TITLE:  E.L. Hamm & Associates, Inc., B-280766.5, December 29, 1999
BNUMBER:  B-280766.5
DATE:  December 29, 1999
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E.L. Hamm & Associates, Inc., B-280766.5, December 29, 1999

Decision

Matter of: E.L. Hamm & Associates, Inc.

File: B-280766.5

Date: December 29, 1999

Michael L. Sterling, Esq., and Howard W. Roth III, Esq., Vandeventer Black,
for the protester.

Capt. Joseph L. Fuller, and Maj. Frank A. March, Department of the Army, for
the agency.

Paula A. Williams, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Protest alleging that agency, in implementing recommendation in decision
sustaining a protest, improperly reopened discussions with firm whose
proposal had been eliminated from competitive range is denied where the
firm's proposal had been recommended for elimination for award, but was not
actually eliminated from the competitive range.

2. Challenge to cost realism analysis is denied where, notwithstanding
limited analysis performed by agency, protester has not identified any
prejudicial flaw in analysis and record does not indicate any weakness in
analysis prejudiced protester.

3. Agency was not required to find awardee's proposed general and
administrative rate unduly low where the rate was capped, and thus created
no cost realism problem, and the rate was not so much lower than the firm's
approved provisional rate as to require a finding that it created risk for
the agency.

DECISION

E.L. Hamm & Associates, Inc. protests the proposed award of a
cost-plus-award-fee contract to Computer Systems International, Inc. (CSI)
by the Department of the Army, under request for proposals (RFP) No.
DABT60-98-R-0014, for storage and warehouse services at the Army Training
Support Center, Fort Eustis, Virginia. The award followed a reevaluation
undertaken by the Army in response to an earlier protest, E.L. Hamm &
Assocs., Inc., B-280766.3, Apr. 12, 1999, 99-1 CPD para. 85, against the award
to Communication Technologies, Inc. (Comtek). We sustained Hamm's earlier
protest because we found that the cost realism evaluation was flawed. We
concluded that it was unreasonable of the agency to accept Comtek's proposed
use of employees in a particular labor category to perform certain tasks,
and that the evaluation record contained no support for the agency's
acceptance of Comtek's proposed overhead rate. Id. at 10. We recommended,
among other things, that the Army hold discussions with all competitive
range offerors, request and evaluate final revised proposals, and perform a
proper cost evaluation, including a cost realism analysis. Id. at 10-11.
Hamm alleges various improprieties with respect to the Army's implementation
of our recommendation, and contends that the cost realism analysis was again
flawed; as a result, the protester alleges, the cost/technical tradeoff was
unreasonable. [1]

We deny the protest.

BACKGROUND

Our prior decision, E.L. Hamm & Assocs., Inc., supra, contains much of the
background for this procurement and our rationale for sustaining that
protest, which will not be repeated here. However, for purposes of this
decision, a brief recapitulation is necessary.

Under the RFP, the contract was to be awarded on a best value basis with
technical quality more important than cost unless the technical quality of
the proposals approached equality, in which case cost would be given greater
importance and could control the award decision. RFP sect. M.3. The agency
received 11 proposals and each was evaluated under the stated evaluation
factors and subfactors using the [DELETED]. The contracting officer
established an initial competitive range comprised of three proposals with
an overall rating of [DELETED]. Hamm and CSI, whose proposals received an
overall rating of [DELETED], were not included in the initial competitive
range. On August 7, 1998, Hamm--the incumbent subcontractor for this
requirement--filed a protest with our Office alleging that the Army
improperly had excluded its initial proposal from the competitive range (our
file number B-280766). After reviewing the protest, the agency decided to
take corrective action by reestablishing the competitive range to include
those initial proposals rated [DELETED], and Hamm withdrew its protest.

Thereafter, on August 18, the contracting officer made a second competitive
range determination, increasing the number of offerors from three to six,
including Hamm and CSI. Discussions were held and the six competitive range
offerors were allowed to submit revised proposals. Comtek's proposal was
determined to be the best value to the government and the firm was selected
for award. Preaward notification was sent to the five unsuccessful offerors
and Hamm filed its second protest, which we sustained on April 12, 1999.
E.L. Hamm & Assocs., Inc., supra.

