You are on page 1of 28

GOODSILL ANDERSON QUINN & STIFEL DAVID J. REBER RAYMOND K. OKADA ANNE T.

HORIUCHI COUNSEL:
JOHN R. LACY GAIL O. AYABE MIHOKO E. ITO
THOMAS W. WILLIAMS. JR. DALE E. ZANE JENNIFER M, YOUNG
JACQUELINE L.S. EARLE
A LIMITED LIABILITY LAW PARTNERSHIP LLP LANI L. EWART LINDALEE K. FARM KIMBERLY J. KOIDE LISA T. BEDELL
RANDALL K. STEVERSON CAROL A. EBLEN SHANNON H. SAGUM ROBERTJ. HACKMAN
GARY M. SLOVIN JUDY LEE ROSEMPdKIE S. J• SAM MARTIN S. LOUI
ALII PLACE, SUITE 1800 1099 ALAKEA STREET LISA WOODS MUNGER
BRUCE L. LAMON
LENNES OMURO
PETER Y. KIKUTA
BRIAN D. ANCHETA
WILLIAM K. TANAKA
HONOLULU, HAWAII 96813 PETER T. KASHIWA THOMAS BENEDICT ]ESSICA M. MICKELSEN OF COUNSEL:
RUSSELL S. KATO EDMUND K. SAFFERY CLAIRE E. GOLDBERG MARTIN ANDERSON
VINCENT A. PIEKARSKI LISA A. BAIL REBECCA L. DAYHUFF CONRAD WEISER
MICHAEL J. O'MALLEy CAROLYN K. WONG GO R. KOBAYASHI RONALD LUM
MAIL ADDRESS: P.O. BOX 3196 LEIGHTON J.H.S. YUEN JOACHIM COX KARYN R. OKADA
HONOLULU, HAWAII 96801 CORLIS J. CHANG
BARBARA A, PETRUS
SCOTI" O. MORITA
SEAN K. CLARK
AUDREY M. YAP
ABIGAIL M. HOLDEN MARSHALL M. GOODSILL
PATRICIA NAPIER ROBERT FRICKE DARSIE J. T, ING-DODSON (I916-2004)
MIKI OKUMURA REGAN IWAO KIMBERLY VOSSMAN WILLIAM F, QUINN
TELEPHONE (808) 547-5600 FAX (808) 547-5880 AUDREY E.J. NG DAWN T. SUGIHARA CHRISTINA ZAHARA NOH (I919.2006)
ALAN S. FUJIMOTO
info@goodsill.com www.goodsill.com WALTER C. DAVISON
H. GREGORY NASKY RICHARD E. STIFEL
(1920-1993)

April 11,2011

DELIVERED BY HAND
EMAIL transitmailbox@honolulu.gov

Mr. Michael R. Hansen


Chief Procurement Officer
Director of Budget & Fiscal Services
City and County of Honolulu
530 South King Street
Honolulu, Hawaii 96813
Re: Sumitomo Corporation of America's Protest of REP-DTS-198413, Core
Systems Design-Build-Operate-Maintain Contract for the Honolulu High
Capacity Transit Corridor Project
Dear Mr. Hansen:
Sumitomo Corporation of America ("SCOA"), with an address at Seven Waterfront
Plaza, 500 Ala Moana Boulevard, Suite 400/424, Honolulu, HI 96813, hereby protests the award
of the contract for the project referenced above (the "Project") to Ansaldo Honolulu JV
("Ansaldo"). This protest is made pursuant to Hawaii Revised Statutes ("HRS") §§ 103D-303
and 103D-701, Hawaii Administrative Rules ("HAR") §§ 3-122-60, 3-122-97(b), and 3-126-4,
the terms and conditions of the Request for Proposal referenced above (the "RFP") and other
applicable statutes and rules.
This protest is timely. The City and County of Honolulu (the "City") announced the
award to Ansaldo on March 21,2011. Later that same day, SCOA requested a debriefing
pursuant to HRS § 103D-303. The City responded to SCOA's request for a debriefing on
March 28, 2011, and a debriefing was held on April 4, 2011.
While the City has not yet provided SCOA with all of the documents and information it
is entitled to receive (among other things, SCOA is still waiting to receive unredacted versions of
key documents that were relied upon in the evaluation process), SCOA's ongoing review of the
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 2

evaluation process has already revealed a number of fundamental errors that require the City's
award of the Project to Ansaldo to be rescinded and the contract to be awarded to SCOA.

I. PRELIMINARY STATEMENT

It is fair to say that no large construction project is free of problems, and no contractor is
without flaws. A review of Ansaldo's recent history, however, demonstrates a disturbing pattern
of repeated, serious failures failures of a degree and severity that are significantly greater than
industry norms and far below the expectations of the Project. SCOA, which serves as the prime
contractor with overall project responsibility, has an impeccable track record and a history of
satisfied customers. And while SCOA (like every major contractor) has from time to time had to
contend with unexpected delays in production and construction, SCOA's relatively minor
problems pale in contrast with those of Ansaldo and its partners. By way of example:
In 2003, the Los Angeles County Metropolitan Transit Authority ordered 50 rail
cars for delivery by June 2007. The cars were delivered three years late, 6,000
pounds overweight, and with technical problems. Ansaldo paid
numerous
millions of dollars in liquidated damages and was also required to pay an
additional $15 million dollars to settle the dispute.

In 1995, the Massachusetts Bay Transit Authority in Boston ordered 100cars for
delivery between November 1998 and December 2000. The cars suffered from
numerous problems including frequent derailment that took nearly a decade to
resolve. Delivery of the last car did not take place until early 2007.

In December 2000, Denmark's national railway operator purchased 83 inter-city


trainsets from Ansaldo for delivery in 2003. Nine years later, only 15 trainsets
had been delivered and Ansaldo was required to pay over $400 million to settle
the dispute.

The city of Gothenburg, Sweden ordered 40 cars in 2001. In a by-now familiar


story, the cars were delivered years late and were reported to have serious
problems.
SCOA respectfully submits that if the evaluators had appropriately accounted for
Ansaldo's history, the results of the City's decision would and should have been quite
different. The City would not have found Ansaldo to be qualified, and even if for the sake of
argument, Ansaldo had been deemed qualified, its proposal would not have been found to be the
best value to the City.
First, as a of law, this history alone should have resulted in Ansaldo's
matter
disqualification. The law requires that an offeror who "is or recently has been seriously deficient
in contract performance" must be "presumed to be nonresponsible." There should be little doubt
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 3

that Ansaldo's history of poor performance places it squarely within this description of
"nonresponsible."
Second, even if Ansaldo were outright disqualified as a result of this history of
not
non-performance, the individualscores simply do not reasonably reflect Ansaldo's troubled past.
As just one among many examples detailed below, the scoring in the category of "Price Realism"
did not reflect these well known facts. A thoughtful appraisal of Ansaldo's recent contract
history especially as compared with SCOA's would suggest that Ansaldo will have
significant, severe disruptions, delays and problems during all phases of the project. There can
be no question that the greater the number and severity of disruptions, delays and problems, the
more likely costs will end up being higher than anticipated. Yet Ansaldo was inexplicably
scored higher than SCOA in the category of price realism. Had these price realism scores alone
more accurately reflected reality, SCOA would have been awarded the Project.

Third, whether going by Ansaldo's own proposal or by common sense expectations given
Ansaldo's operating history, the evidence shows that once operational, the Ansaldo system will
be materially more expensive to operate and maintain than SCOA's. Any purported savings to
the City in the initial design-build ("DB") component of the project will be exceeded, over the
life of the Project, by the very high costs to operate and maintain the Ansaldo system. In fact, for
the first five-year period once the system commences operation, Ansaldo's operations and
maintenance ("O&M") price is forty-eight percent (48%) more expensive than that proposed by
SCOA (assuming a reasonable four percent (4%) inflation rate). For the second five-year period,
Ansaldo's O&M price is twenty-nine percent (29%) higher than that proposed by SCOA.
Indeed, over the thirty-year life of the project called for by the City, the savings provided by
Sumitomo's O&M price to the taxpayers as compared with Ansaldo's proposed O&M price in
the year of expenditure is almost $900 million.

