BNUMBER:  B-270117
DATE:  February 9, 1996
TITLE:  Martin Marietta Defense Systems

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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:Martin Marietta Defense Systems

File:     B-270117

Date:     February 9, 1996

Paul Shnitzer, Esq., Joan H. Moosally, Esq., and Michele T. St. Mary, 
Esq., Crowell & Moring, for the protester.
Samuel Paige, Esq., Paige & Paige, for Kearfott Guidance & Navigation 
Corporation, an intervenor.
Dean R. Berman, Esq., Department of the Navy, Strategic Systems 
Program, for the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest against determination that proposed significant reduction in 
historical level of effort (for production of part of guidance system 
for strategic nuclear deterrent missile system) was unrealistic is 
denied where proposed reduction was based on protester's undocumented 
and unsupported summation of a hypothetical build of three equivalent 
units, and the agency instead reasonably used as a baseline (against 
which to evaluate proposed labor-saving initiatives) the reported data 
on labor hours required to complete actual units over the course of 
the most recent contract year.

DECISION

Martin Marietta Defense Systems (MMDS) protests the award of a 
contract to Kearfott Guidance & Navigation Corporation under request 
for proposals (RFP) No. N00030-95-R-0047, issued by the Department of 
the Navy, Strategic Systems Program, for MK-6 Inertial Measurement 
Units (IMU) for the Trident II missile.  MMDS challenges the 
evaluation of technical and cost/price proposals.

We deny the protest.

The IMU provides acceleration, attitude and stellar sensor data to the 
guidance system for the Trident II missile, which is the United 
States' sea-based strategic nuclear deterrent.  In the past, the 
Navy's requirement for Trident II IMUs has been equally divided 
between MMDS and Kearfott, each producing new IMUs at a minimum rate 
of 3 per month.  A decrease in its requirement for new IMUs, however, 
resulted in the agency's issuing this solicitation, which provided for 
selection of a single source and, after an additional year of full 
production, transition to a lower rate of production.

The solicitation contemplated award of a fixed-price-incentive 
contract (cost-based, with a target price and an ultimate ceiling 
price) for 5 years for:  (1) IMU production, (2) IMU failure 
verification, repair and recertification, and (3) IMU integrated 
production capability maintenance hardware.  The solicitation 
generally provided for award to be made to the offeror whose proposal 
represented the best value to the government, with technical merit to 
be given more weight than evaluated cost.  The RFP listed, in 
descending order of importance, three technical merit evaluation 
factors:  (1) technical approach, (2) resources, and (3) past 
performance.  

The solicitation provided for the agency to perform a cost realism 
evaluation, for purposes of which offerors were to furnish a detailed 
cost proposal, including:  (1) prior actual costs for production and 
repair in fiscal years 1991, 1992, and 1993, broken down into direct 
labor hours and major cost elements for each of the tasks listed in 
the solicitation's work breakdown structure (WBS); and (2) a detailed 
breakdown of the proposed labor hours and major cost elements by WBS 
task.  The solicitation generally required offerors to provide a basis 
of estimate to support each WBS task; it specifically stated that the 
proposal must "[i]dentify and explain any significant differences 
between the historical WBS hours/cost and those offered, in sufficient 
detail to allow the Contracting Officer to make a judgment as to the 
reasonableness of the proposed increases/decreases."

The Navy received proposals from MMDS and Kearfott.  Both proposals 
were included in the competitive range.  At the conclusion of 
discussions, the Navy requested best and final offers (BAFO).  

While MMDS's BAFO target price [deleted], as well as its ceiling (and 
evaluated) price [deleted], were significantly lower than Kearfott's 
target (and evaluated) price [deleted], the Navy determined that 
MMDS's pricing was based on an unrealistically low level of effort 
that represented a significant reduction in the historical level of 
effort (when calculated on a per IMU basis) and was insufficient to 
assure delivery of a quality, reliable product.  Although the agency 
had asked MMDS during discussions to justify and explain how its 
initially proposed reduced level of effort (266,014 direct labor hours 
for all items) would enable it to perform the required work, MMDS 
nevertheless further reduced its proposed level of effort in its BAFO, 
to an evaluated 243,254 hours.  MMDS proposed major reductions in the 
historical level of effort per IMU in almost every area of assembly, 
inspection, and test.  

The Navy found MMDS's explanation for its proposed significant 
reduction in level of effort to be unpersuasive and determined that at 
least 36,783 more hours would be required.  For example, the agency 
considered the proposed large reduction in inspection and test hours 
to be unacceptable, especially in view of MMDS's proposal of an 
overall reduction in the workforce, which was expected to make quality 
more difficult to assure as fewer employees were required to bear more 
and broader responsibilities for more diverse areas of production.   
According to the Source Selection Advisory Council (SSAC),

     "[MMDS's] proposal suffered from minimal resource commitments and 
     an imbalance in their application to the various program 
     elements.  The approach they proposed for executing a stand alone 
     repair capability is questionable.  Their plan required an 
     inordinately high dependency on other contracts to provide an 
     engineering pool.  The minimization of total manpower, usage of a 
     significant amount of on-call resources not supported by this 
     contract, a weak approach to critical skills maintenance and a 
     marginally adequate overall support plan resulted in the 
     potential for a high risk in the successful execution of this 
     contract and to the quality and reliability of the product.

