i ¶THE COMPTROLLER £3SPJRALCECISBION O F THE UNITEC STATES

f /WASHINGTON, 0. 0. 20549i

FILE: B-203265 DATE: J7uly 20, 1982

MATTER OF: Gulton Industries, Inc., EngineeredMagnetics Division

OIGEST:

1. Protest against exercise of option isappropriate for GAO resolution eventhough option exercise was part ofagreement between Navy and aswardeo tosettle awardee's, prior protest of andcivil litigation against option exerciseunder different contract. Since civillitigation/settlement raised riattersrelated exclusively to different contract,the United ttates District Court neverhad before it issues raised In presentprotest. Furthermore, the protester isrnot objecting to the exercise of theoption purcuant to the settlement, butrather, the protester argues that themanner in whici the option was erercisedwent beyond the scope of the settlementagreement.

2. Although protests against contractmodifications arms usually matters ofcontract administration which GAO doesnot review, we wiAl consider protestswhich contend that a modification werntbeyond the scope of the contract and,therefore, was an unjustified solo-sourceaward.

3. Protest against exercise of option istimely when filed within 10 working daysafter protester was informed of basisfor protest. Even though protester knewmore than 10 working days before filingprotest that option would be exercised,protester was not required to fileRdefensive" protest in anticipation ofimproper actions by contracting agency

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related to option exercise, The 10-dayperiod runs from date protester was firstinformed of specific terms of optionexercise which form bases for protest--that option was not exercised in accordwith option provision in contrant nor inaccord with applicable regulations,

4. Protest issues raised for first time inprotester's comments on agency report ontimely filed issues are untimely wherefiled more than 4 months after protesterwas given documentation which should haveinformed protester of bases for later-raisedissues,

5. Protest that Navy Improperly issuedmodification exercising option to effectsole-source award is denied. Even though themodification changed technical specificationsso that the item procured under option wasnot exactly the same item as procured underthe basic contract, changes were relativelyminor In nature, were made under changesclause of contract, and were within scopeof basic contract.o Therefore, competitiveprocurement statutes have not been circumvented,

6. Protest that option was improperly exercisedis denied since contracting agency relied uponrecent informal market survey of the onlyknown producers of item in determining thatoption price was best available price.Furthermore, agency considered urgency ofrequirement due to precariously low supplyand fact that incumbent could give accelerateddelivery under option. Finally, agency con-sidered fact that option exercise would bepart settlement of costly, disruptive litigationeffort. Accordingly, we cannot find contractingagency's determination to exercise option tobe unreasonable.

Gulton Industries, Inc., Engineered MagneticsDivision (Gulton), protests against a modificationissued by the Department of the Navy, Ships PartsControl Center (SPCC), under contract No. N00104-81-C-1791 for the supply of 51 contaminated fuel

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detector (CFD) units by the contractor, Telectro-Mek,Inc. (TMI). The modification called for production ofan additional 51 CFDIs pursuant to the option provisionof the contract. Gulton contendg that the option wasnot exercised in accordance with the option provisionand that the Navy did not properly determine thatexercise of the option reprelented the most advantageousmethod of fulfilling the Government's needs as requiredby Defense Acquisition Regulation (DAR) S 1-1505(c)(iii)(1976 ed.). Accordingly, Gulton argues that this modifi-cationi amounted to an improper sole-source award to TMI.

We deny the protest in part and dismiss it in partas untimely filed.

Specifically, Gulton argues that the option was notproperly exercised because the 51 additional CFD's wereto be manufactured in accordance with military specifi-cation MIL-D-22612 revision "C" rather than militaryspecification MIL-D-22612 revision "B" as required underthe basic contract. Thus, the units required under theoption will include "additional performance and equipmentfeatures which make it a potentially more costly require-ment" than revision "Bn" units. In fact, Gulton points outthat the actual option price per unit is more than theprice specified in the'contract for the option quantity.Further, the option as awarded requires delivery at anaccelerated rate over the delivery rate originallyrequired for the option units by the contract's optionprovision and the exercise of the option occurred afterthe option period had already expired. Also, Gulton con-tends that the Navy did not conduct a market survey todetermine whether a better price than that contained inthe option could be obtained as required under DARSS 1-1505(c)(iii) and 1-1505(d)(2).

