TITLE:  Nations, Inc., B-280048, August 24, 1998
BNUMBER:  B-280048
DATE:  August 24, 1998
**********************************************************************
Nations, Inc., B-280048, August 24, 1998

Decision

                    Matter of:Nations, Inc.

File:B-280048

Date:August 24, 1998

William H. Butterfield, Esq., and Christopher H. Jensen, Esq., Kilcullen,
Wilson & Kilcullen, for the protester.

John A. Evans, Esq., Department of the Navy, for the agency.

Christine F. Davis, Esq. and James Spangenberg, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Agency improperly eliminated a proposal from the competitive range, where
the deficiencies ascribed to the proposal were either the result of
misevaluation, or readily correctable, or similar to features in the
proposals included in the competitive range.

DECISION

Nations, Inc. protests the elimination of its proposal from the competitive
range under request for proposals (RFP) No. N61339-97-R-0011, issued by the
Department of the Navy, for life cycle contractor support of command,
control, communications, computers and intelligence (C4I) devices located at
45 military installations worldwide.

We sustain the protest.

The RFP, issued May 9, 1997, was for the award of a fixed-price-award-fee,
indefinite-quantity contract with some time-and-materials contract line
items (CLIN). RFP Amendment 03 sect.sect. B, L.2. The RFP consolidates the
requirements of three contracts, one of which the protester is currently
performing.

The solicitation advised, pursuant to Federal Acquisition Regulation (FAR)
sect. 52.215-16, Alternate II (June 1997), that the government intended to award
a contract based on initial proposals, unless the contracting officer later
determined that discussions were necessary. RFP Amendment 03 sect. M.1. The
solicitation provided for award based on a price/technical tradeoff
considering three evaluation factors: (1) price/administrative, (2)
technical/management, and (3) past performance. Id. The technical/management
factor was most important, and the past performance and price/administrative
factors were "comparatively equal" to each other. RFP Amendment 03 sect. M.3.
The solicitation advised that proposals would be evaluated in accordance
with a source selection plan (SSP). RFP Amendment 03 sect. M.1. The SSP
established adjectival ratings ("outstanding," "highly satisfactory,"
"satisfactory," "marginal," and "unsatisfactory") and risk assessment
ratings ("high," "medium," and "low") for the technical/management
evaluation.

The technical/management evaluation was to gauge the offeror's understanding
of the requirements, its technical approach, and its ability to execute that
technical approach. RFP Amendment 03 sect. M.3(b)(1), (2). The
technical/management factor included a technical subfactor and a less
important management subfactor, RFP Amendment 03 sect. M.3(b), with the
following sub-subfactors:

Technical

1. Staffing

2. Organization

3. Types and Qualifications of Personnel

Management

1. Phase In Plan

2. Personnel Management

3. Time and Material Management

4. Configuration Management Plan

For the staffing sub-subfactor evaluation, offerors were asked to provide a
staffing matrix showing the number of personnel proposed by labor category,
site, and C4I device, along with the plans, assumptions, and rationale
supporting the proposed staffing approach. RFP Amendment 03
sect. L.18(c)(1)(ii). To assist offerors in developing their staffing
approaches, the RFP statement of work (SOW) provided workload information,
including equipment inventories by site, the normal operating hours at each
site, and the required response times for addressing various C4I device
failures. SOW Amendment 05 sect.sect. 3.3.1, 3.8.3.1.1, 3.8.3.2, 3.8.3.2.1, 3.8.3.3,
and SOW Amendment 03, Appendices A to P. However, the RFP did not disclose a
government staffing estimate. In addition, the RFP did not specify any labor
categories that the offeror was required to propose; rather, offerors had
discretion to propose labor categories appropriate to their technical
approaches and were not precluded from proposing categories exempt from the
Service Contract Act of 1965 (SCA), as amended, 41 U.S.C. sect.sect. 351-358 (1994),
which applied to the procurement. [1] RFP Amendment 03 sect. H.2; RFP Amendment
01, Response to Question 36. Whether the offeror's proposed labor categories
comprised a "quality workforce with the proper mix of skills" was a
consideration under the types and qualifications of personnel sub-subfactor
of the technical subfactor. RFP Amendment 03 sect. M.3(b)(1)(iii).

