BNUMBER:  B-276708 
DATE:  July 16, 1997
TITLE: DDD Company, B-276708, July 16, 1997
**********************************************************************

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:DDD Company

File:     B-276708

Date:July 16, 1997

David B. Dempsey, Esq., and Kevin P. Mullen, Esq., Piper & Marbury 
L.L.P., for the protester.
Benjamin G. Perkins, Esq., Defense Logistics Agency, for the agency.
Susan K. McAuliffe, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Selection of awardee on the basis of its overall technical superiority 
and low risk, notwithstanding its higher price, is unobjectionable 
where agency's evaluation of proposals and determination that 
awardee's higher-priced proposal was worth the additional cost were 
reasonable and consistent with the evaluation scheme.

DECISION

DDD Company protests the award of a contract to Federal Express 
Corporation under request for proposal (RFP) No. SPO410-96-R-3145, 
issued by the Defense Logistics Agency (DLA), Defense Supply Center 
Richmond, for warehousing, order processing, and expedited 
transportation services.  DDD contends that the agency's decision to 
award to Federal Express based on its higher-priced proposal was 
unreasonable.

We deny the protest.

The RFP, issued on September 30, 1996, contemplates the award of a 
firm, fixed-price requirements contract for a base year plus 4 option 
years for a Premium Service System under which DLA's federal agency 
customers store various equipment and parts at a contractor-owned and 
-operated facility.  The RFP provides for the contractor to receive 
and store material, maintain inventory control, process customer 
orders, prepare packages for shipment, maintain appropriate billing, 
provide quality assurance, and provide commercial, expedited delivery 
services for the material to any location in the continental United 
States (CONUS) or outside CONUS (OCONUS).  This is a follow-on 
procurement of a contract awarded to Federal Express in 1994 for the 
Premium Service System previously run from a government-owned, 
contractor-operated facility at the Defense Depot Memphis, Tennessee 
(DDMT).  Due to the impending scheduled closure of DDMT, the RFP 
requires the contractor to relocate the materials and Premium Service 
System operation to the contractor's facility by June 30, 1997.

The RFP's statement of work includes requirements for the provision of 
the following:  sufficient warehouse space for the storage of existing 
items to be transferred and to accommodate 50-percent growth in the 
amount of material stored; a computerized inventory management system 
that records the receipt and storage of items, processes customer 
orders for items and tracks delivery of items to their destination, 
provides for electronic data interchange and Defense Digital Network 
communications--interfacing with the government's Military Standard 
Requisitioning and Issue Procedures/Military Standard Transaction 
Reporting and Accounting Procedures (MILSTRIP/MILSTRAP) information 
systems; and four levels of transportation services.

Under section M of the RFP, the technical and management proposals 
were of equal importance and significantly more important than 
cost/price.  The following evaluation subfactors were identified in 
order of descending importance:  for the technical 
proposal--transportation services, inventory management/automated data 
processing system(s), and equipment and warehouse; for the management 
proposal--master program management plan, and past performance.  
Prices were to be evaluated for realism, reasonableness, and 
completeness.  The RFP provided for a cost/technical tradeoff 
analysis, and award was to be made to the offeror determined to have 
submitted the overall most advantageous offer to the government.

DDD and Federal Express submitted the only two proposals.  DDD's 
proposal included information about the firm's experience in 
warehousing and distribution services in operating the United States 
Postal Service (USPS) Critical Parts Center in Indianapolis, Indiana; 
DDD proposed subcontracting with Emery Worldwide for the provision of 
the RFP's transportation-related services.  DDD proposed modifying its 
computerized warehouse management system (WMS) currently in use under 
its USPS contract to meet the RFP's inventory management system 
requirements.  Federal Express, the incumbent contractor of the 
required services, proposed its current Premium Service System 
inventory management system.

Discussions were held with both offerors (through the issuance of 
numerous written clarification requests and deficiency reports and in 
person).  During discussions, DDD was advised, among other things, of 
proposal deficiencies regarding its proposed modification of its WMS 
system, including the agency's concerns about DDD being able to meet 
the RFP's required time constraints in light of known complexities 
related to the interface requirements for MILSTRIP/
MILSTRAP transactions.

