Greenleaf Construction Company, Inc.
B-293105.18,B-293105.19, Jan 17, 2006
Greenleaf Construction Company, Inc. protests the Department of Housing and Urban Development's (HUD) award of a contract to Chapman Law Firm Company, LPA (CLF) under request for proposals (RFP) No. R-OPC-22505, for singlefamily home management and marketing (M&M) services. Greenleaf asserts that CLF materially misrepresented in its proposal the resources it would use in performing the contract, and that, in any case, award to CLF was precluded by an impermissible organizational conflict of interest (OCI). In addition, Greenleaf challenges HUD's affirmative determination of CLF's responsibility.
We sustain the protest.
B-293105.18; B-293105.19, Greenleaf Construction Company, Inc., January 17, 2006
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.
1. Department of Housing and Urban Development's evaluation of awardee's proposal for contract to provide single'family home management and marketing services was unreasonable where it was based on awardee's proposal of key personnel and an electronic monitoring system that awardee should have known--more than 2 months prior to final evaluation and award''would not be available, and awardee never advised agency of the material change in circumstances.
2. Protest is sustained where Department of Housing and Urban Development failed to reasonably consider or evaluate potential organizational conflict of interest arising due to the fact that the owner of the management and marketing (M&M) services contractor in Ohio will be receiving payments from the owner of the closing agent contractor for Ohio, the activities of which the M&M contractor will oversee.
3. Affirmative determination of awardee's financial responsibility was not reasonable where, despite knowing awardee had sold an affiliated company, contracting officer nevertheless based responsibility determination on financial capability assessment by Defense Contract Audit Agency that was based in significant measure on financial resources of company that had been sold.
Greenleaf Construction Company, Inc. protests the Department of Housing and Urban Development's (HUD) award of a contract to Chapman Law Firm Company, LPA (CLF) under request for proposals (RFP) No. R-OPC-22505, for single'family home management and marketing (M&M) services. Greenleaf asserts that CLF materially misrepresented in its proposal the resources it would use in performing the contract, and that, in any case, award to CLF was precluded by an impermissible organizational conflict of interest (OCI). In addition, Greenleaf challenges HUD's affirmative determination of CLF's responsibility.
The solicitation, issued
At issue in this protest is the contract for the properties in the Ohio/Michigan area (
The RFP further advised offerors that the agency would make award on a best value basis, considering both price and non-price factors, with the non-price factors being significantly more important than price. There were six non-price criteria (in descending order of importance): management capability/quality of proposed management plan, past performance, experience, proposed key personnel, subcontract management, and small business subcontracting participation.
Three offerors that certified themselves as small business concerns, including Greenleaf, CLF and a third firm, were included in the initial competitive range. After conducting discussions, HUD requested final proposal revisions (FPR) by early May 2004. Based upon its evaluation of FPRs, HUD selected Greenleaf for award. However, before award could be made, a size status protest filed by CLF resulted in Greenleaf's being found other than small by the Small Business Administration (SBA). Thereafter, HUD reopened discussions with CLF and the third offeror. After obtaining new FPRs, HUD found that the third offeror (which eventually withdrew its proposal) lacked the capacity to perform. With only one offeror, CLF, remaining in the small business tier, HUD concluded that this single small business offer constituted inadequate competition to permit a small business award, and cascaded the competition to the full and open, unrestricted tier. Having determined that Greenleaf's technically superior, low'priced offer represented the best value to the government, HUD awarded a contact to Greenleaf on
CLF filed a protest with our Office, asserting that the procurement should not have been cascaded to the unrestricted tier; award instead should have been made to CLF as the only remaining small business offeror. In response to our request for its view in this regard, SBA advised that it viewed the three small business offers originally received as constituting adequate small business competition, such that, even though only CLF ultimately remained as a viable small business offeror, award should be made at the small business tier, that is, to CLF. HUD terminated Greenleaf's contract on June 17, returned the procurement to the small business tier and, by letter dated June 22, advised CLF that its proposal was now being considered for award. Letter from HUD to CLF,
Greenleaf thereupon filed suit in the United States Court of Federal Claims protesting HUD's return of the procurement to the small business tier and the selection of CLF for award. The court denied Greenleaf's protest, finding that the reversal of the decision to cascade was correct, and that the fact that CLF ultimately was left as the only small business concern did not compel a cascade to the unrestricted tier. Greenleaf Constr. Co., Inc. v.
