BNUMBER: B-278793
DATE: March 16, 1998
TITLE: Coleman Research Corporation, B-278793, March 16, 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:Coleman Research Corporation
File: B-278793
Date:March 16, 1998
James S. Roberts, Jr., Esq., Townes, Woods & Roberts, P.C., for the
protester.
James J. McCullough, Esq., Joel R. Feidelman, Esq., and James S.
Kennell, Esq., Fried, Frank, Harris, Shriver & Jacobson, an
intervenor.
Craig E. Hodge, Esq., and Diane V. Beam, Esq., Department of the Army,
for the agency.
Paul E. Jordan, Esq., and Paul Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. In conducting a cost realism analysis under a negotiated
procurement for a follow-on cost reimbursement contract, procuring
agency reasonably applied the protester's overhead rate from the
predecessor contract, instead of the protester's significantly lower
proposed rate, where protester's proposal failed to adequately support
or justify the newly proposed rate.
2. Under solicitation which provided that cost was significantly less
important than technical considerations, award to offeror with
superior technical proposal and slightly higher most probable cost is
unobjectionable where source selection authority reasonably determines
that the lower cost associated with protester's proposal does not
outweigh the technical superiority of awardee's proposal.
DECISION
Coleman Research Corporation protests the award of a contract to
Science Applications International Corporation (SAIC) under request
for proposals (RFP) No. DAAH01-97-R-0172, issued by the Department of
the Army for support services concerning weapon systems effectiveness
analysis. Coleman challenges the propriety of the agency's upward
adjustment of Coleman's most probable cost and the soundness of the
agency's cost/technical tradeoff.
We deny the protest.
The solicitation is for the acquisition of systems, cost, risk, and
program evaluation support (SCRAPES) for the U.S. Army Aviation and
Missile Command, Command Analysis Directorate. The successful
contractor will provide cost analysis support services, program
evaluation and analysis services, risk assessment and analysis
services, program management support services, and system analysis and
operations research support services. The effort is to be performed
primarily at the contractor's facility, with some work to be performed
at Redstone Arsenal, Alabama, as specified in individual technical
direction orders. The RFP contemplated award of a cost-plus-fixed-fee
contract for a base effort in the first year with options over an
additional 4 years. Up to three awards could be made, one of which
was to be under the Small Business Administration's 8(a) program.[1]
Evaluation of proposals was based on three factors, in descending
order of importance: requirements, past performance, and most
probable cost (MPC). Under the evaluation scheme, the "requirements"
factor was significantly more important than "past performance."
"Cost" was considered equal to "past performance," and the sum of
these two factors was less important than "requirements." Proposal
risk was also considered integral to the "requirements" and "cost"
evaluation areas. Before any proposal could be evaluated under these
factors, the proposal had to pass a "go/no go" evaluation regarding
whether the proposed personnel were able to meet minimum labor
qualifications.
Section M of the RFP provided for an evaluation of MPC, defined as the
government's estimate of the cost of completing the contract using the
offeror's requirements approach, adjusted by any additional cost to
the government. Section M also provided:
The Offeror's proposed rates, factors and expenses will be
examined to substantiate utilization of consistent forward
pricing procedures, i.e., negotiated forward pricing rates, if
applicable, or rates and factors contractors ordinarily utiliz[e]
in proposals if no negotiated forward pricing agreement exists.
This includes indirect expense rates, projected rates and
projected expense pools. The rates and factors proposed shall be
applied to the mix of labor hours and skill mix, ODC's [other
direct costs] and travel costs . . . for both the base contract
and all options.
Section L, "Instructions, Conditions and Notices to Offerors," advised
offerors that indirect expense rates "shall be supported by projected
expense pools and cost recovery bases by contractor fiscal year." The
instructions stated that there was no page limitation for the cost
volume.
Award was to be made to the offeror(s) whose proposal(s) represented
the best overall value to the government. The RFP provided that the
government intended to evaluate proposals and award a contract without
discussions; therefore, offerors' initial proposals should contain
their best terms from a cost and technical standpoint. Amendment No.
0004 of the RFP specifically reminded offerors of this, warning that
they must ensure that their proposals were complete and accurate in
all respects.
