BNUMBER:  B-266225.6; B-266225.7; B-266225.8; B-266225.9; B-266225.10
DATE:  April 15, 1996
TITLE:  Hughes Space and Communications Co.; Lockheed Missiles &
Space Co., Inc.

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

DOCUMENT FOR PUBLIC RELEASE
A protected decision was issued on the date below and was subject to a 
GAO Protective Order.  This version has been redacted or approved by 
the parties involved for public release.
Matter of:Hughes Space and Communications Co.; Lockheed Missiles & 
          Space Co., Inc.

File:     B-266225.6; B-266225.7; B-266225.8; B-266225.9; B-266225.10

Date:April 15, 1996

Jerald S. Howe, Jr., Esq., Thomas P. Barletta, Esq., and Kristin L. 
Amerling, Esq., Steptoe & Johnson, for Hughes Space and Communications 
Co.; and Thomas J. Madden, Esq., John J. Pavlick, Jr., Esq., Fernand 
A. Lavallee, Esq., Carla D. Craft, Esq., and Kevin M. Kordziel, Esq., 
for Lockheed Missiles & Space Co., Inc., the protesters.
John W. Chierichella, Esq., Maureen T. Kelly, Esq., Douglas E. Perry, 
Esq., Jonathan S. Aronie, Esq., and Douglas R.M. King, Esq., Fried, 
Frank, Harris, Shriver & Jacobson, for TRW Inc., an interested party. 
Vincent A. Salgado, Esq., National Aeronautics and Space 
Administration, 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.  Protest contention that an agency's decision to accept a proposal 
including an offer to share 50 percent of any cost overrun improperly 
changed the solicited contract type and violated discussions is denied 
where the record shows that (1) the accepted proposal did not change 
the cost-plus-award-fee contract type, but instead only offered to 
share in any cost overrun in excess of the offeror's proposed costs, 
analogous to a cap on costs; and (2) the discussions between the 
agency and offerors clearly emphasized the importance of submitting 
realistic cost proposals, but did not prohibit offerors from offering 
to cap their costs or offer to share in cost overruns.

2.  Protest complaint that selection document shows that agency failed 
to properly evaluate awardee's cost overrun sharing approach under an 
evaluation provision requiring that points be deducted from the 
offeror's mission suitability scores for unrealistic proposed costs is 
denied where the record shows that: (1) the evaluation panel properly 
applied the evaluation provision; (2) the evaluation panel presented 
the results to the selection official; (3) the selection official 
directed the evaluation panel to prepare additional analysis showing 
the relative standing of the offerors both with and without the 
application of the evaluation penalty; (4) the selection official's 
handwritten contemporaneous notes show that he considered the relative 
standing of the offerors both with and without the mission suitability 
penalty even though the selection document references only the 
relative standing of the offerors without application of the penalty; 
and (5) the selection official affirms his selection decision with 
application of the penalty.  

3.  Allegation that awardee gained an improper competitive advantage 
over other offerors as a result of a meeting between the head of the 
agency and a senior representative of the awardee while the 
procurement was ongoing, and as a result of a letter issued to all 
offerors after the meeting reiterating the agency's commitment to cost 
realism in this procurement, is denied where the record shows that the 
meeting was routine and unrelated to the instant procurement, where 
the agency head refused to discuss the particular procurement when the 
awardee's representative attempted to raise the subject, and where 
there is no evidence to support the protester's claim that the letter 
to all offerors reiterating the agency's commitment to cost realism 
was somehow "encoded" or "encrypted" with information useful only to 
the awardee.

4.  Protester whose proposal was excluded from the competitive range 
lacks the direct economic interest necessary to raise challenges 
related only to the final selection decision, as opposed to issues 
which, if resolved in its favor, would 
restore the protester's proposal to the competitive range.   

DECISION

Hughes Space and Communications Co. and Lockheed Missiles & Space Co., 
Inc. protest the award of a contract to TRW Inc. for the design, 
fabrication, integration, testing, delivery, launch support and flight 
operations support for two Earth Observing Satellites (referred to as 
EOS Common Spacecraft).  The contract was awarded by the National 
Aeronautics and Space Administration (NASA) pursuant to request for 
proposals (RFP) No. 5-12492/305.  Both protesters challenge NASA's 
evaluation and acceptance of TRW's proposed cost sharing arrangement,  
and both argue that TRW received an unfair competitive advantage from 
a meeting with the NASA Administrator. 

We deny the protests.

BACKGROUND

Prior to initiating this procurement, NASA awarded five study 
contracts related to the development of EOS Common Spacecraft.  These 
satellites are intended for use in NASA's Mission to Planet Earth, an 
initiative to develop a global data base on the environment.  On 
September 1, NASA issued the RFP here to four of the five companies 
that participated in the study effort.[1]  These companies were 
Hughes, Lockheed, TRW, and Martin Marietta Corporation.  As amended, 
the RFP anticipates award of a CPAF contract for two satellites, with 
options for two more.  

The RFP, as initially issued, contained four evaluation factors:  (1) 
mission suitability; (2) cost/price; (3) relevant experience and past 
performance; and (4) other considerations.  The first two 
factors--mission suitability and cost/price--were of equal importance, 
and each was more important than the two remaining factors--relevant 
experience and past performance, and other considerations.  Mission 
suitability was the only numerically scored factor, and was worth a 
maximum of 1,000 points; the other evaluation factors were assigned 
adjectival ratings.

On November 7, 1994, the four offerors submitted initial proposals in 
response to the solicitation.  The initial evaluation--and a 
subsequent evaluation performed after submission of revised 
proposals--resulted in a recommendation to exclude [DELETED] from the 
competitive range because of their relatively low technical scores.  
On both occasions, however, the source selection official (SSO) 
overrode the recommendation and decided that all four offerors should 
have another opportunity to submit revised proposals.  

The first two rounds of proposal submissions led the SSO to conclude 
that all four offerors were proposing unrealistically low costs for 
this effort.  By letter dated May 11, 1995, NASA's Director of Flight 
Projects notified each offeror that

     "[a]ll proposals submitted in response to this solicitation 
     failed to demonstrate realistic cost and resource estimates.  It 
     appears that offerors have sacrificed cost realism for perceived 
     advantages in the cost evaluation.  As a result, we are taking 
     precedent setting measures to further reinforce this agency's 
     commitment to cost containment."
     (Emphasis added.)  

The "precedent setting measures" mentioned in NASA's letter were set 
forth in amendment 0005 to the RFP, which included a new evaluation 
provision.  Specifically, the amendment included a new paragraph, 
M.2.2, which advised offerors that NASA would use the difference 
between an offeror's proposed and most probable costs as an indication 
of the offeror's understanding of the effort, and would deduct up to 
400 of the 1,000 available points under the mission suitability 
evaluation factor for proposing unrealistic costs.  The 400-point 
deduction was allocated as follows:  240 points for the basic 
contract, and 80 points for each of the two contract options.  

