TITLE:  Rice Services, Ltd., B-284997, June 29, 2000
BNUMBER:  B-284997
DATE:  June 29, 2000
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Rice Services, Ltd., B-284997, June 29, 2000

Decision

Matter of: Rice Services, Ltd.

File: B-284997

Date: June 29, 2000

David B. Dempsey, Esq., and Andrew Price, Esq., Piper Marbury Rudnick &
Wolfe, for the protester.

Michael D. Rossiter, Esq., Kathy B. Cowley, Esq., and Paul W. Knoth, Esq.,
Department of the Navy, for the agency.

Glenn G. Wolcott, Esq., and Paul I. Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest that, in performing a cost comparison pursuant to Office of
Management and Budget Circular No. A-76, agency failed to reasonably compare
the level and quality of performance to be obtained under the government's
Most Efficient Organization/Management Study (MEO) with the level and
quality of performance to be obtained under the "best value" private-sector
offer is sustained where the agency's comparison recharacterizes previously
evaluated strengths in the private-sector proposal as "unnecessary expenses"
and "redundancies," uses "assumptions" that staffing levels in the MEO are
"adequate" to meet the requirements of the performance work statement, and
fails to compare the actual level of effort that will be obtained under each
approach.

DECISION

Rice Services, Ltd., protests the Department of the Navy's decision,
pursuant to Office of Management and Budget (OMB) Circular No. A-76, that it
would be more economical to perform full food service activities in-house at
the United States Naval Academy (USNA) in Annapolis, Maryland, rather than
to contract for these services with Rice under solicitation No.
N00600-99-R-1649. Rice primarily challenges the adequacy of the agency's
comparison of the performance reflected in the government's Most Efficient
Organization/Management Study (MEO) with the

performance reflected in Rice's proposal, and the reasonableness of the
agency's determination that the two proposed performance plans were
technically equivalent.

We sustain the protest.

BACKGROUND

In January 1998, the Navy announced that it intended to perform a commercial
activities study to determine whether it would be more economical to perform
food service activities at the USNA in-house using government employees, or
under contract with a private-sector firm. A commercial activities study
team was formed to document the agency's requirements by creating a
performance work statement (PWS) to provide a common basis for preparation
of private offerors' proposals and the government's MEO. [1] The PWS was
completed and approved on March 29, 1999.

On May 21, the agency issued a request for proposals (RFP) to be used to
conduct a competition between private-sector offerors. The RFP stated that
the successful offeror would be selected on the basis of the proposal
representing the "best value to the Government from a technical and cost
standpoint"; that proposals would be evaluated on the basis of technical,
[2] past performance, key personnel, and price factors; and that, when
combined, the non-price evaluation factors were "significantly more
important than cost or price." [3] RFP  sect.sect. M.4, M.5. Section C of the RFP
incorporated the PWS as the statement of work, required that proposals
identify both the "number of personnel and the number of man-hours proposed
in each labor category," RFP sect. C.1.3.3.4, and advised offerors that "[t]he
ultimate focus of the management team should be to not merely meet
expectations, but to exceed them and make USNA the top service academy
dining facility," RFP sect. C.1.3.2.2, and that "[f]ood quality and customer
satisfaction shall always be the ultimate goal." RFP sect. C.5.1.1.2.

Proposals were submitted by three offerors, including Rice Services, by the
July 23, 1999 closing date, [4] and in early August, each offeror made an
oral presentation to the agency. Thereafter, the agency's technical
evaluation team (TET) evaluated the proposals using the adjectival rating
system set forth in the RFP, and prepared a report documenting that
evaluation. The offerors' ratings under the non-price evaluation factors,
along with their proposed prices, were as follows:

 Offeror        Technical      Key Personnel   Past           Price
                                               Performance

 Rice           Better         [deleted]       [deleted]      [deleted]

 Offeror A      Better         [deleted]       [deleted]      [deleted]

 Offeror B      Acceptable     [deleted]       [deleted]      [deleted]

Agency Report, Tab A, Business Clearance Memorandum, at 8.

