Coulson Aviation (USA) Inc.; 10 Tanker Air Carrier, LLC; Minden Air Corp.

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.

Decision

Matter of: Coulson Aviation (USA) Inc.; 10 Tanker Air Carrier, LLC; Minden Air Corp.

File: B-409356.2; B-409356.3; B-409356.4; B-409356.5; B-409356.6

Date: March 31, 2014

DIGEST

Protests of the award of a sole-source contract for firefighting airtanker services under the industrial mobilization exception to the requirement to conduct a competitive procurement are sustained where the sole-source contract resulted from a settlement agreement in exchange for the awardee’s withdrawal of an earlier protest and the record does not contain an adequate justification reasonably supporting the agency’s use of noncompetitive procurement procedures.

Coulson Aviation (USA) Inc., of Port Alberni, British Columbia, Canada, 10 Tanker Air Carrier, LLC, of Albuquerque, New Mexico, and Minden Air Corp., of Minden, Nevada, protest the noncompetitive award of contract No. AG-024B-C-14-9000 to Neptune Aviation Services, Inc., of Missoula, Montana, by the Department of Agriculture (USDA), U.S. Forest Service, for next generation (NextGen) large airtanker services for wildland firefighting support. The agency justified the sole‑source award under 41 U.S.C. § 3304(a)(3)(A) (2006), which provides for a noncompetitive award to a particular source to maintain that supplier for a national emergency or to achieve industrial mobilization. See also Federal Acquisition Regulation (FAR) § 6.302-3. The protesters argue that the sole-source contract awarded to Neptune, which was promised in exchange for Neptune’s withdrawal of an earlier bid protest, is not justified.

We sustain the protests.

BACKGROUND

The Forest Service’s procurement of NextGen airtanker services has a long and contentious history.[1] On November 30, 2011, the Forest Service issued request for proposals (RFP) No. AG-024B-S-11-9009 for NextGen large airtanker services.[2] AR, Tab 67, NextGen RFP. The NextGen large airtankers are intended to replace the Forest Service’s use of “Legacy” large airtankers, which are generally much older, slower, and less reliable aircraft.[3] The NextGen solicitation was intended to be the primary, but not the only, means by which the Forest Service met its modernization strategy goal of 18-28 modern large airtankers. See Hearing Transcript (Tr.) at 67.[4]

The NextGen RFP, issued as a small business set-aside, contemplated the award of multiple fixed-price contracts under seven contract line items (CLIN) for airtanker firefighting services on an exclusive-use basis. The CLINs, each of which had a 5‑year base period and five 1-year options, contained sub-CLINs providing the Forest Service with the option to add up to 2 additional airtankers in the second contract year and 2 more airtankers in the third through tenth contract years, for a possible total of 5 aircraft and 44 aircraft-years per line item. Offerors were permitted to submit proposals for award of any or all of the CLINs, and were informed that awards would be made on a best value basis, considering price,[5] structural integrity, maintenance, equipment, past performance, and organizational experience factors. AR, Tab 67, NextGen RFP, at M-4.

Nine offerors, including Neptune, Coulson, 10 Tanker, and Minden, submitted proposals by the February 15, 2012, closing date. A Forest Service technical evaluation board (TEB) evaluated offerors’ proposals. Following the evaluation of initial proposals, the agency submitted a number of questions to the offerors. After receiving the offerors’ responses, the TEB prepared an evaluation report that included the evaluators’ final consensus evaluation and analysis of the offerors’ evaluated prices. The TEB also provided award recommendations that were reviewed and accepted by the agency’s source selection authority.

On June 13, the Forest Service made NextGen contract awards as follows:

CLIN	Awardee	Aircraft Type
1	Neptune	BAe-146
2	Neptune	BAe-146
3	Minden	BAe-146
4	Aero Air, LLC	MD-87
5	Aero Air, LLC	MD-87
6	Minden	BAe-146
7	Aero-Flite, Inc.	RJ85

AR, Tab 71, Neptune Protest, May 16, 2013 (B-406920.8), exhib. D, 2012 NextGen Contract Award Abstract.

Coulson and 10 Tanker protested to our Office, challenging the agency’s price and technical evaluations, communications with offerors, and source selection decision.[6] We conducted a hearing there to receive testimony concerning the agency’s conduct of the procurement. At the end of the first day of the hearing, the GAO hearing official noted that the testimony thus far appeared to support the protesters’ arguments that the communications between the agency and various offerors were discussions rather than clarifications, as described by FAR § 15.306. Thereafter, the agency decided to take corrective action by reopening the competition. AR, Tab 66, USDA Email to GAO, Sept. 6, 2012. Coulson’s and 10 Tanker’s protests were dismissed as academic. Coulson Aviation (USA) Inc.; 10 Tanker Air Carrier, LLC., B-406920 et al., Sept. 7, 2012. Subsequently, the Forest Service amended the NextGen solicitation and received revised proposals from offerors.

While it was conducting the NextGen large airtanker procurement, the Forest Service also awarded a number of Legacy contracts for large airtanker services. On March 27, 2013, the Forest Service awarded Neptune a Legacy contract for five P2V aircraft for 5-years, and for one P2V and one BAe-146[7] aircraft for a base year with four option years, at a total estimated price of $180,252,600.[8] AR, Tab 56, Neptune Legacy Contract, at B-3 to B-21. Shortly thereafter the Forest Service modified Neptune’s Legacy contract and added an additional BAe-146 aircraft for the 2013 fire season at a total estimated price of $4,960,200.[9] AR, Tab 61, Neptune Legacy Contract Mod. 001, May 15, 2013, at B-21.

