BNUMBER:  B-275807.2 
DATE:  April 16, 1997
TITLE: Matter of:Litton Systems, Inc., Amecom Division 

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

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:Litton Systems, Inc., Amecom Division

File:     B-275807.2

Date:April 16, 1997

John S. Pachter, Esq., Jonathan D. Shaffer, Esq., and Eun K. Chung, 
Esq., Smith, Pachter, McWhorter and D'Ambrosio, for the protester.
Thomas L. McGovern III, Esq., and S. Gregg Kunzi, Esq., Hogan and 
Hartson, for Lockheed Martin Librascope, an intervenor.
Robert W. Poor, Esq., and Jeffrey I. Kessler, Esq., Department of the 
Army, for the agency.
Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Protester's arguments that the cost realism adjustments made to 
its proposed costs were improper are denied where the record shows 
that the agency had a reasonable basis for its conclusions.

2.  Contention that agency unreasonably evaluated protester's 
technical proposal, and improperly concluded that the awardee's 
higher-rated, higher-probable cost proposal offered the best value to 
the government is denied where the record shows that the agency 
evaluation was reasonable and in accordance with the stated evaluation 
criteria.

3.  Protest challenging contracting officer's conclusion that there 
was no basis to discriminate between proposals in the area of 
performance risk is denied where the record shows that the contracting 
officer reasonably discounted the differences between the two 
performance risk assessments using her discretion in accordance with 
the stated weight of this factor in the evaluation scheme, and 
expressly documented her conclusion in the source selection decision.

4.  Agency's attempt to make a value assessment of additional expenses 
associated with its selection decision, in addition to its technical 
evaluation and cost realism adjustments, is not per se unreasonable, 
so long as the value assessment has a rational basis and otherwise 
follows the evaluation scheme.

DECISION

Litton Systems, Inc., Amecom Division protests the award of a contract 
to Lockheed Martin Librascope under request for proposals (RFP) No. 
DAAM01-96-R-0028, issued by the Department of the Army for engineering 
and manufacturing development of a Joint Biological Point Detection 
System (JBPDS) for the military services.  Litton contends that the 
selection of Lockheed's more costly proposal was based on an 
unreasonable cost realism analysis, and an irrational best value 
determination.  In addition, Litton argues that the Army failed to 
hold meaningful discussions.

We deny the protest.

BACKGROUND

The RFP, issued on May 22, 1996, anticipated award of a 33-month cost 
reimbursement contract for study, design, fabrication, integration, 
installation, test and documentation for the JBPDS.  The JBPDS will be 
comprised of modular devices that can be configured for use on various 
Army, Air Force, Marine Corps, and Navy platforms, e.g., wheeled 
vehicles, ships, and man-portable units.  These devices will permit 
users to detect and identify airborne biological warfare agents.  The 
statement of work required fabrication of two sets of prototype JBPDS 
components for engineering design testing, followed by fabrication of 
28 separate JBPDS units for the various military services.  

Potential offerors were requested to submit technical and management 
proposals, along with a cost proposal identifying estimated costs for 
labor, materials, subcontracts, and other costs organized by work 
breakdown structure (WBS) elements.  The evaluation scheme advised 
that the Army would select the proposal offering the best value, to be 
determined after assessment of the proposals under five evaluation 
factors:  (1) technical; (2) management; (3) probable costs; (4) 
performance risk; and (5) socio-economic commitment.

Section M.8 of the RFP advised that the assessment of the technical 
and management factors would be combined into a merit rating, which 
would be significantly more important than the remaining three 
evaluation factors.  The merit rating was to be calculated on a 
100-point scale, with up to 10 bonus points available for proposals 
offering advantages to the government.  The remaining three 
factors--probable costs, performance risk, and socio-economic 
commitment--were not to be scored but were to receive a narrative 
evaluation.  The provision also explained that probable costs would be 
slightly more important than performance risk, which would be more 
important than the socio-economic commitment factor.  As with any cost 
reimbursement contract, offerors were advised that their cost 
proposals would be evaluated for realism and reasonableness to 
determine the most probable cost to the government.  RFP  sec.  M.2.1.4.

By the initial closing date, the Army received proposals from Litton 
and Lockheed Martin.  Both proposals were evaluated and found to be 
within the competitive range, and written and oral discussions were 
held with both offerors regarding weaknesses in their proposals.  Both 
offerors were asked to submit best and final offers (BAFO) and both 
did so by the October 28 due date.

