New It is a fundamental principle of federal procurement law that procuring agencies must condition the award of a contract upon a finding that the contract contains "fair and reasonable prices." FAR §§15.402(a), 15.404-1(a). See Crawford RealStreet Joint Venture, B-415193.2, B-415193.3, Apr. 2, 2018, 2018 CPD ¶ 121 at 9. The purpose of a price reasonableness analysis is to prevent the government from paying too high a price for a contract. Crawford RealStreet Joint Venture, supra.

An agency may use various price analysis techniques and procedures to ensure a fair and reasonable price, including the comparison of proposed prices to each other, to prices found reasonable on previous purchases, or to an independent government estimate. FAR § 15.404-1(b)(2); TransAtlantic Lines, LLC, B-411846.3, B-411846.4, May 18, 2016, 2016 CPD ¶ 148 at 7. The manner and depth of an agency's price analysis is a matter committed to the discretion of the agency, which we will not disturb provided that it is reasonable and consistent with the solicitation's evaluation criteria and applicable procurement statutes and regulations. See TransAtlantic Lines, LLC, supra; Federal Acquisition Servs. Alliant JV, LLC, B-415406.2, B-415406.3, Apr. 11, 2018, 2018 CPD ¶ 139 at 11.

Here, the RFP provided that the agency would evaluate offerors' prices using one or more of the techniques set forth in FAR § 15.404 in order to determine whether prices were reasonable and complete. AR, Tab 5, RFP Amend. 4, at 57. More specifically, as DISA acknowledges, the RFP stated that the agency would evaluate the offerors' fully burdened fixed-price labor rates for reasonableness and that unreasonably high prices may be grounds for eliminating a proposal from competition. Id. at 49, 57. See Supp. MOL/COS at 3 ("[T]he solicitation [] contemplated performing a price analysis on the total fixed price labor rates[.]").

Although the RFP did not stipulate the specific price analysis technique the agency intended to use, the RFP indicated that the agency "anticipated conditions of adequate competition." AR, Tab 5, RFP Amend. 4, at 49. Indeed, in response to the protest, DISA confirms that it used the price analysis technique set forth in FAR § 15.404-1(b)(2)(i) because it obtained adequate price competition. MOL/COS at 44.

Section 15.404-1(b)(2)(i) of the FAR permits the government to ensure fair and reasonable prices through:

Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price.

Here, however, despite DISA's representation that it relied upon FAR § 15.404-1(b)(2)(i), there is no evidence in the record that the agency compared competitors' prices or acted upon that comparison. Rather, the record shows that the PEB evaluated each offeror's price proposal to ensure that it was complete. See e.g., AR, Tab 60, Price/Cost Evaluation Report, at 4, 13. Next, the PEB evaluated proposals to identify any potential unbalanced pricing. See e.g., id. Finally, the PEB considered whether proposed prices were reasonable, concluding that every offeror's total evaluated price was fair and reasonable.

The PEB's entire price reasonableness analysis is set forth in two sentences:

Price reasonableness is normally established by adequate competition (FAR 15.404-1(b)(2)(i)). As this effort has had 35 Offerors provide proposals, it is implicit that price reasonableness has been determined at the macro level.

See e.g., AR, Tab 60, Price/Cost Evaluation Report, at 4. The PEB did not compare offerors' total proposed prices or their fully burdened fixed-price labor rates. Likewise, the contracting officer did not compare any prices at any level. Instead, in the pricing memorandum, the contracting officer stated that "[t]he presumption is that all proposed prices are fair and reasonable if there is adequate competition." AR, Tab 61, Pricing MFR, at 1. We find the agency's conclusions to be unreasonable.

The mere receipt of multiple proposals is inadequate to assure that the prices proposed are fair and reasonable. Put another way, the presence of competition alone does not render prices per se reasonable. To conclude that prices are fair and reasonable without the comparison of prices to one another is illogical and inconsistent with the requirements of FAR § 15.404-1(b)(2)(i). As the plain language of this section indicates, a price reasonableness determination relying upon this price analysis technique requires a "[c]omparison of proposed prices received in response to the solicitation." FAR § 15.404-1(b)(2)(i). See Patriot Taxiway Indus., Inc., B-403690, Dec. 6, 2010, 2010 CPD ¶ 291 at 7-8. There is no indication in the record that DISA, in fact, performed such a comparison.

Because the agency failed to compare offerors' prices, the agency did not consider whether any of the proposed prices were unreasonably high, an analysis that the RFP expressly contemplated. AR, Tab 5, RFP Amend. 4, at 49 ("unreasonably high proposed prices . . . may be grounds for eliminating a proposal from competition"). In this regard, while FAR § 15.404-1(b)(2)(i) suggests that an agency may conclude an awardee's price is reasonable if it is consistent with prices received from competitors, the FAR in no way suggests that the same result if an awardee's price is inconsistent with competitors' prices.

Contrary to DISA's position, FAR § 15.404-1(b)(2)(i) does not provide that the existence of competition, in and of itself, is sufficient to establish that all competitors' prices are reasonable. Rather, it is the favorable comparison of an awardee's price to its competitors' prices that provides the necessary assurance that a proposed price is fair and reasonable. See e.g., Clearwater Instrumentation, Inc., B-286454.2, Sept. 12, 2001, 2001 CPD ¶ 151 at 5-6 (price reasonableness analysis was proper where prices proposed by three competitors were "relatively consistent and in line with each other"); WKG and Assoc., LLC, B-409835, Aug. 26, 2014, 2014 CPD ¶ 250 at 10 n.11 (comparison of vendors' quotations "satisfies the regulation and evaluation scheme.") (citing FAR § 15.404-1(b)(2)(i)). Furthermore, the agency's conclusion that price comparison establishes price reasonableness must be rational. Multimax, Inc., et. al., B-298249.6 et al., Oct. 24, 2006, 2006 CPD ¶ 165 at 11 (sustaining challenge to price analysis where "[t]here is no indication that the agency ever reviewed the results of the formula to assure that the prices at the extreme end of the range reflected reasonable pricing; rather, the agency mechanistically applied the formula and accepted the results without further analysis.").

Here, the record reflects a wide variance among total evaluated prices and labor rates. For instance, the highest-priced offeror proposed a total price that was more than two and a half times higher than the price of the lowest-priced offeror. The proposed total evaluated prices of the awardees contain a similarly wide variance with the highest-priced awardee proposing a price that is more than double the price of the lowest-priced awardee. While this disparity does not establish that any particular offeror's prices are unreasonably high per se, it did not preclude a conclusion that the reasonableness of the higher-priced offerors' prices could not be established via comparison to their competitors' prices. In our view, the disparity should have placed DISA on notice that it needed to take a closer look at what was driving the higher prices.

As a final matter, intervenor Vencore points out that the agency ranked the 35 offerors from lowest to highest based on their total proposed prices and argues that "[t]his alone satisfies the Agency's obligation to assess reasonableness." Vencore Comments, Aug. 10, 2018, at 2 (citing AR, Tab 60, Price/Cost Evaluation Report, at 1-3). We disagree. As an initial matter, although the depth of an agency's price analysis is a matter within the sound exercise of the agency's discretion, it must be consistent with the solicitation's evaluation criteria. TransAtlantic Lines, LLC , supra, at 7. Here, the RFP stated that the agency would evaluate offerors' fully burdened fixed price labor rates using one of the techniques in FAR § 15.404. AR, Tab 5, RFP Amend. 4, at 57.

Moreover, we do not find that a mere ranking of offerors' prices from lowest to highest satisfies the requirement of FAR § 15.404-1(b)(2)(i) to compare proposed prices. Rather, it is our view that the analysis technique set forth in FAR § 15.404-1(b)(2)(i) contemplates a comparison of prices proposed by competitors in order to determine whether they are relatively consistent and in line with one another.  (Technatomy Corporation B-414672.5: Oct 10, 2018)

We sustain the protest because the agency’s evaluation and adjustment of direct labor rates for only those employees where DCAA-verified rates were available, with no other analysis of the individual direct labor rates, was arbitrary and unreasonable. In this regard, we conclude the agency’s limited analysis of the proposed labor rates was inadequate to assess the realism of the offerors’ cost proposals. We also sustain the protest because the agency assessed greater confidence to CENTRA’s proposal for its approach of recruiting incumbent employees [DELETED] without analyzing the impact of CENTRA’s significantly lower direct rates on its ability to recruit the incumbent personnel.

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. FAR §§ 15.305(a)(1), 15.404-1(d); Bart & Assocs., Inc., B-407996.5 et al., Jan. 5, 2015, 2015 CPD ¶ 61 at 12. 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 should cost, assuming reasonable economy and efficiency. Litton Sys., Inc., Amecom Division, B-275807.2, Apr. 16, 1997, 97-1 CPD ¶ 170 at 5. While an agency’s cost realism analysis need not achieve scientific certainty, the methodology employed must be 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 at the time of its evaluation. Tantus Techs., Inc., B‑411608, B‑411608.3, Sept. 14, 2015, 2015 CPD ¶ 299 at 10. 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 ¶ 16 at 26.

The record shows that the agency evaluated cost proposals for reasonableness, realism, and completeness before making adjustments to certain costs as part of its MPC analysis. With respect to cost reasonableness, the agency conducted a standard deviation analysis, first based on the average total cost of the four submitted proposals, and then additionally included the IGCE as part of the analysis. AR, Tab 49, Cost Evaluation, at 3-5. While the agency noted that ENSCO’s proposed cost varied significantly from both means (with and without the IGCE), it found the firm’s proposed cost to be reasonable. Id. at 5. 12. The agency also found all proposals to be complete. Id. at 12.

The agency also conducted a cost realism analysis, comparing cost elements of each proposal. Id. In comparing cost elements of each proposal, the evaluators noted that ENSCO proposed “extraordinarily high indirect costs (150% higher than the next lowest offeror) . . . and ENSCO proposed the highest fixed fee (82% higher than the next lowest offeror).” Id. at 7. The record shows that the SSA recognized this finding in the tradeoff decision where he states he was “briefed by the Cost Evaluation Team on the basis for the high costs and informed that much of the excessive cost was the result of very high indirect rates that were verified by the Defense Contract Audit Agency and the high proposed fee.” AR, Tab 51, SSDD, at 4. He then concluded that “the likelihood that these costs would be lower during contract performance was unlikely.” Id.

As part of the cost analysis, the agency conducted a “labor rate review,” which included evaluation of the total direct labor, subcontractor labor and consultant labor costs proposed by each offeror and a labor rate verification for the various positions required by the solicitation where the agency obtained rate verification from the DCAA. RFP at 54-55; AR, Tab 49, Cost Evaluation, at 7-9. The record reflects that the agency adjusted offeror rates where it was able to obtain DCAA verification of those rates, but did not otherwise adjust any other direct labor rates or associated indirect costs. AR, Tab 49, Cost Evaluation, at 8-12. This resulted in an upward MPC adjustment to CENTRA’s cost proposal of $82,555 and an upward adjustment of $847,618 to ENSCO’s cost proposal. Id. The record also reflects that while ENSCO proposed a three-percent reduction in labor rates “as a cost savings measure,” the agency declined to accept the reduction because “there was inadequate support to accept it.” Id. at 9. In making this finding, the agency notes, “[a]ctual employee salary data per its Contractor Salary Analysis submittal (dated February 29, 2016) were inconsistent with the proposed reduction and therefore the Contracting Officer decided to use the current rates as more reflective of the actual costs the Agency would pay.” Id.

The record does not show that the agency made any other adjustments to direct labor rates or associated indirect rates for offerors where rate verification was not obtained from DCAA. See generally id. The record also does not provide any evidence that the agency evaluated individual direct labor rates by any other means, such as comparison to rates proposed by the various offerors, or to the IGCE, which was apparently only utilized in the agency’s cost reasonableness analysis. Id. at 4-5

In documenting his tradeoff analysis, the SSA found the following:

CENTRA provided a proposal that provided best value to the Government. CENTRA has provided a proposal that meets the Government’s requirements with multiple strengths. CENTRA’s past performance gives us Satisfactory Confidence that it can perform the required effort. . . . In addition, CENTRA stated in its proposal an intent [DELETED] to attempt to recruit additional incumbent employees which increases the Government’s confidence in successful performance. CENTRA has provided a realistic and reasonable cost proposal that is significantly lower than the only other Offeror (ENSCO) deemed to have provided an acceptable proposal.

AR, Tab 51, SSDD, at 3.

As an initial matter, the use of historical direct labor rates verified by DCAA as part of a cost realism evaluation is generally unobjectionable. See e.g., AM Pierce & Associates Inc., B-413128, B-413128.2, Aug. 22, 2016, 2016 CPD ¶ 270 at 10-11 (using rates currently being paid personnel was reasonable). Here, we are provided no basis to question the agency’s use of historical labor rates verified through DCAA in its cost realism analysis, or its decision to adjust offerors’ rates to match those currently being performed on other contracts, including the incumbent contract. As such, we do not question the agency’s decision to not accept ENSCO’s proposed rate reductions and to instead utilize historical rates, particularly given that the government would primarily bear the risk of increased costs under any resulting contract. See Bart & Assocs., supra.

The error, in our view, is the agency’s exclusive use of DCAA-verified rates, without any meaningful analysis of the direct labor rates that were not verified by DCAA. Since ENSCO was the incumbent contractor, many of its rates were adjusted to conform to the rates paid under its incumbent contract, which negated the firm’s proposed cost reduction. Protest at 25-26. In contrast, only two of CENTRA’s proposed rates were adjusted, while the remainder of the firm’s proposed direct labor rates were apparently not scrutinized. The record does not reflect any analysis of non-DCAA verified rates, even though the agency had available to it rates proposed by other offerors, including the incumbent, for comparison. The agency also had available an IGCE, which provided the government’s own estimates of the cost for each position required under the solicitation. In this regard, a review of the IGCE shows that the government’s own estimates of direct labor costs were generally much higher than those proposed by CENTRA, yet the agency conducted no comparison, and made no MPC adjustments, even though the agency will bear the cost of these employees during performance of this cost reimbursement contract.

Consequently, we cannot conclude that the agency’s exclusive use of DCAA-verified rates, without further explanation--and generally only for ENSCO--was reasonable. See United Int’l Engineering, Inc. et al., B‑245448.3 et al., Jan. 29, 1992, 92-1 CPD ¶ 122 at 12-13 (sustaining protest where cost adjustments were arbitrary and lacking support). We also agree with ENSCO that the impact of the agency’s evaluation methodology resulted in disparate treatment of these offerors. Therefore, we sustain the protest on this basis.

ENSCO also argues that the agency’s failure to evaluate nearly all of CENTRA’s low proposed labor rates was arbitrary and unreasonable in light of CENTRA’s proposal to recruit from ENSCO’s incumbent staff. Supp. Protest at 9. In this regard, the protester points to the SSA’s finding that credited CENTRA for proposing to recruit incumbents. Id. at 10 citing AR, Tab 51, SSDD, at 3. ENSCO cites as examples two positions to be filled by the same named individuals in ENSCO’s and CENTRA’s proposals as evidence of the disparity between rates proposed by each offeror. ENSCO concludes that “with respect to the two individuals named in both proposals, DTRA never evaluated the realism of CENTRA’s proposed direct labor rates, despite the fact that the rates ENSCO proposed for these individuals are 30 percent higher than the rates CENTRA proposed. Nor did DTRA evaluate CENTRA’s plan to recruit these and other incumbents while paying them substantially lower wages.” Id.

The agency responds that ENSCO mischaracterizes CENTRA’s proposal. Supp. MOL at 5. In this regard, the agency asserts that it evaluated CENTRA’s proposal based on the individuals proposed by the firm, and not based on the assumption that the awardee “was proposing ENSCO’s staff in lieu of its own.” Id. Rather, the agency asserts that the SSA credited CENTRA’s “[DELETED] proposal to attempt to recruit incumbent personnel [who] might or might not actually be recruited.” Id. (emphasis omitted). The agency argues that while this plan was not a strength reported by the evaluators, it nevertheless impressed the SSA and was consistent with the solicitation’s evaluation criteria. Id.

A review of CENTRA’s proposal shows that the firm relies on recruitment of incumbent personnel as part of its technical approach. For instance, CENTRA’s [DELETED] plan states that “[DELETED].” AR, Tab 20, CENTRA FPR Volume 2, at 5 (emphasis added). Later, the firm’s proposal states as part of its recruitment, “[DELETED].” Id. at 84. This [DELETED] was apparently to consist of two named incumbent personnel cited by ENSCO, and [DELETED] other positions recruited from the incumbent workforce.[7] AR, Tab 20, CENTRA FPR Volume 2, at 6.

As discussed above, the RFP specifically required an evaluation of cost realism to assess whether proposed cost elements were realistic for the work to be performed, reflect a clear understanding of the requirements, and were consistent with the unique methods of performance and materials described in the offeror’s proposal. RFP at 75. However, the record shows that in evaluating CENTRA’s proposal, the agency attributed greater confidence to CENTRA’s proposal for its approach to attempt to recruit additional incumbent employees [DELETED] without analyzing the impact of CENTRA’s significantly lower direct rates on its ability to recruit incumbent personnel. AR, Tab 51, SSDD, at 3. Without such an analysis, we cannot conclude that the agency’s finding was reasonable. See United Int’l Engineering, Inc. et al., supra, at 11 (cost realism evaluation must independently analyze the realism of an offeror’s proposed costs based upon its particular approach, personnel and other circumstances).  (ENSCO, Inc. B-414844.4, B-414844.5, B-414844.6: Jul 5, 2018)

Cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror's proposed cost to determine whether the estimated proposed costs 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 § 15.404-1(d)(1); Exelis Sys. Corp., B-407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7 (considering FAR part 15 cost realism standards in a FAR part 16 task order procurement). Agencies are required to perform such an analysis when awarding cost-reimbursement contracts to determine the probable cost of performance for each offeror. FAR § 15.404-1(d)(2). Agencies are given broad discretion to make cost realism evaluations. Burns & Roe Indus. Servs. Co., B-233561, Mar. 7, 1989, 89-1 CPD ¶ 250 at 2. An agency is not required to conduct an in-depth cost analysis, see FAR § 15.404-1(d)(1), or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. See AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. Consequently, 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 ¶ 16 at 26. Based on our review of the evaluation record, we find no basis to conclude that the agency's cost realism analysis was unreasonable.

The record demonstrates that the agency thoroughly reviewed Zantech's technical approach, and the individual cost elements in Zantech's cost proposal pertaining to direct labor, indirect rates (fringe rates, overhead rates, general and administrative (G&A) rates), proposed fee, the six-month option to extend services, and the offeror's accounting system to determine whether the proposed costs were reasonable and realistic. AR, Tab 88, Zantech Cost Realism Evaluation, at 3-11. As relevant here, with respect to Zantech's direct rates, the agency compared the labor rates to data retrieved from salary.com for the Alexandria, Virginia location. Id. at 3. The agency issued multiple cost evaluation notices to Zantech, including evaluation notices requesting an explanation of the selection of specific labor categories and the percentiles chosen for each category. AR, Tab 56, Zantech Evaluation Notices and Responses. Zantech responded to the evaluation notices by providing additional rationale to support the rates. Id. Zantech's revised proposal explained that the offeror chose to keep the salary range in the [DELETED] to [DELETED] percentiles for a majority of salaries, but where the level of effort required specialized and skilled personnel, Zantech proposed salaries above the [DELETED]. AR, Tab 81, Zantech Revised Cost Proposal, at 5. Zantech explained that this approach enabled the firm to maintain low costs yet hire highly-qualified individuals where needed. Zantech also provided a screenshot from salary.com for each proposed position, with an explanation of position functions and proposed salary based on that data, and an explanation why each proposed salary/percentile range was appropriate. Id. at 6-20. The agency reviewed this additional information and accepted Zantech's proposed rates. AR, Tab 88, Zantech Cost Realism Evaluation, at 3-11. Accordingly, with respect to LOGC2's general allegation that the agency failed to properly analyze the individual elements of Zantech's costs, we find the agency's analysis reasonable.  (LOGC2, Inc. B-416075: Jun 5, 2018)

SSES’s Cost Realism Challenges

Both protesters raise objections to the agency’s cost realism adjustments to their respective proposals. As discussed below, we find SSES’s concerns meritorious, . . . .

With respect to SSES, the record reflects that in its mission suitability proposal, specifically in its discussion under the staffing element of the management approach subfactor, the firm proposed a reduction of [Work Year Equivalents] WYEs over the life of the contract. See AR, Tab 14, SSES MS Proposal, at 2332. In this section of its proposal, the firm briefly explained as follows:

Team SSES’s staffing plan is based on the Government’s estimated staffing levels, our proposed innovations and efficiencies, and the understanding that NASA and its contractors will need to “do more for less” to accomplish mission objectives in the current budget environment.

Id. The firm also included a table outlining the staffing levels for each labor category. Id. The remainder of this section of its proposal discussed SSES’s strategies for recruitment, retention, and compensation. See id. at 2332-39.

As noted above, the SEB assigned the proposal a significant weakness under this staffing element of the management approach subfactor. Specifically, the SEB described SSES’s staffing plan as an “unsubstantiated [DELETED]% WYE reduction throughout the life of the contact” and noted only that SSES “claims to ‘do more for less’ with a significant reduction in WYEs.” AR, Tab 25, SSA Briefing Charts, at 3331. The evaluators also included on this briefing slide a chart showing the total WYEs SSES proposed, and the SEB documented the “key areas” impacted by the WYE reductions. Id. No additional information was documented in the evaluation report regarding this weakness.

Citing solely to the SEB’s significant weakness, the cost committee, as part of the cost realism analysis, performed a probable cost adjustment to “straight-line” SSES’s year 1 WYEs across each year of performance. Id. at 3381, 3419, 3434. This WYE adjustment, coupled with an increase to direct labor rates to track with the government estimate, resulted in an upward adjustment of nearly $22.5 million in direct labor alone.[24] Id. at 3434; see also AR, Tab 23, Cost Analysis Charts, at 3263.

SSES challenges the adjustment. Specifically, the protester contends that in making the cost adjustment, NASA failed to take into account numerous innovations and efficiencies that substantiated the proposed WYE reductions. SSES Comments/Supp. Protest at 9. More specifically, pursuant to the RFP instructions, see RFP at 0910, SSES included three pages of substantiating information in the innovations and efficiencies part of its proposal, which was to be assessed under the fourth element of the understanding the requirements (UR4) subfactor. See AR, Tab 14, SSES MS Proposal, at 2373-75. In addition, SSES also included the substantiating information detailing its proposed innovations and efficiencies in its cost proposal. See AR, Tab 15, SSES Cost Proposal, at 2434-36. As explained above, the cost adjustment was made solely because of the significant weakness under the staffing element of the management approach (MA2) subfactor. According to SSES, because the record does not contain any documented consideration of SSES’s innovations and efficiencies prior to the cost adjustment, the cost realism adjustment is unreasonable. We find this allegation to be meritorious.

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. FAR §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 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 § 15.404‑1(d)(1). An agency is not required to conduct an in-depth cost analysis, see FAR § 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 ¶ 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 ¶ 151 at 7. 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 ¶ 16 at 26.

Here, we find the cost committee’s decision to straight-line SSES’s proposed WYE level not to be fully supported, and consequently unreasonable, given the lack of any contemporaneous consideration of the protester’s substantiating information. As an initial point, we agree with the agency that the solicitation contemplated that a “lack of resource realism” could adversely impact the mission suitability findings and scores and could result in cost realism adjustments. See RFP at 0931. Our concern, however, is with the fact that the adjustment appears to have been based solely on the SEB’s finding under one element of one subfactor (i.e., MA2), and failed to take into account the entirety of SSES’s proposal with respect to its proposed reduction in WYEs (i.e., UR4).

More specifically, SSES documented in detail numerous contract management innovations, technical performance improvements, and staffing strategies in support of its proposed staffing levels. See AR, Tab 14, SSES MS Proposal, at 2373-75. For instance, it proposed using the [DELETED] for [DELETED] functions, which it stated would reduce GEARS [DELETED] staff by at least [DELETED] WYEs. Id. at 2373. Citing its use on other NASA projects, SSES also described how its use of [DELETED] would lead to staff savings of [DELETED] percent, [DELETED] percent or [DELETED] percent (depending on the year of performance). Id. at 2374. SSES further explained how its use of [DELETED] development techniques would result in a [DELETED] percent reduction in staffing for the total contract, one third of which would be achieved in each of years 2 through 4. Id. Indeed, SSES described seven different innovations or efficiencies, with explanations about when the strategy would be implemented, the cost to the government, and the benefits to GRC in terms of staff savings.

In this respect, contrary to the evaluation conclusions that SSES’s staffing reductions were “unsubstantiated,” and based solely on SSES’s suggestion to “do more with less,” the protester, in fact, included detailed information to support its staffing strategy.[25] To the extent the evaluators had concerns with SSES’s explanations, those concerns were not documented in the evaluation record.[26] Indeed, the evaluation record is silent with respect to SSES’s proposed innovations and efficiencies. Thus, based on the limited contemporaneous record, it appears that the SEB failed to take into account the supporting information SSES included to justify its reduction in WYEs. Consequently, we find unreasonable the cost committee’s decision to upwardly adjust SSES’s proposed staffing and the resulting increase in direct labor costs. See, e.g., TriCenturion, Inc.; SafeGuard Servs., LLC, B-406032 et al., Jan. 25, 2012, 2012 CPD ¶ 52 at 12 (sustaining protest where record did not support that agency meaningfully considered offerors’ unique technical approaches as part of cost realism analysis).  (Trident Vantage Systems, LLC; SKER-SGT Engineering & Science, LLC, B-415944, B-415944.2, B-415944.4, B-415944.5: May 1, 2018)

Oak Grove argues that the Army conducted an unreasonable cost realism evaluation, which resulted in improper upward adjustments to the protester’s indirect fringe rate and direct labor costs. The protester also argues that the agency failed to provide meaningful discussions regarding the protester’s indirect fringe rate and its labor escalation rate. For the reasons discussed below, we find no basis to sustain the protest.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror’s proposed 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) §§ 15.305(a)(1), 15.404-1(d); CSI, Inc.; Visual Awareness Techs. & Consulting, Inc., B‑407332.5 et al., Jan. 12, 2015, 2015 CPD ¶ 35 at 5‑6. 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 § 15.404-1(d)(1); Noridian Admin. Servs., LLC, B-401068.13, Jan. 16, 2013, 2013 CPD ¶ 52 at 4. An agency is not required to conduct an in-depth cost analysis, 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 ¶ 14 at 8; see FAR § 15.404-1(c). Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonable; a protester’s disagreement with the agency’s judgment, without more, does not provide a basis to sustain the protest. Imagine One Tech. & Mgmt., Ltd., B‑412860.4, B‑412860.5, Dec. 9, 2016, 2016 CPD ¶ 360 at 14-15.

The Army evaluated the realism of offerors’ proposed costs and adjusted Oak Grove’s proposed costs from $324,719,390 to $364,027,166, and Cubic’s proposed costs from $355,152,087, to $362,282,182. AR, Tab 145, SSDD, at 5. The protester challenges $18,807,949 of the $39,307,776 adjustments made to its proposed costs, in the following areas: (1) indirect fringe rate in the amount of $5,064,316, and (2) direct labor in the amount of $13,743,633. Protester’s Supp. Comments, Feb. 5, 2018, at 22.

(Sections in (1) and (2) above are lenghty and available in the linked protest decision.)

See (Oak Grove Technologies, LLC B-415772, B-415772.2: Mar 15, 2018)

Upward Adjustment For Proposal Variance

ORBIS argues that the Navy’s upward adjustment of $1,238,682, which accounts for the variance in its proposal between section B and the cost summaries, was arbitrary and double-counts costs already included in the upward cost adjustments to its labor costs. See Protest at 9-12. The Navy responds that the RFP explicitly advised offerors that a discrepancy between an offeror’s section B and its cost summaries “would result in the Agency using the Section B proposed price for evaluation purposes.” Memorandum of Law (MOL) at 20, 25. The Navy argues that it properly calculated the cost adjustments using ORBIS’ cost summaries and added the adjustments to ORBIS’ section B cost to determine ORBIS’ evaluated cost/price. Id. at 18-20, 25-27.

When an agency evaluates a proposal for the award of a cost-reimbursement contract or order, an offeror’s proposed 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) §§ 15.305(a)(1), 15.404-1(d); Exelis Sys. Corp., B-407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7 (considering FAR part 15 cost realism standards in a FAR part 16 task order procurement); CGI Fed. Inc., B-403570 et al., Nov. 5, 2010, 2011 CPD ¶ 32 at 5 n.1. Consequently, an 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 § 15.404‑1(d)(1); DynCorp Int’l LLC, B-411465, B-411465.2, Aug. 4, 2015, 2015 CPD ¶ 228 at 8. While an agency’s cost realism analysis need not achieve scientific certainty, 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 at the time of its evaluation. Tantus Techs., Inc., B-411608, B-411608.3, Sept. 14, 2015, 2015 CPD ¶ 299 at 10. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. TriCenturion, Inc.; Safeguard Servs., LLC, B-406032 et al., Jan. 25, 2012, 2012 CPD ¶ 52 at 6.

The RFP stated that the Navy would perform a cost realism analysis and would calculate an evaluated cost that reflected the Navy’s estimate of the offeror’s most probable cost. RFP at 155. As noted, the RFP included multiple attachments to be completed by offerors, and instructed offerors to include a separate cost/price narrative along with attachments 5-9, which contained the cost summaries, and all supporting documents. Id. at 131. Offerors were also required to include costs for all CLINs in section B and if there were “any discrepancies between the cost submitted in Section B and the Excel files for Attachments 1 or 5-9, the Offeror’s Section B cost [would] take precedence.” Id.

Our review of the record shows that the Navy performed its cost realism analysis of the ORBIS proposal as follows:

ORBIS’ proposed Section B total cost is $1,238,682 higher than its total cost as calculated from its Attachments 5 through 9, Cost Summaries ($34,089,015). . . . However, since the solicitation Section B cost breakouts do not provide the granularity required for cost evaluation, the evaluated cost adjustments were developed from the ORBIS’ Attachments 5 through 9, Cost Summaries, including where marked differences were identified between the total cost identified in Section B and the Attachments 5 through 9, Cost Summaries.

AR, Tab 12, Business Clearance Memorandum, at 168. Using ORBIS’ cost summaries, the price evaluation board (PEB) evaluated the proposed direct rates for all labor categories, and where the PEB determined that a proposed direct labor rate was not substantiated by the data provided in ORBIS’ proposal, the rate was “adjusted to the lowest rate within the BLS wage rate range in Table C-1 of the solicitation.” Id. at 174-178. The PEB then computed adjustments to indirect labor costs, subcontractor costs, surge labor, and incentive fees that resulted from the adjustments made to ORBIS’ direct labor rates, resulting in . . . .  

*$1Difference in total due to rounding

Id. at 169.  As indicated, the PEB separately added the variance between ORBIS’ section B and cost summaries as an upward cost adjustment. Id.

When denying ORBIS’ agency-level protest, the Navy concluded: “Using the methodology of adding the $1,238,682 difference between ORBIS’ Section B and Attachments 5-9 proposed prices to the PEB’s adjustments to ORBIS’ labor rates, to calculate the total evaluated cost/price of $40,321,517, was reasonable and consistent with the solicitation requirements found in Section 2.6.3.2 of the solicitation.” AR, Tab 4, Navy Response to ORBIS’ Agency-Level Protest, at 10.

Contrary to the Navy’s assertions, the RFP did not otherwise require the Navy to account for the variance between ORBIS’ section B and its cost summaries in the assessment of the realism of ORBIS’ cost/price proposal. Once the Navy adjusted ORBIS’ direct labor rates to be realistic and computed the corresponding impact of these adjustments to the proposed indirect costs, subcontract costs, surge labor, and fee, there was no reason for the Navy to separately adjust ORBIS’ proposed costs with the variance between ORBIS’ section B and cost summaries. Simply put, since the Navy had already adjusted ORBIS’ proposed costs, it was unreasonable for the Navy to include the variance as an additional and separate cost adjustment.

Competitive prejudice is an essential element of a viable protest, and we will sustain a protest only where the protester demonstrates that, but for the agency’s improper actions, it would have had a substantial chance of receiving the award. Imagine One Tech. & Mgmt., Ltd., B-412860.4, B-412860.5, Dec. 9, 2016, 2016 CPD ¶ 360 at 12. The contracting officer considered the discriminators between the Craig Technologies and ORBIS technical proposals and concluded that the ORBIS “technical proposal did not warrant paying an evaluated cost premium of $372,517 or 0.93% taking into consideration the additional risk associated with ORBIS’ cost proposal.” AR, Tab 12, Business Clearance Memorandum, at 236. Here, we think that, but for the error discussed above, the protester would have had a substantial chance for award. While we recognize that ORBIS’ higher cost was not the only discriminator identified by the contracting officer when selecting Craig Technologies for award, the protester and awardee have equal overall technical ratings, and the correction of this error would result in ORBIS having an evaluated cost/price that is lower than that of the awardee. Under these circumstances, the contracting officer could conclude that the ORBIS proposal is the best value to the government. We therefore sustain the protest.  (ORBIS Sibro, Inc. B-415714, B-415714.2: Feb 26, 2018)

Kiewit alleges that the agency’s price evaluation was flawed for two reasons. The protester argues that the agency’s evaluation used unstated, hypothetical quantity overruns as part of its price analysis, which Kiewit asserts violated the terms of the solicitation. Supp. Protest at 6-7. Kiewit also argues that the agency conducted an improper price realism analysis. Id. at 7-11. The agency responds that it did not commit any errors in its price analysis and did not adjust any offeror’s price or cost items in order to conduct a price realism analysis. The Corps maintains that it conducted its tradeoff based on the prices proposed by each offeror and not on any adjusted price. Supp. MOL at 16-17.

The manner and depth of an agency’s price analysis is a matter within the sound exercise of the agency’s 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 27-28. It is up to the agency to decide upon the appropriate method for evaluation of cost or price in a given procurement, although the agency must use an evaluation method that provides a basis for a reasonable assessment of the cost of performance under the competing proposals. S. J. Thomas Co., Inc., B-283192, Oct. 20, 1999, 99-2 CPD ¶ 73 at 3. In reviewing a protest against the propriety of an evaluation, we will review an evaluation to ensure that it was reasonable and consistent with the evaluation criteria in the solicitation and applicable procurement statutes and regulations. Decisive Analytics Corp., B-410950.2, B-410950.3, June 22, 2015, 2015 CPD ¶ 187 at 11.

The record shows that the specific aspect of the price analysis of which Kiewit complains was directed by the SSAC to “determine the relative cost risk between [Kiewit] and [FDS] based on the likelihood of quantity overruns for excavation of the Emergency Spillway” portion of the scope of work. AR, Tab 20, Final Revised SSAC Comparative Analysis Report, at 13. The impetus for this aspect of the evaluation was concern over cost increases related to Kiewit’s proposed prices “on certain high risk unit price CLINs [contract line item numbers] where estimated quantities are likely to increase.”[5] Id. The evaluators’ analysis indicated that Kiewit’s proposal would increase in price depending on the actual quantities ordered under the emergency spillway CLIN.[6] Id. The record also shows that the SSAC used this analysis solely as a component of its price analysis to determine whether FDS’s proposed price, which was the highest of all offerors, was fair and reasonable, and not as a component of its tradeoff decision between the proposals of Kiewit and FDS. Id. at 14.

We find the agency’s evaluation unobjectionable. The RFP states that proposed prices will be evaluated using price analysis, and that such analysis will be conducted in accordance with FAR part 15. RFP at 82. The FAR permits the use of various price analysis techniques and procedures to ensure fair and reasonable pricing, including the comparison of proposed prices to each other, to prices found reasonable on previous purchases, or to an independent government estimate. FAR § 15.404-1(b)(2); Comprehensive Health Servs., Inc., B-310553, Dec. 27, 2007, 2008 CPD ¶ 9 at 8. Contrary to Kiewit’s assertions, we see no reason why the use of “unstated, hypothetical quantity overruns as part of its price analysis,” even if true, would be contrary to the terms of the solicitation or the FAR. Supp. Protest at 6. Kiewit has simply not shown why the agency’s price analysis was improper when used as a technique solely to evaluate the reasonableness of FDS’s higher proposed price.

The record also does not support Kiewit’s contention that the agency conducted a price realism analysis. In this regard, where a solicitation contemplates the award of a fixed-price contract, an agency may provide in the solicitation for the use of a price realism analysis for the purpose of measuring an offeror’s understanding of the requirements or to assess price risk in its proposal. IBM Corp., B-299504, B-299504.2, June 4, 2007, 2008 CPD ¶ 64 at 10-11. Price risk in the context of a price realism analysis is an assessment of whether an offeror’s fixed price is so low that it creates a risk that the firm cannot perform its proposed technical solution at the price offered. See NJVC, LLC, B-410035, B‑410035.2, Oct. 15, 2014, 2014 CPD ¶ 307 at 8-9.

Here, the agency did not use the disputed price analysis as part of its evaluation of Kiewit’s proposal to assess either the firm’s understanding of the requirements or to determine whether there was any performance risk inherent in Kiewit’s proposed price. Instead, the agency conducted its analysis only in the context of assessing the reasonableness of FDS’s proposed price. AR, Tab 20, Final Revised SSAC Comparative Analysis Report, at 14. Once it had established the reasonableness of FDS’s proposed price, the SSAC then proceeded to conduct a best-value tradeoff between Kiewit and FDS’s proposals.

As part of this tradeoff, the record shows that the SSAC found that the “superior end product” offered by FDS “will provide significant cost savings to the government” that would exceed the 4.4 percent price premium in the firm’s proposal. Id. at 15. Likewise, the SSA noted the SSAC’s analysis and utilized it in determining FDS’s proposed price to be fair and reasonable. AR, Tab 21, Source Selection Decision, at 14. The SSA similarly observed that FDS’s risk identification and risk mitigation strategies were expected to provide significant cost savings, which would exceed the 4.4 percent price proposal difference “by minimizing change orders, rework, delays, and associated Government oversight costs.” Id. at 15. In sum, the record does not support that the agency conducted an improper price realism analysis, as alleged by Kiewit.  (Kiewit Infrastructure West Co. B-415421, B-415421.2: Dec 28, 2017)

Red River additionally argues that the agency’s price evaluation was flawed because Knight Point provided pricing that was not compliant with solicitation requirements. Specifically, Red River asserts that Knight Point’s cloud scenario pricing was calculated by using additional task order-level discounts, instead of simply using BPA-level discounts to calculate such pricing, as required by the solicitation.

A quotation that fails to conform to material terms and conditions of a solicitation should be considered unacceptable and may not form the basis for an award. Technology & Telecomms. Consultants, Inc., B-413301, B-413301.2, Sept. 28, 2016, 2016 CPD ¶ 276 at 12. Where an irregularity in a quotation results in benefits to the vendor that were not extended to all of the vendors by the solicitation, and is prejudicial to other vendors, the quotation is unacceptable. Capitol Supply, Inc., B-309999.3, Jan. 22, 2008, 2008 CPD ¶ 35 at 6; see also Tri-State Gov't Servs., Inc., B-277315.2, Oct. 15, 1997, 97-2 CPD ¶ 143 at 4.

At issue here, the solicitation required vendors to complete a pricing model table for a cloud service scenario by “inputting the fixed unit prices, discounts, and extended prices offered at the BPA level for a scenario of Cloud Service Items 0001 through 0005 for the five (5) ordering periods.” RFQ at 55. The solicitation further provided that:

Discounts submitted in the pricing model for purposes of evaluation must correspond to the discounts submitted for the BPA. Quoters are advised that DHS ordering components will seek additional discounts or price reductions for task orders placed under the BPA.

Id.

The RFQ thus contemplated that, although DHS was not ordering the items requested by the cloud service scenario, the pricing submitted would be used for evaluation purposes. Id. at 67. The RFQ further noted that the agency did not intend to calculate or evaluate vendors’ aggregate pricing. Id. Without such aggregate pricing, the cloud scenario pricing became the primary means by which DHS evaluated and compared vendors’ pricing. See, e.g., AR, Tab 13, CADOM, at 7-10 (detailing DHS’s tradeoff analysis).

In its price quotation, Knight Point provided two BPA-level discounts that would apply to all pricing submitted under the BPA, with the specific discount used depending on which SIN the cloud service item fell under. See AR, Tab 18b, Knight Point Quotation, Vol. II, at Tab C-1. Knight Point also stated that it was prepared to offer additional discounts on CLINs at the task order level to ensure that it provided the greatest possible value to the government. Id. Knight Point provided further information on what these task order-level discounts might entail by providing a table of “average additional task order level discounts on schedule line items” for each cloud service line item used in its pricing model. Id.

In completing its pricing model, Knight Point used proposed discounts that were created by summing its BPA-level discounts and various additional task order-level discounts. While the agency argues that this methodology was consistent with the solicitation instructions, we do not agree. The RFQ, here, required vendors to provide prices and discounts in the cloud pricing model “at the BPA level,” expressly noting that the discounts used in the model “must correspond to the discounts submitted for the BPA.” RFQ at 55. The RFQ noted that once DHS issued task order solicitations, the agency would then “seek additional discounts or price reductions for task orders placed under the BPA.” Id.

The RFQ therefore contemplated that vendors would use BPA-level discounts in completing the pricing model. Knight Point, however, did not use its BPA-level discounts to determine its pricing, instead creating task order level discounts that purportedly reflected what Knight Point would have quoted had the pricing model CLINs been issued as a task order solicitation. Such discounts were not binding on Knight Point, as it would be under no obligation to use the same arbitrary “average task order discounts” even if the agency were to issue a task order solicitation for the exact same line item. Nor were these discounts consistent with Knight Point’s overall BPA discounts. Accordingly, we find that Knight Point’s cloud service scenario discounts and pricing were not compliant with the solicitation requirements.

Moreover, we note that, by ignoring the solicitation requirement to use BPA-level discounts, Knight Point realized a tremendous price advantage over vendors that followed the solicitation’s instructions and used their BPA-level discounts to determine relevant pricing. By providing such discounts, Knight Point’s total proposed discount rose from approximately [DELETED] percent to [DELETED] percent, which represented a drop in its average discounted monthly price of more than [DELETED] percent. See AR, Tab 18b, Knight Point Quotation, Vol. II, at Tab C-1. This led to a price competition in which Knight Point was not competing on an equal basis with the other vendors.  (Red River Computer Company, Inc.; MIS Sciences Corporation B-414183.8, B-414183.9, B-414183.10, B-414183.11, B-414183.12, B-414183.13: Dec 22, 2017)

Finally, the protester contends that the agency’s cost realism evaluation was unreasonable. For example, the protester contends that PAE’s proposed staffing and labor hours for CLS at ANA sites were unrealistically low as compared to ANHAM’s incumbent proposal. Protest at 63; Comments and Supp. Protest (.3) at 9. The protester also asserts that PAE’s low rates would prevent the retention of qualified incumbents. Comments and Supp. Protest (.3) at 10-11. As discussed below, the protester’s arguments do not show that the agency’s realism analysis was unreasonable.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror’s proposed 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) §§ 15.305(a)(1), 15.404-1(d); Rollout Sys., LLC, B-414145, Feb. 24, 2017, 2017 CPD ¶ 104 at 5. Consequently, an 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 § 15.404-1(d)(1). An agency is not required to conduct an in-depth cost analysis, 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 ¶ 14 at 8; see FAR § 15.404‑1(c).

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. SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. Hanford Envtl. Health Found., B-292858.2, B‑292858.5, Apr. 7, 2004, 2004 CPD ¶ 164 at 7-8. The pertinent inquiry is not whether an offeror’s proposed costs resemble another offeror’s proposed costs, but, rather, whether its proposed costs are adequate in light of its unique technical approach. Exelis Sys. Corp., B-407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7.

The RFP required the offeror and major subcontractors to submit a cost and price worksheet for the cost-reimbursable (CPIF, CPFF, and no-fee) CLINs and fixed-price CLINs with such information as direct labor rates, subcontract, and overhead/indirect rates. RFP at L.4.3.6; L.4.3.6.1.2.1. Additionally, the cost proposals would be assessed for realism by evaluating whether specific elements of the proposed costs were sufficient and accurately reflected the offeror’s proposed approach to meet the contract requirements. RFP at M.4.4.1.2(a).

Here, the record shows that the agency evaluated the realism of the CPIF CLINs, which included staffing and labor rates for CLS at ANA sites, and found PAE’s proposed cost to be realistic and consistent with its technical approach. AR, Tab 27, PAE Final Cost/Price Evaluation, at 5-14, 45; AR, Tab 20, SSAC Report, at 007. Prior to determining that PAE’s rates were realistic, the agency found PAE’s proposed rates for local nationals to be low. Id. at 13. However, based on a review of substantiating data regarding labor rates for local nationals, and a crosswalk comparing PAE’s cost/price and mission capability proposal, the SSAC concluded that the differences between offerors’ cost/price were due to differences in their proposed approaches.] AR, Tab 20, SSAC Report, at 007. On this record, we conclude that the agency’s evaluation was consistent with the solicitation, and that ANHAM has not established that PAE’s proposed staffing or rates were unreasonable or unrealistic. Additionally, to the extent ANHAM contends that PAE would be unable to hire and retain the incumbent workforce because the awardee’s wage rates were lower than the rates offered by ANHAM as the incumbent for this service, see Comments and Supp. Protest (.3) at 9-11; Supp. Comments at 11, we find this argument to be no more than disagreement with the agency’s assertion that PAE’s approach did not exclusively rely on hiring incumbent staff.[16] Based on the record above, we deny ANHAM’s challenges to the agency’s cost realism evaluation.  (ANHAM FZCO B-414770,B-414770.2, B-414770.3: Sep 14, 2017)

Centerra also contends that NNSA's evaluation of SOC's price proposal was unreasonable. According to Centerra, the "work cannot be accomplished for anywhere near" SOC's proposed price, "which means that there is a serious problem in SOC's pricing and/or in the agency's evaluation of SOC's Price." Protest at 14. Centerra maintains that the "fact that SOC so substantially underestimated the DPLH [direct productive labor hours] required to perform the contract work and yet was found by the Agency to have submitted a reasonable price proposal means that the evaluators failed to perform a reasonable evaluation of SOC's price." Id. at 13. Centerra claims that SOC's proposed price cannot be achieved without violating the collective bargaining agreement (CBA) and that the agency failed to investigate SOC's assumptions and estimating techniques in this respect. See id.; Protester's Comments at 7.

The manner and depth of an agency's price analysis is a matter within the sound exercise of the agency's 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 27-28. It is up to the agency to decide upon the appropriate method for evaluation of cost or price in a given procurement, although the agency must use an evaluation method that provides a basis for a reasonable assessment of the cost of performance under the competing proposals. S. J. Thomas Co., Inc., B-283192, Oct. 20, 1999, 99-2 CPD ¶ 73 at 3. In reviewing a protest against the propriety of an evaluation, it is not our function to independently evaluate proposals and substitute our judgment for that of the contracting activity. Decisive Analytics Corp., B-410950.2, B-410950.3, June 22, 2015, 2015 CPD ¶ 187 at 11. Rather, we will review an evaluation to ensure that it was reasonable and consistent with the evaluation criteria in the solicitation and applicable procurement statutes and regulations. Id.

Here, offerors were to propose (using the cost model spreadsheets provided with the RFP) fixed, fully-burdened labor rates and identify the wage rate, indirect costs, and profit--for each labor category, performance period, PWS area, and team member. RFP at 353; attach. 23, Cost Model, at 375-93. Offerors were to provide a narrative describing, among other things, their estimating methodologies; basis of estimate for their proposed labor mix; rationale for cost/price reductions resulting from proposed efficiencies; and any proposed annual escalation factor. See RFP at 354-55. The RFP warned that the proposed labor mix must be consistent across the offeror's technical and price proposals, staffing plan, and cost model. Id. at 355. Offerors were to acknowledge that they had thoroughly reviewed the applicable Department of Labor Wage Determination, as well as the CBA covering SPOs, and that the proposed labor rates for covered employees included all requirements for compensation, benefits, and allowances. See id. at 353; attach. 7, Wage Determination, at 96-104; attach. 8, CBA, at 105-324.

The RFP stated that an offeror's total evaluated price, including all elements thereof, would be evaluated for reasonableness using any of the analysis techniques specified in FAR subpart 15.404. RFP at 362. The RFP further stated that an offeror's price proposal would be evaluated to determine the appropriateness of the underlying assumptions and estimating techniques, as well as the consistency of those assumptions and techniques with the proposed approach to accomplishing the required work. See id. Offerors were warned that their proposed labor mix must be consistent across their technical and price proposals, staffing plan, and cost model. Id. at 355. The solicitation also provided that the agency would analyze whether an offeror's proposed contract line item number (CLIN) and annual price was balanced. Id. at 362.

Our review of the record confirms that NNSA performed a reasonable price evaluation consistent with these criteria. The record shows that the agency, among other things: (1) evaluated SOC's proposed wages and indirect costs for covered employees and found that they were consistent with DOL requirements; (2) evaluated SOC's assumptions and found that, with one minor assumption, they were consistent with the requirements; (3) evaluated SOC's direct labor assumptions in particular and found them valid; (4) assessed the material differences between the offerors' price proposals and the independent government cost estimate; (5) found no exceptions or inconsistencies between SOC's technical proposal, price proposal, and staffing plan; (6) evaluated prices by CLIN and performance period for both offerors and found them balanced; and (7) evaluated and compared the price differences between the two price proposals. See AR, Tabs 19-20, Tech. Eval. of Price Proposals; Tab 20, IPT Rep., at 49. Based on this thorough evaluation, the agency found that both offerors proposed fair, reasonable, and balanced prices. See AR, Tab 20, IPT Rep., at 50-54.

Centerra's arguments to the contrary are premised on the protester's misconception that NNSA was required to perform a price realism analysis to determine whether SOC could perform the requirement at its proposed price. We agree with NNSA that Centerra has not effectively challenged the reasonableness or the balanced nature of SOC's proposed prices, which were the RFP's stated price evaluation factors. See MOL at 2-4. Rather, as the agency points out, Centerra essentially argues that SOC's price was unrealistically low to perform the work. Id.

Where a solicitation, as here, anticipates award of fixed-price or time-and-materials contract with fixed-price fully-burdened labor rates, the price realism of a proposal is not ordinarily considered, since the risk and responsibility for contract costs is on the contractor. See Ball Aerospace & Techs. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8 n.7. While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of measuring an offeror's understanding of the requirements or to assess the risk inherent in the offeror's proposal, offerors must be advised that the agency will conduct such an analysis. Id. at 8; FAR § 15.404-1(d)(3). As our Office has found, in the absence of an express price realism provision, we will only conclude that a solicitation contemplates a price realism evaluation where the solicitation expressly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and where the solicitation states that a proposal can be rejected for offering low prices. DynCorp Int'l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 9. Here, the RFP did not require NNSA to perform a price realism analysis. Absent a solicitation provision providing for a price realism evaluation, agencies are neither required nor permitted to conduct one in awarding a fixed-price contract. Id.

Accordingly, this aspect of the protest is also denied, because the record here demonstrates that the agency's evaluation of the awardee's price proposal was reasonable and the protester's arguments are premised on its misconception that the solicitation required the agency to perform a price realism analysis. See, e.g., i4 Now Sols., Inc., supra, at 9-11.  (Centerra Group, LLC B-414800, B-414800.2: Sep 21, 2017)

Incomplete Proposal

FedResults argues that DOI ignored its pricing assumptions and, as a result, overestimated the total potential cost to the agency of FedResults' quotation. Protester's Comments at 12. The agency contends that it properly concluded that the protester's proposed pricing method was not fair and reasonable because "FedResults' response to the solicitation did not contain all of the information to substantiate its pricing terms and conditions." MOL at 4. We agree.

FedResults proposed prices based on bandwidths of the number of potential users. See, e.g., AR, Tab 9, FedResults Price Proposal, at 8. The proposal included the following assumption regarding the calculation of the number of potential users, i.e., the basis of its pricing: "Potential Users are based on the greater of quarterly website visits to the domains covered by a license or the subscriber base multiplied by 12, less 20% to account for inactive subscribers." Id. at 8-9. The agency was concerned that this assumption did not capture accurately how this work would be performed because the assumption "indicates that the offerors' basis for pricing may be established on the number of website visits in lieu of a relevant basis such as number of subscribers or number of email sends." AR, Tab 36, Award Summary, at 16. DOI asked FedResults to clarify "where or if this formula for calculating Potential Users is located within FedResults' or [its teaming partner's] GSA schedule or pricing" and whether "this formula and/or basis for the formula [has] been approved by GSA?" AR, Tab 29, FedResults Clarification Request Response, at 1. In response, FedResults directed DOI to the teaming partner's "GSA Schedule Attachment VIII." Id. DOI was unable to locate this attachment within the FedResults' price proposal. AR, Tab 36, Award Summary, at 16. The agency accordingly concluded that "the clarifications provided by the Offeror failed to alleviate the CO's concerns, rather they served to substantiate the CO's and TET's [technical evaluation team's] pricing method concern," and thus, "the total price quoted by FedResults cannot be found to be fair and reasonable." Id. at 17.

The agency argues that it had a reasonable basis for concluding that the protester's proposed price was not fair and reasonable because "FedResults pointed the Agency to an attachment that it did not submit and, as far as the Agency knows, does not even exist." MOL at 4. A vendor has the responsibility to submit an adequately written quotation that includes sufficiently detailed information to affirmatively demonstrate that the vendor will comply with the solicitation requirements. Wizdom Sys., supra; see also ADC, Ltd., B-297061, Oct. 14, 2005, 2005 CPD ¶ 178 at 5. Vendors bear the burden for failing to submit an adequately written quotation, and contracting agencies are not obligated to go in search of needed information which the vendor has omitted or failed adequately to present. The Severson Grp., B-298195, June 9, 2006, 2006 CPD ¶ 94 at 3.

The record shows that FedResults failed to direct DOI to documentation allegedly responsive to the agency's request for clarifications regarding its pricing assumptions. Without this documentation, FedResults' proposal is incomplete. In responding to a solicitation such as the one here, it is the FSS contract holder's responsibility to submit an adequately written proposal, and where a proposal omits, inadequately addresses, or fails to clearly convey required information, the schedule holder runs the risk of an adverse agency evaluation. Beltway Transp. Serv., supra, at 4; K & V Limousine Serv., LLC, B-409668, July 10, 2014, 2014 CPD ¶ 209 at 3. On this record, the agency had a reasonable basis to conclude that FedResults' pricing was not fair and reasonable. Id. This protest ground is denied.

Unreasonable Proposed Price

FedResults also disputes DOI's evaluation of its proposed pricing. DOI argues that FedResults' pricing was simply high, and that the agency was at risk of substantially overpaying for services if a BPA were established with FedResults. COS at 7.

The RFQ provided for evaluation of "the individual Scenario Task prices and the total quoted price for each Scenario to make a fair and reasonable determination," as well as for an evaluation of 5-year pricing. RFQ at 38. In establishing a BPA, DOI concluded that "FedResults [sample scenario] pricing at $2,754,778.07 was found to have a flawed pricing basis [i.e., that the pricing assumption was not sufficiently linked to performance] which would likely artificially inflate prices." AR, Tab 36, Award Summary, at 18. FedResults does not address how the information in the missing attachment would have affected its scenario pricing. Protester's Comments at 13. Because the RFQ provides for an evaluation of scenario pricing, we find that the considerable difference between FedResults' pricing and the IGCE, as well as the insufficient support provided to explain FedResults' approach, supports the agency's conclusion that FedResults' pricing was not fair and reasonable.

However, FedResults largely challenges the agency's decision to multiply vendors' scenario pricing by 341 to arrive at an estimated total cost for the BPA. For FedResults, this method resulted in an estimated BPA cost of approximately $939 million, as compared to the IGCE of $46 million. Id. The protester generally disputes approximately $518 million of this amount, which leaves unchallenged the remaining $421 million, i.e., a value still 9 times more than the IGCE. Id. at 16-17. Yet FedResults does not specifically identify the alleged flaws in the agency's calculation because it "would have to analyze each of its pricing assumptions and apply them both individually and in tandem (since multiple assumptions can overlap or apply simultaneously) to DOI's price determination . . . to arrive at the full amount by which DOI improperly inflated FedResults price." Id. at 16. The protester declines to perform this recalculation because "[s]uch a determination may not even be possible . . . [and] [i]ndeed, a single unified analysis is likely unobtainable." Id. The agency estimated the total cost over the life of the BPA by multiplying the pricing scenario, which the agency contends is a reasonable estimate of an average call order, by the total estimated number of call orders. The protester's arguments provide insufficient grounds to question this methodology.

