BNUMBER: B-271065; B-271065.2
DATE: June 12, 1996
TITLE: Theta Engineering, Inc.
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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:Theta Engineering, Inc.
File: B-271065; B-271065.2
Date:June 12, 1996
Thomas B. Archbold, Esq., Fredrikson & Byron, P.A., for the protester.
Gerald T. Nielsen, Esq., Thomas F. Williamson, Esq., and Marcia G.
Madsen, Esq., Morgan, Lewis & Bockius, for Engineering/Documentation
Systems, Inc., an intervenor.
Colonel Nicholas P. Retson and Major Michael J. O'Farrell, Jr.,
Department of the Army, for the agency.
Andrew T. Pogany, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest that agency misevaluated cost proposals by upwardly
adjusting protester's proposed costs and conversely failing to
upwardly adjust awardee's proposed cost in certain cost elements, with
result that the protester's cost was higher than the awardee's is
denied, where upward adjustment of protester's cost was reasonable in
two challenged areas, and other adjustments in the protester's or
awardee's cost proposal would not displace awardee as the low offeror.
2. Where protester fails to show that its proposal was technically
superior to awardee's proposal--and even assuming the protester's
argument to be valid that its technical proposal should have been
rated technically equal to awardee's technical proposal--cost properly
became the important factor for selection, and protester was not
entitled to the award because its evaluated cost was not low.
DECISION
Theta Engineering, Inc., the incumbent contractor, protests the award
of a cost-plus-base/award fee contract to Engineering/Documentation
Systems, Inc. (EDSI) under request for proposal (RFP) No.
DAKF36-95-R-0002, issued by the Department of the Army, Fort Drum, New
York for direct support and general support (DS/GS) maintenance
services and repair of commercial and tactical equipment in various
commodity groups at several military facilities. Theta principally
challenges the evaluation of cost and technical proposals.
We deny the protest.
BACKGROUND
The RFP, as amended, contemplated the award of the cost reimbursement
contract for a base period with 5 option years. The DS/GS maintenance
services to be furnished by the successful contractor include planning
and control, maintenance supply, quality control and associated
services in the following major commodity groups, among others: (1)
automotive equipment; (2) combat vehicles; (3)
construction equipment; (4) electronic and communication equipment;
(5) weapons/armaments; and (6) other general equipment. The agency
reports that because of the current "downsizing" of the Army--here,
the inactivation of a separate infantry brigade--the RFP's estimated
work load reflected a 25-percent reduction for calendar year 1996 from
calendar year 1994 levels.
The RFP provided that award would be based on the best overall
proposal considering the stated evaluation factors. The RFP listed
the following two major factors: (1) quality; and (2) cost. The RFP
stated that "quality [was] significantly more important than cost."
The subfactors of the quality factor, listed in order of importance,
were technical, management, and past performance. The subfactors of
the cost factor, again listed in order of importance, were most
probable cost/cost realism, cost tracking and control system, total
estimated cost, and fee structure.
Although the RFP stated that technical ("quality") factors were more
important than cost, offerors were advised that the importance of cost
would increase "as relative differences between the overall quality of
proposals decrease." As relevant here, the RFP stated that under the
subfactor, most probable cost/cost realism, the agency would assess
the cost realism of each offer by developing a most probable cost
estimate for the proposal based on the offeror's total overall
approach. The RFP required offerors to complete a cost data sheet
matrix listing every labor classification required to accomplish the
tasks, the quantities of each classification required, the labor rate,
any overtime hours needed, as well as other financial information.
The RFP contained wage rate determinations by the Department of Labor
for each facility to be furnished. Finally, the RFP, by amendment No.
0001, "normalized" other direct costs (ODCs), such as travel and
postage/shipping, by establishing a specified sum in the RFP that all
offerors were required to use in their cost proposals for purposes of
evaluation.