Upon review of the BAFOs, Litton's proposal received a merit score of 
92.5 with probable costs of $30 million, compared with Lockheed's 
proposal's score of 105.3 with probable costs of $32.2 million.  The 
Army next performed a "value analysis" to compare and quantify--in 
calculations separate and distinct from the cost realism 
review--certain differences in the proposed technical approaches.  The 
total result of these calculations was a $3.9 million perceived 
savings associated with award to Lockheed, which was apportioned 
approximately as a $1.7 million increase in Litton's most probable 
costs, and a $2.2 million decrease in Lockheed's most probable costs.  
Agency Report, Tab D-7.  A summary of the BAFO evaluation results is 
set forth below:

      EVALUATION
        FACTOR               LITTON              LOCKHEED

Merit Score                   92.5                 105.3

   -- Advantages                8                   17

   -- Disadvantages            17                    2

Proposed Costs         $ [deleted] million    $ 31.8 million

Probable Costs           $ 30.0 million       $ 32.2 million

Value Analysis Costs     $ 31.7 million       $ 30.0 million

Performance Risk         Low to Moderate         Moderate

Socio-Economic Commitment  Acceptable           Acceptable 
Using the information shown above, the source selection authority 
(SSA) explains her decision to select Lockheed for award was based on 
the following analysis:

--a determination that Lockheed's proposal's 12.8 point margin of 
superiority over Litton's proposal in the most significant area of 
merit rating, together with Lockheed's greater number of advantages 
and fewer disadvantages, showed that the Lockheed proposal was 
technically superior to Litton's; 

--a determination that the $2.2 million lower probable costs for 
Litton's proposal were outweighed by Lockheed's superior technical 
proposal, especially given the RFP's evaluation scheme which specified 
that merit rating would be significantly more important than probable 
costs; 

--a determination that the difference in performance risk between the 
two proposals was not a basis for discriminating between the proposals 
(and neither was the identical rating given the proposals under the 
socio-economic commitment factor); and,

--a conclusion that the technical approach in the Lockheed proposal 
offered approximately $3.9 million in long-term cost benefits when 
compared to the technical approach in the Litton proposal, leading to 
an overall conclusion--shown in the value analysis row in the table 
above--that the Lockheed proposal offered the best value to the 
government by a margin of approximately $1.7 million.

Based on these conclusions, Lockheed received the award and Litton's 
initial and supplemental protests followed.[1]

COST REALISM ADJUSTMENTS

Litton raises four separate challenges to upward adjustments to its 
proposed costs made during the course of the agency's cost realism 
review.  These adjustments were (1) costs associated with a 1,280 
engineering hour BAFO increase in effort for one of Litton's 
subcontractors [deleted]; (2) costs associated with vendor engineer 
support from three vendors Litton claims would have provided these 
services for free [deleted]; (3) costs associated with the packaging 
effort required by the RFP [deleted]; and (4) costs associated with 
the quality assurance requirements of the RFP [deleted].  

When an agency evaluates proposals for the award of a cost 
reimbursement contract, an offeror's proposed estimated costs 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 (FAR)  sec.  15.605(c) (FAC 90-31).  
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, 75 (1984), 84-2 CPD  para.  
542 at 5.  Contracting officers are required by the FAR to document 
this evaluation, FAR  sec.  15.608(a)(1), and when properly documented, our 
review of an agency's exercise of judgment in this area is limited to 
determining whether the agency's cost evaluation was reasonably based 
and not arbitrary.  General Research Corp., 70 Comp. Gen. 279, 282 
(1991), 91-1 CPD  para.  183 at 5, aff'd, American Managment Sys., Inc.; 
Department of the Army--Recon., 70 Comp. Gen. 510, 515 (1991), 91-1 
CPD  para.  492 at 7-8; Grey Advertising, Inc., 55 Comp. Gen. 1111, 1126 
(1976), 76-1 CPD  para.  325 at 27-28.

As part of our review of each of Litton's challenges, we have reviewed 
the pleadings, the evaluation materials, and the proposals and 
conclude that none of the adjustments was unreasonable.  To 
illustrate, we will discuss two of these challenges in detail below.