Five offerors, including Coleman (the incumbent) and SAIC, submitted
proposals by the August 26, 1997, closing date. The evaluations on
all factors for the protester's and the awardee's proposals were as
follows:
Area/Element SAIC Coleman
Requirements Outstanding Very Good
-Program Risk Outstanding Very Good
-Cost Analysis Outstanding Outstanding
-System Analysis/ Operations
ResearchOutstandingOutstandin
g
-Program ExecutionOutstanding Satisfactory
-Personnel Qualif/ MaintainabilityVery GoodVery Good
-Subcontract MgmtOutstanding Poor
-Subcontract PlanSatisfactory Satisfactory
Past Performance Superior Superior
Proposed Cost $37.4 Million [deleted]
Most Probable Cost $37.5 Million [deleted]
In conducting the MPC evaluation, the evaluators questioned Coleman's
proposal of [deleted] overhead rate" of [deleted] percent. While
Coleman's proposal stated that the rate was developed based on actual
costs of the prior SCRAPES contract, in the evaluators' view, Coleman
did not adequately support or justify the rate. After consultation
with the Defense Contract Audit Agency (DCAA) and the administrative
contracting officer on the predecessor SCRAPES contract, the
evaluators determined to use Coleman's predecessor SCRAPES contract
overhead rate of [deleted] percent, as reflected in Coleman's most
recent forward pricing rate agreement. As a result, the MPC
adjustment to Coleman's costs consisted of the addition of more than
[deleted] to Coleman's proposal.
In making her award decision, the contracting officer, as source
selection authority (SSA), considered SAIC's higher ratings in three
of the seven elements under "requirements," the most important of the
three evaluation factors. She found that SAIC's "demonstrated
superiority in performing the effort," as well as its outstanding
plans for program execution and subcontract management, were
sufficiently significant to outweigh the MPC difference between its
proposal and Coleman's, making SAIC's proposal best overall for the
non-8(a) work. Source Selection Decision at 19. She awarded SAIC the
contract on November 25. After receiving a debriefing, Coleman filed
this protest with our Office.
Coleman first argues that the agency's MPC evaluation was flawed.[2]
Specifically, Coleman objects to the agency's decision to upwardly
adjust its costs by using a higher overhead rate than that proposed by
Coleman. The agency maintains that since Coleman failed to adequately
support its proposed rate, it reasonably relied on input from DCAA in
applying the same overhead rate Coleman used on the predecessor
contract.
When agencies evaluate proposals for the award of a cost reimbursement
contract, an offeror's proposed estimated costs are not dispositive
because, regardless of the costs proposed, the government is bound to
pay the contractor its actual and allowable costs. Infotec Dev.,
Inc., B-258198 et al., Dec. 27, 1994, 95-1 CPD para. 52 at 6.
Consequently, a cost realism analysis must be performed by the agency
to determine the extent to which an offeror's proposed costs represent
what the contract should cost, assuming reasonable economy and
efficiency. CACI, Inc.--Fed., 64 Comp. Gen. 71, 75 (1984), 84-2 CPD para.
542 at 5. Because the contracting agency is in the best position to
make this cost realism determination, our review of an agency's
exercise of judgment in this area is limited to determining whether
the agency's cost evaluation was reasonably based and not arbitrary.
Infotec Dev., Inc., supra.
In our view, the agency's cost realism analysis and upward adjustment
of Coleman's costs were reasonable. In determining to adjust
Coleman's overhead rate, the agency reviewed Coleman's proposal,
considered Coleman's overhead rate on the predecessor contract, and
sought the input of DCAA. In this regard, Coleman's proposal provided
a one-half page explanation of its rate, stating it had taken
[deleted]. The proposal also stated that Coleman intended to
[deleted]. While this explanation identified how the overhead rate
was calculated, it provided no information in support of the rate's
realism. Since the simple derivation of a rate does not necessarily
reflect that rate's realism, and the agency is ultimately responsible
for paying the actual overhead rate, the agency's unwillingness to
accept this overhead rate at face value is reasonable. See Infotec
Dev., Inc., supra.[3]
Because the proposed rate represented a significant reduction to the
[deleted] percent overhead rate in the predecessor contract, and
Coleman's proposal provided little support, the agency also sought
assistance from DCAA in the form of an audit for cost realism.[4]
DCAA reviewed Coleman's proposal, its prior forward pricing
agreements, and additional information obtained from Coleman.[5] The
forward pricing agreement, submitted by Coleman and audited by DCAA
less than 3 months prior to submission of Coleman's proposal, used
[deleted] percent as the appropriate [deleted] overhead rate. The
only additional information furnished by Coleman consisted of a single
page which showed how Coleman calculated the [deleted] overhead on the
basis of its [deleted]. In its review, DCAA found that Coleman's
[deleted] overhead rate was based on [deleted] but noted that it
represented a new rate not disclosed in Coleman's earlier disclosure
statement. Accordingly, DCAA applied the [deleted] percent rate as
recommended by the administrative contracting officer. Based on its
review, DCAA concluded that use of Coleman's proposed [deleted] rate
could result in an understatement of approximately [deleted] in
proposed costs. DCAA also opined that Coleman's estimating system was
inadequate. DCAA concluded that the [deleted] percent rate associated
with the [deleted] pool was the appropriate pool for SCRAPES work.
