BNUMBER: B-278730
DATE: March 6, 1998
TITLE: FC Business Systems, Inc., B-278730, March 6, 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:FC Business Systems, Inc.
File: B-278730
Date:March 6, 1998
Daniel B. Abrahams, Esq., and Raymond Fioravanti, Esq., Epstein Becker
& Green, P.C., for the protester.
William M. Rosen, Esq., and Karen Lau, Esq., Dickstein Shapiro Morin &
Oshinsky, LLP, an intervenor.
Joshua A. Kranzberg, Esq., and Maj. Scott L. Kilgore, U.S. Army
Materiel Command, for the agency.
Scott Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest challenging agency's source selection decision is sustained
where record shows that, contrary to the express terms of the RFP, the
agency failed to consider the results of a sample delivery order cost
evaluation in the source selection decision.
DECISION
FC Business Systems, Inc. protests the award of a contract to
Logistics Engineering & Environmental Support Services, Inc. (LESCO)
under request for proposals (RFP) No. DAAB07-97-R-6006, issued by the
Department of the Army for program management support, and research
and analysis services for the Army's Logistics Integration Agency. FC
argues that the agency's cost and technical evaluations were flawed
and that, as a consequence, the agency's source selection decision was
unreasonable.
We sustain the protest.
BACKGROUND
The RFP, issued for a base year and four 1-year options, contemplated
the award of an indefinite-delivery, indefinite-quantity (IDIQ) type
contract with fixed, fully burdened hourly rates for various types of
employees, and travel and material costs reimbursed based on actual
costs incurred. Firms were required to submit proposal information
that described their technical and management approach, and also were
required to include detailed past performance information relating to
the firm and its subcontractors; offerors also were required to
prepare responses for two sample delivery orders.
For cost evaluation purposes, firms were required to complete a matrix
for what the RFP called total contract life cost (TCLC). Offerors
were required to state the number of hours for each staff-year of
contract performance, and to submit loaded hourly rates for various
types of employees; these hourly rates were multiplied by the number
of hours to arrive at an extended staff-year price for each category
of employee, which was then multiplied by the number of staff-years
estimated in the RFP for each contract year. In addition to the TCLC
matrixes, firms were required to prepare cost proposals for each of
the two sample delivery orders.
The solicitation provided that the agency would make award to the firm
whose proposal represented the best overall value to the government
considering price and several non-price factors. The criteria, listed
in descending order of importance, were Technical, Past Performance,
Price, and Management. The technical evaluation criterion included
three subfactors, Logistics Business Process Analysis, Technology
Application, and Program Management Support; the first two subfactors
were of equal importance and the third subfactor was relatively less
important. For cost evaluation purposes, the RFP provided that the
agency would consider the TCLC information, as well as the offerors'
responses to the sample delivery orders. The solicitation further
provided that, in evaluating the sample delivery order cost proposals,
the agency would perform a cost realism evaluation.
The Army obtained and evaluated best and final offers and arrived at
the following adjectival and cost evaluation results for the
protester's and awardee's proposals:
CRITERION FC Business Systems LESCO
TECHNICAL BLUE (Outstanding) BLUE (Outstanding)
Logistics Business Process AnalysisBLUE (Outstanding)BLUE
(Outstanding)
Technology ApplicationGREEN (Good)BLUE
(Outstanding)
Program Management SupportBLUE (Outstanding)GREEN (Good)
PAST PERFORMANCE BLUE (Outstanding) BLUE (Outstanding)
TCLC $16,493,852.80 $16,579,863.00
MANAGEMENT YELLOW (Acceptable) GREEN (Good)
The Army made award to LESCO, finding that its proposal--despite its
slightly higher TCLC--offered the best overall value to the
government. The agency's source selection decision found that LESCO's
proposal was superior to FC's under the first two technical subfactors
(logistics business process analysis and technology application),
while FC's proposal was superior under the third technical subfactor
(program management support). The source selection decision primarily
concludes that, because LESCO's proposal was superior to FC's under
the first two technical subfactors, the agency preferred to make award
to LESCO, notwithstanding the fact that its TCLC was approximately
$86,000 higher than FC's.
USE OF THE SAMPLE DELIVERY ORDER COST EVALUATION RESULTS
FC maintains that, contrary to the express terms of the RFP's
evaluation provisions, the agency failed to utilize the results of
the sample delivery order cost evaluation in making its source
selection. FC argues that the source selection decision document
relies solely on a comparison of the two firms' cost under the TCLC
evaluation in its tradeoff decision. The protester notes that its
cost advantage was significantly larger under the sample delivery
order cost evaluation than under the TCLC evaluation, and contends
that the tradeoff and award decision may have been different, had the
source selection authority (SSA) taken cognizance of this fact.
The agency seems to concede that it did not use the results of the
sample delivery order cost evaluation results as a discriminator for
source selection purposes; it maintains that it would have been
"inappropriate" to do so because the tasks represented work of a short
duration (4 and 6 months respectively), and thus did not reflect the
potential cost of the contract overall. In apparent contradiction to
this position, however, the Army also asserts that the reports
prepared by the source selection advisory council (SSAC) and source
selection evaluation board (SSEB)--which were reviewed by the
SSA--discuss the results of the sample delivery order cost
evaluations. The agency concludes from this that the SSA did in fact
consider the results of that cost evaluation in making his award
decision, even though he did not reference those costs in his source
selection memorandum.