Background

In June 1980, BPCC issued invitation for bids (IFB)No, N00104-80-B-1104 for supply of 51 CFD's. TMI wasthe low bidder with a price of $3,087 per unit or $3,022per unit with waiver of first article testing. Gultonprotested to our Office prior to bid opening contendingthat the procurement should be negotiated rather thanadvertised, and we denied Gulton's protest; GultonIndustrics, Inc., Engineered Magnetics Division, B-199390,November 3, 1980, 80-2 CPD 334. Contract No. N00104-81-C-1791 (No. 1791) was awarded to TMI on November 11, 1980.

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It contained an option provision for 100 percent of thebasic quantity (51 units) at a price of $3,276 per unit.

On October 3, 1980, SPCC orally solicited TrI1 andSulton for the urgent supply of 110 CFP's and both firmssubmitted proposals. As a result, contract No, N00104-81-C-1747 (ot, 1747) was awarded to Gulton at a unitprice of $3,595, with an option for 100 percent of thebasic quantity (100 uwits) at a unit price of $3,395.

In January 1981, SPCC contacted both TMI and Gultonand requested quotations for varying quantities of CFD'S.Gulton offered to increase the option quantity undercontract No. 1747 to 250 percent of the basic quantityand to lower its per unit price to $3,095. Iin February1981, SPCC modified Qulton's contract increasing theoption quantity to 250 percent and exercising the optionfor 231 units at a per unit price of $3095. On Marca 18,TMI offered to reduce its option price under contractNo, 1791 to $2,950 per unit. SPCC accepted TMI's offerand moditled TMI's contract on April 1. TMI was notadvised of the exercise pf Gulton's option for 231 unitsunder contract No, 1747 until March 24. TI filed aprotest with our Office on April 1 and, on April 6,filed with the United States District Court for theDistrict of Columbia for a temporary restraining orderand a preliminary injunction.

On April 7, 1981, the Navy and TMI stipulated that:(1) TMI would withdraw its motion for a temporaryrestraining order; (2) the Navy would take no actionunder the modification to Gulton's contract which wouldprejudice TMI (3) the Navy would review the Gulton con-tract and enter into discussions with TMIi and (4) on orbefore April 27, 1981, the Government would either causea stipulation of settlement to be entered or would filean opposition to plaintiff's motion for a preliminaryinjunction. In accordance with this stipulation, a stop-work order was issued to Gulton for the option quantities.Representatives of TMI and the Navy met several times andworked out a settlement which resulted in TMI withdrawingits protest and moving for dismissal of the matters beforethe district court.

A final settlement agreement was filed with thedistrict court on April 27, 1981, which provided for:(1) terminating 121 CFD's from Gulton's contract (No. 1747)(this represented the number of CFD's which had been added

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to the original option for 110 units by the Februarymodification); (2) exercising the option in TMI'scontract (No, 1791) for 51 unitu; and (3) readvertislagthe remaining requirement for 70 units. As a resultof the settlement, the stopwork order issued to Gultonwas rescinded to permit Gulton to proceed with productionof 110 units under the option and a termination for con-venience was issued to Gulton for 121 units on April 29,The option in TMI'B contract (No, 1791) for 51 additionalunits was exercised by contract amendment issued onApril 29. Gulton filed its initial protest in our Officeon May 12, 1981.

Jurisdiction

THI contends that, since the TMI option was exercisedas part of an agreement negotiated to settle both a bidprotest and litigation before a United States DistrictCourt, our Office should decline to review this protest,TMI argues that Gulton could have intervened in TMI'searlier protest and in the civil litigation. SinceGulton chose not to intervene in either matter, we areurged not to become "a forum for after-the-fact attacks"on such settlements. We do not agree.

