TITLE:  Hydraulics International, Inc., B-284684; B-284684.2, May 24, 2000
BNUMBER:  B-284684; B-284684.2
DATE:  May 24, 2000
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Hydraulics International, Inc., B-284684; B-284684.2, May 24, 2000

Decision

Matter of: Hydraulics International, Inc.

File: B-284684; B-284684.2

Date: May 24, 2000

Alan Dickson, Esq., Paul Burkholder, Esq., and Shlomo D. Katz, Esq.,
Epstein, Becker & Green, for the protester.

Lee P. Curtis, Esq., Howrey, Simon, Arnold & White, and Donald J. Carney,
Esq., and Richard B. Clifford, Jr., Esq., Perkins Coie, for Malabar
International, Inc., an intervenor.

John E. Larriccia, Esq., and Sharon A. Jenks, Esq., Department of the Air
Force, for the agency.

David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

1. Protest that agency improperly failed to advise protester during
discussions that its price was so high as to make award to the firm
unlikely, is denied where contemporaneous record indicates that agency
determined that proposed price was reasonable, realistic and complete based
on the technical approach; while Federal Acquisition Regulation
sect. 15.306(e)(3) gives contracting officer discretion to inform offeror that
its cost/price is too high, it does not require that the contracting officer
do so.

2. Protest that agency conducted an improper cost/technical tradeoff is
denied where record indicates that agency recognized the technical
advantages of the protester's proposal, but reasonably determined that those
advantages were not worth its substantially higher price.

DECISION

Hydraulics International, Inc. protests the Department of the Air Force's
award of a contract to Malabar International, Inc., under request for
proposals (RFP) No. F41608-98-R-13005, for hydraulic test stands (HTS).
Hydraulics asserts that the evaluation of proposals was inconsistent with
the terms of the solicitation and otherwise unreasonable.

We deny the protest.

The solicitation, issued on November 6, 1998, contemplated the award of a
fixed-price requirements contract with a 4-year basic ordering period and
pricing for up to 600 units of four types (including 2 diesel models and 2
electric models) of 4-wheeled, trailer-mounted, towable HTSs with
purification and automated global control systems. [1] The HTSs are to be
used for ground check and maintenance of aircraft hydraulic systems.
Specifically, the HTS will provide two or three (depending on the model)
independently controlled hydraulic subsystems furnishing up to 5,000 pounds
of pressure per square inch, to pressurize aircraft hydraulic systems
without the use of the aircraft engines and thus allow the functional check
of flight control systems and landing gear operations, and will be capable
of purifying the hydraulic fluids in the HTS and the aircraft without the
use of external equipment.

Award was to be made to the responsible offeror whose proposal conformed to
the solicitation requirements and represented the best value to the
government. The solicitation provided that proposals would be evaluated
based on the following three evaluation areas: (1) technical, with factors
for design (with a stated weight of 60 percent of technical and including
subfactors for system design, reliability/maintainability and first article
testing) and system production (40 percent and including subfactors for
facilities, production plan and quality programs); (2) cost/price, which was
to be evaluated for realism, completeness and reasonableness; and (3)
general considerations, including the results of the pre-award survey, plant
visits, and compliance with RFP terms and conditions. The solicitation
stated that "the Technical Area is significantly more important than the
Cost/Price Area and the cumulative General Considerations," and that
cost/price and general considerations were of equal importance. RFP sect. M.2.3.

Each factor and subfactor within the technical area was to receive a
color/adjectival rating and a proposal risk assessment ("based on the risks
that are identified with an offeror's proposed approach as it relates to
accomplishing the requirements of the solicitation"). RFP sect. M.6.1. [2]
Further, the solicitation set forth technical evaluation standards that the
agency would apply in evaluating proposals; it listed the evaluation
elements under each subfactor, provided for a rating of either not met
(minus), meets (checkmark) or exceeds (plus) the stated threshold
requirements, and cautioned that an offer receiving a minus rating after
final proposal revisions (FPR) would be unacceptable. RFP, Technical
Evaluation Standards, at 1. The solicitation also provided that the
technical and cost/price evaluation areas would be assigned a performance
risk "based on the assessment of an offeror's present and past work record
to assess confidence in the offeror's ability to successfully perform as
proposed." RFP sect. M.6.2. In this regard, the relevance of each contract, as
well as the offeror's performance, was to be considered, and an overall
rating of not applicable, low, moderate or high risk was to be assigned. Id.

Six proposals were received in response to the RFP; all were included in the
initial competitive range. After conducting written discussions with
offerors, the Air Force established a revised competitive range of four
proposals. After a further round of written discussions and a round of oral
discussions, the agency requested FPRs.

Based on its evaluation of FPRs, as set forth below, the Air Force
determined that, although Hydraulics had submitted the higher-rated
technical proposal, the price of its proposal was such that Malabar's
proposal overall was most advantageous.

                           Hydraulics               Malabar

 TECHNICAL                 Low Performance Risk     Not Applicable
                                                    Performance Risk

 DESIGN                    Exceptional              Acceptable

                           /Low Proposal Risk       /Moderate Proposal Risk

 System Design             Exceptional/Low          Acceptable /Moderate

 Reliability/              Exceptional/Low          Exceptional /Moderate

 Maintainability

 First Article Testing     Acceptable/Low           Acceptable/Low

 SYSTEM PRODUCTION         Acceptable/Low           Acceptable/Moderate

 Facilities                Acceptable/Low           Acceptable/Moderate

 Production Plan           Acceptable/Low           Acceptable/Moderate

 Quality Programs          Acceptable/Low           Acceptable/Low

 GENERAL                   No issues                No issues

 COST/PRICE                $62,101,477/             $38,812,325/

                           Low Performance Risk     Not Applicable
                                                    Performance Risk

Hydraulics, which had previously manufactured HTSs for the Air Force, other
agencies and foreign customers, submitted the highest-rated technical
proposal. In particular, its proposal received an overall exceptional/low
proposal risk rating under the design factor (with a weight of 60 percent of
the technical area). As noted in the agency's proposal analysis report
(PAR), the low risk rating was

based upon maturity of the offered design (prototype in which components
have already been integrated, a sealed reservoir has been produced and
tested, and interface capability has been proven). The major components
(engine, motor, pumps) are commercial off-the-shelf [(COTS)] items,
enhancing long-term supportability. In addition, [Hydraulics] has
established facilities, quality programs, and an acceptable production plan.