In sum, FedResults' scenario pricing was high and the company failed to adequately respond to the agency's clarification request, such that its price proposal was incomplete. Accordingly, the agency had a reasonable basis to conclude that FedResults' quotation was not fair and reasonable. AR, Tab 36, Award Summary, at 17. Although the protester disagrees with the agency's conclusions, it has not shown that the agency's evaluation was unreasonable or inconsistent with the solicitation or applicable rules and regulations. Aurotech, Inc., B-413861.4, June 23, 2017, 2017 CPD ¶ __ at 9. This protest ground is denied.  (FedResults, Inc. B-414641: Aug 8, 2017)

The protester challenges the agency's adverse price reasonableness determination, arguing that the agency unreasonably eliminated DJCPA's quotation from further consideration for award "without any discussion of or an acknowledgment of the relationship among the CLINs," and without considering the fact that DJCPA's prices for all but one CLIN were lower than the agency's benchmarks. Protester's Comments at 3. As explained below, we agree with the protester that the agency's price analysis was unreasonable.

The VA maintains that because the RFQ instructed vendors to insert a not-to-exceed quantity for each line item, meaning that vendors were quoting on varied quantities, "price reasonableness was conducted based upon an examination of the unit price for each contract line item number." Agency Response to Protester's Comments at 2. Thus, according to the agency, it was reasonable for it to exclude the protester's quotation from consideration for award on the basis the protester's price for a single line item was high.

We disagree. As noted above, the solicitation did not provide estimated quantities for the various line items, and thus, the agency had no basis upon which to assess the reasonableness of DJCPA's overall price for the CLINs, and instead evaluated price reasonableness at the line item level. Before rejecting DJCPA's quotation on the basis that a single line item price was high, however, the agency was required to also consider the risk that this single line item price would result in an unreasonably high price overall, or consider whether the single line item price presents some other risk to the government, as in the context of unbalanced prices. See Triumvirate Envtl., Inc., B-406809, Sept. 5, 2012, 2012 CPD ¶ 244 at 5. Here, the VA engaged in no analysis whatsoever to assess whether there was a risk that the protester's high price on the single line item in question would result in the government paying an unreasonably high price for performance of a typical order under the BPA. In our view, it was not reasonable to exclude the protester's quotation from further consideration without performing such an analysis, and on that basis, we sustain the protest.  (David Jones, CPA PC B-414701: Aug 25, 2017)

Cost Realism and Total Labor Hours

Orbital alleges that USRA proposed fewer labor hours than Orbital and that NASA failed to account for this difference in the agency's cost realism analysis. Orbital Comments & Supp. Protest at 24-25. The protester states that the record contains no analysis of USRA's proposed level of effort, and therefore, no analysis as to whether USRA's costs are realistic. Id. NASA contends that its review of offerors' level of effort and proposed staffing was reasonable and that the protester's position is not supported by the record. Supp. MOL at 6-7. We agree with the agency.

Our decisions provide that an agency is not required to conduct an in-depth cost analysis, see FAR § 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 ¶ 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 ¶ 151 at 7; Metro Mach. Corp., B-295744, B-295744.2, Apr. 21, 2005, 2005 CPD ¶ 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 ¶ 164 at 8-9.

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 & Eng'rs, Inc., B-274405.2, B-274405.3, Dec. 18, 1996, 97-1 CPD ¶ 42 at 7; Ferguson-Williams, Inc.; Hawk Mgmt. Servs., Inc., B-232334, B-232334.2, Dec. 28, 1988, 88-2 CPD ¶ 630 at 6.

As an initial matter, while the protester alleges that the awardee's level of effort is "shockingly low," the hours differential is small, as USRA proposed about [DELETED] percent fewer hours than Orbital.[6] Orbital also claims that "the record is bereft of any realism analysis of USRA's far lower level of effort." Orbital Comments & Supp. Protest, at 24. The protester's argument is not supported by the record, which shows that the agency, as part of its cost realism evaluation, compared offerors' proposed hours by category, for example, by contract management and administration, science and mission operations, and CPFF IDIQ task order. AR, Tab 30, Evaluation Briefing, at 97-106. In this regard, Orbital proposed substantially (approximately [DELETED] percent) more contract management and administration hours than USRA. Id. at 97. The difference in hours for science and mission operations was minimal at approximately [DELETED] percent. Id. at 99.

The record also reflects that the agency considered, in detail, hours proposed in terms of "WYE," or work year equivalent, rather than raw total hours. See, e.g., id. at 98. The agency used this analysis as part of its conclusions that USRA's proposed resources were "appropriate and reasonable," and that USRA's proposed labor rates and rate escalation were "reasonable and realistic." Id. at 104. Furthermore, the agency's recognition of USRA's approach was carried across the evaluation, as NASA awarded USRA a strength under the management approach subfactor for "propos[ing] approaches to increase the productivity and efficiency of the SOFIA program." Id. at 50. Finally, with regard to USRA's cost proposal the agency "reviewed the hours and skill mix proposed by the Offeror and its subcontractors and determined that they were appropriate and reasonable for accomplishing the Offeror's operational plans and that no adjustments to these resources were necessary." Id. at 104. On this record, we find no merit to the allegation that NASA failed to consider the impact of USRA's slightly lower proposed hours. This protest ground is denied. See BCF Sols., Inc., B-409570, June 13, 2014, 2014 CPD ¶ 177 at 14.

Orbital Upward Cost Adjustment

Orbital also challenges the agency's upward cost adjustment to its cost proposal of approximately $2.2 million for travel costs to allow for [DELETED] trips to New Zealand for the [DELETED] individuals proposed by Orbital, arguing that it was irrational. Orbital Comments & Supp. Protest, at 28. The agency contends that the cost adjustment was reasonable and that Orbital's arguments represent mere disagreement with the agency's analysis. Supp. MOL at 8, citing TriWest Healthcare Alliance Corp., B-401652.12, B-401652.13, July 2, 2012, 2012 CPD ¶ 191 at 29.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror's proposed costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. FAR §§ 15.305(a)(1), 15.404-1(d); National Gov't Servs., Inc., B-412142, Dec. 30, 2015, 2016 CPD ¶ 8 at 8. Consequently, an 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 § 15.404-1(d)(1); Noridian Admin. Servs., LLC, B-401068.13, Jan. 16, 2013, 2013 CPD ¶ 52 at 4. An offeror's proposed costs should be adjusted when appropriate based on the results of the cost realism analysis. FAR § 15.404-1(d)(2)(ii). In assessing cost realism, an agency is not required to conduct an in-depth cost analysis, see FAR § 15.404-1(c), or to verify each item; rather, the evaluation requires the exercise of informed judgment by the contracting agency. AdvanceMed Corp.; TrustSols., LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. 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 ¶ 16 at 26.

Here, based on past experience, the agency determined that Orbital's travel costs were "understated" because of the various travel that was not included in Orbital's proposal, including the fact that the protester's "[p]roposed travel to New Zealand was less than . . . the Offeror's sample scenario and lower than the necessary minimum estimated by the" agency. AR, Tab 30, Evaluation Briefing, at 1884. The agency then "used SOFIA historical data from New Zealand deployments in the summer of 2015 and 2016 and adjusted such data to align with the Sample Scenario in [the] RFP [. . . ]. The average number of 'person-trips' for the deployment described in the sample scenario was determined to be approximately 32, with an average duration of 28 days." COSF at 20, citing AR, Tab 29, SOFIA Travel Rosters, at 1777-1781. On the record here, we conclude that the agency's upward cost adjustment had a reasonable basis and was not arbitrary, and the protester simply disagrees with the result. This protest ground is denied. Jacobs COGEMA, LLC, supra; TriWest Healthcare Alliance Corp., supra.  (Orbital Sciences Corporation B-414603, B-414603.2: Jul 26, 2017)

HPES contends that the solicitation required the CDC to complete a price realism analysis, and that the agency failed to do so. HPES Comments at 9. Although acknowledging that "the RFTOP did not use the phrase 'price realism,'" HPES nevertheless argues that, where the solicitation provides that offerors must explain "[a]ny . . . high or low proposed prices/costs as compared to historical data," this language amounts to an obligation for the agency to ensure that proposed prices are not too low. Id., citing RFTOP at 1141. The CDC responds that "the RFTOP does not include a price realism requirement as part of the evaluation criteria," and that, without more, the agency had no obligation to conduct a realism evaluation. Supp. Agency Report at 3. We agree.

Where a solicitation anticipates award of fixed-price or time-and-materials task order with fixed-price fully-burdened labor rates, the price realism of a proposal is not ordinarily considered, since the risk and responsibility for contract costs is on the contractor. See Ball Aerospace & Techs. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8 n.7. In this regard, the fact that an offeror's price is below a government cost estimate, as in the case here, does not require the agency to conclude that the price is unrealistically low, since we have recognized that an agency may find even a below-cost price to be realistic. Optex Sys., Inc., B-408591, Oct. 30, 2013, 2013 CPD ¶ 244 at 5-6; Network Innovations, Inc., B-408382, B-408382.2, Sept. 4, 2013, 2013 CPD ¶ 220 at 5.

Where there is no evaluation factor providing for consideration of price realism, a determination that an offeror's price is too low generally concerns the offeror's responsibility. STG, Inc., B-411415, B-411415.2, July 22, 2015, 2015 CPD ¶ 240 at 13; PAE Gov't Servs., Inc., B-407818, Mar. 5, 2013, 2013 CPD ¶ 91 at 6. While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of assessing whether an offeror's low price reflects a lack of technical understanding or risk, see FAR § 15.404-1(d)(3), offerors must be advised that the agency will conduct such an analysis. See STG, Inc., supra, at 13-14 (applying the standard to procurements under FAR subpart 16.505). As our Office has found, in the absence of an express price realism provision, we will only conclude that a solicitation contemplates a price realism evaluation where the solicitation expressly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and where the solicitation states that a proposal can be rejected for offering low prices. DynCorp Int'l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 9; STG, Inc., supra, at 14. Absent a solicitation provision providing for a price realism evaluation, agencies are neither required nor permitted to conduct one in awarding a fixed-price contract. Id. at 13-14.

Here, the parties agree that the solicitation does not expressly advise offerors of any price realism evaluation. Furthermore, the language cited by the protester is not sufficient to give rise to an obligation to conduct a price realism evaluation. Overall, we find no obligation for the agency to perform a price realism analysis. DynCorp Int'l LLC, supra. Because we conclude that there is no such obligation, we accordingly find no basis to sustain the protest ground that the agency failed in its obligation to evaluate proposals for price realism. This protest ground is denied.  (HP Enterprise Services, LLC B-413888.2, B-413888.3, B-413888.4, B-413888.5: Jun 21, 2017)

Red River argues that the agency failed to consider that Four Points’ pricing quotation did not comply with a material solicitation requirement. Under the RFQ, vendors were instructed to complete a pricing model scenario table by entering discounted pricing for five cloud service items over five ordering periods. RFQ at 55. The RFQ instructed vendors to price the model making certain assumptions, including “100% utilization, on-demand for all ordering periods.” Id. During questions and answers that were subsequently incorporated into the solicitation, the agency expounded on this requirement:

Q: Many [cloud service providers] offer [a] discount for reserving or committing to a certain percent of utilization. Should we provide multiple pricing for reserved instances as part of the scope of the pricing scenario?

A: No, not for the pricing scenario provided. Assume on-demand prices at 100% utilization.

AR, Tab 6c, Modification 3, at 4. The agency similarly stated in a subsequent answer that vendors were to use on-demand pricing rather than “reserved instance pricing.” Id. at 7. The protester points out however, that for each contract period, four of the five prices used in Four Points’ pricing model stated that they were “based upon 1-year reserved” pricing. AR, Tab 21b, Four Points Pricing Quotation, at 17-26. The protester argues that the agency, by permitting Four Points to use reserved pricing, failed to enforce the solicitation requirement to use on-demand pricing.

An agency is required to evaluate vendors on an equal basis and in a manner that permits the meaningful assessment of the total cost to the government for the required goods or services. Cross Match Techs., Inc., B-293024.3, B-293024.4, June 25, 2004, 2004 CPD ¶ 193 at 6 n.2. Our Office has explained that an agency’s cost or price evaluation that compares the cost or price of quotations that are based on differing assumptions, i.e., an “apples and oranges” comparison, is not a meaningful comparison of vendors’ pricing. See Symplicity Corp., B-291902, Apr. 29, 2003, 2003 CPD ¶ 89 at 7.

Here, we conclude that Four Points failed to comply with the solicitation requirement that vendors use on-demand pricing in their model scenario pricing, thereby resulting in the agency unequally evaluating price quotations. In this regard, we note that Four Points’ quotation expressly states that the line items in question were “based upon 1-year reserved” pricing. AR, Tab 21b, Four Points Pricing Quotation, at 17-26. While the agency argues that, despite this representation, the line items, in fact, corresponded to “on-demand” pricing listed in Four Points’ schedule, we do not agree.

For the four cloud service items in question, Four Points’ pricing model listed a “GSA Schedule Price” that was calculated by [DELETED]. See id. at 17-18. For the price listing for the former part number, Four Points relied upon line items from its schedule that did not expressly state whether they were for “reserved” or “on-demand” pricing. See id.; AR, Tab 27, Four Points Schedule, at [DELETED]. This silence is telling because Four Points’ schedule expressly provides “on-demand” pricing for these very same part numbers in different pages of its schedule. See AR, Tab 27, Four Points Schedule, at [DELETED]. This schedule pricing, in contrast to the schedule pricing relied upon by Four Points in its pricing model, expressly states that it is “on-demand.” Id. Additionally, this on-demand pricing is higher than the schedule pricing relied upon by Four Points’ pricing model, as would be expected from such on-demand pricing. The record therefore demonstrates that Four Points did, in fact, use reserved pricing--as it said it did--in its pricing model. We therefore conclude that Four Points failed to comply with the RFQ requirement to use on-demand pricing, thereby resulting in the agency failing to evaluate price quotations equally.

The protester also argues that InfoReliance violated a material requirement by proposing discounted pricing in its pricing model for Amazon Web Services (AWS) solutions that did not correspond to the BPA-level discount rate proposed in its quotation. In this regard, Red River asserts that rather than applying a standard BPA-level discount for the AWS solutions used in InfoReliance’s pricing model, InfoReliance used differing discounts (of [DELETED] percent, [DELETED] percent, and [DELETED] percent) to arrive at the pricing used in the model. The protester argues that this varying discount rate violated the RFQ’s requirements that discounts used in the pricing model correspond to the discounts submitted for the BPA.

In our view, the discounts proposed by InfoReliance in its pricing model were consistent with the discounting scheme provided in its quotation. In this regard, in the schedule pricing portion of its quotation, InfoReliance proposed a “minimum BPA discount off of our GSA schedule for AWS [of] [DELETED].” AR, Tab 20c, InfoReliance Schedule Pricing Quotation, at 8. The vendor explained that, while this was a minimum discount, in execution it intended to offer [DELETED]% off of the AWS list price. Id. InfoReliance’s pricing model comported with this scheme with InfoReliance proposing varying discounts for two of the cloud items that amounted to a [DELETED]% discount from the AWS list price. Accordingly, we do not agree that the discounts used in InfoReliance’s pricing model were inconsistent with its BPA-level discounts.  (Red River Computer Company, Inc. B-414183.4, B-414183.6, B-414183.7: Jun 2, 2017)

Both NTC and MF challenge the agency’s evaluation of PS’s price proposal, maintaining that the agency should have found PS’s proposed prices unrealistic and therefore should have downgraded the proposal or assigned it an elevated risk rating for a lack of technical understanding. The protesters allege that, while the RFP was permissive concerning whether or not the agency was required to conduct a price realism evaluation, the contemporaneous record shows that the agency actually did perform some sort of realism evaluation, but that evaluation was unreasonable and the results were never provided to the technical evaluators, incorporated into the agency’s technical ratings of the proposals, or considered meaningfully in connection with the agency’s source selection decision. The protesters maintain that, had the agency conducted an adequate price realism evaluation, it would have discovered that PS’s prices were unrealistically low and reflect a lack of technical understanding on the part of PS.

The agency responds that it was not required to perform a price realism evaluation under the terms of the RFP and that it was not necessary for it to perform what it describes as a ‘full’ price realism evaluation. The agency further maintains that its evaluation of price proposals was reasonable.

The nature and extent of an agency’s price realism analysis largely is a matter within the agency’s discretion. Navistar Def., LLC; BAE Sys., Tactical Vehicles Sys. LP, B‑401865 et al., Dec. 14, 2009, 2009 CPD ¶ 258 at 17. 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 a comparison of proposed prices with each other and with an independent government estimate. FAR §§ 15.404-1(b)(2)(i), (ii), (iv); In reviewing protests challenging price realism evaluations, our focus is on whether the agency acted reasonably and in a manner consistent with the solicitation’s requirements. General Dynamics One Source, LLC; Unisys Corp., B-400340.5, B-400340.6, Jan. 20, 2010, 2010 CPD ¶ 45 at 9. We will object to an agency’s price realism evaluation where it is unreasonable, inconsistent with the terms of the solicitation, or inadequately documented.

The contemporaneous record shows that the agency’s price evaluators compared the offerors’ total proposed prices and individual contract line item (CLIN) prices to one another and to an independent government estimate (IGE) prepared in connection with the acquisition. That comparison showed that PS’s total price, as well as a number of its individual CLIN prices, were significantly lower than the other offerors’ proposed prices, as well as the IGE. The initial total IGE was $[deleted], and this figure was later revised downward slightly to $[deleted]. NTCAR, exh. 16, Price Evaluation Report (PER) at 2; exh. 36, Addendum III to the PER at 3; MFAR, exh. 43, PER at 2; Addendum III to the PER at 3. In comparison, PS’s initial total price was $[deleted], and its final total price was $117,445,600. Id. The record therefore shows that PS’s total price was approximately [deleted] percent less than the IGE.

In terms of individual CLINs, the record shows that the price evaluators had concerns about the realism of a number of PS’s proposed CLINs. For example, in the initial PER, the evaluators stated as follows:

Primus proposed the lowest amount among the IGCE [independent government cost estimate] and vendors for CLIN [deleted]; this CLIN is half of the price of the IGCE which may indicate the vendor does not fully understand the technical requirements of this specific CLIN. Primus has proposed $[deleted] while the IGCE estimates $[deleted][,] a difference of $[deleted].

NTCAR, exh. 16, PER, at 6; MFAR, exh. 43, PEP Report, at 6.

Despite engaging in three rounds of discussions with PS concerning its proposed pricing, this concern was never meaningfully resolved. The record shows that PS’s proposed price for CLIN [deleted] remained significantly below the IGE. PS’s final price for CLIN [deleted]--$[deleted]--was slightly higher than its initial price for this same CLIN, but the amount in the IGE for this CLIN also was raised slightly from $[deleted] to $[deleted]. NTCAR, exh. 36, Addendum III to the PER, at 4; MFAR, exh. 43, Addendum III to the PER at 4.

The record shows that these concerns were not confined to just CLIN [deleted]. The agency’s pre-negotiation memorandum states:

There are a number of CLINs where the proposed price is significantly lower than the IGCE, leading the PEP [price evaluation panel] to believe Primus may not fully understand the technical requirements of those specific CLINs

NTCAR, exh. 18, Pre-Negotiation Briefing Memorandum, at 5; MFAR, exh. 17, Pre-negotiation Memorandum, at 5.

The record shows that the price evaluators’ concerns persisted. After the first round of discussions, the evaluators found as follows:

Primus proposed the lowest amount among the IGCE and vendors for CLIN [deleted] and [deleted]; the most significant is CLIN [deleted] which is half the price of the IGCE which may indicate the vendor does not fully understand the technical requirements of this specific CLIN. Primus has proposed $[deleted]while the IGCE estimates $[deleted][,] a difference of $[deleted].

NTCAR, exh. 22, Addendum I to the PER, at 6; MFAR, exh. 43, Addendum I to the PER at 6.

The record further shows that after the second round of discussions, the price evaluators continued to identify wide discrepancies between the IGE and PS’s prices for a number of CLINs. For CLIN [deleted], the IGE was $[deleted], while PS’s price was $[deleted]; for CLIN [deleted], the IGE was $[deleted], while PS’s price was $[deleted]; for CLIN [deleted], the IGE was $[deleted], while PS’s price was $[deleted]; for CLIN [deleted], the IGE was $[deleted], while PS’s price was $[deleted] and for CLIN [deleted], the IGE was $[deleted], while PS’s price was $[deleted]. NTCAR, exh. 30, Addendum II to the PER, at 29; MFAR, exh. 43, Addendum II to the PER, at 29.

The record shows that, after the third and final round of discussions, PS’s prices for all of the identified CLINs were either the same or even lower. PS’s price for CLINs [deleted] remained the same, while its prices for CLINs [deleted] went down. NTCAR, exh. 36, Addendum III to the PER at 5; MFAR, exh. 43, Addendum III to the PER at 5. We note as well that the price evaluators continued to specifically voice concerns about PS’s understanding of the technical requirements of CLIN [deleted]. Id. at 17.

Despite the concerns identified by the price evaluators discussed above, the record is devoid of any information showing that the technical evaluators were aware of the price evaluators’ concerns, or that those concerns were resolved through an evaluation of PS’s technical approach that explained the firm’s significantly low pricing as compared to the government estimate and the other offerors’ prices. In fact, there is nothing in the evaluation record to show that the technical evaluators even were aware of the level of effort proposed by the offerors, since that information was included only in the firms’ price proposals.

Similarly, the agency’s source selection decision makes no mention of the concerns identified by the price evaluators and does not explain how those concerns may have been resolved. While source selection officials reasonably may disagree with the ratings and recommendations of lower-level evaluators, they are nonetheless bound by the fundamental requirement that their independent judgments be reasonable and consistent with the provisions of the solicitation, and adequately documented in the contemporaneous record. Metis Solutions, LLC, et al., B-411173.2, et al., July 20, 2015, 2015 CPD ¶ 221 at 6. The record here contains no explanation for why the source selection authority did not take into consideration the findings of the price evaluators, or for that matter, any evidence to show even whether or not he agreed or disagreed with those findings.

In the final analysis, while the RFP was permissive in terms of whether or not the agency was required to conduct a price realism evaluation, the record shows that the agency’s price evaluators, in fact, performed an evaluation of proposed prices for realism (by comparing them to one another and to the IGE); identified concerns about PS’s low prices and comparatively low level of effort for certain CLINs; and attributed those differences to a possible lack of technical understanding on the part of PS. The record also shows that those concerns were never resolved through multiple rounds of discussions, and PS’s prices remained significantly low compared to both the IGE and the other offerors’ prices. Despite these considerations, there is nothing in the record to show that the price evaluators’ concerns were understood or explained to the technical evaluators, and nothing in the record to show that the source selection authority took the concerns into consideration in making his selection decision. We therefore sustain this aspect of the protests.  (Next Tier Concepts, Inc.; MAXIMUS Federal Services, Inc. B-414337, B-414337.2: May 15, 2017)

Selective Use of Salary Data

Dalpar contends that the agency’s salary comparison analysis was unreasonable because the agency used incorrect salary data from its proposal as the basis of comparison. Protester’s Supplemental Comments at 4-5. Specifically, Dalpar contends that the agency used salary information it derived for Dalpar’s instructors by multiplying the base labor rate provided in Dalpar’s TEP worksheets by 1,880 hours. According to Dalpar, the agency should have instead used the higher annual salary outlined in the narrative portion of its proposal. Id.

The agency responds by noting that the solicitation informed offerors that the Air Force would use the TEP worksheets for comparison purposes, and also notified offerors that the agency would use 1,880 hours as the total hours for a full year of productive labor for the instructors. Agency Supplemental Response at 2. On that basis, the Air Force contends that it is immaterial that Dalpar provided additional, albeit higher, and also inconsistent, salary information in its narrative, as the RFP was clear that the price worksheets would be used for price analysis. Id.

The evaluation of an offeror’s proposal is a matter within the agency’s discretion. See National Gov’t Servs., Inc., B-401063.2 et al., Jan. 30, 2012, 2012 CPD ¶ 59 at 5; Serco Inc., B-406061.1, B-406061.2, Feb. 1, 2012, 2012 CPD ¶ 61 at 9. An offeror’s disagreement with the agency’s judgment, without more, is insufficient to establish that the agency acted unreasonably. STG, Inc., B-405101.3 et al., Jan. 12, 2012, 2012 CPD ¶ 48 at 7. While we will not substitute our judgment for that of the agency, we will question the agency’s conclusions where they are inconsistent with the solicitation criteria and applicable procurement statutes and regulations, undocumented, or not reasonably based. Public Commc’ns Servs., Inc., B-400058, B-400058.3, July 18, 2009, 2009 CPD ¶ 154 at 17.

In this case, as required by the solicitation, the record reflects that Dalpar’s TEP worksheets included base rates, fringe rates, overhead rates, general and administrative expense rates, and profit, for the instructors based on an 1,880 hour work year. Dalpar Price Proposal at 61. When summed, they matched Dalpar’s fully‑burdened instructor hourly labor rates. Since the base rate information reflected the salary paid directly to the employee, the agency reasonably used this information as its basis for comparing the professional compensation proposed by the offerors. To the extent that Dalpar may have included other salary information in the narrative section of its proposal, the agency properly focused on the price information set forth in Dalpar’s price worksheets where the solicitation established that the worksheets were to be used to calculate the TEP for each offeror and to conduct the agency’s price evaluation. Thus, we have no basis to question the agency’s use of the salary information from Dalpar’s price worksheets rather than the salary information in the narrative section of Dalpar’s proposal.  (Dalpar Corporation B-414285: Apr 24, 2017)

Verdi also maintains that HUD’s price evaluation was flawed because the agency only evaluated base year pricing. Protester’s Comments at 8. HUD does not substantively defend its price evaluation, but instead argues that Verdi has no basis to challenge the price evaluation because Verdi did not submit a revised price proposal. See Supp. MOL at 2‑3; 2nd Supp. MOL at 2‑4.

In reviewing protests of an agency’s evaluation and source selection decision, our Office will not reevaluate proposals; rather, we review the record to determine whether the evaluation and source selection decision are reasonable and consistent with the solicitation’s evaluation criteria, and applicable procurement laws and regulations. Velos, Inc., B-400500.8, B-400500.9, Dec. 14, 2009, 2010 CPD ¶ 13 at 11; Keeton Corrections, Inc., B-293348, Mar. 4, 2004, 2005 CPD ¶ 44 at 6. While we will not substitute our judgment for that of the agency, we will sustain a protest where the agency’s conclusions are inconsistent with the solicitation’s evaluation criteria, undocumented, or not reasonably based. DRS ICAS, LLC, B-401852.4, B-401852.5, Sept. 8, 2010, 2010 CPD ¶ 261 at 4-5.

The RFP, as discussed above, stated that an offeror’s total evaluated price would be based on adding the total price for all options to the total price for the basic requirement. RFP amend. 1, § M, at 112, 114. Moreover, the RFP incorporated FAR provision 52.217‑5, which requires the evaluation of option prices for award purposes, except when doing so is not in the government’s best interest. Id. at 115; FAR § 52.217‑5. The RFP also stated that the agency would evaluate reasonableness by comparing offerors’ proposed prices to each other and to an independent government cost estimate (IGCE). Id. The RFP further stated that the agency would evaluate the reasonableness of proposed costs/prices for the option periods by assessing the acceptability of the offeror’s methodology used in developing the cost/price estimates. Id.

HUD’s price evaluation, like the agency’s past performance evaluation discussed above, is not adequately documented. The contemporaneous price evaluation record consists of seven spreadsheets. Five of the spreadsheets correspond to each of the five performance years and simply list each of the offerors’ proposed CLIN prices for that performance year. AR, exh. 11a‑11f, Price Eval. Spreadsheets, Performance Periods. The sixth spreadsheet simply lists offerors’ CLIN prices for the base year next to a “reduced estimate” price for the year, which, according to brief explanatory notes in the spreadsheet, were calculated based on the IGCE and HUD’s estimated case reviews per year for the corresponding PWS tasks. AR, exh. 12, Price Eval. Spreadsheet, Reduced Estimates, at 1. The sixth spreadsheet also lists the offerors’ rankings and ratings under each evaluation factor. Id. at 2. The seventh (and final) spreadsheet lists each offeror’s total estimated base year costs per CLIN, calculated, according to the explanatory notes, using the estimated case reviews per year for the respective tasks. AR, exh. 13, Total Estimated Base Year Cost Spreadsheet, at 1‑2. Except for the brief explanatory notes accompanying the sixth and seventh spreadsheets, the contemporaneous record does not include any narrative explanation of the conclusions the agency may have reached in its price evaluation.

Although the record suggests that HUD evaluated price reasonableness by comparing offerors’ CLIN prices to each other and to an IGCE, nothing in the record shows that the agency calculated total evaluated prices to include all option periods, as required by the RFP. Where, as here, a solicitation contains FAR provision 52.217‑5, the agency must evaluate all option year pricing unless the agency finds that funds will not be available. See Marshall Co., Ltd., B‑311196, Apr. 23, 2008, 2008 CPD ¶ 78 at 2 n.2; Building Constr. Enters., Inc., B-294784, Dec. 20, 2004, 2004 ¶ 251 at 2 (absent showing that there is reasonable certainty that funds will not be available, an agency must evaluate option prices where the solicitation provides for their evaluation). Here, HUD has not provided any documentation or statement from the SSA (or anyone else) evidencing any contemporaneous consideration of option year pricing. Moreover, nothing in the record suggests that the agency evaluated CLIN or option year prices for price unbalancing. Furthermore, nothing in the record indicates that the agency evaluated offerors’ cost/price estimates.

In short, the record is devoid of any contemporaneous documentation whatsoever showing that the agency evaluated the offerors’ prices consistent with applicable FAR provisions and the explicit terms of the solicitation. Accordingly, we sustain Verdi’s protest of HUD’s price evaluation. See Medical Dev. Int’l, Inc., B‑402198.2, March 29, 2010, 2011 CPD ¶ 185 at 6‑7 (sustaining protest where the source selection decision does not provide any discussion of the proposals’ option year pricing, even though the RFP advised offerors that their evaluated price would include base and option period pricing); AI Procurement JVG, supra, at 3‑4.  (Verdi Consulting, Inc. B-414103.2,B-414103.3,B-414103.4: Apr 26, 2017)

The protester primarily argues that the agency’s price evaluation was unreasonable and that its best-value determination was therefore flawed. American Access first argues that while the solicitation, as amended, did not explicitly contain any requirement to perform a price realism analysis, the agency was nonetheless required to perform a price realism analysis because the solicitation provided for an unbalanced pricing analysis. See Protest at 9-19; Protester’s Comments at 2-21. We disagree.

Generally, for fixed-price contracts, an agency may conduct a price realism analysis for the limited purpose of assessing whether an offeror’s low price reflects a lack of technical understanding or risk (see FAR § 15.404-1(d)(3)), but it may do so only when offerors have been advised that the agency will conduct such an analysis. National Disability Rights Network, Inc., B-413528, Nov. 16, 2016, 2016 CPD ¶ 333 at 9; Emergint Techs., Inc., B-407006, Oct. 18, 2012, 2012 CPD ¶ 295 at 5-6. Absent a solicitation provision advising offerors that the agency intends to conduct a price realism analysis, agencies are neither required nor permitted to conduct such an analysis in awarding a fixed-price contract. Id. Here, it is undisputed that the solicitation, as amended, did not provide for a price realism analysis and as such, the agency was not required to conduct one.

We further do not find persuasive the protester’s argument that the agency was required to perform a price realism analysis to determine the risk of unbalanced pricing. In this regard, American Access contends that, based on its own analysis of the awardees’ prices for certain ramp configurations, the awardees’ prices are unbalanced, and the agency is at risk of paying more for the same-sized (but differently configured) ramp during contract performance. See Protester’s Comments at 4-12, 18-20; id., exh. B, Chart Proving Unbalanced Pricing.

In response, the agency asserts that it analyzed prices for unbalancing, explaining that in addition to comparing the offerors’ total proposed prices for the base and option years per VISN, the agency also performed a detailed price analysis by comparing the offerors’ proposed prices for each CLIN. AR, COS at 000147-000148; see also AR, Tab 9, Price Analysis Spreadsheet. When the agency identified the highest and lowest prices for each CLIN, the agency did not find any unbalanced pricing, either at the CLIN level or in the option-year pricing. Id.; AR, MOL at 10.

As a general matter, unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated. FAR § 15.404-1(g)(1). With respect to unbalanced pricing generally, the FAR requires that contracting officers analyze offers with separately-priced line items or subline items, to detect unbalancing. FAR § 15.404-1(g)(2). While both understated and overstated prices are relevant to the question of whether unbalanced pricing exists, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices because low prices (even below-cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. See Crown Point Systems, B-413940, B-413940.2, Jan. 11, 2017, 2017 CPD ¶ 19 at 5; AIS Eng’g, Inc., B-410246, B-410246.2, Nov. 21, 2014, 2015 CPD ¶ 5 at 3. Our Office reviews the reasonableness of an agency’s determination about whether a firm’s prices are unbalanced, and an agency’s determination as to whether the unbalanced prices pose an unacceptable risk. Triumvirate Envtl., Inc., B-406809, Sept. 5, 2012, 2012 CPD ¶ 244 at 5.

Here, the protester fails to make the threshold showing required to prevail on this allegation, namely that one or more of the prices was over or understated. See InfoZen, Inc., B-411530, B-411530.2, Aug. 12, 2015, 2015 CPD ¶ 270 at 7. Further, while the protester argues that the agency was required to perform a “more in-depth analysis by comparing the total pricing for different configuration of ramps,” see Protester’s Comments at 6, the manner and depth of an agency’s price analysis is a matter within the sound exercise of the agency’s 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 27-28. Here, the agency’s price analysis not only compared the total proposed prices by VISN in accordance with the solicitation, but also compared prices proposed for each CLIN, identifying highest and lowest prices for each CLIN. On this record, we find the agency’s price analysis unobjectionable.

Because we find that the terms of the solicitation neither required nor permitted the agency to perform a price realism evaluation in this procurement, we need not address the protester’s remaining arguments challenging the awards to National Ramp and TJ Rampit. This is so because American Access would not be in line for an award if its protest were sustained, and therefore, is not an interested party. See Protest at 19-20; Protester’s Comments at 26-35; Supp. Protest at 5-29. See also 4 C.F.R. §§ 21.0(a)(1), 21.1(a); JSF Sys., LLC, B-410217, Oct. 30, 2014, 2014 CPD ¶ 328 at 4. Here, Offeror A’s proposal was the lowest-priced offer and received the same non-price evaluation factor ratings as American Access’s proposal for each VISN. The protester has raised no challenges to the evaluation of Offeror A’s non-price proposal nor has American Access raised any viable or meaningful arguments challenging its own offer. Accordingly, on this record, even were we to sustain American Access’s protest of the awards to National Ramp and TJ Rampit, American Access would not be in line for award, and therefore, is not an interested party to maintain its remaining bases for protest.  (American Access, Inc. B-414137, B-414137.2: Feb 28, 2017)

Smartronix challenges the agency’s cost evaluation. Specifically, the protester objects to the Air Force’s MPC adjustment, asserting that it was unwarranted and a deviation from the solicitation’s evaluation methodology. Protest at 3. Smartronix argues that it should have received the task order because its proposal was technically acceptable and lower priced than Atlantic CommTech’s. We find no merit to the protester’s arguments.

When an agency evaluates a proposal for the award of a cost-reimbursement contract or task order, 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. FAR §§ 15.305(a)(1), 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 25 at 7. Consequently, the agency must perform a cost realism analysis 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 § 15.404-1(d)(1); Advanced Commc’n Sys., Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD ¶ 3 at 5. An offeror’s proposed costs should be adjusted, when appropriate, based on the results of the cost realism analysis. FAR § 15.404‑1(d)(2)(ii); Systems Techs., Inc., B-404985, B-404985.2, July 20, 2011, 2011 CPD ¶ 170 at 5. Because the contracting agency is in the best position to make this cost realism determination, 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 ¶ 16 at 26.

As an initial matter, Smartronix seemingly argues that the agency’s consideration of an MPC was improper given that the procurement utilized an LPTA award methodology. See Protest at 4; Comments at 1, 3. The solicitation here advised that the task order was primarily cost-plus-fixed-fee and cost-reimbursable, that the evaluation or proposals would include a cost realism analysis and MPC calculation, and that the order would be issued to the firm that submitted the technically acceptable proposal with the lowest MPC. RFP at 1‑2; RFP amend. 0003, at 50, 54. Given this, the agency’s actions were consistent with the solicitation. Indeed, an award to the firm that submitted the lowest proposed price/cost, without any MPC assessment, as Smartronix would have preferred, would have been in direct conflict with the express terms of the solicitation.

Next, we turn to Smartronix’s protest of the agency’s MPC adjustment. Specifically, the protester offers its general disagreement with the agency’s cost adjustment; the firm does not challenge the specifics of the agency’s findings.

As highlighted above, as part of the agency’s corrective action, an Air Force cost team conducted a new evaluation under the cost/price factor of the technically acceptable proposals. In accordance with the RFP, the team examined whether the offerors proposed an unrealistically low cost/price such that it indicated a lack of understanding of the requirements, and calculated what it would cost the offeror to perform the effort. See RFP amend. 0003, at 54-55. With respect to Smartronix’s proposal, the evaluators noted an inconsistency between the labor hours identified in the firm’s cost/price proposal for the second option year, and the overall number of FTEs proposed for that year as illustrated in its technical proposal. AR, Tab 14b, Revised PAR, Nov. 9, 2016, at 4. Due to the discrepancy, the agency sought clarification from Smartronix. AR, Tab 9, Smartronix Clarification, at 2-3. The firm explained that they intended to add [DELETED] additional FTEs for the second option year, and that these personnel would be phased in over a 6-month period. Id. at 1 (identifying [DELETED] FTEs for day one of option year 2, [DELETED] FTEs two months later, [DELETED] more FTEs a month after that, another [DELETED] FTEs a month later, and [DELETED] FTEs at the 6-month mark).

The cost team consulted with the technical team to assess the reasonableness of Smartronix’s phasing-in methodology. AR, Tab 14b, Revised PAR, Nov. 9, 2016, at 4. While the technical evaluators acknowledged that some phasing in of staff could be possible, given that the work to be performed in the second option year represented a “significant increase to existing work,” the evaluators did not consider it feasible for the additional personnel to be phased-in over the course of 6 months. Id. at 5. According to the technical evaluators, the nature of the work created a risk that some of the personnel for the second option year would be required sooner than Smartronix planned. Id. The evaluators also noted that Smartronix had offered no explanation (other than cost savings) as to why the increased work allowed for its phasing-in methodology. Id. Ultimately, the evaluators concluded that a 60-day phase-in period--based on a PWS provision requiring that vacant positions be filled within 60 days--was realistic and the most the agency “reasonably could consider from a risk perspective.” Id.; see PWS ¶ 3.1.2.

Accordingly, the cost team recalculated Smartronix’s cost/price proposal based on a 60-day phase-in period. The result was an addition of 8,126 labor hours, which, as noted above, increased Smartronix’s proposed cost by $596,960. Id.; AR, Tab 13, Smartronix MPC, at 3.

Here, we find unobjectionable the agency’s MPC adjustment. Consistent with the solicitation, the agency performed a cost realism analysis of Smartronix’s proposal, during which the agency assessed whether the proposal reflected a sound approach to satisfying the requirements. As discussed above, the agency concluded that Smartronix’s phasing-in methodology for staffing the second option year was risky and unrealistic, and the agency recalculated the firm’s staffing based on what the agency anticipated to be the actual cost of performance. Significantly, the agency’s evaluation findings were well‑documented and adequately supported.

On this record, we find reasonable the agency’s cost realism analysis and upward cost adjustment. Agencies are given broad discretion in conducting cost realism evaluations, and Smartronix’s general objection to the MPC adjustment does not provide a basis to question the Air Force’s conclusions regarding the realism of the firm’s proposed costs. See Systems Techs., Inc., supra, at 6-7 (finding unobjectionable an agency’s adjustments to an offeror’s proposed labor hours as part of a cost realism analysis); cf. ITT Sys. Corp., B-405865, B-405865.2. Jan. 6, 2012, 2012 CPD ¶ 44 at 6 (sustaining protest where basis for cost realism adjustment of proposed labor hours was not sufficiently explained).

Moreover, we disagree with Smartronix that the MPC adjustment reflects a deviation from the evaluation scheme solely because the proposal had previously been assessed as acceptable. In this regard, the solicitation expressly provided that the agency would perform a cost realism analysis and compute an MPC, regardless of whether a proposal already was determined to be technically acceptable. In fact, the RFP affirmatively required the cost evaluation (including a cost realism analysis) for technically acceptable offers only. RFP amend. 0003, at 50. Given this, we see nothing inappropriate or inconsistent with the agency concluding that Smartronix’s technical approach met the minimum standards for acceptability, and, at the same time, taking issue with aspects of the firm’s staffing approach as part of its cost realism assessment, as was the case here.  (Smartronix, Inc. B-413721.2: Feb 22, 2017)

Cost Realism

Sotera protests that the agency failed to perform an adequate cost realism analysis of ManTech’s cost proposal. Sotera primarily complains that the agency failed to recognize that the rates ManTech proposed for its proposed labor categories were too low.

When an agency evaluates a proposal for the award of a cost-reimbursement contract or order, an offeror’s proposed costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Exelis Sys. Corp., B-407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7 (discussing FAR part 15 cost realism standards in a FAR part 16 task order procurement). Consequently, an 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. See FAR § 15.404-1(d)(1); DynCorpInt’l LLC, B-411465, B-411465.2, Aug. 5, 2015 CPD ¶ 228 at 8. In assessing cost realism, an agency is not required to conduct an in-depth cost analysis, see FAR § 15.404-1(d)(1), or to verify each item; rather, the evaluation requires the exercise of informed judgment by the contracting agency. AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. 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. Id. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. Imagine One Technology & Management, Ltd., B-412860.4, B-412860.5, Dec. 9, 2016, 2016 CPD ¶ 360.

Here, in evaluating ManTech’s labor rates, the cost evaluator first accepted ManTech’s proposed level of effort and labor categories. Specifically, the cost evaluation explained that the agency “performed a technical evaluation of the offeror’s proposal and reviewed the proposed labor categories (LCAT), the number of labor hours for each LCAT and the mixture of LCATs; the [cost evaluation] take[s] no exception to the labor hours, LCATs and technical approach proposed by ManTech.” AR, Tab O, Cost Evaluation Report, at 5.

Next, the agency used three separate and distinct data points to evaluate the cost realism of ManTech’s proposal. First, the agency reviewed the prime and subcontractor’s proposed labor rates and underlying methodologies to establish the rates. AR, Tab O, Cost Evaluation Report (COR), at 6. In this regard, the agency accepted [DELETED] labor rates from ManTech’s current workforce, for employees performing in critical labor categories, because the rates were validated with payroll vouchers. Id. at 5. ManTech’s remaining critical and non-critical labor category rates were validated using the company’s Direct Labor Forward Pricing Rate Agreement (DL FPRA), dated March 11, 2015. The agency determined that the rates derived from the DL FPRA could be viewed as realistic because they had been validated using a Defense Contract Management Agency audit. Id. at 6; Supp. Contracting Officer Statement of Facts/Memorandum of Law (COSF/MOL) at 20. Nevertheless, the agency decided that because the rates from the DL FPRA were somewhat outdated, it would further consider rates that appeared low. Id.

Next, the agency compared ManTech’s proposed labor rates to Bureau of Labor Statistics (BLS) data. Specifically, the evaluator took the national average wage rate for each labor category and compared ManTech’s proposed wage rates to the BLS data. Id. If a proposed labor category covered an entry level/skilled or intermediate level/skilled employee, the agency considered the proposed rate realistic if it was greater than or equal to the BLS rate at the 10th percentile. Id. at 7. For higher level/skilled labor categories, the agency considered the rate realistic if it was greater than or equal to the BLS rate at the 25th percentile. Id.

Finally, the agency created a statistical model using the labor rates proposed by all offerors and proposed subcontractors and compared ManTech’s rates to the statistical model. Id. at 6. The agency calculated the mean average and standard deviation for each labor category, and then subtracted one standard deviation from the mean average rate to create a floor against which offerors proposed rates would be compared. Id. at 6; COSF/MOL at 22-23.

If a proposed rate could not be verified using the BLS data or the statistical model, the rate was adjusted to the appropriate BLS rate. AR, Tab O, COR, at 6. Using this analysis, the agency adjusted the rates of ManTech’s proposed [DELETED], and the [DELETED] and [DELETED]. Id. at 8. The agency also adjusted the direct rates for one of ManTech’s proposed subcontractors in [DELETED] labor categories. Id. at 13-14. The adjustments to ManTech’s cost proposal resulted in a total increase of $5,980,861. Id. at 4.

Sotera raises several objections to the cost realism analysis conducted by the Army. According to Sotera, the cost realism analysis was inadequate because the use of BLS data for the 10th and 25th percentiles was too low. In Sotera’s view, using the 25th and 50th percentiles would be more realistic. Sotera also argues that the agency did not use BLS data that was industry specific, did not use the most recent BLS data, and failed to account for the use of [DELETED] in ManTech’s proposal. According to Sotera, a proper application of these principles would result in adjustments to the proposals of ManTech and Sotera as follows:

Comments at 27, citing to Declaration of Certified Public Accountant at 5. Sotera concludes that it would then have the technically superior proposal, at a lower cost than ManTech, and be the proper awardee.

Based on the record before us we find no basis to disturb the award to ManTech. The Army explains that it chose BLS data at the 10th and 25th percentiles in an attempt to “balance between the objective of getting a good deal for the taxpayer, and the objective of ensuring that offerors are not underbidding” on a cost contract. Email from Agency, Jan. 18, 2017, at 1. The agency explains that it was open to labor rates that were lower in some instances depending on the circumstances and support provided by the offeror. Id.

While Sotera disagrees with this determination, Sotera’s disagreement does not demonstrate that the agency acted unreasonably. More importantly, however, ManTech justified its proposed rates (other than those for which it had actual salary data) with its FPRA, as instructed by the solicitation. Accordingly, we do not accept Sotera’s cost adjustments based on the Army using unrealistic BLS percentiles. We also do not accept Sotera’s adjustments to ManTech’s proposed cost for turnover, [DELETED], or level of effort. With respect to the level of effort, the technical evaluators determined that ManTech’s proposal was acceptable, and therefore, there is no basis to adjust the cost proposal on this basis. With respect to the turnover and [DELETED] adjustments, Sotera has offered nothing more than its unsubstantiated speculation that the agency may incur these costs; we find no basis on the record before us to accept Sotera’s calculations.

Finally, given our conclusions above, even if we accept Sotera’s arguments related to the use of outdated 2014 BLS data, and non-industry-wide data, we find no prejudice to the protester.[5] Accepting these two adjustments increases ManTech’s cost to $170,952,674 ($151,887,868 + $8,634,260 + $10,430,546), and Sotera’s to $221,030,860 ($207,703,811 + $5,268,001 + $8,059,048).[6] As the difference ($50,078,186) is similar to, and in fact slightly higher than the difference on which the award decision to ManTech was based, we find that Sotera is not prejudiced by any alleged errors in the cost realism analysis that resulted from using the 2014 BLS data and the BLS industry data. See DynCorpInt’l LLC, supra at 13.  (Sotera Defense Solutions, Inc. B-414056, B-414056.2, B-414056.: Jan 31, 2017)

Cost Realism

Noblis argues that the agency failed to evaluate whether the direct labor rates proposed by offerors were realistic and instead relied on a mechanical application of a standard deviation methodology. Noblis also argues that Vencore’s use of multiple rates per labor category skewed the standard against which Noblis was evaluated, resulting in a flawed and unreasonable cost realism analysis.

As discussed above, the contract was to be awarded on a cost-plus-fixed-fee basis, and provided for the evaluation of the realism of offerors’ proposed costs. RFP at 45, 53. When an agency evaluates a proposal for the award of a cost‑reimbursement contract, an offeror’s proposed costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. FAR §§ 15.305(a)(1), 15.404-1(d); Nat’l Gov’t Servs., Inc., B-412142, Dec. 30, 2015, 2016 CPD ¶ 8 at 8. Consequently, an 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 § 15.404‑1(d)(1); Noridian Admin. Servs., LLC, B-401068.13, Jan. 16, 2013, 2013 CPD ¶ 52 at 4. In assessing cost realism, an agency is not required to conduct an in-depth cost analysis, see FAR § 15.404-1(c), or to verify each item; rather, the evaluation requires the exercise of informed judgment by the contracting agency. AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. 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 ¶ 16 at 26.

The solicitation required offerors to enter their cost details on the agency’s cost spreadsheet. RFP at 46. The spreadsheet identified 32 stipulated labor categories and assigned labor hours for each category. RFP, attach. J1, Cost Spreadsheet. The spreadsheet also provided separate rows for on-site and off-site hours for each category not listed as key personnel. Id. For example, the project manager labor category was assigned 13,160 on-site hours and 1,880 off-site hours. Id. Offerors were to enter a labor rate for each row on the spreadsheet, which would be used as a ceiling rate during performance of the contract. RFP at 48.

Offerors were also permitted to enter additional rows into the cost spreadsheet as necessary to reflect multiple rates under the same labor category. In this regard, the agency clarified during the question and answer period that while every cost element of Attachment J1 has a ceiling rate, offerors could add rows to Attachment J1 to show all cost elements. AR, Tab 29, Questions and Answers, at 1. The agency also added “[s]imply stated, every line (row) on Attachment J1 that is a labor category, has a ceiling rate.” Id. Similarly, another firm asked if an offeror chose to add rows to attachment J1, whether a ceiling rate would be established for each row, or is there only one ceiling rate per labor category. The agency provided that “[a] ceiling rate is established for each of the rows of Attachment J1.” Id.

The agency’s cost realism analysis focused primarily on the cost of labor (labor rate realism) because the solicitation stipulated the labor categories, the hours for the labor categories, the amounts for travel, and other direct costs. AR, Tab 15, Cost Evaluation, at 5. The agency’s realism analysis considered the basis of the offerors’ direct rates (i.e. estimating methodology, understanding of requirements, realistic vis-à-vis the requirements, and consistency with the non-cost proposal); labor escalation; comparison to the agency’s cost estimate; and uncompensated overtime. Id. at 4. In this regard, the agency considered the unique estimating systems, estimating methodology, and unique performance process as detailed in the cost proposal that the offeror used for developing the estimated cost for each cost element necessary for performing the contract. Id. at 5.

Based on the highly competitive nature of the acquisition, which the agency concluded provided good data for analyzing the estimated costs of each labor category, the agency chose to use one standard deviation from the mean of each labor category to develop the minimally realistic labor costs per labor category. Id. To accomplish this analysis, the agency began by computing the mean and median of the unburdened cost (salary) of the prime contractor’s direct labor (labor rate). Id. Then, the agency calculated the standard deviation for each labor category. Id. The agency found labor rates that were lower than one standard deviation from the mean to be unrealistically low, and adjusted those rates upward to the mean minus the standard deviation (the “minimum deviation”) for that category if the proposal (cost narrative/basis of estimate) did not support such a low labor category rate. Id. at 5-6. In this regard, the agency considered actual salaries proposed by the offerors to be per se realistic and did not adjust those rates. Id. at 6.

With respect to Noblis, the agency’s review of the stipulated labor categories and labor hours first concluded that Noblis proposed all categories and hours. Id. at 9. The agency also noted that Noblis’ proposal asserted that there was risk in the education and years of experience provided per labor category because Noblis believed that the solicitation’s labor category descriptions mapped to a skill set well below the staffing mix of Noblis’ current BPA. Id. The agency assigned risk to this aspect of Noblis’ proposal because “Noblis contends the skill set is below its incumbent effort.” Id. In conducting its realism assessment, the agency adjusted 13 of the 32 labor category rates proposed by Noblis. Id. The agency found these rates to be more than one standard deviation below the minimum deviation and adjusted the rates to the minimum deviation. Id. The agency also noted that Noblis did not provide actual salary data for any non-key personnel labor categories and that Noblis’ cost narrative did not support the lower labor rates. Id. The total amount of the upward adjustment to Noblis’ proposed costs was $[DELETED].

With respect to Vencore, the agency’s review of the stipulated labor categories and labor hours also concluded that Vencore proposed all categories and hours. Id. at 11. The agency’s realism assessment found one labor category rate that fell below the minimum deviation. The total amount of the upward adjustment to Vencore’s proposed costs was $[DELETED].

Noblis challenges the agency’s use and calculation of the standard deviation methodology. Noblis argues that the use of the standard deviation resulted in an unreasonable mechanical threshold for the determination of unrealistic rates, and that the agency failed to consider the offerors’ unique approaches.

Where, as here, a solicitation provides a cost model that specifies the labor mix and level of effort for offerors’ proposals--thereby making offerors responsible for proposing costs based on their own rates, but not for proposing differing technical approaches--an agency may reasonably evaluate the rates proposed for those established labor categories based on other data, such as the rates proposed by other offerors. See CSI, Inc.; Visual Awareness Techs. and Consulting, Inc., B‑407332.5 et al., Jan. 12, 2015, 2015 CPD ¶ 35 at 10. As a result, we do not find the agency’s use of the standard deviation methodology as a tool for determining the realism of the offerors’ proposed labor rates to be per se objectionable. In this regard, the agency’s use of the standard deviation was not a mechanical threshold because the agency conducted additional analysis once the labor rate was determined to be lower than the minimum deviation. The record demonstrates that the agency considered information in the offeror’s proposal, including its cost narrative, prior to ultimately making a cost adjustment. See MPRI, Div. of L-3 Serv., Inc.; LINC Gov’t Servs., B-402548 et al., June 4, 2010, 2011 CPD ¶ 108 at 7 (agency’s comparison of each offeror’s proposed rates to the average of the rates proposed by all offerors, along with its requirement that offerors further justify rates that were lower than one standard deviation below that average, provided a reasonable tool in performing a cost analysis).

Next, Noblis argues that the agency’s calculation of the standard deviation was flawed and favored Vencore because the agency’s calculations used multiple labor rates per labor category from Vencore’s proposal, which skewed the results of the minimum deviation analysis.

As explained above, the solicitation permitted offerors to add additional rows to the cost spreadsheet to represent cost elements under each labor category. In addition, the cost spreadsheet divided each non-key personnel labor category into on-site and off-site rows. Each row was also assigned a designated amount of labor hours. For example, the project manager labor category was assigned 13,160 labor hours for on-site work, and 1,880 hours for off-site work.

Noblis proposed two labor rates for each non-key personnel labor category to represent both on-site and off-site hours. Vencore structured its cost proposals in the same manner for a majority of the labor categories. That is, Vencore provided a labor rate for on-site hours and off-site hours per labor category. However, for six labor categories, Vencore mapped the agency’s labor category to more than one Vencore labor category. For example, Vencore mapped the agency’s [DELETED] labor category to [DELETED] Vencore levels of [DELETED]. In its cost spreadsheet, Vencore priced its [DELETED]. AR, Tab 10a, Vencore Cost Spreadsheet. Noblis’ cost spreadsheet provided a $[DELETED] labor rate for a [DELETED] whether the work was on-site or off-site. AR, Tab 9a, Noblis Cost Spreadsheet.

Noblis asserts that the agency’s use of Vencore’s multiple labor rates (for example those for [DELETED]) for six labor categories skewed the standard deviation calculation for those categories. We agree. The agency’s calculation of the mean and standard deviation, on which it based its assessment of realism and its most probable cost adjustment for these categories, was unreasonable. However, we find no basis to sustain the protest because Noblis cannot demonstrate that it was competitively prejudiced.

Competitive prejudice is an essential element of a viable protest; where a protester fails to demonstrate that, but for the agency’s actions, it would have had a substantial chance of receiving the award, there is no basis for finding prejudice, and our Office will not sustain the protest, even if deficiencies in the procurement are found. DynCorp Int’l LLC, B-411465, B-411465.2, Aug. 4, 2015, 2015 CPD ¶ 228 at 12-14.

In its comments on the agency report, Noblis presents its expert’s analysis of the offerors’ labor rates. Based on this analysis, Noblis asserts that had the agency properly calculated the mean and standard deviation, Noblis’ most probable cost adjustment would have been reduced by $[DELETED] and the agency would have adjusted only 9 of Noblis’ labor category rates (instead of 13). Noblis further asserts that the SSA would not have concluded that its proposal presented a moderate to high risk of performance had the agency only adjusted 9 labor category rates. We have reviewed the protester’s analysis and expert testimony and find that Noblis has failed to demonstrate that it was competitively prejudiced by the agency’s faulty calculations.  (Noblis, Inc. B-414055: Feb 1, 2017)

MicroTechnologies argues that the Air Force’s evaluation of the realism of BTAS’s [employee compensation plan] ECP was unreasonable for two primary reasons: (1) the agency did not evaluate the realism of the fringe benefits proposed by the awardee in its ECP, and (2) the agency unreasonably concluded that the total compensation identified in BTAS’s ECP was realistic. For the reasons discussed below, we find no basis to sustain the protest.

