BNUMBER: B-278715; B-278715.2
DATE: March 5, 1998
TITLE: The Centech Group, Inc., B-278715; B-278715.2, March 5, 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:The Centech Group, Inc.
File: B-278715; B-278715.2
Date:March 5, 1998
Michael A. Hordell, Esq., and Laura L. Hoffman, Esq., Gadsby & Hannah,
for the protester.
Robert M. Nutt, Esq., for Kathpal Technologies, Inc., an intervenor.
William L. Murphy, Esq., and John F. Schorn, Esq., Department of the
Treasury, for the agency.
Andrew T. Pogany, Esq., and John M. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Contracting agency engaged in meaningful discussions where it
advised offeror during written discussions that composite labor
category prices for services contract were either too high or too low
and it gave offeror more specific indications of its concern during
oral discussions, even though the agency did not specify which
categories were high and which were low; contracting agency is not
required to conduct all-encompassing discussions, but is only required
to lead offerors into those areas of their proposal needing
amplification, given the context of the procurement.
2. Contracting agency properly determined that offeror's price
proposal was unrealistically low based on comparison with prices
received from other offerors, the independent government estimate,
market survey prices, and the current contract price.
DECISION
The Centech Group, Inc., the incumbent contractor, protests the award
of a contract to Kathpal Technologies, Inc. under request for
proposals (RFP) No. A-97-04, a competitive section 8(a) set-aside,
issued by the Department of the Treasury for support services for
software applications maintenance, development, and testing. Centech
contends that the agency's evaluation of its proposal, especially its
determination that the firm's prices were unrealistic and
unacceptable, was unreasonable.
We deny the protest.
BACKGROUND
The RFP, issued December 19, 1996, sought proposals for support
services for the agency's Automated Systems Division (ASD), which is
responsible for the development and maintenance of many software
applications systems, ranging in complexity from small administrative
or tracking systems on personal computers and local area networks to
large and complex databases, document management, and econometric
systems on minicomputers and mainframes. To ensure continued
reliability and availability of existing application systems and to
develop new and enhanced application systems, the RFP required the
successful contractor to "provide a stable cadre of personnel working
on site in partnership with Government employees to deliver" the
required services.
The RFP provided for award of a fixed-price/level-of-effort and
indefinite quantity/ labor hour contract for a base period with four
1-year options. Award was to be made to the offeror submitting the
proposal representing the best value to the government, technical and
price factors considered. To be "eligible for award," proposals had
to meet the following conditions: the technical proposal had to be
"responsive" to all sections of the solicitation and offer the best
overall value; the proposed price had to be determined to be
reasonable; and the offeror had to be found responsible. The RFP
contained the following technical evaluation factors, listed in
descending order of importance: (1) technical performance; (2) past
performance; and (3) corporate capability and performance management.
Concerning the cost/price evaluation, the RFP stated that each
offeror's proposal would be assessed for cost realism, total contract
cost, and cost risk. The RFP stated that cost realism would be
evaluated in accordance with Federal Acquisition Regulation (FAR) sec.
52.222-46, which states, in part, as follows:
The Government is concerned with the quality and stability of the
work force to be employed on this contract. Professional
compensation that is unrealistically low or not in reasonable
relationship to the various job categories, since it may impair
the Contractor's ability to attract and retain competent
professional service employees, may be viewed as evidence of
failure to comprehend the complexity of the contract requirements
[and constitute sufficient cause to justify rejection of a
proposal].
The RFP emphasized that any proposal that was "unrealistically low in
cost(s) and/or price [would] be deemed reflective of an inherent lack
of technical competence [or] failure to comprehend the complexity and
risk" of the requirements, justifying "rejection of the proposal."
