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FAR 52.222-46:  Evaluation of Compensation for Professional Employees

Court of Federal Claims - Key Excerpts

a. Failure to Comply with Professional Services Clause.

Plaintiff argues that the Army failed to evaluate Spectrum’s professional employee compensation plan in accordance with the requirements of the professional services clause found at FAR § 52.222-46, which was incorporated by reference into the RFP. The latter clause “is required to be inserted in RFPs for contracts expected to exceed $500,000 when the service to be provided ‘will require meaningful numbers of professional employees.’” Statistica, 102 F.3d at 1579 (quoting 48 C.F.R. § 22.1103); see also K-Mar Indus. Inc. v. United States, 91 Fed. Cl. 20, 23 (2010). Plaintiff contends that had the Army performed the required evaluation, it would have discovered serious problems with Spectrum’s compensation plan.

The subject clause states that “lowering the compensation (salaries and fringe benefits) paid or furnished professional employees” can be “detrimental in obtaining the quality of professional services needed for adequate contract performance.” 48 C.F.R. § 52.222-46(a). To avoid this detriment, the clause 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.” Id. This paragraph further indicates that “[t]he Government will evaluate the plan to assure that it reflects a sound management approach and understanding of the contract requirements.” Id. It goes on to provide that “[t]his evaluation will include an assessment of the offeror’s ability to provide uninterrupted high-quality work” as well as the plan’s “impact upon recruiting and retention, its realism, and its consistency with the total plan for compensation.” Id. The clause states that “[s]upporting information will include data, such as recognized national and regional compensation surveys and studies of professional, public and private organizations, used in establishing the total compensation structure.” Id.5 While noting that compensation levels in a proposal may be lower than those of predecessor contracts, the clause explains that such reductions “will be evaluated on the basis of maintaining program continuity, uninterrupted high-quality work, and availability of required competent professional service employees.” Id. at § 52.222-46(b). “[L]owered compensation for essentially the same professional work,” the clause cautions, “may indicate lack of sound management judgment and lack of understanding of the requirement,” id., adding that “[p]rofessional compensation that is unrealistically low or not in reasonable relationship to the various job categories, since it may impair the Contractor’s ability to attract and retain competent professional service employees, may be viewed as evidence of failure to comprehend the complexity of the contract requirements,” id. at § 52.222-46(c).

The purpose of the review envisioned by this clause 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.” Innovation Mgmt., Inc., 2003 C.P.D. ¶ 209 (2003); see also ELS, Inc., 99-2 C.P.D. ¶ 92 (1999); Research Mgmt. Corp., 90-1 C.P.D. ¶ 352 (1990). In this regard, the clause is designed to afford professional services employees protections mirroring those afforded other workers under the McNamara-O’Hara Service Contract Act of 1965 (SCA), Pub. L. 89-286, 41 U.S.C. § 351, et seq.6 The primary purpose of the SCA is to protect “wage standards of employees” by preventing “federal purchasing power [from] playing a role in suppressing wage rates,” with particular emphasis given to the impact of that power in rebiddings and successor contracts. Ft. Hood Barbers Ass’n v. Herman, 137 F.3d 302, 309 (5th Cir. 1998) (citing H.R. Rep. 89-948, at 2-3 (1965); S. Rep. No. 89-798, at 3-4 (1965)); see also Gray v. Int’l Bhd. of Elec. Workers, 868 F.2d 671, 677 (4th Cir. 1989).

Plaintiff asserts that the “plain language” of this clause “required the Army to compare the offerors’ proposed compensation levels to those paid under the predecessor contract.”

Although not exactly plain, the clause’s language certainly infers the need for such a comparison as it requires the agency to perform additional analysis when an offeror’s compensation levels are lower than those paid by the incumbent. Paragraph (b) of the clause thus indicates that “proposals envisioning compensation levels lower than those of predecessor contractors for the same work will be evaluated on the basis of maintaining program continuity, uninterrupted highquality work, and availability of required competent professional service employees.” 48 C.F.R. § 52.222-46(b). To be sure, these requirements overlap somewhat with those in paragraph (a). The latter, after all, requires the agency to evaluate for every proposal (and not just those proposing lower professional compensation), an offeror’s compensation plan to assure that it reflects “sound management” and an understanding of the contract requirements. Both paragraphs, moreover, require the agency to assess the offeror’s ability to provide “uninterrupted high-quality work,” as well as the impact the proposed compensation will have on recruitment and retention.

