STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GRAPHIC DATA SYSTEMS CORPORATION, )

)

Petitioner, )

)

vs. )

) STATE OF FLORIDA, DEPARTMENT )

OF TRANSPORTATION, ) CASE NO. 94-905BID

)

Respondent, )

and )

)

INTERGRAPH CORPORATION, )

)

Intervenor. )

)

RECOMMENDED ORDER

This matter came on for hearing in Tallahassee, Florida, before David M. Maloney, Hearing Officer of the Division of Administrative Hearings, on March 11, 1994.

APPEARANCES

For Graphic Data John O. Williams, Esquire Systems Corporation: Lindsey & Williams

1343 East Tennessee Street Tallahassee, Florida 32301

Ellen T. Chadwell, Esquire Beck, Spalla, & Barrios 1026 East Park Avenue Tallahassee, Florida 32301

For the Department Charles G. Gardner, Esquire of Transportation: Thomas H. Duffy, Esquire

Department of Transportation 605 Suwannee Street

Tallahassee, Florida 32399

For Intergraph Martha Harrell Chumbler, Esquire Corporation: Paul Vazquez, Esquire

Carlton, Fields, et al.

Suite 500, 215 South Monroe Street

Tallahassee, Florida 32302

STATEMENT OF THE ISSUE

Whether the Respondent, State of Florida, Department of Transportation, (the "Department"), acted arbitrarily or illegally in deciding to award the Intervenor, Intergraph Corporation, the contract for RFP-DOT-93/94 9008?

The parties stipulated that the Department did not act fraudulently or dishonestly in issuing its notice to award the contract to Intergraph.

PRELIMINARY STATEMENT

On February 19, 1994, the Petitioner, GDS, initiated this proceeding by the timely filing of its Formal Written Protest and Petition for Administrative Hearing. The matter was subsequently referred to the Division of Administrative Hearings where it was docketed as Case No. 94-0905BID and assigned to a hearing officer. Intergraph subsequently sought and was granted leave to intervene as a party.

The hearing was originally scheduled to commence on March 7, 1994, but upon the consent of all parties, was rescheduled for March 11, 1994. The case was reassigned to the undersigned and proceeded to hearing as rescheduled on March 11.

The parties executed a prehearing stipulation and presented it at the opening of the hearing. The stipulation was received into evidence as Joint Exhibit No. 1. It set forth undisputed facts and legal matters. It also identified issues of fact and law on which there was not agreement.

During hearing, GDS admitted into evidence sixteen exhibits marked as Petitioner's Exhibits 1 through 3 and 5 through 17. (GDS did not offer an exhibit marked number 4.) GDS called as witnesses Daniel Thomas Marshall, Lee Kallett, Raymond Lawrence Bryant, Sr., Thaddeus Alvin Fortune, Susan Day, and Raymond Pittman, Jr. The Department called Myra Hart as its only witness.

Intergraph called no witnesses.

At hearing, counsel for the parties agreed to file proposed recommended orders within 10 days of the filing of the transcript, that is, by March 28, 1994. A transcript of the hearing was filed on Friday, March 18, 1994. All parties filed proposed Recommended Orders on Monday, March 28, 1994. The attached appendix addresses the parties' proposed findings of fact by number.

FINDINGS OF FACT

Data Voice and its Relationship to Intergraph

1. Data Voice, Inc., is certified by the Department of Management Services as a minority business enterprise within the following specialty area:

   
   

   Intergraph microstation CAD software, computer equipment, IBM computer equipment,

   NEC computer equipment, and other micro-computer equipment, software and accessories.

   Petitioner's Exhibit 1.

   
   

2. Data Voice has had a business relationship with Intergraph Corporation at least since December 5, 1991, when it entered into a Distribution Agreement with Intergraph. The agreement described Intergraph as the marketer and manufacturer of highly sophisticated CAD/CAM equipment, including hardware and software. Recognizing that users would be properly served only with professional pre- sale and post-sale demonstration, orientation, training and support, and upon Data Voice's representation that it had the experience and resources necessary to explain, demonstrate and support Intergraph products, Data Voice undertook, among other responsibilities, the business of licensing, installing and supporting certain Intergraph products. Petitioner's Ex. No. 14.

