TITLE:  Eurest Support Services, B-285813.3; B-285813.4; B-285813.5; B-285882.4; B‑285882.5; B-285882.7, July 3, 2001
BNUMBER:  B-285813.3; B-285813.4; B-285813.5; B-285882.4; B‑285882.5; B-285882.7
DATE:  July 3, 2001
**********************************************************************
Eurest Support Services, B-285813.3; B-285813.4; B-285813.5; B-285882.4;
B‑285882.5; B-285882.7, July 3, 2001

   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.        
                                                                              
                                                                              

   Decision
    
    
Matter of:    Eurest Support Services
    
File:             B-285813.3; B-285813.4; B-285813.5; B-285882.4;
B‑285882.5; B-285882.7
    
Date:              July 3, 2001
    
James J. Regan, Esq., Shauna E. Alonge, Esq., Elizabeth W. Newsom, Esq.,
and Daniel R. Forman, Esq., Crowell & Moring LLP, for the protester.
Mathew S. Perlman, Esq., Richard J. Webber, Esq., and Natalie S. Walters,
Esq., Arent Fox, for Sodexho Marriott Management, an intervenor.
Julius Rothlein, Esq., Headquarters U.S. Marine Corps, 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
    
Protest against award of primarily fixed-price incentive contracts for
regional garrison food service at U.S. Marine Corps installations is
sustained where agency did not properly assess realism of awardee's low
proposed target price, which was the principal basis for determination
that awardee's evaluated price was low. 
DECISION
    
Eurest Support Services (ESS) protests the U.S. Marine Corps's (USMC)
award of a contract to Sodexho Marriott Management (SMM) under request for
proposals (RFP) Nos. M00027-00-R-0001 and
M00027‑00‑R‑0002, for regional garrison food service. 
The protester challenges the evaluation of technical and cost proposals.
    

   We sustain the protest.
    
BACKGROUND
    
The RFPs provided for award of two primarily fixed-price incentive
contracts for a base period of 5 years, with 3 option years, to provide
regional garrison food service at 32 messhalls on the East Coast and 23
messhalls on the West Coast.  USMC had previously contracted for full food
service at 10 of the messhalls; under the solicitations, the number of
full food service messhalls increased to 35.  USMC had current contracts
for mess attendant services at 29 of the messhalls; under the
solicitations, mess attendant messhalls were reduced in number to 18 and
will become management and mess attendant messhalls, with the contractor
now also responsible for management of the messhalls.  (Food preparation
will continue to be performed by USMC cooks at the management and mess
attendant messhalls.)  The contractor also will be responsible for
management and food preparation for several brig messhalls not previously
contracted out.  In addition, the solicitations provided for the
contractor to assume responsibility for the procurement of food (the price
of which was to be included in the fixed incentive price per meal) and
(after a transition period) maintenance (on a fixed-price basis) and
repair (on a time and materials (T&M) basis) of food preparation and
serving equipment, previously the responsibility of the government.  RFPs
at C1.3; Agency Comments, June 22, 2001, Tab 52a.  Further, 20 messhalls
were set aside under the Javits-Wagner-O'Day Act (JWOD), 41 U.S.C.
S: 46‑48c, for JWOD organizations for the blind or other severely
handicapped to operate as subcontractors.  RFPs S: H.5(f).
    
Award was to be made to the offeror whose proposal represented the best
value to the government.  The solicitations provided for proposals to be
evaluated based on four criteria:  (1) price; (2) integrated organization
and management, including subfactors for organization and management plan
(including proposed staffing), advanced food technology plan, quality
control plan, and phase‑in plan; (3) small business subcontracting
plan; and (4) past performance.  Price was the most important criterion
and was equal in importance to the other criteria combined.  Integrated
organization and management was significantly more important than the
small business subcontracting plan and past performance combined, while
the small business subcontracting plan was significantly more important
than past performance.  In addition, proposals were to be evaluated to
determine the degree of risk associated with the offeror's approach to the
performance requirements and ability to successfully accomplish these
objectives; this risk assessment included consideration of proposal risk,
associated with the offeror's proposed approach, and performance risk,
associated with the offeror's present and past work record.
    