Agency Report, Tab 29, PAR, at 22. In contrast, as acknowledged by the
source selection authority (SSA), there were a number of evaluated moderate
proposal risk factors associated with the proposal submitted by Malabar,
which had not previously manufactured HTSs. According to the SSA,

[w]hile Malabar demonstrated a design that meets or exceeds all
requirements, the Government has uncertainty about the possible effect on
schedule and performance of a system that has not yet been prototyped or is
associated with an offeror's previously produced unit, which demonstrates
maturity of design. (The design incorporates a global control system with a
microprocessor and software modeled, but not fully developed and a
scaled-down model of a [National Aeronautics and Space Administration
(NASA)] purification system.) Additionally, maintainability factors for the
system described above are at the component level, not the system level, the
lack of which could cause a schedule delay. Production was also a concern
due to the non-COTS approach for the global control system and purification
system, which may [a]ffect long term supportability. In addition, Malabar's
proposal to lease production facilities that are to be constructed after
contract award could [a]ffect schedule.

Agency Report, Tab 31, Source Selection Decision, at 4.

Notwithstanding these concerns regarding Malabar's proposal, the SSA
testified at the hearing our Office conducted in this matter that he
considered the proposal, which received the second highest rating, to be a
"very good," "excellent" proposal. Hearing Transcript (Tr.) at 47-48. As for
the additional risk associated with Malabar's proposal, the SSA emphasized
that "the RFP did not require a prototype, but [instead] a design," and he
stated that "in my judgment, overall, this is not a highly complex system,
and the Government lead engineer confirms that the design by Malabar, while
unique in some respects will function per the Government's requirement."
Agency Report, Tab 31, Source Selection Decision, at 6. [3] In addition,
while the SSA recognized that Malabar had received a "not applicable" for
performance risk based on its not having produced HTSs and thus having no
relevant technical performance history, he considered it significant that
the preaward survey and resumes indicated key personnel with experience in
the areas of hydraulic fluid power systems and HTSs. Id. at 5-7.

Most importantly, however, the SSA pointed to the fact that Hydraulics had
proposed the highest price--approximately 60 percent, or $23.3 million,
higher than Malabar's. [4] As the SSA testified at the hearing, while he was
"very drawn to the highest technical" and, to get the "Cadillac" the agency
had asked for he "would pay a Cadillac price," the dollar difference between
the proposals was "staggering" and "I won't pay a Rolls Royce price." Tr. at
36, 50-51, 113. According to the SSA, "there is no way in my mind that I
could rationally" explain "that I had bought $23 million worth of additional
goodness that really made a huge difference to us in the Air Force."
Id. at 113. Given his view of the significance of the technical, risk and
price differences between the proposals, the SSA concluded in the source
selection decision that "I did not consider the technical benefits proposed
by [Hydraulics] in comparison to Malabar warranted paying an additional $23
million especially considering that a great deal of the delta is due to
indirect rates ([overhead], profit and [General and Administrative])."
Agency Report, Tab 31, Source Selection Decision, at 7. Upon learning of the
resulting award to Malabar and being debriefed by the agency, Hydraulics
filed this protest with our Office.

Based upon our review of the record, including the hearing conducted by our
Office, we find no basis to question the source selection decision. We
discuss the protester's principal arguments below.

CORPORATE EXPERIENCE/PAST PERFORMANCE

Hydraulics asserts that the Air Force improperly failed to consider
Malabar's lack of relevant corporate experience and past performance in the
manufacture of HTSs. In this regard, the design personnel criterion under
the production plan subfactor of the system production factor provided that
the proposal would be evaluated "to determine if the production plan
describes adequate contractor experience in the successful design of
Hydraulic Test Stands and/or items of similar complexity, size, and
functionality . . . on past and current contracts held in the last ten (10)
years." RFP sect. M.3.2.2.2. The design personnel criterion also provided for
"an assessment of the qualifications, past experience, and current
employment status of key design personnel (including
contractor/subcontractors personnel) to be responsible for the design," and
of the relevant aspects of the contractor-generated statement of work (SOW),
integrated master plan (IMP) and integrated master schedule (IMS). Id.
Likewise, the production personnel criterion under the production plan
subfactor of the system production factor provided for a determination as to
whether the production plan "describes adequate contractor experience in the
production of Hydraulic Test Stands and/or items of similar complexity,
size, and functionality . . . on past and current contracts held in the last
ten (10) years"; an "assessment of the number, experience, and training of
production personnel"; and an evaluation of the relevant aspects of the
contractor-generated SOW, IMP and IMS. RFP sect. M.3.2.2.4.

The solicitation as issued also included technical evaluation standard
elements for each of these criteria, which established a threshold
requirement in each area for a minimum of two past or current contracts
within the last 10 years involving the successful design or production of
HTSs and hydraulic power supplies, or of equipment of a complexity, size and
functionality similar to the HTSs being procured. Technical Evaluation
Standards, System Production, Element Nos. 5, 11. The agency subsequently
amended the solicitation to delete element Nos. 5 and 11,

viewing them as inappropriate pass/fail restrictions. Amend. No. 0003;
Contracting Officer's Statement at 3. Hydraulics maintains, however, that
the provision in section M of the solicitation (as well as corresponding
requests for relevant experience information in the section L instructions
to offerors) for an evaluation to determine whether the production plan
describes adequate contractor experience in the successful design and
production of HTSs and/or items of similar complexity, size and
functionality, established a minimum corporate experience requirement that
Malabar failed to meet. RFP sect.sect. L at 7, M.3.2.2.2, M.3.2.2.4.

