposals are submitted, so that the purchasing agency can take appropriate action prior to the due date.  The statute is not intended to preclude parties from raising concerns about the wording of an RFP after the due date, when the defects were not reasonably apparent prior to the due date.  When a solicitation contains a patent ambiguity (e.g., internally inconsistent or misleading language, or words susceptible of multiple meanings), potential respondents generally would be expected to raise the matter prior to the due date.  However, when a solicitation contains a latent ambiguity (e.g., by omission of information) the problem may not be reasonably apparent prior to the due date. 

In this case, the issue regarding application of the present value formula to the price evaluation was a patent ambiguity, apparent on the face of the RFP: the language of the RFP was sufficiently susceptible to alternative interpretations to warrant inquiry by a reasonably attentive offeror.  Accordingly, a protest filed after the due date for proposals was untimely under AS 36.30.565(a).  However, ambiguity as to use of CPI adjustment in the present value analysis was latent, because the RFP was silent on that issue.  For this reason, the CPI issue could be raised after the due date.  Nonetheless, the issue was untimely, because it was raised more than ten days after the Notice of Intent.

When a protest is untimely, the contracting officer must determine whether there is good cause to consider the protest.  AS 36.30.565(b).  Good cause includes both sufficient reason for the delay and other circumstances that warrant consideration of the merits.  See generally, Appeal of Scientific Fishery Systems, Inc., No. 98.08 at 2-7 (Department of Administration, July 26, 1999).

In this case, the present value analysis had not previously been used, and once the issue was raised, it should have been clearly apparent to DGC that the wording of the RFP with respect to that item was problematic.[7]  At the time the issue was raised, corrective action was still possible by re-scoring the price components.   Furthermore, the amount of money involved was unusually large, with a concomitantly large financial impact in the event of error.  In addition, the potential respondents could not reasonably have been expected to raise the CPI issue in a timely manner, since a reasonable offeror would not have read the RFP as precluding any such adjustments from the present value analysis, and that this occurred was not known until the scoring was reviewed in depth.  Because the CPI issue and the present value analysis are inextricably linked, it makes no sense to hear one but not the other.  Finally, there were timely protests filed by both parties with regard to other matters, and DGS has fully contested the untimely issues on appeal.  Under all of the circumstances, there was “good cause” for accepting the untimely protests because there was reasonable ground for delay in filing (lack of knowledge of the ground for the CPI protest), and the issues raised involved substantial matters with significant financial implications for the state, as well as potential material defects in the RFP.  On appeal, given the allegations of impropriety that have been raised, and which DGS has not argued are untimely, the case for accepting these other issues is enhanced.

In any event, the timeliness issue is not controlled by the allegation of ambiguity.  The protests also assert that DGS did not evaluate the price in conformity with the terms set forth in the RFP.  In that light, whether the RFP was ambiguous is irrelevant.  A protest challenging the evaluation was timely within ten days after the notice of intent.  The present value protest was timely by that standard, and the CPI issue is inextricably linked to that issue.

2.            Actual or Apparent Impropriety.

The finding that Mr. Weed altered his score in order to counteract the perceived favoritism of Ms. Madson establishes actual impropriety.  Because the impropriety could have impacted the outcome of the solicitation, the protest should be sustained, and an appropriate remedy implemented.  In fashioning an appropriate remedy, Bowers’ protest alleging impropriety on Ms. Madson’s part must also be considered

In considering allegations of appearance of impropriety, the purchasing agency owes an obligation not only to the protestor, but also to the proposed contractor:

[A]s noted by the dissent in Paul Wholesale [v. State, Department of Transportation and Public Facilities, 908 P.2d 994, 1006-7 (Alaska 1994)], 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 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[8] 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.

 

Appeal of J&S Services, Inc., No. 02.01 at 9 (Department of Administration, September 17, 2002). 

Bachner argues that a number of Ms. Madson’s decisions were the product of favoritism for McKinley, but I find that argument entirely speculative.[9]  The only direct evidence of favoritism on Ms. Madson’s part is the testimony from Mr. Weed and Mr. Bennett to the effect that she was overly effusive regarding Bachner’s past performance on similar contracts. 

Regarding her comments about Bachner, Ms. Madson testified that her views were based on Bachner’s prior performance, which she considered an aspect of responsibility, and that she did not base her evaluation scores on that factor.  I found Ms. Madson a credible witness in this regard and in her testimony generally.  Past performance is a factor that may be considered in connection with responsibility.  It may also be considered in an evaluation when listed as a factor.  The impropriety alleged by Bowers, in effect, is that Ms. Madson based her evaluation in part on a factor (past performance) that was not listed in the RFP.[10]  This is quite distinct from favoritism consisting of consideration of factors that would not under any circumstances be appropriate, such as personal relations, race, ethnicity, political stance or similar matters.