The evaluation of an offeror’s proposal is a matter within the agency’s discretion. Serco Inc., B-406061, B-406061.2, Feb. 1, 2012, 2012 CPD ¶ 61 at 9 (task order competition under FAR subpart 16.5). An offeror’s disagreement with the agency’s judgment, without more, is insufficient to establish that the agency acted unreasonably. STG, Inc., B‑405101.3 et al., Jan. 12, 2012, 2012 CPD ¶ 48 at 7. While we will not substitute our judgment for that of the agency, we will question the agency’s conclusions where they are inconsistent with the solicitation criteria and applicable procurement statutes and regulations, undocumented, or not reasonably based. Public Commc’ns Servs., Inc., B-400058, B-400058.3, July 18, 2008, 2009 CPD ¶ 154 at 17.

With respect to the compensation for professional employees under FAR provision 52.222-46, the purpose of that FAR provision is to evaluate whether offerors will obtain and keep the quality of professional services needed for adequate contract performance, and to evaluate whether offerors understand the nature of the work to be performed. ELS Inc., B‑283236, B-283236.2, Oct. 25, 1999, 99-2 CPD ¶ 92 at 10-11. In the context of fixed-price contracts, our Office has held that this FAR provision anticipates an evaluation of whether an awardee understands the contract requirements, and has proposed a compensation plan appropriate for those requirements--in effect, a price realism evaluation regarding an offeror’s proposed compensation. See Apptis Inc., B-403249, B-403249.3, Sept. 30, 2010, 2010 CPD ¶ 237 at 9. The depth of an agency’s price realism analysis is a matter within the sound exercise of the agency’s discretion. Navistar Def., LLC; BAE Sys., Tactical Vehicles Sys. LP, B‑401865 et al., Dec. 14, 2009, 2009 CPD ¶ 258 at 17. In reviewing protests challenging price realism evaluations, our focus is on whether the agency acted reasonably and in a manner consistent with the solicitation’s requirements. General Dynamics One Source, LLC; Unisys Corp., B‑400340.5, B‑400340.6, Jan. 20, 2010, 2010 CPD ¶ 45 at 9.

Evaluation of BTAS’s Proposed Fringe Benefits

MicroTechnologies argues that the Air Force’s evaluation of BTAS’s ECP failed to consider the realism of the awardee’s proposed fringe benefits. We find no basis to sustain the protest based on this argument.

As discussed above, FAR provision 52.222‑46 anticipates that the agency will perform a price realism analysis of offerors’ proposed ECPs, and requires agencies to evaluate an offeror’s “total compensation plan setting forth salaries and fringe benefits proposed for the professional employees who will work under the contract.” FAR § 52.222‑46(a); ELS Inc., supra. The record here shows that the Air Force evaluated both BTAS’s labor rates and fringe benefits. The award decision contained a chart detailing the hourly salary rates, hourly fringe benefits rates, and the combined salary and fringe rates proposed by BTAS, and compared these rates to the salary, fringe and combined salary and fringe rates for comparable labor categories on salary.com. AR, Tab 35, TODD, at 23. The agency found that the “[e]valuation of BTAS’ proposed salary and fringe for professional labor categories identified in the table above shows the compensation proposed by BTAS is, on average, approximately [DELETED]% below those retrieved from Salary.com.” Id. Notwithstanding this concern, the agency concluded that the combined labor and fringe benefits rates were realistic, overall. Id.

MicroTechnologies argues that the Air Force’s evaluation was unreasonable because the agency did not separately consider the realism of the awardee’s proposed fringe benefit rates. In this regard, the protester notes that although the awardee’s combined salary and fringe rates were almost identical to the salary.com combined salary and fringe rates, the awardee’s fringe benefit rates were, on average, approximately [DELETED] percent lower than the salary.com rates. See Protester’s Comments (Dec. 19, 2016) at 4 (citing AR, Tab 35, TODD, at 23). In effect, the protester argues that the agency’s evaluation of the combined total of the awardee’s salary and fringe benefits rates was improper, because the combined total had the effect of minimizing the difference between the awardee’s proposed fringe benefit rates and the rates on salary.com.

Nothing in FAR provision 52.222‑46 requires the agency to find that both an offeror’s proposed fringe benefits and salary are, independently, realistic. Instead, the provision requires agencies to assess whether an offeror’s proposed “total compensation” is realistic. FAR § 52.222-46(a). On this record, we find no basis to conclude that the Air Force’s evaluation of the offerors’ total compensation was unreasonable.

Evaluation of the Realism of BTAS’s ECP

Next, MicroTechnologies argues that the Air Force unreasonably concluded that the proposed compensation in BTAS’s ECP was realistic. The protester raises several arguments, primarily based on what the protester contends was the agency’s unreasonable reliance on information from salary.com. We find no basis to sustain the protest based on these arguments.

MicroTechnologies argues that the Air Force failed to compare BTAS’s proposed compensation to that provided by the incumbent contractor, as required by FAR provision 52.222-46(b). The protester contends that the Air Force’s reliance on information from salary.com caused the agency to ignore the fact that all of BTAS’s proposed compensation rates were below those provided by the incumbent.

The record shows, however, the Air Force compared each offerors’ proposed labor rates to those provided by the incumbent, Lockheed Martin. AR, Tab 35, TODD, at 16, 25. The agency prepared a summary chart that listed BTAS’s proposed burdened labor rates, which showed that the majority of those rates were below those paid by the incumbent contractor. Id. at 16. For this reason, the agency stated as follows: “Because the rates proposed by BTAS [for] fully burdened labor categories (13 of 16 total labor categories proposal) and associated rates were lower than the fully burdened labor rates paid by the current contractor for similar labor categories, the Government conducted additional analysis captured in Table 11 below for five professional labor categories (out of a total of 16 proposed labor categories).” Id. The additional analysis for the five professional labor categories included the analyses discussed above, such as comparisons to the rates proposed by other offerors and to data listed on salary.com. Id. at 17-23. On this record, we find no basis to conclude that the agency failed to consider information concerning the incumbent’s compensation.

Next, MicroTechnologies argues that the Air Force did not adequately explain why it found that BTAS’s proposed ECP was realistic. The Air Force identified concerns with 5 of BTAS’s 10 professional labor categories, concluding that they were between [DELETED] percent and [DELETED] percent below the salary.com rates for those positions. Id. at 23. The agency also noted that the awardee’s proposed total compensation rates for the professional labor categories was, on average, [DELETED] percent below the salary.com levels. Id. The agency nonetheless found that BTAS’s ECP was realistic, concluding that although the awardee was “slightly below the benchmark” for compensation, this “does not lead the Government to the conclusion that BTAS will have difficulty recruiting and retaining qualified professionals to guarantee high quality performance of this task order.” Id. In this regard, the agency stated that “the negative [DELETED]% average is a minimal deviation below the benchmark, as BTAS’ proposed compensation, is realistic in a competitive market where the Government has determined the offeror has a sound management (staffing) plan.” Id.

In addition, in the Air Force’s response to the protest, the contracting officer provided a statement explaining, for both offerors, why the agency concluded that the proposed ECPs were realistic. The contracting officer noted that: (1) the offerors had two opportunities to propose revised prices following discussions with the agency which identified concerns regarding their respective compensation levels; (2) the agency’s realism analysis addressed the offerors’ salary and fringe benefits, but did not evaluate “profit, [general and administrative], overhead and other rates of each offeror,” cost elements which the agency believed would provide the offerors flexibility “when confronted with difficulty in hiring”; (3) potential fluctuations in the labor market could make lower compensation rates “easily tenable”; and (4) “[t]his is a competitive market with four experienced offerors that should be considered to have a good idea of their projected professional employee compensation costs.” AR, Tab 36, Aff. of Contracting Officer (Dec. 8, 2016), at 5, 7.

As discussed above, the depth of an agency’s price realism analysis is a matter within the sound exercise of the agency’s discretion. Navistar Def., LLC; BAE Sys., Tactical Vehicles Sys. LP, supra. Additionally, even where a solicitation contemplates a price realism evaluation, there is no bar to an offeror proposing--and an agency accepting--a below-cost price. Optex Sys., Inc., B-408591, Oct. 30, 2013, 2013 CPD ¶ 244 at 5‑6.

To the extent the protester argues that the Air Force could not reasonably find the awardee’s ECP realistic in light of the [DELETED] percent average difference between the awardee’s proposed compensation and the data listed on salary.com, the difference itself does not demonstrate that the agency’s judgment was per se unreasonable. The record shows that the agency identified areas of concern where certain of the awardee’s proposed labor categories were below the salary.com benchmarks, and also shows that the agency recognized that the awardee’s overall ECP proposed lower average compensation rates than were listed on salary.com. Nonetheless, the agency concluded that the awardee’s ECP was realistic because, for the reasons discussed above, the agency considered the difference to be “minimal.” AR, Tab 35, TODD, at 23. In effect, the agency concluded that the risk of poor performance associated with the professional labor to be provided under the anticipated fixed-price contract was acceptable. The protester’s disagreement with the agency’s judgment, without more, does not provide a basis to sustain the protest. See Lynxnet, LLC, B‑409791, B‑409791.2, Aug. 4, 2014, 2014 CPD ¶ 233 at 8.  (MicroTechnologies, LLC B-413091.4: Feb 3, 2017)

On September 16, the agency issued amendment 5, which retained the general requirements for the [Pharmacy Inpatient Automation Solution--Automated Dispensing Cabinets]  PIAS-ADC from the initial procurement, but added supplemental pricing instructions. AR Tab 18, RFQ, Amend. 5, at 49. The RFQ, as amended, included pricing instructions for what the agency identified as a “first call.” In this case, the first call is analogous to a sample task order for work that could be required under the BPA. An attachment to the PWS relating to the first call identified the pharmaceutical dispensing equipment in use at 25 military health system facilities, and sought prices for a full replacement and baseline deployment of the identified equipment during the base year of the BPA. Id. at 49; AR, Tab 23, PWS Exhibit 2, First Call List. The amended RFQ advised that quotations would be evaluated for award purposes based on the total price proposed for the first call, including all option periods. RFQ, Amend. 5, at 51-52.

The agency responded to several questions from prospective vendors regarding the requirements and pricing for both the BPA and the first call. AR, Tab 20, RFQ, Amend. 7, at 3-4. Regarding whether a “full replacement [was] required to replace all equipment in all sites,” DHA responded that vendors were to propose “an approach that meets the PWS requirements,” but did not specify the approach. Id. at 3. Vendors were advised that the pricing sheet was not broken out by military treatment facility, but instead by product description, or equipment that might be ordered by the agency. Supp. MOL, at 2. The agency further clarified that the first call pricing was for evaluation purposes only, and that it intended to use the fixed pricing from the successful vendor’s pricing sheets to place orders for the life of the BPA in any additional sites. Id. at 3-4.

(sections deleted)

Omnicell protests that CareFusion’s quotation conditioned its price, and was therefore unacceptable. Comments and Supplemental Protest, at 12-19. Omnicell’s allegation is based on the statement in CareFusion’s quotation that “[f]inal equipment configuration and pricing cannot be determined until walk-throughs of each site are completed.” Id. at 15-16. The agency disagrees and contends that CareFusion’s quotation provides fixed unit prices, consistent with the RFQ’s instructions. Supp. MOL at 2-6.

Generally, the requirement to propose fixed prices is a material term or condition of a solicitation requiring such pricing. See Dev Technology Grp., B-412163, B-412163.5, Jan. 4, 2016, 2016 CPD ¶ 10 at 5; citing Advanced Techs. & Labs. Int’l., Inc., B-411658 et al., Sept. 21, 2015, 2015 CPD ¶ 301 at 10. Where a solicitation requests offers on a fixed-price basis, an offer that is conditional cannot be accepted for award. Id. However, proposal language that does not cast doubt on the firmness or enforceability of proposed prices can be accepted. See Innovative Management & Technology Approaches, Inc., B-413084, B‑413084.2, Aug. 10, 2016, 2016 CPD ¶ 217 at 12.

Here, we do not find the agency’s acceptance of CareFusion’s quotation improper. The statement in CareFusion’s quotation does not address the pricing of individual elements to be installed at the military health facilities; these are determined by the unit prices submitted on CareFusion’s pricing sheet. See AR, Tab 9, CareFusion Pricing Sheet. Rather, the effect of the quoted statement is to acknowledge that the equipment and total price of an order is based on the configuration of equipment in the call, and to inform the agency that other configurations may be required based on the conditions found at the sites, and may result in different final prices. We do not read the statement to mean that CareFusion is taking exception to a requirement of the solicitation but rather to acknowledge that final pricing will be based on the configuration of equipment ultimately ordered. As a result, we conclude that the protester has not shown that the awardee’s quotation included language that establishes that the awardee’s price was conditional in any meaningful way, and deny this basis for protest. (Omnicell, Inc. B-414021, B-414021.2: Jan 23, 2017)

As a preliminary matter, we note that Ripple Effect does not challenge the agency’s decision to take corrective action, but rather the specific form the corrective action will take. Specifically, Ripple Effect challenges the agency’s decision not to include a price realism evaluation in the revised solicitation. Protester’s Comments on the Agency Report at 1. Ripple Effect maintains that the agency should instead amend the solicitation to explicitly provide for a price realism evaluation given the agency’s concerns with respect to Venesco’s labor rates, which were far below the average of all evaluated proposals for all but one labor category. Id. at 2. According to Ripple Effect, it would be unreasonable for the agency not to consider the risk posed by Venesco’s prices. Id.

The agency responds by noting that it never intended to perform a price realism evaluation. Agency Report at 8. The agency additionally notes that, while it made a “conclusory finding” concerning the price realism of Venesco’s proposal in its award decision, it did not in fact perform a thorough price realism analysis that would support such a conclusion. Id. at 7. The agency argues that, in light of its intent not to perform a price realism analysis, revising the solicitation to clarify the intended scope of the price evaluation, and allowing offerors to submit new proposals, is appropriate to resolve the identified ambiguity with respect to the scope of the price evaluation in the solicitation. Id. at 6.

As a general rule, agencies have broad discretion to take corrective action where the agency has determined that such action is necessary to ensure fair and impartial competition. MSC Indus. Direct Co., Inc., B-411533.2, B-411533.4, Oct. 9, 2015, 2015 CPD ¶ 316 at 5; Bannum, Inc.--Protest and Recon., B-411074.2, B-411074.3, June 12, 2015, 2015 CPD ¶ 231 at 3. The details of implementing the corrective action are within the sound discretion and judgment of the contracting agency, and our Office will not object to any particular corrective action, so long as it is appropriate to remedy the concern that caused the agency to take corrective action. DGC Int’l, B-410364.2, Nov. 26, 2014, 2014 CPD ¶ 343 at 3; Northrop Grumman Info. Tech., Inc., B-404263.6, Mar. 1, 2011, 2011 CPD ¶ 65 at 3. Additionally, agency acquisition officials have broad discretion in the selection of evaluation criteria that will be used in an acquisition, and we will not object to the absence or presence of a particular criterion as long as the method chosen reasonably relates to the agency’s needs in choosing a contractor and is not otherwise contrary to law or regulation. CACI, Inc.-Federal; Booz Allen Hamilton, Inc., B-413028 et al., Aug. 3, 2016, 2016 CPD ¶ 238 at 13.

Here, as noted above, the protester primarily argues that it is unreasonable for the agency not to include a price realism evaluation where it already knows Venesco’s prices to be unrealistic. As an initial matter, the agency argues that it is not clear that Venesco’s previously submitted prices were unrealistic, because it did not conduct a thorough price realism analysis. See Agency Report at 7. Moreover, the agency intends to allow offerors to submit new proposals, and the new pricing that offerors propose may differ from the pricing previously considered. Accordingly, the agency’s previous evaluation may be of limited probative value, and is, in any case, not relevant to the evaluation of new proposals.

More importantly, the agency represented that it never intended to perform a price realism evaluation. Because the solicitation contemplates the award of a fixed-price contract, the agency’s intended evaluation approach is consistent with the Federal Acquisition Regulation (FAR), which establishes that an agency “may … in exceptional cases,” provide for a price realism evaluation when awarding a fixed‑price contract, but is not required to do so. FAR § 15.404‑1(d)(3); Ball Aerospace & Techs. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. Given the agency’s broad discretion to decide whether to include a price realism evaluation in this instance, we have no basis to conclude that the agency’s decision was unreasonable.

The protest is denied.  (Ripple Effect Communications, Inc. B-413722.2: Jan 17, 2017)

Cost Realism Evaluation

The protester argues that the agency’s cost realism evaluation was flawed because the agency did not compare the compensation proposed by Imagine One to the rates paid to incumbent employees or to the prevailing market rates for such personnel to determine whether Imagine One’s cost approach aligned with its proposed technical approach.

Where a cost-reimbursement contract or order is to be awarded, an offeror’s estimated costs of contract performance should not be considered controlling since the estimates may not provide valid indications of the final actual costs which the government is required to pay. FAR §§ 15.305(a)(1), 15.404-1(d). Consequently, the contracting agency must perform a cost realism analysis to determine what the costs are likely to be under the offeror’s technical approach, assuming reasonable economy and efficiency. Alion Sci. & Tech. Corp., B-410666, Jan. 22, 2015, 2015 CPD ¶ 91 at 7 (considering FAR Part 15 cost realism standards in a FAR Part 16 task order protest); Magellan Health Servs., B-298912, Jan. 5, 2007, 2007 CPD ¶ 81 at 13. Our review of an agency’s cost realism analysis is limited to determining whether the cost analysis is reasonably based and not arbitrary, and adequately documented. Booz Allen Hamilton, Inc., B-409355, B-409355.2, Mar. 19, 2014, 2014 CPD ¶ 100 at 7; Trailblazer Health Enters., LLC, B-406175, B-406175.2, Mar. 1, 2012, 2012 CPD ¶ 78 at 7.

The record here demonstrates that the agency’s cost realism analysis did not reasonably assess the likely costs stemming from Imagine One’s proposed approach. In this regard, Imagine One’s proposal reflects its plan to recruit and retain a substantial number of contract personnel from outside the current employ of both Imagine One and its proposed subcontractor, CACI Enterprise Solutions, Inc. As part of its technical proposal, Imagine One submitted a staffing plan that included a listing of approximately [DELETED] proposed personnel, comprised of [DELETED] named personnel and [DELETED] unnamed personnel designated as “pending.” AR, Tab 7, Imagine One Proposal, at 245-274.

Imagine One’s proposal noted in several places that the named personnel would be ready to start performance upon award, and that the company would fill other positions through methods such as new hiring and recruitment of incumbents. See id. at 19 (“The Imagine One / CACI Team has over [DELETED] named staff ready to start.”); id. at 96 (discussing Imagine One’s initial staffing strategy of allocating current employees, incumbent capture, and new hires, and its permanent staffing augmentation strategy based on its recruiting efforts); id. at 498 (“We have reviewed . . . average salaries for our named current individuals that will be performing work along with our new hires.”). Imagine One’s vice president confirmed this approach, in an affidavit provided to our Office, which noted that “Imagine One will receive information on incumbent staff during the transition period and proceed from there to hire either their proposed key personnel, incumbent personnel, existing personnel that want to make a contract change and new hires based on resumes received post award. . . .” Intervenor Comments, Vice President Aff., at 1. The awardee’s vice president further confirmed that Imagine One intended upon award to meet with the current program manager to discuss incumbent personnel and learn who was particularly valued by the government, and from there Imagine One would “rapidly follow this meeting with a recruitment open-house with a primary focus on retention of those incumbent personnel as further mitigation of transition risk.” Id. at 2 (quoting Imagine One’s proposal at page 31).

The record therefore reflects that Imagine One’s proposed staffing approach depended, to a large extent, on recruiting new hires or incumbent staff. However, the agency’s cost realism analysis did not analyze the realism of the proposed rates through such methods as comparing Imagine One and CACI’s direct labor rates to prevailing market rates or to the salaries paid to incumbent staff. Instead, the agency examined internal payroll data provided by Imagine One and CACI to verify their proposed rates. For the named Imagine One personnel, the agency’s cost evaluation team (CET) examined internal payroll data or payroll data provided in letters of intent. AR, Tab 9, CET Report, at 16-19. For the unnamed Imagine One personnel, the CET compared the proposed rates “first to payroll data provided for named personnel in the same labor category and experience level, and then to the company-wide data submitted if the payroll data did not substantiate the rate or was not available for the relevant position.” Id. at 19. At the source selection authority’s (SSA) request, the CET repeated this analysis for CACI’s proposed direct labor rates. See AR, Tab 12, Source Selection Decision, at 8-14. Where the proposed labor rates did not match the internal data, the CET adjusted Imagine One’s proposed cost upwards. See id.

We find that the agency’s cost realism evaluation failed to properly account for the technical approach proposed by Imagine One. As we noted in Magellan Health Servs., supra, at 16, “a proper cost realism evaluation prevents an offeror from improperly ‘having it both ways’--that is, from receiving a technical evaluation rating based on its proposed performance but failing to propose costs that reasonably reflect that performance.” Here, while Imagine One proposed to staff a substantial portion of its personnel from external sources, the agency limited its analysis to internal cost data of Imagine One and CACI and did not assess the realism of the proposed rates through such methods as comparison of the rates to the prevailing market rates, the rates paid to incumbent employees, or the rates proposed by other offerors. This was unreasonable and as a result we sustain this protest ground. See id. at 15-16 (sustaining protest where agency’s cost realism evaluation analyzed the awardee’s current salary structure but not the incumbent rates, despite the awardee’s proposal to match existing salaries); see also Wisconsin Physicians Serv. Ins. Corp., B-401063, May 4, 2009, 2012 CPD ¶ 35 at 8-9 (sustaining protest where cost realism evaluation reviewed market surveys instead of actual labor rates, and offeror’s technical approach proposed to perform the work with its own staff). (Target Media Mid Atlantic, Inc. B-412468.6: Dec 6, 2016)

Finally, EFW alleges that the agency conducted unreasonable price realism and price reasonableness analyses, and inappropriately conflated “realism” and “reasonableness” analysis throughout the record. We agree with EFW that the agency’s “technical price realism analysis” was unreasonable.

As stated above, the RFP provided that “Technical Price Realism Analysis will be performed by the Government for the Fixed Price Incentive CLIN [CLIN 0100] as described under the Technical evaluation Factor 1.” AR, Tab 2, Conformed RFP, at 70. In turn, factor 1 provided that the evaluation would consider “the extent to which the proposed cost is realistic for the work to be performed, reflects a clear understanding of the requirements, and is consistent with the unique methods of performance and materials described in the Offeror’s proposed solution.” Id. at 69.

The FAR does not use the term “price realism,” but 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 § 15.404-1(d)(3). As our Office has held, price reasonableness and price realism are distinct concepts. Logistics 2020, Inc., B-408543, B-408543.3, Nov. 6, 2013, 2013 CPD ¶ 258 at 7. The purpose of a price reasonableness review is to determine whether the prices offered are too high, as opposed to too low. See FAR § 15.404-1(b); Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3. Conversely, a price realism review is to determine whether prices are too low, such that there may be a risk of poor performance.

The SSEB’s evaluation in this case, adopted by the SSA in the SSDD, assigned EFW’s proposal a “very significant weakness presenting high risk” relating to “realism” under the SSEB’s evaluation of factor 1, despite acknowledging within that weakness that “EFW has demonstrated an understanding of the requirements,” and that EFW--despite the significant weaknesses for “realism”--had an overall “acceptable” approach under the factor. AR, Tab 9, SSEB Final Report, at 18, 20. Nor did the SSEB record any apparent concern that EFW’s proposed costs may result in a quality or service shortfall. Rather, the SSEB’s concern was that EFW’s proposed labor hours were too high in proportion to the amount of remaining development work described in EFW’s technical proposal. Specifically, the SSEB recorded a conclusion that EFW’s “[level of effort] is still considered excessive, unrealistic, and inconsistent with the amount of development remaining,” which “indicates that there is still significant development remaining (engineering and otherwise) in order to deliver the final proposed solution.” AR, Tab 9, SSEB Final Report, at 18.

On our review of the record we fail to see how the agency’s concern implicates the “realism” of EFW’s proposal under factor 1. It is not apparent that this “technical price realism analysis” concerned “the extent to which the proposed cost is realistic for the work to be performed, reflects a clear understanding of the requirements, and is consistent with the unique methods of performance and materials described in the Offeror’s proposed solution,” as required by the RFP. AR, Tab 2, Conformed RFP, at 69 (emphasis added). We also fail to see how EFW’s potential overstaffing of its CLIN 0100 solution presents a performance risk, where the SSEB has acknowledged that EFW demonstrated an understanding of the requirements. Accordingly, we see no logical basis for the agency to assign a significant weakness for “realism” in this context, and conclude that the agency’s technical price realism evaluation was unreasonable.

We also question the agency’s conclusion, in the CEB report, that “the SSEB’s assessment of high risk for EFW’s technical price realism does not lend itself to a favorable reasonableness determination,” and that EFW’s CLIN 0100 cost/price was unreasonably high. AR, Tab 10, CEB Report, at 19-20. As discussed immediately above, we conclude that the “high risk” assigned for EFW’s technical price realism of technical factor (1) was unreasonable, where no apparent “realism” or performance risk existed. Further, we cannot conclude that any cost/price risk existed where, although CLIN 0100 was a fixed-price incentive CLIN, EFW proposed a share ratio of 100 percent contractor responsibility for amounts above the target price. AR, Tab 10, CEB Final Report, at 9. While 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 ¶ 214 at 5, here, we cannot conclude that the record demonstrates a reasonable basis for the CEB’s and SSA’s conclusion that EFW’s CLIN 0100 (and PTO 0001) price was unreasonably high, where the determination relied in large part on the SSEB’s flawed “high risk” assessment.  (EFW Inc. B-412608, B-412608.2: Apr 7, 2016)

CI argues that the agency’s cost realism evaluation essentially was irrational and meaningless. In particular, CI maintains that UCS’s proposed direct labor rates were unrealistically low and inadequate to attract and retain the personnel necessary to perform the requirement. CI argues that, had the agency properly evaluated UCS’s proposed direct rates of compensation, it would have found them unrealistic, and would have made upward adjustments to them in connection with performing its cost realism evaluation.

We agree with the protester that the agency’s cost realism evaluation here was inadequate. Where, as here, an agency evaluates proposals for the award of a cost-reimbursement type contract, the agency is required to perform a cost realism evaluation to determine the extent to which each offeror’s proposed costs represent what the contract costs are likely to be. Federal Acquisition Regulation (FAR) § § 16.505(b)(3), 15.404-1(d). Ordinarily, such an evaluation involves consideration of not only the realism of the various elements of each offeror’s proposed cost, but also consideration of whether each offeror’s proposed cost reflects a clear understanding of the requirements to be performed, and is consistent with the unique methods and materials described in each offeror’s technical proposal. Id.

We note at the outset that this case presents circumstances that distinguish it from typical cases involving challenges to an agency’s cost realism evaluation. As discussed above, offerors were required to propose the exact labor mix and level of effort identified in the RFP, and also were required to propose certain stipulated other direct costs. Consequently, offerors did not propose unique or differing technical approaches. (Correspondingly, as noted, the RFP did not provide for evaluation of the offerors’ unique technical approaches under the non-cost evaluation factors.) In short, the only variations among the firms’ proposals were their respective direct labor rates and their respective indirect cost rates. The agency’s cost evaluation could only evaluate the realism of those cost elements; since there were no technical approaches in the proposals, there was no basis for the agency to consider differences in the likely cost of performance based on differing technical approaches, which ordinarily is the hallmark of a cost realism evaluation.

The RFP here specified 13 labor categories, and the offerors provided the agency with detailed information relating to their proposed direct hourly rates of compensation for each labor category, as well as their respective indirect rates (offerors also were required to provide the agency with rates of escalation for each year of the contract after the base year). To evaluate the offerors’ proposed labor rates, the record shows that the agency collected information about identical labor categories under some 22 other contracts, one of which was the predecessor task order for the current requirement. Using this data set, the agency created a “range” of fully-burdened hourly rates for each labor category that was bounded by the lowest and the highest fully-burdened labor rate for each category. For example, the agency’s range for the program manager labor category ranged from a low of $69.44 per hour to a high of $228.93 per hour. AR, exh. 10, SSD, Business Clearance Memorandum Attachment, at 86.

The record shows that the agency then compared the offerors’ proposed fully-burdened rates to these ranges to determine whether they were both realistic and reasonable. AR, exh. 10, SSD, Business Clearance Memorandum Attachment, at 86. The agency only found a proposed rate to be unrealistic if it fell below the low end of the range established by the agency’s data. The record shows that, of the 186 hourly rates evaluated by the agency, only 3 fell below the ranges established by the agency for realism purposes (none of the rates proposed by UCS was found unrealistic), and all 3 of those rates were for less expensive labor categories, such as workstation technicians, operators, and clerk typists. Id.

The protester challenges the agency’s evaluation using these other contracts because it maintains that the overwhelming majority of them were fixed-price contracts. Protester’s Comments at 9-10. CI maintains that comparing hourly rates from fixed-price contracts for purposes of establishing the realism of the proposed rates here was unreasonable because the fixed-price rates used for the comparison were never evaluated for realism. The protester also maintains that a number of the comparison contracts were performed in locations with lower cost labor markets, such as Battle Mountain, Nevada, Austin, Texas, and Albuquerque, New Mexico. Id. at 10-11. In the protester’s view, by including labor rates from much lower-cost geographic areas, the agency created artificially low thresholds for assessing the realism of the proposed rates.

The protester is correct that the majority of the contracts considered were fixed-price type contracts (only three of the contracts reviewed as part of the agency’s realism analysis were cost-reimbursement type contracts). AR, exh. 10, SSD, Business Clearance Memorandum Attachment, at 84-85. The record shows that, for the low end of the agency’s rate ranges, only one of the hourly rate reference points was derived from a cost-type contract (the low-end hourly rate for a clerk typist). Id. The protester also is correct that, of the 13 labor categories considered, at least four of the low end hourly rates were established by reference to contracts performed in other locations such as Austin, Texas and Battle Mountain, Nevada. Id. We also note that the agency’s data set was comprised entirely of fully-burdened labor rates. Id.

We have several concerns. First, the cost of this contract is driven almost entirely by the cost of labor (for example, in the base year of contract performance, the awardee proposed [deleted], $66,000 in other direct costs and [deleted]). AR, exh. 10 SSD, at 10-11. As noted above, the agency’s cost evaluation was confined entirely to consideration of fully burdened hourly rates. However, where, as here, a cost-reimbursement contract’s cost is driven in significant measure by labor costs, agencies are required to evaluate the offerors’ direct labor rates to ensure that they are realistic. Prism Maritime, LLC, B‑409267.2, B‑409267.3, Apr. 7, 2014, 2014 CPD ¶ 124 at 12. The underlying policy consideration for such a requirement is that, unless an agency evaluates the realism of the offerors’ proposed direct rates of compensation (as opposed to its fully-burdened rates), the agency has no basis to determine whether or not those rates are realistic to attract and retain the types of personnel to be hired. Id.

Here, the agency has no basis to conclude whether or not the offerors’ proposed direct rates of compensation are realistic because no analysis of those rates was ever performed. Moreover, the record includes no data that could have provided insight in making such a realism determination concerning the offerors’ proposed direct rates of compensation, because the comparison data used by the agency does not separate the fully-burdened hourly rates into their constituent elements. [8] (We note as a corollary that the agency performed no critical analysis of the offerors’ proposed indirect rates. Thus, the agency also has no basis for concluding whether or not those rates are realistic.)

Second, as noted by the protester, the majority of the labor rates the agency used for its comparison labor rates were from fixed-price contracts. There is no information in the record to show that these fixed-price hourly rates were subject to a price realism evaluation. In the absence of a requirement to perform a price realism evaluation in the context of a fixed-price contract setting, there is nothing objectionable about an agency making award to a firm submitting low, or even below-cost prices. Lowe Campbell Ewald, B-411614, B-411614.2, Sept. 11, 2015, 2015 CPD ¶ 296 at 6. It is therefore possible that the agency is using low-cost, or even below-cost, comparison prices to perform its cost realism evaluation here.

Further, even if the fixed-price hourly rates were drawn from contracts that had been awarded after performance of a price realism evaluation, there is no guarantee that the rates actually are realistic. Agencies do not adjust proposed prices during a price realism evaluation, but, rather, use the conclusions from such an analysis for the limited purpose of assessing technical understanding or risk. FAR § 15.404-1(d)(3). Thus, even where a solicitation contemplates a price realism evaluation, there is no bar to an offeror proposing--and an agency accepting--a below-cost price. Optex Systems, Inc., B-408591, Oct. 30, 2013, 2013 CPD ¶ 244 at 5-6. It follows that there was no basis for the agency to conclude that the majority of the comparison rates used in its evaluation were realistic.

Finally, as noted by the protester, a number of the agency’s low-end comparison rates were drawn from contracts that were performed in locations other than San Diego. Protester’s Comments at 10-11. Simply stated, the agency performed absolutely no analysis to determine whether the rates drawn from these other contracts were comparable to the rates of compensation that might be appropriate to perform a contract in San Diego.

Because the record shows that the agency essentially did not consider the realism of the constituent elements of the offerors’ proposed rates, its evaluation was unreasonable. In addition, because the agency used fixed-price comparison rates in the majority of its comparisons, and because several of these rates were derived from contracts not performed in the San Diego area, there is no basis for our Office to conclude that the agency was using realistic hourly rates in its evaluation of the offerors’ proposed costs. We therefore sustain this aspect of CI’s protest.  (CALNET, Inc. B-413386.2, B-413386.3: Oct 28, 2016)

NCI also challenges the reasonableness of the agency’s price realism analysis. See Protest at 15; Comments at 18-20. The protester contends that the CO unreasonably disregarded the TEP’s identified concern that HPES’s proposed prices and labor hours were so low that HPES would not be able to satisfactorily perform the work. See Comments at 18-20.

As a general matter, when awarding a fixed-price contract, an agency is only required to determine whether the offered prices are fair and reasonable, that is, whether proposed prices are too high. FAR § 15.402(a). A price realism evaluation, in contrast, applies cost realism analysis techniques to fixed prices, and is intended to evaluate whether proposed prices are too low by assessing an offeror’s understanding of the requirements. FAR § 15.404-1(d)(3); Ball Aerospace & Techs. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. Where, as here, an agency states in a solicitation that it “reserves the right” to conduct a price realism analysis, the decision to conduct such an analysis is a matter within the agency’s discretion. Guident Techs., Inc., B-405112.3, June 4, 2012, 2012 CPD ¶ 166 at 13 n.9.

Price realism may be used by the agency to evaluate whether an offeror can realistically perform its technical solution at the fixed price proposed in order to assess the risk inherent in an offeror’s proposed approach. DynCorp Int’l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 8-9; Triad Int’l Maint. Corp., B-408374, Sept. 5, 2013, 2013 CPD ¶ 208 at 8. This is so because, unlike a cost realism analysis where a probable cost of performance is determined, no adjustment to price is permitted in a fixed-price contract. See id. 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. Science Applications Int’l Corp., B-407105, B-407105.2, Nov. 1, 2012, 2012 CPD ¶ 310 at 10. A price realism analysis may also include consideration of whether an offeror’s fixed price is so low that it creates a risk that the firm cannot perform its proposed technical solution at the price offered. See NJVC, LLC, B-410035, B-410035.2, Oct. 15, 2014, 2014 CPD ¶ 307 at 8. Where an agency elects to conduct a price realism evaluation, we will review that evaluation for reasonableness. Solers, Inc., B-409079, B-409079.2, Jan. 27, 2014, 2014 CPD ¶ 74 at 4.

The record shows that the TEP’s evaluation of HPES’s management approach raised concerns that HPES’s proposed level of effort was too low and, in addition, that HPES’s WBS indicated that this low level of effort was based on a plan to rely on a significant number of shared resources. AR, Tab 28, HPES Final Technical Evaluation at 4. As a result, the agency concluded it should conduct a price realism analysis to determine whether HPES’s low price was consistent with its technical approach, reflected realistic unit pricing, and reflected an understanding of the requirements. AR, Tab 29, HPES Final Price Evaluation at 1; AR, Tab 39, Award Summary at 26. The various analyses undertaken by the agency, however, did not provide any logical support for a conclusion that HPES’s low price was consistent with its technical approach.

For example, in determining whether HPES’s proposed price was consistent with its technical approach, the agency compared HPES’s proposed task order price to a price the agency calculated by applying the labor rates from HPES’s ITES-2S IDIQ contract to the level of effort provided in HPES’s WBS. AR, Tab 39, Award Summary at 27. The agency posited in its award summary that if its calculated price using the IDIQ labor rates was significantly higher than HPES’s proposed price, the analysis would “suggest that the proposed price is not reflective of the proposed technical approach and is, therefore, unrealistic.” Id. The agency concluded that because the comparison reflected a [DELETED] percent discount from the labor rates included in HPES’s IDIQ contract, HPES’s proposed price was consistent with HPES’s technical approach. Id. However, this analysis does not address HPES’s technical approach, nor does it consider the proposal’s extensive use of shared resources--which the TEP identified as a concern.

Here, the various analyses performed by the agency do not provide any insight into whether HPES’s proposed approach can be performed at the low price proposed or whether HPES’s low price reflected a lack of understanding of the solicitation’s requirements. On this record, we cannot find reasonable the agency’s conclusion that the various analyses performed by the agency “clearly shows that the proposed price is commensurate with the proposed technical approach and reflects realistic labor category pricing.” Id. at 31. We also cannot find reasonable the agency’s conclusion that the agency’s analyses support the statement that “the government cannot reach a determination that HPES’ proposed price is clearly unrealistic.” Id. Accordingly, this protest ground is sustained.  (NCI Information Systems, Inc. B-412870.2: Oct 14, 2016)

Cost/Price Evaluation Factor

CACI argues that the cost/price evaluation scheme is flawed because it fails to consider the cost of performance of the cost-reimbursable work contemplated by the government. In addition, CACI and BAH both contend that the evaluation scheme is flawed because it arbitrarily mandates the elimination of certain proposals based on the application of a trimmed average comparison. For the reasons discussed below, we find that the cost/price evaluation scheme is flawed, and sustain the protest on these two bases.

Regarding the first argument, the protesters contend that the cost/price evaluation factor is flawed because it does not provide a basis to evaluate offerors’ costs to perform the contemplated cost-reimbursable task orders and therefore fails to allow for a meaningful evaluation of the proposals’ cost to the government.

As discussed above, the solicitation anticipates the award of both fixed-price and cost-reimbursement CLINs, and provides that the agency anticipates the award of both fixed‑price and cost-reimbursement task orders among base IDIQ contract holders. RFP at 14, 136. Specifically, the solicitation includes 116 labor categories, which are the same for both the fixed-price and the cost-reimbursement CLINs. RFP, attach. G2, Labor Category Descriptions, at 1‑32. For purposes of evaluating and award, the solicitation requires that offerors propose a fully-burdened, fixed-priced labor rate for each of the 116 labor categories, which the solicitation specifies will be capped throughout the life of the contract. RFP at 14. The solicitation explains that the proposed labor rates will be evaluated by the application of an undisclosed labor hour estimate.

As noted above, the solicitation does not require, however, that offerors propose cost-reimbursable labor rates for each of the 116 labor categories, or contemplate the evaluation of any such rates for purposes of award. RFP at 14, 132; Pricing Matrix. The solicitation also does not request any information regarding the break‑out of cost components such as direct labor, indirect labor, overhead, and/or general and administrative expenses to be evaluated. Id.

DISA does not dispute that the agency anticipates issuing a significant number of cost-reimbursement task orders under the Encore III contracts. In this regard, CACI has represented that more than half of the task orders issued under Encore II were issued on a cost-reimbursement basis. CACI Protest at 6; CACI’s Comments at 2. Rather, the agency argues that a cost evaluation will be performed when the agency competes each cost‑reimbursable task order, and therefore no such evaluation is required at this stage of the competition. AR at 3, 38-40.

Cost or price to the government must be included in every RFP as an evaluation factor, and agencies must consider cost or price to the government in evaluating competitive proposals. 10 U.S.C. § 2303(a)(3)(A)(ii); Federal Acquisition Regulation (FAR) § 15-304(c)(1). In the context of awarding an IDIQ contract, the evaluation of cost or price often is difficult because of uncertainty regarding what ultimately will be procured. See CW Gov’t Travel, supra. Agencies have developed a variety of methods or strategies to address this difficulty, including the use of estimates for the various quantities of labor categories or units to be purchased under the contract, see Creative Info. Tech., Inc., B-293073.10, Mar. 16, 2005, 2005 CPD ¶ 110 at 3; the use of sample tasks, FC Bus. Sys., Inc., B‑278730, Mar. 6, 1998, 98-2 CPD ¶ 9 at 3-5; hypothetical or notional plans that are representative of what requirements are anticipated during contract performance, Aalco Forwarding, Inc., et al., B‑277241.15, Mar. 11, 1998, 98-1 CPD ¶ 87 at 11; and hypothetical pricing scenarios reflecting various cost or price eventualities. PWC Logistics Servs., Inc., B-299820, B-299820.3, Aug. 14, 2007, 2007 CPD ¶ 162 at 11-15. Underlying each of these methods is the central objective of evaluating the relative total cost or price of competing proposals in order to provide the agency’s source selection authority a meaningful understanding of the cost or price implications of making award to one or another concern. It is axiomatic that the agency’s price evaluation method must produce results that are not misleading. Aalco Forwarding, Inc., supra.

Here, we conclude that DISA’s evaluation methodology fails to provide a reasonable basis to compare the cost of competing proposals. The record reflects that the RFP contemplates awarding cost-reimbursement CLINs, and that a significant number of task orders issued are likely to be issued on a cost-reimbursement basis. The agency, however, has simply decided to ignore these significant costs.[3] Although the agency is correct that the solicitation provides for a cost realism assessment of the IDIQ contract holders’ differing proposed costs when individual cost‑reimbursable task orders are competed, see RFP at 66, that competition will not include firms whose proposals are not selected for an umbrella contract in the competition at issue in this protest. As noted above, the RFP anticipates that the agency will award only 20 IDIQ contracts for the full-and-open suite. RFP at 13. We have expressly held that the statutory requirement for considering cost to the government when evaluating and selecting proposals for award is not satisfied by the promise to later consider cost or price when awarding individual task orders. S.J. Thomas Co., Inc., B-283192, Oct. 20, 1999, 99-2 CPD ¶ 73 at 3; The MIL Corp., B-294836, Dec. 30, 2004, 2005 CPD ¶ 29 at 9-10. Accordingly, the agency cannot eliminate a proposal from consideration for award of an IDIQ contract without taking into account the relative cost of that proposal to the government. SCIENTECH, Inc., B-277805, B-277805.2, Jan. 20, 1998, 98-1 CPD ¶ 33 at 7-8.

Moreover, the agency’s reliance on two GAO cases as support for its position that an evaluation of cost reimbursable work items is not required when awarding the umbrella IDIQ contract so long as such costs will be evaluated at the task order level is misplaced. Specifically, the agency first cites Decisive Analytics Corp., B‑410950.2, B‑410950.3, June 22, 2015, 2015 CPD ¶ 187, which unlike the solicitation here, required offerors to propose fixed-price and cost-reimbursable rates for labor categories using pricing worksheets with prepopulated notional labor hours and calculated a total evaluated cost/price based on both the fixed-price and cost‑reimbursable labor rates. Id. at 3. Although the Decisive Analytics solicitation did not provide for the evaluation of cost realism at the time the umbrella IDIQ contracts were awarded, we concluded that the agency’s price evaluation, which considered both fixed-price and cost‑reimbursable labor rates, provided for a reasonable assessment of the cost of performance under the competing proposals. Id. at 11. In contrast, the solicitation here does not request, and does not anticipate, considering the cost-reimbursement rates for these contracts.

In the second case cited by the agency, Advanced Commc’n. Cabling, Inc. B‑410898.2, Mar. 25, 2015, 2015 CPD ¶ 113, we found that the agency’s price evaluation scheme provided a reasonable basis on which to consider the comparative cost to the government of the offerors’ proposals because, although the solicitation did not provide for consideration of the cost of anticipated cost‑reimbursable task orders, the record reflected that only a “de minimus” number of task orders would be issued on a cost reimbursement basis. Id. at 8, n.6. In sum, while an agency generally has considerable flexibility in fashioning the precise method for evaluating cost or price, where, as here, the solicitation does not seek any information for, or provide for the evaluation of, a segment of orders that may represent half of the agency’s requirement, it fails to provide an adequate basis to compare the relative cost to the government of the competing proposals. We sustain the protest on this basis.

Next, CACI and BAH argue that the solicitation’s cost/price evaluation scheme is flawed because it arbitrarily mandates the elimination of an offeror’s proposal if the offeror’s total proposed price is 50 percent below a trimmed average total. Aside from being arbitrary, the protesters maintain that the provision is at odds with the RFP’s LPTA source selection process.

As noted above, the RFP provides the following explanation regarding how the agency will compare proposals after calculating the trimmed average total proposed price:

Once the trimmed average total proposed price is calculated, the Government will eliminate from consideration those offeror’s proposals, if any, whose total proposed price is 50 percent above or 50 percent below the trimmed average total proposed price for each suite. Those proposals will not be evaluated for technical acceptance, will not be considered in any competitive range, and will not be considered at time of award.

RFP at 139.

The agency argues that the purpose of the trimmed average comparison is “to evaluate whether any price proposals are so low that they present unacceptable risk.” AR at 37; Tab 17, Initial Price Analysis Memorandum For Record (MFR), at 1. In addition, the agency contends that the trimmed average comparison is reasonable because it “represents the [a]gency’s use of sound business judgment to prevent risk to the Government.” AR at 37. The agency further explains that “its determination to eliminate proposals that are 50% less than the trimmed average was based on historical data from Encore II,” and that the agency “determined that any such proposal posed an unacceptable risk to the Government.” Id. at 39.

The record reflects that in deciding to reject proposals with a total proposed price more than 50 percent higher or lower than the trimmed average total proposed price, the agency utilized labor rates from the predecessor Encore II procurement. AR at 37; Tab 17, Initial Price Analysis MFR, at 2. Specifically, the agency used historical labor rates from Encore II contract holders to develop “an average total price, minimum total price, and maximum total price.” Id. In this regard, the agency “calculated an average total price of $[DELETED] by applying the average labor rate for each labor category . . . from all Encore II contractors to the estimated hours to be used for evaluation under Encore III.” Id. Then, the agency calculated “a minimum total price of $[DELETED] by applying the lowest labor rate for each labor category . . . from all Encore II contractors to the estimated hours to be used for evaluation under Encore III.” Id. Finally, the agency calculated “a maximum total price of $[DELETED] by applying the highest labor rate for each labor category . . . from all Encore III contractors to the estimated hours to be used for evaluation under Encore III.” Id.

The agency found “[t]he percentage difference between the average total price and the minimum total price [to be] approximately [DELETED],” and “the percentage difference between the average and the maximum total price [to be] approximately [DELETED],” resulting in “an overall difference between the minimum and maximum prices of approximately [DELETED].” Then, “[u]tilizing this methodology[,] the Government determined that a 50 percent range from the trimmed average total price represents a reasonable range of risk for the initial price analysis on the Encore III source selection.” Id.

Based on our review of the record, we conclude that the agency has failed to adequately justify its rationale for excluding from the competition any proposals with a total proposed price that is 50 percent below the trimmed average total proposed price. First, DISA’s determination to use 50 percent as the floor established for eliminating proposals was based on historical data and labor rates from the predecessor Encore II procurement; however, the Encore II procurement was conducted on a price/cost‑technical trade-off basis, while the basis for award under the current solicitation, is lowest-priced, technically-acceptable. See BAH Comments, exh. 1, Encore II RFP, amend. 18, at 42. This “apples to oranges comparison” does not provide a reasonable baseline for assessing price. The record includes no indication that the agency, in calculating the 50 percent range, considered the impact that this difference would have on the labor rates submitted under the two procurements. Without this consideration, we do not find reasonable, the agency’s determination that a “greater than 50 percent difference from the trimmed average represent[s] unacceptable risk to the Government,” and should be rejected from the competition. AR, Tab 17 Initial Price Analysis MFR, at 2.

Second, there is no indication in the record that the agency’s establishment of the 50 percent floor is in any way linked to a risk in contract performance, or for example, that the agency noted a decrease in performance once the Encore II labor rates dropped below a particular level. Id. at 1. While we certainly agree with DISA that agencies enjoy broad discretion when establishing their bases for evaluation, their selected evaluation method must have some rational basis. Aalco Forwarding, Inc., supra. Here, the record is devoid of any basis to conclude that the 50 percent price floor established by the agency for the mechanical elimination of proposals reflects a point at which there is a particularly high performance risk to the government. Rather, the 50 percent floor seems to be entirely arbitrary in selection and application. In this regard, the agency has been unable to articulate, or otherwise provide evidence to support, a conclusion regarding how risk increases to an unacceptable level when an offeror’s total proposed price is 50 percent below the trimmed average. Accordingly, we conclude that the price/cost evaluation method is flawed in this respect, and sustain the protest on this basis.  (CACI, Inc.-Federal; Booz Allen Hamilton, Inc. B-413028, B-413028.2, B-413028.3: Aug 3, 2016)

Evaluation of Professional Labor Categories

MicroTechnologies first argues that the Air Force’s evaluation of BTAS’s [employee compensation plan] ECP was unreasonable because the agency considered only the [DELETED] labor categories that the agency identified as professional, i.e., exempt under the SCA, and did not consider the remaining [DELETED] labor categories. The protester argues that this analysis was improper because the solicitation stated that the agency would evaluate employee compensation, and did not specifically state that the evaluation would be limited to professional labor categories. In this regard, the protester notes that the RFP stated that “[t]he Offeror and first-tier subcontractors shall support the ECP by providing unloaded labor rates for each labor category proposed.” RFP at 4.

The Air Force argues that it properly limited the evaluation to professional labor categories because the RFP provided that offerors were required to propose an “Employee Compensation Plan (ECP) [in accordance with] FAR 52.222-46.” See Memorandum of Law (MOL) at 5; RFP at 4. This FAR clause is titled “Evaluation of Compensation for Professional Employees,” and specifically provides that it is “in the Government’s best interest that professional employees, as defined in 29 CFR 541, be properly and fairly compensated.” FAR clause 52.222-46(1). As our Office has recognized, this clause applies only to evaluation of professional employees. People’s Accident Info. Serv., Inc. d/b/a Securit, B-404211, Jan. 18, 2011, 2012 CPD ¶ 82 at 5 (protest alleging that the agency did not evaluate proposals in accordance with FAR clause 52.222-46, which was incorporated into the solicitation, was dismissed because the solicitation did not include any professional labor categories).

The protester does not argue that the agency’s categorization of BTAS’s proposed labor categories as professional was unreasonable or inconsistent with the requirements of 29 C.F.R. subpart 541.3; rather, the protester argues that the RFP’s language regarding the ECP evaluation did not specify that the agency would consider only professional employees. In effect, the protester argues that the general direction in the RFP to “provid[e] unloaded labor rates for each labor category proposed,” RFP at 4, meant that the agency intended to apply the provisions of the Evaluation of Compensation for Professional Employees clause to both professional and non-professional labor categories.

Even if the protester’s interpretation of the RFP were reasonable, it would at best establish a conflict between the RFP’s direction to provide unloaded rates for each labor category, and the plain language of FAR clause 52.222-46, which provides for evaluation of only professional labor categories--upon which the agency’s evaluation relied. Such a conflict would give rise to an ambiguity in the solicitation. Colt Def., LLC, B-406696, July 24, 2012, 2012 CPD ¶ 302 at 8 (an ambiguity exists where two or more reasonable interpretations of the solicitation are possible). However, we conclude that any such conflict is obvious, and therefore constituted a patent ambiguity that should have been challenged prior to the time for receipt of initial proposals. See Allied Tech. Grp. Inc., B-402135, B‑402135.2, Jan. 21, 2010, 2010 CPD ¶ 152 at 9 n.10 (solicitation provisions in direct conflict demonstrate a patent ambiguity). For this reason, we conclude that even if the protester’s interpretation of the RFP were reasonable, such a challenge based on that interpretation is an untimely challenge to a solicitation ambiguity which we will not consider further. Bid Protest Regulations, 4 C.F.R. § 21.2(a)(1).

Mapping of Comparable Labor Categories

Next, MicroTechnologies argues that the Air Force’s evaluation of BTAS’s ECP was unreasonable with regard to the [DELETED] professional labor categories proposed by the awardee and how they were “mapped” to the labor categories proposed by the other offerors for purposes of comparison. We agree.

As discussed above, the agency concluded that the awardee’s proposed professional labor categories were lower than the incumbent’s comparable rates, and concluded that additional analyses were required. AR, Tab 13, Award Decision, at 9. The agency mapped the awardee’s [DELETED] professional labor categories to those of MicroTechnologies, Offeror 3, and Offeror 4, and then compared the rates. Id. at 10. The agency found that the awardee’s rates were between the highest and lowest rates proposed by the other offerors for [DELETED] of [DELETED] categories, and were lower than all other offerors for [DELETED] categories. Id.

MicroTechnologies argues that the Air Force did not explain the basis for its conclusion that the rates proposed by BTAS were properly mapped to those of the other offerors. The protester argues that for two labor categories, [DELETED] and [DELETED], the agency’s mapping relied upon labor categories from other offerors with a wide range of rates--from $[DELETED] to $[DELETED] for the first labor category, and from $[DELETED] to $[DELETED] for the second labor category. See AR, Tab 13, Award Decision, at 9-10. The protester argues that the wide range of rates demonstrates that the agency did not have a reasonable basis to conclude that the labor categories were comparable. Our Office requested that the Air Force provide a supplemental briefing that explained how the agency’s mapping analysis concluded that the labor categories identified in the ECP evaluation were comparable.

The Air Force’s response to our request for information included a chart detailing the two BTAS professional labor categories at issue in this dispute--i.e., [DELETED]--and the so-called comparable categories used by other offerors. Supp. Agency Response (July 26, 2016) at 5. The agency explained that it concluded these categories were comparable using a mapping analysis that considered the “labor category descriptions, required education, required experience, certifications, security clearances, and other defining characteristics of the labor categories.” Supp. Agency Response (July 26, 2016) at 3. As the protester notes, however, the agency’s response to our request for information substituted new labor categories and provided new information that was not found in the contemporaneous mapping analysis prepared at the time of award.

(chart deleted due to redactions by GAO)

As the chart above shows, the Air Force’s response to our Office’s questions cited three new labor categories not found in the contemporaneous evaluation that supported the award decision: (1) Offeror 3 - [DELETED], (2) Offeror 4 - [DELETED], and (3) Offeror 4 - [DELETED].[8] The agency did not explain the basis for these changes. Further, neither the agency’s response to our Office’s questions, nor the contemporaneous record in the award decision, shows the rates for these new positions.

Agencies are required to adequately document their evaluations, and, where an agency fails to do so, it runs the risk that our Office will be unable to determine whether the agency’s evaluation was reasonable. DKW Commc’ns, Inc., B-411182, B-411182.2, June 9, 2015, 2015 CPD ¶ 178 at 9. Additionally, where an agency’s response to a protest relies on new post-hoc analyses and does not explain why the new analyses are consistent with the contemporaneous record, we similarly cannot find the evaluation reasonable. Boeing Sikorsky Aircraft Support, supra. Here, in light of the agency’s failure to provide documentation showing the basis for its contemporaneous evaluation, and the agency’s unsupported substitution of a new evaluation, we cannot find the agency’s evaluation to be reasonable.

Evaluation of Burdened Labor Rates

Next, MicroTechnologies argues that the Air Force’s evaluation of BTAS’s ECP relied upon an improper comparison of offerors’ proposed burdened rates, rather than a comparison of their proposed compensation and fringe benefits, as required by FAR clause 52.222-46. The protester contends that the agency’s use of burdened rates to evaluate the awardee’s ECP was improper because the burdened rates include cost elements unrelated to compensation and fringe benefits. We agree.

As discussed above, FAR clause 52.222-46 requires offerors to “submit a total compensation plan setting forth salaries and fringe benefits proposed for the professional employees who will work under the contract.” FAR clause 52.222-46(a). The clause states that “[t]he professional compensation proposed will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation.” Id.