NASA's unique approach to blending cost realism and technical merit 
provided for no adjustment to an offeror's mission suitability score 
if the difference between proposed and most probable costs were 15 
percent or less.  At the other end of the scale, if the difference 
between proposed and most probable costs were greater than 55 percent, 
the full 400 points would be deducted from the mission suitability 
score.  For proposals with differences between 15 and 55 percent, 
paragraph M.2.2 set forth a sliding scale.  The full formula is shown 
below:

Percentage of Difference
 Between Proposed and
  Most Probable Costs
                    Adjustment Applicable to
                         Basic Contract   
                                         Adjustment Applicable to
                                                Each Option

    0 to 15 percent       No adjustment        No adjustment

   16 to 25 percent   3 point deduction for
                     every percentage point
                         over 15 percent  0.5 point deduction for
                                          every percentage point
                                              over 15 percent

   26 to 35 percent  30 point deduction plus
                     5 additional points for
                     every percentage point
                         over 25 percent  5 point deduction plus
                                         1.5 additional points for
                                          every percentage point
                                              over 25 percent

   36 to 45 percent  80 point deduction plus
                     7 additional points for
                     every percentage point
                         over 35 percent  20 point deduction plus
                                         2.5 additional points for
                                          every percentage point
                                              over 35 percent

   46 to 55 percent 150 point deduction plus
                     9 additional points for
                     every percentage point
                         over 45 percent  45 point deduction plus
                                         3.5 additional points for
                                          every percentage point
                                              over 45 percent

Greater than 55 percent
                       240 point deduction  80 point deduction
Concurrent with the release of amendment 0005, NASA initiated 
discussions and plant visits with all four offerors.  At the end of 
discussions, and before submission of best and final offers (BAFO), 
the Source Evaluation Board (SEB) made a third competitive range 
determination on July 10.  As part of this determination, NASA 
concluded that Lockheed's proposal did not have a reasonable chance of 
being selected for award.  By letter dated July 12, NASA advised 
Lockheed of its proposal's elimination from the competitive range 
based predominantly on concerns about its cost realism.  Specifically, 
the SEB subtracted more than 300 points from Lockheed's mission 
suitability score by applying the cost realism formula set forth in 
amendment 0005.  This deduction lowered Lockheed's mission suitability 
adjectival rating from very good to fair, and moved Lockheed's 
relative standing under the mission suitability factor from third 
place, among the four offerors, to last place by a wide margin.

Although NASA offered Lockheed a debriefing at the time of the 
competitive range decision, Lockheed declined the offer until the 
agency completed its selection process.  By letter dated July 15, 
Lockheed also advised NASA that it intended to dissolve an existing 
"Chinese wall" that had been established between Lockheed and Martin 
employees after the two companies had merged and learned that both 
entities were participating in this competition.[2]  

The remaining three offerors were then provided with what NASA terms 
"model contracts," and were instructed to revise the text of the model 
contracts to include any unique contract clauses.  Both TRW and Hughes 
incorporated unique contract terms designed to address NASA's concerns 
about cost realism.[3]  TRW proposed to absorb 50 percent of all costs 
exceeding its proposed costs (TRW Model Contract at  sec.  H.21), and 
proposed a [DELETED] rebate to NASA if the appropriated funding for 
the contract materialized at projected levels.  (TRW Model Contract at  sec.  
H.23.)  Hughes proposed to cap its costs at [DELETED] percent of its 
proposed costs, and to absorb 100 percent of all costs above that 
amount.[4]  (Hughes Model Contract at  sec.  B.6, H.14 and H.19; see also 
Hughes Cost/Price Executive Summary, Aug. 15, 1995 at 1.)  Martin 
ultimately did not propose any cost containment measure or cap, 
although it had suggested it would do so during discussions.

After NASA completed its review of contract clauses, it requested and 
received BAFOs from the three remaining offerors.  The SEB first 
reviewed each offeror's proposed BAFO costs, including the two 
options, to determine the most probable cost to the government.  As 
part of this review, the SEB calculated each offeror's most probable 
cost both with and without the cost containment measures described 
above.  The table below sets forth the result of the cost review:

                              Costs
                    (in millions of dollars)

                                Hughes        Martin      TRW

Proposed Costs Plus Fees       [DELETED]     [DELETED]  [DEL.]

Probable Costs
(without cost containment)
                                $911.8      
                                              $814.7   
                                                        $805.1

Probable Costs (with cost containment)
                                $911.8      
                                                n/a    
                                                        $722.6
SEB Final Report at 197.

In evaluating technical proposals, NASA assigned both point scores and 
adjectival ratings to the mission suitability factor, and assigned 
adjectival ratings to the factors of relevant experience and past 
performance and other considerations.  In preparing the report for the 
SSO, the SEB also calculated the point deductions from each offeror's 
mission suitability score required by amendment 0005.  The result of 
this evaluation is set forth below:

                     Hughes          Martin           TRW

Mission Suitability
  BAFO Rating
  BAFO Points

  Adjustment Amt.

  Adjusted Rating
  Adjusted Points
                
                    Excellent
                       951
                
                      0[5]
                
                    Excellent
                       951      
                                
                                      Fair
                                    [DELETED]
                                
                                        0
                                
                                      Fair
                                    [DELETED]   
                                                
                                                   Very Good
                                                   [DELETED]
                                                
                                                      -57
                                                
                                                   Very Good
                                                   [DELETED]

Relevant Experience and Past Perform.
                      Good      
                                      Fair      
                                                   Very Good

Other ConsiderationsVery Good         Good         Very Good
SEB Final Report at 198.  

While the table above--showing a deduction of 57 points from TRW's 
mission suitability score because of the difference between TRW's 
proposed and most probable costs--summarizes the evaluation results as 
presented to the SSO by the SEB, the SSO requested additional 
analysis.  Among other things, the SSO requested a table showing the 
results of applying TRW's 50-percent cost containment measure before 
calculating the cost realism penalty.  Under this scenario, the 
mission suitability adjustment was reduced from 57 points to 1 point, 
and TRW's final mission suitability score was calculated as [DELETED], 
rather than [DELETED].  Presentation to SSO, Sept. 11, 1995 at 66-67, 
70, as amended by Memorandum for the Record, Sept. 20, 1995.  

Citing this second scenario, the SSO selected TRW for award on 
September 14 after concluding that "the recognized technical 
superiority of [Hughes'] proposal could not justify its substantially 
higher probable cost to the [g]overnment."  Source Selection Statement 
at 8.  The SSO continued, "[t]he proportionate difference between 
TRW's probable cost and that of [Hughes] is almost twice as large as 
the difference between TRW's [m]ission [s]uitability [s]core and that 
of [Hughes]."  Id.  These protests followed.

HUGHES' PROTESTS

The gravamen of the 10 separate protests filed by Hughes and Lockheed 
is NASA's decision to accept TRW's proposal to share 50 percent of any 
cost overruns with the agency.  Because of Lockheed's more limited 
ability to challenge the award decision--given Lockheed's exclusion 
from the competitive range some 2 months before--and because many of 
Lockheed's challenges are resolved by our consideration of the 
protests filed by Hughes, we will first consider Hughes' contentions.  
In addition to its challenges to the cost sharing arrangement, 
discussed in detail below, Hughes argues that:  (1) NASA improperly 
permitted TRW to propose a clause that violates regulatory 
restrictions applicable to independent research and development costs; 
(2) TRW gained an unfair advantage over other offerors through a 
meeting with the NASA administrator while the procurement was ongoing; 
and (3) the SSO performed an arbitrary and irrational cost/technical 
tradeoff in selecting TRW for award.  

TRW's Offer to Share Cost Overruns

Hughes argues that NASA could not accept TRW's offer to share in any 
cost overrun without violating the terms of the RFP, and without 
contradicting the direction given Hughes during discussions.  Thus, 
Hughes claims that NASA was required to amend the solicitation before 
it could accept TRW's proposal.  In addition, Hughes argues that NASA 
improperly applied paragraph M.2.2 of the solicitation, as added by 
amendment 0005, because the agency failed to deduct points from TRW's 
mission suitability score.  

Hughes' first two claims--that NASA could not accept TRW's proposal 
for sharing cost overruns without violating the RFP and without 
contradicting the directions given during discussions--are based on 
the premise that TRW's proposal changed the contract type called for 
in the solicitation.  We do not agree with Hughes' premise.  

The RFP here called for the award of a CPAF contract.  A CPAF contract 
is a cost reimbursement contract that includes a fee consisting of a 
base amount and an award amount.  Federal Acquisition Regulation (FAR)  sec.  
16.305, 16.404-2.  Like any cost reimbursement contract, the 
contractor is reimbursed for all actual costs incurred that are 
reasonable, allowable, and properly allocable to the contract.  FAR  sec.  
31.201-2; Vitro Corp., B-247734.3, Sept. 24, 1992, 92-2 CPD  para.  202.  

