BNUMBER:  B-275502.3; B-275502.4 
DATE:  July 6, 1998
TITLE: Signal Corporation, B-275502.3; B-275502.4, July 6, 1998
**********************************************************************

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective 
Order.  This redacted version has been approved for public release.
Matter of:Signal Corporation

File:     B-275502.3; B-275502.4

Date:July 6, 1998

Richard J. Conway, Esq., William M. Rosen, Esq., and Karen Lau, Esq., 
Dickstein Shapiro Morin & Oshinsky, for the protester.
J. Patrick McMahon, Esq., McMahon, David & Brody, for InfoPro, Inc., 
an intervenor.
Arthur I. Rettinger, Esq., and William P. McGinnies, Esq., Department 
of the Treasury, for the agency.
Glenn G. Wolcott, Esq., and Paul Lieberman, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Agency reasonably determined that protester's proposed rates for labor 
categories that made up a majority of the anticipated level of effort 
created an unacceptably high level of performance risk where 
protester's proposed rates were substantially lower than rates the 
protester was charging for similar work under another contract.

DECISION

Signal Corporation protests the Department of the Treasury, U.S. 
Customs Service's award of a contract to InfoPro, Inc., under request 
for proposals (RFP) No. CS-95-064 for software support services.  
Signal primarily challenges the agency's determination that Signal's 
proposed labor rates were unrealistically low and therefore created an 
unacceptably high performance risk in Signal's proposal.

We deny the protest.

BACKGROUND

The Customs Service issued the RFP on May 17, 1996, seeking proposals 
to provide various software support services for the Applications 
Development Division (ADD) of Custom's Office of Information and 
Technology under a fixed-price indefinite-delivery, 
indefinite-quantity contract for a base year with 4 option years.[1]  
The agency expects that a significant amount of the near-term work 
under this contract will encompass redesigning software to be Year 
2000 (Y2K) compliant.  In this regard, the RFP's SOW provided:

     The Contractor shall assess existing Customs technology and 
     evaluate alternative hardware or software architectures.  The 
     Contractor shall redesign or modify existing software systems, 
     and develop new software in anticipation of future Customs 
     requirements . . . and respond to various legislative changes 
     mandated by Congress, the Office of Management and Budget (OMB), 
     Treasury and other governmental agencies.  

The solicitation listed 12 labor categories and the estimated number 
of hours for each category that the agency anticipated would be 
necessary for contract performance.  Offerors were required to propose 
fully burdened, fixed hourly rates for each category and to provide 
information regarding fringe benefits, overhead, and general and 
administrative (G&A) rates.  A majority of the RFP's listed estimate 
of required hours were under three labor categories:  senior 
programmer/analyst, mid-level programmer/analyst, and junior 
programmer/analyst.

The SOW described the functional duties that personnel under each 
labor category would be required to perform, along with required 
general and specialized experience.  With regard to the 
programmer/analyst categories, the RFP stated:

     DUTIES:  The Programmer/Analyst(s) support complex application 
     problems involving all phases of software development and 
     maintenance.  Programmer/Analyst personnel analyze systems 
     requirements, develop detailed design specifications, develop 
     block diagrams and logic flow charts, and translate detailed 
     designs to computer programs. . . .  The Programmer/Analyst(s) 
     test, debug and refine computer programs to produce the required 
     product . . . .

                    .    .    .    .    .

     Specialized Experience:  The Contractor should provide personnel 
     who collectively possess experience in the following areas: 

        -demonstrated COBOL and CICS programming experience in an IBM 
        or IBM-compatible mainframe environment . . . .[2]

As initially issued, section M of the solicitation stated that 
proposals would be evaluated on the basis of technical qualifications 
(80 points)[3] and price considerations (20 points).  Regarding price 
evaluation, section M.6.1 of the RFP stated:  

     Separately and apart from the technical evaluation, a price 
     evaluation will be performed.  This will consist of conducting an 
     analysis of each individual proposal to first determine if 
     proposed prices accurately and adequately portray the work that 
     is to be performed, and if they are reasonable and realistic. . . 
     .  In addition to the price evaluation, the Government may 
     examine proposed prices to determine if the proposed price would 
     introduce potential performance risks or otherwise [a]ffect the 
     quality of services provided from the selection of the individual 
     proposal . . .  