We disagree. After deletion of the stand-alone, two-relevant-contract
minimum set forth in the Technical Evaluation Standards, there remained the
applicable solicitation evaluation provisions in RFP section M, that is, the
criteria for design personnel and production personnel. RFP sect.sect. M.3.2.2.2,
M.3.2.2.4. As noted above, these criteria provided for consideration of, not
only relevant corporate experience, but also personnel qualifications and
experience and relevant aspects of the contractor-generated SOW, IMP and
IMS. In other words, contrary to Hydraulics' interpretation, the revised
solicitation evaluation scheme did not provide for a stand-alone pass/fail
corporate experience determination; it called for an overall integrated
assessment with respect to relevant inputs into the offeror's design and
production effort.

In these circumstances, we think it was reasonable for the agency to
consider (as the record indicates it did) relevant personnel experience as a
substitute for corporate experience in making its overall integrated
assessment under the design personnel and production personnel criteria. Tr.
at 171-72. In this regard, Malabar's proposal--which indicated experience in
designing and manufacturing hydraulic component designs and mobile system
designs (primarily aircraft jacks and fluid service equipment)--stated that
its senior lead/mechanical engineer (with a masters degree in mechanical
engineering) had significant (apparently as much as 30 years) design,
development, manufacturing and test experience with Air Force HTSs and other
test stands; its chief engineer had 20 years experience in the design,
development, manufacture and testing of aircraft maintenance equipment and
hydraulic fluid power systems; its vice president for sales and marketing
had a bachelor's degree in mechanical engineering and 30 years experience in
hydraulic fluid systems, aircraft ground equipment and product support; and
its production personnel were experienced in manufacturing mobile aircraft
hydraulic equipment. Agency Report, Tab 38, Malabar Present and Past
Performance Volume; Tab 35, Malabar Technical Proposal at 50-51, 53-54,
56-57. An overall, integrated acceptable rating in this area was reasonable
in light of this personnel experience.

Hydraulics also asserts that the SSA's source selection decision failed to
take into account Hydraulics' advantage with respect to technical
performance risk, that is, past performance; Hydraulics was rated low risk
and Malabar was given a "not applicable" rating based on its lack of
corporate past performance on HTS contracts. While the SSA stated in the
source selection decision that technical performance risk "was not a
discriminator," the SSA testified at the hearing that he understood a low
technical performance risk rating to be better than a "not applicable"
rating; the SSA recognized that, all other things being equal, Hydraulics'
past performance indicated that it was more likely to successfully perform
the contract, and he indicated that he was willing to pay more for a low
risk rating. Agency Report, Tab 31, Source Selection Decision, at 4; Tr. at
28, 30-31, 33, 37-39, 111, 132. Nevertheless, Hydraulics suggests that the
SSA's testimony that its low risk rating "was not a discriminator of
sufficient magnitude that I was going to carry it further" in the
evaluation, Tr. at 38, indicates that the SSA improperly failed to account
for Hydraulics' advantage in this regard in making his decision. In our
view, Hydraulics mischaracterizes the SSA's testimony. Fairly read, the
SSA's testimony indicates that the SSA considered this distinction, but
found the difference in past performance, insofar as it related to the
likelihood of successful contract performance, not to be critical, and
certainly not sufficient in the context of his overall integrated source
selection decision to alter that decision in favor of Hydraulics.
Tr. at 29-31, 60, 111, 133-34.

TECHNICAL

Reliability/Maintainability

Hydraulics challenges the Air Force's evaluation of the reliability and
maintainability of Malabar's proposed system. In this regard, the
solicitation Statement of Objectives (SOO) required that the HTS have a
"demonstrable" minimum mean time between failure (MTBF) of 1,000 hours of
operation, and a mean time to repair (MTTR) for a major component (electric
motor, diesel engine and hydraulic pumps) of no greater than 16 hours and
for other components of no greater than 4 hours. SOO sect.sect. 3.11, 3.12(c).
Section M of the solicitation provided, under the
reliability/maintainability subfactor of the design factor, for an
evaluation to determine whether "the contractor's approach will yield a
system design that meets or exceeds" quantitative reliability requirements
such as MTBF or quantitative and qualitative maintainability requirements
such as MTTR. RFP sect. M.3.1.2. Offerors were required to include in their
proposals "detailed data concerning all reliability quantitative
requirements and engineering requirements," including "a summary of the
analysis used to predict" the reliability and MTBF, and "detailed data
concerning quantitative and qualitative maintainability requirements,"
including "a summary of the analysis used to predict" MTTR. RFP sect. L.1.2.

Malabar's proposal indicated a MTBF of [DELETED] hours for diesel and
[DELETED] hours for electric HTSs, and a MTTR of [DELETED] labor hours for
major components and (as calculated by the agency) an average [DELETED]
labor hours for minor components; its proposal received an overall
exceptional, moderate proposal risk rating for the
reliability/maintainability subfactor of the design factor. Agency Report,
Tab 35, Malabar Proposal, Technical Volume, at 38-42; Tab 29, PAR, at 24;
Tab 30, Source Selection Evaluation Final Briefing, at 36. Hydraulics'
proposal specified an MTBF of 1,115 hours and MTTRs of 9.25 labor hours for
major components and 1.33 labor hours for minor components; its proposal
received an overall exceptional, low proposal risk rating for the
reliability/maintainability subfactor. Agency Report, Tab 47, Hydraulics
Proposal, Technical Volume, at 30-31; Tab 29, PAR, at 19; Tab 30, Source
Selection Evaluation Final Briefing, at 30.