It is GAO policy not to decide a bid protest wherethe material matters before us are also before a courtof competent jurisdiction. See Norton Company, SafetyProducts Division, 6 Comp. Cein, 1 (1981), 81-1 CPD 250.However, this settlement was negotiated between the Navyand TMI on matters relating exclusively to TMI's chargesthat the Navy had improperly awarded an option quantityto Gulton. Therefore, the United States District Courtnever had before it the issues raised by Gulton hernpertaining to the allegedly improper manner in whichthe Navy exercised the option under TMI's contract.Essentially, Gulton is not objecting to the exercise ofthe option pursuant to the settlement, but rather, Gultonargues that the manner in which the option was exercisedwent beyond the scope of the settlement agreement becausethe Navy changed the specifications, accelerated delivery,and increased the price it would pay. Therefore, Gulton'sprotest of these matters is appropriate for our review.

While we do not generally consider.protests againstcontract modifications unless it is alleged that themodification went beyond the scope of the contract and

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should have been the subject of a new procurement,this is essentially the subject of Gulton's protestand, therefore, the matter is appropriate for ourconsideration, Memorex Corporation, 61 Comp. Gen. 23(1981), 81-2 CPD334C.

Timeliness

Both the Navy and TMI argue that Gulton's entireprotest is untimely because Gulton knew that TMI andthe Navy were in the process of negotiating the settle-ment of TMI's protest and court action. Gulton apparentlykept in close contact with Navy officials about. thismatter and, on April 16 or 17, Gulton's attorney wasinformed that a settlement was imminent, At that time,Gulton was told that, as part of the settlement, Jts owncontract (No. 1747) would be terminated to the extentof 121 units out of the 231 additional units orderedfrom it, that 51 of those units would be awarded to TMIunder its contract (No. 1791) option, and that theremaining 70 units would be competitively resolicited.Accordingly, TMI and the Navy contend that Gulton knew,or should have known, its bases for protest by April 16or 17 when it was told the general outline of the settle-ment agreement. The Navy reports that, on April 20 or 21,a Gulton representative told Navy officials that Gulton"did not like the settlement." Thus, the Navy arguesthat it was clear that Gulton knew its grounds forprotest before April 20 or 21, The Navy and TMI arguethat, once Gulton knew that the Navy was going to termi-nate its contract with oulton and exercise its optionwith TMI, Gulton had to protest within 10 working daysunder section 21,2(b)(2) of our Bid Protest Procedures,4 C.P.R. part 21 (1982), Since Gultorn's initial protestwas filed ou May 12--more than 10 working days after theApril 16 or 17 phone conversation wherein Navy officialsinformed Gulton's attorney that a settlement had beenachieved--the Navy and TMI conclude that the entireprotest is untimely.

The differing specifications, price change, andlack of market survey were raised by Gulton on May 12when the initial protest was filed in our office.While Gulton's attorney knew on April 16 or 17 thatrepresentatives of the Navy and TMI had agreed to

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settle, and a Gulton representative might have expressedthe firm's displeasure with the settlement on April 20or 21, we do not find that Gulton was required to protestwithin 10 days of either of these events. Even thoughGulton knew that the settlement had been worked out,there is no evidence that Gulton had been told thedetails of that agreement. Furthermore, while Gultonmight have expreased displeasure with the settlement,that fact alone does not show conclusively that Gultonknew the above-noted bases for Its protest. Howevar,Gulton bad a right to expect that the Navy would exercisethe option properly, Thus, Gulton could have assumedthat the actual exercise would be in accord with thecontract's option provision and that the Navy wouldfollow the appropriate regulations We do not requireprospective protesters to fila "defensive" protestsbefore actual knowledge that a basis for protest existsor in anticipation of improper actions by the contractingagency. See Brandon Applied Systems, Inc., 57 Comp.Gen. 140 TCl77), 77-2 CPD 486, for a summary of ourposition on "defensive" protests. Here, the terminationof Gulton's contract and exercise of TMI's option did notoccur until April 29, and Gulton was not informed of thedetails of TMI's option award until some time afterward.Accordingly, we find toe above-listed bases of protest tobe timely filed, and the issues presented therein are forconsideration on their merits.

