BNUMBER: B-258243.7
DATE: September 7, 1995
TITLE: Kay and Associates, Inc.
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DOCUMENT FOR PUBLIC RELEASE
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:Kay and Associates, Inc.
File: B-258243.7
Date:September 7, 1995
Laura K. Kennedy, Esq., Kevin P. Connelly, Esq., and G. Matthew Koehl,
Esq., Seyfarth, Shaw, Fairweather & Geraldson, for the protester.
Thomas J. Madden, Esq., James F. Worrall, Esq., and Jerome S. Gabig,
Jr., Esq., Venable, Baetjer, Howard & Civiletti, for Beech Aerospace
Services, Inc., an interested party.
William P. McGinnies, Esq., Department of the Treasury, for the
agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest that agency did not conduct a meaningful cost/technical
tradeoff before making award to higher-rated, higher-cost offeror for
aircraft maintenance services, is denied where (1) cost was less
important than the technical factors and (2) the source selection
authority identified specific technical discriminators in the
awardee's proposal which were likely to assure a highly motivated,
productive and stable work force, and increase the operational
readiness and mission capability of the aircraft; contrary to
protester's argument, there is no requirement that selection of a
higher cost proposal be justified through an exact quantification of
the dollar value to the agency of the proposal's technical
superiority.
DECISION
Kay and Associates, Inc. protests the determination of the Department
of the Treasury, U.S. Customs Service, to affirm its previous award of
a contract to Beech Aerospace Services, Inc., under request for
proposals (RFP) No. CS-94-004, for aircraft maintenance and related
services. Customs again selected Beech's proposal as most
advantageous to the government after having reopened negotiations and
requested revised best and final offers (BAFO) pursuant to the
corrective action recommended in our decision Serv-Air, Inc.; Kay and
Assocs., Inc., B-258243 et al., Dec. 28, 1994, 96-1 CPD para. ___. Kay
challenges the evaluation of cost proposals and the overall
cost/technical tradeoff.
We deny the protest.
The RFP contemplated the award of a cost-plus-award-fee contract for a
base year with 4 option years to maintain aircraft used by Customs to
detect, interdict, track and apprehend aircraft, ships and land
vehicles attempting to smuggle contraband into the United States. The
RFP provided that the contractor "shall provide program management,
aircraft maintenance, logistics, supply and Electronic Data Processing
(EDP) support requirements necessary to ensure that Customs has the
numbers, types and properly configured aircraft available where and
when required to meet all Customs aviation operational commitments."
The solicitation generally provided for award to be made to the
offeror "whose proposal offers the best value to the Government in
terms of technical and cost rather than to the proposal offering the
lowest estimated cost." The RFP listed three specific technical
evaluation factors: (1) technical approach--including staffing,
methodology and past performance--and (2) quality management, which
were of equal importance and "four times greater than" (3) phase-in
and phase-out. The solicitation stated that cost was less important
than--"not as critical as"--the technical factors. Cost proposals
were to be evaluated for allowability, allocability, realism and risk.
The RFP cautioned that the agency "is concerned with the quality and
stability of the work force to be employed on this contract. . . .
The cost proposal will be considered in terms of its impact upon
recruiting and retention, its realism, and its consistency with the
technical proposal."
Six proposals were received by the closing time. Four--including
Kay's, Beech's and Serv-Air's--were included in the competitive range.
Following discussions with the offerors, the agency requested best and
final offers (BAFO). Based upon its evaluation of BAFOs, Customs
determined that Beech's proposal, which received a technical rating of
outstanding (blue), was technically superior to the other proposals,
which received ratings of good (green), and that it offered the
overall best value to the government. Upon learning of the award to
Beech, Kay and Serv-Air protested to our Office.
We sustained Kay's protest on the basis that Customs had failed to
conduct meaningful discussions concerning its cost proposal. Although
Kay's initial cost proposal indicated that its historic general and
administrative (G&A) rates for 1991, 1992, and 1993 were approximately
[DELETED] percent, it offered G&A rates of [DELETED] percent for labor
and [DELETED] percent for materials for the years 1994-1999 based upon
assumptions concerning future business volume, including the impact of
the contemplated contract. The proposal also stated that "[Kay] will
accept a G&A ceiling rate arrangement in any contract awarded as a
result of this proposal." While noting that the proposed rates were
significantly lower than "recent actuals," the Defense Contract Audit
Agency (DCAA) found the rates to be "reasonable and acceptable, so
long as they are to be ceilings." Customs, however, did not discuss
with Kay either DCAA's concerns or Kay's willingness to accept capped
rates. Instead, when Kay in its BAFO reduced its proposed G&A rates
for labor and materials to [DELETED] and [DELETED] percent,
respectively, again indicating that it "will accept a G&A ceiling
rate," Customs adjusted Kay's G&A rate upward to [DELETED] percent in
its most probable cost evaluation. Although we agreed in our prior
decision with Customs's position that Kay's proposal could reasonably
be read as not including a contractually binding cap, we found that
the agency improperly had failed to conduct discussions concerning
Kay's apparent willingness to cap its G&A costs. (We denied Kay's
remaining arguments and Serv-Air's protest.) We recommended that the
agency reopen discussions with Kay in order to ascertain the
appropriate G&A rates to be used in determining the G&A costs which
would be incurred if the agency accepted Kay's proposal; conduct
discussions with all other competitive range offerors; and request new
BAFOs.