Hydraulics asserts that a system-level analysis of the
reliability/maintainability of proposed systems was required and that
Malabar's proposal should be rejected or further downgraded for failure to
include such an analysis.

In reviewing an agency's evaluation of proposals and source selection
decision, our review is confined to a determination of whether the agency
acted reasonably and consistent with the stated evaluation factors and
applicable procurement statutes and regulations. Main Bldg. Maintenance,
Inc., B-260945.4, Sept. 29, 1995, 95-2 CPD para. 214 at 4.

Based on our review of the proposals, we find persuasive the determination
of the Air Force's technical team leader, who testified that both offerors
appeared to use essentially the same approach in predicting
reliability/maintainability. The technical team leader testified that the
proposals indicated that both offerors appeared to use the same approach of
relying on component failure rates from the Department of Defense's
Reliability Analysis Center (RAC) to derive a system-level MTBF number. Tr.
at 182-83, 187-89; Agency Report, Tab 35, Malabar Proposal, Technical
Volume, at 36; Tab 46, Hydraulics Proposal, Executive Volume, at 18; Tab 47,
Technical Volume, at 30. Although Hydraulics indicated in its proposal that
its prediction was also based on vendor data and its own field data,
Hydraulics' proposal as evaluated by the agency did not provide a basis for
ascertaining the relative contribution of this data, rather than RAC data,
to the overall prediction; the agency thus viewed Hydraulics' prediction as
based primarily on RAC data, that is, essentially the same basis as relied
upon for Malabar's reliability prediction. Tr. at 187-89; Agency Report, Tab
46, Hydraulics Proposal, Executive Volume, at 18-19; Tab 47, Technical
Volume, at 30.

Likewise, both offerors specified component-level MTTR numbers. Although
Hydraulics specified an overall system-level MTTR for non-major components,
and Malabar did not perform this calculation in its proposal, as
demonstrated at the hearing by the technical team leader, Hydraulics'
calculation appeared to amount to no more than adding the component MTTRs
and dividing by the number of components, such that a comparable figure for
Malabar's system was easily calculated. Thus, Malabar's failure to include
the specific calculation in its proposal was not significant. Tr. at 177-82,
185-86, 196; Agency Report, Tab 46, Hydraulics Proposal, Executive Volume,
at 18-19; Tab 47, Technical Volume, at 30; Tab 35, Malabar Proposal,
Technical Volume at 41. Further, to the extent that the evaluated proposals
differed with respect to the discussion of the offerors'
reliability/maintainability approaches, we note that Malabar's proposal
contained significantly more detail than Hydraulics', including, for
example, extensive sub-component data and a distinction between
reliability/maintainability predictions for electric and diesel HTSs, which
were not found in Hydraulics' evaluated

proposal. Agency Report, Tab 35, Malabar Proposal, Technical Volume, at
36-42; Tab 46, Hydraulics Proposal, Executive Volume, at 18-19; Tab 47,
Technical Volume, at 30.

The Air Force did recognize a difference between the proposals with respect
to the degree of confidence the agency had in the offerors' predictions. The
agency had a greater confidence in Hydraulics' reliability/maintainability
predictions because its proposal indicated that it had developed a
prototype, and thus could calculate its system's overall reliability and
maintainability as a function of all of the system components, while Malabar
had listed only 95 percent of the system components. As a result, the agency
assigned Malabar's proposal a moderate risk rating for the
reliability/maintainability subfactor, while assigning Hydraulics' proposal
a low risk rating in this regard. Tr. at 40-42, 189-92, 196. Although
Hydraulics asserts that the lesser maturity of Malabar's design required
that its proposal be further downgraded in the evaluation, we note that the
technical team leader testified that "those major components that really
contribute the highest to your reliability and your failure rates and
maintainability were all factored into" Malabar's predictions, and that the
unidentified parts thus were not significant factors. Tr. at 189-90. We
conclude that there is no basis to question the reliability/maintainability
evaluation ratings.

Purification

Hydraulics argues that Malabar's proposal failed to demonstrate compliance
with the solicitation requirements concerning the purification of hydraulic
fluid to remove chlorinated solvents (degreasers).

We find the record supports the agency's determination that Malabar's
proposal was acceptable in this area. The statement of evaluation criteria
generally provided for evaluation (under the hydraulic reservoir and fluid
purification system criterion under the system design subfactor of the
design factor) of "the contractor's capability to adequately and accurately
provide a design that meets or exceeds the test stand's fluid reservoir and
fluid purification systems' requirements," and specifically provided that
"removal of chlorinated solvents . . . shall be completely detailed in the
contractor's presentation." RFP sect. M.3.1.1.4. As set forth in the applicable
Technical Evaluation Standards element, "[t]he standard is met when the
proposed design indicates that the purification processing time meets the
specification requirements," in this case, the requirement for "[r]emoval of
chlorinated solvents to less than 50 ppm [parts per million] (initial
content 200 ppm) within a twelve minute per gallon fluid processed run
time." Technical Evaluation Standards, Design, Hydraulic Fluid Reservoir and
Fluid Purification System, 1.1.4, Element, No. 22. Likewise, the SOO
required that the HTS "shall remove chlorinated solvents (degreasers) from
all hydraulic fluids in its own system and sub-systems and the aircraft
systems to less than 50 parts per million (ppm)." SOO sect. 3.4.3(e).