Greenleaf asserts that the award to CLF was improper because CLF's proposal misrepresented the resources and staff CLF intended to use to perform the contract.
An offeror's material misrepresentation in its proposal can provide a basis for disqualification of the proposal and cancellation of a contract award based upon the proposal. A misrepresentation is material where the agency relied upon it and it likely had a significant impact upon the evaluation. Integration Techs. Group, Inc., B- 291657, Feb. 13, 2003, 2003 CPD para. 55 at 2-3; Sprint Communications Co. LP; Global Crossing Telecommunications., Inc.--Protests and Recon., B-288413.11, B'288413.12, Oct. 8, 2002, 2002 CPD para. 171 at 4; AVIATE L.L.C., B-275058.6, B'275058.7, Apr. 14, 1997, 97-1 CPD para. 162 at 11.
Based on our review of the record, we find that HUD's evaluation of CLF's proposal was unreasonable because it was based on aspects of CLF's proposed resources and technical approach that, after the submission of CLF's FPR, and unbeknownst to the agency, materially changed such that the agency never evaluated the awardee's actual resources and technical approach as they existed at the time of award.
Greenleaf cites CLF's proposal of [Ms. A] and her spouse [Mr. A] as one of CLF's alleged misrepresentations. In this regard, in November 2004, HUD expressed concern during discussions that CLF lacked staffing and M&M experience. CLF responded in its
CLF identified Mr. [A]'s role in contract performance as vice president for operations and contract teams support leader (CTSL) alternate, describing his responsibilities as follows:
[DELETED] and [Ms. A], along with [Mr. A], are members of the first-tier executive team that reports to and advises the CEO and company principal, Frank Chapman. [DELETED] and [DELETED] with their focus on [DELETED], respectively, are the other executives who will function at this level of the company.
HUD evaluated CLF's proposal of the [A]s as a strength. According to the Technical Evaluation Panel's (TEP) report, CLF's proposal of Ms. [A] as vice president for contract compliance and Mr. [A] as vice president for operations was a strength as both [A]s have extensive knowledge of the workings of an M&M contract as both were either employed by a former M&M contractor or worked as a consultant for a former M&M contractor. TEP Report at 75, 84, 87, 89. According to the TEP, and citing the [A]s as a specific example, CLF's proposal offered a very low risk of unsuccessful performance relative to key personnel as a result of the fact that [m]any key personnel are long-time employees of a current M&M contractor and have recent experience performing work that is the same or similar to most of the required tasks.
Greenleaf asserts that, while CLF's proposal included the [A]s in its first-tier executive team, CLF was on notice months before the September 30, 2005 award that, in fact, the [A]s were unwilling to participate in CLF's performance of the Ohio/Michigan M&M contract. The record, including testimony taken at a hearing our Office conducted in this matter, supports this argument.
CLF's January 2005 FPR included certifications executed by Ms. [A] and Mr. [A] (on
Shortly after CLF certified to HUD on June 22 that its January 2005 FPR remained valid, and more than 2 months prior to the agency's final evaluation of CLF's offer and the subsequent award to CLF (on September 30), CLF was put on notice that the [A]s in fact would not be willing to work for CLF to perform the contract. In this regard, on
When HUD informed the [A]s by letter dated July 1 that award for the North and
What occurred after Mr. Chapman advised Ms. [A] that the [A]s would not be participating in the North and
Based on our review of the record, including the demeanor of the witnesses, we find that Mr. Chapman (and thus CLF) was on notice that the [A]s would not participate in performing the M&M contract. In particular, we find Ms. [A]'s testimony persuasive. Ms. [A]'s testimony was corroborated not only by the testimony of Mr. [A], but also by the subsequent communications with Mr. Chapman. On July 6, after the above telephone conversation with Ms. [A], Mr. Chapman sent Ms. [A] an e-mail in which he advised her that [a]s you are aware, CLF is the intended awardee for the M&M contract, and [u]pon the release of this contract, which could be as early as next week, you will be asked to fulfill your contract which is contingent upon award to CLF as written without modification. E-mail from Frank Chapman to [Ms. A],
I have done nothing but fulfill every promise I've ever made . . . . .