Increase in Subcontract Effort Under WBS 3.1.1.1.2

With respect to the adjustment associated with an increase in 
engineering hours for one of Litton's subcontractors under WBS 
3.1.1.1.2--for component and system integration design--the record 
shows that the adjustment was ultimately made in response to unclear 
information provided in Litton's BAFO, and was reasonable.  Our 
reasons for this conclusion are explained below.

The RFP here required that cost proposals identify estimated costs for 
labor, materials, subcontracts, and other costs, organized by WBS 
elements.  RFP  sec.  L.4.2.  For WBS 3.1.1.1.2, Litton's BAFO included a 
list of its own labor hours, material costs, and other direct costs 
associated with performing this effort, followed by a list of the 
proposed costs associated with the efforts of six subcontractors.  
Litton BAFO, Cost Section at 3.  This information was arrayed in 
tabular form to permit a comparison of the original proposed hours or 
costs, the change from the original proposal to the BAFO, and the 
final BAFO proposed hours or costs.  

Litton's BAFO table for WBS 3.1.1.1.2 shows a total of seven changes 
from the original proposal to the BAFO.  In every instance where the 
table shows a change, a corresponding note explaining the change 
follows the table.  In every instance but the one at issue here, the 
note explaining the change permits a reader to calculate precisely the 
nature of the change.[2]  However, for the subcontract at issue, the 
BAFO table shows a reduction of [deleted] from the original proposed 
cost of [deleted], for a BAFO cost of [deleted].  The corresponding 
note ostensibly explaining this cost reduction states that:

  "[Subcontractor A] added 1,280 design hours in order to ensure that 
  the detailed design model is developed such that fabrication, 
  producibility and design documentation efforts can progress 
  efficiently with the compressed design cycle."  Id.

Faced with the apparent contradiction between a decrease in proposal 
costs and an explanation outlining an increase in engineering hours, 
the Army evaluators concluded that Litton must have erred in 
subtracting this figure, and instead must have intended to add 
[deleted] to its original offer.  Thus, the Army added the figure 
twice to Litton's BAFO--once to cancel the improper deduction; a 
second time to account for the increase in engineering hours--and 
added the appropriate overhead burden.  Litton argues that the 
resulting upward adjustment of [deleted] to its proposed costs is 
unreasonable.   

As an initial matter, we reject any suggestion that an adjustment in 
this area was unnecessary.  In our view, Litton's BAFO reduction in 
proposed costs accompanied by an explanation that should have resulted 
in an increase in costs--i.e., an addition of more than 1,000 
engineering hours for one subcontractor alone--created a reasonable 
presumption on the part of agency evaluators that something was amiss 
in the proposal.  See Aircraft Porous Media, Inc., B-241655.2; 
B-241655.3, Apr. 8, 1991, 91-1 CPD  para.  356 at 7, aff'd, B-241665.4, June 
28, 1991, 91-1 CPD  para.  613 at 6 ("[o]fferors who include inadequately 
explained cost reductions in their BAFOs on cost reimbursable 
procurements do so at their own peril").  Since this issue arose for 
the first time in Litton's BAFO, the agency was under no obligation to 
reopen discussions with Litton, or otherwise seek clarification from 
Litton, about what the BAFO entry meant.  Mine Safety Appliances Co., 
B-242379.5, Aug. 6, 1992, 92-2 CPD  para.  76 at 6-7.  Thus, we limit our 
review to the question of whether the adjustment was reasonable.

With respect to the amount of the adjustment, Litton claims the amount 
was unreasonable because nothing in its BAFO suggests that the 
[deleted] reduction is related to the 1,280 increase in engineering 
hours, and because the amount exceeds a reasonable estimate of the 
cost of 1,280 hours of engineering design time.  In this regard, 
Litton divides the full amount of the adjustment [deleted] by 1,280 
hours to show an hourly adjustment amount of [deleted].  Litton Final 
Reply, Mar. 17, 1997, at 26.  Litton's challenges are unpersuasive and 
based on misleading calculations.

