BNUMBER:  B-276955; B-276955.2 
DATE:  August 13, 1997
TITLE: Computer Systems International, Inc., B-276955; B-276955.2,
August 13, 1997
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Matter of:Computer Systems International, Inc.

File:     B-276955; B-276955.2

Date:August 13, 1997

Thomas C. Pool for the protester.
John A. Evans, Esq., Naval Air Systems Command, Department of the 
Navy, for the agency.
Christine F. Davis, Esq., and James A. Spangenberg, Esq., Office of 
the General Counsel, GAO, participated in the preparation of the 
decision.

DIGEST

In a solicitation requesting firm, fixed-price proposals for operation 
and maintenance services of submarine training devices, the agency 
reasonably found the awardee's low-priced proposal realistic in 
accordance with the evaluation criteria, where the awardee's price, 
though less than the anticipated contract costs, compared favorably 
with another offeror's price and with the prior contract price for the 
same services.

DECISION

Computer Systems International, Inc. (CSI) protests the award of a 
contract to Applied Data Technology, Inc. (ADT) under request for 
proposals (RFP) No. N61339-96-R-0056, issued by the Department of the 
Navy, Naval Air Systems Command, for contractor operation and 
maintenance of simulators (COMS) services.  

We deny the protest.

The RFP sought COMS services for fire fighter training devices, 
submarine damage control training devices, and other training devices 
to be used at four Navy submarine training sites:  the Trident 
Training Facilities at Kings Bay, Georgia, and Bangor, Washington, and 
the Naval Submarine Training Center Pacific facilities at Pearl 
Harbor, Hawaii, and San Diego, California.  The RFP requested firm, 
fixed prices for a 2-month base mobilization period, four 1-year 
options, and an 8-month option.  The pricing schedules for the base 
and option periods included contract line item numbers (CLIN) 
corresponding to specific training devices.  Prices for each CLIN were 
to include the labor, supply support (i.e., spare and repair parts), 
and consumables necessary to maintain and operate the specified 
devices during the designated contract period.  No cost data 
supporting the CLIN pricing was required by the RFP.

The RFP imposed a minimum manning requirement of 73 employees during 
the life of the contract, distributed among the four sites as 
specified in the RFP.  The solicitation provided for application of 
the Service Contract Act of 1965, as amended, 41 U.S.C.  sec.  351-358 
(1994), which requires that employees be paid at least the wages set 
forth in Department of Labor (DOL) area wage determinations.  41 
U.S.C.  sec.  351(a)(1).

The RFP provided for award based upon the technically acceptable 
proposal offering "the lowest reasonable and realistic total evaluated 
price," including options.  The RFP evaluation scheme listed seven, 
equally important evaluation factors:  (1) Organization (Personnel), 
(2) Management Approach, (3) Technical Approach, (4) Mobilization 
Plan, (5) Technical Questions, (6) Corporate Experience/Past 
Performance, and (7) Price Realism.[1]  The RFP described all factors 
as "critical" and stated that an unacceptable rating for any factor 
would render a proposal unacceptable.

The agency received five proposals by the January 24, 1997, due date.  
Four proposals were included in the competitive range.  After two 
rounds of discussions, the Navy received best and final offers (BAFO) 
priced as follows:[2] 

     ADT                                $16,136,057
     Offeror B                          $16,344,254
     CSI                                $19,341,484
     Offeror D                          $18,361,120[3]
     
Finding all proposals technically acceptable, the Navy awarded to ADT, 
whose lowest-priced offer was found reasonable and realistic.

CSI disputes the agency's determination that ADT's price was 
realistic.[4]  According to CSI, the Navy overlooked the fact that 
ADT's price was "below the actual known direct cost to operate the 
contract" and awarded the contract to a firm that "is not a recognized 
player in the COMS business arena" and is blind to the risks of this 
contract.

Where, as here, the award of a fixed-price contract is contemplated, a 
proposal's "cost realism" is not ordinarily considered, since a 
fixed-price contract places the risk and responsibility for contract 
costs and resulting profit or loss on the contractor.  HSG-SKE, 
B-274769, B-274769.3, Jan. 6, 1997, 97-1 CPD  para.  20 at 5.  However, 
since the risk of poor performance when a contractor is forced to 
provide services at little or no profit is a legitimate concern in 
evaluating proposals, an agency in its discretion may, as it did here, 
provide for a price realism analysis in the solicitation of 
fixed-price proposals.  Volmar Constr., Inc., B-272188.2, Sept. 18, 
1996, 96-2 CPD  para.  119 at 5.  The Federal Acquisition Regulation (FAR) 
provides a number of price analysis techniques that may be used to 
determine whether prices are reasonable and realistic, including a 
comparison of the prices received with each other, FAR  sec.  15.805-2(a); 
with prior contract prices for the same or similar services, FAR  sec.  
15.805-2(b); and with an independent government cost estimate, FAR  sec.  
15.805-2(e).[5]  The depth of an agency's price analysis is a matter 
within the sound exercise of the agency's discretion.  Ameriko-OMSERV, 
B-252879.5, Dec. 5, 1994, 94-2 CPD  para.  219 at 4; Ogden Gov't Servs., 
B-253794.2, Dec. 27, 1993, 93-2 CPD  para.  339 at 7.

Here, the RFP stated that price proposals would be evaluated for 
reasonableness and realism, but did not specify the manner or degree 
of analysis to which proposals would be subjected.  The record in this 
case, including testimony provided at a General Accounting Office 
hearing, shows that the contract specialist who performed the price 
analysis compared ADT's price with the other offerors' prices, with 
the prior contract price for these services, and with a government 
estimate--techniques which are recommended by the FAR.  In our view, 
this constituted an adequate and reasonable price analysis under the 
RFP.

