BNUMBER:  B-280988; B-280988.2 
DATE:  December 17, 1998
TITLE: NWT, Inc.; PharmChem Laboratories, Inc., B-280988; B-
280988.2, December 17, 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:NWT, Inc.; PharmChem Laboratories, Inc.

File:B-280988; B-280988.2
        
Date:December 17, 1998

Rand L. Allen, Esq., Philip J. Davis, Esq., Phillip H. Harrington, 
Esq., and Kevin J. Maynard, Esq., Wiley, Rein & Fielding, for NWT, 
Inc.; and Joseph P. Hornyak, Esq., and Drew W. Marrocco, Esq., 
Sonnenschein Nath & Rosenthal, for PharmChem Laboratories, Inc. 
Edward L. Williamson, Esq., and Lynette R. Miserez, Esq., Department 
of the Army, for the agency. 
Aldo A. Benejam, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Allegation that agency used non-cost factors to select a 
commercial proposal upon which to base a cost comparison pursuant to 
Office of Management and Budget Circular No. A-76 is untimely where 
request for proposals specifically stated that technical 
considerations are more important than cost, and protest was filed 
after the closing date for receipt of proposals.

2.  Allegation that agency could not lawfully initiate cost comparison 
pursuant to Office of Management and Budget Circular No. A-76 because 
agency allegedly failed to satisfy threshold conditions is untimely 
where protester either knew or should have known of the basis for its 
protest before the closing date for receipt of proposals, and protest 
was not filed prior to that time.  

3.  Allegation that agency improperly evaluated proposals is denied 
where the record shows that the agency evaluated the proposals in 
accordance with the evaluation factors announced in the solicitation 
and record reasonably supports overall technical ratings.

4.  Protest of agency determination based on cost comparison conducted 
pursuant to Office of Management and Budget Circular No. A-76 that 
required services could be performed more economically in-house is 
denied where protester has not shown that agency conducting the cost 
comparison failed to comply with the applicable procedures in 
selecting in-house performance over contracting.

DECISION

NWT, Inc. and PharmChem Laboratories, Inc. protest the decision of the 
Department of the Army, pursuant to Office of Management and Budget 
(OMB) Circular No. A-76, that it would be more economical to provide 
drug testing for the Army National Guard and the U.S. Coast Guard 
in-house at the Tripler Army Medical Center, Forensic Toxicology Drug 
Testing Laboratory, rather than to contract for these services under 
request for proposals (RFP) No. DASW01-97-R-0034.  NWT argues that the 
Army's evaluation of technical proposals was unreasonable.  NWT also 
maintains that the agency improperly failed to select its proposal as 
the one upon which to base its cost comparison, and contends that the 
Army's conduct of the cost comparison was improper.  PharmChem argues 
that the Army improperly failed to follow the requirements for 
comparison of a "best value" commercial offer with the in-house offer 
contained in OMB Circular No. A-76, and the Revised Supplemental 
Handbook (March 1996) (the Supplement).  PharmChem also challenges the 
cost comparison on several grounds.

We deny the protests.

BACKGROUND

The agency synopsized the solicitation in the Commerce Business Daily 
(CBD) on November 29, 1996, announcing that the RFP was being issued 
as part of a cost comparison pursuant to OMB Circular No. A-76.  The 
RFP, issued on March 19, 1997, contemplated the award of a fixed-price 
requirements contract for 1 year with up to four 1-year option periods 
to provide drug testing services for the Army National Guard and Coast 
Guard (ANG/CG).  RFP  sec.  52.216-1, and at 2-9.  The required services 
include analysis of urine samples for drugs of abuse, compilation and 
reporting of test results, and litigation support.  RFP, Attachment 1, 
Statement of Work (SOW).  The RFP contained the clause found at 
Federal Acquisition Regulation (FAR)  sec.  52.207-2, "Notice of Cost 
Comparison (Negotiated)," which in part advises that the solicitation 
is part of a "Government cost comparison to determine whether 
accomplishing the specified work under contract or by Government 
performance is more economical."  RFP at 14.

The RFP stated that the government would evaluate all technical 
proposals in accordance with the following five factors listed in the 
RFP (maximum number of points available under each factor is shown in 
parenthesis):  corporate experience and quality of work (5,500); 
corporate personnel (1,500); corporate structure (2,000); contract 
administration (1,750); and corporate past performance (2,000).  RFP 
at 50-53.  Within each factor, the RFP listed subfactors and the 
maximum number of possible points each was worth.  The maximum 
possible score a proposal could earn was 12,750 points.

The RFP stated that while not numerically scored, price would be a 
substantial factor considered and that price reasonableness would be 
evaluated.  RFP at 50.  In determining the best overall response, the 
RFP stated that "technical superiority will be the most important 
consideration."  Id.  The agency would select the responsible offeror 
whose offer was determined to be most advantageous to the government.  
RFP  sec.  52.212-2 at 18.

The agency received three proposals from commercial firms in response 
to the RFP.  A technical evaluation panel (TEP) evaluated initial 
proposals; the agency conducted discussions with all three offerors; 
and requested best and final offers (BAFO) from all three firms.  The 
TEP evaluated proposals based on the BAFOs, with the following 
results:

              Offeror     Point Score    BAFO Price

           PharmChem        11,245      $6,328,704.22

           NWT             11,650[1]     7,503,396.00

           Offeror A        11,230       7,142,847.76
CO Statement of Facts at 4.  Based on the results of the final 
evaluation, the TEP unanimously recommended to the SSA that 
PharmChem's proposal be selected for purposes of the cost comparison.  
Specifically, the TEP found that the strengths identified in NWT's 
proposal, including the firm's experience with drug testing, did not 
justify NWT's price premium of over    $1 million given PharmChem's 
highly rated proposal.  TEP's Technical/Price Tradeoff Assessment and 
Recommendation for Tentative Award Selection Memorandum at unmarked 
page 6.