The agency received six proposals by the closing date, including
proposals from Theta and EDSI. The agency's source selection
evaluation board (SSEB) evaluated the proposals with a numerical
rating scheme.[1] Based on the evaluation results, the contracting
officer included the proposals of five firms in the competitive range,
including the proposals of Theta and EDSI. Face-to-face and
telephonic discussions were then conducted with each firm. The agency
received and evaluated five best and final offers (BAFO).[2] The
results of the final evaluation were as follows:
EVALUATION FACTORS THETA EDSI
Quality (70 percent)
Technical
Management
Total Quality Points
Past Performance
[Deleted] [Deleted]
[Deleted]
[Deleted]
[Deleted]
[Deleted]
[Deleted]
[Deleted]
Cost (30 percent)
Proposed Cost
Evaluated Most Probable
Cost (MPC)
[Deleted]
[Deleted]
[Deleted]
[Deleted]
The agency's source selection authority (SSA) made the following
determination:
"[EDSI] received the highest Technical score . . . and a
Management score second only to [Theta]. One significant
aspect of [EDSI's] Management approach was the complete
authority and autonomy that will be given to the site Project
Manager. The degree of autonomy is reflected in the cost
proposal in the extremely low corporate overhead/G&A pools. .
. . [My decision to select EDSI] is based on the overall
superior quality of [EDSI's] proposal as compared to all other
Offerors and considers the cost of achieving this quality to
include the risk of a cost overrun. . . . I believe there is
a great probability that [Theta] would require resources above
those identified in [its] proposal in order to perform the
requirement of the RFP [and that] the cost of these additional
resources would be approximately [deleted] over the five year
life of the contract, thereby negating any apparent proposed
cost advantage [Theta] had over [EDSI]."
The agency awarded the contract to EDSI; this protest followed.
COST REALISM ANALYSIS
When a cost reimbursement contract is to be awarded, a cost realism
analysis must be performed by the agency; however, an agency is not
required to conduct an in-depth cost analysis or to verify each and
every item in conducting its analysis. The Warner/Osborn/G&T Joint
Venture, B-256641.2, Aug. 23, 1994, 94-2 CPD para. 76. The evaluation of
competing cost proposals requires the exercise of informed judgment by
the contracting agency involved, since it is in the best position to
assess what the contract should cost, assuming reasonable economy and
efficiency, and must bear the difficulties or additional expenses
resulting from a defective cost analysis. Id. Consequently, our
review is limited to a determination of whether an agency's cost
evaluation was reasonably based and not arbitrary. General Research
Corp., 70 Comp. Gen. 279 (1991), 91-1 CPD para. 183; Science Applications
Int'l Corp., B-238136.2, June 1, 1990, 90-1 CPD para. 517. We find the
agency's determination that Theta was other than the low cost offeror
to be reasonable.
Theta argues that the agency's cost realism analysis which resulted in
adjustments to both offerors' proposed costs was faulty and resulted
in the agency "award[ing] the contract to a higher cost offeror."
Theta believes that it had the "lower most probable cost" and should
have been awarded the contract since its proposal "should have been
evaluated, at a minimum, as essentially equal to EDSI's technical
proposal." Because of the difference in MPC between the two offerors,
we need only decide two issues to determine that the agency properly
evaluated EDSI's cost proposal as low.
As shown above, Theta proposed a total cost of [deleted]; after cost
evaluation by the agency, Theta's MPC was upwardly adjusted to
[deleted]. EDSI's proposed a total cost of [deleted], which was
downwardly adjusted by the agency during cost evaluation to an MPC of
[deleted].[3] First, the protester challenges the agency's upward
adjustment of its proposed costs by [deleted] in ODCs. As amended
prior to receipt of initial proposals, the RFP specifically required
all offerors to propose a total of $525,000 for ODCs (this amount was
printed in the amended RFP). The RFP was amended to "normalize" these
costs after offerors submitted questions to the agency expressing
their lack of knowledge of historical ODCs and requesting the agency
to specify an ODC amount for proposal evaluation. This the agency
did. Theta's initial proposal contained [deleted] for ODCs. During
discussions, the agency specifically advised Theta to use the
normalized ODC cost figures contained in the RFP. Nevertheless, in
its BAFO, Theta again proposed only [deleted] because the firm
believed that its figures were "more valid." The agency made an
upward adjustment of [deleted] (which includes an amount for
associated fee pools).