Evaluation of total contract costs contemplated adding the total price
for all options to the total price for the basic requirement. Cost
risk referred to any "aspect of an offeror's proposal which could have
significant negative cost consequences for the Government." Further,
the RFP stated that where cost risk was assessed it may be described
in "quantitative terms or used as a best-value discriminator." The
RFP contained estimated numbers of labor hours for numerous labor
categories (Entry Level Oracle Information Systems Analyst, Senior
Subject Matter Expert, etc.) for the level-of-effort portion of the
contract. The RFP also contained numerous labor categories (Senior
PC/LAN Information System Analyst, Senior Client/Server Information
System Analyst, etc.) for the indefinite quantity portion of the
contract and requested composite labor rates for each category.
The agency received eight proposals, and included Centech's,
Kathpal's, and three others in the competitive range. Following the
initial evaluation, the evaluators had recommended that the Centech
proposal be excluded from the competitive range because its proposed
cost was so unrealistically low as to be indicative of a failure to
comprehend the complexity and risk of the contract requirements.
Specifically, the agency found that 50 of the 53 labor categories in
the base and option years were affected by unrealistic pricing; 18 of
20 fixed-price/level-of-effort labor categories and 32 of 33
indefinite quantity labor categories were priced 20 percent or more
below the independent government cost estimate (IGCE). Centech's
overall price was 33 percent below the IGCE in option year 4, and
averaged 26 percent below the IGCE across all contract years.
Centech's labor rates were generally reduced significantly after the
base year. However, because of Centech's incumbency status, the
agency decided to retain the firm in the competition. Written and
face-to-face discussions were held with each of the competitive range
offerors. A typical written deficiency report (DR) issued to Centech
during discussions was as follows:
The offeror is required to provide a realistic composite rate(s)
for each labor category that will ensure a stable, technically
qualified cadre of personnel over the life of the contract. The
Government developed acceptable ranges/indicators for each labor
category. The Government indicators/ranges were developed using
the [IGCE], other negotiated contracts, and industry data. The
following proposed fixed-price level of effort labor categories
have composite rates that (1) are below or exceed the acceptable
ranges, and (2) appear unrealistic to maintain qualified staff
over the life of the contract. The Government is extremely
concerned with cost risk, and its relationship to successful
performance.[1] (Emphasis added.)
Best and final offers (BAFO) were requested and received; in the final
technical evaluation, Kathpal's proposal was ranked first with an
"excellent" rating, while Centech's was ranked fifth with a "fair"
rating. The final price/cost evaluation results are summarized as
follows:
Rank Offeror Total Contract Cost ScoreCost Realism ScoreCost
RiskTotal Cost
1 Kathpal Good Acceptable Low $16.5 million
2 Offeror AFair Acceptable Low $17.0
3 Offeror BFair Acceptable Low $17.1
4 Offeror CAcceptable Acceptable Low $18.5
5 Centech UnacceptableUnacceptable High [deleted]
Based on the evaluation results, the evaluators recommended award to
Kathpal as the best value offeror. The source selection authority
(SSA) agreed and made award to Kathpal; this protest followed. We
address Centech's principal allegations below.
MEANINGFUL DISCUSSIONS
Centech argues that the agency "should have provided [the firm] with
guidance/information concerning which labor categories were below
acceptable ranges and which categories exceeded the acceptable
ranges." Centech specifically requested information for each labor
category identified, and it believes the agency unreasonably refused
to provide such specific guidance. Centech also states that by
informing Centech during discussions that its proposed profit rate and
certain handling fees for parts and supplies were too high, the agency
actually misled Centech into believing that its labor rates were too
high, rather than too low.
Contracting agencies are required, in a negotiated procurement, to
conduct meaningful discussions with all responsible offerors whose
proposals are within the competitive range. Techniarts Eng'g,
B-234434, June 7, 1989, 89-1 CPD para. 531 at 3. Agencies are not
required to conduct all-encompassing discussions but, rather, need
only lead offerors into those areas of their proposal needing
amplification, given the context of the procurement. Creative
Management Tech., Inc., B-266299, Feb. 9, 1996, 96-1 CPD para. 61 at 4.
