TITLE: ITT Federal Services International Corporation, B-289863.4; B-289863.6; B-289863.7; B-289863.8, December 16, 2002
BNUMBER: B-289863.4; B-289863.6; B-289863.7; B-289863.8
DATE: December 16, 2002
**********************************************************************
ITT Federal Services International Corporation, B-289863.4; B-289863.6;
B-289863.7; B-289863.8, December 16, 2002
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: ITT Federal Services International Corporation
File: B-289863.4; B-289863.6; B-289863.7; B-289863.8
Date: December 16, 2002
Kevin Connelly, Esq., and Joseph J. Dyer, Esq., Seyfarth Shaw, for the
protester.
Carl J. Peckinpaugh, Esq., and Charles S. McNeish, Esq., for DynCorp
International, LLC, an intervenor.
Richard C. Bennett, Esq., and Nancy J. Williams, Esq., U.S. Army Corps of
Engineers, for the agency.
Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest challenging agency's cost realism evaluation is sustained where
record shows that evaluation contained errors that, if corrected, could
significantly reduce the amount of awardee's cost advantage, and also
could affect the agency's technical evaluation of proposals, so that the
award decision could be different.
DECISION
ITT Federal Services International Corporation protests the award of a
contract to DynCorp International, LLC under request for proposals (RFP)
No. DACA78-01-R-0016, issued by the U.S. Army Corps of Engineers to
acquire base operations and security services at Camp As Sayliyah, Qatar.
ITT argues that the agency misevaluated proposals and made an unreasonable
source selection decision.
We sustain the protest.
BACKGROUND
This is the second award decision that has been protested to our Office.
In an earlier decision, DynCorp Int'l, LLC, B-289863, B-289863.2, May 13,
2002, 2002 CPD P: 83, aff'd, DynCorp Int'l, LLC--Recon., B-289863.3, July
1, 2002, we sustained a protest filed by DynCorp against the award of this
contract to ITT, finding that the agency had made errors in evaluating
proposals and selecting ITT for award. We recommended that the agency
amend the solicitation, obtain and evaluate revised proposals and make a
new source selection decision, and terminate the contract awarded to ITT
for the convenience of the government should the agency conclude that a
firm other than ITT is in line for award. The agency implemented our
recommendation: it amended the RFP, sought revised proposals and made a
new source selection, awarding the contract to DynCorp.
The solicitation, as amended after DynCorp's earlier protest, contemplated
the award of a cost-reimbursement contract and provided that proposals
would be evaluated on the basis of four equally-weighted, non-cost
factors: management capability, technical capability, experience
documentation and past performance documentation. RFP, Amendment No. 6,
at 3-7. Proposals were assigned adjectival ratings of either excellent,
good, satisfactory, marginal or unsatisfactory for each of the non-cost
factors. As for cost, the RFP provided that proposed costs would be
evaluated for reasonableness, completeness and realism. Id. at 7.
Finally, the solicitation provided that the agency would evaluate
performance risk in connection with all cost and non-cost evaluation
areas. Id. at 3. For source selection purposes, the RFP stated that
award would be made to the firm whose proposal represented the best
overall value to the government, considering all of the cost and non-cost
evaluation criteria, with non-cost considerations collectively being more
important than cost-related considerations. Id. at 3.
After receiving and evaluating the revised proposals, the agency assigned
ratings to the ITT and DynCorp proposals as follows:
+------------------------------------------------------------------------+
|Firm |Management |Technical |Experience|Past Perf.|Evaluated |
| |Capability |Capability |Doc. |Doc. |Cost |
|-------+-------------------+-----------+----------+----------+----------|
|ITT |[deleted] |[deleted] |[deleted] |[deleted] |[deleted] |
|-------+-------------------+-----------+----------+----------+----------|
|DynCorp|[deleted] |[deleted] |[deleted] |[deleted] |[deleted] |
+------------------------------------------------------------------------+
Based on these evaluation results, the agency made award to DynCorp,
finding that, although ITT's proposal had in general received higher
non-cost ratings, the perceived superiority of the proposal was not worth
the associated cost premium. Based on the agency's award decision, ITT
filed the instant protest.
DISCUSSION
ITT raises a large number of allegations in its protest. We have
carefully examined the allegations and find them all without merit, except
for those discussed below, which lead us to sustain the protest.
