BNUMBER: B-261711.5; B-261711.6
DATE: December 14, 1995
TITLE: L.K. Comstock, Inc. and Liebert Federal Systems, Inc.
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REDACTED DECISION
A protected decision was issued on the date below and was subject to a
GAO Protective Order. This version has been redacted or approved by
the parties involved for public release.
Matter of:L.K. Comstock, Inc. and Liebert Federal Systems, Inc.
File: B-261711.5; B-261711.6
Date: December 14, 1995
Richard F. Smith, Esq., John S. Pachter, Esq., and Jonathan D.
Shaffer, Esq., Smith, Pachter, McWhorter & D'Ambrosio, for L.K.
Comstock, Inc., and Brian J. Donovan, Esq., Jones & Donovan, for
Liebert Federal Systems, Inc., the protesters.
Marc F. Efron, Esq., John E. McCarthy, Jr., Esq., and Lisa A. Price,
Esq., Crowell & Moring, for Exide Electronics Corporation, an
interested party.
Gregory H. Petkoff, Esq., and George Holliday, Esq., Department of the
Air Force, for the agency.
Susan K. McAuliffe, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protests that agency's cost evaluation of proposals was unreasonable
are sustained where cost analyses used to determine the evaluated low
cost offer were based upon unsupported agency quantity estimates and
inappropriate evaluation provisions.
DECISION
L.K. Comstock, Inc. and Liebert Federal Systems, Inc. protest the
award of a contract to Exide Electronics Corporation under request for
proposals (RFP)
No. F04606-94-R-0002, issued by the Department of the Air Force,
Sacramento Air Logistics Center, for three-phase 125-1000 kVA Static
Uninterruptible Power Supplies (SUPS)/SUPS Systems and SUPS-related
services (including support services for installation, ancillary
equipment, warranty, start-up, emergency/ preventative maintenance,
training, and data) in the United States and overseas. The protesters
challenge the agency's evaluation of the proposals and the
determination that Exide's proposal offered the lowest cost and best
value to the government.
We sustain the protests.
The RFP, issued on May 18, 1994, contemplated the award of a
requirements contract with a 3-year base ordering period and two
1-year options. The majority of the RFP contract line item numbers
(CLIN) called for fixed prices, a few items (e.g., travel) were cost
reimbursable, and certain site specific requirements (e.g.,
installation and ancillary equipment) were to be negotiated after
award. For these latter items, such as CLIN 24 (installation), and
CLIN 25 (ancillary equipment), offerors were to propose pre-priced
conversion factors (based upon the offeror's direct and indirect
costs, such as support labor hours, rates, factors, overheads, and
profit) for application to the direct material, base labor hours, and
ancillary equipment required for site specific installations, to be
determined and negotiated after award on an individual delivery order
basis.
In addition to CLIN quantity estimates, the RFP included two sample
tasks ("scenarios")--requiring the provision of SUPS equipment and
services--for which offerors were to provide technical and cost
proposals for evaluation. Each offeror's cost proposals for the
sample tasks (including labor, material, and ancillary equipment) were
to be averaged and multiplied by the proposed weighted average
conversion factors.[1] To determine each offeror's evaluated prices
for CLIN 24, regarding installation, and CLIN 25, regarding ancillary
equipment, the resulting cost figure was to be multiplied by quantity
estimates listed in section M of the RFP; for evaluation of CLIN 24,
the RFP provided a quantity of 1,135, and for CLIN 25, ancillary
equipment, the RFP provided a quantity of 935.
Award was to be made to the offeror that submitted the proposal
determined to offer the best value to the government. Section M of
the RFP set forth the following evaluation factors for award, listed
in descending order of importance: technical, management, and cost.
The RFP provided that:
"[t]he cost/price proposals [will] not [be] evaluated against
standards but all elements of cost and/or price will be evaluated
for realism, completeness, and reasonableness. Although adequate
price competition is anticipated, cost/price will be a
substantial evaluation criterion."
The RFP advised offerors that in assessing the realism of each cost
proposal, a "cost risk analysis will be performed based upon technical
uncertainties as well as uncertainties in the proposed cost
estimates."