This conclusion was based on Coleman's earlier organizational changes
reflected in a revised disclosure statement which was based on the
prior year's costing data, did not change the [deleted] percent rate,
and showed a straight line forward pricing rate for future years.
In addition to DCAA's input, the agency evaluators also took
cognizance of the fact that in preparing the forward pricing rate
projections shortly before submitting the follow-on proposal, Coleman
included some $[deleted] of SCRAPES effort in the base and expenses of
[deleted], which indicated that the effort was to be performed in that
pool. The evaluators also considered that to establish a new rate,
Coleman ordinarily would have to request it 60 days in advance,
prepare an adverse impact statement regarding existing contracts,
revise forward pricing rates for the [deleted] pool, and furnish
these to the administrative contracting officer, none of which Coleman
had done. DCAA's and the agency's conclusions were based on Coleman's
historical overhead rates on the similar predecessor contract, which
rates were audited shortly before submission of Coleman's proposal,
and we see nothing objectionable in the agency's reliance on DCAA in
adjusting Coleman's costs.
Coleman argues that rejection of its [deleted] overhead rate on the
basis of its existing contract is improper. In Coleman's view, since
this is a new contract effort, its proposal should be judged on its
own merits without reference to the predecessor contract. We
disagree. The follow-on contract effort appears very similar to that
performed by Coleman under the predecessor contract and Coleman has
provided no evidence that the follow-on contract is significantly
different. Further, less than 3 months prior to submitting its
proposal under this RFP, Coleman twice proposed use of a [deleted]
percent overhead rate for this similar effort. As such, even though
the solicited effort is "new," Coleman's cost history on the
predecessor contract is relevant and, in the absence of adequate
support or justification from Coleman in its proposal, the agency and
DCAA reasonably relied on historical information to determine the
overhead cost rate that the agency could reasonably expect to pay
under the contract. Purvis Sys. Inc., 71 Comp. Gen. 203, 211-12
(1992), 92-1 CPD para. 132 at 10; Marine Design Techs., Inc., B-221897,
May 29, 1986, 86-1 CPD para. 502 at 7.
While Coleman argues that it could have easily resolved the matter in
discussions, this does not excuse Coleman's failure to provide the
requisite support and justification for its proposed overhead rate in
its initial proposal. Simply put, an offeror has the burden to submit
a proposal adequate for evaluation, especially, where, as here, the
offeror is on notice that the agency intends to make award based on
initial proposals without discussions. Titan Corp., B-260557.2, July
18, 1995, 95-2 CPD para. 89 at 9.[6] Given that the proposal failed to
include the information needed and that the agency did not--and was
not required to--hold discussions, we conclude that the agency
reasonably rejected the proposed overhead rate and upwardly adjusted
Coleman's cost's using its predecessor contract overhead rate.
Booz-Allen & Hamilton, Inc., B-275934.2, May 29, 1997, 97-1 CPD para. 222
at 8; Crimson Enters., Inc., B-243193.4, June 12, 1992, 92-1 CPD para. 512
at 10-11.
Coleman also contends that even if the agency's upward adjustment in
the MPC was reasonable, the SSA's cost/technical tradeoff decision is
suspect since the proposals were closely ranked and the cost
difference is small. In a negotiated procurement, the government is
not required to select the lowest-cost, technically acceptable
proposal unless the solicitation specifies that cost or price will be
the determinative award factor. General Servs. Eng'g, Inc., B-245458,
Jan. 9, 1992, 92-1 CPD para. 44 at 9. Here, the RFP provided that cost
was less important than technical considerations and advised the
contractors that award would not necessarily be made to the offeror
proposing the lowest cost. Agency officials have broad discretion in
determining the manner and extent to which they will make use of
technical and cost evaluation results. Cost/technical tradeoffs may
be made; the extent to which one may be sacrificed for the other is
governed by the test of rationality and consistency with the
established evaluation factors. Id.