The CO agreed with the TEP's recommendation.  Source Selection 
Decision Memorandum at 15.  Subsequently, the CO requested that the 
TEP review the in-house technical proposal, the Management Plan/Most 
Efficient Organization (MP/MEO), and supporting documents that had 
been submitted by Tripler.  The TEP reviewed but did not numerically 
score Tripler's submission in several areas including laboratory 
organization/personnel/experience; equipment; standard operating 
procedures; certification/inspections; and facility.  The TEP found 
that Tripler's submission exceeded the requirements of the 
solicitation under several categories (laboratory 
organization/personnel/ experience; equipment; SOP; and 
certifications/inspections).  Based on its review, the TEP concluded 
that Tripler's submission was "highly acceptable and clearly has the 
capability to perform this effort at a satisfactory or better level."  
Technical Evaluation of Tripler Proposal at 2.  The agency then 
conducted a cost comparison between PharmChem's evaluated price and 
the in-house cost estimate and concluded that the effort could be 
performed more economically by Tripler.[2]

By letters dated May 20, 1998, the CO informed the protesters that 
PharmChem's proposal had been selected as the "best value" offer to 
form the basis for the cost comparison.  Those letters further advised 
that based upon the results of the cost comparison, the agency had 
tentatively decided that the effort could be performed more 
economically in-house.

Both NWT and PharmChem appealed the decision to convert the work to 
in-house performance to the Army's Administrative Appeals Board 
convened pursuant to Army regulations and OMB Circular No. A-76.  In 
decisions dated August 27, 1998, the Board denied PharmChem's and 
NWT's appeals.  These protests to our Office followed written 
debriefings by the agency.

The Selection Process under OMB Circular No. A-76 and GAO's Review

OMB Circular No. A-76 describes the executive branch's policy on the 
operation of commercial activities that are incidental to the 
performance of governmental functions.  It outlines procedures for 
determining whether commercial activities should be operated under 
contract by private enterprise or in-house using government facilities 
and personnel.

The process set out in OMB Circular No. A-76 and the Supplement 
broadly encompasses three steps in the conduct of a public-private 
competition.  First, there is a competition among private-sector 
offerors, which is conducted much as any competed federal procurement 
is conducted.  The Supplement was amended in 1996 to permit a "best 
value" approach (such as was used in this case) to selecting the 
private-sector proposal.  See 61 Fed. Reg. 14,338, 14,339, 14,345 
(1996).

Second, the winning private-sector's offer is compared with the 
in-house "offer" and, if necessary, the in-house offer is adjusted to 
match the performance level of the private-sector one.  Specifically, 
after selecting the "best value" private-sector offer, the CO is to 
submit to a reviewing authority the government's in-house management 
plan, which must comply with the requirements of the solicitation.  
Supplement Ch. 3 at  para.  H.3.d.  The reviewing authority then evaluates 
the in-house offer and assesses whether or not the private-sector 
offer's level of performance and performance quality will be achieved 
under the in-house plan.[3]  Id.  The government then makes changes if 
necessary to ensure that the in-house plan meets the performance 
standards of the selected private-sector offer, revises its in-house 
cost estimates, and submits the revised estimates to an "independent 
review officer" for acceptance.  Id. at  para.  H.3.e.  This process is 
designed to ensure that the government's in-house cost estimate is 
based upon the same scope of work and performance levels as the 
private-sector "best value" offer.  Id.  

Finally, once the playing field is thus leveled, there is a 
straightforward cost competition between the private-sector and 
in-house offers.  Specifically, the CO opens the government's in-house 
cost estimate for comparison with the private-sector offer's proposed 
price.[4]  Id. at  para.  J.3; see also FAR  sec.  7.306(b).

Where, as here, an agency has conducted an A-76 competition, thus 
using the procurement system to determine whether to contract out or 
perform work in-house, our Office will consider a protest alleging 
that the agency has not complied with the applicable procedures in its 
selection process or has conducted an evaluation that is inconsistent 
with the solicitation criteria or otherwise unreasonable.[5]  See 
Alltech, Inc., B-237980, Mar. 27, 1990, 90-1 CPD  para.  335 at 4; Base 
Servs., Inc., B-235422, Aug. 30, 1989, 89-2 CPD  para.  192 at 2.

NWT's Protest

NWT challenges the agency's decision on numerous grounds, including 
that the Army was prohibited by law from conducting the procurement.  
NWT also challenges the evaluation of its and PharmChem's proposals 
and the cost comparison.

NWT first argues that the Army was prohibited by 10 U.S.C.  sec.  2462(a) 
(1994) from using a "best value" approach to determine whether to 
contract for the drug-testing services or to perform the work 
in-house.[6]  NWT maintains that in accordance with that statute, the 
agency is prohibited from selecting a commercial proposal primarily on 
the basis of non-cost factors.

Our Bid Protest Regulations provide that protests based upon alleged 
improprieties in a solicitation which are apparent prior to the time 
set for receipt of initial proposals must be filed prior to that time.  
4 C.F.R.  sec.  21.2(a)(1) (1998).  Here, the RFP contained FAR  sec.  52.207-2, 
"Notice of Cost Comparison," which clearly advised offerors that the 
solicitation was part of a cost comparison to determine whether 
accomplishing the work under contract or by the government is more 
economical; listed the technical evaluation factors and their relative 
numerical weights; and specifically announced that the agency would 
select the commercial proposal deemed "most advantageous" to the 
government.  RFP  sec.  52.212-2(a), and addendum at 50 ("award shall be 
made to that responsible offeror whose offer, conforming to the 
solicitation, is determined to be the best overall response . . . 
technical superiority will be the most important consideration").  
NWT's protest that the RFP's evaluation and selection methodology were 
contrary to law--because the Army should have placed greater emphasis 
on cost--constitutes an allegation of a solicitation impropriety that 
was apparent before the closing date for receipt of initial proposals.  
Since the RFP clearly provided that in evaluating proposals, technical 
superiority would be the most important consideration, NWT's protest 
on this issue, filed on September 8, 1998, more than a year after the 
closing date of May 14, 1997, is untimely and will not be 
considered.[7]  See DWS, Inc., B-229963, March 17, 1988, 88-1 CPD  para.  
283 at 4.

