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flict-will be found. Specifically, FAR $ 9.505-2(b)(1) requires that contractorprovided material lead “without delay” to a statement of work. When all three prongs are met—i.e., the material led directly, predictably, and without delay to a statement of work—the FAR imposes on contracting officers an unconditional duty to either: mitigate the conflict, or do not consider the conflicted contractor for award.5 AID explains that the FAR admonition should not apply here because the "material passed through two intermediate stages, lasting almost [8] months, during which the material was revised and elaborated.” We disagree with AID's analysis. In our view, when an agency-in 8 months time-moves from receipt of a contractor's project paper, to completion of an agency version of the project paper, to release of an RFP, the agency has moved expeditiously from planning a project to implementing it. Given AID's swift action in implementing this project, we find that the FAR requirements apply squarely here—the materials provided by Chemonics led directly, predictably, and without delay to a statement of work for a technical assistance contractor. As a result, Chemonics had an organizational conflict of interest in this procurement.6 When contracting officers are faced with such conflicts, the FAR requires that they make a reasonable effort to avoid, neutralize, or mitigate the conflict. FAR $ 9.504(a)(2). The FAR advises contracting officers to examine each situation individually and to exercise “common sense, good judgment, and sound discretion” in assessing whether a conflict exists, and whether there is an appropriate way to resolve the conflict. FAR $ 9.505. When a contracting officer takes steps to alleviate a conflict, our Office will not overturn the contracting officer's determination unless it is shown to be unreasonable. Ressler Assocs., Inc., supra. Here, we find that the contracting officer should have recognized that Chemonics's involvement in this effort, its production of a model for the agency project paper (including relevant budget estimates), and its contact with individuals in India with whom the technical assistance contractor would be dealing, gave it unique advantages and insights in how to structure a proposal. In addition, although AID could have attempted to reduce the conflict prior to award by providing a copy of the Chemonics project paper to the other offerors, it failed to do so. Since we find that such a conflict existed, and that AID failed to take prompt steps to mitigate the conflict, we sustain the protest.

5 In this regard, a contracting officer can not assume that when the results of a competition are close, as they are here, there has been no prejudice because of the conflict. FAR subpart 9.5 has been very narrowly drawn. See Woodruff, Organizational Conflicts of Interest-Not What It's Said to Be, 16 Pub. Cont. L.J. 213 (1986). When the requirements of the FAR subpart have been met, and a conflict exists, the subpart assumes that an unfair competitive advantage exists. Here, where Chemonics prepared a budget for the ACE program, including estimates for the technical assistance component of the program, we find that this knowledge created the unfair advantage the FAR warns against. Having produced the outlines of the program, including the program's budget estimate, Chemonics had information at its disposal that was unavailable to other offerors and that placed Chemonics in a unique position to structure a proposal that would meet the agency's requirements, while also meeting its budgetary constraints. See Holmes and Narver Servs., Inc./Morrison-Knudson Servs., Inc., a joint venture; Pan Am World Servs., Inc., B-235906; B-235906.2, Oct. 26, 1989, 89-2 CPD 1 379, aff'd, Brown Assocs. Mgmt. Servs., Inc.Recon., B-235906.3, Mar. 16, 1990, 90-1 CPD 1 299 (where former agency employee who had access to source selection information, including the agency's independent estimate of costs, left agency and went to work for contractor and prepared contractor's proposal, the likelihood of unfair competitive advantage warrants corrective action, despite the good faith behavior of all parties, to protect the integrity of the competitive process). 6 We also disagree with AID's contention that this procurement fits an exception in the FAR provided for offerors who participate in development or design work. See FAR $ 9.505-2(b)(1)(ii); Ressler Assocs., Inc., B-244110, Sept. 9, 1991, 91-2 CPD 1 230. As a consultant, Chemonics prepared an assessment of issues relating to an economic assistance effort. While its work in this area gave it a competitive advantage in the form of an insight into what services AID would require, its work is not analogous to a contractor who pushes the edges of technology in developing or designing new hardware or processes.

Evaluation Issues

GIC also argues that AID conducted an improper evaluation in several ways, but most importantly, in failing to recognize changes in the relative positions of GIC and Chemonics after submission of BAFOs. In this regard, we note that while the selection official appears to have continued to view the two proposals as technically equal—and yet selected the slightly more expensive Chemonics proposal as the one offering "more bang for the buck”—the two memoranda produced by the TEP chairwoman strongly suggest that the conclusion of the selection official may have been unreasonable. However, since we sustain GIC's claim that Chemonics was ineligible for award because of an unrelieved conflict of interest, and since we will recommend that the agency solicit a second round of BAFOs, we will not consider these issues.

