BNUMBER:  B-278466.2; B-278466.3 
DATE:  May 11, 1998
TITLE: Department of Transportation; Computer Sciences Corpor, B-
278466.2; B-278466.3, May 11, 1998
**********************************************************************

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:Department of Transportation; Computer Sciences 
          Corporation--Reconsideration and Modification of Remedy

File:     B-278466.2; B-278466.3

Date:May 11, 1998

Richard J. Webber, Esq., and Alison J. Micheli, Esq., Arent Fox 
Kintner Plotkin & Kahn, for Hughes STX Corporation, the protester.
David S. Cohen, Esq., Cohen Mohr LLP, and Helaine G. Elderkin, Esq., 
for Computer Sciences Corporation, an intervenor.
Lee Wolanin, Esq., John A. Volpe National Transportation Systems 
Center, Department of Transportation, for the agency.
Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Requests for reconsideration are denied where the agency and the 
intervenor in essence repeat arguments made previously and express 
disagreement with our prior decision, but fail to show that the 
decision may have contained either errors of fact or law warranting 
reversal or modification of that decision.

2.  Recommendation for corrective action is modified where the 
reopening of discussions and the reevaluation of proposals, with the 
possibility that the awardee's contract may have to be terminated for 
the convenience of the government, is not in the best interests of the 
government because of the impact a termination would have on the 
agency's mission.

DECISION

The Department of Transportation (DOT) and Computer Sciences 
Corporation (CSC) request reconsideration of our decision sustaining 
the protest filed by Hughes STX Corporation in Hughes STX Corp., 
B-278466, Feb. 2, 1998, 98-1 CPD  para.  52.  Hughes successfully challenged 
the award of a contract to CSC for on-site information systems support 
under request for proposals (RFP) No. DTRS57-97-R-00001, issued by 
DOT's John A. Volpe National Transportation Systems Center.  In the 
alternative and at a minimum, DOT and CSC request that we modify our 
recommendation for corrective action.

We deny the requests for reconsideration and modify our recommendation 
for corrective action.

In sustaining the Hughes protest against the award to CSC, we 
concluded that the agency's cost realism evaluation was unreasonable 
and discussions conducted with Hughes concerning its proposed direct 
labor rates were not meaningful.  We recommended that the agency 
reevaluate proposals for cost realism and then reopen discussions and 
request another best and final offer (BAFO) from, at a minimum, Hughes 
and CSC.  We stated that if an offeror other than CSC is selected for 
award as a result of the agency's reevaluation, the agency should 
terminate CSC's contract for the convenience of the government.[1]

REQUESTS FOR RECONSIDERATION

In requesting reconsideration, DOT and CSC in essence repeat arguments 
made previously and express disagreement with our prior decision.  
Under our Bid Protest Regulations, however, to obtain reconsideration, 
the requesting party must show that our prior decision may contain 
either errors of fact or law or present information not previously 
considered that warrants reversal or modification of our decision.  4 
C.F.R.  sec.  21.14(a).  DOT's and CSC's repetition of arguments made 
during our consideration of the original protest and their 
disagreement with our decision do not meet this standard.  R.E. 
Scherrer, Inc.--Recon., B-231101.3, Sept. 21, 1988, 88-2 CPD  para.  274 at 
2.

