Link: GAO Opinion
Agency: Department of Commerce
Disposition: Protest sustained.
Keywords: Price/Cost Evaluation; Price/cost realism
General Counsel P.C. Highlight: In the absence of any analysis of the realism of the awardees’ discounted rates, GAO cannot find reasonable the agency’s conclusion that the awardees’ sample task pricing was realistic and reasonable.
I.M. Systems Group (IMSG) protests the rejection of its proposal and the award of contracts under a request for proposals (RFP), issued by the National Oceanic Atmospheric Administration (NOAA), Department of Commerce, for scientific and technical support services.
The RFP, issued as a small business set-aside, provided for multiple awards of indefinite-delivery/indefinite-quantity (ID/IQ) contracts for a base year and four option years for a broad range of scientific and technical services supporting NOAA’s mission areas. The RFP provided that award would be made on a best value basis, considering price and the following two factors: approach and past performance.
The RFP provided that proposed prices would be evaluated but not scored. The price evaluation will be based on the sum of the fully loaded/burdened labor rates for all labor categories plus the sum of the total prices for the sample tasks. The price evaluation would determine whether the rates and proposed sample task price are realistic, complete, and reasonable. The Government reserved the right to adjust the offeror’s evaluated price upward or downward, depending on the price evaluation. The RFP had identified 40 labor categories and offerors were instructed to provide a loaded hourly rate for each category. The offerors’ loaded hourly rates were stated to be ceiling rates, from which offerors could elect to propose lower rates on a task-by-task basis. Offerors were required to discuss the basis for their labor rates and identify all load factors.
In addition to providing loaded labor rates, the RFP required offerors to provide a price proposal for four sample tasks. The four sample tasks required offerors to price approximately one quarter of the 40 labor categories identified by the RFP.
Proposals were evaluated by the agency’s technical evaluation board (TEB) and price proposals were separately evaluated by the agency’s cost evaluation board (CEB). IMSG’s proposed prices were based upon the firm’s loaded labor rates (the ceiling rates), while the other offerors based their task pricing upon discounts from the proposed ceiling rates. The CET ultimately found that IMSG’s proposed price, although reasonable and complete, was not realistic, because the protester’s price was a certain percentage lower. The TEB and CET reports were reviewed by the agency’s source evaluation board (SEB). The SEB agreed with the CET’s price evaluation. With respect to IMSG, the SEB determined that the protester’s price was unrealistic and expressed concern about whether IMSG would be able to “retain quality personnel with what appear to be below industry standard labor rates.”
IMSG broadly challenges the agency’s price evaluation, complaining that NOAA failed to consider the realism of the firms’ proposed hourly labor rates. IMSG also complains that NOAA’s simple comparison of the awardees’ total prices for the sample tasks did not reasonably assess the realism of those firms’ loaded hourly rates. IMSG argues that the awardees all proposed unexplained discounts from their proposed ceiling rates and that NOAA did not evaluate the realism of the firms’ proposed labor rates as discounted.
GAO states that the Competition in Contracting Act of 1984 (CICA) requires contracting agencies to include cost or price as a factor that must be considered in the evaluation of proposals. An evaluation and source selection that fail to give meaningful consideration to cost or price is inconsistent with CICA and cannot serve as a reasonable basis for award. It is up to the agency to decide upon the appropriate method for evaluation of cost or price in a given procurement, although the agency must use an evaluation method that provides a basis for a reasonable assessment of the cost of performance under the competing proposals.
GAO’s review of the record finds that the RFP provided for a realism evaluation of the firms’ proposed loaded labor rates and requested cost information that would allow for such an analysis. NOAA did not perform such an analysis of IMSG’s price or rates. In determining that IMSG’s price was unrealistically low, such that the firm may not be able to retain quality staff, NOAA did not assess whether IMSG’s labor rates were too low, but simply assumed that this was the case without analysis. In this regard, the agency did not evaluate the wage rates that IMSG identified for each labor category or consider IMSG’s explanation in its price proposal for how it calculated those rates. In the absence of such an analysis, GAO cannot say that the agency’s conclusion that IMSG’s price was unrealistically low was supported by the record.
GAO also finds that NOAA failed to reasonably assess the realism of the awardees’ proposed loaded labor rates. As described above, the RFP established an evaluation scheme under which the agency would consider the sum of the offerors’ ceiling rates over the five-year contract period and the sum of their prices for the four sample tasks. Although the RFP also provided for adding these two sums together, as the agency recognized, the sum of the ceiling rates was insignificant in comparison to the sum of the sample task pricing. The record shows that NOAA’s judgments concerning the realism and reasonableness of the offerors’ proposed prices were determined by the offerors’ sample task pricing.
The record shows that NOAA did not assess the realism of the discounted labor rates, although the firms’ proposed sample task pricing was based upon those rates. This is particularly troubling where NOAA’s judgment concerning the realism and reasonableness of the offerors’ proposed prices was based only upon a mechanical comparison of the firms’ sample task prices to the IGCE. GAO states that while it is up to the agency to decide upon some appropriate and reasonable method for the evaluation of offerors’ proposed prices, an agency may not use an evaluation method that produces a misleading result. The method chosen must also include some reasonable basis for evaluating or comparing the relative costs of proposals, so as to establish whether one offeror’s proposal would be more or less costly than another’s. In the absence of any analysis of the realism of the awardees’ discounted rates, GAO cannot find reasonable the agency’s conclusion that the awardees’ sample task pricing was realistic and reasonable. The protest is sustained.
GAO recommends that NOAA reevaluate price proposals, conduct discussions, if appropriate, and make a new source selection decision. IMSG should submit its certified claim for costs, detailing the time expended and cost incurred, directly to the contracting agency within 60 days after receipt of this decision.