Ms. Madson candidly stated that she preferred the Bachner building.  Her reasons were largely subjective, and the testimony and evidence did not establish that her scores were unreasonable.  While a review of the scores quite clearly establishes that Ms. Madson’s subjective preference for the Bachner facility was not shared by any of the other evaluators, I do not find her scores so anomalous as to be considered evidence of improper favoritism.[11] 

In relation to the Keco factors: (1) there is no showing of subjective bad faith on Ms. Madson’s part; (2) her scores for the Bachner facility were not unreasonable, and her decisions regarding the procurement were not an abuse of discretion; (3) evaluation of real estate is highly subjective, and the procurement decisions concerned matters within the agency’s discretion; and (4) while consideration of an unlisted factor (if it occurred) would have been contrary to procurement laws and regulations, an abuse of discretion (even if one were shown) would not be.  Regarding the impact of any favoritism on the outcome of the solicitation, all parties other than Ms. Madson preferred the McKinley proposal to any of the Bachner proposals.[12]   I conclude, in light of all the testimony and evidence, and the credibility of Ms. Madson as a witness, that there not a substantial and material appearance of impropriety on Ms. Madson’s part.

E.             Remedy.

The potential remedies in this case appear to be: (1) confirm the lease award to McKinley and award Bachner and Bowers their proposal preparation costs; (2) remand to DGS for rescoring, applying a reasonable CPI adjustment and omitting Mr. Weed’s scores, and award the lease to the highest rated offeror; or (3) cancel the solicitation and issue a new RFP.

AS 36.30.585(b) provides that in determining an appropriate remedy, the procurement officer must consider: (1) the seriousness of the procurement deficiencies; (2) the degree of prejudice to other interested parties or to the integrity of the procurement system; (3) the good faith of the parties; (4) the extent to which the procurement has been accomplished; (5) costs to the agency and other impacts on the agency of a proposed remedy; and (6) the urgency of the procurement to the welfare of the state.

(1)            Seriousness of the Procurement Deficiency.

In this case, an evaluator improperly adjusted scores.  This is a serious deficiency in the procurement process.  Nonetheless, it is not a deficiency requiring cancellation, because the impropriety was limited to one evaluator.  Typically, the remedy for such misconduct is to rescore the proposals omitting the scores by the evaluator whose conduct was improper.    

In addition, the price evaluation did not comply with a reasonable reading of the RFP.  This, too, is a serious procurement deficiency.  The standard remedy for such a deficiency is to rescore the proposals applying the correct interpretation of the RFP.

This factor supports rescoring rather than cancellation.  However, DGS should have the option of cancellation (because it did not intend to utilize a CPI adjustment) if rescoring is deemed appropriate in light of all the circumstances. 

(2)            Degree of Prejudice to McKinley and Integrity of the Procurement System.

Either rescoring or cancellation would result in substantial prejudice to McKinley.  Rescoring, under any reasonable CPI adjustment, would result in award to another offeror, and cancellation could also result in award to another.  McKinley has incurred substantial construction costs, and award to another party would leave McKinley liable for those costs, and would result in the loss of the profits anticipated under the lease.  McKinley is not responsible for the deficiencies in the solicitation and is not responsible for the delay in the final administrative decision on the protests. 

Bachner argues that McKinley is not substantially prejudiced, because it can recover any damages incurred as a result of rescoring or cancellation of the solicitation by legal action against the State of Alaska.  However, that McKinley may have a legal remedy does not mean that those outcomes are without prejudice to it.  It is unlikely that any damages recovered by McKinley would entirely compensate it for its losses: the State may have defenses to any legal claims asserted;[13] damages would not include all costs incurred in pursing a remedy, may not include the indirect impacts of cancellation, and would in any event come only after a significant delay.  While the prejudice to McKinley may be reduced by reduced by the availability of a legal remedy, it is not eliminated.  From the standpoint of prejudice to McKinley, confirmation of the award is preferable.

With respect to the integrity of the procurement process, however, cancellation is the preferred remedy.  Impropriety on the part of one evaluator is not necessarily in itself grounds for cancellation.  However, in this case there were apparent defects in the procurement entirely apart from the actual impropriety on the part of one evaluator.  These apparent defects included: (1) patent ambiguity with respect to use of the present value analysis; (2) latent ambiguity with respect to CPI adjustments; and (3) the appearance that inappropriate factors were considered by the evaluators (proximity to existing DOT facility and past performance of offerors).  Given the nature of the actual and apparent defects, cancellation would be appropriate.

