BNUMBER:  B-275786
DATE:  March 26, 1997
TITLE:  Systems Engineering & Management Company

**********************************************************************

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:Systems Engineering & Management Company

File:     B-275786

Date:March 26, 1997

John Dillon Clarke, Esq., D. Reuben Buck, Esq., and Lane L. McVey, 
Esq., 
McKenna & Cuneo, for the protester.
Richard L. Moorhouse, Esq., Dorn C. McGrath III, Esq., and Mary F. 
Withum, Esq., Holland & Knight, for RJO Enterprises, an intervenor.
John E. Lariccia, Esq., Department of the Air Force, for the agency.
C. Douglas McArthur, Esq., and Christine S. Melody, Esq., Office of 
the General Counsel, GAO, participated in the preparation of the 
decision.

DIGEST

1.  Agency properly concluded that awardee's relatively low proposed 
wage rates were realistic where the awardee's proposal explained the 
assumptions behind its labor rates and indirect rates, and the agency 
reasonably accepted those assumptions based on the local labor market 
and economic situation.

2.  Although awardee received some adverse (yellow/marginal) reports 
on its past performance, agency reasonably evaluated performance risk 
as low where there were a much greater number of blue/exceptional 
reports.

3.  Agency reasonably evaluated awardee's proposal as exceptional 
under the subfactor of work force support where the solicitation 
provided for consideration of such support and record showed that 
awardee had an existing agreement with a large defense contractor to 
provide expert services on an as-needed basis. 

DECISION

Systems Engineering & Management Company (SEMCO) protests the award of 
a contract to RJO Enterprises, Inc., under request for proposals (RFP) 
No. F33657-95-R-0083, issued by the Department of the Air Force for 
nonpersonal advisory and assistance services.  SEMCO principally 
contends that the Air Force failed to conduct a reasonable price 
realism analysis of RJO's proposal.

We deny the protest.

BACKGROUND

On February 1, 1996, the agency issued the solicitation for award of 
three time and materials, indefinite delivery/indefinite quantity 
contracts for acquisition logistics support services, providing 
logistic studies and analysis and management support for acquisition 
in accordance with a statement of objective (SOO) attached to the 
solicitation.[1]  The three awardees would compete for task orders 
issued in accordance with the SOO in support of system management 
staff and system program offices at the aeronautical systems center 
(ASC) at Wright-Patterson Air Force Base (AFB), in Dayton, Ohio; five 
Air Logistics Centers; and Eglin AFB, Florida.[2]

The schedule consisted of four contract line item numbers (CLIN), the 
principal effort being CLIN 0001, for studies, analyses, and 
management support as more specifically defined by the individual task 
orders.  The other three CLINs were as follows:  CLIN 0002, data; CLIN 
0003, materials and subcontracting in support of CLIN 0001; and CLIN 
0004, a cost reimbursable line item for travel and computer services.  
Paragraph H.11 of the solicitation provided that a contractor could 
only subcontract, under CLIN 0003, to satisfy a need for unique 
capabilities or specialized personnel not available from personnel 
regularly assigned to the contract, and only with the prior approval 
of the contracting officer and provided for negotiation of a 
provisional burden rate for each task order so issued.

The RFP provided that the agency would conduct the source selection 
process in accordance with Appendix BB of the Air Force supplement to 
the FAR and award contracts to the offerors whose proposals appeared 
most advantageous to the government.  The three selection criteria 
were technical; management and corporate capability; and price, in 
that order of importance.  The RFP advised offerors that evaluators 
would assess each offeror's understanding of/compliance with 
requirements and the soundness of its approach, to judge how well each 
proposal satisfied the evaluation criteria.  Further, the agency would 
develop a risk assessment under each evaluation factor--proposal risk, 
based on the offeror's proposal, and performance risk, based on the 
offeror's record of past performance as reported by other sources.[3]

In addition to the risk ratings, the RFP provided that proposals would 
be given color/adjectival ratings under the technical and management 
areas.  There were two equally weighted technical subfactors, 
integration problem and sample task orders.  The first required an 
offeror to respond to an integration problem provided with the RFP, 
for the purpose of demonstrating the ability to integrate logistics 
functions.  The second required an offeror to propose a technical 
approach to each of three specific taskings, for the purpose of 
demonstrating procedures for controlling performance during the 
simultaneous performance of three tasks at two locations.

