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.