BNUMBER: B-259920.2 
DATE:  June 13, 1995
TITLE: Matter of:     Combat Systems Development Associates Joint Venture 

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

                                      REDACTED VERSION[*]

Matter of:     Combat Systems Development Associates Joint    Venture

File:          B-259920.2

Date:          June 13, 1995
                                                           
William Weisberg, Esq., and William Welch, Esq., Barton Mountain & 
Tolle, for the protester.
L. Graeme Bell III, Esq., and Christopher M. Farris, Esq., Crowell & 
Moring, for Vitro Corporation, an interested party.
Margaret A. Alfano, 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 the agency conducted an unreasonable 
cost realism review of the awardee's proposed cuts to pay and benefits 
is denied where the record shows that the agency reasonably concluded 
that the proposed cost savings should be accepted because the awardee 
would be able to unilaterally impose such cost-savings measures on its 
employees, and where the record also shows that the agency adequately 
reflected its concerns about the effects of the pay cuts in its 
decision to downgrade the awardee's technical proposal in two separate 
areas.

2.  Challenge to agency's decision to accept the awardee's level of 
proposed uncompensated overtime is sustained where the record shows 
that despite the submission of a signed certification from every 
employee promising to voluntarily perform [DELETED] hours of 
uncompensated overtime each week, the agency did not consider the fact 
that the awardee intended to announce on the day of contract award 
significant reductions in pay rates and fringe benefits, calling into 
question the continued willingness of the existing employees to 
voluntarily work additional hours without compensation.  The challenge 
is also sustained because the record suggests that over the life of 
the contract the rate of employee turnover will be higher than 
estimated and that the newly hired employees will have even less 
incentive to provide uncompensated overtime than existing employees.

3.  Protester's contention that the agency conducted an improper 
evaluation of technical proposals is denied where the record shows 
that the agency review was reasonable and consistent with the 
solicitation's stated evaluation criteria.

4.  Argument that agency should have awarded to protester on the 
strength of its initial proposal, and should have excluded the awardee 
from the competitive range, is denied where the protester makes no 
showing that the agency acted unreasonably in including the awardee's 
proposal in the competitive range and holding negotiations.
                                                             DECISION

Combat Systems Development Associates Joint Venture (CSDA) protests 
the award of a contract to Vitro Corporation by the Department of the 
Navy pursuant to request for proposals (RFP) No. N00024-94-R-6360, for 
technical and engineering support services for the Surface Ship 
Anti-Submarine Warfare Combat System Program Office.  CSDA argues that 
the Navy conducted an unreasonable evaluation of the technical and 
cost proposals, and improperly included the awardee's proposal in the 
competitive range.

We sustain the protest.

The RFP, issued February 18, 1994, sought offers for a 
cost-plus-fixed-fee level-of-effort contract for the technical and 
engineering support services described above.  The RFP estimated the 
level of effort for the base period, and for each of five option 
quantities.  These estimates were as follows:

               Base Year      336,396 man-hours
               Option I        71,840 man-hours
               Option II      400,220 man-hours
               Option III     361,862 man-hours
               Option IV      357,054 man-hours
               Option V       323,013 man-hours

The base year together with the five options reflect approximately 5 
years of contract effort.  Each option effort contains several 
contract line items (for example, option II consists of line items 
0006-0009), and for each line item offerors were required to identify 
a proposed cost for the man-hours and an accompanying fixed fee.

The RFP advised that the Navy was seeking proposals offering "the 
greatest technical ability at a reasonable price," and that the agency 
would select the technically acceptable offeror whose proposal offered 
the greatest value to the government.  The evaluation was structured 
to consider technical issues and proposed costs.  Under the technical 
factor, there were four subfactors:  technical approach; management 
approach; experience; and facilities and resources.  Generally, the 
technical approach subfactor was substantially more important than the 
other subfactors, which are listed in declining level of 
importance.[1]  Under the first three subfactors were additional 
evaluation criteria, which need not be addressed here.