That said, the mere existence of paragraph (b) suggests that the drafters of the FAR intended agencies to perform more analysis when a recompetition of an existing contract occurs, with the obvious goal of promoting a smooth transition from one contract to the next. In particular, unlike paragraph (a), paragraph (b) importantly requires the agency to consider the impact of lowering salaries on “maintaining program continuity.” Accordingly, on balance, it appears that an agency is obliged to make the threshold comparison described in paragraph (b), in order to determine whether it must conduct the further analysis of compensation plans required only for recompetitions.

This view finds support in OMV Medical, Inc. v. United States, 219 F.3d 1337 (Fed. Cir. 2000), where the Federal Circuit interpreted a predecessor version of the clause in question, see 48 C.F.R. § 52.222-46 (1998). By way of prelude, in that case, this court had held that it was irrelevant whether the Air Force had rationally compared the offerors’ salary levels with those of the incumbent as the agency had instead determined that the salaries in the compensation plans were not unduly low relying on the median salaries listed in the Bureau of Labor Statistics 1998- 1999 Occupational Outlook Handbook (the Occupational Outlook Handbook). OMV, 219 F.3d at 1343. The Federal Circuit, however, reversed and remanded the case. It held that the professional services clause required the agency to make two separate determinations:

(1) a determination of whether each offeror’s compensation package was generally consistent with the salaries being paid by the incumbent contractor; and
(2) a determination of whether each offeror’s compensation plan was realistic, i.e., whether it indicated that the offeror understood the scope of the work.

Id. at 1343. The first component of this analysis, the court stated, “was designed to ensure that the incoming contractor would not experience a large turnover in the program workforce because of a significant reduction in salary levels,” while the second was “to determine the general level of compensation for equivalent positions.” Id.

The Federal Circuit held that the agency’s findings under the second prong of the analysis, which relied upon the Occupational Outlook Handbook, were no substitute for the specific comparisons required by the first prong, reasoning:

Because the [agency] designed the two components to serve different purposes and arranged for them to be calculated differently, the method the agency used to address one component is not interchangeable with the method used to address the other. Thus, an offeror’s salary levels could be consistent with the Occupational Outlook Handbook, indicating that the offeror had a reasonably clear idea of the level of compensation it would have to pay in order to obtain employees to perform the work of the contract, yet those salary levels might still be sufficiently far below the incumbent’s salary levels that the incoming contractor would be likely to experience an unacceptably large staff turnover and loss of program continuity.

Id. While recognizing that the agency need not make the required comparison “with impeccable rigor,” id. at 1344, the Federal Circuit, nonetheless, remanded the case for a determination as to whether the analysis made by the Air Force in awarding the contract was rational. OMV thus holds that, under the professional services clause, an agency must compare the incumbent’s compensation to that proposed by the offerors as a prelude to determining whether further analysis of the offerors’ compensation plan is required.

A careful search of the contemporaneous administrative record reveals no indication whatsoever that anyone at the Army focused upon the requirements of this professional services clause during the evaluation process. Perhaps, the clause, which was only incorporated by reference in the RFP, was overlooked. Nevertheless, defendant argues that the Army backed into the required analysis while addressing other requirements in the solicitation. It attempts to baste together various snippets snatched from the evaluation papers and galvanize them into a set of findings that supposedly addresses the requirements of the professional services clause. In theory, defendant can attempt this multi-organ transplant because the failure strictly to comply with the clause provides a basis for setting aside the award here only if prejudicial – and the latter cannot be the case if the agency, in fact, performed the required analysis, even for other reasons. The result of this Promethean surgery need not be pretty. But, it must, in the end, yield (or constitute) the required analysis and findings – and here it does not.

Seeking to avoid this conclusion, defendant begins by quoting OMV’s admonition that the required comparison need not be made with “impeccable rigor.” 219 F.3d at 1344. Defendant argues that the Army did all that was required when it compared the compensation figures in Spectrum’s compensation plan to those proposed by plaintiff. But, this comparison is not the one envisioned by the FAR – the latter requires, instead, that the agency compare the offeror’s compensation plan to the compensation actually being paid by the incumbent contractor. In some instances, distinguishing, for this purpose, between the incumbent’s actual and offered compensation might prove important. For one thing, there is no assurance that the incumbent’s compensation plan for the new contract, forged in the face of renewed competition, will provide for the same compensation it is paying on the old contract. But, this is not a problem here, as the compensation levels reflected in plaintiff’s plan were the same as it was paying its employees under the bridge contracts. Accordingly, there can be no prejudice associated with defendant’s failure to obtain and use the actual compensation being paid by CRA under the bridge contract, for it essentially had the same numbers.