NWT also argues that the Army could not lawfully initiate a conversion 
from contract to in-house performance.[8]  In this connection, NWT 
points to various procedures set out in OMB Circular No. A-76, and in 
several related Department of Defense (DOD) and Army regulations, to 
argue that the agency improperly failed to meet three threshold 
conditions that allegedly must be satisfied before an agency may 
consider a conversion to in-house performance of services that were 
previously obtained under contract.[9]

As the incumbent providing drug-testing services to the National Guard 
since 1988, NWT either knew or should have known whether the agency 
failed to meet the alleged threshold conditions before initiating the 
cost comparison process.  For instance, after the agency synopsized 
the procurement in the CBD, and following issuance of the RFP in 
March, 1997, the protester either knew or should have known whether 
the Army had attempted to negotiate better prices with NWT or found 
its performance unacceptable--conditions the protester alleges must be 
met before the agency may initiate the cost comparison process.  In 
fact, NWT asserts that on four occasions--on August 9, 1996, February 
20, 1997, October 1, 1997, and March 20, 1998--the Army extended NWT's 
contract at the rates proposed by NWT without objection or negotiation 
on price.  NWT Protest at 10.  NWT further maintains that it believed 
that the National Guard was "entirely satisfied with NWT's management 
and drug-testing performance during this period."  Id.

It is clear, therefore, that by the time the agency issued the 
solicitation announcing the cost comparison, NWT either knew or should 
have known that the agency had not attempted to negotiate better 
prices with the firm, and that the agency was not dissatisfied with 
its performance--i.e., that the Army had failed to meet the alleged 
"conditions precedent" before initiating the cost comparison process.  
NWT's argument that the Army could not lawfully initiate the cost 
comparison process is thus an untimely challenge to the terms of the 
solicitation and will not be considered.  4 C.F.R.  sec.  21.2(a)(1); PSC, 
Inc., B-236004, Oct. 26, 1989, 89-2 CPD  para.  380 at 3-4.

In any event, even assuming that the matter were timely raised, it is 
not for our review.  An agency's decision concerning whether an 
activity should be the subject of a cost comparison study at 
all--which is essentially the decision challenged by NWT here--is a 
matter of compliance with executive branch policy which we do not 
review.  Northrop Worldwide Aircraft Servs., Inc., B-243318, Apr. 12, 
1991, 91-1 CPD  para.  371 at 1-2.  

We next turn to the protester's arguments that the Army acted 
unreasonably in its evaluation of NWT's and PharmChem's proposals.  
Specifically, NWT challenges the evaluation of its proposal in several 
areas, including corporate experience/quality of work; corporate 
personnel; corporate structure; and corporate past performance.  NWT 
also challenges the evaluation of PharmChem's proposal.

Our Office's review of an A-76 competition's first step, the 
competition among private offerors, is no different from our review of 
any other competition for a federal contract.  We will not engage in 
an independent evaluation of proposals nor make an independent 
determination of their relative merits.  Litton Sys., Inc., B-239123, 
Aug. 7, 1990, 90-2 CPD  para.  114 at 9.  Rather, we review the agency's 
evaluation only to ensure that it was reasonable and consistent with 
the terms of the solicitation.  Sensis Corp., B-265790.2, Jan. 17, 
1996, 96-1 CPD  para.  77 at 6.  A protester's mere disagreement with the 
agency's conclusions does not render the evaluation unreasonable.  
ESCO, Inc., B-225565, April 29, 1987, 87-1 CPD  para.  450 at 7.  Based on 
our review of the record, including the TEP's narrative in support of 
its evaluation, we conclude that the numerical ratings assigned the 
proposals are reasonably supported.  Below we discuss a representative 
sample of the TEP's findings in support of our conclusion.

NWT's proposal earned 5,300 points of the 5,500 available under the 
corporate experience/quality of work factor, losing 100 points in each 
of two subfactors--drug testing productivity and lysergic acid 
diethylamide (LSD) confirmation testing.  Under the drug-testing 
productivity subfactor, the TEP was to evaluate the offerors' past 
experience and capability in volume drug testing over the past 2 
years.  RFP at 51.  Under this subfactor, the TEP awarded NWT's 
proposal a total of 400 out of a maximum of 500 points.

The evaluators downgraded NWT's proposal as a result of several 
identified weaknesses.  For instance, the TEP found that in August 
1996, NWT experienced quality assurance problems, such as incorrectly 
reporting the results of 42 drug samples, under NWT's current Military 
Entrance Processing Station (MEPS) contract when the workload under 
that contract doubled.  In addition, the TEP found that NWT did not 
add sufficient senior personnel to its staff to manage the increased 
work.  The record shows that the agency issued discussion questions to 
NWT specifically identifying this weakness.  In particular, the agency 
recognized that NWT had taken corrective action to resolve the 
computer software problem apparently causing the misreporting, but 
asked how NWT would respond to future increases in workload and remain 
productive.  NWT's response did not overcome the evaluators' concern 
in this regard.

NWT argues that its proposal should not have been downgraded in this 
area because NWT did not incorrectly report any drug test results to a 
"field" activity.  Rather, NWT maintains that the 42 samples were 
reported to and stored in an ancillary MEPS "look-up" database, and 
that the incorrect reporting was due to a software problem to which 
the government contributed.  The evaluation record shows, however, 
that the TEP recognized that a software limitation was in part to 
blame for the incorrect reporting of the 42 samples, and that NWT had 
taken steps to correct that problem, but that other identified 
weaknesses in the proposal warranted the proposal being downgraded.  
For example, NWT had an incident in September 1996, where due to the 
lack of laboratory certifying officers (LCO), MEPS drug testing 
results were released prior to full review by the laboratory.  The TEP 
felt that the doubling of sample workload and the laboratory not 
adding additional senior level personnel--specifically additional 
LCOs--to the MEPS contract in the initial start-up period led to the 
September 1996 incident.  In our view, the record reasonably supports 
the TEP's downgrading NWT's proposal under this subfactor.[10]

With respect to corporate personnel, offerors were required to 
identify key personnel proposed to perform the required services, 
their experience, task function, reporting requirements and 
relationship to upper management.  RFP at 43.  To assist in the 
evaluation under this factor, offerors were required to submit the 
resumes of several key personnel identified in the RFP, including a 
Director of Technical Operations.  RFP at 43 and 51.  For each 
proposed key employee, resumes were to be evaluated in the areas of 
education, technical and/or management experience, and professional 
development.  RFP at 51.  The RFP stated that each resume "shall 
contain at a minimum, statements and supporting documentation that 
provide evidence that personnel identified, to manage, and support the 
work under the solicitation possess the necessary skills, knowledge, 
and experience to carry out the terms of this solicitation."  RFP at 
43.