To accept Litton's claim that the agency unreasonably assumed a 
relationship between the adjustment and the engineering hour increase 
would require us to permit Litton to repudiate the very explanations 
it authored to justify its changes.  First, the record shows that 
every other change in costs from the original proposal for this WBS 
was clearly explained.  For example, the one other explanatory note 
detailing an increase in engineering time followed a corresponding 
increase in the cost table, while all the remaining notes explaining 
decreases in effort followed corresponding decreases on the cost 
table.  Since the explanation offered for this particular change was 
an increase in engineering hours--which should have resulted in an 
increase in cost--we think the evaluators reasonably concluded that 
the dollar amount identified must be the cost of the engineering 
hours.  In short, we cannot find fault with the agency for assuming 
that the offeror probably meant this explanation of an increase in 
engineering hours to be associated with an increase in costs, rather 
than a decrease.  And likewise, we see nothing unreasonable about 
assuming--as a starting point--that the amount of the increase is the 
number shown on the table.  

Litton's challenges to the agency's assumption--i.e., that the 
[deleted] figure must have been the cost of the engineering hour 
increase--rely on flawed calculations that greatly overstate the 
magnitude of the cost adjustment.  For example, Litton's claim that 
the evaluators should have known that an adjustment of [deleted] per 
hour was unreasonable is based on calculations that do not withstand 
scrutiny.  First, Litton is fully aware that the proposed costs in 
this area were analyzed without burden.  Thus, the analysis should 
have begun with the unburdened sum of [deleted].  Second, Litton's 
calculation fails to recognize that half of the unburdened adjustment 
[deleted] is to correct the deduction believed to have been taken in 
error--a belief we consider reasonable since the only explanation for 
the deduction outlines an increase.  Thus, to more accurately 
criticize the Army's approach, one should divide half of the 
unburdened adjustment [deleted] by the increase in engineering hours 
(1,280) to show a rate of [deleted] per hour. 

While we are inclined to agree with Litton that it would have been 
preferable for the Army to have calculated the average hourly rate for 
this subcontractor's engineering time from Litton's initial 
proposal--which would have shown an average rate of [deleted] per 
hour--rather than to assume that the stated figure was the amount of 
the increase, we conclude that the agency's approach was reasonable in 
the context of the materials in front of the agency at the time it 
made its review.  In addition, we do not consider the adjustment so 
excessive as to have required that the evaluators recognize that it 
was probably overstated.[3]  In fact, given that Litton was ultimately 
responsible for creating the confusion regarding this issue, and given 
that the adjustment made on its face was not significantly out of 
line, we deny this challenge to the evaluation.[4]  See Aircraft 
Porous Media, Inc., supra, 91-1 CPD  para.  356 at 7-11.

Vendor Engineering Support

With respect to the agency's upward adjustment to Litton's proposed 
costs for engineering support from three vendors under the RFP's 
requirement for a reliability and maintainability (R&M) plan, the 
record shows that the agency added a total of [deleted].  This 
adjustment was made after Litton's BAFO provided no costs for these 
services, despite the agency's warning during discussions that the 
government believed Litton had inadequate commitments to complete the 
required efforts.  For the reasons below, we agree with the agency's 
adjustment.

During oral discussions, the Army pointed out the following concern to 
Litton regarding its R&M plan:

  "The offeror appears to place more effort on quality planning and 
  reliability engineering paper studies than actual performance.  The 
  [g]overnment is concerned that the offeror will not be capable of 
  accomplishing the effort discussed in the technical proposal, or of 
  meeting system requirements in the performance specification without 
  additional provisions for material and test support."

Litton Response to Oral Negotiations, Oct. 7, 1996, at 15 (quoting the 
Army's stated concern).

In its lengthy reply answering the agency's concern, Litton explained 
its commitment to this effort and stated that it would "exploit its 
extensive vendor partner network to develop hard data to support much 
of the R&M data requirement at no cost to the program."  Id.  In its 
BAFO, Litton provided letters from three vendors all promising "to 
support the efforts of [Litton] in evaluating devices for 
incorporation into the [JBPDS]."  Litton's BAFO at the three 
unnumbered pages following page 46.  Specifically, each of the three 
vendor letters promises to "provide engineering support to assist 
[Litton] in understanding the physical and electrical interfaces to 
assess the engineering integration effort necessary for the device 
incorporation into the JBPDS."  Id.  Litton's BAFO cost proposal 
included no costs for these efforts.

