BNUMBER:  B-277263.2; B-277263.3 
DATE:  September 29, 1997
TITLE: Boeing Sikorsky Aircraft Support, B-277263.2; B-277263.3,
September 29, 1997
**********************************************************************

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective 
Order.  This redacted version has been approved for public release.
Matter of:Boeing Sikorsky Aircraft Support

File:     B-277263.2; B-277263.3

Date:September 29, 1997

Cyrus E. Phillips IV, Esq., William H. Butterfield, Esq., and 
Christopher H. Jensen, Esq., Kilcullen, Wilson & Kilcullen, and Mark 
W. Reardon, Esq., The Boeing Corporation, for the protester.
Gerard F. Doyle, Esq., Ron R. Hutchinson, Esq., and Michael F. Mason, 
Esq., Doyle & Bachman, for Raytheon E-Systems, an intervenor.
Christopher E. Kernan, Esq., Maj. Michael J. O'Farrell, Jr., and Col. 
Nicholas P. Retson, Department of the Army, for the agency.
Paul E. Jordan, Esq., and Paul Lieberman, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Past performance risk evaluation is unobjectionable where agency 
follows evaluation criteria stated in solicitation and conduct of 
evaluation is reasonable.

2.  Cost evaluation of award fee is unobjectionable where agency 
reasonably concluded that offeror's proposed fee structure provided 
limited incentive for superior performance. 

3.  Agency failed to conduct meaningful discussions where, as the 
result of an attribution methodology in the protester's proposal which 
the agency found unacceptable, but failed to address during 
discussions, the agency treated as omitted and erroneously added into 
its cost evaluation a significant number of direct labor hours which 
were actually provided in the protester's proposal.  

4.  Agency's source selection analysis was defective where it 
addressed cost only in terms of risk without considering proposals' 
relative evaluated cost.

5.  Agency's post-protest award determination reassessment does not 
establish that protester was not prejudiced by discussion and 
evaluation errors where the agency continues to take the position that 
relative evaluated cost need not be weighed and fails to take into 
consideration the relative cost differential in the areas over which 
the offerors exercised any control.

DECISION

Boeing Sikorsky Aircraft Support (BSAS) protests the award of a 
contract to Raytheon E-Systems under request for proposals (RFP) No. 
USZA22-97-R-0001, issued by the U.S. Special Operations Command 
(SOCOM).  BSAS alleges that it was not afforded meaningful discussions 
and challenges the propriety of various aspects of the technical and 
cost evaluations and the award determination.  

We sustain the protest. 

BACKGROUND

SOCOM is a unified and joint command responsible for missions such as 
unconventional warfare, special reconnaissance, and counter-terrorism.  
SOCOM operates an industrial-type support activity which provides 
dedicated, highly-responsive logistics support for special operations 
forces (SOF) worldwide.  The special operations forces support 
activity (SOFSA) is a government-owned, contractor-operated facility 
located primarily in Lexington and Richmond, Kentucky.  The SOFSA 
provides logistics support for the SOF, and this support is tailored 
to the changing and joint nature of the force's missions.  This 
logistics support includes equipment repair and modification, 
prototype and low volume manufacturing, maintenance management, 
life-cycle support, and equipment sustainment.  

This solicitation, which sought proposals for the operation and 
maintenance of the SOFSA, was written to allow offerors as much 
latitude as possible to propose innovative ways of doing business and 
to employ creative problem-solving.  The RFP was designed to test the 
offerors' understanding of both the SOF requirements and the 
"statement of objectives [SOO] to statement of work [SOW]" process.  
This latter process asks the offerors to take an extremely general SOO 
provided with a minimum of detail and translate that into a 
contractor's SOW outlining performance requirements, performance 
periods, and estimated costs.  An offeror's ability to make this 
translation in as detailed and accurate a manner as possible was 
deemed critical to the operation of the SOFSA.  Since the agency 
anticipates issuance of approximately 500 to 700 SOOs annually, it is 
critical that the support contractor's SOW and cost estimate be usable 
as initially presented with little or no negotiation required.  To 
this end, the evaluation was designed to measure the offerors' 
understanding of the process and ability to deliver a quality product.  
The RFP contemplated award of a cost-plus-award fee, task order 
contract for a base year with four 1-year options.  The RFP required 
the proposal of a zero base fee and a ceiling of $1.12 billion over 
the life of the contract.  The RFP encouraged offerors to propose an 
award fee structure which would provide adequate incentive to perform 
at an outstanding or superior level.  Award was to be made to the 
offeror whose proposal represented the best value to the agency.

As part of their proposals, offerors were required to respond to seven 
sample tasks, six of which were included in the RFP, and the seventh 
was provided 2 weeks before the closing date in order to simulate the 
quick reaction environment in which the SOFSA operates.  These sample 
tasks were representative of potential new work to be performed, were 
not to be included as part of the contract award, and did not cover 
tasks already accomplished by the incumbent contractor, Raytheon.  
Offerors were to make oral presentations as part of their management 
proposals and provide past performance information from similar 
contracts over the past 5 years.  