On April 16, the TEB completed its reevaluation of offerors’ NextGen large airtanker proposals. AR, Tab 69, TEB Report, Apr. 16, 2013. On May 6, the Forest Service announced its intent to make the following awards:

CLIN	Awardee	Total Cost Estimate[10]	Aircraft Type
1	Minden	$39,459,250	BAe-146
2	10 Tanker	$43,214,043	DC-10
3	Coulson	$41,312,500	C-130Q
4	Aero-Air, LLC	$38,941,453	MD-87
5	Aero-Air, LLC	$38,941,453	MD-87
6	Aero-Flite Inc.	$36,370,785	RJ85
7	Aero-Flite Inc.	$36,370,785	RJ85

AR, Tab 70, NextGen Contract Award Abstract, May 6, 2013.

Shortly after learning that it would not receive a NextGen contract award, Neptune informed the contracting officer of its intent to protest to our Office unless an “acceptable solution” could be worked out.[11] AR, Tab 11, Neptune Email to Contracting Officer, May 9, 2013. Neptune subsequently protested to our Office on May 16 challenging all of the NextGen contract awards.[12] AR, Tab 71, Neptune Protest (B-406920.8), May 16, 2013. In accordance with the Competition in Contracting Act (CICA), 31 U.S.C. § 3553(d)(3)(A), Neptune’s protest triggered a stay of the NextGen contract awards pending our resolution of the protest. Although the Forest Service had significant concerns about its ability to adequately respond to the 2013 fire season without the protested NextGen large airtankers being available, see Tr. at 127-29, the agency decided not to override the stay. See 31 U.S.C. § 3553(c)(2).

Neptune and the Forest Service had significant communications during the period between when Neptune learned it would not receive a NextGen contract and Neptune’s receipt of a sole-source contract. Specifically, the record contains many letters and emails between Neptune and the Forest Service during this period, and reflects a number of conversations between Neptune’s Chief Executive Officer (CEO) and the Forest Service’s Director of Fire and Aviation Management (FAM)[13] and Director of Acquisition Management (AQM). See, e.g., AR, Tab 34, Forest Service Email, Sept. 10, 2013, at 1. Neptune’s CEO was quite familiar with the FAM Director and other agency officials, as the CEO had been the Forest Service’s AQM Director until his retirement in December 2010. AR, Jan. 31, 2014, at 57. As detailed below, the record indicates that the verbal representations of Neptune’s CEO concerning the firm’s financial viability were relied upon by the Forest Service when determining the agency’s actions. For example, shortly before or after filing its protest, Neptune’s CEO told the FAM Director that the company had made a significant investment in modern large airtankers and would go out of business without a NextGen contract award.[14] Tr. at 55, 75; AR, Tab 1, FAM Director Declaration, Jan. 28, 2014, at 5.

Following a May 21 meeting between Neptune’s CEO, Forest Service FAM and AQM Directors and staffs, and USDA counsel, the parties engaged in a series of settlement discussions concerning the Forest Service’s noncompetitive award of a NextGen contract to Neptune pursuant to FAR § 6.302-3 (industrial mobilization) in exchange for Neptune withdrawing its May 16 protest. At the Forest Service’s request, Neptune provided the agency with the firm’s financial projections (i.e., expected revenue and expenses) based on various scenarios (e.g., Legacy contract only, Legacy contract plus two 10-year NextGen contracts, etc.).[15] The Forest Service had USDA’s Rural Utilities Service (RUS) analyze Neptune’s continued financial viability based on the information provided by Neptune.[16]

On June 3, RUS provided USDA with its financial viability review of Neptune. AR, Tab 144, RUS Email to USDA, June 3, 2013. The RUS noted that the information provided by Neptune did not include detailed expense projections or a balance sheet and cash flow projections for the next 5-year period. Id. The RUS also questioned whether Neptune had the ability to modify the payment terms of any of its existing long terms debts. Id. Accepting the projected revenues and expenses as provided by Neptune on their face, RUS ultimately concluded that the only scenario in which the company could obtain a positive net income over the next 5 years was where Neptune received two NextGen contract awards in addition to its current Legacy contract.[17] Id.

On June 6, the Forest Service and Neptune entered into a written settlement agreement, under which the agency agreed to award Neptune a sole-source contract for two NextGen large airtankers in exchange for Neptune withdrawing its protest (and thereby ending the CICA stay of the NextGen contract awards).[18] AR, Tab 18, Neptune Settlement Agreement, June 6, 2013. As relevant here, the settlement agreement stated that:

the Forest Service will award the Contract using noncompetitive procedures, pursuant to 41 U.S.C. § 3304(a)(3), and will comply with all related statutory and Federal Acquisition Regulation (“FAR”) requirements, including, but not limited to, CICA, and FAR 6.303-6.305.

* * * * *

The Forest Service will oppose any . . . bid protest [challenging the award or performance of the Neptune contract] with no less vigor than that applied in any other bid protest filed against it.

Id. at 3.

Neptune then withdrew its bid protest (the parties’ settlement agreement was not provided to our Office). AR, Tab 72, Neptune Letter to GAO, June 6, 2013. Our Office confirmed the withdrawal of Neptune’s protest and closed the file without rendering a decision on the protest’s merits. AR, Tab 73, GAO Confirmation of Withdrawal (B-406920.8), June 7, 2013.

