Matter of CALNET, Inc. (October 28, 2016)
Agency: Department of the Navy
Disposition: Protest Sustained
Keywords: Cost realism evaluation; Best-Value Tradeoff
Decided: Agency failed to engage in appropriate cost realism evaluation and improperly relied on adjectival ratings to find equivalence among proposals.
General Counsel P.C. Highlight:
The methods an agency uses to determine cost realism should be carefully evaluated to ensure the evaluation is appropriate. Further, adjectival ratings alone should not be relied upon.
Summary of Facts
Incumbent CALNET, Inc. (CI), along with 12 others, submitted proposals to provide the Department of the Navy technical support services on a multiple award indefinite-delivery, indefinite-quantity contract based on the issuance of a cost-plus-fixed-fee task order. Firms were informed the evaluation of the proposals would be based first on organizational experience, and less important, past performance. These two non-cost evaluation considerations were significantly more important than cost. However, the RFP indicated as the proposals became more equal under the non-cost factors, the cost factor would become more important.
The RFP included 13 labor categories. Offerors were to submit direct and indirect costs for each labor category. Of essential importance to this solicitation, there was no requirement for technical solutions. This solicitation purely sought labor categories.
In evaluating non-cost factors, both CI, and awardee Universal Consulting Services, Inc. (UCS) received identical adjectival ratings. However, CI was ranked second, and UCS ranked fourth overall under the non-cost factors. In evaluating cost, the agency found CI’s costs to be realistic. The agency made a minor adjustment to UCS’ proposed costs, after identifying a calculation error by UCS.
After the evaluation, the agency found UCS’ proposal equivalent to CI, and thus, due to a lower cost, made the award to UCS as the best value to the government.
Basis for the Protest
CI challenges both the propriety of the cost realism evaluation and the reasonableness of the source selection decision.
Cost Realism Evaluation
To evaluate the cost realism of the proposal, the agency gathered information about identical labor categories from 22 other contracts. This information was used to create a range of hourly rates for each labor category, identifying a highest and lowest fully burdened rate for each category. The agency then reviewed the proposed direct labor rates provided by the offerors to determine whether the proposed rates fell within the expected range.
Protester points out several problems with the approach of the agency. They include:
- the majority of the contracts relied upon were fixed price contracts;
- the contracts included contracts in parts of the country with lower cost labor markets;
- the agency compared fully burdened rates with offerors direct rates.
The GAO notes the comparison of fully burdened rates to proposed direct rates does not provide the agency with a legitimate basis to determine whether the proposed direct rates offered are realistic so as to be able to attract and retain the desired personnel.
The GAO also expressed criticism of the reliance on firm fixed price contracts. First, there is no requirement that fixed price rates were subject to price realism. Even if the prices were subject to price realism, agencies use price realism only to assess an offerors technical understanding or risk. Agencies don’t adjust proposed prices when doing price realism. Further, agencies are allowed to accept a below cost price.
Finally, the GAO agrees with protester that the agency failed to perform any analysis to determine the appropriateness for reliance on rates from contracts performed in other parts of the country.
Source Selection Decision
Protester also argues the agency made an unreasonable cost/non-cost trade-off. The facts establish that CI was ranked above UCS in the non-cost evaluation factors, with CI ranked second and UCS ranked fourth. However, the record shows that the agency found the first four proposals were equal, based solely on the adjectival ratings, despite the different rankings.
Because the record establishes the agency did not consider the cost realism of the elements of the proposed rates, the evaluation was unreasonable. Further, because the rates used for comparison came from fixed price contracts, and from contracts not performed in the San Diego area, there is no basis for the Office to conclude the rates relied upon were realistic hourly rates.
Further, agencies are required to consider the underlying rationale for the adjectival ratings, not simply rely on the adjectival ratings themselves. The record clearly establishes the agency’s finding that the four top rated proposals were equivalent was based solely on the adjectival ratings.
For these reasons, the protest is sustained.