Five firms, including Nations, submitted proposals, and the contracting
officer ultimately established a competitive range of the proposals
submitted by Hughes Technical Services Company and Pulau Electronics
Corporation. The prices proposed by Hughes ([deleted]) and Pulau ([deleted])
were the highest submitted; Nations' proposed price of [deleted] was the
third-lowest submitted. Cost Evaluation Report at 3. The inclusion of
Pulau's proposal in the competitive range was contrary to the findings and
recommendations of the technical evaluation team (TET). The TET rated all
offerors' technical/management proposals "unsatisfactory/high risk" [2]
overall, except for Hughes's proposal, which was rated "highly
satisfactory/low risk" overall and was recommended for an initial proposal
award. Initial Proposal Evaluation Report at 7.

Pulau's and Nations' "unsatisfactory/high risk" ratings stemmed from
deficiencies under various sub-subfactors, including the staffing
sub-subfactor. The TET judged all proposals "unsatisfactory/high risk" under
the staffing sub-subfactor, except for Hughes's proposal, which earned a
"highly satisfactory/low risk" rating. As part of its evaluation of the
staffing sub-subfactor, the TET compared offerors' proposed staffing levels
to an internal government staffing estimate of 268.5 employees, as
distributed between several different systems. Id. Attachment A.

Hughes's proposed staff of 260 employees and Pulau's proposed staff of
265 employees closely approximated the government estimate, although both
firms distributed their staff somewhat differently than the government
estimate. Id. According to the record, including the testimony of the TET
leader at a hearing held in this protest, the TET deemed Pulau's staffing
proposal "unsatisfactory/high risk" because Pulau, unlike Hughes, did not
present any staffing rationale to allow the government to determine the
feasibility of its staffing distribution and approach. Hearing Transcript
(Tr.) at 71-72, 74. The remaining three proposals, including Nations',
proposed staffing levels much lower than the government estimate, i.e.,
Nations proposed 209 employees, and the other two offerors proposed 194.5
and 181.55 employees, respectively. The TET concluded that none of these
proposals had substantiated the offeror's ability to perform with the low
staffing levels proposed, although the TET attributed different weaknesses
to each proposal depending upon the particular staffing approach. Tr. at
102-08. With respect to Nations' proposal, the TET criticized Nations'
proposed use of part-time personnel to augment its full-time staff during
peak training periods, extended training efforts, and other surge
requirements, since Nations did not ensure the availability of such
personnel or state that they would be provided on a fixed-price basis. Tr.
at 83, 107-08.

Nations' and Pulau's proposals also received "unsatisfactory/high risk"
ratings under the time and material management sub-subfactor. Initial
Proposal Evaluation Report at 7. With respect to Nations' proposal, the TET
found that the protester's plan to procure spare and repair parts on a
time-and-materials basis violated the RFP, which made such supply support
part of the fixed-price maintenance effort, except in limited circumstances.
[3] Id. at 39. Pulau's proposal contained a similar deficiency under the
time and material sub-subfactor, in that Pulau shifted responsibility to the
government for certain fixed-price work, i.e., the relocation of certain
mobile devices between sites. Id. at 33.

In addition, Nations' proposal received two "unsatisfactory/high risk"
ratings, which Pulau's proposal did not receive. Under the personnel
management sub-subfactor, the TET again criticized Nations' proposed use of
part-time personnel to augment its full-time staff, citing informational
deficiencies, such as the protester's alleged failure to discuss how it
would maintain a sizeable pool of part-time personnel with appropriate
security clearances and current knowledge of military tactics and doctrine,
or how it would use such personnel to supplement its full-time staff. Id. at
38. In addition, under the types and qualifications of personnel
sub-subfactor, the TET found that Nations offered an overqualified staff
because 33 of the 38 labor categories proposed by Nations were classified as
SCA-exempt. [4] Id. at 36-37.

On February 25, 1998, the TET, CET, and performance risk analysis group
(PRAG) presented their findings and recommendations to the competitive award

panel (CAP), chaired by the contracting officer. [5] The TET recommended
that the agency eliminate the four "unsatisfactory/high risk" proposals from
further consideration and make an initial proposal award to Hughes. The CAP
did not accept this recommendation because all proposals, including
Hughes's, contained pricing deficiencies preventing an initial proposal
award. Determination of Competitive Range at 3. In addition, according to
the testimony of the contracting officer and the CET leader, the CAP had
concerns about limiting the competition to Hughes, whose proposal was much
higher priced than any other proposal. Tr. at 151, 266.