To the extent that the protester is arguing that the ODC amounts
specified in the RFP were invalid and constituted an impropriety in
the solicitation, its protest is untimely. Protests based upon
alleged improprieties in a solicitation must be filed prior to the
time set for the closing time for receipt of initial proposals. See
4 C.F.R. sec. 21.2(a)(1) (1996). To the extent that the protester is
challenging the upward adjustment by the agency during its evaluation,
contracting agencies are required to adhere to the evaluation
methodology contained in an RFP--which is exactly what the agency did
here. See Olympic Container Corp., B-219424, July 24, 1985, 85-2 CPD para.
83. This protest ground is denied.
Second, Theta questions the agency's decision to increase Theta's MPC
by [deleted] for understaffing a facility at Fort Indiantown Gap (FIG)
by [deleted]. Theta argues that as the incumbent, it submitted
proposed manning based on its extensive experience; the experience of
its employees; the cross-training of its employees; and innovative and
proven techniques. Theta argues that the agency's 25-percent
reduction in the RFP work load data shows that the inclusion of
[deleted] in its cost proposal was unreasonable. Theta also argues
that the Army simply "formulated its estimate of the required staff
hours and used that estimate to adjust each offeror's proposed costs
[without any effort] to independently analyze the realism of the
offeror's proposed costs based on each offeror's [approach]." Theta
concludes that the agency used a "flawed mechanical approach which
improperly raised Theta's cost." We disagree.
The agency determined in its Independent Government Estimate (IGE)
that [deleted] of effort would be required to perform the work at FIG.
The basis of the estimate was an automated maintenance management
system named "GARSMMS." This system records the actual labor and
inspection (quality control) man-hours expended by the incumbent
contractor in performing work orders issued under the current
maintenance contract. Further, the agency's IGE projections for 1996
reflected the 25-percent reduction in work load from 1994 levels. The
IGE showed that [deleted] of labor were required to perform the work
in six commodity groups during 1996. Additionally, based on
historical data, the IGE showed that [deleted] were required to
perform the associated work in the four functional areas of Planning
Production and Control, Supply, and Project Management. This overall
estimated staffing level of [deleted] is consistent with the current
staffing of Theta, the incumbent.[4] (Theta currently employs
[deleted] people to perform the direct labor in the commodity groups,
as compared to [deleted] contained in its proposal. Additionally,
Theta currently employs [deleted] at FIG, as compared to the [deleted]
contained in its proposal for quality control. The record shows that
Theta recently attempted to further reduce the number of quality
control personnel at FIG to [deleted], as proposed in its offer, but
this manning was found to be insufficient to do the work.)
We think that a contracting agency may properly rely in a cost realism
analysis on an incumbent's actual performance and actual staffing
levels in currently performing the work rather than unsubstantiated
proposed staffing in evaluating the realism of proposed costs. See
Marine Design Technologies, Inc., B-221897, May 29, 1986, 86-1 CPD para.
502. Here, the agency considered the actual cost history of the
program, the current staffing levels of the incumbent contractor, and
the inability of Theta to perform the level of work with fewer than
[deleted] employees in the commodity groups and [deleted] in quality
control personnel, and, in our view, reasonably determined that an
evaluation adjustment of [deleted] was necessary. (During
discussions, the agency specifically advised Theta to review its labor
hours proposal for FIG. Nevertheless, Theta did not increase its
manning levels at FIG in its BAFO.) Further, the protester, in its
proposal, did not reflect any new "innovative" technical approach
suggesting that the work could be done with fewer people or provide
additional explanation as to why its previous experience in performing
the work was not indicative of the actual staffing required for
successful performance of the contract. In the absence of a
persuasive explanation by the protester to support its staffing level,
we think the agency could reasonably rely on the actual performance
staffing levels to upwardly adjust the protesters' proposed cost.
The record clearly shows that these two cost adjustments by the
agency, which we find to be reasonable, render the protester's
proposal other than low even assuming the validity of all of its other
arguments concerning its own and EDSI's cost proposal adjustments.