   
   

3. Data Voice later became a Value Added Dealer ("VAD") for Intergraph under the name "Intergraph Solutions Center" in an agreement effective June 7, 1993. Petitioner's Exhibit No. 11. Data Voice is one of a number of companies that Intergraph refers to as Intergraph Solutions Centers.

   
   

4. The relationship was upgraded on August 27, 1993, when Data Voice became a Value Added Reseller, ("VAR"). Petitioner's Exhibit No. 10. Data Voice's status with Intergraph as a VAR was renewed in an agreement effective January 4 of this year. Petitioner's Exhibit No. 9.

   
   

5. Intergraph has approximately 176 VARs in the country; seven in Florida in 10 locations, one of whom is Data Voice, headquartered in Melbourne. A VAR is a higher caliber reseller than a VAD. Daniel Thomas Marshall, Intergraph's Regional Channel Manager for the Southeast, refers to them as "professional" whereas VADs are low-level dealers or "storefronts," in a position to provide some support, but not to be "proactive" in all cases. Tr. 54. In contrast, "[VARs] have more of the application products in addition to the products listed under our VAD agreement." Tr. 54.

   
   

6. The use of value added resellers is common in the computer industry. Other companies that utilize this indirect method for sales of their products include IBM, Hewlett-Packard, DEC, Sun Microsystems, Autodek, GeoPack, ESRI, and Pro-Engineer.

   
   

   VAR Pricing Benefits to End-Users

   
   

7. End-users are the parties ultimately using the software or computer product. In this case, the Department will be the end-user. Because Intergraph sells products to its VARs at a discount, VARs are in a position to offer Intergraph products to end-users at a price below that offered by Intergraph itself.

   
   

8. If the contract is awarded to Intergraph, Data Voice, as a VAR, will be selling Intergraph products directly to the Department at a price lower than if the Department were buying the products directly from Intergraph.

   
   

9. Besides lower prices, a VAR can provide services to the user of an Intergraph product, such as installing Intergraph products and integrating those products with non-Intergraph software.

   
   

10. Data Voice, however, despite customary arrangements and its own contractual power as an Intergraph Solutions Center, is not described in Intergraph's proposal as the provider of any specific services. See Findings of Fact 17 et seq., below.

    The RFP and the Responses of Intergraph and GDS

11. Through the RFP, the Department sought proposals to implement a pilot project for the Office

    of Right of Way. The pilot project will result in the establishment of an automated system that meets the capability of importing graphic data from Department and local government CAD and GIS systems while maintaining the object intelligence of the graphic entities, if possible. Using graphic data imported from the CAD system to create a base map of the project, the prototype application would be developed by the proposer to access data stored in the Department's Right of Way Control System and link that data to the appropriate parcels identified in the base map. The system will be menu-driven and geared toward a user who has very little technical knowledge of computers.

    
    

    (Emphasis omitted.) Petitioner's Exhibit No. 16.

    
    

12. The RFP provided further that

    
    

    The Department will add up to 20 points to the scores of firms (Non-CMBE) utilizing Certified MBE's as subcontractors for services or commodities as follows:

    
    

    10 percent - 19 percent of total project dollars - 8 points.

    
    

    Petitioner's Exhibit No. 16.

    
    

13. Both GDS and Intergraph submitted timely responses to the RFP. Joint Exhibit No. 1.

    
    

14. Intergraph's response included Form "D", a form provided by the Department for "MBE Preference Points Certification." On the form, Intergraph stated that it would use Data Voice as a Minority Business Enterprise. Petitioner's Exhibit No. 3.

    
    

15. One of the reasons Intergraph included Data Voice in its proposal was to obtain MBE preference points pursuant to the RFP. Joint Exhibit No. 1.

