Link: GAO Opinion
Agency: Department of the Navy
Disposition: Protest sustained.
Keywords: Cost Realism Analysis
General Counsel P.C. Highlight: GAO will review an agency’s cost realism analysis for reasonableness.
Marine Hydraulics International, Inc. (MH) protests the award of a contract under a request for proposals (RFP), issued by the Department of the Navy, for executing, planning, maintenance, repair and alteration to a number of LPD 17 Class ships. LPD 17 class ships are amphibious transport ships that embark, transport, and land elements of a landing force.
The RFP contemplated the award of a cost plus award and incentive fee, multi-ship, multi-option contract for a base year, with four one-year options, for up to 10 ship “availabilities” (an availability is an interval of time during which a ship is made available to the contractor for performance of required work). Because the precise work during each availability is unknown in advance, the RFP included a notional work package to which offerors were to respond with technical proposals and proposed cost/fee estimates. Award was to be made to the offeror submitting the proposal deemed to be the “best value” considering evaluated cost and several non-cost factors.
GAO states that where, as here, an agency is evaluating proposals for the award of a cost reimbursement contract, an offeror’s proposed costs are not dispositive since, regardless of the costs proposed, the government will be liable to pay the contractor its allowable and allocable costs. Consequently, an agency must perform a cost realism evaluation to determine the extent to which an offeror’s proposed costs are realistic for the work to be performed. Such an evaluation involves independently reviewing and evaluating elements of each offeror’s cost (and making adjustments thereto) to determine whether the proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the methods of performance and materials described in the offeror’s technical proposal. GAO will review an agency’s cost realism analysis for reasonableness. GAO finds that the agency’s evaluation of MH’s proposed cost was unreasonable.
The protester asserts that the agency improperly increased its proposed cost to account for the cost of security guard services for ship’s force parking areas; the RFP provided an estimated 3,780 hours per availability for ship’s force parking. In its second FPR, MH proposed a deviation from this aspect of the requirement, explaining that it recently acquired a street dividing two parcels comprising its facility. MH asserts that the agency improperly added the cost of providing 3,780 hours of security guard services per availability (as well as the cost of certain materials) to its evaluated cost.
GAO states that the agency unreasonably added the cost of security guard services for ship’s force parking to MH’s proposed cost. As noted, MH’s final proposal revision (FPR) unequivocally proposed to provide ship’s force parking inside the fenced perimeter of MH’s facility at no direct cost to the government, and fully explained the basis for this approach. While MH’s practice under prior similar contracts might have been relevant, the FPR essentially explained why MH’s prior practice was not relevant. The agency never determined that this explanation was unpersuasive or unrealistic in any way, and even now has not established that there was reason to question the basis for MH’s indirect cost approach. GAO concludes that the agency has failed to establish a reasonable basis for increasing MH’s evaluated cost to include security guard services for ship’s force parking as a direct cost.
MH next asserts that the agency improperly increased its evaluated cost to account for certain fire watch services (fire watch services must be provided whenever “hot work” such as welding, or any other fire or spark producing work, is being performed).
Fire watch hours were calculated as a percentage of production hours under the contract. GAO agrees with MH that temporary services and pumping and cleaning should not have been included in the fire watch services calculation. GAO agrees with MH that there is no hot work involved in temporary services. Temporary services are confined to facilities-related work, such as the installation of temporary gangways, landing platforms, piping, lighting, handrails and the like, to enable ready access to the ship for workers and their tools and supplies. Again, the agency has not persuasively shown that this work could involve hot work. Thus, GAO concludes that it was unreasonable for the agency to include these hours in the production hour basis used in calculating the appropriate number of fire watch services hours that would be required.
GAO recommends that the agency reevaluate proposals in a manner consistent with the discussion above. Following reevaluation the agency should make a new source selection decision. The protest is sustained.