Under the cost factor, the RFP advised that the Navy would consider 
realism, reasonableness and validity of the costs as proposed.  
Potential offerors were also advised that they were responsible for 
demonstrating the cost credibility of their proposals, and that the 
government would develop an evaluated cost for each offeror's 
proposal.  In addition, to establish the relative balance between 
technical advantage and proposed cost, the RFP set forth a formula for 
calculating the amount of cost premium the agency would pay for 
additional technical merit.[2]

The Navy received initial proposals from three offerors on April 26.  
Technical proposals were reviewed by the technical evaluation review 
panel (TERP); cost proposals were reviewed by the cost analysis panel 
(CAP).  Both panels submitted their reviews of initial proposals to 
the contract award review panel (CARP).  Upon receipt of the TERP and 
CAP reports, the CARP made adjustments to the conclusions of the two 
initial review panels, and then converted the adjusted adjectival 
technical ratings prepared by the TERP to numerical scores, which were 
weighted according to the importance of each of the evaluation 
subfactors and criteria.  The results of the technical and cost review 
are shown below:

                                 (Costs in millions)
                    Weighted    Proposed    Evaluated
       Offeror       Score       Costs        Costs  

        Vitro          84         $[DELETED]  $67.8
        CSDA           82         $[DELETED]  $55.3
        Company A      75         $[DELETED]  $71.1

After completing its review, the CARP recommended negotiations, and 
excluded Company A from further consideration based on its lower score 
and significantly higher proposed and evaluated costs.  On August 23, 
the contracting officer began discussions with CSDA and Vitro.

After holding written and oral discussions with both offerors, the 
Navy received best and final offers (BAFO) on October 11.  Again, both 
the CAP and TERP produced reports for the CARP, and, as before, the 
CARP did not accept all of the findings of the two panels.  Instead, 
the CARP set forth in a memorandum for the record explanations for 
eight separate adjustments to the ratings assigned by the TERP.  After 
again assigning weighted numerical scores to each offeror's BAFO and 
comparing those scores to each offeror's evaluated costs, the results 
of the CARP's BAFO review were as follows:

                                 (Costs in millions)
                    Weighted    Proposed    Evaluated
       Offeror       Score       Costs        Costs  

        Vitro          85        $53.1         $54.6
        CSDA           80        $[DELETED]    $54.4

Although both proposals were technically acceptable and although 
CSDA's proposal was evaluated as having a slightly lower cost than 
Vitro's proposal, Vitro's slightly higher evaluated costs were within 
the range established by the RFP's premium formula, given Vitro's 
slightly higher weighted score.  Thus, the Navy decided that Vitro's 
proposal was worth the additional evaluated cost, and Vitro was 
awarded the contract on December 29.

COST REALISM EVALUATION

CSDA argues that the Navy's evaluation of proposed costs was 
unreasonable because the Navy:  (1) failed to properly consider the 
overall effect of the cost-cutting efforts in Vitro's BAFO--i.e., 
Vitro's combination of significant pay and benefit cuts together with 
voluntary uncompensated overtime--on Vitro's probable costs; and (2) 
acted unfairly by advising CSDA that the Navy would only accept 
uncompensated overtime where the offeror could provide historical 
evidence that the proposed employee had provided uncompensated 
overtime in the past, but then accepting Vitro's uncompensated 
overtime because Vitro submitted signed certifications from its 
employees promising to perform the overtime proposed.

Background on Cost Realism Issues

Addressing CSDA's challenges to the cost realism evaluation requires 
additional details about the two offerors' approach to proposed costs.  
In preparing their respective cost proposals, the record clearly shows 
that both Vitro, the incumbent here,[3] and CSDA were considering ways 
to achieve a competitive advantage by using uncompensated overtime.[4]  
The record also shows, however, that CSDA's and Vitro's enthusiasm for 
proposing uncompensated overtime was tempered by their concern that 
the Navy might "reject" such overtime if the overtime lacked 
historical support--i.e., the Navy might recalculate the offeror's 
proposed costs using a standard 40-hour workweek, thus making 
evaluated costs significantly higher than those proposed.

As a preliminary matter, a brief explanation of the way uncompensated 
overtime is priced demonstrates its appeal to competitors seeking an 
edge in a cost reimbursement environment.  In general terms, since the 
RFP here requires offerors to propose costs using an estimated number 
of man-hours, an offeror that can credibly state that each of its 
employees will work more than 40 hours per week without additional 
compensation, can, other things being equal, propose lower costs.  In 
addition, although the methodology for using uncompensated overtime 
may vary, offerors are permitted to calculate their costs using an 
uncompensated overtime rate which is lower than the employee's 
standard hourly rate.  Id.; see also Systems Research & Applications 
Corp., B-225574.2, May 26, 1987, 87-1 CPD  540.

For example, if employees are paid $20 per hour for 40 hours of work, 
but will actually work 5 additional hours without compensation, the 
effective hourly rate for those employees is lower, as shown below:

                $20.00 x 40 hours    =     $17.78
                    45 hours                hour

Since offerors proposing uncompensated overtime may use this lower 
effective hourly rate to calculate their total proposed costs, the 
reduction in proposed costs can be substantial.  Using the effective 
rate calculated above for 5 hours of uncompensated overtime each week 
(without overhead or other adjustments) and the number of man-hours in 
the base period for this RFP (336,396 man-hours), the advantage of 
using uncompensated overtime is shown below:

          Offeror with standard rate:

               336,396  x  $20     =  $6,727,920.

