Link: GAO Opinion
Agency: Department of Health and Human Services
Disposition: Protest denied.
1. Protest that the award was tainted by organizational conflicts of interest is denied where the record shows that the agency reasonably concluded that the potential areas of concern either did not constitute significant conflicts that warranted disqualification of the awardee, or were significant conflicts that were adequately mitigated.
2. Protest challenging evaluation of the realism of the awardee’s proposed labor costs is denied where the contracting officer’s use of a sampling method to evaluate the realism of the offerors’ proposed costs provided a sufficient basis to conclude that they were realistic.
3. Protest challenging evaluation of offerors’ technical proposals is denied where the agency’s evaluation was reasonable and consistent with the solicitation, with the exception of some minor non-prejudicial inconsistencies.
General Counsel P.C. Highlight:
AdvanceMed and TrustSolutions first each argue that the award to Cahaba was tainted by organizational conflicts of interest (OCIs) arising from Cahaba’s status as a wholly-owned subsidiary of Blue Cross/Blue Shield of Alabama (BCBSAL), as well as conflicts arising from Cahaba’s own business activities. GAO states that the Federal Acquisition Regulation (FAR) requires that contracting officers avoid, neutralize or mitigate potential significant OCIs so as to prevent an unfair competitive advantage or the existence of conflicting roles that might impair a contractor’s objectivity. The responsibility for determining whether an actual or apparent conflict of interest will arise, and to what extent the firm should be excluded from the competition, rests with the contracting agency. An impaired objectivity OCI exists where a firm’s work under one government contract could entail its evaluating itself. The concern in such “impaired objectivity” situations is that a firm’s ability to render impartial advice to the government will be undermined by its relationship to the product or service being evaluated. In reviewing bid protests that challenge an agency’s conflict of interest determinations, the Court of Appeals for the Federal Circuit has mandated application of the “arbitrary and capricious” standard established pursuant to the Administrative Procedures Act. To demonstrate that an agency’s OCI determination is arbitrary or capricious, a protester must identify “hard facts” that indicate the existence or potential existence of a conflict; mere inference or suspicion of an actual or potential conflict is not enough. The standard of review in reviewing a contracting officer’s OCI determination turns on the reasonableness of the contracting officer’s (CO) investigation and, where an agency has given meaningful consideration to whether an OCI exists, GAO will not substitute it’s for the agency’s, absent clear evidence that the agency’s conclusion is unreasonable.
AdvanceMed argues that that BCBSAL’s 17% ownership of Prime Therapeutics creates an OCI in the event that Cahaba is issued a task order to conduct audits in connection with Medicare part D, which is for prescription drug benefits, and part C, which can include part D coverage. CMS asked Cahaba to address the potential OCI arising from BCBSAL’s ownership stake in Prime Therapeutics.
In response to the request for a mitigation plan, Cahaba expressed its view that its ownership stake in Prime Therapeutics did not create an OCI because: (1) there are no direct contractual relationships between Prime Therapeutics and Cahaba; (2) Cahaba does not receive any direct financial benefit from Prime Therapeutics’ actions; (3) Cahaba’s management is independent of BCBSAL; and (4) in Cahaba’s view, BCBSAL’s “small ownership interest in Prime is too attenuated to create an OCI.” Nonetheless, Cahaba also proposed several mitigation strategies. The CO advised Cahaba that the agency did not accept its views concerning BCBSAL’s ownership of Prime Therapeutics, and still viewed the relationship as creating a potentially disqualifying OCI for Cahaba. The CO also stated that the agency did not view the proposed mitigation strategies as acceptable, in part because of the additional administrative duties they would impose on the agency. The CO advised that Cahaba was required to provide an acceptable response to the agency’s concerns, and that “failure to avoid, neutralize or mitigate a conflict of interest may result in the award of this contract to another offeror.” Cahaba subsequently advised CMS that BCBSAL had agreed to divest itself of Cahaba upon notice that CMS intended to issue a task order for Medicare parts C or D. The mitigation plan included five milestones, which the agency evaluated and concluded were reasonable. Additionally, as the intervenor notes, the lack of a specific price or buyer was not unreasonable, as there was no timeframe for a possible parts C and D task order at the time of the award. On this record, GAO concludes that the CO acted within the reasonable exercise of her discretion in concluding that Cahaba’s proposed mitigation plan adequately addressed the OCI concerning BCBSAL’s ownership of Cahaba and its 17% stake in Prime Therapeutics.