Subsequently, the Forest Service realized that the sole-source contract promised to Neptune would require the approval of USDA’s senior procurement executive (SPE).[19] See FAR § 6.304(a)(4). Accordingly, on June 21 the Forest Service informed the SPE of the settlement agreement that the agency had entered with Neptune, and requested that she execute a justification and approval (J&A) for the sole-source award. Tr. at 439-41.

The SPE did several things before taking any action on the Forest Service’s request. First, the SPE and her staff familiarized themselves with the NextGen procurement and the Forest Service’s requirements for large airtankers generally. Tr. at 457. The SPE made a series of requests of the Forest Service for additional information, including Neptune’s financial statements and balance sheets, Neptune’s Legacy contract, and documents related to the NextGen procurement. Tr. at 441, 451; AR, Tab 24, SPE Email to AQM Requesting Additional Neptune Information, July 12, 2013, at 1-2. The SPE also engaged FI Consulting, an external auditing firm, to perform an independent financial viability analysis of Neptune. Tr. at 451-52.

By August 2, FI completed its assessment of Neptune’s financial viability. AR, Tab 29, FI Financial Analysis, Aug. 2, 2013, at 1-3. In reaching its conclusions, FI found that Neptune had based its revenue projections for years 2-5 of the Legacy contract on the base-year rates instead of the higher, option-year rates set forth in the contract. AR, Tab 31, FI Email to USDA, Aug. 13, 2013, at 4. FI also found that Neptune had based its revenue projections for the same period on the use of seven P2V aircraft, rather than six P2V and one BAe-146 aircraft (and the higher BAe-146 rates) as specified by the terms of the Legacy contract.[20] Id. After also finding Neptune’s expected costs to be lower than the company’s projections, FI concluded that Neptune would have the financial capacity to operate and continue performing on its in-place Legacy contract with the Forest Service through, at a minimum, calendar year 2016, without any further contract awards.[21] AR, Tab 29, FI Financial Analysis, Aug. 2, 2013, at 1.

The SPE then asked FI to perform a comparison of its conclusions with those of RUS. Tr. at 464. FI found that the fundamental difference was that RUS had solely relied on Neptune-provided financial projections while FI had had access to a wider range of information that allowed it to develop its own projections. AR, Tab 31, FI Email to USDA, Aug. 13, 2013, at 1. One such example was the difference in Neptune’s revenue projections detailed above. Id. at 4. Similarly, the cost projections developed by FI assumed, per the terms of the Legacy contract, that Neptune would be reimbursed its fuel costs in addition to aircraft flight rates. Id. By contrast, “Neptune did not provide any detail with its cost projections to RUS, so it is unclear if fuel is included, or if government reimbursement is considered.” Id. In a subsequent meeting conducted by the SPE, RUS employees generally agreed with the FI findings and conclusions. Tr. at 466-67.

Based on her review of all information, including the FI financial analysis, the SPE concluded that the planned sole-source contract award to Neptune for industrial mobilization reasons was not presently justified (“Neptune didn’t need a contract”). Id. at 471-73. Consequently, the SPE refused to approve the sole-source award to Neptune. Id. at 473.

On August 26, the Forest Service informed Neptune that the SPE would not approve the sole-source contract contemplated by the parties’ settlement agreement, insofar as the financial analysis of the additional documents provided by Neptune indicated that the company was financially viable without such a contract.[22] AR, Tab 32, Forest Service Letter to Neptune, Aug. 26, 2013, at 2. The record also reflects that, after August 26, there generally was no longer any disagreement among the parties about Neptune’s present financial viability. Tr. at 469-70; AR, Tab 145, FAM Email to USDA, Sept. 3, 2013.

For the next three months the Forest Service tried to reach an alternative settlement agreement with Neptune. Options offered by the Forest Service to Neptune included: (1) adding two additional BAe-146 aircraft to Neptune’s Legacy contract (beyond the eight large airtankers then being provided), AR, Tab 32, Forest Service Letter to Neptune, Aug. 26, 2013, at 2; and (2) offering Neptune a sole-source contract of such size that it could be approved below the level of the SPE (i.e., less than $62.5 million). Tr. at 477-78; AR, Tab 36, AQM Director Email, Oct. 30, 2013. Neptune, however, rejected all offers that differed materially from the terms of the parties’ settlement agreement. AR, Tab 40, Forest Service Email, Nov. 7, 2013, at 1-2. Moreover, Neptune repeatedly informed the Forest Service that Neptune would file a lawsuit against the agency if the agency did not satisfy the terms of the parties’ settlement agreement. Id. at 2; Tab 146, Neptune CEO Email to FAM, Sept. 23, 2013; Tab 147, FAM Email to Forest Service Chief, Oct. 4, 2013.

Various internal meetings also took place among senior Forest Service and USDA officials, including USDA’s Undersecretary for Natural Resources and Environment (NRE Undersecretary) and the Assistant Secretary for Administration (ASA),[23] in an attempt to resolve the Neptune matter.[24] The SPE testified that, in the meetings she attended, she heard no rationale advanced for a sole-source award to Neptune that she had not previously considered, and no rationale that she believed properly justified such an award. Tr. at 536.