Malabar proposed a scaled-down version of the process used by NASA in the
space shuttle hydraulic ground support units. Although removal of
chlorinated solvents is not a requirement of the NASA process, Malabar
furnished the Air Force with NASA data, and the agency subsequently
confirmed with NASA the validity of the data, which indicated that, as a
by-product of removing air, water and particulates, the NASA process also
removed halogenated (chlorinated) solvents to levels under 100 ppm. In its
initial proposal, and in several submissions during discussions responding
to agency inquiries, Malabar explained that it would use a kidney loop
process similar to the NASA process to purify the hydraulic fluid. According
to the technical team leader, this approach, an industry-standard approach
also proposed by Hydraulics, involves continuously cycling off part of the
hydraulic fluid, passing it through a filter, and then drawing it into a
vacuum chamber with a nozzle or spray ring, where the hydraulic fluid is
atomized and, because water, air and solvents have different specific
gravities than hydraulic fluid, the hydraulic fluid is separated from the
contaminants. Tr. at 207-11. Malabar explained to the agency that it would
not only downsize the NASA process, but also would modify the NASA approach
to achieve finer dispersal, and thus easier, increased solvent removal, by
[DELETED]. Agency Report, Tab 35, Malabar Proposal, Technical Volume, at 34;
Tab 40, Malabar Discussion Response, July 14, 1999, at # TECH-MAL-007,
TECH-MAL-008; Tab 42, Malabar Discussion Response, Oct. 11, 1999, at
# TECH-MAL-2; Tab 44, Malabar FPR, at # 3-1.

As explained by the technical team leader, the NASA data (the validity of
which was confirmed with NASA) indicated that the NASA process reduces the
level of chlorinated solvents in a sample of 100 gallons from 300 ppm to
100 ppm in 240 minutes, or 2.4 minutes per gallon. [5] The record also
indicates that continuing the purification process further reduces
contaminant levels. Although the rate of further reductions decreases as the
level of contamination decreases, the technical team leader testified that
the NASA data clearly indicated that a reduction below 50 ppm would be
achieved under Malabar's approach in significantly less than the required
12 minutes per gallon. Tr. at 224-28; Agency Report, Tab 44, Malabar FPR, at
# 3-1.

Hydraulics notes that, while the solicitation requirement against which
proposals were to be evaluated in fact was to reduce the level of
chlorinated solvents "to less than 50 ppm (initial content 200 ppm) within a
twelve minute per gallon fluid processed run time" Technical Evaluation
Standards, Design, Hydraulic Fluid Reservoir and Fluid Purification System,
Element No. 22 (emphasis added), Malabar stated a goal of reducing the level
of chlorinated solvents in a sample of 40 gallons from 300 ppm to 50 ppm in
400 minutes, or 10 minutes per gallon. Agency Report, Tab 44, Malabar FPR,
at # 3-1. Again, however, the data indicated that a reduction below 50 ppm
in fact would be achieved under Malabar's approach in significantly less
than the required 12 minutes per gallon. In any case, our Office will not
sustain a protest absent a showing of a reasonable possibility that the
protester 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). Hydraulics has not shown that it would
have altered its proposal to its competitive advantage had it known that the
agency would accept a commitment to reducing chlorinated solvents to only
50 ppm, rather than to less than 50 ppm. Thus, there is no basis for
concluding that any relaxation of the requirement prejudiced Hydraulics.

Hydraulics claims Malabar advised the agency that "it would use [DELETED]
rather than the ‘vacuum removal process,'" and that its use of a
"wholly different" process from that used by NASA called into question
Malabar's and the Air Force's reliance on the performance data for the NASA
process. Hydraulics Hearing Comments, May 10, 2000, at 23. Hydraulics'
argument is not persuasive. Malabar made clear in its discussions with the
agency, referring for example to [DELETED] that it intended to continue to
use a vacuum process, but that it would improve fluid dispersion, and
thereby purification, through [DELETED]. Agency Report, Tab 43, Verbal
Discussions, at 9-10; Tab 44, Malabar FPR, at # 3-1. In addition, the record
indicates that downsizing the NASA process "has very little effect on the
purification process." Tr. at 222. This being the case, there is no basis
for questioning the technical team leader's judgment that Malabar's proposed
process is essentially the same as NASA's; there certainly has been no
showing that they are so dissimilar as to undermine the validity of the NASA
data as a basis for concluding that the proposed Malabar system was likely
to satisfy the chlorinated solvent removal requirement. Tr. at 216, 222-24.
[6]

Other Technical Evaluation Issues

Hydraulics challenges other aspects of the technical evaluation. For
example, Hydraulics asserts that the Air Force did not adequately take into
account in the evaluation the fact that Malabar proposed to subcontract to
[DELETED], a [DELETED] company that shares space with a security electronics
company, the design and development of the HTS global control and
instrumentation system, which includes equipment displays and a
custom-designed controller using a microprocessor and three replaceable
circuit boards. Agency Report, Tab 35, Malabar Proposal, Technical Volume,
at 1, 32-34, 54, Fig. 3. However, the information available to the Air
Force, including a site survey undertaken by the Defense Contract Management
Command (DCMC), indicated that [DELETED] had been in existence for at least
11 years; its chief engineer/president was an electrical engineer with
experience in developing microprocessor-based controls and human interfaces;
[DELETED] previously had manufactured similar control systems and produced
industrial control test equipment; [DELETED] already had completed a
preliminary design of the system and developed a draft vendor list; and,
according to the testimony of the technical team leader, the design could be
undertaken by a single engineer and the microprocessors and circuit boards
could be manufactured by multiple sources. Air Force Supplemental Report,
Apr. 10, 2000, attach. 1, DCMC Report, Dec. 15, 1999; Tr. at 231-36, 241-44,
248-51. Given this information, the agency's determination that Malabar's
approach to the global control and instrumentation system warranted no worse
than a moderate design risk (for immature design) and moderate production
risk rating was reasonable. Agency Report, Tab 29, PAR at 25-26; Tr. at 250.

