BNUMBER:  B-277353 
DATE:  October 2, 1997
TITLE: The Cube Corporation, B-277353, October 2, 1997
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Matter of:The Cube Corporation

File:     B-277353

Date:October 2, 1997

Katherine S. Nucci, Esq., Timothy Sullivan Esq., and Martin R. 
Fischer, Esq., Adduci, Mastriani & Schaumberg L.L.P., for the 
protester.
Vera Meza, Esq., Department of the Army, for the agency.
Henry J. Gorczycki, Esq., and James A. Spangenberg, Esq., Office of 
the General Counsel, GAO, participated in the preparation of the 
decision.

DIGEST

Agency reasonably determined that the awardee's price was reasonable 
and realistic based on a price analysis, and properly based its award 
selection on price where the competing proposals were otherwise 
reasonably determined to be equal.

DECISION

The Cube Corporation protests an award of a fixed-price-with-award-fee 
contract to ORI Services Corporation (ORI) under request for proposals 
(RFP) No. DAAD01-97-R-0011, set aside for section 8(a) concerns, 
issued by the Department of the Army for installation support 
management services at Yuma Proving Ground, Arizona, for a base period 
with 7 option years.   

We deny the protest.

The RFP stated a best value evaluation scheme with the 
management/technical factor being significantly more important than 
performance risk, and performance risk being slightly more important 
than cost.  Under the management/technical factor, the RFP stated four 
subfactors; of particular relevance here are subfactors 1 and 3 which 
concern staffing and skill levels (journeyman to sub-journeyman), 
respectively.  The subfactors were to be rated on a color scale of red 
(the lowest rating), yellow, blue, and green (the highest rating).[1]  
Under the cost factor, the RFP stated:

     The limited cost data will be evaluated by Government Cost/Price 
     Analysts for completeness and cost realism in narrative format.  
     It is a common practice for all offerors to include in their 
     proposals certain potential cost reducing factors, i.e., 
     attrition rates and insurance dividends.  These cost reductions 
     may or may not materialize during the contract, and the factors 
     would be applicable to all offerors.  Therefore, during the cost 
     realism evaluation for this contract, no cost reduction factors 
     will be allowed unless the offeror has accepted the risk and has 
     included a guaranteed minimum for the proposed reduction.  As 
     with Performance Risk analysis, Management/Technical merit is 
     significantly more important than cost for evaluation purposes 
     for this requirement.  The Government is willing to pay more if 
     the management/technical advantages so warrant.  However, as 
     management/technical merit and performance risk tend to equalize, 
     cost will become more important.

The RFP elsewhere stated that the "cost analyses will receive 
narrative ratings."

Three offerors, including Cube and ORI, submitted proposals.  ORI's 
proposal received green ratings on all four management/technical 
subfactors and a low performance risk rating.  Cube's proposal 
received yellow ratings on subfactors 1 and 3, blue ratings on 
subfactors 2 and 4, and a negligible performance risk rating.  The 
reasons for Cube's proposal's yellow ratings were that it proposed 
fewer staff-years than the agency considered necessary, and it was 
contradictory and/or unclear regarding employment of sub-journeymen 
workers.  The third offeror did not submit sufficient information to 
permit evaluation and was eliminated from the competitive range.

ORI's $21.6 million price was 7 percent above the government estimate 
and Cube's $19.5 million price was 3.2 percent below the government 
estimate.  Based on its analysis of the limited cost data submitted, 
the agency determined that both prices were fair and reasonable for 
their proposals, although it identified questions regarding specific 
costs of each proposal which were to be addressed during discussions.

In response to the discussions, Cube increased its staffing by 1 
staff-year.  The agency determined that, based on historical staffing 
requirements, Cube's revised staffing level was still inadequate.  
Assuming that Cube's lower price was attributable to its low staffing 
level, the Army eliminated Cube's proposal from the competitive range, 
and requested a best and final offer (BAFO) from ORI.

Cube requested and received a debriefing with regard to its proposal's 
elimination from the competitive range.  During the debriefing, the 
contracting officer learned that the historical staffing level used by 
the agency to evaluate proposed staffing levels was incorrect, and was 
persuaded that Cube's evaluation ratings might be unreasonable.  The 
contracting officer therefore conducted a neutral reevaluation of 
Cube's proposal.  Based on this reevaluation, Cube's proposal's 
ratings for all management/technical subfactors were changed to green, 
except for the third subfactor which was changed from yellow to blue.  
Cube's proposal was readmitted to the competitive range and BAFOs were 
requested from Cube and ORI.  Cube's and ORI's total BAFO prices were 
$16,092,299 and $15,666,417, respectively.