At that time, the request for approval of the J&A was elevated to the ASA, a level above the SPE within the agency’s hierarchy. The SPE had several conversations with the ASA in which she recommended that he not approve the J&A as there was not a valid justification for doing so. Tr. at 480-85, 525-28; AR, Tab 149, SPE Briefing Paper for ASA, Oct. 7, 2013, at 1-7. On December 2, the SPE provided the ASA with a detailed memorandum and documents in support of her recommendation that he not approve the J&A. AR, Tab 44, SPE Memorandum to ASA Regarding Sole-Source Award to Neptune, Dec. 2, 2013, at 1-112. Specifically, in making her recommendation the SPE stated as follows:

General – Public policy, the Competition in Contracting Act, and the FAR promote competition to ensure a fair playing field for firms interested in doing business with the Federal government. Competition encourages innovation and lower prices. Noncompetitive awards should be limited to only what is needed to achieve the objective, in this case to maintain a vital source of supply . . . . In this case, we have a competitive field and recently awarded multiple contracts on a competitive basis to five firms from a pool of eight firms that submitted proposals on the solicitation.

Rationale – The rules do not support the issuance of a sole source award based on the fact that a firm did not win a competitive procurement or in exchange for a particular action, such as the withdrawal of a protest or [Freedom of Information Act] request.

Neptune’s Financial Stability - . . . [A]n independent financial review revealed that Neptune has the financial capacity to operate and continue to supply planes under the current contract with no further contract awards. There’s no evidence to support the assertion that Neptune would not be able to meet an emergency need for aircraft.

Maintain Capacity and Employee Skills - The [Forest Service] currently has a supplier base of five firms on the Next Gen contract. These firms are building both capacity and employees skills. [Forest Service] also has two firms on the legacy contract that can supply planes. Neptune has supplied Next Gen type planes on the existing legacy contract and others could be added provided it is within the scope of that contract.

Balanced Supply Source – It is not clear how a noncompetitive award to Neptune would create a balanced source of supply . . . . It seems like if we’re interested in creating a balanced source of supply we would award more air tankers to the other legacy contractor, Minden, or add more air tankers to the current Next Gen contractors versus issuing a noncompetitive award to an unsuccessful offeror.

Id. at 3-4.

The SPE was not the only agency official providing advice to the ASA. On November 26, the NRE Undersecretary recommended the award of a sole-source contract to Neptune. AR, Tab 43, NRE Undersecretary Memo to ASA, Nov. 26, 2013, at 1-2. The NRE Undersecretary emphasized the importance of large airtankers for wildland firefighting and the Forest Service’s need for additional airtankers, particularly with regard to the 2014 fire season. Id. at 1. The NRE Undersecretary also stated that, insofar as USDA counsel had determined that awarding a sole-source contract here was permitted and Neptune had airtankers available, he strongly recommended the award of two NextGen aircraft to Neptune for up to 10 years. Id.

On December 9, the ASA executed a J&A for the sole-source award to Neptune for two NextGen aircraft (for a 4-year base period with five 1-year options) at a total estimated price of $141,774,740.[25] AR, Tab 49, Neptune J&A, Dec. 9, 2013, at 1. The J&A stated the following justification for the sole-source award to Neptune:

Pursuant to FAR 6.302-3(b) [sic] (i),(ii),(iii) and (vi) [sic], the use of the industrial mobilization exception to the requirement to use full and open competition is appropriate when it is necessary to--(i) [k]eep vital facilities or suppliers in business or make them available in the event of a national emergency; (ii) prevent the loss of a supplier’s ability and employees’ skills; (iii) maintain an acceptable balance of sources; and (vi) [sic] provide for an adequate industrial base by dividing the supply among two or more contractors. The Forest Service has determined that based on all the above reasons, it has become necessary to invoke this authority with respect to Neptune Aviation, whose resources and equipment must be available to provide key services if the Forest Service is to successfully fulfill its mission.

Critical to this justification are the following facts:

1. The Forest Service considers Neptune to be a vital supplier of airtankers.[26]
2. Neptune currently has available and ready to operate two airtankers that meet the specifications of the NextGen contract.
3. The Forest Service is not confident that five of the seven contracted NextGen airtankers will be available to fight fires in 2014. [27]
4. Even assuming all seven NextGen airtankers are available to fight fires in 2014, the Forest Service still will have only 16 [large airtankers], which is two [large airtankers] fewer than the minimum needed to fulfill its firefighting mission.
5. 9 of the 16 potential [large airtankers] for 2014 are older and riskier to operate than newer NextGen airtankers.
6. In 2017, the number of [large airtankers] under contract to the Forest Service will decrease from 16 to 7, with the expiration of the Legacy contracts, unless additional NextGen airtankers are procured from the current NextGen contractors.
7. Only two of the five NextGen contractors are now in compliance with the contract and providing operational airtankers.

Id. at 3-4.

Absent from the J&A, however, was any discussion regarding Neptune’s need for a sole-source contract to remain a source of supply.[28] See AR, Tab 49, Neptune J&A, Dec. 9, 2013, at 1-6.

The J&A also stated that the agency took into account alternative resources, and found there were no certified large airtankers currently available that were not already under contract with the Forest Service capable of meeting NextGen contract requirements.[29] Id. at 2, 4. In this regard, however, the J&A did not address the fact that both 10 Tanker and Coulson had previously approached the Forest Service about adding additional airtankers to their NextGen contracts (two additional airtankers in the case of Coulson), and that 10 Tanker had delivered a second certified airtanker to the Forest Service for the 2013 fire season. AR, Jan. 31, 2014, at 25‑26; Tab 1, FAM Director Declaration, Jan. 28, 2014, at 7; Tr. at 138, 235.