          Offeror with uncompensated overtime rate:

               336,396  x  $17.78  =  $5,981,120.80

Evaluation of the Cost Proposals

In its initial proposal, Vitro advised that its employees would work a 
[DELETED], and would be required to provide an additional [DELETED] 
hours of uncompensated overtime.[5]  The Navy's evaluators rejected 
Vitro's [DELETED] because there was no company policy in place and 
because, even if implemented, there was no indication that the policy 
would be in effect for any other Vitro contract.  The Navy also 
rejected Vitro's proposed [DELETED] hours of uncompensated overtime 
per employee because the former Tracor employees performing the 
contract were not under the total time accounting system necessary to 
generate a verifiable history of performing such overtime during 
Tracor/Vitro's past performance of this contract.[6]  As a result, the 
Navy's CAP report recalculated Vitro's costs using a 40-hour workweek 
rather than the [DELETED]-hour weeks proposed.  This 
recalculation--together with adjustments to Vitro's overhead rates and 
general and administrative expenses--resulted in an upward adjustment 
to Vitro's initial proposed costs from $59.2 million to $67.8 million.

Vitro's BAFO attempted to address the Navy's concerns, and to 
introduce other significant cost-savings measures.  Vitro abandoned 
the [DELETED] with the explanation that senior management had rejected 
the proposal to impose a [DELETED] company policy.  In its place Vitro 
proposed that its employees would provide voluntary uncompensated 
overtime at average amounts of [DELETED] or [DELETED] hours per 
week.[7]  Since Vitro did not have evidence of providing uncompensated 
overtime in the past, Vitro submitted signed certifications from each 
of its exempt employees promising to provide the uncompensated 
overtime.  These certifications stated

          "I understand that the Vitro Corporation Proposal, in 
          response to Naval Sea Systems Command solicitation 
          N00024-94-R-6360, projects that exempt employees will 
          deliver [DELETED] [or [DELETED] where appropriate] hours of 
          uncompensated overtime (UT) per week on average during the 
          contract period of performance.  As an employee of Vitro 
          Corporation, I hereby certify and freely represent that I 
          will voluntarily provide the projected UT in accordance with 
          the UT policies of the Company."

Vitro also proposed to cut employee pay between [DELETED] and 
[DELETED] percent on the day of contract award, and to implement the 
following cuts in benefits:  a decrease in [DELETED]; a decrease in 
[DELETED]; and the elimination of [DELETED].[8]  The record indicates 
that Vitro's employees had not been advised about the proposed cuts in 
pay and benefits.

In response to Vitro's BAFO, the Navy explains that it considered each 
of three major factors in Vitro's proposal:  (1) whether Vitro was 
likely to provide the uncompensated overtime in its proposal; (2) the 
realism of the proposed pay cut; and (3) the adequacy of Vitro's 
proposed fringe benefit rates.[9]  With respect to Vitro's proposed 
uncompensated overtime, the Navy accepted Vitro's approach because 
each of the employees provided a signed certification.  Although the 
evaluation records show that the Navy would have preferred historical 
data as evidence of the likelihood that it would actually receive the 
benefits of the uncompensated overtime proposed, it concluded that the 
use of signed employee certifications was adequate for purposes of its 
cost realism review.  With respect to the cuts in pay and benefits, 
the Navy concluded that Vitro's approach would have a negative impact 
on employee morale and downgraded Vitro's technical proposal in areas 
related to contract management and retention of personnel.

CSDA's proposal, given its status as a joint venture, required 
different considerations.  CSDA is a joint venture comprised of two 
teaming partners:  EG&G Washington Analytical Services Center, Inc., 
holding a 49-percent interest in the joint venture; and GPS 
Technologies, Inc., holding a 51-percent interest in the joint 
venture.  None of the proposed work was to be performed by the joint 
venture itself; instead the work was to be performed by 
subcontractors, including EG&G and GPS, to which approximately 70 
percent of the total effort was allocated.  The two joint venturers, 
and one of the four remaining subcontractors, Matrix, accounted for 
approximately 80 percent of the total effort, and were the only three 
subcontractors to propose the use of uncompensated overtime.  Given 
the amounts of uncompensated overtime proposed by the three 
subcontractors, CSDA's proposal anticipated that slightly more than 
[DELETED] percent of the total required effort would be provided as 
uncompensated overtime.[10]

