BNUMBER:  B-278466 
DATE:  February 2, 1998
TITLE: Hughes STX Corporation, B-278466, February 2, 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:Hughes STX Corporation

File:     B-278466

Date:February 2, 1998

Richard J. Webber, Esq., and Alison J. Micheli, Esq., Arent Fox 
Kintner Plotkin & Kahn, for 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

Protest is sustained where the cost realism evaluation was 
unreasonable and discussions conducted with the protester concerning 
its proposed direct labor rates were not meaningful.

DECISION

Hughes STX Corporation protests the award of a contract to Computer 
Sciences Corporation (CSC) under request for proposals (RFP) No. 
DTRS57-97-R-00001, issued by the John A. Volpe National Transportation 
Systems Center, Department of Transportation, Cambridge, 
Massachusetts, for on-site information systems support.  Hughes 
challenges the agency's evaluation of cost realism, conduct of 
discussions, and source selection decision.

We sustain the protest.

The RFP, issued on December 19, 1996, contemplated the award of a 
level-of-effort, cost-plus-fixed-fee contract for a 2-year base period 
and three 1-year option periods.  For each year of the contract, the 
RFP required offerors to provide 287 direct labor years of information 
systems (IS) personnel and 13 direct labor years of contract 
administration (CA) personnel.[1]  The RFP specified ten IS and nine 
CA labor categories and provided staffing levels for each category.  
Under the RFP, an offeror could propose to staff these labor 
categories with personnel employed by the offeror as the prime 
contractor or with personnel employed by the offeror's 
subcontractors.[2]

The RFP provided that the award would be made to the offeror whose 
proposal was determined to be most advantageous to the government, 
technical evaluation factors and an offeror's evaluated costs 
considered.  The RFP contained the following five technical evaluation 
factors:  (1) corporate experience and past performance; (2) 
performance plan for major functional areas of work; (3) professional 
employees compensation plan; (4) key personnel assignments; and (5) 
plan for contract management and contract operation.  (Technical 
evaluation factors (1) through (3) were of equal weight, and the other 
two technical evaluation factors were of lesser weight and listed in 
descending order of importance.)  With respect to technical evaluation 
factor (3), the RFP stated that an offeror's proposed professional 
employees compensation plan would be evaluated in terms of realism and 
its impact upon the recruitment and retention of quality staff in 
order for the offeror to furnish high-quality uninterrupted service.  
With respect to costs, the RFP stated that an offeror's proposed costs 
would be evaluated for fairness, reasonableness, realism, and 
consistency with an offeror's technical proposal.  According to the 
chairperson of the cost business evaluation team (CBET), in evaluating 
an offeror's cost proposal for realism, the agency was concerned with 
the offeror's claim that it would retain a stated percentage of the 
incumbent staff in light of direct labor rates proposed.  Hearing 
Transcript (Tr.) at 8.[3]  In determining the most advantageous 
proposal, the RFP provided that an offeror's technical proposal would 
be the "most important factor" and the firm's cost proposal would be 
the "next most important."

Four firms, including Hughes and CSC, submitted initial technical and 
cost proposals by the closing date of February 12, 1997.  Each of 
these proposals was included in the competitive range.  In their 
respective proposals, Hughes proposed to retain approximately 
[deleted] percent of current incumbent personnel, and CSC proposed to 
retain approximately [deleted] percent of those personnel.

In evaluating offerors' proposed labor rates for realism, the agency 
was concerned with the offerors' ability to retain a [deleted] 
percentage of incumbent personnel in light of direct labor rates 
proposed.  Tr. at 8.  Accordingly, the agency decided to determine the 
realism of each offeror's proposed labor rates in terms of incumbent 
personnel retention by comparing the proposed rates to historical 
labor rates on an individual labor category basis; the historical 
rates, which were essentially [deleted], were not disclosed to 
offerors.  Tr. at 10, 17.[4]  As stated by the chair of the CBET in 
the agency's post-hearing comments:

     [A]ll non-incumbents claimed [deleted] to [deleted] percent of 
     the incumbent's staff would be retained.  This meant that if the 
     majority of the incumbent staff was to be retained by an offeror, 
     the proposed labor rates could not be significantly below and 
     must approximate [deleted] historical labor rates. . . . 
     [C]omparison of offerors' proposed rates to [deleted] historical 
     rates became the key to the labor evaluation.[5]

The agency assigned an individual cost analyst to each offeror's 
initial proposal.  There were nine IS and eight CA labor categories 
for which historical salary information was available for the 
comparison of proposed and historical labor rates, and the analysts 
determined, on a labor category basis only, whether proposed labor 
rates were within [deleted] percent (above or below) historical labor 
rates.  Tr. at 20.  The analysts then calculated a total dollar figure 
representing the amount by which an offeror's total proposed labor 
rates were above or below total historical labor rates for all IS and 
CA labor categories.