Rice proposed a total staffing level of [deleted] full-time equivalents
(FTEs), which was [deleted]. As part of its technical proposal, Rice
submitted [deleted].

The agency identified various aspects of Rice's proposed staffing plan as
"strengths" under the evaluated factors. Overall, as indicated in the table
above, the agency rated Rice's proposal as "Better" under the technical
evaluation factor. [5] In supporting this evaluation that Rice's proposal
"significantly exceed[ed] many of the solicitation requirements . . . [in]
areas . . . which . . . are anticipated to result in a high level of
efficiency or productivity or quality," the agency stated:

The strength of the offeror's proposal lies with [deleted].

Agency Report, Tab G, Summary of Offerors, at 28.

More specifically, the agency rated Rice's proposal as "Better" under three
of the four technical evaluation subfactors-[deleted]--and again supported
each of these determinations with explanations identifying specific
strengths. For example, with regard to the subfactor [deleted], the agency
stated:

Strengths: [deleted].

Id. at 21.

Similarly, in supporting its determination that Rice's proposal
"significantly exceed[ed] many of the solicitation requirements" under the
evaluation subfactor [deleted], the agency credited Rice for use of its
[deleted], and for its [deleted], stating:

Strengths: [deleted].

Summary: The oral presentation demonstrated [deleted].

Id. at 25.

As indicated in the table above, Rice's proposal did not offer the lowest
price. Accordingly, the agency performed a "best value" analysis of the
three proposals, comparing the relative technical merits reflected in each
with the prices proposed. In performing this analysis--which led to
selection of Rice's proposal as the "best value" to the government--the
agency stated:

Rice's Technical Proposal strengths are its [deleted].

Agency Report, Tab A, Business Clearance Memorandum, at 20.

On December 13, copies of the government's MEO, along with supporting
appendices and attachments, were provided to the TET. [6] One of the things
that initially "jumped out" at the evaluators was the [deleted] contained in
the MEO. TET Chair Testimony, Hearing Video Transcript [7] (VT) at 13:25-26.
Overall, the MEO proposed to perform the required tasks using [deleted]. [8]
In addition to [deleted], the MEO indicated an intent to [deleted] of
currently performing personnel, and to make greater use of [deleted].
Notwithstanding the agency's characterization of the MEO as "drastically
cutting costs," Agency Report at 11, the total cost associated with the MEO
was [deleted]--that is, less than [deleted] percent lower than Rice's actual
proposed price.

After providing the TET with copies of the MEO, the contracting officer
directed the TET chair to perform a comparison of the level of performance
and performance quality that would be achieved under the MEO and under
Rice's proposal. [9] Agency Report at 6. On December 16, the TET chair
conducted a telephone conference call with two of the three other TET
members, [10] which lasted between 45 minutes and an hour. [11] At the
conclusion of that call, the TET chair drafted a memorandum to the
contracting officer stating that the MEO and Rice's proposal were
"technically equivalent." Agency Report, Tab L, Memorandum from TET Chair To
Contracting Officer (Dec. 16, 1999). Contrary to the earlier determinations
that Rice's technical proposal "significantly exceed[ed] many of the
solicitation requirements," and that Rice's technical approach was
[deleted], the TET chair's memorandum now stated: "Neither [the MEO nor
Rice's proposal] proposes innovations or techniques that will produce
results in excess of what is required by [the solicitation]." Id. The
memorandum was the only documentation prepared by the agency to support the
"technical equivalency" determination, and it consisted of only two
paragraphs--which are quoted below in their entirety:

1. The source selection team members performed an analysis and comparison of
the U.S. Naval Academy's management plan to the technical proposal submitted
by Rice Services and the performance work statement requirements of [the
solicitation]. Based on this analysis and comparison, we have determined
that both the government (USNA) and Rice Services have submitted plans that
meet the requirements of [the solicitation]. Although the two plans differ
in their organizational and staffing approaches, they both result in a plan
that meets all of the requirements of the performance work statement (PWS).

