BNUMBER: B-278268.2
DATE: April 10, 1998
TITLE: MCA Research Corporation, B-278268.2, April 10, 1998
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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:MCA Research Corporation
File: B-278268.2
Date:April 10, 1998
Jan L. Atkinson, Esq., for the protester.
Philip F. Eckert, Jr., Esq., and Benjamin G. Perkins, Esq., Defense
Logistics Agency, for the agency.
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Proposal which did not clearly take exception to the
solicitation's subcontracting limitation was properly considered to be
technically acceptable by the contracting agency.
2. Contracting agency did not improperly apply unannounced criteria
in evaluating as a strength of the awardee's proposal the awardee's
possession of security clearances and its employee retention rates,
but properly considered those features of the awardee's proposal as
reasonably related to the stated management and personnel criteria in
making qualitative distinctions between proposals.
DECISION
MCA Research Corporation protests the award of a contract to Automated
Precision Technology, Inc. (APT) under request for proposals (RFP) No.
SPO410-97-R-0281 issued by the Defense Logistics Agency (DLA), Defense
General Supply Center, Richmond, Virginia, for management support
services for various Naval Ordnance Center facilities. The
procurement was conducted competitively pursuant to section 8(a) of
the Small Business Act, as amended, 15 U.S.C. sec. 637(a) (1994).[1] MCA
contends that APT's proposal did not comply with the solicitation's
mandatory subcontracting limitation, which rendered its proposal
technically unacceptable, and that the contracting agency's technical
evaluation and award selection were otherwise improper.
We deny the protest.
BACKGROUND
The RFP, issued November 19, 1996, contemplated the award of an
indefinite- quantity, time-and-materials contract for a base period of
1 year with four 1-year options. RFP at 56, 72. The RFP's best value
evaluation scheme provided for an integrated assessment of proposals
considering price and certain capability criteria. RFP at 72, 75.
The capability criteria consisted of three equally weighted evaluation
criteria--management, personnel, and past performance--that were
together significantly more important than cost/price. RFP at 75.
The RFP incorporated the Limitation on Subcontracting clause, FAR sec.
52.219-14, which is required for section 8(a) contracts. RFP at 56.
This clause states, in relevant part, as follows:
By submission of an offer and execution of a contract, the
Offeror/Contractor agrees that in performance of the contract in
the case of a contract for--
(1) Services (except construction). At least 50 percent of
the cost of contract performance incurred for personnel shall be
expended for employees of the concern.
The RFP's schedule of supplies/services identified 23 categories of
labor required for performance of 9 task areas identified in the RFP's
statement of work, and provided estimated annual quantities (in hours)
for each labor category line item. The estimated annual quantities
represent the maximum number of hours that can be ordered for each
labor category. RFP at 2, 56. The RFP states that the quantities of
services specified in the schedule are estimates only and that
performance shall be made only as authorized by issued delivery
orders. RFP at 56.
DLA received four proposals, including APT's and MCA's. The source
selection evaluation board (SSEB) rated APT's proposal the highest,
with highly acceptable/low risk ratings for the management, past
performance, and personnel criteria. The SSEB rated MCA's proposal
the [deleted], with [deleted] ratings for the [deleted] criteria and
an [deleted] rating for the [deleted] criterion. APT stated in its
proposal that its "subcontracts will be prepared in full compliance
with FAR 52.219-14."
After initial proposals were received, the RFP's schedule of
supplies/services was amended to include separate line items for
subcontracted effort for each year; these line items had not-to-exceed
ceiling amounts starting at $1.6 million for the base year and
escalating $50,000 for each option year. RFP Amendment 0002.
Offerors were instructed to use only prime contractor rates for their
prices for the labor category line items in the schedule because all
subcontracting costs were to be encompassed in the separate
not-to-exceed subcontracting line items.[2] Id. In other words,
offered labor rates were to be prime contractor rates only and
offerors were not to price any labor categories which were not to be
performed by the prime contractor's employees. Given the approximate
$5 million estimated annual value of the contract, the not-to-exceed
subcontracting line items potentially limit the subcontracting effort
more than the FAR sec. 52.219-14 subcontracting limitation incorporated
in the solicitation.