When the Navy evaluated CSDA's proposal for cost realism, it accepted 
all of Matrix's proposed uncompensated overtime, but rejected portions 
of the uncompensated overtime proposed by EG&G and GPS as overly 
optimistic and not supported by the historical information 
available.[11]  Although the record indicates that the Navy and DCAA 
requested historical information from CSDA to support the proposed 
uncompensated overtime, there is a dispute about what oral instruction 
may have been given to CSDA regarding the necessity for historical 
data.  According to CSDA, the Navy's contracting officer advised CSDA 
during oral discussions that the agency would only allow offerors to 
propose uncompensated overtime where the offeror had historical 
evidence of such overtime being performed in the past.  The Navy 
denies giving any such instruction to CSDA.  In addition, because of 
the alleged instruction regarding historical information, CSDA claims 
that it instructed one of its subcontractors that it could not propose 
uncompensated overtime in the BAFO since it lacked historical support 
for the overtime.

Analysis

When an agency evaluates proposals for the award of a cost 
reimbursement contract, an offeror's proposed estimated costs are not 
dispositive because, regardless of the costs proposed, the government 
is bound to pay the contractor its actual and allowable costs.  
Federal Acquisition Regulation (FAR)  15.605(d).  Consequently, a 
cost realism analysis must be performed by the agency to determine the 
extent to which an offeror's proposed costs represent what the 
contract should cost, assuming reasonable economy and efficiency.  
CACI, Inc.-Fed., 64 Comp. Gen. 71 (1984), 84-2 CPD  542.  Contracting 
officers are required by the FAR to document this evaluation, FAR  
15.608(a)(1), and when properly documented, 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.; Department of the Army--Recon., 
70 Comp. Gen. 510 (1991), 91-1 CPD  492; Grey Advertising, Inc., 55 
Comp. Gen. 1111 (1976), 76-1 CPD  325.

With respect to CSDA's contention that the Navy should not have 
accepted Vitro's pay and benefits cuts, we note first that the 
evaluation record shows that the Navy expressly considered Vitro's 
proposed pay and benefits cuts and ensured that the possible adverse 
effect of the cuts was reflected in the evaluation, as required by FAR  
15.608(a)(1).  See also Amtec Corp., B-240647, Dec. 12, 1990, 90-2 CPD  
482, aff'd, Department of the Army--Recon., B-240647.2, Feb. 26, 1991, 
91-1 CPD  211.  Specifically, the CAP identified the proposed pay and 
benefits cuts in Vitro's cost proposal, and suggested that the CARP 
consider their impact when reviewing the TERP's evaluation of the 
technical proposal.  When the CARP reviewed both the technical and 
cost evaluation reports, it concluded that:

          "these measures proposed by Vitro (pay cuts, benefits 
          reduction, working uncompensated overtime) will result in 
          dissatisfied and disgruntled employees.  Disgruntled 
          employees are rarely, if ever, enthusiastic about their jobs 
          and will just do the bare minimum of effort needed to 
          accomplish the work without concern about the quality of 
          work."

Thus, the CARP reduced Vitro's technical ratings to address concerns 
about the impact of Vitro's approach on its personnel.

The CARP reduced Vitro's technical ratings from excellent to 
acceptable under the contract management criterion under the 
management approach subfactor (which includes consideration of how the 
offeror manages its personnel), because the CARP concluded that the 
cuts suggested that Vitro lacked a good personnel management scheme.  
This reduction resulted in a corresponding reduction for the entire 
management approach subfactor from "excellent (low)" to "good (high)."  
In addition, the CARP increased the risk assessment for the personnel 
qualifications criterion under the experience subfactor from low risk 
to high risk, which resulted in a corresponding increase in the risk 
assessment for the entire experience subfactor from low to medium.  
The Navy based this change on its concern that Vitro might have 
difficulty retaining its people given the proposed changes to pay and 
benefits.

We view the Navy's decision to downgrade Vitro's technical proposal 
for its proposed pay and benefit cuts as a reasonable and adequate 
response to the issues presented by Vitro's approach.  See Information 
Spectrum, Inc., B-256609.3; B-256609.5, Sept. 1, 1994, 94-2 CPD  251.  
Although CSDA argues that the Navy should have rejected the proposed 
pay and benefits cuts, we disagree.  Unlike the voluntary nature of 
the proposed uncompensated overtime, discussed below, a cut in pay and 
benefits for exempt employees is a unilateral company action requiring 
no employee input or action, is clearly verifiable, and is definite in 
its impact on proposed costs.  To the extent that the proposed cuts 
raise issues regarding Vitro's personnel management, and its ability 
to retain existing personnel, the Navy adequately responded to those 
concerns with its adjustments to the technical evaluation.

