BNUMBER: B-259857.2; B-259858.2
DATE:  July 5, 1995
TITLE: Matter of:     Loral Aeronutronic 

**********************************************************************

                                         REDACTED VERSION[*]

Matter of:     Loral Aeronutronic

File:          B-259857.2; B-259858.2

Date:          July 5, 1995
                                                           
Francis J. O'Toole, Esq., Robert J. Conlan, Jr., Esq., and Joseph C. 
Port, Jr., Esq., Sidley & Austin, for the protester.
Thomas J. Madden, Esq., John J. Pavlick, Jr., Esq., Fernand A. 
Lavallee, Esq., and Carla D. Craft, Esq., Venable, Baetjer, Howard & 
Civiletti, for Raytheon Company; and Donald J. Kinlin, Esq., Thompson, 
Hine and Flory, for Hughes Missile Systems Company, interested 
parties.
James I. Menapace, Esq., Department of the Navy, for the agency.
Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.
                                                            
DIGEST

1.  Protester's contention that agency selection officials could not 
upgrade the evaluation assessments given by lower level evaluators 
without a reevaluation of all proposals is denied where the record 
shows that the selection officials reasonably disagreed with the 
evaluators about the weight to be accorded certain elements and 
subfactors in assigning an overall assessment and made their 
adjustment in a manner consistent with the evaluation scheme in the 
solicitation.

2.  Challenge to adequacy of the cost realism adjustments made to the 
awardee's proposal to reflect its high risk is denied where the record 
shows that the agency made a significant upward adjustment to address 
the high risk nature of the proposal, and none of the protester's 
assertions raises issues the agency did not consider, or shows that 
the agency's approach to making these adjustments was unreasonable.

3.  Cost/technical tradeoff decision in demonstration and validation 
procurement where agency makes two awards and selects as the second 
awardee an offeror with a high cost, high risk proposal that, if shown 
to be feasible, promises significant advances in the weapon system's 
technology is not objectionable as record shows it is reasonable and 
consistent with evaluation criteria.
                                                             DECISION

Loral Aeronutronic protests the award of contracts to Raytheon Company 
and Hughes Missile Systems Company by the Department of the Navy, 
Naval Air Systems Command, pursuant to request for proposals (RFP) No. 
N00019-93-R-0017, issued for the AIM-9X Sidewinder Missile 
Demonstration/Validation program.  Loral argues that the Navy's 
selection of Raytheon for one of two awards under this RFP was 
unreasonable because source selection officials upgraded the 
evaluation of Raytheon's technical proposal without a reevaluation of 
the proposals, failed to upwardly adjust Raytheon's proposed costs to 
reflect the high degree of risk associated with that proposal, and 
performed an irrational cost/technical tradeoff.

We deny the protest.

BACKGROUND

This procurement is for the demonstration and validation (D&V) phase 
for the Sidewinder AIM-9X short-range air-to-air missile.  The AIM-9X 
will be a major upgrade to the current AIM-9M missile (in service 
since 1982) with the most significant improvements in the seeker 
component--i.e., the device which tracks the intended target.  The 
Navy[1] plans to incorporate an imaging midwave infrared seeker in the 
AIM-9X version of the missile.

During the D&V phase at issue in this procurement, the Navy 
anticipates award of up to two contracts to develop competing 
prototype seekers for the purpose of defining the critical design 
characteristics and expected capabilities of the next generation of 
Sidewinder missiles.  Upon completion of this contract, the Navy 
anticipates selecting one of the two offerors' designs for award of an 
engineering and manufacturing development contract, followed by a 
production contract, with a possibility of developing a second 
production source if appropriate.

On May 11, 1993, the Navy released the RFP anticipating award of a 
cost-plus-incentive-fee contract.  Section M-2 of the RFP advised that 
the award(s) would be made to the offeror(s) whose proposals provide 
the best value to the government.  Section M-2 also identified the 
following evaluation criteria, in descending order of importance:  
technical; cost; management; and integrated logistics support (ILS).  
In addition, offerors were advised that the Navy would assess the risk 
associated with the technical, management, and ILS evaluation factors; 
and the realism of proposed costs.

