TITLE:  The Right One Company, B-290751.8, December 9, 2002
BNUMBER:  B-290751.8
DATE:  December 9, 2002
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The Right One Company, B-290751.8, December 9, 2002

   Decision
    
Matter of:   The Right One Company
    
File:            B-290751.8
    
Date:              December 9, 2002
    
Doris Hill for the protester.
Adele Ross Vine, Esq., General Services Administration, for the agency.
Paula A. Williams, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Protest that the agency improperly excluded protester's proposal from
consideration for award is denied where the decision to eliminate the
protester's proposal was reasonably based on a finding that protester's
proposed rates for certain line items were unreasonably high.
DECISION
    
The Right One Company (TRO) protests the elimination of its proposal from
consideration for award under request for proposals (RFP) No.
6TA-02-MTV-0057, issued by the General Services Administration (GSA) for
government-wide acquisition contracts for information technology
services.  TRO argues that the agency unreasonably excluded its proposal
based on the agency's conclusion that TRO either qualified the
solicitation requirements or otherwise proposed unreasonably high rates
for many line items.
    
We deny the protest.
    
The RFP was restricted to firms certified under the Small Business
Administration's Historically Underutilized Business Zone (HUBZone)
program and provided for the award of multiple
indefinite-delivery/indefinite-quantity contracts for a base period of 2
years, with three 1-year options.  Work under the contracts was to be
performed pursuant to specific task orders covering one or more of seven
functional areas (FA) corresponding to various required services.[1]  RFP
at M-1.  Offerors could elect to propose on any one or more of the FAs and
the solicitation advised that GSA intended to make awards based on initial
proposals without conducting discussions.  Id. at L-1.  In addition, the
amended RFP cautioned that a proposal would be considered unacceptable and
would be ineligible for award if, among other things, it took exception to
any of the terms and conditions in the RFP, or imposed additional
conditions.  RFP at M-1.
    
The RFP instructed offerors how to prepare their price proposals.  The
pricing schedules for the base and option periods for each FA included
contract line item numbers (CLIN) corresponding to specific labor
categories with an estimated number of hours for each labor category. 
Offerors were requested to provide an hourly ceiling labor rate for each
labor category and to multiply this unit rate by the number of estimated
hours to calculate the total price for each labor category.  For each FA,
the price schedule also contained CLINs for supplies, travel, and other
direct costs (STODC), and provided an estimated cost amount of $500,000
for supplies, $50,000 for travel, and $25,000 for other direct costs.  The
solicitation contained a pricing formula in which the estimated cost
amount (A) was multiplied by the ceiling handling rate (B) proposed by
each offeror; this amount was then added to the estimated cost amount to
establish the total extended price for each STODC line item.  RFP at B-6.
    
Regarding ceiling handling rates, the RFP provides:
    
Handling rates are markups applied to bare cost serving as maximum
consideration for all indirect (i.e., overhead, general and
administrative) charges, fringe benefits and profit.  Handling rates will
be expressed as a decimal and not a percentage, and be rounded to three
places to the right of the decimal point. . . .
If authorized in an Order, the Contractor will be reimbursed the bare cost
of supplies, bare cost of travel . . . and bare cost of ODCs plus the
handling amounts (not to exceed the application of the ceiling rates)
specifically definitized in the order.  To reiterate, there is an absolute
requirement that the bare cost amounts of the supplies, travel, ODCs and
associated handling amounts be fixed at the time of Order inception. . . .
The ceiling handling rates in the schedules of this Section B are caps on
the markup allowed for overhead, G&A and profit--they do not serve as
mechanical measures of those rates.
It is customary for profit to not be applied to travel costs and it is not
allowable under this Contract.
                                                   .  .  .  .  .
The ceiling handling rate(s) proposed shall stand regardless of actual
utilization (e.g., even if only $5,000.00 of the estimated $500,000.00 for
supplies is ordered, the ceiling handling rate remains constant.)
    