A noncompetitive contract was awarded to Neptune on December 12. Although the J&A supported an award of two NextGen large airtankers for up to 9 years at a total estimated cost of $141,774,740, the contract actually awarded to Neptune permitted (by mutual agreement) the addition of two more airtankers to the first CLIN and three more airtankers to the second CLIN in each contract year. AR, Tab 54, Neptune Contract No. AG-024B-C-14-9000, at B-1. Based on all possible aircraft, the total estimated cost of the sole-source contract actually awarded to Neptune is $496,211,590.[30]

These protests followed publication of the sole-source award to Neptune in FedBizOpps.

DISCUSSION

CICA’s overriding mandate is for “full and open competition” in government procurements, obtained through the use of competitive procedures. 41 U.S.C. § 3301(a)(1). Agencies are provided, however, with authority to conduct noncompetitive procurements in specific limited circumstances. 41 U.S.C. § 3304(a). When an agency uses noncompetitive procedures under 41 U.S.C. § 3304(a), it is required to execute a written J&A with sufficient facts and rationale to support the use of the cited authority. See 41 U.S.C. § 3304(e); FAR §§ 6.302-3(c), 6.303, 6.304; Sabreliner Corp., B-288030, B-288030.2, Sept. 13, 2001, 2001 CPD ¶ 170 at 5. Our review of an agency’s decision to conduct a noncompetitive procurement focuses on the adequacy of the rationale and conclusions set forth in the J&A. Missouri Mach. & Eng’g Co., B-403561, Nov. 18, 2010, 2010 CPD ¶ 276 at 3; SSI Tech., Inc., B-298212, B-298212.2, July 14, 2006, 2006 CPD ¶ 183 at 4.

Where a federal agency makes a sole-source award for purposes of maintaining a particular source for an item or service, concern for maximizing competition is secondary to the agency’s industrial mobilization needs. Outdoor Venture Corp., B-405423, Oct. 25, 2011, 2011 CPD ¶ 241 at 2; Ridgeline Indus., Inc., B-402105, Jan. 7, 2010, 2010 CPD ¶ 22 at 3. Decisions as to which suppliers should be included in a mobilization base, and which restrictions are required to meet the needs of industrial mobilization, involve complex judgments that are generally left to the discretion of the federal agencies. We will question those decisions only if the evidence shows that the agency has abused its discretion. See Ridgeline Indus., Inc., supra; Minowitz Mfg. Co., B-228502, Jan. 4, 1988, 88-1 CPD ¶ 1 at 3. We will sustain a protest, however, where an agency’s J&A fails to demonstrate that it is in fact necessary to award a contract to a particular source for industrial mobilization purposes. NI Indus., Inc., Vernon Div., B-223941, Dec. 15, 1986, 86-2 CPD ¶ 674 at 3.

As explained below, the record does not support the USDA’s decision to award a sole-source contract to Neptune for industrial mobilization purposes. Rather, the record demonstrates that the sole-source contract--promised by the Forest Service in exchange for Neptune’s withdrawal of an earlier bid protest--was without a reasonable basis.

Interested Party Status of Coulson and Minden

As a preliminary matter, USDA argues that the Coulson and Minden protests should be dismissed because these protesters are not interested parties. Specifically, the agency contends that Coulson and Minden did not have additional large airtankers available at the time the J&A was signed that would be capable of performing the requirements of the Neptune sole-source contract (which has an April 28, 2014, start date).[31] The USDA contends, citing to our decision in Merlin Int’l, Inc., B-310611, Jan. 2, 2008, 2008 CPD ¶ 66, that a protester is not an interested party to challenge a sole-source award unless it can meet all of the agency’s requirements at the time of the sole-source determination.

Coulson and Minden respond that they are interested parties to protest here because they have a direct economic interest that would be affected by the award of a sole-source contract to Neptune. Coulson points to the fact that in October 2013 it offered to provide the Forest Service with two additional large airtankers under the NextGen contract, and argues it would be available and ready to perform by an April 28, 2014, start date (as established by the contract awarded to Neptune). Coulson Protest, Dec. 20, 2013, at 7-8; Coulson Protest, Feb. 10, 2014, at 4. Likewise, Minden states that it owns a second aircraft (BAe-146) that it is converting into an airtanker, and would be able to submit a proposal should the Forest Service conduct another competitive procurement. Minden Protest, Feb. 10, 2014, at 2-3. Both Coulson and Minden also point to the fact that the sole-source award to Neptune makes it less likely that the Forest Service would execute airtanker options under the competitively-awarded NextGen contract.

In order for a protest to be considered by our Office, a protester must be an interested party, that is, an actual or prospective offeror whose direct economic interest would be affected by the award or failure to award a contract. 4 C.F.R. §§ 21.0(a)(1), 21.1(a) (2013); Cattlemen’s Meat Co., B-296616, Aug. 30, 2005, 2005 CPD ¶ 167 at 2 n.1. Determining whether a party is interested involves consideration of a variety of factors, including the nature of the issues raised, the benefit or relief sought by the protester, and the party’s status in relation to the procurement. Sales Res. Consultants, Inc., B-284943, B-284943.2, June 9, 2000, 2000 CPD ¶ 102 at 5. The determination of whether a party is interested to challenge a sole-source award involves considering, among other things, the basis of the sole-source award.