2. Both plans detail key personnel qualifications, quality control and
quality assurance plans, scheduling plans, report requirements, maintenance
plans, menu planning, feeding and service requirements, boat load-outs,
sanitation, special event planning, procurement, warehousing, accounting
management and financial accountability. They both address coverage and
accounting for Class A & B and Class C & D catering requirements. Neither
plan proposes innovations or techniques that will produce results in excess
of what is required by [the solicitation]. The plans are therefor[e] deemed
to be technically equivalent.

Agency Report, Tab L, Memorandum from TET Chair to Contracting Officer (Dec.
16, 1999).

Based on the TET's determination that the plans were technically equivalent,
the contracting officer compared the cost associated with the MEO to Rice's
proposed price, after adjusting that price for certain items contemplated by
OMB Circular A-76. [12] Following these adjustments, Rice's evaluated price
became [deleted]. Because the cost of the MEO was lower at [deleted], the
agency determined to perform the requirements in-house. Rice filed an
administrative appeal and the agency's administrative appeal authority
ratified this determination, concluding in the final decision that the only
additional adjustment that was required was a minimal increase ([deleted])
to the cost of the MEO. This protest followed.

DISCUSSION

Rice protests that the record fails to provide a reasonable basis for the
Navy's determination that the MEO staffing plan will meet the PWS
requirements and that the level and quality of performance under the MEO are
equivalent to the level and quality of performance offered by Rice's
proposal. We agree.

To preserve the integrity of the A-76 cost comparison, private-sector
offerors and the government must compete on the basis of the same scope of
work. See Supplemental Handbook, part I, ch. 3, para. H.3.e; see also Aberdeen
Tech. Servs., B-283727.2, Feb. 22, 2000, 2000 CPD para. 46 at 8; DynCorp,
B-233727.2, June 9, 1989, 89-1 CPD para. 543 at 4. That is, the MEO and
private-sector proposals must, first, comply with the minimum PWS
requirements. Then, where, as here, a "best value" approach is taken in
evaluating private-sector proposals, the agency must perform a direct
comparison between the non-price aspects of the MEO and the "best value"
private-sector proposal. More specifically, the agency must compare the MEO
to the private-sector proposal to determine "whether or not the same level
of performance and performance quality will be achieved," Supplemental
Handbook, part I, ch. 3, para. H.3.d-and, if not, the agency must make "all
changes [to the MEO] necessary to meet the performance standards accepted
[in the private-sector proposal]." [13] Id. para. H.3.e. Thus, the level and
quality of performance reflected in the "best value" private-sector proposal
becomes the benchmark against which the level and quality of performance of
the MEO must be measured.

As explained below, we conclude that the record fails to reflect a
reasonable basis for the agency's determinations that performance under the
MEO will meet the PWS requirements and, more significantly, that the level
of performance and quality of performance that will be obtained under the
MEO are equivalent to the level and quality of performance that will be
obtained under Rice's proposal.

Regarding the agency's determination that the MEO complies with the PWS
requirements, the record contains no documentation-other than the TET
chair's two paragraph memorandum quoted above-which reflects a reasoned
analysis of the manner in which the MEO staffing plan will meet the PWS
requirements. [14] In reviewing the evaluation and analysis that the TET
performed with regard to the MEO's staffing plan, the testimony of the TET
member whom the agency chose to provide as a hearing witness, [15] is both
instructive and striking. Specifically, the TET member testified:

If the government doesn't know what it takes to get the job done, nobody
does, so I gave consideration, uh, assumption that their staffing was
adequate to meet the PWS requirements. I didn't spend a whole lot of time
with that to be honest with you.

VT at 15:52.

More significantly, the record fails to reflect any meaningful comparison of
performance under the MEO with performance under Rice's proposal. First, the
agency's statements offered to support its "technical equivalency"
determination are directly contrary to the agency's own prior assessments
regarding the strengths of Rice's proposal-and on which the "best value"
selection of Rice was based. For example, in evaluating Rice's proposed
scheduling plan during the private-sector competition, the agency identified
as a "strength" Rice's [deleted]. In attempting to justify its "equivalency"
determination, the agency recharacterizes this [deleted] as "an unnecessary
expense," refers to [deleted] as "redundant," and refers to Rice's proposal
generally as containing "inefficiencies and staffing redundancies." Agency
Report at 49, 57, 59. In short, either the agency's initial evaluation of
the private-sector offerors--and the source selection decision resulting
from that evaluation--was materially flawed, or the subsequent comparison of
the MEO to the "best value" proposal is based on inaccurate representations.

