Link: GAO Opinion
Agency: Department of the Navy
Disposition: Protest denied.
Keywords: Cost Realism Analysis
General Counsel P.C. Highlight: When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated cost of contract performance is not considered controlling since, regardless of the costs proposed by the offeror, the government is bound to pay the contractor its actual and allowable costs. As a result, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach, assuming reasonable economy and efficiency.
Metro Machine Corp. (Metro) protests the award of a contract, issued by the Department of the Navy (Navy), under a request for proposals (RFP) for maintenance, repair, modernization, and alternation of ships.
The RFP contemplated the award of a cost-plus-award-fee/incentive-fee, “multi-ship, multi-option” contract for execution planning and performance of ship availabilities. Offerors were instructed to base their cost proposals on a notional work package included with the solicitation and in addition to cost, the following technical evaluation factors would be considered: management approach; technical approach; resource capabilities; and past performance.
Metro asserts that the Navy failed to properly evaluate the cost realism of the awardee’s proposal. GAO states that a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach. The analysis does not have to achieve scientific certainty, but the methodology employed must be reasonably adequate and provide some measure of confidence that the agency’s conclusions about the most probable costs under the offeror’s proposal are reasonable and realistic. GAO will review an agency’s judgment in that area only to see that the analysis was reasonably based.
GAO’s review of the record finds that the cost realism analysis of the awardee’s proposal was proper where the non-significant subcontractor/temporary labor amounts were properly adjusted downward based on historical information described in the technical proposal. GAO finds that the labor rates were realistic, even if the adjusted rate was lower than the proposed rate.
Additionally, where Metro asserts that the Navy’s cost analysis of the awardee’s proposal was improper where the Navy failed to adjust the projected costs to account for increased employee pension costs, GAO finds that the cost impact of the increased pension fund contribution was not certain enough prior to award to constitute a material change to the proposal, and therefore, the awardee was not required to advise the Navy of the matter. GAO also found no error in calculating the awardee’s material costs where the Navy clearly showed how it determined the estimated material costs.
Metro asserts that the navy failed to properly consider a Defense Contract Audit Agency (DCAA) audit report regarding a deficiency in the awardee’s estimating system. GAO’s review of the record shows that the evaluation board was fully aware of the report and its findings when performing the cost analysis and utilized overhead and G&A rates for the awardee that were higher than those proposed by the offeror and those recommended by DCAA.
Finally, Metro challenges the Navy’s evaluation of the awardee’s technical proposal under the management approach and resource capabilities factors. GAO states that it will not reevaluate technical proposals, but it will examine the evaluation to ensure that it was reasonable and consistent with the stated evaluation criteria and applicable statutes and regulations. A mere disagreement with the agency’s evaluation is not sufficient to render the evaluation unreasonable. The record shows that the Navy’s evaluation was unobjectionable where the strengths under the two factors cannot be disputed and where Metro cannot dispute that the awardee had resource sharing agreements with various subcontractors, which provided the awardee with the ability to share its facility and manpower resources to optimize facility utilization. GAO finds that Metro’s argument amounts to mere disagreement with the Navy’s evaluation, which does not make it unreasonable. The protest is denied.