Similarly, Hydraulics challenges the Air Force's determination that
Malabar's proposal to construct, after award, a new facility in which to
fabricate the HTS production units, a facility different from that in which
the first article test (FAT) units were to be fabricated, warranted no more
than a moderate risk based on potential production delays. However, since
the agency's schedule afforded Malabar some leeway with respect to schedule,
in that its FAT report was not due until 517 days after award and its
production units were not due until 140 days after receipt of order, we
think the agency could reasonably determine that the level of risk was only
moderate. Agency Report, Tab 29, PAR at 3-4, 26. [7]

PRICE REALISM

Hydraulics argues that the Air Force failed to perform a reasonable price
realism evaluation. As noted above, the RFP provided that an offeror's
cost/price proposal would be evaluated to determine if it was realistic,
complete and reasonable. Regarding realism, the solicitation provided for
"assessing the compatibility of proposed costs with proposal scope and
effort," and stated that for the price to be realistic, "it must reflect
what it would cost the offeror to perform the effort if the offeror operates
with reasonable economy and efficiency." RFP sect. M.4.4. Offerors were required
to include in their proposals "cost, profit and price" for each applicable
line item; a "complete description of the philosophy and methodology used in
developing cost estimates"; and such specific data as bills of material,
direct labor hours and rates, and overhead and indirect rates. RFP sect. L at 8.
Hydraulics asserts that the agency erred in not recognizing that Malabar's
proposed price was unrealistically low.

Where, as here, a fixed-price contract is to be awarded, the "realism" of
offerors' proposed prices is not ordinarily considered, since a fixed-price
contract places the risk and responsibility for contract costs and resulting
profit or loss on the contractor. Human Resources Sys., Inc.; Health
Staffers, Inc., B-262254.3 et al., Dec. 21, 1995, 96-1 CPD para. 35 at 5.
However, an agency may, at its discretion, provide for the use of a price
realism analysis in a solicitation for the award of a fixed-price contract
to assess the risk in an offeror's approach. PHP Healthcare Corp.; Sisters
of Charity of the Incarnate Word, B-251799 et al., May 4, 1993, 93-1 CPD para.
366 at 5. The nature and extent of an agency's price realism analysis are
matters within the agency's discretion, Cardinal Scientific, Inc., B-270309,
Feb. 12, 1996, 96-1 CPD para. 70 at 4, and we will review an agency's price
evaluation only to determine whether it was reasonable, consistent with the
RFP evaluation criteria, and compliant with the Federal Acquisition
Regulation. Sabreliner Corp., B-284240.2, B-284240.6, Mar.  22, 2000, 2000
CPD para. __ at __; Trauma Serv. Group, B-242902.2, June 17, 1991, 91-1 CPD
para. 573 at 4.

In performing its realism analysis here, the agency compared Malabar's price
($60,400) for the Type III, 2-system diesel HTS--the only one of the four
HTS types for which the agency believed it had data from comparable
acquisitions--both with the prices offered by the other offerors that
submitted FPRs (which included Hydraulics' unit price of $99,995, as well as
unit prices of $[DELETED] and $[DELETED] from two other offerors with HTS
experience), and with a government estimate ($55,044) derived from the
pricing under a contract for 615 units overall, which was awarded to
Hydraulics in 1988. In calculating this estimate, the agency increased the
1991 price for the unit ($31,578) to account for the increased complexity of
the solicited item--including the addition of a hydraulic purification
system, microprocessor-based control system, and new Environmental
Protection Agency-approved engine--and for relevant price escalation
(derived from the Data Resources Indices index for aircraft auxiliary
equipment). Agency Report, Tab 28, Price Comparison Memorandum, at 3-5.

Hydraulics argues that the agency improperly failed to take into account
higher pricing under several more recent Hydraulics HTS contracts--for some
of which it furnished general contract prices and numbers of units as part
of its past performance volume--for HTSs that were more comparable to those
being procured here. (In his protest submission, the cost consultant
retained by counsel for Hydraulics for this protest cites allegedly relevant
contracts for 1 to 9 units at up to $[DELETED] per unit. Hydraulics
Comments, Mar. 30, 2000, Ex. 4, at 4-5.)

We find the agency's realism analysis reasonable. The contracts cited by
Hydraulics were for no more than 9 units (or 14 units based on counsel for
Hydraulics' reference, Tr. at 308). The pricing under these contracts
therefore could be viewed as less relevant to the RFP here, which sought
pricing for 600 units overall, than the pricing of the earlier contract (as
adjusted) for 615 units.

Further, the record indicates that the Air Force also considered in its
evaluation the structure of Malabar's offer; for example, the agency asked
Malabar during discussions generally to explain its approach to estimating
labor hours, and specifically to discuss the learning curve it used. Agency
Report, Tab 39, Agency Discussion Letter to Malabar, July 6, 1999,
# COST0002; Tab 41, Agency Discussion Letter to Malabar, Sept. 28, 1999,
# COST0002. The agency's explanation of its realism analysis indicated that
it had evaluated the impact of Malabar's technical approach on its
cost/price. Specifically, the report of the agency pricing team stated that

Malabar's proposal was considered complete and realistic based on the
compatibility of the proposed costs with Malabar's proposed technical
approach to purchase major components such as housing and the global control
system rather than manufacturing them, which results in lower labor costs.
In addition, some materials/components, such as the [DELETED] are less
costly than more traditional approaches, resulting in lower material costs.

