```
Intelligence Programs: Inquiry Into Contracting Practices for a
Classified Program (Letter Report, 02/28/94, GAO/NSIAD-94-109).

Technology Research International, Inc. (TRI), a small disadvantaged
business, alleged improper conduct by an Air Force prime contractor in
awarding a subcontract to a TRI competitor. GAO found no evidence that
the prime contractor--Lockheed Sanders, Inc.--engaged in any misconduct
in using the source selection process questioned by TRI. TRI did not
submit the lowest bid and was given the same chance as competitors to
update its proposal in response to amendments to the proposal request.
In addition, weighting factors were consistently applied to each
competitor's bid proposal. GAO found that the Air Force played no role
in the source selection process for this subcontract. Finally, the prime
contractor was not required to and did not use an evaluation preference
for small disadvantaged businesses. It was required, however, to have a
small business/small disadvantaged business subcontracting plan as part
of the prime contract. GAO found that such a plan was developed and
incorporated into the prime contract.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-94-109
     TITLE:  Intelligence Programs: Inquiry Into Contracting Practices 
             for a Classified Program
      DATE:  02/28/94
   SUBJECT:  Subcontract award protests
             Air Force procurement
             Electronic warfare
             Bid evaluation
             Unfair competition
             Evaluation criteria
             Minority businesses
             Contract negotiations
             Small business contractors

             
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Cover
================================================================ COVER

Report to the Honorable
Anthony C.  Beilenson, House of Representatives

February 1994

INTELLIGENCE PROGRAMS - INQUIRY
INTO CONTRACTING PRACTICES FOR A
CLASSIFIED PROGRAM

GAO/NSIAD-94-109

Inquiry Into Contracting Practices

Abbreviations
=============================================================== ABBREV

  ANC - American Nucleonics Corporation
  LSI - Lockheed Sanders, Inc. 
  TRI - Technology Research International, Inc. 

Letter
=============================================================== LETTER

B-256309

February 28, 1994

The Honorable Anthony C.  Beilenson
House of Representatives

Dear Mr.  Beilenson: 

As requested, we reviewed a complaint you received from Technology
Research International, Inc.  (TRI), a small disadvantaged business,
alleging improper conduct by an Air Force prime contractor in
awarding a subcontract to a TRI competitor.  In addition, on the
basis of this complaint, you wanted to know the recourse available to
TRI. 

This report addresses the merits of TRI's four major allegations
against the prime contractor--Lockheed Sanders, Inc.  (LSI). 
Specifically, TRI contended that (1) it offered the lowest initial
bid, and LSI then negotiated a lower bid price with a competitor
without giving TRI the same opportunity; (2) LSI may have used
weighting factors in its source selection process that discriminated
against TRI; and (3) the Air Force earmarked the subcontract for a
competitor even before TRI had made an offer.  Further, TRI
questioned whether LSI considered use of a provision of the Defense
Federal Acquisition Regulation Supplement that permits preferences
for small disadvantaged businesses in the bid evaluation process. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

We found no evidence that LSI engaged in any misconduct in the use of
the source selection process questioned by TRI.  Source selection
information showed TRI did not submit the lowest bid and was given
the same opportunity as competitors to update its proposal in
response to amendments to the request for proposal.  In fact, the
winning subcontractor, American Nucleonics Corporation (ANC),
substantially increased its bid and was still lower than the final
TRI bid.  Source selection information also showed that weighting
factors were consistently applied to each competitor's bid proposal. 
While each competitor's proposal was judged to be technically
qualified, the ANC offer was considered to be superior.  In addition,
our review showed the Air Force played no role in the source
selection process for this subcontract.  Finally, LSI was not
required under the prime contract to, and did not use, an evaluation
preference for small disadvantaged businesses.  It was required,
however, to have a small business/small disadvantaged business
subcontracting plan as a part of the prime contract.  We found such a
plan was developed and incorporated into the prime contract. 

   BACKGROUND
------------------------------------------------------------ Letter :2

The Air Force awarded a prime contract to LSI, Nashua, New Hampshire,
to develop an electronic warfare component for a classified program. 
LSI subsequently issued a subcontract request for proposal for the
design and fabrication of a subsystem in support of the prime
contract.  This subcontract was a competitive procurement with source
selection based on criteria specified in the request for proposal. 

LSI sent a letter of inquiry to four potential sources in late
October and early November 1992 to determine interest in competing
for the subcontract and to obtain comments on the preliminary
specification.  While all four sources responded with comments, one
source indicated it did not intend to bid.  LSI later sent a request
for proposal in December 1992 to the three remaining interested
sources.  Subsequently, LSI issued three request for proposal
amendments to the three sources.  The first amendment clarified
technical information and extended the response due date.  The second
amendment requested proposal clarifications from each of the three
sources.  The final amendment requested proposal updates to address
changes that included the specification and statement of work.  TRI
and ANC, two competing sources, fully responded to all three
amendments.  A third source dropped out of the competition by
submitting a no-bid response to the third amendment.  After
evaluating the two bids, LSI awarded the subcontract to ANC in June
1993. 

   NO EVIDENCE OF MISCONDUCT IN
   SUBCONTRACT SOURCE SELECTION
   PROCESS
------------------------------------------------------------ Letter :3

Our review of source selection data showed TRI was not the low
bidder.  Contrary to TRI's contention that ANC may have been given
the opportunity to lower its final bid price below TRI's offer, both
competitors increased their original bids in response to the May 11,
1993, third amendment to LSI's request for proposal.  Even though ANC
increased its bid price by over 25 percent, the ANC offer still
remained the low bid. 