Taken together, in light of the substantial risk of prejudice to McKinley, and the harm to the integrity of the procurement process, cancellation should be avoided if another suitable remedy is available.

(3)            Good Faith.

Impropriety on the part of one evaluator is not equivalent to bad faith on the part of DGS.  Nonetheless, it is sufficient to establish a breach of the implied contract of fair and honest consideration.  Clearly, an award of the costs of proposal preparation is appropriate, but this factor does not support cancellation.

            (4)            The Extent the Procurement has been Accomplished.

Because procurement was not stayed, the procurement was completed before the protest appeal was filed.  No lease has been executed as yet, but McKinley has commenced performance in conformity with its proposal, by substantially completing construction of the new building that DGS expressed an intent to lease.

Because the procurement has been completed and substantial performance has begun, this factor supports confirmation of the notice of award rather than rescoring or cancellation.

(5)            Costs to the Agency and Other Agency Impacts of the Proposed Remedy.

The potential costs to the agency in the event the solicitation is cancelled or rescored are significant.  It is only reasonable to anticipate that if the solicitation is cancelled, the State will be liable for the costs of construction.  In addition, there is a substantial risk that the State would be liable for additional damages, such as lost profits.  On the other hand, if the award to McKinley is sustained, the State would likely not be liable to either Bachner or Bowers for any damages beyond the limits of AS 36.30.585. 

Bachner argues that the costs to the State are likely to be equaled or exceeded by cost savings resulting from an award to a lower cost offeror.  However, even if the out of pocket costs over time are the same, the State would incur a substantial negative impact, because the lower cost facility was, according to all evaluators, also a less desirable facility.  The effect is that the State would pay a higher cost (Bachner or Bowers’ bid price plus damages to McKinley) for a lower rated facility. For this reason, this factor weighs in favor of confirmation of the existing award, rather than cancellation or rescoring.

(6)            Urgency of the Procurement.

There does not appear to be any urgency in acquiring the space at issue, since the existing landlord has indicated a willingness to extend the lease indefinitely. This factor supports cancellation and resolicitation.

(7)               Other Factors.

The factors listed in AS 36.30.585(b) are not exclusive.  All of the circumstances should be considered in determining an appropriate remedy.  DGS argues that Bachner and Bowers’ failure to seek an injunction in the superior court after DGS denied a stay of the award of the contract is ground for declining to cancel the solicitation.

To the extent that DGS’ argument is that Bachner and Bowers did not take appropriate action to safeguard their interests, I disagree.  Bachner and Bowers sought to exhaust their administrative remedy by filing a protest and pursing an administrative appeal.[14]  In the process, they alerted DGS to all of the circumstances that in their view warranted relief.  DGS, not the offerors or the court, bears primary responsibility for the conduct of a solicitation and for staying an award when appropriate to avoid prejudice to the interested parties and to the integrity of the procurement process.  In this particular case, the decision not to stay the award was based on a clearly erroneous factual finding by DGS.  In any case, injunctive relief in the superior court is available only upon a clear showing of probable success on the merits, while a stay at the administrative level may be granted upon a showing of a “reasonable probability” of success, a substantially lower standard.  For these reasons, DGS, rather than the protestors, bears primary responsibility for the current status of the procurement.  In that light, to the extent this circumstance is relevant, it supports cancellation.

Another circumstance that should be considered in fashioning a remedy is the substantial costs incurred by Bachner and Bowers in pursing their administrative remedy.  The failure to provide full and fair compensation to protestors for out of pocket costs incurred in a solicitation in which there is actual impropriety could have adverse impacts on the procurement process generally by insulating procurement decisions from administrative review and creating the perception that the procurement process is unfair. 

Conclusion

In light of the serious deficiencies in this procurement, cancellation and resolicitation are the appropriate remedy unless other factors outweigh that factor.  In this case, the potential costs and other impacts on the State are substantial, and McKinley would be substantially and unfairly prejudiced by cancellation or rescoring.  On balance, the appropriate remedy would appear to be an award of the full costs incurred in connection with proposal preparation.  Accordingly, I recommend that the protest appeal be sustained, that the notice of intent to award to McKinley be confirmed, and that DGS be directed to compensate Bachner in the amount of $50,000, and Bowers in the amount of $30,000 for proposal preparation costs.[15]

                       

DATED October 9, 2002.

                                    ______________________________

                                                                        Andrew M. Hemenway

Hearing Officer