Under the evaluation factors of technical, cost, and ILS, the RFP set 
forth two subfactors each.  The subfactors under the technical and 
cost factors are of particular relevance here.  Under the technical 
factor, the RFP identified seeker technical approach and D&V program 
as the subfactors, with the first subfactor more important than the 
second.  For the more important seeker technical approach subfactor, 
the RFP advised that particular emphasis would "be placed on the 
potential of the offeror's seeker design concept to meet the IRCCM 
[infrared counter-counter measures], off-boresight, and acquisition 
range requirements of the [specification]."  Thus, each of these 
categories plus a fourth category, other seeker requirements, were 
evaluation elements under the seeker technical approach subfactor.  
For the D&V program subfactor, the RFP identified two evaluation 
elements:  system/subsystem capability, and schedule realism.  Under 
the cost factor, the RFP identified two subfactors with equal weight:  
seeker design to cost (DTC)--i.e., the unit recurring hardware cost of 
the 5000th seeker; and D&V contract cost.

By the July 13 closing date, the Navy received proposals from three 
offerors:  Loral, Hughes, and Raytheon.  The proposals were reviewed 
by the source selection evaluation board (SSEB) which rated each 
factor and subfactor with one of four adjectival ratings:  
exceptional, satisfactory, marginal, or unsatisfactory.  At the 
conclusion of the technical review, the SSEB presented the results of 
the evaluation to the source selection advisory council (SSAC).  The 
SSAC concluded that award could not be made on the basis of initial 
proposals, and included all three offers in the competitive range for 
the purpose of participating in negotiations.

At the conclusion of written and oral discussions, all three offerors 
submitted best and final offers (BAFO), which were again evaluated by 
the SSEB.  The SSEB reported the strengths, weaknesses, and risks of 
each proposal to the SSAC, as follows:

                                TECHNICAL RATINGS/RISK[2]

                             Hughes    Raytheon    Loral

  Seeker Tech. Approach     S/Medium    E/High    S/Medium

     --IRCCM                
     --Off-boresight Cap.             [DELETED]
     --Acquisition Range    
     --Other                

  D&V Program                S/Low      S/High    S/Medium

     --System/Subsystem
         Capability                   [DELETED]
     --Schedule Realism     

  Overall Technical         S/Medium    S/High    S/Medium

After review and discussion of the SSEB's findings, the SSAC concluded 
that the risk associated with the Hughes seeker approach was 
relatively lower than that associated with the Loral approach even 
though the SSEB assessed both as medium risk under this subfactor of 
the technical factor.  The SSAC therefore changed the risk assessment 
under the seeker technical approach subfactor from medium to low.  
This change caused the risk assessment of Hughes under the overall 
technical factor to change from medium to low.

Similarly, the SSAC disagreed with the SSEB's assessment under the 
technical evaluation factor that all three offerors were satisfactory.  
The SSAC viewed the Raytheon proposal as superior to the other two 
proposals because of Raytheon's exceptional ratings for its proposed 
[DELETED].  As a result, the SSAC upgraded Raytheon's overall 
technical rating from satisfactory to exceptional.  After the SSAC 
completed its review of the SSEB materials, the results of the 
evaluation (with the changed ratings/risk assessments shown in bold) 
were as follows:

                             Hughes     Raytheon     Loral    
Evaluated Cost[3] 
    D&V                      $23.2M      $32.6M     $24.7M
    DTC                       $103K       $122K       $86K

  Technical/Risk              S/Low      E/High    S/Medium
  Management/Risk             E/Low       E/Low      S/Low
  ILS/Risk                    S/Low       S/Low      S/Low

Based on this review, the SSAC first concluded that the Hughes 
proposal presented the best value to the government.  In its proposal 
evaluation report prepared for the Source Selection Authority (SSA), 
the SSAC stated that the Hughes

     "seeker design not only met all performance requirements but also 
     exceeded [DELETED] requirements and met the [DELETED] 
     requirements.  In addition, [its] technical proposal was 
     evaluated by the SSAC to be low risk.  Considering the cost 
     criteria, [Hughes] was evaluated as having the lowest projected 
     [D&V] contract cost and the second lowest seeker DTC.  Under the 
     management criterion, [Hughes] was evaluated as having an 
     exceptional management proposal."