My e-mail was not intended as an ultimatum, but to remind you that, pursuant to that agreement, you have an obligation to work for us when award is made. Your repeated references to renegotiating your contract and your non-committal attitude about reporting to work in
. . . . .
As we will have to hit the ground running when the stay is lifted, if you no longer have any intention of honoring your agreement, I would ask that you advise us at your earliest opportunity.
E-mail from Frank Chapman to [Ms. A],
The record indicates that the [A]s, believing that the agreements they had signed were only for at will employment and that, in any case, their intention not to work on the M&M contract had already been conveyed to Mr. Chapman, did not specifically respond to Mr. Chapman's request in his July 6 e-mail for notice that they no longer have any intention of honoring your agreement. Tr. at 223-24, 374-77. However, to the extent that any uncertainty as to the [A]s' intentions could have remained after Ms. [A]'s previous express refusal to work for Mr. Chapman on the M&M contract, we find that any such uncertainty could not reasonably have survived the subsequent notice to Mr. Chapman of the [A]s' relocation to North Carolina, rather than to Ohio as originally planned, after selling their home in Texas. In this regard, Mr. Chapman testified that at one point in his earlier conversations with Ms. [A], she had stated that when she came back from
Dynamic Quest Software
Greenleaf asserts that CLF's proposal also misrepresented the software package and software company it was planning to use to perform the contract. Our review of the record confirms that CLF determined more than 2 months prior to the agency's final evaluation and award of the Ohio/Michigan M&M contract to use a different software package and software company than those on which its proposal was based.
The solicitation PWS required the contractor to maintain a complete file for each property using a secure, electronic, web-based Electronic Monitoring System (EMS) accessible to employees of both the contractor and HUD. The statement of work (SOW) set forth detailed performance requirements for the EMS to ensure that it would adequately serve HUD's information needs under the PWS, including requirements that the system: (1) provide a daily posting of complete electronic records of actions taken for mortgagee compliance and the management and marketing of a property; (2) display electronic images of all property-related documents and color photographs of properties not later than 24 hours following receipt or creation by the contractor; (3) index information in a way that provides access to an individual property file or to information from all files based on document type or action performed; and (4) prepare various reports regarding the status of the properties. SOW sect. C.5.1.1, attach. 9.
In its January 2005 FPR, CLF proposed to meet the
HUD evaluated CLF's proposal of the TEAMS EMS system and on-line bidding system as demonstrat[ing] a strong IT [information technology] approach to handling the functions in the PWS. TEP Report at 74. In particular, the TEP noted that the TEAMS EMS would provide not only the required reports, but also additional reports that will assist the contractor in meeting the requirements of the RFP.
Shortly after CLF certified to HUD on
In any case, it is undisputed that, shortly after the June 23 demonstration of the TEAMS EMS, CLF arranged for a demonstration of an
We conclude that there was a material change in the awardee's proposed staffing and EMS approach that occurred after CLF certified that its January 2005 FPR remained valid, but more than 2 months prior to the agency's final evaluation and award of the M&M contract. Under these circumstances, CLF was required to advise the agency of the material change in its proposed resources and technical approach, in order to ensure that the evaluation was based on consideration of the staffing and
Greenleaf also asserts that HUD failed to reasonably consider or evaluate a potential organizational conflict of interest that will be created by award to CLF. In this regard, the RFP generally provided that [t}he Contractor shall not engage in or permit any conflict of interest, and specifically identified as one potential, prohibited conflict of interest the following:
M&M Contractors may not serve as contractors or subcontractors that perform contract monitoring, oversight or other services related to any of the tasks in this PWS. Excluded contract services include but are not limited to . . . Closing Agents . . . .
RFP sections H.8, I.14(b).