Fourth, if there were not a higher-than-usual risk that Ansaldo would go over
even
budget and take longer than proposed, Ansaldo's technical specifications fail to meet numerous
City requirements and should have been rejected by the City as non-responsive. For instance,
Ansaldo's proposed train control system falls short of the specifications. The failure of Ansaldo
to offer a compliant vehicle and system should have resulted in its proposal being rejected. At a
minimum, the non-compliance certainly should have resulted in less favorable scoring of
Ansaldo's proposal's technical merits.
Fifth, Ansaldo's price for the portion of its proposal is illogical and lacks credibility.
DB
Both SCOA and Bombardier independently submitted proposed DB prices of approximately
$700,000,000. Ansaldo's DB price was $573,782,793 an incredible $125 million less. There
are only two possible explanations for this difference. First, that Ansaldo improperly shifted a
substantial portion in DB costs to the O&M portion of the Contract in order to exploit the fact
that the DB portion was given seven times more weight than O&M. This sort of financial
manipulation is plainly improper. Or that Ansaldo is selling the City the same sort of problem-
plagued product it sold to Los Angeles, Boston, and Denmark. Either way, Ansaldo's
GOODSILL ANDERSON QUINN & ST[FEL
k LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 4

unreasonably low DB price should have been a red flag that resulted in a significantly lower
score.

Finally, Ansaldo submitted a proposal that was riddled with other errors. It
impermissibly submitted an alternate offer. It did not possess a contractor' s license at the time it
submitted its proposal. It did not properly register as a partnership. And so on. Moreover, the
City's evaluation did not, in several important respects, comport with the procurement code and
the terms of the RFP. For instance, the City admittedly never performed a mandatory Cost
and/or Price Evaluation.
For these and all of the reasons detailed below, Ansaldo's proposal was misleading to the
City and the Evaluation Committee, and does not offer the best value to the City. Accordingly,
SCOA respectfully requests that the City rescind the award to Ansaldo and award the Project to
SCOA.
II. BACKGROUND
The Honolulu High Capacity Transit Corridor Project ("HHCTCP") will provide high-
capacity transit service between Kapolei and, eventually, the University of Hawaii at Manoa.
The Core Systems are the equipment and related infrastructure and systems for the HHCTCP,
including train vehicles, train control, traction power, communications, signals, and fare
collection sub-systems.
The Core the heart of the HHCTCP, and as such, the success (short-term
Systems are as
well as long-term) of the HHCTCP will depend in large part upon the Core Systems. This is
especially so since the Core Systems will be designed, constructed and administered under a
Design-Build-Operate-Maintain ("DBOM") contract.
The City issued the RFP to retain a qualified Core Systems Contractor ("CSC") offering
the best value. SCOA took seriously its task of developing a proposal that would represent the
best value to the City. SCOA regularly brings together integrated teams of members with
specialized capabilities, skills and knowledge in complex transit projects. SCOA's assemblage
for Honolulu, under SCOA's proven leadership as a prime contractor, is just such a superior
team.

For two years, SCOA and the members of its team diligently worked on the Project and
devoted considerable time, energy and other resources to the preparation of its proposal. SCOA
submitted a responsive and compliant proposal to the City. Over and beyond responsiveness and
compliance, SCOA's proposal was prepared in the spirit of enhancing the value of the Project in
the best interests of the City. SCOA's proposal incorporates several concepts that provide

This RFP officially commenced on April 19, 2009 when the City issued Part 1 of the RFP ("RFP
Part 1").
GOODSILL ANDERSON QUINN 6< STIFEL
a LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 5

considerable value to the HHCTCP and demonstrates SCOA's approach and capability to
undertake the Project, among them:
A proven track record of delivering and maintaining DBOM projects in North
America;
Thirty years of customer satisfaction on all SCOA-led projects;
Providing proven, safe and reliable transit systems;
Operating and maintaining multiple automated systems with one of the highest
industry availabilities often exceeding ninety-nine and one-half percent
(99.5%);
Experienced O&M company with proven management and technical expertise;
Creating long-term local career opportunities; and

Managing local work with trusted local partners and creating jobs.
III. THE CITY'S EVALUATION OF ANSALDO'S PROPOSAL WAS FLAWED.

The Evaluation Committee failed to properly consider Ansaldo's past


performance.
Under Hawaii's procurement laws, every potential offeror must be evaluated to determine
whether it qualifies as a "responsible" offeror. See HRS § 103D-310.
The determination of bidder responsibility involves an inquiry into
the bidder's ability and will to perform the subject contract as
promised. Responsibility concerns how a bidder will accomplish
conformance with the material provisions of the contract; it
addresses the performance capability of the bidder, and normally
involves an inquiry into the potential contractor's financial
resources, experience, management, past performance, place of
performance, and integrity.
Browning-Ferris Indus., Inc., v. Dept. of Trans., PCH-2000-4, at 7 (Jun. 8, 2000).
In transportation contracts, the offeror's past performance is an especially important
component of the responsibility analysis. See 49 U.S.C. § 5325(j)(2)(c) (requiring Evaluation
Committee to consider "the contractor's past performance") (incorporated by reference into RFP
GOODSILL ANDERSON QUNN & STnae•.
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 6

Part 1 under Instructions to Offerors ("ITO") § 9.17). Indeed, the Federal Transit Authority
("FTA") has made clear:
A prospective bidder or offeror that is or recently has been
seriously deficient in contract performance is presumed to be
nonresponsible, unless the recipient determines that the
circumstances were properly beyond the bidder or offeror's
control, or unless the bidder or offeror has taken appropriate
corrective action. Past failure to apply sufficient tenacity,
perseverance, and effort to perform acceptably is strong evidence
of nonresponsibility. Failure to meet the quality requirements of a
contract is a significant factor to consider in determining
satisfactory performance. FTA expects the recipient to consider
the number of the bidder or offeror's contracts involved and the
extent of deficient performance in each contract when making this
determination.

Ex. 1 (FTA Circular 4220.1) (incorporated by reference under RFP Part 1, ITO § 9.17).
Ansaldo has had numerous problems with its recent contracts that should have precluded
it from qualifying as a responsible bidder. Of particular note is the fact that Ansaldo has been
penalized in several jurisdictions for its delays. In Los Angeles, for instance, AnsaldoBreda
S.p.A. 2 did not contest the imposition of nearly $15 million in liquidated damages in connection
with a contract to supply fifty rail cars that was "approximately three years behind schedule."
See Ex. 2 (Memo. to Board of Dir., Jan. 28, 2009); Ex. 3 (Operations Committee's
Recommendations, Jan. 21, 2010) ("AnsaldoBreda S.p.A. confirmed that they would not protest
or dispute the liquidated damages in the amount of $14,677,487 incurred by Metro under the
contract."). See also Ex. 4 (Operation Committee's Recommendations, Jul. 15, 2010). In
addition, Ansaldo paid another $15 million to settle claims related to weight and compatibility
problems with the cars. See id. "Further discussions resulted in AnsaldoBreda offering a sum of
$15,000,000 to not do any modification to the cars to correct the overweight condition and the
trainline compatibility discrepancies."). Similarly, in connection with a contract with Denmark's
national railway operator, Danske Statsbaner, AnsaldoBreda S.p.A. was required to pay 250
million Danish krone (approximately $48 million using current conversion rates) in
compensation for late deliveries in 2005. Four years later, when AnsaldoBreda S.p.A. still could
not deliver the trains on time, it was required to pay an additional two billion Danish krone
(approximately $385 million). See Exs. 5-7 (Denmark news articles).

