United States Government Accountability Office 

Washington, DC 20548 

Comptroller General

of the United States

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: Energy Systems Group 

File: B-402324 

Date: February 26, 2010 

W. Bruce Shirk, Esq., Jessica M. Madon, Esq., and Townsend L. Bourne, Esq., 

Sheppard Mullin Richter & Hampton LLP, for the protester. 

Kenneth G. Wilson, Esq., Department of the Navy, for the agency. 

Jonathan L. Kang, Esq., and Ralph O. White, Esq., Office of the General Counsel, 

GAO, participated in the preparation of the decision. 

DIGEST 

Protest challenging potential offeror’s exclusion from competition on the basis of an 

organizational conflict of interest (OCI) is denied where the agency reasonably 

concluded that the protester’s preparation of a report that was used to prepare a 

statement of work for a competitive solicitation created a biased ground rules OCI. 

DECISION 

Energy Systems Group (ESG), of Hampton Roads, Virginia, protests its exclusion 

from the competition under request for proposals (RFP) No. N40085-09--5083, issued 

by the Department of the Navy, Naval Facilities Engineering Command, for energy 

conservation and efficiency design-build services at Naval Station Norfolk, Virginia. 

ESG contends that the Navy unreasonably concluded that the protester’s preparation 

of a study that was used by the agency to develop the statement of work (SOW) for 

the RFP created a biased ground rules organization conflict of interest (OCI) that 

required its exclusion from the competition. 

We deny the protest. 

BACKGROUND 

As part of ongoing government-wide efforts to reduce energy consumption, the Navy 

sought to improve the energy efficiency of facilities at Naval Station Norfolk. The 

agency sought to obtain the energy efficiency services through a utility energy 

service contract (UESC). Under a UESC, an agency may enter into a sole-source 

contract with a utility company for services where energy cost savings are shared 
between the government and the contractor. Contracting Officer (CO) Statement 

¶ 3. A utility contractor may provide financing for the capital costs of a UESC, 

which are reimbursed over the contract term from the agency’s energy cost savings. 

42 U.S.C. § 8256 et seq.; 10 U.S.C.A. § 2913. The Department of Defense may enter 

into a UESC by utilizing various contract vehicles, such as an existing General 

Services Administration (GSA) indefinite-delivery/indefinite quantity (ID/IQ) or a 

basic ordering agreement. 

In August 2008, the Navy issued a task order under a GSA ID/IQ contract to Virginia 

Natural Gas (VNG) to perform a feasibility study for an energy efficiency project, 

known as steam decentralization, at the Norfolk Naval Station. The report was to 

identify energy conservation measures for lighting, water, heat, and the removal of 

two hangars from the station’s central steam heat system. VNG utilized ESG as a 

subcontractor for the task order. The study was intended to be the basis for defining 

the scope of work for a UESC to perform the energy efficiency design-build work. 

CO Statement ¶ 3. In this regard, the feasibility study stated that “[VNG] and ESG 

are providing this detailed study to determine whether particular conservation 

project opportunities proposed are feasible.” Agency Report (AR), Feasibility Study, 

Executive Summary, at 1. The protester states that it understood that VNG was 

expected to receive the UESC on a sole-source basis, and that ESG would continue 

to work as a subcontractor to VNG. Protest at 7; see also AR, Feasibility Study, 

Executive Summary, at 32-34. 

ESG’s feasibility study provided the Navy with recommendations to improve energy 

efficiency at various buildings, utilizing specific engineering approaches and 

equipment. See id. at 16-19, 37. Under the task order, ESG performed the following 

work: (1) assessed 32 buildings for conversion from steam to natural gas heat, 

(2) assessed 53 buildings for lighting upgrades, (3) assessed 37 buildings for water 

upgrades, and (4) prepared cost estimates for the work. Id. at 2, 39. 

After the feasibility study was provided by ESG to the Navy, the agency received 

funding for the work phase of the requirements under the American Recovery and 

Reinvestment Act of 2009 (Recovery Act), Pub. L. No. 111-5 (2009). The Navy 

concluded that in light of the funding, the financing that VNG would have provided 

through the energy efficiency contract was no longer required. AR at 3 n.5. 

The Navy then concluded that the use of Recovery Act funds required the energy 

efficiency design-build contract to be awarded on the basis of full and open 

competition. CO Statement ¶ 5. The agency prepared an RFP, which was issued on 

October 19, 2009. The agency states that approximately 80 percent of the 

requirements for the solicitation’s SOW was based on the feasibility study prepared 

by the protester. Navy Engineer Decl. ¶ 3. Offerors were provided a copy of the 

feasibility study as an attachment to the RFP. 