We find both of the agency's arguments without merit for several
reasons. First, it was improper for the Army not to consider the
results of the sample delivery order cost evaluation results in
reaching its award decision. The Competition in Contracting Act
requires that a solicitation for competitive proposals state all
significant factors that will be considered in the evaluation of
proposals and ultimate award decision, 10 U.S.C. sec. 2305(a)(2)(A)
(1994), and that agencies evaluate proposals based solely on the
factors included in the solicitation. 10 U.S.C. sec. 2305(b)(1). By
virtue of this statutory requirement, an agency may not represent that
it will evaluate proposals on one basis, and then use another. Thus,
given the RFP's specific representation that sample delivery order
costs would be considered in the cost evaluation, the Army could not
ignore that information in making its source selection. Group Techs.
Corp., B-240736, Dec. 19, 1990, 90-2 CPD para. 502 at 9-10 (agency is
required to use cost evaluation tools provided in the evaluation
scheme).
More significantly, the agency's failure to consider the sample
delivery order cost evaluation resulted in a failure to evaluate the
realism of the competing proposals' costs; in other words, the agency
failed to compare the relative efficiency of the two offerors in light
of their technical approaches. Under an IDIQ contract, which has
elements of both fixed-price and cost reimbursement-type contracts,
the cost of performance will vary depending not only on the labor
rates proposed (as measured here by the TCLC evaluation), but also on
the contractor's efficiency in performing the actual task orders
issued, that is, the hours that will be required to perform. The
sample delivery order cost evaluation was the means provided for under
the solicitation for evaluating this latter aspect of cost to the
government. Without using the results of the sample delivery order
cost evaluation, the agency had no measure of how many hours each
offeror would require to perform the same task. Thus, while the
agency could determine which offerors' rates were low under the TCLC
evaluation, it could not evaluate the offerors' relative cost
efficiency. Id. at 9.
There is a reasonable possibility that this evaluation deficiency had
a significant effect on the source selection. See Geo-Centers, Inc.,
B-276033, May 5, 1997, 97-1 CPD para. 182 at 11-12. The offerors'
sample delivery order responses were central to the Army's technical
evaluation findings. As discussed in the SSEB report, LESCO's
proposal was deemed somewhat superior under the first two technical
subfactors, primarily on the basis of that firm's response to sample
delivery order No. 2. Thus, had the agency weighed the sample
delivery order cost evaluation in making its award decision, it may
well have made a different choice. The record shows that LESCO's
proposal for sample delivery order No. 2 involved a cost premium of
approximately 28 percent more than FC's proposal. This cost premium
is far larger than the 0.6-percent TCLC cost premium on which the
award decision is actually based. And while the Army found, for
example, that LESCO proposed a superior approach to addressing its
requirements as reflected in the first two technical evaluation
subfactors, it also found that FC's proposal merited an outstanding
rating under the first subfactor and a good rating under the second
subfactor. The record leaves unanswered the question of whether
LESCO's limited technical superiority is worth the 28-percent cost
premium associated with its sample delivery order No. 2 cost proposal.
The Army's assertion that a sample delivery order cost evaluation
would have been inappropriate is incorrect. While the sample delivery
orders may not represent all of the possible requirements that may
arise during contract performance, evaluation of sample delivery order
costs for an indefinite quantity contract can provide a useful method
for evaluating the relative costs of contracting where disparate
technical approaches are offered. Geo-Centers, Inc., supra, at 11-12.
As discussed, the actual cost of the contract will be driven by the
delivery orders issued and the contractor's efficiency in performing
them. The use of sample tasks or delivery orders provides a means to
review the technical approaches and efficiencies under simulated
contract conditions. Geo-Centers, Inc., supra; Group Techs. Corp.,
supra, at 7-10. The agency's failure to consider the sample delivery
order cost evaluation results here is particularly significant in
light of the fact that its technical evaluation findings were based in
substantial part on the offerors' responses to the sample tasks.
Moreover, there is no support for the agency's alternative position
that the SSA weighed--albeit without mentioning in his source
selection document--the sample delivery order cost evaluation by
virtue of his review of the SSEB and SSAC reports. While the SSEB and
SSAC reports contain a discussion of the sample delivery order cost
proposals (comparing, for example, the gross dollar value difference
between the firms and noting that the offerors proposed different
quantities of labor hours), that discussion does not attempt to trade
off those cost differences against the differences in the proposals'
perceived technical merit. The SSAC report (which made an award
recommendation to the SSA) states, generically, that the cost
differences between the two offerors' sample task responses are
attributable to the offerors' respective technical approaches, but
does not analyze the relative value of one approach versus another in
terms of the potential cost to the government. Since neither the SSEB
or SSAC reports included a tradeoff analysis, the SSA nowhere referred
to the sample task cost evaluation, and the SSA's award decision on
its face specifically refers only to the TCLC cost difference, there
is no basis to conclude that he considered the sample delivery order
cost results in his award decision. We therefore sustain FC's protest
on this basis.