With respect to CSDA's contention that the Navy should not have 
accepted Vitro's uncompensated overtime in light of Vitro's proposed 
pay and benefit cuts, we agree that the Navy's evaluation was 
inadequate.

Vitro's proposal, the Navy's evaluation materials, and the pleadings 
filed during the course of this protest, show that Vitro intended to 
announce its pay and benefit cuts on the date of contract award if 
successful in retaining its contract as a result of this competition.  
The record shows that the unannounced pay cuts of between [DELETED] to 
[DELETED] percent will be imposed for all employees other than the 
[DELETED] most senior employees proposed for this effort, and that for 
many of the junior employees, the pay cut will range from [DELETED] to 
[DELETED] percent.  Thus, when Vitro's proposed employees certified 
that they would voluntarily provide [DELETED] (or [DELETED]) hours of 
uncompensated overtime every week, they were unaware of the 
significant pending cut in pay, and the pending loss of a portion of 
their [DELETED]; a portion of their [DELETED]; and [DELETED].

Although the Navy considered Vitro's proposed uncompensated overtime 
as part of its decision to downgrade Vitro's technical evaluation for 
the proposed pay cuts, there is no evidence in the record that the 
Navy considered the impact of the pay cuts on the continued 
willingness of Vitro's employees to provide uncompensated overtime.  
In fact, at a hearing convened by our Office, the Navy's contracting 
officer testified that there was no consideration of the relationship 
between these issues as part of the decision to accept the employee 
certifications.  In addition, given that Vitro declined to revise its 
company policies and will continue to view such overtime as voluntary, 
the certifications here have no bearing on whether Vitro's new hires 
will voluntarily agree to continue providing uncompensated 
overtime.[12]

The significance of the treatment of proposed uncompensated overtime 
is clear:  without continued voluntary unpaid effort from Vitro's 
employees, the cost of this contract over the next 5 years will likely 
be much greater than the evaluated cost upon which the Navy made its 
selection decision.  Accordingly, given the relatively small 
difference in evaluated costs between CSDA's and Vitro's proposals, a 
change in the treatment of proposed uncompensated overtime--even a 
partial discounting of the amount of proposed uncompensated overtime 
the Navy would accept as realistic--could have a determinative effect 
on the technical/cost tradeoff and thus on the ultimate award 
decision.

We conclude that the Navy failed to consider the fact that the 
certifications here were solicited from and provided by employees 
without knowledge of pending decreases to their pay and benefits.  
Under these unique circumstances, the Navy's cost realism review must 
consider whether Vitro's certifications truly provide evidence of a 
long-term willingness to provide voluntary unpaid effort over the life 
of this contract.  Accordingly, based on our conclusion that the 
Navy's cost realism evaluation with respect to Vitro's proposed 
uncompensated overtime failed to consider certain key information, we 
sustain the protest on this ground.

CSDA also argues that the cost realism review was unfair because the 
Navy advised CSDA that it would only accept an offeror's proposed 
uncompensated overtime where the offeror could provide evidence that 
the employee had provided uncompensated overtime in the past, but then 
accepted Vitro's uncompensated overtime even though Vitro had no 
historical evidence of providing such overtime.  In support of its 
claim, CSDA's president testified at a hearing convened by our Office 
that its understanding was supported by the terms of the RFP, by the 
historical support requested during negotiations by both the DCAA and 
the Navy, and because the contracting officer expressly advised CSDA 
of this requirement during oral discussions.

As stated above, the record here shows that both CSDA and Vitro 
expected that the Navy would focus on historical support for 
uncompensated overtime, and that the Navy itself intended to disallow 
uncompensated overtime when offerors lacked historical data to support 
it.  In fact, the Navy admits it abandoned its preference for 
historical support and accepted Vitro's certifications only "after 
much discussion."