Although not documented in the record (the agency admitted at the 
hearing, Tr. at 59, and in its post-hearing comments that this part of 
the evaluation was conducted informally in conversations and not 
written down), the agency states that it calculated an overall 
percentage by which an offeror's total proposed labor rates were below 
total historical labor rates.  See Tr. at 58-62.  The chair of the 
CBET stated that by comparing an offeror's total proposed labor rates 
in light of proposed incumbent retention rates to total historical 
labor rates, the realism of an offeror's proposal would be determined.  
Tr. at 17; see also Tr. at 19.  The chair characterized this as 
looking at the "bigger picture."  Tr. at 28.

More specifically, cost analyst A evaluated the initial cost proposal 
of Hughes.  Analyst A noted that the firm (which, as noted above, was 
not advised of the [deleted] rates) proposed direct labor rates based 
on a number of extensive salary surveys of the Cambridge labor market.  
In noting that Hughes proposed to retain approximately [deleted] 
percent of the current incumbent employees, analyst A stated that "it 
appears [Hughes] ha[s] underpriced the rates of incumbent senior 
[higher priced] personnel."  On a total basis, the Hughes proposed 
labor rates were approximately [deleted] percent below historical 
labor rates.  Tr. at 25, 66-67.  Analyst A concluded that "generally, 
[the Hughes] labor rates were lower than the . . . historical actual, 
particularly, in the [deleted]."  See Tr. at 14-15.  Analyst A also 
pointed out that Hughes did not escalate its labor rates for contract 
year one which "could result in a cost overrun of labor costs" if 
salary increases were given during year one, or if no increases were 
given, "could jeopardize [the] ability [of Hughes] to retain senior 
personnel."[6]

Cost analyst B evaluated CSC's initial cost proposal.  Analyst B noted 
that the firm proposed to retain approximately [deleted] percent of 
the current incumbent employees.  Comparing CSC's proposed labor rates 
to historical salary information, analyst B concluded that CSC's IS 
labor rates were "within [deleted] percent of available market," but 
that CSC's CA labor rates were "considerably wider" than available 
market rates, that is, CSC's CA labor rates were more than [deleted] 
percent below historical rates apparently for particular labor 
categories.  Tr. at 18.  On a total basis, CSC's proposed labor rates 
were approximately [deleted] percent below historical labor rates.  
Tr. at 25, 66-67.  Analyst B also pointed out that CSC proposed 
escalation of direct labor rates for each contract year.

To summarize the above record, the following chart shows the average 
percentages by which the Hughes and CSC initially proposed labor rates 
for the IS and CA labor categories were below the agency's historical 
labor rates and the total overall Hughes and CSC average percentage 
deviations from the historical labor rates:

                       IS              CA            Total

     Hughes        [deleted]%      [deleted]%     [deleted]%

       CSC         [deleted]%      [deleted]%     [deleted]%
By letters dated April 18, the contracting officer conducted written 
discussions with each of the competitive range offerors by listing 
weaknesses and/or deficiencies in their respective technical and cost 
proposals.  Concerning the cost proposal of Hughes, the contracting 
officer stated:

     A review of proposed first year labor rates by category indicates 
     that they are lower, in many instances, than our historical data.  
     Explain this disparity since Hughes has indicated that [deleted]% 
     of the incumbent's employees will be retained.  What would the 
     impact be on employee retention?[7]

The contracting officer also asked Hughes to "[e]xplain why [its] 
survey labor rates . . . [were] not escalated to contract year one."

Concerning CSC's cost proposal, the contracting officer stated that 
"Contract Administration labor appears low compared to the 
Government's historical and market data.  Does CSC's statement that it 
intends to hire [deleted]% of the incumbent's staff include Contract 
Administration labor?  If so, what would the impact be on employee 
retention?"