Revised proposals and best and final offers were received and 
evaluated.  The Federal Express proposal (at $29,390,300) was rated as 
low risk/highly acceptable for the technical and management areas; the 
DDD proposal (at $26,322,300) was rated as moderate risk/acceptable 
for both evaluation areas.  Although the evaluators were confident 
that DDD had the ability to modify its current system to meet the RFP 
system requirements, they expressed concern that the offeror would not 
be able to complete all necessary modifications within the required 
time constraints.  The evaluators specifically found that the 
offeror's proposed implementation schedule was "optimistic."  Citing 
advantages in the Federal Express proposal, the agency awarded a 
contract to Federal Express on March 31, 1997.  Subsequent to a 
debriefing held with the firm, DDD filed this protest.

DDD challenges the agency's evaluation of its proposal as 
unreasonable.[1]  We will examine an agency's technical evaluation to 
ensure that it is reasonable and consistent with the evaluation 
criteria.  Sarasota Measurements & Controls, Inc., B-252406.3, July 
15, 1994, 94-2 CPD  para.  32 at 4.  The protester's disagreement with the 
agency does not render the evaluation unreasonable.  ESCO, Inc., 66 
Comp. Gen. 404, 410 (1987), 87-1 CPD  para.  450 at 7.  Further, in a 
negotiated procurement, there is no requirement that award be made on 
the basis of lowest cost unless the RFP so specifies.  Spectra Tech., 
Inc.; Westinghouse Elec. Corp., B-232565, B-232565.2, Jan. 10, 1989, 
89-1 CPD  para.  23 at 3.  Cost/technical tradeoffs may be made, and the 
extent to which one may be sacrificed for the other is governed only 
by the test of rationality and consistency with the established 
evaluation factors.  Awards to offerors with higher technical ratings 
and higher prices are proper so long as the result is consistent with 
the evaluation criteria, and the procuring agency has determined that 
the technical difference is sufficiently significant to outweigh the 
cost difference.  Aumann, Inc., B-245898.3, B-245898.4, July 22, 1992, 
92-2 CPD  para.  35 at 4.  Based on our review of the record, we conclude 
that the award to Federal Express was reasonable and in accordance 
with the RFP evaluation criteria.

The record shows that the most significant risk associated with the 
protester's proposal concerns the protester's proposed inventory 
management system requiring substantial modification to its current 
WMS.[2]  The record further shows that the DDD system needs 
substantial modification to meet the current requirements.  DDD, 
however, contends that the modifications are relatively simple given 
the operational structure of its WMS, and that its proposed 90-day 
schedule (60 days for modification design and development, with 
testing to begin in 75 days, leaving 15 days to resolve unforeseen 
problems) is reasonable.  Although the firm's proposal does not 
present any actual DDD experience with the MILSTRIP/
MILSTRAP system, DDD asserts that it can accomplish the necessary 
modifications within the 90 days prior to the required scheduled start 
of contract performance since it developed the WMS for USPS in 45 
days.  Contract performance was to commence no later than 90 days 
after contract award (with full transition completed by June 30).  The 
agency reports that, based on its experience under prior contracts, 
the linking with MILSTRIP/MILSTRAP operations required here has taken 
significantly longer than 90 days--as much as almost twice as long 
under the awardee's prior contract for the same requirements, and even 
longer than that for other previous efforts.  The agency evaluators 
believed DDD's proposal in this regard did not convincingly address 
the risk that the modifications would not be timely incorporated into 
the system.  In response to discussions concerning DDD's ability to 
timely modify its WMS, DDD did not allay the agency's concerns.  DDD 
generally explained that a more fully detailed description of its 
current WMS was not included in its proposal and that the system would 
be modified to meet all listed requirements of the RFP.  The agency 
evaluators specifically noted that the DDD proposal failed to provide 
information about potential contingencies and development issues 
related to possible unforeseen problems concerning the modifications.

