TITLE: Engineering Services Unlimited, Inc., B-291275; B-291275.2, December 17, 2002
BNUMBER: B-291275; B-291275.2
DATE: December 17, 2002
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Engineering Services Unlimited, Inc., B-291275; B-291275.2, December 17, 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: Engineering Services Unlimited, Inc.
File: B-291275; B-291275.2
Date: December 17, 2002
Howell Roger Riggs, Esq., for the protester.
John J. Fausti, Esq., and Monica C. Parchment, Esq., John J. Fausti &
Associates, for Mainthia Technologies, Inc., an intervenor.
H. Gray Marsee, Esq., and Sumara M. Thompson-King, Esq., National
Aeronautics and Space Administration, for the agency.
Louis A. Chiarella, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Contracting agency did not induce or coerce the protester into raising
its proposed labor rates where the agency was reasonably concerned with
protester's ability to attract and retain incumbent personnel, as the
protester proposed, due to its low proposed labor rates and asked the
protester during discussions to explain how it intended to attract and
retain incumbent personnel at the rates proposed; the protester's decision
to increase its proposed labor rates reflected the exercise of the firm's
business judgment.
2. Protest that agency's negotiating techniques led to an impermissible
auction is denied; agency's disclosure that an offeror's proposed labor
rates were in certain instances materially lower than current wage rates
did not constitute prohibited communications.
DECISION
Engineering Services Unlimited, Inc. (ESU) protests the award of a
contract to Mainthia Technologies, Inc. under request for offers (RFO) No.
8-1-2-CD-D7142, issued by the National Aeronautics and Space
Administration (NASA) for administrative support services at the Marshall
Space Flight Center, Alabama. ESU alleges that the agency improperly
induced ESU to raise its offered price and that the agency's negotiating
techniques with ESU led to an improper auction.
We deny the protest.
The RFO, issued on December 19, 2001, as a section 8(a) set-aside,
contemplated the award of a fixed-price, indefinite-quantity contract for
2 years, with three 1-year options for *center-wide* administrative
services. The solicitation established three evaluation factors:
understanding the performance work statement (PWS) (also referred to as
the baseline requirement), value characteristics, and price.[1] The RFO
stated that the first two factors together established the qualitative
merit of the offer, which was approximately equal in importance to price.
The solicitation also notified offerors that the basis for award was *best
value,* based on the agency's determination of the *best combination of
price and qualitative merit of the offers submitted.* RFO at 12.
The agency received 26 offers by the January 15, 2002, closing date.
Prior to the evaluation of proposals, NASA provided all offerors with a
revised Department of Labor (DOL) area wage determination and the
opportunity to revise previously submitted labor rates as necessary to
comply with the revised wage determination. Agency Report, Tab BB, Agency
Request for Additional Cost Information and Cost Forms, at 2. In its
response ESU proposed wage rates for each labor classification that were
equal to the revised wage determination. Agency Report, Tab W, ESU's
Initial Proposal Cost Form Submission, at 4.
The initial evaluation of proposals resulted in NASA establishing a
competitive range consisting of five offers, including those from ESU and
Mainthia. As part of its initial proposal ESU set forth its goal of
hiring 90 percent of the incumbent personnel. Agency Report, Tab FF, ESU
Original Proposal, Vol. B, at 27. Prior to holding discussions with ESU,
the agency asked, *Given the revised [w]age [d]etermination . . .
previously provided and the seniority level of the incumbent staff you
anticipate retaining, are your proposed base labor rates sufficient to
attract and retain those incumbent personnel?*[2] Agency Report, Tab T,
Agency Determination of Finalists Letter to ESU, at 4. ESU submitted its
final proposal revision on June 12 using the same labor rates as initially
proposed. Agency Report, Tab N, ESU's First Final Proposal Revision, at
10.
