NCI argues that the Army improperly based its IGCE on Lockheed’s performance of the incumbent contract. In this regard, the protester argues that the agency viewed Lockheed’s proposed technical approach as the “baseline” for the government’s requirements, and that all other offerors were penalized for deviating from that baseline.

We review challenges to government estimates for reasonableness. See Division Laundry and Cleaners, Inc., B-311242, May 19, 2008, 2008 CPD ¶ 97 at 3; OMNI Gov’t Servs., LP, B-297240.2 et al., Mar. 22, 2006, 2006 CPD ¶ 56 at 3. A protester’s mere disagreement with an agency’s basis for developing an IGCE provides no basis to sustain a protest.

As discussed above, the IGCE consisted of the Army’s estimate that the task order would require 70 FTEs, at a cost of $27 million. AR, Tab 20, attach. 3, Price Evaluation Report, at 2. The agency states that it based the IGCE on two sources of information that described the work currently being performed at Fort Benning under the incumbent contract: (1) the C4IM services list, which was included in the RTOR, and (2) the table of distribution and allowances (TDA) for the [Army’s Network Enterprise Center] NEC. Supp. CO Statement at 2-3.

A C4IM is a list of the services provided to agency IT users on a particular installation that an NEC is expected to provide. Id. at 3. The CO states that the C4IM list for Fort Benning was consulted to determine a baseline for the services required under the task order. Id. The C4IM list was then compared to the historical workload requirements for the Fort Benning NEC--under the incumbent contract--to develop the IGCE. Id.

The TDA is a list detailing the organizational structure and personnel available for a particular non-tactical Army unit. Id. The CO states that the TDA showed that there 146 FTE positions available at Fort Benning for IT support, 38 of which were assigned to other NEC contracts, leaving a total of 108 available personnel. From this figure, the agency subtracted an additional 38 government civilian employees assigned to work at the NEC, resulting in a total of 70 FTEs for a contractor to provide. Id. The Army then compared that C4IM data to the TDA data, and concluded that 70 FTEs was an appropriate level of staffing for the task order. Id.

The record here thus shows that the agency consulted information concerning the level of services required at the Ft. Benning NEC, as well as the level of effort provided under the incumbent contract by Lockheed. The record does not show, as the protester contends, that the agency simply adopted the technical approach used by Lockheed under the incumbent contract as the “baseline” for the IGCE.

In any event, the protester provides no support for its contention that an agency’s IGCE may not rely on data from an incumbent’s performance of the predecessor contract. The sole support cited by the NCI for its argument is our decision in Aegis Defence Services, Ltd., B-403226 et al., Oct. 1, 2010, 2010 CPD ¶ 238, where we held that a CO could reasonably ignore an IGCE for purposes of conducting a price realism analysis of the awardee, based on his determination that the IGCE relied on data from the incumbent contract. In that decision, however, we noted that the CO was concerned that the incumbent contract and IGCE were based on a completely different technical and cost approach than that used by the awardee (third country national personnel as compared to expatriate personnel). Id. at 7. For this reason, we concluded that the CO could reasonably disregard the IGCE as irrelevant for purposes of a price realism analysis. Id. The Aegis Defense Services not stand for the opposite position advanced by the protester--that a CO is prohibited from considering an IGCE based on the incumbent’s performance.

On this record, we find no basis to conclude that the Army’s IGCE was unreasonable, or that it could not be relied upon in evaluating offerors’ proposals.  (NCI Information Systems, Inc., B-405589, November 23, 2011)  (pdf)

Vizada asserts that the agency failed to conduct a proper price realism analysis and that Stratos' price was unrealistically low.

Where, as here, a fixed-price contract is to be awarded, a solicitation may provide for the use of a price realism analysis to measure an offeror's understanding of the requirements or to assess the risk inherent in a proposal. Puglia Eng'g of California, Inc., B-297413 et al., Jan. 20, 2006, 2006 CPD para. 33 at 6. As our Office has repeatedly held, the depth of an agency's price realism analysis is a matter within the agency's discretion. Navistar Def., LLC; BAE Sys., Tactical Vehicle Sys. LP, B-401865 et al., Dec. 14, 2009, 2009 CPD para. 258 at 17. In reviewing protests challenging price realism evaluations, our focus is whether the agency's review was reasonable and consistent with the terms of the solicitation. Grove Resource Solutions, Inc., B-296228, B‑296228.2, July 1, 2005, 2005 CPD para. 133 at 5. As a general matter, it is unobjectionable for an offeror to submit a below-cost proposal for a fixed-price contract, since fixed-price contracts generally are not subject to adjustment during performance, and the contractor, not the agency, bears the financial risk of cost overruns. Crown Title Corp., B-298426, Sept. 21, 2006, 2006 CPD para. 145 at 6.

The RFP stated that offerors' fixed-priced proposals would be evaluated for price realism to determine if there were proposals that were unrealistic in terms of overall price or reflective of an inherent lack of management and/or technical competence or comprehension of the requirements. RFP at 27. In accordance with the RFP, the agency's price realism analysis started with a comparison of all offerors' prices to the IGCE. The analysis revealed that all of the offered prices were significantly less than the IGCE of $9,838,303. Upon further review of the proposals, the agency determined that the difference in price between the IGCE and the offered prices was due to the IGCE's inclusion of costs for providing dedicated staff for the NOC to monitor network systems 24 hours a day, 7 days a week; the cost for dedicated monitoring was not proposed by the offerors. This resulted in an over-estimation by the IGCE of the costs by approximately $4.12 million. When the over-estimation was accounted for, Stratos' low-priced proposal was within 23 percent of the IGCE. Agency Report, Tab 4, Award Memorandum, at 4-5.

Because Stratos' price was significantly lower than the prices in the other proposals, an additional review of Stratos' price proposal was undertaken to ascertain if it was unrealistically low. Based on the agency's review, it appeared that the price difference resulted from Stratos providing [REDACTED] price for the contract line item (CLIN) for the NOC. To be certain Stratos intended [REDACTED] price, and to insure Stratos understood the requirement, the agency requested that Stratos confirm that it intended to propose [REDACTED] for this line item. Stratos confirmed its price of [REDACTED] for the CLIN and indicated its intent to perform at the offered price. Based on Stratos' response, the agency concluded that the price was realistic, and reflected an exercise of business judgment, rather than a lack of competence, or a lack of understanding the RFP requirements.

Based upon our review of the record, we find that the agency's analysis of Stratos' price was reasonable and consistent with the terms of the solicitation. Contrary to Vizada's claims, the RFP did not require an in-depth CLIN-by-CLIN analysis to the IGCE or a CLIN-by-CLIN comparison among the offered prices. To the extent that Vizada believes that Stratos cannot perform the contract at its proposed price, Vizada's disagreement with the agency's judgment provides no basis to sustain the protest. See Team BOS/Naples--Gemmo S.p.A./DelJen, B-298865.3, Dec. 28, 2007, 2008 CPD para. 11 at 14.  (Vizada Inc., B-405251; B-405251.2; B-405251.3, October 5, 2011)  (pdf)

Cost Realism Analysis

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. Systek argues that the adjustments were inappropriate and undocumented, and fundamentally changed its technical approach by allocating a greater percentage of hours to less qualified employees than offered in Systek's task order response. Systek also argues that the agency's reliance on the IGCE in making the most probable cost adjustments was irrational and represented unequal treatment because it did not reasonably consider Systek's technical approach and was not used in evaluating the task order responses of the other offerors, even though their proposed staffing widely diverged from the IGCE.

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. Metro Mach. Corp., B-295744, B-295744.2, Apr. 21, 2005, 2005 CPD para. 112 at 9; Hanford Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para. 164 at 9. 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. Federal Acquisition Regulation (FAR) sections 15.305(a)(1), 15.404-1(d)(1), (2); The Futures Group Int'l, B‑281274.2, Mar. 3, 1999, 2000 CPD para. 147 at 3.

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. FAR sect. 15.404-1(d)(1); Advanced Comms. Sys., Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD para. 3 at 5. An offeror's proposed costs should be adjusted when appropriate based on the results of the cost realism analysis. FAR sect. 15.404-1(d)(2)(ii). Our review of an agency's cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. Jacobs COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD para. 16 at 26.

For sample task 1, offerors were required to develop an engineering package as part of an effort to engineer, furnish, install, and test (EFI&T) for a Major Headquarters Command, Control, Communications, Computers, and intelligence/information technology relocation project in Germany. The project involved performing site surveys, and included developing the following products: the facility wiring and design criteria, a system design plan, an engineering installation plan, a system acceptance test plan, and an installation schedule. Although Systek was rated acceptable technically for this sample task, and was found to have proposed an adequate labor skill mix for the task, the evaluators found that Systek had proposed a low level of hours for completing the detailed engineering and design related requirements of site surveys, system design plan, detailed engineering, system acceptance test plan and installation schedule. The agency therefore found a weakness in Systek's proposal, and made three significant adjustments to Systek's proposed labor hours: the facility wiring and design criteria work was adjusted from 1,852 proposed labor hours to 4,042 labor hours; the detailed engineering work was adjusted from 916 proposed labor hours to 4,228 labor hours; and the system acceptance test plan work was adjusted from 702 proposed labor hours to 2,534 labor hours. AR, Tab 13a, Final Evaluation Report for Systek, at 4-6; Hearing exh. A.

For sample task 2, offerors were required to develop an engineering package as part of an EFI&T effort for a new communication system in Afghanistan to provide wideband digital connectivity to deployed users in that area of operation. This system was to consist of two parts: (1) a fixed strategic satellite communication (SATCOM) system and (2) a new core backbone network. Again, the evaluators found the task order response technically acceptable, albeit with a minimally feasible approach, but with a realistic labor mix. However, the evaluators found that Systek's response contained the significant weakness of proposing significantly low hours for completing three SATCOM system related requirements. As a result, Systek's proposed labor hours for detailed engineering were adjusted from 1,000 proposed labor hours to 2,592 labor hours; SATCOM installation was adjusted from 2,790 proposed labor hours to 11,250 labor hours; and SATCOM engineering validation (EV)/acceptance testing (AT) was adjusted from 1,215 proposed labor hours to 5,500 labor hours. AR, Tab 13a, Final Evaluation Report for Systek, at 6-9; Hearing exh. A.

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, our Office conducted a hearing in this matter. While we generally give little weight to reevaluations prepared in the heat of the adversarial process, post-protest explanations that provide a detailed rationale for contemporaneous conclusions--and as is the case here, 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. Remington Arms Co., Inc., B-297374, B-297374.2, Jan. 12, 2006, 2006 CPD para. 32 at 12. As discussed below, based on the contemporaneous record and credible hearing testimony consistent with the record, we find the agency's evaluation of the task order responses and cost realism to be reasonable.

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. For example, the SSAC member, who developed the sample tasks, is a technical director for ISEC, has a degree in electrical engineering, has worked with ISEC since 1985, and has been a lead engineer on three major Army moves (in Germany, Panama, and Puerto Rico). Tr. at 77-79. In addition, the chair of the sample task evaluation team, who also helped develop the sample task, is an integration systems engineer with a degree in electronics engineering; has been a project engineer on SATCOM installations; has personally performed several installations; and has overseen, managed and directed personnel doing installations. Tr. at 87, 105-06, 120-21.

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. See Tr. at 35-36, 113. 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. See Tr. at 46-50, 80-81, 121‑22, 220. 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. See Tr. at 80-81, 218-19. 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. See Tr. at 46-50, 80-81, 113-14, 121‑22, 220. For example, the chair of the sample team testified "if the contractor or offeror . . . parroted back what [the contractor document requirements lists] stated . . . and really didn't give us anything more than that, we assumed that to be the government solution, and that's when we would, you know, start using the IGCE as a baseline or starting point to make adjustments." Tr. at 114.

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. An example to illustrate this point involved the Army's significant adjustment to Systek's proposed 2,790 labor hours for SATCOM installation under task order 2, where the chair testified that the proposal lacked detail for work that the IGCE estimated at 15,000 labor hours. See Tr. at 113-114, 123. The chair explained that the RFP required the offeror to describe its approach to conducting each installation task. See RFP Sample Task 2 at 4; Tr. at 117-20. The chair also testified that although Systek's response met the sample task requirements for the SATCOM installation, it did not include much explanation of how it derived its specific number of labor hours. Tr. at 121-22. Moreover, in determining that Systek's proposed labor hours for this work were unrealistically low, the evaluators specifically considered Systek's labor mix for this work, which was primarily based on technicians on site, rather than engineers. Tr. at 127-28. The chair stated that while 15,000 hours was quite a bit more than 2,790 hours, the agency did not simply mechanically adjust Systek's hours for this requirement up to the IGCE level because the agency understood that its estimate was a conservative estimate for the work. The chair testified that given that Systek's proposal reflected a minimally detailed approach, the agency concluded that 11,250 hours was the right number. The chair explained that the agency reached this conclusion based on its ISEC experience and historical data, and the narrative in Systek's proposal, which did not set out an approach different from what the agency anticipated in the IGCE. See Tr. at 137-38; Hearing exh. A

By contrast, the chair explained (and our review of the record, including the proposals, confirms) that the other offerors' (GDIT's, SAIC's, and NCI's) 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. See Tr. at 132. Thus, the evaluators concluded that the proposals of GDIT, SAIC, and NCI presented less risk. 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. Tr. at 49-50. As an example, the chair discussed the details included in SAIC's proposal for the Task 2 SATCOM installation, including the specific training and experience of the personnel who will perform the installation; the chair also testified that this level of detail was absent from Systek's proposal. Tr. at 134.

Another example discussed at the hearing was the agency's adjustment to Sytek's proposed hours for SATCOM EV/AT from 1,215 labor hours to 5,500 labor hours. The IGCE for this requirement was 6,300 labor hours. Here again, the chair convincingly explained how Systek's proposal contained minimal detail and did not offer anything different from the government's approach as reflected in the IGCE; this conclusion led to the agency's upward adjustment to Systek's proposed labor hours. See Tr. at 142-45. The chair also explained that the Army did not adjust the proposal up to the full 6,300 labor hours because the IGCE included some technical writers and draftspeople that did not appear relevant to Systek's proposed approach here. See Tr. at 147. While Systek argues that the Army's evaluation did not account for its use of higher-level technicians, the Army found that Systek's approach also included lower-level technicians, which would impact the efficiency at which Systek would be able to perform the tests; in sum, the Army did not find Systek's low proposed labor hours to be realistic. See Tr. at 147-49.

On the other hand, the chair testified that NCI, which had proposed [DELETED] labor hours, was only adjusted up to [DELETED] labor hours because its proposal included more detail and offered more [DELETED]. Tr. at 150-53. The chair further testified that the agency did not adjust SAIC's estimate of [DELETED] labor hours because the proposal included [DELETED], and an [DELETED]. See Tr. at 156-58. The chair also testified that GDIT's estimate of [DELETED] labor hours was accepted because its proposal was detailed and included [DELETED] for the requirement. Tr. at 158.

We have 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. Based on our review, we find 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, our 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, we see 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. FAR sect. 15.404-1(d)(2)(i). 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. See FAR sect. 15.404-1(d)(2)(ii) ("The probable cost is determined by adusting each offeror's proposed cost . . . to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis" (emphasis supplied)); Priority One Servs., Inc., B-288836, B-288836.2, Dec. 17, 2001, 2002 CPD para. 79 at 3-4 (protest sustained where agency concludes that protester misunderstood the requirements for other direct costs; most probable cost should have been reduced to reflect agency's judgment as to costs actually to be incurred); Kellogg Brown & Root Servs., Inc., B-298694 et al., Nov. 16, 2006, 2006 CPD para. 160 at 5-8 (agency properly made downward adjustment to protester's probable cost where indirect cost rates were overstated).

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. Protester's Comments at 23. 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, we do not think Systek was prejudiced by this error and we will not disturb the award decision. See Alsalam Aircraft Co., B-401298.4, Jan. 8, 2010, 2010 CPD para. 23 at 9-10.  (Systems Technologies, Inc., B-404985; B-404985.2, July 20, 2011)  (pdf)

Labor Rates

MPRI challenges the agency's cost realism analysis, which resulted in an upward adjustment in its proposed labor rates.

When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror's proposed costs are not considered controlling because, regardless of the costs proposed, the government is bound to pay all actual, allowable costs. Federal Acquisition Regulation (FAR) sections 15.305(a)(1); 15.404-1(d). Consequently, an agency must perform a cost realism analysis to determine the extent to which an offeror's proposed costs represent what the contract should cost, assuming reasonable economy and efficiency. FAR sect. 15.404‑1(d)(2); Information Ventures, Inc., B-297276.2 et al., Mar. 1, 2006, 2006 CPD para. 45 at 7; Hanford Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para. 164 at 8-9. An agency's cost realism analysis requires the exercise of informed judgment, and we will review this judgment only to see that it was reasonable. Information Ventures, Inc., supra; Hanford Envtl. Health Found., supra. While a realism analysis need not achieve scientific certainty, the methodology employed must provide some measure of confidence that the agency's conclusions about the most probable costs under an offeror's proposal are reasonable and realistic. Information Ventures, Inc., supra; see Metro Mach. Corp., B-295744; B‑295744.2, Apr. 21, 2005, 2005 CPD para. 112 at 10-11. Here, we find that the Army's cost realism analysis was not reasonable, and that it resulted in an excessive upward adjustment to MPRI's proposed labor rates.

The record shows that the agency initially reviewed offerors' proposed labor rates for discrepant rates by comparing them to a range of rates for each position calculated based on one standard deviation (OSD) from the average of the five offerors' proposed rates for the position. The agency then further reviewed the rates based on the circumstances of each offeror, adjusting some, but not all, of the rates outside the range, as well as some, but not all, of the rates within the range.

(Table deleted because the redactions made it useless)

As shown by the chart, MPRI's proposed labor rates for [REDACTED] of the labor categories ([REDACTED]) were lower than the OSD range the agency considered realistic, accounting for [REDACTED] of 275 required staff as specified in the SOW. MPRI attributed the rate reduction--on average approximately [REDACTED] percent as compared to its incumbent contract--to "updating salaries based on the current market conditions." MPRI Cost Proposal at IV-3. Based on its realism analysis, the agency determined that the reduction was not justified and adjusted MPRI's rates for all five labor categories upward to the rates under MPRI's current Afghanistan mentoring contract. This actually left three of the five resulting rates higher than the OSD range.

Likewise, notwithstanding that all of DynCorp's proposed rates were within the OSD range, the Army adjusted the rates for all five categories--four upward and one downward--to the levels under DynCorp's MNSTC-I contract (for mentoring of Iraq security forces), which the agency determined to be similar "in customer, scope, and function to the CSTC‑A effort." Cost Realism and Price Analysis Report at 7. While LGS's proposed labor rates for [REDACTED] labor categories were above the OSD range, all were accepted without modification for purposes of the cost realism evaluation on the basis that "LGS's hourly wages are competitive and are held to be sufficient." Id. at 8. As for Offeror B, "[n]o exceptions were taken to the rates proposed by [Offeror B]. In its common labor categories, all rates are well within the standard deviation range." Id. at 14. Finally, although four of Offeror A's five proposed rates fell within the OSD range, its rates were adjusted upward to the levels under MPRI's current contract based on the indication in its proposal that Offeror A "expect[ed] to recruit most, if not all, incumbents, because we will offer to match their current compensation if higher than proposed." Id. at 4.

MPRI asserts that the agency unreasonably failed to consider whether MPRI could achieve its proposed rates, and that the adjustment unreasonably increased MPRI's rates above the OSD range and the rates calculated for other offerors.

As an initial matter, we find the agency's rejection of MPRI's proposed labor rates as unsupported to be reasonable. An offeror has the burden of submitting an adequately written proposal, and it runs the risk that its proposal will be evaluated unfavorably when it fails to do so. Recon Optical, Inc., B-310436, B-310436.2, Dec. 27, 2007, 2008 CPD para. 10 at 6. MPRI's proposal generally attributed the [REDACTED]% reduction in its incumbent labor rates to "current market conditions," MPRI Cost Proposal at IV-3, but included no information regarding current market conditions. Further, MPRI's proposed rates not only were significantly lower than its current rates for the same work, but also were significantly lower (by a weighted average of approximately [REDACTED]%) than the rates under DynCorp's MSNTC-I contract (which, as noted, the agency considered to be similar to the current requirement). Finally, MPRI's proposed rates were lower than the average of all offerors' proposed rates for [REDACTED] labor categories; lower than the OSD range for [REDACTED] labor categories, accounting for [REDACTED] of 275 required staff; lower than all of the other proposed rates for the [REDACTED] labor categories; and lower than [REDACTED] of the other proposed rates for [REDACTED].

While we find that the agency reasonably rejected MPRI's proposed labor rates as unrealistc, we agree with MPRI that the extent of the resulting upward adjustment in the rates was unreasonable. In this regard, we review an agency's conclusions about the most probable costs under an offeror's proposal in view of the cost information reasonably available to the agency at the time of its evaluation. Information Ventures, Inc., supra; see Metro Mach. Corp., supra. In increasing MPRI's labor rates to the level under its current contract, thereby rejecting any reduction, the agency's realism evaluation assumed rates for MPRI that were higher than the average proposed rate for each of the labor categories; higher than the OSD range for three of the five labor categories; higher than the rates proposed by any offeror for three of the labor categories; and higher than the rates proposed by three of the other offerors for the remaining two categories. The adjusted rates for MPRI also were higher than the rates for three of the five labor categories under DynCorp's similar MSNTC-I contract, which rates DynCorp itself proposed to reduce for this procurement. In some instances, the adjustment left MPRI's rates significantly higher than these other reference points; for example, for the mentor category (128 of 275 required staff), the adjusted rate for MPRI was $[REDACTED], while DynCorp's proposed rate was $[REDACTED] and its MNSTC-I contract rate was $[REDACTED], the average proposed rate was $31.49, and the OSD range was $28.51-$34.46.

The significance of these reference points in determining the realism of MPRI's evaluated rates is highlighted by testimony at the hearing conducted by our Office in this matter, indicating that the SSA and the agency cost analyst performed no analysis of trends in compensation for foreign nationals in Afghanistan and, indeed, were unaware of the rates currently being paid (including those under DynCorp's civilian police mentoring contract) in Afghanistan other than those under MPRI's incumbent contract. Transcript (Tr.) at 78-82, 94, 494-96, 508. In this regard, when asked what the most probable labor rates would be for foreign nationals in Afghanistan, the cost analyst responded that "competition generally dictates what a reasonable price is," that the "market rates" were determined by competition, and that the average of the rates proposed by the five offerors thus represented "a reasonable starting point." Tr. at 514-16, 558-60. The cost analyst then went on to state that MPRI's current contract rates did not represent "the market rates." Tr. at 513. Further, testimony by the chairman of the SSEB (a senior mentor in Afghanistan)--that the offerors were expecting to draw their staff from "a limited number of people, some [of whom] are already doing the same work in Afghanistan, some [of whom] were doing the same work in Iraq . . . ," Tr. at 579-80, 587-88--suggests that there would be no reason to expect widely disparate rates among offerors, since they all are drawing from the same pool of potential employees. We conclude that the record does not support the magnitude of the upward adjustments to MPRI's proposed labor rates, and that the cost evaluation therefore was unreasonable.

MPRI also challenges the downgrading of its technical proposal under the capability factor based on the cost evaluation conclusions. Again, the Army determined that MPRI had "grossly underestimated" its labor costs such that a "direct labor cost growth of approximately [REDACTED]% would occur" as MPRI was forced to increase its labor compensation to the levels under its current contract, with the result that MPRI would experience "high turnover, a lack of qualified personnel, and/or be forced to work with personnel of lesser quality than those proposed." SSD at 8. We agree that the technical evaluation was flawed. While it may be that any reduction in compensation would lead to some additional turnover, it is reasonable to assume that the degree to which MPRI's rates were deemed inadequate determined the extent to which its proposal was downgraded under the capability factor. Thus, since we have found that the inadequacy of MPRI's rates was unreasonably exaggerated in the evaluation--as reflected in the excessive increase in MPRI's proposed rates--we also find that the downgrading of MPRI's technical proposal based on the same flawed cost evaluation results likewise was unreasonable.

We will sustain a protest based on our finding of an evaluation deficiency only where the protester demonstrates a reasonable possibility that it was competitively prejudiced, that is, that, but for the agency's actions, it would have had a substantial chance of receiving the award. Parmatic Filter Corp., B-285288.3, B-285288.4, Mar. 30, 2001, 2001 CPD para. 71 at 11; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 1581 (Fed. Cir. 1996).

The parties have offered alternative methodologies for ascertaining the extent to which MPRI was prejudiced by the agency's unreasonable cost evaluation. The agency and DynCorp suggest that any new adjusted rates should be based on the average of the proposed rates for each labor category. The agency and DynCorp go on to assert that, if such an approach were adopted, DynCorp's evaluated rates--which were based on its MNSTC-I contract rates, which DynCorp indicated in its proposal were excessive for this procurement--likewise should be adjusted. According to the agency and DynCorp, this approach would increase MPRI's evaluated cost advantage by less than $[REDACTED] million--from approximately $36.4 million ($212.7 million for MPRI versus $249.1 million for DynCorp) to approximately $[REDACTED] million ($[REDACTED] million for MPRI versus $[REDACTED] million for DynCorp), Joint Agency/DynCorp Comments, May 24, 2010, at 4-5--and would not have a material impact on the evaluation or source selection.

MPRI, on the other hand, asserts that the extent of prejudice is best captured by a calculation based on accepting MPRI's proposed rates for senior mentor and trainer--since they fell within the OSD range--and adjusting the rates for the remaining three categories upward to the low end of the OSD range. MPRI notes, in this latter regard, that the proposed rates for LGS's subcontractors that fell outside the OSD range were adjusted to the low end of the range. MPRI further asserts that there is no basis for adjusting DynCorp's evaluated rates, since there has been no showing that it was unreasonable for the agency to rely on DynCorp's MNSTC-I contract rates rather than its lower proposed rates (for four of the labor categories). MPRI calculates that this approach--based on a revised evaluated cost of $[REDACTED] million for MPRI, and DynCorp's originally evaluated $249.1 million--would increase its cost advantage to approximately $[REDACTED] million. MPRI Comments, May 24, 2010, at 4-11.

Here, only by accepting the agency's material reevaluation of the cost proposals and declining to accord any weight to the protester's alternative methodology could we conclude that there was no substantial probability of prejudice. However, while in reviewing protests we will take into account post-protest explanations that provide a detailed rationale for contemporaneous conclusions, we generally give little or no weight to reevaluations and judgments prepared in the heat of the adversarial process. Navistar Defense, LLC; BAE Sys., Tactical Vehicle Sys. LP, B‑401865 et al., Dec. 14, 2009, 2009 CPD para. 258 at 6; Boeing Sikorsky Aircraft Support, B-277263.2, B‑277263.3, Sept. 29, 1997, 97-2 CPD para. 91 at 15. There is no basis for according any significant weight to the agency's reevaluation here, given the possibility and the appearance that the agency may have selected its alternative methodology to ensure no material impact on the original evaluation results. In any case, the agency's position fails to take into account our finding that the flaws in the cost evaluation resulted in an unreasonable evaluation of MPRI's technical proposal. Accordingly, we conclude that MPRI was prejudiced by the agency's actions and sustain the protest on this basis.  (MPRI, Division of L-3 Services, Inc.; LINC Government Services, B-402548; B-402548.2; B-402548.3; B-402548.4; B-402548.5; B-402548.6, June 4, 2010) (pdf)

ERC challenges the agency's cost realism analysis of both ASRI's and ERC's proposal and maintains that the MPC adjustments were unreasonable.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror's proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Federal Acquisition Regulation (FAR) sections 15.305(a)(1); 15.404-1(d); Tidewater Constr. Corp., B-278360, Jan. 20, 1998, 98-1 CPD para. 103 at 4. Consequently, the agency must perform a cost realism analysis to determine the extent to which an offeror's proposed costs are realistic for the work to be performed. FAR sect. 15.404-1(d)(1). An agency is not required to conduct an in-depth cost analysis, see FAR sect. 15.404‑1(c), or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. Cascade Gen., Inc., B-283872, Jan. 18, 2000, 2000 CPD para. 14 at 8. Further, an agency's cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information available to the agency as of the time of its evaluation. See SGT, Inc., B‑294722.4, July 28, 2005, 2005 CPD para. 151 at 7; Metro Mach. Corp., B‑295744, B-295744.2, Apr. 21, 2005 CPD para. 112 at 10-11. Because the contracting agency is in the best position to make this determination, we review an agency's judgment in this area only to see that the agency' cost realism evaluation was reasonably based and not arbitrary. Hanford Envtl. Health Found., B‑292858.2, B‑292858.5, Apr. 7, 2004, 2004 CPD para. 164 at 10.

ASRI's Evaluated MPC

ERC contends that the cost realism analysis of ASRI's proposed costs was unreasonable. ERC argues that ASRI deviated significantly from the composite labor rates set forth in the RFP and that ASRI failed to substantiate its deviations. Protest at 3-7; Supplemental Protest and Comments at 9-13. ERC further argues that the agency's application of an attrition rate to ASRI's labor costs was not reasonable and deviated from the requirements of the RFP. Comments at 21-23. As discussed below, the protester's arguments provide no basis to sustain the protest.

With regard to ERC's assertion that ASRI deviated from the composite rates, we note that the composite rates provided in the RFP were "[f]or information purposes only," and offerors were permitted to deviate from these rates with adequate justification. RFP at 105, 112. The agency reports that both ERC and ASRI deviated from the historical average pay rates for several labor categories. AR at 4. The agency explains that ASRI deviated by proposing lower rates for 6 of the 30 non‑management labor categories. AR at 5; Contracting Officer Statement at 8. ASRI explained that its labor rates were developed using the historical average pay rates provided in the RFP and actual rates of current ASRI employees in each labor category. AR, Tab J, ASRI Cost Proposal, at 18. ASRI also documented that it [DELETED] to fill positions for this effort. Id. at 26. ASRI offered several justifications for its lower labor rates, to include: high unemployment and layoffs will result in lower wage rates; good benefits will result in a willingness to forego wage increases; and promotions from within the organization will allow ASRI to fill vacated positions with less senior people at lower wages. Id. at 27-28.

Both DCAA and the agency found ASRI's rates to be reasonable, given that 5 of the 6 rates that deviated downward from the RFP‑provided rates were based on the hourly rates of current ASRI employees working under very similar conditions. (The 6th rate was adjusted downward based on a local wage survey.) AR, Tab K, DCAA Audit Report for ASRI, at 7; see also AR at 5. Moreover, the record shows that the cost evaluation did result in certain upward adjustments to ASRI's rates to reflect the average actual direct labor rates for the labor categories where incumbent employees were performing. AR, Tab K, DCAA Audit Report for ASRI, at 7; Contracting Officer's Statement at 9. Based on this record, we find no basis to conclude that the agency's evaluation of ASRI's labor rates was unreasonable.


With regard to attrition rate, the record shows that ASRI proposed an attrition rate of [DELETED] percent for all five performance periods, and DCAA applied a lower rate of [DELETED] percent to the first period only. AR, Tab K, DCAA Audit Report for ASRI, at 8. DCAA based its lower rate on ASRI's experience in performing a contract similar in scope to this requirement. The agency adopted DCAA's recommendation in this area, which resulted in a downward reduction of approximately [DELETED], or [DELETED] of a percent, in ASRI's MPC. AR, Tab I, MPC Analysis of ASRI's Proposal, at 2; Supplemental AR at 3. If this attrition rate were not applied, the difference in MPCs between ERC's and ASRI's proposals would be [DELETED], rather than [DELETED]. Supplemental AR at 3. Given the small impact attributable to the application of an attrition rate on ASRI's MPC, the protester has not shown that it was prejudiced, even if the application of the attrition rate was in error. See Armorworks Enters., LLC, B-400394.3, Mar. 31, 2009, 2009 CPD para. 79 at 3.

ERC's Cost Evaluation

ERC also argues that the agency unreasonably increased its fringe rates in the MPC analysis. Specifically, ERC contends that the adjustments were based on an inappropriate application of linear regression analysis. Protest at 7-8; Supplemental Protest and Comments at 16-19.

The upward adjustments of ERC's fringe rates were due to DCAA recommendations. In this regard, DCAA questioned ERC's proposed fringe rates because they were inconsistent with the firm's established practices. When questioned about this disparity, ERC responded that "its proposed method for allocating fringe costs is not necessarily how it will be accounting for them." AR, Tab P, DCAA Audit Report of ERC, at 9. DCAA therefore projected ERC's fringe rates for 2009 using a linear regression analysis, based on historical data from 2005 to 2008 of the actual fringe rates incurred by ERC on a contract of similar scope to the requirement here. This resulted in an upward adjustment to ERC's proposed fringe rates of between .3 and 1.1 percent for each of the ordering periods. Id.

The agency explains that, when there is a good correlation between historical pools and bases (as is the case here), linear regression is a better predictor of future overhead rates than new contract specific rates with no historical bases. According to the agency, linear regression is one of the techniques most commonly used to quantify the relationship between indirect cost rate bases and pools over time. Contracting Officer's Statement at 11.

ERC does not disagree with this premise, but argues that the use of linear regression here was not appropriate because the agency provided, as part of the RFP, "a proportion of future hours . . . that differed significantly from the historical experience of ERC as the incumbent contractor." Supplemental Protest and Comments at 18. Consequently, it is ERC's position that the increase in the RFP‑mandated hours has the effect of lowering its fringe rates. Id. at 16.

The protester has not shown that DCAA's use of the linear regression technique was unreasonable here. Since ERC failed to provide DCAA with an adequate explanation for proposing fringe rates that were different from what it was currently using, DCAA reasonably used an evaluation technique that relied on ERC's actual performance to determine ERC's fringe rates--a technique that all parties agree is a good predictor of overhead rates when there is a good correlation between historical pools and bases. Id. at 18; Contracting Officer's Statement at 11. Given that the RFP advised offerors that rates would be examined by DCAA, and given that DCAA's analysis of ERC's fringe rates was reasonable, we have no basis to question the agency's following of DCAA's recommendation to upwardly adjust ERC's fringe costs in the MPC evaluation. See Systems Research Corp., B-237008, Jan. 25, 1990, 90-1 CPD para. 106 at 5 (agency reasonably may rely on DCAA's rate checks in connection with a cost realism analysis).  (ERC, Inc., B-404721; B-404721.2, April 19, 2011)  (pdf)

New Analytic Strategies argues that the solicitation did not provide for a price realism evaluation, and that the agency's evaluation of the protester's proposed price for realism was thus inconsistent with the solicitation's terms. The protester also argues that, in any event, its proposed price was realistic, and the agency's determination to the contrary was unreasonable.

