BNUMBER: B-271144.2; B-271144.3
DATE: July 2, 1996
TITLE: General Offshore Corporation-Riedel Company, a Joint Venture
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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:General Offshore Corporation-Riedel Company, a Joint Venture
File: B-271144.2; B-271144.3
Date:July 2, 1996
Jacob B. Pompan, Esq., Neil H. Ruttenberg, Esq., and Gerald H. Werfel,
Esq., Pompan, Ruffner & Werfel, for the protester.
William A. Roberts III, Esq., Lee Curtis, Esq., and Brian A. Darst,
Esq., Howrey & Simon, for Global PCCI, a Joint Venture, the
intervenor.
Virginia B. Sanaie, Esq., Department of the Navy, for the agency.
Henry J. Gorczycki, Esq., and James A. Spangenberg, Esq., Office of
the General Counsel, GAO, participated in the preparation of the
decision.
DIGEST
1. Award of contracts to an offeror under a predetermined
cost/technical tradeoff formula which the solicitation stated was
intended to be strictly followed by the agency to determine the
awardee is proper where, although the formula actually applied by the
contracting agency was not consistent with that stated in the
solicitation due to a flaw in the computer program used by the agency,
the record shows that the award was made to the offeror whose proposal
represents the best value proposal under a proper application of the
stated tradeoff formula.
2. Agency's upward adjustment of protester's proposed cost for a cost
reimbursement contract is reasonable where the protester introduced
labor overhead rate reductions in its best and final offer without a
reasonable explanation for the reduction, or without providing
documentation supporting the rate.
DECISION
General Offshore Corporation-Riedel Company, a Joint Venture, protests
an award to Global PCCI, a Joint Venture, under request for proposals
(RFP) No. N00024-93-R-4156, issued by the Department of the Navy,
Naval Sea Systems Command, for management, maintenance and operation
of Emergency Ship Salvage Material (ESSM) bases, and for services
related to pollution control, underwater ship husbandry and salvage
operations.
We deny the protests.
BACKGROUND
The RFP contemplated the award of two contracts for a base year with 4
option years to a single offeror. The first contract, for the
management, maintenance and operation of ESSM bases, is a
cost-plus-award-fee contract. The other contract is for indefinite
delivery/indefinite quantity type services related to pollution
control, underwater ship husbandry and salvage operations, which
contemplated either fixed-price or cost reimbursement orders for the
services. The RFP listed all of the required labor categories and
positions for which offerers were required to propose specific
personnel (referred to as "scheduled personnel"); non-scheduled
services would be performed by additional, non-specified individuals
(referred to as "non-scheduled personnel"). Offerors were required to
include and identify in their cost proposals loaded "man-day rates"
for each required labor category to include all components of cost.
The RFP contemplated that work placed under the contracts would be
based on these "man-day rates."
The RFP provided for a best value evaluation with technical factors of
greater importance than cost. The RFP listed the technical evaluation
factors, their respective first, second, third and fourth-tier
subfactors, and the relative importance of each factor or subfactor.
Raw technical scores were converted to a weighted score on a 100-point
scale.
The RFP contained a specific cost/technical tradeoff methodology to be
used for determining the proposal which represented the best value.