Ansaldo is a recently formed joint venture of sister companies AnsaldoBreda S.p.A. and Ansaldo
STS S.p.A. Under Ansaldo's proposal, AnsaldoBreda S.p.A. "will design and manufacture the
passenger vehicles for the project." See Ansaldo's first Best and Final Offer ("BAFO 1"), Executive
Summary at 6. All of the problems described arise out of delivery of trains to be manufactured by
AnsaldoBreda S.DA.
GOODSILL ANDERSON QU•rN &. STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 7

These are just two of the many recent disputes between Ansaldo and its customers. As
summarized in Appendix A, rail authorities in Boston, Massachusetts, Buffalo, New York, and
Gothenburg, Sweden have all had significant problems with Ansaldo and the related entities on
its team. See Exs. 8-16. Moreover, Ansaldo's own exhibits reveal that Ansaldo STS S.p.A. is
currently involved in pending litigation with four rail authorities in Italy. See Ex. 17 (Exhibit 10
to RFP Part 1). 3

The Evaluation Committee purported to conduct the required responsibility analysis in


connection with RFP Part 1. ITO § 8.2.2 of RFP Part 1 describes the four evaluation criteria for
scoring responsibility. Category A, "Experience of the Offeror and Principal Participants," was
deemed the most "important" factor and was assigned 60 of 130 total points. This category
required "[t]he Offeror and the Principal Participants [to] demonstrate an acceptable record of
performance, including completion schedule, quality of work product, completion within budget,
claims history, record of terminations for cause and defaults, disciplinary action (including
suspension), safety record, client references, awards, citations, and commendations."
Despite Ansaldo's recent and extensive performance issues, Ansaldo was given the full
sixty points available under this category. In other words, Ansaldo's past performance seemed to
have absolutely no impact on the Evaluation Committee's responsibility analysis and, in fact, the
City has acknowledged it did not consider this history when scoring RFP Part 2. 4
This is not supportable under the terms of the RFP, Hawaii law or public policy. Indeed,
FTA Circular 4220.1, which is incorporated in the RFP, compels the conclusion that because
Ansaldo is or recently has been seriously deficient in contract performance, Ansaldo must be
presumed to be nonresponsible. Ansaldo should not have qualified as a responsible bidder,
and the contract award should be rescinded. 5 In the alternative, Ansaldo's RFP Part 2 proposal
should be rescored with due consideration given to past performance.

Not only are Ansaldo's contract disputes widely reported in the press and a matter of common
knowledge, an inquiry by the City to the appropriate authorities would have revealed that the issues
that gave rise to the disputes were not routine contract renegotiations.

See Ex. 18 at 49-50 (Transcript of Debriefing held on April 4, 2011 ("Debriefing Tr.")).
It is unclear whether the Evaluation Committee's failure to disqualify Ansaldo was a result of the
Evaluation Committee's failure to properly consider past performance or a result of Ansaldo's
failure to disclose its past performance issues. The City has not yet provided SCOA with unredacted
copies of the documents that would have contained Ansaldo's disclosures, namely Exhibits 7 and 10
to Ansaldo's response to RFP Part 1. IfAnsaldo failed to disclose these issues, then its proposal
should also be disqualified for the separate and independent reason that its proposal was
nonresponsive. See HAR § 3-122-97(b)(2)(B).
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 8

Ansaldo's past performance should have been considered in connection with


the scoring for price realism.
Even if the City determined that Ansaldo need not have been disqualified as a result of its
past performance problems, Ansaldo's history should nonetheless have been considered in
connection with the scoring for price realism. A reasonable consideration of Ansaldo's history
as was required should have resulted in substantially lower price realism scores for Ansaldo.

C. Ansaldo used imbalanced pricing.


Ansaldo submitted a proposal that contains "imbalanced pricing." See AI Ghanim
Combined Group Co. Gen. Trad. & Cont. W.L.L. v. United States, 56 Fed. C1. 502, 513 (2003).
"[Imbalanced pricing] exists when, despite an acceptable total evaluated price, the price of one of
more contract line items is significantly over or understated Id. Where a proposal contains
a material price imbalance, the proposal "must be rejected." SMS Data Prod. Group, Inc. v.
United States, 900 F.2d 1553, 1557 (Fed. Cir. 1990) (emphasis added). A material price
imbalance "occurs if an award fails to 'represent the lowest ultimate cost to the Government or
the imbalance is such that it will adversely affect the integrity of the competitive bidding
system.'" Id. at 1557.
Ansaldo's pricing is imbalanced because Ansaldo appears to have shifted a substantial
amount of DB costs to O&M. Both SCOA and Bombardier independently submitted proposed
DB prices that were close to $700,000,000. The City's own estimate was apparently above
$700,000,000. 6 Ansaldo, by contrast, has a DB price of $573,782,793 over $100 million less
than both Bombardier and SCOA. There is no logical basis for such a difference. Instead, it
appears that by using imbalanced pricing Ansaldo took a substantial portion of its true DB price
and reallocated it to O&M. Indeed, Ansaldo's O&M price is significantly higher than either of
the other offerors.
Ansaldo's price imbalance was plainly material because it allowed Ansaldo to
improperly manipulate the City's scoring system. In the RFP, the City considered DB price to be
significantly more important than O&M price, giving the DB price seven times the weight of the
O&M price: DB was allotted 350 potential points and O&M was allotted only fifty. By using
imbalanced pricing, Ansaldo was able to manipulate the City's scoring system and net hundreds
of additional points. The swing in points was so large that SCOA believes Ansaldo would not
have been awarded the contract but for this imbalance. 7

In its press conference on March 21, 2011, the City stated that DB costs under the Ansaldo proposal
would be 27% less than the City's project estimate, which would put the City's estimate at
approximately $780 million.
See Appendix B, Ansaldo's second best and final offer ("BAFO 2") scoring sheet compilation
prepared by SCOA.
GOODSILL ANDERSON QUINN & STIFEL
a LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 9

The of imbalanced pricing is an independent basis for a finding of


use
non-responsiveness in the RFP. See Addendum No. 41, ITO § 6.1.2(GG). The City, however,
ignored the imbalance in pricing in Ansaldo's proposal. The other material breaches
notwithstanding, this alone should have caused the City to reject Ansaldo's proposal.
IV. ANSALDO'S PROPOSAL IS NON-RESPONSIVE AND MUST BE REJECTED.
Deviation from the RFP is not allowed by law or by the terms of the RFP itself.
According to HAR § 3-122-97(b)(2)(B), a proposal shall be rejected if it "fails to meet the
announced requirements of the agency in some material respect." In addition, ITO § 2.8.4 in
Addendum No. 41 makes clear, "Except for incorporating approved [Alternate Technical
Concepts], the Proposal may not otherwise contain exceptions to or deviations from the
requirements of the RFP Part 2." 8
Pursuant to HRS § 103D-104, a "responsive bidder means a person who has submitted a
bid which conforms in all material respects to the invitation for bids." "Responsiveness
addresses whether a bidder has promised to perform in the precise manner requested by the
government." Bean Dredging Corp. v. United States, 22 Fed. Cl. 519, 522 (1991). "Therefore, a
bid which contains a material nonconformity must be rejected as nonresponsive. In this regard,
material terms and conditions of a solicitation involve price, quality, quantity, and delivery."
Arakaki v. State of Hawaii, Dept. of Accounting and General Services, PCH-96-8, at 4-5
(June 23, 1997).
Ansaldo's proposal contains numerous material nonconformities. Each of the following
instances of noncompliance is sufficient to result in rejection of the proposal; when taken
together, the evidence is overwhelming.
Ansaldo's Technical Proposal does not conform to the City's specifications as
to price, quality, quantity and delivery.
Ansaldo's proposal does not meet the specifications expressly prescribed by the City.
These specifications are material because they all impact price, quality, quantity and/or delivery.
Ansaldo has in nmnerous areas provided a technically non-compliant proposal by offering
presumably in an effort to reduce its costs and thus its price a solution of inferior quality and
performance than that required by the City. The City cannot accept a proposal with so many
technical deficiencies. There are numerous examples of non-compliance detailed in Appendix C.
Of particular note, however, is Ansaldo's failure to provide a compliant train control system.