On November 9, ESG requested that the Navy advise whether the firm had an OCI 

that precluded its competition for the design-build contract, based on its preparation 

Page 2 B-402324 
of the feasibility study. The protester states that it made the request because it 

believed that other potential offerors were considering protesting the participation 

of ESG in the competition, based on its preparation of the feasibility study. Protest 

at 8. 

In its letter, ESG acknowledged that its role in preparing the feasibility study could 

be construed as creating an OCI under Federal Acquisition Regulation (FAR) 

§§ 9.505-2(b)(1) and (2), based on the Navy’s use of the feasibility study in preparing 

the SOW. AR, Exh. 2, ESG Letter to Navy, Nov. 9, 2009, at 1. ESG argued, however, 

that because the protester and the Navy had initially anticipated that the design-build 

contract would be awarded on a sole-source basis, the preparation of the feasibility 

study did not create an OCI within the meaning of FAR subpart 9.5. ESG also 

requested that, in the event that the agency believed an OCI did exist, the agency find 

that the OCI had been mitigated, or, alternatively, waive any OCI. 

On December 2, the CO advised ESG that she viewed the firm’s role in preparing the 

feasibility study as creating a “biased ground rules” OCI. AR, Navy OCI 

Determination, Dec. 2, 2009, at 1. The CO based her OCI determination on three 

factors: (1) ESG prepared the feasibility study, and the study led “directly to the 

statement of work of the subject RFP”; (2) ESG’s work placed the firm “in a position 

to describe the work in the subject RFP [in] a manner beneficial to itself”; and (3) the 

OCI still existed despite the fact that neither the Navy nor ESG was aware of the 

possibility that the feasibility study would be used to create the SOW for the 

competitive procurement of these energy efficiency services. CO Statement ¶ 7. The 

CO also concluded that the OCI was not mitigated by the release of the feasibility 

study to potential offerors, and that the agency would not consider waiving the OCI. 

AR, CO OCI Determination, Dec. 2, 2009, at 2. On December 4, ESG filed this 

protest. 

DISCUSSION 

ESG argues that the Navy unreasonably excluded the protester from the competition 

based on a biased ground rules OCI arising from the protester’s preparation of the 

feasibility study. The protester does not dispute the Navy’s statement that 

80 percent of the SOW requirements were based on the feasibility study. Instead, the 

protester raises two primary arguments: (1) the facts here do not constitute a biased 

ground rules OCI under FAR subpart 9.5 because, at the time ESG prepared the 

feasibility study, a competitive procurement was not anticipated, and therefore 

ESG’s work could not have affected such an unanticipated competition; and (2) even 

if an OCI existed, the preparation of the feasibility study did not give a competitive 

advantage to ESG, and therefore the agency had no basis for excluding the protester 

from the competition. As discussed below, we find no merit to the ESG’s arguments. 

The FAR generally requires contracting officers to avoid, neutralize or mitigate 

potential significant conflicts of interest so as to prevent unfair competitive 

advantage or the existence of conflicting roles that might impair a contractor’s 

Page 3 B-402324 
objectivity. FAR §§ 9.504, 9.505; Snell Enters., Inc., B-290113, B-290113.2, June 10, 

2002, 2002 CPD ¶ 115 at 3. The situations in which OCIs arise, as addressed in FAR 

subpart 9.5 and the decisions of our Office, can be broadly categorized into three 

groups: biased ground rules, unequal access to non-public information, and impaired 

objectivity. The FAR identifies general rules and cites examples of types of OCIs 

that may arise, and ways to avoid, neutralize, or mitigate those OCIs. FAR § 9.505. 

The general rules and examples, however, are not intended to be all-inclusive, and 

the FAR recognizes that “[c]onflicts may arise in situations not expressly covered in 

this section 9.505 or in the examples in 9.508.” Id.; see also, Lucent Techs. World 

Servs. Inc., B-295462, Mar. 2, 2005, 2005 CPD ¶ 55 at 4-6. 

In general, COs must exercise “common sense, good judgment, and sound 

discretion” in assessing whether a potential conflict exists and in developing 

appropriate ways to resolve it; the primary responsibility for determining whether a 

conflict is likely to arise, and the resulting appropriate action, rests with the 

contracting agency. FAR § 9.505; Science Applications Int’l Corp., B-293601.5, 

Sept. 21, 2004, 2004 CPD ¶ 201 at 4. Once an agency has given meaningful 

consideration to potential conflicts of interest, our Office will not sustain a protest 

challenging a determination in this area unless the determination is unreasonable or 

unsupported by the record. Science Applications Int’l Corp., supra. 