By letters dated May 2, Hughes and CSC each responded to the 
contracting officer's list of weaknesses and/or deficiencies by 
submitting revised proposals.  Hughes explained that in light of the 
contracting officer's discussion questions, it increased its total 
direct labor costs for IS and CA personnel for the first contract year 
by approximately [deleted] percent by re-mapping its labor categories, 
by including actual rates of key personnel, and by escalating its 
direct labor rates for the first contract year.  CSC basically 
increased the direct labor rates for CA personnel, but made no 
adjustments to the direct labor rates for IS personnel.  On a 
percentage basis, the Hughes revised direct labor rates were 
approximately [deleted] percent above the agency's historical rates, 
and CSC's revised direct labor rates remained approximately [deleted] 
percent below those historical labor rates.  Tr. at 45.

Following oral discussions with each competitive range offeror,[8] the 
contracting officer requested best and final offers (BAFO).  In their 
respective BAFOs, dated July 1, Hughes and CSC maintained the direct 
labor rates for IS and CA personnel as reflected in their respective 
revised proposals.  

The final cost evaluation report stated the following with respect to 
Hughes (and another offeror):

     [W]e compared proposed labor rates to historical labor data which 
     we escalated.  Both Hughes and [offeror X] stated that they 
     intend to hire [deleted] percent of the incumbent's staff.  Based 
     on that we felt it a weakness in that their labor rates appeared 
     low if they were to be successful in fulfilling that proposal.  
     The Contract Negotiator advised both firms of our finding, and 
     both increased their labor rates.  In so doing, they exceeded the 
     labor rate that we considered necessary to attract and retain 
     incumbent staff by [deleted]%.  Potentially, the labor rates now 
     proposed for each may be overstated slightly, but we do not 
     consider a downward adjustment to establish cost realism 
     necessary for the following reasons:  Hughes and [offeror X] made 
     business decisions to significantly increase their labor cost; 
     the Technical Evaluation Team has rated Hughes and [offeror X] 
     high in their ability to attract and retain quality staff; and 
     [the incumbent contractor] has indicated that incumbents will not 
     be available to a successor contractor which could necessitate a 
     non-incumbent to employ considerable new-hires.  If that occurs, 
     Hughes and [offeror X] may have to offer higher salaries to hire 
     and retain qualified technical staff.  Accordingly, it is 
     determined that the best and final offers of Hughes and [offeror 
     X] are considered fair, reasonable and represent a realistic 
     expectation of costs.

With respect to CSC, the final cost evaluation report noted that 
"[p]roposed first year [IS] labor rates were within [deleted] percent 
of available market and historical average rates [deleted] first year 
of performance."  This report further noted that CSC increased its 
"proposed [CA] rates substantially although three rates are still more 
than [deleted] percent below the historical rates [deleted] of first 
year performance."

Out of a possible 100 total points, the final technical score assigned 
to the Hughes proposal was 81.7 points and the final technical score 
assigned to CSC's proposal was 75.4 points.  Hughes proposed a total 
cost of approximately $[deleted] million and CSC proposed a total cost 
of approximately $171 million.

The source selection official (SSO) concluded that the 6.3 point 
differential in technical quality between Hughes (which received the 
highest technical score) and CSC (which received the third highest 
technical score) was minimal.  While the technical score assigned to 
CSC's proposal was lower than the technical score assigned to the 
Hughes proposal, the SSO considered any technical advantages in the 
Hughes proposal to be minimal and not worth a significantly higher 
cost (of approximately $[deleted] million).  The SSO pointed out that 
there were no areas in CSC's proposal which the technical evaluators 
determined presented major weaknesses or a performance risk.  
Notwithstanding that under the RFP technical evaluation factors were 
more important than an offeror's costs, the SSO determined that the 
$[deleted] million in cost savings associated with CSC's proposal 
clearly outweighed any small technical advantage possibly offered by 
the Hughes proposal.  Accordingly, the SSO awarded the contract to CSC 
as the offeror submitting the most advantageous proposal.

Hughes challenges the agency's evaluation of cost realism, conduct of 
discussions, and source selection decision.