Further, the record fails to reasonably support the agency's conclusions
regarding certain purported efficiencies under the MEO. In responding to
Rice's protest, the agency characterized the MEO as reflecting an
"innovative strategy to re-structure existing services." Agency Report at
48-49. Yet, as noted above, the record reflects no analysis regarding the
MEO's intended staffing to perform any particular PWS requirements. Rather,
it appears the TET simply "assum[ed] that [the MEO] staffing was adequate."
VT at 15:52. Again, the TET member whom the agency chose to provide as a
hearing witness, testified:

  Q. What criteria were you looking at to determine that the levels of
     performance would be equal?

A. Well, the level of the key personnel certainly --

  Q. But that was a wash [as between Rice and the MEO], wasn't it?

A. Yeah, right, right . . . .

  A. Well, the number of people looked adequate on the staffing tables . . .
     You know, I looked at them individually, and they looked adequate. I
     mean, I had no reason to question the staffing.

. . . . .

  Q. Did you then compare using Rice's level of performance, based on what
     their proposal was, and compare the MEO to that?

  A. I didn't compare a level of performance. I didn't compare that. I
     wasn't looking for a level of performance. I was looking to ensure that
     it was adequate performance.

VT at 15:59-16:01.

Consistent with this testimony, the TET chair testified that the MEO and
Rice's proposal "were fairly different in their approach, so it was hard to
make a direct head to head comparison, so I pretty much defaulted to the
PWS." [16] VT at 13:52. Further, the TET chair's December 16 memorandum does
not meaningfully compare the MEO and Rice's proposal; instead, it merely
states that "[both plans] meet the requirements [of the PWS]." Agency
Report, Tab L, Memorandum from TET Chair to Contracting Officer.

Finally, the TET chair acknowledged that the comparison of the MEO to Rice's
proposal was only done on a "high general level, not an extremely detailed
level," VT at 14:06, and that the TET did not consider the specific effort
that each approach took to performing the various required tasks. That is,
the TET did not compare the level of effort that would be provided at any
specific point--for example, the staffing levels that would be provided for
a particular weekday meal period. VT at 14:59. In this regard, the TET chair
testified that the comparison of proposed staffing, [deleted], was based on
the total number of people that would be used under each approach--without
considering the amount of effort that each person would expend. VT at 13:53.
The TET chair elaborated that, based on the perception that the MEO intended
to use approximately the same total number of people ([deleted]) as Rice
intended to use ([deleted]), the levels and quality of performance were
considered equal. Id. Thus, an employee working part-time under the MEO was
essentially considered to be equal, with regard to level of performance, to
an employee working full-time under Rice's proposal. We believe that, in
evaluating proposed approaches to performing a labor-intensive PWS such as
that presented here, a comparison of staffing plans which assumes, without
further explanation, that an employee working part-time reflects an equal
level of performance as an employee working full-time, is unreasonable.

The agency essentially argues that, as long as the MEO met the PWS
requirements, Rice's "inefficiencies" should not be "forc[ed]" on the MEO,
and cautions that "[t]he General Accounting Office in considering this case
should carefully consider the impact [of GAO's decision] upon other [A-76]
Cost Comparisons." Agency Report at 54.

We are sensitive to the agency's stated concerns regarding inefficiencies,
and our Office is not recommending that the Navy award a contract that the
agency believes exceeds its requirements. The solicitation and the
evaluation record here, however, establish that the agency viewed proposals
which exceeded the minimum requirements as desirable, and that the agency
was willing to pay a higher price for such proposals. Specifically, as noted
above, the solicitation encouraged offerors to prepare proposals offering
more than the minimum PWS requirements, advising them that "[t]he ultimate
focus of the management team should be to not merely meet expectations, but
to exceed them," and providing that non-price evaluation factors would be
"significantly more important than cost or price." RFP sect.sect. C.1.3.2.2, M.4.
M.5. Then, applying those provisions, the agency selected a proposal which
did not offer the lowest price because the agency concluded that the
non-price aspects of the proposal--specifically including its proposed
staffing plan--"significantly exceed[ed] many of the solicitation
requirements." See RFP sect. M.4.