Agency Report, Tab 28, Price Comparison Memorandum, at 7. Since the
awardee's price was higher than the government estimate--which was based on
the most relevant previous contract price (as reasonably adjusted)--and not
seriously out of line with the prices of two of three experienced offerors,
and since the agency considered the cost and technical aspects of the
proposed contract effort in its realism analysis and concluded that the
proposed technical approach was likely to result in cost savings to the
contractor, we find that the agency reasonably determined that Malabar's
price was realistic. [8]

DISCUSSIONS

As noted above, the SSA viewed the final price difference between Malabar's
and Hydraulics' proposals--a difference of approximately 60 percent or $23.3
million--as "staggering." Tr. at 36. Likewise, after initial proposals,
Hydraulics' price ($62,101,477) had exceeded Malabar's ($36,615,535) by
approximately 70 percent or $25.5 million. Hydraulics argues that the
agency, by not advising it during discussions that it viewed the firm's
price as high, violated Federal Acquisition Regulation (FAR) sect. 15.306(d)(3),
which requires a contracting officer to discuss with offerors being
considered for award the significant weaknesses, deficiencies, and other
aspects of their proposals, such as price, that could be altered or
explained to materially enhance the proposal's potential for award. In this
regard, we have held that an agency failed to conduct meaningful discussions
where it failed to apprise an offeror that its prices was viewed as
unreasonably high. Price Waterhouse, B-220049, Jan. 16, 1986, 86-1 CPD para. 54
at 6-7.

This argument is without merit. As an initial matter, we note that, although
the SSA at one point during the hearing characterized Hydraulics' price as
"definitely unreasonable," Tr. at 105, the SSA later explained that he did
not consider Hydraulics' price to be "inherently unreasonable" such that the
firm's proposal was unacceptable. Id. at 317-18, 321. Rather, the SSA
testified that "[w]hat we were looking at is magnitude of the technical
difference and the magnitude of the cost difference. That's really it. To
say that I would not have awarded [to] Hydraulics International because of
cost is not the case." Id. at 320. Again, according to the SSA, he concluded
that there was no way that he could find "that I had bought $23 million
worth of additional goodness that really made a huge difference to us in the
Air Force." Tr. at 113. The SSA's testimony in this respect is consistent
with the contemporaneous recommendation of the agency evaluators that "[a]ll
four offers have been determined to be reasonable, realistic and complete
based on the individual technical approaches." Agency Report, Tab 29, PAR at
37. Likewise, it is consistent with the SSA's own source selection decision
statement wherein he described his decision in terms of a cost/technical
tradeoff, stating that "I did not consider the technical benefits proposed
by [Hydraulics] in comparison to Malabar warranted paying an additional $23
million . . . ." Agency Report, Tab 31, Source Selection Decision, at 7. It
thus appears that the SSA viewed Hydraulics' price as noncompetitive--rather
than unacceptable--given the technical benefits offered by the proposal.

In these circumstances, the agency was not required to advise Hydraulics
during discussions that its price was so high as to make award to the firm
unlikely. As noted above, the agency issued the solicitation here on
November 6, 1998; this was after the January 1, 1998 effective date of the
revised discussion rules of part 15 of the FAR. Those revised rules, at
sect. 15.306(e)(3), provide that "the contracting officer may inform an offeror
that its price is considered by the Government to be too high, or too low,
and reveal the results of the analysis supporting that conclusion." As we
have previously recognized, this language merely gives the contracting
officer discretion to inform the offeror that its cost/price is too high--it
does not require that the contracting officer do so. See AJT & Assocs.,
B-284305, B-284305.2, Mar. 27, 2000, 2000 CPD para. __ at 8-9; National
Projects, Inc., B-283887, Jan. 19, 2000, 2000 CPD para. __ at 5. [9]

COST/TECHNICAL TRADEOFF

Hydraulics argues that the agency conducted an improper cost/technical
tradeoff by failing to take into account Hydraulics' technical superiority,
and essentially changed the basis for award from best value to one based on
low price. It notes in this regard that, during the hearing, the SSA
generally described his concept of best value by stating that,"[b]asically
in general terms it's buying an acceptable product at the best price,"
Tr. at 121, suggesting that the agency ignored the fact that price was to be
less important than technical considerations.

Our review of cost/technical tradeoff decisions is limited to a
determination of whether the tradeoff was reasonable and consistent with the
solicitation's evaluation criteria. Loral Aeronutronic, B-259857.2,
B-259858.2, July 5, 1995, 95-2 CPD para. 213 at 16. Notwithstanding a
solicitation's emphasis on technical merit, an agency properly may select a
lower-priced, lower technically-rated proposal if it decides that the cost
premium involved in selecting a higher-rated, higher-priced proposal is not
justified, given the acceptable level of technical competence available at
the lower price. Tidewater Homes Realty, Inc., B-274689.5, Aug. 11, 1998,
98-2 CPD para. 40 at 4; Research Triangle Inst., B-278254, Jan. 12, 1998, 98-1
CPD para. 22 at 6.

The Air Force's tradeoff decision here was reasonable. As noted above, the
superior technical merit of Hydraulics' proposal was fully recognized by the
agency during the evaluation as evidenced by the PAR report and the SSA's
source selection decision in which the SSA noted, for example, that
Hydraulics had "proposed the most highly rated and ranked technical
proposal." Agency Report, Tab 31, Source Selection Decision, at 6. Further,
the SSA confirmed in his hearing testimony that this recognition of the
advantages offered by Hydraulics' proposal extended to the past performance
area, where the SSA also recognized that Hydraulics' low technical
performance risk rating was better than Malabar's "not applicable" rating
such that, all other things being equal, Hydraulics' past performance
indicated that it was more likely to successfully perform the contract. Tr.
at 28, 30-31, 33, 37-39, 111, 132. As the SSA further testified, "when we
got to the end of it, [it] was high technical, low risk against very good
technical, moderate risk, and this cost issue that was designed to be lower,
but was very--you know, it was very unexpected." Tr. at 134.