Proposals were received from Exide, Liebert, and Comstock on July 24,
1994, clarification requests and deficiency reports were issued to all
offerors, and discussions were held. Best and final offers (BAFO)
were received from the three offerors on April 17, 1995. All
offerors' proposals were found acceptable and were rated essentially
equal technically, with certain strengths and weaknesses noted for
each.
The agency's cost evaluations found that Exide's proposal (which
included discount terms) of [deleted] for the 3-year basic period,
with an additional [deleted] for the first option year, and an
additional [deleted] for the second option year, for a total 5-year
amount of $630,664,148, offered the lowest cost to the government.
(Exide's proposed non-discounted total cost exceeds [deleted].
Liebert's evaluated price, reflecting the agency's correction of
certain computational errors in the firm's proposal, for the 3-year
basic period was [deleted], with an additional [deleted] for the first
option year, and an additional [deleted] for the second option year,
for a total 5-year amount of [deleted]. Comstock's evaluated price,
reflecting the agency's correction of certain computational errors in
the firm's proposal, for the 3-year basic period was [deleted], with
an additional [deleted] for the first option year, and an additional
[deleted] for the second option year, for a total 5-year amount of
[deleted]. Since Exide's proposal was evaluated as the low cost offer
among the technically equal proposals, the source selection authority
determined that Exide's proposal offered the best value to the
government. Exide was awarded a contract under the RFP on June 4.
These protests followed.
The protesters principally challenge the agency's cost evaluation.
Specifically, both Comstock and Liebert protest the evaluation of the
awardee's proposal of various discounts[2] on the basis that the
proposed discounts will not be realized during performance, rendering
unreasonable the agency's determination that Exide's proposal offered
the lowest cost to the government.
In this regard, Exide's proposal primarily offered three types of
discounts to the agency. First, Exide proposed substantial SUPS
equipment volume discounts to be applied in any contract year in which
the preceding year's actual contract quantities reached 80 percent of
the RFP's stated quantity estimates for that year. Second, Exide
proposed a [deleted]. Third, Exide offered a $50,000 discount on all
delivery orders requiring in excess of $400,000 of ancillary
equipment, prior to the application of the proposed conversion factor.
Where the proposal of pricing discounts is not expressly prohibited by
the RFP, there is nothing improper in an agency's decision to accept a
contractor's offer to discount certain charges, see AAI Eng'g Support,
Inc., B-257857, Nov. 16, 1994, 95-1 CPD 2; however, the offered
discounts should be taken into account in the evaluation only if the
condition on which the discount is based likely will be met. See 48
Comp. Gen. 257 (1968). Moreover, when the government solicits offers
on the basis of estimated quantities to be ordered over a given
period, the estimates must be compiled from the best information
available; while they need not be absolutely correct, the estimates
must be a reasonably accurate representation of the agency's
anticipated needs. The Saxon Corp., B-232694 et al., Jan. 9, 1989,
89-1 CPD 17. An award decision is not proper if the estimates
misrepresented the government's needs such that the inaccurate
estimates likely made a difference in the relative competitive
positions of firms participating in the procurement, see Nationwide
Roofing & Sheet Metal Co., B-234222.2, June 22, 1989, 89-1 CPD 588,
or skewed the determination of which offer would result in the lowest
cost to the government in terms of actual performance. See Comstock
Communications, Inc., B-242474, May 6, 1991, 91-1 CPD 438; see
Petchem Inc., B-233006, Feb. 8, 1989, 89-1 CPD 126.
As discussed below, we conclude that the agency's evaluation based on
the offered discounts was unreasonable because the estimates on which
the evaluation depends are not supported by the record. In short, the
agency's cost evaluation does not reasonably establish Exide's
proposal as the lowest cost proposal.
First, under Exide's proposal, the agency would receive volume
discounts of approximately $30,000,000 for the SUPS CLINs beginning in
year 2 if 80 percent of the prior year's estimates were reached. The
agency concluded that Exide's volume discounts would not be
triggered--in other words, the annual 80-percent threshold would not
be reached--until the option years (years 4 and 5) of the contract.
(The prior contract showed significantly increased purchases in the
latter 2 years.) The evaluation therefore involved the discount
prices for the last 2 contract years.