If review of the MEO has now caused the Navy to change its view that price
is significantly less important than non-price factors (which view led it to
determine that Rice's proposal represented the "best value" to the
government), the agency should, as addressed below, amend the solicitation
and recompete its requirements. As long as the solicitation remains as it
is, the agency must, under the A-76 process, make adjustments to the MEO to
meet the performance level of the selected private-sector offer. Supplement
Handbook, part I, ch. 3, para. H.3.e. The agency is not free to compare an MEO
and private-sector offer of differing performance levels and make a
cost/technical tradeoff between them. While we recognize that it may not be
feasible to precisely match the level and quality of performance of the MEO
and the private-sector offer, the Navy in this case undertook no meaningful
adjustment analysis.

RECOMMENDATION

In light of the fact that the agency now appears to have a substantially
different view of how Rice's proposal addresses the government's stated
needs than it did at the time it found that proposal to represent the "best
value" to the government, we recommend that the agency first determine
whether its needs have changed and whether the solicitation under which the
private-sector offerors previously competed accurately reflects the
government's actual requirements. In the event that the Navy concludes that
the solicitation does not reflect its current needs, the agency should issue
a revised solicitation reflecting its requirements (for example, to give
greater weight to staff efficiencies and price) and reopen the competition
among the private-sector offerors, after which it should conduct a new cost
comparison between the successful private-sector offeror and the MEO.

In the event that the agency determines that the RFP does reflect its
current requirements, we recommend that the agency perform a reasonable and
meaningful analysis of the level of performance and quality of performance
that will be obtained under the MEO, considering, for example, the actual
levels of effort, that is, actual amount of time to be expended in
performing the various identified tasks; perform a documented comparison of
the MEO's intended level of performance to that offered by Rice's proposal;
and make necessary adjustments to the MEO to meet the standards reflected in
Rice's proposal, after which a new cost comparison between Rice's proposal
and the amended MEO should be conducted. [17]

We also recommend that the protester be reimbursed the reasonable costs of
filing and pursuing the protest, including attorneys' fees. 4 C.F.R. sect.
21.8(d)(1) (2000). The

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

The protest is sustained.

Comptroller General

of the United States

Notes

1. The procedures for determining whether the government should perform an
activity in-house, or have the activity performed by a contractor, are set
forth in OMB Circular No. A-76, and the Circular No. A-76 Revised
Supplemental Handbook (March 1996) (the "Supplemental Handbook"). The
process set out in OMB Circular No. A-76 and the Supplemental Handbook
broadly encompasses three steps in the conduct of a public-private
competition. First, after the PWS has been drafted, there is a competition
among private-sector offerors, which is conducted much as any competed
federal procurement is conducted. Second, if that competition is done on a
"best value" basis, the government's MEO, which has been prepared based on
the PWS, is compared with the winning private-sector offer to assess whether
or not the same level of performance and performance quality will be
achieved--and if it will not, to make all changes necessary to meet the
performance standards achieved in the winning private-sector proposal.
Supplemental Handbook, part I, ch. 3, sect.sect. H.3.d, e. Finally, once the playing
field is thus leveled, there is a cost comparison between the private-sector
offer and the MEO. Id. sect.sect. H, J.

2. Under the technical evaluation factor, the RFP identified four equally
weighted subfactors: technical approach, quality control plan, scheduling
plan, and case study.

3. With respect to the relative weighting of the non-price evaluation
factors, the RFP provided that technical and past performance were of equal
importance, and that key personnel was slightly less important.

4. The government's MEO was also submitted at that time, but was not
provided to the agency's technical evaluators until after they had completed
their review of the private-sector proposals.

5. The RFP provided that a rating of "Better" meant:

Fully meets all solicitation requirements and significantly exceeds many of
the solicitation requirements. Response exceeds an "Acceptable" rating. The
areas in which the Offeror exceeds the requirements are anticipated to
result in a high level of efficiency or productivity or quality.