With respect to price, the focus of this protest, the solicitations
provided for an evaluation under the price criterion *to determine that
the price . . . is realistic for the work to be performed; i.e., it
reflects a clear understanding of the requirement and is consistent with
the various elements of the offeror's technical proposal.*  RFPs S:
M.3.4.1.  (The solicitations indicated that, in addition to consideration
under the price criterion, results of the price realism analysis *may be
used in performance risk assessments and responsibility determinations.* 
Id.)  The solicitations specified that the price realism evaluation would
include consideration of the completeness (with respect to required
pricing information), reasonableness and realism of the proposed prices. 
Reasonableness of proposed pricing, included as part of the price realism
analysis, was defined as where
    
[p]rices compare favorably to prices offered by independent market sources
or an Independent Government Cost Estimate and are fully justified and
documented, (e.g., developed by using appropriate and acceptable
methodologies, factual and verifiable data, estimates supported by valid
and suitable assumptions and estimating techniques.)
Id.  Realism of proposed pricing was further defined as where
    
[p]rices are compatible with proposal scope and effect (e.g., proposed
prices are related to program scope being neither excessive nor
insufficient for effort accomplishment).  Price realism is a prerequisite
to award. . . .  Proposals lacking price realism may indicate, among other
things:  a lack of understanding of the requirements of the solicitation
and the cost implications thereof, or use of inappropriate amounts of
labor and materials which unrealistically understate proposed price.
Id.  USMC further advised offerors, in response to an offeror's question,
that
    
[w]ith respect to cost realism, each cost proposal will be compared to the
approach set forth in the associated technical proposal to assess the
realism of the costs proposed (i.e., can the offeror perform as described
in the technical proposal within the constraints set by the cost
proposal?).  Unrealistically low offers, indicative of a potential
buy‑in, will be considered in determining the risk inherent in
awarding the contract to such an offeror, as well as in the evaluation of
the responsibility of that offeror.
Question and Answer No. 5, Amend. No. 0004. 
    
The solicitations generally required that proposals *contain sufficient
detail for effective evaluation and for substantiating the validity of
stated claims,* and *demonstrate convincing rationale to address how the
offeror intends to meet these requirements.*  RFPs S: L.8.2.  For the
fixed-price incentive fee contract line item numbers, the RFPs
specifically required offerors to furnish detailed cost information,
including, for example, the offeror's total proposed labor cost for each
specific messhall (including identification of labor category by title or
function and hourly rate or salary and the number of direct and indirect
labor hours), information on subcontracts, and any costs associated with a
central food production facility.  RFPs S: L.10.2.1.  In addition, the
RFPs stated that *[t]he total evaluated price will be based on total costs
for the basic contract period (5 years) and all option years (3 years) to
include potential overrun and underrun scenarios.*  RFPs S: M.3.4.1.    
    
Four offerors submitted proposals.  ESS's and SMM's proposals were
included in the competitive range for the East and West Coasts (a third
proposal, not relevant here, also was included in the West Coast
competitive range).  After conducting written and oral discussions with
the offerors, USMC requested final proposal revisions (FPR).  The FPR
evaluation results were as follows:
    
EAST COAST

   +------------------------------------------------------------------------+
|                                            |ESS           |SMM         |
|--------------------------------------------+--------------+------------|
|Meal Service (Fixed                         |              |            |
|Price Incentive)                            |              |            |
|--------------------------------------------+--------------+------------|
|     Target Cost Per Meal                   |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|     Target Price Per Meal                  |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|     Total Target Price                     |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|     Share Ratio                            |[DELETED]     |[DELETED]   |
|       (USMC/Contractor)                    |              |            |
|--------------------------------------------+--------------+------------|
|     Ceiling Price Per Meal                 |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Meals per Labor Hour                        |[DELETED]     |[DELETED]   |
|--------------------------------------------+--------------+------------|
|Maintenance (Fixed Price)                   |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|T&M                                         |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Total Price (Target Price+ Maintenance+T&M) |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Total Price (Ceiling Price+ Maintenance+T&M)|$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Risk (Proposal/Performance)                 |Low/Moderate  |Low/Low     |
|--------------------------------------------+--------------+------------|
|Technical Score                             |86.2          |88.8        |
+------------------------------------------------------------------------+

    
WEST COAST

   +------------------------------------------------------------------------+
|                                            |ESS           |SMM         |
|--------------------------------------------+--------------+------------|
|Meal Service (Fixed Price Incentive)        |              |            |
|--------------------------------------------+--------------+------------|
|     Target Cost per Meal                   |$[DELETED]    |$[DELETED]  |
|     Target Price per Meal                  |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|     Total Target Price                     |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|     Share Ratio (USMC/                     |[DELETED]     |[DELETED]   |
|       Contractor)                          |              |            |
|--------------------------------------------+--------------+------------|
|     Ceiling Price Per Meal                 |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Meals per Labor Hour                        |[DELETED]     |[DELETED]   |
|--------------------------------------------+--------------+------------|
|Hour Maintenance (Fixed Price)              |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|T&M                                         |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Total Price (Target Price+ Maintenance+T&M) |$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Total Price (Ceiling Price+ Maintenance+T&M)|$[DELETED]    |$[DELETED]  |
|--------------------------------------------+--------------+------------|
|Risk                                        |Low/Moderate  |Low/Low     |
|(Proposal/Performance)                      |              |            |
|--------------------------------------------+--------------+------------|
|Technical Score                             |84.2          |84.3        |
+------------------------------------------------------------------------+