Proposals were evaluated under four areas, in descending order of 
importance:  technical, management, performance risk, and cost.  The 
technical area was evaluated on the basis of the seven sample tasks, 
six of which were of equal value, while the seventh (the 2-week 
deadline task) was slightly more important than the others.  Under 
management, seven support functions critical to the SOFSA's success 
were evaluated:  operations, security, management information systems, 
quality assurance, property management and control, key personnel, and 
transition.  Operations was slightly more important, and transition 
slightly less important, than the other subfactors.  The technical and 
management areas were evaluated at the subfactor level on a 
color-coded scale:  blue (outstanding), green (acceptable), yellow 
(marginally acceptable), and red (unacceptable).

Performance risk was evaluated on the basis of five factors:  cost 
estimating and control, quality control, security management, schedule 
planning and control, and management effectiveness.  In order to 
perform this assessment, the evaluators used surveys of past 
performance on similar contracts performed by the offerors, rating 
them on a scale of high, medium, and low risk. 

The cost evaluation was designed to assess each offeror's ability to 
accurately estimate the cost of completing logistics support tasks and 
the overall cost of the offeror's proposal.  In its evaluation, the 
agency used a scale similar to that for performance risk (high, 
moderate, and low risk) and based the evaluation on four factors:  
award fee, cost realism, labor, and overhead.  Award fee was evaluated 
on the basis of offerors' proposed performance standards and the 
structure/application of the proposed award fee.  Cost realism was 
evaluated on the basis of proposed costs of sample tasks compared to 
the government's evaluated reasonable cost.  The labor evaluation 
included a comparison of an offeror's overall labor rate (calculated 
using the RFP's cost model of total labor hours) with a base rate and 
midpoint (calculated from the proposed loaded rates of the offerors).  
The overhead evaluation included a risk analysis of each offeror's 
evaluated total cost (using the RFP cost model) as compared to a 
midpoint (calculated from the total evaluated costs of the offerors).  
Included within the RFP cost model was the sum of approximately $525 
million in material and other direct costs set by the agency as common 
costs for all offerors.

Five offerors, including Raytheon and BSAS, submitted proposals by the 
January 24, 1997, closing date for receipt of initial proposals.  The 
source selection evaluation board (SSEB) evaluated the technical 
proposals and the oral presentations.  Based upon various reviews, the 
SSEB determined that one offeror's proposal should be eliminated from 
the competitive range and that discussions should be conducted with 
the remaining offerors.  The SSEB conducted written discussions, 
obtained written responses, and evaluated the offerors' best and final 
offers (BAFO).  

Under the technical area, BSAS' BAFO received a green rating in six of 
the factors and a blue in the seventh, while Raytheon's BAFO received 
green ratings in five of the factors, a blue in one, and a yellow in 
one.  Under the management area, BSAS' proposal received green ratings 
in all seven factors, while Raytheon's proposal received blue ratings 
in four factors (operations, quality assurance, property management 
and control, and personnel) and green ratings in the remaining 
factors.  Under performance risk, BSAS' proposal was rated low in all 
factors except security in which it was rated medium, and Raytheon's 
proposal was rated low in all factors.

Under the cost area, BSAS' proposal was rated high risk under the fee, 
labor, and overhead factors and low risk under the cost realism 
factor.  BSAS' high risk ratings in the labor and overhead factors 
were based primarily on the agency's adjustment of the BSAS direct 
labor proposal to make it consistent with the cost model.  The net 
effect of various adjustments was to raise BSAS' proposed cost (before 
fee) from [deleted] to [deleted].  Raytheon's proposal was rated low 
risk in all areas but overhead, under which it was rated moderate.  
Raytheon's evaluated cost of [deleted] was the same as its proposed 
cost.

The final, rollup ratings for the two relevant offerors are as 
follows: 

            OfferorTechnicalManagement  Performance RiskCost

             BSAS   Green      Green             LowHigh

           Raytheon  Green     Blue              LowLow
The source selection advisory council (SSAC) reviewed the SSEB's 
evaluation report and recommended that Raytheon be awarded the 
contract.  In making this recommendation, the SSAC noted that BSAS' 
proposal was slightly better than Raytheon's in the technical area, 
but concluded that Raytheon's outstanding proposal rating in the 
management area clearly outweighed BSAS' slight technical advantage in 
the technical area.  In this regard, they found that only Raytheon 
provided an outstanding proposal which offered significant advantages 
over the other proposals including operations, quality assurance, 
property management and control, and key personnel.  With regard to 
cost, the SSAC observed that BSAS' proposal was rated as a high risk, 
Raytheon's as a low risk, and the others as
moderate risk.  No direct consideration was given to the total 
evaluated cost of the respective proposals.  The SSAC concluded that 
Raytheon's proposal represented the best value to the government.  In 
determining that award should be made to Raytheon, the source 
selection authority (SSA) stated that he had independently validated 
and verified the findings and recommendations of the SSAC. 

