BNUMBER: B-277674
DATE: November 10, 1997
TITLE: The Arora Group, Inc., B-277674, November 10, 1997
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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:The Arora Group, Inc.
File: B-277674
Date:November 10, 1997
Edward J. Tolchin, Esq., Fettmann, Tolchin & Majors, P.C., for the
protester.
John R. Tolle, Esq., and Monica C. Parchment, Esq., Barton, Mountain &
Tolle, for Saratoga Medical Center, Inc., an intervenor.
Douglas P. Larsen, Esq., and John R. Osing, Jr., Esq., Department of
the Navy, for the agency.
Linda C. Glass, Esq., and Paul I. Lieberman, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Agency unreasonably concluded protester's fixed-price offer lacked
price realism because of the protester's failure to propose salary
escalation and therefore its perceived inability to retain employees,
where protester proposed to use part of general and administrative
(G&A) budget for employee bonuses; agency's conclusion that G&A budget
was inadequate to retain employees was premised on agency's
miscalculation of amount of that budget.
DECISION
The Arora Group, Inc. protests the award of a fixed-price contract to
Saratoga Medical Center, Inc. under request for proposals (RFP) No.
N62645-96-R-0032, issued by the Naval Medical Logistics Command for
the services of 10 pharmacists for the National Naval Medical Center,
Bethesda, Maryland. Arora principally contends that the agency erred
in its price realism analysis of Arora's proposal and deviated from
the RFP's source selection criteria.
We sustain the protest.
The RFP, issued on August 22, 1996, as a competitive 8(a) set-aside
under the Small Business Act, 15 U.S.C. sec. 637(a) (1994), sought offers
to provide the services of 10 full-time pharmacists and 5 optional
pharmacists for a base period with four option periods, for a total
possible performance term of 5 years. The RFP provided that award
would be made to the responsible offeror whose proposal, conforming to
the specified minimum healthcare worker qualifications, offered the
government the best combination of past performance and price. To be
considered for contract award the offeror had to provide proof that it
would provide at least 10 individual healthcare workers who satisfied
the specified minimum healthcare worker qualifications. The minimum
healthcare worker qualifications were to be evaluated on a "Go/No-Go"
basis. Past performance was to be evaluated on the basis of the
merits of each offeror's corporate experience. The RFP provided that
merit of an offeror's past performance was significantly more
important than price, but that the closer the merits of the offerors'
past performances were to one another, the greater the importance of
price would be in the award decision.
The RFP advised offerors that price realism would be assessed as
follows:
Realism. An attempt will be made to clarify suspected
unrealistic pricing with the offeror during discussions.
Unrealistically low cost estimates and/or inconsistencies between
the technical and price proposal, which result in a suspected
understatement of the costs or misunderstanding of the
requirements, will be addressed in the evaluation of the
offeror's past performance.
The agency received eight proposals by the September 24, 1996, closing
date.[1] Technical evaluations were conducted and concerns were
identified in both Arora's and Saratoga's proposals. Both proposals
were rated "Good" under the past performance evaluation factor.
The price proposals were evaluated to determine reasonableness and
realism by comparing the proposed prices to each other, to the Navy's
market survey, and to the offeror's own market survey information,
which was required to be submitted with proposals. The proposed
escalation rates were compared to the annual 3-percent rate which the
agency understood had been recommended in Federal Acquisition Circular
(FAC) 90-23.[2]
Saratoga proposed an average healthcare worker compensation rate of
$[deleted] hour for the base period, and annual salary escalation of
[deleted] percent. Saratoga's compensation rate was determined to be
unrealistically low based on a comparison with the government market
survey, the offeror's own market survey, and the certificates of
availability provided by the offeror. The protester proposed an
average compensation rate of $[deleted] per hour for the base period
with no escalation for the option years. Based on its market survey
and FAC 90-23, the Navy projected that the hourly wage for pharmacists
in the area would range from $[deleted] to $[deleted] per hour during
the last of the option periods covered by the RFP. Nonetheless, the
Navy determined that Arora's failure to provide for any salary
escalation presented a price realism concern because it created a risk
that the contractor might not be able to retain qualified personnel or
recruit suitable replacements.