For example, DOT and CSC disagree with our conclusion that in 
determining what offerors would need to pay in direct labor rates in 
order to retain a large percentage of incumbent personnel--the 
agency's primary concern--the agency "mechanically compared" the 
Hughes and CSC proposed labor rates to the incumbent's historical 
labor rates, thereby "substantially overstat[ing]" the lack of realism 
in the Hughes proposed labor rates.  Hughes STX Corp., supra, at 8.  
As discussed in the decision, the agency did not meaningfully consider 
the realism of the labor rates proposed by Hughes.  The agency failed 
to explain in the contemporaneous evaluation record or during the 
hearing conducted by our Office in connection with the protest why the 
rates proposed by Hughes, which were approximately [deleted] percent 
below historical rates, were deemed unrealistic, while the rates 
proposed by CSC, which were approximately [deleted] percent below 
historical rates, were deemed realistic.  Other than the fact that 
there was an approximate [deleted] percent differential in proposed 
labor rates between Hughes and CSC--which the agency acknowledged was 
due to [deleted]--we had no basis to know from the record why for this 
cost-type contract a [deleted] percent deviation below historical 
rates was realistic for purposes of retaining incumbent personnel, yet 
a [deleted] percent deviation was not.  Had the agency meaningfully 
considered the reason for the [deleted] percent 
differential--[deleted]--the agency should have recognized that both 
Hughes and CSC would have been [deleted].  At that point, the agency 
could have determined whether a [deleted] percent deviation below 
historical rates was realistic for purposes of retaining a high 
percentage of incumbent personnel.  On reconsideration, DOT and CSC 
have failed to show that our conclusion regarding the arbitrariness of 
the agency's cost realism analysis was legally or factually erroneous.

As a result of the arbitrary initial evaluation of cost realism, the 
agency did not, and in fact was unable to, conduct meaningful 
discussions with Hughes regarding the realism of its proposed labor 
rates.  Because of the flawed cost realism analysis, the agency, in 
noting that Hughes failed to provide first-year escalation and that 
the firm's proposed first-year labor rates were too low, induced 
Hughes both to escalate and to increase these rates when, in fact, 
escalation alone would have been sufficient.[2]  In addition, in light 
of (1) the generic discussion question posed to Hughes concerning its 
proposed first-year labor rates by category being lower "in many 
instances" than the agency's historical data; (2) the fact that no 
offeror, including Hughes, had access to historical labor rates since 
these rates were not included in the RFP; and (3) the fact that Hughes 
was not told which particular labor categories--the senior, 
higher-priced ones--were underpriced in relation to historical labor 
rates, we concluded that Hughes had no choice but to assume that its 
rates were too low across the board, rather than for specific labor 
categories.  Contrary to DOT's and CSC's position, however, we were 
not suggesting that the agency had to specify for Hughes which 
individual labor categories were underpriced.  It did have to at least 
direct Hughes to the fact that the agency's concern was not to be 
generalized, but was to be focused with respect to the more senior, 
higher-priced labor categories.  DOT and CSC have not shown that this 
aspect of our decision was legally or factually erroneous.

DOT and CSC also argue that we erroneously concluded that Hughes was 
prejudiced by the agency's failure to disclose that it was concerned 
with the Hughes information systems (IS), not contract administration 
(CA), labor rates.  In making this assertion, however, DOT and CSC 
have taken out of context an example of how discussions concerning the 
Hughes labor rates were misleading and not meaningful.  While we 
recognized that CA rates accounted for only a small portion of overall 
costs, our Office was concerned with the arbitrariness of the agency's 
decision to generally question all of the Hughes proposed labor rates, 
including its CA labor rates, which were closer in percentage terms to 
historical labor rates than any of the IS and CA rates proposed by 
CSC.  CSC was only questioned regarding its proposed CA labor rates.  
Again, the agency's discussion questions conveyed two distinct cost 
concerns--that Hughes had failed to escalate its first-year labor 
rates and that its overall rates were too low.  As a result of the 
agency's articulated cost concerns, Hughes not only provided 
first-year escalation, but also increased its overall rates when, in 
fact, [deleted] in terms of historical labor rates.  The agency's 
failure to hold non-misleading and meaningful discussions clearly 
prejudiced Hughes in terms of its ability to meaningfully propose 
direct labor rates.

