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.