So how were these comparisons made? The Army compared the labor rates for all the employment categories reflected in the offerors’ compensation plans. To illustrate this, defendant points to a set of charts that were attached to the pricing reports. It also relies upon a slide used at the SSA briefing on August 27, 2009, prior to the second round of evaluations, which contains a chart comparing the offerors’ labor rates for professional categories such as “family practice physician” and “orthopedic surgeon,” as well as for nonprofessional categories such as “medical clerks” or “appointment clerks.”9 Commenting on this slide in his December 24, 2009, source selection decision, the CO noted that some of these comparisons favored Spectrum, while others favored CRA. In this decision, the CO ultimately found that “[o]verall there were no significant differences between the Spectrum and CRA proposals when taking into consideration bonuses, escalation, and fringe benefits.”

The critical word in this sentence is “overall.” As plaintiff notes, rather than focusing upon the professional services categories, the CO apparently looked at the average results over all the labor categories and, in the process, failed to determine whether Spectrum’s plan “envision[ed] compensation levels lower than those of the predecessor contractors for the same work,” as required by paragraph (b) in the professional services clause.

(sections deleted)

Had the Army done what it was supposed to do and focused on the professional services categories, it would have found that a significant number of professionals were going to be paid less by Spectrum than what comparable professionals had received working for CRA. And had it so found, the Army would have been obliged to conduct the recompetition analysis required by paragraph (b). See Gen. Dynamics One Source, LLC, 2010 C.P.D. ¶ 45 (2010) (agency realism analysis defective where agency failed to evaluate proper set of labor rates in evaluating awardee’s compensation plan).11 Defendant again contends that the Army, in fact, conducted this analysis, albeit while performing the analyses required by other clauses of the RFP. But, at this point, the bolts, sutures and other paraphernalia that defendant employs to truss together a proxy for the review required by the professional services clause begin to come apart.

Recall again that under paragraph (b) of the professional services clause the Army was obliged to evaluate the proposals “on the basis of maintaining program continuity, uninterrupted high-quality work, and availability of required competent professional service employees.” FAR § 52.222-46(b). Defendant asserts that the Army did this in conducting the technical evaluation of the parties’ compensation plans. But, the record demonstrates otherwise. For one thing, the SSEB, which was charged with evaluating the technical proposals, could not have considered the impact of Spectrum’s lower compensation on its ability to maintain program continuity and uninterrupted work, as well as the availability of required competent professionals, as it was walled off from any labor cost information and thus did not know how Spectrum’s compensation compared to that offered by CRA.12 The RFP prohibited offerors from including any cost or price information in the technical portion of their compensation plan – the instructions for submitting technical proposals emphasized, in no uncertain terms, “DO NOT INCLUDE pricing information in the Technical Approach proposal” (emphasis in original) and indicated that, even under Subfactor 1C, dealing with compensation, the offerors were to describe the elements of their plan “excluding cost/price information.” In conformity with these instructions, the compensation plans supplied by the parties as part of their technical proposals spoke only in terms of generalities – indicating how, for example, their compensation compared to the national and capital region markets and the methods they would use to recruit and retain qualified personnel.

As the SSEB could not review what it did not have, it should come as little surprise that nothing in the technical evaluation worksheets or various composite reports focused on how Spectrum’s proposed compensation would impact program continuity and the availability and retention of qualified professional employees, either at the outset of the contract or over time. Those comments regarding compensation, instead, focused only on benefits (e.g., whether insurance or a uniform allowance was given) and how the offerors’ overall compensation ranked, in percentile terms, in the market (e.g.,[] percentile). And this general focus was maintained even though questions regarding Spectrum’s compensation numbers were begged by: (i) the fact that it intended to hire many of CRA’s former employees; and (ii) a number of technical evaluators who expressed concerns that Spectrum’s professional compensation, as compared to the NCA marketplace, might be too low.13 As such, these comments on the technical proposals did not address the issues raised by the compensation clause. Cf. OMV, 219 F.3d at 1343 (holding that the agency’s comparison of the offeror’s compensation to Bureau of Labor statistics was “not interchangeable” with an analysis of the impact of lower compensation levels). Nor is there any indication that the CO’s initial price evaluation considered the impact of Spectrum’s lower compensation in evaluating its proposal in terms of continuity of service, recruitment and retention, etc., as to professional employees – even though a slide from the June 29, 2009, SSA briefing cautioned that the CO felt that Spectrum’s “[p]rice is too low.”