The TEP awarded NWT's proposal a total of 1,200 points (out of a 
maximum of 1,500) under this factor.  The record shows that the 
evaluators recognized that NWT had proposed senior personnel with many 
years of experience in forensic urine drug testing.  However, two 
evaluators on the panel noted that NWT's proposed Director of 
Technical Operations was not board certified and considered this a 
weakness, downgrading the proposal accordingly.

NWT argues that the TEP improperly deducted points under this factor 
because the solicitation did not require key personnel to possess any 
minimum levels of education, experience, or certifications.  According 
to the protester, the TEP evaluated its proposed key personnel against 
unstated criteria.

As relevant here, the RFP's SOW stated that the position of Director 
of Technical Operations "will be Ph.D qualified in forensic toxicology 
or an equivalent degree," SOW at 1, and that "[s]uch qualification in 
forensic toxicology shall include one or more of the following 
qualifications."  Id. (emphasis added).  The SOW listed several 
qualifications, including being certified by the American Board of 
Forensic Toxicology.  Id.  One evaluator who downgraded NWT's proposal 
under this factor explained the significance of the concern, stating 
that experience alone does not substitute for board certification 
because it is narrow in focus, unlike board certification which 
demonstrates proficiency in all areas of forensic toxicology.[11]  In 
view of the specific requirement in the SOW, and given the evaluators' 
concern, we think that the rating assigned NWT's proposal is 
reasonably supported.

In another area where NWT's proposal was downgraded, the TEP awarded 
NWT's proposal 1,500 of 2,000 available points under the corporate 
past performance factor, downgrading the proposal under two 
subfactors--quality of service and timeliness of performance.  Under 
the first subfactor, the TEP was to evaluate the extent to which 
offerors demonstrated quality of service on prior and/or recent 
projects similar in size or scope to those described in the SOW.  
Under the second subfactor, offerors were to be evaluated for 
timeliness of performance.  RFP at 52-53.  Offerors were required to 
provide references that demonstrated experience similar in nature and 
scope, and which could also confirm the offeror's adherence to 
delivery schedules, the accuracy and completeness of reports and 
documentation, and the offeror's problem-solving capability.  RFP at 
46-47.

The TEP deducted 400 points under the quality of service subfactor as 
a result of a documented continuing pattern of problems NWT 
experienced under its recent contract, in part due to the firm's 
inability to handle large drug testing workloads.[12]   The protester 
maintains that this weakness did not warrant a point deduction because 
the incorrect results were never reported to a "field" activity and 
NWT promptly corrected the errors.

While we think that the TEP's ratings here are reasonably supported, 
the record shows that the weaknesses the TEP identified in NWT's past 
performance did not affect the SSA's decision not to select NWT's 
proposal for the cost comparison.  Although the TEP reasonably 
concluded that the problems identified were serious enough to warrant 
deducting points from NWT's proposal under the quality of service 
subfactor, the SSA discounted those weaknesses in her decision.  
Specifically, the SSA explicitly stated that while NWT had experienced 
some problems during the start-up of its current MEPS contract, the 
weakness associated with NWT's past performance under that contract 
"is not of itself the discriminator that resulted in their non- 
selection under this solicitation."  Memorandum of Decision at 9.  
Rather than focusing her selection on this weakness, the record shows 
that the SSA concluded that the strengths associated with NWT's 
proposal did not justify its significant price premium over 
PharmChem's highly rated proposal.  Id.  Thus, even assuming that the 
point deduction in this area was improper, it had no effect on the 
SSA's ultimate decision.  Based on our review of the record, we have 
no basis to object to the TEP's evaluation of NWT's proposal.

NWT also argues that PharmChem's technical proposal was evaluated 
improperly.  In this regard, NWT maintains that PharmChem did not have 
at the time of the evaluation, and does not currently have, the 
capability to perform LSD confirmation testing.  Thus, according to 
NWT, the agency should have deducted the entire 1,000 points available 
under the LSD confirmation subfactor (under the corporate experience 
and quality of work factor) from the rating assigned PharmChem's 
proposal.  NWT also challenges the evaluation of PharmChem's proposal 
under the corporate past performance factor.

The protester's arguments are without merit.  The TEP awarded 
PharmChem's proposal only 100 out of a maximum possible score of 1,000 
points under the LSD confirmation testing subfactor.  The TEP found 
that PharmChem does not have 2 years of experience using its LSD 
confirmation procedures, and had not confirmed LSD samples on prior 
DOD contracts.  In addition, the TEP found that while PharmChem's LSD 
confirmation procedure has in-house certification, it has been used to 
confirm only positive samples.  In our view, the TEP's rating of only 
100 points under this subfactor reasonably credited  PharmChem's 
proposal for having acceptable operating procedures for LSD 
confirmation testing and for having dedicated instrumentation for LSD 
confirmation testing, as well as for having in-house LSD confirmation 
testing.  We have no basis to find that the very low (100-point) score 
assigned was unreasonably high and that PharmChem should have received 
zero points under this subfactor.

In the corporate past performance area, PharmChem's proposal received 
the maximum score of 2,000 points.  NWT maintains that this score 
overstates the point score PharmChem should have received under this 
subfactor because of performance problems.  For instance, NWT states 
that PharmChem, among other things, reported a false positive drug 
test that resulted in administrative action against a member of the 
military, and failed two successive proficiency challenge tests.  As a 
result, NWT asserts, PharmChem was temporarily suspended from 
reporting out a required drug on an Army drug-testing contract.  NWT 
also argues that PharmChem's proposal should have been downgraded for 
PharmChem's failure to meet the Armed Forces Institute of Pathology 
open proficiency certification standards.