After recommending award of one contract to Hughes, the SSAC then 
compared the proposals of Loral and Raytheon to determine the next 
best value to the government.  In essence, the SSAC concluded that 
Raytheon's exceptional technical proposal--although assessed as high 
risk, and with higher costs--presented significant technical 
advantages over Loral's medium risk, lower cost, satisfactory 
technical proposal.  As a result, the SSAC unanimously recommended 
that the SSA award the second D&V contract to Raytheon.

In accepting the SSAC's recommendations, the SSA agreed that the 
Hughes proposal offered "the best value to the [g]overnment based on 
an integrated assessment of ratings and risk."  The SSA also concurred 
with the recommendation of the SSAC to award the second contract to 
Raytheon stating that:

     "[Raytheon] offers the second best value primarily due to their 
     exceptional technical proposal which offers significantly 
     superior relative seeker performance.  The Raytheon proposal 
     exceeds the required thresholds and provides enhancing features 
     which benefit the [g]overnment in all of those technical emphasis 
     areas of the specification which set forth both required and 
     desired values."

The SSA also concluded that the superiority of Raytheon's approach 
justified the premium involved in Raytheon's higher costs, and 
concluded that Raytheon's exceptional management rating would "assist 
in mitigating the higher technical risk of the [Raytheon] proposal."  
After the Navy awarded contracts to Hughes and Raytheon, Loral filed 
this protest.

UPGRADE OF RAYTHEON'S TECHNICAL PROPOSAL

Loral's challenge to the SSAC's upward adjustment of Raytheon's 
overall technical rating from satisfactory to exceptional is based on 
three general contentions:  (1) that the upward adjustment was 
improper because it was done without a reevaluation of Raytheon's 
proposal; (2) that the adjusted ratings violate the evaluation 
criteria; and (3) that the SSAC's adjustment impermissibly credited 
Raytheon for exceeding certain specification terms.

As described above, there were two technical approach subfactors 
identified in the RFP:  seeker technical approach--the most important 
subfactor; and D&V program.  The seeker technical approach subfactor 
contained separate evaluation elements for IRCCM, off-boresight 
capability, acquisition range, and other seeker requirements.  In 
evaluating these four elements, the SSEB concluded that for two of the 
elements--[DELETED]--Raytheon's approach was exceptional but presented 
high risk.  For the remaining two elements--[DELETED]--the SSEB 
concluded that Raytheon's approach was satisfactory with low and 
medium risk, respectively.  Thus, under the seeker technical approach 
subfactor the SSEB concluded that Raytheon's proposal was exceptional 
but presented high risk.  In generating Raytheon's overall technical 
rating, the SSEB combined the exceptional rating for seeker technical 
approach with the satisfactory rating for the less important D&V 
program subfactor and concluded that Raytheon's overall technical 
approach was satisfactory with high risk.

When the SSEB findings were presented to the SSAC, the record shows 
that--without reevaluating proposals, and with consideration of the 
relative strengths and merits of the three offers--the SSAC disagreed 
with and changed the rating assigned to Raytheon for its overall 
technical approach from satisfactory to exceptional.  The explanation 
for this adjustment is found in the minutes of the SSAC's 
consideration of the SSEB's evaluation results, which state that:

     "The SSAC also viewed the overall [t]echnical [s]atisfactory 
     rating for [Raytheon] differently than the SSEB because of 
     [Raytheon's] superior design approach which greatly increases 
     [DELETED] Based on the strength of the design and the exceptional 
     ratings given for [DELETED], the SSAC concluded that [Raytheon's] 
     overall technical rating should be [e]xceptional."

Based on this upgrade of Raytheon's technical proposal, the SSA, as 
explained above, selected Raytheon as offering the second greatest 
value to the government.[4]

SSAC's Change to Ratings Required No Reevaluation

Loral first claims that the SSAC's upgrade of Raytheon's proposal was 
per se improper without a reevaluation of the proposal, and that the 
SSAC wrongly considered the relative strengths and merits of the 
competing proposals.  In our view, Loral's contention is based on a 
flawed understanding of the source selection process and on a 
misreading of recent case law.

As explained in the source selection plan, each evaluator involved in 
preparing the SSEB report was required to prepare an individual 
assessment of the strengths and weaknesses of each offeror's proposal.  
The plan advised that "evaluators shall not evaluate the relative 
merits of one proposal as compared to another, but shall reflect an 
evaluation of the proposals against the requirements of the 
solicitation."  Source Selection Plan at 27.  At the conclusion of the 
evaluation, the SSEB presented its findings to the SSAC.