This methodology was stated in the RFP as follows:
"Technical factors, taken as a whole, are on the average more
important than cost; however, cost is an important factor. The
degree of its importance will increase with the degree of
equality of proposals in relation to other factors on which
selection is to be based. The [g]overnment is willing to pay a
premium over [the] lowest-priced technically acceptable offer for
a technically superior proposal offering the 'greatest value' to
the Government. A 'decreasing cost effectiveness' methodology
will be employed to determine which proposal represents the best
value. This methodology, which is based on a determination of
what premium(s) the Government is willing to pay across the range
of acceptable technical scores, permits award to an offeror with
a higher cost and also a higher technical rating than the Lowest
(cost) Technically Acceptable Proposal (LTAP) within
predetermined limits. Specifically, each dollar proposed over
the LTAP will require an incrementally higher technical score
increase to remain equivalent to the LTAP. The graph which
follows illustrates the curve representing equivalent proposals,
and is based on premiums established as follows:"
Technical Score Relative Cost Govt. Will Pay [percent of
LTAP]Ratio[[1]]
65 100 --
70 115 3 : 1
75 130 3 : 1
80 145 3 : 1
85 155 2 : 1
90 160 1 : 1
95 162.5 0.5 : 1
100 165 0.5 : 1
When plotted on a graph, the data from the table produce the following
curve which was also included in the RFP:
The points falling directly on the curve represent equivalent
proposals under the cost/technical selection methodology. For
example, assuming that a proposal with the lowest technically
acceptable score of 65 also has the lowest (i.e., LTAP) cost, the
proposal would be equivalent to a proposal with a score of 80 and a
cost that is 145 percent of the LTAP, as well as equivalent to a
proposal with a perfect score of 100 and a cost that is 165 percent of
the LTAP, because all three of these proposals would be represented as
points on the graph which fall directly on the curve illustrated in
the RFP.
The RFP further stated:
"Any point above the curve represents a proposal inferior to
those on the curve and will be ineligible for award. Any point
below the curve represents a proposal superior to those on the
curve. Such proposals have a technical-to-cost ratio of greater
value to the [g]overnment. The [g]overnment will determine the
greatest value offeror and ultimate awardee from offers on or
below the curve. The [g]overnment reserves the right to judge
which proposal reflects the required technical ability and which
proposal offers the greatest value to the [g]overnment."
Initial proposals were received from four offerors, including General
Offshore and Global (the incumbent contractor). Technical proposals
were evaluated by a technical evaluation review panel, which reported
the evaluation results to a contract award review panel (CARP).
Concurrently, the contracting officer performed a cost realism
analysis with the assistance of the Defense Contract Audit Agency
(DCAA).
The agency conducted discussions and, by letter of October 13, 1995,
requested best and final offers (BAFO). BAFOs were received from all
four offerors. The final evaluation results were as follows:
Offeror Technical
Score[2] Proposed Cost ($)Evaluated Cost ($)Best Value
Ranking
Global 89.1 26,604,387 27,292,837 1
General Offshore84.7 25,613,162 26,251,792 2
Offeror A 78.9 26,825,530 26,825,530 3
Offeror B 70.9 26,951,746 26,951,746 4
The offerors' evaluated costs reflect the adjustments made to proposed
costs as a result of the cost realism analysis. Specifically, while
the proposed BAFO costs for General Offshore were based in part on a
proposed labor overhead rate of [DELETED] percent and Global's BAFO
costs were based on proposed labor overhead rates ranging from
[DELETED] percent to [DELETED] percent (depending on the worksite),
the agency's cost realism analysis adjusted both offerors' rates to
[DELETED] percent.[3]
The contracting officer ranked proposals using a computerized
spreadsheet program, which he had a Navy employee create some years
ago for this purpose. That program--which, as explained below,
contained certain programming errors--purports to calculate best value
ratings for the proposals received. These ratings were derived from
the "normalized cost" of proposals, calculated using the offerors'
point scores and evaluated costs from the predetermined cost/technical
tradeoff values stated in the RFP. The "normalized costs" and the
relative ratings derived directly therefrom represent the relative
value of the proposals for best value comparison purposes, as
contemplated by the RFP methodology.
More specifically, under this methodology (as explained further
below), the normalized cost of a proposal is a dollar amount
essentially calculated by first determining the dollar value (the
"premium earned") of a proposal's technical score above the minimum
acceptable score of 65 points. This is done by determining the
relative cost percentage of the total technical score from the graph
and table included in the RFP, based on the particular proposal's
technical score as compared to a hypothetical baseline proposal rated
at 65 points with an evaluated cost equal to the LTAP cost. The LTAP
cost is multiplied by the proposal's relative cost percentage to
convert the relative cost percentage into a dollar value. The LTAP
cost is then subtracted from this dollar value to determine the
premium earned. The premium earned is in turn subtracted from the
proposal's evaluated cost to determine the proposal's normalized
cost.[4] Under the computer program, the lowest normalized cost of
all proposals was then supposed to be divided by the normalized cost
of each proposal and multiplied by 100 to produce the rating for the
respective proposal. Proposals were then ranked from first to last
with the highest rating representing the first in rank and thus the
best value.
