BNUMBER: B-275934.2
DATE: May 29, 1997
TITLE: Booz-Allen & Hamilton, Inc., B-275934.2, May 29, 1997
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DOCUMENT FOR PUBLIC RELEASE
A protected decision was issued on the date below and was subject to a
GAO Protective Order. This version has been redacted or approved by
the parties involved for public release.*
Matter of:Booz-Allen & Hamilton, Inc.
File: B-275934.2
Date:May 29, 1997
Paul Shnitzer, Esq., and Mark D. Taylor, Esq., Crowell & Moring, for
the protester.
Paul F. Khoury, Esq., and David A. Vogel, Esq., Wiley, Rein &
Fielding, for EG&G Washington Analytical Services Center, Inc., an
intervenor.
E.J. Hong, Esq., and James I. Menapace, Esq., Department of the Navy,
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
Protester's arguments that the cost realism adjustments made to the
proposed costs of two of its subcontractors were unreasonable is
denied where the record shows that the agency had sound reasons for
each of its conclusions and performed its evaluation consistent with
the requirements set forth in the solicitation.
DECISION
Booz-Allen & Hamilton, Inc. protests the award of a contract to EG&G
Washington Analytical Services Center, Inc. pursuant to request for
proposals (RFP) No. N00024-96-R-6430, issued by the Department of the
Navy to procure technical and engineering support services for three
Navy program offices--the New Attack Submarine Program, the Submarine
Electronics Systems Program, and the AN/BSY-2 Program. Booz-Allen
argues that the Navy made unreasonable cost realism adjustments to the
proposed costs of two of its subcontractors.
We deny the protest.
BACKGROUND
This is the second protest of this procurement. A more comprehensive
explanation of the RFP and the Navy's award decision is set forth in
our decision on the first protest, General Physics Fed. Sys., Inc.,
B-275934, Apr. 21, 1997, 97-1 CPD para. 171 at 2-4. As Booz-Allen's
protest challenges only the cost realism adjustments made to two
subcontractors, we need not repeat the full background of this
procurement here.
Upon completion of the evaluation of offers for this
cost-plus-award-fee level-of-effort contract--reserved for the offeror
whose proposal offered the best value to the government--the Navy
concluded that only the proposals of Booz-Allen and EG&G were in the
competitive range. The assigned scores and proposed and evaluated
costs for the two competitive range offerors are set forth below:
OFFEROR SCORE PROPOSED
COSTS EVALUATED
COSTS
EG&G 90.10 $106,567,354 $107,524,326
Booz-Allen 86.20 [deleted] [deleted]
Using the offerors' total scores and evaluated costs, the Navy applied
a series of calculations set forth in the RFP to determine which
proposal offered the best value to the government. In essence, the
Navy was willing to pay a premium of up to 30 percent above a
minimally acceptable proposal with the lowest evaluated cost. The
application of these formulae resulted in the determination that the
EG&G proposal presented the best value,[1] and it was selected for
award on December 20, 1996.
Booz-Allen learned of the award on December 30, and requested a
debriefing, which was held on January 7, 1997. During the debriefing,
the Navy provided the company with its own evaluation information, but
withheld from Booz-Allen information deemed proprietary to its
subcontractors. Since one of Booz-Allen's subcontractors, [Company
A], attended Booz-Allen's debriefing, the Navy gave a separate
debriefing to [Company A] immediately following Booz-Allen's
debriefing. A second major subcontractor, [Company B], also requested
a debriefing, and received a written explanation of the Navy's cost
realism adjustments by letter dated January 12.
By letter dated January 10, Booz-Allen complained to the agency
regarding the cost realism analysis of [Company A]'s proposal, and by
letter dated January 14, [Company B] complained regarding its own cost
realism analysis. The Navy denied both agency-level protests on
February 6, and this protest followed.[2]
ANALYSIS
As stated above, Booz-Allen's protest here is limited to the upward
cost realism adjustments made to the proposed costs of two of its
subcontractors, [Company A] and [Company B]. With respect to [Company
A], Booz-Allen challenges the Navy's: (1) use of unaudited 5-month
year-to-date overhead rates instead of the audited full-year rates
identified in [Company A]'s proposal (adding $392,897); (2) use of
certain of the RFP's average labor category rates instead of the
category average rates proposed by [Company A] (adding $805,392); and
(3) use of the RFP's suggested wage escalation rate of 3.6 percent
instead of [Company A]'s proposed [deleted] percent rate (adding
$440,647). With respect to [Company B], Booz-Allen challenges the
Navy's: (1) upward adjustments to the proposed rates for two
individuals who Booz-Allen now asserts are not properly subject to
overhead burdens and general and administrative (G&A) expense (adding
$444,080); and (2) use of on-site labor overhead rates for [Company B]
employees Booz-Allen claims will be working at its facility instead of
the off-site (and lower) overhead rates applied to the costs for these
employees in [Company B]'s proposal (adding $870,000).