Agencies must perform cost realism analyses in selecting awardees for 
contracts where the cost to the government is not fixed.  Vitro Corp., 
B-261662.2, Dec. 4, 1995, 96-2 CPD  para.  201 at 10.  Our review in this 
area is primarily concerned with determining whether the cost 
evaluation was reasonable.  Id.  Under a level-of-effort, cost 
reimbursement-type contract, the purpose of the cost realism analysis 
is to determine the extent to which an offeror's proposed labor rates 
are realistic and reasonable.  ManTech Envtl. Tech., Inc., B-271002 et 
al., June 3, 1996, 96-1 CPD  para.  272 at 8.  The agency must perform 
sufficient analysis to determine the extent to which an offeror's 
proposed costs represent what the contract should cost, assuming 
reasonable economy and efficiency.  Id.

While a reasonably derived agency estimate of direct, unburdened labor 
rates for comparable labor categories, based upon historical 
experience, can provide an objective standard against which proposed 
rates may be compared, an agency may not mechanically apply that 
estimate to determine evaluated costs.  United Int'l Eng'g, Inc. et 
al., 71 Comp. Gen. 177, 185-186 (1992), 92-1 CPD  para.  122 at 11.  It may 
well be that in some instances an estimate has limited applicability 
to a particular company, and in those instances, any absolute reliance 
upon estimates could have the effect of arbitrarily and unfairly 
penalizing the firm and depriving the government of the benefit 
available from such a firm.  Accordingly, in order to undertake a 
proper cost realism evaluation, the agency must independently analyze 
the realism of an offeror's proposed costs based upon its particular 
approach, personnel and other circumstances.  Id.

Here, the agency's approach to evaluating cost realism was to use the 
incumbent's historical labor rates as the benchmark for what the 
agency thought the offerors would need to pay in direct labor rates.  
Tr. at 17.  The record shows that the cost evaluators mechanically 
compared the Hughes and CSC proposed labor rates to the historical 
labor rates without considering the particular offeror's technical 
approach or other information in the proposal.  The approach taken by 
the agency substantially overstated the lack of realism in Hughes' 
proposed labor rates.  

In this case, the agency has failed to meaningfully explain in the 
record or during the hearing why it concluded that the Hughes 
initially proposed labor rates (overall [deleted] percent deviation) 
were "significantly below" historical labor rates and not realistic, 
but that CSC's initially proposed labor rates (overall [deleted] 
percent deviation) were realistic as they "approximate[d]" historical 
labor rates.  More specifically, the agency made no attempt to 
evaluate if the Hughes proposed labor rates were realistic based on 
the firm's proposed approach to the work as described in the firm's 
technical proposal.

We point out that the record shows that the [deleted].  We think the 
agency's failure to meaningfully consider the impact of Hughes 
separately escalating its first-year labor rates in its cost realism 
analysis was arbitrary.

In addition, the agency has not explained why, in the context of a 
cost-reimbursement contract, it had no concern about the awardee's 
proposed rates being, on average, [deleted] percent below historical 
rates overall (especially where some proposed rates for particular 
categories were apparently more than [deleted] percent lower than 
historical rates).  As explained above, after noting that the 
protester's final rates exceeded the level that the agency considered 
necessary to retain incumbent staff, the agency's final cost 
evaluation report noted that Hughes might "have to offer higher [than 
historical] salaries to hire and retain qualified technical staff."  
If that conclusion were correct for Hughes, we fail to see how the 
agency could conclude that CSC's rates (which were below the 
historical rates) would allow that firm to hire and retain qualified 
technical staff.  Nowhere in the record in this case, including the 
hearing transcript, do we see a reasonable basis for the agency's 
acceptance of the realism of CSC's considerably lower rates, and we 
conclude that this aspect of the evaluation lacked a reasonable 
basis.[9]

The record further shows that because of the flawed cost evaluation, 
discussions were not meaningful.  Agencies are generally required to 
hold meaningful discussions with all competitive range offerors, and 
this obligation to conduct meaningful discussions is not satisfied 
where an agency misleads an offeror or conducts prejudicially unequal 
discussions.  National Medical Staffing, Inc., B-259402, B-259402.2, 
Mar. 24, 1995, 95-1 CPD  para.  163 at 3.