The CARP reviewed the technical and cost evaluations, and found that
Global's proposal was "clearly technically superior, and falls within
the 'best value' premium for award," and that only award to Global
would be consistent with the evaluation plan and award methodology
stated in the RFP, and recommended award to Global.
The contracting officer, who was authorized under the Source Selection
Plan to make the final source selection, concurred with the CARP
recommendation. The contracting officer determined that Global's
technical proposal was outstanding and technically superior overall;
that Global's evaluated cost was only 3.97 percent above the LTAP cost
represented by General Offshore's evaluated cost; and that, based on
his calculations, only award to Global would be consistent with the
stated evaluation and award methodology. On January 30, 1996, after
obtaining authority to execute the contracts, the contracting officer
awarded the contracts to Global.
General Offshore's protests followed, challenging both the award under
the cost/technical tradeoff methodology and the adjustment of overhead
rates in the cost realism analysis.[5]
COST/TECHNICAL TRADEOFF METHODOLOGY
General Offshore alleges that, given the close technical evaluation
scores of its and Global's BAFOs, the BAFOs were essentially
equivalent, and thus General Offshore's lower-cost BAFO represented a
better value. Alternatively, it alleges that, using the computerized
spreadsheet program relied upon by the contracting officer to rank
proposals, General Offshore's proposal is ranked number one and thus
is the best value.
During the course of this protest, the Navy stated that, in addition
to the undisputed error in the final technical scores, see footnote 2,
supra, there was an error in the spreadsheet program which rendered
the spreadsheet-generated rankings unreliable for determining the best
value proposal under the stated cost/technical tradeoff methodology.
The contracting officer therefore provided his own calculations of the
normalized costs of proposals--$11,778,028 for Global and $11,970,817
for General Offshore--and ranked proposals, with the lowest normalized
cost representing the best value proposal. Since Global also has the
lowest normalized cost under the contracting officer's calculations,
the Navy contends that the award to Global was proper.
Agencies must evaluate proposals in accordance with the criteria
established in the RFP. Telecommunications Management Corp., 57 Comp.
Gen. 251 (1978), 78-1 CPD para. 80. Source selection officials have broad
discretion in determining the manner and extent to which they will
make use of the technical and cost evaluation results subject only to
the tests of rationality and consistency with the RFP evaluation
criteria. Grey Advertising, Inc., 55 Comp. Gen. 1111 (1976), 76-1 CPD para.
325. While evaluation point scores or adjectival ratings alone are
not indicative of the relative value of proposals, and generally
should be used as a guideline for intelligent decision-making, such
that a selection decision should reflect the procuring agency's
considered judgment of the significance of the difference in scores or
ratings, M.D. Oppenheim & Co., P.A., 70 Comp. Gen. 213 (1991), 91-1
CPD para. 98, we have consistently upheld source selection decisions which
rely solely on mathematical cost/technical tradeoff methodologies
where the application of such a methodology is consistent with the
source selection scheme stated in the RFP. See, e.g., Douglas County
Aviation, Inc., et al., 64 Comp. Gen. 888 (1985), 85-2 CPD para. 345;
Tulane Univ., B-259912, Apr. 21, 1995, 95-1 CPD para. 210.
Notwithstanding the protester's contentions, the fact that point
scores are close does not necessarily indicate that proposals are
essentially equal; rather, agencies may reasonably decide that a
relatively minor point differential represents actual superiority of
the higher-rated proposal. M.D. Oppenheim & Co., P.A., supra. Here,
the record shows that the Navy considered the higher technical score
of Global--both as part of the original selection decision and during
the course of this protest-- to reflect actual superiority.
Specifically, Global's proposal was found superior to General
Offshore's in the areas of personnel, management, ESSM-type
experience, corporate organization, and oil and hazardous material
spill contingency planning. The protester has not refuted the
agency's explanations of the technical ratings, made specific
responses to the agency's explanations justifying the point scores
awarded, or contended with any support that Global's technical rating
may be too high or General Offshore's rating too low. Accordingly,
the protester's contention that the point scores alone demonstrate
that the two proposals are essentially equal is not supported by the
record.