Before awarding a fixed-price contract, an agency is required to determine whether the price offered is fair and reasonable. Federal Acquisition Regulation (FAR) sect. 15.402(a). An agency's concern in making this determination in a fixed-price environment is primarily whether the offered prices are too high, as opposed to too low, because it is the contractor and not the government that bears the risk that an offeror's low price will not be adequate to meet the costs of performance. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD para. 26 at 3. An agency may, in its discretion, provide for a price realism analysis for the purpose of assessing whether an offeror's price is so low as to evince a lack of understanding of the contract requirements or for assessing risk inherent in an offeror's approach. METAG Insaat Ticaret A.S., B‑401844, Dec. 4, 2009, 2010 CPD para. 86 at 6. However, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or risk associated with their proposal. Milani Constr. LLC, B-401942, Dec. 22, 2009, 2010 CPD para. 87 at 5-6; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4-5. Where a solicitation for a fixed-price contract omits a provision for realism but requests detailed cost or pricing information, we have found that an agency may properly consider whether an unreasonably low price poses proposal risk if the solicitation, in either the technical or price factors, provides for the evaluation of an offeror's understanding of the requirements. See METAG Insaat Ticaret A.S., supra; SEEMA, Inc., B-277988, Dec. 18, 1997, 98-1 CPD para. 12 at 5. Conversely, where the solicitation lacks either a technical or price evaluation factor that provides for the offerors' understanding of the requirements, and the solicitation also does not require detailed cost or pricing information, then the agency may not consider whether unreasonably low prices pose proposal risk. Milani Constr., Inc., supra.; CSE Constr., supra.

The RFP's price proposal preparation instructions provided in relevant part as follows:

For each proposed labor category, the offeror shall indicate the unit price (hourly rate) for labor being proposed. The price proposal shall be based on the direct labor rates and shall address all other direct costs related to the work being proposed, broken out by cost element. . . . The price proposal shall identify all labor categories, the number of hours for each labor category, and any materials or supplies to be used in performing the requirement. . . . The offeror should clearly identify in the proposal the overhead and [general and administrative] rate, if applicable, to the travel costs and [other direct costs] under the time and material [contract line item numbers].

RFP at 67. With regard to the evaluation of proposals under the price factor, the solicitation provided as follows:

Proposed costs for the contract will be evaluated to determine whether they are reasonable for the conduct of the proposed contract, reflect a clear understanding of the requirements, and are consistent with the methods of performance described in the offeror's quotation. The overall evaluated price based on the proposal for the contract will be used to develop the relative price rankings of the proposals.

RFP at 69.

Thus, the RFP required that price proposals include price information as well as considerable direct and indirect cost information. The solicitation also provided that the proposals would be evaluated under the price factor for understanding and consistency with the offeror's proposed approach to contract performance. Accordingly, the RFP provided adequate notice to the offerors that low prices could be considered as reflecting on their understanding or risk associated with their proposals. See METAG Insaat Ticaret A.S., supra.

In evaluating price proposals, the agency analyzed "the proposed labor mix and skill associated with the provided labor rates and fixed unit prices . . . to determine if the prices proposed" were "reasonable and realistic for the type of work proposed." AR, Tab 5, Procurement Summary/Source Selection Memorandum, at 5. In doing so, the agency calculated a blended labor rate for each offeror, and compared each offeror's blended labor rate to the blended rates of the other offerors and the agency's independent government cost estimate (IGCE). Id. at 6-7. The record reflects that the blended labor rates of all of the offerors, other than Analytic Strategies, were relatively close to each other and to the IGCE. Analytic Strategies' proposed blended labor rate was significantly less than those proposed by the other offerors and the IGCE. As noted previously, the agency determined that Analytic Strategies' low labor rates "present[] a significant risk to the Government that there could be a relatively high turnover rate among the assigned staff due to low salaries," and concluded that "[t]his prevents their proposal from being the best value to the Government." Id. at 11.

Although Analytic Strategies disagrees with the agency's conclusion and asserts that its personnel will be able to perform the contract at the rates proposed, the fact remains that, as found by the agency, Analytic Strategies' labor rates were significantly lower than the IGCE, as well as the labor rates proposed by all of the remaining offerors. Based on our review, we cannot find the agency's evaluation to be unreasonable.  (Analytic Strategies, B-404840, May 5, 2011)  (pdf)

Goel/Grunley next argues that the agency acted improperly by evaluating its proposal for price realism, asserting that the agency evaluated its proposal on the basis of an unstated evaluation factor. The protester argues that, in a fixed-priced environment, the submission of a low price is not improper so the agency's concerns about a too-low price are unreasonable. Furthermore, even if a realism analysis were proper, the protester contends that the agency's analysis was flawed here. Comments at 15-22.

The agency responds that its analysis was permitted because the RFP required detailed cost and pricing information, and offerors were advised that their understanding of the work would be evaluated elsewhere in the solicitation. AR at 12-13.

Before awarding a fixed-price contract, an agency is required to determine whether the price offered is fair and reasonable. FAR sect. 15.402(a). An agency's concern in making this determination in a fixed-price environment is primarily whether the offered prices are too high, as opposed to too low, because it is the contractor and not the government that bears the risk that an offeror's low price will not be adequate to meet the costs of performance. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD para. 26 at 3. An agency may, in its discretion, provide for a price realism analysis for the purpose of assessing whether an offeror's price is so low as to evince a lack of understanding of the contract requirements or for assessing risk inherent in an offeror's approach. METAG Insaat Ticaret A.S., B‑401844, Dec. 4, 2009, 2010 CPD para. 86 at 6. However, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or risk associated with their proposal. Milani Constr., Inc., B-401942, Dec. 22, 2009, 2010 CPD para. 87 at 4; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4-5. Where a solicitation for a fixed-price contract omits a provision for realism but requests detailed cost or pricing information, we have found that an agency may properly consider whether an unreasonably low price poses proposal risk if the solicitation, in either the technical or price factors, provides for the evaluation of an offeror's understanding of the requirements. METAG Insaat Ticaret A.S., supra; SEEMA, Inc., B-277988, Dec. 18, 1997, 98-1 CPD para. 12 at 5. Conversely, where the solicitation lacks either a technical or price evaluation factor that provides for the offerors' understanding of the requirements, and the solicitation also does not require detailed cost or pricing information, then the agency may not consider whether unreasonably low prices pose proposal risk. Milani Constr., Inc., supra.; CSE Constr., supra.

As noted above, the RFP here asked for (and the agency repeatedly requested during discussions) direct and indirect cost information to be separately provided for each facade for the following categories: design, labor, materials, equipment, bonding, overhead, and profit. RFP at 32-33. The RFP also required offerors to "provide all necessary supporting documentation for cost breakdown of design, labor, materials and equipment," and it encouraged offerors to provide "any other price or financial information that may be helpful in the understanding and evaluation of the Price Proposal." Id. Furthermore, the RFP contained an evaluation factor, technical, that required the evaluation of the offeror's "understanding of the work," and offerors were informed that their proposals had to "[d]emonstrate the efficiency and cost effectiveness of [their proposed] approach." Id. at 31, 36. Based on this record, we conclude that the RFP provided adequate notice to the offerors that their low prices could be considered as reflecting on their understanding or risk associated with their proposals. See METAG Insaat Ticaret A.S., supra.

We also find the agency's price evaluation to be reasonable. As noted in the source selection decision, Goel/Grunley's labor costs, overhead, and profit were "very low" as compared to the government estimate. AR, Tab 13, Source Selection Decision, at 376. In this regard, Goel/Grunley proposed approximately [deleted] fewer labor hours and its overall price was approximately [deleted] percent lower than the government estimate; Goel/Grunley's overall proposed price was also found to be outside the competitive range. Id. at 376, 378. Based on the information requested in the RFP and included in Goel/Grunley's price proposal, the agency concluded that the low price presented a "potential risk of failure" and increased the probability that the work would not be completed on time. Id. at 378. We find nothing improper in this aspect of the agency's evaluation.

In sum, the protester's arguments do not call into question the reasonableness of the agency's best value determination. Based on our review of the record, and after considering all of the protester's arguments, we find that the agency's selection of a higher-rated, higher-price proposal for award was consistent with the evaluation criteria and was reasonable.  (Goel Services, Inc. in association with Grunley Construction Co., Inc., B-404168, January 12, 2011)  (pdf)

Moreover, there is no basis for CGI's contention that the agency's cost evaluation was flawed because it was not based on the government estimate. As a preliminary matter, CMS explains that it did not utilize the government estimate because it was not a good indicator of cost since it was largely based on costs associated with non‑competitively awarded work. Thus, the agency had a reasonable basis to disregard its estimate in this case. See The S.M. Stoller Corp., B‑400937, et al., Mar. 25, 2009, 2009 CPD para. 193 at 16 n.8. Further, as a general matter, when assessing cost realism, there is no per se requirement that an agency compare offerors' proposed costs with the government estimate. See, e.g., Advanced Commc'n Sys., Inc., B‑283650, et al., Dec. 16, 1999, 2000 CPD para. 3 at 6. Rather, the relevant question is whether the methodology used by CMS to evaluate CSC's costs was reasonable. While CGI contends it was not possible to determine whether CSC's proposed level of effort for the various task groups was reasonable without reference to the government estimate, or some other type of cost baseline, as explained above, CMS's business and technical evaluators carefully examined CSC's level of effort for each task group, and, based on their expertise, concluded that CSC's level of effort and proposed approach were realistic to perform the requirements. CGI has not provided any basis for our Office to conclude that the agency's exercise of its considered judgment in this regard was unreasonable or otherwise improper.  (CGI Federal Inc., B-403570; B-403570.2; B-403570.3; B-403570.4, November 5, 2010)  (pdf)

The protester contends that the agency accepted unreasonably low prices and that the technical evaluation was flawed.

With respect to the price evaluation, the protester contends that the agency "fail[ed] to fulfill the responsibility to assure realistic and reasonable pricing." Protest at 2. It argues that the awardees' prices are "artificially low" and "predatory." Id. The protester complains that the awardees' offers "to do the job at little or no profit . . . is a conscious attempt to exclude competitors from the seed project and entire [MACC] program," Comments at 1-2, and that awarding C.L. Price a contract would "guarantee balance" and "provide increased value to the Government." Protest at 3. The protester asserts that the fact that the government estimate was higher than the awardees' prices is further evidence that the government "ignored the issues of reasonableness and realism." Comments at 2.

As noted above, the awards in this procurement were based on the evaluation of a fixed-price seed project. Although an agency is required to determine that offered prices are fair and reasonable before awarding a fixed-price contract, Federal Acquisition Regulation (FAR) sect. 15.402(a), the purpose of a price reasonableness evaluation in a fixed-price environment is to determine whether prices are too high, as opposed to too low, because it is the contractor and not the government that bears the risk that an offeror's low price will not be adequate to meet the costs of performance. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD para. 26 at 3. Arguments that an agency did not perform an appropriate analysis to determine whether prices are too low, such that there may be a risk of poor performance, concern price realism. SDV Solutions, Inc., B-402309, Feb. 1, 2010, 2010 CPD para. 48 at 4. However, a price realism evaluation is not required where, as here, the solicitation provides for the award of a fixed-price contract and does not include a requirement for price realism. Id. Thus, the protester's assertion that the agency failed to perform a realism analysis or consider whether the awardees' prices are too low does not provide a basis to sustain the protest.

With regard to an agency's obligation to ensure fair and reasonable pricing in awarding fixed-price contracts, the FAR permits the use of various price analysis techniques and procedures, including the comparison of proposed prices received in response to the solicitation to each other or to an independent government estimate. FAR sect. 15.404-1(b)(2); Comprehensive Health Servs., Inc., B‑310553, Dec. 27, 2007, 2008 CPD para. 9 at 8. In fact, agencies may rely upon adequate price competition alone to assess price reasonableness. See FAR sect. 15.404-1(b)(2)(i); Patriot Taxiway Indus., Inc., B-403690, Dec. 6, 2010, 2010 CPD para. __ at 7.

Here, the agency compared offerors' proposed prices to the IGE, to the other prices received, and to the median proposal price of the offerors in the competitive range. AR, Tab 4, Business Clearance Memorandum, at 8. The agency did not, however, view the IGE as the best basis of comparison of fair and reasonable pricing, given that offerors were encouraged to provide their lowest possible prices on the seed project in order to receive a MACC and be eligible for further task orders. Id. at 9. The agency instead determined that the "significant extent of competition" was a better comparison tool to establish fair and reasonable pricing. Id. The record shows that the awardees' proposed prices for the seed project ranged from $137,000 to $220,000, all of which were below the IGE and the median proposed price. Id. at 8. Based on the adequacy of price competition, these prices were found to be fair and reasonable. Id. at 9, 12. In addition, the agency found the protester's proposed price of $248,000 to be fair and reasonable, even though it was 11 percent higher than the highest-priced proposal selected for award and 2.5 percent higher than the median price. Id. at 8, 12. Based on this record and the fact that there was adequate price competition, we find nothing improper in the agency's determination that the awardees' and the protesters' proposed prices were fair and reasonable.  (C.L. Price & Associates, Inc., B-403476.2,  January 7, 2011)  (pdf)

As a threshold matter, the parties disagree as to whether the RFP in fact required the Air Force to perform a price realism evaluation. FlightSafety argues that the RFP provided for assessing price realism where it indicated that the Air Force may reject an offeror's proposal if it is determined to be "unreasonably . . . low in cost when compared to Government estimates, such that the proposal is deemed to reflect an inherent lack of competence or failure to comprehend the complexity and risks of the program," RFP at 243, and that the agency failed to properly consider whether CAE-USA's low price was in fact realistic. The Air Force maintains that the RFP merely established that the offerors' prices would be evaluated for reasonableness.

As a general matter, when awarding a fixed-price contract, an agency is only required to determine whether offered prices are fair and reasonable. Federal Acquisition Regulation (FAR) sect. 15.402(a). An agency's concern in making a price reasonableness determination focuses primarily on whether the offered prices are higher than warranted. See McDonnell Douglas Corp., B-259694.2, B-259694.3, June 16, 1995, 95-2 CPD para. 51 at 9.

Moreover, since the government's liability is fixed when it awards a fixed-price contract--the contractor bears the risk and responsibility for actual performance, see FAR sect. 15.404-1(a)--an agency need not concern itself with the contractor's actual costs of performance when awarding a fixed-price contract. It may, nonetheless, include in a solicitation a provision which provides for a price realism evaluation for the purpose of assessing whether an offeror's low price reflects on its understanding of the contract requirements. Grove Resource Solutions, Inc., B-296228, B‑296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5. Where a solicitation provides for a price realism evaluation, the depth of an agency's evaluation in this regard is a matter within the sound exercise of the agency's discretion. Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD para. 6 at 4-5. In reviewing protests challenging price realism evaluations, our focus is on whether the agency's review was reasonable and consistent with the terms of the solicitation. Grove Resource Solutions, Inc, supra. Where there is no relevant evaluation criterion pertaining to realism or understanding, however, a determination that an offeror's price on a fixed-price contract is too low generally concerns the offeror's responsibility, i.e., the offeror's ability and capacity to successfully perform the contract at its offered price. See J.A. Farrington Janitorial Servs., B-296875, Oct. 18, 2005, 2005 CPD para. 187 at 4; CSE Constr., B‑291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4-5.

Here, although the RFP did not state that offerors' prices would be evaluated for "realism" per se, it effectively provided for such an evaluation where it established that the Air Force could reject a proposal if the offeror's low price reflected an inherent lack of competence or failure to comprehend the complexity and risks of the program. As explained above, analyzing whether an offeror's fixed price is so low that it reflects a lack of understanding of solicitation requirements is the crux of a price realism evaluation, and by informing offerors that their proposals would be evaluated in this regard, the RFP established that the Air Force would, in essence, assess offerors' prices for realism.

Having concluded that the RFP contemplated what was, in essence, a price realism assessment, the question becomes whether the Air Force properly evaluated CAE‑USA's price, in light of this provision. The record reflects that the Air Force reasonably considered CAE-USA's low price and concluded that its low price did not warrant rejection of CAE-USA's offer.

Notwithstanding the fact that the Air Force has argued that it was not required to evaluate CAE-USA's price for realism, throughout the evaluation process, the Air Force was, in fact, keenly aware of, and concerned about, how low CAE‑USA's total evaluated price was as compared to the total evaluated prices of the other offerors.[2] As reflected in the agency's initial evaluation documents, the Air Force evaluation team specifically questioned whether CAE‑USA's low price reflected its "failure to grasp overall complexity, technical understanding, and risks of the program." Agency Report (AR), Tab 4(a), Initial Evaluation Briefing Slides, at 54. As a consequence, the Air Force specifically raised the matter with CAE-USA in discussions. In one of the evaluation notices sent to CAE‑USA, the Air Force advised the firm that its proposed prices were "significantly below the government anticipated costs" and that it was the Air Force's belief that CAE-USA had "significantly underpriced its proposal," and asked CAE-USA to "carefully review all requirements and ensure that the proposed pricing for all CLINs is sufficient, such that the offeror is confident that [it] could perform all requirements of the contract in a profitable, or at least a non-loss pricing position." AR, Tab 5, CAE-USA Evaluation Notice, at 2-3.

During face-to-face discussions, CAE-USA explained that it had proposed [DELETED] for the fixed-price CLINs and stated that the KC-135 Aircrew Training Systems contract is a very important program for CAE-USA. This is an expansion of what we do every day internationally. We build and manage training centers all over the world. We have a lot of military operations, as well. We operate a C-130 training center – the only commercial C-130 training center in the world in Tampa, but we don't have an [Aircrew Training System] to manage. And this is very key to our strategic plan, so we were very aggressive in our approach. We understand that.
AR, Tab 6, CAE-USA Discussions Journal, at 51.

CAE-USA also provided a written response to the Air Force's concerns about its low price, and reiterated its position that the contract was very important and linked to CAE-USA's "corporate strategic goals." AR, Tab 5, CAE-USA Discussion Questions and Responses, at 3. CAE-USA emphasized that it operated multiple training centers throughout the world and that it had "a full grasp of the overall scope and complexity of the KC-135 program." Id. CAE-USA further explained as follows:

We performed a thorough analysis of the requirements of this effort. Based on our experience from relevant programs, we carefully estimated our costs incorporating efficiencies from lessons learned to offer the Government a competitive price. . . . We are confident that we can perform all requirements of the contract in a non-loss position.

Id.

After receiving final proposals, and reviewing CAE-USA's response to the evaluation notice question regarding its pricing, the Air Force again considered the fact that CAE‑USA's price was very low and concluded that it did not provide a basis to reject the proposal submitted by CAE-USA. AR, Tab 8.b, Final Evaluation Meeting Minutes, at 2.

FlightSafety argues that the Air Force's determination in this regard was not reasonably based because the Air Force merely accepted a general response from CAE-USA regarding its low price. According to FlightSafety, the Air Force should have more critically questioned and analyzed what it characterizes as "red flags" associated with CAE-USA's low price, such as CAE-USA's expectation that [DELETED] (the Air Force learned this fact as a consequence of CAE-USA explaining, during discussions, why it appeared that CAE-USA [DELETED]); the fact that it proposed [DELETED] for the fixed-price CLINs; the large disparity between CAE‑USA's prices for CLINs 0003 and 0004, as compared to those of FlightSafety (CAE-USA's prices for those CLINs were [DELTED] and accounted for [DELETED] the price difference); and the fact that CAE-USA was aggressively pricing the contract.

Notwithstanding the so-called "red flags" which FlightSafety maintains should have prompted greater concern within the Air Force, or at a minimum a more probing analysis, as noted above, the depth of an agency's price realism evaluation is a matter within the agency's discretion. Citywide Managing Servs. of Port Washington, Inc., supra. The record shows that the Air Force recognized that 1) CAE-USA's price was low as compared with the prices submitted by the other offerors; 2) the issue was raised with CAE-USA in discussions; 3) CAE-USA expressly confirmed its understanding of the requirements, an understanding supported by CAE-USA's experience performing similar requirements; and 4) CAE-USA explained that it was aggressively pursuing the contract and therefore intended for its price to be low since it viewed the contract as an important aspect of its corporate strategy. After considering CAE-USA's response, the Air Force declined to reject CAE-USA's proposal, thereby accepting CAE-USA explanations, as well as any of the risks that might underlie CAE-USA's low price. A more probing inquiry was simply not contemplated by the RFP, or otherwise required, given that the RFP did not provide for the submission of underlying cost information for CLINs 0003 and 0004 [DELETED]. To the extent FlightSafety believes that the magnitude of the price difference demonstrated that CAE-USA's price was too low to be acceptable, this argument reflects FlightSafety's disagreement with the agency's decision not to reject CAE-USA's proposal and does not provide a basis for our Office to conclude that the agency's decision in this regard was unreasonable.  (Flight Safety Services Corporation, B-403831; B-403831.2, December 9, 2010)  (pdf)

CTA next argues that the Army's evaluation of its price was fundamentally inconsistent with the evaluation methodology established by the TOPR [task order proposal request] and that it was unreasonable. In this regard, CTA contends that the TOPR merely provided that the Army would evaluate total price for reasonableness, and that the agency had no basis on which to find its labor rates unrealistically low. CTA also argues that it should not have been penalized because it did not separately price its incoming and outgoing transition efforts since the TOPR expressly authorized firms to identify contract line items as "not separately priced." CTA's arguments are without merit.

Where, as here, award is to be made on a fixed-rate basis, the realism of a firm's proposed labor rates is not ordinarily considered, since the risk and responsibility for contract costs and resulting profit or loss rests on the contractor. PharmChem, Inc., B-291725.3, et al., July 22, 2003, 2003 CPD para. 148 at 7. An agency may, however, at its discretion, provide for the use of a price realism analysis under a fixed-price solicitation for various reasons, such as to assess the risk in a firm's approach. Id. The nature and extent of an agency's price realism analysis are matters within the agency's discretion, and our review is limited to determining whether the evaluation was reasonable and consistent with the solicitation's evaluation criteria. Grove Resource Solutions, Inc., B-296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5.

Here, notwithstanding CTA's suggestions to the contrary, the TOPR specified that the Army would consider whether the underlying costs of firms' price proposals were realistic. In this regard, the TOPR required firms to provide labor rate information with their price proposals, and advised that "unsubstantiated costs that are considered unrealistic, not fully supported, or both, may cause the overall technical evaluation to be adjusted in one or more of the non cost/price evaluation factors." TOPR at 14.

As noted above, the Army identified CTA's labor rates for certain key personnel labor categories as being "well below the market rates for these positions." AR, Tab 5, Evaluation Board Consensus Report, at 29. The record reflects that the Army used various indicia of the labor market (i.e., the average labor rates for the same key personnel labor categories of the other TEAMS contractors, relevant GSA rates, as well as the labor rates actually billed by CTA in its performance of the incumbent contract) in reaching its conclusion that CTA's labor rates were significantly below market, and therefore unrealistic. While CTA maintains that the Army should have considered other indicia of the labor market which suggested that CTA's labor rates were not unrealistic—specifically, the labor rates of CTA's subcontractors, which were only somewhat higher than those used by CTA--we have no basis to conclude that the labor market research performed by the Army, which considered a wide range of labor rates, was inherently unreliable, unreasonable, or otherwise improper.

In the Army's view, CTA's failure to identify realistic labor rates increased the risk associated with CTA's technical proposal due to concerns about whether CTA would be able to hire and maintain key personnel with the level of technical expertise needed to perform as CTA had proposed. This finding of technical risk was consistent with the TOPR's evaluation scheme where the TOPR provided that unrealistic costs could be used as a basis for adjusting the technical evaluation findings, as well as one of the fundamental concepts of price realism analysis, which is to identify risk associated with a firm's technical approach. PharmChem, Inc., supra; Federal Acquisition Regulation sect. 15.404-1(d)(3) (explaining that cost realism analysis may be used on competitive fixed-price contracts to assess performance risk). Given this record, we have no basis to conclude that the Army acted unreasonably or contrary to the terms of the solicitation, procurement law, or regulation when it found that certain of CTA's key personnel labor rates were unrealistic, and associated the risk posed by this lack of price realism with CTA's technical performance in making the tradeoff decision.  (Computer Technology Associates, Inc., B-403798; B-403798.2, December 2, 2010)  (pdf)

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. Federal Acquisition Regulation (FAR) sections 15.305 (a)(1), 15.404-1(d); Frank A. Bloomer--Agency Tender Official, B-401482.2,B-401482.3, Oct. 19, 2009, 2009 CPD para. 203 at 10. 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. Id. 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. We will review an agency's cost realism analysis for reasonableness. ITT Fed. Servs. Int'l Corp., B-289863 et al., Dec. 16, 2002, 2002 CPD para. 216 at 2-3. We find that the agency's evaluation of MH's proposed cost was unreasonable.

Condition Report Estimates, Production Planning and Estimating, and Program Management Production Phase

MH asserts that the agency improperly calculated its probable cost to perform three aspects of the requirement relating to estimating and managing work to be accomplished under the contract. The crux of MH's argument is that the agency miscalculated the estimated number of hours per day, per availability required for this work, which resulted in the agency's arriving at a higher number of hours per day and a correspondingly higher cost. In these areas, the agency concedes that its methodology was flawed, as the protester asserts, and that it improperly added $[deleted] to MH's evaluated cost for these three items. Supp. AR, at 14-16. As the parties agree concerning the nature of the flaw in the agency's evaluation in these areas, we need not discuss them further; these aspects of the evaluation were unreasonable.

Ship's Force Parking

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. RFP at 165. 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. The protester states that this acquisition has enabled it to join the two parcels into one larger parcel, to place a security perimeter around the entire facility, and to create sufficient new parking for all of the ship's force for this contract. MH's proposal concluded as follows:

[deleted]

AR, exh. 17a, at E-1. 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.

The agency responds that the upward adjustment was reasonable because MH did not provide historical evidence showing that it had previously treated ship's force parking as an indirect, as opposed to a direct, cost. According to the agency, MH historically has charged ship's force parking as a direct cost, as evidenced by several recent contracts.

We find 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 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. In rejecting MH's approach, the agency relied solely on the fact that MH had billed this item as a direct cost under prior contracts. Given the explanation in MH's FPR, however, we think this sole reliance was unreasonable. 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.

Further, the agency ignored the fact that MH's proposed allocation of the cost of security guard services to an indirect cost pool was entirely consistent with the accounting practices specifically approved for MH by the Defense Contract Audit Agency (DCAA).  In this regard, the record shows that every iteration of MH's proposal included a copy of the latest version of its DCAA-approved forward pricing rate agreement. AR, exh., 3, attach. C.1-2; exh. 13b, attach. Q-7-1; exh. 17, attach. FPR2; see also AR, attach 3. These forward pricing rate agreements specifically identify watchman services as an indirect cost for accounting purposes.

We conclude 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; the record supports the conclusion that the amount of the improper upward adjustment was $[deleted].

Fire Watch

MH 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). MH proposed [deleted] hours of fire watch services per availability, but the agency adjusted its proposed hours upward to [deleted] hours per availability. MH concedes that its fire watch services hours were somewhat understated, but asserts that the upward adjustment to [deleted] hours per availability is excessive.

Fire watch hours were calculated as a percentage of production hours under the contract. The parties essentially now agree that [deleted] is the correct coefficient to apply (although during its evaluation, the agency used a figure of [deleted] percent), but disagree regarding the appropriate production hours basis to which the percentage should be applied. The protester maintains that it should have been applied to a basis of [deleted] production hours, whereas the agency maintains that the appropriate basis is [deleted] production hours (thereby yielding a new figure calculated during the protest of [deleted] fire watch hours per availability). The difference between the parties relates to whether certain hours should have been included in the basis as production hours. The protester maintains that two categories of production hours--"temporary services" and "pumping and cleaning"-- should have been excluded because neither of these categories requires performance of "hot work." The agency maintains that it was proper to include these hours because these categories could include hot work.

We agree with the protester that temporary services and pumping and cleaning should not have been included in the fire watch services calculation. The protester asserts--and the agency has not persuasively refuted--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. MH explains that, because these features involve a connection between the ship and shore, they must be flexible to accommodate the movement of the ship, and that welding, for example, would be impractical because it would result in a rigid, rather than a flexible, connection. MH concludes that all of this work must be accomplished without performing any hot work. Supp. Comments, Sept. 24, 2010, exh. 2, at 2. The protester further explains that cleaning and pumping involves the evacuation and cleaning of shipboard storage tanks that contain flammable materials such as gasoline, oil or lubricants. This work does not involve hot work (after cleaning and pumping the tanks, they must be certified "gas free" before any hot work can occur). Id. Again, the agency has not persuasively shown that this work could involve hot work.

Thus, we conclude 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. Accordingly, the appropriate production hours basis is [deleted] hours; applying the [deleted] percent coefficient yields [deleted] hours of fire watch services per availability.

As with the ship's force parking issue, the protester also asserts that the agency used an inappropriately high hourly rate when calculating the evaluated cost of fire watch services for MH. According to the protester, the agency used MH's skilled tradesmen average rate of $[deleted], rather than the rate of $[deleted] that it proposed. The agency essentially concedes that it used an inappropriately high hourly rate. In the final analysis, the record shows that the agency's calculation of the overstatement in this area was unreasonable due to the use of both excessive hours and an unreasonably high hourly rate, and that the overstatement is in the amount of $[deleted] for labor.  (The agency calculated an understatement in this area of $[deleted] based on the use of the lower hourly rate, AR at 22, n.19, but this calculation does not take into consideration the reduction of fire watch services hours resulting from the use of the lower production hours basis discussed above.)

Summary

The errors in the agency's cost evaluation discussed above resulted, conservatively, in an overstatement of MH's evaluated cost by $[deleted]. Reducing MH's evaluated cost by this amount would move its cost below Earl's. Since the source selection decision was premised on MH's cost being higher than Earl's, we conclude that the source selection decision was unreasonable, and sustain the protest on this basis.  (Marine Hydraulics International, Inc., B-403386; B-403386.2, November 3, 2010)  (pdf)

Aegis challenges the agency's conclusion that TigerSwan's lower price was realistic notwithstanding its significantly lower pricing for the security team CLINs. In this regard, Aegis asserts that the agency improperly failed to use the IGCE in its price realism analysis. Aegis also argues that the contracting officer's consideration of the [DELETED] task order to assess the realism of TigerSwan's pricing was unreasonable because the [DELETED] task order did not provide a valid basis for comparison since it involved convoy security services, which are less complex and expensive as compared with the personal security detail services required by the RFP, and because the contracting officer misunderstood and miscalculated the [DELETED] security team pricing.

Where an RFP contemplates the award of a fixed-price contract, an agency may, as here, provide in the solicitation for the use of a price realism analysis for the limited purpose of measuring an offeror's understanding of the requirements or to assess the risk inherent in an offeror's proposal. Puglia Eng'g of California, Inc., B‑297413 et al., Jan. 20, 2006, 2006 CPD para. 33 at 6. Although the Federal Acquisition Regulation (FAR) does not use the term "price realism," it states that cost realism analysis may be used to evaluate fixed-price proposals for purposes of assessing proposal risk, but not for the purpose of adjusting an offeror's evaluated price. FAR sect. 15.404-1(d)(3).

As our Office has repeatedly held, the depth of an agency's price realism is a matter within the sound exercise of the agency's discretion. Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD para. 6 at 4-5. In reviewing protests challenging price realism evaluations, our focus is on whether the agency's review was reasonable and consistent with the terms of the solicitation. Grove Resource Solutions, Inc., B-296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5.

Here, TigerSwan's pricing for its security teams was significantly lower than that of the other two offerors and the IGCE. The record reflects that the price difference stemmed primarily from TigerSwan's use of a different staffing approach, one which was based on a much less expensive workforce through its employment of TCNs, as opposed to expatriates. Given this difference in approach, simply comparing TigerSwan's pricing with the other offerors' pricing would not have been a valid approach to evaluating TigerSwan's pricing for realism. Similarly, the record reflects that the CO considered the IGCE as part of his realism assessment, but reasonably gave it "little weight" due, in part, to the fact that the IGCE was derived from the incumbent contract pricing, which was based on the extensive use of expatriate staffing for the security teams, whereas TigerSwan's pricing was premised on staffing its security team largely with TCNs. AR, Tab 10, Source Selection Decision, at 4.

Recognizing the problem with comparing TigerSwan's pricing with the other offerors' pricing and the IGCE, the agency sought to account for the different staffing approaches in its realism analysis by comparing TigerSwan's pricing with the pricing for the [DELETED] task order, where the security teams were composed primarily of TCNs and LNs as opposed to the significantly more expensive expatriates, an approach more closely aligned with the staffing approach used by TigerSwan.

As noted above, Aegis contends that the agency misunderstood and miscalculated the [DELETED] task order pricing and argues that the [DELETED] task order did not provide a valid basis for comparison since it involved less complex requirements. After accounting for these issues, Aegis asserts, it should have been apparent to the agency that TigerSwan's pricing actually was substantially lower than the [DELETED] pricing, and thus that TigerSwan's pricing was unrealistic. In our view, the record shows that the agency's realism analysis of TigerSwan's pricing was reasonable.

Aegis maintains that when the contracting officer found that TigerSwan's pricing for CLIN 0003 ($492,229) was in line with the [DELETED] task order security team price of [DELETED], he failed to appreciate the fact that TigerSwan's CLIN 0003 price reflected a price for two security teams, while the [DELETED] price was for only one security team. After accounting for this difference, Aegis argues, it is apparent that TigerSwan's security team pricing is actually much lower than that of the [DELETED]. The record reflects, however, that the contracting officer's price realism analysis was not based on a comparison of TigerSwan's total CLIN 0003 price for two teams with the [DELETED] total price for a single team. Rather, the contracting officer compared the average per person/per month prices for TigerSwan and the [DELETED], an approach which accounts for the different number of teams reflected in TigerSwan's and the [DELETED]'s total pricing. Using the per person pricing, the contracting officer was able to compare, albeit a somewhat crude comparison, the labor costs of two offerors' security teams, which had a similar staffing composition. Based on this comparison, the contracting officer concluded that TigerSwan's average per person monthly pricing was in line with [DELETED]'s average per person monthly pricing. Aegis' challenge in this regard is therefore without merit.