Although she never reviewed the proposals, the contracting officer
ultimately decided to include two proposals in the competitive range,
Hughes's and Pulau's. Tr. at 270. In a March 24 competitive range
determination, the contracting officer rejected the TET's determination that
Pulau's proposal "would require a major rewrite . . . to correct" its
evaluated deficiencies, i.e., the firm's failure to explain its staffing
distribution and approach, and its failure to include certain work in its
fixed-price maintenance approach. Determination of Competitive Range at 1.
In contrast, she accepted the TET's recommendation that Nations could not
correct its proposal deficiencies without a major rewrite. In distinguishing
Nations' and Pulau's proposals, she testified that Pulau simply needed to
add "some minor detail" regarding its proposed staffing distribution, but
had otherwise adequately explained its staffing approach. Tr. at 296.
Nations' staffing proposal, on the other hand, assertedly lacked the detail
necessary to support its ability to perform with the staff proposed. Tr. at
286-87. In addition, the contracting officer characterized Pulau's failure
to assume responsibility for certain fixed-priced work as a "minor" weakness
that Pulau could correct during discussions, whereas Nations' failure to
include supply support as part of its fixed-price maintenance effort was a
disqualifying weakness. Tr. at 310, 320. Nations' proposal contained two
other deficiencies that the contracting officer viewed as not correctable
through discussions--its alleged failure to describe a feasible approach to
the use of part-time personnel, and its use of predominantly SCA-exempt
labor categories. Tr. at 292-93, 312-13. The contracting officer accordingly
rejected Nations' proposal, and this protest followed.

Nations protests the exclusion of its proposal from the competitive range.
The protester argues that its proposal was comparable to Pulau's and that
the decision to include Pulau's proposal in the competitive range, while
excluding Nations', lacked a rational basis. Nations claims that the Navy
improperly rejected its proposal simply because its proposed staffing levels
did not approximate the government estimate. [6] Nations claims that its
staffing approach was otherwise better explained than Pulau's and more
susceptible to correction through discussions. As for the other deficiencies
attributed to its proposal, Nations says that they were either the result of
misevaluation, or readily correctable through discussions, or similar to
features in Hughes's or Pulau's proposals.

A competitive range shall be determined on the basis of cost or price and
other factors that were stated in the solicitation and shall include all
proposals that have a reasonable chance of being selected for award. FAR
sect. 15.609 (June 1997). When there is doubt as to whether a proposal is in the
competitive range, the proposal should be included. Id. The evaluation of
proposals and the determination of which proposals are in the competitive
range are largely matters of agency judgment and discretion; this judgment
and discretion is not unfettered, however, as evaluations and competitive
range determinations must be reasonable and bear a rational relationship to
the stated evaluation criteria. Trifax Corp, B-279561, June 29, 1998, 98-2
CPD para. ___ at 5-6. Furthermore, it is fundamental that the agency must treat
offerors equally; it must evaluate offers evenhandedly against common
requirements and evaluation criteria. U.S. Property Management Serv. Corp.,
B-278727, Mar. 6, 1998, 98-1 CPD para. 88 at 6.

The Navy denies, based on the contracting officer's testimony, that it
rejected Nations' proposal because its staffing was too low. Tr. at 287;
Agency Post-Hearing Comments at 10-11. Rather, the agency explains that it
downgraded Nations' proposal under the staffing sub-subfactor because it did
not present a rationale explaining how Nations could perform the contract
with the number of personnel proposed, in contrast with Pulau's better
explained staffing approach. Tr. at 287, 296; Agency Post-Hearing Comments
at 2, 10-11. Furthermore, the agency denies that Nations'
"unsatisfactory/high risk" rating under the staffing sub-subfactor was
responsible for its proposal's elimination from the competitive range.
Agency Post-Hearing Comments at 2. Instead, the agency argues, based on the
contracting officer's testimony, that Nations' proposal "was ultimately
disqualified from the competitive range based on its unsatisfactory ratings
for the Types and Qualifications of Personnel, Personnel Management, and
Time and Materials" sub-subfactors, i.e., the ratings stemming from Nations'
proposed use of SCA-exempt labor categories; its proposed use of part-time
labor to augment its full-time staff; and its time-and-materials approach to
acquiring spare and repair parts. Agency Post-Hearing Comments at 2; Tr. at
311.