On July 16 the source selection authority (SSA) approved the reopening of
discussions with offerors because of the evaluators' inability to reach
consensus on the evaluation of certain proposals. As part of its notice
to ESU to reopen discussions and request a second revised proposal, the
agency asked,
It appears that the base labor rates proposed for the [nine] labor
categories listed below are low if your intention is to capture the
incumbent employees in these classifications. . . . How do you plan to
mitigate any potential performance risk, if you cannot capture the
percentage of incumbent employees anticipated in your management approach
due to the lower base labor rates being proposed?
Agency Report, Tab K, Agency Notification of the Reopening of Discussions
to ESU, at 3.
NASA held a second round of discussions with ESU on July 29, of which an
audiotape recording was made. As part of its oral presentation to the
agency, ESU stated that while it originally planned to hire 90 percent of
the incumbent workforce, it had since increased that goal; instead, ESU
now planned to *capture 100 percent of the incumbent workforce.* [3]
Audiotape of Agency Discussions with ESU, July 29, 2002; see also Agency
Report, Tab I, ESU's Second Oral Presentation, at 4.
In order to accomplish its revised management approach of attracting all
incumbent personnel, ESU proposed to raise its wage rates for all labor
categories.[4] Agency Report, Tab I, ESU's Second Oral Presentation, at
5-6. ESU recognized that there would be *a cost impact to [its] proposal
based on these rate differences.* Audiotape of Agency Discussions with
ESU, July 29, 2002. However, by attracting 100 percent of the incumbent
employees, ESU believed its proposal would result in a *seamless
transition,* thereby mitigating any potential performance risk or
disruption. Id.
After ESU completed its oral presentation, the agency asked the firm
various questions, including, *Please explain how you will capture 100
percent of the incumbent workforce given you are, in [the agency's] view,
materially lower than the hourly wage* for certain enumerated labor
categories.[5] Id. In a subsequent reply ESU's president stated,
I do want to make this statement and this pledge. We are 100 percent
committed to retaining 100 percent of the incumbent personnel. If they
are amenable to coming to work to join us, we're going to make that
available to them at or above the rates that they are currently making.
Under no circumstances will we bring on anyone below that . . . . We will
again retain, every single one of them, at or above the rates that they
are currently making.
Id.
ESU's planned method to accomplish this stated intention was two-fold:
first, ESU asserted that its proposed wage rates for certain labor
categories were higher than current rates and could be used to offset
those labor categories where its proposed rates were low. Additionally,
ESU stated its intention to use its proposed profit rate (i.e., *biting
into corporate fee*) as needed in order to retain 100 percent of the
incumbent workforce at or above current rates. Id. NASA informed ESU
that as the firm had not addressed all labor categories where its proposed
wage rates were low, other than to say that it would use labor rate
offsets and corporate profits, the agency still had a concern about how
ESU would in fact capture 100 percent of the incumbent workforce. Id.;
Agency Report, Tab G, Agency Request for ESU's Revised Final Proposal
Revision, at 1.
Five offerors, including ESU and Mainthia, submitted revised final
proposals by the August 12 due date. As part of its proposal, ESU raised
its proposed wage rates in the labor categories that the agency had
indicated were low. ESU's proposal explained, *We have again conducted
more recent extensive wage surveys and analyses, to ensure all incumbent
retainability is achievable . . . . As a result of this new survey data,
we have adjusted our labor rates . . . to enable us to attract incumbents
at or above their current compensation.* Agency Report, Tab E, ESU's
Second Final Proposal Revision, at 10.
Even after raising its proposed labor rates in its revised final proposal
revision, ESU's average labor rate ([DELETED]) was lower than that of
Mainthia ([DELETED]).[6] Agency Report, Tab D, Source Selection Authority
Presentation (Second Round), at 21. By contrast, both ESU's indirect cost
rate ([DELETED]) and its profit rate ([DELETED], which was the same as in
ESU's initial proposal) were higher than the indirect cost and profit
rates proposed by Mainthia ([DELETED] and [DELETED], respectively). Id.