Here, as explained above, the agency concluded that the Hughes 
initially proposed labor rates, which were, on average, [deleted] 
percent below historical labor rates, were "significantly below" those 
rates and therefore not realistic,[10] but that CSC's initially 
proposed labor rates (overall [deleted] percent lower than historical 
rates) were realistic as they "approximate[d]" historical labor rates.  
Since the agency thus apparently believed that CSC's [deleted] percent 
deviation was not significant, we view the agency's concern about the 
protester's [deleted] percent deviation as a relatively limited 
concern.  Although, as discussed above, the agency was apparently 
aware that the Hughes [deleted], the agency's discussion questions 
were not limited to the escalation issue, but rather also raised an 
issue concerning the level of the Hughes direct labor rates across the 
board, both on the cost side and the technical side (raising concern 
about the protester's ability to retain staff at the proposed rates).  
Because the discussions thus suggested two separate cost concerns 
(escalation as well as the overall level of the rates), they appear to 
have induced Hughes not only to escalate its first-year direct labor 
rates, but also to then increase these rates across the board.  
Because the discussion questions thus materially overstated the 
agency's relatively limited concern about the Hughes rates, they were 
misleading.

In addition, we think the agency misled Hughes during discussions by 
overstating the agency's concern that Hughes had proposed understated 
labor rates.  Even as to the Hughes labor rates (as opposed to the 
escalation issue), the agency had no basis for concern about the CA 
rates, which were closer to historical rates than were CSC's--yet the 
agency did not disclose to Hughes that its concern was limited to IS 
rates.  Indeed, the agency led Hughes to believe the opposite, since 
the direct labor rate discussion question stated that the Hughes 
proposed first-year labor rates by category were lower "in many 
instances" than the agency's historical data.  As confirmed by the 
chair of the CBET in the agency's post-hearing comments, Hughes did 
not have access to historical labor rates and was not told which 
particular labor categories were underpriced in relation to historical 
labor rates.  Although the agency was aware of which of the Hughes 
labor categories were underpriced based on cost analyst A's 
category-by-category comparison of the Hughes proposed labor rates to 
historical labor rates (the analyst noting the labor categories 
involved more senior positions), Hughes had no idea which of its labor 
categories were of concern to the agency.  As a result of the agency's 
"in many instances" discussion question and the technical discussion 
question indicating that Hughes had, on an overall basis, understated 
its labor rates for purposes of retaining [deleted] percent of 
incumbent personnel, we think Hughes had no choice but to assume that 
its labor rates were too low across the board, as opposed to too low 
for particular labor categories.  For these reasons, in order to be 
responsive to both the agency's cost and technical concerns, we think 
it was reasonable for Hughes to understand that it needed to increase 
its labor rates across the board for all labor categories.  To the 
extent the agency argues that it intended by these discussion 
questions to simply verify or clarify the basis for the Hughes labor 
rates as proposed, we think its discussion questions were materially 
misleading.

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).

The record shows that the Hughes revised proposal was scored higher 
than CSC's revised proposal for each of the five technical evaluation 
factors.  With respect to technical evaluation factor 
(3)--professional employees compensation plan--the record shows that 
as a result of increasing its direct labor rates, out of a possible 
[deleted] points, the Hughes proposal received the highest number of 
points--[deleted].  CSC's proposal received the third highest number 
of points--[deleted].  On an overall basis, out of a possible 100 
points, Hughes received the highest total technical points--81.7, and 
CSC received the third highest total technical points--75.4.  If not 
for the misleading discussions, Hughes contends it would not have 
raised its rates as much (and certainly not on an across-the-board 
basis).  Even if such a more limited rate increase meant that Hughes 
received only the same number of points for technical evaluation 
factor (3) as did CSC, Hughes still would be the highest technically 
rated offeror, while its proposed costs would have dropped.  The 
protester's lower proposed costs could well have led to a different 
source selection, although we, of course, cannot know precisely what 
the direct labor rates for Hughes and CSC would have been, if the 
agency had conducted meaningful discussions.  While there is no way to 
predict the result of such a speculative technical/cost tradeoff, we 
conclude that the record establishes that there is a reasonably 
possibility that Hughes was prejudiced by the agency's actions.  See 
Eldyne, Inc., B-250158 et al., Jan. 14, 1993, 93-1 CPD  para.  430 at 7.