The RFP required offerors to identify their unburdened rates. RFP at 4. BTAS provided annual salary and “approximate value-fringe benefit” information for all of its proposed labor categories. AR, Tab 7, BTAS Revised Price Proposal, at 6. With regard to the comparison of BTAS’s and the other offerors’ rates, the record shows that the agency relied upon burdened rates. AR, Tab 13, Award Decision, at 10. Although the agency does not provide documentation that explains the components of each offeror’s fully-burdened rates, they were presumably cost elements such as, in the case of MicroTechnologies, salaries, fringe, overhead, G&A, and fee/profit. See AR, Tab 8, MicroTechnologies Initial Proposal, at 30. MicroTechnologies argues that because the burdened rates reflect the overall amount to be paid by the government to the contractor for an hour of labor, the burdened rates do not show the actual compensation and fringe benefits to be paid to the employee.

Our Office’s decisions have not specifically addressed the issue raised by the protester here: whether agencies may rely upon burdened labor rates for purposes of assessing whether the proposed compensation and fringe benefits for professional employees is realistic in connection with FAR clause 52.222-46. The Air Force argues that its evaluation reasonably relied upon the overall burdened rates for its evaluation of professional compensation, and contends that the decisions of our Office endorse this evaluation. See MOL at 7-8 (citing Apptis Inc., supra; ENMAX Corp., B‑281965, May 12, 1999, 99-1 CPD ¶ 102; The Centech Grp., Inc., B‑278715, B‑278715.2, Mar. 5, 1998, 98-1 CPD ¶ 108). For the reasons discussed below, we do not agree with the agency.

Our Office has held that where a solicitation expressly provides that offerors shall provide only burdened labor rates, and advised that those rates would be compared to Bureau of Labor Standards rates, there is no basis to sustain a protest challenging the agency’s reliance on the burdened rates for purposes of assessing the realism of professional compensation under FAR clause 52.222-46. See ENMAX Corp., supra, at 9-10. In essence, our decision in ENMAX Corp. held that the protester had no basis to expect the agency would perform any analysis other than what was set forth in the solicitation. See id. In other decisions, we have held that consideration of burdened rates was reasonable where the protester challenged only the realism of the burdened rates, and did not argue that consideration of the burdened rates was unreasonable. See Apptis Inc., supra, at 10-11.[9]

Where our Office has specifically addressed the issue of burdened and unburdened labor rates, we have held that challenges to an agency’s reliance on burdened rates in the evaluation of professional compensation did not provide a basis to sustain a protest where the agency also considered salary and fringe rate information. See Signal Corp., B-275502.3, B-275502.4, July 6, 1998, 98-2 CPD ¶ 86 at 9 n.13; BE, Inc.; PAI Corp., B-277978, B-277978.2, Dec. 16, 1997, 98-1 CPD ¶ 80 at 3-4; DIGICON Corp., B-275060, B-275060.2, Jan. 21, 1997, 97-1 CPD ¶ 64 at 5.

We conclude that none of the decisions by our Office stand for the proposition argued by the agency: that where an agency includes FAR clause 52.222-46 and requests unburdened rates, the agency may base its evaluation of professional compensation on burdened labor rates that do not provide insight into the actual salary and fringe benefits to be paid to those employees. RFP at 4. Because the burdened rates evaluated by the agency included cost elements that are not provided to employees in the form of salary or benefits, the use of burdened rates could have led to a misleading conclusion regarding the realism of the awardee’s professional compensation.[10] On this record, we cannot conclude that the agency’s evaluation was reasonable.

Mistake Regarding Salary.com Data

MicroTechnologies argues that the Air Force’s comparison of BTAS’s proposed labor rates to survey data from salary.com was flawed because the analysis resulted in comparison of dissimilar elements. We agree.

The salary.com survey data cited by the agency reflected “comparable labor categories with similar labor category descriptions and associate compensation levels for these labor categories paid by other employers in the place of anticipated performance, [Texas] (salary.com).” AR, Tab 13, Award Decision, at 10. The agency’s analysis found that BTAS’s proposed burdened rates for the [DELETED] professional labor categories were [DELETED] percent higher, respectively, than comparable labor category rates in the salary.com survey data. Id. In response to the protest, however, the Air Force concedes that the comparison was flawed because the agency’s price evaluator “inadvertently used the Salary.com unburdened median annual salary amounts in making that comparison” to BTAS’s burdened rates. Supp. Agency Response (July 26, 2016) at 8. The agency explained the price evaluator’s error as follows: “[The evaluator] believed Salary.com’s ‘salary’ tab represented the annual ‘burdened’ salary. In fact, the ‘salary’ tab was Salary.com’s unburdened median salary.” Id.

As the protester notes, this flawed comparison was not an “apples to apples” comparison of BTAS’s proposed compensation to the salary.com compensation survey data. Instead, it resulted in a comparison of BTAS’s proposed salary, fringe, and indirect costs (e.g., fee/profit, overhead, G&A) to the salary.com compensation survey data that reflected only salary information. For example, the agency’s contemporaneous analysis found that BTAS’s proposed burdened rate for the [DELETED] labor category was $[DELETED], which was [DELETED] percent higher than the $[DELETED] rate identified in the salary.com survey. AR, Tab 13, Award Decision, at 10. The agency’s response to our Office’s questions stated that inclusion of salary, bonus, and benefits yields a salary.com rate of $[DELETED]--which shows that BTAS’s proposed rate is [DELETED] percent lower, rather than [DELETED] percent higher than the survey data. Supp. Agency Response (July 26, 2016) at 7. This comparison, however, is further flawed as it continues to compare the burdened rate for BTAS to salary.com survey data that do not include indirect costs such as overhead and G&A.[11] For these reasons, we find the agency’s evaluation unreasonable.

In sum, the record shows that the Air Force’s evaluation of BTAS’s ECP relied on a mapping of labor categories that was not adequately documented, was based on an unreasonable comparison of offerors’ burdened labor rates, and relied upon an admitted error in comparing the awardee’s burdened labor rates to unburdened labor rates in a salary survey. Based on these flaws, we conclude that the agency’s evaluation was unreasonable and sustain the protest.  (MicroTechnologies, LLC B-413091,B-413091.2: Aug 11, 2016)

Price Realism

Valor alleges that the award was improper because the agency failed to evaluate the realism of Sterling’s pricing. In this regard, Valor points out that the solicitation specifically provided that the agency would evaluate the realism of offerors’ pricing by “assessing the compatibility of [an offeror’s] proposed costs with proposal scope and effort.” Protest at 7 (quoting RFP at 136). Valor argues that the record includes nothing to show that this assessment occurred, noting that the only consideration of pricing that appears in the record concerns price reasonableness, rather than realism. Comments at 6-10, 13, 21-22. We agree.

Valor further maintains that if the agency had evaluated Sterling’s pricing for realism as required by the solicitation, the firm’s pricing would have been found unrealistic and/or a risk would have been assessed to the firm’s technical approach. Comments at 14, 25-27. In this regard, Valor contends that labor makes up the “majority” of the cost of performance and that the price breakdown spreadsheets show Sterling’s labor costs to be [DELETED] below Valor’s.[6] Protest at 15; Comments at 14. Finally, Valor contends that, according to the agency itself, the “majority” of Sterling’s proposed staff currently serves under Valor’s incumbent contract. Comments at 14 (quoting Contracting Officer’s Statement at 2). Given these circumstances, Valor argues that the agency improperly failed to consider the risk that Sterling would be unable to “recruit the necessary talent and staff to perform at the level [Sterling] proposes.” Comments at 26. Had the agency considered this issue, Valor maintains, it would have deemed Sterling’s pricing unrealistic and/or downgraded its assessment of the firm’s technical approach. See id. at 5, 21, 27.

Where, as here, a solicitation anticipates award of a contract with fixed prices, there is no requirement that an agency conduct a price realism analysis. See Iron Vine Sec., LLC, supra, at 5; Gen. Dynamics One Source, LLC; Unisys Corp., B‑400340.5, B-400340.6, Jan. 20, 2010, 2010 CPD ¶ 45 at 9. An agency may, however, at its discretion, provide for the use of a price realism analysis in a solicitation for the award of a fixed-price contract to assess the risk inherent in an offeror’s proposal. ed prices, there is no requirement that an agency conduct a price realism analysis. See Iron Vine Sec., LLC, supra; Gen. Dynamics One Source, LLC; Unisys Corp., supra. Our review of an agency’s price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. See Iron Vine Sec., LLC, supra; Gen. Dynamics One Source, LLC; Unisys Corp., supra. Where an agency fails to document its price realism evaluation, it bears the risk that there may not be an adequate supporting rationale in the record for us to conclude that the agency had a reasonable basis for its source selection decision. See Gen. Dynamics One Source, LLC; Unisys Corp., supra, at 13-14, 17; Solers Inc., supra, at 7-9.

In response to Valor’s claim, the contracting officer states why he believes Sterling’s pricing is realistic--but identifies no contemporaneous documentation supporting this conclusion. For example, he states that Sterling’s “cost elements” were reviewed and that this information, together with information in the firm’s technical proposal, provided “no reason to question . . . the realism . . . of Sterling’s pricing.” Contracting Officer’s Statement at 2.[7] He further states that there was no reason to question the realism of Sterling’s pricing because the firm operates other VA clinics in the region. Id.

The contracting officer also offers two pricing comparisons purporting to show that Sterling’s pricing was realistic; both were prepared in response to the protest. In the first, the contracting officer claims that a comparison of Valor’s and Sterling’s clinic facility rental costs reflects that Sterling “operate[s] at a higher level of economy and efficiency than Valor,” which, according to the contracting officer, shows Sterling’s lower pricing to be realistic. Contracting Officer’s Statement at 2. The second comparison is a table showing Sterling’s pricing as well as the pricing of other regional VA community-based, outpatient clinics. Contracting Officer’s Supp. Statement at 2. The contracting officer states that the spread of prices shows Sterling’s pricing to be realistic. Id.

For the reasons discussed below, we find that neither the contemporaneous record, nor the contracting officer’s post hoc assertions, provides a basis for our Office to conclude that the agency evaluated the realism of Sterling’s pricing in a way that was consistent with the terms of the solicitation. As an initial matter, we note that the only document in the contemporaneous record that reflects the evaluation of pricing is the SSDD--i.e., there is no separate price evaluation report. Further, and as discussed above, the SSDD includes no discussion of price realism--instead, it discusses only price reasonableness. The solicitation here, however, expressly provided that the agency would perform a price realism evaluation by “assessing the compatibility of [an offeror’s] proposed costs with proposal scope and effort.” RFP at 136.

Regarding the contracting officer’s responses to Valor’s claims, we find that none of these responses reflect a reasonable price realism evaluation under the terms of the solicitation. For example, the contracting officer’s analysis of Valor’s and Sterling’s facility rental costs does not address the realism of the firms’ labor costs, which as shown above, was a majority of the offerors’ cost of performance. Further, the record shows the firms’ rental costs to be a small fraction of their cost of performance (approximately [DELETED] percent for Sterling and approximately [DELETED] percent for Valor). See AR, Tab 6, Valor Price Proposal at 46; Tab 10, Agency/Sterling Correspondence, at 3. Regarding the comparison of pricing at other clinics to the pricing here, the contracting officer himself states that the effort at the other clinics differs from the effort here by a range of 27 to 43 percent. Contracting Officer’s Supp. Statement at 2. He also states that his source selection decision did not rely on the table showing the comparison. Id.

Moreover, the record shows that there is at least one area of Sterling’s proposal that raises an obvious price realism concern. Specifically, the record shows that the agency understands “the majority” of Sterling’s proposed staffing candidates to be serving under Valor’s incumbent contract. See Contracting Officer’s Statement at 2. Yet, Sterling’s price breakdown spreadsheet shows Sterling’s labor costs to be [DELETED] below Valor’s (the difference is nearly $[DELETED]). See AR, Tab 6, Valor Price Proposal at 46; Tab 10, Agency/Sterling Correspondence, at 3. Neither the contemporaneous record, nor the agency’s post-protest arguments, addresses the basis for finding Sterling’s pricing realistic even though the firm apparently proposed to use a “majority” of the same staff as Valor, but at a [DELETED] lower cost. Since the solicitation specifically provided that the agency’s price realism evaluation would include an assessment of the compatibility of an offeror’s pricing to its proposed technical approach, we find that the agency’s failure to consider this issue was unreasonable.

In sum, agencies are not required to perform realism evaluations in fixed-price contract settings. However, where a solicitation provides for the evaluation of price realism, the agency must conduct such an evaluation in a manner that is reasonable and consistent with the parameters established in the solicitation. In this case, the solicitation expressly provided for a price realism evaluation, and specifically called for an assessment of the compatibility of an offeror’s pricing with the scope and effort of the proposed technical approach. RFP at 136. Nonetheless, the contemporaneous evaluation record contains nothing documenting an assessment of the compatibility of Sterling’s proposed pricing--including the labor element‑‑with the scope and effort of the firm’s technical approach. Although the agency has offered various post hoc assertions on the matter, it has failed to establish that it performed an adequate price realism evaluation under the terms of the solicitation. Accordingly, we sustain Valor’s protest regarding the evaluation of price realism.  (Valor Healthcare, Inc. B-412960, B-412960.2: Jul 15, 2016)

Price Evaluation

The RFP required offerors to complete two spreadsheets in submitting their proposed pricing. The first, attachment L to the RFP, included some 20 principal CLINs, each of which represented a particular type of examination procedure or other requirement (such as performance of a record review of a medical file). RFP, Amendment 003, at 2109-2283. CLIN 0001, which required pricing for general medical examinations, also included numerous subCLINs requiring prices for graduated quantities of exams. Other CLINS included subCLINS reflecting differing types of a broader requirement (for example, CLIN 0002 generically required prices for musculoskeletal system examinations and required prices for 15 types of specific examinations). CLIN 0017 required offerors to provide pricing for ancillary diagnostic tests such as x-rays and laboratory tests.

For all of the CLINs except CLIN 0017, offerors were required to provide a unit price for each type of exam. For CLIN 0017, offerors were required to provide prices expressed as a percentage of the national Medicare baseline of reimbursement for the test to be performed. (For example, if an offeror proposed 100 percent of the national Medicare baseline, and the rate of reimbursement for the test in question was $100, then the offeror’s price for that test would be $100.) Offerors were required to provide unit prices for the base year and each option year for each district in which the concern was proposing.

The second spreadsheet, attachment M, required offerors to provide minimum and average hourly rates for direct compensation and minimum and average hourly fringe rates for a list of different types of physicians for the base year and each option year. RFP, amendment No. 003, at 2285-2305.

In addition to these spreadsheets, the RFP included another spreadsheet, attachment N, that provided information about the minimum and maximum estimated quantities of MDE requests that the agency anticipated would be performed throughout the contract period. RFP, amendment No. 3, at 2307-2310. For example, this spreadsheet showed that, for district 1, the agency estimated a minimum quantity of 313,825 MDE requests and a maximum estimated quantity of 1,282,617 MDE requests over the life of the contract. Id.

The record shows that, in evaluating prices, the agency performed two calculations. First the agency added the CLIN unit prices together for the base and each option year for each firm in each district. BCM at 62. As noted in the table above summarizing the agency’s evaluation results, this produced an expression of “price” in the hundreds of thousands of dollars (for example, LHI’s “price” for district 1 was calculated as $226,240).

Second, the agency averaged the unit prices for each offeror in each district to arrive at an “average” CLIN price. The agency next calculated an “average” number of MDE requests for each district derived from the minimum and maximum estimated quantities of examination requests specified in attachment N. Finally, the agency multiplied each offeror’s “average” CLIN price by the average number of examination requests in each district to arrive at an estimated price for each offeror in each district over the life of the contract. BCM at 63. (For those districts where the agency anticipated awarding two contracts this figure was divided in half.) These calculations produced an expression of “price” in the hundreds of millions of dollars (for example, LHI’s “price” for district 1 was calculated as being $191,014,893). Id.

LHI and MSLA argue that the agency’s calculations fail to reflect the likely total price to the government for each proposal because those calculations do not reflect the estimated quantities of each line item that may be ordered. According to the protesters this violates the fundamental statutory requirement that agencies consider the cost or price to the government in awarding every contract. 41 U.S.C. § 3306 (c)(1)(B). The protesters maintain that, because the agency’s calculations do not accurately reflect what the estimated total price of each proposal is, its best-value selection decisions are essentially meaningless.

Preliminarily, the agency and intervenors argue that this aspect of LHI’s and MSLA’s protests is an untimely challenge to the terms of the RFP. According to the agency and intervenors, offerors were on notice that the agency would not use estimated quantities of each type of exam to evaluate total price because it did not include that information in the solicitation and advised offerors that the information was not available to them at the time the solicitation was issued. In addition, the agency and intervenors note that the RFP advised offerors that the agency would use only the summed CLIN prices to evaluate price. The instructions to offerors provided as follow:

In the Schedule of Prices the Offeror shall insert the unit price for the services proposed and verify that the price template has correctly calculated the total price for each line item and the total proposed price for the District (sum of proposed prices for each examination line item). The Government shall use the total proposed price for each District (Total for base and all option periods) to determine price reasonableness.

RFP at 136.

As a general matter, protests challenging the terms of a solicitation, to be timely, must be filed prior to the deadline for submitting proposals. 4 C.F.R. § 21.2(a)(1). Here, a review of the RFP demonstrates that it did not state how the agency would calculate or evaluate total price. The language identified by the agency and the intervenors--quoted above--describes how the agency would calculate “total price” for purposes of price reasonableness, but it is silent on the question of how the agency would calculate total price for source selection purposes. While the RFP’s price evaluation factor provides information regarding how the agency would calculate the CLIN 0017 prices (the prices based on the percentage of national Medicare baseline rates of reimbursement), it is silent on the question of how the agency would calculate total evaluated price for the remaining CLINs. The RFP provides as follows:

The Offeror’s proposed percentages will be multiplied by the estimated quantities and VA provided sample unit price to determine a total proposed price for each Procedures, Tests, Laboratory Work, and X-rays line item [CLIN 0017]. These line items will then be added to the total proposed prices for all remaining line items to generate an overall total proposed price (including base and all option periods) for each Offeror.

RFP at 138 (emphasis supplied). Thus, there was no basis for the protesters to have concluded from the terms of the RFP that the agency would calculate total evaluated price without reference to the estimated quantities of each line item. Under the circumstances, we find this aspect of LHI’s and MSLA’s protest timely.

With regard to the merits of this allegation, the agency essentially argues that it does not have adequate information to estimate the quantities of each CLIN and, therefore, it was reasonable for it to rely principally on a comparison of unit prices. The agency also argues that its extended calculations of price provided a reasonable basis to determine the total price for each proposal, and also confirmed the results of its other calculation.

We agree with the protesters that the agency’s evaluation of total prices here was unreasonable. Agencies are required by statute to consider the cost or price to the government of entering into a contract. 41 U.S.C. § 3306(c)(1)(B). In the context of IDIQ contracting, this often is difficult because of uncertainty regarding what ultimately will be procured. Agencies have developed a variety of methods or strategies to address this difficulty, including the use of estimates for the various quantities of labor categories or units to be purchased under the contract, see Creative Info. Tech., Inc., B-293073.10, Mar. 16, 2005, 2005 CPD ¶ 110 at 3; the use of sample tasks, FC Bus. Sys., Inc., B-278730, Mar. 6, 1998, 98-2 CPD ¶ 9 at 3-5; hypothetical or notional plans that are representative of what requirements are anticipated during contract performance, Aalco Forwarding, Inc., et al., B‑277241.15, Mar. 11, 1998, 98-1 CPD ¶ 87 at 11; and hypothetical pricing scenarios reflecting various cost or price eventualities. PWC Logistics Servs., Inc., B-299820, B-299820.3, Aug. 14, 2007, 2007 CPD ¶ 162 at 11-15. Underlying each of these methods is the central objective of evaluating the relative total cost or price of competing proposals in order to provide the agency’s source selection authority a meaningful understanding of the cost or price implications of making award to one or another concern. It is axiomatic that the agency’s price evaluation method must produce results that are not misleading. Aalco Forwarding, Inc., supra. at 11.

Here, the agency’s price evaluation provides no insight to the agency regarding the likely cost or price of awarding a contract to one versus another of the offerors. The agency’s first method for evaluating prices--adding up each proposed CLIN unit price--fails to account for variations in the quantities that may be ordered under each CLIN. The record shows that there were widely varying prices among the offerors for each CLIN, and without reference to an estimate of the quantities to be ordered, there is no basis, using this calculation, to reach any conclusion about relative cost or price of each proposal, or the ranking of the proposals on the basis of price.

The agency’s second method for evaluating prices--establishing an “average” CLIN price for each offeror and then multiplying that number by the average number of MDE requests--also provides no basis to reach any conclusions about the relative cost or price of each proposal, or the ranking of the proposals on the basis of price. This calculation merely provides a “scaled up” version of the other calculation by multiplying the averaged CLIN prices by the average number of MDE requests.

We also are not persuaded by the agency’s assertion that it does not have sufficient information relating to the quantities that may be ordered under each CLIN. (The contracting officer specifically represents that the agency does not have any historical data on this question. Contracting Officer Statement of Facts at 12.) However, as the protesters--incumbent contractors for the MDE requirement--point out, they (and presumably all of the VA’s other incumbent contractors) provide the agency with a monthly report that details the number of examinations, by examination type, that were provided during the preceding month. It therefore appears that the agency does, in fact, have the historical data necessary to prepare estimates of the quantities for the CLINs being solicited.

In sum, agencies are required to evaluate price in a manner that provides reasonably accurate information concerning the relative total cost or price of competing proposals so that the agency’s source selection authority has a meaningful understanding of the cost or price implications of making award to one or another concern. Aalco Forwarding, Inc., supra. at 11. The agency’s price evaluation here did not provide the required information. In light of the foregoing considerations, we sustain this aspect of LHI’s and MSLA’s protests.  (Veterans Evaluation Services, Inc.; Logistics Health, Inc.; Medical Support Los Angeles, a Medical Corporation B-412940, B-412940.2, B-412940.3, B-412940.4, B-412940.5, B-412940.6, B-412940.7, B-412940.8, B-412940.9, B-412940.10, B-412940.11, B-412940.12, B-412940.13, B-412940.14, B-412940.15, B-412940.16, B-412940.17, B-412940.18, B-412940.19, B-412940.23, B-412940.24, B-412940.25: Jul 13, 2016)

Price Evaluation

Arctic next argues that the agency unreasonably failed to perform a price realism analysis, which it asserts was required by the terms of the RFP. Protest at 14. In this regard, the protester asserts that a response provided by the agency as part of the Q&A, namely, the agency “will review the offeror’s cost breakout of the loaded rate,” required the agency to conduct a price realism evaluation. Id. According to the protester, there was no other purpose “for requiring this cost breakdown other than to make a price realism analysis possible.” Protester’s Comments at 17. This allegation is without merit.

Where a solicitation contemplates the award of a fixed-price contract, an agency may provide in the solicitation for the use of a price realism analysis for the purpose of measuring an offeror’s understanding of the requirements or to assess price risk in its proposal. IBM Corp., B-299504, B-299504.2, June 4, 2007, 2008 CPD ¶ 64 at 10-11. In the absence of an express price realism provision, we will only conclude that a solicitation contemplates a price realism evaluation where the RFP expressly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and the RFP states that a proposal can be rejected for offering low prices. Dyncorp Int’l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 9.

We have reviewed the RFP, including the language cited by Arctic, and conclude that a price realism analysis was not required by the terms of the RFP. In this regard, the RFP does not explicitly call for a price realism evaluation. Neither does the RFP include any language that prices would be reviewed to determine whether they are so low that they reflect a lack of technical understanding. Finally, the RFP does not provide that proposals could be rejected for offering low prices. Absent such language, our decisions are clear that agencies cannot conduct a price realism analysis, as the protester alleges should have occurred here. See Dyncorp Int’l LLC, supra at 8-9 (absent solicitation provision providing for price realism evaluation, agencies are neither required nor permitted to conduct one in awarding a fixed-price contract).  (Arctic Slope Mission Services, LLC B-412851, B-412851.2: Jun 21, 2016).  (pdf)

Trandes asserts that the cost realism analysis was unreasonable because it was based on outdated cost data. Protest at 9-11. Trandes argues that the agency relied on a DCMA report from 2014 that had itself relied on data from FY 2011 through FY 2013. Id. at 10. The protester contends that the agency should have considered Trandes’s actual 2015 indirect rates, which, according to Trandes, were lower than the rates it identified in its proposal; and that the cost realism analysis’s reliance on earlier, projected rates therefore prejudiced Trandes.Id. at 10-11.

In response, the agency challenges the factual accuracy of Trandes’s allegations that the agency failed to update its cost realism evaluation before awarding the current contract, and improperly relied on information from 2011-2013. AR at 3, 9. The Navy asserts, in contrast to the protester’s claims, that the CET and DCMA reviewed and considered information provided by Trandes concerning proposed indirect rates for FY 2014 through FY 2017, as noted above. Id. at 3-6. Additionally, the agency notes that Trandes twice confirmed the validity of its pricing. Id. at 7-8.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, the agency must perform a cost realism analysis to evaluate the extent to which an offeror’s proposed costs are realistic for the work to be performed. FAR § 15.404-1(d); Excelis Sys. Corp., B-407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7 (considering FAR Part 15 cost realism standards in a FAR Part 16 task order protest); Hanford Envtl. Health Found., B‑292858.2, B‑292858.5, Apr. 7, 2004, 2004 CPD ¶ 164 at 9; Tidewater Constr. Corp., B‑278360, Jan. 20, 1998, 98-1 CPD ¶ 103 at 4. In performing a cost realism analysis, an agency is not required to verify each and every item or achieve scientific certainty in determining the most probable cost. SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7. Based on the results of the cost realism analysis, an offeror’s proposed costs should be adjusted when appropriate. FAR § 15.404-1(d)(2)(ii). An agency is not required to conduct an in‑depth cost analysis, see FAR § 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 ¶ 14 at 8. 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., supra at 8‑9. A protester’s disagreement with the outcome does not render the evaluation unreasonable. TriWest Healthcare Alliance Corp., B-401652.12, B‑401652.13, July 2, 2012, 2012 CPD ¶ 191 at 18.

Here, as discussed above, the record establishes that the agency performed various analyses reviewing multiple fiscal years from 2011 through 2017 regarding cost realism and proposal risk in the context of both Trandes’s initial proposal and its FPR. Specifically, after receiving Trandes’s initial proposal, the agency considered historical data (FY 2011-FY 2013) and Trandes’s projected FY 2014 indirect rates, and sought an independent review from DCMA. Trandes’s FPR included provisional indirect rates for FY 2015 through FY 2017, and the record shows that DCMA and the CET considered them in finding that they did not match the historical data and presented significant risk. AR, Tab 21, Trandes’s FPR Cost Report, at 6-9. In addition, as noted above, the CET adopted Trandes’s proposed lower rates for overhead and fringe for FY 2014, and only upwardly adjusted for G&A and material handling. Id. at 9. Finally, also as noted above, Trandes specifically confirmed its costs past the task order issuance date. On this record, we find reasonable the agency’s reliance on the analysis contained in the Trandes FPR Cost Report, submitted approximately 11 months before the latest task order issuance. See, e.g., American Tech. Sys Inc., B-407168, B-407168.2, Nov. 21, 2012, 2012 CPD ¶ 344 (10 or 11 month period between cost realism analysis and task order issuance).  (Trandes Corporation B-411742.5: Jun 22, 2016)  (pdf)

Price Excessiveness

TransAtlantic next argues that TRANSCOM’s price excessiveness determination was inconsistent with the Cargo Preference Act, because the contracting officer only evaluated the excessiveness of some, but not all, of TransAtlantic’s ocean rates. According to TransAtlantic, this effectively barred it from competing for many bookings, contrary to Act’s underlying policy of subsidizing and increasing competition from U.S. flag carriers. TransAtlantic asserts that TRANSCOM had no basis to consider U.S. flag service, because the RFP did not require carriers to identify the level of flag service offered. In this respect, TransAtlantic complains, once again, that the agency relied on unfounded assumptions and “arbitrary criteria that subvert the CPA and its implementing regulations.” Comments at 7. TransAtlantic also claims that TRANSCOM did not follow the applicable DFARS and PGI criteria for making excessiveness determinations.

TRANSCOM contends that it was not required to evaluate all ocean rates for excessiveness, but was only required to evaluate those rates deemed unreasonable under the agency’s FAR reasonableness analysis. TRANSCOM argues that it fully complied with the CPA, because rates proposed by U.S. flag carriers were only rejected where there was still at least one other U.S. flag carrier with an accepted rate for an ocean lane that could compete at the booking level. TRANSCOM maintains that its contracting officer properly considered all applicable factors under the relevant DFARS and PGI provisions, and properly documented its excessiveness determination.

As stated above, the RFP provided that any rate that appeared excessive would be further evaluated in accordance with DFARS § 247.573. RFP at 64. In this respect, PGI § 247.573 specifies a number of considerations for analyzing whether freight charges offered by U.S. flag carriers are excessive. The contracting officer must consider that the CPA is, in part, a subsidy, and that a lower price for foreign flag service is not a sufficient basis, on its own, to determine that an ocean rate proposed by a U.S. carrier is excessive. See PGI § 247.573(b)(1)(ii)(C)(1)(i). The contracting officer may also consider a number of other factors, such as: (1) excessive profits to the carrier, if ascertainable; (2) the differential between the freight charges proposed by a U.S. flag carrier and an estimate of what foreign flag carriers would charge based on a price analysis; (3) a comparison of U.S. flag rates charged on comparable routes; (4) the efficiency of operation regardless of rate differential (e.g., vessel capacity or positioning); and‑-significantly--(5) “[a]ny other relevant economic and financial considerations.” See PGI §§ 247.573(b)(1)(ii)(C)(1)(ii)-(iii) (emphasis added). If, after considering such factors, the contracting officer concludes that an ocean rate is excessive, the guidance requires that the contracting officer must prepare a Determinations and Findings report that includes, “as appropriate”: (6) an analysis of the carrier’s cost under FAR subpart 15.4; (7) a description of efforts to negotiate a reasonable price under FAR § 15.405; and (8) an analysis of whether the costs are beyond the economic penalty normally incurred by excluding foreign competition. See PGI § 247.573(b)(2)(iv)(C)(1).

Here, the contracting officer’s excessiveness determination was unobjectionable and consistent with the DFARS. The contracting officer states that if a carrier’s proposed ocean rates were found not fair and reasonable by the PET, then those rates underwent further analysis to determine if they were indeed unreasonable, and to determine whether the rates were excessive. CO Statement at 24, 33; AR, exh. 44, Excess. Rate Notes, at 1. The contracting officer explains that he verified those ocean lanes in which carriers historically offered U.S. flag service and confirmed which small carriers only own or operate U.S. flag vessels. For ocean lanes where there was only one small carrier (such as TransAtlantic) that proposed a rate--and that rate was outside the [DELETED] percent price ceiling--the contracting officer also compared the proposed rate to those of “similarly situated” carriers. See CO Statement at 33‑34; AR at 17-18, 32, 37‑38. For example, if the lane was historically served by a U.S. flag vessel or by a small business carrier that only owns or operates U.S. flag vessels, and for which the offeror’s rate exceeded the [DELETED] percent threshold, then that offeror’s rate was rejected for that CLIN. See CO Statement at 33-34. Based on this process, the contracting officer found that 20 of TransAtlantic’s 517 unreasonably high ocean rates appeared excessive and thus qualified for additional analysis pursuant to the CPA. See AR, exh. 50, D&F, at 4‑6.

While TransAtlantic objects to the contracting officer’s various assumptions and considerations relied on in his excessiveness determination, the protester does not substantively challenge any them. For example, TransAtlantic does not dispute the contracting officer’s identification of small U.S. flag carriers, carriers that historically offered U.S. flag service, or small carriers that only own or operate U.S. flag vessels. Moreover, TransAtlantic objects to the agency’s reliance on the Deep Sea Freight Index, because according to the protester it does not take into account flag service, but the protester does not otherwise challenge the actual indexes for any given fiscal year or any of the agency’s comparisons in that regard. Significantly, the protester does not dispute any of the contracting officer’s calculations regarding the 20 TransAtlantic ocean rates that he found excessive.

Finally, we disagree with TransAtlantic that TRANSCOM was required to evaluate every ocean rate for excessiveness. The RFP advised that an offeror’s rates may be determined fair and reasonable on some ocean lanes, but not others. RFP at 64. Moreover, the RFP explicitly stated that a price proposal would not be considered fair and reasonable if it proposed rates that were above the highest commercial service contract rate, consistent with the CPA. Id. Significantly the RFP stated that any rate that appeared to be excessive would undergo further evaluation in accordance with CPA regulations. Id. As discussed above, the PET reasonably concluded, based on adequate price competition and other FAR price evaluation techniques, that the vast majority of TransAtlantic’s proposed ocean rates were unreasonable. As also discussed above, the contracting officer then further evaluated those rates to verify the evaluators’ conclusions and to determine whether any rates should undergo a further excessiveness evaluation under the CPA. This process, in our view, was consistent with the RFP’s stated evaluation process and the CPA’s requirement that U.S. flag carriers not charge DOD rates that are higher than the carrier charges to private persons for transportation of like goods.

In the final analysis, TransAtlantic’s challenges to TRANSCOM’s price evaluations provide no basis to sustain its protest. See TransAtlantic Lines, LLC, B‑411846.2, supra, at 9-10; American President Lines, Ltd., supra, at 5. Rather, in our view, TransAtlantic’s protest essentially reflects the protester’s continuing objection to the terms of the solicitation, and the protester’s apparent view that TRANSCOM must conduct the procurement so as to provide the maximum possible CPA subsidy for all U.S. flag carriers.  (TransAtlantic Lines, LLC B-411846.3, B-411846.4: May 18, 2016)  (pdf)

Next, URS complains that VSE’s price was unrealistically low, asserting that “VSE’s low price should have caused the Army to reject its proposal.” Protest at 27. In this context, URS asserts that the terms of the solicitation should be construed as requiring the agency to perform, and document, a price realism evaluation under which VSE’s proposal should have been rejected as unacceptably low-priced. Id. at 27-31.

The agency responds that the terms of this solicitation neither contemplated nor permitted the agency to reject an offeror’s proposal on the basis of its low price. More specifically, the agency notes that the solicitation does not contain any reference to a price realism evaluation, and that section M of the solicitation provided that proposals would be evaluated under the cost/price evaluation factor based on consideration of “affordability, reasonableness, and completeness.” See TOR at 20. In short, the agency maintains that, pursuant to the terms of the solicitation, an offeror’s low price could not form a basis for the agency’s rejection of its proposal. We agree.

As a general rule in awarding fixed-price contracts, agencies are only required to determine that prices are not unreasonably high. See FAR § 15.402(a). While an agency may conduct a price realism analysis in awarding a fixed-price contract for the limited purposes of assessing whether an offeror’s low price reflects a lack of technical understanding or risk, see FAR § 15.404-1(d)(3), offerors must be advised that the agency will conduct such an analysis.[14] Emergint Techs., Inc., B-407006, Oct. 18, 2012, 2012 CPD ¶ 295 at 5-6. That is, the solicitation must contain either an express price realism provision or a statement warning offerors that a business decision to submit low pricing may form the basis for rejecting the low-priced offeror’s proposal. DynCorp Int’l LLC, B‑407762.3, June 7, 2013, 2013 CPD ¶ 160 at 9. Absent a solicitation provision so advising offerors, agencies are neither required, nor permitted, to conduct a price realism analysis in awarding a fixed-price contract. Emergint Techs., Inc., supra.

Here, the solicitation contained neither an express price realism provision nor a statement warning offerors that a proposal could be rejected on the basis of its low price. Rather, under the heading “Cost/Price Factor,” section M of the solicitation explained how TEP would be calculated, and then stated:

The assessment of Total Evaluated Price will include consideration of affordability, reasonableness, and completeness of the prices, as follows:

i. Affordability: Task order price can also play a role in the Government’s evaluation of the affordability of an offeror’s proposal. An offeror may not receive an award if its proposal is unaffordable.

ii. Price Reasonableness: The Government will evaluate the cost of reasonableness of the offeror’s proposed price using any of the techniques in FAR 15.404-1(b)(2). A price is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.

iii. Completeness: Since exchanges are not intended or desired, the Government requires complete proposals with respect to price. A complete proposal will include all information required by the TOR. The Price Matrix – Attachment 0003 must include pricing for the base period, each option period, surge, and travel, and must be consistent with the instructions contained in the TOR.

TOR at 20.

We do not view any of the above provisions as warning offerors that proposals may be rejected on the basis of low price. Further, although URS refers to another section of the solicitation headed “Reasons for Rejection,” see TOR at 21-22, none of the provisions in that section warn offerors that a business decision to submit low pricing may form the basis for rejecting the low-priced offeror’s proposal. Accordingly, URS’s protest that VSE’s proposal should have been rejected based on its allegedly unrealistically low price is denied. On the record here, we also reject URS’s various additional arguments that are based on, or essentially reflect, the assertion that VSE’s lower TEP should have resulted in the rejection of VSE’s proposal.  (URS Federal Services, Inc. B-412580, B-412580.2: Mar 31, 2016)  (pdf)

Indirect Rate Adjustments

Oasis and Quantech contend that the Air Force did not reasonably consider their bases of estimates when evaluating the protesters’ proposed indirect labor rates. The protesters argue that the agency mechanically adjusted their indirect costs based on unreliable, outdated, or invalid comparisons, and without regard to the offerors’ detailed justifications and explanations. Oasis and Quantech complain that the Air Force has accepted similarly low indirect rates that the protesters proposed in prior PASS II competitions. For example, according to Oasis, it has consistently projected reductions in its indirect costs and the agency has previously accepted those projections. Oasis and Quantech also claim that the agency ignored their ongoing corporate efforts to lower their indirect rates, as described in their proposals. Quantech, for example, maintains that the Air Force did not consider the firm’s recent, and projected, operational efficiencies, cost-cutting programs, and projected business growth. Both protesters allege that the Air Force evaluated their proposed indirect rates disparately as compared to BTAS.

Based on our review of the record, we find reasonable the Air Force’s evaluation and cost adjustments to Oasis’s and Quantech’s indirect rates. The CPET evaluated Oasis’s, Quantech’s, and BTAS’s proposed indirect rates by first reviewing their technical approaches, bases of estimates, and cost workbooks. See AR, Tab 7, SSD, at 19-21, 28-29; Tab 8 (B‑408227.11), SSD, at 19-21. The cost evaluators then compared the offerors’ proposed indirect rates to their respective 2015 provisional billing rates (PBR) established by the Defense Contract Audit Agency. Id. Finally, the evaluators compared the offerors’ proposed indirect rates to sole-source modifications of current PASS II task orders that the agency negotiated with each offeror in September 2015. Id. The [cost/price evaluation team] CPET determined that the offerors’ PBRs and recent task order modifications provided the most current cost data available to the evaluators. Id.

Following this process, the CPET found, with respect to Oasis, that it had not provided a detailed justification to permit the cost evaluators to verify Oasis’s significantly reduced indirect rates. AR, Tab 7, SSD, at 21. For example, the evaluators found that Oasis proposed a “dramatic” reduction to its overhead rate (approximately [DELETED] percent lower than Oasis’s 2015 PBR rate) based on anticipated business growth. Id. at 20. However, the CPET found that Oasis did not quantify or provide actual data on how the anticipated growth would affect Oasis’s indirect rates, thus the evaluators considered the possibility that Oasis may not realize such growth. Id. Similarly, the evaluators found that Oasis had not provided data to verify its proposed fringe benefit rate, nor explain how the offeror calculated that rate. Id. The CPET also found that Oasis had not explained how it would achieve its proposed [DELETED] percent material handling rate. Id. The evaluators questioned Oasis’s proposed [DELETED] percent G&A rate, since Oasis’s 2015 G&A PBR was nearly [DELETED] percent and Oasis was awarded a PASS II task order in July 2015 with a G&A rate of [DELETED] percent (which it then modified in September to [DELETED] percent). Id. at 20‑21. The CPET determined that, since Oasis proposed its 2015 indirect PBR on its recent task order modification, the agency would expect to pay Oasis those established rates, and the CPET increased Oasis’s proposed overhead (including fringe), material handling, and G&A rates to its PBR rates. See id. at 21.

With respect to Quantech, the CPET found that it sought to justify its proposed indirect rate reduction by selectively citing the lowest indirect rates that the Air Force had found realistic in three earlier PASS II task orders issued to Quantech. AR (B‑408227.11), Tab 8, SSD, at 15. The cost evaluators, however, questioned why Quantech had not cited its three most recent task orders, or the September task order modification, all of which proposed indirect rates at Quantech’s 2015 PBR rates, which the agency found realistic. See id. The evaluators determined that Quantech’s proposed fringe benefit, overhead, and G&A rates did not reflect Quantech’s 2015 actual or projected rates, contrary to Quantech’s explanation in its cost proposal. See id. The CPET found that while Quantech projected a downward trend in those costs throughout the entire performance, its recent task order modification, which included most of the same performance period (the base year, 2016, and the first option year, 2017), reflected no such trend. See id. The evaluators determined that since Quantech proposed its 2015 PBR on its recent task order modification, the agency would expect to pay those established rates, and the CPET increased Quantech’s proposed fringe, overhead, G&A, and procurement overhead rates to Quantech’s PBR rates. See id. at 21.

Finally, with respect to BTAS, the CPET found that while the offeror proposed a lower overhead rate (including fringe), similar to the rate that it had proposed on its most recent task order, BTAS, like Oasis, had subsequently negotiated a higher overhead rate (up to BTAS’s 2015 overhead PBR rate) when the agency modified that task order in September. See AR, Tab 7, SSD, at 29. The CPET determined that since BTAS proposed its 2015 overhead PBR for that task order modification, the agency would expect to pay that established rate, and the CPET, as it did with Oasis and Quantech, increased BTAS’s proposed overhead rate to BTAS’s PBR rate. Id. The CPET made no adjustments to BTAS’s proposed G&A rate, because that rate matched its PBR and recent task order modification rates. Id. at 28.

Although Oasis and Quantech object to the CPET’s evaluation process and conclusions as described above, the protesters have not shown that the Air Force acted unreasonably. An agency is not required to conduct an in‑depth cost analysis, see FAR § 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 ¶ 14 at 8. 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. SGT, Inc., B‑294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7.

Contrary to the protesters’ contention, the record shows that the CPET did in fact consider the offerors’ bases of estimates when evaluating their proposed indirect rates. The evaluation documentation includes relevant excerpts from the offerors’ bases of estimates and cost workbooks, followed by the evaluators’ analysis of those provisions. The record also supports the Air Force’s contentions (AR 30-33; AR (B‑408277.11) at 17-18) that the protesters’ cost proposals provided insufficient justification for their proposed indirect rate reductions. The entirety of Oasis’s justification for proposing [DELETED] material handling charge, for example, is that “[DELETED].” AR, Tab 5, Oasis Cost Proposal, at 67. As the cost evaluators reasonably concluded, and the agency persuasively argues, such broad statements, without substantiation, calculations, or projections, are the reason the government must be able to adjust proposed costs when awarding cost reimbursement contracts. AR at 16.

Thus, while the protesters complain that the Air Force mechanically adjusted their proposed rates to PBR levels, our Office has held that an agency may reasonably adjust offerors’ proposed labor rates where the offerors--as here--fail to provide adequate detail to support their rates, and where the agency relies on reasonable sources of data to support its adjustments. See Science Applications Int’l Corp., Inc., B‑408270, B‑408270.2, Aug. 5, 2013, 2013 CPD ¶ 189 at 6-7.

In this respect, we also find reasonable the evaluators’ reliance on cost data from the offerors’ largely contemporaneous task order modifications to perform similar PASS II work, as well as their reliance on the protesters’ current PBRs. The cost evaluators in this case relied--in addition to the information provided by the offerors’ in their cost volumes--on the same, recent sources of information for all three offerors: their 2015 PBRs, their most recent task order (modification) proposal, and, as discussed below, the applicable Department of Defense inflation rate (2.3 percent) used in the President’s Budget Proposal to Congress. Finally, as also discussed below, nothing in the evaluation record supports the protesters’ contention that the Air Force evaluated their indirect labor rates unequally.

Agencies are given broad discretion in conducting cost realism evaluations, and Oasis and Quantech have given us no basis to question the Air Force’s conclusions regarding the realism of their proposed indirect rates. See Burns & Roe Indus. Servs. Co., B‑233561, Mar. 7, 1989, 89-1 CPD ¶ 250 at 2.  (Oasis Systems, LLC; Quantech Services, Inc. B-408227.10, B-408227.11, B-408227.12: Apr 28, 2016)  (pdf)

Salient also challenges DLA’s price analysis, arguing that the agency’s side-by-side comparison of vendors’ prices was inadequate to determine whether Primescape’s low price was fair and reasonable. Salient’s Comments/Supp. Protest at 7.

Salient misunderstands the purpose of a price reasonableness determination. An agency’s concern in making a price reasonableness determination focuses primarily on whether the offered prices are higher than warranted, as opposed to lower. A1 Procurement, JVG, B-404618, Mar. 14, 2011, 2011 CPD ¶ 53 at 3. Although not required, an agency also may 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 its understanding of the contract requirements or the risk inherent in an offeror’s approach. Id.

Here, Salient acknowledges that the solicitation did not require the agency to conduct a price realism analysis. Salient’s Supp. Comments at 8. In this regard, the RFQ stated that the vendor’s price would be evaluated to determine whether pricing was fair and reasonable, and that such a determination would be based on comparison with the IGCE and vendors’ GSA FSS rates, including discounts. Id. at 93, 94. Salient’s argument that Primescape’s quoted prices are too low fails to state a valid basis for protest, when the solicitation at issue does not anticipate a price realism analysis. 4 C.F.R. §§ 21.1(c)(4) and (f).

Salient also argues that DLA failed to compare vendors’ quoted prices to the IGCE to determine whether Primescape’s prices were fair and reasonable, as required by the solicitation. Salient’s Comments/Supp. Protest at 6. Salient contends that the IGCE demonstrates that Primescape’s proposed prices were not fair and reasonable because they were significantly lower than those in the IGCE. Salient’s Supp. Comments at 8.

DLA acknowledges that it did not compare Salient’s and Primescape’s quoted prices to the IGCE. Supp. AR at 6. However, as noted above, the purpose of a price reasonableness analysis is to determine whether prices are too high, not whether they are too low. A1 Procurement, JVG, supra. Here, the record shows that both Salient and Primescape quoted total prices that were significantly lower than the IGCE. Compare AR, Tab 27, Award Decision Document, at 67 with AR, Tab 37, IGCE, at 1. Moreover, Salient fails to explain how comparing prices to the IGCE in a price reasonableness determination would demonstrate that Primescape’s prices are too low, where the solicitation did not provide for price realism analysis.  (Salient Federal Solutions, Inc. B-410174.3, B-410174.4: Apr 1, 2016)  (pdf)

SKC also challenges the agency’s realism evaluation of IPRO’s network six proposal, arguing that IPRO’s proposed per beneficiary and per facility price is too low to be realistic. SKC argues that had the agency compared IPRO’s proposed per beneficiary/facility prices for networks one, two, and nine with its proposed price for network six, it would have recognized that IPRO’s proposed price for network six was much lower than its proposed prices for the other networks, and would have thus concluded that IPRO failed to understand the requirements of the solicitation, creating a risk to the government. Protest at 17. In response, the agency maintains that the RFP did not establish a comparison of prices between separately submitted network proposals as a metric for the evaluation of cost/price realism. Further, the agency notes that the networks represent different geographical regions, which means the networks are not the same for purposes of a cost comparison. AR at 10. We agree with the agency’s arguments in this regard and find nothing in the record to support a finding that the agency’s evaluation of the awardee’s proposed price for network six was unreasonable.

As noted above, despite the fact that the solicitation here contemplated the award of a fixed-price contract, it provided for a cost realism analysis in accordance with FAR § 15.404‑1(d). In this regard, FAR § 15.404‑1(d)(3) provides for cost realism analyses on competitive fixed-price contracts in certain circumstances for the purpose of assessing performance risk. Here, the agency performed a realism analysis to determine whether IPRO’s proposed price was realistic for the work to be performed under the contract, reflective of a clear understanding of contract requirements, and consistent with the various elements of the offeror's technical proposal. AR, Tab 6.D.2, IPRO Cost Realism Report, at 1. This analysis included consideration of IPRO’s proposed direct labor rates, escalation factor, fringe benefits, proposed travel, other direct costs, proposed mix/type of labor, number of proposed hours, and level of effort. Id. Given that the solicitation did not provide for the price comparison methodology advocated by the protester (i.e., a comparison of per beneficiary/per facility pricing across the networks); consistency in these prices was not anticipated due to differences in the regions represented by the networks; and the agency otherwise reasonably analyzed IPRO’s proposed pricing for network six, we see no basis to sustain the protester’s objection to the agency’s realism analysis.  (Southeastern Kidney Council B-412538: Mar 17, 2016)  (pdf)

B&B and EMI assert that the agency’s revised price realism analysis is inadequate and does not show that FCC’s [awardee] prices overall are realistic. B&B Protest at 2; EMI Protest at 7, 9-10. In this regard, B&B notes that FCC’s overall prices were lower than the prices proposed by all other offerors competing for the three VAMC’s at issue, as well as lower than the VA’s independent government cost estimate (IGCE). B&B Protest at 2.

The agency responds that the renewed protests are based wholly on pricing, and that low pricing “does not automatically render an offeror’s pricing in fact unrealistic.” Agency Report (AR) at 5. In addition, the agency maintains that it “verified FCC’s proffered pricing,” and that, moreover, its technical evaluation indicated that “FCC does in fact have a clear understanding of this requirement.” Id. at 6.

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) § 15.402(a). Price realism need not necessarily be considered in evaluating proposals for the award of a fixed-price contract, because these contracts place the risk of loss upon the contractor rather than the government. Indeed, low- or below-cost price proposals are neither prohibited nor discouraged. See Lilly Timber Servs., B-411435.2, Aug. 5, 2015, 2015 CPD ¶ 246 at 4; JCMCS, B-409407, Apr. 8, 2014, 2014 CPD ¶ 125 at 2 (below-cost prices are not inherently improper when vendors are competing for award of a fixed-price contract). Nonetheless, an agency may 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 and/or the risk inherent in a proposal. FAR § 15.404-1(d); General Dynamics One Source, LLC; Unisys Corp., B‑400340.5, B 400340.6, Jan. 20, 2010, 2010 CPD ¶ 45 at 9. Where a solicitation provides for a price realism evaluation, as here, 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 ¶ 6 at 4-5. The FAR recognizes a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, including a comparison of proposed prices with each other and with an independent government estimate. See FAR §§ 15.404‑1(b)(2)(i), (ii), (iv); Islandwide Landscaping, Inc., B-293018, Dec. 24, 2003, 2004 CPD ¶ 9 at 2. In reviewing protests challenging price realism evaluations, our focus is on whether the agency acted reasonably and in a manner consistent with the solicitation’s requirements. General Dynamics One Source, LLC; Unisys Corp., supra.

Here, there is no dispute that FCC’s prices, both overall and with regard to a number of CLINs, were lower than various comparable price measures, consistent with FCC’s overall position as the lowest-priced offeror. However, as noted in the agency’s price realism evaluation, the pricing data considered by the agency indicated that FCC’s pricing was substantially in line with market conditions. For example, the agency notes that FCC’s pricing on almost half of the CLINs was the same or higher than the protestors’ pricing. AR at 10. Further, the agency noted with regard to CLIN 1, for medical oxygen concentrator systems, 5 liter, the single highest quantity item under the contract, that the incumbent contractor for the Mountain Home location (Medical Comfort) offered a price ([deleted] per unit) [deleted] percent lower than FCC’s price ([deleted]). USSDD at 7-8; AR at 13.

Likewise, for CLIN 2, portable tanks, the incumbent contractor for the Mountain Home location (Medical Comfort) offered the [deleted] price ([deleted] per unit), while EMI’s price ([deleted]) and the average price ([deleted]) were [deleted] than FCC’s price ([deleted]), and the internal government estimate ([deleted]) was only slightly [deleted]. USSDD at 7-8; AR at 14. Likewise, for CLIN 3, conserving devices, the agency observed that 4 offerors including [deleted] and [deleted] offered [deleted] per unit. USSDD at 8; AR at 14. The agency also noted that for CLIN 4, liquid oxygen systems, while FCC’s price ([deleted]) was the [deleted], the internal government estimate ([deleted]) and FCC’s VISN 11 contract price ([deleted]) were only slightly [deleted]. Id. The agency further noted that for CLIN 5, liquid oxygen system refills, while FCC’s proposed price ([deleted] per pound) was the [deleted], FCC’s incumbent VISN 11 contract price was [deleted] per pound [deleted] while the VISN 20 contract price was [deleted]. Id.

Further, the agency noted with regard to CLIN 6, portable liquid oxygen conserving devices, that B&B’s and EMI’s proposed prices ([deleted]) were the [deleted], while FCC’s ([deleted]) was the second [deleted]. Id. In addition, while FCC proposed the lowest price ([deleted]) for CLIN 7, monthly rental for contractor-owned ventilators, the agency emphasized that its price was [deleted] than the price under its VISN 11 contract, on which FCC was successfully performing. USSDD at 8-9; AR at 15. Also, the agency noted that for CLIN 12, a high volume compressor, EMI’s price ([deleted]) was [deleted] than FCC’s price ([deleted]) and the median price ([deleted]); B&B’s price was [deleted] as FCC’s price ([deleted]) for CLIN 14, portable compressor unit rental; and B&B’s and EMI’s prices for CLIN 19, portable tank refills, were “[deleted]” with FCC’s price ([deleted]), and all were [deleted] with the median price ([deleted]). USSDD at 10-12; AR at 15-16.

In sum, the record before the agency included significant data tending to support the agency’s position that FCC’s pricing, while “substantially lower” overall, was “in line with market conditions,” including B&B’s and EMI’s pricing, for many of the CLINs. See USSDD at 6. While the agency recognized that this was not true for all of the CLINs, it concluded from its detailed review of FCC’s proposal, both technical and price, that “FCC shows clear understanding of the requirements,” which “mitigates any perceived risk to performance.” USSDD at 6. In addition, the agency emphasized FCC’s satisfactory performance of its VISN 11 contract, for similar services but for a nearly twice as many patients (6,000 veterans versus the 3,100 veterans in VISN 9), as further mitigating risk. Id. While the protesters focus on the differences in pricing, they have not shown that the agency was unreasonable in concluding from its detailed review of FCC’s proposal that in the circumstances here, there was not a significant risk of poor performance as a result of FCC’s lower pricing.  (B&B Medical Services, Inc.; Ed Medical, Inc. B-409705.7, B-409705.8: Dec 8, 2015)  (pdf)

AGE raises two related challenges to the Air Force’s evaluation of East/West’s allegedly “unrealistically” low price. First, AGE argues that the Air Force engaged in a defective price reasonableness analysis because it found East/West’s “unrealistically” low price to be reasonable. AGE’s Comments at 2, 4. Second, AGE argues that East/West is attempting--improperly and in violation of procurement regulations--to “buy in” to this contract by submitting an offer that is below anticipated costs. Protest at 2. For the reasons discussed below, we find no basis to sustain the protest.

AGE argues that the Air Force’s price reasonableness evaluation was defective because the agency allegedly failed to perform sufficient analysis to determine whether the East/West’s price was too low. Comments at 2. AGE contends that the Air Force should have analyzed East/West’s “pricing data.” Id. at 4.

As our Office has held, when awarding a fixed-price contract, an agency is only required to determine whether the offered prices are fair and reasonable. FAR § 15.402(a); Per Aarsleff A/S et al., B‑410782 et al., Feb. 18, 2015, 2015 CPD ¶ 86 at 17. An agency's concern in making a price reasonableness determination is whether the offered prices are too high, rather than too low. Vital Link, Inc., B‑405123, Aug. 26, 2011, 2011 CPD ¶ 233 at 6. 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. Indtai Inc., B-298432.3, Jan. 17, 2007, 2007 CPD ¶ 13 at 4; Dismas Charities, Inc., B‑289575.2, B-289575.3, Feb. 20, 2004, 2004 CPD ¶ 66 at 4. Here, the RFP did not provide for a price realism analysis, see RFP at 71, and the Air Force, therefore, was not required to perform such an analysis.

Moreover, where a solicitation does not provide for a price realism analysis, 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 perform the contract successfully at its offered price, which is not a matter that our Office will review. 4 C.F.R. § 21.5(c); Inchcape Shipping Servs. Holding, Ltd., B‑403399.3, B‑403399.4, Feb. 6, 2012, 2012 CPD ¶ 65 at 5; Milani Constr., LLC, B-401942, Dec. 22, 2009, 2010 CPD ¶ 87 at 4-5; Laerdal Med. Corp., B‑297321, B-297321.2, Dec. 23, 2005, 2006 CPD ¶ 12 at 7 n.6.