DISPARITY IN HOURS PER STAFF-YEAR
FC also maintains that the Army improperly failed to use a uniform
number of hours in a staff-year, and that this resulted in a defective
TCLC cost evaluation. In this regard, the record shows that the
independent government cost estimates were calculated using a
staff-year of 2,080 hours, the protester's prices were calculated
using a staff-year of 1,920 hours, and LESCO's prices were calculated
using a staff-year of 1,880 hours. According to the protester, this
discrepancy provided LESCO with an improper advantage because it was
not required to multiply its labor rates by as many hours in arriving
at its pricing. The Army contends that this argument is untimely. We
agree with the agency because FC did not raise this specific
contention until more than 10 days after it received the information
(the evaluation documents and LESCO's proposal) upon which it is
based. However, since we have found the cost evaluation defective for
the reason discussed above, we discuss this contention below in order
to provide the agency with guidance in implementing the appropriate
corrective action.
In its substantive response to this contention, the agency asserts
that the different number of hours in the firms' staff-years is
immaterial because, regardless of the number of productive hours used
by each offeror to calculate the cost of a staff-year, they have
included the balance of each employee's cost (for example, the cost of
sick leave and vacation time) in the form of indirect costs added to
the direct labor costs. (The Army infers that the offerors arrived at
their loaded hourly rates by dividing their employees' annual salaries
by the number of staff-hours in a staff-year.) The Army therefore
contends that it "leveled the playing field" for purposes of the
evaluation because, to the extent that one offeror may have used a
smaller number of staff-hours in its calculations, any advantage it
might have gained from this was offset by higher hourly rates.
Within the context of an IDIQ-type contract, a properly constructed
solicitation should express the agency's requirements in terms of its
best estimate of the number of staff-hours, as opposed to the number
of employees, thereby ensuring that the government can reliably
determine the true cost of making award to one firm versus another.
See Temps & Co., B-221846, June 9, 1986, 86-1 CPD para. 535 at 4. Here,
the RFP permitted offerors to base their proposed costs on staff-years
comprised of different quantities of hours, but the agency's cost
evaluation focused on staff-years and ignored the difference in hours
between the offerors' staff-years. The agency, however, will pay for
services under the contract on an hourly (as opposed to a staff-year)
basis. We conclude that the TCLC evaluation failed to reveal the true
relative costs of the proposals to the government.[1] Id. The record
shows that LESCO prepared its proposal using approximately 2.08
percent fewer staff-hours than used by FC (that is, 40 hours per
staff-year fewer than FC). Adding the cost of those additional hours
to LESCO's proposal could increase the cost difference between the
firms from the $86,010 identified by the agency (and relied on in the
source selection decision) to approximately $430,000. This greater
cost difference could have affected the source selection.
RECOMMENDATION
As discussed, we sustain FC's protest based on the agency's failure to
consider the sample delivery order cost evaluation results in its
source selection decision. Under such circumstances, we ordinarily
would recommend only that the agency reevaluate proposals. However,
given the lack of a common definition of a staff-year in the RFP, the
agency should first amend the solicitation to explain how it will take
into consideration the differences in the number of hours per
staff-year proposed by the offerors, or otherwise establish a uniform
basis for preparing and evaluating offers (for example, by defining a
staff-year in terms of a uniform number of hours). The agency should
then provide the offerors an opportunity to revise their proposals.
If, after evaluating the revised offers, the agency concludes that a
firm other than LESCO is in line for award, the agency should
terminate LESCO's contract for the convenience of the government and
make award to the other firm if otherwise proper. We also recommend
that FC be reimbursed the costs of filing and pursuing its protest,
including reasonable attorneys' fees. 4 C.F.R. sec. 21.8(d)(1). The
protester should submit its certified claim for those costs, detailing
the time spent and expenses incurred, within 60 days of receiving this
decision. 4 C.F.R. sec. 21.8(f)(1).[2]
The protest is sustained.
Comptroller General
of the United States
1. The record shows that the offerors also prepared their sample
delivery order cost proposals using a different number of hours in a
staff-year. While it would be permissible for the agency to accept
proposals based on a different number of hours in a staff-year where
it concluded that this difference reflected the firms' differing
technical approaches resulting in greater or lesser efficiency, there
was no such finding here. The record shows only that the agency noted
the difference in the number of labor hours per staff-year, but did
not attribute it to anything relating to the firms' respective
technical approaches. Thus, the offerors' use of a different number
of hours in a staff-year also skewed the sample delivery order
preparation and evaluation.
2. FC also raises several additional allegations relating to the
agency's technical evaluation and cost realism adjustments. We need
not consider these arguments at this time since we are recommending
that the agency amend the RFP and solicit and evaluate revised
proposals. Since the nature of the agency's cost evaluation errors in
this case--and the remedy therefor--necessarily will require offerors
to revise their proposals from a level-of-effort standpoint, those
revisions could well have an effect on the firms' technical standing,
and could also affect the agency's cost realism evaluation and
ultimate source selection.