    
Based upon the evaluation of the FPRs, the agency determined that SMM's
proposal was the most advantageous under each solicitation.  For the West
Coast, USMC determined that, while SMM's and ESS's technical
proposals--that is, the proposals as evaluated under the integrated
organization and management, small business subcontracting and past
performance criteria--were *substantially equal,* SMM's FPR pricing, which
represented a [DELETED]-percent reduction from its initial pricing, was
*clearly the most favorable.*  Agency Report (AR), Tab 11, USMC Final
Summary of Findings and Source Selection Decision Final Summary, Mar. 12,
2001, at 6-8, 10.  For the East Coast, USMC determined that SMM's
technical proposal was *slightly above* ESS's, and that its pricing, based
upon its *proposed [DELETED] reductions in . . . overall pricing
structure,* was more advantageous than ESS's.  Id. at 4-6, 10.  Upon
learning of the resulting awards to SMM under both solicitations, and
after being debriefed by the agency, ESS filed this protest with our
Office.
    
ALLEGATION
    
ESS asserts that USMC did not properly evaluate the realism of SMM's
[DELETED] reduced, allegedly unsubstantiated FPR staffing and pricing.  In
this regard, for the East Coast, SMM's initial proposal offered an
evaluated total target price--including target price for meals, fixed
price for preventive maintenance, and evaluated T&M cost--of $[DELETED],
based on a maximum full time equivalent (FTE) staffing of
[DELETED] employees and a resulting evaluated [DELETED] meals per labor
hour.  SMM's initial proposal assumed [DELETED] staffing and [DELETED]
meals per labor hour than either ESS ([DELETED] meals per labor hour,
[DELETED] FTEs) or the agency's pre‑solicitation estimate ([DELETED]
meals per labor hour, [DELETED] FTEs), and its initial total East Coast
target price was [DELETED] than ESS's $[DELETED].  AR, Tab 26, USMC
Initial Summary of Findings, Summary Technical and Price Comparison of
Offerors (East Coast).  Similarly, for the West Coast, SMM's initial
proposal offered an evaluated total target price of $[DELETED], based on a
maximum FTE staffing of [DELETED] employees and a resulting evaluated
[DELETED] meals per labor hour.  SMM assumed [DELETED] staffing and
[DELETED] meals per labor hour than either ESS ([DELETED] meals per labor
hour, [DELETED] FTEs) or the agency estimate ([DELETED] meals per labor
hour, [DELETED]  FTEs), and its initial total West Coast target price was
[DELETED] than ESS's $[DELETED].  AR, Tab 26, USMC Initial Summary of
Findings, Summary Technical and Price Comparison of Offerors (West Coast).
    
During discussions, USMC advised SMM that it *should reassess its
productivity levels,* since its *overall meals per labor hour rate is
[DELETED] percent below our estimate,* and that its overall *pricing is
high on both the East and West Coasts,* such that it had *a significant
impact on the rating and ranking of your proposal.*  AR, Tab 26,
Discussion Letter to SMM, Jan. 16, 2001; see AR, Tab 23, USMC MFF of
Discussions, SMM, Jan. 29, 2001.  In response, SMM [DELETED] reduced its
overall pricing, reducing its evaluated East Coast target price from
$[DELETED] to $[DELETED] and its West Coast target price from $[DELETED]
to $[DELETED].  According to SMM's FPR, this reduction resulted in part
from [DELETED].  See SMM FPR, East Coast/West Coast Revised Pricing
Overviews at 1‑2.  
    
A substantial portion--at least [DELETED] percent--of the decrease in
target pricing resulted from decreases in direct labor [DELETED].  See SMM
FPR, East Coast/West Coast Revised Pricing Overviews at 1‑2; AR, Tab
49, Price Comparison:  SMM Initial vs. Final Proposal Revision.  (In
addition, the reduction in labor costs led to reductions in other
accounts‑‑for example, [DELETED]).  USMC Final Summary, Final
Price Evaluation Report, at 13; SMM FPR East Coast/West Coast Revised
Pricing Overviews at 2.)  For the East Coast, SMM reduced its final
staffing by approximately [DELETED] percent, from [DELETED] to [DELETED]
FTEs, while ESS continued to propose [DELETED] FTEs.  As a result, SMM's
evaluated meals per labor hour increased approximately [DELETED] percent,
from its evaluated initial [DELETED] to [DELETED]; this was approximately
[DELETED] percent [DELETED] than ESS ([DELETED]), and approximately
[DELETED] percent higher than the government estimate ([DELETED]).  For
the West Coast, SMM reduced its final staffing by approximately
[DELETED] percent, from [DELETED] to [DELETED]  FTEs, while ESS reduced
its FTEs from [DELETED]  to [DELETED].  As a result, SMM's evaluated meals
per labor hour increased approximately [DELETED] percent, from its initial
[DELETED] to [DELETED]; this was approximately [DELETED] percent [DELETED]
than ESS ([DELETED]) and [DELETED] percent higher than the government
estimate ([DELETED]). 
    