Initially, [deleted]. However, the agency did not reconsider the
reliability of its estimates.
As the protesters point out, there is a 240-percent increase in
quantity in the current RFP compared to the earlier contract. The
agency explains that these new quantities represent projections of
increased future purchases by the Air Force and other federal
agencies, and are primarily based upon the personal judgment of an Air
Force official (now retired) who helped design the procurement to make
this Air Force's installation's program the major supplier of SUPS
equipment and services to federal agency customers. This official
states that a substantial part of developing the estimates was based
upon his personal opinions and his experience in communicating with
various agencies that expressed some "interest" in the program. There
is absolutely no evidence in the record, however, that the agency
performed any survey of potential customers to quantify customer
commitments or needs that supports the large quantity estimates used
by the agency. Although there are some "planning documents" in the
record provided by the Air Force which reflect unilateral projections
by the Air Force for seven federal customers, the record shows that
none of these anticipated agency-customers submitted actual estimates
of their needed quantities; also, the quantities noted on these
workpapers do not come close to the substantial estimates in the RFP.
Further, the projected quantity estimates were 2 years old at the time
of the cost evaluations. These estimate documents were prepared in
early 1993 and the record does not show that the agency acted in any
way to verify the accuracy of its projected estimates prior to its
cost evaluations. The record shows that since the time these
projected estimates were developed and the cost evaluations were
conducted, several extraneous factors that could materially affect
contract quantities had apparently gone without consideration by the
agency--such as recent determinations for substantial military base
closures (possibly including the installation which issued the RFP),
and the fact that the Federal Aviation Administration (FAA) and State
Department (and possibly other agencies) have issued their own
solicitations for some of the SUPS equipment and services available
under the RFP. The agency's submission (during the protest) of
potential agency-customer correspondence expressing general interest
in the contract and a statement by an FAA representative that the FAA
is "potentially considering" purchasing a substantial amount of SUPS
under the contract is insufficient, we believe, to support the huge
increase in estimates from the prior contract.
Additionally, the reasons for the increases in purchases in the latter
years of the prior contract are not explained by the agency, nor has
the agency explained why it believes that this purchasing pattern will
repeat itself under the current contract; this is significant, we
think, since the historical pattern appears inconsistent with the
RFP's stated yearly estimates, which are essentially equal throughout
the 5-year period. The data is especially uncertain since base
closures (even if realignment of stations, as the agency contends,
could require some new SUPS), and the issuance of other SUPS-related
solicitations could substantially affect the relevance of the
historical percentages.
Second, Exide proposed [deleted].[3] [deleted]
[deleted]. The protesters argue that the application of [deleted] to
the 935 quantity estimate is unreasonable because [deleted]. As the
protesters point out, a comparison to Exide's prior contract, even
after taking into account [deleted]. In response to the protester's
challenges, the Air Force did not substantiate its basis for this
estimate, nor has the agency refuted the reasonableness of the
protester's [deleted] contentions that applying this large quantity
unreasonably skewed the cost evaluation. As Exide itself recognized
in its proposal, [deleted]. The agency's evaluation
approach--considering non-discounted prices for some offerors and a
discounted price for another offeror for a quantity not likely to be
realized--produced a distorted indication of what proposal represented
the likely lowest cost to the government.
Third, Exide proposed a $50,000 discount to be applied to delivery
orders with ancillary equipment exceeding $400,000 prior to the
application of the firm's conversion factor. Although this discount
was not initially evaluated by the agency, the Air Force decided
during the protests that the $50,000 discount would have applied to
Exide's cost proposal for the RFP's scenario 2 sample task since more
than $400,000 of ancillary equipment was required. Similar to the
above-noted defect in the agency's evaluation of Exide's [deleted],
the agency determined that Exide's $50,000 discount (since it was
applicable to the firm's scenario price) should be multiplied by 935,
the RFP's quantity estimate for the CLIN 25 ancillary equipment. This
evaluation resulted in a further decrease in Exide's evaluated
nondiscount price for the 5-year period by approximately [deleted].