When the results of an SSEB evaluation are presented to an SSAC, there 
is no requirement that the SSAC accept the findings of the evaluators, 
and no bar against assessing the relative merits of competing 
proposals.  We have frequently held that source selection officials in 
negotiated procurements are not bound by the recommendations or 
evaluation judgments of lower-level evaluators, even though the 
working-level evaluators may normally be expected to have the 
technical expertise required for such evaluations.  Grey Advertising, 
Inc., 55 Comp. Gen. 1111 (1976), 76-1 CPD  325; Calspan Corp., 
B-258441, Jan. 19, 1995, 95-1 CPD  28; Benchmark Sec., Inc., 
B-247655.2, Feb. 4, 1993, 93-1 CPD  133.  In addition, since the SSAC 
is assessing the evaluated proposals in an advisory capacity for the 
SSA, the SSAC--like the SSA--may within its discretion disagree with 
the assessment of the working-level evaluators.  See Oklahoma 
Aerotronics, Inc.--Recon., B-237705.2, Mar. 28, 1990, 90-1 CPD  337.  
In fact, source selection officials routinely compare the relative 
strengths and weaknesses of proposals, as happened here.  See TRI-COR 
Indus., Inc., B-252366.3, Aug. 25, 1993, 93-2 CPD  137; N W Ayer 
Inc., B-248654, Sept. 3, 1992, 92-2 CPD  154.  Thus, the technical 
judgments of selection officials are governed only by the tests of 
rationality and consistency with the stated evaluation criteria.  
Calspan Corp., supra.

Although Loral accedes to the long-standing precedent in this area, 
its contention that the SSAC acted improperly here is apparently based 
on a conclusion that the recent court decision in Latecoere Int'l, 
Inc. v. Dept. of the Navy, 19 F.3d 1342 (11th Cir. 1994), reduced the 
discretion accorded to selection officials involved in reviewing 
evaluations, and barred those officials from disagreeing with the 
assessments of evaluators without a reevaluation of proposals.  In 
Latecoere, evidence of agency bias against selection of a foreign firm 
led the court to conclude that such bias had translated into changed 
ratings for the firm, especially given the dearth of explanation about 
the reason for the changes in the ratings.  Here, there is no evidence 
that the agency was biased against Loral, and in fact, the SSAC made 
no change to Raytheon's rating under any individual subfactor or 
element.  Rather, the SSAC simply disagreed with the SSEB's conclusion 
that when combining the two technical subfactor ratings of exceptional 
(seeker technical approach) and satisfactory (D&V program), the 
overall rating should be satisfactory and not exceptional.  Since the 
SSAC's change is consistent with the RFP's weighting of the seeker 
technical approach subfactor as more important than the D&V program 
subfactor, we fail to see how the SSAC acted unreasonably or violated 
the stated evaluation scheme.[5]

Change to Ratings Was Not Otherwise Improper

Loral next argues that the SSAC's adjustment was improper because a 
score of exceptional for Raytheon's technical proposal is inconsistent 
with the definition of that term as set forth in the source selection 
plan.[6]

Loral's argument in this regard ignores the distinction between the 
evaluation scheme (which was set forth in the RFP), and the source 
selection plan provided to evaluators as a guideline.  Loral does not 
actually allege a misapplication of evaluation criteria--such as 
ignoring the fact that the seeker technical approach subfactor is more 
important than the D&V program subfactor--but contends that the SSAC's 
upgrade strayed from the ratings definitions in the source selection 
plan.  Allegations of deviations from an agency's source selection 
plan do not constitute a basis for questioning the validity of an 
award selection.  Rather, source selection plans are internal agency 
instructions and, as such, do not give outside parties any rights.  
Young Enters., Inc., B-256851.2, Aug. 11, 1994, 94-2 CPD  159 at n.4; 
National Steel & Shipbuilding Co., B-250305.2, Mar. 23, 1993, 93-1 CPD  
260; Burnside-Ott Aviation Training Center, Inc.; Reflectone Training 
Sys., Inc., B-233113; B-233113.2, Feb. 15, 1989, 89-1 CPD  158; 
Robert E. Derecktor of Rhode Island, Inc.; Boston Shipyard Corp., 
B-211922; B-211922.2, Feb. 2, 1984, 84-1 CPD  140.