The Army explains that while it reviewed Litton's answer, and the 
vendors' letters, it was concerned that the vendors had made no 
explicit promise to provide engineering time for component evaluation 
and redesign effort for their respective components at no cost to the 
government.  Since the Army believed that such efforts would be 
necessary, and since there was no clear promise that the effort would 
be provided without cost, the evaluators added approximately 1,000 
hours of engineering time for this effort to Litton's cost.  The 
resulting adjustment, with burden, totaled [deleted].

Litton claims that the adjustment to its costs in this area was 
unreasonable because it explained this matter to the agency, and 
because it produced letters from the three vendors promising to 
provide this effort at no cost.  In addition, Litton argues that the 
Army should have accepted evidence Litton provided showing that this 
kind of effort was donated by vendors in a recent and similar Army 
program. 

Our review of the record here leads us to conclude that the Army 
reasonably elected not to accept Litton's vague promises that its 
vendors would provide these services at no cost.  First, the language 
of Litton's own response to the agency's stated concern is 
inconclusive.  Litton does not say that all such effort will be 
provided at no cost, or that certain contractors will provide the 
effort at no cost.  Rather, Litton only states generally that it will 
push its vendors to provide "much" of the R&M effort at no cost.  In 
addition, the letters themselves are not explicit about this promise.  
Finally, Litton's claim that these services were provided by vendors 
at no cost on another program does not translate to a conclusion that 
the Army's cost realism adjustment here was unnecessary or 
unreasonable.  

In short, despite Litton's complaints, it is the Army, not Litton, 
that must bear the risk if these vendors refuse to perform the needed 
services at no cost.  See AmerInd, Inc., B-248324, Aug. 6, 1992, 92-2 
CPD  para.  85 at 8.  Here, where the Army clearly attempted to convince 
Litton during discussions that it preferred to see an express 
commitment of resources to this effort, Litton is ultimately 
responsible for failing to respond to the Army's concern.  See 
Rockwell Int'l Corp., B-250921.2, Apr. 21, 1993, 93-1 CPD  para.  338 at 12 
(Rockwell's challenge to a cost realism adjustment failed where 
Rockwell bore ultimate responsibility for failing to propose 
engineering hours to the appropriate WBS categories as the CO urged 
during discussions).  Thus, we find nothing unreasonable in the 
agency's rejection of this claimed "free ride" from Litton's vendors.  
AmerInd Inc., supra.

BEST VALUE ANALYSIS

Litton raises two types of challenges to what it terms the "best value 
analysis"--a claim that the Army unreasonably concluded that the 
slight difference in past performance risk between Lockheed and Litton 
provided no basis to discriminate between the two proposals, and 
arguments challenging the value analysis applied to proposals after 
the determination of most probable costs.  Although the conclusions 
regarding both of these issues are memorialized in the Army's final 
decision document--entitled Source Selection and Best Value 
Determination, December 9, 1996--the first involves an evaluation 
conclusion, while the second is more like a cost realism review.[5]  

As outlined above, the best value decision in this procurement 
followed determinations that:  (1) the Lockheed technical proposal was 
superior to Litton's technical proposal; (2) the $2.2 million lower 
probable costs for Litton's proposal were outweighed by the Lockheed 
proposal's superior technical approach; (3) the difference in 
performance risk between the two offerors provided no basis to 
discriminate between them; and (4) Lockheed's proposed technical 
approach offered approximately $3.9 million in long-term cost benefits 
over the Litton proposal.  As a result, the SSA concluded that the 
Lockheed proposal offered the best value to the government by a margin 
of approximately $1.7 million.

Evaluation of Performance Risk

With respect to Litton's challenge to performance risk, the record 
shows that the initial report on performance risk prepared by the 
Performance Risk Assessment Group (PRAG) on August 19 assessed 
Lockheed's past performance as presenting moderate risk, and Litton's 
past performance as presenting low to moderate risk.  Lockheed's risk 
assessment was based on fairly negative views by PRAG members of 
Lockheed's prior performance on a contract very similar to the JBPDS 
effort here.