However, the remaining allegations (pertaining toaccelerated delivery under the option and the period inwhich the option could be exercised) were first raisedby Gulton in its September 25 comments on the Navy'sreport, Though Gulton's initial filing did indicatethat Gulton believed the exercise of the TMI option wasnot in accord with the option provision of the TMI con-tract, Gultori's initial filing directed itself only tothe change in specifications and resultant higher costfor option units. Nowhere in the initial protest letterdid Gulton mention the accelerated delivery or the timeperiod in which the option was viable. Gulton was senta copy of the TMI contract and the modification whichwas used to exercise TMI's option. These documents werereceived by Gulton on May 15. However, Gulton did notraise these allegations until September 25 when it com-mented on the Navy's report on the initial protestallegations. since these allegations were not raisedwithin 10 days of the date Gulton received the TMI

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contract and modification which revealed these basesfor protest, they are until, ly under section 21.2(b)(2)of our Procedures, 4 C*F.R. s 21.2(b)(2).

Where, as here, a protester initially files atimely protest and later supplements it with new ajadindependent grounds of protest, the later-ralpedallegations must independently satisfy our timelinessrequirements. See John J. Moss, B-201753, March 31,1981, 81-1 CPD 242. Our Bid Protest Procedures aredesigned to give protesters and interested parties afair opportunity to present their cases, with onlyminimal, if any, disruption to the orderly and expe-ditious process of Government procurement. SeeBird-Johnson Company--Request for Reconsideration,B-194445.3, October 14, 1980, 80-2 CPD 275. They donot contemplate a piecemeal presentation or develop-ment of protest issues, See Radix II, Inc., B-186999,February 8, 1977, 77-1 CPD 94.

Gulton points out that It did charge in its May 12filing that SPCC had awarded the option to TMI incontravention of the contract option provision. Cultonargues that the later-raised allegations are merelysupport for a legal issue filed in a timely manner.We do not agree.

In Kappa Systems, Inc., 56 Comp. Gen. 675 (1977),77-1 CPD 412, we stated that we generally will considerlater-filed materIals and/or arguments which merelyprovide further support for an already timely protest.The Kappa Systems rule, however, presumes a timelyInitial protest which merely lacks detail. It is notdesigned to permit A protester to toll our filingrequirements by reserving the right, in effect, toraise new grounds of protest subsequently if the firmis not satisfled with the contracting agency's responseto its otherwise time';, protest. See Pennsylvania BlueShield, B-203338, HartZ 23, 1982, TfllCPn ?272.

In our view, these later-raised issues fall withinthe Pennsylvania Blue Shield category. Since Gultonwaited more than 4 months to file these allegationsafter receiving the documents which put it on noticeof these alleged irregularities, they are untimely and,therefore, are dismissed,

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Change in Technical Specifications

Contract No, 1791 with Til1 originally requiredTMI to deliver to SPCC 51 CFD's which were to conformto military specification MIL-D-22612 revision NMN at aprice of $3,087 per unit (without waiver of first articletesting). In clause 3-3 of the contract, the Governmentreserved the right to purchase an additional 61 unitsWof likc items" at a price of p3,276 per unit. TMIlvolunteered to lower the option price to $2,950 per uniton March 18, 1981, and this price reduction was accom-plished by amendment on April 1, 1981. When SPCCexercised its option on April 29, the amendment effectingthe option exercise provided that the contract wasmodified in several ways; (1) the additional units wouldconform to revision "C" of military specification MIL-D-226121 (2) the additional units would be delivered atan accelerated ratel and (3) the unit price paid for theoption quantity would be increased to $3,087.