ITT's protest raises numerous allegations relating to the agency's cost
evaluation of the proposals. We note at the outset that, because the
solicitation contemplated the award of a cost-reimbursement contract, the
offerors' proposed costs of contract performance are not controlling since
these may not provide valid indications of the final actual cost that the
government is required, within certain limits, to pay. Advanced Comm.
Sys., Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD
P: 3 at 5. Accordingly, a cost realism analysis must be performed to
determine the probable cost of performance for each offeror. Federal
Acquisition Regulation (FAR) S: 15.404-1(d)(2). Such an analysis involves
independently reviewing and evaluating elements of each offeror's proposed
cost (and making adjustments thereto) to determine whether the proposed
cost elements are realistic for the work to be performed, reflect a clear
understanding of the requirements, and are consistent with the methods of
performance and materials described in the offeror's technical proposal.
FAR S: 15.404-1(d)(1). Our review is limited to determining whether the
agency's cost realism analysis was reasonable. NV Servs., B-284119.2,
Feb. 25, 2000, 2000 CPD P: 64 at 7.
Low Rates of Compensation
ITT asserts that the agency improperly failed to make an upward adjustment
in DynCorp's evaluated cost to account for what it describes as
unreasonably low rates of compensation for certain employees. The labor
categories for this contract include what are referred to as
*third-country nationals.* In the case of DynCorp, for example, its
proposal states that it intends to employ Nepalese Gurkhas as security
personnel. The record shows that DynCorp (the incumbent security
contractor at the installation) proposed to maintain its current rates of
compensation (including salary and daily subsistence allowance) for
third-country national security personnel for the first year of contract
performance, but then proposed to reduce that compensation by [deleted]
percent in succeeding years of the contract. DynCorp Proposal at 6.0-5.
DynCorp also proposed to pay new hires (apparently necessary because of
expanded requirements, and to meet demand created by attrition) at the
lower rates of compensation. ITT maintains that it was improper for the
agency not to increase DynCorp's evaluated cost based on the firm's
proposal to reduce compensation for existing personnel, and hire new
employees at the lower rates, because the lower rates are unrealistically
low.
The record shows that, in evaluating DynCorp's third-country national
rates of compensation, the cost evaluators relied exclusively on a Defense
Contract Audit Agency (DCAA) report prepared in connection with an
extension of DynCorp's current contract (as noted, DynCorp is the
incumbent security contractor) in concluding that DynCorp's proposed rates
of compensation were realistic. Cost Realism and Probable Cost
Memorandum, Aug. 26, 2002, at 3. The cost evaluators specifically
concluded:
Since a majority of proposed personnel are security services and the
government has audited DynCorp's labor rates for these personnel presently
onsite, DynCorp's labor rates must be considered realistic and cannot be
adjusted as part of a most probable cost [evaluation].
Id. The record shows, however, that DynCorp had been specifically
directed by the government to [deleted] its rates of compensation for
third-country nationals during the course of performing the current
contract. In this regard, DynCorp's proposal specifically provides:
[The lower rate of compensation] is the same rate of compensation for
these employees as when they originally began work on the [current]
contract in Qatar. This compensation was very successful in recruiting
and retaining the initial Gurkha security force but at the direction of
the government, the salaries were [deleted].
DynCorp Proposal at 6.0-5. It was these higher rates of compensation that
were evaluated and found realistic by DCAA at the time it audited
DynCorp's rates of compensation in anticipation of extending the current
contract. DCAA Audit Report, Aug. 22, 2001, at 4. In effect, therefore,
DCAA never audited or found realistic the lower rates of compensation
currently proposed by DynCorp for third-country nationals during the
second and subsequent years of contract performance.
DynCorp maintains that its lower proposed rates of compensation are
supported in its proposal by quotes from third-party vendors. DynCorp
Proposal at 6.0-7-6.0-8. While we acknowledge that these quotes were
included in the DynCorp proposal, and while it may be possible for DynCorp
to obtain personnel at the lower rates of compensation (as evidenced by
the quotes), the record is devoid of any explanation
--either from the agency or DynCorp--regarding why DynCorp was required by
the government under the current contract to [deleted] its rates of
compensation for third-country nationals, or why such a [deleted] of
compensation would not ultimately be required under the current
contract.[1] For its part, the agency states--inexplicably--that:
neither the SSA [Source Selection Authority] nor the CET [Cost Evaluation
Team] has any direct knowledge of the government requirement to [deleted]
the TCN [third-country national] security guard labor rates. . . . In any
event, the SSA is not and was not aware of any legitimate basis to
arbitrarily require DynCorp, or any other offeror, to maintain a certain
labor rate for TCN security guards.