In requesting best and final offers (BAFO), the contracting officer
reiterated that prices should be for prime contractor labor only and
that any labor categories the prime contractor would not provide
during the life of the contract were to be "zeroed out" in the BAFO.
The contracting officer also stated in her letter that in evaluating
prices the agency would evaluate those labor categories for which all
the contractors provided rates to ensure the comparison was on an
equal basis.
APT offered prime contractor rates in its BAFO for 10 of the 23 labor
categories for each year and "zeroed out" the prices for the remaining
13 categories of labor for which it proposed utilizing only
subcontractor labor. APT's total BAFO price under the RFP schedule
was $20,443,543. MCA's BAFO offered prime contractor rates for all 23
labor categories; this allows MCA to allocate either prime or
subcontractor labor to each labor category, as necessary. MCA's BAFO
price under the RFP schedule was [deleted].
In evaluating BAFOs, the agency noted that the fact that MCA offered
prices for all 23 labor categories, even though it intended on
subcontracting for many of the hours in these categories, caused its
BAFO price to be artificially inflated because this pricing strategy
essentially "double-counted" many of the hours to be provided. That
is, MCA's BAFO included extended prices for all 23 labor category line
items (the unit prices times the estimated maximum hours in the RFP
schedule) plus the not-to-exceed subcontracting line items, which also
cover labor hours included in the 23 labor category line items MCA
priced. On the other hand, as noted by the agency, APT's BAFO, which
provided prices for only 10 labor category line items and proposed
subcontracting the entire labor effort of the 13 remaining categories,
resulted in APT having the lowest price as calculated from the RFP
schedule. However, the agency calculated that for the 10 categories
of labor, for which both APT and MCA submitted prices, MCA had the
lower common labor cost with a price of [deleted] compared to APT's
price of $8,553,131.
DLA also estimated that 53 percent of APT's total labor costs would be
for subcontractor costs, which the agency noted would exceed the
50-percent subcontracting limitation as well as the not-to-exceed
subcontracting line items. The agency's estimate was based on the
application of the subcontractor labor rates provided by APT in its
initial proposal to the total estimated labor hours for the labor
category line items that APT did not price in its BAFO, i.e., that APT
proposed to subcontract.
Following the BAFO evaluation, the agency contract specialist
telephoned APT's president on September 8, 1997 to confirm that the
offeror understood that the prime contractor was required to provide
at least 50 percent of the cost of labor because of the subcontracting
limitation. According to the contract specialist's record of that
call, APT's president advised that he was "fully aware of the
requirement and prepared his bid accordingly" and "that he is
confident that APT can achieve this with the categories [of labor]
quoted."
On September 9, 1997, the agency's source selection authority (SSA)
was briefed on the evaluation by the SSEB and, following the SSEB's
recommendation, selected APT for award, as documented in a source
selection decision document (SSDD). The SSDD listed 13 specific
strengths associated with APT's proposal that led the SSA to consider
APT's proposal technically superior to MCA's proposal.[3] The SSDD
expressly recognized that the total prices, as calculated from the RFP
schedule, which showed that APT's proposal was significantly lower
priced, could not reasonably be used to compare the proposals because
APT priced only 10 labor categories whereas MCA priced all 23 labor
categories. The SSDD noted MCA's price advantage for the 10 common
labor categories and found that the offerors' prices were reasonable
and realistic. The SSDD noted, however, that "[i]t is difficult to
conclude which firm would be the lowest offer[or] had all labor
categories been quoted by both firms." The SSDD concluded that,
although both MCA and APT submitted "extremely good proposals" and
[deleted], the advantages offered by APT's technical strengths
outweighed any potential cost advantage offered by MCA as well as the
increased flexibility offered by MCA's approach of providing personnel
from either itself or its subcontractors for all 23 labor categories.
The SSDD expressly discussed the potential that APT may prematurely
reach the limits of the not-to-exceed subcontracting line items or
exceed the 50-percent subcontracting limitation, given APT's technical
approach of only providing personnel for 10 labor categories, but
concluded that "it is worth this risk to obtain APT's strengths on
this acquisition." In this regard, the SSDD noted that the actual
work to be ordered is "completely unpredictable" and that APT's
proposal offers to perform the work in categories that constitute a
substantial amount of the contract work.