Source selection information showed that the prioritization and the
weighted factors LSI used in the source selection process were
consistently applied to both competitor's proposals.  The LSI request
for proposal summarized the evaluation criteria and listed five
source selection factors in descending order of importance: 
technical approach, price, production/programmatic considerations,
planned delivery schedule, and past performance history.  A
methodology for weighting these factors was established at the
release of the request for proposal and corresponded to the listed
order of importance.  The proposals from TRI and ANC were evaluated
and scored independently by different preassigned LSI evaluators for
each factor in accordance with the preestablished weighting
methodology.  LSI judged TRI's proposal to be technically qualified
under this methodology; however, it rated ANC's technical approach as
superior. 

We found no indication that the subcontract award was earmarked for
ANC based on our examination of source selection data and Air Force
contract files and discussions with LSI and Air Force officials. 
Also, we found no evidence the Air Force played any part in the
selection and award of the subcontract.  According to a LSI official,
LSI did not have any previously established contractual relationships
with either ANC or TRI.  An LSI official told us they used different
personnel to evaluate the ANC and TRI proposals to avoid favoritism
in the source selection process.  Also, an Air Force official who TRI
believed may have had an opportunity to influence the source
selection process told us that he purposely distanced himself from
the process. 

   SMALL DISADVANTAGED BUSINESS
   PREFERENCE NOT REQUIRED OR USED
------------------------------------------------------------ Letter :4

While the prime contract did not require the use of an evaluation
preference for small disadvantaged businesses, the prime contract did
require LSI to have a small business/small disadvantaged business
subcontracting plan.  The Defense Logistics Agency's most recent
review of LSI's plan for the period ending June 1, 1993, rated LSI's
subcontracting program as outstanding and did not recommend
improvements. 

LSI did not specify in its request for proposal or amendments that a
small disadvantaged business price preference would be an award
consideration.  According to LSI, no small disadvantaged business
price preference was considered because this was a high dollar
procurement.  Further, LSI said there were few potential sources even
capable of producing the electronic warfare subsystem component. 
However, to determine if a small disadvantaged business price
preference would have changed the outcome of source selection in
favor of TRI, we calculated a price differential using the method
outlined in the Defense Federal Acquisition Regulation Supplement and
found no significant change in the competitive ranking of TRI. 

   DEBRIEFING OFFERED TO TRI
------------------------------------------------------------ Letter :5

On four separate occasions, LSI offered to provide a debriefing/exit
conference to TRI to discuss TRI's proposal strengths and weaknesses. 
On July 2, 1993, LSI informed TRI that it would give TRI a debriefing
on the strengths and weaknesses of its proposal.  In response to
LSI's July 19, 1993, offer to schedule a debriefing, TRI faxed to LSI
a request to schedule a debriefing on the same day as the
request--July 21, 1993.  An LSI official advised TRI that he could
not support TRI's request for a debriefing on that date because the
key official involved in the source selection was not available. 
Subsequently, LSI made two additional offers to debrief TRI on or
after August 18, 1993.  As of February 1994, TRI had not taken
advantage of LSI's offer because a TRI official believed that a
debriefing would be of little value and that nothing would be gained. 

TRI officials requested that LSI provide them with the subcontract
award price, prime contract number, federal agency under contract,
and other details of LSI's source selection process.  LSI
consistently advised TRI that it was not LSI's policy to disclose a
winning supplier's price or the specific details of its source
selection evaluation regarding proposals from other suppliers.  In
addition, LSI told TRI that due to security reasons, LSI was unable
to divulge the prime contract number or specific customer within the
Air Force associated with the acquisition.  We examined the prime
contract awarded by the Air Force to LSI and confirmed that the prime
contract number and specific Air Force procurement organization are
classified.  In addition, the prime contract is in support of a
highly classified program. 

   RECOURSE AVAILABLE TO TRI
------------------------------------------------------------ Letter :6

One course of action available to TRI is to take advantage of the
debriefing conference offered by LSI.  The information realized from
this conference may assist TRI in improving its competitiveness in
future procurements. 

   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To evaluate TRI's concerns, we interviewed officials from LSI,
Nashua,
New Hampshire; TRI, Calabasas, California; and the Air Force
procurement organization.  We reviewed and evaluated pertinent
information contained in Air Force contract files and LSI source
selection documentation related to the prime contract and subcontract
awards.  We also reviewed applicable acquisition regulations
concerning evaluation preferences for small disadvantaged businesses. 

We conducted our review from October 1993 through February 1994 in
accordance with generally accepted government auditing standards.  As
requested, we did not obtain written agency comments on this report. 
However, we discussed our draft report with officials from LSI, the
Department of Defense, and the Air Force, and incorporated their
comments as appropriate. 

As agreed, we plan no further distribution of this report until 10
days after its issue date.  At that time, we will send copies to
appropriate congressional committees, the Secretaries of Defense and
the Air Force, and other interested parties. 

Please contact me at (202) 512-4841 if you or your staff have any
questions concerning this report.  Major contributors to this report
were
Howard R.  Manning, Assistant Director; John M.  Murphy, Jr., Issue
Area Manager; Michael F.  McGuire, Evaluator-in-Charge; and Neilson
S.  Wickliffe, Evaluator. 

Sincerely yours,

Louis J.  Rodrigues
Director, Systems Development
 and Production Issues
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