BNUMBER:  B-271673
DATE:  July 15, 1996
TITLE:  KPMG Peat Marwick, L.L.P.

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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:KPMG Peat Marwick, L.L.P.

File:     B-271673

Date:July 15, 1996

William A. Roberts III, Esq., Lee Curtis, Esq., Jerone C. Cecelic, 
Esq., and Gayle Girod, Esq., Howrey & Simon, for the protester.
Ronald A. Schechter, Esq., and Rosemary Maxwell, Esq., Arnold & 
Porter, for Hay Management Consultants, an intervenor.
Michael P. Chiffolo, Esq., Defense Commissary Agency, for the agency.
Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Protest that agency failed to give adequate weight to performance 
risk in its source selection decision is denied where record shows 
that agency evaluated and considered performance risk in accordance 
with the requirements of the solicitation.  

2.  Protest that agency failed to consider cost in tradeoff decision 
is denied where the record shows that the source selection official 
was aware of the cost differences among the competing offerors and 
reasonably chose to select for award the higher priced, technically 
superior proposals.

DECISION

KPMG Peat Marwick protests the award of two contracts under request 
for proposals (RFP) No. DECA01-95-R-0036, issued by the Defense 
Commissary Agency (DCA) for advisory and assistance services.  KPMG 
contends that the agency failed to give adequate consideration to past 
performance and cost in its award decision.

We deny the protest.

The RFP contemplated the award of multiple indefinite delivery, 
indefinite quantity fixed-price-per-labor-hour contracts on a best 
value basis.  For evaluation purposes, the RFP provided that offers 
would be reviewed under three broad criteria, Technical Merit, 
Management, and Cost; the Technical Merit and Management areas (which 
each included numerous subfactors) were of equal weight.  Cost, 
described in the solicitation as a "substantial consideration" but 
deemed less important than Technical Merit or Management, was to be 
evaluated for realism, reasonableness and completeness.

In connection with the evaluation, the RFP advised that

     "Each of the areas and factors (except cost) will be rated in 
     three ways: an adjectival rating [of either exceptional, 
     acceptable, marginal or unacceptable], a proposal risk rating and 
     a performance risk rating. The adjectival rating depicts how well 
     the offeror's proposal meets the evaluation standards and 
     solicitation requirements.  Proposal risk assesses the risk 
     associated with the offeror's proposed approach as it relates to 
     accomplishment of the requirements of the solicitation.  
     Performance risk assesses the probability of each offeror's 
     successfully accomplishing the proposed effort based on each 
     offeror's demonstrated present and past performance.  Within each 
     area and/or factor, each of the three ratings shall be given 
     equal consideration in making an award decision.  The cost area . 
     . . will also receive a performance risk rating which shall be 
     given equal consideration with the evaluated cost."

Finally, as part of their proposals, offerors were  required to 
prepare responses to two sample tasks.  These responses were to be 
evaluated for both technical merit and cost purposes.

DCA received five initial offers, four of which were found to be 
within the competitive range.  After engaging in discussions and 
obtaining best and final offers (BAFO), the agency determined--with 
the advice and assistance of the Defense Contract Audit Agency--that 
all four firms' proposed costs were reasonable, realistic and 
complete.  Overall, DCA rated the four offers as follows:

OFFEROR      KPMG PEAT MARWICKSRA CORP.HAY MGMT. CON- SULTANTSBOOZE, 
                                                    ALLEN & HAMILTON

TECH. MERIT/PRO-POSAL RISKMarginal/ ModerateAccept./LowAccept./LowMarg
                                                    inal/
                                                    Moderate

MGMT./PRO-POSAL RISKAccept./LowAccept./LowAccept./LowAccept./ Moderate

PERF. RISK   Low          Moderate     Low          Moderate

EVALUATED COST FOR TWO  SAMPLE TASKS$397,782$503,459$761,215$363,316
On the basis of these evaluation results, DCA awarded contracts to Hay 
Management Consultants and SRA, finding that their offers represented 
the best value to the government.  