We find Coulson and Minden (and 10 Tanker) to be interested parties to challenge the reasonableness of the agency’s sole-source award to Neptune for industrial mobilization reasons, as the protesters all have a direct economic interest that would be affected by the award of such a contract. If the protesters were to prevail in their challenge, and the agency decided to meet its requirements by means of another competitive procurement for large airtankers, the protesters here would all be eligible to compete. Similarly, if the protesters were to prevail in their challenge and the agency decided to meet its requirements by exercising options available to it under the NextGen contract, the protesters would be interested and eligible to receive such orders.

The Settlement Agreement

The protesters contend that the sole-source award to Neptune was improper, insofar as the agency promised to enter into the contract in exchange for Neptune withdrawing its protests of the NextGen contract awards. In this regard, the protesters claim that the agency’s actions have been motivated by the desire to fulfill the terms of a settlement agreement and to avoid a lawsuit by Neptune for allegedly breaching that agreement. The protesters argue that the agency “put the cart before the horse,” and agreed to settle Neptune’s protest before properly determining that the promised sole-source award complied with CICA. Coulson Protest, Feb. 10, 2014, at 55. The protesters also point to the fact that the only legitimate financial analysis conducted (the analysis by FI) demonstrated that Neptune did not require a sole-source contract to remain viable, as recognized by the agency’s SPE, who refused to approve the J&A. 10 Tanker Protest, Feb. 10, 2014, at 120-35.

The USDA does not dispute that its consideration of a noncompetitive award to Neptune was motivated by its promise of a sole-source contract in exchange for Neptune withdrawing its bid protest and thereby ending the CICA stay that then precluded the Forest Service from fielding NextGen large airtankers for the 2013 fire season. See AR, Jan. 31, 2014, at 55. Nevertheless, USDA argues that it did not act improperly because the sole-source award complied with all applicable procurement statutes and regulations. Id. at 55‑56.

A settlement agreement promising award of a contract on a sole-source basis in exchange for abandoning ongoing litigation, such as a bid protest, is not a permissible basis for restricting competition and excluding potential offerors. Earth Prop. Servs., Inc., B-237742, Mar. 14, 1990, 90-1 CPD ¶ 273 at 4-5, aff’d, B-237742.2, June 11, 1990, 90-1 CPD ¶ 546; Techplan Corp., B-234161, May 12, 1989, 89-1 CPD ¶ 452 at 5. For example, our Office upheld a protest of a sole‑source award where an agency justified its failure to conduct a full and open competition on the basis that it had entered a settlement agreement promising the award of a contract in exchange for abandoning a threatened contract claim. Earth Prop. Servs., Inc., supra. Quite simply, the existence of a settlement agreement does not permit a contracting agency to act in ways not otherwise permitted by applicable statutes and regulations. Id. at 5; see York Int’l Corp., B-244748, Sept. 30, 1991, 91-2 CPD ¶ 282 at 4-5 (settlement agreements will not be enforceable if they fail to comply with applicable statutes and regulations).

As detailed below, the Forest Service entered into a settlement agreement with Neptune on the basis that the award of a sole-source, NextGen-type contract was necessary to maintain Neptune as a vital source of large airtankers. The independent financial analysis subsequently performed by FI on behalf of USDA concluded that Neptune did not require the award of a sole-source contract to remain financially viable. Nothing in the record refutes FI’s conclusions, nor is there any evidence to suggest that Neptune intends to go out of business now merely because its future prospects appear uncertain. In sum, while the agency may not have entered into a settlement agreement promising to disregard applicable procurement statutes and regulations, the agency’s subsequent decision to award a sole-source contract to Neptune so as to comply with the terms of the settlement agreement and avoid a Neptune-threatened lawsuit was without a reasonable basis.

Sole-Source Award Justification

As set forth above, agencies are generally required to conduct procurements using procedures designed to obtain full and open competition. 41 U.S.C. § 3301(a)(1); FAR § 6.101. One exception to this requirement is where an agency determines that it is necessary to maintain a vital source of supply for industrial mobilization.[32] In relevant part, the FAR states as follows:

(2) Full and open competition need not to be provided for when it is necessary to award the contract to a particular source or sources in order--

(i) To maintain a facility, producer, manufacturer, or other supplier available for furnishing supplies or services in case of a national emergency or to achieve industrial mobilization.

FAR § 6.302-3(a).

The protesters generally do not dispute that the Forest Service requires additional large airtankers to perform its firefighting mission. Rather, the protesters challenge the reasonableness of the agency’s determination that the sole-source contract here is necessary to maintain a vital source of supply. Specifically, the protesters argue that: (1) Neptune is not a vital supplier such that the large airtanker industrial base can be maintained without resorting to noncompetitive procurements; and (2) Neptune does not require a sole-source contract to remain a source of large airtankers.