Therefore, for Theta to prevail, it must show that its technical
proposal was significantly superior to EDSI's technical proposal.
TECHNICAL (QUALITY) EVALUATION
In its initial protest, in its supplemental protest, in its comments
on the agency report, as well as its surrebuttal to the agency's
rebuttal of its comments, the protester did not expressly state that
it should have been awarded the contract at a premium cost. While the
protester did generally argue that EDSI's technical proposal should
have been downgraded in certain areas (such as excessive reliance on
subcontracting with a large business) and that its proposal should
have received higher technical scores because it submitted a superior
technical proposal (such as in staffing), the protester's arguments
concerning the agency's evaluation of cost and the weight to be given
cost in the selection decision were limited to its contention that its
proposal offered the lower cost as compared with the proposal of EDSI.
For example, in its comments, the protester argues as follows:
"[Based on] the quality of Theta's proposal, any determination
that EDSI's technical proposal was materially superior to
Theta's would be unreasonable, unsupported by the proposal
record, inconsistent with the RFP evaluation criteria, and
arbitrary. Accordingly, Theta's technical proposal was or
should have been evaluated, at a minimum, as essentially equal
to EDSI's technical proposal. Therefore, based on the
preceding cost analysis in which Theta has a lower most
probable cost than EDSI, Theta should be awarded the contract
under established Government procurement law which [provides
for award to the low, technically equal offeror]."[5]
Nevertheless, the protester, in a later submission, argues that its
previous protest submissions contained sufficient assertions that its
proposal was "excessively downgraded" and that EDSI's proposal was not
appropriately downgraded to have reasonably raised the issue of
whether "its technical rating should have been [technically] superior
to EDSI's technical rating." Theta argues that its supplemental
protest "discussed factors which support Theta's proposal as being
significantly technically superior to EDSI's proposal." We will
examine the protester's major arguments as to why it believes that its
technical proposal was allegedly superior.
First, Theta, while acknowledging that the RFP did not contain any
prohibition against subcontracting, states that EDSI proposed to use
Dynamic Sciences, Inc. (DSI), an "ineligible" firm,[6] to perform 47
percent of the work, including almost all the work to be performed at
one of the two central sites covered by the contract.[7] Theta
essentially argues that the agency failed to evaluate the risks
associated with such a significant amount of subcontracting and to
appropriately downgrade EDSI's proposal. Theta believes that "[t]o
permit EDSI to subcontract the work of one of two central sites to DSI
is unconscionable [and unfair]." Theta also believes that its
technical proposal was superior because it proposed to perform the
work in-house without subcontracting.
The agency responds by stating that both EDSI and DSI are experienced
maintenance contractors. Specifically, EDSI currently holds the cost
contract for vehicle and equipment maintenance at Aberdeen Proving
Grounds, Maryland in the estimated amount of [deleted] for 5 years of
work. Similarly, DSI performed the same work under a past cost
contract at Aberdeen in the amount of [deleted] for more than 5 years.
The agency further states as follows:
"The SSEB considered the risk to the Government with EDSI's
proposed subcontracting arrangement with DSI, and in a
reasonable exercise of discretion, determined that there was
no undue risk to the Government with this arrangement, and
that there was no reason to downgrade EDSI's proposal in this
area. There could actually be some advantage to the
Government, rather than a disadvantage, in having all
subcontracting centrally located at one site. Consolidation
of subcontracting activity at one centrally located site could
make it easier for the prime contractor to exercise
supervision and control over its subcontractor, rather than
having subcontracting activity spread out over several,
geographically separate, locations."
Based on this record, we cannot conclude that the agency should have
downgraded EDSI for its subcontracting plans, especially since both
firms (the prime contractor and its subcontractor) were highly
experienced and were assigned discrete areas of responsibility to
perform the work at different locations under EDSI's proposed
technical approach. The record shows the agency considered the risk
of EDSI's approach, but found that the subcontracting approach posed
no significant risk. We have no basis to disturb this determination.