Next, AGE argues that the East/West is attempting to “buy in” to the contract by submitting a below-cost price. Protest at 2. AGE cites to East/West’s past prices on competitive procurements and its public General Services Administration schedule price listings for similar cranes--all of which AGE contends are significantly higher than the price proposed here by East/West. Id. at 8; AGE’s Comments at 5. AGE concludes, therefore, that East/West has improperly submitted a proposed price that is below its anticipated costs. AGE’s arguments are unavailing.

FAR § 3.501-1 defines “buying-in” as submitting an offer below anticipated costs, expecting to (1) increase the contract amount after award (e.g., through unnecessary or excessively priced change orders); or (2) receive follow-on contracts at artificially high prices to recover losses incurred on the buy-in contract. Although the FAR cautions agencies, as a matter of policy, to be cognizant of the practice because of the risk that it may decrease competition or result in poor contract performance, the FAR does not expressly prohibit buying-in. FAR § 3.501-2. Rather, contracting officers are instructed to take appropriate action to ensure buying-in losses are not recovered by the contractor through change orders or follow-on contracts subject to cost analysis. Id.

One such method to decrease the risk associated with buying‑in is to seek a “price commitment covering as much of the entire program concerned as is practical[.]” FAR § 3.501-2(b). As the contracting officer explains, the resultant contract in this matter is a fixed-price contract through which the Air Force obtained a firm price commitment from East/West for the entire requirement of 186 cranes, including option years. CO’s Statement at 18. Moreover, the contracting officer represents that any requirements exceeding the BEQ of 186 cranes “would not be obtained under this contract,” but “through the use of a new competitive acquisition.” Id. Accordingly, the Air Force contends that it has implemented methods to minimize the opportunity for buying-in and that “[t]his acquisition and the resultant contract provide neither an opportunity for East/West to increase the contract amount after award nor does it provide [] an opportunity to receive follow-on contracts at artificially higher prices.” Id.; Legal Memorandum at 15.

As our Office has held, a fixed-price contract places the risk and responsibility for contract costs and resulting profit or losses on the contractor; for this reason, an agency’s use of a fixed-priced contract addresses the concern raised in the FAR regarding buying-in. See SoniTech NDT, B‑407115, Nov. 2, 2012, 2012 CPD ¶ 311 at 3. Moreover, even assuming that East/West did submit an offer that is below anticipated costs, there is no prohibition against an agency accepting below-cost prices on a fixed-price contract. Inchcape Shipping Servs. Holding, Ltd., supra; IBM Corp., B-299504, B-299504.2, June 4, 2007, 2008 CPD ¶ 64 at 13 n.17; All Phase Envtl., Inc. B-292919.2 et al., Feb. 4, 2004, 2004 CPD ¶ 62 at 8; McDonnell Douglas Corp., B-259694.2, B-259694.3, June 16, 1995, 95-2 CPD ¶ 51 at 9. Rather, “[t]he fact that a firm, in its business judgment, submits an offer that may not include any profit or be below-cost, or may be an attempted buy-in, does not render the firm ineligible for award.” IBM Corp., supra (citations omitted). To the contrary, an agency may not withhold an award from a responsible offeror merely because its low offer is, or may be, below cost. McDonnel Douglas Corp., supra.  (AGE Logistics Corporation B-412049: Dec 9, 2015)  (pdf)

When an agency evaluates a proposal for the award of a cost-reimbursement contract or order, an offeror’s proposed costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. FAR §§ 15.305(a)(1), 15.404-1(d); Exelis Sys. Corp., B‑407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7 (considering FAR part 15 cost realism standards in a FAR part 16 task order procurement); CGI Fed. Inc., B‑403570 et al., Nov. 5, 2010, 2011 CPD ¶ 32 at 5 n.1 (same). Consequently, an 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 § 15.404‑1(d)(1); DynCorp Int’l LLC, supra, at 8. An agency is not required to conduct an in-depth cost analysis, see FAR § 15.404-1(d)(1), or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. While an agency’s cost realism analysis need not achieve scientific certainty, 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 at the time of its evaluation. Tantus Techs., Inc., B-411608, B-411608.3, Sept. 14, 2015, 2015 CPD ¶ 299 at 10. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. TriCenturion, Inc.; Safeguard Servs., LLC, B‑406032 et al., Jan. 25, 2012, 2012 CPD ¶ 52 at 6.

Overview of GSA’s Analysis of Jacobs’ Proposed Costs

GSA represents that the contracting officer conducted a multi-step cost realism evaluation. First, the contracting officer, in consultation with the technical evaluators, states that he considered the vendors’ proposed level of effort and labor mix. The RFQ included a workforce projection that provided the anticipated level of effort and labor mix for each performance location. SAR, Tab 11A(1), Workforce Projection. The RFQ instructed that “[a]n offeror’s quote for the base and option years shall be based on this level of effort projected and the PWS requirements stated herein.” RFQ, PWS, at 4. Three of the vendors proposed the 302 full time equivalents (FTE) and labor mix set forth in the workforce projection, while ManTech proposed [DELETED] FTEs. SAR, Tab 23, Award Decision (Aug. 13, 2015), at 83; MAR, Tab 5, Evaluation Team Leader Decl. (Sept. 23, 2015), at 2. Thus, the material distinguishing factors between the vendors’ price quotations were the vendors’ proposed labor rates, indirect rates, and maximum fee rates.

In response to the protest, the contracting officer states that he reviewed the vendors’ supporting cost data and methodologies. See, e.g., MAR Contracting Officer Statement of Facts (COSF) (Sept. 23, 2015) at 11. The only evidence of the review in the contemporaneous record, however, is the statement in the Award Decision document that “each offeror’s cost data and methodology was rational[ ] and reasonable.” SAR, Tab 23, Award Decision (Aug. 13, 2015), at 83. In response to GAO’s specific request for supplemental written clarification regarding whether the contracting officer actually reviewed any underlying market survey data, the contracting officer stated that “Jacobs provided, as part of its supporting cost data, data from Salary.com,” and that “the agency reviewed and determined [that the data] supported the conclusion that Jacobs’ proposed labor rates were realistic.”[8] SAR Supp. COSF (Nov. 6, 2015) at 9. Jacobs’ pricing attachment included Salary.com data reflecting the 10th, 25th, 50th, 75th, and 90th percentile for each labor category in the relevant geographic locations. SAR, Tab 19D, Jacobs’ Revised Pricing Attachment (Aug. 6, 2015), “Labor Rates” Worksheet. The contracting officer also explained in his response to GAO’s questions that he also considered the following information concerning Jacobs’ proposed costs: (1) knowledge of the local labor market based on its 30 years of experience in the geographic areas; (2) skills progression program involving training, opportunities for advancement, and mentoring; (3) corporate reach-back capabilities; and (4) cost accounting system documentation. SAR Supp. COSF (Nov. 6, 2015) at 5-6.

The contracting officer also reviewed and compared the vendors’ proposed labor rates for the base period of performance. The contracting officer examined the vendors’ proposed unburdened direct labor rates and determined how many of the labor categories for which each vendor proposed the lowest and/or highest unburdened direct labor rates:

(Table with completely deleted information was deleted)

The contracting officer explained that this analysis could “indicate the potential to stabilize the workforce labor rates” because “[b]y offsetting an employee with a proposed higher rate who accepts a lower rate than proposed, the company has potential added ‘buying power’ to target the key or critical employees who have been paid an unexpected premium but may not accept a lower labor rate.” Id. The contracting officer then prepared a chart comparing each vendor’s proposed unburdened direct hourly labor rates and burdened (excluding fee) hourly labor rates for each labor category. Id. at 83-84. Beyond the comparison of the competing rates and methodologies utilized by the vendors for preparing the rates, the contracting officer did not evaluate individual labor category rates for realism. SAR Supp. COSF (Nov. 6, 2015) at 7.

The contracting officer next compared the differences between the vendors’ proposed unburdened direct labor rates and proposed burdened labor rates. For purposes of this calculation, the contents of the “burden rates” varied by vendor, but all generally included indirect cost components such as fringe benefits, general & administrative expenses, and overhead costs. The contracting officer found that the average differences between the unburdened and burdened labor rates for the vendors were:

(Table with completely deleted information was deleted)

The contracting officer described the purpose of this analysis as follows:

This method helped determine how much more overall flexibility the company has if they offered an incumbent employee the labor rate proposed but discovered that amount was not adequate to retain the qualified and experienced employee. The company could choose to forego some indirect costs, or even potential fee which is not included in the average above, for certain critical or key positions should they need to pay more without negatively impacting the company’s proposed cost ceiling or future performance. The higher the overhead/indirect cost percentage, the more flexibility a company has.

The contracting officer concluded his analysis by evaluating the vendors’ proposed indirect rates for other direct costs, training, material, and subcontracting support, as well as their proposed award fee rates. Id. at 86-88. We now turn to the protesters’ specific challenges to GSA’s evaluation of Jacobs’ direct labor rates and indirect cost rates.

Evaluation of Jacobs’ Direct Labor Rates

The protesters contend that GSA’s cost realism evaluation was inadequate because it did not specifically evaluate the realism of any proposed labor category, but, rather, only consisted of a generalized, high‑level comparison of the four vendors’ proposed rates. The protesters also contend that the agency was required to rely on historical labor rates, versus market rates, in light of the significant number of incumbent personnel that were to be retained by the follow-on contractor. GSA responds that the scope and depth of its cost realism evaluation were within the contracting officer’s discretion, and the contracting officer exercised his reasonable discretion in conducting the cost realism evaluation. The agency contends that cost comparison is an acceptable method for conducting a cost realism evaluation, and that further evaluation was unnecessary because the vendors’ unique approaches and methodologies reasonably supported the variances in the proposed direct labor rates. GSA also contends that it reasonably looked at relevant market data provided by Jacobs, as opposed to exclusively relying on historic incumbent rates, and reasonably considered Jacobs’ past performance in cost control under cost reimbursement contracts and experience hiring technical personnel in the relevant labor markets.

As discussed above, an agency’s cost realism analysis need not consider every element of an offeror’s cost proposal, nor must the analysis achieve scientific certainty regarding the realism of an offeror’s proposed costs. The methodology employed, however, 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 at the time of its evaluation. Tantus Techs., Inc., supra; Iron Vine Security, LLC, B-409015, Jan. 22, 2014, 2014 CPD ¶ 193 at 7 (sustaining a protest of an agency’s realism evaluation for a time-and-materials task order utilizing cost realism analysis where the agency did not evaluate the realism of vendors’ proposed labor rates). Here, we find GSA’s analysis was flawed with respect to analyzing the realism of vendors’ proposed direct labor rates.

As an initial matter, we find, contrary to the protesters’ arguments, that certain underlying components of GSA’s cost realism methodology concerning the evaluation of direct labor rates were reasonable. For example, while consideration of the incumbent’s historical rates, as advocated by the protesters, is one acceptable method for evaluating the realism of a vendor’s proposed costs, it is not the only reasonable data point that can be considered. Here, the contracting officer determined that it was prudent to also consider relevant market survey data provided by vendors because market prices could have changed since the time of the previous award to Smartronix, who is the incumbent, and realism has to be evaluated based on a vendor’s unique approach. SAR Supp. COSF (Nov. 6, 2015) at 3. Additionally, the contracting officer could, as part of a reasonable cost realism analysis, compare the proposed rates of the four vendors. See FAR § 15.404‑1(c)(2)(iii)(C). Thus, we do not find objectionable GSA’s consideration of multiple types of data in its cost realism evaluation, as opposed to limiting its evaluation only to historical incumbent data.

While these components of GSA’s cost realism methodology are reasonable in the abstract, our concern with the agency’s cost realism evaluation is that once the agency acquired these data points, it performed no further analysis or probing to determine whether the proposed rates were realistic. In this regard, the contracting officer represented that “[b]y reviewing and analyzing a comparison of the offerors’ proposed labor rates across individual labor categories, with consideration to the various methodologies used to determine the offerors’ costs, it became apparent that evaluation of each individual labor category rate would not have provided any practical value in the evaluation.” SAR Supp. COSF (Nov. 6, 2015) at 7. In short, it appears that the agency concluded that each vendor proposed low rates for some positions, high rates for other positions, and that the differences, on balance, presented no overall realism concerns. This limited high-low analysis, however, is inconsistent with the FAR’s cost realism requirements. Specifically, the FAR contemplates that:

Cost realism analysis is the process of independently reviewing and evaluating 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 § 15.404-1(d)(1) (emphasis added).

As addressed above, although the agency was not required to evaluate every element of a vendor’s proposed costs or obtain scientific certainty as to the most probable anticipated cost of performance to the government, the agency’s failure to evaluate the realism of any of the individual rates for any of the labor categories for any of the vendors was not reasonable. We discuss below three examples which illustrate the flaws with GSA’s cursory evaluation.

First, although the agency prepared a chart listing each vendor’s proposed direct unburdened labor rates for each labor category, GSA concedes it did not conduct any realism analysis for any individual labor category. SAR Supp. COSF (Nov. 6, 2015) at 7. For example, the contracting officer represented that “some labor category rates amongst offerors were consistent” because there was no more than a $3.00 difference between those rates. Id. at 6. In some cases, including the highlighted examples below, however, a variance of $3.00 per hour could potentially be material; additionally, the $3.00 spread in some circumstances only applied to the difference between the vendor proposing the lowest direct labor rate and the vendor offering the next lowest direct rate. As a result, this analysis ignored examples where the other two vendors offered rates in excess of $3.00 more than the lowest proposed rate. An example of this scenario is illustrated by the [DELETED] position: Jacobs’ proposed unburdened hourly labor rate was only [DELETED] less, but more than [DELETED] percent lower, than the vendor who proposed the next lowest rate for the position. See AR, Tab 23, Award Decision (Aug. 13, 2015), at 84. As discussed in greater detail below, this difference was also potentially material in terms of Jacobs’ own proposed approach and the supporting market survey data it submitted.

Similarly, with respect to the [DELETED] position, Jacobs’ proposed unburdened direct hourly rate was only [DELETED] less, but more than [DELETED] percent lower, than the vendor who proposed the next lowest rate for the position. See id. While these variances could theoretically be found realistic following meaningful consideration of Jacobs’ proposed approach and supporting cost data with respect to these positions, we cannot conclude that they are reasonable in the absence of any such contemporaneous analysis by the agency. Thus, the cursory level comparison of competing proposed rates, without more, was not sufficient to provide a reasonable measure of confidence that the proposed rates were realistic.

Second, GSA’s representation that it relied on the labor rate data provided by Jacobs does not demonstrate that the agency’s cost realism evaluation was reasonable, as the contemporaneous record does not show any meaningful analysis of this data. For example, Jacobs represented in its cost proposal narrative that “[w]e recognize that there are critical positions . . . that are key to the success of your mission and will demand skilled professionals [DELETED].” SAR, Tab 19G, Jacobs’ Revised Price Quotation (Aug. 6, 2015), at 6. With respect to these “critical positions,” Jacobs stated that “[t]hese individuals are difficult to recruit and retain, [DELETED].” Id. Jacobs represented that [DELETED] of the 302 FTEs were identified as filling “critical positions,” and would be subject to “increased recruiting focus and higher levels of compensation [DELETED].” Id. Jacobs further explained that it “assigned the highest priority level to the [DELETED] percentile of Salary.com survey data and the lower priority group to the [DELETED] percentile of Salary.com survey data.” Id. at 7. For all other positions, Jacobs represented that it would propose rates consistent with the [DELETED] percentile of Salary.com data. Id.

One of the “critical positions” identified by Jacobs was the [DELETED] labor category. Id. The workforce projection for the [DELETED] labor category anticipated [DELETED]. SAR, Tab 11A(1), Workforce Projection, at 1. Jacobs proposed [DELETED] unburdened direct labor rate for [DELETED] of [DELETED] per hour. SAR, Tab 19D, Jacobs’ Revised Pricing Attachment (Aug. 6, 2015), “Base Year Rates” Worksheet. The other vendors proposed, respectively, hourly rates for the [DELETED] position of: [DELETED]; [DELETED]; and [DELETED]. SAR, Tab 23, Award Decision (Aug. 13, 2015), at 84.

Even if Jacobs’ low proposed rate compared to its competitors did not put GSA on notice that further evaluation was necessary, the agency should have been aware of an apparent inconsistency between Jacob’s proposed rates and its submitted supporting cost data. In this regard Jacobs’ proposed unburdened labor rate for the position is not consistent with its proposed approach in the cost narrative. According to Jacobs, the [DELETED] labor category corresponds to the job title [DELETED] on Salary.com. SAR, Tab 19D, Jacobs’ Revised Pricing Attachment (Aug. 6, 2015), “Labor Rates” Worksheet. Based on the Salary.com data provided in Jacobs’ proposal for [DELETED], the average annual salaries and associated hourly rates for the position are:

(Table with completely deleted information was deleted)

Had GSA reasonably considered the information provided in Jacobs’ proposal, it would have found that Jacobs’ proposed labor rate for this position was at the [DELETED] percentile. This appears to be inconsistent with Jacobs’ proposed approach to compensate individuals in “critical positions” at either the [DELETED] or [DELETED] percentiles. SAR, Tab 19G, Jacobs’ Revised Price Quotation (Aug. 6, 2015), at 6. In this regard, we note that the other vendors all proposed rates for TS/SCI cleared personnel for this position at least at the [DELETED] percentile. SAR, Tab 23, Award Decision (Aug. 23, 2015), at 84. GSA should have reasonably questioned why a “critical position” identified by Jacobs was proposed to be paid at the lowest proposed compensation tier, when Jacobs’ proposal indicated that higher compensation levels would be paid to individuals filling a “critical position.” Thus, the analysis performed by the agency does not appear to have reasonably considered the realism of Jacobs’ proposed unburdened labor hour rates in connection with Jacobs’ own proposed approach.

Third, the contemporaneous evaluation record does not address the realism of Jacobs’ proposed rates with respect to the awardee’s ability to capture the large number of incumbent personnel contemplated by the PWS and Jacobs’ own proposed approach. The PWS includes a performance requirement that the contractor will be responsible for transitioning 90 percent of the incumbent workforce. RFQ, PWS, at 28. Additionally, Jacobs’ proposal reflects that it intends to retain at least [DELETED] percent of the incumbent workforce (but it also maintains a [DELETED]). SAR, Tab 19A, Jacobs’ Transition-In Plan (July 27, 2015), at 11. Smartronix is the incumbent prime contractor, and ManTech is an incumbent subcontractor. SAR Supp. COSF (Nov. 6, 2015) at 8.

While we agree that the agency was not bound to automatically find Smartronix’s and ManTech’s rates, which were based in part on historical rates paid by the firms in performance of the incumbent contract, as the mandatory benchmarks for realism, there is no contemporaneous documentation demonstrating that the agency analyzed whether the market rates relied upon by Jacobs would be sufficient to retain personnel who are currently being paid higher rates under the incumbent contract. In the absence of any contemporaneous supporting rationale for the agency’s determination that Jacobs’ proposed rates, which departed from the historical rates paid to incumbent personnel, were sufficient to retain the high percentage of incumbent personnel that were anticipated to be retained, we cannot conclude that the agency’s cost realism evaluation was reasonable in this respect.

In sum, GSA’s evaluation of vendors’ proposed direct labor rates was insufficient to provide a reasonable measure of confidence with respect to whether the proposed rates were realistic and what the most probable cost to the government would be for Jacobs’ performance. The agency’s failure to probe, beyond a high-level comparison of vendors’ general proposed rates, failed to verify whether the vendors’ proposed direct labor rates were consistent with and realistic based on the vendors’ proposed approaches and underlying supporting cost data. Therefore, we sustain the protest on this basis.

Evaluation of Jacobs’ Indirect Costs

In addition to concerns with the reasonableness of the contracting officer’s evaluation of vendors’ proposed labor rates, we also are concerned with GSA’s contemporaneously documented views regarding vendors’ proposed indirect rates. Specifically, the contracting officer represented that he believed a contractor could and would forego indirect cost recovery or fee to increase labor rates that were insufficient as proposed to retain incumbent personnel, and therefore the higher a vendor’s proposed indirect rates, the more “flexibility” it would have to mitigate the consequences of low proposed direct labor rates. SAR, Tab 23, Award Decision (Aug. 13, 2015), at 85.

First, the observations appear to rely on assumptions that are not consistent with the associated risks and consequences to the government in the event a vendor underbid certain labor categories on a cost-reimbursement type contract or order. The contracting officer’s view that a vendor could have flexibility to forego recovery of indirect costs or fee in the event they were unable to retain incumbent personnel at lower proposed rates is inconsistent with the fundamental principle of conducting a cost realism analysis when awarding a cost-reimbursement type contractor or order. That is, since the government, not the contractor, bears the cost risk associated with unrealistically low proposed costs on a cost reimbursement contract or order, it is the very purpose of a cost realism analysis to determine whether a vendor’s proposed costs are realistic and reasonably represent the most probable cost of performance to the government. R&D Maint. Servs., Inc., B‑292342, Aug. 22, 2003, 2003 CPD ¶ 162 at 8 (recognizing that on a cost reimbursement type contract or order the government “bears the risk and responsibility to pay the contractor its actual allowable costs regardless of the costs proposed by the offeror”).

We also do not find persuasive the agency’s view that the application of the “contract ceiling” or a contractor’s concern with maintaining a positive past performance record for “cost control” are sufficient mechanisms for controlling costs in lieu of conducting a proper cost realism evaluation when awarding a cost-reimbursement type contract or order. In this regard, GSA does not identify, nor do we see, any provision in the RFQ that would cap a vendor’s direct labor rates. Cf. RFQ at 11 (finding a vendor’s proposed total labor category hourly rates in excess of its published Alliant labor rates would “be subject to a fair and reasonable determination by the Contracting Officer”). Furthermore, the import of the agency’s observation is contradictory. Under the contracting officer’s analysis, since Jacobs proposed [DELETED] indirect costs, it would [DELETED] to shift indirect labor costs to direct labor costs in the event that it underbid a labor category. SAR, Tab 23, Award Decision (Aug. 13, 2015), at 85. Therefore, because we are concerned that the contemporaneous analysis suggests that the agency applied fair and reasonable price analysis considerations in lieu of cost realism analysis considerations, we also sustain the protest on this basis.

On this record, we find that GSA failed to conduct a reasonable cost realism evaluation, and therefore sustain the protests.  (Smartronix, Inc.; ManTech Advanced Systems International, Inc. B-411970, B-411970.2, B-411970.3, B-411970.4: Nov 25, 2015)  (pdf)

W.P. Tax protests the CDC’s evaluation of its quotation as technically unacceptable. Specifically, the protester argues that it was unreasonable for the agency to make assumptions regarding W.P. Tax’s proposed level of effort based upon its proposed fixed price. As discussed below, we find that the CDC’s evaluation was unreasonable because the agency conducted a price realism analysis that was not provided for in the solicitation. We sustain W.P. Tax’s protest on this basis.

Before awarding a fixed-price contract, an agency is required to determine that the price offered is fair and reasonable. FAR § 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 ¶ 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 a vendor’s low price reflects a lack of understanding of the contract requirements, or risk inherent in a vendor’s approach. See Milani Constr., LLC, B-401942, Dec. 22, 2009, 2010 CPD ¶ 87 at 4. However, where there is no relevant evaluation criterion pertaining to realism or understanding, a determination that a vendor’s price on a fixed-price contract is too low generally concerns the vendor’s responsibility, i.e., the vendor’s ability and capacity to successfully perform the contract at its offered price. See id.; J.A. Farrington Janitorial Servs., B-296875, Oct. 18, 2005, 2005 CPD ¶ 187 at 4; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD ¶ 207 at 5. Agencies therefore may not conduct a price realism analysis without first advising vendors that the agency intends to do so. See Emergint Techs., Inc., B-407006, Oct. 18, 2012, 2012 CPD ¶ 295 at 4-6.

We conclude that the CDC improperly relied upon an unstated evaluation factor in determining that the protester’s proposed pricing was so low as to pose performance and schedule risk. As the record reflects, and the agency acknowledges, the RFQ did not contemplate the performance of a price realism evaluation. RFQ at 1-2; see AR (Oct. 21, 2015), at 2 (“The solicitation does not include a provision regarding price realism.”). We also note that, although the RFQ required that vendors propose a fixed price for the base year and option years, it did not require that vendors provide information concerning the labor hours or level of effort upon which the price was based. RFQ at 1-2. In this regard, the record reflects that, in accordance with the RFQ, W.P. Tax’s quotation included a proposed fixed price for the base year and options years, but did not specify labor hours or level of effort. See AR, Tab 6, W.P. Tax Proposal.

Despite the absence of a price realism provision in the RFQ, and despite the lack of any information in W.P. Tax’s proposal regarding labor hours or level of effort, the record demonstrates that the agency’s evaluation of W.P. Tax’s quotation considered whether the protester’s proposed price was too low to perform the required work. For example, and as referenced above, the CDC concluded that W.P. Tax’s proposed fixed fee “indicates very little time spent on the payroll services.” AR, Tab 9, Evaluation of W.P. Tax, at 1. The agency also found that W.P. Tax’s “level of effort proposed is extremely low for the requirements and deliverables listed in the [SOW],” and that “[n]ot enough labor hours were bid for the work effort required by the SOW.” AR, Tab 12, Summary of Negotiations, at 1-3. As a result, the agency concluded that W.P. Tax’s quotation posed “a very high performance and schedule risk.” Id. at 7. Based on this assessment of the protester’s quotation, the agency found W.P. Tax’s proposal unacceptable. Id.

Because below-cost prices are not inherently improper, when vendors are competing for award of a fixed-price contract, firms must be given reasonable notice that a business decision to submit a low-priced quotation may be considered as reflecting on their understanding of the contract requirements or the risk associated with their approach. See Milani Constr.,LLC, supra. Since the RFQ did not contain a provision indicating that the agency would conduct a price realism analysis, and the agency’s evaluation of W.P. Tax as technically unacceptable clearly relied on the agency’s assessment of risk related to the protester’s low fixed-price, we conclude that the agency failed to reasonably evaluate W.P Tax’s quotation. We sustain W.P. Tax’s protest on this basis.

Further, the CDC’s concern that W.P. Tax’s price was too low was a matter of the vendor’s responsibility. Since W.P. Tax is a small business, if the CDC believed that W.P. Tax would not satisfactorily perform the contract at its quoted price, the agency was required to refer this finding of nonresponsibilty to the Small Business Administration (SBA) for that agency’s review under its Certificate of Competency procedures. See FAR § 19.602-1(a); CSE Constr., supra.  (W.P. Tax & Accounting Group B-411899: Nov 13, 2015)  (pdf)

[General Dynamics Advanced Information Systems] GDAIS alleges that the Navy mistakenly and unreasonably concluded that its proposal contained [DELETED] uncompensated overtime hours within the CPFF CLINs. GDAIS contends that its cost proposal was fully compliant with the solicitation; included voluminous, detailed cost breakdowns accounting for the required 45,000 CPFF hours; and explicitly recognized that “[a]s per the RFP, the use of [uncompensated overtime] will not be exercised for the CPFF CLINs.” AR, Tab 3, GDAIS Cost Proposal, at 0262. According to GDAIS, nothing in its proposal, including the uncompensated overtime summary, is inconsistent with the RFP’s level of effort clause requirements or supports the agency’s determinations concerning the proposal of uncompensated overtime hours.

The Navy responds that the C/PAT’s conclusion concerning GDAIS’s proposal of uncompensated overtime hours was reasonable based on the uncompensated overtime summary provided with GDAIS’s proposal. The Navy asserts that the presence of the uncompensated overtime summary in GDAIS’s proposal, which on its face identified uncompensated overtime hours for each CLIN including [DELETED] uncompensated overtime hours under the CPFF CLINS, created at a minimum an ambiguity as to whether GDAIS proposed uncompensated overtime hours to fulfill the level of effort requirement in contravention of the RFP’s requirement. The Navy further asserts that other inconsistencies exist, both within GDAIS’s cost proposal and between the cost proposal and the uncompensated overtime summary, which render GDAIS’s proposal ambiguous. The Navy argues that, in light of the presence of the uncompensated overtime summary in the proposal, among other inconsistencies concerning the use of uncompensated overtime, the C/PAT reasonably concluded that GDAIS had proposed [DELETED] compensated hours and [DELETED] uncompensated overtime hours for the CPFF CLINs, and that the proposed costs required adjustment.

When an agency evaluates proposals for the award of a contract that includes cost-reimbursable line items, an offeror’s proposed estimated cost for the cost-reimbursable line items 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. Magellan Health Servs., B-298912, Jan. 5, 2007, 2007 CPD ¶ 81 at 13; Metro Machine Corp., B-295744, B-295744.2, Apr. 21, 2005, 2005 CPD ¶ 112 at 9; Federal Acquisition Regulation (FAR) § 16.301. As a consequence, 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 unique technical approach, assuming reasonable economy and efficiency. FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2); The Futures Group Int'l, B-281274.2, Mar. 3, 1999, 2000 CPD ¶ 147 at 3.

Our Office will review an agency’s cost realism analysis, when it has been protested, to determine whether it is reasonably based and not arbitrary. The Warner/Osborn/G&T Joint Venture, B-256641.2, Aug. 23, 1994, 94-2 CPD ¶ 76 at 5. In this regard, our Office will examine whether an agency’s most probable cost adjustment is premised on an unreasonable consideration of uncompensated overtime in the cost realism analysis. See SRS Techs., B-291618.2, B-291618.3, Feb 24, 2003, 2003 CPD ¶ 70; Combat Sys. Dev. Assocs. Joint Venture, B-259920.2, June 13, 1995, 95-2 CPD ¶ 162. Based on our review of the record in this case, we find the Navy’s conclusion that GDAIS proposed [DELETED] uncompensated overtime hours under the CPFF CLINs to be unsupported and unreasonable.

As described above, the C/PAT’s conclusion that GDAIS proposed [DELETED] uncompensated overtime hours is premised on the proposal’s uncompensated overtime summary attachment, which identified uncompensated overtime hours under each CLIN, including [DELETED] hours attributed to the CPFF level of effort CLINS. Based on its analysis of the uncompensated overtime summary, the C/PAT concluded that the [DELETED] uncompensated overtime hours the summary assigned to the CPFF CLINs were within the 45,000 CPFF hours described in GDAIS’s cost proposal, such that GDAIS’s proposal consisted of only [DELETED] compensated hours and [DELETED] uncompensated overtime hours for the CPFF CLINs. Our review of the uncompensated overtime summary leads us to conclude, however, that the agency lacked a reasonable basis for interpreting GDAIS’s cost proposal in this manner. We further conclude, based on our review, that the C/PAT’s analysis erred due to its failure to recognize and account for subcontractor hours clearly described in the cost proposal.

As an initial matter, our review of the record shows that, when read in the context of the entire price proposal, it is apparent that the “Effective Hours” and “Uncompensated Hours” set forth in the uncompensated overtime spreadsheet were not a part of the proposed hours described in GDAIS’s CPFF basis of estimate, and that the uncompensated overtime spreadsheet as a whole was provided only as additional substantiation of the realism of GDAIS’s proposed labor rates. In this regard, we note that none of the sections of GDAIS’s proposal on which the Navy based its uncompensated overtime conclusions, or which the Navy now identifies as ambiguous, are actually within the cost proposal’s CPFF basis of estimate, which provided the detailed cost breakdowns of GDAIS’s proposed labor categories, hours, rates, and costs for the CPFF CLINs. Rather, the information relied upon by the C/PAT, and now alleged to be ambiguous, is largely contained within proposal “Appendix B,” concerning “Explanatory Notes--General Dynamics Cost Estimating Narrative” and the attached uncompensated overtime summary. AR, Tab 3, GDAIS Cost Proposal, at 0388.

The appendix explains that:

GDAIS maintains a total time reporting (fulltime accounting) timekeeping system whereby employees record all hours worked. GDAIS’ uncompensated overtime pricing methodology recognizes the uncompensated hours worked by employees which reduces the direct labor forward pricing rates accordingly. This labor estimating approach provides more accurate project cost accounting and is the method preferred by [the Defense Contract Audit Agency].

GDAIS calculates direct labor [Forward Pricing Rate Proposal] rates to include decrements based on the historical total hours worked by employees in the previous measurement period.

AR, Tab 3, GDAIS Cost Proposal, at 0394. The appendix advises that where it is required to substantiate decremented labor rates, “GDAIS includes a table that estimates the [uncompensated overtime] impact for each proposed [Forward Pricing Rate proposal] or contract labor category . . . as substantiated by historical performance”--essentially, the uncompensated overtime summary. Id. at 0395.

On our review of the proposal and the uncompensated overtime summary, it is readily apparent that the uncompensated overtime summary is the table provided for the purpose of substantiating decremented forward pricing rates as described in the proposal’s “Explanatory Notes--General Dynamics Cost Estimating Narrative.” Id. at 0388. Accordingly, this table reflects only the historical ratio of uncompensated overtime captured by GDAIS’s total time accounting system based on the average hours worked for each labor category, as applied to the hours proposed for the RFP. Although the table was provided to substantiate the realism of the decremented forward pricing rates in GDAIS’s proposal, the uncompensated overtime summary does not provide that the “Effective Hours” or “Uncompensated Hours” are proposed hours to be delivered under the RFP. Thus, we conclude that C/PAT’s reliance on these columns of the uncompensated overtime summary to reach conclusions about the composition of GDAIS’s proposed hours was misplaced.

Further, we conclude that GDAIS’s submission of the uncompensated overtime summary was consistent with the RFP’s requirement to “submit its Price and Cost summaries in accordance with the Offeror’s accounting structure,” and “use a Forward Pricing Rate Recommendation (FPRR) with additional substantiating data, such as historical information.” AR, RFP, at 0101-0102. In this case, GDAIS proposed decremented forward pricing as established by historical information in its total time accounting system and as set forth in its FPRR. The uncompensated overtime summary provided additional substantiating data for the realism of GDAIS’s proposed labor rates, as requested by the RFP. We note the Navy’s cost evaluation itself concluded that the proposed decremented rates were verified by GDAIS’s most recent FPRR, were realistic, and required no adjustment.

Next, the record demonstrates that there was no inconsistency between the “Proposed Hours” set forth in the uncompensated overtime summary and the hours in GDAIS’ cost proposal, and that the C/PAT’s conclusion that the two could not be reconciled was in error. Specifically, the Navy asserts in its agency report that the C/PAT’s attempt to reconcile the uncompensated overtime summary with the price proposal was complicated by the fact that neither the uncompensated overtime summary’s “Proposed Hours” or “Effective Hours” columns corresponded to the CPFF hours detailed in the price proposal. The agency argues that neither column of the summary contained sufficient hours to match the cost proposal or meet the RFP level of effort requirement but that, invariably, the “Effective Hours” (inclusive of uncompensated overtime) column was closer. Agency Report at 21.

As an example, the Navy explains that under CLIN 500, the uncompensated overtime summary identified “a total of [DELETED] ‘Proposed Hours’ and [DELETED] ‘Effective Hours,’ neither of which correspond to the 7500 hours required” for that CLIN. Id. The C/PAT also noted that the uncompensated overtime summary included labor categories for which there were no uncompensated overtime hours, such that it did not appear that the tables were limited to a subset of labor categories impacted by uncompensated overtime, but instead contained all labor categories proposed. Id. On this analysis, the Navy contends the C/PAT concluded that it was unclear whether GDAIS’s cost proposal included or excluded the uncompensated overtime hours described in the uncompensated overtime summary, and the C/PAT reasonably resolved the proposal ambiguity in a manner that protected the government against unsubstantiated cost savings--by concluding that [DELETED] uncompensated overtime hours were proposed within the 45,000 hours level of effort requirement, and adding [DELETED] compensated hours to the proposal.

The record, however, demonstrates that the C/PAT analysis involved a clear error, in that it failed to recognize and account for [DELETED] subcontractor hours detailed by GDAIS’s CPFF basis of estimate under each engineering services CLIN (500-504), and [DELETED] subcontractor hours under each field engineering services CLIN (600-604). See AR, Tab 3, GDAIS Cost Proposal, at 0266-0358. In this regard, a close comparison of the uncompensated overtime summary to the cost proposal shows that the uncompensated overtime summary includes proposed hours for each labor category proposed by GDAIS, but does not include the subcontractor hours. When the subcontractor hours are added to the uncompensated overtime summary’s “Proposed Hours,” it is apparent that the sum exactly matches the hours per CLIN required by the RFP and described in the cost proposal. That is, there is no inconsistency between the hours. Accordingly, the C/PAT’s contemporaneous analysis, concluding that the uncompensated overtime summary hours did not correspond to the price proposal and suggesting that [DELETED] uncompensated overtime hours were proposed within the required level of effort hours, was in error and was unreasonable.

Finally, the Navy alleges that notwithstanding the 45,000 hours described in GDAIS’s cost proposal, or the purpose of the uncompensated overtime summary, the proposal’s use of uncompensated overtime was ambiguous because uncompensated overtime hours that GDAIS proposed for the FFP CLINs (which the Navy acknowledges were permitted by the RFP) were included in the cost proposal. In this regard, the Navy asserts that the number of uncompensated overtime hours attributed to the FFP CLINs in the uncompensated overtime summary directly corresponds to the number of uncompensated overtime hours that GDAIS’s FFP basis of estimate indicated it intended to utilize for the FFP CLINs. The Navy argues that where the two values are connected for the FFP CLINs, the proposal strongly indicates that the number of uncompensated overtime hours specified in the uncompensated overtime summary equals the number of uncompensated overtime hours anticipated in the performance under each CLIN--including [DELETED] uncompensated overtime hours under the CPFF CLINs. The Navy argues that this interpretation is not unreasonable where the uncompensated overtime summary did not indicate any difference in the treatment of uncompensated overtime between the FFP and CPFF CLINs.

We conclude that the Navy’s argument again misunderstands the GDAIS proposal. In this regard, while the uncompensated overtime summary does not describe any difference in the use of uncompensated overtime between the FFP and CPFF CLINs (the uncompensated overtime summary contains no descriptions or narratives whatsoever), the FFP basis of estimate and CPFF basis of estimate narratives in the cost proposal clearly distinguish the approaches to uncompensated overtime between the two types of CLINs. In this connection, the FFP basis of estimate narrative contains a section which discusses GDAIS’s company policy on uncompensated overtime, and specifically identifies the anticipated number of uncompensated overtime hours to be provided under each FFP CLIN. In contrast, the CPFF basis of estimate narrative contains no discussion of the company policy on uncompensated overtime, does not identify any uncompensated overtime hours anticipated to be provided within the 45,000 CPFF hours proposed, and specifically acknowledges that “[a]s per the RFP, the use of [uncompensated overtime] will not be exercised for the CPFF CLINs.” AR, Tab 3, GDAIS Cost Proposal, at 0262. Accordingly, we cannot conclude that GDAIS’s use of uncompensated overtime to complete the RFP’s FFP CLINs provides support for the C/PAT’s conclusion that GDAIS improperly proposed [DELETED] uncompensated overtime hours to fulfil the CPFF CLINs.   (General Dynamics Advanced Information Systems, Inc. B-411771, B-411771.2: Oct 20, 2015)  (pdf)

Cost Evaluation

Tantus also challenges CMS’s evaluation of Edaptive’s cost proposal, arguing that the awardee proposed unrealistic labor rates for [deleted] key personnel that the agency should have adjusted upward. Comments and Supp. Protest at 17-22. 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. FAR §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 25 at 7. Consequently, an 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 § 15.404-1(d)(1). An agency is not required to conduct an in-depth cost analysis, see FAR § 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 ¶ 14 at 8. While an agency’s cost realism analysis need not achieve scientific certainty, 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 at the time of its evaluation. See SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7.

Here, the record reflects that Edaptive proposed, during the option years of the task order, to hire [deleted] key personnel previously employed by its subcontractors, and to pay these individuals substantially lower hourly rates than their prior employers. For example, in option year 3, Edaptive proposed to hire its lead project manager from its subcontractor [deleted], and to reduce the direct labor rate of the employee by more than [deleted] per hour as compared to the rate paid by [deleted] under option year 2. AR, Tab 4.A.2.1, Edaptive Cost Proposal, at Detail Cost Tab, line 7; AR, Tab, 4.A.3.3, QSSI Cost Proposal, at Budget Tab, line 396. Similarly, Edaptive proposed to hire and reduce the direct labor rate for its senior testing strategist by more than [deleted] per hour in option year 2. AR, Tab 4.A.2.1, Edaptive Cost Proposal, at Detail Cost Tab, line 29; AR, Tab 4.A.3.1, Mathematica Cost Proposal, at Rate Build-Up Tab, line 11.

Tantus argues that it was unrealistic to expect these key personnel to accept such substantial pay cuts, and that the agency should have adjusted Edaptive’s proposed hourly rates upward to be consistent with the rates these individuals were being paid by the subcontractors. Comments and Supp. Protest at 19. CMS contends that its cost realism analysis was proper because in evaluating Edaptive’s hourly rates, the agency found that they were consistent with the rates for comparable labor categories published on Salary.com. Supp. Memorandum of Law, at 16. The agency also argues that Edaptive’s rates for the lead project manager and senior testing specialist were realistic as Edaptive based those rates on the hourly rates of its current employees who have skills and experience similar to that required for these positions. Supp. Legal Memorandum at 16; AR, Tab 4.A.2.1, Edaptive Cost Proposal, at Tab Edaptive Base Rate, column C.

We agree with the protester that the agency’s cost evaluation was not reasonable to the extent that it relied on labor rate data inconsistent with the actual hourly rates of the proposed employees. An agency’s cost evaluation must consider whether the proposed costs are realistic in light of an offeror’s actual technical approach. See TriCenturion, Inc.; SafeGuard Servs., LLC, supra, at 6. Thus, while Edaptive’s proposed labor rates for the option years of the task order may have been realistic had it proposed to hire new employees or to use its own employees, Edaptive proposed to utilize primarily incumbent staff, specifically identified by name, throughout the life of the task order. AR, Tab 4.A.2.1, Edaptive Cost Proposal, at Edaptive Base Rate Tab. Further, we think Edaptive’s proposal to dramatically reduce the hourly rates of the three key personnel at issue and continue to retain these individuals should have raised concerns. As such, we find that the agency’s cost realism evaluation was flawed where it failed to consider whether Edaptive’s proposed labor rates, for each year of the task order, were consistent with the actual rates paid to the employees in the prior year of the contract. See Wisconsin Physicians Servs. Ins. Corp., supra, at 8-11 (sustaining challenge to awardee’s proposed labor rates that were based on market survey data and lower than the rates then being paid to the proposed incumbent employees); Magellan Health Servs., B-298912, Jan. 5, 2007, 2007 CPD ¶ 81 at 15 (finding labor rates of awardee’s current employees irrelevant to probable cost analysis where awardee was proposing to employ higher-paid incumbent employees).

Tantus also argues that CMS’s cost evaluation was flawed because while the agency found that the protester had proposed an excessive amount of travel, the agency did not adjust the protester’s proposed travel costs downward. Comments and Supp. Protest at 24. We disagree. While our Office has held that an agency should downwardly adjust an offeror’s costs where its proposal shows a misunderstanding of the requirements which would cause the government to incur a lower cost than the offeror proposed, an agency need not do so where the offeror’s proposed costs reflect its technical approach. See Bart & Assocs., Inc., B-407996.5 et al., Jan. 5, 2015, 2015 CPD ¶ 61 at 14-16. Here, Tantus’s proposal provided that one of its key personnel would make [deleted] trips per year to CMS’s facilities because the protester considered the employee’s regular presence to be “essential” to performance of the task order. AR, Tab 3.A.2, Tantus Business Proposal, at 6-7. Although the TEP found that [deleted] trips was excessive, Tantus’s travel costs were based on its proposed technical approach, not a misunderstanding of the agency’s requirements. As such, the agency was under no obligation to reduce the protester’s proposed travel costs. See Bart & Assocs., Inc., supra (denying protest where agency downwardly adjusted awardee’s costs that were based on out-of-scope work, but did not adjust protester’s proposed labor hours, which agency found excessive but consistent with the protester’s technical approach).  (Tantus Technologies, Inc. B-411608, B-411608.3: Sep 14, 2015)  (pdf)

Price Realism

Next, Argus challenges the agency’s determination that Cogar’s pricing was realistic. Before addressing Argus’s argument, we observe that where a solicitation anticipates an award based on fixed-price, fully-burdened labor rates, an agency may provide for the use of a price realism analysis for the limited purpose of measuring a vendor’s understanding of the requirements or assess the risk inherent in a vendor’s quotation. See Ball Aerospace & Techs. Corp., B‑402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion. Star Mountain, Inc., B‑285883, Oct. 25, 2000, 2000 CPD ¶ 189 at 6. Our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Smiths Detection, Inc.; Am. Sci. & Eng’g, Inc., B-402168.4 et al., Feb. 9, 2011, 2011 CPD ¶ 39 at 17.

Returning to Argus’s claim, the firm argues that the agency’s price realism evaluation was flawed because the agency’s independent government estimate (IGE) of the contract’s value allegedly was not based on the current applicable collective bargaining agreement (CBA). See Comments at 3-4. However, the record reflects that the agency’s price realism evaluation was based not on a comparison of Cogar’s pricing to the IGE, but instead was based on an evaluation of Cogar’s pricing elements, as well as a favorable comparison of the elements to various pricing metrics.[6] The record also reflects that the determination that Cogar’s pricing was realistic was based in part on the finding that Cogar currently is successfully performing another protective security officer contract for the agency. FPS AR, Tab 9, SSDD at 2. While Argus raises various other arguments regarding the agency’s price realism analysis, on the record here, we see no basis to sustain the claims.

The protest is denied.  (Argus International Risk Services, LLC B-411682,B-411682.2: Sep 25, 2015)  (pdf)

Lilly Timber protests the agency’s evaluation of its prices as risky and unreasonably low. As detailed below, we find that the agency’s evaluation and ultimate award decisions were unreasonable because NRCS conducted a price realism analysis that was not provided for in the solicitation. We sustain Lilly Timber’s protest on this basis.

Before awarding a fixed-price contract, an agency is required to determine that the price offered is fair and reasonable. FAR § 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 ¶ 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 a vendor’s low price reflects a lack of understanding of the contract requirements, or risk inherent in a vendor’s approach. See Milani Constr., LLC, B-401942, Dec. 22, 2009, 2010 CPD ¶ 87 at 4. However, where there is no relevant evaluation criteria pertaining to realism or understanding, a determination that a vendor’s price on a fixed-price contract is too low generally concerns the vendor’s responsibility, i.e., the vendor’s ability and capacity to successfully perform the contract at its offered price. See id.; J.A. Farrington Janitorial Servs., B-296875, Oct. 18, 2005, 2005 CPD ¶ 187 at 4; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD ¶ 207 at 5. Agencies therefore may not conduct a price realism analysis without first advising vendors that the agency intends to do so. See Emergint Techs., Inc., B-407006, Oct. 18, 2012, 2012 CPD ¶ 295 at 4-6.

The solicitation here did not furnish vendors with reasonable notice that the agency intended to perform a price realism analysis. Rather, the RFQ provided only for the evaluation of the “reasonableness” of the quoted price, that is, whether the price was unreasonably high. See RFQ at 2. The solicitation lacked any evaluation criteria that reasonably would have put vendors on notice that the agency intended to consider the realism of vendors’ prices. Despite the absence of a price realism provision in the RFQ, the record demonstrates that the agency’s evaluation of Lilly Timber’s price considered whether the protester’s price was too low. For example, and as indicated above, the agency concluded that Lilly Timber’s project 3 price was “risky” and its project 4 and 5 prices were “unreasonably low,” which did not reflect an understanding of the work. AR, Tab 5, Source Selection Decisions (Projects 3-5), at 26-30. As a result, Lilly Timber was not awarded the contracts for projects 3-5 because the agency determined that the low prices created a risk of unsatisfactory performance.

Because below-cost prices are not inherently improper when vendors are competing for award of a fixed-price contract, firms must be given reasonable notice that a business decision to submit a low-priced quotation may be considered as reflecting on their understanding of the contract requirements or the risk associated with their approach. See Milani Constr.,LLC, supra. Since the RFQ did not contain a provision indicating that the agency would conduct a price realism analysis, and because the agency’s award decision clearly relied on the agency’s assessment of risk related to the protester’s low fixed-price, we conclude that the agency failed to reasonably evaluate Lilly Timber’s quotations. We sustain Lilly Timber’s protest on this basis.

Further, the agency’s concern that Lilly Timber’s price was too low was a matter of the vendor’s responsibility. Since Lilly Timber is a small business, if NRCS believed that Lilly Timber would not satisfactorily perform the contract at its quoted price, the agency was required to refer this finding of nonresponsibility to the Small Business Administration (SBA) for that agency’s review under its certificate of competency procedures. See FAR § 19.602-1(a); CSE Constr., supra, at 4.  (Lilly Timber Services B-411435.2: Aug 5, 2015)  (pdf)

ARCADIS asserts that the agency failed to perform an adequate cost realism analysis of Jacobs’ proposal. Specifically, ARCADIS argues that the agency failed to reasonably evaluate the low indirect rates that Jacobs proposed, including overhead of [REDACTED] for the base period (versus [REDACTED] for ARCADIS), and G&A of [REDACTED] for the base period (versus [REDACTED] for ARCADIS). Jacobs Cost Advisory Report (CAR) at 3‑4; ARCADIS CAR at 4. ARCADIS acknowledges that Jacobs agreed as a result of discussions to cap its proposed indirect rates, thus eliminating the risk to the agency of a cost overrun. ARCADIS argues, however, that the agency failed to consider that Jacobs’ low proposed indirect rates would create a performance risk. Supplemental Comments, May 27, 2015, at 11.

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. Federal

Acquisition Regulation (FAR) § 15.404-1(d)(1); Advanced Commc’n Sys., Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD ¶ 3 at 5. An offeror’s proposed costs should be adjusted, when appropriate, based on the results of the cost realism analysis. FAR § 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. Metro Mach. Corp., B-402567, B-402567.2, June 3, 2010, 2010 CPD ¶ 132 at 6.

Here, Jacobs proposed [REDACTED] indirect rates that were [REDACTED] , and which the agency recognized were low. Jacobs Cost Proposal at 13; Jacobs CAR at 3-4. The Defense Contract Audit Agency (DCAA) reviewed the rates and concluded that since they were [REDACTED] it could not comment on them. Jacobs CAR at 3-4. DCAA, therefore, advised the agency to accept the rates, but to request that Jacobs propose them as ceiling rates for any awarded contract to avoid a potential cost overrun. Id. Jacobs subsequently agreed to the agency’s request that it propose the rates as ceiling rates. Jacobs Interrogatory No. 3; Jacobs Response to Interrogatory No. 3. As a result, the agency found that the rates did not present a cost risk to the government. Jacobs CAR at 3-4; SSD at 5.

The agency also considered whether Jacobs’ proposed low, [REDACTED] indirect rates nevertheless could result in performance problems. In this regard, the source selection official (SSO) was aware that Jacobs was currently successfully performing another EPA contract where it had used the same strategy of proposing low, [REDACTED] indirect rates as ceiling rates for that particular procurement. SSO Declaration, May 19, 2015, at 4. In addition, the SSO was aware from the past performance evaluation that Jacobs had a broad business base, and was successfully performing multiple billion dollar federal contracts where it was rated high for past performance, including in the cost control category. Id. The SSO concluded that, based on the multiple billion dollar contracts that Jacobs was performing, and given Jacobs’ substantial business base, Jacobs’ proposal did not present a performance risk notwithstanding the low indirect rates. Id. at 4-5. Based on this record, we conclude that the agency’s cost analysis was reasonable, and that ARCADIS has failed to demonstrate otherwise. The fact that ARCADIS disagrees with the agency’s judgment is not sufficient to establish that the agency acted unreasonably. See Trofholz Techs., Inc., B-404101, Jan. 5, 2011, 2011 CPD ¶ 144 at 3-4.  (ARCADIS U.S., Inc. B-411302, B-411302.2: Jul 7, 2015)  (pdf)

Cubic next argues that the agency engaged in unequal treatment in that prior to submitting final proposal revisions its average labor rate was only $[DELETED] lower than SAIC’s average labor rate, yet the agency did not find SAIC’s labor rates to be exceptionally low. Protester’s Comments at 9. The protester also asserts that SAIC’s optional FTE labor rates were generally significantly lower than its own optional FTE labor rates, but only Cubic’s labor rates were found to be exceptionally low. Protester’s Supp. Comments at 7.

In reviewing an agency’s evaluation, we will not reevaluate proposals, but will examine the record to ensure that it was reasonable and in accordance with the stated evaluation criteria and applicable procurement statutes and regulations. PMC Solutions, Inc., B-310732, Jan. 22, 2008, 2008 CPD ¶ 20 at 2. It is a fundamental principle of federal procurement law that a contracting agency must treat all offerors equally and evaluate their proposals evenhandedly against the solicitation’s requirements and evaluation criteria. Rockwell Elec. Commerce Corp., B-286201 et al., Dec. 14, 2000, 2001 CPD ¶ 65 at 5. The record shows that the agency treated Cubic and SAIC disparately in the evaluation of price proposals.

Our Office requested and received supplemental briefings from the parties on the issue of whether the agency treated Cubic and SAIC disparately in conducting its price realism evaluation, particularly with respect to both offerors’ optional FTE labor rates. As noted above, the optional FTE positions comprised 19 of the 109 FTE positions contemplated by the RFP. The agency argued that there was no disparate treatment with respect to each offerors’ optional FTE labor rates because SAIC’s proposal, unlike Cubic’s was found to be technically acceptable. Agency Response at 3, 6. In other words, the agency determined that SAIC’s proposed optional FTE labor rates were not exceptionally low because the rates were supported by the firm’s technically acceptable staffing plan and management approach. Id. at 3. In contrast, the agency argues that it found Cubic’s similar labor rates to be exceptionally low because its technical proposal was found to be technically unacceptable. Id. at 3-6.

However, Cubic responds that the contemporaneous evaluation documents show that the agency labeled Cubic’s price as exceptionally low because of its labor rates, not its technical proposal, and that the unacceptable rating assigned to the protester’s technical proposal was directly related to its proposed price. Protester’s Response at 5. Our review of the record leads us to agree. While the agency now argues that Cubic was not found to be technically unacceptable because of its rates, but because “Cubic had failed to adequately explain how it would recruit, hire and retain qualified people to fill the core FTE requirements,” Agency Response at 6, it is clear from the record that the basis of the agency’s concern under the technical factor was not just Cubic’s approach to perform the contract, but its approach to perform at the rates proposed.

In this regard, the record shows that Cubic’s technically unacceptable rating was driven by the agency’s evaluation of the firm’s pricing. As noted above, the SSEB found Cubic’s proposal to be unacceptable under the staffing plan and management approach subfactor because its “proposed staffing plan and management approach, combined with the proposed pricing, does not demonstrate the offeror’s ability to recruit, hire and retain qualified personnel to meet all of the [RFP’s] requirements.” AR, exh. 18, SSEB Evaluation of Initial Cubic Evaluation Notice Responses, at 2; see also exh. 19a, Interim PAR, at 18 (requesting revised staffing plan, management approach and pricing proposal, to adequately demonstrate Cubic’s ability to recruit hire and retain qualified personnel), id. at 21 (noting that while the protester has shown it is capable of performing successfully based on demonstrated experience, its pricing still seems exceptionally low due to a comparison of its proposed rates to those used by [DELETED] on the predecessor contract). It was not until Cubic’s final proposal revision, where the firm significantly increased its proposed salaries and compensation options, that the evaluators found the firm’s proposal to be technically acceptable. AR, exh. 28b, Final PAR, at 8.

With respect to the evaluation of SAIC’s similarly low optional FTE rates, the record shows that, in the initial evaluation, the agency found that SAIC’s proposed pricing was “more in line” with the government’s historical pricing and required level of effort than other offerors such as Cubic. AR, exh. 14a, Initial PAR, at 20. In both the interim and final evaluations, SAIC’s price evaluation contains the comment, “[a]lthough some of the proposed labor rates are below the Government market research labor rate, the offeror’s technical proposal supported the offeror’s ability to attract and retain qualified personnel for the duration of the contract performance.” AR, exh. 19a, Interim PAR, at 71; exh. 28b, Final PAR, at 23. There is no additional specific information in the record discussing the agency’s evaluation of the realism of SAIC’s proposed prices, including optional FTE labor rates. Moreover, there is no other explanation in the record as to why SAIC’s optional FTE labor rates were not found to be similarly low, as with Cubic’s rates.

Our Office gave the agency the opportunity to provide further explanation for its evaluation in this regard. As noted above, the agency states that it determined that SAIC’s proposed optional FTE labor rates were not exceptionally low because the rates were supported by the firm’s technically acceptable staffing plan and management approach. Agency Response at 3. However, the portion of SAIC’s technical proposal that was produced to our Office can best be described as discussing a general approach to performance, but not SAIC’s experience or capability to perform at the specific labor rates proposed, and in particular the optional FTE labor rates. See generally AR, exh. 41, SAIC Technical Proposal. Consequently, the fact that SAIC was found to be technically acceptable does not address performance risk associated with the specific rates proposed by SAIC, which is properly considered under the agency’s price realism analysis.

