BNUMBER: B-261827.3
DATE: February 1, 1996
TITLE: TDS, Inc.
**********************************************************************
REDACTED DECISION
A protected decision was issued on the date below and was subject to a
GAO Protective Order. This version has been redacted or approved by
the parties involved for public release..
Matter of:TDS, Inc.
File: B-261827.3
Date:February 1, 1996
Brian A. Darst, Esq., Lee P. Curtis, Esq., and William Roberts III,
Esq., Howrey & Simon, for the protester.
Daniel R. Weckstein, Esq., and Howard W. Roth III, Esq., Vandeventer,
Black, Meredith & Martin, for MILCOM Systems Corporation, an
interested party.
Michael S. Roys, Esq., Department of the Navy, for the agency.
Marie Penny Ahearn, Esq., David A. Ashen, Esq., and John M. Melody,
Esq., GAO, participated in the preparation of the decision.
DIGEST
1. Agency could properly make award on basis of initial proposals
where solicitation advised offerors of this possibility and
contracting officer's decision not to engage in discussions was
reasonable.
2. Protest that agency misevaluated cost proposals by upwardly
adjusting protester's proposed cost and conversely failing to upwardly
adjust awardee's proposed cost in certain cost elements, with result
that protester's cost was higher than awardee's is denied, where
upward adjustment of protester's cost was unobjectionable in the two
challenged elements; evaluation of awardee's cost was unobjectionable
in three of four challenged elements; and agency's calculated increase
of [deleted] in fourth challenged element would not displace awardee
as low offeror.
3. Protest that technical proposals were misevaluated and protester's
lower-rated proposal should have been rated equal to awardee's
higher-rated proposal need not be considered when, even assuming
proposals should have been rated technically equal, solicitation
provided that price would be controlling factor for substantially
equal technical proposals, protester's evaluated cost was not low, and
cost realism evaluation is unobjectionable.
DECISION
TDS, Inc. protests the Department of the Navy's award of a contract to
MILCOM Systems Corporation, under request for proposals (RFP) No.
N00612-94-R-8405, for engineering support services for the Naval
Command, Control & Ocean Surveillance Center, Charleston, South
Carolina. TDS principally challenges the evaluation of cost and
technical proposals.
We deny the protest.
BACKGROUND
The RFP, as amended, contemplated award of a cost-plus-fixed-fee,
indefinite quantity contract for 1 base year with 4 option years, with
additional options for level of effort increases for each year, to
support cryptologic systems, counternarcotics systems, and special
intelligence communications systems. The support to be furnished by
the contractor includes overall program management, acquisition
engineering, system integration, assembly and installation, software
engineering, system documentation and configuration management.
The RFP provided for award to be made to the responsible offeror whose
offer conforming to the solicitation was most advantageous to the
government, price and other factors considered. The solicitation
listed the following technical evaluation factors, in descending order
of importance: corporate experience, personnel qualifications,
detailed technical approach, management plan, and facilities.
Management plan and facilities were of equal importance.
Although the solicitation stated that technical factors were
moderately more important than cost, offerors were advised the
importance of cost would increase "with the degree of equality of the
proposals," such that "[w]here competing proposals [were] found to be
substantially equal technically, price [would] be the controlling
factor in award." The solicitation stated that cost proposals would
be evaluated for realism and understanding of the scope of work. The
solicitation established 28 labor categories, with stated minimum
qualifications and estimated annual requirements for straight time,
overtime and holiday time, for which offerors were to propose
personnel. Offerors were required to propose hourly rates for each
labor category and to break down the costs to include base labor rate,
overhead rate, G&A expense, other costs, profit, and a total labor
rate. The RFP cautioned that any proposal lacking realistic rates may
result in a higher evaluated price. Finally, the solicitation
informed offerors that the government intended to evaluate proposals
and award a contract without discussions and that, therefore, each
offeror should ensure that its initial offer contained the offeror's
best terms from both a cost and technical standpoint.