    
    

16. The type of work to be provided by Data Voice is listed in Form "D" as "Software and services." (emphasis supplied). The dollar amount of Data Voice's participation is just enough to qualify for eight preference points for use of a certified minority business enterprise as a subcontractor. It is listed as $21,900, precisely 10 percent of the Total Maximum Amount of the price of Intergraph's work as shown on Form "C," the "Price Proposal Form" for "Implementation of a Geographic Information System (GIS)." Petitioner's Exhibit No. 3. (Part II-Price Proposal Number RFP- DOT-93/94-9008, "Intergraph

    Corporation's Approach to the Implementation of a Geographic Information System (GIS) Pilot Project for the Office of Right of Way.")

    
    

17. Despite the reference on Form D to Data Voice's provision of services in addition to software, the remainder of the proposal does not describe services to be provided by Data Voice.

    
    

18. Moreover, it is not clear from the rest of Intergraph's proposal what "services" are left to be performed by Data Voice. For example, despite testimony from Intergraph's Southeast Regional Channel Manager that Data Voice could install the Intergraph software for the Department and provide other support to assist the Department in making the software operational, Section 5.3 of a document included in Intergraph's proposal states: "Intergraph shall be responsible for unpacking, uncrating, and installing the ... Software and in all other respects making the ... Software operational." (emphasis supplied). Petitioner's Exhibit 3. See "Purchase Agreement Between State of Florida Department of Transportation and Intergraph Corporation."

    
    

19. Furthermore, in Appendix A-1, Software Services of Intergraph's proposal the following is stated in Section 5.0, Scope of Work - Software:

    
    

    For the charges itemized in Appendix A of this Contract, Intergraph agrees to provide software services to maintain the software

    in operating condition. On-call service will be provided from Intergraph's Huntsville, Alabama, office via telephone communications between the hours of 7:30 a.m. and 7 p.m.

    Central Standard Time (Monday through Friday), or via other appropriate media when deemed necessary. If in-depth software maintenance is required, Intergraph may provide on-site services. (emphasis supplied).

    
    

20. Intergraph's proposal abounds with other examples indicating that Intergraph will perform services related to software, ranging from Intergraph personnel listed as a software analyst and in other capacities to providing a toll-free phone-in service to Intergraph software support groups on a 24-hour basis. In none of these examples is Data Voice involved as a provider of services related to software or, for that matter, even mentioned.

    
    

21. Nonetheless, witnesses in the employ of Intergraph maintained that Data Voice, as a supplier of software to the Department, would install the software and provide other support services. It is standard procedure for the entity that provides the software, in this case Data Voice, to install and support the software. Testimony to this effect was offered after Intergraph had written to the Department that, "Per our recent telephone conversation, we understand that Data Voice would now be precluded from providing the additional services as it was not so specified in our proposal." Petitioner's Exhibit No. 6.

    
    

22. Unlike Intergraph, GDS determined after close examination that, without a subcontractor being part of their technical team in the effort to develop the application, there was no way to subcontract any meaningful part of its response. As a result, GDS did not propose to subcontract with a certified minority business enterprise and gained no preference points when the responses were opened and the results tabulated and posted.

    Opening of the Responses, Posting of the Results, and the Department's Decision

    
    

23. The Department opened the responses to the RFP on January 14, 1994. On February 4, 1994, the Department posted the following results:

    
    

    			GDS	Intergraph
    Criteria Criteria	1: 2:	Management Plan Technical/ Presentation Plan	20.33 30.33	22.00 34.33
    Criteria	3:	Work Plan	16.00	12.67
    Criteria	4:	Price	10.00	7.03
    Criteria	5:	Certified MBE	0.00	8.00
    TOTAL			76.66	84.03

    
    

24. Based on these scores, the Department gave notice of its intent to award the contract to Intergraph.

    
    

25. Had Intergraph not received 8 preference points for the participation of Data Voice as a subcontractor, GDS would have outscored Intergraph by 0.63 points, 76.66 to 76.03. With such scores, presumably the Department would have issued a notice of intent to award the contract to GDS.