The agency further explains that Cubic and SAIC used two different [DELETED] rates, and the fact that the government did not require offerors to provide a breakdown of the way in which they arrived at their labor rates prevented an “apples to apples” comparison. Declaration of Contracting Officer at 2. As a result, according to the agency, its price realism evaluation was actually targeted at the offerors’ total overall evaluated prices, and not labor rates. Id. While it may be the case that the agency was initially focused on overall evaluated prices, as discussed above, both Cubic’s technical evaluation and price evaluation were focused on the firm’s core and optional FTE labor rates. Moreover, the agency utilized an ICE of $[DELETED million, but additionally noted that a contract could be competitively awarded at [DELETED] savings over the ICE or predecessor award amount. AR, exh. 19a, Interim PAR, at 65; exh. 28b, Final PAR, at 17. Both the Interim PAR and Final PAR ascribe some significance to proposals being within [DELETED] percent of the agency’s IGE, and Cubic’s price fell into this range after the second round of discussions. Thus, the record reflects that Cubic’s overall price was realistic by the agency’s own standard, which is evidenced by the agency’s continued focus on Cubic’s specific labor rates, and not its overall price.

In any event, even after giving the agency repeated opportunities to explain its evaluation, we conclude that there is insufficient information in the record for our Office to determine that the agency’s price realism evaluation of SAIC’s proposed optional FTE labor rates was reasonable. As discussed, while SAIC’s core FTE labor rates were significantly higher than those proposed by Cubic and are more in line with the price evaluation metrics utilized by the agency in its evaluation, SAIC’s optional FTE labor rates are substantially lower than both the agency’s own metrics and Cubic’s proposed rates at various points in the evaluation. The contemporaneous record does not address this issue. Given the detail in the agency’s price evaluation of Cubic, it would be reasonable to expect the agency’s record to reflect such consideration for SAIC.

Moreover, the agency’s post-protest documentation does not explain why certain of SAIC’s labor rates were not found to be exceptionally low because the agency instead argues that it only focused on overall evaluated prices. The record shows that while this may have been the focus for SAIC’s price evaluation, it was not the case for Cubic’s. Absent a reasonable explanation for why SAIC’s apparently exceptionally low rates were not found to be exceptionally low by the agency, we cannot conclude that the agency’s evaluation was reasonable. Therefore, on this record, we must agree with Cubic that there was disparate treatment of offerors with respect to the agency’s price evaluation.  (Cubic Applications, Inc. B-411305, B-411305.2: Jul 9, 2015) 

Finally, B&B asserts that Greene offered “an illusory price” for CLIN No. 2, making its offer “materially ambiguous.” Comments and Supp. Protest at 7. In this regard, B&B points out that Greene entered a price of zero for CLIN No. 2, as well as an entry of “$Included in Item 1,” for all locations. AR, exh. S, Greene Proposal, at 10‑27. For example, Greene’s entry for the Louisville location read as follows:

Greene Proposal at 10.

The protester argues that the “only logical reading” of Greene’s entry in CLIN No. 2 is that “Greene would provide the VA a CLIN 2 portable oxygen system at no charge if the VA ordered a CLIN 1 oxygen concentrator at a price of [deleted].” Comments and Supp. Protest at 4. According to the protester, “Greene’s price proposal does not indicate what price it would charge for CLIN 2 items if they were ordered separately, or what price it would charge if ordered along with any other CLIN item besides CLIN 1.” Id. at 5.

The agency challenges B&B’s interpretation of Greene’s CLIN No. 2 entry, maintaining that Greene’s proposal

clearly shows that when formulating its offer for this firm fixed price contract, Greene assumes the risk that where the Agency does not order CLIN 1 but orders CLIN 2, Greene is still obligated to charge $0.00 for CLIN 2 as this is the manner in which it chose to price its proposal, i.e., by including the price for CLIN 2 in the price for CLIN 1.

Supp. AR at 5. The agency further asserts that by offering a price of “$0.00” for CLIN No. 2, Greene indicated its intent to supply all items required by the solicitation. Id., citing Mark Dunning Indus., B-405417, Oct. 6, 2011, 2011 CPD ¶ 207 at 2 (protest that low bid should be rejected as nonresponsive because it did not include a price for two line items denied where dashes were inserted in the line items and the bid noted that the items would be provided at no charge or at $0.00). Likewise, Greene states with regard to its CLIN No. 2 entry that:

such language‑‑“$ included in Item 1”‑‑merely indicates that Greene, as the incumbent contractor, chose to include its price for CLIN 2 into CLIN 1 based on its professional expertise and business judgment in anticipating a variety of influences affecting performance costs, and therefore Greene assumes the risk that if the VA does not order CLIN 1, Greene is obligated to charge the Government $0.00 for CLIN 2 in this firm fixed price procurement.

Intervenor Supp. Comments at 2.

We find the agency’s interpretation of Greene’s CLIN 2 pricing to be reasonable. Our cases have previously indicated that, in fixed price acquisitions, individual CLIN prices of $0.00 are not generally objectionable or inherently unrealistic. See, e.g., GTSI Corp., B-286979, Mar. 22, 2001, 2001 CPD ¶ 55 (entry of $0.00 for program manager CLINs, as a legal matter, signaled offeror’s awareness of the requirement, and its agreement to be bound to perform it, thus satisfying the RFP's requirement that offerors propose to perform all required CLINs); Brewbaker White Sands JV, B‑295582.4, Oct. 5, 2005, 2005 CPD ¶ 176 at 3 (there is nothing improper in an offeror electing not to charge for certain items or services; where an offeror indicates a commitment to furnish the item in question by inserting "$0.00" in its proposal, its proposal is compliant). In our view, the agency reasonably viewed Greene’s entry in the total amount column of “$Included in Item 1” as simply an explanation of its “$0.00” unit price for CLIN No. 2, and not as a qualification of that price. We conclude that the agency reasonably found Greene’s pricing for CLIN No. 2 offered to furnish the item in that CLIN without charge.

The protest is denied.  (B&B Medical Services, Inc. B-409705.2: Apr 17, 2015)  (pdf)

As discussed, under the RFP, price was to be evaluated to ensure that the offeror’s pricing was not “unbalanced, unreasonable, or unrealistic.” RFP at 105. In this regard, the solicitation required the submission of monthly unit prices for performing specified custodial services at various buildings at the Denver Federal Center. Further, offerors were required to submit “[c]omplete documentation supporting the unit prices proposed in the schedule.” RFP at 100. In addition, the solicitation indicated that the agency would evaluate under the management plan subfactor “how the Offeror will manage the performance and staff the facilities to meet contract requirements and ensure that good customer satisfaction will be maintained.” RFP at 104.

ATI proposed the lowest price of all offerors at $7,654,151, while the awardee’s proposed price was $10,097,664 and the government estimate was $[deleted]. SSDD at 8. In its proposal’s pricing narrative, ATI indicated that it was proposing “a minimum of [deleted] permanent employees and up to [deleted] on-call, as needed.” AR, exh. 11, Tab 4, ATI Pricing Narrative, at 71. In addition, ATI set forth its proposed pay rates for the various categories of employees. Id. at 75 et seq.

In the agency’s written debriefing following the initial elimination of ATI’s proposal from the competition in June 2014, the agency listed as one of three significant weaknesses under the management plan factor “Concern with [deleted] employees.” Agency Debriefing, June 25, 2014, at 2. According to ATI, GSA explained in a subsequent oral debriefing that its concern with respect to ATI’s proposal of [deleted] ”permanent employees” was based on its understanding that ATI historically had employed [deleted] staff members in providing custodial services for its portion of the Denver Federal Center, while Sparkle Warner had employed another [deleted] staff members for its portion of the facility. ATI Protest of Exclusion from the Competition, June 30, 2014, at 8. According to ATI, the agency stated that, based on this understanding of the historical staffing, the evaluators projected that 32-38 employees would be required for the consolidated requirement. Id.

In its protest of its initial exclusion from the competition, however, ATI asserted that it was in fact performing with a staff of [deleted] full-time equivalent employees, not [deleted]. ATI also furnished payroll data regarding its staffing, and information regarding occupancy level and factors (e.g., locked areas, high number of “no service” tenant requests, high number of offices where cleaning was by appointment only, and teleworking). According to ATI, this information indicated a reduced requirement for custodial services relative to that which might be expected from the size of the buildings, thus calling into question the agency’s estimate of required staffing and supporting ATI’s proposed staffing. ATI Protest of Exclusion from the Competition at 7; ATI Supplemental Protest of Exclusion from the Competition, July 7, 2014, at 2-4.

Prior to the due date for its report responding to ATI’s protest, GSA announced that it was undertaking corrective action and reevaluating proposals. In its report prepared after the reevaluation of proposals, the SSEB made no mention of any weakness arising from ATI’s proposal of only [deleted] permanent employees when explaining the unweighted rating of 3 (average) assigned to ATI under the management plan subfactor. SSEB Report at 8-9. Likewise, the SSA in her source selection decision did not mention the prior weakness. SSDD at 4. Instead, the source selection decision merely included a comparison of the prices submitted by the most highly rated offerors, including ATI, and the government estimate, leading the SSA to conclude:

Even though [ATI] is also rated a 3 [technical score], their offer is priced so low that the offer is considered to be unrealistic in price realism and reasonableness and would put the government at risk if the Offeror tried to perform the services with inadequate funding. The next higher price of offers evaluated was $9,577,610.35, which was $1,923,458.90 higher than [ATI’s] price of $7,654,151.45. Approximately $2 million or $400,000.00 per year for the base and four options is a large amount for a firm to absorb. Eight firms out of 13 that were reviewed were priced in the $10,033,612.60 to $11,478,544.00 price range. The number of firms offering a price within that range would suggest that the $10 [million] to $11 [million] prices offered would [be] the competitive market price that would be fair and reasonable to perform the services required. The savings in awarding to [ATI] would be countered by the less tha[n] Very Good understanding of the technical requirements of the services and would NOT be in the best interest of the government.

SSDD at 9.

We find that, under the circumstances here, the above price realism evaluation was unreasonable. Where offerors take a similar approach to meeting the solicitation requirements, our Office has generally not objected to a price realism analysis that focuses on a comparison of an offeror’s price to the government estimate and the prices of other offerors. See, e.g., AMEC Earth & Environmental, Inc., B-404959.2, July 12, 2011, 2011 CPD ¶ 168 at 8. Our Office has recognized, however, that a price realism evaluation must consider the unique technical approaches proposed by each offeror, Solers Inc., B‑409079, B-409079.2, Jan. 27, 2014, 2014 CPD ¶ 74 at 7; an agency may not mechanically apply its own estimates to an offeror’s proposal without considering the offeror’s unique approach. See generally Lifecycle Construction Services, LLC, B‑406907, Sept. 27, 2012, 2012 CPD ¶ 269 at 7-8 n.14; Team BOS/Naples--Gemmo S.p.A./DelJen, B‑298865.3, Dec. 28, 2007, 2008 CPD ¶ 11 at 12-16; Honeywell Tech. Solutions, Inc.; Wyle Labs., Inc., B‑292354, B‑292388, Sept. 2, 2003, 2005 CPD ¶ 107 at 11‑12.

Here, as set forth in the above contemporaneous reevaluation documentation, the record indicates that GSA determined that ATI’s price was unrealistic based solely on a comparison of its overall price to the government estimate and the prices of the other most highly rated offerors. Nothing in the SSEB report, the source selection decision, or any of the contemporaneous evaluation documents furnished by GSA indicates that the determination that ATI’s price was unrealistic took into account that ATI’s price was based on its unique staffing approach, with a proposed permanent staff of [deleted], significantly fewer than the agency estimate of required staffing (32‑38 employees). In these circumstances, the agency’s failure to account for ATI’s unique staffing approach in the price realism evaluation was unreasonable, and on this basis we sustain the protest.  (Alcazar Trades, Inc.; Sparkle Warner JV, LLC B-410001.4, B-410001.5: Apr 1, 2015)  (pdf)

TMG asserts that David Boland’s proposed price was unreasonably high such that the award to David Boland was improper. In this regard, an agency is required to determine that offered prices are fair and reasonable before awarding a fixed-price contract. Federal Acquisition Regulation (FAR) § 15.402(a). Indeed, the RFP here specifically provided that award would not be made to “offerors who do not provide reasonable and realistic prices for all disciplines listed in the Contract Rate Pricing proposal and for all line items in the Sample Project Price Breakout Schedule.” RFP, Amend. No. 5, at 8. The FAR permits the use of various price analysis techniques and procedures to ensure fair and reasonable pricing, including the comparison of proposed prices to each other or to an independent government estimate. FAR § 15.404-1(b)(2); Comprehensive Health Servs., Inc., B-310553, Dec. 27, 2007, 2008 CPD ¶ 9 at 8. A price reasonableness determination is a matter involving the exercise of business judgment by the contracting officer that we will question only where it is unreasonable. Comprehensive Health Servs., Inc., supra.

Here, the agency’s Price Evaluation Board generally evaluated offerors’ price proposals as follows:

PER at 2; SSAC Report at 15; SSEB Report at 17. The independent government estimate (IGE) was $33,976,084. PER at 2. 

With regard to price reasonableness, the Price Evaluation Board stated that:

The IGE was compared against the proposals from the [nine offerors in Phase II]. The IGE represents the [group] very well and in general falls slightly above average values in most regards. If ranked as a bidder, the IGE would be 6 of 10. Based on comparison of the IGE and established statistical measure of the core group, fair and reasonable cost is established. Given the number of respondents it is apparent there is adequate competition for this solicitation.

PER at 1. In particular, with regard to David Boland’s proposal, the evaluators found that:

For the base period, the hourly rates for the Project Manager and Superintendent fall within one standard deviation below the mean. The hourly rates for the CQC [construction quality control] Manager, SSHO [site safety and health officer], and Civil Engineer fall within one standard deviation above the mean. All other rates fall within two standard deviations above the mean. For the option period, the Civil Engineer rate is increased to fall within two standard deviations above the mean. All other rates fall within two standard deviations above the mean. For the option period, the Civil Engineer rate is increased to fall within two standard deviations above the mean. When compared to the Core Competitive Pool, these rates are considered high. The offeror’s proposed sample project price of $325,491 is ranked 7th from lowest to highest and is considered high within this pool.

PER at 3. The evaluators concluded that David Boland’s proposal presented “high cost risk for future task orders based on [its] high proposal for the sample project and higher hourly rates.” PER at 4.

TMG points out that David Boland’s overall price was approximately 13.7% ($4,669,411) higher than the IGE and approximately 21.8% ($6,915,270) higher than the next highest-priced awardee’s (A&D) price. Comments and Supp. Protest at 3; see also Protest at 7-8. Further, TMG points out that many of David Boland’s proposed labor rates were the highest of all offerors for both the base and option periods. Comments and Supp. Protest at 3; see PER, attachs. (contract rates spreadsheets). TMG asserts that these price disparities indicate that David Boland’s price was unreasonably high.

We find the agency price evaluation to be unobjectionable. As an initial matter, the record indicates that the price evaluators conducted a comprehensive evaluation using techniques available under FAR § 15.404-1(b)(2), including a comparison of proposed prices received in response to the solicitation to each other and to an independent government estimate, and documented that evaluation. See PER at 1‑4. With regard to David Boland’s proposal, for example, the price evaluators compared and contrasted the hourly rates for key personnel with regard to both the base period and the option period, PER at 3; compared those prices to prices of other competitive offerors and recognized that they were “high,” id.; compared David Boland’s sample project price to other offerors’ prices and recognized that it was “high,” id.; and determined that David Boland’s proposal presented “high cost risk” for future task orders based on its high price for the sample project and higher hourly cost rates, PER at 4.

While the evaluators recognized that David Boland’s prices were “high” compared to other offerors’ prices, they did not conclude that they were unreasonably high. SSAC Report at 4. In this regard, the fact that David Boland’s proposed prices were higher than other offerors’ proposed prices, in itself, does not make David Boland’s overall price unreasonable. See Oasis Systems, LLC, B-407273.54 et al., supra, June 19, 2014, 2014 CPD ¶ 199, at 15‑16. Our cases have not established a fixed price differential that must result in a determination by the evaluators that a proposed price is unreasonable, and we decline to do so here. See, e.g., Ashland Sales and Service Company/Macon Garment Inc., a Joint Venture, B‑400466, Oct. 23, 2008, 2008 CPD ¶ 196 at 3. Indeed, we have found no cases, and the protester points to none, in which prices were found to be unreasonable based wholly on percentage differentials comparable to those found in this acquisition.

See, e.g., Federal Security Systems, Inc., B-281745.2, Apr. 29, 1999, 99-1 CPD ¶ 86 at 6; cf. Creative Info. Tech., Inc., B‑293073.10, Mar. 16, 2005, 2005 CPD ¶ 110 at 7 (price nearly 7 times the government estimate and 4.6 and 9 times competitors’ prices was unreasonable on its face). See also Integrated Concepts & Research Corporation, B‑309803, Oct. 15, 2007, 2008 CPD ¶ 117 at 4-6 (protester’s evaluated cost, which was more than three times awardee’s evaluated cost, was not so high as to be unreasonable or unacceptable for award “given its technical approach”); IAP World Services, Inc., B‑297084, Nov. 1, 2005, 2005 CPD ¶ 199 at 4 (where protester’s price was 34% higher than the government estimate and comparably higher than other offerors’ prices, differentials were not of a magnitude that suggests that protester’s price was unreasonable on its face); Grove Resource Solutions, Inc., B‑296228, B-296228.2, July 1, 2005, 2005 CPD ¶ 133 at 5 n.5 (price differential of 40% between offerors did not indicate that higher price was unreasonable on its face).

Further, an agency in performing a price reasonableness evaluation should consider price relative to the particular approach taken by the offeror. Marinette Marine Corp., B-400697 et al., Jan. 12, 2009, 2009 CPD ¶ 16 at 25; see, e.g., Integrated Concepts & Research Corporation, supra (protester’s evaluated cost was not so high as to be unreasonable or unacceptable for award “given its technical approach”); Metro Mach. Corp., B-297879.2, May 3, 2006, 2006 CPD ¶ 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). Here, the RFP specifically advised offerors that: “For Phase II submittals, requirements stated in this RFP are minimums. Innovative, creative or cost-saving proposals that meet or exceed the requirements are encouraged and will be rated accordingly.” RFP, Amend. No. 5, at 3. In this regard, the SSA found that “Boland exceeded the requirements of the solicitation” in several ways, including a proposed, “realistic and achievable,” schedule which provided a shorter duration than the 180 days required by the RFP, giving it a “significant qualitative advantage.” SSDD at 4. In these circumstances, we conclude that TMG has not shown that the agency’s determination that David Boland’s overall price was reasonable given its technical approach was inconsistent with the solicitation or otherwise unreasonable.  (TMG Services, Inc. B-410929, B-410929.2: Mar 25, 2015)  (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) §§ 15.305(a)(1), 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 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 § 15.404-1(d)(1). An agency is not required to conduct an in-depth cost analysis, or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. FAR § 15.404-1(c); Cascade Gen., Inc., B‑283872, Jan. 18, 2000, 2000 CPD ¶ 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. SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7. 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 ¶ 16 at 26.

As an initial matter, the record here shows that the Navy was concerned that eAlliant’s evaluated cost had been disclosed in three awards prior to the request for FPRs. AR (CSI) at 14-15; AR (VATC) at 17. For this reason, the agency required offerors to “provide [a] rationale to support” such reductions. See id.; RFP, amend. 6, at 2. The agency’s price analyst explains that her evaluation of the offerors’ FPR costs was informed by her concern that some offerors, such as CSI and VATC, appeared to have reduced their proposed costs in order to remain competitive with eAlliant’s lower evaluated costs, and did not provide an independent explanation for lowering their earlier proposed costs. See AR, exh. 16A, Price Analyst Affidavit (CSI) at 1; exh. 16C, Price Analyst Affidavit (VATC) at 3. As discussed below, the agency’s concern regarding the realism of offerors’ cost reductions was of central importance to the evaluation of their FPR cost proposals.

Professional Labor Escalation Rates

We first address CSI’s and VATC’s arguments concerning the Navy’s evaluation of their professional labor (non-SCA) escalation rates. The RFP required offerors to propose escalation rates for the contract option years, as follows:

NOTE: All labor categories shall be escalated for the option years.
. . . For the non-SCA (exempt) labor categories, offerors shall use actuals, if known, or rates based on historical data, standard practice, or those accepted by DCAA for bidding purposes. The narrative to the Business Proposal must include supporting rationale for the escalation rate proposed.

RFP at 92.

CSI and VATC, as well as their proposed subcontractors, reduced their proposed professional escalation rates in their FPRs. CSI reduced its proposed escalation rate from [DELETED] percent to [DELETED] percent; CSI’s proposed subcontractors, [DELETED], reduced their proposed escalation rates from [DELETED] percent to [DELETED] percent and from [DELETED] percent to [DELETED] percent, respectively. AR, exh. 21, SSDD, at 12‑13. VATC reduced its proposed escalation rate from [DELETED] percent to [DELETED] percent; VATC’s proposed subcontractors, [DELETED], reduced their proposed escalation rates from [DELETED] percent to [DELETED] percent and from [DELETED] percent to [DELETED] percent, respectively. Id. at 19-21. In each case, the Navy concluded that the protesters and their subcontractors had failed to adequately explain the basis for the reductions; the agency therefore adjusted the proposed escalation rates to the initially-proposed levels.

CSI and VATC each argue that the Navy’s adjustment of their proposed escalation rates was unreasonable because the agency did not identify a probable cost for each protester, nor did it specifically find that their proposed rates were unrealistic. Instead, the protesters argue that the agency merely returned their proposed escalation rates to their prior levels.

We think that the record shows that the Navy reasonably evaluated the realism of the protesters’ proposed costs in the context of the reductions proposed for the FPRs. As discussed above, the RFP advised offerors that they were required to provide a rationale to support the reductions in their proposed costs from the initial proposals. RFP amend. 6 at 2. Additionally, we think the agency’s consideration of the protester’ initially-proposed rates is consistent with the FAR cost realism provisions which contemplate a comparison of an offeror’s proposed costs to its prior cost estimates or data. See FAR § 15.404-1(c)(2)(iii).

Next, we think the agency reasonably concluded that the protesters failed to explain the basis for their reductions, and that the lack of support demonstrated that the proposed reductions--and resulting costs--were not realistic. As the RFP explains, the escalation rates for non-SCA (exempt) personnel was to be based on actual data, such as prior current escalation rates, historical data, standard business practices, or DCAA-approved rates. See RFP at 92.

In fact, as discussed below, each protester explained in its proposal that its escalation rate was based on historical data or analyses. See, e.g., AR, exh. 18A, CSI Business and Price Proposal (Jun. 2013) at 8; exh. 18C, VATC Business and Price Proposal (Jun. 2013), Cost Differential Explanation, at 1. VATC’s proposal provided the following explanation for its reduced escalation rate: “Annual escalation on professional labor was adjusted to be consistent with our historical rate use.” AR, exh. 18C, VATC Business and Price Proposal (Jun. 2013), Cost Differential Explanation, at 1. CSI’s proposal stated that it reduced its proposed escalation rate based on a “comprehensive analysis” of the following data points:

• Analysis of historical actual cost increases (i.e. benefits, training…)

• Financial results Forecasts

• Salary increases projection based on performance rewards and annual “salary/compensation analysis.”

AR, exh. 18A, CSI Business and Price Proposal (Jun. 2013) at 8. The protesters’ subcontractors also provided either similar generic explanations for the reductions, or omitted explanations. See, e.g., AR, exh. 18A, [DELETED] (CSI subcontractor) Business and Price Proposal (Jun. 2013) at 4 (“The escalation rate for exempt employees was reviewed and reduced to [DELETED]% annually. This rate is more in line with the current economic outlook than the previously proposed rate.”); exh. 18C, GCS (VATC subcontractor) Business and Price Proposal (Jun. 2013) at 1‑4 (no explanation for reduction).

The Navy explains that it accepted the protesters’ initial proposal escalation rates as an indication of realism for purposes of evaluating the realism of the decreased FPR escalation rates. AR (CSI) at 18‑20, 30-31; AR (VATC) at 17-19, 26-27. Because the escalation rates were required to be based on an offerors’ actual data, the agency states that it assessed, consistent with the direction in RFP amendment No. 6, whether offerors adequately explained the basis for a reduction in the proposed rate. Id. On this record, we find that the agency reasonably concluded that the protesters failed to explain the basis for their reductions.

With regard to the adjustments to CSI’s and VATC’s proposed escalation rates, the protesters argue that the Navy unreasonably adjusted the proposed costs to the initial proposal levels. The protesters argue that the agency was required to independently identify a most probable cost, and to adjust to that level. The protesters contend that the agency in fact established a 2 percent escalation for professional labor as the realistic level for this procurement, based on the following discussion in the agency’s business clearance memorandum (BCM):

Prior to evaluation it was determined that escalation for professional categories would be at least 2%, and that escalation below 2% was considered a risk, and adjusted to 2% in the cost realism analysis if not supported by strong and convincing data.

AR, exh. 13, BCM, at 19.

To the extent the protesters argue that the Navy’s internal estimates identified a 2 percent escalation rate as the realistic level for all offerors, and that the Navy was therefore prohibited from adjusting offerors’ proposed rates above this level, we disagree. The Navy explains that it considered any initially-proposed escalation rate below 2 percent to be unrealistic, and that it adjusted any escalation rates below this level to 2 percent. AR (CSI) at 30‑31; AR (VATC) at 25-26. The agency, however, did not consider 2 percent to be a ceiling where, as here, an offeror proposed an initial escalation rate above 2 percent. See id. Consequently, if an offeror reduced its initially-proposed escalation rate in its FPR, but did not provide an explanation for that reduction, the agency concluded that the rate was unrealistic and should be adjusted to its initial level. Id.

We think that the agency’s adjustments were reasonable because, as discussed above, the RFP required offerors to use actual data for their professional escalation rates. To the extent the protesters provided escalation rates in their initial proposals that were higher than the government’s estimates, we think the agency reasonably concluded that the protesters’ intended for those escalation rates to be accurate. See The S.M. Stoller Corp., B‑400937 et al., Mar. 25, 2009, 2009 CPD ¶ 193 at 14‑15 (agencies are not required to make downward adjustments to an offeror’s proposed costs if the agency concludes that higher than estimated costs are the result of factors unique to the offeror). On this record, we think the agency reasonably concluded that the protesters failed to justify their proposed rate reductions, and reasonably adjusted the proposed escalation rates to their previously-proposed level.  (CSI, Inc.; Visual Awareness Technologies and Consulting, Inc. B-407332.5, B-407332.8, B-407332.9: Jan 12, 2015)  (pdf)

NGA [National Geospatial-Intelligence Agency] argues that it evaluated TASC’s cost proposal extensively and performed a thorough cost realism analysis. Supp. AR at 16. The agency disputes SI’s assertion that it ignored questions over TASC’s indirect cost rates, and states that it coordinated its cost realism analysis with DCAA to determine the best method for evaluating TASC’s proposed rates in light of the firm’s recent rate restructuring. See id. at 16-18. NGA also argues that it reasonably determined that TASC’s labor/skill mix (which included [DELETED]), were sufficient to carry out TASC’s proposed technical approach and marketing strategy, and contends that offerors’ BOEs were not required to itemize every vendor interaction. See id. at 18-19. The agency also points out that, regardless of who identifies a potential app vendor [DELETED], the vendor and its app would undergo the same review and negotiation process contemplated by the SOO [Statement of Objectives], which the agency has already determined could be realistically managed by TASC with its proposed labor/skill mix. See id.

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) §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B-298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 25 at 7. Consequently, the agency must perform a cost realism analysis 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 § 15.404-1(d)(1); Advanced Commc’n Sys., Inc., B‑283650 et al., Dec. 16, 1999, 2000 CPD ¶ 3 at 5. An offeror’s proposed costs should be adjusted, when appropriate, based on the results of the cost realism analysis. FAR § 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 ¶ 16 at 26.

The solicitation, as discussed above, stated that NGA would evaluate the realism of offerors’ proposed costs, including analyzing technical BOEs [basis‑of‑estimate] to determine whether an offeror’s approach could be met with its proposed labor/skill mix. RFP at 121. The RFP also stated that the agency would assess the technical risk of potential schedule disruptions, increased costs, or unsuccessful performance, among other things, based on assessed weaknesses in offerors’ proposal. Id. at 115. Offerors were also advised that the agency would only develop a MPC [most probable cost] estimate if necessary, for the agency’s best value analysis. Id. at 122 (emphasis added).

Here, in response to the protest, NGA has provided a detailed and lengthy (each CET [cost evaluation team] report is over 40 pages) record of its evaluation of cost proposals, its cost realism analysis, and its best value trade-off. The contemporaneous record shows that the agency’s cost realism analysis--including of TASC’s indirect rates--included: (1) a comparison of TASC’s cost and technical proposals; (2) a comparison of TASC’s technical BOE to the agency’s independent government cost estimate; (3) extensive data collection and collaboration with both DCAA and Defense Contract Management Agency (DCMA) officials, including a DCAA auditor “who [was] intimately familiar” with TASC’s historical costs data; and (4) a comparison of TASC’s proposed indirect rates to its 2013 actual indirect rates based on DCAA’s advice. See AR, Tab 12, TASC CET Rep., at 9-10, 19-20, 33, 35; CET Lead Evaluator’s Declaration at 1‑3.

Using these steps, the agency’s cost evaluators determined that TASC’s technical proposal and BOE were consistent with its cost volume, and that both proposal volumes agreed with TASC’s proposed labor/skill mix for the offeror’s, as well as its subcontractor’s, proposed costs. AR, Tab 12, TASC CET Rep., at 5, 35. The evaluators also determined that TASC’s proposed labor hours were adequate to support its technical solution and that no labor hour adjustments were needed. Id. at 33. The agency concluded that the difference between TASC’s actual 2013 indirect rates and its proposed indirect rates was immaterial (1.35 percent) and, as noted above, that no MPC adjustment to TASC’s cost proposal was required. Id. at 20.

We find that the agency’s cost realism analysis techniques were consistent with FAR requirements, and that the agency’s conclusion that TASC’s cost proposal did not require a MPC adjustment was reasonable. An agency is not required to conduct an in-depth cost analysis, see FAR § 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 ¶ 14 at 8. The methodology employed must, as here, 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. SGT, Inc., B‑294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7. There is no requirement that an agency follow any particular cost realism evaluation method, or evaluate offerors’ proposed costs using every possible method of analysis. See id.; Cascade Gen., Inc., supra. In short, we agree with NGA that the agency did not ignore questions about TASC’s indirect rates. See Supp. AR at 16.

To the extent that the protester complains that the agency’s comparison of TASC’s FY 2013 actual indirect rates to its proposed rates may be “misleading,” because of recent changes to TASC’s rate structure, an agency’s cost realism analysis need not achieve scientific certainty. See SGT, Inc., supra. Indeed, the RFP contemplated that an offeror’s indirect rates may vary significantly from their recent experience, or that an offeror may not have current government rate recommendations. RFP at 93-94. The protester has also not meaningfully rebutted the agency’s argument that TASC’s marketing strategy would result in the same app review process already contemplated by the RFP, or acknowledged that TASC’s proposal explicitly states that [DELETED] will be “managed independently” of TASC. See AR at 40; Supp. AR at 18-19.  (The SI Organization, Inc. B-410496, B-410496.2: Jan 7, 2015)  (pdf)

Fluor asserts that, in its initial evaluation of proposals, the agency never performed a meaningful cost realism evaluation in connection with the offerors’ proposed staffing. According to Fluor, the agency mechanically applied a government estimate in evaluating the sufficiency of the offerors’ proposed staffing. Fluor argues that the agency’s actions were improper because any meaningful cost realism evaluation is required to take into consideration the offerors’ respective technical approaches to accomplishing the requirements.

We sustain this aspect of Fluor’s protest. 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. Magellan Health Servs., B-298912, Jan. 5, 2007, 2007 CPD ¶ 81 at 13; Metro Machine Corp., B-295744, B-295744.2, Apr. 21, 2005, 2005 CPD ¶ 112 at 9; Federal Acquisition Regulation (FAR) § 16.301. As a consequence, 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 unique technical approach, assuming reasonable economy and efficiency. FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2); The Futures Group Int’l, B‑281274.2, Mar. 3, 1999, 2000 CPD ¶ 147 at 3.

In addition to these broad considerations, while an agency can utilize a reasonably derived estimate of labor hours based on the government’s experience as an objective standard to measure the realism of proposed costs, an agency may not mechanically apply its own estimates for labor hours or costs--effectively normalizing cost elements of an offeror’s proposal to government estimates--without considering the offeror’s unique technical approach. See, e.g., Information Ventures, Inc., B-297276.2 et al., Mar. 1, 2006, 2006 CPD ¶ 45 at 9 (sustaining protest where agency normalized offerors’ proposed labor hours to government estimated levels under its cost realism analysis without considering offerors’ technical approach); Honeywell Tech. Solutions, Inc.; Wyle Labs., Inc., B-292354, B‑292388, Sept. 2, 2003, 2005 CPD ¶ 107 at 12 (sustaining challenge to agency’s cost realism evaluation where the agency mechanically adjusted offerors’ staffing levels to government estimates); The Jonathan Corp.; Metro Mach. Corp., B‑251698.3, B-251698.4, May 17, 1993, 93-2 CPD ¶ 174 at 10-11 (sustaining protest where agency’s cost realism evaluation failed to consider each offeror’s individualized technical approach and instead mechanically adjusted proposed labor hours and material costs to government estimates).

The record here shows that, in evaluating the offerors’ initial proposals, the agency mechanically applied a government estimate to evaluate the sufficiency of the offerors’ proposed staffing. In particular, the record shows that the agency evaluated all proposals against an undisclosed government estimate of the number of full time equivalent staff (FTE) that the agency considered sufficient to perform the requirements.

The RFP divided the work to be performed into a number of discrete task areas, which the RFP referred to as annexes. RFP at BATES 4; see also, AR, exhs. 1a-1o, RFP workload projections. The record shows that the agency established a specific number of FTEs that it thought were necessary to perform the requirement for each annex. AR, exh. 3, FTE and Equipment Analysis for DZSP; exh. 3a, FTE and Equipment Analysis for CFS; exh. 3b, FTE and Equipment Analysis for Fluor.[6] In each instance where a proposal offered [deleted] or more FTEs less than the agency had identified as necessary for any given annex, the agency evaluators described the offeror’s proposed staffing as unrealistic and insufficient to perform in the annex identified. Id.

In performing this evaluation, the agency concluded that Fluor’s proposed staffing was insufficient by [deleted] FTEs. AR, exh. 3b FTE and Equipment analysis for Fluor. In a similar vein, the agency concluded that CFS’s proposed staffing was insufficient by [deleted] FTEs, AR, exh. 3a, FTE and Equipment analysis for CFS, and that DZSPs’ proposed staffing was insufficient by [deleted] FTEs, AR, exh. 3, FTE and Equipment Analysis for DZSP. [7] These conclusions were reached by the agency’s technical evaluation team (TET). When this information was provided to the agency’s cost evaluators, they used the information to make upward cost realism evaluation adjustments to the offerors’ proposed costs. AR, exh. 4, Initial Cost Evaluation Report, at BATES 4340.

The record thus shows that the agency’s initial evaluation was based on a mechanical application of the government estimate to the proposals that did not consider the offerors’ varying technical approaches. In the absence of a cogent explanation for the Navy’s actions, such a mechanical application of the government estimate in the evaluation of proposals is unreasonable. We therefore sustain this aspect of Fluor’s protest.  (CFS-KBR Marianas Support Services, LLC; Fluor Federal Solutions LLC, B-410486, B-410486.2, B-410486.3: Jan 2, 2015)  (pdf)

DRS argues that the agency failed to perform a meaningful price realism analysis, as required by the terms of the RFP. The protester contends that the agency’s failure to perform a meaningful realism analysis is unfair to offerors with realistic pricing and exposes the agency to significant risk. In response, the agency maintains that the RFP neither contemplated, nor required, a price realism analysis, and that it did in fact perform a price analysis that established the realism of offerors’ prices.

As previously noted, the solicitation provided that proposals that were “unrealistically high or low in terms of price” might be “deemed to be reflective of an inherent lack of technical competence, or indicative of a failure to comprehend the complexity and risks of the proposed work” and might “be grounds for rejection of the proposal.” RFP at 85. We have previously held that where a solicitation advises offerors that unrealistically low prices may serve as a basis for rejection of a proposal, it is implicit that the agency will consider whether offerors’ prices are in fact unrealistic. Esegur-Empresa de Segurança, SA, B-407947, B-407947.2, Apr. 26, 2013, 2013 CPD ¶ 109 at 4. In other words, where a solicitation advises that unrealistically low prices may serve as a basis for rejection of a proposal, the agency must perform a price realism analysis. Logistics 2020, Inc., B-408543, B‑408543.3, Nov. 6, 2013, 2013 CPD ¶ 258 at 8.

The nature of the analysis required to assess whether an offeror’s price is so unrealistically low as to reflect a lack of technical competence or understanding is within the agency’s discretion, however. AMEC Earth & Envtl., Inc., B-404959.2, July 12, 2011, 2011 CPD ¶ 168 at 8. Agencies may use a variety of price evaluation methods to assess realism, including a comparison of prices received to one another, to previously proposed or historically paid prices, or to an independent government estimate. General Dynamics--Ordnance & Tactical Sys., B-401658, B‑401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 3.

In an attachment to its Business Clearance Memorandum (BCM), the agency assessed the realism of the prices proposed here through comparison with the prices paid under the predecessor contract for limited deployment units. The supporting price analysis noted that the historical prices had been proposed “under significantly different contractor risks and materially differing terms and conditions that those in the current CANES build-to-print effort.” BCM, Att. 9 (Supporting Price Analysis, July 21, 2014), at 1. Among the differences were that the preceding contractor was responsible for developing and controlling the CANES Production Baseline and meeting the CANES Functional Specification requirements; for end-of-life product replacements and updates to the bill of materials; and for completing first article testing while simultaneously building CANES production units. Id. at 1-2. According to the agency, “[t]hese risks do not exist under [the current RFP], which is a build-to-print production effort in accordance with a Government provided, Government controlled PBL, shifting much of the overall risk to the Government.” Id. at 2. Another difference impacting pricing noted by the agency was that the unit prices under the preceding contract included the price of all network software necessary to meet the CANES functional specification requirements, whereas under the instant RFP, some of the software is to be provided by the government.

After adjusting the historical unit price for a single DDG unit downward to take into account the cost of the software noted above, the agency compared the adjusted price to the prices proposed by the offerors here for a single DDG unit. The agency found that six of the seven offerors had proposed prices less than the historical price as adjusted, and that the proposed prices were “within 14 percentage points of each other in a range from 18.5% to 32.5% below” the historical price. Id. The agency concluded that this “range of proposed pricing” was “reasonable” given the different contract risks. The agency also compared the average adjusted historical price for quantities 1 to 15 to the average proposed prices of the offerors here, and concluded that “[n]one of the differences from the adjusted historical average are so large as to be considered unreasonable given the difference in risk to the contractor under the current RFP requirements compared to those risks relevant to the FY 13 historical prices.” Id. at 5. While the protester disputes several aspects of the agency’s analysis, we think that the comparisons performed provided the agency with a reasonable basis for concluding that none of the offerors here proposed prices that were so unrealistically low as to reflect a lack of technical competence or understanding.  (DRS Laurel Technologies B-410330: Dec 10, 2014)  (pdf)

The protester challenges the agency’s evaluation of its price proposal, arguing that the evaluation was inconsistent with the stated evaluation criteria and unreasonable. Specifically, Equa alleges that the agency’s completeness analysis was flawed and that the agency failed to perform a proper price realism analysis. Supp. Protest at 4-10.

Regarding the evaluation of Equa’s price proposal for completeness, as noted above, one of the agency’s primary concerns was the fact that Equa failed to submit a completed construction cost estimate breakdown form, attachment 14. In this regard, the agency found, and the record reflects, that Equa modified the form by eliminating various columns, to include column 2 (unit of measure) and column 3 (quantity), and failed to enter any cost information for columns 4, 6, 7, and 9. Columns 4, 6, 7, and 9 were to include cost information for materials, labor, and other direct costs. Without this information, the agency concluded that it did not have sufficient information to adequately analyze Equa’s price proposal.

Equa asserts that because the firm intended to use subcontractors to perform a significant portion of the work, its price proposal was “mostly made up of subcontractor costs under specific trades.” Supp. Protest at 5. Therefore, in completing the required construction cost estimate breakdown form, the protester explains that it only entered the total material labor costs associated with each subcontract and trade in columns 5 and 8. According to the protester, by using subcontractors, the firm did not possess the quantities, manhours and rates needed to complete columns 4, 6, and 7 of the form. Equa also argues that the limited instructions on how to complete the form did not “prohibit Equa from completing the form in the manner in which it was completed.” Id. We disagree.

It is an offeror’s responsibility to submit a proposal that responds to, and demonstrates a clear understanding of, the solicitation requirements; where an offeror fails to do so, the offeror runs the risk that the agency will evaluate its proposal unfavorably. United Contracting, LLC, B-408279, June 25, 2013, 2013 CPD ¶ 150 at 3; International Med. Corps, B-403688, Dec. 6, 2010, 2010 CPD ¶ 292 at 7. In reviewing protests of alleged improper evaluations, our Office examines the record to determine whether the agency’s judgment was reasonable and in accord with the stated evaluation criteria and applicable procurement laws. CACI Techs., Inc., B-296946, Oct. 27, 2005, 2005 CPD ¶ 198 at 5; HDL Research Lab., Inc., B-294959, Dec. 21, 2004, 2005 CPD ¶ 8 at 5. A protester’s disagreement with an agency’s evaluative judgments is insufficient to establish that the agency acted unreasonably. See VT Griffin Servs., Inc., B-299869.2, Nov. 10, 2008, 2008 CPD ¶ 219 at 4; Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 10-11.

Here, we find unavailing the protester’s contentions that it did not “possess” the information necessary to fully complete the construction cost estimate breakdown form. See Supp. Protest at 5. Although the protester maintains that its prices were “mostly made up of subcontractor costs,” id., the protester does not explain why it could not, or did not, obtain the needed information from its own subcontractors. As noted previously, the solicitation required offerors to submit a completed construction cost estimate breakdown and established that the agency would evaluate whether the offeror’s submission included all information/data required by the solicitation. Nothing in this, or any other solicitation provision, including the instructions on how to complete the construction cost estimate breakdown, supports Equa’s position that listing only its subcontractors’ costs under specific trades would satisfy the solicitation’s express requirement for offerors to enter all information/data required by the solicitation. Under these circumstances, we have no basis to question the reasonableness of the agency’s concerns regarding Equa’s failure to complete attachment 14 as instructed by the solicitation.  (Equa Solutions, Inc., B-409848.2, B-409848.3: Nov 20, 2014)  (pdf)

Notwithstanding the agency’s explanations, the record does not demonstrate any analysis of the offerors’ proposed labor hours for the cost reimbursable sample task order to determine whether they were realistic for the work to be performed. See FAR § 15.404-1(d)(1). As an initial matter, the agency’s use of “price analysis”--including determining adequate price competition and conducting a comparison of prices received--was insufficient, as price analysis does not relate to cost realism. Rather, price analysis techniques under FAR § 15.404-1(b)(2)(i) are for the purpose of establishing a fair and reasonable price, while the techniques for cost realism analysis--for the purpose of determining whether proposed costs are too low--are set forth under FAR § 15.404-1(d)(1).

Moreover, the data relied upon by the cost/price team and contracting officer simply do not support the proposition that the offerors provided “fairly uniform pricing,” proposed hours that were consistent with the cost reimbursable sample task order baseline, or demonstrate an assessment of cost realism. Rather, the chart reflects that the offerors’ proposed labor hours ranged from a low of 325,545 hours, to a high of 655,732.58 hours, a total variation of over 100 percent, which is not adequately explained by the contemporaneous record. Further, the data shows that 7 of the 20 technically acceptable offerors proposed hours that were below the minimum baseline calculated by the agency. In fact, two of the awardees, [DELETED] and [DELETED], proposed hours significantly lower than the minimum historical baseline hours, with [DELETED]’s proposed hours being approximately 28 percent below the minimum baseline. No analysis of this variation from the agency’s baseline is apparent in the record.

Additionally, the Price/Hours Table, infra, does not support the contracting officer’s assertion that “where an offeror had a low [average price per hour], it was offset by proposing more hours.” Contracting Officers Statement, Booz Allen Protest, at 25. While the offeror that proposed the highest labor hours ([DELETED]) did have the lowest average price per hour ($[DELETED]), the three offerors that proposed the lowest labor hours ([DELETED]) also had very low average prices per hour ($[DELETED], respectively). Further, the offeror with the highest average price per hour ([DELETED], $[DELETED]), proposed labor hours very near the center of the labor hours distribution. In sum, the agency’s reliance on the above tables and chart, without any analysis or explanation of how the cost/price team determined that the proposed hours were adequate to complete the work in accordance with the offerors’ unique technical approaches, does not support a conclusion that the proposed labor hours were realistic.

Conceding that the cost/price team never independently analyzed whether the labor hours were realistic, the agency explains that the proposed hours were considered realistic where the proposals had been found technically acceptable, indicating “a good grasp of the labor categories, wage rates and knowledge of skills required to complete the work.” Contracting Officer’s Statement, Booz Allen Protest, at 23. However, as pointed out by both HP and Booz Allen, the record of the agency’s pass/fail technical acceptability evaluation does not reflect any analysis of whether the proposed hours were realistic for the work to be performed. Instead, it is apparent that the technical evaluator interpreted evaluation criteria relating to identification of proposed hours for the cost reimbursable sample task order as merely requiring the agency to verify that the labor hours, descriptions and qualifications were provided in the technical proposal, and that the hours set forth in the technical proposal matched those set forth in the cost proposal.

For example, concerning [DELETED], the record shows that the technical evaluator initially had a concern because [DELETED] had not listed the qualifications of the proposed personnel, and because the labor hours listed in the technical proposal did not match the price/cost proposal hours. The agency considered the concerns resolved during discussions, after [DELETED] provided the qualifications of the personnel, and modified the hours set forth in the technical proposal to match the cost proposal. The technical evaluation did not, however, contain any discussion whatsoever of whether the proposed personnel, qualifications, and proposed hours were realistic or appropriate for the work to be performed. Instead, the final technical evaluation consists of no more than a list of the proposed hours and labor categories, with the statement confirming that the labor hours matched the cost proposal--despite the fact that [DELETED]’s proposed hours were [DELETED] hours below the minimum historical baseline for the work. AR, Tab 135, Price Competition Memorandum, at 189-91, 194-98.

The evaluation record is simply devoid of any independent assessment of whether the offerors’ proposed labor hours, skill mix, and labor mix were sufficient to successfully perform the requirements of the cost reimbursable sample task order. Accordingly, we agree with HP and Booz Allen that the agency failed to conduct a reasonable cost realism analysis as required by the RFP and the FAR, and we sustain the protests on these grounds.  Computer Sciences Corporation; HP Enterprise Services, LLC; Harris IT Services Corporation; Booz Allen Hamilton, Inc., B-408694.7, B-408694.8, B-408694.9, B-408694.10, B-408694.11: Nov 3, 2014  (pdf)

Iron Vine argues that CMS’s price evaluation was flawed, and that the agency’s best value tradeoff was therefore unreasonable. Specifically, the protester asserts that the RFQ required CMS to evaluate the realism of the offerors’ proposed costs, and that the agency failed to evaluate the realism of the vendors’ proposed labor rates as required by the RFQ. For the reasons discussed below, we agree that the RFQ required the agency to conduct a price realism analysis of the vendors’ proposed labor rates, and that the agency failed to conduct such an analysis. We sustain the protest on this basis.

Where, as here, a solicitation anticipates award of a time-and-materials contract with fixed-price, fully-burdened labor rates, there is no requirement that an agency conduct a price or cost realism analysis, in the absence of a solicitation provision requiring such an analysis. Ball Aerospace & Tech. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8 n.7. An agency may, however, at its discretion, provide for the use of a price realism analysis in a solicitation for the award of a fixed-price contract, or a fixed-price portion of a contract, to assess the risk inherent in an offeror’s proposal. Id. Our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Smiths Detection, Inc.; Am. Sci. & Eng’g, Inc., B-402168.4 et al., Feb. 9, 2011, 2011 CPD ¶ 39 at 17. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion. Star Mountain, Inc., B‑285883, Oct. 25, 2000, 2000 CPD ¶ 189 at 6.

As discussed above, the RFQ required that vendors provide the following details in their price/cost volumes: proposed labor categories, labor rates (with and without discounts), number of hours by labor category, and the number of hours by category (monthly and yearly). RFQ at 43. The RFQ stated that an offeror’s proposed cost/price would be “evaluated to determine if it reflects understanding of the Government’s requirements and the degree of risk it presents.” RFQ at 45. The solicitation also stated that “[c]ost reimbursable line item quotes (including Labor Hours and Time & Materials) will be evaluated on the basis of cost realism.” Id.

As also discussed above, CMS’s cost/price evaluation assessed the realism of the vendors’ proposed labor categories, labor mix, and labor hours. AR, Tab 9.B, Business Evaluation Team Final, Comparison; AR, Tab 15.A, Pre/Post Negotiation Memorandum, at 6-7. In addition, the evaluators found the proposed labor rates to be reasonable because they were below the rates for each vendor’s GSA Schedule 70 pricelist. Id. While the record reflects that the agency evaluated the reasonableness of the vendors’ proposed labor rates, the record shows that the agency did not evaluate the labor rates for realism--that is, whether they pose a risk to successful performance. See Decl. of Technical Evaluation Panel Chair (Nov. 18, 2013) ¶ 23; see AR, Tab 9.B, Business Evaluation-Team Final, Comparison. In fact, the agency acknowledges that it did not evaluate the vendors’ proposed labor rates for realism. See AR at 20‑21 (“CMS did not conduct a cost realism analysis of Spann’s proposed labor rates . . . because it was never [the agency’s] intention to conduct such an analysis.”); CO Statement, attach. 1, at 2 (“[T]he CO did not perform a realism assessment of the proposed rates.”).

While CMS concedes that it did not evaluate the realism of the vendors’ proposed labor rates, the agency contends that the RFQ’s evaluation criteria did not require such an assessment. Specifically, CMS argues that the RFQ “did not provide for mandatory consideration of unrealistic labor rates as part of CMS’s performance risk assessment.” AR at 24. We find no merit to the agency’s interpretation of the solicitation.

First, CMS notes that an agency is not required to conduct a price realism analysis when a solicitation anticipates the award of a time-and-materials contract with fixed-price labor rates, because the risk of cost increases are borne by the contractor, rather than the government. See Ball Aerospace & Tech. Corp., supra. As discussed above, however, where a solicitation specifically advises vendors that the agency will conduct such an analysis in order to assess the risk of poor performance, the agency’s failure to do so is unreasonable. See General Dynamics One Source, LLC; Unisys Corp., B‑400340.5, 400340.6, Jan. 20, 2010, 2010 CPD ¶ 45 at 17.

Here, the RFQ required that vendors provide proposed labor rates (both with and without additional discounts) in their price/cost volumes, and specifically stated that “time and materials” would be “evaluated on the basis of cost realism.” RFQ at 43, 45. Further, the RFQ identified the contract line item numbers (CLINs) for the information security support services as “time and materials.” Id. at 4-5. We think therefore that the RFQ clearly advised vendors that the agency’s evaluation would include a realism assessment of the vendors’ proposed “time and materials,” which included proposed labor rates. We note that it would be unreasonable for the agency to exclude the time-and-materials labor rates from its realism assessment because the two largest elements of cost in a time-and-materials line item are labor rates and number of hours.

Alternatively, CMS contends that, to the extent the RFQ required a price realism analysis of proposed labor rates, the agency’s technical and past performance evaluations of Spann’s proposal satisfied this requirement. AR at 24. For example, CMS notes that Spann’s quote identified [DELETED] staff members who either are currently employed by Spann or have signed letters of intent to be employed by Spann if it was awarded the task order. Id. at 26. CMS argues that the proposal of such staff “shows . . . that this talent is already being provided at Spann’s proposed rates.” Id. With regard to past performance, CMS contends that Spann’s past performance evaluation demonstrates that Spann has a history of staying within budget/target costs, while maintaining good performance, when performing other contracts for other agencies located within the same local metropolitan area. Id. at 24-25. CMS asserts that, based on this past performance information about Spann, the agency had no reason to be concerned about performance risks arising from Spann’s proposed labor rates. Id.

We find the agency’s arguments here unavailing. In this regard, even assuming that the agency considered the realism of the rates of the [DELETED] staff members, these individuals constituted only [DELETED] of the staff to be provided under the contract, and therefore, could not form the basis for any broad conclusions about Spann’s proposed labor rates. See AR, Tab 4.B.4, Spann Tech. Proposal, at 44-45; Tab 4.B.2, Spann Revised Quote, Vol. 1, at 2-3. Moreover, the record does not demonstrate whether the [DELETED] staff members identified in Spann’s proposal were currently performing at the discounted rates that would be used for the task order here. Similarly, with regard to the past performance evaluations, the record lacks any support for a conclusion that the discounted labor rates proposed in Spann’s quote were similar to the rates from the contracts cited in the past performance evaluation. Moreover, there is no indication that the agency considered any of these points during its contemporaneous evaluation. Based on this record, we find no support that the agency evaluated the realism of Spann’s labor rates through Spann’s technical and past performance evaluations.

In sum, we conclude that CMS deviated from the RFQ’s evaluation scheme by failing to evaluate the realism of the vendors’ proposed labor rates, as required by the RFQ, and we sustain the protest on this basis.  (Iron Vine Security, LLC, B-409015: Jan 22, 2014)  (pdf)

Where an RFP contemplates the award of a fixed-price contract, or a fixed-price portion of a contract, an agency may, as here, provide in the solicitation 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 ¶ 33 at 6; Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD ¶ 189 at 2. Our Office has repeatedly held that the depth of an agency’s price realism is a matter within the sound exercise of the agency’s discretion and our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Smiths Detection, Inc.; Am. Sci. & Eng’g, Inc., B-402168.4 et al., Feb. 9, 2011, 2011 CPD ¶ 39 at 17; Grove Resource Solutions, Inc., B-296228, B-296228.2, July 1, 2005, 2005 CPD ¶ 133 at 4-5; Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 5; Star Mountain, Inc., supra, at 6.

The Federal Acquisition Regulation (FAR) recognizes a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, including a comparison of proposed prices with each other and comparison of proposed prices with an IGE. See FAR §§ 15.404-1(b)(2)(i), (ii), (iv); Islandwide Landscaping, Inc., B-293018, Dec. 24, 2003, 2004 CPD ¶ 9 at 2; Quality Elevator Co., B-276750, July 23, 1997, 97-2 CPD ¶ 28 at 7.

Here, the VA compared ALIS’ total price to the median total price of $28,340,513, calculated based on the total prices of eight offerors. As noted above, based on this comparison, the agency concluded that ALIS’ proposed price was reasonable and realistic.

In challenging the agency’s evaluation, Kilda insists that the VA should have considered whether ALIS’ proposed labor rates and proposed unit prices were realistic, rather than simply comparing ALIS’ total proposed price to the median of the offered prices. The RFP, however, did not specifically establish that the agency would perform the type of realism analyses sought by Kilda. That is, there was no express requirement for an analysis of proposed labor rates, nor was there a requirement for a CLIN-by-CLIN (i.e., line item unit prices) comparison among the offered prices to determine whether prices were realistic.

Although Kilda ultimately believes that a more detailed realism assessment was necessary, as noted above, the extent of a price realism analysis is within the sound exercise of the agency’s discretion and agencies are free to use a number of techniques in assessing price realism. Indeed, we have found that a comparison of prices received is among the proposal analysis techniques that may be used under FAR § 15.404-1, and also “can be appropriate in a price realism analysis.” Islandwide Landscaping, Inc., supra. To the extent Kilda believes that ALIS cannot perform the contract at its proposed price, the protester’s disagreement with the agency’s judgment provides no basis to sustain the protest where the protester does not show that the agency acted unreasonably. Vizada Inc., B-405251 et al., Oct. 5, 2011, 2011 CPD ¶ 235 at 5.