In response to our decision, the agency amended the solicitation to revise
the labor categories; reopened discussions with the competitive range
offerors, including Hamm and CSI; and requested and received final revised
proposals. RFP amends. 0003 and 0004. After individually evaluating the
offerors' revised proposals under the non-cost evaluation factors and
subfactors, the technical evaluation board (TEB) then met to discuss the
merits of the revised proposals and reach a consensus in assigning an
overall [DELETED] rating for each proposal. Proposals were ranked on the
basis of the overall consensus ratings; [DELETED] in order to determine the
ranking of those proposals that were assigned equal consensus ratings.
Agency Report, Tab G, Executive Summary. The TEB prepared a consolidated
report reflecting the individual members' narrative descriptions of each
proposal's strengths, weaknesses, and risks and submitted this final
technical evaluation report to the contracting officer, who served as the
source selection authority (SSA) for this procurement. Id.

A cost analysis panel (CAP) evaluated the cost data submitted by each
offeror with the assistance of the Defense Contract Audit Agency (DCAA) to
determine the most probable cost (MPC) to the government. The record shows
that the CAP evaluated each offeror's cost proposal for realism and
reasonableness by analyzing the individual cost elements in the proposal.
The evaluators considered the total proposed costs as one measure of cost
realism; in the analysis of CSI's proposal, they concluded that the proposed
costs were realistic. The CAP also reviewed the number of labor hours, and
the mix of labor categories proposed. Most probable cost adjustments were
made to four of the six offerors' proposed costs based on a comparison of
each offeror's proposed staffing with the agency's estimate of the
appropriate workforce (referred to in the record as the government's MPC) of
[DELETED] employees. Agency Report, Tab I-2, Cost Realism Review, Aug. 31,
1999, at 1-2. As relevant to this protest, the CAP reduced CSI's proposed
staffing [DELETED] and decreased CSI's proposed labor cost by [DELETED],
because the CAP determined that CSI had overestimated its need for
[DELETED]. Id.

The evaluators further reviewed overhead costs, other direct costs (such as
material and supplies), general and administrative (G&A), base fee, and
award fee. They considered whether escalation factors or other costs had
been omitted, and concluded that none appeared to be missing. The proposed
indirect rates were submitted to the Defense Contract Audit Agency (DCAA)
for its review. Agency Report, Tab I, Cost Analysis--Final Revised
Proposals.

In its review of CSI's cost, DCAA advised the agency that CSI's approved
provisional G&A rate of [DELETED] was based on CSI year end data (September
30, 1998), a review of December 31, 1998 data, and projected events. DCAA
further noted that "[t]his rate does not include the impact from receipt of
this contract or any changes since [December 31, 1998]." With regard to
CSI's overhead, DCAA noted that "[DELETED] and we have no information
available." DCAA Facsimile dated July 28, 1999.

The evaluation results for the three highly ranked offerors, after cost
adjustments, [2] were as follows:

[DELETED]

The CAP performed a cost/technical tradeoff analysis between the proposals
of Offeror A, as the highest technically ranked offeror with the highest
cost, and Hamm, as the second highest technically ranked offeror. The
analysis concluded that the [DELETED] non-cost benefits of the
highest-ranked offeror, [DELETED], did not justify the cost premium of
[DELETED]. Agency Report, Tab I-4, Cost/Technical Trade-off Analysis, at 1.
The CAP then performed a cost/technical trade-off analysis comparing the
proposals of Hamm and CSI. The analysis stated as follows:

The [DELETED] added benefits that were offered by [DELETED]. The cost
difference between the evaluated costs of Hamm and [CSI] is [DELETED]. The
cost premium for these [DELETED] benefits is not justified. [DELETED]. Based
on the above, it is therefore determined that the non-cost benefits, when
combined, offered by the higher priced technically superior offer from E.L.
Hamm are not worth the price premium of [DELETED].

Agency Report, Tab I-4, Cost/Technical Trade-off Analysis, at 1.

On that basis, the CAP determined that CSI's proposal represented the best
overall value to the government and recommended award to that firm. Agency
Report, Tab I, Cost Analysis--Final Revised Proposals, at 6-7. In the
post-negotiation memorandum, which served as the source selection decision,
the SSA agreed with the CAP's assessment and selected CSI for award. Agency
Report, Tab K, Post Negotiation Memorandum. After receiving notice of the
proposed award and a debriefing, Hamm filed this protest, supplementing it
based on information received in the agency report.