In its proposal, Exide again noted that it did not believe that the
high dollar amount of the ancillary equipment required for that
scenario was representative of the majority of delivery orders to be
placed under the contract. The protesters contend that prior contract
history shows that few installations will involve over $400,000 in
ancillary equipment that will trigger Exide's offered $50,000
discount. The agency has offered no evidence to support its
application of the $50,000 discount to the full quantity of
installations, nor has the Air Force rebutted the protesters'
contentions that the agency will not typically order such high dollar
installations under the contract. The prior contract in fact shows
that many of that contract's installations were relatively minor,
inexpensive installations and that the discount would not have applied
to many of the ancillary equipment orders issued under the contract.
In other words, while most orders under the contract will not trigger
this discount, the agency evaluated the discount as applying to the
total RFP estimated quantities. There is no evidence in the record
that indicates that the agency ever considered the fact that the
discounts offered would not apply to every order to be placed under
the contract or why the agency believes the discount will be realized
to the extent evaluated.[4]
In light of the above, we conclude that the record does not reasonably
support the agency's determination that Exide's proposal offered the
lowest cost to the government among technically equal offerors.
([deleted].)[5] We recommend that the agency review the quantity
estimates and evaluation provisions of the RFP in accordance with the
above discussion and amend the RFP as appropriate. Following the
submission of new cost BAFOs[6] (since this decision only concerns the
cost proposals) and the evaluation thereof, Exide's contract should be
terminated and award made to Comstock or Liebert, if either is in line
for award. We also find that Liebert and Comstock are entitled to be
reimbursed for their costs of pursuing this protest, including
reasonable attorneys' fees. Bid Protest Regulations, 4 C.F.R.
21.6(d) (1995). Liebert and Comstock should submit their claims for
such costs, detailing and certifying the time expended and the costs
incurred, directly to the contracting agency within 60 working days of
its receipt of this decision. 4 C.F.R. 21.6(f).
The protests are sustained.
Comptroller General
of the United States
1. The RFP, at section M.e.3.d.2.h., set forth in detail the formula
to be used in arriving at weighted average conversion factors which,
for CLIN 24, essentially involved multiplying stated RFP installation
quantities for 11 complexity levels (1,135) by the proposed conversion
factors (which could involve between 1 and approximately 150 different
conversion factors), adding the totals, and dividing the sum by the
total number of installations (1,135). The RFP provided that for CLIN
25, covering ancillary equipment, a similar weighted average
conversion factor was calculated, as above, except that a factor of
935 total installations was to be used.
2. The protesters maintain that the awardee's proposed discounts
constitute an impermissible "alternate" proposal, prohibited by the
RFP, and that Exide's proposal thus should have been rejected. The
awardee did not offer the discounts to the agency as an alternative
proposal to its nondiscounted prices; Exide submitted a single cost
proposal which includes discount terms and the RFP did not
specifically prohibit the proposal of volume or other discounts by any
offeror. We see no impropriety here.
3. The [deleted] was required in responding to the [deleted]. The
cost of the [deleted] was a factor in the agency's calculation of the
awardee's [deleted] evaluated prices since the agency evaluators
multiplied the [deleted] by the RFP's large quantity estimates.
4. We believe the above irregularities in the cost evaluation of the
awardee's proposal are sufficient to sustain the protests. However,
we also note that the record shows inequality in other cost evaluation
areas that further support the conclusion that the cost evaluation was
flawed. For instance, although Exide's proposal was evaluated based
on its offer of [deleted], Liebert's cost proposal was evaluated to
include prices [deleted]. Similarly, Liebert's evaluated cost
included [deleted] involved in scenario 2 even though the RFP stated
that [deleted] would not be considered for evaluation purposes. (In
this regard, we also note that Liebert chose to include [deleted].)
Liebert contends that these discrepancies equate to at least [deleted]
that should be deducted from its evaluated price.
5. We have reviewed the many other arguments raised by the protesters,
some of which unpersuasively seek exclusion of Exide from the
competition. We conclude that they are either without merit or are
rendered academic by this decision.
6. Due to the disclosure of certain proprietary information, including
certain prices, released in violation of the protective order issued
by our Office, we recommend that the Air Force ensure to the greatest
extent practicable a level playing field among the offerors. See
Devres, Inc., B-251902.8, Mar. 30, 1995, 95-1 CPD 170. By separate
letters to the parties, we will address these improper disclosures.