BNUMBER:  B-278793 
DATE:  March 16, 1998
TITLE: Coleman Research Corporation, B-278793, March 16, 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: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.