DISCUSSION

Hamm protests the agency's decision to reopen discussions with CSI in
response to our decision and recommendation. Protest at 10. The protester
points out that on November 20, 1998, the contract specialist recommended
that CSI should be eliminated from further consideration because its revised
proposal did not conform to the staffing requirements of the solicitation
and was unrealistic as to cost. [3] According to the protester, this
recommendation was set forth in the price negotiation memorandum which was
submitted to, and approved by, the acting director of the contracting
activity on November 25, 1998. Protester's Comments at 15-16. On this basis,
Hamm concludes that CSI was not a competitive range offeror at the time our
decision was issued in April 1999 and that the Army impermissibly readmitted
CSI into the competitive range, held discussions, and accepted a revised
proposal from CSI in violation of Federal Acquisition Regulation (FAR) sect.
15.307(a). Protest at 11.

Hamm's position is without merit. Contrary to Hamm's contention, the record
does not establish that CSI's proposal was eliminated from the second
(post-August 1998) competitive range (whether in response to the contract
specialist's recommendation or otherwise). It is true that, based on the
results of the cost realism analysis of the October 26, 1998 revised
proposals, the contract specialist determined that CSI's proposal was
unrealistic and recommended in the November 20 document that CSI's proposal
be eliminated from further consideration for award. Hamm makes much of the
fact that this recommendation was specifically set forth in the price
negotiation memorandum (which served as the source selection decision) and
was approved by the acting director of the contracting activity. However, as
the agency states, nothing in the record indicates that the contracting
officer ever actually eliminated CSI's proposal from the second competitive
range. Nor are we persuaded by the protester's arguments that the agency's
November 25 preaward notice to CSI demonstrates that the firm's proposal had
been eliminated from the competitive range. Protester's Comments at 16-17.
The preaward notice certainly does not state that CSI's proposal was
eliminated from the competitive range. Letter from Contracting Officer to
CSI (Nov. 25, 1998). We find, therefore, that the Army reasonably considered
CSI a competitive range offeror and that the agency's decision to conduct
discussions with CSI was thus consistent with our recommendation. [4]

Even if we assume, arguendo, that there was some doubt about whether CSI's
proposal was in the competitive range, we would not question the agency's
implementing our recommendation by including CSI in the reopened
discussions. The details of implementing our protest recommendations for
corrective action are generally within the sound discretion and judgment of
the contracting agency. QuanTech, Inc., B-265869.2, Mar. 20, 1996, 96-1 CPD
para. 160 at 2. We will not question the details of an agency's method of
compliance, so long as it remedies the procurement impropriety that was the
basis for the decision's recommendation. Id. Under the circumstances here,
we would see nothing objectionable in the Army's including even an offeror
whose competitive-range status was in some doubt in reopened discussions.

We note that in QuanTech, Inc., supra, we rejected a contention similar to
the one asserted by Hamm concerning an agency's implementation of our
recommendation. In the QuanTech, Inc. decision, the protester objected to
the agency's decision to reopen the competition to all offerors because our
Office, in sustaining the protest, had recommended reopening the competition
to allow the original protester to submit a proposal. We concluded that the
agency's decision to allow other firms to join the competition was
consistent with the mandate in the Competition in Contracting Act of 1984,
10 U.S.C. sect. 2304 (a)(1)(A) (1994), that contracting agencies obtain full and
open competition. We also found that there was no evidence that the
protester or any offeror was prejudiced by the decision since all
competitors would have an equal opportunity to compete. We further noted
that to the extent the protest sought to limit the competition to gain the
benefit of a reduced competition, our Office would not review a protest that
had the explicit or implicit purpose of reducing competition so that a
protester would become the beneficiary of a more restrictive procurement. We
think the reasoning of that decision would apply here as well.

Hamm also challenges the cost realism analysis of the awardee's proposal, an
area that was key to our sustaining the earlier protest. In this case, as in
the earlier protest, Hamm's challenge focuses on the calculation of the
awardee's most probable staffing and overhead costs.