As relevant to the protester’s allegations, a biased ground rules OCI arises where a 

firm, as part of its performance of a government contract, has in some sense set the 

ground rules for the competition for another government contract by, for example, 

writing the SOW or providing materials upon which a SOW was based. FAR 

§§ 9.505-1, 9.505-2. In these cases, the primary concern is that the firm could skew 

the competition, whether intentionally or not, in favor of itself. Operational 

Resource Consultants, Inc., B-299131, B-299131.2, Feb. 16, 2007, 2007 CPD ¶ 38 at 6. 

ESG first argues, in essence, that a biased ground rules OCI cannot arise from 

materials prepared by a firm that did not know that its work might be incorporated 

into a SOW for a competitive procurement. In this regard, the protester contends 

that when it prepared the feasibility study it assumed that it would receive this 

contract on a sole-source basis. Thus, in ESG’s view, it had no ability to affect the 

eventual competitive procurement. 

In support of its position, ESG notes that the FAR describes one kind of biased 

ground rules OCI as follows: 

(b)(1) If a contractor prepares, or assists in preparing, a work 

statement to be used in competitively acquiring a system or services—

or provides material leading directly, predictably, and without delay to 

such a work statement—that contractor may not supply the system, 

major components of the system, or the services unless— 

(i) It is the sole source; 

Page 4 B-402324 
(ii) It has participated in the development and design work; or 

(iii) More than one contractor has been involved in preparing the work 

statement. 

FAR § 9.505-2(b). 

ESG focuses on two elements of this FAR provision, arguing that the phrase 

“to be used in competitively,” and the word “predictably” both indicate that a firm 

may be excluded from a competition on the basis of an OCI only where the firm 

knows in advance that its work could be incorporated into a SOW. 

We do not agree with the protester that the phrase “to be used competitively” means 

that the agency had to know that the contractor-prepared materials would be used 

competitively at the time they were prepared in order to be covered by the 

restriction here. Instead, the phrase “to be used competitively” refers to a work 

statement that is to be used in competitively acquiring a system or services--which is 

precisely the circumstance at issue here. We see no reason to impose the kind of 

limitations on this language that the protester seeks. 

Similarly, we do not read the phrase “predictably” to mean, as the protester 

contends, that an OCI arises only where a firm understands in advance that the 

materials it prepares might be later incorporated into a SOW for a competitive 

procurement. In this regard, we think the phrase “provides material leading directly, 

predictably, and without delay to such a work statement” refers to the relationship 

between the subject matter of the contractor-prepared materials and the resulting 

SOW.1 We do not think that the protester has shown that these FAR restrictions are 

limited to situations where the firm and the agency understand, in advance, that the 

work might or will be incorporated into a SOW for a competitive solicitation. 

Furthermore, we note that an agency’s decision to exclude a potential offeror from a 

competition based on the offeror’s preparation of materials that are incorporated 

into a SOW generally involves a backward-looking analysis, in that the agency must 

assess whether the offeror’s prior work created an OCI. In this regard, adopting 

ESG’s interpretation of FAR subpart 9.5 would prohibit an agency from excluding an 

offeror from a competition based on a biased ground rules OCI unless the agency 

and offeror were aware that the offeror’s work might at some point in the future be 

 

1

 Additionally, FAR § 9.505-2(b)(2) states that “contractors are prohibited from 

supplying a system or services acquired on the basis of work statements growing out 

of their services;” this restriction anticipates an even less temporally-specific 

statement of the relationship between a firm’s work and a SOW that might be based 

upon such work. 

Page 5 B-402324 
used in a SOW. Such a restriction would unreasonably obligate an agency to either 

avoid using contractor-prepared materials in a SOW, or allow a contractor to 

compete for a contract award where it has, effectively, set the ground rules for the 

competition. We do not think that the protester’s interpretation is consistent with 

the broad discretion accorded to COs under FAR subpart 9.5. 

