Link: GAO Opinion
Agency: Department of the Navy
Disposition: Protest denied.
1. Protest challenging agency’s cost realism evaluation of awardee’s proposal is denied where the record demonstrates that the agency’s conclusions were reasonable.
2. Protest that awardee’s cost proposal failed to comply with a material solicitation requirement (a mandated allocation of labor between stateside and overseas locations within a notional work package) is denied where the awardee’s cost proposal was consistent with a reasonable interpretation of the solicitation requirement, and the agency’s subsequent evaluation ensured a fair comparison on a common basis notwithstanding the offerors’ different understandings of the requirement.
3. Exchanges between the awardee and the Defense Contract Audit Agency in a negotiated procurement after the contracting agency’s receipt of proposals, intended to further explain the basis of indirect rates included within the awardee’s cost proposal, did not constitute discussions, where the exchange clarified information already present in the awardee’s proposal and the awardee was not presented with an opportunity to revise its proposal.
4. GAO will not review a protester’s assertion that an agency abused its discretion by failing to hold discussions when the solicitation expressly advises that the agency intends to make award without discussions.
General Counsel P.C. Highlight:
BAH first protests that the Navy failed to perform an adequate cost realism evaluation of VSE’s proposal. GAO states that when an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated cost of contract performance is not considered controlling since, regardless of the costs proposed by the offeror, the government is bound to pay the contractor its actual and allowable costs. As a result, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s unique technical approach, assuming reasonable economy and efficiency. In this regard, 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 agency’s conclusions about the most probable costs under an offeror’s proposal are reasonable and realistic in view of other cost information reasonably available to the agency as of the time of its evaluation. GAO will review an agency’s judgment in this area only to see that the agency’s cost realism evaluation was reasonably based and not arbitrary, and adequately documented.
The RFP instructed offerors to base their cost proposals on a notional work package included with the solicitation. Specifically, with regard to the FOTS and ship transfer services (labor) contract line item numbers (CLIN), the RFP provided offerors with the specific labor categories and labor hours that they were required to use in their proposals. Similarly, with regard to the material and travel CLINs, the solicitation provided offerors with specific amounts for use in their proposals. Accordingly, offerors’ cost proposals were to be based on their direct labor rates, indirect rates, and fee to be applied as necessary to the RFP-provided labor hour and material/travel amounts. The RFP also instructed offerors as part of their cost proposals to assume a predetermined allocation of work to be performed within the continental United States (CONUS) and outside the continental United States (OCONUS).
The CAP performed a cost realism evaluation of VSE’s proposal. Specifically, together with the assistance of DCAA, the CAP reviewed VSE’s direct labor rates, subcontractor direct labor rates, VSE’s indirect (i.e., fringe, overhead, and general and administrative expenses (G&A)) rates, fee, and material/travel amounts. In this regard, while finding VSE’s use of salary survey data (rather than historic data) to be a reasonable approach to direct labor rates, based on the rationale that VSE did not currently employ most of the individuals that would be required by the contract, the evaluators considered VSE’s use of the 25th percentile labor rate within each labor category in the survey to be “overly aggressive,” especially when attempting to hire a significant number of employees very quickly. Accordingly, the evaluators adjusted the proposed direct labor rates to the median salary survey rates. Similarly, while considering VSE’s overall rationale and projections to be reasonable, the CAP made selective adjustments to VSE’s indirect rates after concluding the projected indirect cost pool increases overstated.
In addition, as the Navy had intended for offerors to base their CONUS/OCONUS/ long-term (LTOCONUS) distribution on labor hours rather than labor costs, and BAH had based its distribution on labor hours, the CAP made additional adjustments to VSE’s evaluated cost to account for the fact that VSE’s distribution instead had been based on labor costs. Specifically, the Navy first determined VSE’s total evaluated cost for work by location (i.e., CONUS, OCONUS, LTOCONUS) as well as the offeror’s total proposed number of hours by location. The Navy then computed a weighted, average hourly rate for each location, which it then applied to the correct number of hours. This resulted in approximately six million hours being reallocated within VSE’s proposal from OCONUS-based work to CONUS-based work, as well as an additional $129,623,441 upward adjustment to VSE’s evaluated cost. Importantly, even after a net total upward adjustment to VSE’s cost of approximately $343 million, VSE’s evaluated cost for the solicitation’s notional work package remained approximately $453 million (or approximately 20%) less than BAH’s evaluated cost.