After receiving notice of the award and a debriefing, BSAS filed its 
protest, supplementing it based on information received in the agency 
report.  BSAS protests the technical and cost evaluations as well as 
the source selection decision.[1]

PAST PERFORMANCE EVALUATION

BSAS argues that the agency's past performance risk evaluation was 
flawed.  In this regard, it is not the function of our Office to 
evaluate proposals de novo.  Rather, we will examine an agency's 
evaluation to ensure that it was reasonable and consistent with the 
stated evaluation criteria and applicable statutes and regulations 
since the relative merit of competing proposals is primarily a matter 
of administrative discretion.  Information Sys. & Networks Corp., 69 
Comp. Gen. 284, 285 (1990), 90-1 CPD  para.  203 at 3; Advanced Tech. and 
Research Corp., B-257451.2, Dec. 9, 1994, 94-2 CPD  para.  230 at 3.  The 
protester's mere disagreement with the agency's judgment does not 
establish that an evaluation was unreasonable.  Medland Controls, 
Inc., B-255204, B-255204.3, Feb. 17, 1994, 94-1 CPD  para.  260 at 3.

BSAS contends that, while the RFP contemplated a qualitative past 
performance risk evaluation, the agency simply tabulated the results 
of the questionnaires without determining the relative importance of 
the different contracts and evaluation results.  In this regard, BSAS 
observes that Raytheon received [deleted].  In BSAS' view, since the 
incumbent contract is more relevant than any other, Raytheon's 
[deleted] performance should have been more heavily weighted rather 
than merely averaged in with less relevant contract performance 
results.  BSAS also notes that in the SSEB report, some of Raytheon's 
[deleted] risk ratings were simply deemed "nondiscriminators" without 
any explanation.  Our review of the record discloses no basis for 
objecting to the agency's evaluation.

The RFP provided that the performance risk assessment would be based 
on the offeror's demonstrated past performance on programs and 
projects similar to the SOFSA effort.  It advised that the evaluation 
would be "quite subjective" and would be based on consideration of all 
relevant facts and circumstances.  Offerors were required to submit 
information on all pertinent contracts within the 3 years immediately 
preceding the closing date.  Section M of the RFP provided that the 
agency would assess an offeror's performance history as it related to 
cost estimating and control, quality control, security management, 
schedule planning and control, and management effectiveness.  To this 
end, the agency sent questionnaires to the various contracting 
personnel for each contract identified by the offerors.  Each question 
had three responses (a, b, and c), which translated to ratings of 1 
(low), 2 (medium), and 3 (high).  Survey responses on the same 
contract were averaged together to reach a single rating for each 
criterion for each contract.  The evaluators then averaged all 
responses to calculate a single risk rating for each criterion.  The 
ratings were then assessed using the following scale:  1.00 to 1.67, 
low; 1.68 to 2.34, medium; and 2.35 to 3.00, high.  BSAS was evaluated 
as low risk overall, with low ratings in all factors and subfactors 
with the exception of two medium risk ratings under the security 
management factor.[2]  Raytheon was evaluated as low risk overall, 
with low ratings in all factors and subfactors. 

Contrary to BSAS' arguments, the RFP did not require a qualitative 
past performance review which placed greater emphasis on SOF-related 
contracts.  It did, as discussed above, limit the past performance 
assessment to "similar" efforts, and, in fact, the contracts 
considered met this requirement.  

The evaluation that was conducted provided a reasonable "qualitative" 
evaluation of the offerors' past performance risk.  In this regard, 
the questionnaire responses provided sufficiently specific information 
to form the basis for the evaluation.  For example, under cost 
control, respondents could mark "a" representing "90% or more of all 
projects were completed within 10% of the estimated cost (10% below or 
10% above estimate)"; "b" "75% to 89% of all projects completed within 
10% [above or below] of the estimated cost"; or "c" "Less than 75% of 
all projects were completed within 10% [above or below] of the 
estimated cost."  Respondents also were invited to contact the agency 
if their answers did not fit the furnished responses for each 
question.  The completed survey sheets contain a number of margin 
notes explaining responses or the failure to mark any response.  The 
SSEB report contains a number of explanations concerning the ratings.  
For example, under the security management factor, the narratives for 
both BSAS and Raytheon explain the circumstances and impact of 
security violations.