Agency evaluators recognized that the [DELETED] *[r]eductions in [SMM's]
proposed staffing for both coasts raised questions about a possible
understatement of labor resources.*  AR, Tab 50, Statement of Agency
Procurement Analyst, at 4.  According to USMC's Final Price Evaluation
Report, however, the contracting officer *verified with the Technical
Evaluation Team . . . that the staffing proposed was reasonable for the
level of effort required.*  AR, Tab 11, USMC Final Summary, Final Price
Evaluation Report, at 10, 13.  Specifically, the agency reports that a
USMC food service officer *was asked to determine if SMM's proposed FPR
staffing was realistic when compared to current FTE staffing, considering
projected changes in service.*  Agency Comments, May 29, 2001, at 6. 
After obtaining staffing information from several installations, and based
upon what she characterized as a *representative sampling of FTE
staffing,* the food service officer reported to the contracting officer
that SMM's final proposed staffing *favorably compared* to current FTE
staffing and was *realistic, due to the implementation of [DELETED] and
centralization of several services, thereby reducing the number of
required FTEs per mess hall below that currently utilized.*  AR, Tab 51,
SMM FPR Messhall Staffing Review, Apr. 25, 2001, at 4.  Further, according
to the agency, this *comparison with current messhall staffing levels* was
*[o]f particular value in assessing whether SMM's proposed staffing levels
were achievable.*  Agency Comments (ESS), May 17, 2001, at 16. 
    
The agency concluded that, given that SMM's total target prices
($[DELETED] West Coast; $[DELETED] East Coast) were lower than ESS's
($[DELETED] West Coast; $[DELETED] East Coast), and that SMM's staffing,
while reduced, had been determined to be realistic (based on a comparison
with current staffing), SMM's overall pricing was more favorable than
ESS's for both coasts.  In this regard, although SMM's ceiling prices
($[DELETED] West Coast; $[DELETED] East Coast) were [DELETED] than ESS's
($[DELETED] West Coast; $[DELETED] East Coast), the agency noted in its
evaluation that ESS's pricing would be more advantageous than SMM's on the
East Coast only in the event of a [DELETED] overrun (beyond
[DELETED] percent of the target price) and that, while on the West Coast
ESS's overall ceiling price (including maintenance and time and materials
items) was [DELETED] than SMM's, ESS's ceiling price for meal service
alone ($[DELETED]) was [DELETED] than SMM's ($[DELETED]).  AR, Tab 11,
USMC Final Summary at 5, 7, 10-11.[1]
    
ESS challenges the agency's determination that SMM's FPR staffing was
reasonable, asserting that SMM failed to meet the solicitation requirement
that offerors justify their proposed pricing, and that the comparison with
current staffing used in the agency's review of the realism of SMM's
reduced staffing was unreasonable.  ESS asserts that, because the agency
did not reasonably evaluate the realism of proposed staffing, and failed
to determine which of the various overrun and underrun scenarios it
examined were most likely, the evaluation was unreasonable.
    
Analysis
    
Agencies generally are required by the Competition in Contracting Act of
1984 (CICA) to include cost or price as a significant factor in the
evaluation of proposals.  10 U.S.C. S: 2305(a)(3)(A)(ii) (1994); see
Federal Acquisition Regulation (FAR) S: 15.304(c)(1).  An evaluation and
source selection that fails to give significant consideration to cost is
inconsistent with CICA and cannot serve as the basis for a reasonable
source selection.  See generally Coastal Science and Eng'g, Inc.,
B‑236041, Nov. 7, 1989, 89‑2 CPD P: 436 at 3.  While agencies
have considerable discretion in determining the particular method used in
evaluating cost or price, that method  should, to the extent possible,
accurately measure the cost to be incurred under competing proposals. 
Lockheed, IMS, B‑248686, Sept. 15, 1992, 92-2 CPD P: 180 at 6.
    