Based on our review, we agree with the protester that the three deficiencies
in Nations' proposal cited by the agency for its elimination from the
competitive range did not provide a reasonable basis to reject Nations'
proposal, as they were either the result of misevaluation, or readily
correctable, or similar to features in the competitive range proposals.
Furthermore, although, as noted, the agency states that Nations' deficiency
under the staffing sub-subfactor was less important than the other
deficiencies, we find that the contracting officer could not reasonably
conclude that Pulau's staffing approach was better justified and more
detailed than Nations' as the stated basis for distinguishing the two
proposals.

As a principal reason for rejecting Nations' proposal, the contracting
officer testified that Nations proposed an overqualified staff under the
types and qualifications of personnel sub-subfactor. Tr. at 279-80, 286-87.
Her conclusion that Nations' staff was overqualified stemmed from the fact
that Nations proposed primarily SCA-exempt labor categories, which led the
contracting officer to assume that Nations may have proposed "a lot of
professional categories . . . to perform the operation and maintenance"
requirements of the solicitation. Tr. at 305. The contracting officer
testified that this approach was unacceptable because "we don't need
professionals to turn wrenches. But professionals may be out there turning
wrenches, so we're paying more than what we need to in a fixed-price
environment." Id. The contracting officer testified that she was unwilling
to allow Nations to propose non-exempt categories in lieu of exempt
categories during discussions because the protester should have "fixed [the
labor categories] prior to submission of the proposal." [7] Tr. at 313-14.

At the outset, the agency has not reasonably explained why Nations' alleged
use of very highly qualified staff was a deficiency in its proposal,
particularly since Hughes's proposed use of highly qualified staff was
deemed a strength in its proposal. Initial Proposal Evaluation at 42-43.
To the extent that the agency believed that Nations' staffing was causing
the firm's proposed price to be higher than the government wanted to pay, we
note that Nations' proposed price was actually significantly lower than the
prices of the two proposals included in the competitive range.

In any event, the contracting officer relied upon flawed evaluations by the
TET and the CET in concluding that Nations' exempt labor categories were
overpaid and overqualified for the jobs they were intended to perform. For
example, the CET, which compared offerors' proposed exempt labor rates (and,
separately, their proposed non-exempt labor rates), determined that Nations'
exempt labor rates were "exceptionally high in comparison to the other
offerors' rates." See Cost Evaluation Report at 7, Attachments H, I, J; see
also Tr. at 183. Contrary to the CET's conclusions, the record evidences
that there was no pattern of Nations' rates for the exempt categories being
"exceptionally high" compared to the other firms' exempt rates, particularly
in view of the limited number of exempt labor categories that the various
proposals had in common. See Cost Evaluation Report Attachments I, J.

The TET, meanwhile, found that Nations' proposed use of exempt labor posed
an unacceptable performance risk because Nations proposed "high level
professionals to perform efforts that do not require this level of support."
Initial Proposal Evaluation Report at 14. The record does not support this
finding. The TET report specifically mentions only one exempt labor category
in Nations' proposal, the field engineer, but the agency has not explained
why this labor category was overqualified for the work or represented any
performance risk. Indeed, the TET leader testified that the job description
for the field engineer was very similar to a non-exempt category suitable
for the work involved (the electronics technician), which suggests that the
protester's use of the field engineer, rather than the electronics
technician, made little difference. Tr. at 113, 118-19. Even assuming that
the field engineer was overqualified, the record shows, contrary to the
agency's premise, that the protester proposed to meet the RFP maintenance
requirements primarily with non-exempt electronics technicians and a much
smaller staff of exempt field engineers, which largely undermines the
contracting officer's conclusion that Nations "proposed professionals to
turn wrenches." See Nations' Technical/Management Proposal at 2-10 to 2-13,
2-17.