We find nothing unreasonable in the evaluators' rating.  While it is 
true that the SOFSA director rated Raytheon's incumbent SOFSA 
performance as a [deleted], he rated the firm as [deleted] factors.  
In addition, the SOFSA administrative contracting officer rated 
Raytheon's performance as [deleted] factors.  When [deleted] averaged 
together, the combined rating was well within the [deleted].  Further, 
had the agency ascribed more weight to these scores, the result should 
have been detrimental to BSAS and other offerors with little or no 
SOFSA experience.  In sum, we see no basis to object to the agency's 
past performance evaluation.[3]

AWARD FEE EVALUATION

The RFP required offerors to propose a maximum fee percentage to be 
applied to the total estimated cost, excluding transition costs.  Due 
to the unique ordering requirements of the SOFSA, the base fee was 
required to be zero.  Offerors were specifically advised that the 
proposed percentage should provide an adequate incentive for 
outstanding performance under the contract.  Accordingly, offerors 
proposed their own adjectival rating scales for standards of 
performance with applicable fee percentages for determination of 
whether and to what extent the contractor would be entitled to a fee.  
Section M of the RFP advised offerors that the magnitude of the 
proposed award fee and the application of the proposed adjectival 
rating and applicable percentages would be evaluated.  

The agency estimated a maximum fee of [deleted] percent and a 
satisfactory performance fee of [deleted] percent.  In evaluating each 
offeror's fee structure, the agency looked at the maximum fee proposed 
and the fee proposed for performance of satisfactory work as proposed 
in the offeror's adjectival rating scheme.  The agency also calculated 
an incentive fee range by subtracting the satisfactory fee percentage 
from the maximum fee percentage and compared it with the agency's 
estimate of a reasonable range, [deleted] percent ([deleted] percent 
minus [deleted] percent).  

BSAS contends that the agency improperly evaluated its award fee 
structure as presenting a high risk.  Evaluating the relative merits 
of competing proposals is a matter within the discretion of the 
contracting agency, since the agency is responsible for defining its 
needs and the best method of accommodating them, and it must bear the 
burden resulting from a defective evaluation.  Advanced Tech. and 
Research Corp., supra, at 3.  Consequently, in reviewing an evaluation 
we will not reevaluate proposals but instead will examine the agency's 
evaluation to ensure that it was reasonable and consistent with the 
stated evaluation factors.  Id.  The fact that the protester disagrees 
with the agency's judgment does not render the evaluation 
unreasonable.  As discussed below, we have examined the agency's 
evaluation here and conclude that it was both reasonable and 
consistent with the stated evaluation criteria. 

BSAS' primary arguments are twofold.  First, it maintains that its 
[deleted] maximum fee is a strength because it represents significant 
savings over Raytheon's [deleted] percent fee.  Second, it argues that 
its fee structure is more advantageous because it provides for a 
greater relative incentive than does Raytheon's proposal.  We have 
reviewed these and BSAS' other award fee arguments and find that they 
do not demonstrate that the agency's evaluation was unreasonable or 
inconsistent with the evaluation criteria. 

The agency recognized that BSAS' [deleted] maximum fee represented a 
potential cost savings and identified this as a strength in the 
evaluation.  However, the evaluators found that the incentive to 
achieve this maximum fee was of significant concern.  BSAS would 
receive an effective fee of [deleted] percent for satisfactory work.  
Using the evaluation's sample $100 million effort, this percentage 
translates to [deleted] million.  Since BSAS could only earn an 
additional [deleted] million for excellent work [deleted], the 
evaluators concluded that the proposed fee structure provided BSAS 
only a very limited incentive to perform above the satisfactory level.  
In this regard, the evaluators also considered that BSAS had proposed 
to have its parent companies, Boeing and Sikorsky, perform subcontract 
work for it and their resources and expertise were necessary to meet 
the broad range of services required of the SOFSA.  As finally 
proposed, BSAS was to pay the parent companies from the award fee pool 
without any additional profit or fee.  The evaluators were concerned 
that the small potential maximum fee could result in a low priority 
being given to SOFSA work by the parent companies relative to work 
bearing a higher potential fee.  Under the circumstances of this 
contract, the evaluators' conclusion is reasonable.

BSAS argues that this will not be a problem because the parent 
companies do not have cost accounting and computer systems 
sophisticated enough to track incoming orders and prioritize them on 
the basis of expected return.  In our view, this is essentially an 
irrelevant response inasmuch as there are other ways that this 
information may be accessed and taken into account, and it is not 
unreasonable to evaluate the incentive level of the proposed fee in 
part on the basis of the potential impact of expected fee at both the 
prime and subcontract levels.

BSAS also argues that work will be performed on the basis of the 
Defense Priorities and Allocations Systems wherein rated orders are 
identified as DO and DX.  All DO orders have equal priority and take 
precedence over unrated orders.  All DX orders have equal priority and 
take precedence over DO and unrated orders.  Federal Acquisition 
Regulation (FAR)  sec.  11.603(a).  Thus, the parent companies will work on 
the basis of the ratings, not the amount of fee.  The agency explains, 
and the incumbent Raytheon verifies, that the orders at the SOFSA are 
not usually rated orders.  BSAS challenges these assertions based on a 
single purchase order, issued by Raytheon to Sikorsky for work under 
the incumbent contract, which contains a preprinted DO priority 
rating.  We do not agree that a single purchase order, out of the 
hundreds involved in annual work on this contract, is sufficient to 
call into question the agency's statement or to render the evaluators' 
assessment unreasonable.  