                    .    .    .    .    .

     In addition to the foregoing, the Government may examine 
     individual proposals for potential performance risks introduced 
     by the individual proposals pricing structure (i.e. the Offeror's 
     ability to retain a qualified staff to prevent performance 
     disruptions, etc.). [Emphasis added.] 

Section M.6.2 of the RFP also advised offerors that proposals would be 
evaluated in accordance with Federal Acquisition Regulation (FAR) 
clause 52.222-46, "Evaluation of Compensation for Professional 
Employees," which provides that "Professional compensation that is 
unrealistically low or not in reasonable relationship to the various 
job categories . . . may be viewed as evidence of failure to 
comprehend the complexity of the contract requirements."  Finally, 
section L.9.2 of the RFP advised offerors that "[t]he burden of proof 
as to cost credibility rests with the Offeror."  

Initial proposals were submitted in June, 1996.  Following an initial 
evaluation, the agency established a competitive range consisting of 
six proposals, including Signal's and InfoPro's.  Signal prepared its 
proposal based on its understanding that award would be made to the 
offeror submitting the low cost, technically acceptable, proposal, 
Hearing Transcript[4] (Tr.) at 20-21, 76, and its proposed price was 
the lowest of the competitive range offerors.[5]  Following 
establishment of the competitive range, discussions were conducted, 
during which the agency advised offerors that contract performance 
would require "strong Year 2000 support," Tr. at 24-25, and advised 
Signal that several of its proposed rates were unrealistically low. 

Best and final offers (BAFO) were submitted more than a year later, on 
August 5, 1997.  In its BAFO, Signal increased several of its rates, 
including those for programmer/analysts, proposing hourly rates for 
mid-level programmer/analysts and senior programmer/analysts of 
[deleted] and [deleted], respectively.  In addition, Signal's August 5 
BAFO offered two new labor categories--[deleted] and [deleted]--for 
which it proposed rates of [deleted] and [deleted], respectively.[6]  
Signal states that these two categories were proposed because 
[deleted].  Tr. at 24-25, 182-196.  However, Signal proposed only 1 
hour per year for each of these two new labor categories.  

Following submission of the August 5 BAFOs, the agency became 
concerned that the proposed labor rates for programmer/analysts were 
unrealistically low.  By letters sent to each offeror on October 14, 
the agency reopened discussions, explaining:

     After reviewing and evaluating the BAFOs . . . in particular the 
     labor rates proposed by all offerors, the Customs Service has 
     serious concerns about the proposed hourly rates for the three 
     Programmer/Analyst categories in which the majority of effort is 
     anticipated.  Due to significant recent changes in the hiring and 
     retention conditions for these labor categories, the Customs 
     Service believes that prices are not, or may not be realistic.  
     The already competitive labor market for programmers has changed 
     dramatically because of various Year 2000 efforts and the 
     resulting increased demand for COBOL (especially COBOL CICS) 
     programmers, thereby driving up the salaries/labor rates for 
     these positions.  It is believed further that offerors have 
     proposed labor rates for these positions based on the low end of 
     the talent scale for COBOL CICS programmers.  As such, it would 
     be difficult to find highly skilled and experienced programmers 
     at the proposed rates.  Based on our analysis of the labor rates, 
     the upward salary trend in the market place for these positions 
     and skill sets, and the likely difficulty in hiring qualified 
     programmers at the proposed rates/salaries, Customs is providing 
     offerors an opportunity to submit another BAFO.  

     Offerors are reminded of the applicability to this requirement of 
     Federal Acquisition Regulation 52.222-46, Evaluation of 
     Compensation for Professional Employees . . . which deals with 
     the issue of proposed rates and/or compensation being too low and 
     a contractor's inability to recruit and retain qualified staff as 
     a result.  Failure to comply with this clause may constitute 
     sufficient cause to reject an offeror's proposal.  

With these letters, the agency issued RFP amendment No. 2, which 
eliminated price as a point-scored evaluation factor, advised offerors 
that "[a]ward will be made to that responsible offeror whose proposal 
contains the combination of those criteria offering the best overall 
value to the Government," and stated that "the Government is more 
concerned with obtaining superior technical features than with making 
an award at the lowest overall cost."  