The record reflects that the prior contract for these services, 
awarded in 1992, was held by Lockheed Martin Corporation for a firm, 
fixed price of $16,540,176.  In her price analysis, the contract 
specialist adjusted the Lockheed price to reflect various changed 
requirements--most significantly, different labor costs--between the 
Lockheed contract and the current procurement.  Specifically, the 
contract specialist added $1,304,295 to the Lockheed price to account 
for DOL wage determination increases, which yielded a current contract 
cost of $17,844,471.  Video Transcript (V.T.) at 10:35:06.  On the 
other hand, the contract specialist  reduced Lockheed's annual costs 
by an estimated $200,000 to $250,000 to reflect the 73-person work 
force required by the instant RFP,[6] rather than the 88-person work 
force required, on average, each year of the Lockheed contract, which 
placed the adjusted figure based on the Lockheed contract in the 
mid-$16 million range, within close proximity of ADT's price. V.T. at 
10:35:06, 10:40:01, 10:40:38, 10:47:09, 11:53:38.

In addition, the agency determined that it had obtained adequate price 
competition in response to the solicitation and compared ADT's grand 
total and yearly prices to the prices submitted by the other offerors.  
V.T. at 9:53:22, 10:51:17.  In view of the narrow price difference 
between ADT's and the second-lowest offeror's prices, the contract 
specialist concluded that ADT's price was realistic and reasonable.  
V.T. at 10:11:21, 11:18:52, 12:33:16; see Pearl Properties; DNL 
Properties, Inc., B-253614.6, B-253614.7, May 23, 1994, 94-1 CPD  para.  357 
at 11-12.

The protester does not contend that the agency erred in finding that 
ADT's price compared favorably to Lockheed's prior contract price (as 
adjusted) or the second-lowest offeror's price.  Instead, CSI argues 
that the agency's price analysis was inadequate because it disregarded 
the fact that ADT's price is barely sufficient to cover the contract's 
unavoidable, direct labor costs.  CSI computes the contract's direct 
labor costs (considering applicable DOL wage rates and fringe 
benefits, as well as tax, insurance, workers compensation and social 
security allowances) at $15,509,309,[7] and argues that the awardee's 
price, which is only $626,748 more than the contract's direct labor 
costs, does not adequately cover general and administrative expenses, 
profit, or the Navy's estimated $2 million supply support and 
consumable requirements.

Contrary to the protester's allegations, the Navy did not disregard 
the fact that ADT may have submitted a below-cost offer.  The record 
reflects that the Navy knew that ADT had submitted a "bare bones" 
price proposal and might operate the contract at a loss.  V.T. at 
10:11:21, 11:32:00, 11:32:37.  Nevertheless, the agency considered the 
awardee's price realistic because the second-lowest offeror had 
offered a virtually identical price and because Lockheed had performed 
the prior contract at a similar price.  V.T. at 10:11:21, 12:33:16.  
In our view, this constituted a reasonable basis for concluding that 
ADT's price, even if below cost, did not pose an undue performance 
risk and was realistic.

We also note that the agency, in reviewing ADT's affirmative 
responsibility, found that the awardee had the financial resources to 
cover any price shortfall.  V.T. at 11:32:00.  A responsible offeror 
for a fixed-price contract may offer below-cost pricing, as the 
submission of a below-cost offer is not legally objectionable in 
itself.  Oshkosh Truck Corp., B-252708.2, Aug. 24, 1993, 93-2 CPD  para.  
115 at 6 n.3; PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD  para.  
381 at 8-9.  To the extent that CSI alleges that the awardee's price 
is unrealistic simply because it is below cost, this issue concerns 
ADT's ability to perform the contract at its proposed price, a matter 
of affirmative responsibility.  Our Office will not review the Navy's 
determination that ADT was responsible absent a showing of possible 
fraud or bad faith by government officials, or the misapplication of 
definitive responsibility criteria, none of which are present here.  4 
C.F.R.  sec.  21.5(c) (1997); Oshkosh Truck Corp., supra.

Accordingly, we deny CSI's protest that the agency misevaluated ADT's 
proposal with regard to price realism.  

The protest is denied.

Comptroller General
of the United States

1. The RFP elsewhere stated that price realism would be reviewed as 
part of determining an offeror's responsibility.

2. The two lowest-priced offerors raised their prices during 
discussions after the Navy advised that their prices appeared 
unrealistically low.

3. CSI, a small disadvantaged business, received a 10-percent price 
evaluation preference pursuant to Defense Federal Acquisition 
Regulation Supplement  sec.  252.219-7006, as incorporated in the RFP, 
which caused its proposal to displace Offeror D's in the competitive 
ranking.

4. CSI also protested that the second lowest-priced offer was not 
realistic. 

5."Price analysis" is a process of examining and evaluating a proposed 
price without evaluating its separate cost elements and proposed 
profit; "cost analysis" involves the examination and evaluation of an 
offeror's separate cost elements and proposed profit.  FAR  sec.  15.801.

6. Our review of ADT's technical proposal establishes that the firm 
offered the requisite 73 employees.  We also note that the contract 
specialist did not testify that the awardee proposed less than 73 
employees, as claimed by the protester.  Rather, the contract 
specialist testified that labor costs could be somewhat variable under 
the contract because employees may quit and ADT may have fewer than 73 
employees during the time it takes to fill any vacancies.  V.T. at 
11:56:29, 11:58:35. 

7. The Navy acknowledged during the course of this protest that it had 
underestimated direct labor costs in an independent government 
estimate (IGE) prepared during the proposal evaluation and that CSI's 
calculations were correct.   V.T. at 10:20:30.  The Navy abandoned the 
understated IGE as a basis for finding ADT's price realistic.