BSAS also contends that the agency erred by evaluating the award fee 
incentive on the basis of the respective differences between the 
proposed fees for satisfactory versus excellent performance, rather 
than by performing a detailed, level by level comparison of  its award 
fee structure with Raytheon's.  Had it done so, BSAS contends, its 
structure would have been found superior to Raytheon's.  As the agency 
correctly observes, BSAS' argument is premised on a misleading 
comparison which uses an inaccurate alignment of categories within the 
two fee structures proposed.  Moreover, in order to establish the 
unreasonableness of an evaluation, it is not enough that the protester 
can point to alternative methodologies available to the agency; 
rather, the agency's actual evaluation must be shown to lack a 
reasonable basis.  Payco Am. Corp., B-253668, Oct. 8, 1993, 93-2 CPD  para.  
214 at 7.  Here, in view of the fact that the offerors' unique fee 
structures made it impracticable to perform a direct comparison at any 
given point, the agency reasonably determined to evaluate the total 
incentive between satisfactory and excellent performance in order to 
assess this aspect of the cost evaluation.

COST EVALUATION AND DISCUSSIONS

BSAS has raised two main challenges to the cost evaluation:  first, 
that it failed to take into account the most probable cost of the 
proposals and, second, that it was based on the erroneously increased 
costs attributable to labor hours.  We address each of these issues in 
turn.

The agency argues that it was not required to consider the most 
probable cost of the proposals because the RFP did not provide for 
such an assessment.  In this regard, the agency maintains that, 
because the RFP evaluation scheme dealt only with cost risk 
assessments, there was no need to consider the cost difference between 
competing proposals.  The agency's view that no consideration of total 
cost was required is legally incorrect.  

As a general rule, agencies are required by the Competition in 
Contracting Act of 1984 (CICA) to include cost or price as a 
significant factor in the evaluation of proposals, 10 U.S.C.  sec.  
2305(a)(2)(A) (1994); see FAR  sec.  15.605(b)(1)(i).  An evaluation and 
source selection which fails to give significant consideration to cost 
is inconsistent with CICA and cannot serve as the basis for a 
reasonable source selection.  See generally Coastal Science and Eng'g, 
Inc., 69 Comp. Gen. 66, 67 (1989), 89-2 CPD  para.  436 at 3 (source 
selection in which price only accounted for 10 percent of overall 
evaluation was inconsistent with CICA).  While agencies have 
considerable discretion in determining the particular method to be 
used in evaluating cost or price, that method should, to the extent 
possible, accurately measure the cost to be incurred under competing 
proposals.  Lockheed, IMS, B-248686, Sept. 15, 1992, 92-2 CPD  para.  180 at 
6; Electronic Warfare Integration Network, B-235814, Oct. 16, 1989, 
89-2 CPD  para.  356 at 5.

Here, the RFP specifically advised offerors that "the offeror's 
ability to accurately estimate the cost of completing logistics 
support tasks and the overall cost of the offeror's proposal will be 
evaluated."  Further, the RFP specifically provided that under the 
labor rates evaluation, the "resulting total dollar figure will be 
used by the government as an indicator of total cost for the expected 
term of the contract."  Thus, the RFP expressly contemplated the 
evaluation of the offeror's total costs, and we reject the agency's 
argument to the contrary.  Accordingly, the cost evaluation was 
defective in not considering the most probable total cost of the 
competing proposals, under both the terms of the RFP and the statutory 
requirement that cost must be given significant consideration in award 
decisions.

We next turn to the protester's allegation that the cost analysis that 
was performed was based on the erroneously increased costs 
attributable to labor hours.[4]  The RFP included a cost model 
providing for 11,504,850 direct labor hours in various categories over 
the potential 5-year life of the contract.  The cost model identified 
each labor category (e.g., computer programmer II) and the number of 
hours per year to be worked/proposed.  Section L advised that offerors 
were to calculate the total annual cost for each indicated category 
and aggregate the categories into a single annual cost of labor. 

BSAS explains that its proposal fully accounted for the required 11.5 
million cost-model hours, but that they were simply detailed in two 
separate and clearly identified places:  [deleted].  In this regard, 
BSAS' initial cost proposal provides that "all employees are 
classified into [deleted].  The proposal included detailed breakdowns 
of the labor positions identified in the proposed groups.  In 
addition, the proposal provided detailed pricing forms showing some of 
the required hours as [deleted].  This methodology was repeated and 
clarified in the protester's BAFO.[5]  

In reviewing BSAS' initial proposal, the agency focused on apparent 
discrepancies between BSAS' "grand total program summary," which 
included the identification of 9,292,611.6 "total hours," and BSAS' 
"grand total program labor hour summary," which reflected 11,825,450 
"total hours."  In separate discussion questions, the agency requested 
verification of these figures.  In response, BSAS explained that the 
11.8 million hours figure was correct with the exception of some 
transition hours which had been excluded.  It also explained that the 
9.2 million hours figure did not include the [deleted].  It furnished 
a new grand total program summary of labor hours, which reflected both 
the [deleted].  BSAS explained that the "hours portrayed on [the new 
summary] represent all hours, [deleted], priced in our original cost 
proposal."  