This latter fact serves to emphasize that the only Army officials poised to conduct the analysis required by the professional services clause were the CO and the SSA. Only they had access to both the technical and price proposals, as well as the corresponding evaluations, and thus could assess the impact of pay on recruitment and performance. But, there is no indication that either of them conducted the required analysis.14 Indeed, the first (and only) mention of any evaluations relating to the professional services clause are in the CO’s statement filed with the GAO, addressing the claims made by plaintiff in its protests. In this statement, the CO admitted that he had not compared the offerors’ compensation to the current salaries being offered, asserting that “this is not a requirement of the [clause].” Rather, he indicated that –

What I did include is a requirement in Paragraph 1c of Section L of the solicitation, an evaluation of the basis of all labor rates to include survey data and other sources of proposed salaries and wages. This was evaluated by the SSEB and is found in the evaluation forms . . . .

As for recruitment and retention, both salary data and fringe benefits were reviewed of both proposals. Overall the fringe benefits offered by both offerors were similar. One noted difference was that CRA was offering [], while Spectrum was offering []. I concluded that CRA, as the incumbent, did not propose professional compensation lower than the current rates. As Spectrums [sic] proposal was comparable to CRA’s proposed rates, I concluded that Spectrum’s rates were realistic.

The reference above to the SSEB, of course, is to the board’s evaluation of the technical proposal, which, as already demonstrated, could not have addressed the inquiries required by the professional services clause. The CO’s further assertion that “CRA, as the incumbent, did not propose professional compensation lower than the current rates” is contradicted not only by the chart above, but also by the CO’s admission earlier in his statement that he “did not obtain the current rates being paid by CRA” because he viewed the information as “proprietary” and because the clause did not require him to “compare [the compensation plan] to the current salaries being offered.” Moreover, on brief, defendant flatly admits that Spectrum’s professional compensation was lower than that being offered by CRA. Accordingly, while the CO contended to the GAO that he had complied with the clause, that assertion is demonstrably untrue.

Even if the CO’s statement was not contradicted by the record, this court would be loath to afford it any weight in determining whether the agency complied with the FAR. Other courts conducting APA reviews have limited their consideration of an agency’s decision to the analysis and rationale appearing in the administrative record as of the time of the decision, holding that “[a]ny post hoc rationales an agency provides for its decision are not to be considered.” Gen. Elec. Co. v. Dept. of Air Force, 648 F. Supp. 2d 95, 100 (D.D.C. 2009) (citing McDonnell Douglas Corp. v. U.S. Dept. of Air Force, 373 F.3d 1182, 1187 (D.C. Cir. 2004)). This approach serves to reenforce the agency’s obligation to “examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). And the agency must discharge this duty before, not after, it renders a decision. See, e.g., 210 Earll, L.L.C., 77 Fed. Cl. at 721 (“The APA requires a reasoned analysis at the time of the decision.”). Indeed, in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971), the Supreme Court eschewed relying upon affidavits produced by the agency involved describing how the Secretary of the Interior had reached a particular decision, describing them as “‘post hoc’ rationalizations, . . . which have traditionally been found to be an inadequate basis for review.” Id. at 419 (citing Burlington Truck Lines, 371 U.S. at 168-69; SEC v. Chenery Corp., 318 U.S. 80, 87 (1943)); see also Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 653-54 (1990).