The record supports the reasonableness of the agency's evaluation.  
Given the minimal information provided in the DDD proposal about the 
exact operations of its current WMS, precluding detailed assessment by 
the agency of the extent of the actual modifications needed to be 
made; the historical information available to the agency for similar 
efforts; and the short schedule allowed for system development, we 
have no basis to question the reasonableness of the agency's moderate 
risk assessment assigned to the DDD proposal.[3]

DDD next contends that the agency's evaluation of proposals was 
unequal because the Federal Express proposal was evaluated as having 
strengths where the DDD proposal did not, even though, DDD contends, 
its proposal offered the same strengths.  We have reviewed the record 
and find the agency's evaluation fair, equal, and justified.  For 
instance, the agency found as a strength that the Federal Express 
proposal exceeded the 24-hour CONUS delivery requirement because the 
proposal, and the awardee's experience as the incumbent contractor, 
showed that most deliveries would be made by the next morning.  
Although DDD's proposal offered to meet the RFP's 24-hour requirement, 
there was no documentation showing that the requirement would in fact 
be exceeded to the extent demonstrated by Federal Express; the 
awardee's proposal reasonably demonstrated that it exceeded the RFP 
requirement, resulting in the highly acceptable evaluation rating.[4]  
Related to the transportation evaluation area, Federal Express was 
also credited for having a larger fleet of aircraft (decreasing the 
offeror's reliance on other carriers), and for having access to a 
major transportation hub (Memphis airport).  Although Emery also has a 
large fleet, we think that the difference in fleet size was reasonably 
considered as a strength by the agency, since the DDD proposal 
indicated a more substantial reliance on additional carriers, which 
could adversely effect contract performance.

Another cited strength in the Federal Express proposal concerned that 
firm's existing inventory management system, which is currently tied 
into the required MILSTRIP/MILSTRAP system.  In contrast, although the 
DDD WMS system is in use under its USPS contract, it does not 
currently meet the stated interface requirements.  We think the agency 
could reasonably recognize this difference in comparing offers.  An 
additional noted strength in the Federal Express proposal concerned 
that offeror's warehousing space.  Both offerors' proposals met the 
RFP requirement for warehousing space (for current inventory plus room 
for 50-percent growth).  However, Federal Express offered almost 
double the square footage offered by DDD; DDD was found to have 
optimized its offered space by vertically stacking material to the 
ceiling of its proposed warehouse, which allowed it to meet the RFP's 
space requirements.  We believe that the Federal Express proposal of 
additional space, which would allow for additional vertical stacking, 
only if necessary, was reasonably credited as a strength.[5]  

DDD next challenges the source selection decision.[6]  The source 
selection authority justified the award to the higher-priced offeror 
by citing the various strengths and weaknesses of each proposal and 
certain "values" associated with the Federal Express proposal.  In 
comparing the proposals, the source selection authority stated:  

     The strengths of the Federal Express proposal included CONUS 
     delivery in less than 24 hours, their large fleet of aircraft and 
     serviced areas, an on-time delivery rate well above the required 
     level, an existing inventory management system in use today, a 
     realistic implementation schedule with contingencies identified, 
     and a flexible plan for facility growth from 75,000 to 1,000,000 
     [square feet].

The source selection authority noted:

     The Federal Express total is approximately $3 million more than 
     the DDD Company offer for the base year and four option years 
     based on the solicitation constraints and assumptions.  However, 
     the value represented by the Federal Express offer includes 
     benefits which far outweigh this cost difference.

The source selection authority then quantified, in terms of dollar 
benefit to the agency, some of the evaluated advantages in awarding a 
contract to Federal Express, including Federal Express's proposal of a 
larger facility (presenting a cost advantage in terms of additional 
income to DLA from customers); costs that would be saved in terms of 
system development (since those agency costs have already been spent 
in the prior development of the Federal Express system); the 
elimination of any additional costs for OCONUS deliveries for 
transportation to areas not serviced by Emery; the elimination of 
internal government costs that would result from government management 
of the risks associated with the DDD proposal; and the benefit from 
the incumbent's demonstrated current high customer satisfaction levels 
supporting the anticipated marketing and expansion of the customer 
base to be serviced under the contract.[7]  Based upon an overall 
assessment, the source selection authority determined that the Federal 
Express proposal offered "the greatest overall value to the 
Government."

