B-298478, Matter of:, October 13, 2006

B-298478 Oct 13, 2006 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights Eagle Home Medical Corporation (EHMC) protests the rejection of its proposal as unreasonably high-priced under request for proposals (RFP) No. 247-0260-06, issued by the Department of Veterans Affairs (VA) to provide home oxygen services and supplies at the William Jennings Bryan Dorn Veterans Affairs Medical Center in Columbia, South Carolina. We deny the protest. View Decision B-298478, Matter of: Eagle Home Medical Corporation, October 13, 2006 Decision Matter of: Eagle Home Medical Corporation File: B-298478 Date: October 13, 2006 Gerald H. Werfel, Esq., Pompan, Murray & Werfel, PLC, for the protester. Merilee Rosenberg, Esq., Department of Veterans Affairs, for the agency. Peter D. Verchinski, Esq., and John M. Melody, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision. DIGEST Contracting agency reasonably rejected protester's proposal based on determination that its low price was unreasonably high where price was 39 percent higher than government estimate, which was primarily based on price of recently negotiated contract extension with incumbent contractor. DECISION Eagle Home Medical Corporation (EHMC) protests the rejection of its proposal as unreasonably high-priced under request for proposals (RFP) No. 247-0260-06, issued by the Department of Veterans Affairs (VA) to provide home oxygen services and supplies at the WilliamJenningsBryanDornVeteransAffairsMedicalCenter in Columbia, South Carolina. We deny the protest. On May 22, 2006, VA issued the RFP as a HUBZone (historically underutilized business zone) small business set-aside. Offerors were requested to propose fixed prices for 20 different contract line items (CLIN), covering various oxygen cylinders, liquid oxygen, and compressed air items, for a 1-year base period, with 4 option years. Award was to be made to the offeror submitting the lowest-priced, technically acceptable proposal. VA had been receiving these services and supplies from Medical Comfort Systems, Inc. (MCS), under a contract awarded on January 1, 2001. In October 2005, near the end of the last option year of that contract, the agency negotiated a 6'month extension (from January 2006 through June 2006) with MCS at prices approximately 2 percent higher than the final option year prices. VA received two proposals by the June 15 closing date, including EHMC's, which was the lowest-priced. After evaluating the proposals, the agency determined that EHMC's total price of $5,013,000 (with a net present value of $4,315,479) was unreasonably high, and thus ineligible for award; the proposal so greatly exceeded the government's estimate of $3,595,002[1] (with a net present value of $3,104,309) that meaningful discussions were not possible. The agency then proceeded to cancel the solicitation. EHMC challenges the agency's determination that its price was unreasonably high, noting that its price was lower than both the prices VA has paid for the same services under a previous contract, and the cost guidelines utilized by the Medicare program for home oxygen services. A determination concerning price reasonableness is a matter of administrative discretion involving the exercise of business judgment by the contracting officer; therefore, we will question such a determination only where it is unreasonable. The Right One Co., B'290751.8, Dec. 9, 2002, 2002 para. 214 at 3. The agency formulated the government estimate based primarily on the prices it was currently paying under the 6'month contract extension negotiated in October, but increased the price for CLIN 1--for oxygen concentrators, which formed the largest single segment of the contract--from $60 (the extension price) to $90.[2] Even with this 50-percent increase in the CLIN 1 price, as noted, EHMC's price exceeded the estimate by 39 percent. Notwithstanding that there may have existed other price measures that would have been more favorable to EHMC, comparison of prices to a government estimate is a legitimate means of determining price reasonableness. See Bahan Dennis, Inc., B'249496.3, Mar. 3, 1994, 94-1 CPD para. 184 at 3 (cancellation based solely on comparison to the government estimate was reasonable). This is particularly the case here, since the estimate was largely based on prices currently being paid under an existing contract. EHMC asserts that the estimate was too low and did not constitute a proper basis for determining price reasonableness. Specifically, EHMC argues that, since the prior contract was awarded to MCS on January 1, 2001, and since the prices in that contract remained constant throughout the base year and 4 option years, those prices--which were reflected in the 6-month extension and, thus, the estimate--were not an accurate reflection of the current cost of oxygen equipment and services.