When an agency evaluates proposals for the award of a cost-reimbursement
contract, an offeror's proposed estimated costs of contract performance and
proposed fees are not considered controlling, since the offeror's estimated
costs may not provide valid indications of the final actual costs that the
government is required, within certain limits, to pay. See ManTech Envtl.
Tech., Inc., B-271002 et al., June 3, 1996, 96-1 CPD para. 272 at 8.
Accordingly, a cost realism analysis must be performed whenever a
cost-reimbursement contract is contemplated. FAR sect. 15.404-1(d)(2). [5] A
cost realism analysis is the process of independently reviewing and
evaluating specific elements of each offeror's proposed cost estimate to
determine whether the estimated proposed cost elements are realistic for the
work to be performed, reflect a clear understanding of the requirements, and
are consistent with the unique methods of performance and materials
described in the offeror's technical proposal. FAR sect. 15.404-1(d)(1). The
requirement to conduct a cost realism analysis of proposals for a
cost-reimbursement contract does not require the agency to conduct an
in-depth cost analysis, see FAR sect. 15.404-1(c), or to verify each and every
item in the proposals. Rather, the analysis of cost realism calls for the
exercise of informed judgment by the contracting agency involved, since it
is in the best position to assess the realism of proposed costs and it must
bear the difficulties or additional expenses resulting from a defective cost
realism analysis. Our review is limited to determining whether the agency's
cost realism analysis was reasonable. The Warner/Osborn/ G&T Joint Venture,
B-256641.2, Aug. 23, 1994, 94-2 CPD para. 76 at 5.

Here, the protester first maintains that the agency arbitrarily adjusted
CSI's staffing (and therefore its staffing costs) [DELETED] based on a
mechanical approach of adjusting each offeror's workforce to the
government's estimated staffing level of [DELETED] employees, without regard
to the skill levels and labor categories proposed. Protester's Comments
at 22-24.

We agree with the protester that the record does not provide much
explanation of why the agency believes that [DELETED] employees represent
the appropriate staffing nor of whether the agency took into account, in its
decision to [DELETED] the probable staffing cost of CSI's proposal, the
particular technical approach and mix of labor categories that CSI proposed.
The protester has not shown, however, why the agency's decision that
[DELETED] employees could perform the services was unreasonable. In fact,
this is the number of employees proposed by Hamm to perform the services.
Agency Report, Tab I, Cost Analysis--Final Revised Proposals, at 4.
Moreover, it appears that the agency gave some consideration to the mix of
labor categories, since the agency concluded that CSI had [DELETED]. More
importantly, Hamm, unlike in the prior protest, has not identified any
particular defect in the agency's staffing analysis that hurt its chances of
award. Hamm's broad attack on the agency's evaluation of CSI's proposed
staffing does not establish that any flaw in the agency's action prejudiced
the protester. Our Office will not sustain a protest unless the protester
demonstrates a reasonable possibility of prejudice, that is, unless the
protester demonstrates that, but for the agency's actions, it would have had
a substantial chance of receiving the award. McDonald-Bradley, B-270126,
Feb. 8, 1996, 96-1 CPD para. 54 at 3; see Statistica, Inc. v. Christopher, 102
F.3d 1577, 1581 (Fed. Cir. 1996).

We next turn to Hamm's claim that, as part of the cost realism analysis, the
agency should have adjusted CSI's probable costs upward because the firm
provided no support for its proposed overhead rates. In this regard, the
protester notes a discrepancy in CSI's cost summary sheet and the supporting
schedule in CSI's proposal--attachment C--for its overhead costs [DELETED].
Protester's Comments on Agency Response, Nov. 19, 1999 at 6.

While the record indicates that the agency did perform a review of CSI's
proposed overhead rate, there is some confusion in the record about the
exact overhead rate proposed by CSI. Nonetheless, we agree with the agency
that the net effect of the difference claimed by Hamm would be negligible.
Specifically, the agency states, the net effect of using the figures claimed
by the protester increases CSI's MPC from [DELETED] over 5 years. Agency's
Response to Protester's Comments, Nov. 16, 1999 at 9. Even applying the
highest amount [DELETED] the protester claims should be added to CSI's cost,
CSI's MPC remains significantly lower than Hamm's, as the agency points out.
As with the staffing issue discussed above, we conclude that any error that
occurred failed to prejudice the protester.

The protester also alleges that the agency's acceptance of CSI's G&A average
rate of [DELETED], which is lower than its approved DCAA rate, was
unreasonable. According to the protester, although the solicitation states
that G&A rates will be capped at the rates proposed, the agency should have
considered the risk created by what the protester views as CSI's below-cost
proposal. Protester's Comments at 24.