Here, calculating the cost to be incurred under competing proposals was
difficult because of the incentive contracting approach.  Under the
fixed-price incentive contracts here, the amount of the contractor's
profit will be determined by the *share ratio* formula established in the
contract, which rewards the contractor with additional profit for
efficient performance (resulting in a cost lower than the proposed target
cost), and penalizes the contractor for inefficient performance (resulting
in a cost higher than the proposed target).  The share ratio determines
the government's and contractor's relative shares in the overrun or
underrun amount.  The final cost to the government therefore can vary, and
is limited at the upper end only by the agreed ceiling price.  See FAR
S:S: 16.403, 16.403‑1.  Since the ultimate cost to the government
depends upon whether the contractor meets its target cost, the reliability
of the price evaluation for purposes of comparing proposals depends to a
large extent on the realism of that target cost; it follows that use of
this contract type requires a realistic target cost estimate.  See
generally Universal Techs., Inc., B‑241157, Jan. 18, 1991, 91-1 CPD
P: 63 at 10.  The RFPs here seem to have recognized the importance of
price realism; as quoted above, the RFPs contained several provisions
indicating that realism would be considered in the evaluation.  In our
view, the agency could not meaningfully evaluate the realism of the
proposed pricing without determining whether, and to what extent, offerors
were likely to meet their target costs; this determination was
particularly important here in light of the [DELETED] reductions in SMM's
FPR. 
    
USMC maintains that assessing the likelihood of offerors meeting their
target cost would have been tantamount to violating the Federal
Acquisition Regulation (FAR) S: 15.404‑1(d)(3) prohibition against
adjusting proposed prices based on the results of a cost realism analysis
where competitive fixed-price incentive contracts are to be awarded.  We
disagree.  While the FAR precludes adjustments to fixed prices as a result
of a cost realism analysis, it does not preclude agencies from performing
a critical price evaluation that takes into account the extent to which a
proposed price reflects the ultimate cost to the government.  Again, the
RFPs fully provided for such an evaluation.  As noted, the statement of
evaluation criteria included as part of section M of the RFPs specifically
provided for consideration of price realism under the price criterion, and
warned that *[p]rice realism is a prerequisite to award.*  RFPs
S: M.3.4.1.  As also noted, Question and Answer No. 5, included in
amendment No. 0004, indicated that *[u]nrealistically low offers,
indicative of a potential buy-in, will be considered in determining the
risk inherent in awarding the contract to such an offeror, as well as in
the evaluation of the responsibility of that offeror.*
    
USMC asserts, alternatively, that it conducted a proper price evaluation. 
We disagree.  We find that USMC failed to consider the realism of the
offerors' target costs; its price evaluation therefore did not provide a
valid basis for concluding that SMM's proposal would result in the lowest
cost to the government.
    
The record indicates that, because of SMM's failure in its FPR to comply
with the solicitation requirement to substantiate and explain its proposed
approach, USMC lacked the information necessary to understand SMM's FPR
approach.  As noted above, the RFPs generally required that proposals
*contain sufficient detail for effective evaluation and for substantiating
the validity of stated claims,* and *demonstrate convincing rationale to
address how the offeror intends to meet these requirements.*  RFPs S:
L.8.2.  Further, for the fixed-price incentive fee contract line item
numbers, the RFPs specifically required offerors to furnish, among other
information, the total proposed labor cost for each specific messhall,
including identification of labor category by title or function and hourly
rate or salary, number of  labor hours in each direct labor category, and
number of hours in each indirect labor category.  In its initial
proposals, SMM furnished a detailed description of its approach to
performing the work at the messhalls, including detailed staffing
information and a detailed plan for applying and achieving savings through
the use of advanced food technology such as central food production and
[DELETED].  See SMM Initial Technical Proposal (East Coast) at 133-229;
SMM Initial Price Proposal (East Coast) at 1-18; SMM Initial Technical
Proposal (West Coast) at 135-223; SMM Initial Price Proposal (West Coast)
at 1-18.  SMM discussed in detail its messhall staffing methodology,
explaining how particular required tasks would be performed; listed and
described the responsibilities and qualifications of [DELETED] categories
of labor to be deployed at the messhalls (including [DELETED]); listed by
messhall the FTEs in each labor category which would be used in performing
the contract; and described for a selected messhall [DELETED] for each
labor category.  SMM Initial Technical Proposal (East Coast) at
145/146-166, 411-21; SMM Initial Price Proposal (East Coast), Overview,
at 3-6; SMM Initial Technical Proposal (West Coast) at 146/147-164,
404-414; SMM Initial Price Proposal (West Coast), Overview, at 3-6.
    