As for the cost/technical tradeoff methodology used to rank proposals
for award, the protester challenges the contracting officer's use of
normalized costs to determine the best value BAFO, arguing that the
ratings calculated from the software program should determine the
awardee.[6] Based on our review, we find that the comparison of the
normalized costs calculated by the contracting officer is consistent
with the cost/technical tradeoff methodology stated in the RFP and
demonstrates that Global was properly selected for award.
As indicated above, the normalized costs were calculated by first
converting each proposal's relative cost percentage determined from
the table and graph given in the RFP into a dollar value from which
the LTAP price was subtracted to yield what the contracting officer
termed the "premium earned" over the assumed hypothetical baseline
proposal with a technical score of 65 and a cost equal to the LTAP
cost. Thus, the premium earned essentially quantifies in dollars the
value to the government of a proposal's technical score in excess of
the minimum acceptable score of 65 points.
Here, the LTAP cost is the evaluated cost of General Offshore's BAFO
($26,251,792). Thus, the premium earned by Global's proposal is
$15,514,809 (i.e., the difference between the LTAP cost and the
product of the LTAP cost multiplied by Global's relative cost value of
159.1 percent, which is determined using Global's technical score and
the values from the table in the RFP, see footnote 1, supra). The
premium earned by General Offshore's proposal is $14,280,975 (i.e.,
the difference between the LTAP cost and the product of the LTAP cost
multiplied by General Offshore's relative cost value of 154.4
percent). This calculated "premium earned" is then subtracted from
each offeror's evaluated BAFO cost to yield the normalized cost.
Here, the normalized cost of Global's BAFO is $11,778,028 (i.e.,
Global's evaluated cost of $27,292,837 less its premium earned of
$15,514,809), and that of General Offshore's BAFO is $11,970,817
(i.e., its evaluated cost of $26,251,792 less its premium earned of
$14,280,975).
The normalized cost reflects a proposal's value to the government at
the proposed cost considering the value of the proposal's technical
score in excess of the minimum acceptable score of 65 points.
Therefore, the lower the normalized cost of a proposal, the better
value it is to the government under the stated cost/technical tradeoff
methodology. Since the normalized costs are derived using the
relative cost values under the cost/technical tradeoff methodology
stated in the RFP, the use of normalized costs to determine the best
value is consistent with the stated cost/technical tradeoff
methodology. In other words, this calculation is one method of
essentially quantifying how far each proposal's value falls below the
"decreasing cost effectiveness curve" set out in the RFP to determine
which proposal falls furthest below the line and therefore represents
the best value as the proposal with the best technical-to-cost ratio
under the RFP evaluation methodology.[7] Here, Global's normalized
cost is lower than General Offshore's, and indeed lower than that of
any other BAFO, therefore Global's BAFO represents the best value
under the stated cost/technical tradeoff methodology.
As noted by the protester, we have verified that applying the correct
technical ratings and evaluated costs in the Navy's computerized
spreadsheet program ranks General Offshore's proposal as the best
value by a slight margin. While the protester argues that this
mandates that award be made to itself, we have also verified that the
spreadsheet program contains errors which renders the program
unreliable for ranking proposals under the stated methodology and that
the calculation of the normalized costs described above is consistent
with the RFP. Since the contracting officer--i.e., the designated
source selection authority in this case--has determined to strictly
adhere to the best value methodology and has reassessed the ranking of
BAFOs using the normalized costs of BAFOs at the corrected technical
scores, the award to Global is consistent with the cost/technical
tradeoff methodology stated in the RFP. The erroneous results
generated by the defective software program provide no basis for
disturbing the award.
EVALUATION OF OVERHEAD RATES
General Offshore challenges the agency's cost evaluation based on its
contention that the Navy unreasonably projected the protester's labor
overhead rate above its proposed rate of [DELETED] percent in
calculating General Offshore's evaluated cost.