Because BSAS failed to account for all cost-model hours in a single 
figure, and denominated a significant number of labor hours as 
[deleted], the agency upwardly adjusted BSAS' costs by more than 
[deleted] to account for what it viewed as the missing approximately 
[deleted] hours.  BSAS contends that the addition of hours represented 
an improper double counting of hours already included in its proposal.  
In our view, apart from the question of the accuracy of the agency's 
adjustment to BSAS' costs, having identified such a significant 
"error" in BSAS' initial proposal, the agency was required to conduct 
meaningful discussions with BSAS on this matter.  

Procuring agencies are generally required to conduct meaningful 
discussions with all offerors in the competitive range.  CBIS Fed. 
Inc., 71 Comp. Gen. 319, 325 (1992), 92-1 CPD  para.  308 at 7.  Discussions 
cannot be meaningful unless they lead an offeror into those aspects of 
its proposal that must be addressed in order for it to have a 
reasonable chance of being selected for award, and afford an offeror 
an opportunity to revise its proposal to satisfy the government's 
requirements.  Global Indus., Inc., B-270592.2 et al, Mar. 29, 1996, 
96-2 CPD  para.  85 at 4-5;  Stone & Webster Eng'g Corp., B-255286.2, Apr. 
12, 1994, 94-1 CPD  para.  306 at 10-11.  An agency may not consciously 
coerce or mislead an offeror during discussions (see Eagle Tech., 
Inc., B-236255, Nov. 16, 1989, 89-2 CPD  para.  468 at 3-4), nor may it 
inadvertently mislead an offeror through the framing of discussion 
questions into responding in a manner that does not address the 
agency's concerns.  Peckham Vocational Indus., Inc., B-257100, Aug. 
26, 1994, 94-2 CPD  para.  81 at 6.

We recognize that the RFP called for a single labor cost in the 
proposal and the agency was entitled to require that BSAS follow this 
format.  However, the agency did not identify this as a problem in its 
discussion questions; rather, in the face of BSAS' labor design, it 
simply asked for verification of the totals.[6]  Since the original 
totals were consistent with the cost model and BSAS' proposal 
structure, BSAS was not placed on notice of any problem perceived with 
the structure, or of the agency's view that it was necessary to add 
some [deleted] hours to the direct labor proposal.  Had the agency 
clearly identified the issue, BSAS could have either explained its 
methodology to the agency's satisfaction, or reconfigured its cost 
proposal to identify all labor costs in a single figure.  Based on our 
review of the record, we conclude that the agency failed to conduct 
meaningful discussions on this issue.  See Stone & Webster Eng'g 
Corp., supra.

The effect of the agency's failure to conduct meaningful discussions 
was significant.  The cost adjustment that the agency made accounted 
for an addition of more than [deleted] to BSAS' cost proposal and 
resulted in BSAS' proposal being rated high risk in the overhead and 
labor cost evaluations.  Had BSAS been able to meaningfully respond to 
the agency's concerns, eliminating the need to adjust its costs, BSAS' 
overall labor rate would have been lower than evaluated and lower than 
Raytheon's overall rate, resulting in a more favorable risk assessment 
for labor and overhead.  More significantly, elimination of the 
[deleted] adjustment would have resulted in BSAS' evaluated cost being 
approximately [deleted] lower than Raytheon's evaluated cost.

The consequence of the inadequate discussions and the resulting 
apparent error in the agency's cost calculation must be viewed in the 
context of the agency's failure to consider the total probable cost of 
proposals.  The evaluation of total cost does not appear to be crucial 
with respect to the initial award determination since Raytheon's 
proposal was viewed as having both an overall advantage in noncost 
factors and a significant cost advantage over BSAS'.  However, since 
the agency appears to have erred in adding more than [deleted] to 
BSAS' proposed labor costs, the actual cost advantage may be with BSAS 
and not Raytheon, thus requiring a cost/technical tradeoff analysis.  
While agencies have broad discretion in performing cost/technical 
tradeoffs, SDA Inc., B-248528.2, Apr. 14, 1993, 93-1 CPD  para.  320 at 9, 
here no cost/technical tradeoff analysis was undertaken due to the 
inadequate consideration of cost and the improper conclusion that 
Raytheon's higher-rated proposal offered the lower cost. 

In sum, we find that the agency failed to conduct meaningful 
discussions and that this failure had a significant impact on the cost 
evaluation.[7]

PREJUDICE

The agency has consistently argued that, because of Raytheon's 
superior management evaluation, BSAS still would not be in line for 
award, even if it were to prevail on all its protest grounds.  During 
the pendency of the protest the agency submitted a revised review and 
SSA determination based on an evaluation result consistent with many 
of BSAS' protest allegations, including the cost advantage alleged by 
BSAS.  The agency concluded that the award to Raytheon remains 
warranted and therefore argues that BSAS was not prejudiced by any 
errors made in the evaluation and source selection process.