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For the reasons above, we find that AID failed to recognize and attempt to mitigate a conflict of interest making Chemonics ineligible for award. After this protest was filed, AID determined that it was in the best interest of the government to continue performance of the contract notwithstanding the fact that the protest was filed in time to be covered by the automatic stay provision of the Competition in Contracting Act of 1984 (CICA). When we sustain a protest under these circumstances, we are required by CICA, 31 U.S.C. § 3554(b)(2) (1988), to make our recommendation for corrective action without regard to any cost or disruption from terminating, recompeting, or reawarding the contract. Although we find no evidence that AID acted in other than good faith, AID's failure to recognize this conflict-combined with its failure to take any steps to attempt to mitigate the conflict-has resulted in an improper procurement. Accordingly, we recommend that AID reopen the competition after attempting to mitigate the organizational conflict of interest enjoyed by Chemonics. At a minimum, AID should provide a copy of the Chemonics Project Paper Team Report to GIC. Afterwards, AID should request a second round of BAFOs and should reevaluate those BAFOs in order to determine which offer presents the best value to the government, in accordance with the stated terms of the solicitation. In the event that GIC's proposal is found to represent the best value to the government, AID should terminate the contract awarded to Chemonics, and award a contract to GIC. We also find that GIC is entitled to recover the costs it incurred in filing and pursuing the protest. See 4 C.F.R. $ 21.6(d)(1). The protest is sustained.

B-249114, B-249114.2, October 22, 1992
Procurement
Socio-Economic Policies

Small business set-asides II Competition III Administrative determination III Procedural defects Protest is sustained where the agency improperly decided to issue an unrestricted solicitation for work previously set aside for small business, despite its expectation of competition from two or more responsible small businesses, solely because the agency doubted that a small business set-aside procurement would allow for an award at a fair market price, without first consulting the Small Business Administration (SBA) procurement center representative, as required by applicable regulations; SBA, to whose views the General Accounting Office (GAO) will give deference in these matters, reasonably found that the procuring agency's decision was unsupported and not based on adequate investigation, and GAO’s review confirms SBA's views.

Matter of: Neal R. Gross and Co., Inc.; Capital Hill Reporting, Inc.

Ronald S. Perlman, Esq., and James McAleese, Esq., Porter, Wright, Morris & Arthur, for Neal R. Gross and Co., Inc.; and Edna Segal for Capital Hill Reporting, Inc., the protesters.

Joseph Gallo, Esq., for Ann Riley & Associates, Ltd.; and Marc F. Efron, Esq., Crowell & Moring, for Heritage Reporting Corporation, interested parties.

Marcy C. Adams, Department of Agriculture, for the agency.
Donald A. Morrison, Esq., for the Small Business Administration.

Roger H. Ayer, Esq., and James A. Spangenberg, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision.

Neal R. Gross and Co., Inc. and Capital Hill Reporting, Inc. protest the decision of the Department of Agriculture, Washington, D.C., to issue invitation for bids (IFB) No. IFB-00-92-B-14 for verbatim/court reporting services on an unrestricted basis. The protesters assert that this solicitation was required to be set aside for small business. We sustain the protests. The IFB, issued on an unrestricted basis, calls for court reporting services in the United States, Puerto Rico, and the Virgin Islands. Agriculture has used a variety of approaches to meet this requirement in the past, including (1) the Small Business Administration (SBA) 8(a) program; (2) small purchase procedures; and (3) a General Services Administration (GSA) Multiple Award, Federal Supply Schedule contract. Following the GSA contract's expiration, Agriculture made