The actual content and extent of discussions are matters of judgment
primarily for determination by the agency involved. J.G. Van Dyke &
Assocs., B-248981, B-248981.2, Oct. 14, 1992, 92-2 CPD para. 245 at 4.
The discussions here were adequate. First, the agency led Centech
into the area of its proposal that the agency determined was
deficient--the reasonableness and realism of its proposed rates which
the agency advised were either below or exceeded acceptable ranges.[2]
Second, in addition to the written DRs, the agency addressed the
matter more specifically during oral discussions, which were
memorialized in agency notes. In those discussions, the agency stated
that Centech's labor costs were "out of the range," and while the
agency did not directly state "which direction" the labor costs fell
outside the range, the agency identified its concern as to how Centech
would maintain qualified personnel throughout the option years of the
contract, given its proposal to decrease its labor costs, stating:
"If your price is reasonable in the first period, why is your rate in
the option years reasonable? . . . [H]ow do you keep people[?] . . .
[C]an you get a qualified person? Look at next year, I wouldn't stay
if I didn't receive a raise." Finally, we find reasonable the
agency's reluctance to give more specific guidance to Centech
concerning the labor rates because the agency, in our view, reasonably
believed that a competent offeror could ascertain for itself whether
its labor rates were too low or too high. We thus conclude that
discussions with Centech were meaningful and unobjectionable.
PRICE/COST REALISM AND REASONABLENESS
Centech raises numerous arguments as to why the BAFO price/cost
realism analysis was flawed. Centech principally maintains that it
provided the agency with an explanation, discussed below, in its
response to the DRs as to why its labor rates were reduced
significantly after the base year, but that the agency unreasonably
ignored it.
"Realism" ordinarily is not considered in the evaluation of proposals
for the award of a fixed-price contract because the government's
liability is fixed and the risk of cost escalation is borne by the
contractor. Human Resources Sys., Inc.; Health Staffers, Inc.,
B-262254.3 et al., Dec. 21, 1995, 96-1 CPD para. 35 at 5. However,
because the risk of poor performance when a contractor is forced to
provide products or services at little or no profit is a legitimate
concern in evaluating proposals, an agency at its discretion may, as
here, provide for a price realism analysis in the solicitation of
fixed-price proposals. Cardinal Scientific, Inc., B-270309,
Feb. 12, 1996, 96-1 CPD para. 70 at 4; PHP Healthcare Corp.; Sisters of
Charity of the Incarnate Word, B-251799 et al., May 4, 1993, 93-1 CPD para.
366 at 5. The nature and extent of an agency's price realism analysis
is a matter within the sound exercise of the agency's discretion.
Cardinal Scientific, Inc., supra, at 4.
The cost/price evaluation was reasonable. Centech's BAFO responded to
the agency's questions concerning Centech's lower rates for the option
years as follows:
[deleted]
The record shows that the agency performed an exhaustive and detailed
realism analysis, preparing bar graphs, charts, and tables. The
evaluators found, after a comparison of prices among offerors and
against the IGCE, market survey prices, and Centech's current contract
price, that Centech's labor rates were high in the base year and
unrealistically low in the option years. For example the rate for the
proposed Senior PC/LAN Information Systems Analyst Project Leader, at
[deleted] in the base year, was 34 percent higher than the IGCE. In
option year 4, however, this same labor category rate, at [deleted]
was 29 percent lower than the IGCE. The agency also found that almost
all labor categories showed a dramatic drop in rates at the end of the
base year, in a pattern typical of mathematical and material
unbalancing and unrealistically low prices. In short, the agency
found that 18 of the 20 fixed-price labor categories and 32 of the 33
indefinite quantity labor categories were priced more than 20 percent
below the IGCE, that the average shortfall was more than 26 percent
across the contract life, and that Centech's prices were as much as 44
percent lower than the IGCE in option year 4. We find no basis for
objecting to the agency's conclusion that Centech's pricing was too
low in the option years.