The evaluation documents show that although some members of the TEP 
had limited knowledge of the incidents NWT refers to, the TEP 
concluded that it could not properly consider them in evaluating 
PharmChem's proposal because they occurred in June 1992, beyond the 
3-year window for evaluating offerors' past performance.  The TEP 
recognized that PharmChem did, in fact, fail 2 consecutive months for 
PCP certification, in April and May, 1995, but concluded that 
PharmChem's failure on the PCP samples was not significantly relevant 
to successfully performing the contemplated contract.

In addition, the TEP evaluated past performance evaluations from five 
respondents who evaluated PharmChem's performance on recent contracts.  
According to the evaluations, in virtually all cases, the references 
provided excellent ratings for PharmChem in areas identified as 
quality of service and timeliness of performance.  Based on the firm's 
recent performance as reflected in the results of the past performance 
surveys, the TEP reasonably awarded PharmChem's proposal the maximum 
number of points under this subfactor.  Based on our review of the 
record, we have no basis to object to the evaluation of proposals or 
to the selection of PharmChem's proposal for the cost comparison.

Cost Comparison and Evaluation of Tripler's Submission

NWT alleges that the Army improperly conducted the cost comparison 
between the government's in-house proposal and that of PharmChem, that 
is, what is described above as the third step in the A-76 selection 
process.  In addition, NWT argues that the Army failed to properly 
apply the "best value" evaluation criteria announced in the RFP to 
Tripler's submission.

Since we have found that the Army's evaluation of proposals here was 
unobjectionable, and, thus, that the selection of PharmChem's proposal 
over NWT's was reasonable, we deny NWT's protest on that ground.  As a 
result, NWT is not an interested party to protest the conduct of the 
cost comparison as it would not be eligible for award even if the 
protest were sustained.  See 4 C.F.R.  sec.  21.0(a); ITT Fed. Servs. 
Corp., B-253740.2, May 27, 1994, 94-2 CPD  para.  30 at 14.  For the same 
reason, NWT is not an interested party to challenge the evaluation of 
Tripler's submission.

PharmChem's Protest

PharmChem argues that the Army improperly failed to follow the 
requirements contained in OMB Circular No. A-76 and the Supplement for 
comparison of a "best value" commercial offer with the in-house offer.  
In this connection, PharmChem primarily argues that the agency erred 
by not ensuring that Tripler's proposal offered the same level of 
performance or performance quality as PharmChem's proposal.  PharmChem 
maintains that, instead of following the RFP's evaluation criteria 
weighting scheme in evaluating Tripler's proposal, the Army treated 
the comparison between PharmChem's and Tripler's proposals as a sealed 
bid procurement where award would be based on the lowest cost, 
technically acceptable offer.  PharmChem also challenges the cost 
comparison itself, the third step in the selection process, on several 
grounds.

Here, our review indicates that the Army properly conducted both the 
second step (the process of "leveling the playing field" between the 
winning private-sector offer and the government's in-house offer) and 
the third step (the cost comparison) pursuant to OMB Circular No. A-76 
and the Supplement.

With regard to the challenge to the conduct of the second step, the 
record contains virtually no contemporaneous documentation indicating 
that the performance levels of PharmChem's and Tripler's offers were 
compared.

In response to the protest, the CO states that, although Tripler's 
submission did not undergo a point-scoring evaluation and the OMB 
Circular No. A-76 Generic Cost Comparison Form (CCF) that records the 
cost comparison does not provide for a narrative discussion explaining 
anything other than cost entries, she concluded that the Tripler level 
of performance met or exceeded both the SOW requirements[13] and the 
performance level proposed by PharmChem.[14]  CO's Statement of Facts 
at 9.  For example, the CO states that she found Tripler's DOD-focused 
drug testing experience to be exceptional and "highly related" to the 
requirements in the SOW.  She points out that Tripler's laboratory has 
had drug testing experience since 1984, when it became a forensic 
toxicology drug-testing laboratory.  Id. at 5.  According to the CO, 
PharmChem, on the other hand, has only performed some DOD drug testing 
from 1991 to 1996, and has not in the past 2 years performed any DOD 
drug-testing contracts relevant to this effort.   Id. at 9.  In 
addition, the CO states that Tripler has been performing LSD testing 
since 1996 under DOD standards--its sole function has been to test for 
drugs of abuse under DOD standards.   Id. at 5.  The CO adds that the 
Tripler laboratory has been continually monitored by the Armed Forces 
Institute of Pathology and the U.S. Army Alcohol and Drug Organization 
Agency.  Id.  Based on her assessment, the CO concluded that Tripler's 
level of performance exceeded that which was required in the SOWand at 
a minimum was comparable to the level of performance and standards 
contained in PharmChem's proposal.

PharmChem relies on our decision in Boeing Sikorsky Aircraft Support, 
B-277263.2, B-277263.3, Sept. 29, 1997, 97-2 CPD  para.  91, to argue that 
the CO's post-protest written determination of comparable performance 
quality is arbitrary and unreasonable and should not be accorded any 
weight.  The Boeing case involved a post hoc reevaluation and 
cost/technical tradeoff late in the protest process where no tradeoff 
had been made during the initial source selection.  Further, the 
agency continued to assert there was no error, but in order to 
immunize itself against losing the protest, submitted a reevaluation 
that it argued was not necessary.  We concluded that it was not 
appropriate to give weight to the agency's after-the-fact decisional 
materials prepared for the purpose of ensuring that our Office would 
conclude there was no prejudice to the protester. 

While we are generally skeptical of reevaluations prepared in the heat 
of the adversarial process, id. at 15, we conclude that the 
protester's reliance on the Boeing decision here is misplaced.  
Post-protest explanations that provide a detailed rationale for 
contemporaneous conclusions, as is the case here, simply fill in 
previously unrecorded details, and will generally be considered in our 
review of the rationality of selection decisions, so long as those 
explanations are credible and consistent with the contemporaneous 
record.  See Northwest Management, Inc., B-277503, Oct. 20, 1997, 97-2 
CPD  para.  108 at 4 n.4.  Based on the entire record in this case, 
including the transcript of a hearing our Office conducted in 
connection with this protest, we conclude that while not recorded at 
the time, the agency did compare the performance levels offered by 
Tripler and PharmChem prior to the selection decision.  Accordingly, 
we view the post-protest documentation as merely a memorialization of 
contemporaneous analysis and judgment.