When an agency evaluates proposals for the award of a cost
reimbursement contract, an offeror's proposed 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). 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, recon. denied, American Management 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.
Use of Year-to-Date Overhead Rates
[Company A]'s proposal allocated its direct labor costs to two
discrete overhead pools, called departments, based on whether the
individuals were specifically identified in the proposal. Identified
personnel were assigned to department 80 (described as "services" in
[Company A]'s proposal), with an overhead rate of [deleted] percent.
Unidentified personnel were assigned to department 30 (described as
"specialties" in the proposal), with an overhead rate of [deleted]
percent.
The Navy submitted [Company A]'s cost proposal to the Defense Contract
Audit Agency (DCAA) for review. DCAA noted that although the proposal
used only two labor overhead rates--departments 80 and 30, described
above--[Company A] was, in fact, offering personnel whose direct labor
costs were traditionally allocated to six different overhead pools.
Since the use of only two overhead pools was a deviation from the
company's established accounting practice, DCAA calculated a weighted
average overhead rate of [deleted] percent using the actual
departmental assignments of the employees.
The Navy's Cost Analysis Panel (CAP) elected not to use the weighted
average overhead rate prepared by DCAA, and decided to accept [Company
A]'s approach of allocating its costs only to departments 80 and 30.
Nonetheless, the CAP concluded that [Company A]'s historical rates for
these departments from 1991 to 1995 might not accurately reflect
overhead costs given [Company A]'s decision to deviate from its past
allocation practices. Since the only rates available using the
proposed deviation from [Company A]'s standard practice were unaudited
year-to-date rates, the CAP instead applied the actual rates for the
first 5 months of 1996--[deleted] percent and [deleted] percent, for
departments 80 and 30, respectively. While these rates were higher
than the [deleted] and [deleted] percent rates proposed, they were
lower than the [deleted]-percent rate recommended by DCAA.
Booz-Allen argues that the Navy's use of part-year rates was
unreasonable because the Navy accepted [Company A]'s proposed
allocation to two departments, but did not accept the historical rates
for those departments. Booz-Allen also complains that the Navy's use
of part-year rates was unreasonable because DCAA took no issue with
the rates, despite the agency's assertion to the contrary, and because
part-year rates are often anomalous and generally should not be
substituted for full-year rates.
In our view, there was nothing unreasonable about the Navy's decision
to accept [Company A]'s proposed allocation of costs to two
departments, but not to accept the historical rates for those two
departments. While we agree with Booz-Allen that the use of a full
year of cost experience is generally preferable for calculating
indirect rates, and that the use of part-year rates can result in
anomalies, see generally FAR sec. 31.203(e), we will not overturn agency
evaluation decisions based on less than full-year rates when the
agency has sound reasons for doing so. See generally AmerInd, Inc.,
B-248324, Aug. 6, 1992, 92-2 CPD para. 85 at 10-11.
Here, as indicated above, the Navy's evaluators expressed a concern
that the historical rates for these departments might not be
indicative of the rates that will be experienced given the changes in
[Company A]'s allocation practices. In order to gain a more realistic
snapshot of what [Company A]'s billings to the government might be,
the Navy reviewed the year-to-date figures derived using the proposed
allocation practices, and found them higher than past annual rates.
Due to concerns about relying on figures derived from different
allocation practices, the Navy substituted the only actual figures
available under [Company A]'s proposed approach. We see nothing
unreasonable about this adjustment under the circumstances present in
this procurement. Compare AmerInd, Inc., supra (agency properly
substituted year-to-date figures for the full-year historical figures
included in an offeror's proposal to adjust proposed G&A expense where
record showed that the G&A currently experienced was significantly
higher than the historical rates) with Geo-Centers, Inc., B-276033,
May 5, 1997, 97-1 CPD 182 at 10 (agency's decision to accept an
offeror's shifting of costs to an on-site cost center found reasonable
where the agency followed DCAA's advice regarding acceptance of the
rates, and no evidence was presented showing that assignment of more
personnel to this cost center than in the past would change DCAA's
conclusion).