RFP sect. M.4 (emphasis added).

6. The TET that reviewed the MEO was comprised of the same personnel who had
evaluated the private-sector proposals.

7. In resolving this protest, GAO conducted a hearing, recorded by
videotape, at which testimony was obtained from the contracting officer, the
TET chair, and a TET member.

8. The executive summary of the MEO states: "The MEO staffing structure
reflects a [deleted]. More specifically, the MEO's Technical Performance
Plan (TPP) states: [deleted]. The MEO also included certain [deleted];
however, other than an already existing contract with Rice for "wardroom
service" (that is, setting the tables, serving the food, cleaning the
tables, and cleaning the dining hall), the total costs associated with the
[deleted] accounted for less than [deleted] percent of the total MEO cost.
Agency Report, Tab Z-2, Line Rationale, at 14.

9. At the GAO hearing, the contracting officer testified that she asked the
TET chair to perform a "line by line" comparison. VT at 10:37. In contrast,
the TET chair testified that she was only instructed to perform a comparison
at a "high general level, not an extremely detailed level." VT at 14:06.

10. The TET chair testified that she was not able to include the third TET
member on the conference call, and spoke with him separately at a later
time. VT at 13:20-21.

11. In her written statement responding to the protest, the contracting
officer (who did not participate in the call) indicated: "The [TET] was
convened via a three-hour telephone conference for purposes of the
comparison." Agency Report at 5. The TET chair testified that the meeting
lasted "approximately an hour." VT at 14:08. One of the other TET members
who participated in the call testified that it lasted "about 45 minutes." VT
at 16:19.

12. Adjustments were made for contract administration, one-time conversion
cost, federal income tax deduction, and minimum conversion differential.
Agency Report at 7.

13. This "leveling of the playing field" is necessary because a "best value"
solicitation may result in submission of proposals which exceed the PWS
requirements. Here, as noted above, the solicitation specifically encouraged
private-sector offerors to "not merely meet expectations, but to exceed
them," RFP sect. C.1.3.2.2, and established that, in selecting the "best value"
proposal, non-price evaluation factors would be "significantly more
important than cost or price." RFP sect.sect. M.4, M.5. Failure to ensure that the
MEO offers the same levels of performance as the private-sector proposal
selected to compete with the MEO can cause the very technical superiority
which led to the private-sector proposal's selection to become the cause for
losing the public/private cost comparison. Aberdeen Tech. Servs., supra, at
14.

14. Although the Supplemental Handbook does not explicitly require the
agency to document this determination, our cases consistently emphasize the
importance of a well-documented evaluation record to show that the
assessment was not arbitrary, unreasonable, or contradicted by the record.
We believe the agency's required determination in this regard should be
documented contemporaneously with that decision. See NWT, Inc.; PharmChem
Lab., Inc., B-280988, B-280988.2, Dec. 17, 1998, 98-2 CPD para. 158 at 5 n.3.

15. Upon GAO's determination that a hearing would be necessary to resolve
this protest, the parties were so notified, and GAO specifically requested
that the contracting officer and the TET chair appear as witnesses. GAO
Confirmation of Hearing (May 9, 2000). In addition, GAO stated that "the
Navy may bring any additional witness(es) whom the Navy believes may provide
relevant testimony." Id. In response, the agency provided the TET member
whose testimony is quoted above.

16. Although the TET chair also testified she did not believe Rice's
proposal offered anything more than what the PWS called for, VT at 13:25,
she had no explanation to reconcile that conclusion with the TET's earlier
conclusion that Rice's proposal "significantly exceed[ed] many of the
solicitation requirements," VT at 14:00, and, in fact, recognized that the
latter conclusion "seems to conflict with what we thought in [the earlier
evaluation] as far as [deleted]." VT at 14:07-08.

17. Rice also protested various portions of the agency's cost comparison. In
light of our recommendations above, implementation of which may well alter
many of the challenged calculations, our decision does not address Rice's
protest regarding those particular cost issues.