An agency evaluation team (i.e., the *Buying Team*) rated the technical
proposals using a pass/fail standard for the baseline requirement factor,
and an adjectival rating system (of significant, modest, limited, or none)
for the value characteristics factor. The ratings of the proposals of
Mainthia and ESU as determined by the SSA were as follows:
+------------------------------------------------------------------------+
| |Mainthia |ESU |
|---------------------------------------------+--------------+-----------|
|Factor|Subfactor | | |
|---------------------------------------------+--------------+-----------|
|Understanding the PWS |Meets |Meets |
|---------------------------------------------+--------------+-----------|
| |Management Approach |Meets |Meets |
| |--------------------------------------+--------------+-----------|
| |Past Performance |Meets |Meets |
| |--------------------------------------+--------------+-----------|
| |Safety & Health |Meets |Meets |
| |--------------------------------------+--------------+-----------|
| |Information Technology Security |Meets |Meets |
|---------------------------------------------+--------------+-----------|
|Value Characteristics | | |
|---------------------------------------------+--------------+-----------|
| |Program Manager Experience |Significant |Modest |
| |--------------------------------------+--------------+-----------|
| |Program Manager Autonomy |Significant[7]|Significant|
| |--------------------------------------+--------------+-----------|
| |Government Service Contract (Over $5M)|Modest |None |
| |Experience | | |
| |--------------------------------------+--------------+-----------|
| |Contract Phase-In Experience |Significant |Significant|
| |--------------------------------------+--------------+-----------|
| |Workforce Management (over 50 |Significant |Significant|
| |employees) Experience | | |
| |--------------------------------------+--------------+-----------|
| |Demonstrated Record of Meeting |Significant |Limited |
| |Financial Obligations | | |
|---------------------------------------------+--------------+-----------|
|Price |$18,176,129 |$18,343,935|
+------------------------------------------------------------------------+
Agency Report, Tab D, Source Selection Authority Presentation (Second
Round), at 20.
Based on the conclusion that Mainthia's proposal was lower priced and
higher rated than that of ESU, and offered the best value to the
government after consideration of all relevant factors, the agency
selected Mainthia's proposal for award. This protest followed.
ESU protests that NASA's discussions with the firm improperly induced it
to raise its price. ESU argues that while its price was approximately
[DELETED] at the conclusion of the first round of discussions, ESU raised
its final proposed price to approximately $18.3 million--above that
offered by Mainthia--in order to comply with directions from agency
personnel. ESU asserts that it reasonably believed that unless it raised
its proposed labor rates, the agency would not look favorably on ESU's
proposal.
An agency may not consciously coerce or mislead an offeror into raising
its price. Professional Landscape Mgmt. Servs., Inc., B-286612, Dec. 22,
2000, 2000 CPD P: 212 at 5. Where an agency's discussions, however,
merely reflect a reasonable concern that an offeror's low proposed labor
rates may affect its ability to attract and retain qualified personnel,
and the agency requests that the offeror explain how it intends to attract
and retain qualified personnel at the rates proposed, the discussions are
not coercive or misleading. Research Analysis & Maint., Inc., B-272261,
B-272261.2, Sept. 18, 1996, 96-2 CPD P: 131 at 11.
Here, as set forth above, the record establishes that the agency did not
coerce or mislead ESU into raising its proposed labor rates. Rather, the
record demonstrates that the agency merely informed ESU of the agency's
belief that a number of ESU's labor rates were low in relation to the
firm's stated intention to retain most if not all incumbent personnel, and
as a result, asked ESU in discussions to substantiate how it intended to
attract and retain incumbent personnel at the rates proposed. We note
that it was ESU's decision to propose attracting the entire incumbent
workforce as the means by which to mitigate any performance risk or
disruption. Additionally, it was ESU's decision to propose retaining all
incumbent employees at wage rates at or above current ones. Likewise, it
was ESU's decision, in response to the agency's discussions, to raise its
proposed labor rates so as to be able to attract and retain all incumbent
personnel.[8] Quite simply, we find nothing improper in the agency's
inquiry during discussions into the perceived inconsistency between ESU's
stated intent to attract and retain all incumbent personnel at or above
current labor rates, and the labor rates that ESU had in fact proposed.