Aegis argues that the per person monthly price comparison was flawed because the per person/per month price for the [DELETED] task order security team was understated. In this regard, Aegis explains that the contracting officer erroneously calculated the per person price based on a team composed of [DELETED] individuals, yet the record reflects that the teams under the [DELETED] task order were composed of only [DELETED] members. Accounting for this difference, Aegis asserts, the average per person price for the [DELETED] security teams should have been [DELETED], not [DELETED].

In our view, the agency's calculation error was not material. The agency specifically concluded that TigerSwan's calculated per person/per month price of [DELETED] was in line with the [DELETED] price calculated for the [DELETED]. This comparison was, by its nature, limited since the [DELETED] pricing was based on fully burdened rates--the agency did not have a breakdown of the [DELETED] rate information (overhead, profit, etc.)--and the contracting officer did not know the country of origin of the TCNs used on the [DELETED] security teams. Moreover, this comparison was made relative to Aegis' much higher average per person monthly price of $26,631, the other basis of comparison. Given the limited nature, and context, of the agency's comparison, there is nothing to suggest that increasing this difference by $800 would have led the agency to conclude that TigerSwan's pricing was unrealistic.

Aegis also contends that it was unreasonable to compare pricing for the [DELETED] convoy security task order requirements with the RFP's PSD requirements since the requirements are not similar. To the extent the record indicates that the two requirements are not identical--the [DELETED] task order involved providing convoy escort security teams to protect 20-160 flatbed truck convoys and their drivers while en route to sites throughout Iraq, and the RFP's PSD work requires providing personal protection for individuals traveling throughout Iraq--the RFP established that the agency in fact considered the work to be comparable. Specifically, under the technical capability section, the RFP provided that experience of proposed personnel could be based on experience "in PSD operations or Convoy Security operations which shall carry equal weight when evaluated." RFP at 58. Similarly, the past performance factor provided that the agency's evaluation would be based on an assessment of an offeror's relevant past performance, "which includes PSD or Convoy Security missions." Id. at 59. Aegis' challenge to the agency's judgment in this regard constitutes mere disagreement, and does not establish that the agency acted unreasonably in using the [DELETED] task order as a basis for evaluating TigerSwan's pricing.  (Aegis Defence Services, B-403226; B-403226.2; B-403226.3,Ltd., October 1, 2010) (pdf)

The RFP included the GSA's standard Commercial Sales Practices Format for FSS contract awards, which offerors were required to complete as part of their proposals. The basic goal of the Commercial Sales Practices Format is to obtain appropriate and sufficient data, so that the contracting officer can perform a price analysis, determine price reasonableness, and develop objectives for negotiations. The Commercial Sales Practices Format requires offerors to "[p]rovide [for the previous year] the dollar value of sales to the general public at or based on an established catalog or market price." 48 C.F.R. sect. 515.408(b)(1). It also requires offerors to show the "total projected annual sales to the Government under this contract for the contract term, excluding options, for each SIN [Special Item Number] offered." 48 C.F.R. sect. 515.408(b)(2). Offerors were asked by the Commercial Sales Practices Format to provide information regarding their written discounting policies and to respond "yes" or "no" to the following question:


[A]re the discounts and any concessions which you offer the Government equal to or better than your best price (discount and concessions in any combination) offered to any customer acquiring the same items regardless of quantity or terms and conditions?
48 C.F.R. sect. 515.408(b)(2). The Commercial Sales Practices Format provides the following chart for offerors to complete for each SIN:

48 C.F.R. sect. 515.408(b)(4)(a). The instructions for this chart state:

Column 1-Identify the Applicable Customer or Category of Customer

A 'customer' is any entity, except the Federal Government, which acquires supplies or services from the Offeror. The term customer includes, but is not limited to original equipment manufacturers, value added resellers, state and local Governments, distributors, educational institutions (an elementary, junior high, or degree granting school which maintains a regular faculty and established curriculum and an organized body of students), dealers, national accounts, and end users. 

48 C.F.R. sect. 515.408(c). Offerors are also informed that, if they are a dealer or reseller "without significant sales to the general public," then the same information required by the Commercial Sales Practices Format would be required to be submitted for the manufacturers, "if the manufacturer's sales under any resulting contract are expected to exceed $500,000." 48 C.F.R. sect. 515.408(b)(5). "Th[is] information is required in order to enable the Government to make a determination that the offered price is fair and reasonable." Id. The RFP finally advised that offerors may be required to provide additional supporting information requested by the contracting officer, but only "to the extent necessary to determine whether the price(s) offered is fair and reasonable." 48 C.F.R. sect. 515.408(a)(3).

(sections deleted)

Affirmative argues that the agency improperly concluded that Affirmative lacked "significant sales to the general public," and that the agency's request for data about the commercial sales of the manufacturer was unreasonable. In this regard, the protester first contends that the VA was required to consider sales of commercial items to both Government and non‑Government customers as a reseller's "sales to the general public" in determining whether these sales were "significant" under 48 C.F.R. sect. 515.408(b)(5), which Affirmative claims GSA does in making awards under other FSS contracts. We disagree.

As noted above, the Commercial Sales Practices Format included in the solicitation is GSA's mechanism for evaluating whether FSS vendors are offering fair and reasonable commercial item prices. As quoted above, the instructions for the Commercial Sales Practices Format expressly provide that sales to the Federal Government are not counted in determining commercial sales to the general public. While the protester has provided evidence that the GSA has previously considered Federal Government sales in determining whether offered prices were reasonable in awarding other FSS contracts, we solicited the views of the GSA, which advised that "the Commercial Sales Practices Format requires offerors for FSS contracts to provide sales information for non-government customers, and specifically prohibits such sales information for sales to federal government customers." GSA Report at 7. We find that the VA reasonably decided not to consider Affirmative's sales to the Federal Government in determining whether or not it had significant levels of commercial sales to the general public under 48 C.F.R. sect. 515.408(b)(5).

Affirmative next argues that even if the contracting officer only considered Affirmative's $3.6 million in sales to two non-government hospitals, that amount, by itself, should have been considered significant. According to the protester, the GSA has regularly concluded under 48 C.F.R. sect. 515.408(b) that a reseller's sales of $3 million or less in commercial items constitutes "significant" sales to the public.

In response, the contracting officer stated:

In a vacuum, disclosed commercial sales of $3,650,471 for a Small Disadvantaged Veteran Owned Small Business who provides no value added services, such as Affirmative, might be considered to be significant. However, other factors became relevant as the potential FSS contract valuation escalated well beyond the Offeror's estimation and, consequently, Affirmative's commercial sales were assessed by the [contracting officer] to be insignificant. Such factors include 1) reported annual federal Government open market purchases of $29.6 million are much higher than commercial sales of $3.6 million; 2) commercial sales of $3.6 million to two private facilities are vastly insignificant when compared to Medtronic's [fiscal year] 2009 sales of $3.4 billion for the spinal product line being offered, and 3) terms afforded to two "Medical Centers" are typically not representative of the terms provided to the largest customers (such as GPOs and national accounts) in a sales base of $3.4 billion. 

Contracting Officer's Supp. Statement at 2.

The GSA states that it has provided no specific guidance to contracting officers about whether disclosed public sales are significant, to assist them in determining whether to request manufacturer data to ascertain whether the prices are fair and reasonable. The GSA states such contracting officer determinations are discretionary, taking into account information available through contractor disclosures and market research. Agency Report, Tab 18, Declaration of GSA Representative (July 7, 2010), at 4.

We agree that a determination concerning price reasonableness is a matter of administrative discretion involving the exercise of business judgment by the contracting officer; therefore, we will question such a determination only where it is clearly unreasonable or there is a showing of bad faith or fraud. Concepts Bldg. Sys., Inc., B-281995, May 13, 1999, 99-1 CPD para. 95 at 5. A contracting agency may reasonably conclude that offered prices are unreasonable under a multiple-award FSS procurement where the vendor provides insufficient data to support the allowance of such costs. American Seating Co., B-230171.36, Aug. 31, 1989, 89-2 CPD para. 195 at 5-6.

Based on our review, we find that the VA, in exercising its business judgment, reasonably determined that Affirmative's sales to the general public were not significant. Specifically, it was reasonable to consider the relatively small amount of these two commercial sales to individual hospitals compared to the $3.6 billion in total sales of these products by the manufacturer. See 48 C.F.R. sect. 538.270(c) (agency should consider such factors in determining Government's price negotiation objectives). In the VA's view, volume sales to entities such as national accounts would be far more relevant than Affirmative's limited commercial sales to two hospitals in assessing whether prices are fair and reasonable. See Contracting Officer's Supp. Statement at 1. Moreover, the contracting officer explains that because Affirmative reports insignificant sales to the general public, she was unable to determine if the prices offered are based on the manufacturer's commercial list price, a manufacturer's suggested retail price, or some other discounted starting point established by Affirmative as a dealer/reseller. Id. at 3. In sum, we think that the VA could reasonably determine that manufacturer information was required to determine whether the offered prices were fair and reasonable because the public sales were not considered significant under the circumstances.  (Affirmative Solutions, LLC, B-402996, September 8, 2010)  (pdf)

PJ asserts that the agency improperly determined that its price was unreasonable, noting that the agency actually found higher prices for B-214s to be reasonable under previous solicitations for services at the same bases, notwithstanding a virtually identical price differential. Protest at 2; Protester Comments at 3. PJ contends that the agency has offered no evidence for its proposition that the availability of aircraft supported different price reasonableness determinations under the different procurements. Protester’s Comments at 3.

In evaluating price reasonableness, agencies may use a variety of techniques, including comparison of the proposed prices received in response to the solicitation, comparison of the proposed prices to prices previously paid for the item being acquired, comparison of the prices proposed with published commercial price lists and comparison of the prices received with an independent government estimate. Federal Acquisition Regulation (FAR) sect. 15.404-1(b)(2). A price reasonableness determination is a matter of administrative discretion involving the exercise of business judgment by the contracting officer that we will question only where it is unreasonable. The Right One Co., B-290751.8, Dec. 9, 2002, 2002 CPD para. 214 at 5.

The price reasonableness determination here was unobjectionable. The agency used one of the acceptable evaluation methods specifically identified in the FAR--comparison of prices received--as the basis for its analysis, which revealed a significant price difference between the B-214 prices and the prices for other offered helicopters. While the protester points to the fact that similar prices were deemed reasonable under prior solicitations, the record shows that the agency was cognizant of that fact and, as noted, determined that, here, it was not under the same time and supply constraints that led to its contracting for B-214s at a similarly high price under those prior solicitations. Contrary to the protester’s position, we find that this rationale fully explains the agency’s different price reasonableness determination in this case. Moreover, the underlying premise of PJ’s argument--that a price reasonableness determination under a prior solicitation can affect the propriety of a current reasonableness determination--ignores the well-established principle that each federal procurement stands on its own. Sabreliner Corp., B-275163 et al., Dec. 31, 1996, 96-2 CPD para. 244 at 2 n.2. The fact that the Forest Service previously determined that B-214 prices were reasonable thus did not compel it to reach the same determination here.

PJ argues that the agency improperly rejected its B-214 helicopters based on price alone, without considering their technical merits. However, where an agency determines that a proposal offers unreasonably high prices, it properly may reject the proposal solely on that basis. Gold Cross Safety Corp., B-296099, June 13, 2005, 2005 CPD para. 118 at 2. In any case, as noted above, the record clearly indicates that, notwithstanding its finding that PJ’s price was unreasonable, the agency evaluated the technical merits of the B-214 helicopter and conducted a best value trade-off; it determined that, notwithstanding the B-214s’ higher technical rating, there was insufficient benefit to the agency to justify their significantly higher price. AR, Tab H, TET Summarization, Reference B, at 3; Tab I, Recommendation Letter to Source Selection Authority, at 6.  (PJ Helicopters, Inc., B-402524.2, May 20, 2010)  (pdf)

Metro protests that the Navy's cost realism analysis of BAE's proposal was improper insofar as the agency failed to adjust BAE's projected costs to account for the firm's increased employee pension costs. Metro alleges that, prior to the submission of FPRs, BAE was aware that the contribution rates to its employees' pension trust were increasing. The protester contends that neither BAE's FPR nor the Navy's cost realism analysis adjusted BAE's overhead rates to account for these increased pension costs. Metro argues that BAE's higher pension costs would have increased the offeror's total evaluated cost by approximately $5 million. Protest, Apr. 12, 2010, at 10-12.

On November 11, 2009, BAE received notice from the Boilermaker-Blacksmith National Pension Trust regarding pension contribution rate changes. The notice stated that the pension trustees had determined the adverse financial conditions affecting the pension fund would result in increased contribution rates from all contributing employers, effective January 1, 2010. The pension trust notice also contained a provision stating, "[i]f all or part of the [increase] is taken from employees' wages, this must be handled as a reduction of the employees' wage rate, rather than a deduction from the employees' wages." Id., Exh. 5, Pension Trust Notice, at 1-2.

The following facts are based largely on declarations of various BAE employees, which we have no reason to question. BAE conducted an extensive review of the pension trust notice with internal and external legal counsel and pension consultants in the weeks following its receipt. BAE submitted its FPR on December 4 without making adjustment for or mentioning the pension trust notice, and the CAP had no knowledge of any pension trust contribution increases when performing its cost realism analysis of the offerors' FPRs. AR, Apr. 21, 2010, at 10-12, attach. 1, Declaration of BAE Human Resources Director, Apr. 20, 2010, at 1-2, attach. 2, Declaration of BAE Finance Director, Apr. 20, 2010, at 1-3.

By December 9, BAE determined that the increased pension liability was a company responsibility; while the pension fund trustees were not a party to and did not have authority to modify BAE's employee wages as established by the parties' collective bargaining agreement (CBA), the trustees did have authority to increase the contributing employers' pension contributions. Even at this point, however, BAE was unaware of the cost impact of the increased pension liability on its Norfolk shipyard or its proposal, for various reasons. First, BAE believed that one option available to it--as suggested by the pension trust notice--was to reduce employee wages to offset any increase in BAE's required pension contributions. Additionally, BAE was then engaged in negotiations with the local IBB union for a new CBA which would determine, among other things, how BAE's higher pension contributions would be funded. Id.

BAE and the local union did not begin negotiations on the economic portion of the new CBA until January 2010. The Navy awarded the contract to BAE on February 19, and BAE concluded CBA negotiations with the local union on March 5. BAE's increased pension contributions were one of several issued addressed collectively in the CBA negotiations; while some of the contractor's labor costs increased, others were reduced. BAE subsequently calculated that the cost impact to its proposal here for the increased pension fund contributions was approximately $2.5 million. Id.

While under certain circumstances an offeror is required to advise the agency of material changes to its proposal, even after submission, in order to ensure that the agency's evaluation is based on consideration of the proposal as it actually exists at the time it is being evaluated, Greenleaf Constr. Co., Inc., B-293105.18, B-293105.19, Jan. 17, 2006, 2006 CPD para. 19 at 10; Dual, Inc., B-280719, Nov. 12, 1998, 98-2 CPD para. 133 at 3-6, we do not think that such a duty to report arose here given that the impact of the increased pension costs was not known until after award was made.

As detailed above, BAE received the pension fund notice on November 11 and had not determined whether this in fact represented a BAE financial liability prior to its December 4 FPR submission. Even after determining on December 9 that the increased pension liability was a company responsibility, BAE was unaware of the cost impact of the increased pension liability on its Norfolk shipyard or its proposal. As suggested by the pension trust notice, one option potentially available to BAE was to reduce employee wages to offset any increase in required pension contributions. Moreover, BAE was engaged in CBA negotiations with the local IBB union that would determine, among other things, how BAE's higher pension contributions would be funded. These CBA negotiations did not conclude until March 5, well after the February 19 award date. It was only at such time that BAE could realistically estimate the cost impact of the pension fund notice.

In sum, the record shows that the cost impact of the increased pension fund contribution was not certain enough prior to award to constitute a material change to BAE's proposal and, as a result, BAE was not required to advise the agency of the matter during the evaluation process.  (Metro Machine Corp., B-402567; B-402567.2, June 3, 2010)  (pdf)

Milani disputes the agency's determination that the firm's proposed price was unreasonably low, reflected a lack of understanding of the project requirements, and posed a performance risk. In this respect, Milani argues that it was improper for the agency to perform a price realism analysis because doing so in effect constituted application of an unspecified evaluation criterion; that Milani's prices--both by CLIN and overall--were not unrealistically low; and that the agency's price realism analysis was based on such limited information as to make its conclusions unreasonable. Comments, Oct. 29, 2009, at 8-22. As detailed below, we find the agency's decision to use a price realism analysis as part of the source selection to be improper.

Before awarding a fixed-price contract, an agency is required to determine that the price offered is fair and reasonable. Federal Acquisition Regulation (FAR) sect. 15.402(a). An agency's concern in making a price reasonableness determination focuses primarily on whether the offered prices are higher than warranted. See McDonnell Douglas Corp., B-259694.2, B‑259694.3, June 16, 1995, 95-2 CPD para. 51 at 9. Although not required, an agency may also provide for a price realism analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing whether an offeror's low price reflects on its understanding of the contract requirements or the risk inherent in an offeror's approach. Grove Resource Solutions, Inc., B-296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5. However, where there is no relevant evaluation criterion pertaining to realism or understanding, a determination that an offeror's price on a fixed-price contract is too low generally concerns the offeror's responsibility, i.e., the offeror's ability and capacity to successfully perform the contract at its offered price. See J.A. Farrington Janitorial Servs., B-296875, Oct. 18, 2005, 2005 CPD para. 187 at 4; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4-5.

Here, there was no technical or price evaluation factor providing for the evaluation of the offerors' understanding of the requirements such that a price realism analysis was reasonably foreseeable by the offerors. In this regard, the price evaluation factor provided only for the evaluation of the "reasonableness" of the proposed price (that is, whether the offeror's price was unreasonably high), and whether the price proposal was unbalanced, which is not contended here. See RFP sect. M.1.C. Moreover, the RFP did not request cost or pricing information or any other information that would allow the agency to reasonably determine that a low proposed price reflected a lack of understanding of the project requirements.

While the agency contends that the price realism analysis was proper in light of certain language in the RFP, see DOI Email to GAO, Dec. 14, 2009, we disagree. In our view, the solicitation provisions to which the agency refers did not provide offerors with adequate notice that NPS intended to perform a price realism analysis, especially since the price evaluation factor--under which such notice would logically appear--did not in any way suggest that a price realism analysis would be performed and offerors were not required to submit any cost or pricing information that could be used in such an analysis. The reference in RFP sect. M.1.B to "assessing the degree of risk associated with the proposal," is simply too general to constitute adequate notice that the agency would consider price realism in the source selection decision. In this regard, since the submission of even a "below-cost" price is not by itself improper, see Arctic Slope World Servs., Inc., B-284481, B-284481.2, Apr. 27, 2000, 2000 CPD para. 75 at 13, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or the risk associated with their proposal. See CSE Constr., supra. The RFP here did not meet this standard of reasonable notice.  (Milani Construction, LLC, B-401942, December 22, 2009) (pdf)

The RFP contemplated the award of a fixed-labor-rate, time-and-materials, incentive‑type contract to provide services at up to 81 sites. Offerors were required to propose labor categories, fixed labor rates, and the hours necessary to perform each task at each location. The RFP included an estimated number of hours the agency believed would be needed to perform each task at each location, but noted that this was an estimate only and that offerors were encouraged to propose efficiencies that would allow them to perform with fewer than the estimated hours. RFP at IV-5. The RFP provided that cost/price would be evaluated for reasonableness, realism and completeness; to be found realistic, prices were required to be realistic for the work to be performed, reflect a clear understanding of contract requirements, and be consistent with the technical proposal. RFP at V-6.

CMI maintains that the agency unreasonably found Perot’s proposed price to be realistic because it did not adequately consider the fact that Perot proposed fewer hours than the government estimated. More specifically, CMI asserts that the agency did not analyze the distribution of lower hours among labor categories, and did not compare Perot’s proposed hours to the government estimate by line item.

Agencies are not required to conduct an in-depth analysis or verify each and every item in conducting a realism analysis. Id.; Innovative Techs. Corp., B-401689 et al., Nov. 9, 2009, 2009 CPD para. 235. Our review of an agency’s realism evaluation is limited to determining whether it was reasonable and consistent with the solicitation. Teledyne-Commodore, LLC, B‑278408.5, B‑278408.6, Mar. 8, 1999, 99‑1 CPD para. 60 at 14.

In evaluating Perot’s price, the business evaluation team (BET) was concerned that Perot’s proposed hours were lower than the government estimate. Initial Business Evaluation Report, attach. 1, item 8. During discussions, the agency asked Perot to explain why the reduced hours did not put the government at risk. Id. In response, Perot, an incumbent subcontractor currently providing services at approximately 50% of the sites, outlined its methodology in developing its proposed labor hours [DELETED] Id. Perot provided details explaining how it reached its conclusions. For example, [DELETED] The BEC reviewed Perot’s explanation and found it acceptable. The BEC then provided Perot’s proposed labor hours to the technical evaluation committee (TEC), which determined that Perot’s staffing was adequate to perform given its proposed approach. Id.

The realism evaluation was unobjectionable. The agency was fully aware that Perot proposed fewer labor hours than provided for in the government estimate, and requested that Perot address its resulting concern. Perot fully explained its approach, detailing how its performance history as an incumbent subcontractor demonstrated how labor hour efficiencies were possible and the strategies it planned to utilize to ensure that it would meet its proposed efficiencies. While the protester may disagree with the agency’s ultimate judgment that Perot’s explanation was sufficient to support its proposal, nothing on the face of Perot’s explanation appears unreasonable, and CMI has not shown that the agency’s conclusions regarding Perot’s labor hours were incorrect or unreasonable. In this regard, the agency’s failure to analyze labor hours across labor categories and line items--as CMI asserts it should have done--is not a basis for objecting to the evaluation; again, there is no requirement that an agency follow a particular approach in its analysis, only that the approach followed be reasonable. Innovative Techs. Corp., supra. We conclude that the agency reasonably determined that Perot’s low proposed labor hours did not render its price unrealistic.  (CMI Management, Inc., B-402172; B-402172.2, January 26, 2010) (pdf)

Price Realism Evaluation of the CSC Proposal

Both protesters maintain that the agency unreasonably concluded that CSC's pricing was realistic. In this regard, the RFP required the agency to evaluate price proposals for realism as follows:

The Government will also evaluate the offeror's Total Evaluated Price to determine fairness and reasonableness, as well as realism. The Government will assess how well the Total Evaluated Price realistically reflects an understanding of the solicitation requirements as well as a consistency with the approach proposed by the Offeror in the Volumes

I-IV proposals [volume I to III were to include the firms' technical proposals while volume IV was to include the firms' price proposals].

ARs, exhs. 10, at GD BATES 795, Unisys BATES 803.

Price realism need not necessarily be considered in the evaluation of proposals for the award of a fixed-price contract, because these contracts place the risk of loss upon the contractor rather than the government. However, in light of various negative impacts on both the agency and the contractor that may result from an offeror's overly optimistic proposal, an agency may, as TSA did here, expressly provide that a price realism analysis will be performed in order to assess an offeror's understanding of the requirements and/or the risk inherent in a proposal. Health Net Fed. Servs., LLC, B-401652.3, B-401652.5, Nov. 4, 2009, 2009 CPD para. 220 at 19. In reviewing protests challenging an agency's evaluation of these matters, our focus is on whether the agency acted reasonably and in a manner consistent with the solicitation's requirements. Id.

Evaluation of CSC's Proposed Level of Effort

Unisys asserts that CSC's low proposed price should have been found to be unrealistic because it reflected proposed staffing that was both inadequate to meet the requirements of the RFP and inconsistent with staffing information included in the firm's technical/management proposal. The solicitation required offerors to propose staffing in four areas--business activities (BA), security (ITSEC), operational effectiveness (OE), and solutions delivery (SD)--and Unisys claims that there were significant disparities between the staffing in CSC's technical/management proposal and its pricing proposal.

The record bears out Unisys's allegation regarding the staffing disparity. In its technical/management proposal, CSC offered [deleted] full-time equivalents (FTE), allocated among the four staffing areas as follows: BA-[deleted], ITSEC-[deleted], OE-[deleted], and SD‑[deleted]. ARs, exhs. 21, at GD BATES 4469, 4481; Unisys BATES 4611, 4623. CSC's technical proposal further represented as follows:

Exhibit 3-2 [showing this staffing profile] illustrates our proposed staffing levels to perform the required services of the solicitation. Team CSC is proactively engaged to achieve this staffing at contract startup and throughout the life of the contract.

Id. at GD BATES 4469, Unisys BATES 4611 (emphasis supplied). Contrary to this representation, and in contrast to the staffing profile in CSC's technical/management proposal, CSC's price proposal contained staffing that decreased steadily through the option years, to a level significantly below that outlined in CSC's technical/ management proposal. The FTEs included in CSC's price proposal were as follows:

CSC Price Proposal, at 28A-30B. Thus, by the final year of contract performance, CSC's price proposal included [deleted] fewer FTEs--an approximately [deleted] percent reduction--than in its base year staffing.

We find nothing in CSC's proposal that adequately explains the decline in option year staffing in its price proposal, or the inconsistency between the staffing in its technical/ management and price proposals, and it appears that the agency was not aware of these staffing issues during the evaluation and award process. Nonetheless, the agency states that the TMET reviewed the technical/management proposals to determine whether adequate staffing was offered by the firms and that, thereafter, the PET reviewed the staffing in the price proposals to determine whether it was consistent with the staffing in the technical/management proposal. With respect to CSC's proposal, the final price evaluation report states as follows:

Labor Hours/Categories

We tested the proposed hours in Volume IV Price to the Staffing Plan in Volume II Management (of the tech proposals). In all cases the Staffing Plan FTEs tied to the price proposals. The Tech Team stated the Staffing Plans were adequate. We then had the Tech team chair review the proposed labor categories for the offerors and he determined that each offeror used realistic categories and hours for their offered technical solution. The three offerors proposed cost were determined to be realistic in relation to their proposed ITIP SOW technical solution.

ARs, exhs. 29, at GD BATES 6785, Unisys BATES 7850. Since there is no mention of the staffing disparity between CSC's technical/management and price proposals, the price evaluators appear not to have considered the disparity at the time their views were memorialized in the price evaluation report.

The agency has submitted several affidavits from its evaluators in an attempt to support its price realism evaluation of CSC's proposal. The first of these affidavits, executed by the chairman of the PET, states:

Labor Hours

We had a technical person as a member of the PET so he could review the proposed labor hours. During discussions we had questions to all Offerors about elements of the Basis of estimates. Our technical person determined that CSC's proposed labor hours were realistic. We also tested the proposed hours in Volume IV Price to the Staffing Plans in Volume II Management (of the tech proposals). In all cases the Staffing Plan FTEs tied to the price proposals. The staffing plans show that CSC proposed more FTEs than the other Offerors as shown in the table below.

As a last element of the realism for labor hours we had the Tech team chair review the proposed labor categories for the offerors and he determined that each offeror used realistic categories and hours for their offered technical solution. It should be noted that the labor hour analysis included the hours of all subcontractors. This way we could determine realism of the entire contract not just of the prime contractors work. At no time did the TET chair question the realism of CSC's proposed hours or labor rates.

Affidavit of PET Chairman, Nov. 12, 2009, at 8. Below this statement appeared a table in the affidavit that outlined what were purportedly a comparison of the offerors' option 1 staffing profiles. However, the hours noted in the table as included in the CSC proposal are the hours in the technical/management proposal, not the price proposal. Id. There is nothing in this statement that indicates the chairman was aware of, or ever considered, [deleted] or the disparity between the technical/management and price proposal staffing.

The agency furnished a second affidavit from the PET chairman elaborating on the representations in his first affidavit. That affidavit states (in relevant part) as follows:

When the PET traced the staffing plan from the Management proposal to the price proposal that was intended to verify accuracy. I did make a mistake in the Price Report and in my prior Declaration when I said the staffing plans were verified to the Option Year 1. The Staffing plans were verified to the Base Year of CSC Labor Distribution Table pages 28-A to 30-B. AR Tab 26 at Unisys 06488-90. While this is a mistake it has no bearing on the determination of realism of any of the proposals because both the technical person on the PET and the TET chair determined the proposed hours found within the CSC Proposal Volume IV--Price Proposal bases of estimates were realistic for CSC's approach.

Second Affidavit of PET Chairman, submitted by agency on Dec. 12, 2009, at 2.

We have no basis to question the chairman's explanation that only the base year staffing was considered in the realism evaluation. Indeed, this explanation is totally consistent with the fact that, as noted, proposed staffing in the base year of CSC's price proposal was similar to the staffing in its technical/management proposal. However, the evaluation was to include the option years and this statement still does not address the option year staffing decline in the price proposal. It certainly does not establish that the PET ever considered these issues in the evaluation.

The agency also furnished an affidavit from the member of the PET with expertise in the technical aspects of the requirement, who actually performed the detailed price realism evaluation referred to by the PET chairman; according to the agency, he was selected to perform this evaluation because, in addition to being capable of evaluating the proposed prices, he had the technical expertise necessary to assess the offerors' proposed solutions to meeting the agency's requirements. The PET evaluator states that he read the price proposals and, where necessary, the technical proposals, and that the focus of his evaluation was on the offerors' respective bases of estimates (BOE). More specifically, he states as follows:

[F]or this part of the evaluation I concentrated on BOE Attachment 1, which lists details on each section including: [deleted]. Attachment 1--BOE and Organization Charts, (pg 84-A through 431) [deleted]. For each CLIN and each section of the WBS, I verified that the proposed labor categories and the number of hours were in my professional opinion sufficient and reasonable to complete the work required by the SOW. Whenever I had questions or areas of concern/focus, I referred back to the specific sections of the SOW, the technical proposal and/or the management proposal to verify that the required function was adequately addressed either by CSC's approach, their experience, the proposed tools, covered in another section/CLIN, or was otherwise explained in sufficient detail as to present a reasonable solution and low risk to the government. If any questions or areas of focus remained I submitted them to the Price Evaluation Team, which passed them to the Technical Evaluation Team, and as appropriate to the Contracting Officer (CO) for clarification or discussion.

An example of the process is CLIN Y-5-12-0000, described on page 394-A of the BOE. CSC proposed [deleted]. I verified this against WBS section 5.12 and the SOW to ensure this was permissible and a valid method of supporting the requirements. This approach does represent a valid approach and per the BOE for CLINs Y-3-01-0000 & Y-3-03-0000 there are sufficient and appropriate resources to cover the function. The side effect of this and similar methodologies proposed by CSC [deleted]. This is a valid and arguably significantly more cost effective approach [deleted].
Affidavit of PET Evaluator, at 2.

While we find no basis for questioning the PET evaluator's statement that CSC was able to achieve certain efficiencies with its proposed staffing approach (and correspondingly reduce its overall staffing profile), this statement--as with the two statements by the PET chairman--does not address the fact that the staffing proposed in CSC's price proposal decreased significantly--by [deleted] FTE--in the option years of the contract and was inconsistent with the staffing in CSC's technical/management proposal.

We conclude that there is no indication in the record that the agency considered in the evaluation either the significant staffing decrease in the option years under CSC's price proposal, or the staffing inconsistency between CSC's price proposal and technical/management proposal. Meanwhile, it appears that the TMET based its technical findings and ratings of CSC's technical/management proposal on the underlying assumption that CSC was offering the staffing indicated in its technical/management proposal which contained the [deleted] staffing numbers. In light of the significantly different—[deleted]--staffing in CSC's price proposal, this assumption, without some explanation for the staffing inconsistency between the technical/management and the price proposals, was unwarranted. The staffing decline and disparity bear on both the realism and technical quality of CSC's proposal. It follows that the agency's evaluation conclusions that CSC's proposal was technically superior to the other two firms' proposals, and that its price was realistic, necessarily is not supported by the record. Pemco Aeroplex, Inc., B-310372, Dec. 27, 2007, 2007 CPD para. 2 at 10-12. Accordingly, we sustain this aspect of the protests.

Evaluation of CSC's Low Labor Rates

Both GD and Unisys assert that the agency's realism analysis failed to give adequate consideration to CSC's comparatively low proposed labor rates in light of the firm's proposal to hire incumbent personnel to perform the requirement. The protesters assert that such consideration was necessary for the purpose of determining whether CSC's proposed pricing (labor rates) was consistent with its proposed technical approach of hiring incumbent personnel. GD notes in this regard, for example, that the agency's evaluation found that CSC had the lowest proposed labor rates (among the three offerors) for [deleted] of the contract's 71 labor categories and that, within those categories, CSC's proposed rates are significantly--in some cases more than [deleted] percent--lower than the rates proposed by Unisys, the incumbent contractor. ARs, exhs. 29, at GD BATES 6780-6782, Unisys BATES 7845-7847. The protesters maintain that these low rates should have led the agency to question CSC's ability to implement its plan to hire incumbent personnel.

The agency responds, first, that the labor rates in all three of the offerors' contracts are not wage rates, but fully burdened hourly rates for categories of employees. The agency maintains that a comparison of the proposed labor rates alone therefore does not necessarily show that the actual wages to be paid by CSC are lower than the wages proposed by the incumbent. The agency also asserts that it considered the fact that CSC's proposal included the lowest proposed labor rates for many of the contract labor categories, but concluded that this would not be problematic because, for several key employee categories, CSC had offered the highest wages among all of the offerors; the agency reasoned that CSC would be able to attract the incumbent employees for these key personnel positions, and that its rates for the remaining labor categories were 'competitive." ARs, exhs. 30, at GD BATES 6807, Unisys BATES 7872.

We agree with the protesters that the evaluation in this area was unreasonable. First, the agency has presented, and the record contains, no evidence or information supporting its assertion that the comparison of CSC's and Unisys's fully burdened labor rates would not be meaningful because a comparison of these burdened rates would not effectively reflect the difference in the wages that actually will be paid. More specifically, the agency has not shown that it ever determined that there really was no substantial difference in the wage rate component of the burdened rates, and that the apparent difference was explained, for instance, by a substantial disparity in the two firms' indirect rates. To the extent that the agency evaluated the offerors' proposed rates, its evaluation was confined to a comparison of the fully burdened labor rates. ARs exhs. 29, at GD BATES 6780-6782; Unisys BATES 7845-7847. In the absence of such an analysis, there is no support in the record for the agency's assertion that the firms actually could--or would--pay similar wages, even though their proposed labor rates were dramatically different.