KPMG initially protested on the grounds that the agency had failed to 
engage in meaningful discussions, failed to perform a cost realism 
evaluation, performed a flawed technical evaluation of KPMG's offer, 
failed to evaluate risk in accordance with the terms of the RFP, and 
made an arbitrary cost/technical tradeoff.  After receiving the 
agency's report in response to its protest, KPMG withdrew all of its 
initial contentions except its allegation relating to the agency's 
risk evaluation, and raised the additional argument that the agency 
had failed to consider cost. 

RISK EVALUATION

KPMG maintains that the agency erred in conducting the performance 
risk evaluation.  As illustrated by the evaluation results outlined 
above, the agency assigned a single overall performance risk rating to 
each proposal rather than a performance risk rating for each of the 
three evaluation areas (technical, management and cost).  The 
protester contends that, by failing to assign a performance risk 
rating in each of the evaluation areas, the agency failed to give 
performance risk the weight assigned to that factor under the 
evaluation scheme; according to KPMG, each offer should have received 
three separate evaluation ratings under each of the RFP's two non-cost 
evaluation areas--an adjectival rating, a proposal risk rating and a 
performance risk rating--and also a performance risk rating in the 
cost area.  KPMG surmises that it would have received one of the 
awards had the agency properly evaluated performance risk.[1] 

We find no merit to this contention.  Although the RFP provided that 
the agency would consider performance risk under each of the 
evaluation areas (Technical, Management and Cost)--and give that 
consideration equal weight with the adjectival and proposal risk 
ratings--there is nothing in the RFP that dictated the form in which 
those evaluation results were to be presented; nothing in the 
solicitation required the agency to assign a discrete performance risk 
rating for each of the evaluation areas.

The record shows both that the agency in fact did consider performance 
risk as it related to each of the evaluation areas--describing in the 
evaluation documents in detail the perceived weaknesses of each firm's 
proposal--and that the performance risk ratings were given adequate 
consideration in the integrated award decisions.  

For example, the RFP required the agency to consider the adequacy of 
each offeror's personnel management under the Management evaluation 
criterion.  In evaluating Booze Hamilton's performance risk, the 
agency specifically noted that the firm's proposal had been assigned a 
Moderate rating based on the fact that its past performance indicated 
a problem with the turnover of management and technical personnel.  
Similarly, under the Technical evaluation criterion, the agency was 
required to consider the offerors' ability to conduct adequate studies 
and analysis, its adherence to sound practices and its ability to 
accomplish assigned tasks.  In assigning SRA's proposal a Moderate 
performance risk rating, the agency found that, on occasion, SRA had 
problems being concise, coming to "closure" and delivering final 
reports and products in a timely fashion; and that its subcontractor 
also had difficulty accomplishing qualitative services, conducting 
focus groups and writing "style" reports.  Finally, in evaluating 
Hay's past performance, the agency noted that the firm had experienced 
minor difficulty in performing within its proposed cost, and had on 
occasion made requests for cost increases.  The evaluation results 
thus show that in conducting its performance risk evaluation, DCA gave 
consideration to the offerors' performance record as it related to all 
three evaluation areas.  Again, this is all the RFP required.

The record also shows that these evaluation conclusions were presented 
in detail to the Source Selection Official (SSO) for consideration in 
the award decisions, and the source selection decision document (SSDD) 
specifically discusses the offerors' performance risk ratings.  
Accordingly, there is no basis to find that the agency failed to 
consider performance risk in its integrated award decisions, or that 
it was somehow given inadequate weight.  

CONSIDERATION OF  RELATIVE COST

KPMG maintains that the agency never considered the relative total 
cost of the offers in making its award decision.  The protester 
maintains that this is evidenced by the absence from the SSDD of any 
discussion of the offerors' evaluated costs, or any rationale for 
making award to the two highest cost firms.  According to the 
protester, the awardees' costs were so much higher than its own that 
the source selection was irrational in light of KPMG's technical 
acceptability.