Gulton protests that SPCC, In effect, used theoption clause to negotiate a sole-source purchase ofCFD's made to conform to revision "C" of the militaryspecification. According to Gulton, the changes intechnical specifications represented substantial changesin the terms of the basic contract and were contrary tothe express provisions of the option clause. Furthermore,Gulton points out that these additional performance andequipment featurea were a more costly requirement andresulted in the change in price from $2,950 per unit to$3,087 per unit.

The Navy argues essentially that these modificationsmade in the course of exercising the option were rela-tively minor in nature and were, therefore, clearlywithin the scope of the original TMI contract. Accordingto the Navy and TMI, the changed specifications andaccelerated delivery were negotiated jinder the chargesclause of the contract concurrent witty the settlementnegotiations. The increase in unit price of $137 wasadditional compensation to be paid TMI for the changesand was negotiated under the changes clause.

The record shows that the Navy changed thespecifications from revision "B" to revision "C" forboth the basic quantity and for the option quantity.Furthermore, the Navvy reports that SPCC decided to make

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thene 4hangeu without issuing change orders and toexercise the option at the same time by issuing theApril 29 amendment, In our opinion, thesa actionswere tantamount to changing the specifications forthe basic quantity pursuant to the changes clause andthen exercising the option for Nlike items."

We have consistently held that preservation ofthe integrity of the competitive procurement systemrequires that contracting parties not make changes tocontracts which have the effect of circumventing thecompetitive procurement statutes. This principle isviolated when a modification so substantially changesthe purpose or nature of a controct that the contractfor which the competition was held and the contractwhich is to be performed are essentially different,See Memorex Corporation, sMupra and cases cited therein.

The crucial issue, then, is whether the changesmade in the specifications were so greet that theproduct to be supplied by TMI under the option issubstantially different from the product for whichGulton and TMI originally competed. We conclude thatthe changes which were made (from revision I"D" torevision "C" of the specification) were within thescope of TMI's basic contract,

The record shows that the substantive changesrequired to change from military specification MIL-D-22612 revision "B" to "C" were: (1) the additionof a requirement that wire entering into the lightsensitive cell housing enter through the horizontalside surface; (2) the unit was required to operate ontype I shipboard power as well as ungrounded 115-voltalternating current, 60 hertz as required in revision"B"; and (3) the intensity of the light could bemechanically adjustable as well as electricallyadjustable as required in revision "B." Gulton admitsthat the second change z.bove is the primary change tothe technical specifications.

Our understanding is that type I shipboard powermay vary in voltage and frequency and that a CPD mustbe able to function properly even during such powerfluctuations. Gulton contends that TMI may have modifiedits design to incorporate a constant voltage transformerinto its existing unit in order to meet the new requirement.

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In our view, the changes made were not so substantialthat competition under the original solicitation wasconducted on a basis which was different in nature fromthe contract under which TMI was to perform in supplyingthe option quantity. While we are not technical expertson such matters, it is our view that these changes wererelatively minor, This view is bolstered by the smallamount of extra payment ($137) which the technical changesand the accelerated delivery combined were to cost theNavy, Thus, the technical changes combined with theaccelerated delivery. required extra considerationamounting to less than 5 percent of the original cost.We Also note that Gulton pointed out that a simplemodification--adding a constant voltage transformer--potentially could have sufficed to meet this newrequirement. In any event, Gulton bears the burden ofproving that the changes amounted to a substantialchange in the contract requirements. Moreover, wehave held that in technical disputes a protester'sdisagreement with an agency's opinion does not'Invalidate that agency's opinion. See, for example,London Fog Company, B-205610, May 4, 1982, 82-1 CPD 418.Gulton has not persuaded us and, therefore, has notcarried its burden of proof.