Second, it appears fundamentally inconsistent for the agency to assert, on the one hand, that the labor rates are not a meaningful basis for evaluation, and then, on the other hand, to state that it relied on the firms' comparative labor rates in finding that certain CSC high labor rates would better enable it to recruit, hire and retain a number of key personnel who would ensure CSC's successful performance. ARs. exhs. 30, at GD BATES 6807‑6808, Unisys BATES 7871-7872; Affidavit of Contracting Officer, Dec. 10, 2009, at 2-3. If, as the agency suggests, the firms' proposed labor rates provided no meaningful insight into wages actually to be paid, then it was unreasonable for the agency to rely on those same proposed rates to support a favorable evaluation of CSC's ability to recruit, hire and retain certain key personnel.

Third, not only is the agency's litigation position--that comparing CSC's labor rates to the incumbent's rates would not be meaningful--not reflected in the contemporaneous record, the record shows that, on the contrary, some concern was raised during the evaluation that CSC's proposed labor rates were so low as to indicate a risk that CSC would be unable to hire incumbent employees, as it proposed to do. Specifically, after the source selection recommendation was presented to the SSAC (which was comprised of the heads of each of the four functional areas under the task order), the director of the operational effectiveness (OE) division (one of the members of the SSAC) expressed concern regarding CSC's low proposed labor rates, stating:

Headquarters/Field/FC -- Based on the low labor rates provided by CSC, I feel that an evaluation of their rates be conducted to determine whether or not the successful hiring of incumbent staff could be accomplished. Not being able to hire incumbent staff members would pose a major risk to our daily operations based on the incumbents institutional knowledge of TSA and the customers that they support.

ARs, exhs. 31, at GD BATES 6820, Unisys BATES 7885. The record shows the agency determined that this concern was overstated because the OE division was 'not the most important subfactor within the factor." Contracting Officer's Affidavit, Dec. 10, 2009, at 4. The contracting officer explains, in this regard, as follows:

On September 1, 2009, the SSAC was reconvened to address the SSAC member memos [one of which is quoted above] and the SSA comments to v [version] 3.2 of the Source Selection Recommendation. During this meeting I addressed with [the Director of the OE division] and the rest of the SSAC the analysis of CSC's proposed labor rates. In addition, I affirmed that OE was not the most important subfactor within the factor and the evaluation team had determined the technical approach to be realistic and the level of staffing to support the approach to be realistic. I asked the SSAC if [the Director of the OE division's] concerns were of such a magnitude [as to merit my] direct[ing] the evaluation team to go back and look at the proposal for OE again. [The Director of the OE division] stated that given the order of importance he believed his concerns associated with CSC's proposal were acceptable and manageable by TSA and CSC management. The SSAC concurred with [the Director of the OE division] and agreed that the risk associated with CSC's support of OE were not unreasonable and expected during a transition of this size, scope and complexity and should not by itself prevent CSC from receiving award . . . .

CO Affidavit, Dec. 10, 2009, at 4. The record also contains an affidavit in which the SSA also describes the meeting discussed by the contracting officer above, and states further that, in light of that discussion, she considered the matter 'closed." SSA Affidavit, Dec. 11, 2009, at 2. The agency's briefs and other submissions similarly suggest that it viewed this concern as limited to the OE area. See, e.g., Supplemental Agency Report, GD Protest, at 6-8.

The above suggests that the agency ultimately disregarded CSC's low labor rates, not because there was no basis for comparing them to the incumbent rates, but because it concluded that the impact of the low rates was limited to the OE division. To the extent that this was the case, the agency's conclusion was not based on a complete examination of the proposed labor rates, since CSC's proposed labor rates were low by a significant margin across the board. Thus, the impact from any difficulties CSC experienced in recruiting incumbent employees based on inadequate compensation would not be limited to the OE division, but would extend to the entire contract effort in all functional areas. Simply stated, the fact that only the agency's OE director expressed concern about CSC's low labor rates did not provide a reasonable basis for the agency to conclude that the impact of low wage rates would be limited to the director's area of responsibility.

Finally, the record shows, that there was no reasonable basis for the agency to be unconcerned with CSC's comparatively low labor rates in the main, based on the fact that, for a few select labor categories, CSC offered the highest labor rates. The record shows that the number of labor categories considered by the agency in its analysis was [deleted][14], ARs, exhs. 30, at GD BATES 6807, Unisys BATES 7872, Contracting Officer's Affidavit, Dec. 10, 2009, at 2-3, and the number of employees proposed in these categories by CSC ([deleted] in the base year, declining to [deleted] in the final option year) is low in relation to the overall number of staff proposed by CSC ([deleted] in the base year, declining to [deleted] in the fourth option year). CSC Price Proposal, at 28‑A-30-B. Accordingly, it is not clear why CSC's high proposed rates for these key employees would be viewed as eliminating the need to consider CSC's low rates under the other labor categories, which include the overwhelming majority of CSC's proposed staff ([deleted] employees in the base year, declining to [deleted] employees in the fourth option year). Id.

The record thus shows that CSC's staffing strategy contemplated hiring incumbent personnel, but offered labor rates that were significantly lower than the rates proposed by the incumbent. The agency's failure to consider this price realism concern in both its price and technical evaluations was unreasonable, and we therefore also sustain this aspect of the protests.

In sum, and as noted at the outset of our discussion, agencies are not necessarily required to perform realism evaluations in fixed price contract settings. Nonetheless, if the agency undertakes to do so, as was the case here, its evaluation must be consistent with the provisions of the FAR governing the conduct of price realism evaluations, and more specifically, with any evaluation standards established in the solicitation. Here, the RFP provided generally for the agency to assess the realism of the proposed prices, and more specifically called for an evaluation of the consistency between the technical/management and price proposals, as well as an assessment of how well the firms' prices realistically reflected an understanding of the solicitation's requirements.

As the foregoing discussion demonstrates, the agency here did not observe, much less analyze, the fact that the staffing included in CSC's proposed pricing was inconsistent with the staffing proposed in its technical/management proposal; nor did the agency analyze the degree to which CSC's proposed prices--specifically its proposed labor rates--would enable it to implement its offered technical solution of hiring incumbent staff. Although the agency's numerous post hoc assertions have necessitated a somewhat lengthy discussion of these considerations, nonetheless, the agency has failed to establish that it performed an adequate price realism evaluation. (General Dynamics One Source, LLC; Unisys Corporation, B-400340.5; B-400340.6, January 20, 2010)  (pdf)

LexisNexis argues that the agency conducted an improper price evaluation because, in the protester's words, the agency "evaluated price based on a 15,240 user basis of total price for all CLINs, instead of evaluating based on the CLINs as specified in the solicitation." Initial Protest at 19. The protester also contends it was misled about the agency's intended pricing evaluation during discussions. LexisNexis maintains that had it known the Air Force was going to evaluate price based on an all user population, it would have offered a significantly lower price to the Air Force. We see no merit to either argument.

Before turning to the specifics of the agency's price evaluation, we note, as a preliminary matter, that the protester's arguments are based on an apparent misunderstanding during the debriefing between representatives of the Air Force and LexisNexis. In essence, LexisNexis left the debriefing with the view that the Air Force evaluated prices in a manner different from the stated evaluation scheme.

Our standard of review for a price evaluation is to determine whether it was reasonable and consistent with the solicitation's evaluation criteria. The Arora Group, Inc., B-277674, Nov. 10, 1997, 98-1 CPD para. 64 at 4. Based on our review of the record here, we see no support for the protester's contentions.

As explained above, the RFP clearly stated that offerors were to insert proposed unit and extended prices in the pricing schedule. The RFP then stated that offerors' proposed prices would be determined by multiplying the quantities identified in the price schedule by the proposed unit price for each CLIN to confirm the extended amount for each. The extended amounts would then be added together to determine the total evaluated price. This is exactly how the agency performed its price evaluation.

While the protester argues that the RFP (and the ENs provided during discussions) led it to propose pricing that was based on economies of scale for each individual CLIN, it is clear that the pricing strategy used by the protester was not required by the RFP. The RFP required only that offerors provide pricing for each individual CLIN and that this price be multiplied by the listed quantities for that CLIN to determine the extended price.

We also do not think the ENs issued to the protester were misleading. During discussions, the agency expressed concern that the protester's prices appeared to be unbalanced in that some CLINs were discounted, while others contained higher prices. As previously stated, the RFP specifically stated that prices were to be evaluated to determine if they are unbalanced.

Moreover, the protester has not suggested how the price evaluation should have been conducted in order to be based purely on a per-CLIN basis. In any event, the record shows that for all CLINs, except one, West's proposed per user/total price was lower than the protester's proposed price. AR, Tab 22, Price Memo at 4.

The protest is denied.  (LexisNexis, B-402114, December 30, 2009)  (pdf)

Health Net challenges TMA’s price/cost evaluation in several respects. Among other things, Health Net contends that TMA’s price realism evaluation regarding AGHP’s proposal was flawed because it failed to reasonably consider AGHP’s low staffing for PMPM. Health Net also argues that TMA failed to reasonably consider whether AGHP’s proposed employee compensation posed a risk to AGHP’s proposed plan to hire large numbers of incumbent employees. We agree.

Price realism is not ordinarily considered in the evaluation of proposals for the award of a fixed-price contract, because these contracts place the risk of loss upon the contractor. However, in light of various negative impacts on both the agency and the contractor that may result from an offeror’s overly optimistic proposal, an agency may, as here, expressly provide that a price realism analysis will be applied in order to measure the offeror’s understanding of the requirements and/or to assess the risk inherent in an offeror’s proposal. See, e.g., Wackenhut Servs., Inc., B-286037, B‑286037.2, Nov. 14, 2000, 2001 CPD para. 114 at 3; Molina Eng’g, Ltd./Tri-J Indus., Inc. Joint Venture, B-284895, May 22, 2000, 2000 CPD para. 86 at 4. Although the FAR identifies permissible price analysis techniques, FAR sect. 15.404-1, it does not mandate any particular approach; rather, the nature and extent of a price realism analysis, as well as an assessment of potential risk associated with a proposed price, are generally within the sound exercise of the agency’s discretion. See Comprehensive Health Servs., Inc., B‑310553, Dec. 27, 2007, 2008 CPD para. 9 at 8; Legacy Mgmt. Solutions, LLC, B‑299981.2, B-299981.4, Oct. 10, 2007, 2007 CPD para.197 at 3. In reviewing protests challenging an agency’s evaluation of these matters, our focus is whether the agency acted reasonably and in a way consistent with the solicitation’s requirements. See, e.g., Grove Res. Solutions, Inc., B‑296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5.

The record reflects that CLIN X009, PMPM, accounted for [Deleted] of the price differential between AGHP’s and Health Net’s proposals. TMA’s price/cost Chairperson attributed this difference to [Deleted] factors: [Deleted] and FTEs. As noted above, in her report, the price/cost Chairperson noted significant differences in the AGHP and Health Net proposed direct-labor FTE staffing for this CLIN, with AGHP maintaining [Deleted] fewer FTEs than Health Net (a difference of [Deleted]) for the first year, with the difference increasing to [Deleted] FTEs [Deleted] in year 5. AR, Tab 12, Price/Cost Report, at 8.

Acknowledging AGHP’s lower FTE staffing for PMPM, the price/cost Chairperson noted that the TET had “concluded that Aetna proposed adequate staffing to perform the contract requirements.” AR, Tab 12, Price/Cost Report, at 8. The record reflects, however, that the TET was not privy to offerors’ proposed staffing by CLIN for either offeror; rather, the TET only reviewed Health Net’s and AGHP’s staffing for year 1 by “function” in the context of their overall staffing, as identified in each offeror’s technical proposal. Thus, the technical team never in fact specifically reviewed or evaluated Health Net’s or AGHP’s staffing for the PMPM CLIN, or any other CLIN for that matter. Tr. at 1069, 1092, 1196. Given the TET’s lack of information or analysis regarding this matter, to the extent the price/cost Chairperson relied on the TET’s staffing assessments for Health Net and AGHP, it did not provide any technical analysis regarding the widely disparate labor allocations between the offerors for the PMPM CLIN. Moreover, the price/cost Chairperson indicated that she lacked a technical understanding of how the offerors would perform the work and did not necessarily know which functions corresponded to the various CLINs. Tr. at 1070.

Evidently, in an effort to assess whether AGHP’s staffing was too low for the PMPM CLIN, and thereby reflected a lack of understanding of the technical requirements or created performance risk, the price/cost Chairperson compared all offerors’ proposed staffing across all regions. Although unstated, it appears that given her lack of technical understanding, the price/cost Chairperson’s rationale for performing this high level comparison across regions was that if Health Net’s and AGHP’s total staffing, (which the TET had found to be adequate) was in line or out of line with the proposed staffing of other offerors, then, by analogy, one could conclude that Health Net’s and AGHP’s PMPM staffing was similarly either in line or out of line with other offerors’. Depending on the outcome of this comparison, the price/cost Chairperson would then be able to determine whether the staffing difference was meaningful. Ultimately finding that Health Net had the [Deleted], and AGHP did not have the lowest total staffing, it appears that the price/cost Chairperson concluded that the PMPM staffing differential was likely due to the fact that Health Net’s overall approach was based on using higher staffing, and thus while AGHP had lower PMPM staffing, AGHP’s staffing was not indicative of a lack of understanding nor would it appear to present technical risk. AR, Tab 12a, Price/Cost Work Papers, at 73.

As an initial matter, we find such a high level comparison of total staffing to be of limited value in analyzing the realism associated with staffing for individual CLINs. Rather, one would expect the TET to have considered the offeror’s staffing at the CLIN level to assess whether the proposed staffing was realistic, or reflected a lack of technical understanding or created performance risk based on the specific technical approach of the offeror. See FAR sect. 15.404-1 (realism analysis based on “unique methods of performance and materials described in the offeror’s technical proposal”); Hughes STX Corp., B-278466, Feb. 2, 1998, 98-1 CPD para. 52 at 8 (sustaining protest where agency failed to consider offeror’s technical approach as part of realism evaluation). Thus, any comparison of offerors’ staffing for the purpose of assessing realism is an inherently limited methodology given the requirement to consider each offeror’s unique technical approach. In any event, as explained below, the price/cost Chairperson’s evaluation was inherently flawed because in performing her high-level comparison of total staffing, she based her comparison on total staffing levels, which were never in fact considered by the TET and therefore had not been assessed for technical capability to meet CLIN requirements. This disconnect severed the link, already tenuous, between the TET’s technical findings regarding offerors’ overall staffing and the price/cost Chairperson’s efforts to gain insight regarding the significant staffing differential for the PMPM CLIN.

The RFP required offerors to submit a staffing chart as part of their technical proposals, showing “all staffing” needed to perform the T-3 requirements. RFP at 102. In their technical proposals, all offerors, for all regions, submitted their total staffing charts, which provided the basis for the TET’s technical evaluation. Tr. 1058, 1189-90. Although not required, some offerors, in their technical proposal staffing charts, identified staffing positions as corresponding to “direct” FTEs, and categorized others as “indirect” FTEs. The TET, however, as noted above, based its technical evaluation on total staffing, without regard to whether the FTEs had been identified as “direct” or “indirect.”

In her total staffing comparison, however, the price/cost Chairperson admittedly only compared offerors’ total proposed “direct” FTEs. This had the effect of carving out significant numbers of FTEs from several offerors’ proposals when comparing total staffing. Using an “average direct” FTE analysis, as the Price/Cost Chairperson did, the resulting comparison was as follows:

(table deleted because useful information was deleted from table)

AR, Tab 12a, Price/Cost Working Papers, at 73; Price/Cost Chairperson Declaration, Sept. 10, 2009.

When comparing all offerors’ total staffing, including their direct and indirect FTEs, as the TET had evaluated them, a different picture emerges, with Health Net positioned towards the middle, and AGHP second from the bottom:

(table deleted because useful information was deleted from table)

Protester’s Filing Regarding FTEs & Price Realism, Sept. 29, 2009, Second Supp. Decl. of Protester’s Consultant, at 2.

By focusing her comparison on “average direct” FTEs, the price/cost Chairperson’s comparison did not align with the underlying basis for the TET’s technical findings, which were based on all staffing, as proposed by the offerors, to include direct and indirect FTEs, and, given her admitted limited ability to make technical evaluations, her analysis could not have provided a reliable substitute for determining AGHP’s technical understanding or proposal risk. Moreover, with Health Net towards the middle, and AGHP towards the bottom, of total proposed FTEs, as staffing had been evaluated by the TET, the very premise of TMA’s determination that the large difference in PMPM staffing between offerors was merely a reflection of Health Net’s generally high staffing approach, is without a basis.

TMA argues that it was proper to consider only direct FTEs since offerors were only asked to submit direct FTE staffing with their price/cost proposals, and because there is great variability in how offerors account for “indirect” staff in building up their prices. TMA explains that, depending on the offerors’ various accounting methodologies, some offerors may choose to identify all their staffing as direct FTEs, while others may identify indirect FTEs, or not identify indirect staffing at all, rather including it as part of their general and administrative rates. According to TMA, such an evaluation would be comparing “apples-to-oranges.” We find TMA’s arguments to be unpersuasive.

First, TMA in fact required AGHP, and other offerors, to provide a crosswalk of FTEs to specifically address any differences between staffing in their technical and price proposals. The crosswalk submitted by AGHP specifically identifies its total staffing, not merely AGHP’s direct staffing. AR, Tab 73, AGHP Price/Cost Proposal, at 774-778. Moreover, the record reflects that the price proposals for all offerors identified their total staffing, including direct and indirect FTEs. Regarding the second issue, TMA mistakenly highlights different ways that offerors build up their prices as a basis for not knowing how their staffing compared, when a true apples-to-apples comparison in fact existed in the offerors’ “total staffing,” which they were required to identify in their technical proposals. RFP at 95. This staffing, which was to reflect “total staffing” necessary to perform the requirements, was to be identified regardless of how the offeror built up its price and whether it reflected direct or indirect FTEs.

In assessing realism, TMA also failed to reasonably assess whether AGHP’s proposed technical approach of hiring incumbent employees was realistic. In its technical proposal, AGHP clearly indicated that it intended to hire a “high percentage” of the outgoing contractor’s employees, to include “managers” for the purpose of performing certain functions, to include case management, activities at the TSCs, and call center operations. AR, Tab 72, AGHP Final Technical Proposal, at 233, 299-300. Moreover, in its price/cost proposal, AGHP added some greater specificity to its plans, stating that it anticipated hiring [Deleted] of its TSC staff and [Deleted] of the Hampton, Virginia (“Tidewater”) Operations Center staff from the outgoing contractor, Health Net. AGHP had proposed 252.25 FTEs for the TSCs and 288.75 FTEs at the Tidewater Operations Center. AR, Tab 72, AGHP Final Technical Proposal, at 386.

In this regard, the TET Chairperson testified that AGHP’s approach was “to hire outgoing staff from Health Net, particularly in TRICARE service centers and at the [Tidewater Operations Center].” Tr. at 1241. She further explained that the TET believed this to be a “good practice,” and that it reflected “clear advantages,” particularly with respect to customer service activities. Tr. at 1242-43. The record also reflects that AGHP was assigned a rating of “low risk” regarding its approach to the “beneficiary satisfaction/customer service” subfactor.

Health Net argues that, notwithstanding AGHP’s proposed plan to hire “high percentages” of Health Net’s employees and the advantages accompanying such an approach, TMA never in fact considered whether AGHP’s approach in this regard was realistic because it never compared AGHP’s proposed compensation to the compensation that Health Net is providing. According to Health Net, had TMA done such a comparison, TMA would have realized that AGHP’s proposed compensation was significantly lower than Health Net’s, thereby undermining AGHP’s ability to achieve its plan to capture the incumbent workforce.

In its defense, TMA maintains that there is nothing to suggest that AGHP would not simply pay the difference. Because AGHP has demonstrated a willingness to absorb large costs in other areas, TMA argues “it cannot logically be argued that AGHP would not pay a few dollars more per hour to a handful of employees if that is what it took to perform the contract.” TMA’s Second Agency Report, at 84. This argument, however, fundamentally misunderstands the nature of a fixed-price contract. If AGHP’s technical approach of hiring the incumbent workforce proves more costly than anticipated, AGHP, because it bears the risk, has two options: either pay more to hire these individuals, and thereby take less profit than anticipated, or simply hire non‑incumbents at a lower rate. The latter of the two options, however, would not achieve the advantages associated with AGHP’s proposed approach. A proper realism evaluation alerts agencies to those aspects of an offeror’s technical proposal which do not appear to be feasible based on what the offeror has indicated in its price proposal. As a consequence, on the record here, we find that TMA failed to consider the realism of AGHP’s proposed approach based on hiring the incumbent workforce. Cf. Magellan Health Servs., B‑298912, Jan. 5, 2007, 2007 CPD para. 81 at 16-17 (sustaining protest challenging agency’s cost realism evaluation where the agency failed to reasonably adjust awardee’s costs based on its proposed approach to capture the incumbent workforce).  (Health Net Federal Services, LLC, B-401652.3; B-401652.5, November 4, 2009)  (pdf)

EMS challenges the Navy's determination that its proposed price was unreasonable. First, EMS asserts that there were several flaws in the original IGE used by the agency in evaluating initial proposals. EMS Letter, Sept. 4, 2009, at 5. For example, EMS points-out that the original IGE was not revised to reflect deletion from the RFP of a requirement for dry ice ventilation cleaning and asserts that the Navy's decision to leave the IGE "as is" was based on an improper hypothetical calculation of what the remaining services would cost, without a comprehensive review and market analysis. Id. at 6. Further, EMS asserts that the Navy's use of the IGE was not based on market research and did not involve "careful consideration of the products or services being acquired." Id. at 5.

These arguments are without merit. First, as the Navy points out, while the original IGE challenged by the protester was used in the initial evaluation, it was not used in the evaluation of FPRs. Navy Letter, Sept. 10, 2009, at 4. Rather, the Navy's evaluation was based on the IGE as revised following issuance of amendment No. 8, together with a comparison with other proposed prices. As discussed, the IGE revisions were aimed at resolving the CLIN discrepancies underlying the protester's challenge to the original IGE. Id.; PNM at 7. EMS also challenges the revised IGE, asserting that the Navy "fails to explain how the [revised] IGE was calculated or to give any indication that it was prepared any differently than the first IGE or the 'market' average." EMS Letter, Sept. 17, 2009, at 2. However, this assertion fails to state a valid basis of protest, since the protester has provided no argument or evidence indicating that the new IGE may have been erroneous. See, e.g., Saturn Landscape Plus, Inc., B-297450.3, Apr. 18, 2006, 2006 CPD para. 70 at 9. For example, unlike its challenge to the original IGE, EMS does not identify any specific alleged flaws in the revised IGE. The Navy was not required to "explain" its IGE in the absence of a valid protest assertion that the IGE is in some way erroneous.

EMS asserts that the agency's reliance on a comparison of offerors' prices was unreasonable, since it included only the proposed prices, rather than prices in the "larger market place." EMS Letter, Sept. 4, 2009, at 6. This argument is without merit. The FAR specifically provides that a price reasonableness determination may be based on a comparison of prices received in response to the solicitation. FAR sect. 15.404-1(b)(2)(i); Comprehensive Health Servs., Inc., B‑310553, Dec. 27, 2007, 2008 CPD para. 9 at 8. There is no requirement that an agency consider broader marketplace prices in its analysis.

Before awarding a fixed-price contract, an agency is required to determine that the offered price is fair and reasonable, FAR sect. 15.402(a); CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4. Because the Navy found EMS's proposed price to be unreasonable, EMS was ineligible for award. (EMS Ice, Inc., B-401688.3; B-401688.6, October 8, 2009) (pdf)

Offerors were required to submit a fixed-price coefficient multiplier for several areas identified in the RFP. The coefficients proposed by the offerors were to be multiplied by the unit prices in the RS Means (RSM) Facilities Construction Cost Data Book, a trade publication, to calculate a price for individual task orders. The RFP further provided that these coefficients must include, among other items, contractor's and subcontractor's overhead and profit; insurance; all costs associated with bonding; employee payroll taxes, insurance and fringe benefits; business taxes; and sales taxes. The RFP stated that each coefficient would be evaluated to determine cost reasonableness and completeness of the coefficient in terms of the agency's requirement. Id.

(sections deleted)

The RFP provided that price would be evaluated using price and/or cost analysis techniques to determine the reasonableness and completeness of each offeror's proposed coefficient. RFP, amend. 2, at 68. The RFP stated that the government was interested in proposals that offer value in meeting the requirements, with an acceptable performance risk, at a fair and reasonable price. Id.

Price realism is not ordinarily a consideration in fixed-price contracts, since the risk of performing the contract at the proposed price is borne by the contractor. Here, however, the agency elected to use a price realism review not to evaluate prices, but to assess the risk of poor performance in an offeror's approach and to measure each offeror's understanding of the solicitation's technical requirements. PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD para. 381 at 5. The manner in which a price realism analysis is conducted is a matter subject to a contracting agency's sound discretion, which we will not disturb unless it lacks a reasonable basis. OMV Med., Inc., B-281490, Feb. 16, 1999, 99-1 CPD para. 38 at 8.

In our view, the agency's price realism analysis was reasonable. DMS's protest is primarily based on its belief that the agency simply compared the proposed coefficients and did not consider He & I's substantial reductions in price over the course of this extended procurement. DMS also contends that He & I's price coefficient does not contain all the elements required by the RFP.

The record shows that the agency specifically determined that each offeror's total proposed coefficients were realistic based on each offeror's understanding of the complexity and risk associated with the requirement. AR, Tab 35, Source Selection Document at 12. In this regard, the price analysis recognized that He & I calculated its coefficient factors using the latest five years of actual historical cost figures derived from 222 actual job order contract projects at Fort Sill, as well as using the 2009 Means Facility Construction Cost Data. AR, Tab 34, Price Evaluation Report, FPR at 3. In fact, the agency specifically found that He & I's proposal actually posed significantly less risk than the other proposals. Id.

To the extent that DMS argues that He & I omitted certain cost elements from its coefficient calculation, DMS's complaint amounts to no more than a challenge to He & I's submission of a below-cost proposal. Such a complaint does not provide a basis for protest as there is no prohibition against an agency's decision to accept a below-cost proposal on a fixed-price contract. Ocean House Builders, B-283057, Sept. 21, 1999, 99-2 CPD para. 53 at 6. To the extent DMS is arguing that He & I cannot perform this work at its proposed price, this matter concerns He & I's responsibility. We will not consider protests challenging affirmative determinations of responsibility except under limited, specified exceptions that are not applicable here. 4 C.F.R. sect. 21.5(c) (2009); T. F. Boyle Transp., Inc., B-310708, B-310708.2, Jan. 29, 2008, 2008 CPD para. 52 at 5. As explained above, the agency specifically determined that He & I's low coefficient did not indicate a lack of understanding of the requirement. On this record, we have no basis to conclude that this determination was unreasonable.  (DMS-All Star Joint Venture, B-310932.6; B-310932.7,October 9, 2009)  (pdf)

FedSys argues that the Army's cost realism evaluation made two unreasonable adjustments to the protester's proposed costs. These two adjustments increased FedSys' evaluated costs by approximately $[deleted] million, and narrowed the difference between FedSys' costs and ATS's higher costs from approximately [deleted] percent to approximately 3 percent. For the reasons discussed below, we find no merit to the protester's arguments.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror's proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Federal Acquisition Regulation (FAR) sections 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD para. 25 at 7. Consequently, the agency must perform a cost realism analysis to determine the extent to which an offeror's proposed costs are realistic for the work to be performed. FAR sect. 15.404-1(d)(1).

First, the protester contends that the agency made an improper adjustment to its proposed labor hours. As discussed above, offerors were required to propose 40 hour workweeks for CONUS employees, 80 hour workweeks for OCONUS employees, and were advised that OCONUS labor costs should include a premium for hazard and hardship pay. RFP amend. 2, Q&A 1; RFP amend. 2, Q&A 18. The protester's cost proposal, however, stated that FedSys and O'Gara personnel, both CONUS and OCONUS, would work [deleted] hours per year--corresponding to 40 hour workweeks. AR, Tab 15, FedSys Cost Proposal, Schedule 1 (FedSys Direct Labor); Schedule 2 (O'Gara Direct Labor). The cost proposal did not state whether hazard and premium pay was included. Id. In response, the Army adjusted the proposed OCONUS salaries for FedSys and O'Gara, to account for 80 hour workweeks, and to add a 35 percent premium for hazard and hardship pay. AR, Tab 9, Cost and Price Analysis, at 4, 10.

FedSys concedes that its cost proposal worksheets showed 40 hour workweeks for its OCONUS personnel, rather than the 80 hour workweeks required by the RFP. Protester's Comments on AR at 3-4. FedSys argues, however, that the cost adjustment was not warranted because the proposed salaries were correct, and the proposal’s reference to [deleted] hours per year, rather than [deleted] hours per year, was simply an error. In this regard, the protester points to its higher proposed salaries for OCONUS personnel--which were more than twice those proposed for CONUS personnel--as evidence that it was offering both the higher hours and hardship and hazard pay, and argues that it should have been clear to the Army that the proposal was compliant with the terms of the solicitation. Id. In addition, the protester argues that the agency's adjustment of the OCONUS salaries led to an "absurd" result, whereby the evaluated salaries for OCONUS personnel were two to three times higher than proposed, and more than five times higher than it proposed for CONUS personnel.

To the extent the protester argues that the agency should have understood or inferred that the higher salaries were intended to reflect the protester intention to propose 80 hour workweeks for OCONUS personnel, we disagree. The protester's proposal, on its face, listed salaries and labor rates for OCONUS personnel, but indicated that those rates and salaries applied to 40 hour workweeks. The protester does not argue, and the record does not show, that the proposal explained that the higher salaries for OCONUS personnel were intended to reflect 80 hour workweeks or hazard and hardship pay.

Moreover, we do not agree with the protester's contention that the salaries proposed for OCONUS personnel clearly demonstrate that the protester intended for the higher salaries to cover 80 hour workweeks and hazard and hardship pay. In this regard, the data provided in FedSys' cost proposal were internally consistent, that is, both the hourly rate and the salaries for employees were consistent with 40 hour workweeks. Thus, even if, as the protester contends, its proposed salaries are correct and its proposal erroneously listed [deleted] instead of [deleted] hours, the protester would also have had to change the labor rates proposed for each position.

Further, while the salaries proposed by FedSys for its OCONUS employees were more than twice those proposed for its CONUS personnel, this was not the case for its subcontractor, O'Gara. In this regard, the salaries proposed by FedSys for OCONUS personnel for 40 hour workweeks ranged from [deleted] to [deleted] times higher than those proposed for CONUS personnel for 40 hour workweeks. AR, Tab 15, FedSys Cost Proposal, Schedule 1 (FedSys Direct Labor). In contrast, O'Gara's proposed OCONUS salaries were only [deleted] to [deleted] times as high as those it proposed for CONUS personnel. Id., Schedule 2 (O’Gara Direct Labor). If FedSys' argument were correct--i.e., that the proposed salaries were accurate and were intended to reflect 80 hour workweeks plus hazard and hardship pay--O’Gara would be paying its OCONUS personnel less per hour than its CONUS personnel.

Under the circumstances, we think the Army was required to address the shortfall between the 40 hour workweeks proposed by the FedSys, and the 80 hour workweeks required by the RFP. We do not think that the record here shows that the agency should have understood the protester's proposal to have included all of the required hours as well as hazard and hardship pay for OCONUS personnel. As a result, we think that the agency's cost realism adjustment was reasonable.

Second, while FedSys again concedes that it failed to propose any travel costs for OCONUS personnel, as required by the RFP, it argues that the independent government cost estimate (IGCE) for the travel costs used by the agency in its adjustment ($408,522 per year) was too high. An agency may reasonably use an IGCE or its past experience in assessing the realism of an offeror's approach, and we will not sustain a protest of an agency's cost estimate where the protester does not show that the agency's estimates are unreasonable. Pueblo Envtl. Solution, LLC, B-291487, B- 291487.2, Dec. 16, 2002, 2003 CPD para. 14 at 13-14.

Here, FedSys omitted the necessary costs from its proposal and presents--in the course of its comments on this protest--certain "assumptions" about those costs that it argues demonstrates that the agency's IGCE was unreasonable. While we have reviewed the FedSys' contentions, the protester does not explain or provide any support for its assumptions regarding the travel costs, and we see nothing in this record to lead us to conclude that the agency's estimate was unreasonable. See NAC Int'l, Inc., B-310065, Nov. 21, 2007, 2008 CPD para. 3 at 8 n.7 (protest is denied where protester does not provide any support for its calculations challenging agency cost analysis).  (FedSys, Inc., B-401453, September 8, 2009) (pdf)

The RFP provided for award to the firm submitting the technically acceptable offer with the lowest price for the first task order (the RFP included the scope of work for the first task order). RFP at 39. Acceptability was to be determined based on three technical factors--experience, past performance, and key personnel. RFP at 39-45. With regard to the price evaluation, the RFP provided that a price analysis would be performed--by comparing proposal prices to other prices received, available historical information, and the government estimate--and that unrealistically low prices could be grounds for eliminating a proposal from the competition, on the basis that the offeror does not understand the requirement. RFP at 44-45.

ATI and Environet submitted proposals; both were found technically acceptable. COS at 4. (A third proposal was rejected as unacceptable. Id.) ATI's and Environet's proposed prices and the government estimate for the first task order were as follows:

Id. at 5. Environet's proposal--the apparent low-priced, technically acceptable offer‑‑was evaluated for price reasonableness, and award subsequently was made to Environet on May 22. This protest was filed on June 1.

ATI asserts that, since Environet's proposed price is approximately one-quarter of the government estimate and one-half of ATI's price, it is "inconceivably low." Protest at 4. The protester asserts that the Army must have disregarded the evaluation process set forth in the RFP. Id. at 6.

In general, there is no requirement that a price realism analysis be performed when award of a fixed-price contract is contemplated. Phoebe Putney Mem'l Hosp., B‑311385, June 19, 2008, 2008 CPD para. 128 at 2. As was the case here, however, a solicitation for a fixed-price contract may provide for a price realism analysis for the purpose of assessing offerors' understanding of the requirements or the risk inherent in offerors' proposals. PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD para. 381 at 5. The nature and extent of a price realism analysis ultimately are matters within the exercise of the agency's discretion, and our review of such an evaluation is limited to determining whether it was reasonable and consistent with the solicitation's evaluation criteria. Northrop Grumman Info. Tech., Inc. et al., B‑295526 et al., Mar. 16, 2005, 2005 CPD para. 45 at 19. We find that the Army's evaluation of Environet's cost proposal was unobjectionable.