Specifically, at the hearing conducted by our Office, the TEP acting 
chairperson testified that, prior to the selection decision, the TEP 
compared Tripler's and PharmChem's proposals and concluded that the 
proposals were comparable.  Video Transcript (VT) at 14:26:21, 
14:40:29, 14:51:02, 15:27:17.  The TEP acting chairperson testified 
that, in fact, Tripler's proposal was found to be superior to 
PharmChem in several areas such as capacity, VT at 14:39:59, and 
experienced personnel.  VT at 14:42:13.   The CO also testified that 
(again, prior to the selection decision) she reviewed all of the 
technical proposals submitted by the commercial firms and the TEP's 
evaluation worksheets to make sure that the strengths and weaknesses 
the TEP had identified were actually in the proposals.  VT at 
15:40:48-15:41:22.  The CO testified that she conducted her own 
independent review of proposals, the results of the TEP's evaluation 
of Tripler's proposal, and Tripler's proposal itself.  VT at 15:50:28, 
15:51:15, 15:55:41.  Based on her independent review, the CO testified 
that she also concluded that Tripler's proposal was superior to 
PharmChem's.  VT at 15:50:41, 16:23:28.  For example, the CO found 
that Tripler's proposal was superior to PharmChem with respect to 
personnel, DOD certification, and experience with LSD testing.  VT at 
15:59:17, 15:59:41.  She also found that Tripler had experience 
operating under DOD standards and had passed the sample proficiency 
test.  VT at 15:59:59, 16:00:18.  The CO testified that after 
selecting PharmChem's as the "best value" proposal, she again reviewed 
Tripler's proposal to make sure that the comparison was "apples to 
apples and not apples to oranges and that they were the same grade of 
apples."  VT at 16:02:09.

In our view, the CO's post-protest explanation of her conclusion that 
Tripler's proposal is comparable to PharmChem's is sufficient to show 
that her decision was reasonable.  See Quality Elevator Co., Inc., 
B-276750, July 23, 1997, 97-2 CPD  para.  28 at 3-4.  Further, unlike in 
Boeing, the CO's statement in response to the protest and her 
testimony at the hearing are not new analyses based on hypothetical 
assumptions or a reevaluation of Tripler's MP/MEO to attempt to 
justify a post-protest decision in the face of a protest.  Rather, the 
CO's statement, as confirmed by her testimony, reflects her 
understanding before the selection decision of the relevant facts 
concerning Tripler and PharmChem which formed the basis of her 
contemporaneous conclusion that Tripler's proposal offered at least 
the same level of performance quality as PharmChem's proposal.  In 
view of the guidance provided in the Supplement for conducting a cost 
comparison, and based on our review of the record, including the TEP's 
contemporaneous review of Tripler's MP/MEO, we see no basis to 
question the CO's determination that at least the same level of 
performance and quality as offered by PharmChem will be achieved 
in-house.[15]

PharmChem next argues that Tripler's cost estimate does not include 
the total cost to the government of in-house performance.[16]  In this 
connection, PharmChem argues that Tripler's cost estimate was based on 
the incremental cost of performing the additional ANG/CG work, and did 
not reflect Tripler's total cost of performance.  PharmChem points to 
more than $5 million which Tripler labeled in Tab G of its management 
plan as "common costs."[17]  According to PharmChem, since Tripler has 
stated that the ANG/CG work will account for 26.4 percent of its 
workload, adding 26.4 percent of the total "common costs" (adjusted 
for inflation) to Tripler's estimate results in a total cost estimate 
of $11,917,074, which is more than PharmChem's total evaluated price.

The agency responds that Tab G of Tripler's management plan was 
mislabeled as "common costs."  The agency explains that the costs 
listed in Tab G reflect Tripler's annual budget and expenses for its 
entire operations and that these costs will not change even if the 
work required by the RFP is not transferred to Tripler.  The agency 
further explains that Tripler identified its annual laboratory budget 
and expenses in Tab G to reflect what Tripler's annual fixed expenses 
were projected to be without the additional drug-testing workload.  
The agency further asserts that these costs were either directly or 
proportionately already included in Tripler's cost estimate in the 
applicable cost comparison form lines, or were already part of the OMB 
Circular 12 percent overhead calculations.  PharmChem has provided no 
basis for us to question the agency's explanation in this regard.

The record shows that in response to a request by the administrative 
board that reviewed PharmChem's appeal of the cost comparison, the 
Army Audit Agency (AAA) reviewed Tripler's in-house cost estimates, 
with a view towards determining whether the estimates were accurately 
calculated using an acceptable method consistent with the Supplement.  
Cost Validation of A-76 Study, August 13, 1998 at 2.  The AAA's review 
revealed that Tripler had prepared and submitted three in-house cost 
estimates.

The record shows that the AAA reviewed all three of Tripler's 
estimates and supporting documentation, including the cost 
methodologies used in each of the three estimates.  The AAA analyzed 
and compared the methodology used for each cost estimate to the cost 
accounting principles in the Supplement.  Based on an extensive 
review, the AAA concluded that the methodology Tripler used in its 
third estimate (dated July 14, 1998) was the most acceptable method 
for estimating the costs if the work was to be performed in-house by 
Tripler.  Id. at 2.  Specifically, the AAA found that the methodology 
used in that estimate was more rational in that it included additional 
costs attributable to performing the work in-house and provided a more 
equitable basis for comparison.  However, the AAA found that some 
in-house costs needed to be adjusted to more accurately estimate 
in-house costs in accordance with standard cost estimating procedures 
in the Supplement.[18]

The result of the AAA's revisions was to reduce Tripler's third cost 
estimate from $6,475,692 to $6,362,922, which is $136,527 lower than 
PharmChem's evaluated price of $6,499,449 after making the appropriate 
OMB Circular    No. A-76 adjustments.  The record thus shows that an 
independent reviewing body performed an in-depth review of Tripler's 
cost estimate and concluded that with some minor adjustments it 
accurately reflected the costs of in-house performance.  We see no 
basis to question this conclusion.