AdvanceMed and TrustSolutions argue that CMS unreasonably evaluated Cahaba’s proposed costs, in particular its direct labor rates and indirect cost rates. GAO states that 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 actual and 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. An agency is not required to conduct an in-depth cost analysis, or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. Further, an agency’s cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information reasonably available to the agency as of the time of its evaluation. GAO’s review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary.
The agency’s cost realism analysis of the offerors’ proposed direct labor rates was prepared by the CO and was primarily based on a sample of the offerors’ proposed rates. The CO’s analysis consisted of reviewing whether the offerors’ rates were significantly higher or lower than the IGCE, and their relative differences from each other. The CO found that Cahaba’s rates were in almost all cases between the proposed rates of AdvanceMed and TrustSolutions. The CO concluded that the awardee’s proposed direct labor rates for contract line item numbers (CLINs) 0001 and 0002 were all reasonable.
The CO’s sampling of labor rates took into account a large percentage of the labor rates, full-time equivalent (FTE) positions, and direct labor costs proposed by Cahaba. The CO considered 62% of Cahaba’s proposed labor categories, and these categories applied to 73% of the awardee’s proposed FTEs and 72% of the overall direct labor costs. The labor categories evaluated also included all of the key personnel positions identified in the RFP.
An agency’s cost realism analysis need not consider every element of an offeror’s cost proposal, nor must the analysis achieve scientific certainty regarding the realism of an offeror’s proposed costs. However, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information reasonably available to the agency as of the time of its evaluation. The CO’s sample of the labor rates encompassed a sufficiently large amount of the awardee’s proposed FTEs and costs, so as to permit the CO to conclude that they were representative of the likely costs that the government would incur based on Cahaba’s performance.
As to whether the analyses performed on the sample of the direct labor rates were reasonable. The CO’s evaluation considered whether the proposed rates were above or below the IGCE, and whether a particular rate was above or below the rates proposed by the other offerors. The CO concluded that the overall rates proposed by Cahaba were higher than the IGCE. While some rates were higher and some were lower, the rates were, in the aggregate, higher than those listed in the IGCE. The CO also concluded that almost all of the rates proposed by Cahaba–including those that were below the IGCE–were between the rates proposed by TrustSolutions and AdvanceMed. Although there are a small number of examples where a rate proposed by Cahaba was below the IGCE and below the rates of the other two offerors, the CO stated that her overall conclusions regarding the rates informed her judgment and gave her “reassurance of the reasonableness of [Cahaba’s] rates.”
Next, the protesters argue that the agency unreasonably evaluated Cahaba’s proposed indirect cost rates. CMS’s evaluation of Cahaba’s revised indirect cost rates was prepared by a senior auditor, who provided her findings to the CO. The CO testified that her analysis of the offerors’ indirect rates relied primarily on the findings of the senior auditor. The cost analyst noted that Cahaba had provided its indirect costs and rates for 2009 and 2010, and provided projections of the same cost data to justify its proposed reductions of its indirect rates. In addition, the cost analyst identified the following six factors in support of the lower rates. Based on these factors, the senior auditor found that the proposed rates were realistic. The cost realism evaluation relied on the explanations and found them reasonable, which GAO finds unobjectionable under the circumstances. Additionally, it is noted that the record shows that the awardee capped its indirect cost rates, and that the agency accepted these capped rates to protect the government’s cost risk. When an offeror agrees to cap certain cost items–including indirect rate ceilings–then that cap may reasonably be used by the agency as the probable cost for purposes of a cost realism analysis.