In addition, while Booz-Allen is correct in its claim that DCAA did
not take issue with [Company A]'s proposed rates for departments 80
and 30, its complaint misses the point. DCAA accepted the rates, but
not the allocation of costs. Thus, DCAA used [Company A]'s rates to
calculate a recommended weighted-average rate, which, incidentally,
would have been much less favorable to [Company A] than the rates the
Navy used. Finally, we note that Booz-Allen has made no specific
showing that the 5-month year-to-date rates used here might contain
costs that make the rates unrepresentative of the total annual
indirect cost experience.[3]
Category Average Labor Rates
As explained above, [Company A]'s proposal either named specific
individuals for the required labor categories (permitting verification
of the actual rates paid to those individuals), or proposed category
average labor rates for those areas where specific individuals were
not identified in the proposal. In several instances, the Navy
rejected [Company A]'s category average rates and substituted the
rates identified in the RFP. Booz-Allen argues that the Navy's
adjustment in this area, adding $805,392 to [Company A]'s proposal,
was unreasonable.
The RFP advised potential offerors that their cost proposals should
include "under each cost element a narrative description, in
sufficient detail, to demonstrate price reasonableness, credibility
and reliability." RFP, section L-2, paragraph 8.2 at 119. In
addition, the RFP set forth unburdened base year labor rates for each
of ten labor categories. RFP, section L-2, paragraph 8.2.2 at 120.
Accompanying these rates were the following instructions:
"The base year labor rate column, while not a firm requirement,
represents the unburdened hourly rate (direct labor) the Navy
estimates is required to hire and retain personnel at the skill
levels defined under Labor Mix Definitions.
. . . . .
". . . unsubstantiated unrealistic rates may result in an
adjustment to the cost data." Id.
[Company A]'s proposal offered several category average rates
significantly below the rates suggested by the RFP. For example,
while the RFP-suggested rate for a Senior Staff Level-2 position is
$31.66 per hour or above, [Company A] proposed a rate of [deleted] per
hour. In apparent explanation, [Company A]'s cost proposal states
that "[t]he hourly rates of the employees within each skill type at a
specific level are averaged to arrive at a labor category bid rate."
[Company A] Cost Proposal, July 30, 1996, section 3, first unnumbered
page. [Company A] argues that since these rates are based on average
actual rates it was unreasonable for the Navy to adjust the rates
upward.
The Navy explained that it was concerned about the wide discrepancy
between some of [Company A]'s category averages and the rates the Navy
believed would be necessary to hire and retain qualified people. In
addition, the Navy explained that its concern was increased when it
noticed that the category average rates were lower than the actual
rates paid to identified personnel within those categories. Finally,
since the Navy viewed [Company A]'s explanation of its rates as
insufficient to justify the discrepancy, the Navy elected to use the
RFP-recommended rates.
We have no basis to consider the Navy's actions in this regard
unreasonable. While [Company A] correctly claims that its proposal
states that the rates are actual averages, the proposal is silent on
the subject of why [Company A] believes it can meet the Navy's
needs--now and in the option years--with rates significantly below the
RFP-recommended rates. In this regard, [Company A] cannot claim to
have met the RFP's section L-2 requirement to provide a narrative with
sufficient detail to demonstrate the reasonableness of proposed
prices. In addition, in the absence of a compelling justification for
its lower wage rates, we think the Navy reasonably questioned the
difference between the proposed rates and the actual rates paid to
identified personnel. AmerInd, Inc., supra at 7.
[Company A]'s Wage Escalation Rates and [Company B]'s Proposed Rates
for Two Individuals
Booz-Allen's final challenge to the Navy's adjustments to [Company
A]'s proposed costs--i.e., that the agency unreasonably rejected its
wage escalation rate--and its contention that the Navy unreasonably
adjusted the actual wage rates paid to two [Company B] employees,
raise the same issue. In essence, for both of these adjustments
Booz-Allen acknowledges that its subcontractors failed to provide
explanatory information to justify their approaches, but argues that
the Navy had other access to the information necessary to permit the
agency to accept the approaches specified in the proposals.
With respect to the wage escalation rate, the RFP specified that:
"offerors and subcontractors, if any, are to propose 3.6
[percent] escalation for each option year (one through four).
Any deviation (upward or downward) from the proposed 3.6
[percent] shall be fully documented and include an established
corporate policy on the proposed escalation rate."
RFP, section L-2, paragraph 8.2.2, pp. 119-120 (underlining and bold
in original). Booz-Allen explains that while [Company A] proposed a
wage escalation rate of [deleted] percent for each of the option
years, the company "inadvertently omitted" the documents justifying
its lower rate. Booz-Allen's Comments, Mar. 31, 1997, at 8.
Nonetheless, Booz-Allen argues that the Navy should have accepted
[Company A]'s lower proposed escalation rate because four recent
[Company A] proposals submitted to the Naval Sea Systems Command--the
Command conducting the instant procurement--contained the supporting
documentation omitted here. According to Booz-Allen, the Navy should
have used the information submitted in those proposals to evaluate
[Company A]'s proposal here. Booz-Allen argues that this situation is
analogous to the one addressed in our recent decision in International
Business Sys., Inc., B-275554, Mar. 3, 1997, 97-1 CPD para. 114. We
disagree.