Based on its analysis of the proposals, the agency determined that the 
BAFO prices were fair and reasonable.  The agency also determined that 
ORI's BAFO represented the best value because it was rated technically 
superior to Cube's proposal with a low performance risk and offered 
the lowest price.  On June 16, the agency awarded the contract to ORI.  
Cube requested and received a debriefing.  This protest followed.

Cube first alleges that its BAFO should have been rated superior, or 
at least equal, to ORI's BAFO, given its asserted superiority under 
the third management/technical subfactor, where its proposal was rated 
lower than ORI's by the agency.

In reviewing an agency's evaluation of proposals and source selection 
decision, our review is confined to a determination of whether the 
agency acted reasonably and consistent with the stated evaluation 
factors.  PRC, Inc., B-274698.2, B-274698.3, Jan. 23, 1997, 97-1 CPD  para.  
115 at 4.  We will not question an agency's evaluation of proposals 
unless the agency deviated from the solicitation evaluation criteria 
or the evaluation was otherwise unreasonable.  HSG-SKE, B-274769, 
B-274769.3, Jan. 6, 1997, 97-1 CPD  para.  20 at 3.

Subfactor 3 under the management/technical factor concerns proposed 
plans for qualifying journeyman workers and for ensuring a qualified 
and balanced (journeyman to sub-journeyman) work force.  This was the 
only subfactor after the reevaluation of Cube's proposal for which 
Cube was rated lower than ORI.  In response to the protest, the agency 
states that, given the evaluation significance of the third subfactor, 
Cube's and ORI's BAFOs are actually considered "basically equal" under 
both the management/technical and performance risk factors, and 
therefore price was the determining factor for award.  The agency 
states that the source selection decision was proper because award was 
made to the offeror with the lowest price.

Notwithstanding that the Contracting Officer revised her technical 
evaluation in documents prepared in defense of this protest, from ORI 
having a technical superiority in the contemporaneous source selection 
documents to "basically equal technically" in the Contracting 
Officer's Statement, the contemporaneous record supports this revised 
conclusion.  Our review of the technical proposals shows no 
significant difference exists between the two technical/management 
proposals.  Although Cube essentially contends that the section in its 
proposal discussing the training and use of its work force was longer 
than ORI's, and thus should be considered superior under subfactor 3, 
it does not identify anything which it proposed that was not also 
proposed by ORI.  Since the stated evaluation plan contemplated that 
price would increase in importance as proposals become more equal 
under the other evaluation factors, and the record does not evidence 
any technical differences in the proposals to justify award based on a 
higher price, the agency's award selection based on lower price is 
reasonable and consistent with the terms of the RFP.  See PRC, Inc., 
supra, at 12-14.

Cube also contends that ORI's low BAFO price is not realistic and 
that, if the Army had conducted a proper cost analysis of ORI's BAFO 
price as allegedly required, it could not have reasonably determined 
that ORI's BAFO price is reasonable, but rather should have recognized 
that ORI had submitted a below-cost BAFO.

Where, as here, a fixed-price contract is solicited, "cost realism" 
ordinarily is not considered in the evaluation since a firm, 
fixed-price contract provides for a definite price which places the 
risk and responsibility for all contract costs and resulting profit or 
loss upon the contractor.  Sperry Corp., B-225492, B-225492.2, Mar. 
25, 1987, 87-1 CPD  para.  341 at 3.  In this regard, a below-cost offer is 
legally unobjectionable and, in the case of a fixed-price offer, it 
cannot be rated lower or downgraded in the price evaluation for source 
selection by virtue of its low price.  Id. at 4; Milcon Sys. Corp., 
B-255448.2, May 3, 1994, 94-1 CPD  para.  339 at 9-10.  However, agencies, 
in their discretion, may provide for a cost realism analysis in the 
solicitation of firm, fixed-priced proposals for such purposes as 
measuring an offeror's understanding of the solicitation requirements.  
Sperry Corp., supra, at 3; see American Lawn Serv., Inc., B-267715, 
Dec. 20, 1995, 95-2 CPD  para.  278 at 4-5 (specifically stated intention to 
apply price realism analysis to technical evaluation ratings created 
requirement to do so).