PharmChem maintains, however, that Tripler's estimate is understated 
in several other areas.  Specifically, PharmChem asserts that 
Tripler's cost estimate omits the costs for two additional full-time 
equivalent (FTE) employees required to perform LSD testing.  According 
to the protester, including these two FTEs for LSD screening would 
result in a total Tripler cost estimate exceeding PharmChem's price.  
In this regard, we have held that a determination by an agency of the 
number of employees needed to accomplish a performance work statement 
is largely a management decision involving judgmental matters that are 
inappropriate for our review.  Raytheon Support Servs. Co., B-228352, 
Jan. 19, 1988, 88-1 CPD  para.  44 at 3.  We believe the agency should be 
free to make its own management decisions on staffing levels, so long 
as they are not made fraudulently or in bad faith, and so long as the 
subsequent cost comparison is done in accordance with established 
procedures.  Id.  Here, the record shows that Tripler fully costed the 
9.2 FTEs, the number it determined would be needed to perform the 
ANG/CG drug testing, and PharmChem has not shown that Tripler's 
proposed staffing was made fraudulently or in bad faith.[19]

In any event, in responding to PharmChem's administrative appeal, the 
Board found that as a result of new technology for LSD testing, 
Tripler's laboratory has become more efficient.  For instance, as 
relevant to PharmChem's allegation, the agency explains and the Board 
found that one technician can operate two radioimmunoassay (RIA) 
batches to screen for LSD in 4 hours with half of the time being free 
while waiting for incubation and instrument analysis.  Appeals Board 
Decision, Aug. 27, 1998, at 3.  According to the agency, this equates 
to a maximum of 1,022 hours annually or .6 FTE (511 batches divided by 
2 batches every 4 hours).[20]  Tripler Response to Protests, Sept. 23, 
1998, at 11.  In addition, the agency explains that the technician 
doing RIA analysis could also simultaneously run the instruments for 
performing tests for other drugs.  Id.  According to the agency, this 
same technician can run three batches on three instruments in 1.5 
hours, for all the other drugs.  While PharmChem disagrees with 
Tripler's and the Board's conclusions in this regard, PharmChem has 
not shown that the agency acted contrary to cost comparison guidelines 
or in bad faith in its determination, and PharmChem's mere 
disagreement with the study results is not sufficient to establish 
that the cost comparison was flawed.  See Trend W. Technical Corp., 
B-221352, May 6, 1986, 86-1 CPD  para.  437 at 3-6.

The protests are denied.

Comptroller General
of the United States

1. The TEP's post-BAFO technical score of NWT's proposal was 11,450 
                        points.  However, the contracting officer 
                        (CO), who was the source selection authority 
                        (SSA) for the procurement, disagreed with a 
                        concern raised by the TEP regarding NWT's 
                        financial reliance on maintaining two Army 
                        contracts as a significant source of corporate 
                        resources, and adjusted NWT's score up by 200 
                        points.  Source Selection Decision Memorandum, 
                        Apr. 24, 1998 at 9.

2. After making adjustments to PharmChem's BAFO price in accordance 
with OMB Circular No. A-76, PharmChem's evaluated price for the cost 
comparison was $6,499,449.80, including option periods, while the 
in-house cost estimate was $6,362,922, a difference of $136,527.80 in 
favor of in-house performance.  Cost Comparison of In-House 
Performance v. Contract or ISSA Performance, Oct. 28, 1997.

3. The Supplement does not explicitly require that the reviewing 
authority document the assessment of whether or not the same level of 
performance and performance quality will be achieved in-house.  
Nonetheless, our cases consistently emphasize the importance of a 
well-documented evaluation record and selection decision to show that 
the assessment is not arbitrary or unreasonable, or not contradicted 
by the record.  See, e.g., Northwest EnviroService, Inc., B-247380.2, 
July 22, 1992, 92-2 CPD  para.  38 at 11.  We see no reason to conclude that 
a reviewing authority's assessment of the comparability of proposals 
in the context of an OMB Circular No. A-76 comparison should be 
subject to any different standard.  Accordingly, despite the lack of 
guidance on this point in the Supplement, we think the reviewing 
authority's decision should be documented contemporaneously with that 
decision.

4. The Supplement establishes a minimum cost differential of the 
lesser of 10 percent of personnel costs (line 1 of the Cost Comparison 
Form) or $10 million over the performance period that must be exceeded 
before converting to or from in-house or contract performance.  This 
minimum differential is meant to ensure that the government will not 
convert for marginal estimated savings.  See id. Ch. 4 at  para.  A.1.  
Accordingly, the evaluated cost estimate for in-house performance in 
this case incorporates a 10 percent increase of personnel costs.

5. To succeed in its protest, a protester must demonstrate not only 
that the agency failed to follow established procedures, but also that 
its failure could have materially affected the outcome of the cost 
comparison.  Dyneteria, Inc., B-222581.3, Jan. 8, 1987, 87-1 CPD  para.  30 
at 2.  This is consistent with our position that our Office will not 
sustain a protest unless the protester demonstrates a reasonable 
possibility that it was prejudiced by the agency's actions, 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).

6. That statute states in pertinent part:

            In general.--Except as otherwise provided by law, the 
            Secretary of Defense shall procure each supply or service 
            necessary for or beneficial to the accomplishment of the 
            authorized functions of the Department of Defense (other 
            than functions which the Secretary of Defense determines 
            must be performed by military or Government personnel) 
            from a source in the private sector if such a source can 
            provide such supply or service to the Department at a cost 
            that is lower (after including any cost differential 
            required by law, Executive order or regulation) than the 
            cost at which the Department can provide the same supply 
            or service.