As explained above, TRW sought to convince NASA that it was 
sufficiently committed to the realism of its proposed costs to absorb 
50 percent of any costs incurred in excess of its proposed costs.  In 
contrast, Hughes showed its commitment to its proposed costs by 
capping its cost proposal at [DELETED] percent of its total proposed 
costs.  As a starting point, there is no dispute that from the first 
dollar of cost incurred, until TRW crosses the threshold of its total 
proposed costs, this contract will remain a cost-plus-award-fee (CPAF) 
instrument.  The dispute begins on the other side of the threshold.

Despite Hughes' arguments to the contrary, TRW's offer to share costs 
above the threshold of its proposed costs operates much like a cap.  
Although there is ultimately no ceiling on the arrangement, from the 
time TRW's costs pass the level proposed, the share arrangement will 
"cap" NASA's reimbursement of TRW at fifty cents on the dollar.  
Hughes' cap, on the other hand is absolute.  Hughes gets no further 
reimbursement above the level of its cost cap.[6]

In our view, while both proposals alter the allocation of risk between 
the government and the contractor after a certain point, TRW's 
proposal does not alter the entire contract in such a way that a CPAF 
contract has been changed to a purely cost-sharing contract.[7] In 
addition, despite Hughes' claims that TRW's approach violated the 
terms of the solicitation, while its own approach did not, we fail to 
see any meaningful difference between the two cost containment 
measures in terms of contract type.  Both proposals accept the RFP's 
CPAF contracting approach until a cost overrun occurs, and both offer 
to remedy any cost overruns by forgoing reimbursement for all, or a 
portion of, the overrun costs.  While we do not agree that the 
approach taken here by TRW altered the solicited contract type, if it 
did, Hughes' proposal did so as well.[8]

To the extent that we view TRW's cost overrun sharing approach as 
analogous to a cap, we know of no requirement that a cap be 
established at a total fixed amount such as the Hughes cap here.  Our 
Office has reviewed caps on overhead rates that are established as a 
percentage, see MAR, Inc., B-255309.4; B-255309.5, June 8, 1994, 94-2 
CPD  para.  19; Technical Resources, Inc., B-253506, Sept. 16, 1993, 93-2 
CPD  para.  176, caps on general and administrative expenses, also 
established as a percentage, see Vitro Corp., supra, and caps on 
precise cost components which include some costs but exclude others.  
Halifax Technical Servs., Inc., B-246236.6 et al., Jan. 24, 1994, 94-1 
CPD  para.  30.  While we will sustain a protest where the record shows that 
the agency does not understand the operation of a proposed cap, or has 
failed to adequately assure that the proposed cap will effectively 
shield the government from cost growth, see Advanced Technology Sys., 
Inc., 64 Comp. Gen. 344 (1985), 85-1 CPD  para.  315, we generally view cost 
caps and ceilings as powerful and effective tools in the government's 
arsenal against cost overruns.  See generally Technical Resources, 
Inc., supra.  In none of these cases, however, did our Office conclude 
that the challenged cap changed the solicited contract type, even 
where the agency was soliciting a CPAF contract, as NASA is here.  See 
id.

Hughes claims that TRW's approach to sharing cost overruns was 
contrary to the guidance given offerors by NASA during discussions.  
It is a fundamental precept of negotiated procurement that 
discussions, when conducted, must be meaningful and must not 
prejudicially mislead offerors.[9]  SRS Technologies, B-254425.2, 
Sept. 14, 1994, 94-2 CPD  para.  125; Ranor, Inc., B-255904, Apr. 14, 1994, 
94-1 CPD  para.  258.  Specifically, an agency may not inadvertently mislead 
an offeror--through the framing of a discussion question or a response 
to a question--into responding in a manner that does not address the 
agency's concerns; misinform the offeror concerning a problem with its 
proposal; or misinform the offeror about the government's 
requirements.  Id.; Price Waterhouse, B-254492.2, Feb. 16, 1994, 94-1 
CPD  para.  168; DTH Management Group, B-252879.2; B-252879.3, Oct. 15, 
1993, 93-2 CPD  para.  227.  

The record here shows no basis for concluding that Hughes was misled.  
In letters, in written and oral discussions, and ultimately, in an 
aggressive and innovative evaluation clause added by amendment 
(further highlighting its unusual nature), NASA went to extraordinary 
lengths to communicate to offerors the importance of cost realism and 
cost containment for this project.  While each offeror adopted unique 
methods to address these concerns, the record shows two similar types 
of responses to NASA's admonitions:  (1) all four offerors proposed to 
perform portions of the effort at no cost to the government; and (2) 
three of the four proposed to mitigate cost growth by agreeing to 
absorb a portion of any cost overruns, even though one of these did 
not ultimately include its overrun clause in its BAFO.[10]  This 
general observation alone--as well Hughes' own cap on costs--suggests 
that the discussions did not lead offerors to conclude that they could 
not propose caps on overrun sharing arrangements to shield the agency 
from the effects of cost growth during performance.

We also conclude that the specifics of the discussions between Hughes 
and NASA do not support Hughes' claims.  For example, in the exchange 
Hughes identifies as the clearest example of misleading discussions, 
Hughes Initial Protest, Sept. 25, 1995 at 14, Hughes inquired during 
oral discussions whether it could propose a fixed-price contract or 
some other contract type--or could submit an alternate proposal 
incorporating a different contract type--in order to more convincingly 
address the agency's concerns about cost realism and cost containment.  
In response, the NASA representatives advised Hughes that the agency 
considered a cost reimbursement contract the most prudent method of 
contracting for the equipment and services here given the expected 
17-year life of the program.  NASA also advised Hughes that it would 
not accept an alternate proposal containing a different contract type 
given the agency's conclusion that acceptance of such a proposal would 
first require amending the solicitation.  Transcript of Oral 
Discussions with Hughes at 381-382, 385, 504-506.

We note that even in the portion of the exchange most favorable to 
Hughes, NASA did not rule out the use of caps designed to address cost 
overruns.  Instead, NASA explained that it had

     "explored numerous possibilities, even some hybrids that NASA had 
     never done before, because we were given the mission in the task 
     to be bold in trying to work this issue out.  And after exploring 
     many alternatives of various different types--everything; we went 
     so far as to suggest fixed price all the way up to cost plus 
     incentive fee, and then again hybrids where we looked at cost 
     reimbursement to the first spacecraft, converting to the fixed 
     price for the follow-up, and we had various scenarios."

In our view, NASA's answer relates to the choice of overall contract 
type and does not mean that an offeror could not offer to cap its 
costs at certain levels or offer to share in cost overruns.  In 
addition, Hughes' own proposal does not support its claimed 
interpretation of this exchange.

Finally, we turn to Hughes' claim that NASA failed to properly 
evaluate TRW's proposal under paragraph M.2.2 of the solicitation, 
because the provision stated that unrealistic proposed costs would 
result in a deduction from an offeror's mission suitability score.  In 
this regard, we agree with Hughes' conclusion that section M of the 
RFP contemplated two distinct evaluation actions:  (1) a determination 
of the offeror's most probable cost, pursuant to the provisions of 
paragraph M.3; and (2) an adjustment to the offeror's mission 
suitability score based on the difference between the offeror's 
proposed and most probable cost, pursuant to the formula discussed 
above and included in paragraph M.2.2.

While we conclude above that the agency could properly accept TRW's 
proposed sharing arrangement for cost overruns--i.e., we disagree that 
the arrangement itself violated the solicitation or the content of 
discussions--we do not think that the inclusion of either a cap or a 
sharing arrangement permitted the agency to bypass the mission 
suitability deduction.  In our view, the only fair reading of 
paragraph M.2.2, together with the extraordinary emphasis NASA placed 
on cost realism here, is that offerors needed to ensure that their 
proposed costs were adjudged realistic by NASA's evaluators, or risk a 
significant reduction in their mission suitability score.  The theory 
behind NASA's evaluation provision--that a large gap between an 
offeror's proposed and most probable costs is indicative of a weakness 
in the offeror's understanding of the requirements for the 
effort--applies regardless of whether the agency is actually required 
to reimburse the costs.  Thus, we see no basis in paragraph M.2.2 for 
failing to apply this deduction because an offeror--like TRW and like 
Hughes--proposed to shield the agency from the requirement to 
reimburse the contractor from all, or part, of any cost overrun.  

