Link: GAO Opinion
Agency: Department of the Army
Disposition: Protest sustained.
Protest challenging a public-private competition between an agency tender and a private sector proposal is sustained where: (1) the agency unreasonably accepted the private-sector offeror’s revised fringe benefit ratios in its cost realism analysis; (2) the record provides no reasonable basis for the agency to accept the private-sector offeror’s unsupported assumption that the firm could perform a significant portion of the workload 10 percent more efficiently; and (3) the agency unreasonably allowed the private-sector offeror to omit the labor cost associated with the material supply function from its cost proposal, and these errors prejudiced the protester.
General Counsel P.C. Highlight:
GAO sustains the protest of Frank A. Bloomer, Agency Tender Official (ATO), regarding the Department of the Army’s award of a contract to The Ginn Group, Inc., to perform public works functions at the United States Army Garrison at West Point, New York, following a public-private competition conducted under Office of Management and Budget (OMB) Circular No. A-76 under a request for proposals (RFP).
In brief the issues are that (1) the Army unreasonably accepted Ginn’s revised fringe benefit ratios in its cost realism analysis; (2) the record provides no reasonable basis for the Army to accept Ginn’s unsupported assumption that the firm could perform the SO and IJO workload 10% more efficiently; and (3) the Army unreasonably allowed Ginn to omit the FTE’s associated with the material supply function from its cost proposal. GAO states that in any federal procurement, including a procurement conducted pursuant to a cost comparison under OMB Circular No. A-76, source selection officials are bound by the fundamental requirement that their judgments be reasonable, consistent with the stated evaluation scheme, and adequately documented. An agency is not required to base its technical evaluation on a company’s reputation, or accept unsupported statements of capability, especially where an RFP requires the offeror to explain and support its proposed approach. In addition, when an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its allowable costs. Consequently, the agency must perform a cost realism analysis to determine the extent to which an offeror’s proposed costs are realistic for the work to be performed.
As to the first issue, GAO finds that the approach taken by Ginn to address the requirements of 10 U.S.C. sect. 2461(a)(1)(G) essentially renders meaningless the goal of the statute. Ginn’s cost savings in offering lower-cost retirement benefits are simply relabeled as lower costs in other areas. In this regard, there is nothing in this record to support a conclusion that Ginn has actually reduced its employees’ benefits in other areas–such as sick leave, vacation time, and other non-retirement, non-health insurance related costs. Without such a showing, these costs may still be incurred, and when incurred will become reimbursable under the cost-reimbursement contract anticipated here. Thus the Army could not reasonably conclude that the new ratios accurately reflect Ginn’s accounting policies, procedures, and practices, and were in accordance with its indirect rate structure, as the RFP required.
For the comparison of fringe benefits rates to be meaningful, either Ginn must show how its other costs will be reduced, or the comparison must hold steady the other fringe benefit costs, while increasing the insurance/health and retirement benefit fringe rates to the appropriate ratios. Since a cost realism analysis must account for all costs that will be incurred, and the analysis here provides no meaningful basis to accept Ginn’s revised –all other— fringe/overhead rates, the cost realism analysis is unreasonable.
As to the second issue, the record provides no support for the Army to accept Ginn’s assumed 10% improvement in efficiency, either as a technical approach or more importantly, in support of using lower staffing numbers in its cost proposal. As the Army noted in its initial evaluation, the RFP did not provide sufficiently detailed SO workload information for an offeror to assess its efficiency. With respect to the IJO workload, the PWS stated that offerors –shall use the workload listed below to develop their individual proposals. The solicitation also required offerors to address as specifically as possible the offeror’s actual methodology to accomplishing the PWS. The evaluators questioned the basis for Ginn’s assumption of increased efficiency, and raised the issue in discussions. Yet Ginn’s revised proposals provided no factual support for its increased efficiency assumption. In short, the Army had no basis to accept Ginn’s key assumption that it could perform either the SOs or the IJOs with 10% fewer labor hours and a correspondingly lower cost. By nevertheless accepting the cost proposal based on this assumption, the Army’s cost realism analysis was unreasonable.
Finally, as to the third issue, Ginn’s proposal states that Sunbelt is basically providing a private hardware store, and will provide staffing without adding to the cost of the material items. However, Ginn acknowledges that, as in any retail environment, the costs of the store employees are included in the cost of the item. This latter statement suggests that Ginn’s costs for materials and supplies, which will be reimbursed by the Army, will include labor costs. In GAO’s view, the analysis must distinguish between reasonable retail prices at a hardware store and the cost of supplies that a contractor would be allowed to recover under a cost-reimbursement contract, which the plug number represents. GAO also thinks the Army cannot reasonably argue that it can steadfastly limit the prices at Ginn’s private hardware store when the proposal appears to provide otherwise. In short, the Army’s cost realism analysis does not reasonably account for the cost of performing supply services.
To succeed in a protest against a cost comparison under OMB Circular A-76, the protester must demonstrate not only that the agency failed to follow established procedures, but also that its failure could have materially affected the outcome of the cost comparison. As noted above, the cost comparison here resulted in a decision that Ginn’s proposal offered the lowest costs by $4,194,700. In GAO’s view, the errors identified above call into question the savings that the Army calculated would be achieved by awarding a contract for public works services to Ginn. These are (1) $4,097,427 (for the increased retirement benefit cost), (2) more than $1 million (for the unrealistic 10% efficiency assumption), and (3) approximately $610,128.79 (for the supply function). Although the exact figures are not entirely certain from this record, the sum of these amounts significantly exceeds the cost comparison differential. Accordingly, in GAO’s view the protester was competitively prejudiced by the errors in the evaluation, and GAO sustains the protest.