The protester's second major technical argument is that the agency
should not have downgraded its technical proposal for offering
[deleted] employees at FIG than the Army estimated were necessary. As
discussed above, the agency provided a reasonable analysis based on
historical and current staffing levels for concluding that Theta's
proposal of [deleted] employees at FIG constituted insufficient staff
to perform the required work which raised questions about the firm's
understanding of the work requirements. Thus, we think the
downgrading of Theta's technical proposal in this regard was
reasonable. Theta also argues that EDSI's technical proposal should
have been downgraded for offering [deleted] employee at one location
than the Army's estimate for that location. We think that the agency
was reasonable in finding that EDSI's offer of [deleted] more than the
agency's estimate for servicing a single location was not indicative
of a lack of understanding by EDSI of the work to be performed. We
find no merit to this protest issue and consider the matter
insignificant.
We have reviewed other arguments advanced by the protester and find
them to be without merit. There is nothing in the record to show that
the protester was technically superior so as to have been entitled to
an award at its higher cost. Further, even if, as the protester also
argues, its proposal should have been rated technically equal to
EDSI's, the solicitation provided that in the case of substantially
equal technical proposals, cost would become the important factor.
Since EDSI's proposal was reasonably found to offer a lower cost,
Theta would not have been in line for award even if its proposal was
rated technically equal to EDSI's. See TDS, Inc., B-261827.3, Feb. 1,
1996, 96-1 CPD para. 151.
The protest is denied.
Comptroller General
of the United States
1. The agency employed the following "grade scale": outstanding (90 -
100 points); excellent (80 - 89); satisfactory (70 - 79); poor (60 -
69); and substandard (less than 60).
2. We limit our discussion to the evaluation of Theta's and EDSI's
proposals.
3. Theta advances several arguments as to why the agency should not
have downwardly adjusted EDSI's proposed costs during MPC evaluation.
For purposes of our decision, we will assume the validity of the
protester's arguments. Additionally, the protester argues that EDSI's
proposal should have been upwardly adjusted because three of numerous
proposed employees were allegedly improperly "misclassified" under the
applicable wage rates by EDSI. For example, Theta allegedly proposed
an "Electronics Technician, Maintenance [Level] II" with an hourly
wage rate of [deleted] at one facility while EDSI proposed a
"Photooptics Technician" for the same position at an hourly rate of
[deleted]. The agency denies this and alleges that EDSI also proposed
an Electronics Technician. In any event, the amounts involved are so
minimal that, in the absence of any showing by the protester
otherwise, we conclude that these three allegedly erroneous wage
classifications by EDSI had no significant impact on the cost
evaluation. The protester also argues that EDSI has proposed to hire
its incumbent employees at unreasonable low rates as compared with
their current salaries. The protester identifies only two such
employee positions: quality control employee (paid [deleted] per hour
by the protester and proposed at [deleted] per hour by EDSI), and
heavy equipment mechanic (paid by the protester at [deleted] per hour
and proposed at [deleted] per hour by EDSI). Again, we believe these
costs are de minimis and there has been no showing that they had any
effect on the selection decision.
4. The agency states and the protester does not dispute that "[i]n the
past, the incumbent contractor has had a significantly larger
workforce, but this workforce has [already] undergone a significant
reduction to match the corresponding reduction in workload."
5. The protester also argued that even if the point scores were not
"statistically equal," there was no rational basis by which the agency
could have determined that a higher point or adjectival score was
indicative of real technical superiority to justify a "cost premium"
to EDSI, a higher-cost offeror. Indeed, Theta, citing Lockheed Corp.,
B-199741.2, July 31, 1981, 81-2 CPD para. 71, argues essentially that the
agency should have found "essential equality" between EDSI and Theta
even if there were a 15 percent difference in technical scores.
Consequently, the protester's submissions do not contain any
significant argument or analysis in the context of Theta having been
properly evaluated as the higher cost offeror.
6. The record shows that the protester bases its argument of
ineligibility on the fact that DSI is a large business.
7. Theta also raises a size issue (improper affiliation) between EDSI
and DSI and their principals. As the agency states, this matter is
strictly for the Small Business Administration (SBA) to decide
pursuant to a size protest and is not within our jurisdiction. See 4
C.F.R. sec. 21.5(b)(1).