In these circumstances, we are not convinced thatthe changes went beyond the scope of the basic contractnor that the competitive bidding statutes have beencircumvented. Accordingly, the protest is denied onthis point.

Was Option Exercised in Accord with DAR S 1-1505?

Basically, the protester argues that, since SPCCdid not make any inquiry as to what Gulton's pr!ce forthe option quantity (as modified to confotm to revisionIC" of military specification MIL-D-22612) would be, itis clear that SPCC did not make an informal market surveyto ascertain whether a better price than that offered byTMI's option could be obtained. Thus, Gulton contendsthat SPCC. did not follow DAR S 1-1505-d), which providesmethods for determining that "price" makes exercise ofthe option in the Government's best interest.

The circumstances under which an option may beexercised are set forth in DAR S 1-1505(c), whichrequires, among other things, a determination thatexercise of the option is the most advantageous method

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of fulfilling the Governmeat's needs, price arnu otherfactors considered. Our Office will not object to sucha determination unless applicable regulations were notfollowed or the determination itself is unreasonable.Cerberonics, Inc., B-199924, B-199925, May 6, 1981,81-1 CPD 351.

The Navy reports that it had several reasons fordetermining that exercise of the option was the mostadvantageous method of fulfilling its needs, Concerningwhether the price in TMI's option was the best priceavailable, the Navy admits that SPCC did not make aseparate, informal survey of the prices which could beobtained in April 1981, when it decided to exerciseTMI's option. The Navy had performed a survey of theonly known suppliers of this item--Gulton and TMI--inJanuary and SPCC exercised the option under contractNo, 1747 with Gulton in February. According to thequotations received and the actual exercise of Gulton'soption In February, the best price offered by Gultonwas $3,095 per unit. That price was for a much largerquantity (231 units) of CFD's which were to be to theold revision "P." specifications. Presumably, unitsmade to revision "C" would have been more expensivesince, in Culton's own words, they include "additionalperformance and equipment features which make it apotentially more costly requirement." Also, based onthe quotation given by Gulton In January, it is apparentthat the price per unit would be higher for such asmall quantity. Therefore, relying on the Januarymarket survey, SPCC determined that it was unlikelyto get a lower price than that offered in the TMIoption.

The Navy also was concerned about two other factorswhich influenced its decision to award the option toTMI. The 231-unit option which had been awarded toGulton In February had been based upon urgency becauseSPCC stock was precariously low and there were over200 "back orders" for this item. With TMI attempt: ;to get a temporary restraining order to prevent theNavy from buying these units from Gulton, and in viewof the Navyt s determination that TMI was likely tosucceed (or at least that the Gulton option exercisewas improper), the Navy had agreed to isstue a stopworkorder to Gulton. Thus, the Navy determined thatexercising TMI's option as it did would help resolvea costly litigation effort and at the same time fulfillat) urgent requirement at an accelerated rate.

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Our review of the Navy's rationale leads us toconclude that the Navy acted properly. Even thoughan independent, informal market survey was not conductedfor this particular option exercise, we find thatreliance on the January market survey was reasonable.This is especially so because that survey was fairlycurrent and included the only known suppliers. Also,the price per unit ($3,087) under TMI's option waslower than Gulton's quote for a greater quantity ofunits produced to revision "B"--an admittedly lesscostly model. Moreover, due to the court action, theNavy reasonably was concerned with delayed procurementof an urgently needed. item. Finally, we find thatsettlement of a costly litigation effort was also avalid basis for the Navy's determination, especiallysince the Navy admits it had wrongly exercised Gulton'soption which led to Lhe litigation.

In these circumstances, we conclude that thecontracting agency's determination that exercise ofthe option was in the best interests of the Governmentwas based upon legitimate factors and, therefore, wasreasonable. Accordingly, this issue of protest isdanied.

Conclusion

The protest is denied in part and dismissed inpart.

I4V Comptroller Ge eralof the United States