The second round of BAFOs was submitted on October 28.  Despite the 
agency's clearly-stated concerns regarding the rates proposed for 
programmer/analysts, Signal neither increased its rates for those 
categories,[7] nor provided any meaningful response to the agency's 
concerns.  In contrast, InfoPro increased its programmer/analyst 
rates, proposing hourly rates for mid-level programmer/analysts of 
$48, and for senior programmer/analysts of $70.    

Although Signal's second BAFO continued to propose mid-level and 
senior programmer/analysts for [deleted] and [deleted], respectively, 
Signal substantially increased the proposed rates for its two new 
labor categories--[deleted] and [deleted]--to [deleted] and [deleted], 
respectively.  However, Signal's October 28 BAFO continued to propose 
a total of 1 hour per year for each of those categories.  
Signal's final BAFO offered a total evaluated price of [deleted]; 
InfoPro's final BAFO offered a total evaluated price of $19,995,600; 
the technical scores of their proposals were virtually equal.[8]  In 
accordance with section M.6.1 of the RFP, the agency performed a risk 
assessment that was separate and apart from the evaluation of 
technical proposals, specifically considering the performance risk 
associated with each offeror's proposed labor rates.  In evaluating 
Signal's proposed rates the contracting officer stated:

     Although these [Signal's] unrealistically low rates were brought 
     to Signal's attention twice (cost discussions following initial 
     proposal and in Amendment No. 2)[,] Signal chose not to offer 
     realistic rates, especially for the Senior and Midlevel 
     Programmer/Analyst positions.  As noted in  sec.  M.6.1-6.2 and FAR  sec.  
     52.222-46(b), this represented significant risk that Signal would 
     not be able to attract and retain competent professional 
     employees. 

                    .    .    .    .    .

     I believe that Signal's low rates indicate a "failure to 
     comprehend the complexity of the [contract] requirements["] 
     stated under FAR  sec.  52.222-46, Evaluation of Compensation for 
     Professional Employees.  Although Signal did raise their rates in 
     their first BAFO in response to negotiations, they did not raise 
     any rates for the second BAFO.  Furthermore, they did not offer 
     any explanation in their second BAFO as to why they chose not to 
     increase the labor rates.  In effect, Signal either chose to 
     ignore RFP Amendment 2 or they believed that their 
     compensation/rates were adequate.  In any event, it is believed 
     that Signal does not fully understand or recognize the dynamic 
     and quickly changing labor market forces for these 
     programmer/analyst positions . . . . and the sizable labor market 
     demand for programmer/analyst positions with COBOL CICS 
     experience in Washington, D.C. metropolitan area.  

In specifically comparing InfoPro's proposal to Signal's, the 
contracting officer concluded:  "I believe that the significantly 
lower performance risk (i.e., ability to recruit and retain 
Programmer/Analysts) and realistic labor rates presented by InfoPro 
justifies the higher price and additional [deleted] over Signal's 
price proposal."  Following this determination, a contract was awarded 
to InfoPro.  This protest followed.  

DISCUSSION

Signal protests that it was unreasonable for the agency to determine 
that Signal's proposed labor rates created a high performance risk and 
that InfoPro's proposal reflected lower risk.  In our view, the record 
establishes the reasonableness of the agency's assessment.  

In evaluating the proposals, the agency considered the functional 
duties which the RFP stated programmer/analysts would be required to 
perform,[9] along with the required special skills--that is, 
"demonstrated COBOL and CICS programming experience," SOW at  sec.  
10.2--and compared the proposed rates with the rates the agency was 
being charged for similar services under other contracts.  Among other 
things, the agency considered the rates that Signal was charging 
Customs to provide COBOL/CICS programmers to perform Y2K tasks under 
General Services Administration (GSA) schedule contract No. 
GS-35F-4488G.  Under that contract, Signal was charging Customs 
between $65 and $80 per hour to perform Y2K work on COBOL/CICS 
systems.[10]  That is, under the GSA contract, Signal was charging 
rates that were [deleted].

