Link: GAO Opinion
Agency: Department of the Army
Disposition: Protest denied.
Keywords: Post-protest Revaluations
General Counsel P.C. Highlight: GAO generally gives little weight to reevaluations prepared in the heat of the adversarial process. But, post-protest explanations that provide a detailed rationale for contemporaneous conclusions and simply fill in previously unrecorded details will generally be considered, so long as those explanations are credible and consistent with the contemporaneous record.
Systems Technologies, Inc. (Systek) protests awards of contracts, under a request for proposals (RFP), issued by the U.S. Army Communications-Electronics Life Cycle Command, Army Contracting Command, Fort Huachuca, Arizona, for information systems engineering and technology support services.
The RFP sought proposals to support the “Total Engineering and Integration Services” (TEIS) III program, which provides information systems engineering and information technology support services to the U.S. Army Information Systems Command (ISEC) and its customers worldwide. The RFP contemplated up to five awards (including two small businesses) of indefinite-delivery/indefinite-quantity (ID/IQ) contracts, under which the awardees would compete for fixed-price, cost-reimbursement, and time and materials task orders. Award was to be made on a best-value basis considering four evaluation factors: (1) technical; (2) performance risk; (3) small business participation; and (4) cost/price. Under the technical factor, the RFP listed two subfactors: (1) sample tasks (which included three sample tasks of equal importance); and (2) management and staffing. The RFP explained that both the sample tasks and management and staffing subfactors would be evaluated for understanding of the problem, adequacy of response, and feasibility of approach.
The RFP stated that the sample tasks were designed “to test an offeror’s expertise and innovation capabilities to respond to the types of situations that may be encountered in performance of the contracts,” and consequently “[o]fferors will not be given an opportunity to correct or revise a Sample Task response.”
The cost/price factor considered the realism of the offeror’s proposed costs in sample tasks 1, 2, and 3 in relation to the offeror’s specific technical approach. This was used in determining the most probable cost to the government. The total evaluated sample costs were the sum of the most probable costs and proposed fee amounts for the three sample tasks. This sum would then be multiplied by a cost multiplication factor of 64.1363 to derive the total evaluated amount for cost reimbursable contract work. To this figure, the total evaluated price for the time and materials work would be added to determine the total evaluated cost of each proposal.
Based on the evaluation, the Source Selection Authority (SSA) noted that Systek received a rating of acceptable for the technical factor, the most heavily-weighted evaluation factor, as compared to the good ratings of the three selected offerors. The SSA further noted that Systek had a significantly higher evaluated cost/price than any of the selected offerors. The SSA consequently determined that Systek’s proposal was not among the most highly-rated proposals and excluded it from the competition.
The record shows that the Army found that Systek proposed too few labor hours to perform sample tasks 1 and 2. The Army evaluators thus made several significant adjustments to Systek’s proposed labor hours, which the cost evaluation team utilized to calculate the most probable cost of Systek’s proposal. Systek questions the propriety of these labor hour adjustments and the resulting most probable cost adjustments. GAO states that 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. Consequently, 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. A cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal. An offeror’s proposed costs should be adjusted when appropriate based on the results of the cost realism analysis. GAO’s review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary.
Here, because the agency report, including contemporaneous evaluation documentation, did not completely explain the agency’s rationale for making significant adjustments to Systek’s proposed labor hours, GAO conducted a hearing in this matter. GAO generally gives little weight to reevaluations prepared in the heat of the adversarial process. But, post-protest explanations that provide a detailed rationale for contemporaneous conclusions and simply fill in previously unrecorded details will generally be considered in our review of the rationality of selection decisions, so long as those explanations are credible and consistent with the contemporaneous record.
