Decided: November 19, 2021
Agency: Department of the Navy
Disposition: Protest Denied
General Counsel, P.C. Protest Insight:
The key takeaway here is that the Government expects offerors to sufficiently cost unspecified work included in solicitations; either using Government provided metrics, the offeror’s past performance, or business judgment. GAO noted that a solicitation doesn’t have to be drafted so as to eliminate all performance uncertainties. Offerors have the responsibility in submitting a proposal on a fixed-price contract, to project costs and to include in their proposed fixed prices a factor covering any projected increase in costs. GAO found that agencies can reasonably expect offerors to use their business judgment, including their experience with similar prior contracts, in preparing their proposals to reflect the risk of being asked to perform reserve work, which might be required after the performance of basic work.
Summary of Facts
BAE Systems Norfolk Ship Repair, Inc. (“BAE”) protested the terms of request for proposals (“RFP”) No. N00024-21-R-4490, issued by the Department of the Navy. On June 8, 2021, the Navy issued the RFP, seeking proposals for the maintenance, repair and modernization of the USS MITSCHER and the USS IWO JIMA on a fixed-price basis. The resulting award granted be two contracts, one for each ship. The solicitation included two base contract line-item numbers (“CLINs”), one for availability preparation and one for advanced material procurement. Additionally, several option CLINs included detailed work item specifications within a defined work package. The RFP also included multiple level-of-effort-to-completion (“LOETC”) CLINs, representing growth in the workload that is expected but has not yet been fully defined. Each LOETC CLIN related expressly to one of the defined option CLINs and consisted of a certain number of pre-priced labor hours and material dollars. The solicitation directed offerors to propose a fully burdened labor rate and a material burden rate to be applied to the LOETC labor hours and material dollars, which were a number based on detailed historical data collected from past ship repair efforts.
The solicitation provided when growth work is identified, the contractor will provide an estimate of labor hours and material dollars to accomplish the effort. If the contractor’s estimate is in line with the agency’s estimate, the agency will sign a growth management record authorizing the work with the hours and materials costs to be subtracted from the pool of pre-priced LOETC hours and materials agreed upon in the contract. If the contractor’s estimate differs from the agency’s estimate, the parties will negotiate an agreement. If the parties cannot reach agreement, the government may unilaterally direct the contractor to perform using the contractor’s proposed contract labor and material rates, with any dispute regarding the hours and materials costs to be resolved via the FAR disputes clause, FAR 52.233-1. The solicitation also indicated that the USS IWO JIMA would be available to offerors for a “ship check.”
Basis of Protest
BAE argued that the solicitation did not provide sufficient information on the work required under the LOETC and new work CLINs that would enable offerors to compete intelligently and on a common basis. BAE also argued that the solicitation’s growth work provisions improperly deviate from mandatory FAR and DFARS clauses (the Changes clause and the Over and Above Work clause) by permitting the agency to unilaterally direct the completion of work under pre-set LOETC labor and material rates once such work is identified.
GAO noted that “there is no legal requirement that a solicitation be drafted so as to eliminate all performance uncertainties; the mere presence of risk does not render a solicitation improper.” GAO stated that, when submitting a proposal on a fixed-price contract, offerors have the responsibility to project costs and to include in their proposed fixed prices a factor covering any projected increase in costs. Since risk is inherent in most types of contracts, offerors are expected to allow for that risk in computing their offers. However, GAO explained that a contracting agency “must provide sufficient detail in the solicitation to enable offerors to compete intelligently and on a relatively equal basis.”
BAE argued that the Navy retains “absolute discretion” over how and when to use the large pools of growth work labor hours and material dollars, making the likely volume, mix, and scheduling of the growth work impossible to predict. BAE claimd that since each offeror will essentially have to guess at what the growth work will entail, and when it will be ordered, the offerors are not competing on a common basis. However, GAO found that the Navy provided offerors with: (1) growth work hours and material dollars that were based on historical data from prior ship repair contracts for similar ships; (2) direct work CLINs associated with each growth work CLIN, along with detailed work item specifications for the direct work; (3) an opportunity to observe some of the ship’s equipment and talk with knowledgeable ship personnel; (4) the process the agency would use to schedule the LOETC work and meaningful scheduling limitations applicable to that process; and (5) the labor function categories that would be used in performing the LOETC work. GAO determined this information was sufficiently detailed to permit potential offerors to prepare their prices.
GAO also compared the matter to a similar solicitation challenge, in which GAO stated: “we think the agency could reasonably expect offerors, like the protester, to use their business judgment, including their experience with prior ship repair contracts, in preparing their proposals to reflect the risk of being asked to perform reserve work which might be required after the performance of basic work to address unforeseen additional and necessary repairs.” Here, GAO found that even though the growth work remains subject to considerable uncertainty, offerors could have compiled a burdened labor rate that factored in this uncertainty in forecasting the scope of the growth work.
BAE also argues that the solicitation improperly deviates from the FAR and the DFARS by authorizing the agency to unilaterally direct growth work, without permitting the contractor to request an equitable adjustment. GAO noted that the FAR contains a mandatory changes clause which permits the agency to order within scope changes to the contract work and prescribes a mechanism for a contractor to receive an equitable adjustment where appropriate. Additionally, the DFARS includes a mandatory contract clause specifically addressing “over and above work” that is necessary to complete maintenance and repair efforts but is not covered by the work specified in the contract.
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