There were five, equally weighted management/corporate capability 
subfactors, including resumes, staffing and task order management 
plan, subcontract management, work force support, and additional 
resources.  In pertinent part, the RFP stated that, under the second 
of these subfactors, staffing and task order management plan, the 
agency would evaluate each offeror's staffing plan, to assess its 
approach to recruiting, retaining, and training of a qualified work 
force.  Under the third subfactor, subcontract management, the agency 
would evaluate the offeror's approach to subcontract management to 
assess effective management interfaces and adequate management control 
of subcontractor work.  Under the fourth, work force support, the 
agency would evaluate the proposal to assess the quality of corporate 
support provided for the work force intended to be directly employed 
in performing task orders under the resulting contract, including 
access to expert services, research tools or other performance aids to 
increase the effectiveness of the work force.[4]  Under the fifth, 
additional resources, the agency would evaluate the proposal to assess 
the quality of additional resources available to perform this contract 
such as facilities and other physical resources, and management of and 
communications with satellite locations.

Price evaluation factors included, in order of importance, composite 
rate and sample task total price.  The RFP provided that the agency 
would develop a composite rate for each offeror--one rate 
representative of the offeror's labor prices---by weighting each labor 
category according to a formula established by the RFP.  In this 
formula, for example, the labor category of "project manager" would 
represent 16 percent of the labor price, with logistics clerks 
representing 3 percent of the labor price.[5]  The labor rates for 
off-site and on-site work would receive equal weight within each 
category; subcontractor labor rates would receive equal weight with 
the prime's labor rates.  Paragraph M.3.3 of the RFP described this 
evaluation scheme as follows:

     " . . . For evaluation purposes, this [labor category] mix is 
     equally divided between on-site and off-site for all locations, 
     and equally divided between prime contractor and subcontractor 
     (if more than one subcontractor, work will be equally allocated 
     among them)."

The second price factor, sample task total price, consisted of the 
price evaluation team's estimate of the most probable price for three 
sample tasks described elsewhere in the solicitation.  This estimate 
would represent the sum of labor, materials and subcontracting, and 
other direct costs.  The RFP also indicated that the agency would 
evaluate prices to ensure reasonableness, realism, and completeness.

On March 4, 1996, the agency received 21 proposals, 10 from section 
8(a) contractors; RJO, SEMCO and nine other offerors were eligible 
only for the one, non-8(a) award at issue here.  The agency performed 
an initial evaluation of all proposals, identified a competitive 
range, held discussions, and requested best and final offers (BAFO), 
submitted on August 1.  The agency evaluated BAFOs and assigned 
ratings.  Under the technical factor, the protester's and the 
awardee's proposals received blue/exceptional ratings with low 
proposal and performance risk.  Under the management factor, RJO's 
proposal received a blue/exceptional rating, versus SEMCO's 
green/acceptable rating; the evaluators found both proposals to 
represent low proposal and performance risk.  In regard to price, RJO 
submitted a lower composite rate than SEMCO did and its proposed 
performance of the sample task resulted in a lower probable cost.  
Based on the higher rating of RJO's proposal under the management 
factor and its lower price, the source selection authority selected 
RJO for award on December 6, 1996.  After receiving a debriefing on 
December 16, SEMCO filed this protest with our Office.

DISCUSSION

Realism of RJO's Proposed Rates

The protester argues that the Air Force failed to conduct a proper 
realism analysis of RJO's proposed wage rates.  Specifically, SEMCO 
contends that the agency improperly failed to consider the effect of 
RJO's failure to include any [DELETED] in its wage rates in the 
[DELETED].  The protester alleges further that the Air Force failed to 
consider that RJO's burdened labor rates were based on an overhead 
rate [DELETED] than RJO's historical rates and a general and 
administrative (G&A) rate [DELETED] than that of the preceding fiscal 
year, and included [DELETED] over the 5-year term of the contract.  
SEMCO also contends that the agency improperly allowed RJO to base 
these indirect rates on a 90-10 split between on-site and off-site 
tasks that departed, SEMCO contends, from the RFP's instructions to 
prepare offers on the basis of a 50-50 split between on-site and 
off-site work.