7. NWT argues that we should consider these allegations under the 
significant issue exception to the timeliness rules.  4 C.F.R.  sec.  
21.2(c).  We do not think that this is an appropriate case to invoke 
the significant issue exception.  In any event, as discussed further 
below, the procedures set out in the Supplement (and used in this 
procurement) are consistent with 10 U.S.C.  sec.  2462(a), since the 
decision of whether to perform the services in-house or by contract is 
ultimately based strictly on cost.

8. PharmChem raises a similar argument for the first time in its 
comments.

9. In this connection, NWT maintains that before initiating a 
conversion to in-house performance, the agency must first determine 
that NWT's price (as the incumbent) has become unreasonable or its 
performance unsatisfactory; that the CO must be unable to negotiate 
reasonable prices or be unable to obtain acceptable performance from 
NWT; and that the agency must re-solicit the requirement from sources 
in the private sector.  NWT Protest at 16-20.

10. The TEP also deducted 100 points from the maximum score (1,000 
points) under the LSD confirmation testing subfactor because NWT 
failed the drug testing demonstration required by the RFP.  The record 
shows that PharmChem also failed this test.  By amendment No. 0003, 
the agency deleted this requirement from the RFP, but neglected to 
restore the points which had initially been deducted.  NWT has not 
established that it and PharmChem were treated differently in this 
regard; in any event, in light of the small number of points involved, 
this issue could not affect the relative rankings of proposals.

11. The evaluation record also shows that the TEP downgraded NWT's 
proposal slightly because other proposed personnel did not possess 
professional degrees beyond the Bachelor or Master's levels.  While 
the TEP recognized that the RFP did not require advanced degrees, the 
evaluators felt that not having certain advanced professional degrees 
in the relevant fields was a weakness, and reasonably downgraded the 
proposal.

12. The TEP noted that after the increase in workload under its 
current MEPS contract, NWT reported inaccurate results on two 
occasions; in one case 42 samples were incorrectly reported.  NWT 
argues that the TEP improperly "double counted" this weakness because, 
as discussed above, it had already deducted points for this weakness 
under the first evaluation factor.  An agency may properly penalize an 
offeror more than once for a single deficiency so long as the 
deficiency reasonably relates to more than one evaluation criterion.  
Space Applications Corp., B-233143.3, Sept. 21, 1989, 89-2 CPD  para.  255 
at 7.  In our view, the identified weakness is reasonably related to 
the corporate past performance, as well as the corporate 
experience/quality of work factors.

13. As a preliminary matter, and as PharmChem recognizes, we note that 
there is no legal requirement that the in-house proposal be formally 
evaluated using the same point-score method or evaluation criteria 
weighting scheme as is applied to the private-sector proposals

14. In response to the protest, the Chairperson of the TEP also 
provided a statement in response to this issue in which he states "the 
TEP believes that the TRIPLER technical submission . . .[is] at least 
of the same comparable level of performance and quality standards as 
the [PharmChem] proposal.  In the 11 May 1998 TEP memorandum to the 
[CO], the TEP expressly noted that the Tripler technical submission 
exceeded many of the technical requirements necessary to perform this 
drug testing effort."  TEP's Sept. 30, 1998, Response to Consolidated 
Protests, at 9.  The record also contains a copy of an electronic 
message from an evaluator dated July 22, 1998, before PharmChem filed 
its protest, stating that the TEP found Tripler's proposal "offered 
comparable performance to the proposal from PharmChem Laboratories, 
Inc."  Electronic Mail Message from [DELETED] July 22, 1998.

15. In its comments, PharmChem argues that in several areas "more 
closely related to the RFP's evaluation factors," Tripler's proposal 
does not offer the same level of performance as PharmChem.  Comments 
at 11.  For instance, PharmChem points to several aspects of its 
proposal related to timeliness of performance, laboratory information 
system, and the firm's size and capacity.  While these may be 
strengths in PharmChem's proposal, they do not demonstrate that the 
agency's determination that the same level of performance and quality 
could be achieved in-house was unreasonable.

16. To the extent that PharmChem argues that Tripler improperly 
prorated the costs of performance of the additional ANG/CG work, we 
note that the Supplement does not preclude the prorating of such 
costs, where such an approach reflects the amount actually 
attributable to the work in question.  See, e.g., EPD Enters., Inc., 
B-236303, Oct. 30, 1989, 89-2 CPD  para.  393 at 3-4.

17. In its management plan, Tripler listed what it described as 
"common costs" totaling $5,224,775.  Tripler Management Plan, Oct. 28, 
1997, Tab G.  According to the management plan, these are projected 
costs that will be the same whether the forensic drug testing is 
transferred to Tripler or remains with a commercial laboratory.  Id. 
at 11.

18. For example, the AAA decreased "other specifically attributable 
costs" by a total of $168,433 (including the deduction for material 
and supply costs), because facility capital improvements should have 
been depreciated over the useful life of the facility, but were 
expensed in the period incurred in the cost estimate.  In addition, 
the AAA's adjustments were based on more reliable and accurate 
financial data concerning base operations support that was not 
previously available.   

19. PharmChem also argues that the Army improperly failed to consider 
that Tripler's proposal is based on an assumption that a significant 
portion of Tripler's current workload in support of Fort Bragg 
(approximately 18 percent) will be transferred to Fort Meade.  This 
argument is without merit.  The short answer is that the Fort Bragg 
drug-testing workload is not a requirement of the RFP and, therefore, 
should not be included in the cost comparison.  As such, the Board 
found that the location of the Fort Bragg drug testing is irrelevant.  
Accordingly, the 9.2 FTEs included in Tripler's proposal represent the 
direct labor costs for the ANG/CG work, regardless of where the Fort 
Bragg work is performed.  In any event, the Board could find no 
indication that Tripler's proposal to transfer the Fort Bragg work to 
Fort Meade would have any impact on its estimate.

20. According to Tripler, the projected NG/USCG workload equates to 
approximately 511 batches for the year.  A technician running 2 
batches for LSD in 4 hours will have half of the time--or 2 
hours--free while waiting for incubation and instrument analysis.  
Tripler states that this equates to a maximum of 1,022 hours annually 
or 0.6 FTE.  Tripler Response to Protests, Sept. 23, 1998, at 11.