After the evaluation of BAFOs, and shortly before the award decision, 
the contracting officer asked the PRAG to revisit its initial negative 
assessment of Lockheed's performance risk.  In an undated memorandum 
appended to the initial PRAG report, the PRAG made only minimal 
changes to the assessment of Lockheed's past performance rating.  For 
example, the PRAG continued to rate Lockheed's performance risk as 
moderate and continued to express concern about whether Lockheed would 
be able to meet the performance and schedule requirements of the 
proposed contract.  However, the PRAG deleted a comment that Lockheed 
"has not yet demonstrated any effective measures to reduce or 
eliminate problems experienced in previous contracts," and replaced it 
with a statement that Lockheed's "recent corrective actions have not 
been fully implemented to warrant an adjustment to the risk factor."  
Amendment to Performance Risk Assessment, Agency Report Tab F-1.2 at 
1-2.

With both the initial and amended PRAG report for review, the 
contracting officer memorialized the following conclusion about 
performance risk in her December 9 Source Selection Decision:

  "[Litton] received a low to moderate risk and [Lockheed] received a 
  moderate risk rating.  Technical is significantly more important 
  than all of the other evaluation factors.  The technical superiority 
  of [Lockheed's] proposal [outweighs] the difference in probable cost 
  and the slight difference in performance risk.  The performance risk 
  is not considered to be a discriminator among the competing 
  proposals."

Source Selection Decision at 3.  Litton argues that this conclusion 
was unreasonable.

Our review of an evaluation conclusion like the one here is to ensure 
that it is reasonable and consistent with stated evaluation criteria 
and applicable statutes and regulations.  ESCO, Inc., 66 Comp. Gen. 
404, 410 (1987), 87-1 CPD  para.  450 at 7.  Based on the contemporaneous 
record, together with the supplemental materials prepared by the 
agency in response to this protest, we see no basis for concluding 
that the evaluation was unreasonable.

Initially, we note that Litton contends that our Office should not 
consider the supplementary agency materials prepared by the 
contracting officer in response to this basis of its protest.  In the 
initial agency report, the contracting officer provided seven detailed 
findings explaining her conclusion that there was no basis to 
discriminate between the offerors in the area of performance risk.  
Contracting Officer's Statement, undated, at 40-41.  These 
explanations do not conflict with the express decision in the 
contemporaneous source selection document, but provide a detailed 
rationalization for the conclusion there.  These explanations are 
properly part of our review of the rationality of selection decisions, 
and we generally use all of the information provided in a protest, 
including the arguments of the parties.[6]  Benchmark Sec., Inc., 
B-247655.2, Feb. 4, 1993, 93-1 CPD  para.  133 at 7; Hydraudyne Sys. and 
Eng'g B.V., B-241236; B-241236.2, Jan. 30, 1991, 91-1 CPD  para.  88 at 4-5.

Our review of the source selection decision shows that the document 
expressly considers the performance risk of Lockheed and Litton in the 
context of the relative weight of the performance risk factor in the 
evaluation scheme.  Nothing about this conclusion either rejects the 
PRAG's concern, or violates the RFP's scheme.  Instead, the selection 
official simply concluded that the concern was outweighed by the more 
important technical and management factors, and--given the relative 
similarity of the performance risk ratings--provided no significant 
basis for discriminating between the proposals.  Despite the valuable 
service performed by the PRAG in candidly assessing Lockheed's past 
performance on a similar contract, selection officials are permitted 
to reach their own conclusions about how much weight to accord such 
information, provided their conclusions are reasonable and do not 
improperly disregard the evaluation scheme established by the RFP.  
Sarasota Measurements & Controls, Inc., B-252406.3, July 15, 1994, 
94-2 CPD  para.  32 at 10.  

Also, the supplementary materials prepared by the contracting officer 
during the course of this protest provide further support for this 
conclusion.  We have reviewed in detail Litton's challenges to the 
seven supplemental reasons given for the conclusion that there was no 
basis for discriminating between the proposals in the area of 
performance risk.  Although some of Litton's arguments appear to have 
merit, we conclude that the record overall shows a rational basis for 
this exercise of the contracting officer's discretion.[7]  See 
Rockwell Int'l Corp., supra at 13-14 (agency's assessment of risk is 
reasonable even in the face of meritorious challenges to some of its 
bases, provided the assessment overall has at least a rational basis).