In support of its position that there was little difference between
its proposal and SAIC's, Coleman notes that while SAIC's was rated
"outstanding" under the requirements factor, Coleman's proposal was
rated "very good." In our view, this does not evidence that there was
an inconsequential difference between the proposals and, indeed, there
were significant differences between the proposals at the elemental
level. "Requirements" was the most important factor; under that
factor's "program risk evaluation and analysis" element, Coleman's
proposal was rated "very good"; under its "program execution" element,
the proposal was rated "satisfactory"; and under its "subcontract
management" element, the proposal was rated "poor." SAIC's proposal
was rated "outstanding" for all three of these elements. Coleman's
lower proposal ratings were based in part on Coleman's lack of detail
and information regarding cost performance analysis, the performance
analyzer model, its accounting system, and its internal channels of
communication. Of more importance to the SSA were Coleman's failure
to demonstrate how it would ensure effective coordination of the
effort, as well as subcontract management; failure to provide a plan
to allocate effort and control costs with its proposed subcontractor
arrangements; and failure to describe the purchasing system or
procedures as they relate to the acquisition of subcontract labor,
travel, and other direct cost. Since Coleman proposed [deleted]
subcontractors, the SSA noted that it was imperative that Coleman have
a good subcontract management plan and be able to control its
subcontractors. An inability to perform in this area could result in
poor quality, ineffective and inefficient performance, and increased
cost to the government. Nothing in the record casts any doubt on the
reasonableness of these ratings or concerns.[7]
In making her award determination, the SSA specifically noted SAIC's
superior proposal ratings over Coleman's proposal in these areas. She
weighed the relative importance of the different ratings and concluded
that:
in consideration of [Coleman's] disadvantages and the magnitude
of SAIC's advantages in the requirements area (which is
significantly more important than either cost or past performance
and more important than the sum of the cost and past performance
areas), the price premium is considered of little significance in
light of the significant differences in the proposed requirements
approaches.
In this regard, she noted SAIC's "demonstrated superiority in
performing the effort required by the [statement of work] as well as
[its] outstanding plans for program execution and subcontract
management." In her view, SAIC's "requirements" superiority was
sufficiently significant to outweigh the cost difference between
Coleman's and SAIC's proposals. Accordingly, she determined that
SAIC's proposal represented the best value to the government. Given
the established technical superiority of SAIC's proposal and the
minimal cost difference (approximately [deleted]) there is no basis to
question the reasonableness of the SSA's cost/technical tradeoff.
General Servs. Eng'g, Inc., supra.
The protest is denied.
Comptroller General
of the United States
1. Coleman's protest does not concern the agency's 8(a) award
decision.
2. Coleman has raised various collateral matters in conjunction with
its protest. We have reviewed them all and find that none has merit.
This decision will address only the more significant matters raised.
3. While Coleman has posited that the agency somehow should have
considered Coleman's proposed overhead rate as a ceiling, nothing in
its proposal identifies the rate as a ceiling and Coleman did not
complete clause H-12, "Indirect Cost Rate Ceiling," which called for
an offeror to list those indirect cost ceilings by which it would be
bound.
4. Coleman argues that the agency erred in relying on DCAA's input
because DCAA failed to perform a formal audit of its proposed overhead
rate as requested by the agency. In Coleman's view, to be valid, an
"audit" must be in accordance with generally accepted government
auditing standards. However, the agency points out that section 2-001
of the DCAA Contract Audit Manual (July 1997) uses the term "audit" to
refer to a variety of types of examinations and reviews by a person
other than the preparer of the data and indicates that there is no
commonly accepted definition of precisely what constitutes an audit
that can be assumed to apply to all cases in which the term is used.
The agency requested assistance from DCAA on the issue of cost
realism, and it is plain from the record that DCAA understood that it
was not required to perform a formal audit. Since the agency never
intended DCAA to perform the type of audit envisioned by Coleman and
such an "audit" was not required, Coleman's complaint provides no
basis for objecting to the agency's reliance on DCAA's input.
5. Coleman, as the incumbent contractor, was performing an effort
similar to that of the follow-on contract. Approximately 2 months
prior to submitting its proposal for the follow-on effort, Coleman
submitted revised rates to DCAA in a forward pricing agreement
covering the [deleted], which included [deleted] overhead rate of
[deleted] percent. This rate was audited by DCAA and approved by the
administrative contracting officer. One week before submitting its
proposal for the follow-on effort, Coleman submitted a proposal for
add-on work for the predecessor contract which also quoted the
[deleted] percent overhead rate.
6. In support of its argument, Coleman submitted an affidavit from its
assistant controller who spoke with a DCAA representative. In her
affidavit, the controller averred that she sent certain supporting
information to DCAA and offered to submit more backup if DCAA "had any
questions." Since DCAA never requested additional information,
Coleman argues that the agency should not penalize it for failing to
provide adequate support. However, a "record of discussion" between
the assistant controller and DCAA indicates that the promised "backup"
information concerned an overtime matter questioned by DCAA and was
not sent because the cognizant Coleman office could not provide the
backup. The record of discussion also notes that when the assistant
controller left the DCAA representative a voice mail message regarding
the overtime matter, she did not mention the overhead rate.
7. Coleman's argument that these ratings are invalid because they were
not used to upwardly adjust its costs is without merit. Nothing in
the evaluation scheme provided for an adjustment to costs based solely
on low ratings under the "requirements" factor. In any event, if such
adjustments had been made, Coleman's MPC would have been further
increased, to Coleman's detriment.