The agency received 12 offers by the closing date, including one from
TDS and two from MILCOM (each one with a different team of
subcontractors). The agency evaluated technical proposals based upon
an adjectival rating scheme (with the ratings outstanding, better,
acceptable, marginal and unacceptable). As set forth below, one of
MILCOM's proposals (MILCOM 1734 with SAIC-Amsec and Unisys as team
members) received an overall "better" rating and was the highest
ranked proposal. TDS's proposal received an overall "acceptable"
rating and was the lowest ranked of the four proposals--including
MILCOM's second proposal (MILCOM 1735)--rated acceptable. As adjusted
for cost realism, MILCOM's was the low acceptable offer, and TDS's was
fourth low. The ratings (broken down for the three evaluators)[1]
were as follows:
TDS MILCOM
TECHNICAL
Corporate
Experience Better
Better
Acceptable Outstanding
Outstanding
Better
Personnel Acceptable
Acceptable
Marginal Better
Acceptable
Acceptable
Technical
Approach Acceptable
Acceptable
Acceptable minus Better
Better
Better
Management Acceptable
Acceptable
Acceptable minus Acceptable
Acceptable
Marginal[2]
Facilities Better
Acceptable
Acceptable Better
Better
Better
OVERALL
TECHNICAL Acceptable plus
Acceptable
Acceptable Better
Better
Better
The Navy determined that MILCOM's proposal (1734) was most
advantageous to the government based on its highest technical rating
and lowest evaluated cost among the proposals rated acceptable or
better ([deleted] versus TDS's [deleted]). Upon learning of the
subsequent award to MILCOM on the basis of initial proposals, TDS
filed this protest with our Office.
DISCUSSIONS
TDS first challenges the agency's determination to make award on the
basis of initial proposals, arguing that "irregularities" in the
procurement precluded award without discussions. We find nothing
improper in the agency's decision to make award without discussions.
TDS argues, for example, that making award based on MILCOM's initial
proposal was unwarranted because MILCOM engaged in an improper "bait
and switch" regarding its key personnel. Specifically, TDS alleges
that Unisys, a MILCOM subcontractor for approximately [deleted]
percent of the work proposed, intends to use key personnel other than
those persons identified in the resumes provided in its proposal to
fulfill a portion of the key personnel duties. According to the
protester, this is evident from the use of "blended," or average,
rates in Unisys's cost proposal, where the individual rates of a group
of staff performing the same duties are averaged into one rate. As an
example, TDS points to Unisys's proposal of an individual to serve as
a project manager, a key personnel position. Unisys furnished a
resume and letter of commitment for this individual, and indicated
that he would be full-time, i.e., 2,080 standard hours. The rate for
this labor category, however, was based on the rates of four of
Unisys's labor categories, with no category furnishing more than 50
percent of the required effort. TDS concludes that unnamed additional
individuals will be performing part of the project manager function.
"Bait and switch" refers to an offeror's misrepresentation in its
proposal of the personnel it expects to use during contract
performance. To demonstrate that a bait and switch has occurred, a
protester must demonstrate not only that personnel other than those
proposed are performing the services (i.e., that a switch has
occurred), but also that the awardee represented in its proposal that
it would rely on certain specified personnel in performing the
services, that the agency relied on this representation in evaluating
the proposal, and that it was foreseeable that the individuals named
in the proposal would not in fact be available to perform the contract
work. See Free State Reporting, Inc., B-259650, Apr. 14, 1995, 95-1
CPD para. 199.
We find no evidence of bait and switch. Unisys's proposal of blended
labor rates, where some work under a particular solicitation labor
category would be performed by individuals other than those for whom
resumes were submitted, was not inconsistent with its proposal of
full-time key personnel for whom it submitted resumes, since the RFP
provided estimated hours for particular key personnel labor categories
in excess of the number of hours to be worked by the proposed
personnel. For example, the RFP estimated the agency's requirement
under the program manager labor category as 14,000 straight time hours
for the base year, i.e., 6.7 program managers (assuming 2,080 hours
per man year). However, the RFP provided that only four acceptable
resumes were necessary for the highest possible score for program
manager. It thus is clear, we think, that the RFP contemplated that
individuals other than those for whom resumes had been submitted would
be used to complete a portion of the required work. It follows that
Unisys's proposal of blended rates did not evidence a bait and switch,
and did not render the agency's decision to proceed with award without
discussions improper.
Since the solicitation advised all offerors that the government
intended to make award on the basis of initial proposals without
holding discussions and, as discussed below, there was a reasonable
basis for concluding that MILCOM submitted the most advantageous
offer, and there has been no showing of any other improprieties which
would militate against an award based on initial proposals, there is
no basis to object to the agency's decision not to conduct
discussions. Federal Acquisition Regulation (FAR) sec. 15.610(a)(4); See
Facilities Management Co., Inc., B-259731.2, May 23, 1995, 95-1 CPD para.
274.