Here, notwithstanding the RFP's use of the term "cost" to identify the 
evaluation factor and the statement that a cost or cost realism 
analysis would be performed, this does not mean that the evaluation 
factor was other than price, nor does it commit the agency to perform 
a cost analysis in accordance with Federal Acquisition Regulation 
(FAR)  sec.  15.805-3.  See ASI Personnel Serv., Inc., B-258537.7, June 14, 
1995, 95-2 CPD  para.  44 at 2 n.1, 5; Sperry Corp., supra, at 4.  Instead, 
we think that the "cost" factor here contemplated that the agency 
would evaluate the relative prices after performing a price analysis 
in accordance with FAR  sec.  15.805-2 to ascertain whether the offered 
prices were reasonable and realistic.[2]  Sperry Corp., supra, at 4; 
see Computer Sys. Int'l, Inc., B-276955, B-276955.2, Aug. 13, 1997, 
97-2 CPD  para.  49 at 3.  

Price analysis techniques that may be used to determine whether prices 
are reasonable and realistic include 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).  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.

The Army's BAFO price analysis was based on a comparison of prices to 
each other and to the government estimate, as well as its evaluation 
of the limited cost information provided with initial proposals and 
during discussions.  The record shows that both BAFO prices and the 
government estimate were significantly reduced to account for a 
reduction of the services required through RFP amendments, and that 
the final government estimate was 17 percent higher than ORI's BAFO 
price and 15 percent higher than Cube's BAFO price.  The agency 
identified the difference between the estimate and the prices as 
resulting from an unnecessary escalation of wage rates used in the 
government estimate.[3]  Considering this adjustment, the agency 
determined that both BAFO prices were reasonable in comparison to the 
government estimate.  The agency also determined that ORI's price was 
within 3 percent of Cube's price and was reasonable.  Moreover, based 
on the limited cost information submitted, the agency had determined 
that both Cube's and ORI's identified costs were complete and 
reasonable.  The Army accordingly determined that ORI's BAFO price was 
fair, reasonable, and realistic.  Based on our review, we have no 
basis to disturb the agency's determination.[4]  See Computer Sys. 
Int'l, Inc., supra, at 4-5; Pearl Properties; DNL Properties, Inc., 
B-253614.6, B-253614.7, May 23, 1994, 94-1 CPD  para.  357 at 11-12.

Cube also alleges that ORI's cost data and low BAFO price evidence 
that ORI may not intend to provide the required level of effort under 
the contract.  ORI's technical proposal offered to provide an 
acceptable level of effort to fully perform the contract requirements.  
ORI did not propose any revisions to its initial technical proposal.  
Therefore, since this is a fixed-price contract, even assuming the 
cost data and low price indicate that ORI's BAFO is below cost, the 
issue such evidence raises is whether ORI will be able to perform the 
contract requirements at the price proposed, not whether the offeror 
has taken exception to the contract requirements.  See Milcon Sys. 
Corp., supra, at 9; Oshkosh Truck Corp., B-252708.2, Aug. 24, 1993, 
93-2 CPD  para.  115 at 6 n.3.  The allegation thus concerns a matter of 
affirmative responsibility which our Office will not review 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.

In sum, the Army acted properly and reasonably in determining that 
ORI's BAFO price was fair, reasonable, and realistic based on a price 
analysis, and reasonably based its selection on price where the 
competing proposals were otherwise reasonably determined to be equal.

The protest is denied.

Comptroller General
of the United States

1. The RFP described each color rating as follows:

               Red - Fails to meet the requirements of the statement 
               of work [(SOW)].

               Yellow - Weak, however, with clarifications may be able 
               to meet the requirements of the [SOW].

               Blue - Meets the minimum requirements of the [SOW].

               Green - Significantly exceeds the requirements of the 
               [SOW].

2."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 review and evaluation of an 
offeror's separate cost elements and proposed profit.  FAR  sec.  15.801.

3. The wage rates in question are governed by Department of Labor 
(DOL) wage determinations.  Changes in DOL wage determinations will 
result in price modifications under this contract, and thus escalation 
of these costs is not applicable to evaluating price reasonableness.

4. In response to Cube's contention that ORI's use of 2,080 hours in 
its proposal, instead of 2,088 hours, shows that ORI's costs are 
understated and/or that it did not understand the level of effort 
required, the agency responds that the point is not a concern because 
2,080 hours is the generally accepted standard workyear for 
calculating labor costs (2,080 hours is the product of multiplying 52 
weeks per year by 40 work-hours per week).  Accordingly, we agree with 
the agency that ORI's use of 2,080 hours per staff-year does not 
indicate that ORI did not understand the level of effort required.  
Moreover, to the extent that 2,080 hours does not represent the actual 
number of work hours in any given staff-year, the difference is not 
material.