Despite the Navy's clear intent at the outset to review historical 
support for uncompensated overtime, the record does not support CSDA's 
claim that it was advised that such information was the only way an 
offeror could establish that such overtime should be accepted.  First, 
although CSDA is correct in noting that the RFP required offerors to 
establish the credibility of their cost proposals, the RFP makes no 
mention of a requirement for historical data.  Second, although both 
the Navy and DCAA requested information about past performance of such 
overtime, the contracting officer testified that she never stated that 
such information was required to show an offeror's cost realism.  
Third, the Navy's memorandum for the record documenting issues covered 
during oral discussions makes no mention of any discussion of 
uncompensated overtime during the meeting with CSDA.[13]  Finally, the 
handwritten notes of CSDA's president do not clearly support CSDA's 
contention:  while these notes--written on the day of CSDA's oral 
discussions with the Navy and produced by CSDA in response to a 
document request from the Navy--show a notation about a requirement 
for historical data to support uncompensated overtime, CSDA's 
president testified that the relevant portion of the notes was written 
after the meeting, but later the same day.

On balance, based on our review of the record, including the testimony 
from both CSDA's president and the contracting officer, we find that 
the Navy did not advise CSDA that historical evidence was the only way 
an offeror could provide support for uncompensated overtime.  While it 
is clear that CSDA believed that its proposed costs might be increased 
wherever it proposed uncompensated overtime without supporting 
historical data, and that CSDA advised at least one of its 
subcontractors of its belief, we cannot conclude that CSDA, or any of 
the other offerors, was advised that such historical data was a 
requirement for proposing uncompensated overtime.

TECHNICAL EVALUATION

CSDA argues that the Navy's technical evaluation was unreasonable 
because the conversion of adjectival ratings to numerical scores was 
unfairly executed, and because the Navy improperly downgraded CSDA's 
score based on its split office arrangement.  CSDA also argues that 
the Navy should have excluded Vitro's proposal from the competitive 
range and awarded to CSDA on the strength of its initial proposal, 
rather than conduct discussions.

In considering protests against an agency's evaluation of proposals, 
we will examine the record to determine whether the agency's judgment 
was reasonable and consistent with the stated evaluation criteria and 
applicable statutes and regulations.  ESCO, Inc., 66 Comp. Gen. 404 
(1987), 87-1 CPD  450.  A protester's disagreement with the agency's 
judgment, without more, does not show that the judgment was 
unreasonable.  Id.

With respect to CSDA's contention that the Navy improperly and 
unfairly converted adjectival ratings to numerical scores, our review 
of the record shows that none of CSDA's contentions are supported by 
the facts.  For example, CSDA claims that in the Navy's initial 
evaluation of the management approach subfactor, Vitro was rated 
"excellent (low) with low risk," but unfairly received 85 points for 
this rating while all other assessments modified with the adjective 
"low" received a score ending in 1--i.e., 71, 81, or 91.[14]  While 
Vitro's contention accurately cites the numbers in the initial CARP 
report, the discrepancy is clearly an oversight.  The CARP report 
explains that the TERP evaluated Vitro's proposal as unacceptable 
under the small business/small disadvantaged business subcontracting 
plan criterion under the management approach subfactor.  However, 
Vitro included this information in its cost proposal and the CARP 
upgraded the score awarded by the TERP from unacceptable to excellent.  
The effect of the upgraded score on this criterion resulted in an 
upgrade for the management approach subfactor from excellent(low) to 
excellent(medium).  Hence the award of 85 points was consistent with 
the numerical conversion scheme that was fairly applied to both 
offerors.  CSDA's other challenges in this area are similarly 
answered.

We also find unpersuasive CSDA's contention that the agency 
unreasonably downgraded CSDA for proposing a split office.  The RFP 
here required offerors to propose a facility within 1 mile of the 
Navy's program office in Crystal City.  Prior to the closing time for 
receipt of proposals, the Navy received an offeror's question asking 
if the Navy required all personnel assigned to the program to reside 
in one facility.  The Navy answered that "the Offeror should assign 
personnel in whichever facilities they (the Offeror) have determined 
those personnel can best perform the requirements delineated in 
Section C of the RFP."  As a result, CSDA proposed that [DELETED] 
percent of the personnel for this effort would be housed in Crystal 
City, while the remaining personnel would be housed in CSDA's Fairfax, 
Virginia facility.

Our review of the record shows that the Navy reasonably concluded that 
CSDA had not adequately addressed the impact of a split office on its 
ability to manage and coordinate the effort here.  We see no reason to 
question the CARP's concern that the physical separation of CSDA's 
employees could lead to poor integration of related work efforts, or 
the CARP's determination that CSDA should have identified the 
separation of personnel between Crystal City and Fairfax as a 
potential problem area with recommended solutions.  We also note that 
CSDA does not challenge the results of the agency's evaluation, but 
instead contends it was misled by the Navy's response to the 
pre-proposal submission question wherein the Navy stated that offerors 
could appropriately locate their work force in more than one place.  
We disagree.  The Navy's decision to permit offerors to propose a 
split work force could not reasonably be interpreted to mean that such 
an approach might not raise concerns about coordinating the contract 
effort.  In short, we find no fault with the Navy's documented and 
rational consideration of this issue.