                                          .  .  .  .  . 

     "[The proposed cost] reductions are significantly better than 
     their currently demonstrated performance.  The potential for an 
     overrun is high, but more important is the potential for 
     degradation to the quality of the systems they either process or 
     build as a result of executing to plan.  If cost increased, the 
     potential risk would increase as efforts were made to constrain 
     cost growth."

In contrast, Kearfott's proposal, based on a proposed level of effort 
of 452,851 hours, was evaluated as offering a low risk approach to 
satisfying the solicitation requirements for IMU production and repair 
and maintaining a labor force with the required critical skills. The 
SSAC determined that the technical superiority of Kearfott's low risk 
proposal, which received a significantly higher technical score (7.328 
out of a possible 9.8 points) than MMDS's (5.894 points), was worth 
its additional price.  According to the SSAC,

     "[t]he criticality of the IMU to the Trident Weapon System is 
     such that our need to maintain technical competence at our 
     contractor and confidence of product quality and reliability of 
     our deployed systems far outweighs the potential cost savings.  
     The clearly superior approach proposed by [Kearfott] provides an 
     affordable product that will not jeopardize our weapon system 
     performance."

Upon learning of the resulting award to Kearfott, MMDS filed this 
protest with our Office. 

Although MMDS challenges several aspects of the evaluation, resolution 
of MMDS's protest turns on whether the agency reasonably determined 
MMDS's proposed reductions in level of effort per IMU to be 
unrealistic.  If the agency reasonably determined that MMDS's proposed 
level of effort was insufficient to assure delivery of quality, 
reliable IMUs, then clearly the agency was not required to entrust 
production and support of such a vital component of the guidance 
system for the United States' sea-based strategic nuclear deterrent to 
MMDS.  In this regard, MMDS primarily argues that the Navy failed to 
base its evaluation on the most recent contract performance data that 
was included in its proposal.   

The evaluation of technical proposals is primarily the responsibility 
of the contracting agency, since the agency is responsible for 
defining its needs and the best method of accommodating them, and must 
bear the consequences of any difficulties resulting from a defective 
evaluation.  Therefore, our Office will not engage in an independent 
evaluation of technical proposals and make an independent 
determination of their relative merits.  Litton Sys., Inc., B-239123,   
Aug. 7, 1990, 90-2 CPD  para.  114.  Rather, we will review the agency's 
evaluation only to ensure that it was reasonable and consistent with 
applicable statutes and regulations, as well as the terms of the RFP.  
Polar Power, Inc., B-257373, Sept. 2, 1994, 94-2 CPD  para.  92.

The agency reasonably determined that MMDS's proposal offered a high 
risk approach based on an unrealistically low level of effort.  Our 
conclusion is best discussed in terms of an example.  While MMDS 
submitted data with its proposal showing that its total direct touch 
labor hours per manufactured IMU was        2,173 hours in fiscal year 
1993, which already represented a 24 percent reduction from the fiscal 
year 1991 level (2,862 hours), MMDS proposed 1,500 hours of direct 
touch labor per IMU for fiscal year 1995, that is, an additional 31 
percent below the 1993 level.  MMDS's proposed level of effort in this 
regard was based on (1) its claim of having achieved a reported 
average 1994 level of effort of 2,017 direct touch hours per IMU and a 
level of effort of 1,736 direct touch hours per IMU for the last three 
equivalent 1994 IMUs, and (2) reduction of the required effort a 
further 13.6 percent to 1,500 hours through a number of labor-saving 
initiatives.[1]  (In contrast, Kearfott, which reported 2,476 direct 
touch labor hours per IMU in 1993 (but only 2,287 hours in 1991), 
proposed 2,199 hours in 1995, an 11.2 percent reduction.)

The Navy concluded that MMDS's claim of 1,736 direct touch hours per 
IMU for the last three equivalent 1994 IMUs did not represent a 
reliable baseline against which to evaluate MMDS's proposed 
labor-saving initiatives.  In reaching this conclusion, the Navy noted 
MMDS's explanation during discussions that the number of hours for the 
last three IMUs referenced in its proposal were not the hours spent to 
complete three actual units but, rather, MMDS's hypothetical summation 
using the latest data available on the hours needed to build the 
various parts and subassemblies of the IMU.  Indeed, MMDS explained 
during discussions that the hours used for the various parts and 
subassemblies might not even represent actual reported hours; 
according to MMDS, "[t]he average actuals will be modified for any 
unique circumstances."  