Our Office has held that an agency may exclude a firm from a competition where 

that firm prepared materials that were subsequently incorporated into a SOW for a 

competitive procurement. SSR Eng’g, Inc., B-282244, June 18, 1999, 99-2 CPD ¶ 27; 

Basile, Baumann, Prost & Assocs., Inc., B-274870, Jan. 10, 1997, 97-1 CPD ¶ 15. While 

these decisions do not directly address the foreseeability argument raised by ESG 

here, we think that they stand for the proposition that agencies are required to assess 

whether the use of contractor-prepared materials in a SOW for a competitive 

solicitation creates a biased ground rules OCI--whenever the decision to use 

contractor prepared materials is made. In sum, we find no merit to the protester’s 

argument that the Navy’s OCI determination here was inconsistent with its authority 

under the FAR.2

Next, ESG argues that even if the facts here can be viewed as potentially creating an 

OCI under FAR subpart 9.5, the protester gained no competitive advantage from the 

preparation of the feasibility study and the agency therefore had no basis to 

conclude that the protester’s preparation of the study created a biased ground rules 

OCI. In this regard, the protester contends that because it did not know that the 

feasibility study would be incorporated into a SOW for a competitive procurement, it 

had no reason or ability to skew the competition to its benefit. 

As our Office has held, the relevant concern for a biased ground rules OCI is not 

simply whether a firm drafted specifications that were adopted into the solicitation, 

but, rather, whether a firm was in a position to affect the competition, intentionally 

or not, in favor of itself. L-3 Servs., Inc., B-400134.11, B-400134.12, Sept. 3, 2009, 2009 

CPD ¶ 171 at 8. ESG argues that it was not in a position to affect the competition 

because, in its view, a feasibility study merely assesses what energy conservation 

measures were possible to perform. The protester also contends that it was not in a 

position to affect the competition because the agency was required to make the 

ultimate decision as to what parts of the study would be used in the SOW. 

Here, however, the study provided recommendations as to which energy 

conservation projects should be performed and the technical solutions that should 

be used, and prepared cost estimates. See AR, Feasibility, Executive Summary, 

 

2

 Additionally, as discussed above, FAR subpart 9.5 states that OCIs may arise in 

situations other than those specifically described in the FAR. FAR § 9.505; see

Lucent, supra, at 4-6. Thus, we think that the CO effectively set forth a basis for 

excluding ESG from the competition on the basis of its preparation of the feasibility 

study, separate and apart from the specific scenario set forth in FAR § 9.505-2(b).

Page 6 B-402324 
at 16-19, 37. The RFP explained that the SOW solicitation had adopted the feasibility 

study’s specifications as follows: 

The basis of design (BOD) for each facility energy conservation 

measure (ECM) and steam conversion for this project are included in 

Part 6 Attachments of this RFP, referred to as the “ECM Feasibility 

Study.” The ECM Feasibility Study provides a detailed listing of facility 

requirements as documented in the “Detailed Building Breakdowns.” 

The contractor shall develop design and construction drawings based 

on this BOD. 

RFP, part 3, at 4. The RFP further describes much of the contract technical 

requirements and objectives by reference to the feasibility study. See id. chs. 1-6. 

As discussed above, the protester does not dispute the agency’s statement that 

approximately 80% of the SOW requirements were based directly on the feasibility 

study. We think that the record shows a clear relationship between the feasibility 

study--which established which projects should be performed and the likely costs of 

those projects--and the requirements in the SOW. In this regard, the protester 

acknowledges that the “underlying objective [of the feasibility study] was to 

communicate to the agency whether or not” specific energy conservation measures 

“could reasonably be utilized by the agency for its stated purpose.” Protester’s 

Comments on AR at 6. The protester also acknowledges, as discussed above, that it 

assumed that it would perform these projects on a sole-source basis. Protest at 7. 

We think that the Navy was reasonably concerned that ESG could have described 

the work in a way that was advantageous for itself to perform on a sole-source basis; 

for this reason, we also think that the agency reasonably concluded that ESG’s work 

created a biased ground rules OCI when the agency incorporated that work into the 

SOW for a competitive procurement. On this record, we see no basis to sustain the 

protest based on ESG’s arguments. 

The protester also argues that any potential OCI was mitigated by the fact that the 

Navy provided the feasibility study to all offerors as part of the RFP. We disagree 

and we do not think that the agency acted unreasonably when it concluded that the 

OCI here was not, and could not, be mitigated. The provision of the feasibility study 

might have been a reasonable means to mitigate an OCI if the agency had viewed the 

conflict as arising from an unequal access to information. Here, however, the OCI 

was not based on ESG’s access to the information in the study, but was instead 

based on the unfair competitive advantage that was created by the possibility that 

ESG was able to shape the competition through its drafting of the feasibility study 

Page 7 B-402324 
Page 8 B-402324 

upon which the SOW was based. On this record, we see nothing unreasonable about 

the agency’s conclusion that this OCI could not be mitigated. 

The protest is denied. 

Lynn H. Gibson 

Acting General Counsel