After completion of the technical evaluations, the source selection
authority (SSA) determined that the proposals of six of the initial
offerors, including those of both the protester and Saratoga, should
be included in the competitive range. On February 25, discussion
letters were sent to the competitive range offerors raising a number
of technical and price concerns. Among other things, the protester
was advised that its failure to include any escalation for salaries
during the option periods posed a realism concern because there was
uncertainty concerning Arora's ability to retain the required
healthcare workers without escalation.
Arora submitted a revised proposal which did not include salary
escalation for the option years and offered no explanation for its
failure to do so. Saratoga's revised total average compensation
package was increased to $[deleted], which was considered reasonable
and realistic.
After review of the revised proposals, on May 20, a request for best
and final offers (BAFO) was sent to all competitive range offerors.
Arora was once again advised that its lack of salary escalation for
the option periods still posed a realism concern that required
correction or explanation, and that the protester's profit was not
calculated properly.
Saratoga's BAFO price was $6,032,858.64; Arora's was $[deleted]. Both
BAFOs were "Go" for the technical proposals, and both had past
performance ratings of "Good." The protester declined to include
salary escalation for the option periods, addressing the
recruitment/retention realism concerns instead by stating that it had
negotiated long term employment agreements, coextensive in term with
the contract, and that its general and administrative costs (G&A)
included budgets for recruitment if there was turnover. Arora's BAFO
went on to state: "If there is no turnover, the aforementioned budget
will be applied to employee bonuses in accordance with market
variation." Despite Arora's explanation, the agency remained
unconvinced that the protester would be able to retain qualified
healthcare workers throughout the contract period without salary
escalation.
Because of this, the agency concluded that Arora's prices were
unrealistic, and it made award to Saratoga as representing the best
value to the government. This protest followed. Contract performance
has been stayed pending resolution of the protest.
Arora argues that the Navy did not evaluate proposals or make an award
determination as called for in the solicitation because the Navy
evaluated Saratoga and Arora as equal in past performance yet awarded
the fixed-price contract to Saratoga, the higher-priced offeror,
solely on the basis of price realism concerns. Arora maintains that
the Navy did not address price realism in its past performance
evaluation, as required by the RFP, but rather considered the matter
separately. Alternatively, Arora asserts that if the agency did
address price realism in its past performance evaluation, the agency
failed to adhere to the RFP criteria that "the closer the merits of
the offerors' past performance are to one another, the greater will be
the importance of price in making the award determination." Arora
also argues that the agency's price realism evaluation was plainly
erroneous in that the Navy incorrectly based its analysis on the
mistaken premise that Arora proposed total G&A of $[deleted] per year
for all 10 employees when Arora's supplemental pricing worksheet
clearly stated that $[deleted] was the G&A amount for each employee
per year.
Price realism is not ordinarily considered in the evaluation of
proposals for the award of a fixed-price contract, because these
contracts place the risk of loss upon the contractor. However, an
agency may provide, as here, for the use of a price realism analysis
in a solicitation for the award of a fixed-price contract for the
purpose of measuring an offeror's understanding of the solicitation's
requirements or to assess the risk inherent in an offeror's proposal.
PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD para. 381 at 5. In
this regard, the risk of poor performance when a contractor is forced
to provide services with an undercompensated work force is a
legitimate concern in the evaluation of proposals. Trauma Serv.
Group, B-242902.2, June 17, 1991, 91-1 CPD para. 573 at 4. We will review
the price evaluation conducted to determine whether it was reasonable
and consistent with the RFP evaluation criteria. Id.
Here, we find that the agency's determination to reject Arora's
proposal because its flat compensation rates posed an unacceptable
price realism risk was neither reasonable nor consistent with the
evaluation criteria.
In response to the agency's stated concerns about Arora's failure to
provide for any wage escalation in its price proposal, Arora explained
in its BAFO that it would be able to retain and recruit qualified
healthcare workers because it had negotiated long-term employment
agreements and because its proposed G&A included a budget for
recruitment if there was turnover, and if there was no turnover the
recruitment budget would be "applied to employee bonuses in accordance
with market variation."