COST EVALUATION
TDS challenges the evaluation of cost proposals. In its cost realism
analysis, the Navy generally took the following steps: (1) verified
that offerors priced all estimated hours; (2) reviewed the offered
labor rates for the Service Contract Act non-exempt (i.e., wage
determination) employees to ensure that they complied with the
Department of Labor minimum wages; (3) reviewed the labor rates of the
professional labor categories, comparing them to rates on other
contracts, to ensure that they were sufficient to attract and retain
skilled personnel; (4) reviewed the escalation of proposed
professional labor rates; (5) obtained rate checks from the Defense
Contract Audit Agency (DCAA) on G&A and overhead rates; and (6)
confirmed that each offeror had a cost accounting system sufficient
for a cost type contract. In addition, the agency examined proposals
for uncompensated overtime which, if offered, was required by the RFP
to be identified and reflected by an adjustment to hourly professional
rates for such hours in accordance with Defense Federal Acquisition
Regulation Supplement (DFARS) sec. 252.237-7019. If uncompensated
overtime was proposed, a separate evaluation was performed to
determine whether the actual wage rate was unrealistically low so as
to have a possible negative effect on contract performance. As a
result of this analysis, MILCOM's proposed cost ([deleted]) was
adjusted upward by [deleted] to [deleted], and TDS's ([deleted]) was
adjusted upward by [deleted], to [deleted].
TDS argues that a reasonable cost realism evaluation would have led
the Navy to adjust MILCOM's prices upward by at least $3,786,416. TDS
also argues that its proposed costs were realistic and should not have
been increased. TDS concludes that its evaluated cost should have
been lower than MILCOM's.
When a cost reimbursement contract is to be awarded, a cost realism
analysis must be performed by the agency. See FAR sec. 15.801 and
15.805. However, an agency is not required to conduct an in-depth
cost analysis or to verify each and every item in conducting its
analysis. The Warner/Osborn/G&T Joint Venture, B-256641.2, Aug. 23,
1994, 94-2 CPD para. 76. The evaluation of competing cost proposals
requires the exercise of informed judgment by the contracting agency
involved, since it is in the best position to assess what the contract
should cost, assuming reasonable economy and efficiency, and must bear
the difficulties or additional expenses resulting from a defective
cost analysis. Id. Consequently, our review is limited to a
determination of whether an agency's cost evaluation was reasonably
based and not arbitrary. General Research Corp., 70 Comp. Gen. 279
(1991), 91-1 CPD para. 183; Science Applications Int'l Corp., B-238136.2,
June 1, 1990, 90-1 CPD para. 517. We find that the Navy's realism
analysis was reasonable.
TDS's Cost Proposal
a. Professional Salary Escalation
TDS challenges the salary escalation rate used by the agency in
calculating the most probable cost of TDS's proposal. The Navy
upwardly adjusted TDS's proposed wage rates for professionals by 2
percent for each option year because the firm had proposed no
escalation in salaries over the 5-year contract period. The agency
concluded that freezing salaries for 5 years was unrealistic, and
would contribute to excessive personnel turnover and negatively affect
TDS's ability to obtain qualified personnel. (The contract negotiator
considered the fact that TDS's subcontractor had proposed a [deleted]
percent escalation rate to support this assessment.) The contracting
officer based the 2-percent escalation factor on the 2- to 4-percent
annual escalation proposed by other offerors and the 3- to 4-percent
escalation forecast in the Data Resource Index data available from
DCAA.
TDS argues that the annual 2-percent escalation adjustment was
unreasonable because the agency failed to consider the fact that in
many cases its professional rates start out higher and remain higher
than those proposed by MILCOM.[3]
TDS has not shown that the Navy's assumption of a 2-percent annual
escalation of professional salaries was unreasonable. TDS's own
proposal indicated that professional wages would increase over the
contract period. For example, TDS stated in its cost proposal that
the salaries of professional employees will be reviewed annually and
that raises or merit increases may be made. In addition, the proposal
stated that "when new [non-professional wage rate] labor
determinations are implemented TDS reviews the impact of the
determination on the entire contract, and quite often increases the
pay of the professional staff accordingly." As for the use of a
2-percent escalation factor, we note that this was lower than the rate
forecast in data available from DCAA, was at the low end of the range
of escalation factors proposed by other offerors, and was lower than
the escalation factor ([deleted] percent) proposed by TDS's own
subcontractor. There is no basis to conclude that the application of
a 2-percent escalation factor was unreasonable.
b. Uncompensated Overtime
TDS challenges the cost realism adjustment made to account for TDS's
proposed overtime hours. The government estimate included in the
solicitation for use in preparing proposals provided an estimate of
annual overtime hours. While TDS listed its overtime compensation
rate for the proposed overtime as "N/C," interpreted by the agency as
no charge, and stated that its professional employees "are not
eligible for overtime pay," the proposal also stated that TDS did not
use uncompensated overtime. The contracting officer adjusted TDS's
cost upward to reflect the concern that if TDS did not use
uncompensated overtime (and the cost proposal showed no adjustment for
uncompensated overtime), the required overtime must be compensated, in
which case the government was at risk of having to reimburse TDS.