RFP at B-4, B-5.  In each pricing schedule, offerors were advised that
*[t]he price evaluation case will be made on 100% of the extended item
totals* and *[i]n no event will the Government agree to an individual item
price or rate that is unreasonable, even if the arithmetic is satisfactory
in the price evaluation case.*  RFP at B-6, B-7. 
    
In response to the solicitation, GSA received several proposals, including
one from the protester for all seven FAs.  TRO's proposal was found
technically acceptable; however, in the course of the price analysis, the
contracting officer identified irregularities in TRO's proposed ceiling
handling rates for the STODC CLINs.  For example, the contracting officer
was concerned that for FA1, Price Schedule A, Years One and Two, TRO
entered a negative handling rate of *-0.966* or --96.6% applied to the
$500,000 cost estimate for supplies for that performance period.  The
effect of this pricing methodology would result in TRO absorbing $483,000
worth of the estimated cost of the supplies for that performance year and
the contracting officer noted that it was highly unlikely that a small
business would choose to absorb such costs.  The handling rates TRO
offered for supplies in FAs 1-4 had similar negative values.  As for FAs
5-7, the contracting officer concluded that the proposed ceiling handling
rates for supplies under these FAs were unacceptably high.  Contracting
Officer's Statement of Fact at 3.  In addition, the contracting officer
determined that the handling rates proposed by the protester for travel
and ODCs for all FAs were extremely high.  For instance, in FA1, years 1
and 2, TRO offered a handling rate of 105.37 or 10,537.00% applied to a
cost estimate for ODC of $25,000 for that performance period.  This
resulted in an estimated cost of $2,659,250 for that CLIN.  Id.
    
When the contracting officer, apparently suspecting a mistake, brought
these pricing concerns to TRO's attention, TRO verified its offer as
submitted.  Specifically, TRO stated:
    
All of my prices are accurate and correct.  Yes, there are negative rates
on the FA1; On-Line Information Services; FA2: All other Information
Services; FA3: Data Processing Services and FA4. Custom Computer
Programming Services.  Yes, there are negative
rates because the cost for supplies is well below $500,000.00.  Using your
formula on the Price proposal:
Total for Supplies are [(A*B)+A]=[(500,000*-.966)+500,000]=$17,000.
    
AR exh. 3, Price Verification from TRO to GSA, Aug. 22, 2002.  After
reviewing TRO's price verification, the contracting officer concluded that
TRO had impermissibly qualified its offer under each FA.  In particular,
the contracting officer explains:
    
All indications . . . were that TRO consistently changed the estimates . .
. for STODCs on every S, T and ODC CLIN . . . based upon its demonstrated
fundamental misunderstanding of what was being asked for.  After taking
into account the totality of information, it was the [contracting
officer's] supposition that TRO:  disagreed with every Agency estimate for
STODC CLINs in the RFP, implemented a means to change them to amounts it
estimated it could provide complete STODCs for (rather than just the
specific elements of STODCs being asked for in CLIN handling rates), and
that it did not offer standing unit rates to be applied at the order level
as solicited by the RFP.
                                                   .  .  .  .  .
There were three notes at the end of every pricing schedule in Section B. 
The second note states, *In no event will the Government agree to an
individual item price or rate that is unreasonable, even if the arithmetic
is satisfactory in the price evaluation case.*  The Agency should be
permitted to exercise a right it reserved to itself, and has a vested
interest in ensuring that no individual CLIN price is unduly high or low. 
TRO should have read that note 28 times (since it appeared at the end of
every pricing schedule performance period [there are four per FA] and TRO
proposed upon every FA [there are seven FAs].)  No other offerors were
even close to TRO's unconscionably high handling rates for S in FAs 5-7, T
in all FAs, or ODC in all FAs.  TRO's offered ceiling handling rates were
compared with the average of all other offerors ceiling handling rates
(with TRO's rates removed as they appeared to be outliers/assuming TRO's
had qualified its offer) still under consideration in each FA.  There was
sufficient competition and corporate similarity for the CO to believe the
offered pricing to be an accurate benchmark against which to measure TRO's
rates.  There was (and is) sufficient disparity between the averages and
TRO's rates to reasonably conclude TRO's pricing to be unreasonable.
Contracting Officer's Statement of Fact at 7, 15-16.  On this basis, TRO's
proposal was eliminated from the competition and this protest followed.
    