The Army conducted two separate analyses of Environet's price. First, concurrently with the technical evaluation, the Army reviewed both offerors' proposed rates to determine if they were fair and reasonable. This review resulted in a finding that "there was a great difference" with regard to several proposed rates in comparison to the government estimate and that these rates "should be validated." AR, Tab K, Memorandum, Apr. 7, 2009. The agency thereafter conducted an "expanded price analysis," which indicated that Environet's price for the first task order was "significantly lower" than the government estimate. The agency went on to determine, however, that this difference resulted substantially from the conservative nature of the government estimate and Environet's status as an incumbent contractor. Specifically, the Army explained as follows:

The Government performed a thorough review of EI's [Environet's] proposal. The primary reason for the difference in price is due to the fact that the GE [government estimate] is conservatively based on the use of a contractor who is not familiar with the Waikoloa Maneuver Area (WMA) and would be working in this area for the first time. EI is the incumbent contractor … and based their proposal on their familiarity of the site, and their current production rates when it comes to MEC clearance. … Therefore, with actual cost data available from performance of the work, EI's proposal appears to be more realistic in comparison with the GE, and shows that the offeror has a clear understanding of the SOW, and includes sufficient effort to complete what is required in the SOW.
AR, Tab N, Price Evaluation Report, Apr. 30, 2009, at 2-3.

The agency went on to address in detail each of seven cost elements where Environet's price was substantially lower than the estimate. Id. at 3-6. In each case, the agency determined that there was a reasonable explanation for the difference in cost. For example, with regard to [deleted], the agency determined that the [deleted] proposed by Environet were "consistent with" the [deleted] existing contract with Environet for ongoing MEC clearance at Waikoloa. Id. at 4. The agency noted that, unlike the government estimate, Environet's proposal provided for use of "existing plans that were accepted by the Government" and proposed to only "update them for this new project site." Id. Similarly, the agency found that Environet's proposal [deleted] adequately substantiated in Environet's proposal, which listed [deleted] under an ongoing contract. Id.

As a further example, the agency found that Environet's low costs for [deleted] were due in substantial part to the fact that, unlike the government estimate, Environet's proposal did not include the cost of [deleted]. Id. Likewise, with regard to Environet's proposed [deleted], Environet explained that [deleted]. Id. at 4-5.

ATI asserts that, rather than accept Environet's explanations at face value, the Army should have further investigated those representations. However, no such further investigation was required. The Army requested information where pricing anomalies were apparent, and then assessed whether the information that was in the proposal or furnished by Environet provided a logical explanation for the anomalies. We find that, on their face, Environet's information and explanations provided a logical basis for its low price. This being the case, and absent any countervailing evidence, we think the agency reasonably could conclude that the information and explanations provided were sufficient to establish that Environet's pricing was not based on a misunderstanding of the requirement, which was the limited purpose of the price analysis under the RFP. See Pemco Aeroplex, Inc., B-310372.3, June 13, 2008, 2008 CPD para.126 at 8 (protest challenging price realism evaluation in fixed-price contract denied where protester failed to demonstrate that agency's actions, inactions, or analyses were inconsistent with the terms of the solicitation). (American Technologies, Inc., B-401445, August 28, 2009)  (pdf)

The BAA contemplated a two-phase award process for the development and testing of a prototype waterjet to eventually be utilized in advanced Navy ships. For phase one, the solicitation required offerors to propose pump design, model fabrication, and a large-scale demonstration plan. Phase two required large-scale at-sea demonstrations and testing. The solicitation stated that "it is anticipated that ONR [Office of Naval Research] will award one or more Cost type contracts for this effort." BAA at 7.

Wartsila and one other firm received phase one contract awards under the solicitation. While the other firm received a cost-plus-fixed-fee contract as anticipated by the solicitation, ONR issued Wartsila a fixed-price contract because Wartsila did not have an accounting system approved by the Defense Contract Audit Agency (DCAA), and could not be awarded a cost-type contract. Agency Motion to Dismiss, Apr. 9, 2009, Contracting Officer’s Affidavit, at 1. After Wartsila was awarded a fixed-price phase one contract, Wartsila suggested to ONR that it might submit a fixed-price proposal for the upcoming phase two award. In response, ONR stated by email that it “awarded the first contract as a FFP [firm-fixed-price] to allow Wartsila time to implement an approved accounting system. ONR will not award Phase II as a FFP contract.” Id.

(section deleted)

The contracting officer encountered two major obstacles to an award to Wartsila. First, the contracting officer found that Wartsila’s cost proposal did not provide the level of detail required by the solicitation, preventing the contracting officer from proceeding with the cost analysis. Second, although Wartsila’s cost proposal stated that Wartsila could accommodate a fixed-price, time and materials, or cost-type contract award, the contracting officer found that Wartsila essentially insisted that the award be made on a fixed-price basis, and eventually determined that Wartsila was ineligible for a cost-type award. Id. Negotiations between the contracting officer and Wartsila continued for several months, but were unsuccessful.

In March 2009, Wartsila discovered that a phase two award had been made to the other phase one contract holder on March 23. On March 26, Wartsila contacted the agency to request confirmation of the award and a post-award debriefing. The agency orally confirmed the award, but did not offer a debriefing. Wartsila then filed this protest with our Office on March 27. Wartsila challenges the rejection of its proposal, arguing that the solicitation did not require submission of a cost-type proposal but merely stated that the agency anticipated making a cost-type contract award, and that the agency properly could consider Wartsila’s fixed-price proposal.

A fixed-price proposal generally may be considered by an agency notwithstanding that the agency otherwise indicated a preference for a cost-type award. See Warren Pumps, Inc., B-248145.2, Sept. 18, 1992, 92-2 CPD para. 187 at 4 n.3; Marine Mgmt. Sys., Inc., B-185860, Sept. 14, 1976, 76-2 CPD para. 241 at 6-7. As explained in FAR sect. 16.103(a), the agency’s objective is to select a contract type that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance. Thus, while the FAR calls for the use of fixed-price contracts when the risk involved is minimal or can be predicted with an acceptable degree of certainty, it states that other contract types should be considered where a reasonable basis for firm pricing does not exist. FAR sect. 16.103(b)

(sections deleted)

Ultimately, selecting the appropriate contract type is the responsibility of the contracting officer, as informed by obtaining the recommendations of technical personnel. FAR sect. 35.006(b). The contracting officer’s decision, as with any other exercise of discretion, must have a reasonable basis. Surface Tech. Corp., B-288317, Aug. 22, 2001, 2001 CPD para. 147 at 3. Here, we conclude that the contracting officer had a reasonable basis to conclude that the criteria set out in DFARS sect. 235.006(b)(ii) were not met and that a fixed-price contract therefore could not be awarded for this R&D procurement. As a result, we see no basis to object to the contracting officer’s refusal to consider Wartsila’s fixed-price proposal.


As explained above, during contract negotiations, the agency reminded Wartsila that ONR anticipated awarding cost-type contracts under the solicitation, and explained that “ONR considers sufficient uncertainties to be involved with any effort under this program to not allow for the use of a fixed-price contract.” Wartsila Response, Apr. 15, 2009, Exh. 1, Email from ONR, Oct. 20, 2008. Further, the BAA for phase two describes a substantial development process leading up to at-sea demonstrations of a large-scale waterjet. BAA at 4. The record also includes an affidavit supplied by the program officer that explains the “uncertainties” involved in the procurement as they relate to the choice of contract type. The program officer states that some of the costs to the companies under the phase two contract could not be reasonably quantified in advance. These costs include “ship hull modifications to accommodate instrumentation, such as sensors, needed to measure the prototype’s at-sea performance.” Agency Supplemental Submission, Apr. 21, 2009, Program Officer’s Affidavit, at 1. The program officer also states that he reviewed DFARS sect. 235.006(b)(ii) and concluded that “[t]he work needed to do detailed design, construction, delivery, and installation of a complete 21-22 megawatt large scale waterjet for at-sea testing on a candidate platform not yet constructed cannot be realistically priced at this time. Use of a fixed-price contract by any company for this effort would not permit an equitable and sensible allocation of program risk between the contractor and the Government.” Id. at 2.

In sum, based on the record here, we conclude that the contracting officer reasonably determined that the conditions required for the award of a fixed-price contract under DFARS sect. 235.006(b)(ii) were not present in this procurement and thus properly decided not to consider Wartsila’s fixed-price proposal for a phase two contract award.  (Wartsila Defense, Inc., B-401224, May 26, 2009) (pdf)

Privasoft and AINS submitted quotations and participated in product demonstrations. Both quotations were evaluated as satisfying the requirements of the performance work statement, but AINS's was scored higher technically. With regard to price, both vendors included separate unit prices for each license and related maintenance for each of the 25 specified NUs for the base and option years.

The agency initially calculated a total price for each vendor using their quoted prices for 25 NUs for the base and option years. Based on these calculations, AINS's total evaluated price was $1,076,914.63 and Privasoft's, including volume discounts for the base year, was $1,089,759.26. Because the agency did not have a current need for all 25 licenses and related maintenance, it re-evaluated both vendors' pricing using 18 NUs for the base year and 25 NUs in the option years, which resulted in an evaluated price of $1,028,556.53 for AINS and $1,043,605.10 for Privasoft. Since AINS's evaluated price was lower under both calculations, DEA issued a delivery order to AINS.

Privasoft challenges the evaluation of its quoted price. We will review a price evaluation to determine whether it was reasonable and consistent with the solicitation's evaluation criteria. The Arora Group, Inc., B‑277674, Nov. 10, 1997, 98‑1 CPD para. 64 at 4. The evaluation here was reasonable.

Privasoft asserts that, because its quotation identified its licenses as "perpetual," and notwithstanding that it priced the 25 licenses for each option year as directed by the RFQ, the agency's price evaluation improperly included the price of all 25 licenses in each option year. In Privasoft's view, since the agency issued the order based on the price of 18 licenses in the base year, the only additional cost (for Privasoft) would be for up to 7 additional perpetual licenses in each option year. (In this regard, Privasoft asserts that the agency properly included AINS's price for all 25 licenses in the option years because AINS did not identify its licenses as perpetual.) Had the agency used the reduced quantities in its evaluation, Privasoft's total price would be lower than AINS's.

This assertion is without merit. The agency made clear through its response to question 25, that it expected vendors to quote a price for "the cost of the initial 25 licenses for subsequent years" and Privasoft did this. AR, Tab 8, at Answer 25. While Privasoft's quotation identified its licenses as "perpetual," it did not indicate that this designation would result in any reduction in price. To the contrary, its price for each license in the option years was equal to or greater than the price quoted for the base year. To the extent Privasoft intended to quote a reduced price for licenses in the option years, it was required to clearly indicate this in its quotation, not leave it to the agency to deduce from its reference to perpetual licenses. Since an agency's evaluation is dependent upon the information furnished in a quotation, it is the vendor's burden to submit an adequately written quotation for the agency to evaluate; a protester's failure to fulfill its obligation in this regard does not render the evaluation unreasonable. SOS Interpreting, Ltd., B‑287505, June 12, 2001, 2001 CPD para. 104 at 12. Given the absence of any indication in Privasoft's quotation of reduced pricing for the option years, the agency reasonably considered Privasoft's option prices and quantities--as quoted--in its evaluation.

In its comments in response to the agency report, Privasoft asserts that the agency improperly applied its quoted volume discounts only to the base year prices; the discounts also should have been applied to the option year prices. Privasoft notes, in this regard, that its quotation included two discounts--a "DEA volume discount on total order" for orders placed by a specific date, and an additional discount for an earlier order--and did not limit application of the discounts to the base year only. Comments at 3-4. According to the protester's calculations, proper application of these discounts would have resulted in its evaluated price being lower than AINS's. In the alternative, Privasoft asserts that its price would have been lower than AINS's had the agency evaluated only the base year pricing. In this regard, it notes that neither the RFQ, nor the response to question 25, indicated that the agency intended to evaluate prices based on both the base and option periods. Id. at 4.

A protest based on other than alleged improprieties in a solicitation must be filed no later than 10 calendar days after the protester knew, or should have known, of the basis for protest, whichever is earlier. Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(2) (2008). Privasoft learned the basis of both of these protest grounds in a post-award letter from DEA explaining that the price analysis had included both the base and option years, resulting in 5-year prices for both vendors. DEA Letter, Nov. 21, 2008. The letter also included a table with calculations clearly showing that the agency had used Privasoft's base and option year pricing in the evaluation and had applied Privasoft's volume discounts only to its base year prices. Id. Since Privasoft did not specifically challenge these aspects of the evaluation until it filed its comments, more 1 month after receiving the November 21 letter, this aspect of the protest is untimely and will not be considered.  (Privasoft Inc., B-400853, January 27, 2009) (pdf)

Unlike the cost proposal submitted by ARTS, SP Systems' weighted labor rate for the senior-level positions exactly matched the library rates for all six labor categories.

With respect to both the cost evaluation and the significant weakness identified in ARTS' proposal, a key issue is the rates being paid to the incumbent workforce and how ARTS' proposed labor rates compared to those rates. Because both ARTS and SP Systems proposed to retain a very high proportion of the incumbent workforce, the agency was justifiably focused on how the offerors' proposed rates compared to those of the incumbent. This affected the agency's cost-realism adjustment to proposed costs, since the agency rightly assumed that, absent some valid explanation, an offeror proposing to retain a very high proportion of the incumbent workforce would need to pay at least equal to the incumbent workforce's rates. Because this is a cost-reimbursement contract, a cost realism analysis was required to determine the extent to which each offeror's proposed costs represent the offeror's likely costs in performing the contract under the offeror's technical approach, assuming reasonable economy and efficiency. See Federal Acquisition Regulation (FAR) sections 15.305(a)(1), 15.404‑1(d)(1). The proposed labor rates also affected the agency's evaluation of proposals under the management plan subfactor for offerors proposing to retain the incumbent workforce, since proposing labor rates lower than the incumbents' could reasonably be found to represent a management plan weakness.

Unfortunately, NASA's solicitation did not disclose the incumbent workforce's actual labor rates to offerors, at least not in a meaningful way, and those conducting the evaluation may not have had access to the actual rates. The library rates are unweighted averages, which do not reflect the distribution of actual labor rates among the sub-levels within the junior/intermediate/senior levels that the incumbent uses. This problem with the RFP was not protested, however, so that the agency was free to choose any reasonable method, within the context of the RFP, to assess the evaluated cost of each proposal and to evaluate the cost-related technical factors, such as the management plan subfactor.

With respect to the cost-realism analysis, the agency, as noted above, took the reasonable view that it could adjust proposed costs up to reflect the rates paid to the incumbent workforce, if the offeror proposed to retain the great majority of the incumbent workforce, as both ARTS and SP Systems did. The problem in making that adjustment, however, was that those conducting the evaluation apparently did not have access to the incumbent's actual weighted rates. Instead, the agency relied on the unweighted library rates and treated them as reflecting the rates paid the incumbent workforce.

While it would clearly have been preferable to use the incumbent workforce's weighted rates in calculating offerors' evaluated costs, we believe that it was adequate, as a legal matter, that the offerors were treated equally, through the agency's use of the library rates as a “plug number.” This methodology of treating the incumbent workforce cost as, in effect, a normalized cost was reasonable, since the cost of the incumbent workforce would not have been unique to the particular approach of any individual offeror (nor has there been a suggestion to the contrary), and offerors such as ARTS were not in a position to know the actual cost of the incumbent workforce. In other words, one would reasonably expect that the direct labor cost of the incumbent workforce should be the same among all offerors. Absent persuasive explanation for any deviation (which ARTS did not offer here), a reasonably derived estimate of direct, unburdened labor rates for comparable labor categories can provide an objective standard against which the realism of proposals can be measured. United Int'l Eng'g et al., B‑245448.3 et al., Jan. 29, 1992, 92-1 CPD para. 122 at 11. As a consequence, there is no basis for our Office to question the agency's upward adjustment of ARTS' cost, as part of the cost-realism analysis, to account for the cost of the incumbent workforce.

We do not, however, find support in the record for the determination that ARTS' proposed rates were inadequate to retain the incumbent workforce. For this reason, we find problematic both the input that NASA received from the Defense Contract Audit Agency (DCAA) and NASA's assignment of a significant weakness to ARTS' proposal under the management plan subfactor.

Regarding the DCAA input, with respect to ARTS' proposed labor rates for labor categories at the senior level, DCAA noted that ARTS proposed to capture 98 percent of the incumbent workforce and determined that “the method used by [ARTS] to compute the proposed senior level direct labor rates resulted in a potential understatement of direct labor rates. [ARTS] used a weighted average which resulted in a rate lower than the straight average rate.” AR, Tab 33, DCAA Audit of ARTS Cost Proposal, at 5. DCAA then calculated an unweighted average rate with respect to the rates proposed by ARTS under the senior level labor categories and determined that the unweighted average was identical to the library rates. Without further elaboration, DCAA determined that the library rates were a more reliable and reasonable basis for the proposed senior level rates. Id. As explained above, there is no way to tell, from the unweighted library rates, how much the incumbent workforce is being paid. Indeed, DCAA's analysis demonstrates this. As DCAA discovered, ARTS' proposed rates, when averaged without weighting, are precisely the same as the unweighted library rates, so that it is theoretically possible that ARTS' proposed labor rates are in fact identical to those actually being paid by the incumbent. In any event, because the record does not establish a connection between the library rates and the incumbent’s actual, weighted rates, we see no basis in the record to support DCAA's analysis.

More importantly, we find no reasonable basis for the agency's assignment of a significant weakness to ARTS' proposal under the management plan subfactor.  Absent more information, there simply is no way for the agency to determine whether the library rates or the weighted averages proposed by any offeror are closer to the incumbent's direct labor cost. In addition, if one compares the weighted rates proposed by ARTS and SP Systems, it is not possible in many instances to determine whether one firm will be more or less likely to attract the incumbent workforce in any given labor category, since the firms proposed different high and low rates within a labor category, in some instances different numbers of levels of sub-categories, and different percentages of effort for each sub-level. For any given labor category, it may be that, as compared to the incumbent workforce, one offeror’s rates are high, the other's are low; neither the evaluators nor the offerors had any basis to know.

ARTS, like the other offerors, proposed to perform the PAAC III contract utilizing the existing incumbent workforce. However, as explained above, offerors such as ARTS did not have access to the actual labor rates that the incumbent was paying its workforce. Nonetheless, offerors proposing to use the incumbent workforce, including ARTS, had to account for the cost of this workforce in their proposals. ARTS attempted to do this by including a blanket statement committing ARTS to paying incumbent employees their current salaries, at a minimum, and providing labor rates based in part upon outside salary survey information. While the rates proposed by ARTS, when averaged on a weighted basis, were lower than the non-weighted library rates, they were identical to the library rates, when averaged on a straight line basis, as the library rates themselves had been calculated.

As relevant here, the agency could only assign ARTS' proposal a significant weakness under the management plan subfactor based on a determination that ARTS is unlikely to be able to retain the incumbent workforce with its proposed labor rates. There is simply no basis in the record for that. ARTS proposed rates may be lower than those paid to the incumbent workforce--but they may be higher than the incumbents rates. Indeed, as noted above, they may be identical to the rates of the incumbent. Yet, under the management plan subfactor, NASA questioned the ability of ARTS to achieve its proposed 98 percent incumbent capture given its "unreasonably low" labor rates for the senior-level positions as compared to the library rates. AR, Tab 37, SEB Report, at 65. Given the meaninglessness of the library rates as a criterion for retaining the incumbent workforce, the conclusion drawn by the agency in assessing ARTS' ability to retain that workforce was unreasonable, especially where ARTS committed to paying incumbents their current wages, at a minimum. Accordingly, we conclude that the agency's evaluation in this regard was unreasonable.

While our findings regarding the technical evaluation and the cost-realism adjustment may appear inconsistent with regard to the treatment of the library rates, we believe that they are consistent. In the cost-realism analysis, we found that the agency could reasonably use a "plug number" for labor rates for all offerors that proposed to retain the incumbent workforce. We found use of the library rates acceptable, under the circumstances--not because they reflected the incumbent's rates, but simply because they were a constant used equally for all offerors. From that standpoint, the agency could just as well have used ARTS' labor rates, or SP Systems', as the plug numbers. With regard to the technical evaluation evaluation, however, the agency was finding that ARTS had proposed rates so much lower than the incumbent's as to present a significant management plan weakness, and that finding could not be supported without evidence that the library rates were closer than ARTS' rates to the incumbent's rates--and the record provides no basis for that finding.  (ASRC Research & Technology Solutions, LLC, B-400217; B-400217.2, August 21, 2008) (pdf)

JVPB challenges the Navy's determination that its indefinite-quantity pricing for minor work was unreasonably low and unacceptable, arguing that the determination was based on a faulty price realism analysis.

Before awarding a fixed-price contract, an agency is required to determine that the offered price is fair and reasonable. Federal Acquisition Regulation (FAR) sect. 15.402(a). An agency's concern in making a price reasonableness determination focuses on whether the offered prices are too high, not too low. Medical Matrix, LP, B-299526, B‑299526.2, June 12, 2007, 2007 para. 123 at 9 n.6. Although not required, an agency may also provide for a price realism analysis in a solicitation for award of a fixed-price contract for the purpose of assessing an offeror's understanding of the requirements and the risk inherent in an offeror's proposal. L-3 Commc'ns, KDI Precision Prod., Inc., B-290091 et al., June 14, 2002, 2002 CPD para. 155 at 5-6. In this regard, the risk of poor performance when a contractor is forced to provide services at little or no profit is a legitimate concern in evaluating proposals. Molina Eng'g, Ltd/Tri-J Indus., Inc. Joint Venture, B-284895, May 22, 2000, 2000 CPD para. 86 at 4. We will review the price evaluation conducted to determine whether it was reasonable and consistent with the RFP evaluation criteria. The Arora Group, Inc., B-277674, Nov. 10, 1997, 98‑1 CPD para. 64 at 4.

Here, the record does not show that the agency performed a reasonable price evaluation. Although the Navy rejected JVPB's proposal on the basis of low indefinite-quantity pricing for minor work, the record does not provide any evidence that the agency considered whether this reflected a lack of understanding of the requirements, or that there was a credible risk to performance. The agency did not consult with the TEB to consider whether JVPB could perform the work at the prices proposed. In fact, the SSB concluded that JVPB 'successfully demonstrated a good understanding of the requirements.'AR, exh. 16, Final SSB Report, at 4.

The agency explains that "significant" proposal risk stems from its belief that "under the [indefinite-quantity] portion [of minor work], the Contractor has the option of returning, and ultimately rejecting work if they do not agree with the Category the Government is issuing it under." AR, exh. 15, Final PEB Report, at 4-5. In this regard, the agency is referring to the "Recategorization" provision of the PWS that allows the contractor to challenge the categorization of fixed-quantity minor work--that is, whether the work should be classified as category I, II, III, or IV. RFP sect. C, PWS, at 41. According to the agency, this provision also applies to indefinite-quantity minor work.

We first note that it is not evident from the record that the "Recategorization" provision applies to the indefinite-quantity minor work. The provision is not included or referenced in the indefinite-quantity portion of the PWS addressing minor work. Although the PWS for indefinite-quantity minor work incorporates by reference fixed-quantity "[p]erformance standards," id. at 43, the "Recategorization" provision is not listed as a performance standard. Likewise, the ELIN schedule for indefinite-quantity minor work references "Requirement 1503090 in Section C" (i.e., the PWS), but the "Recategorization" provision appears at 1503040 of the PWS.

Furthermore, in response to inquiries from our Office, the agency conceded that neither the "Recategorization" provision, nor any other provision of the RFP, permits the contractor to reject minor work orders issued by the contracting officer. Agency Response to GAO's Interrogatories (Apr. 30, 2008), at 4. Thus, the reason given contemporaneously for rejecting JVPB's proposal was conceded to be erroneous. The agency now argues that JVPB's low indefinite-quantity pricing will encourage the firm to challenge categories (essentially arguing that it should be paid a higher price for the particular "minor work" to be performed), which will place a "significant administrative burden" on the agency in responding to these challenges. Id. at 5. Even though, as discussed above, it is not clear from the record that the "Recategorization" provision applies to the indefinite-quantity minor work, the fact that a contractor may exercise a contract right is not a legitimate reason for rejecting its proposal.

Moreover, the indefinite-quantity portion of minor work represents only a small fraction of the overall contract and may never be ordered. See RFP sect. C, PWS, at 43 (indefinite-quantity minor work will be ordered only "if and when needed"). Thus, even if JVPB's prices were considered too low for this aspect of minor work, this does not seem to support the agency's conclusion that the performance risk to the overall contract is "extremely high."

Also, if low prices "incentivize" a contractor to challenge minor work categories, as the agency now contends, then the awardee is similarly "incentivized." As the record shows, BOS's proposed prices for minor work were lower than JVPB’s for all of the fixed-quantity categories, and were just below the established ranges for all minor work categories (both fixed-quantity and indefinite-quantity), except for category I. As noted by the protester, because of its low prices, BOS may be even more "incentivized" to challenge categories for both fixed-quantity minor work (where order quantities are guaranteed) and indefinite‑quantity minor work (where orders are placed only when needed). Indeed, it would appear that, since fixed-quantity orders will definitely occur, the likelihood of category challenges with fixed-quantity work is greater than with indefinite-quantity work. Thus, it is not apparent how the protester's pricing of indefinite-quantity minor work will cause significantly more of an administrative burden to the agency under the "Recategorization" provision than the awardee's pricing.

In sum, we sustain the protest because the Navy's price evaluation of the protester's proposal lacks a reasonable basis, and is not supported by the contemporaneous evaluation record. Under the circumstances, we recommend that the agency reevaluate proposals, conduct discussions if necessary, perform a price/technical tradeoff if required, and make a new source selection decision. The agency should also consider whether to clarify for offerors whether proposed prices for minor work must be within the category ranges stated in the ELIN schedule. In addition, we recommend that the agency reimburse JVPB the reasonable costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1). JVPB's certified claim for costs, detailing the time spent and the costs incurred, must be submitted to the agency within 60 days of receiving this decision. 4 C.F.R. sect. 21.8(f)(1).  (Joint Venture Penauille/BMAR & Associates, LLC, B-311200; B-311200.2, May 12, 2008) (pdf)

Price realism is not ordinarily considered in the evaluation of proposals for the award of a fixed-price contract, because these contracts place the risk of loss upon the contractor. However, in light of various negative impacts on both the agency and the contractor that may result from an offeror’s overly optimistic proposal, an agency may, as here, expressly provide that a price realism analysis will be applied in order to measure the offerors’ understanding of the requirements and/or to assess the risk inherent in an offeror’s proposal. See, e.g., Wackenhut Servs., Inc., B-286037, B‑286037.2, Nov. 14, 2000, 2001 CPD para. 114 at 3; Molina Eng’g, Ltd./Tri-J Indus., Inc. Joint Venture, May 22, 2000, B-284895, 2000 CPD para. 86 at 4. Although the Federal Acquisition Regulation (FAR) identifies permissible price analysis techniques, FAR sect. 14.404-1, it does not mandate any particular approach; rather, the nature and extent of a price realism analysis, as well as an assessment of potential risk associated with a proposed price, are generally within the sound exercise of the agency’s discretion. See Legacy Mgmt. Solutions, LLC, B‑299981.2, Oct. 10, 2007, 2007 CPD para.197 at 3; Comprehensive Health Servs., Inc., B‑310553, Dec. 27, 2007, 2007 CPD para. 9 at 8. In reviewing protests challenging an agency’s evaluation of these matters, our focus is whether the agency acted reasonably and in a way consistent with the solicitation’s requirements. See, e.g., Grove Res. Solutions, Inc., B‑296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5.

Here, as discussed above, the record establishes that the agency performed various analyses regarding price realism and proposal risk in the context of Boeing’s final proposal revisions. Specifically, the agency’s actions included an analysis of the [deleted] proposed by Boeing to [deleted] with the [deleted] that have been most recently experienced [deleted] internally at Tinker Air Force Base; an analysis of Boeing’s [deleted]; consideration of the impact [deleted] will have on [deleted] within the context of the provisions of this solicitation; consideration of the [deleted] contemplated to [deleted]; consideration of the [deleted] proposed; comparison of offerors’ [deleted], [deleted], and [deleted]; recognition of, and adjustment for, the offerors’ different methods of [deleted]; and consideration of Boeing’s proposed use of its [deleted] to [deleted] and mitigate the potential risk for schedule disruption, cost increases, and need for government oversight. AR, Tab 59 at 9-10; Tab 60 at 6‑19, 68‑69; Tab 61 at 71-75, 179-80.

Although Pemco raises the full range of possibitilites--that is, that the agency should not have considered certain information, that the agency should have considered certain other information, that the agency should have performed alternative analyses, and/or that the price realism and risk assessments should have been dispositively resolved by comparison to various benchmarks including Pemco’s own proposal--its protest fails to demonstrate that any of the agency’s actions, inactions, or analyses are inconsistent with, or contrary to, the terms of the solicitation or applicable statute or regulation. As discussed above, an agency has considerable discretion in determining the nature and extent of required price realism and proposal risk assessments in the context of fixed-price contracts. Based on our review of the record, we conclude that Pemco’s various arguments challenging the agency’s analysis and judgments reflect Pemco’s mere disagreement or dissatisfaction with the agency’s determinations.

Accordingly, based on our review of the entire record, including the agency’s documentation responding to our prior decision, we see no basis to question the adequacy or reasonableness of the agency’s actions, its analysis, or its conclusions. Pemco’s protest challenging the agency’s cost/price evaluation is without merit.  (Pemco Aeroplex, Inc., B-310372.3, June 13, 2008) (pdf)

Guam also challenges the agency's evaluation of its proposal under the price realism subfactor of the performance risk factor, and the finding that its price was unrealistically low. The protester only generally asserts that because it used its currently approved labor rates in formulating its price, its price must be considered realistic; similarly, Guam contends that the higher-priced IGE must be flawed because it exceeds Guam's labor rates. As the agency points out, however, Guam's proposed price was not found to be unrealistically low based only on its lower labor rates; rather, Guam's low price also reflected lower prices for materials than those proposed by the other offerors and included in the IGE. Additionally, the protester's failure to identify any profit added to the agency's concerns about whether the firm's substantially lower-priced proposal would affect performance of the contract, since, as indicated in the RFP, financial loss, including a lack of or little profit, may cause a contractor to 'cut corners' in the performance of the required work.

The depth of an agency's price realism analysis is a matter within the sound exercise of the agency's discretion. Comparison of proposed prices with each other and an IGE are recognized price analysis techniques for a price realism review. See Quality Elevator Co., Inc., B-276750, July 23, 1997, 97‑2 CPD para. 28 at 7. Here, the agency compared the protester's proposed price to the other offerors' prices and concluded that, as the lowest-priced offer, with a price substantially lower than Gulf Copper's next low price, there is some degree of performance risk associated with the protester's lower price; Guam's price also was evaluated as approximately 23 percent lower than the IGE. Given the reasonableness of the agency's concern regarding quality of performance in light of Guam's low price, we have no reason to question the determination that the proposed price is unrealistically low and, consistent with the definition of unrealistic pricing in the RFP, could result in financial loss for the contractor in performance of the contract. In light of the reasonableness of the performance risk assessment here, including the recent marginal past performance by the firm, we find no basis to question the agency's determination that the potential savings offered by Guam's very high risk proposal is not worth the increased risk to the government. (Guam Shipyard, B-311321; B-311321.2, June 9, 2008) (pdf)

GSN argues that AC's price is so low as to be unreasonable, and that AC's low price will effectively prevent it from performing at the required levels--while developing additional business--as required by the terms of the RFP. GSN argues that AC's low prices should have placed the Army on notice that AC lacked understanding of the requirement, and faced a significant risk of unsuccessful performance.

The Army responds that it appropriately evaluated AC's price as reasonable after comparing AC's price to the government estimate, to GSN's proposed price, and to the price offered by the third offeror.  While acknowledging that AC's price is lower than the government estimate, the Army argues that the government estimate was based significantly on GSN's incumbent staffing approach. Therefore, the Army argues that neither the government estimate, nor GSN's proposed prices, could be treated as a definitive standard of price reasonableness. The Army emphasizes that the third offeror's price was only slightly higher than AC's price, and argues that it was reasonable to use that comparison to find AC's price to be reasonable. AR at 17‑18.

Where, as here, a solicitation provides for award of a fixed-price contract--under which the government's liability is fixed and the contractor bears the risk and responsibility for the actual costs of performance--the agency is only required to evaluate an offeror's price for fairness and reasonableness. FAR sections 15.402(a), 15.404-1(a); SAMS El Segundo, LLC, B-291620.3, Feb. 25, 2003, 2003 CPD para. 48 at 8. It is well-established that price reasonableness in a fixed-price setting relates to whether a firm’s prices are too high, not too low. Medical Matrix, LP, B‑299526, B‑299526.2, June 12, 2007, 2007 CPD para. 123 at 9 n.6. Here, GSN has provided no basis to question the Army’s conclusion that AC’s price was reasonable simply because it was lower than the government estimate or GSN's price. Even though GSN argues that AC will not be able to perform adequately at its price, the Army has shown that its evaluation of the completeness and reasonableness of AC's price was appropriate for this fixed-price contract.  (Global Solutions Network, Inc., B-298682.3; B-298682.4,June 23, 2008) (pdf)

Evaluation of MILCON Costs

Boeing also complains that the Air Force did not reasonably evaluate the firms’ cost/price proposals in accordance with the RFP. As noted above, the solicitation provided that the Air Force would calculate an MPLCC estimate for each offeror, which reflected the agency’s independent estimate of all contract, budgetary, and other government costs associated with all phases of the aircraft’s life cycle from SDD through production and deployment and O&S; MILCON costs were specifically identified as a cost that the agency would evaluate in calculating the firms’ MPLCCs. See RFP sect. M.2.5.2. Boeing contends that the Air Force’s evaluation of MILCON costs greatly understated the difference between the firms’ MILCON costs and that Northrop Grumman’s much larger and heavier aircraft would have correspondently higher MILCON costs. See Boeing’s Comments at 110-18; Boeing’s Post-Hearing Comments at 117-18.

The Air Force disputes Boeing’s complaint, contending that it reasonably assessed the likely life cycle costs associated with each firm’s proposed aircraft. In this regard, the agency states that, because it did not know at which bases (“beddown sites”) the new KC-X aircraft would be assigned, it conducted site surveys at four airbases ([Deleted] Air Force Base (AFB), [Deleted] AFB, [Deleted] AFB, and [Deleted] AFB) to determine what military construction would be required at those bases for the offerors’ proposed aircraft. The agency then extrapolated those results to six other airbases to calculate the agency’s MILCON costs for the offerors. Air Force’s Memorandum of Law at 221-22; Air Force’s Post-Hearing Comments at 120‑22. As indicated above, the agency added $[Deleted] billion in MILCON costs to Boeing’s MPLCC and $[Deleted] billion in MILCON costs to Northrop Grumman’s MPLCC. AR, Tab 55, PAR, at 40-43.