We part company with Hughes, however, in its argument that NASA did 
not apply paragraph M.2.2 in this case.  As explained above, as 
reflected in the record, and as Hughes itself claims, it appears that 
the SEB never considered the possibility of failing to make the 
mission suitability deduction described above, until its extensive 
briefing of the SSO.  Thus, from the initial SEB report, to the time 
of the competitive range decision excluding Lockheed from further 
consideration, to the final SEB report, the SEB made the adjustments 
Hughes claims are required.  The record shows that when the SEB 
reported these figures to the SSO, the SSO requested several 
additional calculations applicable to the award decision.  These 
additional calculations, memorialized in a document dated September 
20, 1995, show TRW's costs and mission suitability score in nearly 
every possible permutation--with and without the cost sharing 
arrangement, with and without the point deduction from the mission 
suitability score, and with and without consideration of the proposed 
rebate arrangements.  

In preparing the Source Selection Statement, the SSO based his 
tradeoff upon the supplemental analysis that recognized the impact of 
TRW's cost-sharing arrangement before calculating the mission 
suitability deduction.  Thus, the selection statement is based on a 
1-point deduction from TRW's mission suitability score rather than the 
57-point deduction reflected in the Final SEB Report.  Hughes contends 
that since the SSO based the selection decision on the supplemental 
analysis that considers the impact of TRW's cost overrun sharing 
arrangement and fails to deduct points from TRW's mission suitability 
score, the award decision is improper and should be overturned.  We 
disagree.

Despite our agreement with Hughes about the proper application of 
paragraph M.2.2, we will not overturn the selection decision here by 
focusing only on the recitation in the selection statement while 
ignoring the significant evidence in the record showing that the SSO 
considered then--and has considered since--precisely the evaluation 
scenario Hughes claims should have been considered.  First, the record 
shows that despite some confusion about how to apply this never-before 
used provision, NASA carefully considered the impact on the evaluation 
both with and without the deduction at issue.  In addition, the Final 
SEB Report and the SEB's briefing for the SSO, are based on the 
analysis Hughes claims should have been used.  Thus the SSO was 
presented with this analysis.  Finally, the SSO has provided a sworn 
statement in response to this protest affirming his selection of 
Hughes under either scenario.  Under these circumstances, we will not 
overturn the selection decision because the Source Selection 
Memorandum calculates the mission suitability score after recognizing 
the impact of TRW's cost overrun sharing approach.  JSA Healthcare 
Corp., B-242313; B-242313.2, Apr. 19, 1991, 91-1 CPD  para.  388.

TRW's Clause H.17

In addition to the central challenges raised against NASA's acceptance 
of TRW's proposed sharing of cost overruns, Hughes argues that NASA 
improperly gave evaluative credit to TRW's clause H.17 wherein TRW 
agreed to complete several enumerated tasks "through Engineering Model 
Environmental Test Demonstration at no additional direct cost to this 
contract."  According to Hughes, this effort will be improperly 
charged to independent research and development (IR&D) rather than as 
direct costs of the instant contract, thus giving TRW an unfair 
advantage because TRW will be able to propose lower costs.  For the 
reasons set forth below, our review of the record shows that there is 
nothing improper in NASA's acceptance of TRW's clause H.17, and even 
if there were, the amounts involved here are de minimis--Hughes cannot 
reasonably claim that they had any meaningful impact on the award 
decision.

The IR&D projects described in TRW's clause H.17 had been underway for 
[DELETED] years by the time TRW submitted its initial proposal in 
November 1994.  TRW explains that the total investment at that time in 
this advance (and independent) effort was [DELETED], of which more 
than [DELETED] was directly applicable to the EOS program.  In 
explaining that TRW's proposed costs for the EOS contract were reduced 
by [DELETED] as a result of the previous effort, TRW states that there 
is only an additional [DELETED] of effort remaining in this regard at 
the time of contract award.  TRW's Consolidated Comments, Feb. 22, 
1996 at 130.

Hughes correctly points out that the initial version of TRW's H.17 
clause did, in fact, reference completing the above-described portion 
of the effort as part of TRW's ongoing IR&D efforts.  However, after 
discussions, TRW amended its clause to omit any reference to IR&D, and 
the clause, as incorporated in TRW's contract, states only that TRW 
will complete the identified effort "at no additional direct cost" to 
the government.  Since the clause clearly states that the costs will 
not be charged directly to this contract, and does not set forth some 
improper method of recouping these costs, we fail to see how NASA 
acted improperly in accepting the revised clause at face value.  In 
addition, we note that TRW has submitted a sworn statement explaining 
that the costs at issue here are being charged to profit.

Finally, rather than analyze every challenge Hughes raises to NASA's 
acceptance of this clause, we reject any claim that Hughes has been 
prejudiced by NASA's acceptance of the clause given the relatively 
insignificant amount of costs at issue here.  As set forth above, TRW 
has calculated that only [DELETED] of effort remains associated with 
the tasks identified in the challenged clause.  Since, in general 
terms, TRW's costs will have to exceed its proposed costs by 
approximately $400 million before surpassing Hughes' most probable 
costs, even if we accept Hughes' claim that NASA's consideration of 
the clause was improper--and we do not--we see no basis to conclude 
that a [DELETED] addition to TRW's costs--less than half of one 
percent of this amount--would change the selection decision here. 

Meeting with NASA's Administrator

Hughes protests that a meeting between NASA's Administrator and a 
senior TRW official resulted in an unfair competitive advantage for 
TRW in this procurement.  Although Hughes expressly states that it is 
not alleging a violation of the procurement integrity provisions of 
the Office of Federal Procurement Policy Act, 41 U.S.C.  sec.  423 (1994), 
it claims that the meeting was a violation of NASA's internal 
"blackout" policy, and that a letter sent to all offerors after the 
meeting was "encrypted" or "encoded" with information only TRW could 
use.  

The controversy about this meeting, and about the letter that followed 
the meeting (which was sent from the contracting officer to all 
offerors on June 26, 1995), arose from NASA's response to a Hughes 
document request during the course of this protest.  This letter, 
which in part announced plant visits to each offeror's facility, also 
included the following comments about the agency's view of cost 
realism:

     "The SEB's evaluation of cost realism is based on the difference 
     between the offeror's proposed cost and the "most probable cost" 
     as developed by the SEB (Reference Amendment 5, Section M.2.2. 
     COST REALISM ADJUSTMENT).  The probable cost reflects the SEB's 
     evaluation of the cost and resources necessary to perform the 
     work based on each offeror's unique approach.  The most realistic 
     bid does not mean the highest bid.  Rather it is a credible bid 
     where the proposed resources and cost clearly demonstrate the 
     offerors understanding of the requirements.  The Source Selection 
     Official will make a selection based upon the combination of 
     proposal features under all evaluation factors which provide the 
     greatest overall benefit to NASA."  

After initially describing this letter as one prepared in response to 
a telephone call, NASA corrected the record to advise our Office, and 
the parties to this protest, that the letter was prepared following a 
meeting between NASA's Administrator and a senior TRW representative.  

In sworn statements provided by the Administrator, and by the 
Associate Administrator for Legislative Affairs, both officials 
explain that the meeting took place on June 21, and was part of a 
routine visit to discuss the congressional outlook for NASA and its 
programs.  Both officials state that during the course of the meeting 
TRW's representative raised the subject of the ongoing EOS 
procurement, and both state that the Administrator responded that he 
would not discuss the pending procurement.  Both also state that there 
was no further discussion of the procurement, although the 
Administrator states that he reemphasized that NASA was serious about 
cost realism in its procurements.  Declaration of Daniel S. Goldin, 
Jan. 29, 1996; Declaration of Jeff Lawrence, Feb. 6, 1996.  