GAO finds no basis to question the Navy’s cost realism analysis of VSE’s direct labor rates. The CAP considered and accepted VSE’s rationale for using salary survey data rather than the awardee’s historical rates as the basis of its proposed direct labor rates–i.e., that the historical rates were largely unhelpful because VSE does not currently employ most of the individuals that would be required to perform the contract. The CAP also found that VSE’s salary survey data was based on the labor rates for the various US locations where work was to be performed. Although the CAP then determined that VSE’s rationale for using the 25th percentile labor rate was too optimistic when attempting to hire a significant number of employees very quickly, the evaluators adjusted the proposed direct labor rates to the median salary survey rates to reflect the most probable labor rates. While BAH claims that VSE’s evaluated direct labor costs should have instead been based on other methodologies, the protester has not demonstrated that the CAP’s evaluation result here was unreasonable.
The record reflects that the Navy carefully reviewed each element of VSE’s indirect costs and made adjustments where appropriate. The record demonstrates the CAP was aware that VSE’s proposed rates were based on the awardee’s historic rates as adjusted, as well as the offeror’s rationale for its calculations. The CAP then reviewed the pool and the base for each of VSE’s indirect rates and made specific adjustments where it deemed necessary. For example, the CAP found that many of VSE’s indirect costs were fixed, particularly in the areas of overhead and G&A, and that these costs would not increase proportionately with increased direct labor costs. The CAP also found VSE’s projected costs for both recruitment and hiring were underestimated and made adjustments in these areas.
GAO finds reasonable the agency’s conclusion that the work allocation aspect of VSE’s proposal did not represent an issue of material noncompliance. GAO states that it is well settled that a proposal that fails to conform to material terms of the RFP is unacceptable and may not form the basis for award. As set forth above, the RFP stated that, “[f]or proposal purposes, the following ratio . . . is established for all labor categories. . . . CONUS–60%; OCONUS–35%; LTOCONUS–5%.” RFP at § L at 170. The solicitation provision, however, was silent as to whether the work allocation ratio was to be based on labor hours or labor costs. VSE’s proposal complied with the work allocation ratio as it interpreted it–based on its labor costs. Notwithstanding the fact that the Navy had intended for offerors to base the work allocation on labor hours, GAO finds VSE’s interpretation of the RFP requirement here was a reasonable one–the awardee’s understanding does not contradict the stated terms of the solicitation.
In general, GAO finds no merit to BAH’s assertions. As the RFP’s work allocation requirement affected offerors’ proposed costs for purposes of the notional work package, it was proper for the Navy to make adjustments to VSE’s evaluated cost so as to ensure consistency with both the agency’s intent and BAH’s proposal.
BAH argues that the Navy improperly failed to consider, as part of the technical evaluation, whether the cost realism adjustments to VSE’s proposal reflected a lack of understanding of the technical requirements, inconsistencies, or a lack of credibility. GAO states that where the cost and technical evaluation of a proposal reach contradictory conclusions, the agency generally is required to reconcile the evaluations.
Here, GAO finds that the Navy reasonably considered the adjustments made to VSE’s cost proposal as part of its technical evaluation of the awardee. As a preliminary matter, there was no disparity here between the VSE technical and cost proposals as to staffing levels because the RFP’s technical and cost evaluations were based on different requirements. While offerors were to provide staffing levels as part of the technical capability factor’s sample tasks, the cost evaluation was based on a separate notional work package. Additionally, although the CAP found various aspects of VSE’s cost proposal to be unrealistic, many of these–contract start date, the out-year inflation rate, and the CONUS/OCONUS labor reallocation–did not concern technical understanding.
Further, the record demonstrates that the Navy reasonably considered the extent to which, if any, VSE’s technical evaluation ratings should be adjusted in light of the adjustments to VSE’s direct labor and indirect (benefits) rates. The BVAC reviewed both the VSE technical and cost proposals for consistency. The BVAC also considered the performance risks associated with VSE’s reliance on part-time labor, but found that VSE’s management plan and organizational approach adequately mitigated this risk. The BVAC then concluded that notwithstanding the CAP’s adjustments to VSE’s direct and indirect rates, this did not indicate that VSE failed to understand the technical requirements or that adjustments to VSE’s technical or risk ratings were warranted. BAH has not shown this conclusion to be unreasonable.