The purpose of a price realism analysis by an agency under a time and 
materials contract is to determine the extent to which the offeror's 
proposed labor rates and other costs are realistic and reasonable.  
Since an evaluation of this nature involves the exercise of informed 
judgment, the agency clearly is in the best position to make this 
determination; consequently, we will not disturb such a determination 
absent a showing that it was unreasonable.  Koba Assocs., Inc., 
B-251356, Mar. 25, 1993, 93-1 CPD  para.  267 at 5.  We find nothing in the 
record showing that the agency's determination here was other than 
reasonable.

The agency states that it compared the labor rates proposed by RJO 
with rates proposed by other offerors, as well as with salaries for 
comparable positions in the civil service; this is a reasonable method 
of comparison.  FAR  sec.  15.805-2(a); Earle Palmer Brown Cos., Inc., 70 
Comp. Gen. 667, 674 (1991), 91-2 CPD  para.  134 at 8-9.  The unescalated 
rates fell within the range of rates offered by other offerors.  
Further, RJO's proposal acknowledged and addressed the lack of 
[DELETED], explaining its assumption that defense cutbacks would 
continue to place downward pressure on wages.  The agency asserts 
further that it considered this assumption reasonable, inasmuch as the 
inflation rate has been particularly low in the Dayton area recently.  
According to the agency, both it and General Motors, the two largest 
employers in the area, have reduced staff, and the labor market has 
been filled with personnel experienced in the logistics area, many of 
whom are military retirees.  Given these facts, which the protester 
does not refute, we see no basis to conclude that it was unreasonable 
for the agency to accept RJO's explanation for the lack of [DELETED] 
and to conclude that RJO's rates were realistic.  Moreover, as the Air 
Force notes, even if it had applied the same [DELETED] escalation rate 
that SEMCO used to RJO's proposed rates, RJO'S composite rate would 
still be lower than SEMCO's.

With regard to the indirect rates, RJO's proposal similarly 
acknowledges and provides a rationale for its low price.  RJO states 
that its overhead and G&A rates were [DELETED] to increase its cost 
competitiveness, and asserts that it anticipates certain 
economies--resulting from an increased business base and increases in 
operating efficiencies--to obtain the projected rates.  Further, RJO 
asserts, whether or not these assumptions prove correct, the fixed 
rates will not change, and RJO still must compete for work under the 
contract with the other two awardees.      RJO also states that it 
proposed [DELETED] due to competitive pressures, and acknowledges that 
the contract could be a [DELETED] vehicle, which will nevertheless 
allow RJO to maintain the skills of its existing work force in the 
face of a declining market.

In short, as with the direct rates, the record shows that the 
awardee's proposal identified and explained the issue, and that the 
agency found the explanation reasonable and the cost realistic.  In 
essence, RJO explained that, even assuming its projected internal 
economies did not materialize, it would effectively cap its rates in 
an effort to remain competitive in the field.  We see no basis to 
conclude that this position--or the agency's acceptance of it as a 
viable economic strategy--was unreasonable.  On the contrary, the 
agency's conclusions represented the type of informed judgment that is 
within its discretion to make in evaluating the realism of an 
offeror's proposed rates under a time and materials contract.

Finally, SEMCO asserts that RJO improperly based its indirect rates on 
a [DELETED] split between on-site and off-site tasks, given that the 
RFP directed offerors to prepare their offers on the basis of a 50-50 
split.  SEMCO's position rests on its interpretation of paragraph 
M.3.3, quoted above, as an instruction to offerors to base their 
proposals on a 50-50 split.  The protester's interpretation is 
unreasonable, as explained below.