Finally, AdvanceMed argues that the record does not show how CMS evaluated a reduction in Cahaba’s proposed labor hours for certain IT support positions. During discussions, CMS asked Cahaba to address the agency’s concern that the offeror’s proposed level of data analyst staffing was understated. Cahaba’s revised proposal notes that this issue was a subject of oral discussions with CMS, and that “CMS confirmed during conversations on 2/18/11 that there were no further concerns with this labor category.” Cahaba also stated that three positions, covering four FTEs, had been removed from its FPR–operational systems manager, database administrator, and systems administrator. Although Cahaba’s FPR states that this issue was “confirmed” during oral discussions, its FPR does not specifically address this issue. Nor is there any contemporaneous documentation or analysis that shows how the agency evaluated Cahaba’s elimination of the three positions in its cost evaluation. The CO states that she relied on the TEP to advise her of any concerns regarding an offeror’s technical approach that had cost realism implications, and that the TEP did not advise her of a concern here. However, even if we were to assume that Cahaba’s proposed costs and technical evaluation required an adjustment to reflect part or all of this reduced labor, there is no basis to conclude that AdvanceMed was prejudiced by this issue. In sum, GAO finds no basis to sustain the protests based on any of the cost realism arguments raised by AdvanceMed or TrustSolutions.
AdvanceMed and TrustSolutions also challenge CMS’s technical evaluation. The protesters primarily contend that the agency treated the offerors unequally in the assignment of point scores and adjectival ratings based on the strengths identified for their proposals. GAO states that the evaluation of an offeror’s proposal is a matter within the agency’s discretion. A protester’s mere disagreement with the agency’s judgment in its determination of the relative merit of competing proposals does not establish that the evaluation was unreasonable. In reviewing a protest against an agency’s evaluation of proposals, GAO will not reevaluate proposals but instead will examine the record to determine whether the agency’s judgment was reasonable and consistent with the stated evaluation criteria and applicable procurement statutes and regulations.
AdvanceMed argues that the agency’s evaluation was unreasonable because it resulted in a distorted view of the offerors’ relative technical merit. For example, the protester notes that in instances where it received a large number of strengths under a single sub-criterion, the agency’s scoring method tended to minimize this achievement because the multiple strengths could earn no more points than was assigned to that sub-criterion.
While GAO recognizes that the natural effect of the agency’s use of such a large number of evaluation factors, subfactors, and sub-criteria is a tendency to minimize the importance of achievement in any one of the sub-criteria, there was nothing unreasonable about this evaluation scheme, as applied here by the agency, where it was consistent with the RFP. Moreover, the record shows that CMS recognized that AdvanceMed’s proposal was technically superior to Cahaba’s, and assigned it significantly higher ratings. The selection decision shows that the agency looked behind the evaluation ratings to identify specific strengths in AdvanceMed’s proposed technical approach in addressing whether the protester’s higher proposed costs merited award. To the extent that the protester argues that the agency’s evaluation should have placed a greater emphasis on the number of strengths received by AdvanceMed, as opposed to viewing those strengths in the context of the evaluation factors, subfactors, and sub-criteria set forth in the solicitation, this disagreement by the protester provides no basis to sustain the protest.
With regard to its specific challenges of the technical evaluation, AdvanceMed argues that the agency treated the offerors unequally when it assigned Cahaba a very good rating for a sub-criterion where a single strength was identified, but did not assign AdvanceMed a very good rating, despite receiving a strength in eight sub-criteria. In each instance cited by AdvanceMed, the record shows that the agency recognized the strengths for the protester, but did not assign a very good rating. In its response to the protest, CMS explained that, in each case, the strengths were not viewed as sufficiently important to warrant a very good rating. This explanation was consistent with the contemporaneous record, which shows that the agency did recognize each strength, but did not consider the strengths to merit higher ratings.
For example, the TEP noted under the acquisition of medical records sub-criterion of the medical review for benefit integrity subfactor, that AdvanceMed proposed to “[deleted].” The agency cited this as a strength, stating that “[t]his is not a requirement of the statement of work but will add efficiency.” Taking this strength into account, the TEP concluded that the protester’s approach for this sub-criterion was “satisfactory.” In response to the protest, the agency elaborated, stating that although the [deleted] provided an efficiency, it did not necessarily address the core issue of “acquiring” the medical records themselves.
With regard to specific issues raised by TrustSolutions concerning unreasonable or unequal treatment in the technical evaluation, the protester’s arguments are primarily based on disagreements with the agency’s judgment that provide no basis to sustain the protest.
For example, under the enrollment, eligibility and marketing surveillance for Parts C and D sub-criterion of the potential fraud investigations subfactor, the TEP identified a strength for TrustSolutions based on its presentation of “detailed information relative to their understanding and knowledge” of the requirements, such as “identifying vulnerabilities and the ability to work with state licensing agencies.” The TEP also concluded that the protester’s “knowledge and understanding” of the requirements for this sub-criterion were “sufficient . . . to determine a rating of satisfactory.” Neither the RFP nor the agency’s evaluation ratings mandated a very good rating every time an offeror received an evaluated strength. Although TrustSolutions argues that the assignment of a strength here should have resulted in a higher rating, the protester’s disagreement with the agency’s judgment does not provide a basis to sustain the protest.