Award was made to APT, following the SBA's determination that APT was
eligible for award as an 8(a) concern.[4] After a debriefing, MCA
filed an agency-level protest, and following the denial of its
agency-level protest, MCA filed this protest with our Office.
ANALYSIS
Subcontracting Limitation
MCA contends that because APT proposed to perform only 10 categories
of labor with its own employees (amounting to 44 percent of the total
estimated labor hours), with the remainder of the 23 categories to be
provided by subcontractors (amounting to 56 percent of the total
estimated labor hours), that APT's proposal on its face does not offer
to comply with the mandatory subcontracting limitation, and is
therefore technically unacceptable. MCA points to the agency's
assessment, based on APT's subcontractor labor rates submitted with
its initial proposal, which found that APT may be unable to comply
with the 50-percent subcontracting limitation and to perform within
the limits of the not-to-exceed subcontracting line items, should the
agency actually order the maximum number of labor hours specified in
the solicitation's schedule of supplies/services for the labor
categories subcontracted by APT.
As a general matter, an agency's judgment as to whether a small
business offeror will comply with the subcontracting limitation is a
matter of responsibility, and the contractor's actual compliance with
the provision is a matter of contract administration. Orincon Corp.,
B-276704, July 18, 1997, 97-2 CPD para. 26 at 4. However, where a
proposal, on its face, should lead an agency to the conclusion that an
offeror could not and would not comply with the subcontracting
limitation, we have considered this to be a matter of the proposal's
technical acceptability; a proposal that fails to conform to a
material term and condition of the solicitation such as the
subcontracting limitation is unacceptable and may not form the basis
for an award. Id.
We disagree with MCA that APT's proposal on its face should have led
the agency to the conclusion that APT could not or would not comply
with the 50-percent subcontracting limitation. As described above,
APT, in its proposal, specifically offered to comply with the
subcontracting limitation in entering into subcontracts with its team
members. After the solicitation was amended to establish
not-to-exceed line items for all subcontracted work, APT submitted an
amended proposal and BAFO to account for this amended pricing
structure, and did not take exception to the not-to-exceed
subcontracting line items, even though these amounts potentially limit
the subcontracting effort more than the 50-percent subcontracting
limitation. The fact that APT will provide its own personnel for only
10 of the 23 labor category line items, which constitute the minority
of the total estimated hours to be provided under the contract, does
not necessarily mean that APT could not or would not comply with the
subcontracting limitation, given that it is uncertain what labor
categories will actually be ordered under the contract, the limitation
is based on the "cost of contract performance" by prime contractor
employees (not merely the number of hours worked by prime contractor
employees), and APT is, in fact, offering to perform a significant
portion of the contract labor with its own employees.[5]
Thus, contrary to the protester's assertion, the September 8 post-BAFO
communication, during which APT's president confirmed his
understanding of, and intention to comply with, the subcontracting
limitation, was not the basis on which the agency determined APT's
proposal acceptable in this regard because APT was not offered the
opportunity to, nor did it, change its proposal. Cf. Global Assocs.
Ltd., B-271693, B-271693.2, Aug. 2, 1996, 96-2 CPD para. 100 (during
post-BAFO discussions, awardee changed its technical approach to
comply with subcontracting limitation).
MCA nonetheless maintains that in evaluating APT's compliance with the
subcontracting limitation and determining compliance, the agency must
have improperly "rescoped" the contract's level of effort by reducing
its requirements for the categories of labor APT proposed to
subcontract. MCA states that, had it known that the majority of work
would be assigned to the 10 labor categories which APT priced, MCA
would have utilized a different pricing strategy to make its price for
these potentially highly-used labor categories more competitive.
The record simply does not show that the agency has modified its
estimates as to the relative amount of work it expects to be assigned
of the various labor categories. Instead, the agency recognized the
risk APT's approach presented of exceeding the 50-percent
subcontracting limitation or of prematurely reaching the limits of the
not-to-exceed subcontracting line items, but, since APT was offering
to perform a substantial amount of the work itself and committed to
comply with the limitations, the agency was unable to conclude that
APT could not or would not comply with them. Based on our review, we
cannot say the agency's judgment was unreasonable.