    
    

    Concern of the Project Manager

    
    

26. Intergraph's winning score led to a concern for Susan Day, an administrator of corridors and facilities for the Department, and project manager of the RFP with responsibility for compliance as to CMBE participation. She contacted the Department's legal counsel "to check into whether the MBE points were legal." Tr. 91. She contacted the Department's contractual services office to discuss it. And she contacted two people at the Department of Management Services.

    
    

27. On February 9, 1994, she wrote Lee Kallett, Senior Sales Representative for Intergraph seeking "[i]mmediate clarification ... regarding the 'software and services' to be provided by the sub-consultant (Data Voice, Inc.) ...". The letter ended with a request, "Please provide me with the specifics regarding the software and services that will be provided by Data Voice, Inc." Petitioner's Exhibit No. 5.

    
    

28. Mr. Kallett provided the Department with the requested quick response. On February 11, 1994, he wrote,

    
    

    In addition to reselling Intergraph products, Data Voice is also equipped to provide programming and data conversion services as well as customized documentation and training.

    It had been our original intent to have Data Voice perform some of these functions in conjunction with this project, thereby increasing the CMBE content of our bid.

    However, at the time that proposals were due, we had been unable to determine exactly how much of these activities could be addressed

    by Data Voice and so we identified them as the software provider only. Per our recent telephone conversation, we understand that Data Voice would now be precluded from providing the additional services as it was not so specified in our proposal.

    
    

    Petitioner's Exhibit No. 6.

    
    

29. In reply, Ms. Day asked for more specificity. In a February 15 letter she asked Mr. Kallett to "identify the products, by name, and the cost per item to be provided by Data Voice, Inc." Petitioner's Exhibit No. 7. She needed complete information because the Department wanted to make an informed decision in light of the receipt of an intent to protest. Id.

    
    

30. The next day, Mr. Kallett, by letter, provided a list of the software with Data Voice's price, as follows:

    
    

    Modular GIS Environment Systems Nucleus	$5781
    MGE Analyst	4129
    MGE Projection Manager	4129
    ORACLE RDMS Base Product	3302
    ORACLE SQL * Plus Database Utility	306
    DB Access - Runtime NT	124
    CogoWorks	1652
    MGE TIGER Translator	826
    DB Access-Runtime Windows/DOS	413
    MGE Project Viewer	1239
    Total Petitioner's Exhibit No. 8.	$21,901

    
    

31. The products are owned and developed exclusively by Intergraph with the exception of three: ORACLE RDMS Base Product priced at $3,302; ORACLE SQL

    * Plus Database Utility priced at $306; and, CogoWorks priced at $1652. The total price of the three non-Intergraph products is $5,260 leaving the total price of the Intergraph products to be $16,641.

    
    

    Data Voice Inventory

    
    

32. The software products listed by Lee Kallett are not all kept in stock by Data Voice. Instead, Data Voice uses a "just- in-time" system of inventory. Under this system, products can be delivered to Data Voice overnight or within two days and, therefore, there is no necessity to keep products in inventory. Petitioner's Exhibit No. 17. The "just-in-time" system of inventory is standard in the computer industry. Tr. 49-50.

    
    

33. There are exceptions to the "just-in-time" system of inventory used by Data Voice. For example, Oracle products are kept in stock. Petitioner's Exhibit No. 17, p. 18.

    
    

    Opinion of the DMS Bureau of Minority Business Assistance

    
    

34. Thaddeus Fortune, compliance administrator, was one of the people at the Department of Management Services contacted by Susan Day. Ms. Day asked him whether credit would be approved for a minority business enterprise if they

    received a product from a prime contractor, did nothing to it, and then sold it back to the prime contractor. He indicated that such credit would not be approved. Tr. 82.