Kilda also argues that the realism assessment was unreasonable since it was based on an unreasonably calculated median price. In this regard, the protester highlights the fact that the agency calculated the median using the prices of two proposals that had been rated as unsatisfactory under the technical approach factor, in part, because they did not have an acceptable understanding of the agency’s needs. See AR exh. 5.1, BCM, at 32. We agree with the protester that the agency should not have included the prices for these two firms in calculating the median. See Lifecycle Construction Servs., LLC, B‑406907, Sept. 27, 2012, 2012 CPD ¶ 269 (sustaining protest of agency’s price realism evaluation where agency compared awardee’s price to a median price calculated based on prices of proposals found unacceptable or ineligible for award). Nevertheless, when these firms’ prices are excluded, the median does not change significantly--it goes up from $28,340,513.00 to $29,802,909.98 (a change of approximately 5%). Our Office will not sustain a protest absent a showing of prejudice to the protester; that is, unless the protester demonstrates that, but for the agency’s actions, it would have had a substantial chance of receiving the award. McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 CPD ¶ 54 at 3. In our view, given the minimal impact on the calculated median, we have no basis to conclude that the protester was prejudiced by the alleged error.  (Kilda Group, LLC, B-409144, B-409144.2: Jan 29, 2014)  (pdf)

Cost/Price Realism Evaluation

Solers argues that DISA’s evaluation of DSA’s price/cost proposal did not reasonably evaluate the realism of the awardee’s proposed labor mix (that is, appropriate staffing of labor categories to perform the work) for the cost-reimbursement and fixed-price CLINs, or the adequacy of its proposed level of effort (that is, the labor hours and full-time equivalent (FTE) personnel) for the fixed-price CLINs. Supp. Protest at 4, 13. For the reasons discussed below, we conclude that neither the contemporaneous evaluation, nor the agency’s testimony at a hearing convened by our Office to address gaps in the contemporaneous record, adequately explains how the agency evaluated the realism of DSA’s price/cost proposal. For this reason, we sustain the protest.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, or portion of a contract (such as a cost-reimbursement CLIN), an offeror’s proposed 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) §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B‑298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 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 § 15.404‑1(d)(1). 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 ¶ 151 at 7. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based. Jacobs COGEMA, LLC, B‑290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD ¶ 16 at 26.

As a general matter, when awarding a fixed-price contract, or portion of a contract (such as a fixed-price CLIN), an agency is only required to determine whether the offered prices are fair and reasonable, that is, whether proposed prices are too high. FAR § 15.402(a). A price realism evaluation, in contrast, applies cost realism analysis techniques to fixed prices, and is intended to evaluate whether proposed prices are too low by assessing an offeror’s understanding of the requirements. FAR § 15.404-1(d)(3); Ball Aerospace & Tech. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. Where, as here, an agency states in a solicitation that it “reserves the right” to conduct a price realism analysis, the decision to conduct such an analysis is a matter within the agency’s discretion. Guident Techs., Inc., B‑405112.3, June 4, 2012, 2012 CPD ¶ 166 at 13 n.9. However, where an agency elects to conduct a price realism evaluation, we will review that evaluation for reasonableness. See Science Applications Int’l Corp., B‑407013, Oct. 19, 2012, 2012 CPD ¶ 308 at 5-6.

As discussed above, the solicitation here required offerors to propose their price/cost based on cost-reimbursement and fixed-price CLINs. DISA evaluated each offeror’s proposed price/cost to “determine if it is reasonable, realistic, and complete.” AR, Tab 12A, Cost/Price Report, at 7, 13. The agency considered the offerors’ direct labor rates, direct labor hours, indirect rates, travel and other direct costs, subcontractor costs, and fee. Id. at 7‑8, 13-14. The agency’s price/cost analyst stated that he reviewed the offerors’ direct labor rates for the cost-reimbursement and fixed-price CLINS, and their proposed indirect costs, and concluded that these price/cost elements were realistic for DSA and Solers. Decl. of Price/Cost Analyst (Dec. 9, 2013) at 2. The price/cost analyst stated that the evaluation of the realism of offerors proposed labor mix and level of effort was performed at his request by the technical evaluation team. Id. at 3. During the hearing, the agency provided the testimony of a member of the technical evaluation team who was responsible for this evaluation. This witness explained that the technical evaluators analyzed the adequacy of the offerors’ proposed labor mix and level of effort, found that both offerors’ proposals were realistic, and documented these findings in a spreadsheet which was attached to the cost/price evaluation. Hearing Transcript (Tr.) at 131:1-132:2.

(table deleted)

Solers argues that, despite the disparities between the agency’s estimates and DSA’s proposed labor mix and level of effort, DISA failed to reasonably evaluate the realism of the awardee’s proposed labor mix for the cost-reimbursement and fixed-price CLINs, or the adequacy of its proposed level of effort for the fixed-price CLINs. Specifically, the protester argues that the record does not show how the agency concluded that DSA’s proposed labor mix was realistic for the cost-reimbursement and fixed-price CLINs, and also argues that DSA’s proposed level of effort for the fixed-price CLINs was unrealistically low. As discussed below, we conclude that the record does not demonstrate how the agency found that DSA’s proposed price/cost was realistic for the work to be performed.

As an initial matter, DISA notes that the solicitation did not obligate it to conduct a price realism evaluation, and therefore contends that the agency was not required to evaluate the realism of the fixed-price CLINs with regard to labor mix or level of effort. Supp. AR at 37. As discussed above, however, when an agency elects to conduct a price realism evaluation, that evaluation must be reasonable. See Science Applications Int’l Corp., supra. Here, the agency acknowledges that it evaluated the realism of both Solers’ and DSA’s fixed-price CLINs for realism with regard to the proposed labor rates, Tr. at 19:13‑18, and also acknowledges that price realism was evaluated regarding the “entire evaluated price of the effort,” Decl. of Price/Cost Analyst (Dec. 9, 2013) at 2. To the extent that the agency contends that it did not perform any other price realism analyses, and that its evaluation did not rely upon conclusions regarding the realism of DSA’s proposed labor mix or level of effort, the record does not support this argument.

As discussed above, the price/cost analyst evaluated the realism of the offerors’ labor rates; he explained in his testimony that he did not evaluate the realism of the offerors’ proposed labor mix or level of effort. Tr. at 39: 4-12. Instead, the evaluation of labor mix and level of effort was performed by the technical evaluation team. The agency’s witness for the technical evaluation team who performed the evaluation of labor mix and level of effort explained that her evaluation considered whether the proposed prices and costs were realistic. See id. at 131:1-132:2. Furthermore, the record shows that the agency’s conclusions regarding the realism of DSA’s price/cost were based on the overall proposed labor mix and level of effort--the agency’s evaluations did not distinguish between the cost-reimbursement and fixed-price CLINs. See AR, Tab 11, Price Negotiation Memorandum, at 6; Tab 12A, Cost/Price Evaluation, at 7-8. Specifically, the agency’s evaluation cited DSA’s overall price/cost, hours, and FTEs for the combined cost-reimbursement and fixed-price CLINs, and concluded that the awardee’s proposal was realistic. See id. On this record, we conclude that the agency’s evaluation of DSA was based on the conclusion that its proposed price for the fixed-price CLINs was also realistic with regard to its labor mix and level of effort.

With regard to the realism evaluations here, DISA correctly notes that a cost or price realism evaluation must consider the unique technical approaches proposed by each offeror, and that, to the extent that an agency concludes that an offeror’s proposed costs are realistic for its technical approach, such an evaluation may be reasonable despite differences as compared to other offerors or a government estimate. See FAR § 15.404-1(c)(1); Systems Techs., Inc., B-404985, B‑404985.2, July 20, 2011, 2011 CPD ¶ 170 at 5. Here, however, neither the contemporaneous record provided by DISA, nor the testimony provided by agency witnesses, demonstrates how the agency evaluated the offerors’ technical approaches for the purpose of determining the realism of the proposed labor mix or level of effort.

DISA argues that it reasonably evaluated DSA’s proposed labor mix and level of effort because the agency issued discussion questions to both DSA and Solers that required each to provide more detail concerning its proposed labor mix and level of effort. Supp. AR at 25. The agency further notes that a report prepared by the technical evaluators found that DSA’s labor mix and level of effort were realistic for its proposed technical approach. See AR, Tab 12B, Task Monitor Technical Questionnaire, at 2.

As relevant here, five of the agency’s discussion questions, in the form of evaluation notices (EN), requested that DSA address its proposed labor mix and level of effort. See AR, Tab 6A, EN, DSA-MGMT-001, at 23-25; DSA-MGMT-002, at 26-28; DSA-MGMT-06, at 38-39; DSA-COST-002, at 44-46; and DSA-COST-003, at 47-49. For example, the agency advised DSA that “[i]t is not clear that the [o]fferor understands the complexity and scope of 3.2 Task Area 5--Requirements Analysis with the labor mix that has been presented in the cost proposal (used by the Technical Evaluation Team).” AR, Tab 6A, EN, DSA-MGMT-003, at 29. None of the discussion questions, however, show how the agency evaluated the proposed labor categories, hours, or FTEs; rather, each only express the agency’s concern regarding the particular aspect of DSA’s proposal that was deemed inadequate. Moreover, the record does not show how the agency evaluated DSA’s responses to the ENs, that is, how the agency concluded that the proposed labor mix and level of effort were realistic. See AR, Tab 12A, Cost/Price Evaluation Report, at 8; Tab 10, Final SRD, at 17-18; Tab 20, Interim SRD, at 36.

Similarly, the agency’s cost report provides only the following general statements that DSA’s proposed costs were realistic:

The Price/Cost Analyst discussed the technical evaluation with [the contracting officer’s representative (COR)] and explained that the realism evaluation had to be based on the offeror’s specific approach. Per this discussion and the technical realism analysis, the COR found that the proposed labor mix and numbers of hours are reasonable and realistic for this effort. Therefore, the Price/Cost Analyst took no exception to the proposed hours and no adjustments were required.

AR, Tab 12A, Cost/Price Evaluation Report, at 7-8.

(table deleted)

During the hearing conducted by our Office to further develop the record, the source selection evaluation board (SSEB) chair, the price/cost team lead, the CO, the COR, and the technical evaluator provided testimony concerning the agency’s price and cost realism evaluations. Of these witnesses, only the technical evaluator was involved with the evaluation of the offerors’ proposed labor mix and level of effort. Tr. at 86:7-87:11

The technical evaluator explained that her evaluation of the offerors’ proposed labor mixes and level of effort relied upon her own knowledge and personal experience to judge whether the offerors’ staffing was realistic to perform the PWS requirements. Id. at 81:11-82:13. The technical evaluator stated that she evaluated each offerors’ proposal, and then discussed her findings with the other technical evaluators in order to reach a consensus. Id. at 72:5-21. She explained that when the evaluators had concerns regarding the realism of an offerors’ proposal, they issued an EN and asked the offeror to further address the matter. Id. at 72:21-73:9. If the offeror’s response to the EN satisfied the evaluators’ concerns the evaluators simply noted that the EN had been resolved and that there were no more questions. Id.; see AR, Tab 12A, Cost/Price Evaluation Report, at 7-8. As discussed above, however, the contemporaneous evaluation record does not explain how the evaluators concluded that the concerns raised in the ENs had been resolved, or the basis for the agency’s conclusions that DSA’s proposed price/cost was realistic.

Moreover, the technical evaluator’s testimony did not describe in any meaningful detail the basis for any of the evaluator’s conclusions. Instead, when asked to describe with specificity how the evaluators resolved concerns regarding the realism of DSA’s proposed labor mix and level of effort, she merely reiterated that she personally reviewed the proposals and then conferred with the other evaluators.[5] See id. at 76:1-79:3, 80:3:81-10, 84:9-87:11, 94:19-98:19, 104:7-107:9, 115:17-121:5, 126:14-128:18, 130:22-133:20, 142:18-143:16, 150:6-158:22.

In addition to the lack of an adequate record concerning the agency’s realism analysis, the technical evaluator also explained that her review of DSA’s proposed labor mix relied on her own assumptions concerning how the offeror would perform the work. For example, the technical evaluator testified that if she found that the awardee proposed too many personnel for one labor category, and too few in another labor category, she assumed that the awardee would be able to account for the shortfall by reassigning the excess personnel. See id. at 105:1‑106:13. The technical evaluator, however, did not point to anything in the awardee’s proposal that supported her assumption that such substitutions could account for the evaluated shortfalls. In this regard, the technical evaluator could not explain her basis for concluding that, if DSA’s proposal stated that it would need a particular number of personnel to perform a task, DSA would not actually need that level of personnel and could devote them to other areas of its technical approach (for example, areas that the technical evaluation felt were understaffed). See id. at 108:8-110:20. Because the technical evaluator’s assumptions in this regard lacked a reasonable basis, we conclude that her apparent reliance on such assumptions also renders her evaluation of the adequacy of DSA’s labor mix unreasonable.

For the reasons discussed above, we find that neither the contemporaneous record nor the hearing testimony provides a basis for our Office to find that DISA reasonably evaluated the realism of DSA’s proposed labor mix for the cost-reimbursement and fixed-price CLINs, or the realism of its proposed level of effort for the fixed-price CLINs. See TriCenturion, Inc.; SafeGuard Servs., LLC, B‑406032 et al., Jan. 25, 2012, 2012 CPD ¶ 52 at 17. To the extent that the CO relied on the judgment of the technical evaluation board members in concluding that DSA’s proposed labor mix and level of effort were realistic, the record does not show how they reached their judgments or whether they were reasonable. See id.

We specifically note here that our conclusions are based on the inadequacies of the contemporaneous record, as produced by DISA. DISA was provided multiple opportunities to ensure that the record was complete. GAO specifically requested additional information to address the lack of an adequate record, but none were provided. In addition, GAO provided the agency and the other parties an opportunity before the hearing to submit additional documents for the purpose of establishing a clear record for the hearing and for the ultimate resolution of the protest. GAO Confirmation of Hearing Notice (Jan. 4, 2014) at 3. Based on this record, we sustain the protester’s challenges to the adequacy of DISA’s evaluation of the realism of DSA’s proposed labor mix for the cost-reimbursement and fixed-price CLINs.  (Solers Inc., B-409079, B-409079.2: Jan 27, 2014)  (pdf)

Bechtel and AMEC challenge the agency’s price realism evaluation of KBR’s proposal, arguing that KBR’s price is too low to be realistic. Each of the protesters makes numerous arguments challenging the depth of the agency’s price realism evaluation. For example, AMEC complains that the Corps accepted KBR’s reliance on lower-cost Romanian labor without adequately determining whether KBR’s anticipated productivity complied with Romanian labor laws. See AMEC Comments at 11. Both protesters complain that the Corps did not adequately scrutinize KBR’s approach to housing workers, where KBR did not propose, [deleted], to construct a mancamp. AMEC Comments at 8-9; Bechtel Comments at 8. Similarly, the protesters complain that the Corps accepted KBR’s approach to procuring concrete from local providers, rather than proposing to construct its own on-site batch plant to produce concrete,[deleted]. AMEC Comments at 20; Bechtel Comments at 4-5.

We have considered all of AMEC’s and Bechtel’s numerous complaints concerning the adequacy of the agency’s price realism evaluation of KBR’s proposal, and find that none of the protesters’ complaints provide a basis to conclude that the agency’s evaluation was unreasonable.

Where 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 ¶ 52 at 5. However, an agency may, as here, provide for a price realism analysis in the solicitation 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 services at little or no profit. See METAG Insaat Ticaret A.S., B-401844, Dec. 4, 2009, 2010 CPD ¶ 86 at 6. In reviewing protests challenging price realism evaluations, our focus is whether the agency acted reasonably and in a manner consistent with the terms of the solicitation. CC Distribs., Inc., B-406450, B-406450.2, May 25, 2012, 2012 CPD ¶ 177 at 7.

Here, the Corps recognized that KBR’s price was much lower than the prices submitted by the other offerors and the agency’s own IGE. See, e.g., AR Tab 20, PEB Review Comments, at 2,751. The Corps explored the bases of KBR’s price during discussions, requesting that KBR provide a detailed price narrative for each CLIN in the RFP, including specific price elements, and, in addition, specifically identified every CLIN in KBR’s initial proposal that was markedly above or below the IGE.

The record shows that KBR responded with a revised proposal that described with some specificity the bases for its proposed price and in addition addressed each CLIN. See AR, Tab 18B, KBR’s Revised Price Proposal, at 2,654-667. With respect to its proposed use of Romanian labor, KBR explained its use of Danya Cebus, a Romanian general contractor that had significant experience with the local labor market and with Romanian labor laws. Id. at 2,655. With respect to its decision not to construct a mancamp to house laborers, KBR explained in its revised technical proposal that it intended to rely upon hotels and apartments to house laborers and would only construct a “work camp” to provide administrative offices, dining, toilets, and to support a limited number of security guards and mechanics. See AR, Tab 18A, Revised Technical Proposal, at 2,584, 2,598. KBR also addressed its planned procurement of concrete from local batch plants, explaining that it had contacted local suppliers concerning the anticipated volume of concrete and explaining its intention to monitor the local production to ensure quality control. See id. at 2,585-586.

The Corps determined that KBR’s lower price reflected the firm’s technical approach, which was different from that proposed by AMEC and Bechtel and that relied upon in the IGE. For example, the agency recognized that KBR’s significant proposed use of Romanian labor reduced the firm’s anticipated labor costs. AR, Tab 25B, Final PEP Report, at 2,939. The agency also recognized that the KBR’s planned use of local labor affected other associated costs, such as not constructing and operating a mancamp (housing for workers) as [deleted] assumed by the IGE. Id. The Corps also accepted KBR’s lower overhead and profit rate, recognizing that KBR made a business decision to reduce these rates. The agency concluded from the information provided by KBR in its proposal and in response to discussions that KBR’s price was not unrealistically low, and did not reflect a lack of understanding of the requirements. AR at 15. With respect to risk, while the TEB identified some risks in KBR’s technical proposal, the SSA concluded that there was a very low level of risk associated with KBR’s proposal. AR, Tab 27, Source Selection Decision, at 3,023.

The crux of the protesters’ objections to the agency’s price realism evaluation is their view that the agency did not request sufficient information or engage in a sufficiently probing analysis during discussions to enable a meaningful evaluation. The depth of an agency’s price realism evaluation, however, 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 ¶ 6 at 4-5. Although the protesters continue to complain that the agency did not verify the feasibility of a number of aspects of KBR’s anticipated costs, there is no obligation in a price realism analysis to verify each and every element of an offeror’s costs. Indeed, nothing about an obligation to review prices for realism bars an offeror from proposing--or an agency from reasonably deciding to accept--a below-cost offer. Optex Sys., Inc., supra, at 5-6.

In short, the record supports the reasonableness of the agency’s price realism evaluation. Although the protesters may believe that the magnitude of the price difference demonstrated that KBR’s price was too low to be acceptable, or too low to reflect an adequate understanding of the work, this disagreement with the agency’s judgment does not show that the agency’s decision was unreasonable.  (AMEC Programs, Inc; Bechtel National, Inc., B-408708, B-408708.2: Dec 4, 2013)  (pdf)

CACI protests the agency’s cost realism analysis, arguing that the Army arbitrarily picked the 75th percentile labor rate from DRS’s salary survey data and had no basis to determine the probable cost of DRS’s proposal. CACI complains that the agency failed to consider the IGCE and historical costs in assessing realism. CACI also argues that DRS’s low proposed costs should have resulted in a finding that DRS’s technical approach was technically unacceptable. As discussed below, we find no merit to these allegations.

When an agency evaluates proposals for the issuance of a cost-reimbursement order, the agency must perform (and the RTEP required here) a cost realism analysis to evaluate the extent to which an offeror’s proposed costs are realistic for the work to be performed.[4] See FAR § 15.404-1(d); Am. Tech. Servs., Inc., B‑407168, B-407168.2, Nov. 21, 2012, 2012 CPD ¶ 344 at 5. When performing a cost realism analysis, an agency is required to consider the realism of a firm’s proposed costs in light of the firm’s unique technical approach. Exelis Sys. Corp., B‑407673 et al., Jan. 22, 2013, 2013 CPD ¶ 54 at 7. Based on the results of this cost realism analysis, an offeror’s proposed costs should be adjusted when appropriate. FAR § 15.404-1(d)(2)(ii). This evaluation requires the exercise of informed judgment by the contracting agency; 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. Am. Tech. Servs, Inc., supra; Sci. Applications Int’l Corp., B‑406460, B-406460.2, June 7, 2012, 2012 CPD ¶ 181 at 4.

Here, the protester objects to the agency’s selection of the 75th percentile of the labor rates from survey data available on payscale.com, especially since these rates were lower than the IGCE. CACI contends that the agency was not permitted to rely solely on payscale.com, but should have considered the IGCE and historical costs.

As discussed above, the agency selected the 75th percentile labor rates because they were in line with DRS’s IDIQ contract ceiling rates. AR, Tab 8f, Cost Evaluation Emails, at 2; see also Tab 7m, DRS Cost Proposal, R2‑3G Ceilings/ Salary Survey (showing ceiling rates in line with 75th percentile of payscale.com). That is, these rates reflected an approximation of the highest costs that the agency would have to pay under the task order. The fact that the IGCE or historical data may reflect higher rates does not require the agency to use those rates here, where DRS was contractually limited to charging significantly lower rates.

We also find no merit to CACI’s argument that the agency is not permitted to rely solely on payscale.com. We have previously found unobjectionable an agency’s use of payscale.com to determine the realism of labor rates. See, e.g., KinetX Aerospace, Inc., B-406798 et al., Aug. 21, 2012, 2012 CPD ¶ 303 at 13. The RTEP here contemplated reliance on salary survey data, such as data from payscale.com. See RTEP amend. 4, at 6. The protester has not shown, much less asserted, that the payscale.com data relied on was inaccurate or unreliable. In addition, as discussed above, the payscale.com percentile selected by the agency for evaluation purposes was in line with DRS’s ceiling rates, so it cannot be said to be unrealistically low. Accordingly, we find the agency’s use of payscale.com data reasonable here.  (CACI Technologies, Inc., B-409147, B-409147.2, Jan 27, 2014)  (pdf)

B&V complains that the SSA unreasonably concluded from the agency’s upward adjustment of the firm’s proposed costs for renovation of the central public health laboratory that B&V lacked understanding of the requirements. The protester argues that the solicitation did not advise vendors that the results of the cost realism evaluation could be used in this fashion. B&V does not challenge, however, the reasonableness of the agency’s cost realism analysis that resulted in a nearly $1.1 million increase in B&V’s probable costs.

Source selection decisions, including those, as here, involving task order competitions, must be reasonable and consistent with the solicitation’s evaluation criteria and applicable procurement laws and regulations. NOVA Corp., B-408046, B-408046.2, June 4, 2013, 2013 CPD ¶ 127 at 5; ACCESS Sys., Inc., B-400623.3, Mar. 4, 2009, 2009 CPD ¶ 56 at 7.

We do not agree with B&V that the SSA was not permitted under this solicitation to use the results of the agency’s cost realism evaluation to assess the firm’s understanding of the requirements. Here, the RFTOP informed vendors that the agency would both evaluate their technical understanding of the requirements and assess the realism of their proposed costs. See RFTOP amend. 1, at 6, 8. We recognize that the solicitation did not specifically caution vendors that the agency would consider whether unrealistic costs indicated the vendor’s lack of understanding of the requirements. Such a consideration, however, is reasonably encompassed by the evaluation criteria that provided, as noted above, for assessing the vendors’ understanding and cost realism. In this regard, the FAR defines cost realism as a 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 § 15.404-1(d)(1); Advanced Commc’n Sys., Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD ¶ 3 at 5.  (Black & Veatch Special Projects Corporation B-408607, Nov 6, 2013)  (pdf)

Agencies must consider cost to the government in evaluating proposals, 10 U.S.C. § 2305(a)(3)(A)(ii) (2006), and while it is up to the agency to decide upon some appropriate and reasonable method for evaluating 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 ¶ 16 at 4; AirTrakTravel, et al., B-292101 et al., June 30, 2003, 2003 CPD ¶ 117 at 22. The method chosen must 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.

The record here does not support Labatt’s assertions that the RFP’s weighted distribution price factor is arbitrary and not based on relevant data. Rather, the agency has provided documentation detailing its analysis of a sampling of basket items (approximately 70) from 29 SPV contracts. AR, Tab 1, Rationale for Business Evaluation Weighting. According to DLA, the data reveal that an item’s unit price is comprised, on average, of 92 percent delivered price and 8 percent distribution price, or an 11.5 ratio between the respective price components. In addition, the agency reviewed proposed aggregate prices from a recent regional procurement for a SPV contractor, which also showed--even under different pricing equations--the same 92/8 percentage and 11.5 ratio. See id. at 2-3. Thus, in DLA’s calculation, multiplying or weighting aggregate distribution prices by a factor of 11.5 (again, based on the recent, typical ratio of distribution to delivered price) equalizes the two price components, leading to a more equitable price evaluation that minimizes the effect of price manipulation. Id. at 2, 11-13. We find, contrary to the protester’s assertion, that DLA’s rationale for the weighting factor is reasonably supported by agency research. See U.S. Foodservice, Inc.; Labatt Food Servs., LP, B-404786 et al., May 13, 2011, 2011 CPD ¶ 102 at 5-6

While Labatt disagrees with the extent of DLA’s analysis, the protester has not shown that the RFP’s weighted price evaluation scheme is arbitrary or unsupported. See, e.g., id.; Short & Assocs., B-406799, B-406799.4, Aug. 31, 2012, 2012 CPD ¶ 251 (weighted price factor derived from historical data and protest denied where protester does not show that methodology was inaccurate or that more historical analysis required); RMS Info. Sys., Inc., B-280521.3, Oct. 21, 1998, 98-2 CPD ¶ 113 at 7 (protest denied where weighted price factor was intentionally structured, based on historical data, to discourage price unbalancing and manipulation); S. J. Thomas Co., Inc., B-283192, Oct. 20, 1999, 99-2 CPD ¶ 73 at 4-5 (comparing offerors’ mark-up rates alone is meaningless without estimating expected cost ratios or some other mechanism for considering offerors’ differing rate calculations, and uncertainty regarding rates and material costs does not mean that those elements play no role in evaluating relative cost to the government); see also U.S. Foodservice, Inc. v. United States, 100 Fed. Cl. 659, 680-81 (2011) (reducing fraud in food-service distribution contracts is sufficient rationale and DLA not obliged to produce additional research and analysis, or specific instances of past experience, to substantiate agency’s goal).

Regardless, Labatt insists that the weighting factor invites price manipulation and that the solicitation’s other pricing and reporting requirements offer little protection in that regard. The agency explains that the RFP includes numerous documentation, verification, monitoring, and audit provisions that are specifically intended to prevent price manipulation. AR at 14-16. For example, offerors, as well as the awarded contractor, must substantiate delivery prices with manufacturer or growers invoices, which DLA will verify if distribution prices appear too low. RFP at 53, 117. An offeror/contractor must also provide printed computer “screen shots” showing delivered prices from the offeror/contractor’s electronic purchasing system. Id. The agency may audit the contractor’s computer purchasing system, to confirm that the delivered prices for market items sold to DLA’s customers are identical to the delivered prices charged to other commercial customers, and request additional documentation regarding pricing agreements. Id. at 53. In this respect, the RFP also requires the contractor to warrant, on a continuing basis, that its delivered price for each item sold to DLA is equal to, or lower than, the delivered price offered to other commercial customers. Id. at 32, 54.

While Labatt questions the sufficiency of some of these RFP provisions, we are persuaded by the agency that the solicitation’s various requirements provide additional, and reasonable, protections against price manipulation. Indeed, the protester concedes that “adequate safeguards,” including “periodic auditing,” can control volatility and “creeping” delivered prices after contract award. Comments at 3.

Accordingly, we conclude that the solicitation‘s price evaluation methodology, which is based on the agency’s recent, historical analysis and is specifically designed to minimize price manipulation, provides a reasonable and adequate basis to compare the relative costs to the government of offerors’ proposals.  (Labatt Food Service, LP, B-408790, Nov 25, 2013)  (pdf)

We review an agency’s proposal evaluation for reasonableness and to ensure it is consistent with the terms of the solicitation, applicable statutes and regulations. Advanced Systems Technology and Management, Inc., B-291529, Dec. 20, 2002, 2002 CPD ¶ 219 at 4. The depth of an agency’s price analysis is within the agency’s discretion and we will review its analysis for reasonableness. Id. An agency may use various price analysis techniques and procedures to ensure a fair and reasonable price. Resource Consultants, Inc., B-290163, B-290163.2, June 7, 2002, 2002 CPD ¶ 94 at 3 n.1.

The record shows that AXIS proposed a price of $3,824,972.80 for the base year and four option years, covering the two fixed-price CLINs and three labor hour CLINs. AR, Exh. 8, Competitive Range Determination, at 4. AXIS derived its labor hour CLIN prices based on an 1880 hour per year FTE, its proposed labor rates, and its proposed labor mix based on its understanding of the SOW. AR, Exh. 6, AXIS’ Proposal. In conducting its price evaluation, the agency adjusted AXIS’ proposed labor hours from 1880 to 1920 in order to “match the historical data and the current requirement of the NWQL.” AR, Exh. 10, Source Selection Decision, at 5. It also adjusted both offerors’ labor category mixes for the same stated reason. Id. While the agency did not adjust proposed labor rates, its adjustment to AXIS’ labor hours, and to both offerors’ labor mixes, resulted in adjustments to both offerors’ evaluated prices. According to the agency, since the focus of the labor hour CLINs was on the hourly labor rates, the number of hours and labor mix to calculate the estimated full cost should be consistent for both offerors. The agcy’s evaluation resulted in an upward adjustment in AXIS’ price from its proposed price of $3,824,972.80 to $4,914,812.10. Id. at 10.

In effect, the agency normalized each offerors’ labor hours and labor mix to conform to an internal government estimate of its current need. Normalization involves the adjustment of offers to the same standard or baseline where there is no logical basis for a difference in approach or where there is insufficient information provided with the proposals. Information Ventures, Inc., B-297276.2 et al., Mar. 1, 2006, 2006 CPD ¶ 45 at 9. Normalization is not proper, however, where varying costs between competing proposals result from different technical approaches that are permitted by the RFP. Id.

As detailed above, the RFP here required offerors to submit proposed labor hours, labor rates, and a labor mix based on their assessments of task descriptions set forth in the SOW. Moreover, the RFP informed offerors that the government would assess each offeror’s understanding of the requirements and approach, including overall staffing, as a function of its technical evaluation. In other words, the RFP permitted offerors to submit their own technical approach and the agency obligated itself to evaluate that approach. Consequently, it was unreasonable for the agency to substitute the labor hours and labor mix proposed by AXIS with its own internal estimates as such substitution ignores the potential for differing labor hours and labor mix based on differing technical approaches. See General Atomics, B-287348, B-287348.2, June 11, 2001, 2001 CPD ¶ 169 at 7.

The agency asserts that neither the awardee nor AXIS submitted proposals that demonstrated compliance with the solicitation requirements. As a result, the agency states that it provided each offeror an opportunity to address issues with their respective proposals during discussions. AR, Agency Supplemental Response, at 6. According to the agency, AXIS was placed on notice of the agency’s concerns with its labor mix and proposed use of 1880 hours, and on notice about how the agency would conduct its price evaluation. Id. Based on the record before us, we disagree.

First, a review of AXIS’ proposal as it relates to labor hours, labor rates and labor mix does not support the agency’s position that the firm failed to demonstrate compliance with the solicitation requirements. To the contrary, AXIS proposed hours, rates and mix that it believed were appropriate based on its own assessment of the SOW, as it was instructed to do by the RFP. The fact that AXIS’ proposal did not comport with the agency’s internal estimates does not render its proposal non-compliant with the solicitation requirements.

Second, our review of the record shows that, while the agency may have placed AXIS on notice that it intended to adjust its labor hours from 1880 to 1920 per FTE as part of its price evaluation, the record does not support the agency’s position that it put the firm on notice that it intended to alter its labor mix as well.[8] The record shows that the adjustment to AXIS’ labor mix significantly increased its evaluated price. AR, Exh. 13, Price Evaluation. Since the solicitation did not inform offerors of the agency’s price evaluation methodology, and since we find that AXIS was not placed on notice through discussions, we can only conclude that the firm’s challenge to the price evaluation is timely.

In conclusion, where, as here, an RFP permits offerors to propose a technical approach and informs them that it intends to evaluate that approach, including proposed labor hours, labor rates and labor mix, its subsequent price evaluation cannot ignore proposed labor hours and labor mix, as such an evaluation ignores the potential for differing hours and labor mix based on differing technical approaches.[9] See General Atomics, supra, at 7. Therefore, for this reason we sustain the protest.  (AXIS Management Group LLC B-408575, Nov 13, 2013)  (pdf)

The protester contends that the RFP required the agency to perform a price realism evaluation of the offerors’ proposals. According to Optex, Seiler submitted an unrealistically low price and, had the agency conducted an adequate price realism evaluation, it would have discovered that Seiler could not perform the requirement for the price it offered.

The Army maintains that the RFP did not require it to conduct a price realism evaluation but that, in any event, it adequately evaluated the offerors’ proposed prices and concluded that Seiler’s price was realistic.

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) § 15.402(a). 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 § 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 ¶ 133 at 4-5.

As noted, the parties disagree whether a price realism evaluation was required here because RFP did not expressly provide for one. However, even where a solicitation does not expressly require a price realism evaluation, we will conclude that such an evaluation is required where (1) the RFP expressly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and (2) the RFP states that a proposal can be rejected for offering low prices. DynCorp Int’l, LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ __, at 9; see also, Flight Safety Servs., Corp., B-403831, B-403831.2, Dec. 9, 2010, 2010 CPD ¶ 294 at 5.

While it appears from its protest pleadings that the Army did not intend to include a solicitation requirement for a price realism evaluation, we nonetheless find that the RFP includes language requiring the agency to consider the realism of the offerors’ proposed prices. In this connection, the RFP provided that the agency could reject any proposal that:

Reflects an inherent lack of technical competence or a failure to comprehend the complexity and risks required to perform RFP requirements due to submission of a proposal that is unrealistically high or low in price and/or unrealistic in terms of technical or schedule commitments . . . .

RFP at 71. Based on the solicitation language quoted above, the RFP here gave the agency discretion to reject a proposal that included unrealistically low prices that reflected the offeror’s inherent lack of technical understanding. This language effectively required the agency to review the realism of these prices. DynCorp Int’l, LLC, supra.; Flight Safety Servs., Corp., supra.

Turning to the substance of the agency’s price evaluation, the record shows that, although no particular information regarding price was originally required under the terms of the RFP, during discussions, the agency solicited and obtained information from the offerors to demonstrate the cost elements of their proposed prices, including the number of labor hours (and labor rates) necessary to fabricate the aiming circles, the offerors’ material costs, as supported by vendor quotes where applicable, and any other significant cost elements of the offerors’ proposed prices. AR, exhs. L-1, N-1, O-1 (Discussion Questions for Seiler); T-0 (Discussion Question for Optex). The record shows that the agency analyzed this information and found that the principal difference between the offerors’s prices was attributable to differences in their respective material costs and their profit rates. AR, exh. K-1, Agency Cost Analysis, at 1. The agency did not find that either firm’s price posed a risk to successful performance or demonstrated a lack of technical understanding.

Optex argues first that the agency’s price evaluation overlooked the fact that Seiler’s proposed price did not include elements of labor overhead and general and administrative (G&A) costs. As noted above, during discussions, the agency solicited detailed supporting cost information to demonstrate the basis of their proposed prices. According to the protester, since Seiler did not provide information relating to its labor overhead and G&A costs, it must not have included these elements in its price and, therefore, its price must be unrealistically low.

While we agree that the language of the RFP required some sort of a review of prices for realism, and while the record shows that the agency elected to request and review information supporting the underlying cost elements of the offerors’ prices, the protester here seeks a far more detailed level of review than the pertinent regulations--or the terms of the RFP--impose. The protester’s identification of particular cost elements that may not have been reviewed by the agency--or may not even have been included by Seiler in its price--provides no basis, standing alone, to conclude that the agency’s evaluation of Seiler’s price was unreasonable.  (Optex Systems, Inc. B-408591, Oct 30, 2013)  (pdf)

Grant Thornton also challenges the agency’s contemplated use of an online reverse auction during negotiations. According to Grant Thornton, such a procedure is improper because the “complex” nature of the services being procured prevents an “apples to apples” comparison of vendor pricing. Protest at 18-20; Comments at 19-20. In support of this position, Grant Thornton points out that the solicitation directs vendors to “map” their FABS and MOBIS FSS labor categories to the ten labor categories established in the solicitation for this procurement. Protest at 19. Grant Thornton contends that because competing vendors may map different FSS labor categories to the same labor category in the solicitation, vendors may quote FSS labor categories with differing levels of experience, and “[t]here will be no way to fairly compare or assess what type of employee is being offered.” Protest at 19.

It is fundamental that a contracting agency must provide a common basis for the preparation and the submission of quotations and not disparately evaluate vendors with respect to the same requirements. Advanced Tech. Sys., Inc., B-296493.5, Sept. 26, 2006, 2006 CPD ¶ 147 at 13; AVL Books.Com, Inc., B-295780, Mar. 28, 2005, 2005 CPD ¶ 46 at 2.

As an initial matter, we note that the solicitation here requires vendors to submit completed pricing schedules with their quotations. RFQ at 50. Thus, even if we were to accept Grant Thornton’s position that the solicitation precludes an “apples-to-apples” comparison of the services being priced, this alleged solicitation flaw would exist regardless of whether the solicitation contemplates an online reverse auction during negotiations.

In any event, we see no merit in Grant Thornton’s argument. As discussed above, the PWS includes labor category descriptions that specify minimum requirements for each labor category in terms of years of experience with specific types of work and licensure, certification, and educational requirements. RFQ at 31-34. Because the FSS labor categories that vendors are to map to this solicitation’s labor categories must meet these minimum requirements, the solicitation establishes a common basis for evaluating the services that the vendors will be pricing.

As a separate argument against the agency’s contemplated use of an online reverse auction during negotiations, Grant Thornton asserts that the solicitation’s requirement for vendors to form contractor team arrangements with small business team members also precludes an “apples-to-apples” comparison of pricing. Protest at 19-20; Comments at 19-20. In this context, Grant Thornton asserts that “[b]ecause of the way the RFQ is worded, offerors do not submit a blended rate for each labor category,” but instead “will submit a [pricing schedule] for each [contractor team arrangement] member.” Protest at 19-20. Because contractor team members may map different FSS labor categories to the solicitation’s labor categories, and because some team members may be unable to map any of their FSS labor categories to the solicitation’s labor categories, Grant Thornton maintains that “an apples-to-apples comparison that is required for a reverse auction [is] impossible with this procurement.” Id. at 20.

We view Grant Thornton’s argument as raising a concern that primarily relates to the solicitation’s scheme for evaluating initial pricing rather than the solicitation’s provision for a potential online reverse auction during negotiations. We find it unclear why Grant Thornton believes that vendors may not submit blended rates (i.e., one rate for the team as a whole for each labor category) or why Grant Thornton believes that vendors should submit separate pricing schedules with differing rates for each team member. We see nothing in either the solicitation or the vendor questions and agency responses that would preclude vendors from submitting blended rates, or that would require vendors to submit separate, differing rates for each team member.

Further, we see the submission of blended rates as a logical mode of responding to the solicitation. However, if one or more vendors were to submit multiple, differing rates for one or more labor category, we believe it may be necessary for the agency to calculate blended rates (and do so in a reasonable manner) for purposes of evaluating vendor pricing on a common basis and for purposes of administering any task orders under any resulting BPA. That said, because there are no express solicitation provisions to support Grant Thornton’s argument, we see no basis to conclude that application of the terms of the solicitation as they exist necessarily will result in a flawed competition. Therefore, we see no basis to sustain this ground of protest.

To the extent that Grant Thornton’s argument applies to the manner in which the agency will evaluate pricing in connection with an online reverse auction, we similarly see no basis sustain the protest. In this regard, the solicitation is not explicit with respect to what specific pricing will be the subject of bidding in the online reverse auction. See AR, Tab 24, Draft Reverse Auction Notification Letters. While it is conceivable that certain bidding arrangements could lead to a flawed evaluation of pricing, the details of the bidding structure are unknown at this juncture. Therefore, we conclude that at this time there is no basis to object to the solicitation’s provision regarding an online reverse auction during negotiations.  (Grant Thornton, LLP B-408464, Sep 25, 2013)  (pdf)

The protesters argue that DISA improperly found their proposals technically unacceptable and ineligible for award. The protesters assert that the agency’s evaluation relied upon an undisclosed staffing plan estimate that lacked a reasonable basis, and failed to consider the protesters’ proposed innovations and efficiencies. The protesters also contend that the historical data provided with the solicitation was misleading.

In reviewing protests challenging the evaluation of proposals, we do not conduct a new evaluation or substitute our judgment for that of the agency but examine the record to determine whether the agency’s judgment was reasonable and in accord with the RFP evaluation criteria. Abt Assocs., Inc., B-237060.2, Feb. 26, 1990, 90-1 CPD ¶ 223 at 4. A protester’s mere disagreement with the agency’s evaluation provides no basis to question the reasonableness of the evaluators’ judgments. See Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 10-11. An offeror is responsible for affirmatively demonstrating the merits of its proposal and risks the rejection of its proposal if it fails to do so. Arctic Slope World Servs. Inc., B-284481, B-284481.2, Apr. 27, 2000, 2000 CPD ¶ 75 at 7-8.

As a general rule, an agency must provide sufficient information in a solicitation so that offerors can compete intelligently and on a relatively equal basis. IBM Global Bus. Servs., B-404498, B-404498.2, Feb 23, 2011, 2012 CPD ¶ 36 (finding quantities listed in the RFP for levels of service desk users bore no relationship to the actual numbers that the agency used to calculate the offerors’ estimate price). An agency may, however, evaluate technical or price proposals against an undisclosed, reasonable estimate of the appropriate staffing needed to perform the solicitation requirements provided the RFP notifies offerors that staffing is an area of evaluation. Trajen, Inc.; Maytag Aircraft Corp., B-296334 et al., July 29, 2005, 2005 CPD ¶ 153 at 7-8.

While agencies may use such estimates, it is inappropriate to determine the acceptability of proposals simply by the mechanical application of an undisclosed estimate. Id. In this regard, our Office has held that, because absolute reliance on estimates can have the effect of arbitrarily and unfairly penalizing an innovative or unusually efficient offer, it is inappropriate for an agency to determine the acceptability of proposals by the mechanical application of an undisclosed estimate. Doss Aviation, Inc.; Dominion Aviation, Inc., B-275419 et al., Feb. 21, 1997, 97-1 CPD ¶ 117 at 5-6. Rather, the evaluation must also take into consideration whether an offeror’s proposed work force is particularly skilled and efficient, or whether, because of a unique approach, a firm could satisfactorily perform the work with staffing different from that estimated by the agency. Id. Where an agency’s comparison of an offeror’s proposed staffing to a government estimate goes beyond a comparison of the bottom line numbers, and includes a reasonable analysis of the specific areas where the proposed staffing is inadequate, we will not object. NCI Info. Sys., Inc., B-405589, Nov. 23, 2011, 2011 CPD ¶ 269 at 7.

As discussed below, we conclude that none of the protesters’ arguments have merit. As a general matter, the protesters knew that the agency expressly declined to provide its estimate for the work requirements (for task order 1), but were also aware that the agency would nonetheless evaluate the adequacy of the offerors proposed staffing levels based on a comparison to the government’s estimate. To the extent the protesters believed that the historical and other data provided with the solicitation were inadequate to permit them to prepare their proposals, these arguments are untimely challenges to the terms of the solicitation. To the extent the protesters argue that the agency’s undisclosed estimates were unreasonable, the protesters do not specifically demonstrate why the estimates were flawed. Finally, while the protesters argue that the agency unreasonably evaluated their proposed technical solutions or failed to recognize proposed innovations or efficiencies, the record shows that the agency’s evaluation was reasonable and that the offerors’ disagreements provide no basis to sustain the protest.  (IP Network Solutions, Inc.; Emagine IT, Inc.; EnterpriseTech Joint Venture, LLC, B-408232, B-408232.2, B-408232.3, B-408232.5, B-408232.6, B-408232.4, Jul 25, 2013) (pdf)

As set forth above, offerors were required to address six notional scenarios. Scenario 5, for data analytics, was identified as platform as a service (everything but applications and data are the responsibility of the contractor), and included the following description:

This scenario centers around providing a hosting environment for applications which process vast amounts of information in [parallel] on large clusters (1000s of nodes) of commodity hardware in a reliable, fault-tolerant manner (MapReduce). The solution to this scenario should automatically provision clusters of compute for the segmentation and [parallel] processing of input datasets via the MapReduce framework (3.4.1) where the vendor is responsible for the management of the OS [operating system] and MapReduce implementation. Assume a cluster large enough to process 100TB [terabytes] of raw input data. Assume input data set was loaded from available object-based storage that realizes 6 reads/second and 2 writes/second. Assume 100% duty cycle on all virtual machines associated with this scenario. (Total storage for each order shall be 100 TB object. Read/writes and IOPS [input/output operations per second] should be calculated per order).

RFP, amend. 4, Scenario 5 Description (emphasis added).

(sections deleted)

In this regard, our Office will review the reasonableness or consistency of the evaluation method the agency employs. See Federal Computer Int’l Corp., B-276885, July 29, 1997, 97-2 CPD ¶ 35 at 3. In meeting the requirement to consider cost or price to the government in evaluating competitive proposals, 41 U.S.C. § 3306(c)(1)(B) (2011), an agency’s chosen method of evaluation must include some reasonable, common basis for evaluating or comparing the relative costs of proposals. See Aalco Forwarding, Inc., et al., B-277241.15, Mar. 11, 1998, 98-1 CPD ¶ 87 at 11. Ordinarily, normalization--which is the term used by the parties here--involves the measurement of offerors’ costs against the same baseline where there is no logical basis for differences in approach or where there is insufficient information provided with the proposals, leading to the establishment of common estimates by the agency. See Bendix Field Eng’g Corp., B-246236, Feb. 25, 1992, 92-1 CPD ¶ 227 at 17.

Here, the record indicates that the agency lacked sufficient information to ensure that proposals were evaluated on a common basis with respect to scenario 5. In this regard, the agency attempted to ensure that offerors were evaluated on a common basis with regard to scenario 5 by scaling IBM’s single-run price upwards to equal one year of continual processing for each order. Generally, this resulted in assuming that each IBM 100 TB data run, indicated by IBM to take [deleted], would be repeated approximately [deleted] times in a year. Tr. at 361, 375.

However, while Amazon’s scenario 5 price indicated that it, like every other offeror besides IBM, assumed repeated 100 TB data runs throughout the year, an agency adviser to the price evaluation team (and author of scenario 5) testified that based on the information in the proposal, the agency did not know how long a single 100 TB data run would take using Amazon’s proposed solution. Tr. at 314, 378. Specifically, Amazon’s proposal made various assumptions about running 100 TB data sets at “100% duty cycle” and “leveraging [its] [deleted],” and “priced [its] [deleted]” instance type for 100% of the time, but it did not propose a specific time for a single 100 TB data run. Amazon Proposal at VI-32-33. Thus, there was no way from the information available concerning Amazon’s solution to ascertain how many 100 TB data runs were included in Amazon’s scenario 5 pricing.

Further, the agency recognized that solutions (and prices) could vary based on the makeup of virtual machines--the amount of locally available storage, the amount of memory, the amount of virtual compute cores proposed--and how fast a unit processes 100 TB of data, all of which would have an effect on performance, including how many times a solution could process that amount of information in a given period. Tr. at 344, 347. In this regard, while Amazon’s proposed scenario 5 solution included [deleted] compute units or [deleted] virtual cores (i.e., divisions within the virtual computer available for separately processing information without interfering with one another), IBM’s solution included [deleted] virtual cores; [deleted]. Tr. at 386-88.

In sum, given the agency’s uncertainty regarding just what performance (e.g., number of 100 TB data runs) was included in each evaluated price, there is no basis for concluding that Amazon was evaluated for scenario 5 using the same or otherwise comparable level of performance as included in IBM’s adjusted price. Thus, we find the price evaluation to be unreasonable and we sustain the protest on this basis.  (IBM-U.S. Federal, B-407073.3, B-407073.4, B-407073.5, B-407073.6, Jun 6, 2013)  (pdf)

Esegur essentially argues that the agency’s evaluation of the awardee’s low price proposal was improper. According to the protester, the awardee’s price is lower than the minimum price an offeror could possibly propose to provide the solicited services, and, as a consequence, the awardee should have been found unacceptable on the basis that its price was too low. Protest at 2-3; Protester’s Comments at 2-9. In responding to the protest, the Air Force does not argue that it properly considered whether the awardee’s price was too low. Rather, the agency contends that it was not required to evaluate whether the awardee’s price was too low because the solicitation did not require a price realism evaluation. The solicitation only required the agency to evaluate prices for reasonableness (whether the awardee’s price was too high), and it properly conducted this analysis. According to the agency, a price realism evaluation was entirely optional under the terms of the solicitation, to be performed solely within the agency’s discretion.

Before awarding a fixed-price contract, an agency is required to determine whether the price offered is fair and reasonable. Federal Acquisition Regulation § 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 ¶ 26 at 3; CSE Constr., B-291268.2, Dec. 16, 2002, 2002 CPD ¶ 207 at 4. Although not required, an agency may choose to 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 reflected its understanding of the contract requirements or to avoid the risk of poor performance from a contractor that is forced to provide services at little or no profit. See The Cube Corp., B-277353, Oct. 2, 1997, 97-2 CPD ¶ 92 at 4; Ameriko, Inc., B-277068, Aug. 29, 1997, 97-2 CPD ¶ 76 at 3.

Here, notwithstanding the agency’s argument to the contrary, the solicitation contemplated a price realism evaluation of the awardee’s low price by the Air Force. As noted above, regarding the evaluation of price, the solicitation advised offerors that “unrealistically” low prices may serve as a basis for rejection of a proposal. RFP at 69. Implicit in the solicitation’s reference to “unrealistically” low prices is the presumption that the agency would actually consider whether an offeror’s price is in fact unrealistic and, as a consequence, unacceptable.

To the extent the Air Force believes that the evaluation of prices for realism was optional because the solicitation indicates that unrealistically low price proposals “may” be found unacceptable, see Agency’s Memorandum of Law, at 6, the Air Force’s belief is based on an unreasonable reading of the solicitation. The RFP’s use of the term “may” in this instance refers to the agency’s discretion to reject an unrealistically low price, as opposed to reserving to the agency the right to evaluate prices for realism in the first instance. See Halfaker & Associates, LLC, B-407919, B-407919.2, Apr. 10, 2013, 2013 CPD ¶ ___ at ___ (rejecting agency’s argument that solicitation did not require a realism evaluation where the solicitation provided that “[u]nrealistic rates, as determined by the Contracting Officer, may also be considered in risk assessment”); Waterfront Techs., Inc., B-401948.16, B-401948.18, June 24, 2011, 2011 CPD ¶ 123 at 15 n.16 (finding that solicitation, which indicated that “[t]he Government may reject any proposal that is evaluated to be unrealistic,” required the agency to evaluate prices for realism); Cf. Guident Technologies, Inc., B-405112.3, June 4, 2012, 2012 CPD ¶ 166 at 13 n.9 (holding that agency was not required to perform a price realism evaluation where the solicitation advised that the “Government reserves the right to conduct a price realism analysis to determine whether an offeror’s proposed prices are realistic for the work to be performed”). Accordingly, we sustain the protest because the agency failed to contemporaneously evaluate whether the awardee’s low price, which was 17 percent below the government’s estimate, was realistic, as it was required to do by the terms of the solicitation.  (Esegur-Empresa de Seguranca, SA
B-407947, B-407947.2, Apr 26, 2013)  (pdf)

Price Realism

In an argument paralleling its allegations concerning the staffing risks posed by NHV’s quotation, Halfaker asserts that the Navy failed to properly evaluate whether NHV’s low quoted price was realistic given NHV’s plan to capture the incumbent workforce. Halfaker argues that consideration of realism was required by the solicitation’s warning that “[u]nrealistic rates, as determined by the Contracting Officer, may also be considered in risk assessment.” Solicitation at 35.

While agencies are required to perform some sort of price analysis or cost analysis on negotiated contracts to ensure that the agreed-upon price is fair and reasonable, where 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 ¶ 52 at 5. However, an agency may provide for price realism analysis in the solicitation 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 services at little or no profit. See The Cube Corp., B-277353, Oct. 2, 1997, 97-2 CPD ¶ 92 at 4; Ameriko, Inc., B-277068, Aug. 29, 1997, 97-2 CPD ¶ 76 at 3. The nature and extent of an agency’s price realism analysis are matters 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 ¶ 6 at 5.

The record reflects that the contracting officer first considered whether NHV’s prices were reasonable. Specifically, the contracting officer first determined that NHV’s price was “reasonable based on adequate price competition,” where there was a reasonable expectation that two or more firms would submit quotation in response to the solicitation,” and two or more quotations were received. AR, Tab 24, SSD at 7. The contracting officer also proceeded to examine NHV’s labor prices in comparison to the incumbent rates, and the independent government estimate, consistent with Federal Acquisition Regulation (FAR) guidance. See FAR §§ 15.404-1(b)(2)(ii), (v). These additional analyses appear to reflect a price realism evaluation, where they focus on whether NHV’s price was too low.

In this regard, the contracting officer noted that the incumbent contract included higher direct and indirect rates and NHV’s monthly rates ranged from 2.2 percent to 23.6 percent lower than the incumbent rates per ROC. However, the contracting officer found that the rates reflected “reasonable” levels given that the overall difference was approximately 11.4 percent. AR, Tab 24, SSD, at 8. Moreover, in comparison to the IGE, the contracting found that NHV’s rates were reasonable where they were approximately 10 percent lower overall. Id. at 8-9. Although Halfaker believes that NHV’s rates will prove inadequate to hire incumbent staff, given the agency’s consideration of NHV’s lower monthly rates in comparison to the incumbent rates, as well as the fact that NHV’s staffing plan, as previously discussed, was not exclusively based on capturing the incumbent workforce, we have no basis to find fault with the agency’s realism evaluation where it did not attribute NHV’s quotation with a higher level of risk based on its lower rates, and lower overall price.  (Halfaker and Associates, LLC, B-407919,B-407919.2, Apr 10, 2013)  (pdf)

Price Evaluation

CSI also contends that the agency’s evaluation of ALOG’s price was unreasonable because its price is too low. Protest at 22; Comments & Supp. Protest at 15. For example, CSI focuses on ALOG’s overall proposed price of $15,432,182, which is 28% lower than the IGE ($21,267,900). Comments and Supp. Protest at 15.

CSI’s objection does not provide a valid basis to question the agency’s price reasonableness evaluation. Although CSI acknowledges that a price realism analysis was not required, its arguments reflect a lack of understanding as to the distinction between price reasonableness and realism. Here, the RFP states that the agency will only evaluate prices for reasonableness and balance. RFP at 94. The purpose of such a price reasonableness review is to determine whether the prices offered are too high, as opposed to too low. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3; WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD 68 at 4 n.2. 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. C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3; SDV Solutions, Inc., B-402309, Feb. 1, 2010, 2010 CPD ¶ 48 at 4. We dismiss CSI’s challenge to the price evaluation.  (Contract Services, Inc., B-407894, B-407894.2, Apr 3, 2013)  (pdf)

Cost Realism Evaluation of Imagine One

Wyle protests that the Navy failed to perform a reasonable cost realism evaluation of Imagine One’s proposal. Specifically, the protester argues that the agency failed to reasonably evaluate the cost realism of Imagine One’s direct labor rates. Wyle argues that a proper cost realism evaluation would have resulted in greater upward adjustments to Imagine One’s proposed costs, thereby decreasing the evaluated cost difference between the offerors’ proposals.

The RFP set forth, as part of the cost proposal instructions, the labor categories and labor amounts that offerors were to use when preparing their proposals (e.g., Program Manager, 960 hours). RFP at 95-97. Offerors were then to submit their direct labor rates, indirect rates (i.e., overhead, fringe benefits, general and administrative (G&A)), and fee based on the RFP’s specified labor categories and amounts. Id. at 92. Offerors were also required to submit sufficient information to adequately support their proposed direct and indirect costs. Id. Similarly, the RFP established that, as part of the cost evaluation factor, the Navy would assess the realism of each offeror’s proposal. Id. at 113. Further, “[u]nrealistically low costs or inconsistencies between the technical and cost proposals may be assessed as proposal risk and could be considered weaknesses under the technical factor. Id.