Attachment 4 to the RFP consisted of 28 tables, each consisting of 35 
blocks, into which offerors were to insert the rates for the seven 
labor categories for each of 5 years of performance.  The 28 charts 
represented proposed rates for the prime contractor, on-site and 
off-site, and for its subcontractors, on-site and off-site, for each 
of the 7 locations where the contractors were to perform work.  
Paragraph M.3.3 states merely that, in calculating a composite labor 
rate for purposes of the price evaluation, the agency will give ("for 
evaluation purposes only") equal weight to prime contractor rates, 
subcontractor rates, and on-site and off-site rates.[6]  Paragraph 
M.3.3 is therefore not an instruction to offerors but merely the 
agency's method of describing its evaluation process, so that offerors 
will know the common basis for evaluation.  Thus, to the extent RJO's 
proposal states that it offered the [DELETED] indirect rates for 
on-site and off-site work, based on the assumption that the actual 
split would be [DELETED], there was nothing in paragraph M.3.3 that 
prohibited RJO from doing so.[7]

Evaluation of RJO's Proposal

SEMCO asserts that the agency improperly evaluated the proposal risk 
of RJO's proposal, in that SEMCO contends that the awardee's wages are 
too low for RJO to retain qualified personnel over the course of 
contract performance.[8]   In addition, SEMCO questions the evaluation 
of RJO's performance risk as low under the management and cost 
factors.  SEMCO notes that the past performance reports received by 
the agency include at least four yellow/marginal ratings, which, SEMCO 
contends, should have resulted in lowering the performance risk rating 
to "moderate."  SEMCO also challenges the assignment of a 
blue/exceptional rating to RJO's proposal under the work force support 
subfactor.  SEMCO argues that the agency improperly considered a basic 
ordering agreement that RJO had with [DELETED] as a strength under the 
work force support subfactor, without informing other offerors that it 
would consider such arrangements in the evaluation.

The evaluation of technical proposals is a matter within the 
discretion of the contracting agency because the agency is responsible 
for defining its needs and the best method of accommodating them.  
McDonnell Douglas Corp., B-259694.2; B-259694.3, June 16, 1995, 95-2 
CPD  para.  51 at 17.  In reviewing an agency's evaluation, we will not 
reevaluate technical proposals, but will examine the record to 
determine whether the agency's judgment was reasonable and consistent 
with the stated evaluation criteria and applicable statutes and 
regulations.  ESCO, Inc., 66 Comp. Gen. 404, 410 (1987), 87-1 CPD  para.  
450 at 7.

The protester first argues that the agency's conclusion that RJO's 
proposal posed a low proposal risk ignores the possibility that RJO 
would be unable to retain qualified personnel due to its low wage 
rates.  Our analysis of the agency's price realism evaluation of RJO's 
proposed wage rates applies as well to the agency's determination that 
the proposal risk of RJO's proposal was low.  In essence, the 
awardee's proposal acknowledged the low wages and provided a 
convincing rationale for its ability to offer such wages, which the 
agency reasonably accepted, given the local labor market and economic 
conditions.  The protester has presented nothing, apart from its 
disagreement, to demonstrate that the agency was unreasonable in its 
assessment of proposal risk.

With regard to the evaluation of performance risk, the Air Force 
states that it received 22 documents containing information on RJO's 
past performance--eight functional area evaluator periodic 
surveillance reports and 14 past performance questionnaires.  Only one 
of these indicated a problem in the [DELETED] area; three concerned 
the [DELETED] area.  Our review shows that of these four 
yellow/marginal ratings, two came from the same source, related to the 
same problem arising early in performance regarding RJO's [DELETED].  
This problem did not preclude the respondent from recommending further 
awards to RJO.  One other report concerned problems with a 
subcontractor, which, in view of RJO's proposal not to subcontract, 
had little relevance to the present effort.  Ultimately, the record 
shows one yellow rating[9] to be weighed against dozens of blue ones; 
the protester's disagreement with the agency's assessment that, based 
on the reports as a whole, the performance risk was low, does not show 
that the agency's judgment was unreasonable.  McDonnell Douglas 
Corp.., supra.