In its revised review, the agency continued to maintain that its 
assessment of cost risk without consideration of probable cost was 
appropriate.  In this regard, the agency took the position that 
"inclusion of this alleged [total] cost differential would be a gross 
misapplication of the terms and conditions of the RFP and Source 
Selection Plan and would be improper."  Making what it viewed as the 
hypothetical assumption that many of the protester's allegations were 
correct, the SSEB, in its post-protest reevaluation concluded that, 
while BSAS' score improved in various subfactors, these improvements 
were insufficient to increase BSAS' final score in the technical, 
management, and past performance areas, which all remained "green."  
The reevaluation did result in a low risk overall rating in the cost 
area.  As part of its hypothetical exercise, the SSEB prepared a 
comparison of the offerors' proposed cost including transition, 
resulting in the calculation of a [deleted] difference between 
Raytheon's cost [deleted] and BSAS' cost [deleted].  The SSEB also 
calculated total possible costs by adding to each offeror's proposed 
cost the maximum fee proposed, resulting in a comparison of [deleted] 
(Raytheon) to [deleted] (BSAS).  The difference in these costs is 
[deleted]. 

This post-protest analysis was reviewed and adopted by the SSA, who 
concluded that Raytheon would have properly received his direction for 
award, even given the assumption that all BSAS' protest allegations 
were granted.  He emphasized the equality of the ratings in all but 
the management area and the overall [deleted] cost differential 
between the two proposals.  He explained why, in view of the 
importance of performance at the SOFSA and its potential effect on the 
agency's ability to accomplish SOF missions, he concluded that the 
additional cost associated with Raytheon's proposal was more than 
offset by the potential to enhance contractor performance and mission 
accomplishment.  The SSA also expressed the view that the cost 
differential between Raytheon and BSAS was mitigated by Raytheon's 
significantly lower transition costs.  In sum, the SSA concluded that 
Raytheon's superior management proposal, outstanding award fee plan, 
and performance incentives, when considered together with the relative 
importance of the management area over cost, would clearly outweigh 
the [deleted] cost savings associated with the BSAS proposal (assuming 
that the agency had made the errors alleged by the protester).  It is 
on the basis of this post-protest
reevaluation that the agency argues that any errors in its process did 
not prejudice BSAS. 

Our Office will not sustain a protest unless the protester 
demonstrates a reasonable possibility that it was prejudiced by the 
agency's actions, that is, unless the protester demonstrates that, but 
for the agency's actions, it would have had a substantial chance of 
receiving the award.  McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 
CPD  para.  54 at 3; see Statistica, Inc., v. Christopher, 102 F. 3d 1577, 
1581 (Fed. Cir. 1996).

Here we are unpersuaded by the agency's argument that there was no 
reasonable possibility of prejudice.  While we consider the entire 
record, including statements and arguments made in response to a 
protest in determining whether an agency's selection decision is 
supportable, we accord greater weight to contemporaneous source 
selection materials rather than judgments, such as the selection 
officials' reevaluation here, made in response to protest contentions.  
Dyncorp, 71 Comp. Gen. 129, 134 n.12 (1991), 91-2 CPD  para.  575 at 7 n.13; 
Southwest Marine, Inc.; American Sys. Eng'g Corp., B-265865.3, 
B-265865.4, Jan. 23, 1996, 96-1 CPD  para.  56 at 10.  As pointed out above, 
the agency does not acknowledge that it erred.  Rather, we are faced 
with an agency's efforts to defend, in the face of a bid protest, its 
prior source selection through submission of new analyses, which the 
agency itself views as merely hypothetical and which are based on 
information that the agency continues to argue is not accurate.  The 
lesser weight that we accord these post-protest documents reflects the 
concern that, because they constitute reevaluations and 
redeterminations prepared in the heat of an adversarial process, they 
may not represent the fair and considered judgment of the agency, 
which is a prerequisite of a rational evaluation and source selection 
process.

Moreover, even in its reassessment, while the agency went through an 
exercise which theoretically based the determination on the corrected 
relative probable costs, it has continued to maintain that it properly 
considered cost risk only and is not required to consider relative 
probable cost.  In considering the magnitude of the respective 
probable costs, the agency considered and compared only the grand 
totals and not the relative difference between the costs over which 
the offerors exercised any control.  That is, the contract included 
fixed costs of approximately $525 million (material and other direct 
costs) which were constant for all offerors.  If these costs are 
eliminated from the analysis, while the absolute difference in the 
competing proposals' respective costs remains the same (approximately 
[deleted] million), the magnitude of the relative maximum cost 
difference between the cost elements which differed for each offeror 
represents [deleted] percent, rather than the maximum cost difference 
of [deleted] percent used by the agency in its analysis.  Particularly 
in light of the circumstances under which it was prepared, we cannot 
accord the agency's judgment the deference we normally would.  We 
conclude that there remains a reasonable possibility that the 
protester was prejudiced by the agency's actions.  