Based on these low prices, the agency determined that Centech lacked
an understanding of the requirements, which affected the technical
evaluation as well. For example, concerning the transition plan for
the work, Centech's original proposal consisted of a brief, 1-1/2 page
document which stated that "there would be no key transition issues"
if Centech were awarded the contract because "all personnel currently
supporting the . . . contract will be available to continue on the new
contract." However, as stated above, in its BAFO Centech revised its
Personnel and Staffing Plan to include a large turnover of staff at
the completion of the base period resulting, in the agency's view, in
a potentially serious transition problem at the end of the base period
and potentially serious problems in retaining professional employees
in the option periods. As the final technical evaluation report
states:
[Centech] scored fair for their overall proposal . . .
[Centech's] technical performance remained fair, past performance
remained good and corporate capability dropped from very good to
minimally acceptable. The reduction in the Corporate Capability
is directly related to the Personnel and Staffing Plan described
in [its] BAFO. [Centech's] staffing plan placed the Government
at risk by proposing to constantly change technical staff,
specifically in option year 1 and throughout the life of the
contract. The RFP and government briefings before BAFOs
specifically [emphasized] the Government's need for a stable
cadre of technically qualified staff. [Centech's] proposed
Personnel and Staffing Plan was unacceptable . . . .
Thus, contrary to the protester's assertion that its explanation of
why its labor rates were reduced significantly after the base year was
ignored by the agency, the record shows that the agency understood and
fully considered the protester's explanation. Despite the
explanation, the agency, in our view, reasonably evaluated Centech's
option year prices as too low, and its conclusion that this pricing
also demonstrated a lack of understanding was reasonable and
consistent with the terms of the RFP. Centech's proposal was
therefore properly not selected for award.[3]
BAIT-AND-SWITCH
Finally, Centech argues that the agency took an active role in a
bait-and-switch by Kathpal because that firm made many job offers to
individuals previously employed under Centech's predecessor contract,
rather than using the personnel it had proposed.
Generally, an offeror's misrepresentation concerning personnel that
materially influences an agency's consideration of its proposal
provides a basis for proposal rejection or termination of a contract
issued based upon the proposal. ManTech Advanced Sys. Int'l, Inc.,
B-255719.2, May 11, 1994, 94-1 CPD para. 326 at 5. A misrepresentation is
material where an agency has relied upon the misrepresentation and
that misrepresentation likely had a significant impact upon the
evaluation. Id.
There is no evidence of an improper bait-and-switch. In its proposal,
Kathpal stated that one of its "objectives" was "[m]aximum continuity
of desirable incumbent staff," and the list of "detailed phase-in
activities" included in Kathpal's transition plan included efforts to
"[i]nterview and hire desirable incumbent staff." Further, Centech's
incumbent staff were more knowledgeable and experienced with the
required work than the personnel Kathpal proposed. Therefore, the
fact that 8 such personnel of 20 personnel assigned to this contract
by Kathpal were subsequently employed by Kathpal did not constitute a
bait-and-switch; instead, it was consistent with Kathpal's proposal as
evaluated.
The protest is denied.
Comptroller General
of the United States
1. Therein followed a listing of numerous labor categories without any
explanation of which categories the agency had determined were high
and which were determined to be unrealistically low.
2. Although Centech asserts otherwise, the record shows that Kathpal
was given identical information during discussions--that its labor
categories had composite rates that "are below or exceed the
acceptable ranges." Kathpal apparently reexamined its rates based on
this information and correctly determined that some were too low.
Centech could have done the same, but failed to do so.
3. Centech challenges the agency's best value determination based
solely on the agency's allegedly improper evaluation of its BAFO
explanation concerning reduced labor rates after the base period.
Since we have found the agency's evaluation reasonable and proper, we
need not discuss this matter further except to note that Centech's
personnel and staffing plan was rated as unacceptable in the best
value determination prepared by the agency. As the agency states,
"[s]uffice it to say that [the agency] reasonably considered the risk
inherent in Centech's proposal which would have resulted in wholesale
substitution of dubiously qualified individuals for those who
performed well under the prior contract."