An agency’s life cycle cost evaluation, like other cost analyses, requires the exercise of informed judgment concerning the extent to which proposed costs or prices represent a reasonable estimation of future costs. Our review of the agency’s cost analysis is limited to the determination of whether the evaluation was reasonable and consistent with the terms of the RFP. See Cessna Aircraft Co., B-261953.5, Feb. 5, 1996, 96-1 CPD para. 132 at 21. The agency’s analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate to provide some measure of confidence that the agency’s conclusions about the most probable costs under an offeror’s proposal are realistic in view of other cost information reasonably available to the agency at the time of its evaluation. See Information Ventures, Inc., B‑297276.2 et al., Mar. 1, 2006, 2006 CPD para. 45 at 7.

As a threshold matter, the Air Force admits that in “defending this protest” it discovered five errors in its assessment of MILCON costs, which, when corrected, would result in Boeing displacing Northrop Grumman as the offeror with the lowest evaluated MPLCC. Specifically, the Air Force states that it underestimated Northrop Grumman’s MILCON costs by $122.5 million, and overestimated Boeing’s costs by $3.3 million. After correction of these $125.8 million in errors, Boeing’s MPLCC would be $108.041 billion and Northrop Grumman’s would be $108.133 billion.[80] Air Force’s Memorandum of Law at 201-02.

Here, the record shows that the agency’s MILCON cost evaluation was otherwise flawed. In this regard, the RFP contemplated that the agency’s MILCON cost evaluation would be based upon “the offeror’s proposed KC-X aircraft solution,” see RFP sect. M.2.5.2.4, which is consistent with the rule that an agency must consider an offeror’s proposed approach in estimating the likely costs associated with that offeror’s proposal. See Hughes STX Corp., B-278466, Feb. 2, 1998, 98-1 CPD para. 52 at 8. The record shows, however, that the agency’s evaluation of MILCON costs was based upon site surveys that were conducted prior to the receipt of proposals in response to the RFP. HT at 472-73, 1293; Air Force’s Post-Hearing Comments at 120. Admittedly, the agency’s site surveys were based upon the size and dimensions of the A330-200 and 767-200, the commercial aircraft from which the offerors’ proposed KC-X aircraft were derived. See, e.g., AR, Tab 297, Site Survey Report for [Deleted] Air Force Base, at 3. However, it is equally clear that the Air Force could not and did not evaluate MILCON costs associated with some aspects of the offerors’ proposed aircraft because the site surveys were conducted before the receipt of proposals, and no further evaluation of the additional MILCON costs for the improvements/changes necessary to support each of these particular aircraft was performed after the proposals were received.

For example, although the Air Force recognizes that there will be a “need for seat storage” associated with the KC-X aircraft, the survey teams were unable to assess the likely MILCON costs associated with this need because, at the time of the surveys, the agency did not know the number of seats associated with the firms’ respective aircraft. See Air Force’s Post‑Hearing Comments at 127. Accordingly, at [Deleted] AFB, the team assumed that the offerors’ aircraft had seating capacities similar to that of the KC-10 and, on this basis, concluded that the facilities at [Deleted] AFB were adequate. HT at 497. The KC-10, however, has only 75 seats, which is far less than the [Deleted] seats carried by the KC-30 and less than the [Deleted] seats carried by the KC‑767. Similarly, at [Deleted] AFB, the survey team assigned no MILCON costs associated with seat storage because it determined, without any actual knowledge of the number of seats the proposed aircraft would carry, that there would be adequate storage available. Air Force’s Post-Hearing Comments at 128. At [Deleted] AFB, the survey team concluded that there would be insufficient storage space to accommodate the seats and that an additional storage facility would need to be constructed; the cost of this facility ($[Deleted] million) was estimated to be the same for both offerors because the team did not know how many seats the aircraft carried and therefore “assigned a seat requirement the same for both aircraft.” HT at 499‑500.  (The Boeing Company, B-311344; B-311344.3; B-311344.4; B-311344.6; B-311344.7; B-311344.8; B-311344.10; B-311344.11, June 18, 2008) (pdf)

Accumark asserts that the agency unreasonably determined that InfraMap's proposed prices were realistic. InfraMap reduced its price in its FPR and the protester maintains that this was a dramatic price reduction that should have led the agency to conclude that there would be an adverse impact on InfraMap's technical capability to perform the contract. 

In the context of a solicitation that provides for award of a fixed-price contract, an agency may, in its discretion, provide for considering the realism of offered prices for purposes of assessing whether a price is so low as to evince a lack of technical understanding on the part of the offeror. Consolidated Servs., Inc., B-276111.4, Dec. 29, 1997, 98-1 CPD para. 14 at 4. In such a context, an agency’s simple comparison of the prices received with one another, as well as with a government estimate, can serve as an adequate basis to establish the realism of the proposed prices where, as here, there was adequate competition, and the proposed prices fall within a narrow range. Id. at 5. The realism determination here was unobjectionable. The record shows that InfraMap's initial price--$[deleted]--was found by the agency to be unreasonably high, AR, exh. 27, at 5, and the agency so advised InfraMap during discussions. AR, exh. 8, at 1. InfraMap reduced its price in its FPR, and the agency compared this reduced price to the other prices received to determine whether it was realistic. The agency found that InfraMap's price compared favorably to the other prices. It thus concluded that, since there was adequate price competition, InfraMap's proposed price was realistic, reasonable and complete. AR, exh. 22, at 3, 5-8. The agency's methodology was consistent with the applicable standard, and its conclusion was reasonable in light of the fixed-price nature of the requirement, the comparability of the prices received and the adequacy of the competition. Under these circumstances, the protester's general assertion that InfraMap may not have understood the requirement is not sufficient to bring the agency’s determination into question. In this regard, the agency rated InfraMap's proposal superior to the others received, and Accumark has raised no substantive challenge to the agency’s evaluation conclusions. See Consolidated Servs., Inc., supra. (Accumark, Inc., B-310814, February 13, 2008) (pdf)

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Federal Acquisition Regulation (FAR) sections 15.305(a)(1); 15.404-1(d); Tidewater Constr. Corp., B-278360, Jan. 20, 1998, 98-1 CPD para. 103 at 4. Consequently, the agency must perform a cost realism analysis to determine the extent to which an offeror’s proposed costs are realistic for the work to be performed. FAR sect. 15.404-1(d)(1). An agency is not required to conduct an in-depth cost analysis, see FAR sect. 15.404-1(c), or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. Cascade Gen., Inc., B-283872, Jan. 18, 2000, 2000 CPD para. 14 at 8. Further, an agency’s cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information reasonably available to the agency as of the time of its evaluation. See SGT, Inc., B‑294722.4, July 28, 2005, 2005 CPD para. 151 at 7; Metro Mach. Corp., B-295744; B‑295744.2, Apr. 21, 2005, 2005 CPD para. 112 at 10-11. Because the contracting agency is in the best position to make this determination, we review an agency’s judgment in this area only to see that the agency’s cost realism evaluation was reasonably based and not arbitrary. Hanford Envtl. Health Found., B‑292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para. 164 at 8-9.


NHIC contends that the cost realism analysis was not adequately documented. Although the record consists of multiple documents and reports reflecting the analysis performed by the SMEs, TEP, and BEP, NHIC contends that the documents themselves do not explain the agency’s rationale and contain only “checked boxes [referring to worksheets where a SME or TEP member checked “yes” or “no” as to whether there was a basis for adjusting costs], conclusory assertions, and discussions questions” to show that costs were realistic. NHIC's Post-Hearing Comments at 2. We find that the record shows that the agency performed a comprehensive and thorough cost realism analysis that considered all of the major cost elements for each of the functional areas to be performed under the contract. The agency relied on the TEP members and SMEs, each of whom has special expertise in the functional areas, to review whether the proposed labor hours and mix of labor categories were realistic for the work to be performed and were consistent with the offeror’s technical approach. In addition, the BEP consulted with the DCAA to verify that labor rates and other costs were reasonable. The record contains extensive contemporaneous documentation--numerous spreadsheets, worksheets, discussion questions and responses, and reports--that were created by the SMEs, TEP, and BEP. Although it is true that the documents are replete with conclusory statements that proposed costs were realistic, the record nonetheless evidences that a comprehensive cost realism analysis was performed and contains documents, such as the briefing slides to the SSB and the source selection determination, that provide the rationale for the agency’s cost realism conclusions. E.g., AR, Tab 58, SSB Presentation, at 10-13; Tab 57, Supplemental SSB Presentation, at 2-4; Tab 56, Source Selection Determination, at 3-4; see also Contracting Officer's Statement paras. 61-73.


During the hearing held by our Office, and as reflected in the contemporaneous documents, the agency explained why, and how, the evaluators determined that Palmetto’s proposed costs, including labor costs, were realistic, even though they were lower than the costs proposed by NHIC.[11] Specifically, as stated above, Palmetto took advantage of the opportunity, throughout its proposal, to [REDACTED]. Tr. at 26. Other identified reasons for Palmetto’s lower costs were that Palmetto [REDACTED] and identified a number of “efficiency drivers” for claims processing, appeals, and medical review. AR, Tab 56, Source Selection Determination, at 2-3; Tab 57, Supplemental SSB Presentation, at 2‑4; Contracting Officer’s Statement paras. 61-73; Tr. at 17-27, 30-31, 34, 38-39, 105-06, 406-17. Specific examples of some of these “efficiency drivers” for three of the major activities (claims processing, appeals, and medical review), as enumerated in the contemporaneous documents, include:

(Deleted sections)

NHIC contends that there is no basis to conclude that any of the proposed “efficiency drivers” would result in cost savings, since the agency failed to quantify any of the asserted cost savings. However, an adequate cost realism analysis does not require an in‑depth verification of each and every item; an agency may reasonably rely on statements in an offeror's proposal which demonstrate the realism of its proposed costs, without independently verifying each item of proposed costs. Pacific Architects and Eng'rs, Inc., B‑274405.2, B-274405.3, Dec. 18, 1996, 97‑1 CPD para. 42 at 7; Ferguson-Williams, Inc.; Hawk Mgmt. Servs., Inc., B-232334, B‑232334.2, Dec. 28, 1988, 88-2 CPD para. 630 at 6. Here, Palmetto’s proposal explained that its “labor estimating approach” was based on [REDACTED]. Palmetto’s proposal identified [REDACTED]. Agency Hearing exh. A, Palmetto's Initial Proposal, at 26-61. As the contracting officer explained, Palmetto “did a really good job of laying out ‘this is what we’ve been doing, this is what we're going to do for you now, and this is the impact.'”Tr. at 91, 174. The SMEs and TEP members considered this information contained in Palmetto's proposal, looked to see whether the approach was feasible, and based on their own experience, could find no basis to upwardly adjust Palmetto's proposed costs. Tr. at 453, 483, 492-93, 522‑23. NHIC has not shown that the agency's evaluation was unreasonable.

(sections deleted)

In sum, NHIC has not shown the agency's "bottom up" cost realism evaluation to be unreasonable. As discussed above, the agency followed a process that is consistent with the FAR, in that the agency“independently review[ed] and evaluat[ed] specific elements of each offeror's proposed 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 technical proposal.” FAR sect. 15.404-1(d)(1). Moreover, except for its arguments that historical data should have been the basis for the cost realism analysis, which we have rejected, NHIC has not demonstrated, or even attempted to quantify, that cost realism adjustments in the challenged areas would have eliminated the $92 million cost differential and resulted in NHIC's most probable cost being lower than Palmetto’s; thus, NHIC has not shown that its proposal, which was technically equal to Palmetto's, had a substantial chance for award.  (NHIC Corporation, B-310801; B-310801.2, February 12, 2008) (pdf)

The protester first argues that the EPA made improper “realism” adjustments to certain fixed-price elements of IBM’s proposal, and failed to equally or reasonably evaluate CGI’s proposal. As discussed above, the agency stated that it would perform both a cost realism and price realism analysis, as well as assess the “total cost of ownership” associated with offerors’ proposals. In the discussion that follows, we address the adjustments that were made to IBM’s proposal for SCORPIOS replacement, Tier 3 hosting requirements, EPA implementation efforts, and IFMS retirement costs. We conclude with a discussion of EPA’s evaluation of certain elements of CGI’s costs.

A cost realism analysis is required when an agency evaluates proposals for the award of a cost-reimbursement contract. Under such a contract, an offeror’s proposed costs are not considered controlling because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Federal Acquisition Regulation (FAR) sections 15.305(a)(1), 15.404-1(d). Consequently, an agency must perform a cost realism analysis to determine the extent to which an offeror’s proposed costs represent what the contract should cost, assuming reasonable economy and efficiency. FAR sect. 15.404-1(d)(2); Hanford Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para. 164 at 8-9. Although there is no requirement that an agency perform a cost realism analysis when offerors propose to perform work on a T&M basis with fixed-price labor rates, agencies may, as here, provide for such an evaluation in a solicitation. Resource Consultants, Inc., B-290163, B-290163.2, June 7, 2002, 2002 CPD para. 94 at n.1. Cost realism may involve adjustments to proposed costs to calculate the most probable cost to the government of the offeror’s proposed approach.  In contrast, where an RFP contemplates the award of a fixed-price contract, or fixed-price portion of a contract, an agency may also provide in the solicitation for the use of a price realism analysis for the limited purpose of measuring an offeror’s understanding of the requirements or to assess the risk inherent in an offeror’s proposal. Puglia Eng’g of California, Inc., B-297413 et al., Jan. 20, 2006, 2006 CPD para. 33 at 6-7. Although the FAR does not use the term “price realism,” it provides that cost realism analysis may be used to evaluate fixed-price proposals as follows:

Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when new requirements may not be fully understood by competing offerors, there are quality concerns, or past experience indicates that contractors’ proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals shall be evaluated using the criteria in the solicitation, and the offered prices shall not be adjusted as a result of the analysis.
FAR sect. 15.404-1(d)(3).  Thus, as the FAR explains, a price realism analysis may affect the technical evaluation, but cannot result in an adjustment of an offeror’s proposed fixed prices. Id.; see also Puglia Eng’g of California, Inc., supra; Verestar Gov’t Servs. Group, B-291854, B-291854.2, Apr. 3, 2003, 2003 CPD para. 68 at 6 n.3; Marquette Med. Sys., Inc., B-277827.5, B-277827.7, Apr. 29, 1999, 99-1 CPD para. 90 at 6. Specifically, an agency cannot make upward price adjustments for cost elements that the agency thinks may be priced too low. All Phase Environmental, Inc., B-292919.2 et al., Feb. 4, 2004, 2004 CPD para. 62 at 8. (IBM Corporation, B-299504; B-299504.2, June 4, 2007) (pdf)

Fedcar also asserts that the agency’s price evaluation was unreasonable because the agency inserted incorrect numbers into the price evaluation spreadsheet, which resulted in an error in favor of Duke’s present value ANSI/BOMA office area per square foot price. In its report, the agency admits that it erred in calculating the present value of the rent being offered by Duke, and that, instead of a price difference of [DELETED] per ANSI/BOMA square foot, the actual price advantage of the rent offered by Fedcar was [DELETED] per ANSI/BOMA square foot. Supplemental AR (Feb. 25, 2008) at 5; AR, Tab 40, Net Present Value Recalculation. The agency further admits that this error results in a net present value difference of [DELETED] per year, or [DELETED] over the 15-year life of the lease. Supplemental AR (Feb. 25, 2008), at 6. However, the agency dismisses this mistake as inconsequential and asserts that Fedcar is not prejudiced by the error because the solicitation stated that “the technical evaluation factors, when combined, are significantly more important than price.” Id.

We disagree. As indicated above, the record shows the technical evaluation of the two proposals was relatively close with Duke’s technical proposal having only a [DELETED]-point advantage (out of 100 points) over Fedcar’s proposal. AR, Tab 35, Price Negotiation Memorandum (Dec. 17, 2007), at 3. While it is true that the technical evaluation factors were said to be significantly more important than price, the SFO also stated, “[a]s proposals become more equal in their technical merit, the evaluation of price becomes more important.” SFO, as amended, at 32. With an initial price differential of only [DELETED] per square foot, the source selection authority (SSA) could reasonably place greater emphasis on technical merit in selecting Duke. Now, however, since the actual price differential ([DELETED] per square foot) between the offers is significantly (more than [DELETED] times) greater, if the award decision were to be based on this revised price difference, price under the SFO’s evaluation scheme could reasonably become more important and change the award decision. While the agency argues that the outcome of the SSA’s cost/technical tradeoff would be the same regardless of the re-calculated price, our Office affords little weight to an agency’s post-protest arguments that are based on judgments the agency asserts it would have made because such judgments made in the heat of litigation and based on facts that were not previously considered that are materially different from those on which the agency relied in making the original decision may not represent the fair and considered judgment of the >agency. Global, A 1st Flagship Co., B-297235.2, Dec. 27, 2005, 2006 CPD para. 14 at 8. Under the circumstances, we give little weight to the agency’s assertion that the outcome would have been the same, given that Fedcar now has a significantly greater price advantage than found by the agency when it made its source selection decision. Where a source selection authority bases his or her source selection decision on figures that do not reasonably represent the differences in costs to be incurred under competing proposals, the source selection is not reasonably based. See Gemmo Impianti SpA, B-290427, Aug. 9, 2002, 2002 CPD para. 146 at 5-6. Thus, Fedcar was prejudiced by the agency’s error in calculating the price difference between the offers.  (Fedcar Company, Ltd., B-310980; B-310980.2; B-310980.3,March 25, 2008)  (pdf)

CHS asserts that the agency failed to properly evaluate LHI’s price for reasonableness. Specifically, CHS notes that more than 100 of LHI’s individual medical procedure prices exceeded the agency’s independent government cost estimates (IGCE), and that LHI’s overall price exceeds the agency’s average IGCE. Where, as here, a solicitation provides for award of a fixed-price contract--under which the government’s liability is fixed and the contractor bears the risk and responsibility for the actual costs of performance--the agency need only evaluate an offeror’s price for fairness and reasonableness. Federal Acquisition Regulation (FAR) sections 15.402(a), 15.404-1(a); SAMS El Segundo, LLC, B-291620.3, Feb. 25, 2003, 2003 CPD para. 48 at 8. Agencies may use various price analysis techniques and procedures to ensure a fair and reasonable price, including the comparison of proposed prices received in response to the solicitation and comparison with an IGCE. FAR sect. 15.404-1(b)(2)(i), (v). Agencies may rely upon adequate price competition alone to assess price reasonableness. MVM, Inc., B-290726 et al., Sept. 23, 2002, 2002 CPD para. 167 at 6. A price reasonableness determination is a matter of administrative discretion involving the exercise of business judgment by the contracting officer that we will question only where it is unreasonable. The Right One Co., B-290751.8, Dec. 9, 2002, 2002 CPD para. 214 at 5. The price reasonableness evaluation here, based on adequate price competition and a comparison of prices with the agency IGCEs, complied with the RFP’s requirements and was unobjectionable. The RFP provided that price was to be evaluated for completeness and reasonableness and to ensure that the offeror understood the scope of work. RFP at 97. In evaluating offerors’ prices, the agency compared each offeror’s individual line item prices to those of the other offerors and to the agency’s IGCEs, which represented both the low and high range of estimated costs for each medical and dental procedure. LHI’s initial overall price was approximately 19 percent higher than the average IGCE, and CHS’s approximately 2 percent higher, and the agency found that both prices were reasonable based on adequate price competition and its conclusion that the prices were within a reasonable range of the average IGCE. AR, Tab 17, at 3. In discussions, the agency requested both offerors to review their work scope and pricing for certain individual procedures whose prices were lower than the low range IGCE or higher than the high range IGCE. Both offerors changed some, but not all, identified prices, and also reduced their overall prices, resulting in LHI’s price being 11.05 percent higher than the average IGCE, and CHS’s 0.10 percent higher. AR, Tab 32, at 3‑4, 8. The agency again found that there was adequate price competition, and that both offerors’ overall prices were within a reasonable range of the average IGCE. While CHS asserts that LHI’s price was too far above the average IGCE to be considered reasonable, as noted by the agency, LHI’s price was lower than the agency’s high range IGCE. Given this fact, we find no basis to object to the agency’s price evaluation. CHS’s disagreement with the agency’s judgment does not make the evaluation unreasonable. Hughes Georgia, Inc., B-272526, Oct. 21, 1996, 96-2 CPD para. 151 at 7.  (Comprehensive Health Services, Inc., B-310553, December 27, 2007) (pdf)

ITT further contends that NASA’s cost realism evaluation was flawed because it failed to properly consider Defense Contract Audit Agency (DCAA) audit results identifying irregularities with BATC’s compliance with cost accounting standards (CAS)--specifically, CAS 420--concerning, as relevant here, BATC’s allocation of its costs for independent research and development. As a consequence, ITT contends that NASA’s “most probable cost” estimate for BATC was not reasonably supported. Specifically, ITT highlights the fact that DCAA qualified its audit results for BATC based on the fact that BATC was “noncompliant” with CAS 420, which had been reported in prior audits, indicated that the cost impacts had not been determined, and stated that these issues “may have a significant effect on the final cost allocations for CAS covered Government contracts.” AR, Tab 50, DCAA Audit for BATC, 08221. In addition, DCAA explained that the Divisional Administrative Contracting Officer (DACO) of the Defense Contract Management Agency for BATC would separately negotiate the cost impact of the noncompliance. Id. The record shows that NASA further questioned DCAA on this issue, asking whether it could provide some indication of the magnitude of the cost impact. DCAA responded that it could not provide such an estimate, simply noting that the matter would be addressed by the DACO. NASA did not pursue the matter with BATC during discussions and did not make any adjustments to BATC’s costs as result of the DCAA qualification. In a hearing held by our Office, however, the DACO for BATC, who is responsible for, among other things, cost allowability issues and interacting with DCAA regarding its contractor audit reports with respect to BATC’s contracts, provided testimony regarding this issue. The DACO explained that BATC’s noncompliance relates to a 2001 audit finding, which has not yet been resolved, that any cost impact would be limited to fiscal year 2000 incurred costs, and that any cost adjustment would be limited to a decrease in costs to the government--BATC’s noncompliance would not result in increased costs to the government. Hearing Transcript (Hearing Tr.) at 173. Moreover, the DACO indicated that even if the noncompliance identified in the 2001 audit were a continuing issue, such that it implicated BATC’s 2007 contracts (something which the DACO indicated has not been identified by DCAA), such noncompliance by BATC again would not result in any increased costs to the government, thus negating any concern that BATC’s costs under the OLI contract would increase as a consequence of the outstanding CAS issue. Id. While ITT contends that the issue was raised by DCAA and that the DACO cannot speak for DCAA, the record reflects that DCAA expressly indicated that the matter would be addressed by the DACO and ITT has not explained why the DACO’s testimony should be regarded as unreliable or otherwise unreasonable. As a consequence, on this record, ITT’s challenge does not provide a basis for our Office to sustain its protest with regard to this issue. (ITT Industries Space Systems, LLC, B-309964; B-309964.2, November 9, 2007) (pdf)

GDIT maintains that there were a number of inconsistencies in RTSC’s price proposal, with the labor rates included in the B.4 table being higher than the rates included in the B.2 table. The protester identifies two areas where these inconsistencies appear. First, RTSC’s FPR eliminated a [deleted] percent escalation rate that it previously had applied to its direct labor rates for its [deleted] employees. Although the firm submitted a revised B.2 table with its FPR that reflected the elimination of this [deleted] percent escalation rate, it did not submit a revised B.4 table. Second, the protester has identified some 40 additional labor categories where RTSC’s rates in its B.4 table are higher than the rates included in the firm’s B.2 table. According to the protester, the agency’s failure to include the higher of these inconsistent prices in RTSC’s evaluated price--as expressly provided for in the RFP--resulted in an understatement of RTSC’s total evaluated price of approximately $97 million. The agency responds that, with respect to the [deleted] labor rates, it reasonably relied on language appearing in the May 7 cover letter accompanying RTSC’s FPR to conclude that the firm had reduced its pricing in both the B.2 and B.4 tables, notwithstanding any apparent inconsistencies between the prices in tables B.2 and B.4. This letter provided, in pertinent part: “Our proposed burdened labor rates for the categories and locations attached to this letter are hereby updated accordingly for both Section B.2 and B.4. These rates represent a total reduction of $[deleted] in our evaluated B.2 price.” AR exh. 75, Cover Letter. The agency maintains that this language was sufficient to obligate RTSC to provide rates without the [deleted] percent escalation. The agency maintains, moreover, that, even if this language was inadequate to obligate RTSC, this is a minor clerical error that can be corrected after award. With respect to the other 40 inconsistent labor rates, the agency states that it relied on similar language appearing in the firm’s proposal providing that: “Raytheon assures that the rates proposed in Section B.2 ‘T&M Evaluation Worksheets’ are consistent with B.4 ‘Loaded Labor Rates Matrix,’” and further providing that “[e]ach site referenced in the B.2 tables has been mapped into the corresponding B.4 Appendix B Locations on the tabs of the B.4 workbooks.” AR exh. 60, Volume 5_Book 2_CP_rev2.doc, at 76. The agency asserts that this was sufficient to indicate that RTSC intended to be bound by the lower rates appearing in the B.2 table.

We find that the agency improperly failed to include an additional $97 million (consistent with GDIT’s calculation) in RTSC’s evaluated price. The RFP was unequivocal regarding how the agency was to evaluate proposals in the event of an inconsistency between the B.2 and B.4 tables:

Section B.2 ‘Time and Materials Evaluation Worksheets’ will be evaluated to ensure that the rates proposed are consistent with the B.4 ‘Loaded Labor Rates Matrix’ . . . . Inconsistencies between B.2 and B.4 rates, or between B.3 and B.5/B.6 FFP, will result in the Government using the higher of the inconsistent rates/prices for the Total Evaluated Price.

RFP at M-3. It is undisputed that RTSC’s B.2 table included revised prices that were inconsistent with the higher prices in its B.4 table. Under the above-quoted language, in this situation, the agency was to include the higher prices in the evaluation. The agency, in relying upon the information in RTSC’s cover letter, disregarded this express RFP provision in arriving at RTSC’s total evaluated price. The agency’s reliance on the language in the May 7 cover letter, in lieu of the approach plainly set forth in the RFP, was misplaced. Not only was such reliance inconsistent with the plain language of the RFP but, in any case, the cover letter language rendered RTSC’s proposal, at best, ambiguous. In this regard, although RTSC purported to revise both its B.2 and B.4 tables by the terms of the cover letter, as noted, it submitted only a revised B.2 table and stated that its proposed change “represents a total reduction of $[deleted] in our evaluated B.2 price.” AR exh. 75. Other portions of RTSC’s proposal--including its B.4 table--remained unchanged by the May 7 revision, including the narrative replacement pages to its proposal that RTSC had previously submitted in connection with its earlier offer of the [deleted] percent escalation for its [deleted] employees. AR exh. 42d, Vol. 5, book 2 change pages, at 157-57f. Thus, RTSC’s B.4 table and narrative proposal continued to offer the [deleted] percent annual escalation to its [deleted] employees’ compensation, notwithstanding the language of its cover letter.  Agencies are required to evaluate proposals in a manner consistent with the solicitation. Clean Harbors Env’t Servs., Inc., B-296176.2, Dec. 9, 2005, 2005 CPD para. 222 at 3. The RFP here expressly provided that the agency would evaluate inconsistent pricing in a very specific manner, and the agency failed to evaluate RTSC’s proposal consistent with the RFP ground rules. (General Dynamics Information Technology, B-299873, September 19, 2007) (pdf)

An agency may not reasonably award a cost‑reimbursement contract to an offeror whose cost proposal evidenced a different technical approach than that presented in the technical proposal, without resolving the inconsistency. See TRW, Inc., B‑254045.2, Jan. 10, 1994, 94-1 CPD para. 18 at 8-9. Here, the agency failed to resolve the inconsistency presented in MTJV’s cost and technical proposals. In any case, we find no reasonable basis in the record for the Navy’s “assumption” that Tecnico’s rates were “representative of prevailing Mayport area labor rates.” As noted by the protester, Tecnico’s burdened labor rate of $[Deleted] was significantly lower than all but one of the other offerors’ and their subcontractors’ burdened labor rates. In fact, we calculate the average burdened labor rate for offerors and their subcontractors to be $[Deleted].[6] More specifically, Tecnico’s burdened labor rate was significantly lower than the rates proposed by Earl ($[Deleted]), Atlantic Marine ($[Deleted]), and QED ($[Deleted]), which were the firms specifically identified by MTJV for possible performance of [Deleted] percent of the contract work. Although the Navy provided the declaration of the CAP chairperson, who generally states that he found that Tecnico’s rate was comparable to rates of other contractors working in the Mayport area, see Navy’s Response to Earl’s Comments, attach. D, Declaration of CAP Chair, at 2, this declaration does not explain with any specificity how he determined this, nor does the Navy otherwise address or rebut the protester’s arguments concerning Tecnico’s lower rate compared to the offerors’ rates in this competition. We also note that allowing MTJV to propose subcontracting a significant amount of the contract to unnamed subcontractors appears to also be inconsistent with the RFP’s requirements to identify and provide cost proposals for significant subcontractors, which the RFP defined, in part, to be contractors that were providing effort consisting of 5 percent of total direct dollars. See RFP sect. L, at 154, 159. With respect to the Navy’s contention that Earl similarly proposed to perform [Deleted] percent of the contract with subcontractors other than those it proposed in its cost proposal, we fail to see how, even if this were true, this demonstrates that the agency’s cost realism evaluation was reasonable. In any event, as noted above, MTJV stated in its technical proposal that it would allocate [Deleted] percent of its productive hours assigned to Tecnico at that firm’s low labor rate to other “miscellaneous specialty contractors,” which all appear to have higher labor rates than Tecnico’s. Earl, on the other hand, stated in its technical proposal that [Deleted] percent of the contract work would be performed by its identified team of subcontractors (whose labor rates were considered in the agency’s cost realism analysis), and that Earl would “accomplish the remaining work with the assistance of our Surge/Specialty Subcontractors” (all of which were also specifically identified in Earl’s proposal). See AR, Tab 5, Earl Technical Proposal, at 25-26. There is no evidence in the record, nor has the agency provided any argument, that indicates that any of the surge/specialty subcontractors identified by Earl in its proposal have higher rates than Earl. In any event, unlike MTJV’s unequivocal statement that work allotted to Tecnico would be performed by others, Earl stated it would perform [Deleted] percent of the contract work, albeit with the assistance of the identified surge/specialty subcontractors.  (Earl Industries, LLC, B-309996; B-309996.4, November 5, 2007) (pdf)

Navarro challenges the adequacy of the agency’s price realism analysis. In this regard, section M of the RFP stated that proposals “will be evaluated to determine if the proposed costs are realistic and consistent with the Technical Proposal with regard to the nature, scope, and duration of the work to be performed. Inconsistencies between the Cost/Price Proposal and other portions of the proposal could raise concerns regarding the offeror’s understanding of the requirements and ability to perform the work for the proposed price.” RFP at 92.  Where a fixed-price contract--including a fixed-rate contract such as this one--is to be awarded, an agency may provide for the use of a price realism analysis in a solicitation for such purposes as measuring an offeror’s understanding of the solicitation’s requirements and for assessing the risk inherent in an offeror’s proposal. Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD para.189 at 4. The Federal Acquisition Regulation (FAR) identifies a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, including comparison of the prices received with each other and with the independent government estimate, and analysis of pricing information provided by the offeror. FAR sect. 14.404-1(b)(2). The nature and extent of a realism analysis ultimately are matters within the agency’s discretion, unless the agency commits itself to a particular methodology in the solicitation. Id.  DOE’s realism analysis consisted of comparing the proposed rates for the specified labor categories to both the government estimate and the other proposed prices, and the use of statistical analysis techniques to analyze the information. Technical Evaluation Report (TER) at 37-46 and attach. 4. As a result of its analysis, the agency concluded that all offerors’ total prices were realistic, including Stoller’s, which was approximately 11.6 percent lower than the government estimate. AR at 25, 28. In this regard, the agency found that some of Stoller’s and other offerors’ labor rates were lower than the government estimate and that some were higher, but concluded that, overall, all offerors’ proposed rates were consistent with the estimate. AR at 25. In addition, DOE verified that each offeror’s prices reflected the estimated number of labor hours for each labor category specified in the RFP. We find nothing objectionable in the agency’s evaluation methodology.  Navarro complains that the realism analysis was flawed because it was based on a government estimate that was not prepared until after the proposals were received. However, there is nothing per se improper in an agency’s reliance on a government estimate revised after offers are received where it determines that the original estimate is erroneous. McCarthy Mfg. Co., B-186550, Feb. 17, 1977, 77‑1 CPD para. 116 at 3-4. DOE explains that it reduced the government estimate after proposals were received to correct errors and to account for inapplicable and likely inaccurate assumptions. For example, among other things, DOE reduced the overhead rate assumption from 100 percent to 50 percent because the lower rate was consistent with similar contracts performed on government property. The agency also reduced the profit rate to correspond to the rates offerors actually proposed. AR at 29-30. Navarro does not challenge any specific changes made by the agency, and does not assert--and we find no reason to conclude--that the estimate itself is unreasonable. Accordingly, we find no basis for questioning the agency’s use of the revised estimate. (Navarro Research and Engineering, Inc., B-299981; B-299981.3, September 28, 2007) (pdf)

Protest is sustained where (1) solicitation for combat search and rescue aircraft provided that cost/price would be calculated on the basis of Most Probable Life Cycle Cost, including both contract and operations and support (O&S) costs, (2) solicitation requested detailed information quantifying required maintenance for proposed aircraft, and (3) agency nevertheless normalized cost of maintenance when calculating O&S costs, thereby ignoring potentially lower cost of asserted low maintenance helicopters; once offerors are informed of criteria against which proposals will be evaluated and award made, agency must adhere to those criteria. (Sikorsky Aircraft Company; Lockheed Martin Systems Integration‑Owego, B-299145; B-299145.2; B-299145.3, February 26, 2007) (pdf)

The FAR provides a number of price analysis techniques that may be used to determine whether prices are fair and reasonable, including comparison of the prices received with each other; comparison of previously proposed prices for the same or similar items; and comparison with the independent government estimate. FAR sect. 15.404-1(b)(2). A price reasonableness determination is a matter of administrative discretion involving the exercise of business judgment by the contracting officer that we will question only where it is unreasonable. The Right One Co., B-290751.8, Dec. 9, 2002, 2002 CPD para. 214 at 5. Our review of the record here provides no basis to question the reasonableness of the contracting officer’s determination.  Section M of the RFP, quoted above, clearly stated that an offeror’s evaluated price would be calculated by multiplying each of the priced line items by the estimated quantities and by adding all of the extended prices to arrive at the lowest total evaluated price for the varied quantities. RFP amend. 2, adden., attach. 1, Price Evaluation. Further, section M did not require the use of price realism analysis to measure the offerors’ understanding of the government’s requirements or to assess the risk inherent in an offeror’s proposal. PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD para. 381 at 5. Rather, as described above, the record shows that the contracting officer agency conducted a price reasonableness evaluation based upon adequate price competition, which reflected approximately a 4 percent differential between the proposals of USDC and USTI, along with comparison of the proposed prices to the government estimate. Although USDC’s essential complaint is that the contracting officer’s analysis should have been more exhaustive, our review confirms that the price evaluation conducted by the agency was reasonable and fully consistent with the provisions of the RFP.  USDC asserts that the contracting officer should have obtained and analyzed additional information in evaluating offerors’ proposed prices. In support of its position, USDC points to language in section L of the RFP which states that information other than costs and pricing data may be required to support price reasonableness. As discussed above, in this case, section M of the RFP did not require that additional information would be evaluated as part of the agency’s price evaluation. Absent an RFP provision in a solicitation for a fixed-price contract requiring a price realism analysis, no such analysis is required. Dismas Charities, Inc., B-289575.2; B-289575.3, Feb. 20, 2004, 2004 CPD para. 66 at 4.  (U.S. Dynamics Corporation, B-298889, December 19, 2006)  (pdf)
 

The RFP provided possible methods for evaluating price reasonableness: information submitted with the offeror’s proposal, the comparison of other competitive offers, the independent government cost estimate (IGCE), or on any other reasonable basis. RFP amend. 3, sect. M, at 35. Of these options, the agency chose to evaluate price reasonableness by comparing price proposals to each other as well as to the IGCE. The agency has adequately documented its price analysis and reasonably determined, based on a comparison of price proposals and comparison of the prices to the IGCE, that the awardees’ prices were fair and reasonable. Agency Report, Tab 25, Cost/Price Analysis Report, at 1. While the protester alleges the agency should have conducted a more in-depth analysis of the price proposals, the depth of an agency’s price analysis is a matter within the sound exercise of the agency’s discretion; we find no legal requirement here for the agency to have done a more in-depth analysis than was undertaken here. See Redcon, Inc., B‑285828, B‑285828.2, Oct. 11, 2000, 2000 CPD para. 188 at 9. Given that Indtai’s price is significantly higher than the awardees’ prices, many of the protester’s contentions concern the agency’s alleged failure to perform sufficient analysis to determine whether the awardees’ prices were too low or consider the performance risk of these assertedly low prices. However, the purpose of a price reasonableness analysis is to determine whether the prices offered are higher--as opposed to lower--than warranted. See Dismas Charities, Inc., B‑289575.2, B-289575.3, Feb. 20, 2004, 2004 CPD para. 66 at 4; Sterling Servs. Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD para. 26 at 3. In contrast, arguments that the agency did not perform an appropriate analysis to determine whether prices are too low such that there may be a risk of poor performance concern price realism not price reasonableness; price realism is not required to be evaluated by the agency unless the solicitation provides for such an analysis. Dismas Charities, Inc., supra. Here, the solicitation did not provide for a cost realism analysis and the agency therefore did not have to perform such an analysis.  (Indtai Inc., B-298432.3, January 17, 2007) (pdf)

CAS 401--which is applicable to ACC--requires a contractor’s practices in estimating costs for a proposal to be consistent with cost accounting practices used by the contractor in accumulating and reporting costs. 48 C.F.R. sect. 9904.401-20 (2005). This requirement is imposed because “[c]onsistency in the application of cost accounting practices is necessary to enhance the likelihood that comparable transactions are treated alike,” so that, among other things, there is “financial control over costs during contract performance.” Id. More significantly, CAS 402--also applicable to ACC--states:

All costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives. No final cost objective shall have allocated to it as an indirect cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective. Further, no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included in any indirect cost pool to be allocated to that or any other final cost objective.