The Navy declined to accept Arora's explanation of how it would be
able to retain the healthcare workers throughout the 5-year term of
the contract without escalation. Because the completed statements of
availability submitted with Arora's proposal "only pertain to starting
salary" and Arora did not submit "proof" of its long-term employment
agreements, the Navy decided that Arora had not provided "convincing
evidence that they will be able to retain the health care workers
throughout the five year term of the contract without escalation." In
essence, the evaluators gave no credence to Arora's statement that it
had negotiated such agreements and determined not to credit the
arrangement. As to Arora's statement that it would use G&A to provide
either for recruitment or for bonuses, the evaluators characterized
the proposed bonuses as "vague." More to the point, the evaluators
were concerned that "[e]ven if all of the G&A pool was applied to
health care worker bonuses it would only be sufficient to provide
$[deleted] per year to each health care worker . . . [which] is less
than the range [deleted] percent] specified in the IGCE [independent
government cost estimate]." In short, the Navy viewed what it
believed to be Arora's total G&A of $[deleted] per year for 10 workers
to be inadequate to provide bonuses or incentives in any meaningful
amount. The Navy concluded that without escalation over the 5-year
period of performance, there was a risk that Arora would not be able
to retain the healthcare workers, and staffing vacancies would
jeopardize patient care by causing unacceptable delays and limiting
the amount of care available. The Navy also concluded that the lack
of salary escalation would have an effect on Arora's ability to
recruit qualified substitutes, should replacements be needed.
We recognize that the agency has legitimate concerns about recruitment
and retention problems during contract performance. Further, the
protester's explanation of its plans to mitigate these concerns lacks
the specificity generally required to meet an offeror's obligation to
submit an adequately written proposal which provides sufficient
information for the agency to evaluate. Infotec Dev. Inc, B-258198 et
al., Dec. 27, 1994, 95-1 CPD para. 52 at 6. Nonetheless, here the agency
failed to adequately evaluate the information which was presented by
Arora and the agency's determination that the price realism concerns
presented by Arora's proposal represented a significant risk of poor
performance because of the omission of salary escalation over the
5-year contract term lacked a reasonable basis. In its BAFO, the
protester provided explanations of two processes that it had
implemented to address and mitigate possible turnover problems. The
first was that it had negotiated long-term employment contracts.
While the agency might have been more reassured had Arora provided
copies of these contracts, we do not believe that it was reasonable
for the agency to essentially ignore the possible impact of this
approach simply because Arora did not provide copies of these
agreements.
More importantly, Arora also proposed the use of money which it stated
it had budgeted into its G&A costs to provide for recruitment of
replacement employees or bonuses for retention of current ones. In
its evaluation, the agency discounted the efficacy of such an approach
to retaining employees primarily because it believed that Arora had
proposed to pay nonspecific bonus amounts out of a total of $[deleted]
per year in G&A for all 10 employees. The Navy viewed the total
available G&A as amounting to approximately $[deleted] per year per
employee, which it assessed to be insufficient to provide meaningful
incentives (the Navy did not question the use of the G&A budget for
such incentives). During the course of the protest, the agency
conceded that it had misunderstood and misevaluated Arora's proposed
G&A, and that Arora had, in fact, proposed $[deleted] in G&A per year
for each employee.[3] Presumably because that much larger amount
would appear to be sufficient to include the payment of incentives of
more than the [deleted] percent per year that the Navy believes
necessary to retain employees, the Navy effectively abandoned its
contemporaneous position that Arora's G&A budget was inadequate for
the bonuses. Instead, the Navy now argues that it was reasonable for
the agency to have concern about Arora's ability to retain qualified
staff because the protester did not make a firm commitment to provide
specific employee bonuses from its G&A budget.
The Navy's initial evaluation rationale was clearly unreasonable and
of little value in supporting the agency's conclusion, since it was
based on an analysis that a sum of money amounting to one-tenth of the
actual amount proposed was inadequate to provide meaningful bonuses.
We find unpersuasive the Navy's post-protest reliance on other reasons
to continue to justify its finding that Arora's prices were
unrealistic, since the protester proposed an amount of G&A funds that
should be adequate to address the most consequential concern raised
contemporaneously by the agency. Moreover, 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 much greater weight to contempora-neous source
selection materials rather than judgments, such as the reassessment
made here in response to a protest contention. Dyncorp, 71 Comp. Gen.