Prior to submittal of their proposals, offerors are allowed to propose and the City has the authority to
approve or disapprove Alternate Technical Concepts ("ATCs"). RFP Part 2, ITO § 2.8.1 provides,
"A Priority-Listed Offeror may elect to submit Alternate Technical Concepts that do not comply
with the Project requirements but that are still consistent with the Project goals and may be
advantageous to the City
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 10

The RFP states "A communications-based train control system shall be


provided RFP Part 2, Design Criteria § 14.2.3 (Emphasis added). In spite of this express
requirement for a communications-based train control system ("CBTC'), Ansaldo proposes a
non-communications-based train control system. 9 This is a significant deviation from the
specifications and is materially non-responsive to the system requirements. See RFP Part 2, TP-
8, §§ 34 44 00, 1.03(B)(3), 34 44 00, 1.03(B)(4), and 33 44 00, 1.03(B)(5). Moreover, because
it does not provide CBTC, Ansaldo will not be able to provide the numerous required functions
established in the RFP for the Automated Train Control system. For instance:

One of the significant advantages of CBTC technology is that it can


accommodate trains of different configurations operating together in the same
system. The technology would give the City the flexibility to purchase trains
from other suppliers for future expansions and extensions. However, the non-
CBTC technology proposed by Ansaldo would likely not permit this. If so, the
City will probably have to purchase all future trains only from Ansaldo. Even
if Ansaldo delivers the trains years late or with unacceptable quality as they have
for their recent projects, the City will probably not have the ability to replace
them with a more reputable supplier. In effect, the City will have backed itself
into a sole source procurement with Ansaldo for any and all additional or future
trains.

The specifications require that "[t]his communication-based system shall be


capable of relaying train position measurements to other equipment and relaying
command information to and from the equipment on the train." (Emphasis
added.) The track circuit-based train control system proposed by Ansaldo cannot
relay information from the train as required. See RFP Part 2, TP-9, § 14.2.3.
The specifications require that "[t]he ATP System shall be designed to provide
reverse running capability at any point in the system. Unlimited following moves
in reverse running shall be allowed." RFP Part 2, TP-9, § 14.2.6. However the
track circuit-based train control system proposed by Ansaldo cannot satisfy this
requirement.
The specifications require that "[t]he ATP system shall be designed with
Temporary Speed Restriction (TSR) zones in which the maximum ATP speed
limit can be reduced by OCC. Zones shall be defined such that the TSR zone is
variable in length." RFP Part 2, TP-9, § 14.4.17. Ansaldo's proposed fixed-
block, track-circuit based train control system cannot provide variable length TSR
zones.

More details regarding the noncompliance of Ansaldo's train control system are set forth in
Appendix D.
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 11

The RFP requires compliance with the industry standard IEEE 1474.1 for CBTC
systems. See RFP Part 2, TP-8, § 1.03. Among other requirements, IEEE 1474.1
states that a compliant system must provide the following characteristics: (1)
determination of train location, to a high degree of precision, independent of track
circuits; and (2) a geographically continuous train-to-wayside and wayside-to-
train data communications network to permit the transfer of significantly more
control and status information than is possible with conventional systems. The
train control system proposed by Ansaldo does not provide the above
characteristics, and is therefore non-compliant with the technical requirements.
Several other required functions and subsystems of the train control system are
missing from Ansaldo's proposed solution. For instance, information to
demonstrate compliance with requirements for Broken Rail Detection, Disaster
Warning System (Earthquake, High Wind and Encroachment Detector), and
Protection at the MSF Secondary Road Access are not included in Ansaldo's
proposal. See RFP Part 2, TP-8, §§ 34 44 00, 2.03(B), 34 44 00, 2.03(C).
The fact of Ansaldo's non-compliance as to the train control system is not in dispute. The
Proposal Evaluation and Scoring sheets of one of the City's evaluators state with respect to
Ansaldo's proposal, "They are proposing a track circuit system as opposed to CBTC." Simon
Zweighaft, BAFO 2 Proposal Evaluation and Scoring sheet regarding Ansaldo (Mar, 10, 2011).
And the City's Technical Review Committee ("TRC") stated in its consensus review of
Ansaldo's Train Control proposal, "Not 'CBTC' system due to absence of high resolution train
position identification." Consensus Worksheet, Technical Solutions, Train Control (June 18,
2010) (emphasis added). Moreover, Ansaldo itself acknowledges in its Executive Summary:
AHJV is therefore in a position to offer the City (at its discretion
and at the same price) the alternative solution of a fully compliant
CBTC solution. This issue can be further discussed during
subsequent discussion meetings with the City.
Executive Summary at 5. Ansaldo's statement can be interpreted in two ways, each of which is
non-compliant. If, as discussed in Section IV.C below, Ansaldo's offer ofa CBTC system in the
alternative (the details of which axe not specified) is an alternate proposal, then it is
impermissible and grounds for immediate rejection. See HAR § 3-122-4.
On the other hand, if Ansaldo's CBTC solution is not an alternate proposal but by some
stretch of the imagination is meant merely to juxtapose and describe its non-CBTC proposal, the
statement underscores that Ansaldo's primary proposal is not for a CBTC system and thus is not
compliant with the RFP. If that is the case, the statement is an admission by Ansaldo that the
train control system upon which its proposal is based is not a "fully compliant CBTC solution,"
and the proposal should be deemed nonresponsive and rejected. See HAR § 3-122-97(b)(2)(B).
GOODSlLL ANDERSON QUNN & STIFEL
a LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 12

This is just one example of a material component of Ansaldo's Core Systems that is not
compliant with the City's specifications. Any one of these items is sufficient basis for rejection
of Ansaldo's proposal. Collectively, the evidence is clear and unmistakable, and it compels the
rejection of Ansaldo's proposal.
B. Ansaldo submitted a non-compliant and unrealistic project schedule.

As discussed, Ansaldo has a demonstrated track record of delivering projects several


years late and often with severely deficient quality. These problems have resulted in many
millions of dollars in cost overruns for customers. See Section III.A above. Given this
consistently poor track record, Ansaldo's proposed project delivery schedule deserves very close
scrutiny. Upon such scrutiny, it is clear that Ansaldo not only failed to provide
contractually-required schedule information, but that its proposal also has logical flaws that will
prevent it from delivering the project on schedule. Among the problems:
The City requires that "[qhe Proposed Baseline Schedule shall be consistent with the
City's Project Sections and preferred Price Items listed in Exhibit 20a and Exhibit
20b." See Addendum No. 41, ITO § 4.7.1.2(A)(2). However, Ansaldo's proposal is
not compliant with this requirement, as it does not provide the required information.
In addition, the proposed schedule does not include all required procurement
activities. See Ansaldo's BAFO 2 Proposal § 4.2.7.

Ansaldo did not integrate its vehicle production and delivery schedule into its overall
schedule, as required by the City, and also did not provide the vehicle schedule in the
required Primavera electronic format. See Addendum No. 41, ITO § 4.7.1 (A)(1).
Therefore, the linkage between vehicle manufacturing/delivery schedule and
construction/testing cannot be confirmed to be compliant. See Ansaldo's BAFO 2
Proposal § 4.2.2.5.
In Ansaldo's proposed schedule, Notice to Proceed #2 to start to procure,
baselifle
fabricate, and furnish ("NTP#2") is shown as February 20, 2013. However, in
Ansaldo's passenger vehicle schedule, vehicle manufacturing work is started in
November 2012, prior to NTP#2, which is in violation of the City's requirements. If
the start of vehicle manufacturing is adjusted to comply with the contractual
requirements of NTP#2, it is clear that Ansaldo will no longer be able to deliver the
vehicles on time. See Ansaldo's BAFO 2 Proposal § 4.2.2.5.

In Ansaldo's proposed baseline schedule, construction is scheduled to commence on


September 1, 2013, which is only six months after NTP#2, the start of procurement.
In any major transit construction project, six months is far too short for procurement
and delivery. Given the unique challenges of procuring and delivering materials to
Honolulu, this is an even more unreasonable time period.
Tellingly, Ansaldo has never previously delivered a DB project in the United States that
GOODSILL ANDERSON QUNN & STIFEL
k LIMITED LIABIL•Y LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 13

included construction and installation. The proposed schedule demonstrates that Ansaldo is not
qualified to deliver this project on time, nor does it have a realistic strategy to meet the contract
requirements. These problems warrant rejection of Ansaldo's proposal. At the very least,
however, the proposal should have been scored significantly lower in light of these problems.
C. Ansaldo impermissibly submitted an alternate offer.