Moreover, Loral fails to show that the evaluation was in any way 
unreasonable.  In its supplemental comments on the agency report, 
Loral sets forth 28 separate weaknesses identified by the SSEB 
evaluators.  According to Loral, these weaknesses--each of which was 
presented to the SSAC--should have barred a conclusion that the 
proposal was exceptional overall.  However, the SSEB--not the 
SSAC--rated Raytheon's approach exceptional under the most important 
technical subfactor (seeker technical approach), and exceptional under 
two of the four elements of the seeker technical approach subfactor.  
In turn, the SSAC's decision about the overall technical rating was 
based simply on a reweighing of the two subfactors using two 
considerations:  (1) the stated importance of the subfactors as set 
forth in the RFP; and (2) the SSEB's assessment of Raytheon as 
exceptional and satisfactory under the two technical subfactors, 
despite the identified weaknesses.  Hence, Loral's challenge fails 
because the SSAC's adjustments were in no way inconsistent with the 
assessments of the evaluators, which Loral does not challenge.

Evaluation Gave No Improper Extra Credit

The third element of Loral's challenge to the SSAC decision to upgrade 
Raytheon's proposal is the allegation that the Navy improperly gave 
credit to Raytheon for exceeding portions of the specifications that 
the Navy termed "desired values."  According to Loral, since the Navy 
set "desired" values in relatively few areas in the specifications, 
the Navy, in essence, effectively advised potential offerors that such 
values were the maximum benefit the Navy would credit in these areas.

The Navy explains that its specification did, in fact, identify both 
requirements and desired values, but explains that it gave an 
exceptional rating for exceeding requirements, not for exceeding the 
desired values, as Loral claims.[7]  For example, the Navy explains 
that the acquisition range values for the missile--the term 
"acquisition" as used here means the ability of the missile to 
successfully acquire its target--included certain desired values 
depending on the circumstances or environment in which the missile 
would be operating--e.g., "blue sky" operation versus "cluttered 
background" operation.  The Navy's response that it did not give extra 
credit for meeting desired values is buttressed by the record.  For 
example, the Navy explains, and the record shows, that Hughes received 
an exceptional rating under the [DELETED] element of the seeker 
technical approach subfactor without exceeding--and in some instances 
without meeting--any of the desired values.

The basis for Loral's complaint appears to be that the Navy's 
selection documents, in fact, mention that Raytheon's proposal exceeds 
some of the specification's desired values.  For example, in the 
SSAC's Proposal Analysis Report--in which the SSAC recommends that the 
SSA select Raytheon's proposal over that of Loral--the SSAC states 
that Raytheon's proposal "exceeds most seeker performance requirements 
and exceeds many desired acquisition range values in blue sky and 
background."  SSAC Proposal Analysis Report at 3 (emphasis in 
original).

In our view, there was nothing unreasonable about the Navy's 
recognition of the many potential benefits in Raytheon's high-tech, 
albeit high-risk, approach.  The very nature of this 
demonstration/validation effort is to award a contract of limited 
duration--18 months--during which two offerors attempt to assess and 
evaluate the feasibility of significant upgrades to the seeker 
component in this missile.  As the Navy explains in its supplemental 
report,

     "[i]t is common sense that if a target can be acquired at a 
     greater distance, i.e., greater Acquisition Range, or if the 
     missile can be fired at a greater angle with respect to the 
     shooter, i.e., greater Off-Boresight Capability, the pilot is 
     provided with a greater chance to prevail in the engagement. This 
     ability to save lives and aircraft is of obvious benefit to the 
     [g]overnment."

Since Raytheon received its exceptional ratings from the evaluators 
without regard to its proposed ability to exceed "desired" values, and 
since the SSAC upgraded Raytheon's proposal based on a weighing of the 
exceptional and satisfactory technical ratings and subratings, we 
conclude that the Navy's consideration of these benefits in its 
selection decision was a reasonable exercise of its discretion in 
selecting the proposal that offered the greatest value to the 
government.