Challenge to the Value Analysis

With respect to Litton's challenge to the value analysis, as noted 
above the Army added a layer of evaluation after the determination of 
most probable costs.  The value analysis made three adjustments to the 
offerors' probable costs--much like a cost realism review--based on 
differences in the offerors' proposed technical approaches.  These 
were a quantification of (1) the probable cost impact of a 
[deleted]-month schedule slippage under Litton's approach, and a 
1-month schedule acceleration under Lockheed's approach; (2) the 
probable cost impact of Litton's delayed ordering of fabrication 
materials due to price escalation; and (3) certain discriminators 
between the proposals which the agency calculated would result in cost 
savings under the follow-on effort associated with this program.  
Litton argues that the value analysis was an improper double-penalty 
for issues already identified in the technical evaluation, and 
challenges each of the three adjustments set forth in the value 
analysis.

As a preliminary matter, while value adjustments like the one here are 
not routine, agencies use such analyses to help them make informed 
judgments about the true cost of certain award decisions.  For 
example, in Allied-Signal Aerospace Co., B-250822; B-250822.2, Feb. 
19, 1993, 93-1 CPD  para.  201 at 14-15, an agency applied an adjustment 
similar to the one here to a protester's fixed-price offer in order to 
quantify the cost of additional training ammunition that would be 
associated with a slippage in deliveries that the agency assumed would 
accompany award to the protester.  In our view, there is nothing per 
se improper about such analyses so long as they have a rational basis.  
Id.  

In addition, despite the protester's challenge to the particulars of 
this analysis, the agency has informed our Office that even if it 
rescinded the value analysis here--by which it transformed a $2.2 
million most probable cost advantage for Litton into a $1.7 million 
value advantage for Lockheed--the cost/technical tradeoff decision 
would amply support the award to Lockheed.  CO's Statement at 34.  We 
agree.

The cost/technical tradeoff decision (memorialized December 7, 1996, 2 
days before the final Source Selection and Best Value Determination) 
reviews the relative strengths and weaknesses of the two proposals; 
discusses in detail (without quantification) the potential schedule 
slippage and other issues related to long-term value; and expressly 
concludes that the technical merit (the score combining the evaluation 
of the technical and management evaluation factors) of the Lockheed 
proposal is worth its $2.2 million higher probable costs.  Given that 
the analysis embodied in the cost/technical tradeoff decision 
reasonably justifies selection of Lockheed, we fail to see how Litton 
is prejudiced by this final layer of analysis in which the Army 
attempts to quantify the relative long-term value associated with the 
award decision.  See Colonial Storage Co.; Paxton Van Lines, Inc., 
B-253501.5 et al., Oct. 19, 1993, 93-2 CPD  para.  234 at 16-17, recon. 
denied, Colonial Storage Co.--Recon., B-253501.8, May 31, 1994, 94-1 
CPD  para.  335.  

In any event, we have reviewed the details of the analysis, and 
Litton's challenges to them, and find that the Army's adjustments were 
reasonable.  For example, when we review Litton's challenge to 
adjustments associated with schedule slippage, we find that Litton 
wrongly alleges that these adjustments have no basis in the technical 
evaluation.  In fact, the record is replete with evaluation references 
that consider the schedule impact of several Litton technical 
approaches as early as the initial evaluation materials.[8]  Also, the 
record and the pleadings in this case show that the Army's calculation 
of the ongoing monthly cost of schedule slippage likely underestimates 
the cost of the slippage.  In addition, there is no basis to conclude 
that Litton was penalized twice in these areas as the analysis is 
merely an attempt to calculate the cost impact of these issues 
identified in the technical evaluation.  Under these circumstances, we 
find no basis to overturn the value analysis applied here.  
Allied-Signal Aerospace Co., supra.

The protest is denied.

Comptroller General
of the United States

1. As part of its supplemental protest filed after reviewing the 
agency's evaluation documents, Litton argues that the agency failed to 
apprise it of concerns that Litton's technical approach would result 
in schedule slippage of [deleted] months over the 33-month planned 
life of this contract.  This issue is untimely.  Litton's initial 
protest filing shows that the agency advised Litton during its 
December 17, 1996, debriefing that an adjustment was made to Litton's 
proposed costs to account for the agency's conclusion that Litton 
would experience a schedule slip of at least [deleted] months.  Litton 
Initial Protest at 12.  Although Litton challenged the adjustment 
itself, it did not argue that the Army failed to raise this issue 
during discussions until submission of its supplemental protest nearly 
3 weeks after the debriefing.  Under our Bid Protest Regulations, 
protests not based upon alleged solicitation improprieties must be 
filed not later than 10 days after the basis for protest is known.  4 
C.F.R.  sec.  21.2(a)(2) (1997).  Where a protester initially files a 
timely protest and supplements it with new and independent grounds of 
protest, the new allegations must independently satisfy these 
timeliness requirements; our Regulations do not contemplate the 
unwarranted piecemeal presentation of protest issues.  Miltope Corp.; 
Aydin Corp., B-258554.4 et al., June 6, 1995, 95-1 CPD  para.  285 at 18.  