Agency Supplemental Report, Nov. 8, 2002, at 25. We are at a loss to
understand the Corps's position in light of the explicit statement in
DynCorp's proposal that it had been required by the Army to [deleted] its
rates of compensation for third-country nationals during performance of
the current contract. We recognize that the agency could have concluded,
based on a reasoned analysis, that the proposed rates were realistic and
that there was no risk of potential cost growth, notwithstanding the
government's earlier requirement for DynCorp to [deleted] its rates of
compensation. The record before our Office, however, contains no such
analysis and, in fact, does not even reflect an awareness on the part of
the cost evaluators that DynCorp had been required to [deleted] its rates
of compensation under the current contract. Rather, as noted, the cost
evaluators relied on the conclusions arrived at by DCAA that were based on
the higher rates of compensation. We also note that there is nothing in
the record indicating that the agency's non-cost evaluators considered the
potential impact of DynCorp's low rates of compensation on its performance
of the contract.[2]
In sum, the current record shows that the agency (1) failed to quantify
the potential cost growth associated with DynCorp's low proposed rates of
compensation during its cost realism evaluation; (2) failed to assess the
non-cost considerations associated with DynCorp's low rates of
compensation; and (3) failed to seek an explanation for why DynCorp was
required under its current contract to [deleted] its initial rates of
compensation--even though those initial rates were the same as the rates
currently being proposed. Under these circumstances, we find this aspect
of the agency's evaluation unreasonable.
ITT further asserts that, although DynCorp proposed to hire [deleted]
percent of the incumbent non-security personnel, DynCorp Technical
Proposal at 98, its proposed rates of compensation for these personnel are
[deleted] than the rates of compensation currently being paid. (ITT is
the current incumbent contractor for the non-security functions and has
included information in its protest relating to the rates of compensation
it currently is paying for purposes of comparison.) According to ITT, its
current rates of compensation for the non-security functions are from
[deleted] to [deleted] percent higher (for selected categories of
personnel) than the rates proposed by DynCorp for the same labor
categories.
The record contains nothing to indicate that either the cost or technical
evaluators gave any consideration to the potential impact of DynCorp's
proposed rates of compensation for non-security personnel. We note that
the adequacy of DynCorp's compensation more generally was a matter of
concern to the agency in its earlier evaluation of proposals, and resulted
in the assignment of a high risk rating to the DynCorp proposal. Given
that DynCorp's technical approach relies on retaining
[deleted] percent of the incumbent workforce, and in view of the agency's
earlier concern relating to the adequacy of DynCorp's proposed rates of
compensation, we think the agency, at a minimum, should have performed a
more thorough evaluation of the adequacy of DynCorp's proposed rates for
non-security personnel.
Lapse Rates
ITT maintains that the agency acted unreasonably in its treatment of what
is referred to in the DynCorp proposal as the firm's *lapse rate,* that
is, the percentage of staffing vacancies expected at any given time during
performance. For example, DynCorp proposed to meet the security function
using [deleted] U.S. nationals and [deleted] third-country nationals.
DynCorp Proposal at I-12. In preparing its cost proposal, however,
DynCorp applied an [deleted] percent lapse rate for U.S. nationals and a
[deleted] percent lapse rate for third-country nationals, DynCorp Proposal
at 6.0-12, which resulted in DynCorp's including only [deleted] percent of
the cost of its U.S. national employees and [deleted] percent of the cost
of its third-country national employees in its total proposed cost. ITT
concludes that, if a lapse rate was properly factored into the analysis
for DynCorp, it should have been taken into account in the calculation of
ITT's most probable cost as well.
DynCorp responds that it fully staffed the requirement, and that its cost
proposal merely reflects the actual cost experience it will have during
performance because, on average, it will experience vacancies
approximately equal to the lapse rates included in its proposal. Based on
its determination that it will experience a [deleted] to [deleted] percent
job vacancy rate (depending on the job category) throughout contract
performance, DynCorp costed only [deleted] to [deleted] percent of its
proposed staffing. [deleted]. DynCorp further suggests that ITT likely
experiences a lapse rate, but merely failed to factor it into its proposed
costs. DynCorp Supplemental Comments, Nov. 15, 2002, at 9.