Finally, the protester challenges the agency's reliance upon RJO's 
agreement with [DELETED] to assign RJO's proposal a blue/exceptional 
rating under the work force support subfactor.  The awardee's proposal 
discusses its basic ordering agreement with [DELETED] for engineering, 
software development, and related services.  The agreement includes 
elements of the instant scope of work, and RJO discussed its intention 
to utilize the agreement on an as-needed basis.  The evaluators 
considered this agreement a major strength of the proposal, under the 
work force support subfactor.  Under that subfactor, the RFP 
specifically stated that offerors were to describe any routinely 
available support resources, including access to expert services.  
Thus, contrary to the protester's allegations, the RFP clearly 
provides for consideration of such agreements; moreover, even if the 
RFP language describing the elements to be considered under the work 
force support subfactor were not so specific, such support is 
logically encompassed by the subfactor itself.  Cobra Technologies, 
Inc., B-272041; B-272041.2, Aug. 20, 1996, 96-2 CPD  para.  73 at 3 (matters 
logically encompassed by the stated evaluation criteria properly may 
be taken into account in proposal evaluation).  The record therefore 
supports the agency's consideration of the basic ordering agreement 
under the subfactor of work force support.

In response to the agency report, SEMCO raised several other issues 
relative to this agreement between RJO and [DELETED].[10]  The 
protester's arguments--that the agency should have considered the 
costs of the agreement and that the agreement is inconsistent with 
RJO's professed intention not to subcontract--appear to confuse the 
concepts of work force support and subcontracting.  As the agency 
points out, unlike the subcontracts proposed by SEMCO,[11] RJO and 
[DELETED] did not enter into the agreement in expectation of this 
award.  There are no direct labor costs proposed for [DELETED] 
personnel, and the relationship, as described in the proposal, is not 
for accomplishing specific task orders but for no-notice, 
quick-reaction provision of specialized expertise.  RJO's proposal 
does suggest that the agreement could be utilized to subcontract for 
unique capabilities or specialized personnel, as contemplated under 
CLIN 0003, but as the agency points out, such subcontracting is 
limited to unique situations and requires the approval of the 
contracting officer.  Given the nature of the role for [DELETED] 
proposed by RJO, we think the agency reasonably evaluated it, not as a 
proposed subcontractor, but as the type of work force support--i.e., 
access to expert services--contemplated under the management and 
corporate capability factor.

The protest is denied.

Comptroller General
of the United States

1. The SOO identified 15 general categories of tasks to be performed, 
as follows:  4.1, integration of maintenance planning; 4.2, 
integration of manpower and personnel; 4.3, integration of supply 
support; 4.4, integration of support equipment; 4.5, integration of 
technical data; 4.6, integration of training and training support; 
4.7, integration of computer resources support; 4.8, integration of 
facilities; 4.9, integration of packaging, handling, storage and 
transportation; 4.10, integration of design interface; and 4.11, other 
management support and integrated logistics support-related tasks, 
including assistance with logistics support analyses, life cycle cost 
management and design-to-cost programs, logistics composite models, 
warranties, and training and instruction.

2. The RFP provided for two awards, not at issue here, under section 
8(a) of the Small Business Act, 15 U.S.C.  sec.  637(a) (1994), and 
included the clause at Federal Acquisition Regulation (FAR)  sec.  
52.216-28, Multiple Awards for Advisory and Assistance Services, 
providing that the three awardees would gain the opportunity to 
compete among themselves for task orders issued by the agency.  FAR  sec.  
16.505(b)(1) (FAC 90-40).  Exceptions to this competition requirement 
involve urgency, unique capabilities, and follow-on taskings, in 
addition to situations where it is necessary to place an order with a 
particular contractor to satisfy a minimum guarantee.  FAR  sec.  
16.505(b)(2)(i)-(iv).  The instant solicitation contained a ceiling 
price of $33 million and a minimum order guarantee of $25,000. 

3. As defined in the source selection plan, "high" risk consisted of 
"significant doubt," based on the offeror's performance record, that 
the offeror could satisfactorily perform the proposed effort.  
"Moderate" risk meant that "some doubt exists," while "low" risk meant 
that "little doubt exists."

4. Paragraph L.3.4.4 of the RFP directed offerors to describe any 
routinely available support resources that would increase the 
effectiveness of employees directly employed in performance of the 
contract.

5. The five other labor categories represented the following 
percentages of the labor price:  ops research analyst, 8 percent; 
senior logistician, 25 percent; journeyman logistician, 25 percent; 
associate logistician, 8 percent, and administrative management 
assistant, 15 percent.