TDS argues that it was improper to adjust its proposed cost upward to
account for the proposed overtime since its proposal indicated that it
did not pay overtime and, according to the protester, the Navy was
aware of TDS's practice of not paying its professional employees for
overtime hours based on TDS's past contracts with the agency.
The fact that TDS's proposal indicated that it did not pay overtime,
or that TDS may not have previously paid its professional staff for
overtime, does not demonstrate that the cost realism adjustment was
unreasonable. Again, TDS proposed overtime hours in response to the
solicitation requirement to base cost proposals on specified annual
overtime hours. Although TDS now characterizes these hours as
"uncompensated overtime," TDS's proposal stated that its employees did
not work uncompensated overtime. TDS's failure to specifically
identify in its proposal and account for any uncompensated overtime,
as required by DFARS sec. 252.237-7019, left it unclear how it would
compensate the employees working the overtime. Since TDS's proposal
also did not provide for professional employees who work overtime to
receive compensatory time off, the agency could reasonably assume that
the employees would be paid at straight time rates for the overtime
hours. Further, although TDS listed "N/C" as its overtime
compensation rate and proposed an "O/T Direct Labor Cost" of $0 for
the required overtime hours, its proposal did not preclude recovery of
the cost of any straight-time compensation paid its employees for
working these hours. Accordingly, the agency reasonably concluded
that there was a risk of the government's being charged for any and
all hours worked on the contract, and therefore reasonably adjusted
TDS's evaluated costs upward to reflect such risk.
MILCOM's Cost Proposal
a. Professional Wage Rates
TDS challenges the Navy's acceptance of the awardee's proposed
professional labor rates (and those of its subcontractors) on the
basis that the rates were below the average of the rates contained in
wage rate survey data submitted by the awardee and those contained in
a separate survey of wages for the geographic area of
performance--Charleston, South Carolina--submitted by a competitor.
This argument is without merit, since there is no basis for concluding
that the survey averages were controlling for purposes of determining
reasonableness. Rather, we think the fact that the surveys contained
ranges of rates (high to low) suggests that reasonable salaries may
vary within a geographic area depending upon an offeror's specific
circumstances, the view apparently adopted by the agency. We note
that, under TDS's stricter view, some of TDS's own professional rates
would be unreasonable since they were also below the survey averages.
TDS has made no showing that MILCOM's rates, which fell within the
survey's salary ranges, were so low that they would hinder the firm's
ability to recruit and retain qualified staff.
b. DCAA Audit
TDS challenges the Navy's failure to obtain a DCAA audit of MILCOM's
proposal to verify the firm's indirect G&A rates.
When the Navy contacted DCAA to verify MILCOM's proposed G&A rates, it
was informed that no rates were available because MILCOM did not
currently have any cost-type contracts. Although DCAA generally
recommended an audit of MILCOM's proposal, the Navy did not believe
that an audit was required in view of the highly competitive
procurement situation with respect to this procurement. However, the
Navy contract negotiator did discuss MILCOM's cost proposal with DCAA
and the DCAA auditor agreed with the negotiator's assessment that
MILCOM's proposed reductions to the G&A rate approved by DCAA in
fiscal year 1994 were conservative. (The DCAA 1994 approved rate was
[deleted] percent; MILCOM's proposed rates here were [deleted],
[deleted], [deleted], [deleted] and [deleted] percent, respectively,
for the base year and 4 option years.) In fact, the Navy negotiator
expected MILCOM's actual rates to be even lower due to the potential
size of this contract (and the resulting increase in the base over
which MILCOM's G&A expense would be apportioned).
The Navy's failure to obtain an audit of MILCOM's proposal was
unobjectionable. While DCAA audits can be of assistance to a
contracting officer in evaluating proposed costs, they are only
advisory in nature and therefore are not required for a proper cost
analysis. Motorola, Inc., B-254489; B-254489.2, Dec. 15, 1993, 93-2
CPD para. 322; Anamet Labs., Inc., B-241002, Jan. 14, 1991, 91-1 CPD para. 31.