UNREASONABLE COST REALISM EVALUATION

Loral argues that the Navy's cost realism analysis of Raytheon's 
proposal was flawed because the Navy failed to consider the risks 
inherent in the proposal.  According to Loral, if the Navy had 
properly increased Raytheon's proposed costs to account for the 
significant technical risks in the proposal identified by the 
evaluators, Raytheon's evaluated costs would have been even higher 
than the Navy concluded.

Loral's general complaint in this area is that the many technical 
risks identified by the Navy's evaluators--and, in essence, repeated 
by Loral's technical expert--should have translated into a larger cost 
realism adjustment than was made by the Navy.  However, Loral does 
not, and cannot, point to specific numbers to quantify the adjustment 
it seeks.  Rather, Loral asks our Office to overturn an agency 
selection decision at the first step of testing technology for a 
significant upgrade to a major weapons system because the agency did 
not develop a cost for each and every difficulty that might arise 
during the development of new seeker technology.  As such, Loral's 
arguments simply fail to comprise a valid challenge to the Navy's cost 
realism decision.

In performing the cost realism analysis here, the Navy made 
significant upward adjustments to Raytheon's proposed costs.  Under 
the seeker DTC subfactor, the Navy increased Raytheon's costs by 
[DELETED] percent; under the D&V contract cost subfactor, the Navy 
increased Raytheon's costs by [DELETED] percent.  The resulting 
evaluated costs of all three offerors is shown below:

                             Hughes     Raytheon     Loral    
Evaluated Cost
    D&V Contract             $23.2M      $32.6M     $24.7M
    Seeker DTC               $103K       $122K       $86K

In its significant adjustments to the two elements of Raytheon's 
proposed costs, the Navy included upgrades to several estimates and 
factored in the associated ongoing costs for a [DELETED] slip in the 
D&V schedule.  For the D&V costs, this slip was an attempt to capture 
additional costs associated with additional testing that both the Navy 
and Loral estimate will be required to fully investigate the 
likelihood of success of the Raytheon proposal.

Loral correctly points out that an offeror's proposed estimated costs 
are not dispositive in evaluating proposals for the award of a cost 
reimbursement contract 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(c).  
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.  CACI, Inc.-Fed., 64 Comp. Gen. 71 (1984), 84-2 CPD  542.  
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.  General Research Corp., 70 Comp. Gen. 279 
(1991), 91-1 CPD  183, aff'd, American Management Sys., Inc.; Dept. 
of the Army--Recon., 70 Comp. Gen. 510 (1991), 91-1 CPD  492; Grey 
Advertising, Inc., supra.

Our review of Loral's arguments and the evaluation record leads us to 
conclude that the Navy has made a reasonable attempt to evaluate the 
technical merits, costs, and risks associated with these proposals.  
To the extent that Loral argues that some of the facets of risk will 
have cost repercussions, there is no doubt that Loral is correct.  
However, the Navy here already made a significant upward cost 
adjustment to Raytheon's proposed costs--[DELETED] percent for seeker 
DTC costs and [DELETED] percent for D&V costs--specifically because it 
was concerned that the high risk nature of Raytheon's proposed 
approach would result in schedule slippage and other increased costs.  

Moreover, we find little compelling about Loral's specific 
contentions.  As an example, Loral's technical expert argues that 
Raytheon's [DELETED] for its seeker component with its [DELETED] has 
an [DELETED] design with an unproven capability to [DELETED].[8]  
According to Loral, this potential problem with the [DELETED] should 
have been reflected in the cost realism adjustment.

The Navy agrees with the assessment of risk, but responds that it need 
not add costs for this problem since the D&V effort contemplated here 
does not require a fully qualified [DELETED] due to the less severe 
environment for D&V tests than for working tactical missiles.  Thus, 
although the Navy explicitly recognized that the risk associated with 
Raytheon's approach was great, the Navy decided that the kinds of 
problems envisioned by Loral would not arise during the course of the 
D&V contract.  Given that the Navy recognized the problem, reflected 
it in its risk assessment but reasonably concluded that there was no 
need to increase proposed costs at this juncture--as opposed to 
assessing additional costs to Raytheon on the E&MD contract should 
this Navy-identified problem remain unresolved at that time--and given 
that Loral has failed to offer other than mere disagreement with the 
Navy's assessment, we will not disturb the Navy's conclusion.