In a best value acquisition, agencies are not required to make award 
on the basis of low cost or price; agencies may make cost/technical 
tradeoffs, and the extent to which one is sacrificed for the other is 
governed only by the test of rationality and consistency with the 
stated evaluation criteria.  Science and Technology Corp.,     
B-254405 et al., Dec. 14, 1993, 93-2 CPD  para.  318.  We conducted a 
hearing in connection with this issue because, in our view, the SSDD 
did not adequately present the bases for the agency's award decisions.  
We find, based on the entire record, that the award decisions were 
reasonable.[2]  

At the outset, we note that the agency assigned a marginal rating to 
KPMG's proposal under the Technical criterion.  This rating was based 
on the evaluators' opinion that KPMG's proposal reflected certain 
deficiencies even after discussions, in particular, the fact that its 
proposed study approaches lacked specific details regarding various 
standards.  As neither of the awardees' proposals received such a low 
score under any of the non-cost evaluation criteria (and KPMG does not 
challenge the evaluation of their proposals), KPMG's proposal was the 
lowest technically rated among the three (i.e., KPMG's and the 
awardees' proposal); as discussed below, this consideration was 
significant in the final award decisions.

The SSO was provided adequate information to be fully aware of the 
difference in KPMG's and the awardees' proposed costs.  In this 
regard, the agency's contract specialist responsible for evaluating 
the proposed costs testified that, after reviewing the BAFOs, she was 
concerned because Hay's proposed cost was higher than the other 
offerors', and conveyed her concerns to the SSO during numerous 
informal briefings, as well as during the official source selection 
briefing.  Hearing Transcript (HT), pp. 5-6, 21-22, 44-45.  The 
contract specialist also presented the SSO with detailed written 
information relating to the offerors' proposed costs for each of the 
sample tasks.  HT, pp. 9-10.  After becoming aware of the contract 
specialist's concerns, the SSO took time to review the offerors' cost 
proposals himself.  HT, pp. 66, 68.

The record also shows that the SSO was aware of the cost premium 
associated with the awardees' proposals, HT, pp. 61, 71-72, 79, and 
decided to award them the contracts based on their technical 
superiority as compared to KPMG.  The SSO specifically testified in 
this regard that the evaluators advised him that both Hay's and SRA's 
proposal had a number of technical advantages over KPMG's including, 
for example, SRA's innovative quality assurance program and the 
quality of its personnel, and the quality of Hay's personnel.  HT, pp. 
49-52.  The SSO also was aware that the evaluators had continuing 
concerns about KPMG's offer from a technical standpoint, and that they 
were further concerned by KPMG's inability to cure these deficiencies 
during discussions.  Id., HT, pp. 55, 73.  Finally, the SSDD states 
that the SSO was somewhat less concerned about the cost premium 
associated with the awardees' proposals because any delivery orders 
would be competed between the two firms prior to award; this 
mitigating factor also led the SSO to select for award the two 
higher-priced, technically superior proposals.  See also, HT, pp. 
83-84, 87-88.

In view of the evidence outlined above, and considering that cost was 
less important than technical merit, we have no basis to object to the 
agency's source selection decisions.  The record shows that the SSO 
was aware of the relative costs associated with making award to one 
firm versus another, and decided that the technical superiority 
offered by the awardees' proposals merited the additional cost.

The protest is denied.

Comptroller General 
of the United States

1. According to the protester, the ratings should have been as 
follows:

                                      KPMG       SRA

                 Technical Rating     Marginal   Acceptable

                 Tech. Proposal Risk  Moderate   Low

                 Tech. Performance RiskLow       Moderate

                 Management Rating    Acceptable Acceptable

                 Mgmt. Proposal Risk  Low        Low

                 Mgmt. Performance RiskLow       Moderate

                 Cost Performance RiskLow        Low/
                                                 Moderate

2. KPMG contends that the best evidence of the agency's award 
rationale is contained in the SSDD.  However, we review the entire 
record, including materials submitted in connection with specific 
protest arguments and oral testimony, in assessing the reasonableness 
of an agency's cost/technical tradeoff.  Science and Technology Corp., 
supra.