DDD questions the accuracy and reasonableness of the source selection 
authority's conclusions about the specific cost benefits associated 
with certain cited advantages of the Federal Express proposal.  While 
particular elements in that quantification may be challenged, we 
conclude that the source selection decision was nevertheless 
reasonable.  The agency was not required to quantify, in terms of the 
dollar value to the agency, the value of the technical superiority of 
the Federal Express proposal; our review is focused, not on that 
quantification, but rather on whether the source selection decision 
was reasonable, consistent with the solicitation criteria, and 
supported by the evaluation record.  See Delany, Siegel, Zorn & 
Assocs., Inc., B-258221.2, B-258221.3, July 10, 1995, 95-2 CPD  para.  7 at 
4 n.4.  Here, the source selection documentation shows that the 
agency's efforts at estimating the cost value of some of the strengths 
in the Federal Express proposal formed only part of the agency's 
decision-making process, and the agency did not rely exclusively on 
the quantification analysis.  Accordingly, regardless of the 
protester's challenges to the specific dollar amounts cited, in 
determining the reasonableness of the agency's source selection 
decision, the critical factor is the reasonableness of the agency's 
judgments regarding the nature and significance of the differences 
between the proposals.

Here, the source selection authority reasonably cited legitimate and 
meaningful strengths in the Federal Express proposal, not found in the 
DDD proposal, and advantages in awarding a contract to Federal Express 
which directly relate to the stated evaluation criteria.  As explained 
in our analysis above, the record shows that the strengths that the 
agency identified in the Federal Express proposal are legitimate 
discriminators which support the reasonableness of the award to the 
higher-priced offeror.  As the agency points out, many of the 
strengths in the Federal Express proposal are difficult to quantify in 
terms of cost, such as the awardee's proven existing inventory 
management system, realistic implementation schedule and larger fleet 
of aircraft and service areas.  The agency has shown that the program 
is important to DLA and that to remain viable, the risk in contract 
performance or to the program must be minimized.[8]  Given the terms 
of the RFP, allowing for an award to other than the low cost offeror, 
we believe the record supports the reasonableness of the agency's 
determination to pay the cost premium involved for the benefits of the 
low risk/technical superiority of awardee's proposal.

The protest is denied.

Comptroller General

1. DDD also contends that the agency improperly double-counted under 
both the technical and management evaluation areas the agency's 
concerns regarding the firm's proposed implementation schedule for 
modification of its offered WMS.  The perceived risk involved in 
modifying the offeror's WMS to meet the RFP's inventory management 
system requirements is reasonably encompassed under both the technical 
evaluation area (regarding evaluation of proposed approach, offeror 
capability, and compliance with requirements, including the required 
commencement of performance) and the management area (regarding the 
offeror's implementation plan in terms of time and resources in 
evaluating the offeror's overall management plan).  Accordingly, we 
have no reason to question the agency's consideration of its concerns 
under both evaluation areas.  See EBA Eng'g, Inc.,
B-275818, Mar. 31, 1997, 97-1 CPD  para.  127 at 13.

2. We have fully reviewed the other challenges raised by DDD in its 
protest against every other weakness cited in its proposal, including, 
e.g., the perceived risk of late delivery associated with DDD's 
proposed route/rate shopping among carriers determined by the 
protester to be able to make timely deliveries (the agency states that 
DDD's reliance on many different carriers could become unwieldy, 
adding to the risk of late delivery), the agency's concern that the 
protester's handling times/rates seemed low (where the agency noted 
material differences in the current RFP requirements from the 
protester's USPS contract, which served as an initial comparative 
basis for the protester's calculation of its proposed times/rates), 
and the use by the agency of informal survey comments received from 
other user agencies that Emery is not competitive in the 
under-150-pound delivery market (supporting the agency's concern about 
the protester's potential for significant reliance on other carriers).  
We think the agency's concerns in these areas were reasonable.  In any 
event, the record shows that these perceived minor weaknesses had only 
a relatively insignificant effect on the award determination.  The 
protester also questions why the agency failed to cite as a weakness 
in the Federal Express proposal that offeror's stated limit of 
liability.  The record shows that the offeror otherwise provided 
information supporting the agency's determination of low risk in this 
proposal area, and, in our view, the protest contention does not raise 
a matter material to the overall selection decision.