To explain the process that the Army utilized to evaluate the realism of the offerors’ proposed labor hours, including Systek’s, the Army produced five witnesses at the hearing: the contracting officer, a member of the source selection advisory council (SSAC), the chair of the sample task evaluation team, a member of the sample task evaluation team, and a member of the cost team. The record evidences that the agency witnesses, particularly those who were responsible for developing the sample tasks and IGCE and for evaluating the proposals’ labor mixes and labor hours, possessed extensive knowledge and experience with estimating hours to perform the work required by the sample task. In evaluating Systek’s proposal, including the specific labor hour adjustments made to its proposal, the Army considered Systek’s narrative technical approach, BOE, WBS, project schedule, and skill mix. The witnesses attributed the significant labor hour adjustments that were made to Systek’s proposal primarily to the lack of detail that the evaluators found in Systek’s responses to these two sample tasks. The agency witnesses testified that while Systek’s proposal focused more on what it would do to meet the sample task requirements, the agency also sought information about how the offeror would perform the agency’s sample tasks. The witnesses testified that this lack of detail increased the Army’s reliance on the IGCE, and that adjustments to Systek’s proposal based on the hours in the IGCE were only made when there was a lack of sufficient detail in the sample task responses, such that there was no basis to conclude that an offer was inconsistent with the approach encompassed in the “government solution,” as set forth in the IGCE.
The Army explains that contrary to the protester’s arguments, these adjustments did not introduce any new labor categories or significantly alter the distribution of hours per labor category, and therefore the agency did not change fundamentally Systek’s technical approach or labor mix. By contrast, the chair explained that the other offerors’ approaches were more detailed, and gave the evaluators more confidence that these offerors knew with greater precision what might be involved in sending a team to Afghanistan to perform the tasks. Further, the contracting officer testified that the evaluators found that the details in these proposals indicated greater efficiencies and a higher level of understanding, which gave the agency greater confidence that the work could be performed with fewer labor hours than the IGCE.
GAO reviewed the totality of the agency record, including contemporaneous documents supporting the labor hour adjustments, and the testimony of the Army explaining the contemporaneous evaluation of the proposals, for each labor hour adjustment made to Systek’s proposal. GAO finds that the Army has reasonably explained the basis for the adjustments made to Systek’s proposed labor hours consistent with the contemporaneous record. As noted in the testimony above, GAO’s review supports the agency’s view that Systek’s proposal did not provide as sufficient a level of detail in response to the sample tasks as the other offerors, which resulted in a weakness and a significant weakness being assigned to Systek’s proposal, and the significant adjustments to its proposed labor hours. The record also shows that the agency, when it made its most probable cost adjustments, considered Systek’s labor mix and reasonably distributed the added hours across labor categories included in the task order response. Thus, GAO sees no basis to find unreasonable the agency’s upward adjustments to determine Systek’s most probable cost or the agency’s failure to make similar adjustments to the awardees’ proposed costs.
For the record, however, there is one error in the agency’s most probable cost evaluation. In this regard, the agency noted that Systek had proposed 5,504 labor hours for core backbone network installation, which was part of task order 2, and that this work was not within the scope of the requirement. No downward adjustments were made to Sytek’s proposed costs to reflect this error, but the evaluators assigned a weakness because they viewed this error as evidence that Systek did not fully understand the scope of the sample task. The assignment of a weakness in this case was clearly warranted. However, we think the agency erred in not eliminating these costs from Systek’s proposal in determining its most probable cost.
As noted above, the purpose of a cost realism analysis is 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 end product of an agency’s cost realism analysis should be a total evaluated cost of what the government realistically expects to pay for the offeror’s proposal effort, as it is the agency’s evaluated cost and not the offeror’s proposed cost that must be the basis of the source selection determination. Thus, it was improper for the Army to include the costs of work that the government would not receive as part of the task requirement.
Nevertheless, this error provides no basis to sustain the protest. In this regard, the protester states the total impact of this error accounted for an additional evaluated cost of $21,510,737 to its proposal. Thus, even taking into account this error, Systek’s lower-rated proposal would still have the highest evaluated cost of the four competitive range offerors. Under the circumstances, GAO does not think Systek was prejudiced by this error and it will not disturb the award decision. The protest is denied.