The agency points out that there are several indications that Signal 
intended to perform the contract's Y2K requirements with personnel 
provided under the higher priced [deleted] labor categories, rather 
than with personnel provided under the lower-priced programmer/analyst 
categories.[11]  First, with the agency report responding to the 
protest, the contracting officer submitted a memorandum, written after 
a post-award debriefing with Signal personnel, which stated: 

     During the discussion of how Customs performed the price 
     analysis/labor-rate analysis, the [contracting officer] asked why 
     Signal elected not to change their labor rates in response to RFP 
     Amendment No. 2 . . . .  Signal indicated in response to this 
     issue, they proposed 2 additional labor categories [deleted] and 
     that they intended to shift the hours from the programmer/analyst 
     positions to these 2 categories.

At the hearing, Signal's Vice President who was responsible for 
submission of Signal's BAFOs acknowledged that the [deleted] 
categories were inserted in response to the agency's desire for 
"strong Year 2000 support," and that the personnel Signal would 
provide under the programmer/analyst categories [deleted].  Tr. at 
24-25.  More specifically, Signal's Vice President testified, "the 
idea there was . . . to go beyond and augment what could be provided 
by the mid-level and senior level programmer/analyst."  Tr. at 25.  

Similarly, Signal's program manager testified that the [deleted] 
categories were proposed to address the agency's concerns regarding 
Signal's low programmer/analyst rates.  Tr. at 191-192.  Additionally, 
the program manager was specifically asked:  "[I]f there is a demand 
for Y2K COBOL/CICS programmers, who do you expect to perform that work 
under the protested contract?"  After asserting that the 
programmer/analysts would be [deleted], Signal's program manager 
acknowledged, "If though there were time constraints under which the 
government was operating and they wanted to get in some high powered 
people, we weren't going to get them for those [programmer/analyst] 
rates."  Tr. at 192-193.  

Finally, Signal's own consultant, retained to assist Signal in 
pursuing this protest, testified as follows:

     Q.  [I]s it your opinion based on your review of the documents 
     that, in fact, Signal intended to use substantially more hours . 
     . . for those two [deleted] labor categories?

     A.  That would be my opinion . . . . 

Tr. at 306.

The evaluation of competing proposals is primarily the responsibility 
of the contracting agency, since the agency is responsible for 
defining its needs and the best method of accommodating those needs, 
and it is the agency that bears the burden of difficulties flowing 
from a defective evaluation.  Litton Sys., Inc., B-237596.3, Aug. 8, 
1990, 90-2 CPD  para.  115 at 8.  Thus, it is not the function of our Office 
to reevaluate proposals; rather, we review the agency's evaluation to 
ensure that it was fair, reasonable, and consistent with the criteria 
stated in the solicitation.  VSE Corp., B-247610.2, Aug. 6, 1992, 92-2 
CPD  para.  81 at 6.  

In evaluating proposals, an agency's consideration of the risks 
associated with unrealistically low rates is always a proper 
consideration, and in evaluating the risks associated with proposed 
labor rates, an agency may properly consider the rates an offeror is 
charging, or has recently charged, for similar services under other 
contracts.  See, e.g., Information Spectrum, Inc., B-256609.3, 
B-256609.5, Sept. 1, 1994, 94-2 CPD  para.  251 at 12; Planning Sys., Inc., 
B-246170.4, Dec. 29, 1992, 92-2 CPD  para.  445 at 4-5; Stanley Assocs., 
Inc., B-232361, Dec. 22, 1988, 88-2 CPD  para.  617 at 5-7. 

Here, the solicitation repeatedly advised offerors that the agency 
would evaluate the performance risks associated with an offeror's 
proposed labor rates.  In performing that evaluation, the agency 
considered the fact that Signal was charging Customs significantly 
higher rates to provide Y2K COBOL/CICS programmers under the GSA 
schedule contract, and concluded from that information that Signal's 
lower proposed rates for programmer/analysts created substantial 
performance risk.[12]  On this record we cannot question the agency's 
determinations regarding Signal's proposed rates.[13]  

Further, the indications that Signal intended to meet the agency's 
needs for Y2K COBOL/CICS programmers under the [deleted] labor 
categories--for which it offered 1 hour per year, per category--also 
provide a reasonable basis for the agency's assessment that Signal's 
proposal presented a high performance risk.  Under task order 
contracts such as this, where the contractor must propose labor hours, 
by skill category, for each task order issued, a proposal offering 
relatively low rates for labor categories with high estimated 
quantities of hours, and high rates for labor categories with low 
estimated quantities of hours, presents the risk that, in performing 
the contract, the agency and contractor will experience disagreements 
which require resolution under the contract's disputes clause, and 
which an agency may properly consider in determining whether to accept 
a particular proposal.  Stanley Assocs., Inc., supra.  Here, Signal's 
proposed rates of [deleted] and [deleted] for labor categories for 
which it offered 1 hour per year created a reasonable basis for the 
agency to conclude that Signal's proposal presented a high performance 
risk.  In sum, the record provides no basis to sustain Signal's 
protest.[14]

The protest is denied.