In the International Business Systems case we sustained a protest
against an agency's failure to consider favorable past performance
information that would have been generated from information provided
in the offeror's proposal. Specifically, even though the protester
there identified an earlier contract providing the same services to
the same agency and handled by the same contracting officer--and even
though the record included concrete evidence of the contracting
officer's first-hand knowledge of the protester's favorable
performance of that contract--the agency did not consider the
protester's favorable past performance there because other agency
personnel failed to complete and return the past performance
questionnaire to the contracting officer. Id. at 4-6.
We do not consider the situation here to be sufficiently similar to
the International Business Systems case to justify shifting the
responsibility for this omission from the protester to the agency.
The protester here is the party that failed to provide the requested
justification, despite an explicit requirement in the RFP to do so.
Simply put, an offeror has the burden to submit a proposal adequate
for evaluation, especially, where, as here, the offeror is on notice
that the agency intends to make award based on initial proposals
without discussions. Titan Corp., B-260557.2, July 18, 1995, 95-2 CPD para.
89 at 9. Given that the proposal failed to include the information
needed and that the Navy did not--and was not required to--hold
discussions, we conclude that the CAP reasonably rejected [Company
A]'s significant deviation from the RFP's recommended escalation rate.
Crimson Enter., Inc., B-243193.4, June 12, 1992, 92-1 CPD para. 512 at
10-11. See also NSI Tech. Servs. Corp., B-253797.4, Dec. 29, 1993,
93-2 CPD para. 344 at 12-13.
Similarly, Booz-Allen argues that the Navy should have looked beyond
[Company B]'s proposal to other information before making an upward
adjustment to the rates of two of the personnel proposed there.
Specifically, [Company B]'s proposal identified hourly rates for two
individuals significantly lower than the actual rates paid to these
individuals, and offered no explanation for the difference. During
the course of this protest, Booz-Allen acknowledged that the rates for
these individuals were not actual rates, but were adjusted downwards
to reflect reductions in indirect costs associated with their status
as retirees. Thus, in Booz-Allen's view, the rates were an attempt to
show the true cost to the government for these individuals.
While Booz-Allen now points to an unrelated DCAA report accepting this
method of calculating the labor rates for these two individuals, we
again view this as a matter [Company B] was required to explain in its
proposal. As above, absent such an explanation, we do not agree that
the agency should have accepted the rates proposed.
Finally, we need not consider Booz-Allen's last contention--i.e., that
the Navy used an incorrect overhead rate for [Company B]'s
personnel--because the amount of the adjustment ($870,000) is less
than the advantage assigned to EG&G's proposal ($890,423) by the
Navy's best value calculation. Thus, even if Booz-Allen prevailed in
its challenge to this adjustment, EG&G's selection would stand.
The protest is denied.
Comptroller General
of the United States
1. While a detailed description of the Navy's tradeoff formula is not
relevant to the considerations here, the result of the Navy's
calculations is an advantage worth $890,423 in EG&G's favor. To the
extent Booz-Allen could reduce its evaluated costs by more than this
amount, the Navy would conclude that Booz-Allen's proposal is more
advantageous to the government.
2. For the record, we disagree with EG&G's contention that Booz-Allen
may not now raise the issues challenged by [Company B] in its January
14 letter. Since the cost realism adjustments made to [Company A]'s
and [Company B]'s subcontract proposals included proprietary
information not releasable to Booz-Allen, the two subcontractors
received separate debriefings. While Booz-Allen raised an
agency-level challenge to the adjustments made to [Company A]'s
proposal by letter dated January 10, it could not raise with
specificity any issues regarding the adjustments made to [Company B]'s
proposal, as the Navy did not provide a debriefing to [Company B]
until January 12. Immediately thereafter, [Company B] filed its own
timely agency-level challenge to the adjustments made to its proposal.
Although our Office would not have considered [Company B] an
interested party to challenge the selection of EG&G, see 4 C.F.R. sec.
21.0(a) (1997), the Navy accepted and addressed [Company B]'s
agency-level challenge--providing a response to [Company B] on the
same day, February 6, it responded to Booz-Allen. Since only
Booz-Allen can challenge the Navy's agency-level response to [Company
B] before our Office, and since both Booz-Allen's and [Company B]'s
agency-level protests were timely (as was the subsequent protest filed
with our Office), see 4 C.F.R. sec. 21.2(a)(2), (3), Booz-Allen properly
may raise the challenges related to both subcontractors.
3. For example, in AmerInd the protester offered evidence that the
year-to-date rate used was unusually high because of certain
events--such as the loss of funding on one contract and delays in
awarding others. AmerInd, Inc., supra at 11 n.4. The record here
contains no such claim.