DGS Contracting Services, Inc., B-276300, June 3, 1997

B-276300 Jun 03, 1997 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights Protest that actions of contracting agency in offering contract work to the Small Business Administration (SBA) for the 8(a) program violated the "offering letter" rule is denied where SBA officials were aware of protester's incumbency and where SBA assumed. Protest that decision of the Small Business Administration (SBA) to accept contract work into the 8(a) program violated the "adverse impact" rule is denied where applicable regulations call for presumption of adverse impact on a small business if work at issue represents 25 percent or more of small business's annual gross sales. That contract was for 1 year with 4 option years. The scope of the contract was reduced so that the amount of work required in the third option year was approximately 27 percent less than had been anticipated. View Decision Matter of: DGS Contracting Services, Inc. File: B-276300 Date: June 3, 1997 DIGEST Attorneys DECISION DGS Contracting Services, Inc. protests the modification of the contract of Bach Security Services, Inc., contract No. N62472-93-C-4705, awarded by the Small Business Administration (SBA) for security guard services for the Navy. We deny the protest. In January 1994, the Navy awarded a contract to DGS for guard services for the Naval Weapons Station Earle, Colts Neck, New Jersey. That contract was for 1 year with 4 option years. During the second option year, the scope of the contract was reduced so that the amount of work required in the third option year was approximately 27 percent less than had been anticipated. Due to the reduced scope of work, instead of exercising the option for the third year, the Navy sought only a 3-month extension of DGS's contract. DGS informed the Navy that it was unable to perform the contract at its existing prices but would agree to an extension of the contract for 3 months for an additional $10,000 in order to cover increased general and administrative expenses resulting from the reduction of the scope of work. No agreement was reached. DGS's contract expired on February 1, 1997. Military personnel performed the guard services from February 1 until February 10. The Navy reports that it attempted in late January to negotiate a modification to an existing contract with a large business to provide guards at Earle, but failed. In addition, the Navy contacted the SBA several times in late January to request a modification of the Bach contract; that contract had been awarded by SBA under the 8(a) program. [1] The SBA agreed and the modification was issued to Bach on January 31. DGS first argues that the price of the modification was unreasonable, particularly since DGS was willing to perform the work for more than $100,000 less than Bach. Specifically, DGS notes that the modification issued to Bach was priced at $644,280.23, while DGS submitted two written offers to perform the 3-month extension with only a $10,000 increase in its price, for a total of $544,002. According to DGS, since its price was 16 percent less, the Bach price was unreasonable. DGS notes that a Navy contract specialist prepared a price reasonableness memorandum that stated that the prices obtained on the modification were reasonable based in part on a $2 per hour wage increase that would apply to DGS's performance of the work. DGS states that no such increase is called for either by the applicable Service Contract Act wage determination or by the applicable collective bargaining agreement. DGS argues that the $2 per hour wage increase credited to DGS's price led the Navy to erroneously believe DGS's price to be $590,002, instead of $544,002, and that the use of the $2 per hour price increase in the contract specialist's memo demonstrates bad faith and that the Navy's price reasonableness determination was arbitrary and capricious. An agency may not award an 8(a) contract if the price of the contract would result in a cost to the government which exceeds a fair market price (FMP). Federal Acquisition Regulation (FAR) Sec. 19.806(b). FMP is defined under FAR Sec. 19.001 as "a price based on reasonable costs under normal competitive conditions and not on lowest possible cost." The procedures for estimating the FMP in 8(a) procurements are set forth in 15 U.S.C. Sec. 637(a)(3)(B) and FAR Sec. 19.807. These provisions require agencies to derive an FMP from a price or cost analysis that may take into account commercial prices for similar services, available in-house cost estimates, cost or pricing data submitted by SBA, and information obtained from any other government agency. Under FAR Sec. 15.805-2, "Price Analysis," the agency also may use one or more of several listed price analysis methods, including comparing the prices received in response to a solicitation and comparison of the prices received with a government estimate.