2. For example, for one of the proposed subcontractors the entire 
amount of the original proposed cost for this WBS is deleted from the 
BAFO costs. The corresponding note explains that the cost has been 
moved to another WBS.  In other instances, the reductions for specific 
subcontractors have been explained as "management reduction of 
[deleted] [percent]" or "management reduction of [deleted] [percent]."  

3. The following calculations show that even if the agency had used 
the figures in Litton's initial proposal to calculate the adjustment, 
approximately two-thirds of the challenged amount would have been 
added to Litton's proposal anyway.  First, the agency reasonably 
restored to Litton's proposal the amount of the unsupported deduction 
[deleted].  Second, using Litton's initially identified rate for this 
subcontractor would have resulted in an adjustment of [deleted] (1,280 
hours x [deleted]/hr.).  Adding these two figures together and adding 
burden results in an adjustment which equals approximately two-thirds 
of the challenged adjustment:

                                   [deleted]

In our view, the difference between [deleted] and the adjustment 
actually made [deleted] is not so great that the evaluators were 
required to recognize that it was overstated.

4. For the record, we note that even Litton's explanation for the 
reduction in its comments fails to say precisely how this change was 
calculated.  Litton says only that the increase in engineering hours 
was at no cost to the government and that the reduction taken was due 
to decreases in the subcontractor's labor and overhead rates.  Litton 
Comments, Feb. 18, 1997, at 24, n.15.

5. In its early protest filings, Litton was confused by the use of the 
value analysis approach into claiming that the cost/technical tradeoff 
decision failed to consider the issue of performance risk, which was 
one of the evaluation factors in this procurement, and which Litton 
correctly argues could not be overlooked in any selection decision.  
However, unlike most best value procurements, the cost/technical 
tradeoff here was the penultimate step in the selection decision.  It 
was followed by a properly documented selection decision which did, in 
fact, consider performance risk.  It is Litton's challenge to the 
conclusion about performance risk--not where it is found--that we 
consider. 

6. Litton is apparently referring to--and misstating--our standard for 
reviewing later
explanations and statements that are inconsistent with contemporaneous 
evaluation materials.  In those cases, we will consider the entire 
record, including statements and arguments made in response to a 
protest, but will accord greater weight to contemporaneous source 
selection materials.  DynCorp, 71 Comp. Gen. 129, 134 n.12 (1991), 
91-2 CPD  para.  575 at 7, n.13; Cygnus Corp., B-275181, Jan. 29, 1997, 97-1 
CPD  para.  63 at 8; Southwest Marine, Inc.; American Sys. Eng'g Corp., 
B-265865.3; B-265865.4, Jan. 23, 1996, 96-1 CPD  para.  56 at 10. 

7. As stated above, although Litton successfully rebuts portions of 
the contracting officer's supplemental reasons for her conclusion in 
this area, we consider reasonable her recognition of certain 
mitigating factors related to the PRAG's assessment.  These include 
her consideration that performance on the similar contract described 
by the PRAG has improved since Lockheed's purchase of the company 
originally awarded that contract; her independent knowledge that 
recent corrective actions taken by Lockheed while performing that 
contract had improved Lockheed's previously strained relations with 
the agency; and her positive view of the role of Lockheed's major 
subcontractor, Battelle, whose participation was viewed favorably by 
the agency.

8. For example, the initial technical evaluation of Litton's proposal 
includes such information at page 1, paragraphs 2.a.(2)(a) and 
2.a.(2)(b); page 3, paragraphs 2.a.(6)(b), 2.a.(6)(c), and 2.a.(7); 
page 4, paragraphs 2.a.(11)(a), 2.a.(11)(b), and 2.a.(11)(d).  This 
list is not conclusive, and further evidence is found in the BAFO 
evaluation as well.