1 Agriculture was a mandatory user of the schedule contract until GSA elected not to extend the contract in July 1989.

two unsuccessful attempts to procure these services using 100 percent small business set-asides; both solicitations were canceled, in part, because of Agriculture's receipt of unreasonable prices. In the interim, the agency met its requirements through small purchases. In May 1990, the agency issued a revised 100 percent small business set-aside? under which it awarded two contracts for services through September 1992. One contract, awarded to Deposition Services, Inc. of Rockville, Maryland, covers the District of Columbia and the states of Delaware, Maryland, Pennsylvania, Virginia, and West Virginia. The second contract, awarded to R&S Typing Service of Longview, Texas, covers the rest of the nation. Approximately a month and a half after the awards, on September 29, 1990, Heritage Reporting Corporation, a large business and former GSA schedule contractor, wrote an agency official urging termination of the small business awards on the ground that the prices were unreasonable because they greatly exceeded Heritage's 1988 schedule prices—which Heritage assertedly was willing to continue to offer to the agency. In February 1992, Heritage's letter and problems experienced with one of the two small business awardees (R&S) prompted the agency contracting officer to prepare a “[MEMORANDUM] TO THE FILE, SUBJECT: Non set-aside determination, Court Reporting Requirement.” The thrust of the memorandum was that R&S's performance problems were attributable to the nature of the contract rather than to R&S's responsibility, and that the agency may be paying too much for the services.3 The memorandum concluded that the agency should withdraw the set-aside and procure its future requirements on an unrestricted basis. On May 12, the instant IFB was issued on an unrestricted basis. These protests followed. As a general rule, a procurement must be set aside for small businesses where the contracting officer determines that there is a reasonable expectation of receiving offers from at least two responsible small business concerns and that award will be made at a fair market price. Federal Acquisition Regulation (FAR) § 19.502–2(a). For the most part, we view this determination as a business judgment within the contracting officer's discretion. See FKW Inc. Sys., 68 Comp. Gen. 541 (1989), 89-2 CPD | 32. However, we will review the record to determine whether the agency undertook reasonable efforts to ascertain whether it is likely to receive offers that would support a decision to set aside the procurement for small business. Neal R. Gross & Co. Inc., B-240924.2, Jan. 17, 1991, 91-1 CPD | 53. Agriculture concedes that it expects that it would receive bids from more than two small businesses and that those firms would be capable of performing satisfactorily. 4 Agriculture's only reason for not continuing to set aside the requirement is that it does not have reasonable assurance that “the service will be at a fair market price.” While Agriculture acknowledges that other agencies obtain these services from small businesses, it is not convinced that those agencies are paying a fair market price. Under FAR $ 19.501(g), an agency may withdraw a set-aside for a requirement that had previously been acquired under a small business set-aside, if it determines that the factors authorizing the set-aside no longer exist-i.e., there is no reasonable expectation that (1) offers will be obtained from at least two responsible small business concerns, and (2) the award will be made at a fair and reasonable price. 5 Conversely, where there is a reasonable expectation that two or more responsible businesses will submit offers and that award will be made at a fair and reasonable price, an agency may not issue an unrestricted procurement. FAR § 19.502–2(a). A procuring agency asserting that there is not a reasonable expectation that award will be made at a fair and reasonable price must have a reasonable basis in order to justify not setting aside a procurement where there are more than two responsible small businesses who are likely to bid. See Ann Riley & Assocs., Ltd., 71 Comp. Gen. 117 (1991), 91-2 CPD | 544, recon. denied, Ace-Fed. Reporters, Inc.; Federal Energy Regulatory CommnRecon., B-245149.2; B-245149.3, Apr. 6, 1992, 92-1 CPD | 347 (agency had no factual basis for its determination that there was no reasonable expectation that it would obtain fair and reasonable prices for court reporting services that would justify not setting aside for small business a procurement for such services). In determining not to issue or to withdraw a small business set-aside, the FAR and Agriculture's regulations generally require that the SBA Procurement Center Representative (PCR), where one is assigned, be notified, so that SBA can make its views known if it disagrees with the agency's decision not to set aside the procurement. See FAR $$ 19.402(c), 19.403, 19.501(b), 19.505, 19.506; 13 C.F.R. § 125.6(a)(2) (1992); Department of Agriculture Acquisition Regulation, 48 C.F.R. § 419.402(a) (1991). In this case, SBA has assigned a full-time PCR to Agriculture agencies in the Washington, D.C., metropolitan area. 48 C.F.R. § 419.402(a). The SBA PCR was not notified of this procurement until we requested SBA's views on the protests.

2 IFB-00-90-B-26 was issued on May 17, 1990. Agriculture received nine bids of which five were responsive, three nonresponsive and one late. Agriculture awarded the two contracts on August 10, 1990. 3 The contracting officer noted that “[w]hile award was based on adequate competition it does not substantiate that the per page rate was at a fair market price.'

* In its internal justification to Agriculture's small business and disadvantaged business specialist for not setting aside this requirement, Agriculture primarily references the alleged lack of financial capability of the incumbent small business contractors that allegedly led to poor performance. The protesters persuasively contend that this poor performance was caused by Agriculture's failure to make awards to responsible small business contractors and there are a number of such contractors capable of performing the work on this nationwide contract. In its report on the protest, Agriculture admits that there are a number of small business concerns capable of performing the work, but asserts that there is no reasonable assurance that they will perform the work at a fair market price. 5 FAR $ 19.501(g) provides:

Once a product or service has been acquired successfully by a contracting office on the basis of a small business set-aside, all future requirements of that office for that particular product or service not subject to simplified small purchase procedures shall, if required by agency regulations, be acquired on the basis of a repetitive set-aside. This procedure will be followed unless the contracting officer determines that there is not a reasonable expectation that (1) offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns, and (2) awards will be made at fair market prices. Withdrawal of a repetitive set-aside will be in accordance with 19.506.

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