Now, there are differences between the affidavits rejected in Overton Park and the post hoc assurances made by the CO here – the former constituted a new rationale for an old decision; the latter a naked claim that the agency relied upon a rationale previously undisclosed. But, the healthy dose of skepticism administered by Supreme Court in Overton Park still seems warranted here. In both instances, the agency’s post-decision conduct is expedient – confronted with an attack on its decision, the agency offers a new explanation, in one instance, and cites a previously undocumented rationale in the other. Additionally, in both instances, allowing that explanation to act as a gap filler – to allow the agency to complete “an unfashioned creature[], but half made up”16 – would frustrate effective judicial review under the APA standards. After all, an essential premise of such review presupposes that the agency will establish its rationale at, or prior to, the time of its decision – not after. Indeed, it should not be overlooked that the CO’s statement in question was part of the agency’s response to the protest and was intertwined with legal briefs filed by agency counsel defending the award. See 31 U.S.C. § 3553(b)(2) (requiring the agency to make this filing). In purpose and effect, then, there is little to distinguish that statement from arguments made by attorneys in briefs. Yet, on the latter count, it is a well-accepted that such arguments are no substitute for the agency’s contemporaneous articulation of the basis for its decision. See Fed. Power Comm’n v. Texaco, Inc., 417 U.S. 380, 397 (1974) (“[W]e cannot ‘accept appellate counsel’s post hoc rationalizations for agency action;’ for an agency’s order must be upheld, if at all, ‘on the same basis articulated in the order by the agency itself.’” (quoting Burlington Truck Lines, 371 U.S. at 168; Chenery, 332 U.S. at 196)).17 And such also should be the case with the CO’s statements here.

Why include such statements in the record at all? The answer is found in 31 U.S.C. § 3556, which requires the court to treat the report containing that statement “as part of the agency record subject to review.” But, nothing in this statute, or any other authority, for that matter, requires the court to give the CO’s statement any independent, let alone dispositive, weight. That was the holding in Cubic Applications, Inc. v. United States, 37 Fed. Cl. 339, 343 (1997), where, as here, defendant attempted to bootstrap its case by relying upon reports filed by agency contracting officials in a GAO protest. Rebuffing that effort, this court explained –

Attached to the second agency report are also the newly-created statements of [the] chairman of the Source Selection Advisory Council for this contract, and [the] chairman of the Source Selection Evaluation Board for this contract. In the absence of a GAO record, these are the types of materials that the court would not receive or solicit, absent some need to supplement the agency record. To the extent they purport to provide new evidence in support of the agency decision, they would normally come too late. To the extent they point to the record at the agency, they are, in substance, argument. They are useful, but innocuous, because they are only a guide to documentary justification already in existence. By statute, however, the court is directed to treat all these materials as part of the record. See 31 U.S.C. § 3556. The court has no choice but to do so. It does, nevertheless, have a choice about the degree of relevance to assign to them. As the court explained during oral argument, absent some other basis to consider these post-decisional materials, it will view them, not as evidence, but as argument. Their only potential utility, other than as a key to the agency record, is to demonstrate what issues were raised or not raised at the GAO.

Id. at 343-44. Cubic teaches that post hoc statements submitted to GAO, such as the CO’s statement here, should have no office beyond summarizing what the administrative record already reveals. And this court agrees. Documents like these are not salvific – they can neither fill in gaps in the agency’s reasoning for an award nor supply missing documentation of that reasoning. See Mike Hooks, Inc. v. United States, 39 Fed. Cl. 147, 158 (1997) (documents submitted by procuring official during GAO protest treated not as evidence, but as argument).

This is especially the case, of course, where the claims made in such statements are conclusory in nature and not only unsupported by the record, but contradicted thereby.

To put it bluntly, in this proceeding, the CO’s statement “ha[s] a ticket of admission, but to the very cheapest seats of probative value.”20 Contrary to his claims, there is no indication the Army conducted the analysis required by FAR § 52.222-46 – it did so neither during the technical evaluation, nor during the price evaluation, nor in making the source selection decision. Cobbling these analyses together avails defendant naught – in government contracts, as in algebra, 0 + 0 + 0 ?1. The Army’s failure to comply with the clause constituted a departure from the evaluation criteria specified in the solicitation and, correspondingly, a violation of both the FAR and the Competition in Contracting Act. See 10 U.S.C. § 2305(a)(2)(A)-3(a); 48 C.F.R. §§ 15.303(b), 15.305(a); see also Banknote Corp., 56 Fed. Cl. at 386 (“It is hornbook law that agencies must evaluate proposals and make awards based on the criteria stated in the solicitation.”). Before considering the prejudice associated with these errors, the court will turn to plaintiff’s remaining contentions.  (CRAssociates, Inc. v. U. S. Spectrum HealthCare Resources, Inc., No. 10-339C, October 20, 2010)  (pdf)

Court of Federal Claims - Listing of Decisions

For the Government For the Protester
  CRAssociates, Inc. v. U. S. Spectrum HealthCare Resources, Inc., No. 10-339C, October 20, 2010  (pdf)


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