In the supplemental agency report responding to this issue, NASA 
explains that the June 26 letter was prepared by the contracting 
officer at the request of a NASA procurement analyst, who was acting 
at the request of the Associate Administrator for Procurement, who 
apparently forwarded the request from the Administrator's Office.  The 
contracting officer states, however, that no one from the 
Administrator's Office instructed him about what to include in the 
letter, other than to reiterate the oft-repeated commitment to cost 
realism.  Thus, the contracting officer explains that the letter could 
not have provided information useful only to TRW, since the 
contracting officer had no knowledge of the meeting.  

Hughes claims that the meeting between the Administrator and the TRW 
representative violated a provision set forth in NASA's SEB Handbook 
which provides that after release of an RFP, the SEB Chairperson 

     "shall impose a communication blackout, in writing, by directing 
     all personnel associated with the procurement to refrain from 
     communicating with prospective offerors, formally or informally, 
     regarding any aspects of the procurement.  All inquiries 
     regarding the procurement shall be referred to the contracting 
     officer."  

NASA FAR Supplement,  sec.  18-70.303, Appendix I, subparagraph 401(2)(i).

While our Office generally will not review an alleged violation of an 
internal agency policy, see Indian Resources Int'l, Inc., B-256671, 
July 18, 1994, 94-2 CPD  para.  29 (failure to follow proposed agency rule 
and internal policy memorandum); Krystal Gas Mktg. Co., B-243868, May 
10, 1991, 91-1 CPD  para.  458 (failure to follow agency policy directive); 
Eagle Timber, Inc., B-239386, Aug. 28, 1990, 90-2 CPD  para.  162 (failure 
to follow Forest Service Timber Sale Preparation Handbook), we fail to 
see how this meeting would have violated NASA's policy in any event.  
As stated above, the meeting at issue was not about the procurement, 
and when the subject of the procurement was raised, the Administrator 
refused to discuss the matter.  

With respect to the larger issue of whether TRW was able to gain a 
competitive advantage over other offerors by virtue of this meeting, 
there is no evidence in the record to support such a conclusion.  
First, despite Hughes' attempts to characterize the meeting as unfair 
or inappropriate, there is nothing inherently improper about an agency 
head meeting routinely with representatives of industry, even if such 
meetings occur during an ongoing procurement in which the industry is 
participating.  Universal Automation Labs, Inc. v. Department of 
Transp., GSBCA No. 12370-P, 94-1 BCA  para.  26,323; 1993 BPD  para.  211 (July 7, 
1993).  

Second, Hughes has failed to present any evidence of impropriety to 
support its allegation and its corresponding request that TRW be 
eliminated from the competition.  Protests raising such allegations 
must present "hard facts" to support such a claim.  NKF Eng'g Inc. v. 
U.S., 805 F.2d 372 (Fed. Cir. 1986).  In this regard, there has been 
no showing that there is any "encoded" or "encrypted" information in 
the letter, and no showing of how such information could have been 
included in the letter.  No one associated with the Administrator's 
meeting assisted the contracting officer with the alleged 
encryption--a matter that would have presumably required inside 
information and subtlety--and the contracting officer denies that any 
encryption exists.  In addition, the letter repeats the same message 
that has been consistently reiterated by NASA throughout the course of 
the procurement--that NASA wants cost proposals that are realistic and 
credible.  Further, we note that a letter providing similar 
information to all offerors is precisely the kind of corrective action 
that would have been appropriate if the meeting had, in fact, resulted 
in TRW's gaining information not available to other offerors.  KPMG 
Peat Marwick, 73 Comp. Gen. 15 (1993), 93-2 CPD  para.  272, aff'd, Agency 
for Int'l Dev.; Development Alternatives, Inc.--Recon., B-251902.4; 
B-251902.5, Mar. 17, 1994, 94-1 CPD  para.  201.  

Finally, we note that the basis of TRW's advantage over other offerors 
here--i.e., its proposed cost overrun sharing approach--was offered to 
NASA approximately 2 weeks prior to the meeting.  Thus Hughes cannot 
claim that TRW gained its advantage as a result of any information 
learned in the meeting, or learned in the follow-up letter.  
Accordingly, we deny this basis of protest.

Cost/Technical Tradeoff and TRW's Funding Rebate

As a final matter, Hughes argues that the cost/technical tradeoff made 
by the SSO in his selection decision was irrational.  For the most 
part, the discussion above addresses the component parts of this 
allegation; however, one remaining specific challenge to the selection 
decision has not been addressed.  Hughes claims that NASA acted 
improperly in giving evaluative credit to TRW for the rebate 
arrangement contained in TRW's proposal.  Specifically, TRW proposed 
to forgo up to [DELETED] in reimbursable costs if the level of 
congressional funding for the program continued at projected levels.  
TRW Model Contract Clause H.23.  According to Hughes, NASA improperly 
relied on the clause despite statements in the Source Selection 
Memorandum that it did not rely on the clause.[11]

The record shows that NASA generally regarded TRW's rebate clause as 
too speculative to consider as part of the agency's determination of 
TRW's most probable costs.  In fact, as Hughes points out, "when NASA 
announced the contract award to TRW, the total price was given as 
$668.5 million.  Since TRW's BAFO price was [DELETED], giving the 
'funding refund' its fullest [DELETED] effect, it is plain that NASA 
declined to credit the rebate in making the contract award."  Hughes' 
Second Supplemental Protest, Nov. 21, 1995 at 17.  However, the Source 
Selection Memorandum prepared in support of the award to TRW is less 
clear on the subject, as set forth below:

     "we disregarded TRW's offer to rebate a portion of the 
     Government's payment if NASA were able to provide funding in 
     accordance with the profile identified in the RFP.  Because some 
     funding is already available for this procurement, NASA would, 
     obviously, be able to earn some portion of the offered rebate.  
     Beyond what appropriations are currently available, however, it 
     is uncertain, at best, how well NASA could comply and how much of 
     the rebate NASA could earn.  Although considering the rebate 
     would only further reduce TRW's probable cost, we concluded that 
     using this factor was too speculative and dropped it from further 
     consideration."

Source Selection Memorandum, Sept. 14, 1995 at 8.  In selecting TRW, 
however, the statement includes a conclusion that "[t]he proportionate 
difference between TRW's probable cost and that of [Hughes] is almost 
twice as large as the difference between TRW's Mission Suitability 
Score and that of [Hughes]."  Id. 

In its protest challenges, Hughes repeatedly argued that the 
conclusion above--i.e., that the difference between the probable costs 
is almost twice as large as the difference between mission suitability 
scores--could only be true if the comparison was made using the full 
amount of the promised rebate.  Our review of Hughes' pleadings, and 
the evaluation materials, led us to conclude that Hughes appeared to 
be correct in its assertion.  Finally, in a supplemental explanation, 
the SSO stated:

     "In light of the recent legal challenges to my source selection 
     decision . . . [i]t became apparent to me that the Source 
     Selection Memorandum may be unclear with regard to assumptions 
     taken when I stated that the proportionate difference between 
     TRW's and Hughes' probable costs was almost twice the 
     proportionate difference between their respective Mission 
     Suitability scores.  This statement . . . takes into account the 
     maximum potential cost difference between Hughes and TRW assuming 
     all cost containment measures have maximum effect.

                    .     .     .     .     .

     "The proportionate difference between the Hughes and TRW most 
     probable costs referenced in the Source Selection Memorandum 
     includes the full value of the rebate TRW offered if NASA is able 
     to adhere to our projected profile.  As the Source Selection 
     Memorandum recognizes, NASA will get credit in proportion to the 
     degree to which we adhere to the funding profile.  While NASA's 
     ability to adhere to the funding profile is too uncertain to 
     provide a basis for according TRW full credit for the proposed 
     rebate, this rebate, nevertheless, represents real economic 
     value.  The statement in question was intended to reflect the 
     rebate's maximum economic value for purposes of overall 
     comparison."

Declaration of William F. Townsend, November 7, 1995 at 5.  This 
explanation led to Hughes' supplemental argument that the selection 
decision was irrational and should be overturned.