In responding to the protests, the agency has acknowledged that it was initially concerned that Neptune would “immediately go out of business in during [sic] the 2013 fire season, leaving the Forest Service without any of the Legacy air tankers Neptune supplied under the contract awarded March 27, 2013.” Agency Post- Hearing Comments, Mar. 18, 2014, at 5. The agency admits, however, that ultimately it concluded there was no concern with Neptune’s present viability, but only with its viability after 2017.[33] Id. at 6-7. Consequently, the agency argues, the J&A was not grounded on the agency’s belief that Neptune would immediately go out of business without a NextGen contract, but was based on its concern with Neptune’s continued availability as a large airtanker supplier after 2017 when its Legacy contract expired.[34] AR, Feb. 19, 2014, at 3-7. However, changing its focus during the course of the protests, the agency has also argued that its actual concern is whether it could obtain sufficient NextGen airtankers for the 2014 fire season. See Agency Post-Hearing Comments, Mar. 18, 2014, at 9-10, 21; see also Tr. at 657-693. In this regard, the agency maintains that it cannot tolerate any further delay in acquiring additional NextGen airtankers for the 2014 fire season. Agency Post-Hearing Comments, Mar. 18, 2014, at 28. The Forest Service contends that this immediate need for additional NextGen airtankers provided it with “an industrial mobilization need in December 2013” when it decided to award Neptune a sole‑source, 9-year contract for NextGen airtanker services. Id. at 32.

Based upon on our review of the record, including the J&A, its supporting documentation, the agency’s submissions in response to these protests, and the testimony of the agency’s representatives at the hearing held at our Office, the agency has failed to demonstrate that Neptune requires a sole-source contract to remain a source of large airtanker services for the Forest Service. Although the J&A documents the agency’s belief that Neptune is, presently, a vital supplier of large airtanker services under Neptune’s Legacy contract,[35] the J&A is devoid of evidence or analysis supporting the need to provide Neptune with a sole-source award for the firm to remain a viable source of supply. Rather, the record demonstrates, as acknowledged by the agency, that Neptune is presently financially viable and is expected to remain financially viable through the term of its Legacy airtanker contract (2017). Moreover, apart from Neptune’s own unsupported statements and the anecdotal views of various agency officials, the record contains no analysis or evidence of Neptune’s financial condition after 2017.[36]

As detailed above, the agency had two financial analyses of Neptune conducted after the company alleged it would go out of business without a NextGen contract award. First, RUS’s conclusion, that Neptune needed a NextGen contract to remain viable, was based entirely on unverified financial projections as provided by Neptune. By contrast, the second analysis conducted by FI--which did not simply accept Neptune’s projections--found that Neptune’s revenue projections were inconsistent with the terms of the Legacy contract, that Neptune’s expected costs were lower than the company had itself projected, and that Neptune did not require a NextGen contract to remain viable through the term of the Legacy contract. At no time before the J&A was approved were FI’s conclusions disputed or shown to be in error.[37] Moreover, while FI’s conclusions were limited to the period through 2017, at no time did the agency conduct any other analysis to determine Neptune’s financial viability after 2017. Tr. at 735; Agency Post-Hearing Comments, Mar. 18, 2014, at 7. Accordingly, while the agency contends that the J&A did not rely on the FI financial analysis to assess Neptune’s long-term viability, neither did the agency rely on any other information when making such an assessment. In fact, there is simply no record--in the J&A or otherwise--of any assessment by the agency of Neptune’s long-term viability.

Additionally, the agency’s apparent belief that an immediate need for NextGen airtankers in 2014 justified the award of a sole-source, 9-year contract on the basis of industrial mobilization is not supported and has no rational basis. The industrial mobilization exception to competition requirements may be used where an agency determines that “it is necessary to award the contract to a particular source . . . in order . . . [t]o maintain a . . . [vital] supplier . . . .” FAR § 6.302-3(a)(2)(i). As noted above, no reasoned analysis has been presented to support a determination that a 9-year, sole-source contract was required to maintain Neptune as a source. To the extent the agency believed an urgent need for large airtanker services would justify a noncompetitive 9-year contract, there is no analysis or explanation in the record demonstrating that this is so.[38]

We find it both premature and unreasonable for USDA to determine that Neptune requires a sole-source contract now in order to maintain Neptune as a source of large airtanker services after 2017. In addition to its current Legacy contract (including options for more airtankers being placed under the Legacy contract), Neptune is not precluded from competing on work--Forest Service or otherwise--in the coming years. The record also reflects that the NextGen contracts represent the primary, but not only, means by which the Forest Service plans to meet its modernization strategy goal of 18-28 modern large airtankers. In fact, the ASA testified that the agency plans to conduct additional competitions in the coming years under which Neptune is eligible to compete and could receive awards. Tr. at 735-36. Moreover, given the contract options available to the Forest Service under the competitively-awarded NextGen contracts, Neptune may no longer represent a vital source that must be maintained by the Forest Service after 2017. While agencies have authority to make noncompetitive awards when necessary to maintain vital sources, they do not have authority to make noncompetitive awards merely because an offeror is unsuccessful in a competitively-conducted procurement, or because such action was promised in a settlement agreement. See York Int’l Corp., supra; Department of the Army--Recon., B-237742.2, June 11, 1990, 90-1 CPD ¶ 546.

Accordingly, while the J&A may demonstrate that the Forest Service needs more large airtanker services than it currently has under contract, the J&A completely fails to demonstrate that Neptune must be the supplier of such services or that Neptune currently requires a 9-year sole-source contract to keep it in business as a vital supplier for the agency’s post-2017 needs. Just as an agency is not permitted to make a noncompetitive award that exceeds the size or duration of an identified urgency, see FAR § 6.302-2(d), an agency is also not permitted to make a noncompetitive award for industrial mobilization reasons where, as here, there has been no showing that the award is presently necessary to maintain a supplier even if deemed vital. NI Indus., Inc., Vernon Div., supra. Neptune would undoubtedly prefer the financial security that would accompany a long-term NextGen contract, but this is simply not the standard by which an agency is permitted to make a noncompetitive award for industrial mobilization purposes. See FAR § 6.302-3.