We recognize that taking into account anticipated turnover and the
resulting vacancies--and thus cost savings--may reasonably be viewed as a
sensible refinement of the most probable cost analysis. What the agency
did here, however, was not reasonable, because the agency failed to
resolve the apparent inconsistency between DynCorp's technical and cost
proposals, and failed to treat the offerors equally. As in other areas of
the evaluation, the agency had discretion to reach a reasonable conclusion
regarding the lapse rate and the appropriate staffing levels, as long as
the agency had a reasonable basis for whatever conclusion it reached.
There is, however, no indication in the record that the agency was even
aware of this aspect of DynCorp's proposal in the evaluation, or
considered the effect that a [deleted] or [deleted] percent deficiency in
available personnel might have on DynCorp's performance. Instead, it
appears that in the evaluation of proposed staffing, the agency used
DynCorp's proposed staffing level for the security personnel (the bulk of
the staffing under the solicitation) as the appropriate level to which
other offerors' proposals were *normalized.* To the extent that the
agency made a reasonable judgment that the full complement of staffing at
that level is necessary to perform the work, DynCorp's lapse rate
calculation in its cost proposal essentially represented an admission that
that firm was not proposing to meet the *normalized* staffing level--yet
the agency failed to take that into account. Alternatively, if the agency
believed that the normalized staffing level could safely be reduced by the
anticipated vacancy rate, as DynCorp apparently believed, it was
inappropriate to adjust ITT's proposal up to the full complement. For all
staffing--both security and non-security--either the agency should have
adjusted DynCorp's proposed costs upward to include the cost of the full
complement of employees proposed (thus eliminating the cost reduction
associated with the firm's lapse rate) or it should have recognized that
other offerors would also experience a vacancy rate that was not reflected
in their proposals and reduced the other offerors' proposed costs
accordingly.
DynCorp's Indirect Rates
In an apparent attempt to show that no prejudice resulted from any flaws
in the agency's evaluation of cost proposals, DynCorp asserts that the
agency improperly added approximately $[deleted] million to its evaluated
cost for purposes of calculating its indirect cost. In this regard, the
record shows that DynCorp used an indirect rate that ranged from [deleted]
percent to [deleted] percent (differing by period of performance) in
calculating its proposed cost. DynCorp Proposal at 9.0-2. DynCorp's
proposal explains that these are new rates based on its development of
what it refers to as a *strategic business unit for security programs.*
Id. In evaluating the DynCorp proposal, the cost evaluators escalated
DynCorp's indirect rates to a total of [deleted] percent (an approximate
net increase of [deleted] percent). Cost Realism and Probable Cost
Memorandum, Aug. 26, 2002, at 2. The evaluators based the increase on
DynCorp's historical indirect rates in performing as the current security
guard contractor at this facility (these rates were approved in the DCAA
report mentioned earlier). According to DynCorp, the agency improperly
escalated its indirect rate to include, for example, intermediate home
offices (such as its Middle East office) that, in fact, will not be
involved in the administration of the current contract. DynCorp maintains
that this contract will be an autonomous business unit that reports
directly to the president of DynCorp International.
This argument is without merit. DynCorp's proposal merely states--without
any supporting cost data or other rationale--that its
yet-to-be-established strategic business unit will somehow experience this
dramatically lower indirect rate in performing this contract. The cost
evaluators thus had no information with which to evaluate the realism of
the proposed rate, either in terms of DynCorp's calculations in arriving
at the new rate, or in terms of actual cost experience during performance
of this--or any other--requirement. In contrast, the rates approved in
the DCAA report reflect DynCorp's actual recent cost experience in
performing at this same facility over a period of time. In the absence of
supporting cost data or actual cost experience on the part of DynCorp, the
agency could reasonably rely on DynCorp's historical, DCAA-approved rates
in evaluating the firm's proposed cost. See Capstone Corp., B-247902,
July 9,1992, 92-2 CPD P: 2 at 6.
Prejudice
Competitive prejudice is an essential element of every viable protest;
where the record establishes no reasonable possibility of prejudice, we
will not sustain a protest even if a defect in the procurement is found.
McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 CPD P: 54 at 3; Statistica,
Inc. v Christopher, 102 F. 3d 1577 (Fed. Cir. 1996). On the other hand,
where the record establishes that, but for the agency's errors, the
protester's proposal would have had a substantial chance of being selected
for award, we generally will sustain the protest. Metro Mach.Corp.,
B-281872 et al., Apr. 22, 1999, 99-1 CPD P: 101 at 9.
Here, we find that the errors in the agency's evaluation of proposals
discussed above may have had a substantial impact on the cost evaluation.