Hughes' argument here, in part, rests upon the assumption that the 
quoted statement setting forth the comparison in relative proposed 
costs and mission suitability scores, is the entirety of the rationale 
for NASA's selection decision.  This assumption is the underpinning 
for further contentions that our Office should reject the selection 
decision here as conclusory and unjustified.  We do not accept this 
assumption.  

The Source Selection Memorandum here, as well as the extensive record 
of evaluation materials, shows that NASA carefully considered the 
relative merits and costs of these two proposals.  In this regard, the 
comparison statement is but one part of the selection statement, and 
but one--even smaller--part of the overall analysis of the tradeoff 
between the two offers.  In our view, the inconsistency between the 
statement that the rebate was not considered, and the subsequent 
recognition that it was considered in order to make the claimed 
mathematical conclusion near the end of the document, does not make 
the entire selection decision irrational.  

In order to better understand the conflict within the Source Selection 
Memorandum, we have reviewed the SSO's handwritten contemporaneous 
notes outlining his selection decision (again produced in response to 
Hughes' document request).   These notes clearly show his 
consideration of the proposed costs both with and without the offered 
rebate.  Thus, Hughes cannot claim that the agency failed to analyze 
the rebate, or that it made irrational assumptions or conclusions 
about how the rebate would apply.[12]  Instead, Hughes asks that we, 
in essence, elevate form over substance, and conclude that the Source 
Selection Statement contains a contradiction, and hence is irrational.  
As stated above, we will not overturn a selection decision supported 
by an evaluation record that shows that NASA did, in fact, consider 
the issues the protester alleges it failed to consider.  JSA 
Healthcare Corp., supra.

As a final matter, we also reject Hughes' contention that the 
cost/technical tradeoff should be overturned on the basis that it is 
conclusory.  While a selection official's judgment must be documented 
in sufficient detail to show it is not arbitrary, KMS Fusion, Inc., 
B-242529, May 8, 1991, 91-1 CPD  para.  447, we have held that a selection 
official's failure to specifically discuss the cost/technical tradeoff 
in the selection decision document does not affect the validity of the 
decision if the record shows that the agency reasonably determined 
that a higher technically scored proposal is not worth the additional 
cost associated with that proposal.  University of Dayton Research 
Institute, B-260709, July 10, 1995, 95-2 CPD  para.  17.  

Here, the document itself discusses the results of the evaluation and 
makes a reasonable cost/technical tradeoff in greater detail than in 
the selection document reviewed in the University of Dayton case.  In 
addition, as mentioned above, the SSO's extensive, contemporaneous 
handwritten notes provide a significant level of detail explaining the 
tradeoff decision.  The selection document itself, together with the 
SSO's notes and the extensive evaluation record here, lead us to 
conclude that the cost/technical tradeoff decision was sufficiently 
documented.  Id.

LOCKHEED'S PROTEST

As explained above, Lockheed was excluded from the competitive range 
by letter dated July 12, and first learned of the award to TRW on 
September 21, when NASA provided Lockheed with the September 14, 1995, 
Source Selection Memorandum.  In this document, Lockheed learned that 
TRW's BAFO proposed to share with the government 50 percen of any cost 
overruns, which, in NASA's view, mitigated the impact of any perceived 
lack of cost realism in TRW's proposal.  In response, Lockheed has 
filed an initial and four supplemental protests with our Office.  
Because of Lockheed's exclusion from the competitive range, its 
ability to challenge many facets of the award decision was foreclosed 
for reasons discussed in greater detail below.  In large measure, the 
discussion of issues raised by Hughes covers issues that Lockheed 
would have raised as well, had it been eligible to do so.

Lockheed's first two protest filings ostensibly set forth five 
separate bases for protest, which we concluded, in essence, raised two 
arguments:  (1) that its proposal was unfairly excluded from the 
competitive range due to concerns about its cost realism given that 
NASA later permitted TRW to circumvent similar concerns about its 
proposal by offering a cost-sharing arrangement in its BAFO, which, if 
Lockheed had known was permissible, it might have offered; and (2) 
that award to TRW was improper for a number of reasons--i.e., NASA 
relaxed the requirements of the solicitation; waived the requirements 
for cost realism; abandoned the cost/price evaluation factor; and 
lacked authority to award a cost-sharing contract without complying 
with procedures for obtaining a deviation from the requirements of the 
FAR.[13]  Lockheed's remaining three filings argue that:  (1) it was 
unreasonable to exclude Lockheed from the competitive range for 
concerns about cost realism when NASA had a very low confidence level 
in its cost estimates; (2) the meeting between NASA's Administrator 
and a senior TRW official was an improper ex parte communication about 
the procurement; and (3) a recent exchange between the NASA 
Administrator and the agency's congressional oversight committee show 
that NASA's acceptance of TRW's cost overrun sharing arrangement was 
improper and could not have been foreseen by other offerors.

In response, both NASA and TRW argue that Lockheed's protest is 
untimely, that Lockheed is not an interested party to challenge award 
to TRW, and that its challenge based on the exchange between the 
Administrator and the congressional oversight committee raises a 
matter of contract administration over which our Office has no 
jurisdiction.

Procedural Issues in Lockheed's Protest[14]

Lockheed received a detailed explanation of the decision to exclude 
its proposal from further consideration in the agency's July 12 
letter.  The letter explained that NASA had ongoing concerns about the 
cost realism of Lockheed's proposal, and that the agency had applied 
the formula set forth in amendment 0005 to significantly reduce 
Lockheed's mission suitability score.  As a result of its receipt of 
this detailed information, Lockheed was required to file any challenge 
to the agency's stated reasons for excluding its proposal from the 
competitive range within 10 working days of its receipt of the July 12 
letter.  4 C.F.R.  sec.  21.2(a)(2) (1995); GBF Medical Group/Safety Prod. 
Mktg., Inc.--Recon., B-250923.2, Nov. 24, 1992, 92-2 CPD  para.  378.  
Lockheed failed to do so.

Lockheed's decision not to protest at the time of its exclusion from 
the competitive range does not preclude it from filing a protest on an 
issue that it did not know of--and in fact, could not have known 
of--at the time of the agency's exclusion decision.  See US Sprint 
Communications Co. Ltd. Partnership, B-243767, Aug. 27, 1991, 91-2 CPD  para.  
201 (offeror whose proposal was excluded from competitive range 
permitted to challenge assumption that it had no chance of receiving 
award where agency first learned upon receipt of BAFOs that offerors 
used different assumptions regarding foreign exchange rates, raising 
questions about whether the protester's proposal was properly excluded 
on the basis that it was more expensive than other proposals).  
Specifically, Lockheed's complaint that it was treated unfairly 
because it was not given the same opportunity as TRW to offer its own 
cost-sharing proposal--especially given NASA's heightened concerns 
about cost realism in this procurement--raises an issue that did not 
exist until TRW submitted its BAFO, and of which Lockheed was unaware 
until it received the memorandum explaining the basis for the agency's 
selection of TRW.  This basis of protest raises an issue that is 
timely filed even though raised after the time when Lockheed generally 
could challenge its exclusion from the competition.

NASA and TRW assert that even assuming that Lockheed can raise a 
timely protest, it is not an interested party to do so because there 
are other intervening offerors who would precede the protester in 
eligibility for award.  Thus, both the agency and the awardee argue 
that Lockheed lacks the direct economic interest necessary to maintain 
a protest.

Under our Bid Protest Regulations, a protester must be an actual or 
prospective supplier whose direct economic interest would be affected 
by the award of a contract, or the failure to award a contract.  4 
C.F.R.  sec.  21.0(a).  Determining whether a party is interested involves 
consideration of a variety of factors, including the nature of the 
issues raised, the benefit of relief sought by the protester, and the 
party's status in relation to the procurement.  Black Hills Refuse 
Serv., 67 Comp. Gen. 261 (1988), 88-1 CPD  para.  151.

Given the posture of this procurement and Lockheed's position 
vis-a-vis the other offerors, each of Lockheed's protest grounds must 
be viewed with an eye towards whether resolution of the issue in 
Lockheed's favor would restore its proposal to the competitive range.  
In our view, since Lockheed's first argument contends that its 
proposal was unfairly excluded from the competitive range, Lockheed is 
an interested party to raise this issue.