The protest is sustained.

RECOMMENDATION

We recommend that the agency reopen negotiations regarding costs and 
fees with the offerors in the competitive range, in accordance with 
the guidance set forth in this decision, and allow them to submit 
revised cost proposals (including fees).  If, upon reevaluation, the 
agency determines that BSAS' or another proposal represents the best 
value, we recommend that the agency terminate Raytheon's contract for 
convenience and award a contract to BSAS.  We also recommend that BSAS 
be reimbursed the costs of filing and pursuing its protest, including 
reasonable attorney's fees.  Bid Protest Regulations, 4 C.F.R.  sec.  
21.8(d)(1) (1997).  BSAS' certified claim for such costs, detailing 
the time and costs incurred, should be submitted within 60 days after 
receipt of this decision.  4 C.F.R.  sec.  21.8(f)(1).

The protest is sustained.

Comptroller General
of the United States

1. The protester submitted numerous arguments in support of these and 
other protest grounds.  This decision will discuss only the more 
significant arguments.  We have reviewed the entire record and 
considered all of the protester's arguments.  Those arguments not 
specifically addressed in the decision were found non-meritorious.

2. BSAS has protested that it should have been provided discussions in 
order to explain the circumstances behind the incidents which led to 
the medium risk ratings.  The security violations involved were 
apparently the fault of subcontractors, and the SSEB report provides a 
detailed explanation which downplays the seriousness of the 
violations; thus, it is unlikely that BSAS could have provided any 
additional information which would have changed the rating.  In any 
event, BSAS was rated as low overall under the past performance risk 
area.

3. We find nothing unreasonable in the evaluators' denomination of 
some Raytheon [deleted] ratings as "nondiscriminators," and therefore 
no basis for changing an otherwise low rating.  Raytheon received 
[deleted] ratings in [deleted] other contracts besides the SOFSA 
incumbent contract.  The evaluators apparently used the term 
"nondiscriminator" to mean that, because of the circumstances of the 
[deleted] contracts, the risk ratings associated with them were not 
significant:  [deleted].

4. BSAS also protests the agency's addition of approximately [deleted] 
to its labor costs for escalation.  The cost model provided for a 
3-percent labor rate escalation for each year of the contract.  Based 
on its own business experience, BSAS proposed in its BAFO to reduce 
that factor to [deleted] for professional labor categories.  While 
Defense Contract Audit Agency reviewers apparently did not take 
exception to this proposal, the cost evaluators determined to add in 
the additional escalation cost.  The evaluators based their assessment 
on historical wage rate increases at the SOFSA which indicated that a 
3-percent escalation was "conservative at best."  While the protester 
maintains that the agency should not have added the additional 
escalation cost, we believe the agency's determination to conform 
BSAS' escalation proposal to the cost model was reasonably based on 
its experience with contract performance at the SOFSA.

5. For example, in its initial proposal BSAS identified [deleted] 
hours for the position of "Senior Engineer (All Disciplines)" which 
was consistent with the cost model, less transition hours.  In a 
separate section of the cost proposal, BSAS identified [deleted] 
senior engineer positions [deleted].  The combined total of these 
positions is the same as that proposed for the Senior Engineer.  Labor 
rates and the burdened cost of labor was detailed elsewhere in the 
proposal, denominated as [deleted].  The BAFO contained similar 
breakdowns which were also consistent with the cost-model totals.  As 
part of our review of this issue, an accountant/evaluator from our 
Office reviewed the BSAS cost proposal and the arguments on the issues 
by the protester and agency.  He concurred with BSAS' arguments that 
both its initial and BAFO proposals provided for a division of labor 
hours and costs into [deleted], the combination of which is consistent 
with the cost-model totals.  

6. In this regard, we note that cost evaluation spreadsheets used by 
the agency contain notations indicating that the evaluators were well 
aware that BSAS had proposed the total cost model hours under separate 
line items.  

7. BSAS also contends that it was misled by the agency during 
discussions with regard to its award fee amount and structure.  
Because BSAS' maximum fee and incentive fee range were less than the 
government's estimate, the agency issued a "significant concern" 
discussion question highlighting its concern that BSAS' "proposed 
incentive range . . . appears to provide very limited incentive to 
perform above the Satisfactory level."  BSAS asserts that, in a 
subsequent telephone conversation, the contracting officer advised 
that BSAS had proposed the highest fee of all offerors and that its 
"incentive range for satisfactory performance should be 50 percent of 
the amount for an excellent rating."  BSAS states that it followed 
this advice, significantly lowering its award fee from [deleted], 
resulting in a more limited incentive range, and contributing to BSAS' 
high risk rating for the award fee subfactor.  The contracting officer 
denies making the statements attributed to him.  In light of our 
recommendation that negotiations be reopened, we need not resolve this 
dispute.