MCA contends that the SSEB did not properly consider the risk to the
agency presented by APT prematurely reaching the limits of the
not-to-exceed subcontracting line items, because under agency
procedures technical evaluators are not privy to cost information, and
thus did not know whether APT's proposed staffing in its cost proposal
was consistent with its proposed technical approach. MCA further
alleges that no subsequent integrated assessment was made as required.
However, APT's proposal, which was evaluated by the technical
evaluators, clearly indicated a functional allocation of tasks to
specific subcontractors, with APT retaining certain functional areas.
Although the technical evaluators may not have known precisely the
categories of labor APT intended to subcontract, or the extent of that
subcontracting, the SSA nonetheless conducted an integrated assessment
of APT's technical and cost proposals, including the impact of APT's
subcontracting, following the initial technical evaluation. Indeed,
the SSDD details the SSA's integrated assessment of APT's technical
strengths in light of the risk to the government posed by the extent
of APT's subcontracting and the SSA's acceptance that if APT reached
the subcontracting limit during performance, "it is worth this risk to
obtain APT's strengths on this acquisition."
Other Issues
MCA contends that some of the 13 evaluated strengths for APT's
proposal listed in the SSDD and considered by the SSA in making the
source selection decision were not based on the RFP's stated
evaluation criteria. Specifically, MCA objects to the listed strength
in the SSDD that APT and its personnel already possess security
clearances, since the RFP contained no requirement for the contractor
or its personnel to possess security clearances and the RFP's
instructions to offerors did not indicate that the holding of security
clearances would be considered in any manner. MCA also objects to the
SSA viewing as a strength APT's retention rates for its personnel and
those of its subcontractors, which APT volunteered in its proposal.
MCA views the SSA's consideration of APT's security clearances and
retention rates in making the source selection decision as tantamount
to the use of unannounced evaluation criteria as discriminators in the
award selection. MCA contends that, had these evaluation criteria
been disclosed, it could have also addressed them in its proposal to
its advantage.
A solicitation must inform offerors of the basis for proposal
evaluation, and the evaluation must be based on the factors and
significant subfactors set forth in the solicitation. FAR sec.
15.605(d), 15.608 (June 1997); Akal Sec., Inc., B-271385,
B-271385.3, July 10, 1996, 96-2 CPD para. 77 at 3. However, while
agencies are required to identify the evaluation factors and
significant subfactors, they are not required to identify all areas of
each factor or subfactor which might be taken into account, provided
that the unidentified areas are reasonably related to or encompassed
by the stated criteria. ORI Servs. Corp., B-261225, July 28, 1995,
95-2 CPD para. 55 at 2-3; Avogadro Energy Sys., B-244106, Sept. 9, 1991,
91-2 CPD para. 229 at 4.
Here, the record shows that the SSEB and the SSA reasonably evaluated
APT's possession of security clearances and employee retention rates
in the context of the stated evaluation criteria for management and
personnel, and that these and other listed strengths were a reflection
of the comparative judgments made by the SSEB and the SSA about the
relative merits of the competing proposals.
Specifically, while the SSEB and the SSA recognized that possession of
security clearances is not required by the RFP, they viewed APT's
possession of security clearances as a strong point of that offeror's
proposal under the management criterion because it reflects
thoroughness of management and administrative organization and
supports the contingency requirements of the government.[6] The SSEB
also viewed the possession of security clearances by APT contractor
personnel as a strong point under the personnel criterion because it
reflects positively on the knowledge and expertise of the proposed
personnel. MCA has not shown that the SSA's consideration of APT's
possession of security clearances as "tend[ing] to support a sound,
respectable business base" and as supporting the government's
contingency requirements is not reasonably related to the above
evaluation criteria or otherwise improperly taken into account.
Regarding APT's retention rates, the SSEB logically related these to
the management criterion because, as indicated in the evaluation
documentation, the retention rates reflect positively on the labor
force in terms of the capability of the contractor's personnel
management policies and resources to deliver the required expertise at
the required level of effort. MCA has not persuaded us that the SSA's
consideration of APT's retention rates as demonstrating the ability of
that offeror to acquire the "right people for the right job" and to
"create a professional environment that allows them to retain talented
resources" was not reasonably related to the management evaluation
criterion or was otherwise improperly considered.