Accordingly, we recommend that the agency first reevaluate the 
proposals for cost realism, and then reopen discussions, consistent 
with this decision, and request another BAFO from, at a minimum, 
Hughes and CSC.  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.  We also 
recommend that Hughes be reimbursed its costs of filing and pursuing 
its protest, including reasonable attorneys' fees.  4 C.F.R.  sec.  
21.8(d)(1) (1997).  Hughes should submit its certified claim for such 
costs, detailing the time expended and cost 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. Under the RFP, a single labor year equals 2,087 hours of direct 
labor.

2. The focus of this protest has been on the proposed direct labor 
rates of the prime contractors.

3. The transcript citations in this decision refer to the transcript 
of the hearing conducted by our Office in connection with this 
protest.

4. The agency [deleted] the historical labor rates to [deleted] "in 
order . . . to get a realistic rate for the [deleted]," Tr. at 10, or 
in other words, to determine the amount the agency believed the 
contractor should be paying [deleted].  Tr. at 11.  In this decision, 
all references to historical labor rates include [deleted] rates.

5. During the hearing, the chair of the CBET stated his opinion as 
follows:

            [T]here [was not] a meaningful difference between 
            [deleted] and [deleted] percent [proposed incumbent 
            retention].  [He did not] have an arithmetic calculation 
            that would show [him] what salary [he] would have to 
            achieve to retain [deleted] versus [deleted].  As [he] 
            viewed it, [deleted] or [deleted] percent [was] a 
            preponderance of the staff. . . . [T]he nonincumbent[s'] 
            claims that they would retain [deleted] to [deleted] 
            percent suggested to [him] that a comparison to historical 
            [deleted] information would be appropriate and should be 
            similar.  Now it need [not] be exact, but it needed to be 
            similar.

Tr. at 8-9.

6. In its initial proposal, Hughes stated it did not escalate labor 
rates for the first contract year because its salary data was 
indicative of rates to be incurred.  Hughes did propose escalation for 
each of the other contract years.

7. The contracting officer also noted the following technical 
weakness/deficiency for the Hughes initial proposal:  "It is not clear 
how you can achieve your goal of [deleted]% incumbent retention with 
your proposed labor rates."

8. In an affidavit filed by the vice president for administration at 
Hughes who had oversight responsibility for the preparation of the 
firm's proposal, he stated that he asked contracting personnel during 
oral discussions whether the agency had any comments on the firm's 
revised direct labor rates.  According to the vice president, he was 
advised by contracting personnel that Hughes had adequately addressed 
the concerns reflected in the written discussion questions, and the 
agency had no further concerns or comments related to the firm's 
direct labor rates.  The vice president further stated in his 
affidavit, as confirmed by a memorandum to the file prepared by the 
contract negotiator, that two days after oral discussions were 
completed, he told the negotiator that Hughes was considering lowering 
its direct labor rates by at least [deleted] percent.  The contract 
negotiator informed the vice president that this was a "business 
choice Hughes has to take."  The contract negotiator advised that any 
changes made by Hughes to technical evaluation factor (3) would 
require evaluation.

9. During the hearing, when asked to explain how the agency reconciled 
the evaluation of the Hughes and CSC revised labor rates in terms of 
retention of incumbent employees, the chair of the CBET stated that 
"in [his] professional judgment they were both sufficiently close to 
historical information for a five-year reimbursable estimated cost of 
a contract. . . . [To him,] they were both sufficiently close.  One's 
slightly under and one's slightly over, but [he] was comfortable with 
either offer."  Tr. at 57.  In its post-hearing comments, the agency 
simply references the percentages by which the Hughes and CSC revised 
labor rates were respectively above and below historical labor rates.  
These responses do not provide a reasonable basis for the agency's 
failure to evaluate how CSC's proposed labor rates would affect the 
agency's previously expressed concern with high incumbent retention, 
particularly when contrasted with the agency's expressed concern about 
the [deleted] percent difference between CSC's rates and those 
initially proposed by Hughes.

10. Analyst A commented at the hearing that a contracting officer's 
technical representative, "who has departed," stated that "it would be 
very difficult [for Hughes] to retain people at [the Hughes initially 
proposed labor] rates."  Tr. at 62.