At the time CLF submitted its initial proposal, Mr. Chapman, the owner of CLF, also owned Lakeside Title, which is HUD's closing agent contractor for the state of
Subsequently, during the Court of Federal Claims litigation with respect to this procurement, HUD learned that the purchase agreement for Lakeside Title, dated June 20, 2005, provided for a purchase price consisting of $[DELETED], plus all monies paid to Lakeside Title for 2004 and 2005, plus 50 percent of any profits of Lakeside Title through December 31, 2005. Purchase Agreement for
Greenleaf asserts that CLF's OCI with respect to Lakeside Title was not resolved by the amended purchase agreement. According to the protester, the fact that the purchaser of
The Federal Acquisition Regulation (FAR) instructs agencies to identify potential OCIs as early as possible in the procurement process, and to avoid, neutralize, or mitigate significant conflicts before contract award so as to prevent unfair competitive advantage or the existence of conflicting roles that might impair a contractor's objectivity. FAR sections 9.501, 9.504, 9.505; PURVIS Sys., Inc., B-293807.3, B293807.4,
We find that HUD failed to reasonably consider or evaluate the potential OCI arising due to the fact that the owner of CLF (the M&M contractor in Ohio) will be receiving payments from the owner of the closing agent contractor for Ohio, the activities of which CLF will oversee. Specifically, it appears that CLF's judgment and objectivity in performing the contract requirements could be impaired if its performance could potentially affect the ability of the owner of the closing agent contractor to make the payments owed to CLF's owner. Further, while the contracting officer was aware of the potential OCI from having CLF's owner receive a share of Lakeside Title's profits, and proceeded properly to have CLF eliminate that OCI, it is clear that the contracting officer failed to consider the OCI implications of the amended version of the purchase agreement--whether the magnitude of the payments was such as to call into question whether CLF's judgment and objectivity were likely to be impaired, or whether there were suitable mitigation measures required to address the scope of the potential conflict of interest. In these circumstances, we sustain the protest on the basis that HUD failed to reasonably consider or evaluate a potential OCI that may result from an award to CLF.
Greenleaf challenges the contracting officer's determination of CLF's responsibility on several grounds, including the determination that CLF possessed adequate financial resources to perform the contract.
Contracts may only be awarded to responsible prospective contractors. FAR sect. 9.103(a). In making a responsibility determination, the contracting officer must determine, among other things, that the contractor has adequate financial resources to perform the contract, or the ability to obtain them. FAR sect. 9.104-1(a).
Because the determination that an offeror is capable of performing a contract is largely committed to the contracting officer's discretion, our Office will generally not consider a protest challenging an affirmative determination of responsibility except under limited, specified exceptions. Verestar Gov't Servs. Group, B-291854, B'291854.2,
Here, the contracting officer requested that the Defense Contract Audit Agency (DCAA) perform a financial risk assessment with respect to CLF. Indeed, according to the contracting officer, the determination that CLF had adequate financial resources to perform the contract was made by DCAA. Tr. at 693. DCAA's findings with respect to CLF's financial responsibility were set forth in the affirmative determination of CLF's responsibility which was signed by the contracting officer. That determination indicated that in reporting that CLF had adequate financial resources to perform the contemplated contract, DCAA considered the consolidated key financial ratios of Mr. Frank Chapman's three related companies: Chapman Law Firm, Lakeside Title & Escrow Company, and MacDonald National Mortgage Company. Affirmative Determination of Responsibility,
As noted by Greenleaf, however, the contracting officer had always understood that, pursuant to the OCI provisions in the RFP, Mr. Chapman would be required to sell his interest in Lakeside Title. Tr. at 695, 699. Indeed, the contracting officer was aware that Mr. Chapman had already sold his interest in Lakeside Title by the time he signed the affirmative determination of CLF's responsibility. The contracting officer, however, never advised DCAA that Mr. Chapman was required to sell Lakeside Title. Tr. at 702. Further, when asked whether the determination that CLF had adequate financial resources might have been different if the resources of Lakeside Title had not been considered, the contracting officer responded as follows:
A. I can't make that determination. I don't know.
Q. Why not?
A. Because I relied on DCAA, the audit agency, who is the expert in that area to assist me with that.
Tr. at 699.