TRO challenges the agency's decision to eliminate the firm from the
competition and specifically disputes the contracting officer's conclusion
that its rates were unreasonable.  A determination concerning price
reasonableness is a matter of administrative discretion involving the
exercise of business judgment by the contracting officer; therefore, we
will question such a determination only where it is clearly unreasonable
or there is a showing of bad faith or fraud.  Concepts Bldg. Sys., Inc.,
B-281995, May 13, 1999, 99-1 CPD P: 95 at 5.  We find the contracting
officer's determination here unobjectionable.
    
As quoted above, the contracting officer found TRO's proposed handling
rates unreasonable because, when compared to the rates proposed by other
offerors, TRO's rates were *unconscionably high.*  In its report, the
agency furnished a chart which provides a CLIN-by-CLIN comparison of the
handling rates proposed by the protester and the average rate of all
offerors still under consideration for awards.  In each and every
instance, TRO's rates are substantially out of line with the average rate
proposed by the other offerors.  For example:
    

   +------------------------------------------------------------------------+
|FA1          |TRO      |TRO       |Average of all|Average of all        |
|CLINs        |Decimally|Percent   |Decimally     |Percentages           |
|-------------+---------+----------+--------------+----------------------|
|A9 (ODC)     |105.37   |10,537.00%|0.164         |16.40%                |
|Years 1 & 2  |         |          |              |                      |
|-------------+---------+----------+--------------+----------------------|
|B9 (ODC)     |         |          |              |                      |
|Year 3/      |57.49    |5749.00%  |0.163         |16.30%                |
|Option 1     |         |          |              |                      |
|-------------+---------+----------+--------------+----------------------|
|D7 (Supplies)|         |          |              |                      |
|Year 5/      |-0.996   |-99.60%   |0.124         |12.40%                |
|Option 3     |         |          |              |                      |
+------------------------------------------------------------------------+

    
Contracting Officer's Statement of Fact at 13.
    
Thus, for example, using the pricing formula set forth in the
solicitation, TRO's total estimated price for ODC under FA1 for CLIN A9,
was $2,659,250 (that is, ($25,000 x 105.37) + $25,000), compared to
$29,100 (that is, ($25,000 x .164) + $25,000), based on the average ODC
rate of all offerors still under consideration.  This dramatic price
disparity between TRO's proposed ceiling handling rates and the other
offerors repeats itself under every FA for each performance year for both
the ODC and travel CLINs.
    
It appears from the record that TRO disagreed with the agency's STODC
estimates, in general, and with the estimated costs of supplies and
travel, in particular.  The firm was apparently using its proposed
handling rates to *correct* the agency's estimates.  The firm's actions
were misguided.  The STODC figures were explicitly identified as
estimates; actual costs would be used for reimbursement under individual
orders.  Acceptance of TRO's proposed ceiling handling rates could allow
TRO to charge the government mark-ups on actual costs that for many items
would be so high as to dwarf the firm's actual costs.
    
Under these circumstances, we conclude that the contracting officer
reasonably determined that TRO's offered ceiling handling rates were
unreasonably high and substantially out of line with the other firms
remaining in the competition.  Consistent with the clear language in the
solicitation that the government would not accept an individual item price
or rate that was unreasonable, even if the arithmetic was accurate, the
agency reasonably excluded TRO's proposal from further consideration.
    
While the protester raises other protest allegations concerning how its
proposal was evaluated, since we conclude that the agency's decision to
eliminate TRO's proposal from the competition is justified on the one
basis discussed above, we need not address the other agency bases for its
decision to find TRO's proposal unacceptable. 
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    

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

   [1]For each FA, the solicitation anticipated not fewer than three and no
more than ten awards to the responsible offerors whose proposals represent
the best values to the government.  RFP at M-1.  Each awardee then will
compete against the other awardees for task orders to be issued under each
FA.