Lastly, after discussions, the Hughes final proposed labor rates 
exceeded the level the agency considered necessary to retain incumbent 
staff.  (The final Hughes rates were approximately [deleted] percent 
above historical labor rates.)  The agency noted that Hughes might 
have to offer higher-than-historical labor rates in order to hire and 
retain qualified technical staff.  DOT and CSC object to our 
conclusion that if Hughes might have to pay higher labor rates (as 
finally proposed), then CSC might have to pay even higher rates than 
those finally proposed (these rates were approximately [deleted] 
percent below historical labor rates) in order to hire and retain 
qualified technical staff.  Neither DOT nor CSC has provided any 
rationale for why the agency accepted in the final cost analysis CSC's 
considerably lower rates when CSC, like Hughes, was a nonincumbent 
which similarly would face the possibility of having to pay 
higher-than-historical salaries to retain incumbent employees.  Again, 
DOT and CSC merely disagree with our conclusion that the agency, in 
performing its cost realism analysis of final proposed labor rates, 
unreasonably failed to take into account the agency's expressed 
concern with high incumbent retention in evaluating CSC's proposed 
rates.

In sum, the record amply supports a conclusion that the agency did not 
reasonably evaluate the cost realism of the direct labor rates 
proposed by Hughes and did not conduct meaningful discussions with 
Hughes concerning these rates.  DOT's and CSC's disagreement with our 
conclusions does not render our decision legally or factually 
incorrect.

MODIFICATION OF REMEDY

In determining the appropriate recommendation in cases where we find a 
violation of procurement laws or regulations, we consider all the 
circumstances surrounding the procurement, including the seriousness 
of the procurement deficiency, the degree of prejudice to other 
parties or to the integrity of the competitive procurement system, the 
good faith of the parties, the extent of performance, the cost to the 
government, the urgency of the procurement, and the impact of the 
recommendation on the contracting agency's mission.  4 C.F.R.  sec.  
21.8(b); see Science Applications Int'l Corp.; Dep't of the 
Navy--Recon., B-247036.2, B-247036.3, Aug. 4, 1992, 92-2 CPD  para.  73 at 
10.

The agency states that if it reopens discussions and reevaluates new 
BAFOs, with the result that CSC's proposal is no longer determined the 
most advantageous to the government, the termination of CSC's contract 
"could pose tremendous risk of disruption to several nationally 
critical transportation projects."  The record shows, and Hughes does 
not dispute, that it did not file its protest within the statutory 
period for obtaining a stay of contract performance.  When the 
contract was awarded on September 23, 1997 (approximately 9 months 
after the RFP was issued), CSC immediately began the 
transition/phase-in, and has been engaged in actual contract 
performance since November 1, 1997.  Two critical Federal Aviation 
Administration (FAA) computer system projects which are being 
supported by CSC under the Volpe contract involve the Enhanced Traffic 
Management System (ETMS) and the Telecommunication Information 
Management System (TIMS), both projects requiring prompt resolution of 
Year 2000 compliance issues.

More specifically, according to DOT and CSC, the ETMS is a 
mission-critical air traffic control system being developed on a high 
priority basis to replace an existing system with serious Year 2000 
defects.  FAA requires the replacement ETMS to be ready to be deployed 
to 80 sites by June 1999, leaving 6 months to actually engage the new 
system.  The TIMS is also a mission-critical system used to track and 
manage FAA telecommunication assets (airport radar, relay switches, 
and satellites and leased communication circuits) and requires repair 
in order to operate in the Year 2000 and after.  FAA requires TIMS 
Year 2000 compliance by March 1999.

The criticality of FAA's ability to timely address Year 2000 
compliance issues was recently addressed by our Office in an audit 
report.  See FAA Computer Systems:  Limited Progress on Year 2000 
Issue Increases Risk Dramatically (GAO/AIMD-98-45, Jan. 1998).  In 
this report, we conclude:

     Should the pace at which FAA addresses its Year 2000 issues not 
     quicken, and critical FAA systems not be Year 2000 compliant and 
     therefore not be ready for reliable operation on January 1 of 
     that year, the agency's capability in several essential 
     areas-including the monitoring and controlling of air 
     traffic-could be severely compromised.  This could result in the 
     temporary grounding of flights until safe aircraft control can be 
     assured.

