Link: GAO Opinion
Agency: Centers for Medicare and Medicaid Services
Disposition: Protest denied.
Keywords: Cost Evaluation
General Counsel P.C. Highlight: 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 evaluate the extent to which an offeror’s proposed costs are realistic for the work to be performed.
CGI Federal Inc. (CGI) protests the issuance of the Development Effort Consolidation Contract (DECC) phase 4 task order under a task order request for proposals (TORP), issued by the Centers for Medicare and Medicaid Services (CMS) to streamline the design, development, operation and maintenance of four different information technology systems that support the Health Care Quality Information System (HCQIS).
CMS issued the TORP to holders of CMS Enterprise System Development (ESD) contracts. The TORP sought proposals for the issuance of the DECC phase 4 task order–a cost-plus-award-fee task order, with a six-month base period, plus six one-year option periods. The TORP provided that CMS would select the contractor for the phase 4 task order in accordance with Federal Acquisition Regulation (FAR) § 16.505, “based on an assessment of the ESD Contractor’s technical and business proposals that, in the government’s estimation, provides the best value. The Government seeks to award this Task Order to the ESD Contractor who gives the Government the greatest confidence that it will best meet or exceed the requirements for a fair and reasonable cost.” Under the TORP, CMS’s evaluation was to be based on the following non-cost criteria: technical architecture (TA) framework; oral presentation; key personnel and staffing; and past performance.
While the TORP did not provide any further detail regarding the evaluation of contractors’ costs, which were to be set forth in their business proposals, the TORP did contain detailed instructions regarding the information contractors were to submit in their business proposals, including cost information.
CGI did not receive the contract due to its higher price. CGI principally argues that the discussions the agency held with CGI regarding its cost proposal were misleading, and therefore unequal, where CMS directed CGI to substantially raise its total cost during the second round of oral discussions. CGI also argues that the agency’s cost realism evaluation was fundamentally flawed and not properly documented.
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 evaluate 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.
The record here reflects that CMS thoroughly evaluated and documented its evaluation of the cost proposal submitted by CGI. Specifically, the record reflects that CMS extensively analyzed the direct costs proposed by CGI with respect to each task group, to include performing detailed analyses of the labor categories, labor hours, and labor rates proposed by both firms. CMS held several rounds of discussions with CGI, in which CMS addressed areas where the firm had proposed inappropriate labor categories or inadequate labor hours, or where the labor rates appeared to be either too high or too low, and used the firm’s responses for the purpose of evaluating their costs. Given the record of the agency’s cost evaluation, there is no basis for CGI’s contention that it was inadequately documented.
CGI also argues that CMS held fundamentally misleading discussions with CGI regarding its cost proposal, which led CGI to significantly increase its costs in its third proposal submission–CGI increased its total cost by approximately $137 million–which then led to CGI being eliminated from the competition. GAO states that when conducting a task order competition under FAR § 16.505, agencies are required to provide contract holders with a “fair opportunity” to be considered for task orders. While FAR § 16.505 does not establish specific requirements regarding the conduct of discussions under a task order competition, exchanges occurring with contract holders of multiple award contracts in a FAR§ 16.505 procurement, like other aspects of such a procurement, must be fair. In this regard, discussions, when conducted, must be meaningful, that is, they may not be misleading. The record reflects that the agency’s discussions with CGI regarding the costs in its business proposal were meaningful and not misleading.
In the first set of written discussion questions sent to CGI, CMS generally advised that CGI’s business proposal should reflect various assumptions regarding requirements for option years 2 through 6. CMS also pointed to specific areas where CGI’s level of effort appeared to be either high or low for a particular task group and asked CGI to make adjustments or verify how it would complete the effort with the proposed level of effort.
While CGI states that it interpreted the agency’s “hints” or “code” as an express “formula” for how CGI was to increase its level of effort based on the current level of effort, CGI’s interpretation was unreasonable given that the alleged comments merely raised general concerns regarding CGI’s level of effort and directed CGI to look internally to discern how to properly estimate the level of effort needed to accomplish the work. Nothing in the alleged remarks can reasonably be understood to have provided CGI with express guidance regarding the appropriate level of effort needed to accomplish the requirements or as having directed CGI to raise its level of effort in the manner that it did. The fact that CGI ultimately made adjustments which were well beyond what the agency had expected, and what was considered appropriate, does not demonstrate that the agency’s discussions were not meaningful, or were misleading. The protest is denied.