Finally, assuming that Nations should have proposed a compatible, non-exempt
category rather than an exempt category for this or other job descriptions,
we do not understand why this proposal weakness was of such magnitude that
it could not be corrected during discussions. Indeed, the TET leader
testified that Nations would not have needed to undertake a major rewrite
of its proposal to propose non-exempt labor categories in lieu of exempt
labor categories, had it been given the opportunity to do so during
discussions. Tr. at 121.

Based on the above, we find that the contracting officer lacked a reasonable
basis to reject Nations' proposal because of its alleged overuse of
SCA-exempt labor categories.

The contracting officer also testified that Nations' proposed use of
part-time personnel to supplement its full-time staff suffered from alleged
informational deficiencies requiring the proposal's rejection. Tr. at
292-293. The evaluated deficiencies, as described by the contracting
officer, the TET leader, and the TET report, included Nations' failure to
discuss how it would ensure the availability of knowledgeable part-time
personnel, how it would train these employees, where they would be assigned,
which equipment they would support, how they would obtain and retain
security clearances, and whether Nations would supply them on a fixed-price,
rather than time-and-materials, basis. Tr. at 83, 292-293.

Although the agency's stated reasons for downgrading the protester's
proposal are not objectionable per se, the record reflects that Hughes's
proposal, which also offered a part-time solution to surge and extended
training requirements, suffered from all the informational deficiencies
attributed to the protester's proposal. Despite this fact, Hughes's proposed
use of part-time personnel was deemed a strength, and the protester's, a
deficiency. When questioned about this apparent discrepancy, the TET leader
explained that Hughes's proposed approach was better explained than the
protester's. Tr. at 87. Our review of the record does not support such a
finding. To the contrary, a comparison of the two proposals reveals that the
protester's proposal is actually more detailed than Hughes's in describing
how the protester will draw upon part-time reserves, partly because the
protester, as an incumbent contractor, already has procedures in place for
augmenting its staff in this fashion. Compare Hughes's Technical/Management
Proposal at 41, 43, 64 with Nations' Technical/Management Proposal at 2-10,
2-14, 2-29, 2-30. Under the circumstances, the record reflects a disparate
evaluation of Hughes's and Nations' proposals and provides no basis for
rejecting Nations' proposal owing to alleged deficiencies in its part-time
labor approach. See Tidewater Homes Realty, Inc., B-274689, Dec. 26, 1996,
96-2 CPD para. 241 at 4-5.

A similar problem arises regarding the respective evaluation of Nations' and
Pulau's proposals under the time and material management sub-subfactor. The
TET deemed both proposals "unsatisfactory/high risk" under this
sub-subfactor because the offerors failed to include certain work as part of
their fixed-price approach, contrary to the RFP. In particular, Nations
improperly adopted a time-and-materials approach to the acquisition of spare
and repair parts, while Pulau improperly made the government responsible for
the relocation of certain mobile devices between sites. In overriding the
TET's recommendation to exclude Pulau's proposal from further consideration,
the contracting officer decided that the deficiency in Pulau's proposal was
minor and could have been corrected through discussions, but maintained that
the deficiency in Nations' proposal was critical and required a major
rewrite of its proposal. Tr. at 310, 320. However, the contracting officer's
explanation as to why the protester's proposal deficiency was
disqualifying--that the time-and-materials approach to supply support
improperly shifted the cost risk to the government--applies equally to
Pulau's proposal deficiency. Tr. at 310. Although the TET report and the TET
leader's testimony support that the cost impact of the protester's proposal
deficiency was greater than Pulau's proposal deficiency, Tr. at 111-12, the
agency has not explained why this difference was so significant as to
justify including one proposal in the competitive range, but not the other.

Finally, although the Navy denies that Nations' deficiency under the
staffing sub-subfactor was sufficient to disqualify its proposal from the
competitive range, we find that the agency could not reasonably find that
Pulau's staffing approach addressed the RFP requirements better than
Nations' as the stated basis for discriminating between the two proposals.
In overriding the TET's recommendation to reject Pulau's proposal from
further consideration, the contracting officer found that Pulau's staffing
approach addressed how the firm planned to accomplish each of the operation
and maintenance requirements of the solicitation, but simply needed to add
"some minor detail" to assure the Navy that the functional distribution of
its staff was feasible. Tr. at 296. In contrast, the contracting officer
found that Nations' staffing approach was unclear and lacked the detail
necessary to demonstrate the acceptability of its approach. Tr. at 287.