Based on this record, we find that the determination of CLF's financial responsibility was based on information that the contracting officer knew to be inaccurate. Further, since Lakeside Title apparently generated nearly all of the income earned by Mr. Frank Chapman's three related companies, Mr. Chapman's sale of Lakeside Title on an installment basis for payments to be received over 320 weeks clearly was material to a determination of his financial ability to commence and continue performance of the contemplated M&M contract. In these circumstances, we find that the contracting officer simply ignored information that, by its nature, would be expected to have a strong bearing on whether CLF should be found financially responsible, and we sustain the protest on this basis. Cf. Southwestern Bell Telephone Co., B'292476, Oct. 1, 2003, 2003 CPD para. 177 at 10-11 (contracting officer's affirmative determination of the awardee's responsibility is not reasonably based where, despite having general awareness of misconduct by some of awardee's principals and parent company, the contracting officer did not obtain sufficient information about or consider the awardee's record of integrity and business ethics in making his responsibility determination).
We recommend that the agency reevaluate the merits of CLF's proposal in light of our finding that, contrary to the provisions of the proposal, CLF will not use Mr. and Ms. [A], or the TEAMS EMS system, in performing the contemplated contract. In addition, the agency should ascertain and take into account in its reevaluation whether CLF's proposal otherwise inaccurately represents the resources that CLF will use in performing the contract. We also recommend that the agency consider, and document its findings with respect to, the potential OCI that will be created by the fact that Mr. Chapman is owed significant payments over time by the purchaser of Lakeside Title. We further recommend that the contracting officer make a new determination of CLF's responsibility which takes into account the fact that Mr. Chapman has sold Lakeside Title, as well as any changes in the resources that CLF will have available to perform the contemplated contract. If, as a result of this reevaluation, the agency determines that CLF's proposal is not the best value, the agency should terminate CLF's contract and make award in accordance with the evaluation results. Finally, we recommend that Greenleaf be reimbursed its costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(2)(1). In accordance with 4 C.F.R. sect. 21.8(f)(1), the protester's certified claim for such costs, detailing the time expended and costs incurred, must be submitted directly to the agency within 60 days after receipt of this decision.
The protest is sustained.
Anthony H. Gamboa
 Closing agents obtain title information about properties that HUD seeks to sell so that HUD can convey clear and marketable title; they meet with buyers and buyers' brokers to have closing documents executed; and they receive funds for closings on behalf of HUD, and then after the closing, transmit those funds to HUD. Tr. at 763'64.
 In this regard, HUD's Deputy Director of the Office of Single Family Asset Management explained that the M&M contractor could not be the same entity as the closing agent for that jurisdiction because
some of [the M&M's] duties include oversight of closing agent activities. They work very closely with the closing agents, and monthly the M&Ms prepare a report that comes to HUD that identifies closing agent performance, both positive and negative. They review invoices for closing agent fees for the services that they charge and approve those invoices, and the M&Ms also review HUD-1 settlement statements on which all of the funds that are involved in a transaction are recorded.
Tr. at 764-65. Likewise, according to the Deputy Director, an M&M's entitlement to a portion of the closing agent's profits would be a matter of concern because the M&M contractor does have the ability to influence the financial viability of the closing agent by failing to report poor performance, by overlooking irregularities, by approving invoices that are not appropriate. Tr. at 793. The Deputy Director further testified that, for the same reason, it also would be a concern if the closing agent owed the M&M contractor a substantial debt upon which the closing agent was obligated to make fixed payments over time; in this regard, the Deputy Director explained that if the closing agent doesn't have any income, it can't pay its debts, and the amount of income the closing agent has could depend on how well the M&M contractor performs its duties. Tr. at 794.
 When asked during the hearing whether she considered the stream of payments owed by the owner of Lakeside Title to the owner of CLF to represent a conflict of interest, the contracting officer answered that she did not, because the underlying purchase price was a fixed price. Tr. at 714-15. However, the contracting officer admitted that she was unaware of where [DELETED] would obtain the resources to make the required payments to Mr. Chapman, and also unaware of what if any impact there would be on the stream of payments if Lakeside Title were found to have failed to perform under its HUD contract. Tr. at 686, 716.