In response to our recommendation, Customs reopened discussions with
offerors. Customs then requested BAFOs limited to changes in cost
proposals. After further discussions, Customs requested an additional
round of cost BAFOs. Customs determined that Beech's revised BAFO
offered the overall best value to the government. Although Beech's
proposal offered the highest proposed ($144,343,065) and evaluated
($148,660,391) costs, approximately 9 percent higher than Kay's
($132,493,716 proposed; $136,445,875 evaluated), the technical
advantages of Beech's proposal, which was rated outstanding, were
found to warrant its higher cost. Kay thereupon filed this protest
with our Office.
COST RISK
Customs characterized Kay's proposal as offering a high cost
risk--i.e., a risk that the total actual cost would vary significantly
from the proposed cost. Customs based its assessment of a high cost
risk in part on its determination that: (1) Kay's failure to propose
any labor rate escalation (other than that required by Department of
Labor wage rate determinations) over the 5 years of the contract would
lead to a high turnover rate and low employee morale; (2) Kay's
proposal of low pay rates for management and supervisory personnel
could lead to the departure of supervisors familiar with the aircraft
and site operations; and (3) Kay's failure to offer a shift
differential--for working other than standard daytime shifts--to any
shift employees (other than employees covered by a union agreement at
one site), when all shift employees were currently being paid shift
differential premiums, could lead to the departure of shift employees.
Customs concluded that higher compensation than proposed by Kay (and
evaluated) may be necessary in order to motivate and retain a
productive work force. In addition, Customs questioned Kay's offer in
its revised BAFO to cap its G&A rate at [DELETED] percent; the agency
expressed concern that Kay could seek to recover the estimated
$[DELETED] million cost of the cap as part of overhead and/or that the
cap would result in a disincentive to quality performance since the
cost of the cap greatly exceeded Kay's share of the fee and Kay "would
be working for little or no profit."
Kay challenges Customs's assessment. According to Kay, it has neither
the intention nor the opportunity under the contemplated contract to
circumvent the cost cap. Further, Kay points out that it stated in
its BAFO that it was offering lower G&A rates based on an anticipated
increase in business volume that would lower actual G&A. Kay claims
that if Customs had raised its concerns in this regard during
discussions, it could have furnished additional information
demonstrating its ability to absorb any excess G&A costs and still
earn a reasonable profit performing the contract. Kay argues that
Customs's failure to raise this matter during the reopened discussions
constituted a failure to conduct meaningful discussions.
Competitive prejudice is an essential element of a viable protest, and
where no competitive prejudice is shown or is otherwise evident, our
Office will not sustain a protest even if a deficiency in the
procurement is evident. See Latins Am., Inc., 71 Comp. Gen. 436
(1992), 92-1 CPD para. 519; Anamet Labs., Inc., B-241002, Jan. 14, 1991,
91-1 CPD para. 31.
It is clear from the record that neither Customs's failure to discuss
its concerns with respect to Kay's proposed G&A cap nor its underlying
evaluation in this regard resulted in competitive prejudice to Kay.
In justifying the selection of Beech's proposal, the source selection
official (SSA) explained in the source selection statement that:
"[Beech's] proposal will best fulfill the stated goals of
attracting and retaining a qualified workforce to perform the
maintenance services upon the Customs aircraft fleet. More
specifically, I determine as follows:
[Beech's] outstanding technical features are worth an
additional cost of $2.4 million per year (9 percent overall)
to the Customs Service as compared to [Kay's] proposal.
. . .. .
"In light of the foregoing findings and determinations I have
made, I find that [Beech] offers the best value to the
Customs Service. This finding is further buttressed by the
fact that I find that [Beech] presents the lowest cost risk to
the Customs Service over the course of the contract."
We think it is clear from the record that, as maintained by Customs,
the SSA determined that Beech's proposal offered the best value to the
government even before consideration of the evaluated cost risk of
Kay's proposal. In this regard, as indicated above, the SSA first
determined that the technical strengths of Beech's proposal warranted
the approximately $12 million additional cost relative to the
evaluated cost of Kay's proposal, that is, the cost of Kay's proposal
when the G&A cost cap is given full effect. Only then did the SSA
consider the effect of the evaluated cost risk of Kay's proposal,
finding that it "further buttressed" the results of the above
cost/technical tradeoff. (Further, as discussed below, we find
reasonable Customs's position that the technical strengths of Beech's
proposal justified award to Beech even without consideration of the
cost risk of Kay's proposal.) In any case, Customs's characterization
of Kay's proposal as offering a high cost risk was based on a number
of factors beyond the proposed G&A cost cap: inadequate labor rate
escalation; low pay rates for management and supervisory personnel;
and failure to offer a shift differential to most shift employees.