In the area of DynCorp's proposed labor rates, the protester's
uncontroverted calculations show that increasing DynCorp's proposed
third-country national rates of compensation by [deleted] percent (that
is, to the level under its current contract) would have added
approximately $[deleted] million to DynCorp's evaluated cost. Protester's
Comments, Oct. 21, 2002, exh. 1, at 10. With respect to DynCorp's lapse
rates, the record does not include a calculation of the impact of the
[deleted] percent lapse rate on DynCorp's evaluated cost (instead, ITT
calculates the impact at $[deleted] million, but this is based in large
part on reducing its own cost to make it equivalent to DynCorp's).[3] We
are uncertain of all of the factors that should be included in this
calculation (due to, for example, the uncertainty associated with any
required adjustments to DynCorp's apparently low proposed rates of
compensation), but it seems clear that an appropriate upward adjustment in
DynCorp's proposed cost would have a potentially significant impact on the
overall cost difference between its and ITT's proposals.
In addition to the above, the agency concedes several errors in its
calculations of the offerors' most probable cost. First, the agency
states that it improperly added base and/or award fee to the offerors'
proposals in arriving at its most probable cost estimates; the agency
states that it improperly added $[deleted] to the ITT proposal and
$[deleted] to the DynCorp proposal in fees. Accordingly, the difference
in the two firms' evaluated costs should have been $[deleted] less than
indicated in the evaluation. Agency Supplemental Report, Nov. 8, 2002, at
17. Second, the agency states that it failed to notice arithmetic
mistakes in the DynCorp proposal that should have resulted in the firm's
evaluated costs being adjusted upward by $[deleted]. (Additionally, while
not an error in its calculation of most probable cost, the agency also
concedes that the source selection decision document improperly criticized
ITT for proposing approximately $[deleted] more in material costs during
the base year than any other offeror; in fact, however, the $[deleted]
disparity was explained by the fact that ITT included housing costs in its
base-year material costs while the other offerors apparently accounted for
their housing costs separately.)
In sum, while the agency based its source selection on the conclusion that
DynCorp's cost proposal represented a savings over ITT's in the amount of
$[deleted], the matters discussed above could reduce that difference
substantially, such that the tradeoff between DynCorp's lower cost
proposal and ITT's higher technically rated proposal could result in a
different award decision. In addition, as discussed, the non-cost
evaluators were apparently unaware of DynCorp's seemingly low rates of
compensation and lapse rate cost reduction (which effectively provided for
reduced staffing), which could have affected their evaluation
conclusions.
RECOMMENDATION
We recommend that the agency reevaluate the proposals submitted with a
view to performing a thorough, integrated cost and technical evaluation,
taking into consideration our conclusions discussed above. If, at the
conclusion of that reevaluation, the agency determines that a firm other
than DynCorp is properly in line for award, we recommend that the agency
terminate DynCorp's contract for the convenience of the government. We
also recommend that ITT be reimbursed the costs of filing and pursuing its
protest, including reasonable attorneys' fees. 4 C.F.R. S: 21.8(d)(1)
(2002). ITT's certified claim, detailing the time spent and the costs
incurred, should 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]Although the question of why DynCorp was required to [deleted] its
rates of compensation for third-country nationals was specifically raised
during the protest, ITT's Third Supplemental Protest, Nov. 18, 2002, at 4,
the agency did not provide a substantive response to the assertion. Third
Agency Report, Nov. 26, 2002, at 1.
[2] This is especially troubling in view of the agency's actions during
its previous evaluation of proposals. The record from the prior protest
showed that the agency had significant concerns relating to the adequacy
of DynCorp's proposed rates of compensation (which were the same as those
currently being proposed). Affidavit of Chief, Contracting Division, Mar.
21, 2002, at 1. As a consequence, the agency assigned a high performance
risk rating to DynCorp's proposal due to the potential for cost growth
associated with the low proposed rates of compensation. Id. The basis
for the agency's original concern--low proposed rates of
compensation--remains. During the current evaluation, however, rather
than quantify the potential for cost growth for the offerors and/or
consider the question in connection with the agency's non-cost evaluation
(or both, as recommended in our earlier decision), the agency did neither.
[3] ITT does assert that, in the non-security area, the agency improperly
failed to account for [deleted] full-time equivalents in the DynCorp
proposal because of the firm's proposed lapse rate, and its uncontroverted
calculations show that the cost of adding these employees to the DynCorp
proposal would be approximately $[deleted] million. Id. at 14-16.