BAH asserts that the Navy held discussions with VSE, allowing VSE to revise its cost proposal during exchanges with DCAA, without providing BAH a similar opportunity to revise its proposal. GAO states that FAR § 15.306 describes a range of exchanges that may take place between an agency and an offeror during negotiated procurements. Clarifications are “limited exchanges” between an agency and an offeror for the purpose of clarifying certain aspects of a proposal, and do not give an offeror the opportunity to revise or modify its proposal. Discussions, on the other hand, occur when a contracting officer communicates with an offeror for the purpose of obtaining information essential to determine the acceptability of a proposal, or provides the offeror with an opportunity to revise or modify its proposal in some material respect. When an agency conducts discussions with one offeror, it must conduct discussions with all other offerors whose proposals are in the competitive range. In situations where there is a dispute regarding whether exchanges between an agency and an offeror constituted discussions, the acid test is whether an offeror has been afforded an opportunity to revise or modify its proposal. Communications that do not permit an offeror to revise or modify its proposal, but rather permit the offeror to explain or clarify what the offeror has already proposed to do, are clarifications and not discussions.
Contrary to BAH’s position, GAO finds that the agency’s exchanges with VSE did not constitute discussions. In this regard, GAO agrees with the agency that the supplemental cost information provided by VSE to DCAA during the audit agency’s rate verification audit constituted clarifications rather than discussions. First, the exchange was not undertaken with the intent of allowing the offeror to revise its proposal. In this regard, the FAR provides for a contracting agency when conducting a cost proposal analysis to request audit assistance from DCAA. It is clear from the record that the DCAA audit of VSE was intended as a means of gathering information for use in the Navy’s cost evaluation and possible future discussions; it was not initiated for the purpose of holding discussions with VSE, which are to be conducted by the contracting officer. Further, VSE did not revise its proposal so as to cure proposal deficiencies or material omissions, materially alter the technical or cost elements of the proposal, or otherwise revise the proposal to make it acceptable. The acceptability of VSE’s proposal simply did not turn on the additional information furnished to DCAA. In sum, VSE’s exchange with DCAA did not involve revising its proposed indirect cost rates, but rather, was limited to providing additional explanation for what it had previously proposed. In these circumstances, there is no basis to conclude that DCAA or the Navy improperly conducted discussions with only one offeror.
BAH challenges the Navy’s evaluation of its proposal under the technical capability factor. Specifically, BAH argues that the minor weaknesses assigned under the sample task 2 and 3 subfactors were unreasonable. GAO states that competitive prejudice is an essential element of a viable protest, and where the protester fails to demonstrate prejudice, GAO will not sustain a protest.
The RFP required offerors to address various sample tasks as part of their technical capability proposals. Sample task 2 involved the integration planning for combat system anti-air warfare upgrades for ex-USN PERRY (FFG-7) class frigates. Sample task 3 involved the “hot” ship transfer of two USN FFG-7 class ships. The TERP evaluated BAH’s proposal as “satisfactory” under the sample task 2 subfactor based on the identification of no strengths and two minor weaknesses: (1) the proposal provided an incomplete detailed labor estimate for ship upgrades; and (2) the proposal did not provide adequate examples of specific platform interface impacts that would be associated with the proposed combat systems upgrades. The TERP also rated BAH’s proposal as “satisfactory” under the sample task 3 subfactor based on the identification of one minor strength and two minor weaknesses: (1) the proposal failed to provide a plan of action and milestones (POA&M) with key events and factors required to develop a training plan for the FMS customer crews; and (2) the POA&M failed to provide schedule parameters for specific key events required to develop a ship transfer availability work package. Even if BAH prevailed on its challenge to the Navy’s evaluation of the sample task 2 subfactor, leaving it with no strengths or weaknesses under that subfactor, there is no basis for concluding that the protester’s “satisfactory” subfactor rating would have increased to a “good” rating. Likewise, even if BAH prevailed on its challenge to the evaluation of the sample task 3 subfactor, leaving it with one minor strength and no weakness under that subfactor, there is no basis for concluding that BAH’s overall technical capability factor rating of “good,” based on 3 “good” and 4 “satisfactory” subfactor ratings, would have increased. The protest is denied.