Id. at 15.[3]

Here, because of the critical need to timely address FAA Year 2000 
compliance issues for which the Volpe contractor--in this case, 
CSC--is providing support services, the record supports the agency's 
position that it is not in the best interests of the government to 
require a new selection decision with the possibility that a 
contractor other than CSC would be selected, thus requiring another 
costly and disruptive transition.  Accordingly, we modify our 
recommendation to allow CSC to perform the contract for the entire 
2-year base period and to permit the agency, if necessary, to exercise 
the first option under CSC's contract, which should reasonably cover 
the period necessary to ensure completion of FAA's critical Year 2000 
compliance projects.[4]  We recommend that the agency not exercise the 
last two options under CSC's contract, but instead conduct another 
procurement for its follow-on requirements.  In this regard, the 
agency reports that to implement our original recommendation, it would 
take 210 calendar days from the time of reconvening the source 
evaluation board to obtaining award approvals and notifications.  We 
recommend that the agency use this time to prepare a new source 
selection plan and to issue a new solicitation for its follow-on 
requirements.[5]  We further modify our recommendation to allow Hughes 
to be reimbursed for its proposal preparation costs, as well as its 
costs of responding to DOT's and CSC's requests for reconsideration.  
4 C.F.R.  sec.  21.8(d)(1), (2).  These costs are in addition to the costs 
associated with Hughes filing and pursuing its initial protest with 
our Office.  Hughes should submit its certified claim for such costs, 
detailing the time expended and costs incurred, directly to the agency 
within 60 days after receipt of this decision.  4 C.F.R.  sec.  21.8(f)(1).  

The requests for reconsideration are denied and our prior 
recommendation for corrective action is modified.

Comptroller General
of the United States

1. We also recommended that Hughes be reimbursed its costs of filing 
and pursuing its protest, including reasonable attorneys' fees.  Bid 
Protest Regulations, 4 C.F.R.  sec.  21.8(d)(1) (1997).  This part of our 
recommendation has not been challenged.

2. The chair of the cost business evaluation team stated at the 
hearing that he knew that the difference between the Hughes and CSC 
initially proposed labor rates was approximately [deleted] to 
[deleted] percent, but he did not wish to "speculate" about the impact 
of Hughes escalating its proposed rates and then comparing these 
numbers to CSC's proposed labor rates.  Hughes STX Corp., supra, at 8.  
The record showed that for each of the other contract years, Hughes 
proposed [deleted] percent escalation.  Had the agency reasonably 
applied this percentage, [deleted].

3. Hughes does not comment on our audit conclusions.

4. Our modified recommendation is consistent with CSC's request that 
if our Office decided not to reverse our prior decision, that we "at 
least modify [our] recommended remedy to permit the continuation of 
the current contract through a minimum of the two-year base period."  
(The contract was for a 2-year base period and three 1-year option 
periods.)  Moreover, with respect to the options, we note that a 
contractor has no legal right to compel the exercise of a contract 
option since contract options are exercised solely at the discretion 
of the government.  California Shorthand Reporting, B-236680, Dec. 22, 
1989, 89-2 CPD  para.  584 at 2.  A contractor assumes the risk that the 
agency might not exercise the option.  Arlington Pub. Schs., B-228518, 
Jan. 11, 1988, 88-1 CPD  para.  16 at 3.

5. The agency has provided no explanation for why, prior to the 
expiration of the 2-year base period and the possible exercise of the 
first option under CSC's contract, CSC could not complete projects 
involving Year 2000 compliance issues.  The agency also has provided 
no explanation for why, after conducting a procurement for its 
follow-on requirements and if a decision were made to award to other 
than CSC as the incumbent, it would not be feasible to transition to 
another contractor at that time.