The contracting officer's conclusions are without foundation. Pulau's
staffing proposal consisted of a staffing matrix with virtually no
supporting narrative, and did not describe an approach to any of the RFP
requirements. See Pulau's Technical/Management Proposal at 4 to 13. Indeed,
Pulau's failure to develop a staffing approach was the reason that the TET
found its staffing proposal "unsatisfactory/high risk." Tr. at 72, 105.
Nations' proposal, on the other hand, described a staffing approach to each
of the RFP functional areas. See Nations' Technical/Management Proposal at
2-10, 2-14 to 2-15. While Nations' rationale did not persuade the TET that
its staffing approach was acceptable, the agency has not reasonably
explained why the deficiencies in Nations' staffing approach would be any
harder to correct during discussions than Pulau's failure to present a
staffing approach at all.

We sustain the protest. We recommend that the Navy establish a new
competitive range and conduct discussions as appropriate. We also recommend
that the protester be reimbursed the reasonable costs of filing and pursuing
its protest,

including attorneys? fees. 4 C.F.R. sect. 21.8(d)(1) (1998). The protester?s
certified claim for costs, detailing the time spent and costs incurred, must
be submitted to the agency within 60 days of receiving this decision. 4
C.F.R. sect. 21.8(f)(1).

The protest is sustained.

Comptroller General
of the United States

Notes

1. The SCA requires that non-exempt service employees be compensated at not
less than the minimum wages and fringe benefits set forth in applicable
Department of Labor (DOL) area wage determinations. 41 U.S.C. sect. 351. Persons
employed in a bona fide executive, administrative, or professional capacity
are exempt from the requirements of the Act. 41 U.S.C. sect. 357(b).

2. Under the SSP, an "unsatisfactory" rating meant that the "proposal fails
to demonstrate an understanding of the scope of work necessary to perform
the required tasks. Proposal deficiencies require a major rewrite to become
acceptable."

3. The protester is mistaken that the solicitation envisioned that all spare
and repair parts be procured on a time-and-materials basis. The SOW
generally required offerors to treat supply support and replacement of
irreparable parts as part of their fixed-price maintenance effort. See SOW
sect.sect.  3.1, 3.8, 3.8.1. The SOW permitted time-and-materials supply support for
only a limited number of devices, see SOW sect. 3.14.2, and for the repair of
catastrophic failures, see RFP sect. C.14(a), CLIN 0119, SOW sect. 3.14.1.

4. The cost evaluation team (CET) repeated similar concerns in its
evaluation of the protester's employee compensation plan. Cost Evaluation
Report at 7, 8.

5. The PRAG rated each offeror's past performance as "good/low risk." PRAG
Report at 2.

6. The protester characterizes the government estimate as an undisclosed
minimum manning requirement that drove the competitive range determination,
resulting in the inclusion of the two proposals that matched the estimate
and the exclusion of the three proposals that did not. Based on our review
of the record, including the TET report, underlying evaluator worksheets,
and hearing testimony, it does not appear that the government estimate was
mechanically applied to demarcate the competitive range, but was one of
several techniques used to evaluate offerors' staffing levels. Tr. at
101-08, 287. See also Cobra Techs., Inc., B-246224, Feb. 24, 1992, 92-1 CPD
para. 221 at 3-4.

7. The agency implies that Nations' proposed use of exempt labor categories
somehow violated the RFP. We could not find, nor did the agency clearly
identify, any RFP provision that precluded offerors from proposing exempt
labor categories in response to the solicitation. Indeed, each of the five
offerors responding to this solicitation proposed a combination of exempt
and non-exempt labor. To the extent that the agency claims that 29 C.F.R.
Part 4.6, as incorporated into the RFP, barred the use of exempt labor
categories, the agency misinterprets the regulation, which concerns the
minimum wages and fringe benefits due to non-exempt labor omitted from the
DOL wage determination attached to an awarded contract. See Agency Report at
10; RFP Amendment 03 sect. H.2(g); 29 C.F.R. sect. 4.6(b)(2).