Inaccuracies in J&A

As a final matter, in addition to the fundamental lack of support for the J&A’s premise that Neptune now requires a 9-year sole-source contract in order to maintain the firm in the future as a vital supplier of aircraft, the record reflects that the J&A was premised on materially inaccurate information. As stated above, our review of an agency’s decision to conduct a noncompetitive procurement focuses on the adequacy of the rationale and conclusions set forth in the J&A. The adequacy of the rationale and conclusions set forth in the J&A is dependent on the completeness and accuracy of the information included in the J&A. See Sabreliner Corp., supra. We find the J&A to be incomplete and inaccurate in certain key regards.

FAR § 6.303-2 identifies information required for an agency’s justification of a noncompetitive procurement, stating, among other things, that the J&A “shall include . . . [a] description of the supplies or services required to meet the agency’s needs (including the estimated value),” “[a] demonstration that the . . . nature of the acquisition requires use of the authority cited,” and “[a] description of the market research conducted . . . and the results or a statement of the reason market research was not conducted.” FAR § 6.303-2(b)(3), (5), (8). Here, the Forest Service’s description in its J&A of its noncompetitive requirements, as well as its consideration of alternative sources of supply, is inaccurate.

Specifically, the J&A describes the services to be provided by Neptune as two NextGen large airtankers for up to 9 years, at a total estimated value of $141 million. AR, Tab 49, J&A, Dec. 9, 2013, at 1. The record shows, however, that the contract subsequently awarded to Neptune included the option of five additional large airtankers, for up to 9 years each, at a total estimated value of approximately $496 million--more than three times greater than what was approved. See AR, Tab 54, Contract No. AG-024B-C-14-9000, at B-1. Thus, the agency’s J&A inaccurately described the services to be obtained from Neptune on a noncompetitive basis.[39] This is significant because where, as here, an agency proposes to award a sole-source contract under the industrial mobilization exception to the general competition requirements, the amount being ordered must meet--not exceed--the objectives of this authority. See FAR § 6.302‑3(b)(iii) (when the quantity required is substantially larger than the quantity that must be awarded in order to meet the objectives of this authority, that portion not required to meet such objectives will be acquired by providing for full and open competition); Honorable Dan Burton, B-265884, Nov. 7, 1995, 1995 U.S. Comp. Gen. LEXIS 735 at *12. Alternatively, if the J&A was accurate here, then the contract awarded to Neptune impermissibly exceeded what the ASA had approved.

Similarly, when considering alternative sources and the market research regarding such sources, the J&A states that “[t]here are no certified [large airtankers] currently available that aren’t already under contract with the Forest Service. Aircraft capable of meeting these standards and requirements are not readily available and would take a considerable amount of time to be developed and operationally ready for service.” AR, Tab 49, J&A, Dec. 9, 2013, at 4. This statement is also factually inaccurate insofar as 10 Tanker had a certified large airtanker currently available, which the Forest Service actually contracted for in 2013. The J&A also failed to consider the additional large airtankers that Coulson had offered to make available to the Forest Service. The fact that the J&A was inaccurate with regard to alternative sources is also important because where, as here, an agency proposes to award a sole-source contract premised on the vital nature of a supplier, it must accurately consider whether the industrial base can be maintained without resorting to noncompetitive procurements. While the agency argues the fact that other contractors may have airtankers available to perform Neptune’s contract to be irrelevant here, AR, Jan. 31, 2014, at 52, we fail to see how the agency can reasonably find Neptune to be a vital source without accurately considering all sources. See FAR § 6.302-3; see also Lance Ordnance Co. Inc.; Martin Elecs., Inc., B-246849, B-246952, Mar. 31, 1992, 92-2 CPD ¶ 29 at 3-4.

RECOMMENDATION

In sum, the J&A and its supporting documents, as well as the agency’s submissions in response to these protests and the testimony of the agency representatives at the hearing held by our Office, demonstrate that the sole-source award to Neptune was promised in exchange for Neptune’s withdrawal of an earlier protest, and that there was not a reasonable basis for the agency’s action.

Accordingly, we recommend that the agency reassess whether a sole-source contract with Neptune--for industrial mobilization reasons or any other reason--is necessary to meet its needs with regard to large airtanker services. If the agency reasonably determines that the award of a contract on a sole-source basis to Neptune is necessary for large airtanker services, the agency should execute a properly-reasoned J&A for the sole-source award. If the agency determines the award of a contract on a sole-source basis to Neptune for large airtanker services is not necessary or that the contract awarded to Neptune does not reflect the agency’s reasonably justified needs, the agency should terminate that contract or modify it as appropriate. We also recommend that the agency reimburse Coulson, 10 Tanker, and Minden the costs of filing and pursuing their protests, including reasonable attorneys’ fees. 4 C.F.R. § 21.8(d)(1). The protesters should submit their certified claims for costs, detailing the time expended and costs incurred, directly to the contracting agency within 60 days after receipt of this decision. Id., § 21.8(f)(1).

The protests are sustained.

Susan A. Poling
General Counsel