SMM did not provide the same detail with its FPR.  Although SMM in its FPR
reduced its final staffing for the East Coast by approximately [DELETED]
percent (from [DELETED] to [DELETED] FTEs), resulting in an increase in
evaluated meals per labor hour of approximately [DELETED] percent (from
[DELETED] to [DELETED]), and reduced its final staffing for the West Coast
by approximately [DELETED] percent (from [DELETED] to [DELETED]  FTEs),
resulting in an increase in meals per labor hour of approximately
[DELETED] percent (from [DELETED] to [DELETED]), SMM did not explain how
it would achieve [DELETED] higher levels of productivity and perform the
contract requirements with [DELETED] fewer staff at the messhalls. 
Further, while SMM continued to list the FTE staffing at each messhall,
without explanation it consolidated the number of labor categories,
[DELETED].  SMM FPR East Coast/West Coast Revised Pricing Overview.  SMM's
explanation of its [DELETED] FPR reduction in messhall staffing was
limited to the following:
    
Revisions reflect appropriate staffing based on workload data provided by
the [USMC] Corps.  The messhalls are staffed to meet workload in
[Technical Exhibit-2] of the RFP.  Staffing levels are appropriate to
provide required service levels at indicated meal counts by meal period,
meal serving hours, operating days, building capacity, specialty bars,
cashier/headcount stations and messhall configurations.
SMM FPR East Coast/West Coast Revised Pricing Overviews at 1.[2]
In addition, SMM's FPR, with little substantiation, [DELETED] reduced the
costs included in its initial proposal for use of central food production
facilities on each coast.  Its FPR reduced by [DELETED] percent
($[DELETED]) the East Coast costs associated with its proposed [DELETED]
central food production facility, explaining simply that *[DELETED]. 
These efficiencies will be passed on to the [USMC] in reduced costs.*  SMM
FPR East Coast Revised Pricing Overview.  Likewise, SMM reduced by
[DELETED] percent ($[DELETED]) the West Coast costs associated with its
proposed [DELETED] central food production facility, explaining simply
that *[DELETED].  These efficiencies will be passed on to the [USMC] in
reduced costs.* SMM East Coast/West Coast Revised Pricing Overview.  In
neither case did SMM detail the [DELETED] basis for its calculation of
savings to USMC.   
    
The absence of a rationale for its reduced staffing is particularly
significant in light of the fact that SMM's resulting higher meals per
labor hour ([DELETED] meals per labor hour on the East Coast and [DELETED]
on the West Coast) not only represented a [DELETED], unexplained increase
from its own initially assumed productivity, and [DELETED], but also
[DELETED] exceeded USMC's own estimate ([DELETED] East Coast and [DELETED]
West Coast), which was based on its June 2000, pre-proposal Economic
Analysis (EA), characterized by the agency as the basis for the government
cost estimate's (GCE) productivity numbers.  According to USMC, its EA
estimate *for meals per labor hour was based on projected estimates the
USMC expects in the future with the utilization of advanced food
technology. . . .  All of this was based on the USMC analysis of industry
standards, as applied to USMC messhall operations.*  Agency Comments, May
29, 2001, at 5-6, 12-13.  Furthermore, it appears that the productivity
assumed in SMM's FPR even exceeded SMM's own commercial experience.  In
this regard, the agency's EA indicated that, in connection with a study of
USMC messhalls undertaken by SMM, *Marriott [SMM] claims an [DELETED]
[meals per labor hour] benchmark in all their commercial food service
contracts, as compared to the USMC's [DELETED] [meals per labor hour].* 
Significantly, while recognizing the potential for increased productivity,
including using advanced food technologies to achieve a [DELETED] percent
productivity gain, USMC's June 2000 EA characterized SMM's claims of the
savings possible from converting base messhall contracts to regional food
service contracts, much of which involved increased labor productivity, as
*highly exaggerated savings estimates* that failed to account for the
particular USMC circumstances.  AR, Tab 47, EA, at 1, 3.
    
In addition, it appears that the review undertaken by the USMC food
service officer *to determine if SMM's proposed FPR staffing was realistic
when compared to current FTE staffing, considering projected changes in
service,* and relied on by the agency as evidence of the realism of SMM's
FPR staffing, contained significant flaws.  These flaws call into question
the validity of its conclusion that SMM's proposed FTE *numbers were
realistic, due to the implementation of [DELETED] and centralization of
several services, thereby reducing the number of required FTEs per mess
hall below that currently utilized.*  Agency Comments, May 29, 2001, at
6-8; AR, Tab 51, SMM FPR Messhall Staffing Review, Apr. 25, 2001, at 4. 
In this regard, the review's conclusions were based on only limited actual
information as to current staffing.  The food service officer did not seek
information from the 15 messhalls currently staffed exclusively by Marines
and *for which FTE information is not reasonably available or useful to
the analysis.*  Agency Comments, May 29, 2001, at 6-8.  The food service
officer obtained staffing data from only 32 of the remaining 40 messhalls
which currently have contractor support, and then declined to use the data
for the 11 messhalls at Camp Pendleton in California on the basis that the
data was inherently unreliable because it originated from the current
contractor, which had submitted an initial proposal (that had not been
included in the competitive range). 
    