Comptroller General
of the United States

1. The ADD is responsible for the design, development, enhancement, 
testing, implementation and maintenance of computer application 
programs supporting all of the Customs asset management, 
administrative support, enforcement and commercial cargo processing 
systems, and is also responsible for developing computer programs, 
conducting initial unit testing, and responding to all levels of 
inquiry pertaining to application development systems processing.  RFP 
Statement of Work (SOW)  sec.  1.2.2.

2. Section 1.5.2 of the SOW advised offerors that "The Data Center 
uses . . . CICS as its transaction processing monitor," that "all ADD 
application system are developed using VS COBOL II, Easytrieve, and 
SAS programming languages," and that "Command level CICS, CA-ROSCOE, 
TSO and 'C' programming languages are used as the on-line program 
development systems."

3. The solicitation allocated 60 points for evaluation of technical 
proposals and 20 points for the offeror's oral presentation.

4. Citations to the hearing transcript refer to the hearing that our 
Office conducted in connection with this protest.

5. Total initial prices proposed by the competitive range offerors 
ranged from Signal's low of [deleted] to a high of $18,581,221.  It is 
not clear what formed the basis for Signal's obviously mistaken 
understanding of the evaluation scheme that was set forth in the RFP.   

6. Paragraph 10.0 of the RFP's SOW permitted offerors to propose labor 
categories other than those listed in the solicitation, providing:

            If the Offeror proposes an alternative solution requiring 
            categories of personnel not listed, the Offeror must 
            provide a comparable statement of duties as well as 
            general and specialized experience required.

7. In its protest, Signal represented that it did, in fact, increase 
its programmer/analyst rates in the October 28 BAFO.  However, at the 
hearing, Signal acknowledged that this representation was factually 
inaccurate.  Tr. at 92.

8. InfoPro's technical proposal received a score of [deleted] points; 
Signal's proposal received a score of [deleted] points.

9. There is no dispute that the RFP contemplated "strong Year 2000 
support," and that Signal clearly understood those requirements.  Tr. 
at 24-25, 182-196.  Consistent with the requirements, the RFP's 
qualifications for the programmer/analysts were stated in terms of 
functional capabilities rather than educational degrees or specified 
years of experience.

10. At the hearing, Signal's program manager testified that [deleted].

11. Section H.16 of the RFP, "Ordering Procedures," requires that the 
contractor will propose specific labor hours, by skill category, for 
each task order issued under the contract.

12. The record shows that the agency also had other reasons to view 
Signal's rates as creating performance risk.  Signal states that its 
programmer/analyst rates were based on [deleted].

13. Signal's protest also asserts that the agency considered only the 
fully burdened rates, without considering the base rates that would 
actually be paid to employees.   Signal's assertion is factually 
inaccurate.  The record shows that the agency considered the base 
rates that would be paid to various personnel performing the tasks, as 
well as the applicable fringe benefits, overhead and G&A rates.

14. Signal's protest contains various other allegations, including the 
assertion that the agency's October 14 letter to Signal constituted 
"less than meaningful discussions" regarding the agency's concern that 
Signal's programmer/analyst rates were unrealistically low.  In light 
of the specific concerns expressed in that letter, this allegation is 
without merit; it is difficult to imagine a way in which the agency 
could have been more explicit about its concerns.  Signal also 
complains that the agency should have adjusted Signal's proposed price 
to reflect a price the agency believed to be realistic.  To the extent 
Signal is suggesting that the agency should have increased Signal's 
proposed programmer/analyst rates for evaluation purposes, an agency 
is not permitted to make such adjustments.  J&J Maintenance, Inc., 
B-244366.2, Mar. 7, 1994, 94-1 CPD  para.  177 at 11.  We have considered 
all of Signal's other protest allegations and find in them no basis 
for sustaining the protest.