Given Customs's determination that Kay's compensation package was
insufficient to assure retention of a knowledgeable, motivated and
productive work force, the agency could reasonably assign significant
cost risk to Kay's proposal irrespective of any consideration of the
proposed G&A cost cap.
Kay challenges Customs's failure to assign any cost risk to Beech's
proposal to account for the fact that Beech did not propose to charge
G&A on its estimated $55.1 million in reimbursable materials to be
acquired under the contemplated contract. [DELETED] Again, however,
it is clear that the evaluation of Beech's proposal in this regard did
not result in competitive prejudice to Kay since, even if Beech's cost
in this area was understated, there is no basis for concluding that
adjusting them up to the level of Kay's would have materially affected
the assessment of cost risk. Certainly, there is no reason to believe
that the outcome of the cost/technical tradeoff would have been
different even if the agency had added as much as [DELETED] percent,
or $[DELETED] to the evaluated cost ($148,660,391) of Beech's
proposal. Customs denies that Kay was prejudiced by the evaluation of
cost risk, and we find its position to be reasonable. See MR&S/AME,
An MSC Joint Venture, B-250313.2, Mar. 19, 1993, 93-1 CPD para. 245.
COST/TECHNICAL TRADEOFF
Kay argues that Customs did not conduct a meaningful cost/technical
tradeoff. According to Kay, the agency did not adequately take into
account the fact that the evaluated cost of Kay's proposal at the
conclusion of the reopened negotiations was approximately $12.2
million lower than Beech's; the protester argues that the agency
should have quantified the additional value offered by Beech's
technical advantages. Kay maintains that its proposal, not Beech's,
would have been rated the best value had Customs done so since,
notwithstanding the fact that Beech's was rated outstanding and Kay's
was rated good, Kay believes the proposals were close technically.
(Kay expressly states that it does not challenge the results of the
technical evaluation.)
In a negotiated procurement, there is no requirement that award be
made on the basis of lowest cost unless the RFP so specifies. Henry
H. Hackett & Sons, B-237181, Feb. 1, 1990, 90-1 CPD para. 136.
Cost/technical tradeoffs may be made in deciding between competing
proposals; the propriety of such a tradeoff turns not on the
difference in technical scores or ratings per se, but on whether the
agency's judgment concerning the significance of that difference was
reasonable and adequately justified in light of the RFP evaluation
scheme. Brunswick Defense, B-255764, Mar. 30, 1994, 94-1 CPD para. 225.
Federal Acquisition Regulation sec. 15.612(d)(2) requires that
documentation supporting the selection decision show the relative
differences among proposals as well as their strengths, weaknesses and
risks along with the basis and reasons for the decision. There is no
requirement, however, that selection of a higher-cost proposal be
justified through an exact quantification of the dollar value to the
agency of the proposal's technical superiority. Picker Int'l, Inc.,
B-249699.3, Mar. 30, 1993, 93-1 CPD para. 275. Further, even where a
selection official does not specifically discuss the cost/technical
tradeoff in the selection decision document, we will not object to the
tradeoff if it is clearly supported by the record. Maytag Aircraft
Corp., B-237068.3, Apr. 26, 1990, 90-1 CPD para. 430.
The record supports the agency's cost/technical tradeoff. While Kay
contends that the technical evaluation results were "very close," it
is clear from the record that the overall rating of Beech's technical
proposal as outstanding represented a considered determination that it
offered significant technical advantages relative to the proposals
(including Kay's) rated only good. In this regard, the SSA identified
specific technical discriminators warranting Beech's higher cost. For
example, noting that the incumbent had experienced an employee
turnover rate of 17 percent in recent years, the SSA concluded that
Beech's proposal of annual [DELETED]-percent pay raises and higher
than required benefits would act as an incentive to assure a highly
motivated, productive and stable work force. In contrast, Customs
determined that Kay's overall compensation package--with inadequate
labor rate escalation, low pay rates for management and supervisory
personnel, and no shift differential for most shift employees--was
insufficient to assure retention of a knowledgeable, motivated and
productive work force. As another example, the SSA found that Beech's
proposal to [DELETED] would shorten turnaround times by at least 3
days and thereby directly increase operational readiness and mission
capability. Further, the SSA found that Beech's proposal of a
[DELETED] would increase aircraft life expectancy and thereby reduce
Customs's acquisition costs. The SSA also considered it a strength
that Beech had proposed [DELETED] which would enable the agency to use
[DELETED] lower stock levels and reduce aircraft downtime/increase
operational readiness. Given the fact that cost was less important
than the technical factors, we think that the agency's determination
that the technical advantages offered by Beech's proposal warranted
its approximately 9-percent higher evaluated cost relative to the cost
of Kay's proposal, was reasonable.
The protest is denied.
Comptroller General
of the United States