Further, the food service officer's derivation of FTEs from reported total
messhall employee numbers is based on undocumented assumptions.  Of the 21
messhalls actually considered in the review, 12 at Camp Lejeune, North
Carolina reported total messhall employees rather than FTE numbers.  For
those 12 messhalls, the food service officer calculated FTEs by (1)
subtracting four employees for full food service messhalls and three for
mess attendant messhalls, to represent the messhall manager, assistant
manager and supervisors, all of whom were apparently assumed to work full
time; (2) assuming that the remaining messhall employees worked part time;
and (3) assuming that each part-time worker worked 25 hours per week,
since *[b]ased on my 20+ years of military experience with food service,
25 hours represented the average number of hours part time mess attendant
workers perform in Marine Corps mess halls.*  (In addition, based on her
experience as the food service officer at [DELETED], the food service
officer apparently provided the number of FTEs for the four messhalls at
that installation.)  Thus, it appears that only [DELETED] FTEs were
considered in the review, approximately 30 percent of the [DELETED] FTEs
in the agency estimate, and that, of these, the [DELETED] assumed at Camp
Lejeune were derived based on the food service officer's calculations
described above rather than on actual reported FTEs.
    
Although requested by our Office to furnish any written documentation
supporting the assumptions as to the proportion of messhall employees that
work full time and the average hours worked by part-time employees, the
agency has been unable to do so.  (Indeed, the agency to date has failed
even to furnish actual data on the FTEs at all messhalls.)  Further, while
the agency relies on the food service officer's experience as support for
assuming 25 hours per week for part-time messhall employees, we note that
the food service officer's report included an e-mail received from Camp
Pendleton, reporting total messhall employees (not FTEs) at its messhalls,
which bore the annotation:  *X30,40=* below the list of reported staff at
each messhall.  In the context of the e-mail, this annotation suggests
that the food service officer intended to multiply the reported number of
employees by 30/40 in order to derive the number of FTEs.  That is, the
annotation seems to suggest that, notwithstanding her claim that her
experience supports 25 hours per week, the food service officer assumed,
at least for Camp Pendleton, that part-time messhall employees worked
30 hours per week.  Had it been assumed that part-time messhall employees
worked an average of 30 hours per week, this of course would have
increased the number of current FTEs used in the comparison with SMM's FPR
staffing.
    
In addition, the available data as to actual FTE staffing indicates that
the food service officer's review may have been based on significantly
understated numbers as to current FTE staffing.  Specifically, USMC's June
2000 EA included and was partially based on reported fiscal year 1997
data--including information on direct labor costs, labor hours, and meals
served--for nine messhalls, including three at Camp Lejeune considered in
the food service officer's review on the basis of FTE numbers derived from
reported total messhall employees numbers.  While the agency's actual data
in the EA indicated that there currently were [DELETED] FTEs at these
three messhalls, the food service officer's derivation indicated only
[DELETED] FTEs, an approximately 33‑percent understatement.  AR, Tab
47, EA, and Tab 51, SMM Messhall Staffing Review.
    
In its most recent submission to our Office, USMC notes that, absent the
significant difference between ESS's and SMM's proposed staffing for
[DELETED], where ESS proposed [DELETED] FTEs compared to SMM's [DELETED]
FTEs in its FPR (and the EA government estimate of [DELETED] FTEs), the
overall difference between ESS's proposed staffing for the East Coast
([DELETED] FTEs) and SMM's ([DELETED] FTEs) would be reduced to only
[DELETED] FTEs.  USMC suggests that, because the messhalls at [DELETED]
will continue to be serviced by JWOD subcontractors, the difference in
FTEs simply reflects differing approaches to the JWOD requirement; that
is, [DELETED].  Agency Comments, June 22, 2001, at 1-2.
    
USMC's argument does not demonstrate that SMM's FPR reduced staffing was
realistic.  As an initial matter, the government productivity estimates
were based upon the June 2000 EA, Agency Comments, May 29, 2001, at 13,
and it does not appear that these estimates varied with respect to whether
a JWOD or other contractor was operating a particular messhall;
[DELETED].  SMM Initial Price Proposal (East Coast), Overview, at 13-14;
SMM Initial Price Proposal (West Coast), Overview, at 12-13; RFPs S: H.5. 
Further, the fact that SMM's FPR [DELETED] reduced staffing in nearly all
messhalls (other than the brigs), whether or not JWOD‑operated,
indicates that its unexplained and unsupported FPR staffing reductions
were unrelated to its JWOD approach.
    