Where, as here, an agency evaluates proposals for the award of a cost
reimbursement contract, an offeror's proposed estimated costs of
contract performance are not dispositive because, regardless of the
costs proposed, the government is bound to pay the contractor its
actual and allowable costs. Federal Acquisition Regulation sec.
15.605(c); Sabre Sys., Inc., B-255311, Feb. 22, 1994, 94-1 CPD para. 129.
Consequently, a cost realism analysis must be performed by the agency
to determine the extent to which an offeror's proposed costs represent
what the contract should cost, assuming reasonable economy and
efficiency. CACI, Inc.-Fed., 64 Comp. Gen. 71 (1984), 84-2 CPD para. 542.
Because the contracting agency is in the best position to make this
cost realism determination, our review is limited to determining
whether the agency's cost realism analysis is reasonably based and not
arbitrary. General Research Corp., 70 Comp. Gen. 279 (1991), 91-1 CPD para.
183, aff'd, American Management Sys., Inc.; Department of the
Army--Recon., 70 Comp. Gen. 510 (1991), 91-1 CPD para. 492.
The Navy's cost realism analysis here was based in part on DCAA's
pre-BAFO review of General Offshore's proposed labor overhead rates.
DCAA took no exception to the rate of [DELETED] percent which General
Offshore initially proposed for scheduled personnel. However, DCAA
did report that the rate for non-scheduled personnel should be
increased from the proposed rate of [DELETED] percent to [DELETED]
percent because General Offshore had not proposed to use additional
personnel to perform non-scheduled services, as contemplated by the
RFP, and thus had not included all of the overhead components in this
rate that would be attributable to non-scheduled personnel. In
addition, DCAA reported that, since General Offshore's joint venture
was new and had no historical overhead rates, the proposed rates were
only based on the offeror's projections of costs. DCAA did not review
the assumptions upon which these projections were based and thus
qualified its verification of these rates, stating that the offeror's
actual rates could vary significantly from the projected rates, and
that the Navy therefore should not consider these rates "as audit
approved or recommended" by DCAA.
During discussions, the Navy advised General Offshore that it
considered its overhead rate for non-scheduled personnel to be
unrealistically low. In response, General Offshore sought
clarification about the distinction between scheduled and
non-scheduled personnel, stating that if non-scheduled services are
performed by additional personal, "then the overhead rate would be
billed at [DELETED] [percent]." The Navy advised General Offshore
that indeed non-scheduled services were to be performed by additional
personnel.
In its BAFO, General offshore proposed an overhead rate of [DELETED]
percent for both categories of labor overhead, stating that the
decrease from the rate of [DELETED] percent was "due to the increased
volume in the direct labor base when we included the [additional]
non-scheduled [personnel]." The BAFO provided no support for the rate
of [DELETED] percent.
The contracting officer determined that there was no reasonable basis
for the overhead rate to decrease with the addition of personnel to
the labor base because the costs comprising overhead increase
proportionally to the increase in personnel. Therefore, the
contracting officer did not consider General Offshore's proposed rate
of [DELETED] percent to be reasonable, and increased that projected
rate to [DELETED] percent in his cost realism analysis.
The record shows that the components of labor overhead pools of the
respective offerors are only those costs required under state or
federal laws, such as social security contributions, unemployment
insurance, and the costs of labor compensation fringes required under
applicable Service Contract Act wage determinations. Since such costs
vary directly with the number of employees in the labor base, we find
reasonable the contracting officer's rationale for rejecting the
offeror's explanation that its proposed decrease in overhead rate was
due to an increase in its labor base. Moreover, General Offshore's
BAFO did not provide support for the newly proposed rate. Since an
offeror is responsible for supporting the cost elements in its
proposal, including claimed overhead rates, we think the agency
reasonably disregarded the proposed rate decrease here. See Radian,
Inc., B-256313.2; B-256313.4, June 27, 1994, 94-2 CPD para. 104.