Moreover, the Navy did request input from DCAA regarding MILCOM's
proposed G&A rates, but DCAA did not have this information.[4] DCAA
instead confirmed to the Navy that "MILCOM's estimates (projections)
have been fairly accurate in the past," and agreed with the agency's
assessment that MILCOM's proposed reductions appeared conservative in
view of the additional work MILCOM was expected to receive as a result
of the contract award. We conclude that the agency's failure to
obtain a DCAA audit of MILCOM's proposal did not render the cost
evaluation unreasonable.
c. Blended Rates
TDS contends that the agency should have increased MILCOM's evaluated
cost to account for its subcontractor's (Unisys) use of blended rates,
when the work in a proposal labor category would be performed by more
than one individual. In explaining this contention, TDS states that:
"[i]n developing its labor rates, UNISYS used a weighing factor
inconsistent with the MILCOM technical proposal. Specifically
various internal labor categories were weighed . . . to develop
an average rate, whereas the technical proposal identified only
one (1) or in some instances two (2) key employees per labor
category. Since the weighing in the cost proposal is
inconsistent with . . . MILCOM's technical proposal, this UNISYS
weighing resulted in an erroneous depiction of the actual costs
which will be incurred using key employees."
This argument is without merit. As discussed above, MILCOM's
technical proposal properly was based on the use of some unnamed
personnel under certain key positions. The fact that the blended rate
in the cost proposal reflected the labor categories of these unnamed
individuals would explain the disparity between the number of
categories included in the blended rate and the number of individuals
identified in the technical proposal. There is no showing that
Unisys's blended rate for any given position included lower-rate labor
categories that would not be used to fill that position. The blended
rates thus provided no basis for an upward cost adjustment.
d. Wage Determination
TDS complains that the agency failed to consider the impact on the
evaluation of a modified wage determination for fringe benefit rates,
which increased benefits to $2.56 per hour from the $2.39 rate set
forth in the last wage determination included in the solicitation, and
which was received by the agency prior to award. See FAR sec.
22.404-6(c). As noted by the agency, however, since both MILCOM and
TDS proposed a health and welfare fringe benefits rate of $2.39 per
hour, both proposed health and welfare fringe benefits rates would
have to be adjusted upward by the same amount.[5] Further, according
to the agency (and unrefuted by the protester), even accounting for
differences in overhead, G&A and fixed fee, the evaluated cost of
MILCOM's proposal relative to TDS's would only increase by [deleted],
which would not displace MILCOM as the low offeror. The failure to
consider the increased rate in the evaluation thus did not affect the
award.
TECHNICAL EVALUATION
TDS alleges a number of improprieties in the evaluation of technical
proposals, concluding that its proposal should have been rated equal
to MILCOM's; according to the protester, "MILCOM is no more
technically qualified to perform the work than TDS."
Even assuming TDS were correct that its proposal should have been
rated technically equal to MILCOM's, the solicitation provided that in
the case of substantially equal technical proposals, cost would be the
controlling factor. Since MILCOM's proposal was reasonably found to
offer a lower cost, TDS would not have been in line for award even if
its proposal were rated technically equal to MILCOM's. See ROH, Inc.,
B-258810.2, Apr. 10, 1995, 95-1 CPD para. 187 (prejudice is an essential
element of every protest).
The protest is denied.
Comptroller General
of the United States
1. The record does not include a consensus adjectival rating for each
evaluation factor. Accordingly, the ratings given by each of the
three evaluators are set forth above.
2. Although originally stated to be acceptable, after the filing of
the protest one
evaluator's rating of
MILCOM's proposal under
the management factor was
discovered to be in error.
The correct rating, listed
above, was marginal.
3. Although TDS also argues that the adjustment was unreasonable
because the agency did not make comparable adjustments to MILCOM's
allegedly low professional rates, as discussed below, MILCOM's rates
have not been shown to be unrealistic.
.
4. Where rate checks are unavailable for certain items of cost, the
agency may rely on information contained in an offeror's cost proposal
in performing a cost evaluation. See Radian, Inc., B-256313.2;
B-256313.4, June 27, 1994, 94-2 CPD para. 104.
5. One of MILCOM's subcontractors proposed [deleted] per hour; in its
cost realism analysis, the agency adjusted the rate upward to $2.39
per hour.
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