In any case, SMM's assumption of [DELETED] was not fully supported in its
proposal.  In this regard, while SMM indicated in its initial proposal
that [DELETED].  In this regard, after acknowledging in its proposal that
the JWOD Committee has authority to approve price changes and economic
adjustments and to decide disputes, SMM provided as follows:
    
In the event that Committee action results in any increased cost to the
contractor based upon circumstances that are beyond SMM's control, SMM
will be entitled to an equitable adjustment in the prime Contract Price
and any other affected Prime Contract terms and conditions.  SMM
anticipates treating these changes as we would any other FAR permitted
request for equitable adjustment.
SMM Initial Price Proposal (East Coast) at 13; SMM Initial Price Proposal
(West Coast) at 13.  To the extent that SMM committed itself in its
proposals to [DELETED], its commitment was substantially undercut by this
qualification and reservation.  The record thus does not support the
conclusion that SMM's FPR reductions in staffing and the resulting
staffing levels were attributable to differences in [DELETED] the JWOD
work.
    
SMM argues that ESS, in addressing pricing for preventive maintenance and
the possibility of changes in the meal count, failed to offer firm target
or ceiling pricing for food service or firm pricing for maintenance, such
that its pricing could not reasonably be compared to SMM's.  In this
regard, SMM refers to ESS's response to the observation during discussions
that its rates for preventive maintenance were low; ESS in its FPR revised
its rates, adding that *[b]ased on Preventive Maintenance information that
is gathered by the [USMC] and [ESS] during the first contract year, we
welcome a cost realism review that may or may not result in adjusted
pricing that could result in savings for the [USMC].*  ESS FPR, ESS
Responses to Cost/Price Questions.  With respect to the possibility of a
variation between the actual meal count and the solicitation estimate,
although USMC had advised ESS in its written preliminary discussion letter
that it could not agree to ESS's stated intention in its initial proposal
to seek recovery of cost increases resulting from a significant drop in
meals, during oral discussions the agency *agreed that the scenario
outlined by ESS [--a large percentage drop below the estimates set forth
in the RFP--] would call for a pricing adjustment.*  AR, Tab 21, USMC MFF
of Discussions with ESS.  In its FPR, ESS *request[ed] the opportunity to
verify the base bid numbers that have been used to produce our bid price
before the commencement of the contract*; stated that *[w]e would need to
also agree to a mechanism for price adjustment should the base meal count
be below the stated 27,550,000*; and indicated that *[i]n relation to any
significant changes to meal attendance numbers in the future, [ESS] is
delighted to note that the [USMC] is prepared to negotiate with us when
and if individual messhall or overall circumstances alter.*  ESS FPR, ESS
Responses to Cost/Price Questions. 
    
It is not apparent how ESS's discussions response rendered its pricing any
more uncertain than the above JWOD qualification rendered SMM's pricing. 
In fact, it appears that ESS's discussions response may have had a lesser
effect than SMM's.  While SMM's qualification insulated it from the risk
associated with [DELETED], ESS's discussions response seems to have merely
confirmed an agency position that could have applied to any contractor,
that is, that a significant reduction in the meal count could entitle the
contractor to a price adjustment.
    
Conclusion
    
We conclude that USMC's price evaluation did not reasonably account for
SMM's [DELETED] FPR reduction in staffing and consequent [DELETED]
increase in assumed productivity.  Nor did the price evaluation adequately
consider that SMM largely failed to substantiate a [DELETED] FPR reduction
in the costs associated with its central food production facilities.  In
these circumstances, USMC lacked a reasonable basis to conclude that SMM's
evaluated price represented the lowest cost to the government.  Given the
agency's conclusion that ESS's and SMM's technical proposals for the West
Coast were substantially equal, and that SMM's East Coast proposal was
only slightly above ESS's, there was a reasonable possibility that the
agency's defective price evaluation resulted in competitive prejudice to
ESS.  Accordingly, we sustain ESS's protest against the awards to SMM for
both the West and East Coasts.
    
We recommend that the agency reopen discussions with offerors in the
competitive range and request revised proposals.  If SMM is no longer in
line for award after evaluation of revised proposals, we recommend that
its contracts be terminated and that award be made consistent with the
evaluation results.  We also recommend that the protester be reimbursed
the reasonable costs of filing and pursuing the protest, including
reasonable attorneys' fees.  4 C.F.R. S: 21.8(d)(1) (2001). 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. S: 21.8(f)(1).
    
The protest is sustained.
    
Anthony H. Gamboa
General Counsel
    
    
    

   ------------------------

   [1] USMC reports that, assuming that ESS would perform at its target cost,
the actual cost to the government of SMM's proposal would exceed ESS's if
SMM's cost per meal exceeded [DELETED] percent of its target cost on the
East Coast, or [DELETED] percent on the West Coast.  Agency Comments, June
14, 2001, at 2, 4.
[2] SMM also generally noted with respect to labor costs that [DELETED]. 
SMM FPR East Coast/West Coast Revised Pricing Overviews at 1.  There was
no indication in the FPR that these changes facilitated lower messhall
staffing.