On the other hand, our view of Lockheed's second basis of 
protest--that award to TRW was improper--is that it raises a question 
that is inappropriate for resolution at this juncture regardless of 
the outcome of Lockheed's challenge to the competitive range decision.  
If Lockheed prevails in its challenge to the competitive range 
decision, its arguments about award to TRW are premature; if Lockheed 
fails in its challenge, it is not an interested party to challenge the 
selection of TRW.  Our reasoning for this conclusion is set forth 
below.

If Lockheed were successful in challenging the competitive range 
decision here, the normal remedy would be to require the agency to 
restore the proposal to the competitive range; hold discussions with 
all remaining competitive range offerors, if necessary; and request 
new BAFOs from the offerors.  Information Ventures, Inc., B-232094, 
Nov. 4, 1988, 88-2 CPD  para.  443.  Thus, any challenge to the award to TRW 
would be premature until the agency made a new selection decision.  If 
Lockheed failed to convince our Office that its proposal should be 
restored to the competitive range, only another competitive range 
offeror would be an interested party to challenge the award to TRW.  
See Dick Young Prods. Ltd., B-246837, Apr. 1, 1992, 92-1 CPD  para.  336.   
As a result, we conclude that Lockheed may pursue the issue of whether 
it was unfairly excluded from the competitive range because of 
concerns about the cost realism of its proposal when it might have 
addressed this issue using the same kind of approach TRW used, if 
Lockheed had known such an approach was permissible.  

The Merits of Lockheed's Protests

With respect to Lockheed's contention that it could not have known 
that an approach like that adopted by TRW was acceptable here, we note 
that our discussion of the issues raised by Hughes has already 
concluded that TRW's approach did not alter the contract type called 
for in the RFP, and did not otherwise violate the terms of the 
solicitation.  All that is left for Lockheed in this regard is its 
claim that it was misled by discussions.  For the reasons set forth 
below, we conclude it was not misled.

In its recitation of oral discussions with NASA, Lockheed sets forth 
numerous instances where the agency reiterates its requirement that 
offerors must submit realistic cost proposals, and must assure that 
Lockheed's representatives take every possible action to convince the 
agency evaluators that proposed costs are realistic.   Similarly, 
Lockheed points to numerous instances where it was advised that cost 
overruns will not be tolerated on this contract.  In the exchange we 
view as most favorable to Lockheed's position, NASA evaluators advised 
that Lockheed had only two options:  bid costs realistically; and if 
you think costs will be lower than we do, convince us otherwise.  
Transcript of Oral Discussions Between Lockheed and NASA at 210.  

In our view, the discussions Lockheed points to are less persuasive 
than those cited by Hughes.  There is no dispute here that the agency 
used every opportunity to communicate to offerors that realistic cost 
proposals were desired, and that cost overruns probably would result 
in termination of the EOS program.  These admonitions do not 
translate, however, to a requirement that offerors refrain from 
offering innovative methods to shield the agency from cost overruns 
should they occur.  They did not dissuade TRW.  They did not dissuade 
Hughes.  And it does not appear that they were the operative reason 
behind Martin's decision to back away from its proposal to include 
such a provision in its proposal.  See footnote 10, supra.  

With respect to Lockheed's contention that it was unreasonable to 
exclude its proposal from the competitive range when the agency had 
little confidence in its own cost estimates, we find Lockheed's 
arguments similarly unpersuasive.  Lockheed bases its claim on a 
statement in the initial SEB Report wherein the report states that:

     "the SEB has serious doubts about either the offerors' or the 
     Government's ability to predict costs over the 15-year contract 
     for multiple spacecraft builds.  All offerors are consolidating 
     and generally down-sizing to lower expenses in the face of a 
     shrinking business base.  (Lockheed and Martin Marietta's merger, 
     already announced and in progress, is a good example.)  

                    .     .     .     .     .

     ". . .due to the high level of indirect rate uncertainty over the 
     relatively long period of this multiple spacecraft build, the SEB 
     expressed a low degree of confidence in both proposed costs and 
     probable cost estimates.  The Board assigned no more than a 15 
     percent confidence factor to probable cost figures . . . ."

SEB Initial Report, Feb. 24, 1995 at 208.

Our review of the record shows that a great deal happened between the 
initial SEB Report in February and Lockheed's exclusion from the 
competitive range in July.  For example, offerors were repeatedly 
advised that NASA perceived that all of the proposals contained 
unrealistic costs; NASA revised its solicitation to assure that 
offerors understood that unrealistic costs would result in lowered 
mission suitability scores; NASA held oral and written discussions 
with offerors to better understand each offeror's technical approach 
and proposed costs; NASA held plant visits; and offerors prepared 
revised cost proposals and were given an opportunity to explain and 
defend those proposals.  Notably, neither the final SEB report, nor 
any of the other evaluation materials prepared closer to the time of 
Lockheed's exclusion from the competitive range, reflect a 
continuation of this earlier concern.  For these reasons, we see no 
basis to conclude that the statement in the initial SEB report 
invalidates the agency's evaluation of Lockheed's most probable costs.

Finally, Lockheed points to an exchange of letters between NASA and 
the Chairman of the Committee on Science of the House of 
Representatives wherein the Office of the Administrator answers a 
question from the Chairman regarding the impact of TRW's cost overrun 
sharing arrangement on NASA's management of cost growth.  
Specifically, NASA explains its in-house policy of triggering a 
termination review "when the [g]overnment's current estimate of 
resources needed to complete a major contract exceeds by 15 [percent] 
the [g]overnment's initial cost estimate of the same work" and states 
that TRW's cost overrun sharing arrangement will not affect the 
termination review trigger.  The letter also promises that the agency 
will "undertake a new type of review--a Contractor's Commitment 
Review--which will be held should TRW reach a point where it is 
sharing any substantial amount of contract overrun."  Letter from the 
Associate Administrator for Legislative Affairs to Chairman, Committee 
on Science, March 15, 1996.  According to Lockheed, this exchange 
shows that Lockheed could not have known that NASA would accept a 
proposal such as that submitted by TRW.

The exchange between NASA and its oversight committee in Congress 
throws no light on the question of what Lockheed knew or could have 
known last year.  Instead, the letters describe the most basic kind of 
contract administration issue, and whether adjustments need to be made 
to effectively manage the contract awarded here.  This is an issue we 
will not review.[15]  4 C.F.R.  sec.  21.3(m)(1).  We also need not revisit 
Lockheed's challenge to the meeting between the Administrator and the 
TRW representative; this issue was discussed with respect to Hughes' 
protest.

The protests are denied.

Comptroller General
of the United States

1. Two of the five companies awarded contracts to study the 
development of a common EOS spacecraft merged.  Thus, there were only 
four remaining companies to participate in this effort.

2. Although Lockheed and Martin Marietta submitted separate initial 
proposals on November 7, 1994, in response to the RFP, the companies 
later merged.  By letter dated June 26, 1995, the two companies 
announced plans to consolidate as a result of their recent merger.  In 
order to protect the integrity of the ongoing procurement, the parties 
executed an agreement to bar the transfusion of substantive details of 
either company's proposal.  It was this bar that was dissolved by the 
July 15 letter to the agency.  Therein, the newly formed entity of 
Lockheed Martin Astro Space advised NASA that:

            "we intend to utilize talent from [Lockheed] to assist us 
            in the preparation of our amended proposal.  Specifically, 
            [Lockheed] personnel will provide technical expertise, 
            information with respect to details of [Lockheed] 
            facilities, manufacturing capabilities, and other 
            resources available at [Lockheed]."

To avoid confusion, our decision will refer to the Lockheed and Martin 
proposals by their corporate names at the time proposals were 
initially submitted.

3. The cost measures discussed herein are the major cost measures at 
issue in this protest.  Each offeror included other cost savings 
measures not directly relevant to this discussion.