Further, notwithstanding the above-quoted remark concerning the tradeoff,
the record reasonably read indicates that the SSA in fact conducted a
tradeoff between price and non-price considerations. According to the SSA's
contemporaneous source selection statement, he "did not consider the
technical benefits proposed by [Hydraulics] in comparison to Malabar
warranted paying an additional $23 million. . . ." Agency Report, Tab 31,
Source Selection Decision, at 7. As for the actual tradeoff, there is simply
no basis to conclude that it was unreasonable for the

SSA to determine that the technical advantages of Hydraulics' proposal were
not worth its substantially higher price.

The protest is denied.

Comptroller General
of the United States

Notes

1. The solicitation also provided for an additional 3-year award period,
depending on the contractor's performance and the negotiation of realistic
and reasonable pricing.

2. In addition to the overall requirement to evaluate proposal risk, the
solicitation also provided under the system design subfactor of the design
evaluation factor that "the contractor's design concept will be thoroughly
reviewed to ensure minimal program risk." RFP sect. M.3.1.1.

3. The SSA also determined with respect to Malabar's use of non-COTS global
control and purification systems that the RFP did not address long-term
supportability. Agency Report, Tab 31, Source Selection Decision, at 7.

4. The prices of the other two proposals, one of which was found to be
technically unacceptable, were $[DELETED] and $[DELETED]. The remaining
technically acceptable proposal received a lower technical rating than
either Hydraulics' or Malabar's proposals and, as noted above, was higher
priced than Malabar's.

5. Hydraulics asserts that there is a significant difference between its and
Malabar's purification systems with respect to the speed at which they will
reduce chlorinated solvent contamination. The protester notes in this regard
data submitted during discussions which indicate a reduction from 200 ppm to
39 ppm at a rate of 2 minutes per gallon. See Agency Report, Tab 55,
Discussions Response, Oct. 11, 1999, at # TECH-HYD-2. However, although
Malabar stated a goal of reducing the level of chlorinated solvents from
300 ppm to 50 ppm at a rate of 10 minutes per gallon, the NASA data cited
above indicated that in fact the NASA process, which Malabar proposed to
improve, reduced the level of chlorinated solvents from 300 ppm to 100 ppm
at a rate of 2.4 minutes per gallon. Especially in view of the fact that the
data indicated that both offerors' proposed systems are likely to
significantly exceed the minimum proposal requirements as set forth at
Technical Evaluation Standards, Design, Hydraulic Fluid Reservoir and Fluid
Purification System, Element No. 22, there is no basis for concluding that
the practical differences between the systems in this regard are such that
Hydraulics' proposal should have received a higher adjectival rating than
Malabar's.

6. In its comments on the hearing, Hydraulics for the first time argues that
the applicable requirement actually is found in SOO sect. 4.6.29, entitled
Hydraulics Purification System Demonstration/Validation, which provides,
with respect to the acceptance testing of production units, that the failure
of an HTS to purify a sample of 40 gallons so as to remove contaminants,
including chlorinated solvents, within 3 hours, that is, at a rate of 4ï¿½
minutes per gallon, shall be cause for rejection of the unit. Hydraulics
Post-Hearing Comments, May 10, 2000, at 24-25. This argument is untimely,
since it was first raised more than 10 days after Hydraulics received a copy
of Malabar's proposal and the agency's evaluation thereof on March 8, 2000.
4 C.F.R. sect. 21.2(a)(2) (2000).

7. The agency's schedule appears to be a deviation from that set forth in
the solicitation, which allowed only 420 days after award ("receipt of
order") for delivery of the FAT report, but allowed 240 days from the end of
the month in which the order was received for delivery of the production
units. RFP sect. B, Schedule. Hydraulics has not argued that it would have
altered its proposal had it been aware of this possibility. Thus, there is
no basis for concluding that any relaxation of the requirement prejudiced
Hydraulics.

8. In its March 30, 2000, comments on the agency report, Hydraulics for the
first time questioned the realism of specific labor and material costs in
the cost data furnished by Malabar in its proposal, a copy of which was
included in the agency's early document production on March 8. Where a
protester files supplemental protest grounds, each new ground must
independently satisfy the timeliness requirement of our Regulations, which
do not contemplate the piecemeal presentation or development of protest
issues. Battelle Memorial Inst., B-278673, Feb. 27, 1998, 98-1 CPD para. 107 at
24 n.32; QualMed, Inc., B-257184.2, Jan. 27, 1995, 95-1 CPD para. 94 at 12-13.
This includes the identification of "examples" of flaws in the evaluation
generally previously alleged. Id. Such new issues must be filed within
10 calendar days after the protester knew or should have known of them. 4
C.F.R. sect. 21.2(a)(2). Since Hydraulics did not raise these arguments until
more than 10 days after receipt of the relevant documents, they are untimely
and not for consideration.

9. On April 3, 2000, the FAR Secretariat issued a proposed revision to FAR
sect. 15.306(d)(3) in which it clarified the contracting officer's obligations
with respect to conducting discussions, explaining that its views in this
regard were consistent with GAO's decisions in Du & Assocs., B-280283.3,
Dec. 22, 1998, 98-2 CPD para. 156, and MRC Fed., Inc., B-280969, Dec. 14, 1998,
99-1 CPD para. 8. According to the FAR Secretariat, discussions of offerors'
proposals beyond deficiencies and significant weaknesses are a matter for
contracting officer discretion. Specifically, the proposed provision states
that the contracting officer generally must discuss with offerors being
considered for award significant weaknesses, deficiencies, and adverse past
performance information to which the offeror has not yet had an opportunity
to respond. While the provision indicates that the contracting officer is
"encouraged to discuss other aspects of the offeror's proposal (such as
cost, price, technical approach, past performance, and terms and conditions)
that could, in the opinion of the contracting officer, be altered or
explained to enhance materially the proposal's potential for award," it
states that the contracting officer "is not required to discuss every area
where the proposal could be improved." 65 Fed. Reg. 17,582 (2000).