3. Contrary to the protester's contentions, the record shows that the 
agency's concerns in this technical area were meaningfully discussed 
with the protester, since the agency led DDD to the area of its 
proposal that needed amplification.  See Teledyne Brown Eng'g, 
B-258078, B-258078.2, Dec. 6, 1994, 94-2 CPD  para.  223 at 5.  
Specifically, the protester contends that the agency did not discuss 
the concern regarding its proposed resources (four individuals) for 
the modification effort, which was a factor leading to the moderate 
risk rating assigned to DDD's proposed implementation plan.  On 
several occasions, however, DDD was advised about the agency's 
concerns about the protester's ability to modify its WMS as proposed 
within the RFP's time constraints (which reasonably encompasses the 
plan (and resources) proposed).  

4. The agency also noted as a strength the awardee's record of 
exceeding the RFP's 97-percent on-time delivery rate.  Although the 
protester's proposal showed on-time delivery rates in excess of 97 
percent on prior contracts, we believe the agency's rating of the DDD 
proposal as acceptable in this area, rather than highly acceptable 
with a cited strength as was assigned to the Federal Express proposal, 
is reasonable.  The agency relied upon a legitimate distinction 
between the proposals in finding that Federal Express more 
convincingly showed that it exceeded the requirement--the DDD/Emery 
rates were experienced on contracts not identical to the current 
requirements, where Federal Express's rate was demonstrated on its 
incumbent contract for the services.  We note that, although DDD 
generally contends that the agency unfairly credited Federal Express 
in the evaluation of proposals for perceived benefits from the 
awardee's incumbency experience, an incumbent's actual experience on 
performing the same requirements may be a legitimate differentiating 
factor in the evaluation of proposals.  See Main Bldg. Maintenance, 
Inc., B-260945.4, Sept. 29, 1995, 95-2 CPD  para.  214 at 8; Benchmark Sec., 
Inc., B-247655.2, Feb. 4, 1993, 93-1 CPD  para.  133 at 10-11.

5. Federal Express explained in its proposal that it would consider 
higher stacking, if necessary, but also, in our opinion, reasonably 
pointed out that certain benefits, in terms of time and safety, are 
associated with a lower multiple-level stacking approach.  While DDD 
asserts in its protest submissions that its proposed stacking plan 
should have been credited as a strength, since it takes a shorter 
amount of time to retrieve items from a higher level within a smaller 
area, DDD's proposal in fact recognizes that picking items from lower 
stacks may save some time (i.e., for rush orders).

6. DDD also challenges the evaluation of cost proposals as unfair, 
since DDD included in its proposal an escalation rate for cost 
reimbursable transportation and Federal Express did not do so in its 
proposal.  The record does not support the protester's contention, 
however, that it was instructed to include the challenged escalation 
rate in its proposal, and, in any event, the record shows that the 
agency did not view the inclusion of the escalation rate as a material 
factor in the award decision--the amount was considered negligible in 
light of the cost-reimbursable nature of the contract item.

7. The record shows that the evaluators identified other advantages of 
the Federal Express proposal, but the significance of those advantages 
was not quantified and therefore not captured in this analysis, 
although they do provide further support for the agency's 
determination that Federal Express's proposal was technically 
superior.  Among those non-quantified advantages were the awardee's 
proposed move of the current inventory over 2 weekends (eliminating 
any risk of interruption in service), a management plan that provides 
for status reports exceeding those required under the RFP, and the use 
of existing employees (eliminating the learning curve associated with 
new personnel).

8. Although the protester contends that the agency favored the awardee 
because of its incumbency experience and, in effect, has made a sole 
source award based on a predetermination that no other contractor's 
proposal could present the same degree of low risk found in the 
awardee's proposal, the record does not support the protester's 
contentions.  DDD was given a fair opportunity to compete and was 
reasonably found to have submitted an acceptable proposal, albeit one 
which did not present the technical superiority of the awardee's 
proposal.