    
    

35. But Raymond Bryant, certification administrator in the Bureau of Minority Business Assistance at the Department, testified that a vendor with expertise to sell computer products, install them, and provide support for those products, and certified by the Department as a minority business enterprise in those areas would not be regarded by him as a "pass-through." Tr. 80.

    
    

36. And Mr. Fortune, when asked about this case, said that investigation would need to be conducted to determine whether Data Voice has some other role besides simply purchasing software from Intergraph and selling it back to Intergraph. Tr. 83.

    
    

37. If, for example, the product was sold directly by Data Voice to the end-user, in this case to the Department rather than back to Intergraph, then Data Voice, in Mr. Fortune's opinion, would not be a conduit but a legitimate supplier. Tr. 84.

    
    

38. If Data Voice provided support services to the Department, in addition to the software, it would not be considered a conduit by Mr. Fortune. Tr. 85. And Mr. Fortune would approve credit for CMBE participation if Data Voice in the capacity of a sub-contractor installed the software as well as provided it as part of a single price under the contract. Tr. 87. But, if Data Voice did not install it and only provided technical support as a consultant, Mr. Fortune would need to know the degree of technical support before reaching an opinion. Mere training by Intergraph of Data Voice to provide technical support by way of answering the end-users' questions, for example, would not reach a high enough level of support to allow approval of CMBE credit by Mr. Fortune. Tr. 87-88.

    
    

    CONCLUSIONS OF LAW

    
    

39. Since the Department of Transportation referred Petitioner's bid protest to the Division of Administrative Hearings, in accordance with Section 120.53(5), Florida Statutes, the Division has jurisdiction over the formal proceeding. Section 120.57(1), Florida Statutes. Petitioner has standing to bring this proceeding and Intervenor has standing to participate with full party status.

    
    

40. In reviewing an agency procurement decision, "the hearing officer's sole responsibility is to ascertain whether the agency acted fraudulently, arbitrarily, illegally or dishonestly." Procacci v. State Department of Health and Rehabilitative Services, 603 So.2d 1299 at 1301, (Fla. 1st DCA 1992), quoting from Department of Transportation vs. Groves-Watkins Constructors, 530 So.2d 912 (Fla. 1988). See also Scientific Games v . Dittler Bros., 586 So.2d 1128 (1st DCA 1991).

    
    

41. There is no dispute as to whether the Department's decision is either fraudulent or dishonest. The parties have stipulated that it is not. The issues are illegality and arbitrariness. GDS, as the protestor, has the burden of proving by a preponderance of the evidence that the Department's decision is illegal or arbitrary. It is a heavy burden, indeed.

    
    

42. An examination of the RFP, the proposal and the evidence shows that Intergraph's proposal was responsive. The proposal listed Data Voice as a certified minority business enterprise that would provide "software and

    services." Data Voice is certified by the Department of Management Services precisely in the area of providing software. It is standard practice for Data Voice to back up provision of software with certain services. (Petitioner's Exhibit 17). And it is standard practice in the industry for the provider of software to provide services in relation to that software.

    
    

43. The case presented by GDS, however, is that the Department's decision is arbitrary and illegal because, according to GDS, Data Voice will not provide services and without such provision will be a "conduit" not serving a "useful business function," as defined in Section 287.0943, Florida Statutes.

    
    

44. Chapter 287, Florida Statutes, governs "Procurement of Personal Property and Services," by the State of Florida and Section 287.0943 governs the certification of minority business enterprises. The section falls in a portion of the chapter in which preferences are conferred on various businesses. See Sections 287.084, 287.087 and 287.092, e.g., governing preferences to Florida businesses, drug-free workplaces and certain foreign manufacturers, respectively. The purpose of Section 287.0943 is to set up a system whereby preferences in procurement may be allowed for minority businesses. (See also the "Florida Small and Minority Business Assistance Act of 1985," Part IV, Chapter 288, Florida Statutes.)