48 C.F.R. sect. 9904.402-40. Because of these requirements, ACC was and will be required to account for its costs in a manner consistent with its established accounting practices during the course of this contract performance. General Research Corp., B-241569, Feb. 19, 1991, 91-1 CPD para. 183 at 9; CACI, Inc.--Fed., B‑216516, 84-2 CPD para. 542 at 10‑13. Consequently, in determining ACC’s evaluated probable cost for performing this contract, the agency could not reclassify costs that ACC treats as indirect costs in its accounting system as direct costs. See General Research Corp., supra; CACI, Inc.--Fed., supra. The agency argues that this adjustment was necessary in order to allow for a more “equitable” comparison of the cost proposals. In effect, the agency here has selectively “normalized” the cost elements included in the offerors’ indirect cost pools. Normalization is a technique sometimes used within the cost evaluation/adjustment process that involves measuring offerors against the same cost standard or baseline where there are no logical differences in approach or in situations where insufficient information is provided in the proposals. General Research Corp., supra. Such a normalization process was improper here because ACC’s proposal necessarily accounted for PMO costs as part of its indirect costs, which were required to be accounted for in a like manner under this contract.[4] Therefore, the agency’s “normalization” of PMO costs among the offerors with different accounting systems necessarily resulted in an unreasonable estimate of the offerors’ proposed costs for performing this contract. General Research Corp., supra, at 5-6, 9. Moreover, the agency has never explained why deleting PMO costs from proposed indirect costs will result in a more equitable comparison of proposals. There is no evidence in the record that the shifting of costs from indirect to direct can result in a number that represents the probable costs of a particular proposal in performing the contract, because there is no indication that the cost model’s plug number represents the direct cost approach that will be taken by each contractor.  The agency asserts that because an RFP amendment advised offerors, in response to an offeror’s question, that a “standing PMO” would not be funded, offerors were on notice that PMO costs were “within the scope of direct costs fixed by the Navy.” Agency Brief (Oct. 20, 2006) at 2; see RFP amend. 3, attach. 1, Q&A 44. The agency posits that its cost evaluation adjustment to account for ACC’s different treatment of PMO costs was therefore appropriate in order to allow for an “equitable” comparison of the proposals. This argument is meritless for a variety of reasons. First, the statement that the agency would not fund a “standing PMO” does not suggest that PMO costs were included as direct costs; if anything, it suggests the opposite. Also, as noted above, the agency does not explain how this statement would allow ACC to vary from its established accounting practices with regard to PMO costs. Finally, there is no evidence that any PMO costs were included in the “plug” numbers for direct costs. The agency argues that KBR was not prejudiced because it was also the beneficiary of a downward cost adjustment in its indirect costs. However, as noted above, the adjustment to KBR’s probable costs was to properly account for an apparent overstatement in several of its indirect rates, which is an entirely different proposition than reclassifying costs that had been properly included in indirect cost pools to direct costs. Finally, as noted by the protester, several of ACC’s indirect cost rates are significantly less than those proposed by the other offerors, which KBR suggests evidences that costs which other offerors charged as indirect costs may be charged as direct costs by ACC. KBR contends that given the multiple accounting variances amongst the offerors, the agency’s “singling out” of ACC’s PMO costs to adjust from indirect costs to direct costs was unreasonable and represented unequal treatment. The agency has offered no substantive response to this KBR contention, which, based on this record, appears to have merit. In sum, the agency’s adjustment to ACC’s proposal was unreasonable and prejudiced KBR because it resulted in ACC being evaluated as having a lower cost than KBR, such that no cost/technical tradeoff was performed. (Kellogg Brown & Root Services, Inc., B-298694; B-298694.2; B-298694.3, November 16, 2006) (pdf)

Multimax, BAE and Pragmatics assert that the Army’s evaluation of proposed labor rates was unreasonable. In this regard, the Army reports that it employed a two‑step approach to evaluating labor rates for purposes of determining price reasonableness, detecting unbalanced pricing, and identifying labor rates to question during discussions: first, it compared an offeror’s rate for a labor category to the IGCE rate for that category, and then it compared the rate to the mean of all offerors’ evaluated rates for each labor category using a two‑standard‑deviation measure. The agency’s price evaluator explained the second step as follows:

Next, the Price evaluation team calculated the mean of all offerors’ evaluated labor rates for each labor category. The mean evaluated labor rates were then used to calculate the standard deviation from the mean. In order to determine the most appropriate measure of comparison, the following were calculated: mean plus and minus one standard deviation, mean plus and minus two standard deviations, and mean plus and minus three standard deviations. A comparison was made, using the three separate standard deviations, to determine which offerors’ average labor rates for each labor category fall outside the range of each standard deviation. The majority of the offerors’ average labor rates fell outside the range of one standard deviation and no offeror’s average labor rates fell outside the range of three standard deviations. Therefore, it was determined that two standard deviations was the most appropriate measure of comparison to use for the reasonableness assessment.

Memorandum of Agency Price Evaluator to Source Selection Evaluation Board (SSEB) Chairperson, Nov. 29, 2005, at 2-3; Agency Comments, Sept. 21, 2006, at 3.

Under this two-step approach, the agency would issue an IFN¹ to an offeror questioning a proposed labor rate as significantly overstated (or understated) only if the rate both exceeded (or was lower than) the IGCE rate, and was more than two standard deviations greater (or less) than the mean rate of all offerors for that category. According to the contracting officer (who was responsible for conducting discussions and determining overall price reasonableness), the two-step evaluation was used to identify “extraordinary outlier rates,” that is, “rates that were significantly overstated or understated and which might pose a risk to the Government of paying an unreasonable amount during performance. . . . Rates that did not meet [both] tests were not considered outliers and were not questioned.” Second Declaration of Contracting Officer at 1; see Agency Comments, Sept. 8, 2006, 3-8, 16; Agency Comments, Sept. 21, 2006, at 3; Declaration of Agency Price Evaluator, Aug. 18, 2006, at 1.  The two-standard-deviation formula resulted in an extremely wide range of acceptable rates for the labor categories. The upper end of the range was significantly above the IGCE for some of the labor categories, and in some instances was nearly, or more than, twice the IGCE (such as $[REDACTED] versus the $[REDACTED] IGCE rate for Application System Analyst-Senior, $[REDACTED] versus the $[REDACTED] IGCE rate for Software Engineer-Senior, and $[REDACTED] versus the $[REDACTED] IGCE rate for Information Security Specialist-Senior). Likewise, the lower end, in some instances, was below the federal minimum wage or was even a negative number (such as $[REDACTED] for Project Administrator, $[REDACTED] for Information Security Specialist-Senior, and $[REDACTED] for Information Security Specialist‑Associate). There is no indication that the agency ever reviewed the results of the formula to assure that the prices at the extreme end of the ranges reflected reasonable pricing; rather, the agency mechanistically applied the formula and accepted the results without further analysis. We conclude that the agency’s methodology did not provide a valid means for identifying “outlier” (questionable) rates, and this aspect of the evaluation therefore was unreasonable. See generally Metro Mach. Corp., B‑297879.2, May 3, 2006, 2006 CPD para. 80 at 9‑10 (mechanical application of an agency’s own estimates for labor hours or costs to determine evaluated costs, without the exercise of informed judgment by the contracting agency in independently analyzing the offeror’s proposed costs based upon its particular approach and circumstances, was unreasonable); The Jonathan Corp.; Metro Machine Corp., B-251698.3, B-251698.4, May 17, 1993, 93-2 CPD para. 174 at 11-13; United Int’l Eng’g, Inc. et al., B-245448.3 et al., Jan. 29, 1992, 92-1 CPD para. 122 at 11. We therefore sustain the protests of Multimax, BAE and Pragmatics on the basis that the Army failed to reasonably evaluate proposed labor rates.  (Multimax, Inc.; NCI Information Systems, Inc.; BAE Systems, B-298249.6, B-298249.7, B-298249.8, B-298249.9, B-298249.10,October 24, 2006) (pdf)
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¹ Items for Negotiation (IFN)

EHMC challenges the agency’s determination that its price was unreasonably high, noting that its price was lower than both the prices VA has paid for the same services under a previous contract, and the cost guidelines utilized by the Medicare program for home oxygen services. The agency formulated the government estimate based primarily on the prices it was currently paying under the 6‑month contract extension negotiated in October, but increased the price for CLIN 1--for oxygen concentrators, which formed the largest single segment of the contract--from $60 (the extension price) to $90. Even with this 50-percent increase in the CLIN 1 price, as noted, EHMC’s price exceeded the estimate by 39 percent. Notwithstanding that there may have existed other price measures that would have been more favorable to EHMC, comparison of prices to a government estimate is a legitimate means of determining price reasonableness. See Bahan Dennis, Inc., B‑249496.3, Mar. 3, 1994, 94-1 CPD para. 184 at 3 (cancellation based solely on comparison to the government estimate was reasonable). This is particularly the case here, since the estimate was largely based on prices currently being paid under an existing contract.  EHMC asserts that the estimate was too low and did not constitute a proper basis for determining price reasonableness. Specifically, EHMC argues that, since the prior contract was awarded to MCS on January 1, 2001, and since the prices in that contract remained constant throughout the base year and 4 option years, those prices--which were reflected in the 6-month extension and, thus, the estimate--were not an accurate reflection of the current cost of oxygen equipment and services. We disagree. While EHMC is correct that the prices in the 6‑month extension were similar to those under the preceding contract, this fact in no way diminishes their validity for purposes of determining price reasonableness. Since the prices in the 6-month extension were negotiated in October 2005, and MCS was actually performing the work at the negotiated price when the RFP was issued, we see no reason why the agency could not accept those prices as representative of the current market price. The protester has not shown that the agency failed to consider market conditions or other extenuating circumstances that rendered the negotiated price an invalid basis for comparison. Moreover, the agency did not merely rely on the extension prices; rather, as noted above, it increased the estimate for CLIN 1, the largest segment of the work under the RFP, 50 percent above the fourth option year price under MCS’s contract. Regarding CLIN 1, although MCS was performing at a unit price of $60 (and, as noted, had been performing at that price during the fourth option year of its contract), the contracting officer (CO) explains that the 50 percent upward adjustment was based on his discussions with another contracting official who had contacted other VA medical centers to obtain prices. CO’s Statement, Sept. 21, 2006, at 2. The $90 unit price also closely reflected offerors’ prices under the same CLIN for the 2001-05 contract‑-offerors there proposed level 5-year pricing (except for MCS’s reduced fourth year option price) of $90, $93, and $95. Protester’s Comments, Sept. 26, 2006, exh. 1. Thus, while the $90 unit price was similar to prices from proposals that were submitted in 2000, those proposals essentially reflected the offerors’ views that prices would not increase significantly through 2005. Against this backdrop, given MCS’s willingness, as of January 2006, to perform CLIN 1 at a substantially lower price, the agency certainly had ample reason to believe that $90 did not understate the current market price. The protester also argues that the estimate was flawed in that it did not provide for inflation over the life of the contract. However, while the estimate apparently was based on level pricing ($719,000) for the base and 4 option years, as already discussed, under the prior contract each of the offerors proposed level pricing over the 5 contract years. Id. Furthermore, while the protester maintains that some significant inflation factor should be applied to each contract year, we note that the protester itself only proposed to increase prices in 2 of the 4 option years. The protester also has failed to provide any evidence establishing that cost increases for home oxygen services and supplies are, or should be, expected to occur over the contract term. We therefore are not persuaded that inflation should have been factored into the government estimate.  (Eagle Home Medical Corporation, B-298478, October 13, 2006) (pdf)

UMS and AKSM again were the only two firms to submit proposals. Regarding prices for the YAG laser system, UMS’s proposal listed, in the appropriate blanks to the right of the item description, a unit price of $1,325 for the system and a total price of $15,900 (the price for 12 units) for the base year. In addition to the blanks next to the item description, the pricing sheet also contained another blank under the description, in which offerors were again to fill in the unit price for each item. Here, UMS did not write $1,325 for the laser system, but instead wrote [deleted] (emphasis in original), and then added [deleted] additional lines containing prices for [deleted] different size fibers (ranging from [deleted] to [deleted]). UMS repeated this pricing scheme for the YAG laser system for each of the option years, changing only the total prices to reflect the different number of units in the option years (25 units for each year). In contrast, AKSM’s proposal listed a unit price of $900 for the YAG laser system in both the blank next to the description and the blank below the description. Regarding prices for the standby charges, UMS’s proposal listed, in the appropriate blanks to the right of the item description, a unit price of $250 for standby charges, and a total price of $1,250 (the price for 5 units) for the base year. In the blank under the item description, UMS again listed $250, but included the phrase [deleted] (emphasis in original) after the unit price. Again, UMS repeated this pricing for each of the option years, changing only the total prices to reflect the changed number of units (10 units for each year). In contrast, AKSM’s proposal listed standby charges of $475 in both blanks. Finally, for the ESWL, UMS listed a unit price of $875 in the blank next to the item description and the blank below the item description. AKSM listed a price of $1,400 in both places. UMS primarily alleges that VA performed an improper price evaluation. Specifically, whereas VA based UMS’s total evaluated price on a unit price of $1,325 for the YAG laser system, UMS alleges that this was not its lowest possible price; rather, its lowest price was the price listed under the item description--[deleted] for the least expensive fiber, for a total unit price of $1,200. Since this price would have left UMS as the low offeror, it concludes that the agency’s price evaluation was materially flawed.

The price evaluation here was reasonable. Regarding the laser system, it was proper for the agency to use $1,325 as the item price for evaluation purposes, given that $1,325 was the unit price that UMS provided in the space to the right of the item description, and that it was the only firm, fixed unit price offered. In any case, even if UMS were correct that its range pricing should have been used in the evaluation, $1,200 would not be the proper evaluated unit price. In this regard, where an offeror provides a range of prices where a single firm, fixed price is required, the evaluation must be based on the highest, not the lowest, price in the range, since this could be the ultimate cost to the government if award were made to that firm. See Tri-State Gov’t Servs., Inc., B‑277315.2, Oct. 15, 1997, 97-2 CPD para. 143 at 4-5. The highest unit price in UMS’s proposed price range was [deleted] ([deleted] for the fiber). Accordingly, this price, not $1,200, would be the appropriate price for the agency to use if it were to evaluate UMS’s range pricing. (United Medical Systems-DE, Inc., B-298438, September 27, 2006) (pdf)

In our view, the record here lacks any persuasive evidence that the agency examined the completeness of the offerors’ price proposals as called for by the RFP. We note that the solicitation here did not merely use the term “completeness” in setting out the parameters of the price evaluation, but explained, in detail, that the agency planned to evaluate completeness, and identified the kind of back-up pricing data that offerors needed to produce for the agency’s evaluation; the agency’s failure to conduct this review was clearly contrary to the solicitation’s requirements. See OMNIPLEX World Servs. Corp., B‑291105, Nov. 6, 2002, 2002 CPD para. 199 at 10. (Advanced Systems Development, Inc., B-298411; B-298411.2, September 19, 2006) (pdf)

Where, as here, an RFP contemplates the award of a fixed-price contract, an agency may provide for the use of a price realism analysis for the limited purpose of measuring an offeror’s understanding of the requirements or to assess the risk inherent in an offeror’s proposal. Rodgers Travel, Inc., B-291785, Mar. 12, 2003, 2003 CPD para. 60 at 4; Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD para. 189 at 2. The nature and extent of the agency’s price analyses are matters within the sound exercise of the agency’s discretion, and our review of such an evaluation is limited to determining whether it was reasonable and consistent with the provisions of the solicitation. Id. Among the price analysis techniques that may be used is an analysis based on previous proposed prices or contract prices. Federal Acquisition Regulation (FAR) sect. 15.404-1(b)(2). We agree with the protester that the contract specialist’s “adjustments” to the fixed prices proposed were problematic. A price realism analysis, if conducted, may affect the technical evaluation; it cannot properly lead to adjustment of proposed fixed prices. See Verestar Gov’t Servs. Group, B‑291854, B-291854.2, Apr. 3, 2003, 2003 CPD para. 68 at 6 n.3. If the selection decision had been based on those “adjusted” or “factored” prices, the procurement might have been fatally flawed. The tradeoff analysis in the PNM, however, was explicitly based on the unadjusted proposed prices, and the source selection decision, as quoted above, explicitly found that “the advantages of having Todd perform [the work] is worth the additional financial outlay (regardless of whether that amount is based upon the original proposed values or adjusted values).” Accordingly, any flaws in the conduct of the price realism analysis did not prejudice PECI. Competitive prejudice is an essential element of a viable protest and where no prejudice is shown, or is otherwise not evident from the record, our Office will not sustain a protest, even if a deficiency in the procurement is found. Orion Int’l Tech., Inc., B-293256, Feb. 18, 2004, 2004 CPD para. 118 at 3. (Puglia Engineering of California, Inc., B-297413; B-297413.2; B-297413.3, January 20, 2006) (pdf)

One example of how the agency’s limited review may have led to acceptance of a questionable contingency cost was SCA’s allowance for the possibility that if sodium pools were encountered during the removal of residual sodium, a strong sodium/hydrated sodium hydroxide reaction would occur. SCA listed the “owner” of this risk as SCA and Framatone ANP, a proposed subcontractor that would be involved in removing residual sodium. Although SCA rated the probability of this occurring as very low, that is, 0 to 20 percent, it recognized that the cost overrun that would result in the event that it occurred would total between $7,140,000 and $16,660,000, and the probable schedule impact would be between 7.3 and 18.2 weeks of delay. Nevertheless, presumably as the anticipated result of its proposed mitigation approach, SCA allocated no contingency allowance either in terms of dollars or weeks of delay. SCA Revised Proposal, fig. C-21, C-23, C-24. That this result may not fully reflect the likely risks is supported by the testimony of the FFTF project director (who was not involved in evaluating SCA’s contingency allowance in this regard, but was the agency’s leading technical expert on sodium removal at the hearing), who answered in the affirmative when asked whether he would be surprised to learn that the risk analysis in this regard resulted in zero risk (and thus had no effect on the contingency allowance0. Tr. 919‑20. While it appears that the agency concluded that SCA’s method for calculating contingency was sound, it is clear from the limitations acknowledged by the agency that it was unable to conclude that SCA’s significantly lower contingency allowance, and the resulting difference in evaluated cost, reasonably represented the difference between the costs that actually would be incurred under SCA’s and FRC’s proposals. The evaluation in this area therefore was unreasonable. (EPW Closure Services, LLC; FFTF Restoration Co., LLC, B-294910; B-294910.2; B-294910.3; B-294910.4; B-294910.5; B-294910.6; B-294910.7, January 12, 2005) (pdf)

The agency performed its price analysis by first establishing a “minimum objective” price, a “target objective” price, and a “maximum objective” price, for each of the 355 Lot I CLINs and 194 Lot II CLINs. AR, Tab 13, Pre-Negotiation Briefing Memorandum, at 5-6, attach. A. The “minimum objective” price equated to the determined “Fair Market Price less 5 % to allow for negotiation flexibility.” Id. at 5. The agency’s “target objective” prices were “based on the previous procurement prices” adjusted by a set percentage for inflation and a “learning curve adjustment for quantity,” and the agency’s “maximum objective” prices equated to the determined fair market price “with 5% added to allow for unknown market conditions.” Id. The agency then identified those CLINs in the offerors’ proposals where the total prices proposed (unit price multiplied by the estimated quantity) were at least $7,000 less than the agency’s minimum objective prices, 50 percent or more below the agency’s maximum objective prices, and/or “out of line” with the other offerors’ proposed prices. AR, Tab 13, Pre-Negotiation Briefing Memorandum, at 5. The agency provided each offeror with a pricing matrix identifying those CLINs where the prices proposed met the above criteria, and, as mentioned previously, requested that the offeror “verify that these prices are correct for price realism.” AR, Tab 14, Negotiation Letters to EHC and Grauch (Sept. 1, 2004). The agency received proposal revisions from the offerors, and with regard to Grauch, “was satisfied with the price realism of [its] proposal[].” AR at 13. EHC challenges the depth of DLA’s price analysis, arguing that “there is no discussion in any of [the agency’s] final evaluation documents regarding the cost realism of Grauch’s offer.” Protester’s Comments at 12. The protester concludes that the agency “did nothing to investigate Grauch’s significantly lower prices or to confirm that Grauch could deliver the requested items at these prices,” and therefore “failed to conduct a proper price realism analysis.” Protester’s Supplemental Comments at 10. The protester notes that Grauch’s proposed prices after negotiations were “still 32% below [the agency’s] Minimum Objective for Lot I and 35% below [the agency’s] Minimum Objective for Lot II.”[4] Id. We find from our review of the contemporaneous record that the agency had concerns with the low prices proposed by the offerors for certain CLINs in Lots I and II, and that it handled these concerns in a reasonable manner. That is, the agency’s price negotiation memorandum shows that the agency was aware and accurately calculated the number of CLINs on which Grauch’s and EHC’s proposed prices fell within the agency’s criteria for requiring verification for price realism purposes, that the agency brought these CLINs to the offerors’ attention during negotiations, and was satisfied with the responses it received. There is no requirement that the agency conduct a “cost realism” analysis in evaluating proposals for a fixed-price contract as asserted by the protester, nor is an agency required to “investigate” in the context of a price realism analysis whether Grauch can deliver the items for the prices proposed as required by the resultant contract.[5] See Citywide Managing Servs. of Port Washington, Inc., supra, at 6. (Electronic Hardware Corporation, B-295345, January 28, 2005) (pdf)

Although agencies are required to perform some sort of price or cost analysis on negotiated contracts to ensure that proposed prices are fair and reasonable, where, as here, the award of a fixed-price contract is contemplated, a proposal’s price realism is not ordinarily considered, since a fixed-price contract places the risk and responsibility for contract costs and resulting profit or loss on the contractor. However, an agency may provide in the solicitation for a price realism analysis for such purposes as measuring an offeror’s understanding of the solicitation requirements, or to avoid the risk of poor performance from a contractor who is forced to provide goods or services at little or no profit. The depth of an agency’s price realism analysis is a matter within the sound exercise of the agency’s discretion. Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B‑281287.13, Nov. 15, 2000, 2001 CPD para. 6 at 4-5. In reviewing protests challenging price realism evaluations, our focus is whether the agency acted reasonably and in a way consistent with the terms of the solicitation. The protester first argues that under the solicitation its proposal cannot be rejected as unacceptable because its price was considered unrealistically low. However, as indicated, the solicitation expressly provided that "[p]roposals will be evaluated to determine whether offered prices are realistic,” and specifically informed offerors that the analysis would include the distinct queries of whether the prices were realistic “in relation to the work to be performed, reflect a clear understanding of the requirements, and are consistent with other portions of the offeror’s proposal.” RFP at 16. Accordingly, this is not an instance, such as pointed to by the protester in Possehn Consulting, B-278759, Jan. 9, 1998, 98-1 CPD para. 10, where the rejection of a proposal because its pricing was found to be unrealistic was determined to be a matter of responsibility due to the solicitation’s lack of any evaluation factor or criterion related to price realism. See also CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD para. 207 at 4-5 (where there is no relevant evaluation criterion pertaining to price realism or understanding, a determination that an offeror’s price on a fixed-price contract is too low generally concerns the offeror’s responsibility). In our view, given the RFP’s specific provision regarding the performance of a price realism analysis, as well as the remainder of the RFP’s terms, the agency could reject a proposal that lacked price realism, or consider a proposal’s lack of price realism in its source selection.  We have found that the risk of poor performance when a contractor is forced to provide services at little or no profit under a fixed-price contract is a legitimate concern that can be considered under a price realism evaluation. Ameriko, Inc., B‑277068, Aug. 29, 1997, 97-2 CPD para. 76 at 3; GEC-Maconi Electronic Sys. Corp., B‑276186, B-276186.2, May 21, 1997, 97-2 CPD para. 23 at 5. Here, the agency reasonably found IOS’s price to be unrealistic, and because of this, determined that there was a significant risk that IOS’s performance under the contract may be so unprofitable that the performance of this contract--which is considered extremely important to DeCA--would be adversely affected. Under the circumstances, we find the agency had a reasonable basis to reject IOS’s proposal. (International Outsourcing Services, B-295959, LLC, May 25, 2005) (pdf)

Agencies must consider cost to the government in evaluating proposals, 41 U.S.C. sect. 253a(b)(1)(A), (c)(1)(B) (2000), and while it is up to the agency to decide upon some appropriate and reasonable method for the evaluation of offerors’ prices, an agency may not use an evaluation method that produces a misleading result. See Bristol-Myers Squibb Co., B-294944.2, Jan. 18, 2005, 2005 CPD para. 16 at 4; AirTrak Travel et al., B-292101 et al., June 30, 2003, 2003 CPD para. 117 at 22. The method chosen must also include some reasonable basis for evaluating or comparing the relative costs of proposals, so as to establish whether one offeror’s proposal would be more or less costly than another’s. Id.; see FAR sect. 15.405(b)(“the contracting officer’s primary concern is the overall price the government will actually pay”). For example, in Health Servs. Int’l, Inc.; Apex Envtl., Inc., B-247433, B-247433.2, June 5, 1992, 92-1 CPD para. 493, the solicitation contemplated the award of a fixed-price, indefinite-quantity contract and offerors’ proposals were required to include hourly rates for six categories of labor. We sustained a protest challenging the agency’s price evaluation because it was based solely upon offerors’ average hourly labor rates, without consideration of the estimated quantities of each labor category the agency expected to order, and thereby failed to establish whether one offeror’s proposal was in fact more or less costly than another’s.  Based on our review of the record here, we conclude that the Forest Service’s price evaluation, including the determination that Port-A-Pit’s prices were not fair and reasonable, was fundamentally flawed because it did not reflect the actual cost to the government of the offerors’ competing proposals. In performing the evaluation of offerors’ prices, the contracting officer did not utilize any quantity estimates for the meals, mileage, and handwashing unit items, but instead limited her evaluation to offerors’ unit prices. The contracting officer determined that while Port-A-Pit’s unit prices for meals and handwashing units were not objectionable, its unit price for mileage was not fair and reasonable, in comparison to both the government estimate and the average price of other offerors. AR, Tab 15, TEB Best Value Analysis Report, at 1, 4-5. Based on the contracting officer’s determination that Port-A-Pit’s price for mileage was not fair and reasonable, the Forest Service found Port-A-Pit ineligible for contract award. Id. at 6; Contracting Officer’s Statement, July 18, 2005, at 11 (“I made the determination based on price analysis that [Port-A-Pit’s] mileage price was not fair and reasonable and could not form the basis for award”). The record reflects that mileage is by no means the largest component of cost to the government. Rather, the parties agree that meals are the primary cost for the services to be provided under the contract.[10] Protest, June 21, 2005, at 8, exh. 1; AR, Tab 15, TEB Best Value Analysis Report, at 1. For example, the record indicates that under a predecessor contract, Port-A-Pit provided a total of [DELETED] meals and drove a total of [DELETED] miles in response to a fire in Ash, Arizona.[11] Protest, June 21, 2005, exh. 1, at 1. Using the unit prices proposed by Port-A-Pit here, meal costs would have been approximately $39,644, while mileage costs, in comparison, would have been approximately $17,100. Similarly, the record indicates that with regard to a fire in Jimtown, Montana, meal costs to the government would have been approximately $69,285 while mileage costs would have been approximately $35,600.[13] In light of the substantial difference in the relative costs for meals and mileage, the agency’s price evaluation, to the extent that it considered only offerors’ unit prices, failed to reflect the likely actual cost to the government of the offerors’ approaches. (R&G Food Service, Inc., d/b/a Port-A-Pit Catering, B-296435.4; B-296435.9, September 15, 2005) (pdf)

In sum, we conclude that, in light of DCAA’s inability to develop evaluated direct labor rates based on SGT’s cost proposal and staffing approach, the agency’s experience with SES’s costs under the incumbent proposal as detailed in the September 2003 DCAA audit, and in the absence of other data in SGT’s proposal that would address the agency’s concerns, the agency’s cost realism analysis was reasonable. The adjustments to both the SCA-exempt and non-exempt rates and the use of the September 2003 audited rates as the most recently evaluated rates were reasonable in light of the information available to the agency. This aspect of the protest is denied. (SGT, Inc., B-294722.4, July 28, 2005) (pdf)

We find that GSA's pricing analysis was unreasonable because the comparison of offerors' "discount rates" did not reflect the actual proposed prices or cost to the government for these services. While Maximus's warehouse price may have included additional services not offered by Liquidity, the fact remains that the price to the government for Maximus's warehouse space will be higher than the price for an equivalent amount of Liquidity warehouse space, and the price evaluation did not reflect this difference in cost to the government. (In this regard, the agency did not find that the additional warehouse services allegedly offered by Maximus would result in quantifiable savings in costs that the government would otherwise incur.) Furthermore, we find that the agency's rationale for reducing Liquidity's price advantage for warehouse services is unsupported by the contemporaneous record. While the agency explains that the reduction in discount rate from [redacted] percent to [redacted] percent was due to differences in proposal approaches, the contemporaneous record does not demonstrate that the agency evaluated the asserted differences in warehousing services. Indeed, the agency's current assertion that it did so is inconsistent with the remainder of its pricing analysis, which did not take into account any differences in offerors' proposal approaches under any of the other service areas considered in the price evaluation. For example, Liquidity's price proposal states that many of its warehousing services are included with its value-added-services pricing, yet GSA did not make any adjustments to the value-added-services pricing to take into account this proposal difference, as it did with warehousing. In fact, we note that the agency asserts, in response to other protest challenges to the price evaluation, that differences in proposal approaches were to be evaluated only under the technical approach factor, and not the price factor. See , e.g. , Agency Report, July 2, 2004, at 3. We also find that GSA erred in calculating its discount rate for transportation services. Although it may have been reasonable to assume that most of the transportation provided would be short hauls at less-than-full truckloads, there is no basis for excluding all of the long distances from consideration, as if no long haul services would be used. The agency does not claim that no long haul services would be used, the RFP does not specify that long hauls would not be required or considered in the evaluation, and, consistent with the RFP, both offerors proposed prices for both long and short hauls. On these facts, we find that the agency must consider in its price evaluation all of the costs of long haul transportation that it reasonably expects to use during contract performance, and, moreover, should disclose to offerors the basis for its evaluation of these costs prior to proposal submission. (Liquidity Services, Inc., B-294053, August 18, 2004) (pdf)