As mentioned above, Ansaldo's proposal offers the "alternative solution of a fully


compliant CBTC solution." Ansaldo's BAFO 1, Exec. Sum. at 5. HAR § 3-122-4 makes
explicitly clear that alternate offers are not acceptable unless they have been specifically
requested. This is a bright line rule. See Southern Foods Group, L.P. v. State of Hawaii, 89
Haw. 443,974 P.2d 1033 (Haw. Sup. Ct. 1999). ITO § 2.5(B) also explicitly states that
unauthorized additions and conditional proposals are a violation of the RFP. Ansaldo ignored
this rule and, in effect, submitted two proposals. Assuming for the sake of argument that
Ansaldo's proposal of a non-CBTC train control system is responsive to the requirements of the
City (which is clearly not the case as explained in Section IV.A above), the submittal of an
alternate offer by Ansaldo requires that Ansaldo's proposal be rejected. See HAR § 3-122-4.

D. Ansaldo impermissibly relies on future negotiations.


Another example of noncompliance with the RFP is found on pages 3-11 of Ansaldo's
technical proposal. In Section 3.1.3, Ansaldo states, "[t]he final solution [for final assembly
location] will be identified during final negotiations and Contract Award." (Emphasis added.)
The RFP does not allow for any negotiations. ITO § 7.2 of Addendum No. 41 states in part,
"[t]he selected Priority-Listed Offeror shall not make any additions to, deletions from, or
changes in this form of Contract." ITO § 2.5 states that proposals may be considered
non-responsive and may be rejected if, among other things, "the Priority-Listed Offeror adds any
provisions reserving the right to accept or reject an Award or to enter into a Contract following
Award." Thus, leaving a material item open for "final negotiations and Contract Award" should
not be deemed acceptable and the proposal must be rejected. Furthermore, in order for the City
to evaluate Ansaldo's proposal, including price realism (e.g. factors such as costs of
transportation and labor in the locale), Ansaldo should have identified the location of final
assembly.
Each of the foregoing areas of noncompliance with the RFP are material and on their own
should constitute grounds for rejection of Ansaldo's proposal. Together, they leave no doubt that
Ansaldo's proposal must be rejected.
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PAR•ERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 14

No ANSALDO SHOULD HAVE BEEN DISQUALIFIED FOR FAILURE TO


COMPLY WITH HAWAII LAW.
A. Ansaldo failed to comply with the Hawaii contractor license law.

Under Hawaii's contractor license law, HRS Chapter 444, each offeror was required to
hold the requisite contractor license prior to submitting its proposal. Ansaldo did not obtain its
"A" general engineering contractor license until after submitting its proposals in response to
RFP Part 1 and RFP Part 2.

While ITO § 6.9 of RFP Part 1 and ITO § 3.1 of RFP Part 2 (and the Calls for BAFO 1
and BAFO 2) state that an "A" general engineering contractor's license is required at the time of
the award, 1° the offerors must nevertheless comply with Hawaii law. An offeror must be
licensed to offer to undertake or hold itself out as being able to undertake the contracting work.
The law clearly states that:
No person within the purview of this chapter shall act, or assume
to act, or advertise, as a general engineering contractor.., without
a license previously obtained under and in compliance with this
chapter and the rules and regulations of the contractors license
board.

HRS § 444-9. HRS § 444-1 defines "Contractor" as "any person who by oneself or through
others offers to undertake, or holds oneself out as being able to undertake, or does undertake
to... construct, alter, repair, add to, subtract from, improve, move, wreck, or demolish" various
types of structures, improvements, and infrastructure. (Emphasis added.)
Engineering, Inc. v. Dept. of Business Economic Development and Tourism,
In Sea
PCH-2008-8 (June 27, 2008), an RFP issued by the State of Hawaii Department of Business
Economic Development and Tourism ("DBEDT") required offerors to be licensed contractors
and stated that an offeror could be disqualified and its proposal rejected if it was not licensed. At
a pre-proposal conference, DBEDT stated orally that the contractor license need not be
demonstrated until contract execution. The Administrative Hearings Officer held that oral
statements cannot change the requirements of an RFP and therefore the contractor license was
required at the time the proposal was submitted. The Administrative Hearings Officer also
stated:
Whether Respondent can waive the requirement that offerors
possess the required contractor's license at the time a proposal is
submitted is not an issue before the Hearings Officer, but the
Hearings Officer would note that HRS Chapter 444, which governs

ao See also Addendum No. 24, Response No. 3.


GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 15

contractors, requires licensure even when contractors offer to


perform contracting work.

Id. at 5, n.1.
In addition to the straightforward language in HRS § 444-9, which requires a license
when making the offer, HRS Chapter 444 demonstrates a strong public policy in favor of the
license requirement, even where harsh results might occur. See Butler v. Obayashi, 71 Haw.
175, 177, 78 P.2d 1324, 1325 (1990) ("HRS Chapter 444, providing for the licensing of
contractors, expresses a very strong public policy that contractors in this state should apply for,
and receive licenses, and the provisions of HRS § 444-22, which are sweeping in their terms, are
obviously intended to produce harsh results in furtherance of that policy.").
Proposalsin response to RFP Part 1 were due June 5, 2009, and proposals in response to
RFP Part 2 were due June 7, 2010. Ansaldo did not receive a contractor license until
October 15, 2010. In fact, in its proposal in response to RFP Part 2, and specifically in response
to ITO § 4.3.1 (H), where Ansaldo was required to provide licensing information, Ansaldo
responded with an affidavit stating that Ansaldo was "in the process of... obtaining all
applicable licenses and permits, including but not limited to an "A" general engineering
contractor license." Ex. 19 (emphasis added).

proposals in response to RFP Part 1 and RFP Part 2, when it admittedly did not
In its
have the requisite contractor license, Ansaldo was offering to undertake, and holding itself out as
being able to undertake the work for which an "A" general engineering contractor license was
required. Because Ansaldo's proposals were contrary to Hawaii law, they should have been
found unacceptable and Ansaldo should not have been deemed a priority-listed offeror. Further,
as only priority-listed offerors can submit best and final offers (HAR § 3-122-54), neither of
Ansaldo's BAFOs should have been accepted.

B. Ansaldo failed to comply with the Hawaii partnership law.

Ansaldo is a Hawaii general partnership, which, according to the State of Hawaii


Department of Commerce and Consumer Affairs ("DCCA"), was formed May 29, 2009, but was
not registered in the State of Hawaii until July 1, 2010. See Ex. 20 (DCCA Business
Information). HRS § 425-1 states:
(a) Whenever any general partnership is formed under the laws of
this State to do business in this State,... the partnership shall file
in the office of the director of commerce and consumer affairs the
registration and annual statements prescribed in this chapter. A
registration statement shall be filed by a partnership formed under
the laws of this State within thirty days after the partnership is
formed.
GOODSILL ANDERSON QUNN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 16

Ansaldo delayed for over a year before registering with the DCCA, in violation of HRS §
425-1. Even Ansaldo's constituent partners, Ansaldo STS S.p.A. and AnsaldoBreda S.p.A., both
corporations formed under the laws of Italy, did not register to do business in Hawaii until July
1, 2010, after the due date for the RFP Part 2 proposal. During that delay, which was a critical
time during the preparation of proposals by the offerors and amendments and refinements to the
RFPs by the City, information regarding Ansaldo and its partners that is required of any entity
doing more than casual business in the state of Hawaii, was not available to the general public
and to City and State regulators, such as the taxing authorities and persons charged with
enforcing labor laws.ll
Based on the foregoing, Ansaldo was not in compliance with Hawaii law and should have
been disqualified.
VI. SCORING BY THE EVALUATION COMMITTEE WAS FUNDAMENTALLY
FLAWED.

There were fundamental flaws in the Evaluation Committee's price realism


analysis.
The Evaluation Committee's price realism analysis has serious and fundamental flaws
that render its analysis "clearly erroneous, arbitrary, capricious, or contrary to law."
HAR § 3-122-57. Some of these flaws such as the failure to consider Ansaldo's past history
and its plainly unrealistic pricing are described above. These flaws also include, but are in no
way limited to, the following issues, any one of which is sufficient by itself to require the City to
reevaluate its price realism scoring of Ansaldo's and SCOA's proposals.