    
    

45. There is no dispute that the RFP allowed preference points for the participation by a certified minority business enterprise at the level of Data Voice's participation. And there is no dispute that Data Voice, Inc., is a certified minority business enterprise, certified, moreover, to conduct precisely the business which Intergraph's proposal calls for it to conduct as a subcontractor, to wit: the supply of software. The software it supplies will be supplied directly to the Department. In terms of dollars, nearly one-fourth of the software will be products other than Intergraph's. There was no evidence presented that any steps have been taken to revoke Data Voice's certification. As Mr. Fortune, the DMS compliance administrator, stated in his testimony, whether Data Voice is acting as a conduit or otherwise failing to serve a useful business function requires further investigation. 46. Here petitioner has failed to demonstrate that Data Voice is a conduit or the award to Intergraph would otherwise depart from the essential requirements of law.

RECOMMENDATION

It is, accordingly, RECOMMENDED:

That the Department enter a Final Order which dismisses the bid protest brought by GDS.

DONE and ORDERED this 10th day of May, 1994, in Tallahassee, Florida.

DAVID M. MALONEY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 10th day of May, 1994.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 94-905BID

The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case.

Specific Rulings on Proposed Findings of Fact

Submitted by Petitioner, Graphic Data Systems Corporation.

1. Petitioner's findings of fact Nos. 1-15, 17, 18, 20, 21, 25- 29 have been adopted, in substance, insofar as material.

2. With respect to petitioner's proposed finding of fact 16, the evidence did not establish clearly whether Data Voice's participation is limited solely to supplying software.

3. With respect to petitioner's proposed finding of fact 19, the evidence established that the products referred-to are not kept in stock by Data Voice, but that a "just-in-time" system is used by Data Voice.

4. Petitioner's proposed findings of fact 22, 23 and 24 are rejected. Data Voice has sold before to the general public at least Oracle RDMS base product. (Petitioner's Exhibit No. 17, Deposition of James Witherspoon, p. 18, lines 6-10.

   
   

   Specific Rulings on Proposed Findings of Fact Submitted by Intervenor, Department of Transportation

   
   

5. Intervenor's proposed findings of fact 1-16 are accepted, in substance, insofar as material.

6. With respect to Intervenor's proposed finding of fact 17, the first sentence is a conclusion of law. The second sentence is not accepted. It was not clearly established that Data Voice will provided services, only that it is standard procedure for Data Voice to do so. The proposal indicates Intergraph will provide services related to software but it may be that the proposal simply recognizes Intergraph's ultimate responsibility as the prime contractor for providing those services. It was not clearly established that Data Voice will not provide services either. The third sentence is accepted insofar as it is both useful and common in the industry for Data Voice to provide software directly to the Department at a lower price than would Intergraph.

   
   

   Specific Rulings on Proposed Findings of Fact Submitted by Respondent, Intergraph Corporation

   
   

7. Respondent's findings of fact 1-17, and 20-24, in substance, are accepted insofar as material.

8. With respect to finding of fact 18, see the ruling on Intervenor's finding of fact 17, above.

COPIES FURNISHED:

John O. Williams, Esquire Lindsey & Williams

1343 East Tennessee Street Tallahassee, Florida 32301

Ellen T. Chadwell, Esquire Beck, Spalla, & Barrios 1026 East Park Avenue Tallahassee, Florida 32301

Charles G. Gardner, Esquire Thomas H. Duffy, Esquire Department of Transportation 605 Suwannee Street

Tallahassee, Florida 32399

Martha Harrell Chumbler, Esquire Paul Vazquez, Esquire

Carlton, Fields, et al.

215 South Monroe Street Suite 500

Tallahassee, Florida 32302

Ben G. Watts, Secretary Department of Transportation ATTN: Eleanor F. Turner Haydon Burns Building

605 Suwannee Street

Tallahassee, FL 32399-0450

Thornton J. Williams General Counsel

Department of Transportation

562 Haydon Burns Building 605 Suwannee Street Tallahassee, FL 32399-0450

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-000905BID

Orders for Case No: 94-000905BID