6. For example, the offeror inserts the proposed rate for the project 
manager into the appropriate block of the tables in attachment 4.  
Table 1 represents the prime contractor's on-site rates; table 2, the 
prime's off-site rates.  Table 3 represents the subcontractor's 
on-site rates; table 4, the subcontractor's off-site rates.  There are 
seven sets of tables, one for each location.  To compute the project 
manager rate, the prime's one-site rate for Wright-Patterson AFB is 
added to the subcontractor's on-site rate; these are added to the 
off-site rates.  In the case of RJO, there is [DELETED] applicable for 
the four tables at Wright-Patterson AFB.  In the case of SEMCO, there 
are [DELETED] (the subcontractor rate being further calculated by 
averaging the subcontractors' proposed rates).  The rate for 
Wright-Patterson AFB is calculated by averaging these rates--[DELETED] 
for RJO and [DELETED] for SEMCO.  The Wright-Patterson AFB rates are 
then averaged with similarly derived rates for each of the other six 
locations, with Wright-Patterson AFB receiving a weight 14 times that 
of any other location (or two and one-third times the value of all the 
other rates combined).  The process is repeated for each labor 
category, and the rates weighted, as described in footnote 4.  The 
agency derives a composite rate for each year.  The solicitation 
described the automated process for these calculations, known as 
"COMPRATE."

7. The potential problem here is unbalancing, if for example, RJO had 
inflated its on-site prices in the knowledge that the evaluation would 
place disproportionate weight on off-site prices.  SEMCO makes no such 
allegation and our review of RJO's proposal shows that the rates 
proposed for on-site work are [DELETED] or, in some cases, [DELETED] 
than the rates for off-site work.

8. Initially, SEMCO asserted that, in failing to include the clause at 
FAR  sec.  52.222-46, Evaluation of Compensation for Professional 
Employees, the agency violated Office of Federal Procurement Policy 
(OFPP) Policy letter No. 78-2.  Such allegations of impropriety 
apparent on the face of the solicitation must be filed prior to the 
submission of initial proposals, which took place here more than 9 
months prior to the filing of the protest.  Bid Protest Regulations,  sec.  
21.2(a)(1), 61 Fed. Reg. 39039, 39043 (1996) (to be codified at 4 
C.F.R.  sec.  21.2(a)(1)).  Our Office discussed this issue with the 
parties prior to the submission of the agency report, and dismissed 
it, insofar as it pertains to the FAR clause and the failure to follow 
OFPP policy.  See also Systems & Programming Resources Inc., B-192190, 
Aug. 16, 1978, 78-2 CPD  para.  124 at 2 (GAO will not consider allegations 
that agency did not comply with executive branch policy represented by 
OFPP letter No. 78-2).

9. This past performance questionnaire reported inadequacies in RJO's 
[DELETED] and its [DELETED].  The respondents referred evaluators to 
the Defense Contract Audit Agency for details, but indicated that they 
would still award a contract to RJO.

10. In its response to the agency report, SEMCO asserted that the 
proposed use of [DELETED] for such support creates a conflict of 
interest with another contract involving RJO's role in overseeing 
[DELETED] performance as the prime contractor on the AC-130 Gunship.  
How RJO's role in overseeing [DELETED] performance conflicts with its 
role as a prime contractor should it use [DELETED] as a subcontractor 
under the instant effort is not readily apparent from the record, and 
SEMCO's subsequent comments shed no light on the matter.  The agency 
speculates that if RJO assigned [DELETED] a certain number of the 
tasks in the SOO, [DELETED] could have a conflict with its role as a 
prime under other contracts, but correctly points out that the time to 
address such a conflict would be when and if it arises. 

11. Of 15 sections in the SOO, SEMCO proposed the use of [DELETED] for 
performance of [DELETED] and a second subcontractor, [DELETED], 
including [DELETED] of those for which [DELETED] was proposed.  SEMCO 
thus proposed to subcontract work under [DELETED] of 15 sections; the 
subcontractors submitted supplemental proposals in support of SEMCO.