Errors in the Evaluation Committee's analysis of Section 6.1.2(D)(D)


"Consistency of the Proposal Periodic Payment with the Proposed
Baseline Schedule for the DB portion of Work."
Subsection (A) of the price realism analysis judges the "Consistency of the Proposal
Periodic Payment with the Proposed Baseline Schedule for the DB portion of Work."
Addendum No. 41, ITO § 6.1.2(D)(D). According to the City's TRC notes, SCOA received a
low score on this subsection because its payment schedule required the City to pay a higher
percentage of the contract price earlier in the life of the contract. The TRC appears to have
found that the payments early in the contract were not consistent with the percentage of
completion. This finding is erroneous and unfair; SCOA's payment schedule was entirely
consistent with the work activities as set forth in its "Proposed Baseline Schedule for the DB
portion of Work," and reflects the realities of implementing a large scale Design Build
transportation project.

Ansaldo's failure to timely register as a general partnership in Hawaii at the time it submitted its
proposal would have also prevented it from qualifying for a contractor license.
HAR § 16-77-10(b)(3).
GOODSILL ANDERSON QUINN &. STIFEL
a LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 17

In Ansaldo's case, the City seems to have given a favorable price realism score due to the
artificially low start up price, as well as a more even spread of the cost of Ansaldo's DB portion
arising from the proposed just-in-time delivery of vehicles. While this may look attractive to the
City from a cash flow curve perspective, it is not a realistic or practical approach to performing
this Project. As discussed earlier, Ansaldo has a very weak track record of delivering vehicles on
time and of meeting quality and performance requirements. Delivering vehicles just-in-time as
shown in Ansaldo's schedule only further increases the risk of delays and cost increases to the
project and should have resulted in a negative impact on Ansaldo's price realism score.
In contrast, SCOA was severely penalized in this category because it proposed delivering
vehicles to the site early, an approach that allows for early and extensive testing to ensure that
the vehicles will meet all performance and safety requirements prior to commencing passenger
service. This is in the best interest of the City to ensure on time, on budget completion. It was
thus erroneous and arbitrary to penalize SCOA as to price realism in this category.

Errors in the Evaluation Committee's analysis of Section 6.1.2(E)(E)


"Realism and Reasonableness of Prices."
Subsection (E)(E) of the price realism analysis judges the "Realism and Reasonableness
of Prices." A price realism analysis "is [an] analysis to determine if the offeror's proposed prices
are unrealistically low." DMSAll Star Joint Venture v. United States, 90 Fed. C1. 653,657 n.5
(Fed. el. 2010) (emphasis in original).
Price realism is not ordinarily considered in the evaluation of proposals for the
award of a fixed-price contract, because these contracts place the risk of loss
upon the contractor. However, in light of various negative impacts on both the
agency and the contractor that may result from an offeror's overly optimistic
proposal, an agency may, as here, expressly provide that a price realism analysis
will be applied in order to measure the offerors' understanding of the
requirements and/or assess the risk inherent in an offeror's proposal.
Id. at 663 (citing Pemco Aeroplex, Inc., B-310372.3, 2008 CPD ¶ 126 (Comp. Gen. June 13,
2008)).
Here, the only guidelines that appear address standards for determining "realism and
to
reasonableness of prices" are set forth in the ITO and state that the Price Proposal may be
deemed non-responsive if the City determines that the Price Proposal "is significantly
unbalanced relative to the Scope of Work" or "contains unrealistic and/or unreasonable prices on
Exhibits 16 and 17." See RFP Part 2, ITO § 6.1.2(II).

The scoresby the Evaluation Committee on realism and reasonableness appear to have
been driven solely by numerical prices rather than true realism and reasonableness. In
performing its scoring, the committee took liberties that were overly broad, subjective, and
non-uniform across the committee, contrary to the policy behind the government procurement
GOODSILL ANDERSON QUNN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 18

process. 12 The result is a scoring method that allows the scorers to over-emphasize and give
extra credit to the lowest price while ignoring (i) the technical merits of an offer that might have
a higher but more well-reasoned price, (ii) the risks of performance that accompany a lowball
price, and (iii) imbalanced pricing. The result is scores that are unreasonably and unfairly
skewed in favor of the lower numerical price, with little or no accountability for the risks hidden
behind the low price. Several factors should have caused lower price realism scores for Ansaldo:

An unreasonably low DB price. Ansaldo's DB price is unrealistic and


unreasonably low due to imbalanced pricing. This should have resulted in a price
realism score for Ansaldo that is significantly lower than the other offerors--but
just the opposite happened.13
Poor past performance. Comptroller General opinions have found that a price
realism analysis can be used to evaluate the risk of poor performance if services
or goods are being provided at too low of a
cost.14 Accordingly, where a price is
unreasonably low, whether the result of poor estimating or manipulation to affect
scoring, the City must investigate the make-up of the price and whether the
offeror can actually deliver the project at this price. If there are wide disparities
between the offerors, those would result from the estimates for soft costs, such as
project management costs. An analysis must be done of the soft costs, including
whether keeping those costs artificially low means that the risk of failure of
performance and delay is greater. Any such analysis must take into account a
selected offeror that, as here, has consistently demonstrated poor past
performance.
12 For example, the price realism scores awarded to Ansaldo by certain members of the Evaluation
Committee showed a significant and unjustifiable increase from RFP Part 2 to BAFO 2. Frank
Doyle's price realism score increased a remarkable 250%, from 96 to 240 points. There was no
justifiable basis for Mr. Doyle's increase or the significant increases made by other members of the
committee. If anything, the realism of Ansaldo's prices decreased between RFP Part 2 and BAFO 2.
13 In the evaluation of Ansaldo's original proposal, the TRC concluded that Ansaldo had the "[s]econd
highest overall lifecycle costs" and that "[a]bnormally low total [DB] pricing contribute[d] to overall
lifecycle costs." As a resuk, the Evaluation Committee gave Ansaldo's original proposal a low price
realism score. In Ansaldo's response to BAFO 2, its DB costs were even lower and its overall
lifecycle costs were even higher. Despite these negative changes, Ansaldo inexplicably received a
higher price realism score than for the original proposal.

14 See J. V. Penauille/BMAR & Assocs., LLC, B-311200, 2008 CPD ¶ 118 (Comp. Gen. May 12, 2008)
("Although not required, an agency may also provide for a price realism analysis in a solicitation for
award of a fixed-price contract for the purpose of assessing an offeror's understanding of the
requirements and the risk inherent in an offeror's proposal. In this regard, the risk of poor
performance when a contractor is forced to provide services at little or no profit is a legitimate
concern in evaluating proposals." (internal citations omitted) (emphasis added).
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 19

A non-compliant proposal. There are numerous areas (as described in detail in


Section IV.A above) in which Ansaldo provided a technically non-compliant
solution to the contract requirements. Assuming, for the sake of argument only,
that Ansaldo is compliant and not disqualified outright for non-responsiveness to
the RFP, its proposed price is neither realistic nor reasonable. The best that can
be said is that Ansaldo is marginally compliant, and that Price Realism points
should therefore have been deducted to reflect marginal compliance.

Just-in-time delivery. As described above, Ansaldo's proposal of just-in-time


delivery of its vehicles poses significant risks to the delivery schedule. Ansaldo's
price realism score should have been adjusted down, not up, as a result of this
factor.

Ansaldo's diminishing O&M Costs. The TRC increased Ansaldo's price


realism score because its "5-year optional O&M period pricing is lower than the
5-year full O&M period pricing." In other words, the TRC concluded that
Ansaldo's O&M prices were more realistic because Ansaldo's prices decreased
over time. This, however, makes no sense. As time passes, ridership on the
system will increase, salaries for raiJ employees will increase, and the system
itself will age. Ansaldo's conclusion that O&M costs will somehow decrease in
the face of these factors is plainly not realistic and is more likely the result of
Ansaldo trying to recoup, as quickly as possible, its unbalanced costs. Ansaldo's
price realism score should have been negatively impacted as a result.
In addition to these errors in the evaluation of Ansaldo's proposal, the Evaluation
Committee's price realism scoring with respect to SCOA's proposal contained several factual
errors. Most notably, the TRC wrongly criticized SCOA's Capital Asset Replacement Program
("CARP"). The TRC stated that SCOA's "CARP values do not include labor or subcontractor
values. This would indicate that existing forces would perform the overhauls. This makes it
difficult for the City to manage yearly CARP investments, impact routine maintenance, and
hides the true value of the overhaul program." While it is correct that "existing forces" would
perform CARP-related work under SCOA's proposal, it is absolutely incorrect that this is
somehow improper or that it should negatively impact SCOA's price realism score. Using
existing forces to perform CARP-related work is the standard approach in the industry for O&M
contracts, and it is the most efficient way to complete this type of work, leading to reduced
maintenance costs.
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 20