4. The impact of Hughes' cost savings measure must be extrapolated 
from the terms of its model contract.  In its clause H.19, Hughes 
states that it will absorb 100 percent of all costs in excess of the 
negotiated contract price.  The clause defines the term "negotiated 
contract price" as the sum of the estimated cost, maximum available 
award fee, and maximum positive performance incentive.  These amounts 
for the basic contract effort are set out in Hughes' clause B.6; these 
amounts for the two option periods are set out in Hughes' clause H.14.  
Due to mathematical errors by the agency, the numbers in Hughes 
proposal do not match precisely those in the agency evaluation 
materials; however, our review shows that NASA's errors did not affect 
its selection decision.  

5. No adjustment was made to Hughes' mission suitability score because 
                the difference between its proposed and most probable 
                costs was too small to trigger the operation of the 
                point deduction formula.

6. Hughes argues that the lack of a ceiling in the TRW proposal makes 
Hughes' cap materially different from, and better for the government 
than, the arrangement offered by TRW.  We disagree.  NASA determined 
TRW's most probable costs to be $805.1 million.  Since TRW's most 
probable costs are nearly $200 million above its proposed costs (and 
since TRW's most probable costs are more than $100 million less than 
Hughes' most probable costs), there is little evidence to suggest that 
NASA will need the assistance of a ceiling to help manage cost 
overruns here.  In essence, with the proposed sharing arrangement, TRW 
must exceed its proposed costs by approximately $400 million before 
the costs to NASA will exceed the costs established by Hughes' cap.  
See SEB Final Report at 197.  Should this scenario materialize, NASA 
will have ample time to take whatever steps (including termination) it 
deems necessary to check the growth in costs.  Finally, we note that 
Hughes has not challenged the specific adjustments made to TRW's 
proposed costs (as opposed to its challenges to the decision to accept 
certain TRW cost containment measures).  In the absence of such a 
challenge, or any evidence to the contrary, we see no basis to 
question NASA's specific adjustments to TRW's proposed costs.  

7. We also do not agree that the situation here is akin to that 
discussed in our decision in Union Carbide Corp., 55 Comp. Gen. 802 
(1976), 76-1 CPD  para.  134.  In that case we sustained a protest where in 
awarding a fixed-price requirements contract, NASA accepted a proposal 
including a direct reimbursement of the offeror's interest expense 
incurred in building new plant facilities.  There, we concluded that 
NASA had changed the ground rules and was required to amend the 
solicitation and permit other offerors to compete equally.  Here, both 
offerors continued to propose CPAF contracts, and both adopted 
limitations on the reimbursement to them of cost overruns.  Thus, we 
conclude that the approaches of both TRW and Hughes are more analogous 
to a below-cost offer than they are a change in the fundamental ground 
rules of the procurement.

8. Throughout the course of this protest, Hughes has argued 
extensively that TRW's cost overrun sharing arrangement changes the 
solicited contract type here, while Hughes' cost cap does not.  As 
stated above, we conclude that TRW's strategy vice the strategy chosen 
by Hughes has no discernibly different effect on the ultimate type of 
contract awarded.  We note further, that if Hughes is correct in its 
contention that TRW's cost overrun sharing arrangement converts the 
contract type, then by the same logic, Hughes' cap converts the CPAF 
contract here to a fixed price contract.  See Vitro Corp., supra at 
7-8 ("a cap, by definition, converts at least some portion of a 
cost-type contract to a fixed-price contract").  Since it similarly 
offered a variation on the contract type, Hughes cannot credibly claim 
to have been misled by NASA.  We also reject Hughes' claim that its 
approach is different because it would not become effective until 
Hughes exceeded its most probable costs.  To carry Hughes' reasoning 
one step further, the fact that the two approaches become effective at 
different points does not change the fact that both alter the 
solicited contract:  the difference is simply one of degree.

9. While we recognize that NASA has adopted unique and limited 
discussions provisions, see generally FAR  sec.  15.613(a); 48 C.F.R.  sec.  
18-15.613-71; Ogden Logistics Servs., B-257731.2; B-257731.3, Dec. 12, 
1994, 95-1 CPD  para.  3, there has been no suggestion that the requirement 
for fundamental fairness does not apply to NASA.

10. The offeror that ultimately did not include a cost containment 
provision in its BAFO was Martin Marietta, and Lockheed claims that 
Martin refrained from doing so because it concluded that an offer to 
share cost overruns would require an amendment to the solicitation.  
Lockheed Comments on the Agency Report, Dec. 15, 1995 at 51.  We find 
this assertion unpersuasive given the exchange during oral 
discussions, and in the letter from NASA afterwards, in which NASA 
appears to be seeking a more firm commitment on cost sharing from 
Martin Marietta than was included in the proposal on the table.  
Transcript of Oral Discussions Between NASA and Martin Marietta, June 
5, 1995 at 148-150; NASA Letter to Martin Marietta, June 7, 1995.

11. For the record, we note that Hughes also contends that TRW's 
rebate clause violates the Antideficiency Act, 31 U.S.C.  sec.  1341 
(1994), because the offer will require NASA to spend additional monies 
in the event funding for the program does not meet currently projected 
profiles.  Hughes' argument is not supported by the facts.  The rebate 
clause anticipates that TRW will forgo a portion of its reimbursable 
costs after a fiscal year in which the EOS contract/program is funded 
according to the profile set forth in the RFP.  There is nothing in 
the record to suggest that NASA will be penalized if the funding 
profile is not met; instead, NASA will only benefit.  In addition, 
since this incrementally funded contract contains the standard 
Limitation of Costs Clause, RFP  para.  I.1, there is no Antideficiency Act 
concern because the government is only obligated to the contractor for 
the funds allocated to the contract.  Honeywell, Inc., B-192988, July 
11, 1979, 79-2 CPD  para.  23.  

12. In addition, we see nothing unreasonable in NASA's evaluation of 
TRW's rebate clause.  As NASA points out, since it has already 
received a significant portion of the funding applicable to the basic 
contract effort, there is no doubt that at least the amount applicable 
to the initial effort will be realized.  

13. With respect to our conclusion that Lockheed's second basis of 
protest is essentially a challenge to the agency's selection of TRW, 
we note that Lockheed, in fact, attempts to argue that each of these 
contentions shows that its proposal was unfairly excluded from the 
competitive range.  Despite Lockheed's attempts, however, its 
challenges to the award to TRW generally cannot be retrofitted to 
reach back to the competitive range determination.  Thus, we conclude 
that Lockheed's first two filings raise only two challenges:  one to 
the fairness of its exclusion from the competition; and one to award 
to TRW.  For the reasons stated below, until Lockheed establishes that 
the competitive range decision was improper, it cannot mount a 
challenge to the award to TRW.

14. Much of the procedural analysis set out below was included in a 
partial dismissal decision issued by our Office, see Lockheed Missiles 
& Space Co., Inc., B-266225.2; B-266225.3, Nov. 27, 1995, unpub., but 
is included here in the interest of providing a more complete 
decision.  

15. Hughes, too, filed a supplemental protest on April 4, 1996, 
challenging the exchange of letters cited here.  In essence, Hughes 
argues that this exchange contains an admission that the contract type 
awarded is different from the contract solicited.  Specifically, 
Hughes argues that the need to institute a new kind of termination 
review shows that the agency has awarded a contract different from the 
contract Hughes was led to believe would be awarded.  In our view, the 
agency's consideration of the special issues presented by accepting 
TRW's BAFO proposal is commendable and analogous to the kind of 
consideration an agency should always invoke when awarding a contract 
that may result in less than full compensation for the contractor's 
efforts--i.e., a below-cost bid or offer.  See Vitro Corp., supra; 
Robocom Sys., Inc., B-244974, Dec. 4, 1991, 91-2 CPD  para.  513.  Rather 
than an inconsistency, this kind of review is entirely consistent with 
the agency's long-announced efforts at cost containment on this 
project.  Accordingly, we see nothing in this exchange of letters to 
support a conclusion that TRW's cost overrun sharing arrangement 
altered the solicited contract type.