The contracting officer also did not consider General Offshore's
initially proposed rate of [DELETED] percent to be realistic and
instead used a [DELETED]-percent rate for cost realism evaluation
purposes. The contracting officer's stated rationale for this
increase was that General Offshore was a newly formed joint venture
whose rates could vary substantially vary from those proposed; that
the cost elements of the overhead cost pools should be essentially the
same for General Offshore as for Global (the incumbent contractor);
and that there was no apparent basis for the offerors' rates to differ
from the actual rates experienced under the incumbent contract which,
according to DCAA, were in excess of [DELETED] percent.
General Offshore contends that it was unreasonable to apply the actual
overhead rates of the incumbent contractor because it alleges that its
insurance rates and labor fringe costs would be lower than the
incumbent's. However, even if we were to accept these allegations as
persuasive and were to find that the Navy should have applied the
overhead rate of [DELETED] to determine General Offshore's evaluated
cost, our review of the normalized costs under this assumption shows
that Global's BAFO would still be the best value under the
cost/technical tradeoff methodology stated in the RFP.
The protests are denied.
Comptroller General
of the United States
1. The ratio represents the rate at which the relative cost percentage
points increase for a
corresponding increase in
technical score. A technical
score of 65 is the lowest
technically acceptable score,
and the chart is based on the
assumption that the LTAP will
have a technical score of 65.
As indicated in the following
graph set forth in the RFP,
the ratio for a given
technical score on the table
applies to the interval of
technical scores greater than
the preceding technical score,
up to and including the given
technical score. Thus, for a
technical score of 83 points,
the respective interval is 80
through 85 and the applicable
ratio is the one corresponding
to the technical score of 85
(i.e., 2:1). The ratio value
must be multiplied by the
number of points in the
interval to produce the
relative cost percentage
points earned for the
technical points in that
interval (i.e., the ratio
value is 2; the number of
points in the interval is 83 -
80 = 3; the relative cost
percentage points earned for
the interval is 2 x 3 = 6).
The total relative cost
percentage corresponding to
the technical score of 83 is
the sum of the percentage
points earned for this
interval and the total
percentage points stated in
the table for the next lowest
technical score of 80 (i.e., 6
+ 145 = 151). Thus, under the
example, the relative cost for
a technical score of 83 is 151
percent of the LTAP.
2. During the course of this protest, the agency discovered errors in
the technical scores for General Offshore and Global, and
increased each of these offerors' scores slightly to
reflect the correct scores resulting from evaluations.
The protester does not dispute the corrected scores. The
agency determined that the corrected scores did not change
the ranking of proposals under the tradeoff methodology.
The scores in this table are the corrected scores.
3. The proposed costs of the other two offerors were not adjusted
because the agency determined that they were not in contention for
award.
4. As explained further below, under this methodology, the lowest
normalized cost represents the best value.
5. General Offshore's protest raised other issues, including
allegations of unfair competitive advantages enjoyed by Global as the
incumbent, a lack of meaningful discussions, and an unreasonable
evaluation of proposed general and administrative costs. The Navy's
reports and Global's submissions to the record specifically addressed
and refuted all of these allegations. In responding to these
submissions, the protester requested that we decide these
protest issues on the record, but did not provide any evidence to
either support its allegations or otherwise refute the agency's or
Global's positions. We have reviewed the record and find no basis to
sustain any of these protest issues.
6. General Offshore also notes that the contracting officer's
calculations now justifying the award were created after award,
contending that the software program created prior to award must be
used to determine the awardee. However, while documentation, such as
the normalized cost calculations based on the corrected technical
scores in this protest, which were developed after award and in
response to a protest, may warrant less weight than other evidence in
the record, we do consider such information together with the entire
record, where, as here, the protester has had an opportunity to
comment on the documentation. Akal Sec., Inc., B-261996, Nov. 16,
1995, 96-1 CPD para. 33.
7. Alternatively, the curve can be replotted through the actual LTAP
proposal using the same formula illustrated by the table and graph
included in the RFP, in which case any proposal whose value falls
below the replotted curve would represent a better value than the
actual LTAP proposal. Under this replotting, General Offshore's LTAP
proposal would fall on the line and Global's proposal below the line.
We have found no method of applying this tradeoff formula to the point
scores and evaluated costs that could produce any result other than
the one reached here and be consistent with the tradeoff formula
illustrated in the RFP.