We see nothing unreasonable about the Army's acceptance of CSI's G&A rate.
As stated above, and as Hamm acknowledges, the G&A rates were capped at the
rates proposed. [6] Accordingly, there is no cost realism concern (that is,
the actual G&A rates could not be expected to exceed those proposed).
Moreover, Hamm has failed to point to any reasonable basis for concern about
a risk associated with CSI's proposed rate. Hamm appears to be claiming that
risk exists because the proposed rate is lower than CSI's approved
provisional rate, so much lower that it will cause CSI to lose money on the
contract. In our view, however, the difference between the proposed rate
[DELETED] and the approved provisional rate [DELETED] was not so large as to
require a finding of risk. See Agency Report, Tab I, Cost Analysis--Final
Revised Proposals, at 4. Moreover, as DCAA pointed out to the Army, the
[DELETED] rate was based primarily on CSI's 1998 data and did not include
the impact of this contract award or any changes since December 31, 1998.
DCAA Facsimile dated July 28, 1999. Accordingly, we have no basis to
conclude that the Army was required, as Hamm alleges, to find that CSI's
proposed G&A rate created risk.

With respect to Hamm's challenge to the cost/technical tradeoff leading to
the selection of CSI for award, the protester contends that the agency did
not perform a qualitative comparison of CSI's proposal to its own
technically superior proposal in making its best value determination.
Protester's Comments at 26-28. This argument is without merit. The source
selection documents show that the SSA agreed with the CAP analysis that the
benefits found in Hamm's proposal did not warrant paying the price premium.
These documents specifically discuss the merits of Hamm's and CSI's
proposals with respect to non-cost factors. The SSA simply decided that the
added benefits in Hamm's proposal did not warrant the cost premium. Agency
Report, Tab K, , Post Negotiation Memorandum. For example, as quoted above,
the CAP analysis, with which the SSA agreed, found that [DELETED] was for
the benefit of the contractor and that [DELETED]. We see nothing
unreasonable in this analysis and, as our analysis above indicates, the
protester has not shown that the alleged evaluation errors were significant
enough to have affected the outcome of the cost/technical tradeoff.

Finally, Hamm contends that many of the agency's actions are the likely
result either of retaliation against Hamm for bringing its earlier
successful protest or of preferential treatment of CSI, which is operated by
the former Commandant of the Army's Transportation School at Ft. Eustis.
Without clear evidence of retaliation or bias, and the record here contains
none, we will not attribute prejudicial motives to agency contracting
officials on the basis of inference or supposition. See Dynamic
Aviation--Helicopters, B-274122, Nov. 1, 1996, 96-2 CPD para. 166 at 4.

The protest is denied.

Comptroller General
of the United States

Notes

1. Hamm raised a number of arguments in support of its protest. We have
considered them all and find none of them has merit. This decision will
address only the more significant arguments.

2. The cost proposals submitted by Offeror A and CSI contained apparent
minor errors in computation, which were resolved by the agency as
clarifications. Agency Report, Tab I, Cost Analysis--Final Revised
Proposals, at 1-3.

3. The contract specialist also noted:

The ranking of proposals after cost analysis is set forth in the table
below. [CSI's] revised [DELETED] failed the evaluation of cost realism and
has been eliminated. They are no longer in line for consideration for award
and will not be included in this trade-off analysis.

Protester's Response to Motion for Summary Dismissal, Tab X, Cost Analysis,
Nov. 20, 1998, at 5.

4. Since we conclude that CSI's proposal was not eliminated from the
competitive range, we do not reach the protester's argument that there was a
violation of FAR sect.15.307(a), which provides that "if an offeror's proposal
is eliminated or otherwise removed from the competitive range, no further
revisions to that offeror's proposal shall be accepted or considered."

5. The explicit requirement for a cost realism analysis, as well as the
description of such an analysis, was added to the FAR in the 1997 rewrite of
Part 15.

6. The RFP states, in relevant part, that "G&A rates provided in the
proposal shall, for each contract period, be considered as the maximum
reimbursable rate that can be used for each period. No upward adjustment of
the stated G&A rate (i.e., ceiling) shall be allowed . . . ." RFP at L-8.