As a final matter, CSDA argues that the Navy should have excluded 
Vitro's proposal from the competitive range and awarded to CSDA on the 
strength of its initial proposal, rather than conducting discussions.  
To support its contention, CSDA argues that the proposal submitted by 
Company A contained similar weaknesses to Vitro's proposal.

The competitive range consists of all proposals that have a reasonable 
chance of being selected for award, that is, those proposals which are 
technically acceptable as submitted or which are reasonably 
susceptible of being made acceptable through discussions.  FAR  
15.609(a); Mainstream Eng'g Corp., B-251444, Apr. 8, 1993, 93-1 CPD  
307.  Here, the Navy included both CSDA's and Vitro's proposals in the 
competitive range, but concluded that neither of the proposals could 
be accepted without further negotiation.  While CSDA is correct that 
some of the reasons stated by the Navy for not awarding to CSDA on the 
strength of its initial proposal are legally unsound--such as, for 
example, the Navy's claim that it could not accept CSDA's initial 
proposal because the company failed to include an executed certificate 
of procurement integrity, see FAR  3.104-9(b)(3)(ii)(A); General 
Elec. Ocean and Radar Sys. Div., B-250418; B-250419, Jan. 11, 1993, 
93-1 CPD  30--its contentions are misplaced.  The proposal to be 
examined here is Vitro's, not CSDA's, and we find nothing unreasonable 
about the decision to include Vitro's proposal in the competitive 
range.

Even assuming the Navy reasonably could have excluded Vitro's proposal 
from the competitive range--and we reach no conclusion on this 
issue--it does not follow that the agency acted improperly by 
including the proposal in the competitive range.  See Vortec Corp., 
B-257568 et al., Oct. 18, 1994, 94-2 CPD  145 at n.1.  In fact, where 
there is doubt about whether a given proposal should be included in 
the competitive range, that doubt should be resolved in favor of 
including the proposal, since this is consistent with the overall goal 
of maximizing competition.  FAR  15.609(a); Birch & Davis Assocs., 
Inc.--Protest and Recon., B-246120.3; B-246120.4, Apr. 20, 1992, 92-1 
CPD  372.  See also Mainstream Eng'g Corp., supra; Avondale Technical 
Servs., Inc., B-243330, July 18, 1991, 91-2 CPD  72.  Since Vitro's 
proposal was clearly technically acceptable, and since its much higher 
evaluated cost was generally related to one agency decision--the 
decision to reject Vitro's proposed uncompensated overtime--we will 
not question the agency's decision to hold discussions with Vitro 
regarding its proposal.[15]

RECOMMENDATION

Because we conclude that the Navy could not reasonably accept Vitro's 
proposed uncompensated overtime on the strength of the employee 
certifications submitted in Vitro's BAFO without considering the 
impact of the proposed but unannounced pay and benefit cuts, we 
conclude that the agency conducted an unreasonable evaluation of cost 
proposals and thus lacked a rational basis for making award to Vitro.  

We recommend that the Navy reconsider its evaluation of uncompensated 
overtime, and make a finding regarding the likelihood that, under the 
circumstances here, Vitro will deliver the uncompensated overtime 
proposed.  Based on the results of that reevaluation, the Navy should 
make adjustments, if appropriate, to Vitro's proposed costs.  In 
addition, the Navy may also choose to reopen discussions with both 
competitive range offerors and request revised BAFOs.  If the Navy 
concludes that CSDA, rather than Vitro, is the offeror whose proposal 
offers the greatest value to the government--within the guidelines 
established by the RFP's premium formula--then Vitro's contract should 
be terminated and award made to CSDA.  We also find that the protester 
is entitled to recover its costs of filing and pursuing the protest, 
including reasonable attorneys' fees.  4 C.F.R.  21.6.  CSDA's 
certified claim for such costs, detailing the time expended and costs 
incurred, must be submitted directly to the agency within 60 days 
after receipt of this decision.

The protest is sustained.

Comptroller General
of the United States

* The decision issued on June 13, 1995, contained proprietary 
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. Specifically, paragraph B of section M of the RFP advised that the 
technical approach subfactor was substantially more important than the 
management approach subfactor, and was more important than the 
cumulative value for all three of the remaining subfactors.  
Management approach and experience were of equal importance, and each 
was more important that the facilities and resources subfactor.