This problem with the way the IGSE was developed is significant because the IGSE was used in what appears to be a mechanical way in the cost realism evaluation. A reasonably derived estimate of labor hours and material costs can provide an objective standard against which the realism of proposed costs can be measured. IT Facility Servs.-Joint Venture, B-285841, Oct. 17, 2000, 2000 CPD paragraph 177 at 6-7; Theta Eng'g, Inc., B-271065, B-271065.2, June 12, 1996, 96-2 CPD paragraph 76 at 6. However, an agency may not mechanically apply that estimate to determine the most probable costs associated with proposals, without regard to the individual proposal's technical approach. The Jonathan Corp.; Metro Mach. Corp. , B-251698.3, B-251698.4, May 17, 1993, 93-2 CPD paragraph 174 at 11; Kinton, Inc. , B-228260.2, Feb. 5, 1988, 88-1 CPD paragraph 112 at 4. This is so because in some instances an estimate has limited applicability to a particular proposal due to, for example, the skill of the labor force or innovative work methods proposed. In those cases, any rigid reliance on the government estimate could have the effect of arbitrarily and unfairly penalizing (or rewarding) one firm and depriving the government of the benefit available from the different approaches of the various offerors. Accordingly, in order to undertake a proper cost realism evaluation, the agency must independently analyze the realism of an offeror's proposed costs based upon its particular approach, personnel, and other circumstances. The Jonathan Corp.; Metro Mach. Corp. , supra . Here, the record does not indicate that the agency engaged in an absolutely rigid application of the IGSE to the offerors' proposals. There do appear to be instances where the agency accepted proposed staffing for a particular function or labor category that was less than that reflected in the IGSE, and in other instances, the agency made adjustments to an offeror's proposed staffing that put the probable staffing associated with the proposal at a level between that set forth in the proposal and that provided by the agency in its IGSE. Nevertheless, the record also reflects that in the vast majority of instances where an offeror proposed a staffing level that differed from the IGSE, the staffing level was adjusted during the cost evaluation to the IGSE staffing level, with the primary documented reason by the agency being that the proposal did not provide "sufficient rationale" for the proposed staffing, with little further elaboration. See AR, Tab 43, Honeywell Cost Realism Rationale; at 2; Tab 47, Wyle Cost Realism Rationale, at 2; Tab 49, Sverdrup Cost Realism Rationale, at 2. As the protesters point out, the consistency of the agency's approach in this regard is readily apparent when the offerors' varying proposed staffing levels are compared to their staffing levels as adjusted by the agency and the IGSE. That is, although the agency found "that there was a wide range of disparate approaches from the offerors," with the five offerors proposing staffing levels that varied considerably ( i.e. , 198, 241, 248, 260, and 287 FTEs), the SEB adjusted the staffing levels proposed by all five offerors to within 4 FTEs of the IGSE of 293. Agency's Post-Hearing Comments at 10; exh. B, Cost Proposal Evaluation Results (July 22, 2003). This, along with the sparse evaluation documentation, suggests that the IGSE was used in a mechanical way in the cost realism evaluation, notwithstanding the encouragement in the RFP for proposing innovative approaches. That the agency used the IGSE in the cost realism evaluation in a mechanical way is supported by other evidence in the record. For example, before this issue became the gravamen of the protests, the agency stated in its initial report on the protests that "[u]niformly, NASA base lined [the offerors'] FTEs against the government staffing estimate." AR at 22, 25. Moreover, given the testimony of the SEB member that the Marshall estimate was essentially inflexible and any proposed staffing plan that did not comport precisely with the Marshall estimate would be "[c]ompletely unacceptable," the fact that variances from the estimate were not tolerated was understandable. [9] Tr. at 78, 80-81, 100, 107. Of most significance in showing that the IGSE was used in a mechanical way is the fact that Honeywell's proposed staffing was characterized as "appropriate" during the evaluation of its proposal under the technical performance subfactor, but was then adjusted upwards by 43 FTEs to within 2 FTEs of the IGSE during the cost realism evaluation. In sum, we find the agency's cost realism evaluation unreasonable. (Honeywell Technology Solutions, Inc.; Wyle Laboratories, Inc., B-292354; B-292388, September 2, 2003) (pdf)

The realism analysis here was unobjectionable. The Army evaluated Sunny Point's proposal and determined that the proposed labor mix and hours were consistent with its technical proposal and acceptable to perform the contract. SSD at 3. The Army also reviewed Sunny Point's price proposal and found that it was complete and adequate, Price Analysis Worksheet at 1, and also determined that it complied with the Service Contract Act wage determination with respect to both rates and fringe benefits. Price Analysis Report at 1. The Army noted that Sunny Point's price was lower than the government estimate, but attributed this to the fact that Sunny Point proposed a labor mix and staffing level different--but acceptable to perform--than that on which the government estimate had been based. SSD at 3. The agency also concluded that the government estimate was overstated. Id. Given this analysis, we have no basis to question the Army's realism evaluation.  (Satellite Services, Inc., B-295866; B-295866.2, April 20, 2005) (pdf)

In contrast, where, as here, with regard to a BPA contemplating fixed-price or fixedrate task orders to be issued against the vendors' GSA FSS contracts, the "realism" of vendor's proposed pricing is not ordinarily considered because the fixed-price contracting vehicle places the risk and responsibility for contract costs and ensuing profit or loss on the contractor. See Camber Corp. , B-293930; B293930.2, July 7, 2004, 2004 CPD 144 at4; OMNIPLEX World Servs. Corp. ; B291105, Nov. 6, 2002, 2002 CPD 199 at 9. However, because there is a risk of poor performance in certain circumstances, such as where a contractor fails to obtain and keep qualified personnel, an agency may, in its discretion, provide for a price realism analysis in a solicitation that contemplates the issuance of a BPA against the vendors' GSA FSS contracts. OMNIPLEX World Servs. Corp. , supra . Here, the methodology used by the agency in evaluating quotations under the pricing structure criterion was consistent with that provided in part 15 of the FAR for the performance of price realism analyses--the comparison of proposed prices, in the form of loaded labor rates, with prior contract prices for the same or similar services and with an independent government cost estimate. See Acepex Mgmt. Corp. , supra , at8; FAR 15.404-1(b). As noted, the agency's conclusion that S3's quotation warranted a "moderate risk" rating under the pricing structure criterion is not only consistent with the RFP evaluation scheme but is reasonably supported by the record. As indicated, the agency's evaluation of quotations under the pricing structure criterion was relatively detailed, and included an analysis of the labor rate quoted for each of the labor categories set forth in S3's quotation. S3's quoted rates in some instances were substantially lower, and overall were slightly lower, than the agency's calculated historical rates for the same positions, and as such, we believe that the agency reasonably determined that there was "some doubt that [S3's] pricing structure will support the [agency's] requirements with highly qualified personnel." AR, Tab I, Source Selection Report, at16. S3 has not showed that the loaded rates reflected in the historical averages were erroneous, unreasonable or unrealistic or that the comparison of S3's loaded rates to the historical averages was flawed. (Systems, Studies, and Simulation, Inc., B-295579, March 28, 2005) (pdf)

The evaluated prices as reported to the SSA improperly failed to reflect a common number of sites to be serviced. Treasury reports that the solicitation attachment listing 1,042 Treasury sites for which service was required included a number of errors. Second Agency Report at20. As a result, and as recognized in Treasury's price evaluation reports, offerors' MDOs were based on different total numbers of sites to be served, as well as different numbers of high bandwidth Category 1, lesser bandwidth Category 2, and least bandwidth Category 3 sites, as follows:
 

However, notwithstanding the significant differences with respect to the total number of sites and numbers of sites within each category in the offerors' MDOs, Treasury did not adjust offerors' proposed prices so as to ensure that the evaluated prices reflected a common number of sites to be serviced. For example, Treasury did not adjust [DELETED]'s evaluated price upward notwithstanding the fact that, by Treasury's own calculation, [DELETED] had excluded from its MDO pricing [DELETED] sites for which service was required. Based upon the assumption that the omitted sites were a representative sample of the total universe of sites, and because the [DELETED] sites represented approximately [DELETED] percent of the 1,042 sites listed in the agency attachment, Treasury reports that it determined that the [DELETED] omitted sites warranted an upward adjustment to [DELETED]'s proposed price of between [DELETED] (a [DELETED] percent increase in [DELETED]'s proposed price) and [DELETED]. Second Agency Report at 20, 4243; Tr. at 657-59, 777-79. However, although the SSA had specifically questioned the TCE Program Manager/Technical Chairman as to whether [DELETED]'s price was complete, the SSA was not advised of this required upward evaluated price adjustment, with the result that the SSA erroneously concluded that no changes in [DELETED]'s proposal were required. Tr. at 782, 1253, 1349. In our view, Treasury's failure to base the evaluated prices for all offerors on a common number of sites to be serviced was unreasonable. (Northrop Grumman Information Technology, Inc.; Broadwing, B-295526; B-295526.2; B-295526.3; B-295526.4; B-295526.5; B-295526.6;, March 16, 2005) (pdf)

The record indicates that for its Spanish linguist prices, McNeil has not followed the RFP's proposal instructions by accounting in its proposed price for "any increases," as was contemplated by the RFP. Rather, it appears that its Spanish linguist prices were premised upon receiving equitable adjustments to its contract price if an SCA wage determination were issued that increased its salary or benefit obligations for Spanish linguists. That is, while it appears that the proposals that followed the proposal instructions may have accounted for possible SCA increases in their escalated prices for the option years, it appears that McNeil did not do so for the Spanish linguists, but retained the right to obtain an increase in its contract price in such circumstances. Therefore, it appears that the proposal prices may not have been compared on an equal basis to account for the real cost to the government of accepting a particular proposal for award because some proposals apparently took into account possible SCA increases, while, for the Spanish linguist line items, McNeil's did not. An agency, at a minimum, is required to evaluate offerors on an equal basis and in a manner such that the total cost to the government for the required services can be meaningfully assessed. See Symplicity Corp. B-291902, Apr. 29, 2003, 2003 CPD 89 at 7; Lockheed Aeronautical Sys. Co. , B-252235.2, Aug. 4, 1993, 93-2 CPD 80 at 7 ("apples and oranges" cost evaluation is "inherently improper"). According to the protester, if McNeil had included escalation in its Spanish linguist prices at the same escalation rates it used for its other prices, its total evaluated price would have been almost1.5 million higher. Given the possible impact of this discrepancy in McNeil's proposal on the competition, this matter should be resolved with McNeil during discussions. (SOS Interpreting, LTD., B-293026; B-293026.2; B-293026.3, January 20, 2004) (pdf)

The record here supports the protester's premise that some portion of the VA's ARB use will be at dosing levels different from the standard recommended dose for treating diabetic nephropathy. That, in turn, supports the contention that the possible use of different dosing levels could have an adverse effect on the pricing methodology's usefulness for predicting actual costs. Nonetheless, based on our understanding of the ways in which different dosing levels (and different tablet strengths) could be used, we have no reason to believe that this influence renders unreasonable the RFP's pricing approach. SmithKline Beecham , supra , at 5. Our conclusion is premised on the following possible reasons for using the ARB selected with this procurement at dosages different from those recommended for the treatment of diabetic nephropathy: (1) the VA doctor is prescribing an ARB for the treatment of simple hypertension and is doing so either improperly (in disregard of the VA's guidance), or is doing so properly (after trying other classes of drugs for the treatment of simple hypertension and finding them ineffective or not well-tolerated); or (2) the VA doctor has just started prescribing an ARB regimen for the treatment of diabetic nephropathy and the patient is still "ramping up" to the recommended optimal dosing levels, or the patient is proving unable to achieve the target dosage recommended for the optimal treatment of diabetic nephropathy.  (Bristol-Myers Squibb Company, B-294944.2, January 18, 2005) (pdf)

Here, the contracting officer compared KMRs price to other prices received in response to the solicitation and determined that KMRs price was less than 4 percent below the second lowest technically acceptable offer. Contracting Officers Statement, at 3; AR, Tab 11, Price Competition Memorandum, attach. 2, Revised Comparison of Pricing. The record also reflects that the third lowest technically acceptable offer was less than 13 percent higher than KMRs proposal. AR, Tab 11, Price Competition Memorandum, attach. 2, Revised Comparison of Pricing. Additionally, the contracting officer noted that KMRs price was 3 percent more than the government estimate, which was based on the costs of the incumbent contract. AR, Tab 11, Price Competition Memorandum, at 3. The manner and depth of an agencys price analysis is a matter within the sound exercise of the agencys discretion, and we will not disturb such an analysis unless it lacks a reasonable basis. Gentex Corp.--Western Operations , B-291793 et al., Mar.25, 2003, 2003 CPD 66 at 21. We conclude that reliance on the closeness in price between KMRs proposal price and two other offers with passing mission capability ratings provided a reasonable basis for the Air Force to determine that KMRs price is realistic. (Mindleaf Technologies, Inc., B-294242, B-294242.2, August 24, 2004) (pdf)

First, price realism is not required to be considered in the evaluation of proposals for the award of a fixed-price contract unless the solicitation provides for a price realism analysis to assess an offeror’s understanding of the requirements or the risk of poor performance inherent in a proposal. AllWorld Language Consultants, Inc., B-291409, B-291409.2, Dec. 16, 2002, 2003 CPD ¶ 13 at 2. Here, as the solicitation did not require a price realism analysis, the agency was not required to perform one. Dismas’s argument regarding price reasonableness is based on the agency’s alleged failure to use Bannum’s revised prices in a comparison with the government estimate. According to Dismas, BOP used prices of $73.00 for Bannum’s base period and $64.00 for the two option periods, instead of Bannum’s revised prices of $72.50 for the base period and $63.00 for the option periods. This argument is without merit. The purpose of a price reasonableness evaluation, is to determine whether offered prices are higher, not lower, than warranted. Efficiency Mgmt. & Eng’g Co., Norcor Techs. Corp., B‑292676, B-292676.2, Oct. 31, 2003, 2003 CPD ¶ __. Since the agency found that prices higher than Bannum's revised prices were reasonable, using Bannum’s lower revised prices in the comparison obviously would not affect the price reasonableness determination. (Dismas Charities, Inc., B-289575.2; B-289575.3, February 20, 2004) (pdf)

In any event, assuming the validity of BRC’s argument that the appropriate reference should have been wages paid in the Huntsville area, we point out, as described above, that BRC’s proposed price was substantially lower (by approximately 25 to 27 percent) than the prices proposed by the three other Huntsville-based offerors, including FRC. We conclude, based on this record, that BRC has not provided any meaningful basis for our Office to question the reasonableness of the agency’s conclusion that BRC’s price was unreasonably low not only with reference to the government estimate, but also in comparison to the prices proposed by the other offerors, including competitors from the same geographic area as BRC which presumably would be recruiting from the same local pool of information technology professionals. (Bevilacqua Research Corporation, B-293051, January 12, 2004) (pdf)

We agree with BHI that the agency improperly failed to evaluate proposals in accordance with the established evaluation scheme, and that BHI was competitively prejudiced by the agency’s actions.  Specifically, DOE failed to adequately take into consideration the comparative realism of the proposals, as indicated by the degree to which their MPCs deviated from their proposed target costs.  Based on the RFP and the information provided to BHI and WCC during discussions, we conclude that offerors were on notice that, as BHI asserts, the evaluation scheme in particular (as well as the agency’s use of a CPIF contract more generally) called for the agency to evaluate realistic proposals--as measured by the amount by which the MPC deviated from the target cost--more favorably than unrealistic proposals in determining which proposal represented the best value to the government. In effect, the agency was obliged in making its source selection to consider, among other things, which proposal’s target cost was more realistic. We also conclude that BHI heeded the RFP and the agency’s instructions, and submitted (as the agency found) a very realistic target cost, [deleted]. In confining its cost realism analysis to the calculation of MPCs and in otherwise discounting the difference in realism between the two proposals, the agency failed to adhere to the announced evaluation scheme. (Bechtel Hanford, Inc., B-292288; B-292288.2; B-292288.3, August 13, 2003) (pdf)

EMEC’s assertion that Cirrus’s rates were too low provides no basis to question the reasonableness of its proposed prices. The purpose of a price reasonableness review is to determine whether the prices offered are higher--as opposed to lower--than warranted. Rodgers Travel, Inc., B-291785, Mar. 12, 2003, 2003 CPD ¶ 60 at 3 n.1. Thus, we find nothing objectionable in the price evaluation.[4] As for whether Cirrus’s price otherwise was too low, the RFP advised offerors that the Service Contract Act was applicable and, because the specified labor categories were not defined in the wage determination, set a minimum rate. The price evaluators analyzed the individual line item labor rates, and determined that all were within a reasonable range of those proposed by the other offerors. Agency Report (AR), Tab 11. In this regard, while EMEC’s labor rates were higher than those proposed by Cirrus, Cirrus’s rates were comparable and well exceeded the minimum set forth in the RFP.  (Efficiency Management & Engineering Company, B-292676; B-292676.2, October 31, 2003) (pdf)

The price realism evaluation here was reasonable. The agency evaluated each line item and the total price for each proposal and compared them with its independent estimate and with other offerors' prices. The agency noted STL's proposal of a $0.00 rate for the two personnel positions and specifically raised the matter in discussions. In response, STL's revised proposal explained:

STL's decision not to charge the government directly or indirectly in the base year or in any of the option years for CLINs 1014 and 1015 is a business decision and it is based on a realistic understanding of the work to be performed under this contract. STL is not [deleted] to obtain this particular contract or any future contract. STL Proposal at TCP 1. STL also included the requisite total compensation plan, as well as salary and benefit packages for the proposed labor categories. The contracting officer reviewed this information and concluded that, overall, the proposed compensation was fair and in line with market prices. AR, Tab 34, at 5. Proposal of below-cost rates--including a rate of $0.00--for certain labor categories, is permissible in a fixed-rate environment, even where, as here, the RFP requires offerors to propose fully-loaded rates. GTSI Corp., B‑286979, Mar. 22, 2001, 2001 CPD ¶ 55 at 5; ORI, Inc., B‑215775, Mar. 4, 1985, 85‑1 CPD ¶ 266 at 4. Having reviewed STL's labor pricing and having ensured that STL understood the ramifications of its pricing strategy, the agency fulfilled its responsibility to conduct a reasonable analysis of the challenged prices. (PharmChem, Inc., B-291725.3; B-291725.4; B-291725.5, July 22, 2003)  (pdf)

Since the ultimate cost to the government depends upon whether the contractor meets its target cost, the reliability of the price evaluation for purposes of comparing proposals depends to a large extent on the realism of that target cost; it follows that use of this contract type requires a realistic target cost estimate. See generally Universal Techs., Inc., B‑241157, Jan. 18, 1991, 91-1 CPD ¶ 63 at 10. The RFPs here seem to have recognized the importance of price realism; as quoted above, the RFPs contained several provisions indicating that realism would be considered in the evaluation. In our view, the agency could not meaningfully evaluate the realism of the proposed pricing without determining whether, and to what extent, offerors were likely to meet their target costs; this determination was particularly important here in light of the [DELETED] reductions in SMM's FPR.  (Eurest Support Services, B-285813.3; B-285813.4; B-285813.5; B-285882.4; B‑285882.5; B-285882.7, July 3, 2001)  (pdf)

Under the circumstances, in the absence of a reasonable basis to determine that SRS’s proposed use of uncompensated overtime was unacceptable or unreasonable, or question whether the agency would in fact receive the savings attributable to SRS’s proposed use of uncompensated overtime, the agency, in its cost realism analysis, was required to accept SRS’s proposed labor rates based on its use of uncompensated overtime.8 See General Research Corp., supra at 7-9. There was no reasonable basis for the agency to equate the cost proposals of SRS and Sparta in terms of uncompensated overtime, and to normalize the proposed costs in the cost realism analysis by eliminating from SRS’s most probable cost the value of proposed uncompensated overtime from SRS’s proposed labor costs. Id. at 9. The record shows that if this adjustment had not been made to SRS’s proposed costs, the evaluated cost difference between the proposals would have been $[DELETED] rather than $[DELETED]. Thus, the source selection decision was unreasonable. We sustain SRS’s protest on this basis.  (SRS Technologies, B-291618.2; B-291618.3, February 24, 2003)  (pdf)

Finally, we disagree with Nutech that its incumbent contract price requires a determination that its proposed price is per se reasonable.  Indeed, FAR § 15.404-1 identifies that previous contract prices “may” be considered “if both the validity of the comparison and the reasonableness of the previous price(s) can be established.”  Here, as NIH explains, price competition did not occur under the prior procurement and, as noted in the linen study, NIH may have been paying “exorbitant” costs for laundry services as a result.  Based upon this information, we think NIH had sufficient reason to question the reasonableness of Nutech's incumbent contract price.  (Nutech Laundry & Textiles, Inc., B-291739, February 10, 2003)  (txt version)

Where, as here, a solicitation contemplates the award of a fixed-price, rather than a cost-reimbursement, contract, the agency is not required to conduct a price realism analysis, because a fixed-price contract places the risk and responsibility for loss on the contractor rather than the government. PHP Healthcare Corp.; Sisters of Charity of the Incarnate Word, B-251799 et al., May 4, 1993, 93-1 CPD ¶ 366 at 5. An agency may provide for a price realism analysis for the limited purpose of measuring offerors' understanding of the requirements or to assess the risk inherent in an offeror's proposal, but there is no requirement that it do so. Id. Here, the solicitation did not provide that the agency would conduct a price realism analysis, or otherwise assess technical understanding with reference to the offered prices. Consequently, since the agency determined that Worldwide is responsible and, thus, that it can perform at its offered price, Worldwide's low price does not provide a basis for questioning the award.  WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD ¶ 68 at 3.  (AllWorld Language Consultants, Inc., B-291409; B-291409.2;, December 16, 2002)  (txt version)  (FAR 8.404)

The purpose of a price reasonableness evaluation in a fixed-price contract setting is to determine whether prices are too high, as opposed to too low (the contractor, not the government, bears the risk that a low price will not be adequate to meet the costs of performance). USATREX Int'l, Inc., B-275592, B-275592.2, Mar. 6, 1997, 98-1 CPD ¶ 99 at 7. The record shows that the contracting officer determined that the awardee's price was reasonable--that is, not too high--based on adequate competition, AR, exh. 10, at 2, and Sterling's protest that the awardee's price is too low provides no reason to question this conclusion. As noted, the RFP did not require technical proposals detailing a firm's proposed staffing or approach, and did not provide for an evaluation of proposals on any basis other than past performance and price. It follows that alleged understaffing by the awardee, even if demonstrated to be the case (in fact, we find nothing supporting the allegation), was not a basis for rejecting or downgrading the awardee's proposal.  (Sterling Services, Inc., B-291625; B-291626, January 14, 2003)  (pdf)  (txt version)

We find that the Army appropriately used the IGE and its past experience as tools in assessing the amount of additional staffing that Pueblo Environmental would require for contract performance. An agency may reasonably use an IGE or its past experience in assessing the realism of an offeror's approach, and we will not sustain a protest of an agency's staffing estimate where, as here, the protester does not show that the agency's estimates are unreasonable. See, e.g., IT Facility Servs.-Joint Venture, B-285841, Oct. 17, 2000, 2000 CPD ¶ 177 at 6-9; National Steel and Shipbuilding Co., B-281142, B-281142.2, Jan. 4, 1999, 99-2 CPD ¶ 95 at 12-13.  (Pueblo Environmental Solution, LLC, B-291487; B-291487.2, December 16, 2002)  (pdf) (txt version)

In sum, the current record shows that the agency (1) failed to quantify the potential cost growth associated with DynCorp's low proposed rates of compensation during its cost realism evaluation; (2) failed to assess the non-cost considerations associated with DynCorp's low rates of compensation; and (3) failed to seek an explanation for why DynCorp was required under its current contract to [deleted] its initial rates of compensation--even though those initial rates were the same as the rates currently being proposed. Under these circumstances, we find this aspect of the agency's evaluation unreasonable.  (ITT Federal Services International Corporation, B-289863.4; B-289863.6; B-289863.7; B-289863.8, December 16, 2002)  (pdf)

Here, the agency had before it two technical proposals that received virtually identical technical evaluations. [Deleted.] In view of these evaluations, where BOA's claimed cost savings could be expected to be, and were, in fact, dispositive in the award determination, and BOA's proposed savings were justified, in part, by [deleted], it was particularly important that the agency perform and document a meaningful realism assessment regarding the proposed savings. The record before our Office does not establish that the agency had a reasonable basis to accept BOA's proposed staffing costs as realistic.  The agency clearly recognized that BOA needed to provide more support for its proposed staff reductions than it initially did; as discussed above, the agency repeatedly asked BOA to provide additional, detailed explanation regarding the bases for its proposed reductions. The agency did not, however, satisfy the requirement for a meaningful cost realism analysis simply by asking, repeatedly, for such support.  The fact is that, despite the agency's repeated requests, BOA failed to provide the information requested. While BOA did provide a [deleted] of its proposed staffing reductions, it failed to provide any link between the majority of these reductions and any particular aspect of its technical approach. Rather, as the protester accurately points out, BOA's proposal revisions, including its FPR, contain, primarily, vague and cursory explanations for its proposal to dramatically eliminate staff.  (National City Bank of Indiana, B-287608.3, August 7, 2002)  (pdf)

First, as noted by the protester, the agency, in the revised source selection statement determined that the cost of Carr's proposal was actually lower than M&S Farms' lower-priced proposal by adding to the offerors' proposed prices the estimated costs of shipping animals between the proposed facilities and individual adoption sites (including return shipping costs for unadopted animals). Agency Report at 19-20; Tab 30, Source Selection Statement Addendum, at 2-3. However, the contracting officer admits that the RFP does not contain a requirement for delivery of animals to any site. Contracting Officer's Statement at 11. Moreover, the RFP does not indicate in any way that the cost of such deliveries would be considered in the price evaluation, or otherwise indicate that price would be evaluated based on location of a proposed facility. It is improper for an agency to evaluate price based on an evaluation scheme not set forth in the RFP. See P.G. Elecs., Ltd., B-261883, Nov. 1, 1995, 95-2 CPD P: 202 at 5; Department of the Air Force et al., B 253278.3 et al., Apr. 7, 1994, 94-1 CPD P: 247 at 13; Environmental Techs. Group, Inc., B-235623, Aug. 31, 1989, 89-2 CPD P: 202 at 4.  Also, as pointed out by the protester, the agency failed to consider costs to government for line items for which the offerors actually proposed unit prices in their proposals. Specifically, the price schedule at line item 0001H (and corresponding line items for the option years) required offerors to propose a unit price per day for providing additional labor at adoption events.[12] Although the RFP price schedule only provided space to insert a proposed unit price on the item said to be supplied on an "as required" basis, and did not state an estimated quantity or provide a space for total proposed price per contract year for that line item, the RFP nevertheless elsewhere identified the level of work that the agency anticipated--the SOW stated that approximately one adoption event would be held each month, and that each event would require the contractor to keep its facility open to the public and provide full staffing necessary to facilitate the adoption event for 9 hours a day for 3 consecutive days. RFP § C.8(a), (c). The total prices evaluated by the agency, which the SSA relied upon in the source selection decision, did not include proposed prices for this item. However, since an estimate of this item was identified in the SOW, there is a reasonable basis to determine the associated total cost that the agency will incur under each proposal for this item. Thus, we think the terms of the RFP entitled the offerors to assume that the proposed prices for providing labor at adoption events would be considered in determining total evaluated price. See Aurora Assocs., Inc., B-215565, Apr. 26, 1985, 85-1 CPD P: 470 at 3.  (M&S Farms, Inc., B-290599, September 5, 2002)  (pdf)

We find reasonable the Army's evaluation of the protester's quote. Faced with a quote that was not based upon the solicitation's estimated labor hours, the agency properly calculated the protester's net quote price by multiplying the protester's fixed unit prices (that is, labor hour rates) against RFQ estimates. In the context of this solicitation, allowing one vendor to use lower labor hour estimates than that required for, and relied upon by, the other vendors would have resulted in an unfair and unequal competition. See Ross Aviation, Inc., B-219658, Dec. 11, 1985, 85-2 CPD P: 648 at 4.  (Planned Systems International, Inc., B-290626, September 4, 2002)  (pdf)

The RFP included a Department of Labor (DOL) wage determination, which required a minimum employer contribution of $2.56 per hour for fringe benefits. [Deleted]. Since comparison to a DOL wage determination is a reasonable method of assessing the realism of an offeror's labor rates, Advanced Communication Sys., Inc., supra, at 8 n.9, we see no reason to object to the agency's conclusion that Bionetics' proposed fringe benefit rate, [deleted], was realistic. The fact that Wyle, the incumbent contractor, proposed a higher fringe benefit rate than Bionetics provides no basis to find that Bionetics' proposed rates are unrealistic. See Calspan Corp., B-255268, Feb. 22, 1994, 94-1 CPD para. 136 at 8, recon. denied, B-255268.2, July 5, 1994, 94-2 CPD para. 6. Accordingly, we deny the protester's argument that Bionetics' evaluated cost should have been adjusted upwards by [deleted] to account for the lower fringe benefit rates that it proposed.  (Wyle Laboratories, Inc., B-288892; B-288892.2, December 19, 2001)

Moreover, simply comparing various cost elements in an independent government estimate to offerors' cost elements for the same items does not suffice as a sufficient analysis of cost realism where the agency has not considered the offerors' individual technical approaches or determined whether the offeror's proposals are consistent with the technical and cost parameters that were reflected in the government estimate.  See Tidewater Constr. Corp., supra, at 5.  The record here is devoid of any evidence that NIAID made any attempt to adjust offerors' proposed cost or to develop most probable costs estimates based on the offerors' technical approaches.  Nor is there any reason evident from the record why the probable costs for the two offerors' ODC cost element should materially differ, which suggests that, had NIAID made an appropriate cost-realism adjustment, Priority One's proposal would have displaced SoBran's as the lowest cost proposal.  In any event, because the record shows that NIAID did not perform a reasonable cost-realism analysis, the conclusion that SoBran's proposal was the best value lacks a reasonable basis, and we sustain the protest on this basis.  See The Futures Group Int'l, B‑281274.2, Mar. 3, 1999, 2000 CPD ¶ 147 at 8.  (Priority One Services, Inc. B-288836; B-288836.2, December 17, 2001)

Here, the RFP did not provide that the agency would conduct a realism analysis of the proposals, or otherwise assess technical understanding with reference to the offered prices. [1] Rather, the RFP provided only for multiplying the fixed unit prices by the estimated (historical) volume of tickets--an analysis designed to assess whether offers were unbalanced--and for a price reasonableness determination for the value-added services. RFP sect.sect. M.3, M.4. Under these circumstances, the agency was not required to evaluate Omega's price against the technical requirements.  (WorldTravelService, B-284155.3, March 26, 2001)

Agency unreasonably discounted Defense Contract Audit Agency audit finding, based on the awardee's actual contract performance, that the awardee's proposed uncapped indirect rates were considerably understated for the first 2 years of the 5-year contract and found that the awardee's proposed rates should be judged only on the basis of the awardee's knowledge when it submitted its proposal; a cost realism analysis, even on reevaluation, should consider all information reasonably available as of the time of the evaluation.  (The Futures Group International, B-281274.5; B-281274.6; B-281274.7, March 10, 2000)

Protester's challenge to the price evaluation scheme included in a solicitation for prescription drugs that anticipates evaluation of a per-dose price based on the only use for which all three of the competing drugs are approved by the Food and Drug Administration is denied, even though the evaluation does not consider certain uses of the solicited drugs that will have a different cost profile, where the per-dose price requested provides a common basis for evaluating prices, the agency has no basis for providing estimates for the other uses of these drugs, and the protester has not established that the solicitation's approach will produce a materially misleading result.  (SmithKline Beecham Corporation, B-283939, January 27, 2000)

Although price realism is not ordinarily considered in the evaluation of proposals for the award of a fixed-price contract, an agency may provide, as here, for the use of a price realism analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing the risk inherent in an offeror's proposal. PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD para. 381 at 5.  (Sabreliner Corporation, B-284240.2; B-284240.6, March 22, 2000)

Where, as here, the award of a fixed-price contract is contemplated, a proposal's price realism is not ordinarily considered, since a fixed-price contract places the risk and responsibility for contract costs and resulting profit or loss on the contractor. OMV Med., Inc.; Saratoga Med. Ctr., Inc., B-281387 et al., Feb. 3, 1999, 99-1 CPD para. 52 at 5. However, an agency may provide for price realism analysis in the solicitation of fixed-price proposals for such purposes as measuring an offeror's understanding of the solicitation requirements, The Cube Corp., B-277353, Oct. 2, 1997, 97-2 CPD para. 92 at 4, or to avoid the risk of poor performance from a contractor who is forced to provide services at little or no profit. Ameriko, Inc., B-277068, Aug. 29, 1997, 97-2 CPD para. 76 at 3.  (Integrity Management Services, Inc., B-283094.2, May 3, 2000)

Because the agency's analysis was based on the mistaken assumption that the cap was above the proposed rate, there was no reasonable basis for the agency's cost realism concern, and the resulting adjustment to CHM's proposed cost was unjustified. The record does not demonstrate that the agency considered CHM's costs to be unrealistic based on any independent review of the reasonableness of the proposed rates themselves, or that its conclusions were substantiated through market surveys or historical cost data from similar contracts.  (Future-Tec Management Systems, Inc.; Computer & Hi-Tech, B-283793.5; B-283793.6, March 20, 2000)

Agency's "normalization" of offerors' prices was not reasonable where it double counted the cost difference associated with the use of new rather than upgraded existing items by both deducting the price of new items from the total price of the offeror proposing them and adding the price of replacement items to the price of the offeror proposing to upgrade existing ones.  (Marquette Medical Systems, Inc., B-277827.5; B-277827.7, April 29, 1999)

Evaluation of awardee's proposal for cost-reimbursement contract was unreasonable where awardee's cost proposal was based on use of personnel in labor category with wage determination labor rate substantially lower than that of labor category required to perform tasks set out in solicitation's performance work statement.  Protest is sustained where agency did not assess the realism of the awardee's proposed overhead rate, which was significantly below its most recent Defense Contract Audit Agency (DCAA) approved rate.  (E. L. Hamm & Associates, Inc., B-280766.3, April 12, 1999)