No Errors in the Evaluation Committee's analysis of Section 6.1.2 (F)(F)


"Life Cycle cost comparison combining capital and operating costs
against the Proposed Baseline Schedule"
Subsection (F)(F) of the price realism analysis judges "Life Cycle cost comparison
combining capital and operating costs against the Proposed Baseline Schedule." Life cycle
costs are the cost of ownership over the life of the assets. The train cars are the primary assets
in this instance. TP-4.3.1 Service Life expressly provides as follows:

The vehicle shall have a minimum service life of 30 years of


operation, provided that Contractor-specified periodic
maintenance procedures and normal industry-accepted operating
procedures are followed. The Core Systems Contractor shall
identify any requirements for mid-life overhaul to support the
30-year service life.
Over the life of the train cars, L e., 30 years, SCOA's proposal is superior to Ansaldo's
under any reasonable life cycle cost comparison. Ansaldo's O&M prices during the first five
years of full operations are already forty-eight percent (48%) more than those of SCOA.
Ansaldo's annual O&M prices during the second five years of full operations are also
substantially greater than those of SCOA. Indeed, assuming for the sake of argument that
Ansaldo's annual average O&M prices during the second five years of full operations are
representative of the remaining years of operations (i. e., as the City has commented, it is a
"repetitive thing"), over the course of the 30 year life cycle costs, the difference between
SCOA's and Ansaldo's proposal (using a reasonable 4% inflation assumption) is approximately
$900 million.
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 22

MR. ZWEIGHAFT (City): Let me see if I have the notes on that.


HEARINGS OFFICER HO (City): Is that period in the ITO?
MR. MOTT (City): For the evaluation of pricing costs,
because there's an optional
period in there, the period for the entire time has to be evaluated, otherwise, we can
not accept that as an option, so I hope that covers the answer to your question.

MR. FRIEDMANN (SCOA): Do you know over what how many years
MR. ZWEIGHAFT (City): I don't remember.
Ex. 18 at 39-40 (Debriefing Tr.).

The City did not perform the life cycle analysis correctly on any of the proposals. The
result of this error is that Ansaldo somehow received nearly double the points of SCOA. This
was clearly erroneous and clearly material. Ansaldo would not have been awarded the contract
without the differential in points awarded to it.

The City's apparent response is that the City was not able to properly perform a life cycle
analysis due to an error in SCOA's submission regarding energy consumption. 16 Although
admittedly there is a typographical error in SCOA's submission, this error was a plain, obvious
and correctable mistake that was not only acknowledged, but unilaterally revised by the City. 17
16 The discussion at the debriefing was:
MR. FRIEDMANN (SCOA): I guess my question is there seem to be comments going to
the life cycle costs that weren't just looking at the period that's being covered but potentially
the whole life of the system, and that's what we are trying to understand, when you
determined that this was not a defined term or anything as far as we understand the proposal,
I just want to understand if when you looked at the reasonableness of the life cycle costs,
whether you were looking at just that initial period or the true the actual life as defined in
the system of the thirty years, approximately? Because there were comments in there about
the long term costs of the system, but we don't know what you were considering to be the
long term costs, the long tenn.
MR. ZWEIGHAFT (City): The only thing I remember about it was that there was an
expressed problem with evaluating, as I think I commented here, there was an expressed
problem with evaluating the Sumitomo price because of the difficulty of having a good
handle on the traction power costs.
Ex. 18 at 40 (Debriefing Tr.).
17 Contrast this unfavorable treatment of SCOA with the treatment by the City of an error in Ansaldo's
drawing showing floor height, where the City found that the error was "obvious" and made the
assumption that Ansaldo's floor height was in compliance with ADA requirements. See Appendix C
(discussing questionable ADA compliance).
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 23

See BAFO 2, Consensus Scoring Sheet Price Realism (Mar. 6, 2011). Moreover, the placeholder
number that the City stated would be used for SCOA in the Life Cycle Cost calculation would
make no material difference in annual life cycle costs between Ansaldo's and Sumitomo's
proposals. Energy power consumption is not the real issue in life cycle cost evaluations. It is
insignificant in comparison to all other costs and pales in relation to the $900 million differential
between Ansaldo's and Sumitomo's total life cycle costs.

Furthermore, as it had done numerous times over the previous year, the City could have
asked SCOA to clarify its calculations. The City has stated that it avoided asking SCOA for
clarification apparently for fear of being accused of engaging in "technical leveling." See Ex. 18
at 48 (Debriefing Tr.). Technical leveling, however, should be less of a concern than achieving a
better understanding of an offeror's proposal. Indeed, the City's statement reflects a
misunderstanding of "technical leveling" and the law. First, technical leveling occurs where a
contracting agency helps an offeror by pointing out general weaknesses in an offeror's proposal
and coaching the offeror on how to revise its proposal; technical leveling does not occur where a
contracting agency contacts an offeror to resolve an obvious error. See generally Mantech
Telcoms. & Info. Sys. Corp. v. United States, 49 Fed. C1.57, 76 (Fed. C1. 2001). Second, the
modem trend is to allow agencies to "resolv[e] a given proposal's weakness or deficiency by
means of multiple rounds of discussions with the offerors, provided the discussions are not
conducted in a fashion that favors one offeror over another." Id at 77 (discussing revised federal
roles). This approach, which the City used for other questions it had about SCOA's proposal,
"maximize[s] the government's ability to obtain the best value, based on the requirements and
evaluation factors set forth in the solicitation." Id 18

As demonstrated above, the price realism scoring engaged in by the City was erroneous,
arbitrary, capricious, and contrary to law. 19

18 As to those aspects of SCOA's proposal scored low relative to the remainder of SCOA's proposal, it
appears that the reviewers' comments related to the quality of the description in the proposal, rather
than the substance of the proposal. In this situation as well as the energy consumption calculations,
if the City were to have sought clarification from SCOA as it had in the past, the City would have
been better able to understand SCOA's proposal and obtain the best value.
19 SCOA also finds puzzling the manner in which its score decreased on certain items between its
RFP 2 proposal and BAFO 2. There are several line items where SCOA's score was decreased by
members of the TRC or the Evaluation Committee, where the only changes were made to comply
with changes requested by the City. In at least two instances, the only change was at the express
request of the City to limit the amount of information for which SCOA claimed confidentiality.
Yet, SCOA inexplicably lost points as a result! See Consensus Worksheet, Technical Solutions, Risk
Management, § 6.1.2.2 and Consensus Worksheet, Technical Solutions, O&M Information, §
6.1.2.3, Capital Asset Replacement Program, Subsection 5.6.2.8.
GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PAR•ERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 24

B. The City failed to perform a Cost and/or Price Analysis.


City admittedly did not perform a cost and/or price analysis ("COPA") on Ansaldo's
The
proposal as is required by law. 2° If the Evaluation Committee had the benefit of a COPA by a
qualified person, it almost certainly would have concluded that the prices proposed by Ansaldo
were unreasonable and, as a result, that Ansaldo's proposal should be rejected.

Hawaii law requires that cost or pricing


data or both be provided for any competitive
sealed proposals expected to exceed $100,000. See HAR § 3-122-123(1). The data must then be
used to evaluate the reasonableness of the total cost or price. See HAR § 3-122-128(7). The
City was required to perform a COPA prior to the award, which it did not do. See HRS § 103D-
312; HAR §§ 3-122-57, 3-122-128, and 3-122-129. The COPA is performed after the evaluation
committee's ranking of the offerors' proposals, and the COPA must comply with the guidelines
explicitly described in, among other places, HAR §§ 3-122-128 and 3-122-129. See Election
Systems & Software, Inc. v. Cronin, PCH-2008-3, at 33-36 (Aug. 7, 2008).
The aim of a cost and/or price analysis is therefore not to
circumvent or otherwise interfere with the Evaluation Committee's
evaluation and ranking of offers. Rather, it is to confirm the
reasonableness of the offered price and underlying costs of the
vendor once the vendor is selected by the Evaluation Committee,
and, ultimately, to ensure that tax dollars are spent prudently.
Indeed, one of the underlying purposes of the [Procurement] Code
is to "foster broad-based competition among vendors while
ensuring accountability, fiscal responsibility, and efficiency in the
procurement process. Standing Committee Report No. $8-93,
20 At the debriefing, the City stated that it was unfamiliar with the cost and price analysis requirement.
MR. FRIEDMANN (SCOA): And was there our understanding is that there is a formal cost
price analysis that is to be performed as a part of these procurements. Was that done?
MR. ZWEIGHAFT (City): I'm not following you.