Some of Loral's arguments are shown by the record to be factually 
inaccurate.  For example, Loral contends that Raytheon's proposal is 
high risk in the area of its [DELETED] focal plane array because 
Raytheon has never had a significant focal plan array production 
program.  However, the record shows that a wholly owned subsidiary of 
Raytheon is currently producing such [DELETED] focal plane arrays.[9]  
Similarly, Loral's argument that the Navy should have adjusted 
Raytheon's D&V costs upward because of a need for development of 
[DELETED] overlooks the fact that the Navy increased Raytheon's 
proposed D&V costs for [DELETED] and learning curve factors for 
[DELETED].  Thus, the record supports the Navy's response that it 
reasonably assessed Raytheon's proposed costs in this area.

In short, since the Navy has attempted to quantify the additional 
costs associated with Raytheon's higher-risk approach, and since Loral 
has failed to show how the Navy could have performed the review more 
accurately, we have no basis to object to the cost realism evaluation.

COST/TECHNICAL TRADEOFF

Loral argues that the Navy unreasonably selected Raytheon as the 
offeror whose proposal was second most advantageous to the government, 
after the proposal of Hughes.  Instead, Loral contends that its 
proposal was more advantageous to the government than Raytheon's 
proposal.

The essence of Loral's challenge here is that after the Navy 
(inferentially) concluded that the higher-rated Raytheon proposal was 
not worth the additional cost and risk when compared to the 
lower-cost, lower-risk Hughes proposal, the Navy could not then 
rationally conclude in its second award decision that the benefits of 
the Raytheon proposal outweighed a proposal with even lower costs than 
Hughes's.  

We find no merit to this argument.  First, we note that Loral's 
claim[10] that it submitted the low-cost offer is not supported by the 
record.  There were two subfactors of equal weight under the cost 
factor here.  Under the D&V contract subfactor, Loral was the second 
low-cost offeror, after Hughes; under the seeker DTC subfactor, Loral 
was the offeror with the lowest cost.[11]  Thus, the premise of 
Loral's argument--that the Navy could not reasonably select Raytheon 
after first selecting Hughes because Loral has even lower costs than 
Hughes--is wrong.  Loral has lower costs on one of the two subfactors, 
not both.  Second, Loral's argument is apparently based on a 
conclusion that the Hughes and Loral proposals presented equal risk:  
they did not.  When choosing between Loral and Raytheon the Navy was 
faced with proposals that offered medium and high risks, respectively.

A more precise recap of the record shows that after the Navy selected 
Hughes's satisfactory, low-risk, lowest D&V evaluated cost proposal as 
the offer most advantageous to the government, the SSA considered 
selection of Loral versus Raytheon for the second award.  In 
considering this selection decision, the SSA weighed the benefits of 
Loral's satisfactory, medium-risk, lowest seeker DTC evaluated cost 
(and second lowest D&V evaluated cost) against Raytheon's exceptional, 
but high-risk and highest evaluated cost (on both cost subfactors) and 
concluded that the Navy would balance the selection of Hughes's 
low-risk approach with Raytheon's exceptional, high-risk approach.

In a negotiated procurement, the government is not required to make 
award to the firm offering the lowest cost unless the RFP specified 
that cost will be the determinative factor.  Antenna Prods. Corp., 69 
Comp. Gen. 182 (1990), Jan. 22, 1990, 90-1 CPD  82.  As explained 
above, the RFP here clearly stated that technical merit would be more 
important than cost.  In such cases where an agency chooses between a 
higher-cost, higher-rated proposal and a lower-cost, lower-rated 
proposal, our review is limited to a determination of whether the 
cost/technical tradeoff is reasonable and consistent with the 
solicitation's evaluation criteria.  Grey Advertising, Inc., supra; 
SDA Inc., B-248528.2, Apr. 14, 1993, 93-1 CPD  320.

The basis for this selection decision here is set forth in two 
documents:  the SSAC's recommendations to the SSA; and the SSA's 
memorandum to the record describing the selection decision.  Our 
review of the record shows that the Navy adequately considered and 
documented its selection of Hughes and Raytheon over Loral.  In 
essence, the Navy decided that given the difference in potential 
advances in seeker technology if the Raytheon proposal is workable, 
selecting Raytheon's higher-risk approach for this limited duration 
D&V contract to see if the risks could be reduced sufficiently, while 
at the same time selecting Hughes in case the risks could not be 
reduced, was a sound, commonsense approach to selecting awardees for 
the D&V effort here.  Since this conclusion is consistent with the 
evaluation scheme set forth in the RFP, there is no basis for finding 
that the conclusion is unreasonable.  Information Sys. Networks, Inc., 
B-254384.3, Jan. 21, 1994, 94-1 CPD  27.