The Navy also noted that the claimed hours per IMU for the last three 
equivalent 1994 IMUs represented an unlikely departure from the 
historical trend of a slowing in the decrease of touch labor hours; 
while MMDS's total touch labor hours decreased 17.1 percent from 1991 
to 1992 (from 2,862 to 2,373 hours), 8.4 percent from 1992 to 1993 
(from 2,373 to 2,173 hours), and 7.2 percent from 1993 to 1994 (from 
2,173 to 2,017 reported hours), MMDS claimed a 20.1 percent decrease 
from 1993 for the last three equivalent units  (and projected a 25.6 
percent decrease from the reported 1994 average to the 1995 estimate 
(from 2,017 hours to 1,500 hours)).  The agency attributed the 
historical slowing of the rate of decrease in touch labor hours to the 
fact that MMDS had been building Mk-6 IMUs for 8 years, with the 
result that the opportunity for further efficiencies was slowly 
decreasing; the agency considered a continuation of this historical 
trend to be more likely than MMDS's claimed sudden, significant 
acceleration in efficiency.  In addition, the Navy viewed the 
significant discrepancy between the hours reported for the last three 
equivalent 1994 IMUs (1,736 hours) and the overall average 1994 level 
of effort (2,017 hours) as further supporting its determination that 
the claimed hours per IMU for the last three equivalent 1994 IMUs did 
not represent a reliable baseline against which to evaluate MMDS's 
proposed labor-saving initiatives; noting that most of the work had 
been accomplished under the fiscal year 1994 production contract by 
the time of BAFO submission, the agency considered it unlikely that 
MMDS could have built an IMU with 1,736 hours of touch labor when it 
required an average of 2,017 hours for the year as a whole.  

The agency concluded that the data on touch labor hours over the 
course of a year as a whole, in this case MMDS's reported data for 
completed IMU's in 1994, would be a much more accurate reflection of 
MMDS's current abilities than the claimed hours per IMU for the last 
three equivalent 1994 IMUs.  On this basis, the agency concluded that 
MMDS's proposed overall level of effort for production of IMUs, even 
after taking into account the proposed saving initiatives considered 
acceptable and likely-to-succeed labor, was inadequate.  

The Navy's position was reasonable.  The agency was presented with a 
choice between: (1) an undocumented and unsupported hypothetical 
summation of  the hours needed to build the various parts and 
subassemblies of the IMU (rather than actual complete units), which 
was significantly at variance with both the historical labor trend of 
a slowing of the rate of decrease in touch labor hours per IMU and the 
reported touch labor hours required for completion of a significant 
number of actual units; and (2) the reported data on labor hours 
required to complete actual units over the course of the better part 
of the most recent contract year.  In our view, the agency could 
reasonably select as its baseline against which to evaluate MMDS's 
proposed labor-saving initiatives the most recent data on the average 
time required to construct a significant number of IMUs. 

Having reviewed MMDS's challenges to the evaluation and concluded that 
the Navy could reasonably determine MMDS's proposed level of effort to 
be unrealistically low, we further find reasonable and consistent with 
the stated evaluation criteria the agency's determination that the 
advantage of MMDS's lower price (which was based on that 
unrealistically low level of effort) was outweighed by the lower risk 
associated with Kearfott's technically superior proposal.  Information 
Sys. & Networks Corp., B-258684.2; B-258684.3, Apr. 4, 1995, 95-1 CPD  para.  
255.  In this regard, we note that the solicitation provided that 
technical merit would be given more weight than evaluated cost.

The protest is denied. 

Comptroller General 
of the United States      

1. Although MMDS claims that the average 1994 touch labor hours per 
IMU at the time of BAFO submission was in fact 1,930 hours, its BAFO 
reported the number as the 2,017 hours referenced above and used by 
the Navy in its evaluation.  While MMDS argues that the Navy should 
have known that 2,017 hours was no longer an accurate number--since it 
was the same number used in MMDS's initial proposal submitted earlier 
in the year and the BAFO reported a decrease in the number of hours 
for the last three equivalent units (from 1,801 hours)--the fact 
remains that MMDS represented to the agency in its proposal that 2,017 
hours was accurate, and the agency, unaware that the number was 
inaccurate, relied on that representation in its evaluation.  To the 
extent that MMDS's misrepresentation may have affected the evaluation 
to its detriment, MMDS must bear the consequences, since it was 
responsible for submitting an adequately written, accurate proposal.  
See L&S Diesel Serv., Inc., B-261672, Aug. 25, 1995, 95-2 CPD  para.  88; 
Stewart Title of Orange County, Inc., B-261164, Aug. 21, 1995, 95-2 
CPD  para.  75.