2. The RFP's formula for calculating the premium to be paid for 
additional technical merit is based on the assumption that a proposal 
scoring at least 60 (on a scale of 100) would be technically 
acceptable, and that the agency would consider paying a premium of up 
to 40 percent above the cost of a proposal with the lowest evaluated 
cost and a technical score of 60 in order to select a proposal with 
the highest achievable technical score (100). 

3. The incumbent contract was actually awarded to Tracor Applied 
Sciences, Inc., part of Tracor, Inc.  Tracor, Inc. acquired Vitro in 
August 1993, and decided to consolidate the performance of this 
contract under Vitro.  The contract was subsequently transferred by 
novation from Tracor to Vitro.  

4. Uncompensated overtime is used to describe "hours worked in excess 
of an average of 40 hours per week by direct charge employees who are 
exempt from the Fair Labor Standards Act (FLSA), without additional 
compensation."  Defense Federal Acquisition Regulation Supplement 
(DFARS)  252.237-7019(a)(1).  See also Tracor Applied Sciences, Inc., 
B-253732, Oct. 19, 1993, 93-2 CPD  238.  

5. This decision need not consider the accounting differences between 
providing a [DELETED] and an additional [DELETED] hours of 
uncompensated overtime, and providing [DELETED] hours of uncompensated 
overtime in addition to a standard 40 hour per week, because Vitro 
abandoned its [DELETED] in its BAFO.

6. DFARS  252.237-7019 requires that contractors offering to provide 
uncompensated overtime have a cost accounting practice appropriate for 
accumulating and reporting uncompensated overtime hours--i.e., the 
offeror must be able to record all hours worked, including 
uncompensated hours, for all employees, which is referred to as a 
total time accounting system.

7. Specifically, Vitro proposed that its [DELETED] most senior people 
would provide [DELETED] hours of uncompensated overtime each week, 
while all other exempt personnel would provide [DELETED] hours of 
uncompensated overtime each week.

8. For replacement hires, Vitro proposed to offer only [DELETED].

9. The Navy's review of Vitro's proposed fringe benefit 
rates--[DELETED]--considered both the impact of the fringe benefit 
rates on the quality of personnel over the life of the contract, and 
whether Vitro's method of calculating the rates met with the approval 
of the Defense Contract Audit Agency (DCAA).  CSDA does not challenge, 
and our decision does not consider, the mechanics of how the fringe 
rate was calculated.  With respect to the impact of the lower benefits 
signified by these rates, we will review this issue together with the 
Navy's evaluation of the proposed pay cut.

10. For comparison, the record shows that Vitro's BAFO proposed that 
slightly more than [DELETED] percent of the total effort would be made 
up of uncompensated overtime.

11. Unlike Vitro, CSDA's three subcontractors, mentioned above, were 
able to provide historical evidence that some of the proposed 
employees had provided uncompensated overtime in the past, although in 
the case of GPS and EG&G, the Navy concluded that the historical data 
did not adequately support the amount of uncompensated overtime 
claimed.  

12. The record shows that Vitro estimated its annual turnover at 
[DELETED] percent prior to proposing these cuts.  Thus, prior to the 
end of this contract, new hires will likely comprise a majority of 
Vitro's work force, and their actions could substantially change 
Vitro's ability to deliver the uncompensated overtime here. 

13. With respect to the Navy's notes, the record shows that even 
though CSDA submitted an agenda of issues to be covered during oral 
discussions, CSDA's agenda does not mention uncompensated overtime.  
In addition, the Navy's memorandum includes other issues not on CSDA's 
agenda that the contracting officer testified were covered during oral 
discussions, but the memorandum does not mention uncompensated 
overtime.  

14. The source selection plan here established the following numerical 
ranges:  outstanding, 91-100; excellent, 81-90; good, 71-80; 
acceptable, 60-70; and unacceptable, 0-59.  Within the 10-point range, 
assessments modified with the adjective "low" were scored at the low 
end of the range (81, 91, etc.); assessments modified with the 
adjective "mid" were scored in the middle of the range (65, 75, etc.); 
and assessments modified with the adjective "high" were scored at the 
high end of range (79, 89, etc.).

15. To the extent CSDA claims that Vitro's proposal was not 
significantly different from the proposal that was excluded, our 
conclusion is twofold:  as stated above, we conclude above that the 
decision to include Vitro's proposal in the competitive range was 
reasonable; with respect to the proposal that was excluded from the 
competitive range, CSDA is not an interested party to raise this 
issue.  This is a matter for pursuit by the excluded company, not 
CSDA.  See 4 C.F.R.  21.0(a) (1995).