The protest is denied.

     Robert P. Murphy
     General Counsel

* The decision issued July 5, 1995, contained confidential or source 
selection sensitive information, and was subject to a General 
Accounting Office protective order.  This version of the decision has 
been redacted.  Deletions in text are indicated by "[DELETED]."

1. The Sidewinder missile is part of a Joint Service Program between 
the Navy and Air Force; the Navy is responsible for managing the 
program.

2. The technical ratings are abbreviated as follows:  exceptional (E); 
satisfactory (S); marginal (M); and unsatisfactory (U).  The risk 
assessments are low, medium, and high.

3. Evaluated cost of each offeror's D&V is shown in millions of 
dollars (M), and is the estimated total realistic cost for this 
contract.  Evaluated cost of seeker DTC is shown in thousands of 
dollars (K), and as explained above, is defined as the unit recurring 
hardware cost of the 5000th seeker.  The Navy estimated that the 
5000th seeker would be purchased some 16 years after award of this 
contract--the D&V contract here requires offerors to build a seeker 
prototype within 18 months; followed by several years of Engineering 
and Manufacturing Development (E&MD); followed by 10 years of 
production before the 5000th unit is purchased.  RFP, Annex E.

4. While we consider below each of Loral's challenges to the SSAC's 
decision to upgrade Raytheon's proposal, we note that the Navy 
probably could have reasonably selected Raytheon without the upward 
adjustment at issue in this protest--suggesting that Loral was not 
prejudiced by the SSAC's adjustment.  During the evaluation Loral did 
not receive a single exceptional rating on any technical evaluation 
subfactor or element, while Raytheon's proposal was rated exceptional 
under the most important technical subfactor and two evaluation 
elements thereunder.  Despite the initial overall assessment that both 
proposals were satisfactory, these distinctions alone could have 
supported a Navy decision that Raytheon's proposal offered the second 
best value in this procurement without the upgrade by the SSAC.

5. Almost as an aside, Loral similarly claims that the SSAC could not 
properly change the risk assessment of Hughes' technical approach from 
medium to low risk.  Although Loral fails to present a full-blown 
challenge to the SSAC's view of Hughes's proposal, our decision 
upholding the SSAC's discretion to upgrade Raytheon's proposal also 
applies to its view of Hughes's proposal.  In addition, materials 
submitted by Loral's own expert--specifically, four case studies 
analyzing the three proposals across all feasible combinations of the 
evaluation factors and relative weights--support the Navy's decision 
to select Hughes.  See Supplemental Affidavit of Kevin L. Martin at 
5-8.

6. In this regard, the Navy's source selection plan defined an 
"exceptional" proposal as follows:

     "Proposal exceeds requirements or contains enhancing features 
     which benefit the [g]overnment. Any weakness is minor with no 
     impact."

Source Selection Plan at 28.

7. Since the specifications at issue in this procurement are highly 
classified, the Navy and all parties agreed to proceed without 
reference to classified individual specification requirements.  In 
this instance, all parties agree that the specification includes both 
minimum requirements and desired values.  According to the Navy, since 
an offeror's proposal could receive an exceptional rating for 
exceeding minimum requirements, it was not possible to give additional 
credit for exceeding desired values.

8. The Navy's evaluators expressed the same concerns in this regard.

9. Loral's reply in its final comments that the focal plane array 
produced by Raytheon's subsidiary will need much testing, retesting 
and redesign does not rise above the level of disagreement with the 
Navy's assessment that the design is high risk, but need not be 
reflected in an adjustment to the proposed costs.

10. Loral's supplemental comments state that Loral "unquestionably was 
by far the low cost offeror," and that "it is clear that Loral was 
evaluated by the Navy as offering substantially lower costs than 
Raytheon or Hughes."  Supplemental Comments at 43, 48.

11. Although the RFP accorded equal weight to the two subfactors, we 
note that the D&V contract is the only contract awarded by this 
procurement, and Loral was not the low-cost offeror.