BNUMBER:  B-278730 
DATE:  March 6, 1998
TITLE: FC Business Systems, Inc., B-278730, March 6, 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: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.