Imagine One’s cost proposal utilized the labor categories and amounts set forth in the solicitation. AR, Tab 35, Imagine One Cost Proposal, Narrative, at 2-4. When proposing current employees, Imagine One and its subcontractors submitted payroll verification demonstrating current hourly labor rates. Id.; Payroll Verification, at 9-66. Further, when proposing prospective hires, Imagine One based its labor rates on national and local salary survey data, comparisons to current employees, and input from its human resources department. Id., Narrative, at 21. Imagine One also submitted, in support of its proposed indirect rates, the offeror’s historic provisional and actual rates, as well as rates audited by the Defense Contract Audit Agency. Id., Narrative, at 8.

The CET, as part of its evaluation of Imagine One’s proposal, found that the offeror had provided certified payroll verification in support of the proposed labor rate for each current employee. AR, Tab 12, CET Report, at 4-22. The CET concluded in most instances that Imagine One’s proposed labor rates for current employees were supported and realistic. Id. at 4-6. In some instances, however, the CET concluded that, although Imagine One’s proposed labor rates were based on current salaries, the rates appeared extremely low as compared to prevailing rates. Id. at 7-22. The CET was concerned that, while the proposed individuals met RFP requirements, based on current market conditions, Imagine One would not be able to fill the positions at the proposed rates if the individuals left or were unable to work on the contract. Id. at 7. The CET then made direct labor rate adjustments based on prevailing rates. Id. at 7-22. Similarly, with regard to Imagine One’s prospective employees, the CET found most of the offeror’s proposed rates to be realistic, and made adjustments based on prevailing rates in those few instances where the labor rates were found to be unrealistic. Id. at 12-15. The CET found the indirect rates of Imagine One and its subcontractors to be realistic in light of supporting information and made no adjustments. Id. at 22-32. Finally, the CET computed a total evaluated cost for Imagine One’s proposal based on the various adjustments made.

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. American Tech. Servs., Inc., B-407168, B-407168.2, Nov. 21, 2012, 2012 CPD ¶ 344 at 5; DPK Consulting, B-404042, B-404042.2, Dec. 29, 2010, 2011 CPD ¶ 12 at 11; FAR § 15.404-1(d). 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. An agency is not required to conduct an in-depth cost analysis, or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. See Cascade Gen., Inc., B-283872, Jan. 18, 2000, 2000 CPD ¶ 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 proposed costs 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 ¶ 151 at 7. We review an agency’s judgment in this area 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 ¶ 164 at 8.

Wyle does not dispute that Imagine One used the labor categories and labor amounts required by the RFP, nor does Wyle dispute the Navy’s evaluation of Imagine One’s (and its subcontractors’) indirect rates, nor does Wyle dispute that Imagine One and its team members provided certified payroll records for each of the current employees proposed. Further, Wyle has not alleged or demonstrated that Imagine One’s proposed labor rates were below the prevailing market rates for the various categories and qualifications. Rather, the protester argues that Imagine One’s direct costs are unrealistic because they are significantly lower than both the IGCE and, more importantly, the costs proposed by Wyle, the 37-year incumbent contractor currently providing support to the E-2/C-2 program. Protest, Dec. 17, 2012, at 10-13. The agency argues that its cost realism evaluation was reasonable and that Imagine One’s direct labor rates were generally realistic in light of the offeror’s own circumstances.

Based on our review of the record, we find that the Navy’s cost realism evaluation of Imagine One’s proposal was reasonable. The record demonstrates that the Navy analyzed both the direct and indirect rates that Imagine One proposed as well as the sufficiency of the supporting information. As detailed above, Imagine One (and its subcontractors) provided certified payroll verification for each current employee proposed. The Navy generally determined that such certified payroll records established that Imagine One’s proposed labor rates were realistic. However, where a sizeable disparity existed between prevailing rates and proposed rates (even those supported by payroll records), the agency made adjustments based on its concern that Imagine One would not be able to attract and retain qualified replacement individuals (if necessary) at the proposed rates. The Navy also assessed the realism of Imagine One’s proposed labor rates for prospective employees, and made adjustments in each instance where the labor rates were found to be unrealistically low. Given the soundness and reasonableness of the agency’s cost realism evaluation, we reject Wyle’s contention that Imagine One’s costs were unrealistic simply because the firm’s proposed costs were lower than the IGCE and Wyle’s proposed costs.  (Wyle Laboratories, Inc., B-407784, Feb 19, 2013)  (pdf)

NAS protests that the agency’s cost realism adjustment with regard to NGS’s proposed costs savings for [deleted] was improper. We disagree.

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 Machine Corp., B-402567, B-402567.2, June 3, 2010, 2010 CPD ¶ 132 at 6; Honeywell Tech. Solutions, Inc., B-400771, B-400771.2, Jan. 27, 2009, 2009 CPD ¶ 49 at 17; see Federal Acquisition Regulation (FAR) § 16.301. As a result, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach, assuming reasonable economy and efficiency. FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2); The Futures Group Int’l, B-281274.2, Mar. 3, 1999, 2000 CPD ¶ 147 at 3. Based on the results of the cost realism analysis, an offeror’s proposed costs should be adjusted when appropriate. FAR § 15.404-1(d)(2)(ii). An agency’s cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide a measure of confidence that the agency’s conclusions about the most probable costs under an offeror’s proposal are reasonable and realistic in view of the cost information reasonably available to the agency at the time of its evaluation--including the information provided by the offeror in its proposal. See Metro Mach. Corp., supra. We review an agency’s judgment in this area only to see that the agency’s cost realism evaluation was reasonably based and adequately documented. Honeywell Tech. Solutions, Inc., supra, at 18; Jacobs COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD ¶ 16 at 26.

Here, NAS acknowledges that its initial proposal specifically stated that the proposed [deleted] innovations had been “implemented” in the [deleted]. NAS Comments, Nov. 19, 2011, at 3. Nonetheless, NAS complains that its use of the word “implemented” “merely indicate[d] that [NAS] had begun [deleted]. NAS Comments, Nov. 19, 2011, at 3. NAS argues that “[a]s with any innovation, it takes time for savings to be realized as the revised processes are phased in and integrated into existing operations” and, therefore, some additional savings were realistic. Id.

An offeror has the burden of submitting an adequately written proposal and runs the risk that its proposal will be evaluated unfavorably where it fails to do so. United Def. LP, B-286925.3 et al., Apr. 9, 2001, 2001 CPD ¶ 75 at 19; Carlson Wagonlit Travel, B-287016, Mar. 6, 2001, 2001 CPD ¶ 49 at 3, 6. Further, in evaluating proposals, it is generally reasonable for an agency to rely on information the offeror provides in its proposal. Able Bus. Techs., Inc., B-299383, Apr. 19, 2007, 2007 CPD ¶ 75 at 5; NCR Gov’t Sys. LLC, B-297959, B-297959.2, May 12, 2006, 2006 CPD ¶ 82 at 8-9.

As discussed above, there is no dispute that NAS’s proposal stated that its proposed innovations had been “implemented” in [deleted]--that is, prior to the period from which NAS drew the historical data used to calculate its projected savings. Further, the record is clear that, during discussions, the agency requested that NAS “clearly delineate NAS’ proposal assumptions for all [deleted] costs.” AR, Tab 6.B, Agency Discussion Questions to NAS, at 20. Based on our review of the record, we find nothing in NAS’s response to the agency’s explicit request that should have put the agency on notice that additional cost/price savings could be reasonably expected to flow from NAS’s already-implemented innovations. On this record, we find nothing unreasonable in the agency’s cost realism adjustment to NAS’s proposal.  (Noridian Administrative Services, LLC, B-401068.13, Jan 16, 2013)  (pdf)

Price Evaluation

The protester challenges the agency’s price realism evaluation, arguing that CWS’s price is so low that this should have raised significant concerns with CWS’s understanding of the PWS and whether CWS could provide an adequate level of qualified staff to perform the large and sophisticated scope of work. Protest at 8. PSS complains that, given the large disparity between CWS’s proposed price and the IGE, the SSET did not perform a detailed enough analysis of CWS’s price or adequately consider performance risk. Comments at 10-11.

Where, as here, a solicitation provides for the issuance of a fixed-price task order, an agency may provide for the use of a price realism analysis for the limited purpose of measuring a vendor’s understanding of the requirements or assess the risk inherent in a vendor’s quotation. See Ball Aerospece & Tech. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion. Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD ¶ 189 at 6. Our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Smiths Detection, Inc.; Am. Sci. & Eng’g, Inc., B-402168.4 et al., Feb. 9, 2011, 2011 CPD ¶ 39 at 17.

We find no basis to question the agency’s analysis here. The record shows that the SSET evaluated CWS’s proposed labor categories and hours and staffing mix in relation to the firm’s unique technical approach. The SSET found that CWS’s pricing reflected an understanding of, and acceptable approach to, satisfying the PWS requirements. The SSET compared CWS’s labor categories and labor hours for each subtask to determine if CWS’s proposed labor categories, labor rates and labor hours would reflect a clear understanding of the requirements. Contracting Officer’s Statement at 9. The SSET assessed whether the labor categories proposed by CWS provided sufficient skills and qualifications necessary to perform the tasks and subtasks CWS proposed labor categories to perform. To ensure that CWS proposed sufficient labor, in the necessary quantities and skill sets, to successfully perform the PWS tasks and subtasks, the SSET compared CWS’s proposed labor hours and mix by task and subtask to that of the IGE and considered CWS’s technical approach. Id. at 10. The SSET also compared CWS’s labor hours to that of the other vendors, and found that CWS proposed more labor hours than three of the vendors, including PSS. The SSET concluded that CWS proposed sufficient labor categories and hours to provide for successful performance.

Contrary to the protester’s apparent belief, the SSET and SSA recognized the disparity between the vendors’ prices and the IGE, which the SSET concluded was based upon the vendors’ “deeply discounted [labor] rates” for some labor categories. AR, Tab 12, SSET Report, at 3. In this regard, the agency found that CWS submitted rates that were discounted on average 20 percent from its FSS contract rates. AR, Tab 13, Best Value Decision, at 5. The agency found CWS’s discounted rates to be comparable to corresponding rates on the Department of Labor’s National Compensation Survey, the Economic Research Institute’s Assessor, and the vendor’s rates. Id.

Although PSS generally disagrees with the agency’s price realism judgment and argues that the agency should have documented more detailed analysis, the protester does not show that the agency acted unreasonably. Accordingly, we deny this ground of protest.  (Preferred Systems Solutions, Inc.,
B-407234, B-407234.2, Nov 30, 2012)  (pdf)

A&T asserts that the Army did not compare the vendors’ proposed prices to historical prices and did not ensure that American Systems’ lower price reflected its technical approach. Protest at 15-17; Comments and 2nd Supp. Protest at 12-16. As with its technical evaluation challenge, the basis for A&T’s contention is its belief that its own proposed price is the “absolute lowest” capable of satisfying the PWS requirements. Protest at 11.

A&T’s objection that American Systems’ total price is too low does not provide a valid basis to question the agency’s price reasonableness evaluation. A&T’s arguments reflect a lack of understanding as to the distinction between price reasonableness and realism. Here, the RTOP only provides for a price reasonableness evaluation. The purpose of such a price reasonableness review is to determine whether the prices offered are too high, as opposed to too low. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3; WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD ¶ 68 at 4 n.2. 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. C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3; SDV Solutions, Inc., B-402309, Feb. 1, 2010, 2010 CPD ¶ 48 at 4. A price realism evaluation is not required where, as here, the solicitation only provides for a price reasonableness evaluation.  (A&T Systems, Inc., B-407152, Nov 16, 2012)  (pdf)

Where, as here, the award of a fixed-price contract is contemplated, an agency is not required to perform a realism analysis unless the solicitation so requires. SAIC Computer Systems, B-258431.2, Mar. 13, 1995, 95-1 CPD ¶ 156, at 11-12. In this regard, there is no prohibition against a procuring agency’s acceptance of low or below-cost offer under a solicitation for a fixed-priced contract. Wright Tool Co., B-276416, June 10, 1997, 97-1 CPD ¶ 210, at 3. Because the solicitation here did not require a realism analysis, GPGI’s complaint that the agency should have performed one is not cognizable.  (Global Protection Group, B-407221, Nov 26, 2012)  (pdf)

Price Realism

In response to the protester’s price realism challenge, the agency maintains that it did not conduct a price realism analysis here because it did not adjust offerors’ prices to determine the probable cost of their proposals. The agency’s defense reflects a fundamental misunderstanding of what a price realism analysis entails. A price realism evaluation does not contemplate adjusting offerors’ prices. As provided by regulation, and explained in our decisions, where, as here, a solicitation provides for the award of a fixed-price contract, the contracting agency may not adjust offerors’ prices for purposes of evaluation. Federal Acquisition Regulation § 15.404-1(d)(3); Powersolv, Inc., B-402534, B-402534.2, June 1, 2010, 2010 CPD ¶ 206 at 12. Rather, a price realism evaluation involves an assessment of an offeror’s low fixed price to determine whether the low price reflects a lack of understanding of contract requirements or risk inherent in its approach--precisely what the agency did here. Milani Constr. LLC, B-401942, Dec. 22, 2009, 2010 CPD ¶ 87 at 4.

While it is within an agency’s discretion to provide for a price realism analysis in awarding a fixed-price contract to assess understanding or risk, see FAR § 15.404-1(d)(3), offerors competing for such an award must be given reasonable notice that a business decision to submit low pricing will be considered as reflecting on their understanding or the risk associated with their proposals. Analytic Strategies, B-404840, May 5, 2011, 2011 CPD ¶ 99 at 2-3. Where there is no relevant evaluation criterion pertaining to price realism, 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 perform successfully at its offered price. Flight Safety Servs. Corp., B-403831, B-403831.2, Dec. 9, 2010, 2010 CPD ¶ 294 at 5.

The [request for task order proposals] RFTOP here did not furnish offerors with reasonable notice that the agency intended to perform a price realism analysis. The solicitation’s price evaluation factor provided only for analysis of the “reasonableness” of offerors’ pricing proposals--that is, whether the offeror’s price was too high--and the solicitation did not contain other language alerting offerors to the possibility that a decision to submit low pricing might be considered as reflecting on their understanding or ability to perform. Contrast Analytic Strategies, supra, (solicitation provided that proposed costs would be evaluated to determine whether they reflected a clear understanding of the requirements) and Flight Safety Servs. Corp., supra, (solicitation provided for rejection of “any proposal evaluated to be . . . unreasonably high or 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”).

Although the agency suggests that its evaluation of Emergint’s price was proper in light of certain language in the solicitation, we disagree. Specifically, the agency cites to language under the staffing plan factor, instructing firms to furnish a description of the special benefits that they would offer incumbent staff as a recruiting incentive and to describe their approach for obtaining and retaining staff. Offerors, however, were not required to provide any pricing information in responding to this aspect of the solicitation or to in any way correlate it to their proposed pricing. Thus, we fail to see how this provision would have put offerors on notice of the agency’s intention to perform a realism assessment of their labor rates or total evaluated price.

Similarly, the agency notes that under both the technical approach and management plan factors, offerors were instructed to demonstrate their understanding of the solicitation requirements. In context, however, this reference to “understanding” pertains to the narrative information presented in the offerors’ technical proposals, and does not reasonably suggest that the agency would consider price realism in the source selection decision.

Because below cost prices are not inherently improper, when offerors are competing for award of a fixed-price contract, as explained above, they must be given reasonable notice that their business decision to submit a low-priced proposal can be considered in assessing their understanding or the risk associated with their proposal. See Milani Constr. LLC, supra, at 5. Since the agency failed to provide such notice, we agree with the protester that the agency improperly relied on an unstated evaluation factor in determining that the protester’s proposed pricing was so low as to call into question its understanding of the solicitation requirements and its ability to perform. Since the contracting officer’s award decision clearly relies on these findings in his trade-off decision, we sustain the protest on this basis.  (Emergint Technologies, Inc., B-407006, Oct 18, 2012)  (pdf)

Lifecycle argues that the Corps conducted a price evaluation that was unreasonable and failed to conform to the terms of the RFP; accordingly, Lifecycle maintains that its proposal was improperly rejected. More specifically, Lifecycle argues that the agency improperly rejected its proposal by relying on a comparison to the median coefficient proposed by 15 offerors for only two of the RFP’s 14 locations. Lifecycle asserts that its proposed coefficients were realistic, and reflected careful judgments regarding the costs of performance. Protest at 4. Further, Lifecycle maintains that the detailed data from the R.S. Means database shows that coefficients below the nationwide average are typical in the region where the RFP seeks services; for example, the firm argues that the weighted average city cost index for Fayetteville, North Carolina is 77.6 percent (that is, a coefficient of 0.776). Id.

The Corps argues that the rejection of Lifecycle’s proposal was reasonable. The contracting officer states that she compared Lifecycle’s prices to the government estimate and to the R.S. Means averages, and in doing so found that the firm’s price was “too low,” and was “more than 15% below existing contracts.” Contracting Officer’s Statement at 3-4. More specifically, the contracting officer states that Lifecycle’s coefficient for the Fort Bragg/Pope Air Force Base area was [Deleted] below the median of other offered coefficients for this area, concluding that this reflected Lifecycle’s lack of understanding of the work and an inability to perform at the prices proposed. Id. at 4.

In reviewing protests challenging price realism evaluations, our focus is on whether the agency acted reasonably and in a manner consistent with the terms of the solicitation. Nova Techs., B-405982.2, May 16, 2012, 2012 CPD ¶ 172 at 9.

Based on our review of the record here, we conclude that the Corps unreasonably rejected Lifecycle’s proposal. We reach this conclusion, first, because the median was materially higher than the government estimate due to the inclusion of proposed prices that the agency, itself, determined were unacceptable, ineligible for award, and/or unreasonably high. That is, while the contracting officer and the source selection official assert that the median represented the “fair market pricing,” they also acknowledge that three of the price coefficients used to establish that benchmark were, themselves, unreasonably high, and several others were proposed by offerors/proposals that were determined to be unacceptable or ineligible for award. Accordingly, in our view, the median could not reasonably be relied upon as a valid benchmark for comparison. Further, even if the agency’s calculation of the median had been rational, the agency comparison to that benchmark did not consider the coefficients proposed for 12 of the 14 locations identified in the RFP. Nothing in the RFP advised offerors that the prices proposed for the locations other than the Fort Bragg/Pope Air Force Base area would not be meaningfully considered.

Finally, we are troubled by the source selection authority’s reliance on the agency’s earlier experience with an unidentified contractor that failed to successfully perform under a different type of contract. Nothing in the record presented to this Office reasonably addresses the circumstances surrounding the Corps’s decision to terminate that prior contract. Accordingly, we have no basis to assess whether that contractor’s prior unsuccessful performance is relevant to Lifecycle’s capability to perform here.

The protest is sustained.  (Lifecycle Construction Services, LLC, B-406907, Sep 27, 2012)  (pdf)

Realism of Awardee’s Cost/Price

OSU contends that “it will be impossible for ARA to fulfill the obligations of the contract at the cost offered.” Protest at 2. More specifically, OSU challenges the realism of ARA’s labor rates, maintaining that they are too low “to hire staff with the education and experience required to do the JMEM work.”Id.

As noted above, the RFP advised offerors that the agency would not perform a realism assessment regarding the offerors’ proposed labor and indirect rates because the proposed rates were “ceiling rates,” and any costs incurred due to rates in excess of the proposed rates were specifically designated as “unallowable.” AR, Tab 4, RFP Amendments, at 22, 68. Given the solicitation’s clear statement that the agency was not required to perform a realism assessment of the proposed labor rates, the protester’s assertion that such analysis was required fails to state a valid basis of protest and is dismissed. In any event, the record establishes that the agency did, in fact, perform an adequate realism analysis.

An agency is not generally required to perform price realism analysis with regard to fixed-rate proposals, since the risk of loss in such situations is on the contractor, see Health Net Fed. Servs., LLC, B-401652.3, B-401652.5, Nov. 4, 2009, 2009 CPD ¶ 220 at 19; nonetheless, an agency may choose to perform such analysis. In instances where price analysis is performed, the FAR contemplates various price analysis techniques, including the comparison of proposed prices to each other, to an independent government estimate, and to competitive published price lists. FAR § 15.404-1(b)(2); C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3; Comprehensive Health Servs., Inc., B-310553, Dec. 27, 2007, 2008 CPD ¶ 9 at 8. Further, we have found an agency’s realism analysis regarding labor rates to be reasonable where the agency relied on information obtained from internet websites. Science Applications Int’l Corp., B-406460, B-406460.2, June 7, 2012, 2012 CPD ¶ 181 at 3-4; AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 16-17.

Here, the record shows that the agency first compared ARA’s prices to those offered by OSU. AR, Tab 41, Comparative Analysis of Offerors, at 7; AR, Tab 43, Price Competition Memorandum, at 7; see FAR § 15.404-1(b)(2)(i) (comparison of proposed prices received in response to the solicitation). The agency also compared ARA’s labor rates to those in comparable GSA Federal Supply Schedule contracts. AR, Tab 43, Price Competition Memorandum, at 7; see FAR § 15.404-1(b)(2)(iv) (comparison with competitive published price lists). Next, the agency compared ARA’s price to the independent government cost estimate. AR, Tab 41, Comparative Analysis of Offerors, at 9; see FAR § 15.404-1(b)(2)(v) (comparison with independent government cost estimates). Finally, the agency compared ARA’s direct labor rates with those listed on an internet website, salary.com, and specifically considered instances in which ARA’s rates were lower than those in this database. See FAR § 15.404-1(b)(2)(iv) (comparison with competitive published price lists).

On this record, we find no basis to question the agency’s determination that ARA’s price was realistic. The mere fact that OSU believes that other price analysis techniques, such as comparison to OSU’s own historical prices, would have been more accurate (or more beneficial to OSU) does not establish that the agency’s price analysis was unreasonable. Accordingly, although the solicitation specifically stated that the agency would not perform a realism assessment regarding the offerors’ labor rates, the agency nevertheless performed such an assessment, and we find the agency’s conclusions in that regard to be reasonable.  (Oklahoma State University, B-406865, Sep 12, 2012)  (pdf)

Beyel contends that NOSAT’s final fuel consumption rates, which are lower than its own rate and the government’s estimate, increase the risk of poor performance and are unreasonable “as a matter of law.” Protester’s Supp. Comments at 3.

Beyel’s argument reflects a lack of understanding as to the distinction between price reasonableness and realism. The purpose of a price reasonableness review in a competition for the award of a fixed-price contract is to determine whether the prices offered are too high, as opposed to too low. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3; WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD ¶ 68 at 4 n.2. Arguments, such as the one raised by Beyel here, 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. C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3; SDV Solutions, Inc., B-402309, Feb. 1, 2010, 2010 CPD ¶ 48 at 4. A price realism evaluation is not required where, as here, a solicitation provides for the award of a fixed-price contract and does not include a requirement for a price realism evaluation. C.L. Price & Assocs., Inc., supra; WorldTravelService, supra, at 3.  (Beyel Brothers, Inc., B-406640,B-406640.2, Jul 18, 2012)  (pdf)

Resource also complains that the Air Force revised the IGE after evaluating initial proposals and that this revised IGE was used as the basis for finding realistic the pricing by all the other offerors, including Sodexo. Supp. Protest at 3.

IGEs are, by their nature, inexact and agencies may change them after receipt of bids or proposals where a review of the bids or proposals shows that the initial IGE was incorrect in its assessment of the level-of-effort necessary to perform the requirement or in its prediction of fair and reasonable prices as compared to the actual pricing disclosed by competition. TAMS/Fluor Daniel, B-251068, B-251068.2, Mar. 2, 1993, 93-1 CPD ¶ 199 at 4.

We find nothing improper in the agency’s revision of the IGE. The agency states that based on the disparity in the pricing of the initial proposals, it reviewed the IGE and concluded that the disparity was primarily attributed to erroneous use of historical pricing paid under the existing contract. Contracting Officer’s Statement at 26. The agency stated that the original IGE did not take into account the standardization of custodial services and the economies of scale by the inclusion of two additional facilities. Id. at 27. The revised IGE took into consideration the pricing of offers received in response to the solicitation, pricing obtained through additional market research incorporating historical prices paid by the government for similar items and a comparison of a similar acquisition for custodial services awarded for facilities in Germany with similar levels of service and scope of square footage. Id.

Although Resource argues that none of the agency’s reasons support the revised IGE’s large price reduction, it has not shown that the agency’s revision of the IGE was unreasonable. In this regard, the record shows that the agency’s revised IGE was more consistent with the prices proposed by the other competitive range offerors, including an offeror that was the incumbent contractor for approximately 30 percent of this requirement.  (Resource Ltd., B-406492, B-406492.2, Jun 6, 2012)  (pdf)

SAIC, the incumbent contractor, asserts that the agency failed to perform a reasonable cost realism analysis of Lockheed Martin’s proposal. Offerors were required to propose direct labor rates for 35 labor categories. SAIC asserts that the proposed direct labor rates of Lockheed Martin and its subcontractors were below SAIC’s incumbent rates such that, given Lockheed Martin’s proposal to retain up to [REDACTED] of the incumbent workforce, a reasonable cost realism analysis of Lockheed Martin’s cost proposal would have resulted in an upward adjustment to Lockheed Martin’s labor rates (and consequently its overall cost), as well as a negative risk assessment under the technical approach factor. In this regard, SAIC points to five labor categories where it believes a comparison of Lockheed Martin’s proposed rates with SAIC’s proposed rates demonstrates that Lockheed Martin’s were not realistic: senior customer service representative, where SAIC proposed an hourly rate of [REDACTED] and Lockheed Martin [REDACTED] ; supply technician analyst, where SAIC proposed rates between [REDACTED] and Lockheed Martin [REDACTED] ; senior business functional expert, where SAIC proposed a rate of [REDACTED] and Lockheed Martin [REDACTED] ; Windows SQL administrator, where SAIC proposed a rate of [REDACTED] and Lockheed Martin [REDACTED] ; and production data entry operator, where SAIC proposed a rate of [REDACTED] and Lockheed Martin [REDACTED] . Lockheed Martin Price Proposal, att. 1 at 8; SAIC Price Proposal.

The agency responds that in conducting the cost realism analysis of Lockheed Martin’s proposal, it first contacted the Defense Contract Audit Agency (DCAA) for information on the direct labor rates of Lockheed Martin and its proposed subcontractors. Since DCAA did not have relevant rate information available with respect to Lockheed Martin, and because the direct labor rates proposed by Lockheed Martin were in a number of cases lower than those of the incumbent SAIC, the agency asked Lockheed Martin to explain how it developed its rates. Agency Report (AR) at 17. In response, Lockheed Martin explained that, consistent with its usual approach, it [REDACTED] Lockheed Martin E-mail, Feb. 2, 2012. The contracting officer reviewed the information and determined that it presented a reasonable approach to developing labor rates which supported a finding that Lockheed Martin’s quoted rates were realistic.

DCAA likewise had no direct rate information for three of Lockheed Martin’s proposed subcontractors--[REDACTED]. To evaluate the realism of these subcontractor rates, the agency with respect to [REDACTED] , reviewed USA jobs.gov for comparable labor rates and found that for two of the three proposed categories the rates were the same; for [REDACTED] , the agency compared the quoted labor rates to the federal government’s General Schedule (GS) rates, and found that the rates were realistic for the Millington, Tennessee area where the contract will be performed; and for [REDACTED] , the contracting officer reviewed information at salary.com for similar labor categories to be performed in Millington. (For the fourth subcontractor, [REDACTED], the Defense Contract Management Agency reported that it took no exception to the proposed rates based on information from DCAA and various salary websites.) Id. at 17. The agency determined that the subcontractors’ rates were realistic.

When agencies evaluate proposals 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) § 15.605(d). 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 should cost, assuming reasonable economy and efficiency. CGI Federal Inc., B-403570 et al., Nov. 5, 2010, 2011 CPD ¶ 32 at 4. An agency is not required to conduct an in-depth cost analysis, see FAR § 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 ¶ 14 at 8. Because the contracting agency is in the best position to make this cost realism determination, our review of an agency's exercise of judgment in this area is limited to determining whether the agency's cost evaluation was reasonably based and not arbitrary. Hanford Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD ¶ 164 at 9.

We find the agency’s cost realism analysis to be unobjectionable. SAIC assumes in its protest that a reasonable cost realism analysis must be based on a comparison of Lockheed Martin’s proposed rates to SAIC’s proposed rates or the rates it is currently paying the incumbent employees, such that a proposed rate which is less than the incumbent employee’s rate was unrealistic. SAIC, however, has not provided any information which indicates that the direct rates Lockheed Martin and its subcontractors proposed were less than the current market rates for similar labor categories. Thus, there is no basis to find that the agency was unreasonable in concluding that Lockheed Martin would be able to hire qualified personnel, including at least some of the incumbent personnel.

In this regard, we note that Lockheed Martin’s proposed staffing approach did not rely simply on hiring incumbent personnel. Lockheed Martin explained in its proposal that [REDACTED] Lockheed Martin anticipated being able to retain “up to [REDACTED] of personnel.” Lockheed Martin Technical Proposal at 11-12. However, Lockheed Martin further explained that Lockheed Martin [REDACTED] Indeed, Lockheed Martin specifically noted that it had already identified and screened approximately 100 candidates. Id. at 12.

In any case, the extent to which the incumbent employees would be asked to accept a reduction in pay if they accepted employment with Lockheed Martin, is unclear from the record here. While SAIC has cited [REDACTED] labor categories where Lockheed Martin’s proposed rates were lower than SAIC’s proposed rates, SAIC has not furnished information on what these employees are currently being paid. Furthermore, there were in fact 35 listed labor categories in the solicitation, including categories where the proposed rates were similar or where Lockheed Martin’s proposed rates were in fact higher than the rates proposed by SAIC. For example, while Lockheed Martin proposed a rate of [REDACTED] for the business functional analyst, SAIC proposed rates for four positions, including three at [REDACTED] ; while Lockheed Martin’s proposed rate for the program manager was [REDACTED] , SAIC’s rate was [REDACTED] , only approximately [REDACTED] higher; and while Lockheed Martin’s proposed rate for the business application expert/operator was [REDACTED] , SAIC’s rate was only [REDACTED] . Lockheed Martin Price Proposal, att. 1 at 8; SAIC Price Proposal. Overall, the agency calculates that Lockheed Martin’s average proposed direct rates were approximately only [REDACTED] lower than SAIC’s. AR, att. 25.[3] In sum, SAIC’s protest furnishes no basis to question the reasonableness of the agency’s determination that Lockheed Martin would be able to hire qualified personnel at the rates it proposed.  (Science Applications International Corporation, B-406460,B-406460.2, Jun 7, 2012)  (pdf)

Rust argues that the agency failed to perform an adequate price realism analysis in evaluating the awardees’ proposals. The focus of Rust’s protest in this regard is the number of hours that each of the offerors proposed to perform the sample task on which the price evaluation was based. According to the protester, the awardees proposed too few hours to perform the sample task; while Rust proposed to perform the sample task using [REDACTED] hours, Gilardi proposed [REDACTED] hours, Garden City [REDACTED] hours, and BMC [REDACTED] hours. (The government estimate was 780 to 1,000 regular hours, plus 150 overtime hours.) Rust concludes that the price realism analysis conducted by the agency was inadequate because it did not consider the technical evaluation, the labor mix proposed by each of the offerors, or the offerors’ specific technical approaches.

Where, as here, a fixed-price contract is to be awarded, the agency generally is not required to conduct a realism analysis; this is because a fixed-price (as opposed to a cost-type) contract, places the risk and responsibility for loss on the contractor. WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD ¶ 68 at 3. However, an agency may, as it did here, 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. The nature and extent of such an analysis are matters within the discretion of the agency, and our review of a realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Id.

Here, the record indicates that, in conducting its price realism analysis, the agency in fact considered the technical approaches of the offerors. Specifically, the price evaluation panel consulted with the technical evaluation panel (TEP) regarding the number of hours proposed by all offerors, including the three awardees. In response, the TEP chairman informed the contracting officer that all offerors proposed an adequate and appropriate labor hour mix (although some offerors, including the protester, proposed excessive hours). Agency Statement, Apr. 11, 2012 at 1-2. In this regard, the solicitation required that an offeror’s technical solution describe its proposed use of automated systems, including claim tracking databases or systems, websites and interactive voice response (IVR) systems. RFP § L.8.2.2.3; see RFP § C.4.4.

With respect to the awardees, the TEP panel specifically indicated that the low number of hours proposed overall, and for the program manager and claims clerical support specifically, was consistent with the awardees’ more automated approach to performing the work, as reflected in their technical proposals. In contrast, Rust proposed a large number of lower-level claims clerical support hours [REDACTED], with significant program manager oversight, indicating to the agency a more labor intensive, less automated approach. The TEP concluded that the awardees could perform the work with the hours and labor mix proposed based on their technical proposals and approach. Agency Statement, Apr. 11, 2012 at 1-2.[2] We conclude, therefore, that Rust has not shown that the agency’s approach to the price realism evaluation was inconsistent with its obligations under the solicitation.

Rust, however, asserts that in its price realism analysis, the agency failed to consider that both Garden City Group and BMC based their price proposals on assumptions that were inconsistent with the RFP. In this regard, the solicitation statement of work (SOW) required the contractor to “analyze all claim forms”; “assess the sufficiency of supporting documentation”; “calculate the net pecuniary loss incurred by the victim”; and “contact potential claimants who appear to qualify for participation in the claims fund but whose documentation is lacking in some respect, and request that they supply corrected documentation.” RFP § C.4.4.3. Rust asserts that BMC’s assumption in its proposal, that the “data to be captured from each claim form is expected to include confirmation of employment details and the existence of a signature on the claim form,” is contrary to the solicitation requirement that the contractor analyze and validate each claim. BMC Price Proposal at 2. Rust’s position, however, at a minimum, fails to account for BMC’s further explanation in its price proposal that its pricing was based on the assumptions that “[a]ll data entry will be manually verified and validated to ensure 100% accuracy before it is integrated into the claims administration database,” and “that 5% of the claims are deficient and that BMC will mail deficiency letters…..” Id. Accordingly, it is clear that, when read as a whole, BMC’s price proposal acknowledged the solicitation requirement to analyze and validate the claims.

Rust further asserts that Garden City Group assumed that the sample claims scenario in the solicitation would require a simple claims validation process, imposing few requirements on the contractors. GCG Price Proposal at 33. We agree with Rust that Garden City Group did make assumptions in its price proposal that appear inconsistent with the SOW requirements. Specifically, Garden City Group indicated in its proposal that it assumed with respect to the sample scenario, that “[t]here are no calculations to be performed by GCG. There is a simple claims validation process, such as a check the box or verifying that the claims form document is signed.” Id. This assumption appears inconsistent with the SOW requirements that the contractor analyze all claim forms, assess whether there are any deficiencies, and calculate the pecuniary loss incurred by the victim, RFP § C.4.4.3. As discussed below, however, we do not believe that Rust was prejudiced by this error.  (Rust Consulting, Inc., B-406410, May 18, 2012)  (pdf)

Inadequate Cost Realism Analysis

KPMG also argues that the CIA failed to conduct a reasonable cost realism analysis as required by the RFP and, instead, accepted the offerors’ proposed costs without any meaningful analysis. Protest at 38; First Supplemental (Supp.) Protest at 5-8.

Upon reviewing Deloitte’s proposal under the terms of our Office’s protective order, KPMG argued that the evaluators apparently failed to recognize several anomalies in Deloitte’s cost proposal. For example, KPMG contends that Deloitte’s cost proposal was based on less-well-qualified replacement personnel beginning at the first option year, in February 2013; that Deloitte’s cost proposal used labor costs for a subcontractor that were not based on the rate in the subcontractor’s accompanying cost proposal; and that Deloitte’s own labor costs were not based on specific personnel, but instead reflected [deleted] rates for personnel--apparently without security clearances. Second Supp. Protest at 16, 38-51; Third Supp. Protest at 23-26 & 46-53; Protester’s Final Comments, at 5-15. KPMG further notes that, to the extent the CIA evaluators performed any cost realism analysis on Deloitte’s proposal, they expressed the view that Deloitte’s cost savings were “not assured” and “intangible.” Under these circumstances, KPMG argues that Deloitte’s proposed cost could not provide a reasonable basis for the source selection decision here. Second Supp. Protest at 38-42. We agree.

When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed costs are not controlling since such costs may not accurately reflect the actual costs the government will incur. FAR § 15.404-1(d). While, in conducting an adequate cost analysis, an agency is not required to verify each and every variable, it must reasonably consider the extent to which the costs reflected in the offeror’s technical approach reflect what the contract should cost, assuming reasonable economy and efficiency. ATLIS Fed. Servs., Inc., B-275065.2, B-275065.3, Feb. 12, 1997, 97-1 CPD ¶ 84 at 8, 10. In this regard, we will review an agency’s judgment to see that the agency’s cost realism evaluation was reasonable, not arbitrary, and adequately documented. Honeywell Tech. Solutions, Inc., B-400771, B-400771.2, Jan. 27, 2009, 2009 CPD ¶ 49 at 17; Jacobs COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD ¶ 16 at 26. Thus, we will sustain a protest where the cost realism analysis was not adequately documented. E.g., National City Bank, B-287608.3, Aug. 7, 2002, 2002 CPD ¶ 190 at 12-13 (record lacked documentation that technical evaluation board had considered whether awardee’s proposed staffing reductions realistically conformed to its technical approach).

Here, the CIA asserts that it only needed to consider the realism of the offerors’ rates, and that it did so. The CIA further maintains that the evaluators’ statement that Deloitte’s lower costs were “not assured” and “intangible” did not mean that they were unrealistic. Supp. AR (Apr. 5, 2012) at 12-15. The CIA also argues that Deloitte’s proposed blended direct labor cost rates were permitted by the RFP and were, therefore, realistic. Second Supp. AR (Apr. 24, 2012) at 17-20. Finally, in response to KPMG’s challenge that the cost evaluation failed to detect that Deloitte had used lower rates for a subcontractor than the subcontractor itself proposed, the CIA argues that the error is insignificant. Id. at 20-21.

In our view, the record here reflects no meaningful agency consideration of when--or if--Deloitte’s proposal to “transition” to less experienced personnel, and the cost reductions associated with that approach, would actually occur. To the contrary, the agency expressly acknowledged that this critical event is “not assured” and “intangible” and, because of that, “a most probable cost estimate was not done.” AR, Tab 16, CET Final Report, at 4. Not only did the agency bypass this issue, but the record indicates that the technical evaluators merely concluded that Deloitte’s staffing approach “posed no issue,” and that the cost evaluators “took no exception” to either offeror’s direct, indirect, overhead, and general and administrative costs. AR Binder 1, Tab 17, Source Selection Evaluation Board Report, at 3; AR Binder 1, Tab 18, Source Selection Decision, at 4. In short, the agency failed to provide any reasonable basis for estimating the probable costs it will incur under the contract it awarded--a prerequisite to the award of every cost-reimbursement contract by the federal government. See Advanced Research Projects Agency--Recon., B-259479.3, July 18, 1995, 95-2 CPD ¶ 26 at 4; see also FAR § 15.404-1(d)(2).

In light of the clear impact on projected costs of Deloitte’s approach to performing this contract, as well as the agency’s misleading discussions with KPMG regarding its staffing approach, we find the agency’s documentation purporting to support its cost evaluation to be inadequate. Accordingly, we sustain the protest on this basis.  (KPMG LLP, B-406409, B-406409.2, B-406409.3, B-406409.4, May 21, 2012)  (pdf)

DTI challenges the agency’s determination that its proposed price was unrealistically low and posed a performance risk. The protester asserts that the agency should have compared its price not just with the IGE and SGS’s price, but also with all of the other offerors’ prices. The protester points out that, because it is teamed with IBM (the original equipment manufacturer), it is able to realize savings on any required spare parts necessary to maintain the machines, and that such savings would not be available to other prospective vendors such as SGS who, the protester assumes, would have to acquire spare parts on the open market. The protester also notes that, as described in its proposal, its teaming arrangement with IBM allows it to use IBM’s extensive network of support personnel to meet the requirements of the contract, and that there is virtually no risk related to awarding the contract to it based on these considerations.

Where, as here, a solicitation provides for 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 a vendor’s understanding of the requirements or to assess the risk inherent in a vendor’s proposal. See Ball Aerospace & Tech. Corp., B-402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion. Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD ¶ 189 at 6. Nonetheless, it is axiomatic that an agency’s price evaluation must, at a minimum, comport with the terms of the solicitation.

Here, as noted, the RFP expressly provided that the agency would compare the competitive pricing presented by all of the offerors, and that the overall prices would be the basis for the agency’s comparison. Notwithstanding this express solicitation requirement, the record shows that in performing its price realism evaluation, the agency confined its comparison of the protester’s price to only SGS’s proposed price and the IGE in determining the realism of DTI’s proposed price. Had the agency compared DTI’s proposed price to the prices proposed by all seven offerors, it would not have had a reasonable basis to find DTI’s price unrealistic. Specifically, the record shows that, of the seven proposals, three (including the protester’s) were closely clustered within $500,000 of one another, and four of the seven offers were for a price less than the price proposed by the protester. Agency Submission to GAO, Jan. 26, 2012. In fact, of the seven prices submitted, the only apparent outlier was the awardee’s price, which was more than 20 percent higher than the next highest priced proposal. Id.

The record also shows that a comparison of the protester’s price to the government estimate (which was almost equal to the awardee’s price) also should not reasonably have led the agency to question the realism of the protester’s price. In this regard, the record shows that the government estimate was expressly based on assumptions that either were inconsistent with historical data presented in the RFP or simply inapplicable to the protester. In particular, the government estimate states: “As the equipment continues to age, the cost to repair the systems will continue to climb and there could be an escalation in failures and/or parts shortages.”

In contrast to this assumption, the RFP included historical data from 2008 through 2010 showing that, during this interval, the number of service calls declined by approximately 14.6 percent. Additionally, there is no basis to conclude that DTI will be subject to potential parts shortages identified as a concern in the IGE that may be experienced by other vendors such as the awardee. This is because DTI is teamed with IBM, the original equipment manufacturer. DTI’s proposal specifically provides: “All parts are new, equivalent to new or certified spare parts, and are exact replacements as specified by DTI/IBM TEAM and FSA as required.” DTI Technical Proposal at 9.

Although the source selection memorandum states that DTI’s price reflects a “significant risk” to the government, it does not explain what the basis of that risk is, other than to quote from the government estimate which, as discussed, does not provide a basis for finding DTI’s price unrealistic. In contrast, DTI’s proposal received outstanding ratings under each of the solicitation’s non-price evaluation factors and elements, with no mention of any weaknesses or discussion of risk. AR, exh. G, at 5-6. With respect to its technical proposal, the evaluators found that it exceeded the RFP’s requirements, and specifically identified as strengths DTI’s plan to handle parts issues, and its description of its plan to handle the fact that the equipment is approaching the end of its lifecycle (the agency termed this plan “excellent”). AR, exh. G, at 5.

In sum, the agency’s price realism determination failed to comport with the RFP’s evaluation scheme and also failed to take into consideration the unique elements of DTI’s proposal (most notably its relationship with IBM) that may have explained its lower price relative to the awardee’s price. The agency’s price realism evaluation also failed to consider the outstanding technical rating assigned to DTI’s proposal which was based, in part, on DTI’s strengths in handling “end of life” and parts issues. In light of these considerations, we sustain DTI’s protest.  (Digital Technologies, Inc., B-406085, B-406085.2, Feb 6, 2012)  (pdf)

The Reasonableness of the IGCE

Both protesters take issue with the propriety of the IGCE, and more specifically the presumptive realistic threshold rate. According to the protesters, this figure was arrived at arbitrarily, and should not reasonably have been used to evaluate the realism of the offerors’ proposed costs. Both protesters point to the fact that the agency had to adjust its initial IGCE--because it was set too high--as evidence of how arbitrary the original figure was, and also note how the agency’s subsequent downward adjustment of the figure simply applied the apparently arbitrary 20.7 percent and 10.35 percent reductions without any reasoned basis. According to both protesters, there is no reasonable connection between the agency’s IGCE and the costs proposed, such that the agency could reasonably rely on the IGCE or the presumptive realistic threshold rate in evaluating the protesters’ cost proposals.

We find no merit to this aspect of the protests. First, neither protester has advanced any argument relating to the validity of the underlying methodology or data used by the agency to prepare the IGCE. The record shows that the agency’s calculation of the original IGCE was mathematically correct and based on the labor mix and quantities envisioned by the RFP and relied on actual, accurate BLS data for purposes of establishing the direct hourly rates for the various labor categories. The protesters have neither alleged nor shown that the agency’s fundamental approach was unreasonable or that it used unreliable data (for example, inaccurate labor categories) to arrive at its original calculations.

Second, to the extent the agency miscalculated by selecting the higher percentile rates, the record shows that DOE recognized its error and corrected it once proposals were submitted. In particular, the record shows that the agency expressly recognized that the RFP did not contemplate superior quality staffing as envisioned by the agency in preparing the original IGCE. AR, exhs. B.1, at 65; F.1, at 65. As summarized by the evaluators: “Since the RFP did not require a ‘best of the best’ approach to recruitment and employment of labor, it would be inaccurate to assess the cost realism of proposed labor rates for individual Offeror[s] using a ‘best of the best’ approach.” Id. The record thus shows that the agency timely realized its miscalculation and sought to take measures to correct the problem.

Third, and most importantly, the record shows that the agency acted reasonably after receiving proposals in adjusting the IGCE downward by an amount that was close to the difference between the original IGCE and the average [fully burdened composite, weighted average] FBCWA hourly wage rate among all proposals. This was a reasoned response in light of the agency’s conclusion regarding the underlying reason why its original IGCE was high (essentially, because the agency had used direct rates that were a percentile category too high) and also resulted in a revised IGCE that was statistically consistent with the proposals submitted. In this latter regard, as noted, the revised IGCE was at the median point among all proposals received (with 6 proposals above the IGCE and 7 below) and was just slightly below (2.8 percent) the average FBCWA hourly rate for all proposals. In effect, the reasonableness of the revised IGCE was externally validated by the results of the competition.

Finally, the agency acted reasonably in establishing the presumptive realistic threshold rate. The record shows that the agency recognized that the BLS data was itself based on averaged wage data, and that individual offers could vary from the rates derived from the BLS data and nonetheless still be realistic. The agency’s source evaluation board report specifically explains the agency’s reasoning as follows:

In recognition of the fact that any specific BLS percentile labor rate is an average rate itself, the IGCE [team] determined that Offerors could reasonably have proposed somewhat lower labor rates than the specific BLS labor rate used for the revised IGCE and still be realistic. However, the IGCE team determined that any Offerors proposing a significantly lower rate than the revised IGCE may put the Offeror’s proposed rate in a lower BLS percentile category and required further analysis to assess the realism of their proposed rates. Therefore, in assessing cost realism, the IGCE team determined that any average fully burdened labor that was more than 10.35% (1/2 of the 20.7% difference between BLS percentiles) less than the revised IGCE required review of the Offeror’s proposal to identify whether the proposal explained the basis for the rates being unrealistically low.

We have no basis to object to the agency’s actions in establishing the presumptive realistic threshold rate. The rate allows for variation among proposed cost, but only within a span of lower costs that would not be so low as to suggest that the offeror was proposing either labor at an unrealistically low level of compensation or labor that was not qualified to perform the agency’s requirements. Additionally, the agency did not establish an absolute threshold below which the offerors’ proposed rates were determined unrealistic, but simply a threshold that would lead the agency’s evaluators to further review any proposal that fell below the threshold. Simply stated, an agency’s cost realism evaluation need not (and realistically cannot) achieve scientific certainty; rather, the analysis must provide a reasonable measure of confidence that the proposed costs are reasonable and realistic. L-3 Sys. Co., B-404671.2, B-404671.4, Apr. 8, 2011, 2011 CPD ¶ 93 at 10. We conclude that the agency’s presumptive realistic threshold rate provided it with a reasonable yardstick to use in evaluating the realism of the offerors’ proposed rates.  (Energy Enterprise Solutions, LLC; Digital Management, Inc., B-406089,B-406089.2,B-406089.5, Feb 7, 2012)  (pdf)

Cost Realism

DAS challenges CMS’s cost realism analysis, arguing that the agency could not reasonably find PRI’s low cost to be realistic. In this regard, DAS complains that PRI’s cost proposal was based upon processing fewer proposals (2,430 proposals per month) than DAS’s proposal (2,700 proposals per month) and that the agency’s normalizing PRI’s cost to reflect 2,700 proposals per month does not “magically create a valid comparison of equivalent proposals.” See Protester’s Comments at 12.

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. FAR §§ 15.305(a)(1); 15.404-1(d); Tidewater Constr. Corp., B-278360, Jan. 20, 1998, 98-1 CPD ¶ 103 at 4. Consequently, the agency must perform a cost realism analysis to evaluate the extent to which an offeror’s proposed costs are realistic for the work to be performed. FAR § 15.404-1(d)(1); Hanford Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD ¶ 164 at 9. The evaluation will determine what the government should realistically expect to pay for the proposed work, the offeror’s understanding of the work, and the offeror’s ability to perform the contract. FAR §§ 15.305(a)(1), 15.404-1(d)(1). The agency adjusts the proposed cost to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis, allowing the agency to determine the probable cost of performance. FAR § 15.404-1(d)(2)(ii). The adjusted offers are then used in the agency’s best value analysis. FAR § 15.404-1(d)(2)(i).

The evaluation of competing cost proposals requires the exercise of informed judgment by the contracting agency. 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. Jacobs COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD ¶ 16 at 26. 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 Metro Mach. Corp., B-297879.2, May 3, 2006, 2006 CPD ¶ 80 at 9-10.

Here, the RFP informed offerors that they should anticipate reviewing between 2,000 and 2,500 proposals each month and that at least 8 percent of those proposals would require re-evaluation. SOW at 130. In calculating their estimated costs, DAS and PRI used different assumptions with respect to how many proposals they would have to review on a monthly basis. The agency recognized that difference, normalizing all firms to 2,700 proposals per month. This resulted in an upward adjustment in PRI’s estimated costs, which were based upon only receiving 2,430 proposals per month.

We find that CMS’s adjustment of PRI’s proposed costs to reflect the receipt of 2,700 proposals per month is a reasonable cost normalization. Cost normalization involves the measurement of offerors against the same baseline where there is no logical basis for differences in approach or where there is insufficient information provided with the proposals, leading to the establishment of common “should have bid” estimates by the agency. The purpose of such an analysis is to segregate cost factors which are “company unique” from those which are generally applicable to all offerors. See The Research Found. of State Univ. of New York, B-274269, Dec. 2, 1996, 96-2 CPD ¶ 207 at 5. Here, the number of proposals that will be received each month is not dependent upon an offeror’s approach, but will be the same regardless of which offeror performs the contract. Although DAS generally complains that normalizing the firms’ proposals in this way will not allow for a fair or equal comparison, it has not explained why this is the case or how it is prejudiced.

DAS also complains that CMS’s cost realism evaluation did not account for “downtime” that would occur during the performance of the contract. Specifically, DAS contends that historically, there have been significant problems with WCCCS (the case control system the contractor is required to use), causing performance downtime that offerors must account for in analyzing and predicting costs. DAS states that it was aware of these problems; informed CMS about them (as evidenced by the questions and answers, set forth above); and factored their impact into DAS’s costs. DAS complains that CMS did not consider the impact of the predicted downtime in its cost realism evaluation.

We find no merit to the protester’s arguments in this regard. As DAS acknowledges in its protest, the RFP and CMS did not advise offerors to account for downtime in their proposals. Protest at 8. In fact, CMS advised offerors in response to their questions that there had only been one occasion in the prior year where WCCS was down for more than 8 hours. See RFP amend. 8, Question/Answer No. 28, at 450. Moreover, although DAS contends that it factored downtime into its cost estimates, it has not directed us to any part of its proposal that apprised the agency that it had done so, nor have we found from our review of the protester’s business proposal that DAS informed CMS that its cost estimates included a factor for downtime. Accordingly, we fail to see in any event how the agency should have been aware that the DAS’s approach included additional labor hours to account for the downtime that DAS insists it included in its cost calculation.  (Data and Analytic Solutions, Inc., B-405278.2, Feb 27, 2012)  (pdf)

Securit asserts that the agency’s price evaluation was inadequate. According to the protester, the agency was required to conduct a price realism evaluation. The protester maintains that, had the agency done this, it would have discovered that the awardee’s prices were unrealistically low. In this connection, Securit points out that the awardee’s proposal included no detail relating to the build up of its burdened hourly rates and, consequently, there was no way for the agency to evaluate the awardee’s proposal for price realism. Securit notes that, in contrast, it included this level of detail in its proposal so that the agency could see the component elements of its prices.

This aspect of Securit’s protest is without merit. As a general rule, the utility of evaluating proposed prices for realism in the context of a fixed-price contract is limited to assessing the technical understanding of the offeror and, in appropriate circumstances, assessing the risk inherent in an offeror’s proposal. General Dynamics--Ordnance & Tactical Sys., B-401658, B-401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 3. Here, the RFP did not explicitly call for the agency to perform a price realism evaluation, but instead provided as follows “Price analysis will be performed to evaluate the price proposals, not only to determine whether the proposed prices are reasonable, but also to determine if the Offeror understands the Work.” RFP at 60. Thus, offerors were advised by the terms of the RFP that the agency would confine its evaluation of prices to consideration of whether prices were reasonable (i.e. not too high) and reflected an understanding of the work required under the solicitation.

However, there was nothing in the RFP that required offerors to provide information in their proposals relating to the buildup of their burdened hourly rates; rather, offerors were required simply to provide the burdened hourly rates in the pricing tables without further elaboration. Thus, the fact that AlliedBurton did not include this information in its proposal was unobjectionable.

Moreover, the protester has made no showing that any aspect of AlliedBarton’s proposal indicated that the awardee did not understand the solicitation requirements. While the protester generally asserts that AlliedBarton’s proposed prices were unrealistically low, it has offered no objective support for its position. For example, Securit focuses on AlliedBarton’s proposed burdened rate for security guards in New York. In this connection the protester asserts that:

To illustrate this [that AlliedBarton’s proposed rates are low], AlliedBarton proposed a fully-burdened rate of $[deleted] for its New York guards. AR Tab 6 at 2109. The minimum wages and fringe benefits required by the Service Contract Act (“SCA”) as well as certain mandatory elements of compensation required for the positions pursuant to the Solicitation total $28.76/hour--only [deleted] less than Allied Barton’s total fully burdened rate. AR Tab 16 at 3555.

Protester’s Comments, Nov. 22, 2010, at 4. However, the support for this assertion relied on by the protester--exh. 16, at BATES 3555--is a citation to its own proposed pricing rather than some objective requirement of the Service Contract Act or the RFP. Indeed, the record shows that both firms used the same unburdened SCA-mandated rate of $17.35 per hour for guards in the New York area; thus, the protester has shown no more than that the burden it applies is higher than that applied by the awardee. However, the mere fact that the awardee’s proposed fully burdened rate is lower than the protester’s fully burdened rate is of no probative value in demonstrating that the awardee’s proposed rates reflect its lack of understanding of the requirement. We therefore deny this aspect of Securit’s protest.  (People's Accident Information Service, Inc., d/b/a Securit B-404211, Jan 18, 2011)  (pdf)

Second, to the extent ACT argues that the SSA’s decision was flawed because the SSA based her decision, in part, on concerns regarding the realism of ACT’s price, yet price realism was not a stated basis for evaluation, the challenge is without merit. ACT correctly points out that the solicitation did not specifically provide for a separate price realism evaluation and that price realism is not usually considered in a fixed-priced contract since the contractor bears the risk of having submitted a below-cost offer. Nevertheless, the realism of an offeror’s price may be considered in terms of the offeror’s understanding of requirements where the technical evaluation factors contemplate an assessment of the offeror’s understanding of the work or the risk associated with a proposal. See METAG InsaatTicaret A.S., B-401844, Dec. 4, 2009, 2010 CPD ¶ 86 at 6.

As noted above, the subject solicitation provided for both an assessment of an offeror’s technical understanding and the risk inherent in an offeror’s proposal. Consistent with the terms of the RFP, the SSA documented her concerns regarding ACT’s unreasonable technical assumptions, which, in the agency’s view, reflected ACT’s inherent lack of understanding of the solicitation requirements and increased the risk of unsuccessful performance. Concluding that some of the concerns identified directly impacted the underlying basis for ACT’s price, the SSA questioned whether ACT’s low price, which was significantly below government estimates, stemmed from ACT’s failure to fully understand the RFP requirements, and led the SSA to conclude that ACT’s price appeared to be “unrealistic.” Source Selection Decision Document at 21. Given that the SSA’s concerns regarding ACT’s low price were entirely derived from her reasonable concerns regarding ACT’s lack of technical understanding, we have no basis to question the propriety of the SSA’s source selection decision. METAG Insaat Ticaret A.S., supra.  (Advanced Construction Techniques, Inc., B-404847.6, Jan 25, 2012)  (pdf)

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