Next, TrustSolutions argues that the agency’s evaluation of its FPR failed to revise its score despite the fact that the agency concluded that initially assessed weaknesses had been addressed. For example, under the organization and management structure sub-criterion of the high risk areas subfactor, the agency’s evaluation of the protester’s FPR found that the protester had addressed a weakness resulting from the proposed allocation of staff. Despite the removal of this weakness, the protester’s rating for this sub-criterion remained satisfactory. As the agency notes, however, there were no strengths identified for this sub-criterion; for this reason, the removal of the weakness did not merit an increased score.
Finally, TrustSolutions argues that CMS treated it unequally in certain areas by recognizing AdvanceMed for strengths, but not recognizing that TrustSolutions proposed a similar solution. Although the protester merely states its general disagreement with the agency’s explanation for the differences between the evaluation of these two offerors, CMS effectively concedes that it failed to note that TrustSolutions had proposed a strength similar to one recognized for AdvanceMed under the work to be performed by small businesses sub-criterion of the small business utilization subfactor. As the agency notes, recognition of this strength–and an increase of TrustSolutions rating from satisfactory to very good–could result in an increase in TrustSolution’s technical score of 7 points out of its total technical score of 1,983.78 points. This would represent a 0.35 percent increase in the protester’s technical score. Under these circumstances, and in light of the selection decision’s reliance on the large difference between TrustSolutions and Cahaba’s proposed costs, the potential prejudice to the protester from possible errors in CMS’s evaluation is too speculative and remote to warrant sustaining the protest.
Finally, AdvanceMed argues that CMS failed to provide meaningful discussions because the agency misled the protester into increasing its proposed costs, despite the fact that it had already proposed the highest costs. GAO states that the FAR requires agencies to conduct discussions with offerors in the competitive range concerning, “at a minimum . . . deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond.” Discussions, when conducted, must be meaningful; that is, they may not mislead offerors and must identify proposal deficiencies and significant weaknesses that could reasonably be addressed in a manner to materially enhance the offeror’s potential for receiving award.
During discussions, the CMS asked AdvanceMed to address several areas where it believed that the protester had not adequately explained its proposed costs. AdvanceMed contends that this and similar questions led it to believe that the agency required the protester to propose additional staff. The protester contends that these discussions were prejudicially misleading because they caused it to increase its costs, despite having already proposed higher costs than the other offerors. As the agency explains, however, the questions did not expressly require or instruct the protester to increase its costs. Although the protester contends that it reasonably interpreted the discussion questions as requiring increased staffing, GAO does not think that the questions precluded AdvanceMed from explaining a technical approach that did not require the FTEs at issue, nor did they preclude the protester from proposing to reduce its costs in those areas or other areas in its proposal.
Finally, the protesters argue that the selection decision placed improper emphasis on Cahaba’s low cost, despite the RFP’s statement that the technical evaluation factors were “significantly more important than cost or price.” GAO states that source selection officials in negotiated procurements have broad discretion in determining the manner and extent to which they will make use of the technical and price evaluation results; price/technical tradeoffs may be made, and the extent to which one may be sacrificed for the other is governed only by the test of rationality and consistency with the solicitation’s evaluation criteria. Even where, as here, technical merit is significantly more important than cost, an agency may properly select a lower-cost, lower-rated proposal if it reasonably decides that the cost premium involved in selecting a higher-rated, higher-cost proposal is not justified.
The CO’s selection decision specifically acknowledged that the RFP’s evaluation scheme stated that CMS was more concerned with obtaining superior technical/management features than with making an award to the proposal with the lowest overall cost. The CO specifically noted the superior technical proposals and strengths offered by the protesters, but ultimately concluded that the price premium for the protesters’ higher technically-rated proposals, as compared to Cahaba’s lower technically-rated proposal, was not warranted. On this record, GAO finds no basis to conclude that the CO abandoned the RFP evaluation criteria or abused her discretion in making award to Cahaba. The protests are denied.