MR. FRIEDMANN (SCOA): Yes, we understand that it is a HAR 3-122-123 which describes
this cost price analysis that is to be done on, I believe, this selected proposer or the preferred
proposer to determine if their pricing is in fact realistic in lines with the engineer's estimate or
other metrics. Was that type of analysis performed to validate the pricing of the proposers?

MR. ZWEIGHAFT (City): I am not sure how to answer that question. The answer is did we
have the engineer's estimate, and did we compare that to the pricing, the answer is yes. This
this COPA process that you described, you know, I'm not sure what it is, so

Ex. 18 at 38 (Debriefing Tr.).


GOODSILL ANDERSON QUNN & STIFEL
a LIMITED LIABILITY LAW PAR•ERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 25

1993, Senate Journal at 39. Thus, the Evaluation Committee's


evaluation of the proposals and the price and/or cost analysis
together serve to not only enable the government to obtain the best
products, but to do so at fair prices [footnote omitted].
Thus, in order to determine whether an offered price
represents the "best value", [footnote omitted] the procurement
officer must obtain and analyze the offeror's cost or pricing data
[footnote omitted]. Among other things, the purpose of requiring
the procurement officer to obtain the cost and pricing data is "to
evaluate the reasonableness of the total cost or price."
HAR § 3-122-128(7) (emphasis added). In making this evaluation,
HAR § 3-122-130 provides as follows:

Evaluation of cost or pricing data. Evaluations of cost or


pricing data should include comparisons of costs and prices of
an offeror's cost estimates with those of other offerors and
any independent state price and cost estimates

Id at 31-33 (emphasis added).


The COPA must be performed before the City can proceed with the award of the
contract. 21 SCOA is confident that the COPA will reveal Ansaldo's prices to be unreasonable
and SCOA's proposal to be superior.

VII. SCOA RESERVES THE RIGHT TO RAISE OTHER GROUNDS FOR THIS
PROTEST.
SCOA is filing this protest without the benefit of all information to which it is entitled
from the City. In addition, issues might emerge if the City continues to award the contract to
Ansaldo and Ansaldo fails to meet the post-award conditions. Accordingly, SCOA reserves its
right to supplement this protest and does not waive its rights to protest either Ansaldo's or the
City's failure to meet any other condition to the contract• The reasons that SCOA believes
additional relevant information will likely emerge include, but are not limited to, the following:

Post-award conditions. SCOA understands that the award of contract to Ansaldo is


conditioned on a number of requirements. Some of the conditions are ministerial (e.g., a
tax clearance certificate), but others are substantive and subjective and might prove
difficult for Ansaldo to achieve given the unreasonably low DB price proposed by
Ansaldo (e.g., a pre-award 22 audit showing that the component and subcomponent parts

2• The COPA should occur in addition to a reevaluation of price realism.


22 In the federal statute, "pre-award" means prior to signing the formal contract. See 49 C.F.R. § 663-5.
GOODSILL ANDERSON QUNN &. STIFEL
k LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 26

of the rolling stock to be fumished by Ansaldo satisfy the requirements of the Buy
America Act and performance and payment bonds in the amount of the contract price).

Information requested from City. SCOA has not been provided with the documents
and information it is entitled to receive from the City. On March 21,2011, SCOA made
a written request to the Chief Procurement Officer of the City for copies of documents
and other information in its files in connection with the Project. On March 28, 2011,
SCOA made a supplemental written request to the Chief Procurement Officer for
unredacted documents and documents not previously made available to SCOA. Also on
March 28, 2011, SCOA made a written request to the Director of Transportation Services
for copies of certain documents and other information in its files in connection with this
Project. On the evening of April 1,2011 the Friday evening before the Monday
debriefing the City provided SCOA with some documents, but many key documents
were either redacted or not available at all. On April 4, 2011, the Chief Procurement
Officer wrote to SCOA stating that while some of the documents requested by SCOA
were in the City's April 1,2011 production, others were still in the custody of the Rapid
Transit Department or were being withheld. SCOA responded the next day, explaining
the bases for its requests and making clear that the City's failure to produce these
documents was significantly prejudicing SCOA's efforts. To date, the City has failed to
produce any of the additional documents. As a result, this protest is based on the limited
information available to SCOA at this time. 23
Accordingly, SCOA reserves the right to supplement or revise this protest based upon
documents and information subsequently received and reviewed. See also HAR § 3-126-6(a)
("Any additional information requested by any of the parties should be submitted within the time
periods established by the requesting party in order to expedite consideration of the protest
unless justification is provided for a delay ").
VIII. CONCLUSION
Based on the foregoing, the City should uphold SCOA's protest. In the context of this
protest, it is not necessary to discuss SCOA's scores, because the violations and deficiencies in
Ansaldo's proposal described herein provide ample grounds to disqualify Ansaldo and reject its
proposal. However, at the debriefing session with SCOA on April 4, 2011, the City recited its
principal reasons for rejecting SCOA's proposal. So that the record is clear, SCOA submits that
the concerns identified by the City are relatively minor. Except for the price realism score, the
concerns identified with respect to SCOA are also concerns identified by the TRC or the
Evaluation Committee with respect to Ansaldo's proposal. On a majority of those categories,
SCOA was rated superior to Ansaldo.

In upholding SCOA's protest, the only appropriate remedy is to award the contract to
SCOA. No other remedy is appropriate, inasmuch as the contents of all offerors' proposals are

23 The letters mentioned herein are attached as Exs. 21-26.


GOODSILL ANDERSON QUINN & STIFEL
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11,2011
Page 27

now available to the public, including SCOA's competitors. Once proposals have been made
public, revised proposals and best and final offers are not authorized under HRS § 103D-303, in
order to maintain the integrity of procurement system and ensure that offerors are provided fair
and equitable treatment. Dick Pacific Construction Co. v. Dept. of Trans., PCH 2005-5
(Sept. 23, 2005); see Wheelabrator Clean Water Systems, Inc. v. City & County of Honolulu,
PCH-94-1 (Nov. 4, 1994). A new RFP process would effectively violate the public policy
behind the procurement process to promote competition and fairness by preventing offerors
from gaining knowledge of their competitors' offers. See HRS § 103D-303. A new RFP would
prejudice SCOA by allowing competitors to tailor their offers based on SCOA's proposal, not to
mention the prejudice to the public interest. The purpose of the Procurement Code is to
"(1) provide for fair and equitable treatment of all persons dealing with the government
procurement system, (2) foster broad-based competition among vendors while ensuring
accountability, fiscal responsibility, and efficiency in the procurement process, and (3) increase
public confidence in the integrity of the system." Carl Corp. v. State of Hawaii, 93 Haw.155,
166, 997 P.2d 567, 578 (2000) (citing Carl Corp. v. State of Hawaii, 85 Haw. 431,456, 946 P.2d
1, 26 (1997)). The best way to meet these goals for this project is to award the project to SCOA.
In the alternative, the City should promptly move to reevaluate price realism and cause a
COPA to be performed by a qualified, independent, third party. The results of a price realism
reevaluation and a COPA may obviate the need for the City to respond to all of the other issues
raised in this protest.
GOODSm•. ANDERSON QUNN & STIF•I.
A LIMITED LIABILITY LAW PARTNERSHIP LLP
Mr. Michael R. Hansen
April 11, 2011
Page 28

SCOA respectfully requests that the City respond to this protest promptly.

Respectfully submitted,
GOODSILL ANDERSON QUINN & STIFEL
PARTNERSHIP LLP

Russell S. Kato'
Robert K. Fricke
Appendices; Exhibits
CC: Wendy K. Imamura
Gino Antoniello, Sumitomo Corporation of America
Shinji Kobayashi, Sumitomo Corporation of America
Amy R. Kondo, Esq.