MCA also contends that the remaining 11 APT strengths listed in the
SSDD are also present in MCA's proposal in one form or another so that
they could not properly be considered qualitative discriminators
between the proposals. However, as explained in the agency
administrative report, the agency does not argue that MCA failed to
address these areas or that they were unique APT capabilities, but
that it was the subjective assessment of the evaluators, based on the
relative differences in the information APT and MCA had in their
proposals, that APT's proposal was better in these areas. In its
comments, MCA has not rebutted this reasonable explanation of the
agency's comparative evaluations.
MCA next points out that the SSA's statement in the SSDD that APT's
and its subcontractors' overlapping prior experience allows for
greater flexibility is contradicted by the SSA's statement, also in
the SSDD, that APT's providing only 10 labor categories as a prime
contractor will limit its flexibility in allocating work to either
itself or to its subcontractors. MCA has taken the SSA's statements
out of context. The "flexibility" referred to by the SSA in
evaluating APT's past performance with its team members refers to APT
having "demonstrated that coordination, communication and the ability
to resolve conflicts/issues is already resident within the
contractor's team." This is clearly different from the potential lack
of "flexibility" noted by the SSA with regard to APT's subcontracting
arrangements with its team members for performance of the delivery
orders under the contract, which was a potential problem considered by
the SSA in assessing APT's proposal.
Finally, MCA alleges that the agency failed to conduct meaningful
discussions because no substantive weaknesses (such as the lack of
information in its proposal on security clearances) were brought to
its attention during discussions, and despite its asserted strengths
for personnel, it received only an "acceptable" rating for the
personnel criterion. However, the agency was not required to
specifically mention to MCA during discussions enhancements that would
improve MCA's "acceptable" rating for the personnel criterion, such as
information on security clearances, because there was no deficiency,
weakness, or excess in MCA's proposal in this regard that required
amplification or correction. See Holmes & Narver, Inc., B-266246,
Jan. 18, 1996, 96-1 CPD para. 55 at 6.
The protest is denied.
Comptroller General
of the United States
1. Section 8(a) of the Small Business Act authorizes the U.S. Small
Business Administration (SBA) to enter into contracts with government
agencies and to arrange for performance through subcontracts with
socially and economically disadvantaged small business concerns.
Federal Acquisition Regulation (FAR) sec. 19.805 and 13 C.F.R. sec. 124.311
(1997) provide for and govern competitively awarded contracts set
aside for section 8(a) qualified concerns.
2. This pricing structure was utilized by DLA following the advice of
the Defense Contract Audit Agency that a time-and-materials contract
should not include "blended" prime contractor and subcontractor rates
in the labor categories.
3. These strengths were found and documented by the SSEB.
4. There is no indication that the SBA specifically considered any
aspect of APT's proposed compliance with the subcontracting limitation
in determining APT eligible for award as an 8(a) concern.
5. We note that a contractor's compliance with the subcontracting
limitation in an indefinite-quantity contract, such as is involved
here, ultimately depends on the type of work required by the delivery
orders, which, as stated by the SSA in the SSDD, "is completely
unpredictable at this point." In this regard, there is no requirement
that each delivery order performed by the contractor comply with the
subcontracting limitation. See Lockheed Martin Fairchild Sys.,
B-275034, Jan. 17, 1997, 97-1 CPD para. 28 at 5 (subcontracting limitation
clause applies to the contract as a whole and does not require that
each delivery order placed under the contract satisfy the requirements
of the clause); 13 C.F.R. sec. 124.314(d) (1997) (an 8(a) program
contractor for an indefinite quantity of services or supplies is not
required to perform at least 50 percent of each task order with its
own force, but is required to perform at least 50 percent of the
combined total of all task orders).
6. The contract security classification specification in the RFP's
statement of work requires the contractor under certain circumstances
to obtain facility and personnel clearances in order to have access
to, or to be able to handle, classified information or material, as
may be required during contract performance. RFP at 38. The
statement of work also lists a number of applicable Department of
Defense (DOD) and agency directives related to handling of classified
information and other security procedures, such as DOD Directive
5200.2-R, DOD Personnel Security Program. RFP at 25-27. Accordingly,
contrary to MCA's assertion, the possession by APT and its personnel
of security clearances is a feature of APT's proposal reasonably
related to the requirements of the statement of work.