129, 134 n.12 (1991), 91-2 CPD para. 575 at 7 n.13; Southwest Marine,
Inc.; Am. Sys. Eng'g Corp., B-265865.3, B-265865.4, Jan. 23, 1996,
96-1 CPD para. 56 at 10. We afford the agency's post-protest
justification diminished weight because it was prepared in the heat of
an adversarial process and may not represent the fair and considered
judgment of the agency, which is a prerequisite of a rational
evaluation and source selection process. Boeing Sikorsky Aircraft
Support, B-277263.2, B-277263.3, Sept. 29, 1997, 97-2 CPD para. 91 at 15.
Accordingly, we conclude that the agency's assessment of the price
realism of the protester's proposal was unreasonable and not supported
by the record.[4]
The protester also argues that the agency evaluation was improper
because it made price realism a separate and determinative evaluation
factor, when the RFP stated that price realism was to be part of the
past performance evaluation. We agree. The RFP specifically
provided, under the price evaluation factor, that a price realism
analysis would be conducted and that any suspected unrealistic pricing
which result in a suspected understatement of the costs or
misunderstanding of the requirements would be addressed in the
evaluation of the offeror's past performance. While the protester's
proposal consistently received a rating of "Good" for past
performance, the protester's failure to provide for salary escalation
was considered to present a risk of nonperformance that the agency was
not willing to accept. Clearly, the Navy did not evaluate price
realism as provided for by the solicitation, that is, within the
context of Arora's past performance rating, which the Navy rated as
"Good." In this regard, the RFP provided for award to the offeror
with the best combination of past performance and price. Arora
received a "Good" rating on past performance, as did Saratoga, and
proposed a price that was more than $[deleted] lower than that
proposed by Saratoga. Rather than making a tradeoff determination on
the basis of these evaluations, as called for by the RFP, the agency
business clearance memorandum states that "Arora was not considered
for award due to the price realism concerns associated with their
offer." In essence, the Navy ignored the stated evaluation criteria.
Accordingly, we sustain the protest. We recommend that the Navy
consider whether the price realism evaluation should be included under
the past performance criterion and, if not, that the agency revise the
evaluation criteria accordingly and request another round of BAFOs
from the competitive range offerors. If the Navy believes that the
current evaluation criteria are appropriate, we recommend that the
Navy reevaluate, under the past performance criterion, the protester's
price realism in light of the correct G&A figures. If this
reevaluation results in the protester's proposal being selected for
award, we recommend that Saratoga's contract be terminated and award
be made to the protester. We also recommend that the protester be
reimbursed its costs of filing and pursuing its protest. Bid Protest
Regulations 4 C.F.R. sec. 21.8(d)(1) (1997). The protester should submit
its certified claim for such costs, detailing the time expended and
costs incurred, directly to the contracting agency within 60 days of
receiving this decision. 4 C.F.R. sec. 21.8(f)(1).
The protest is sustained.
Comptroller General
of the United States
1. Because only Arora's and Saratoga's proposals are relevant to this
protest, the other six are not discussed further.
2. FAC 90-23 provides, for information purposes, the annual notice of
rates of inflation used in conjunction with other factors to determine
allowable costs for major contractors. For fiscal year 1997, the
annual percentage rate was listed as 3 percent.
3. In its evaluation, the agency appears to have simply incorrectly
used the amount of G&A which Arora proposed for each employee as the
total G&A available for all 10 healthcare employees.
4. We note, in this regard, that Arora's proposed salaries for all
periods of performance were within the range the agency considered
realistic, even if no bonuses were paid. While Arora's salary level
was static, Arora's average salary was sufficiently high $[deleted]
that it remained well within the government independent market survey
amounts even in the final contract year (when the survey amounts
ranged from $[deleted]. Arora's high proposed salaries are a further
reason that we find that the agency lacked a reasonable basis to
conclude that Arora's salary level was not sufficient to ensure its
ability to recruit and retain skilled healthcare workers.