We are unpersuaded by ESU's argument that since it could not overcome the
agency's concerns during discussions about the feasibility of ESU's
ability to attract and retain 100 percent of the incumbent workforce while
still proposing labor rates for a number of labor classifications that
were lower than those currently being paid, it was pressured by the agency
into raising its proposed labor rates. On the contrary, ESU could have
provided appropriate explanatory material in its final proposal revision
to address NASA's concerns. See Marine Transp. Lines, Inc.; Lant
Shipping, Inc., B-238223.2, B-238223.3, July 30, 1990, 90-2 CPD P: 80 at
7. That ESU instead chose to raise its proposed labor rates, and the
degree to which it did so, reflect the exercise of the firm's independent
business judgment, not improper conduct by the agency.
ESU also contends that the agency's negotiating techniques led to an
improper auction. We find no merit in this portion of the protest.
The Federal Acquisition Regulation (FAR) provides:
(e) Limits on exchanges: Government personnel involved in the acquisition
shall not engage in conduct that--
. . . . .
(3) Reveals an offeror's price without that offeror's permission.
However, the contracting officer may inform an offeror that its price is
considered by the Government to be too high, or too low, and reveal the
results of the analysis supporting that conclusion . . . .
FAR S: 15.306(e)(3).
We first note that, while the FAR generally prohibited *auction
techniques* until 1997, due to revisions made in October 1997, the current
FAR provision which addresses limitations on the disclosure of offerors'
prices during discussions, quoted above, no longer includes language
regarding the prevention of auctions. [9] See Korrect Optical, Inc.,
B-288128, B-288128.2, Sept. 21, 2001, 2001 CPD P: 171 at 6. Further, it
is clear that, here, the agency's communications with ESU regarding the
agency's belief that ESU's proposed labor rates were in certain areas
materially lower than the current hourly wage rates, in light of ESU's
stated pledge to retain the entire incumbent workforce at or above current
wage rates, were wholly consistent with, and not violative of, FAR S:
15.306(e)(3). Quite simply, there is no evidence or even allegation that
the agency revealed ESU's price during discussions with offerors.
Accordingly, on this record we find no merit in ESU's protest that the
agency's negotiating techniques led to what ESU characterizes as an
impermissible auction.
Lastly, ESU also protests that the agency's evaluation of its proposal
with regard to value characteristics 3 and 6 was unreasonable. Given our
conclusion that the agency did nothing improper with regard to ESU's
decision to raise its price, we need not address ESU's remaining
challenges to the technical evaluation of its proposal, since the upward
adjustments ESU contends are necessary in these areas would have no impact
on the relative standing of the two offerors. That is, even assuming that
ESU received ratings of significant for value characteristics 3 and 6, ESU
would remain the higher-priced offeror among proposals having similar
qualitative merit, and thus there is no basis to conclude that the award
decision would have changed. Accordingly, ESU has not demonstrated that
it was prejudiced by the agency's actions it challenges here. Weber
Cafeteria Servs., Inc., B-290085.2, June 17, 2002, 2002 CPD P: 99 at 6.
The protest is denied.
Anthony H. Gamboa
General Counsel
------------------------
[1] The *understanding the PWS* factor consisted of four subfactors:
management approach, safety and health, past performance, and information
technology security. The six value characteristics identified by the
solicitation were: program manager and supervisory staff with extensive
experience and outstanding performance record directly related to office
administrative services; autonomy of program manager to make decisions
affecting contract performance; demonstrated experience in managing
government service contracts with a value greater than $5 million;
demonstrated experience with contract phase-in, including capturing
incumbent personnel; demonstrated experience in managing a workforce in
excess of 50 employees to include established procedures and policies for
recruiting and retaining qualified personnel; and demonstrated record of
meeting financial obligations to include payroll, retirement plan, and
accounts payable.
[2] The agency asked similar questions of the other offerors, including
Mainthia. See Agency Report, Tab U, Agency Determination of Finalists
Letter to Mainthia, at 4.
[3] In ESU's oral presentation, its president repeatedly emphasized this
point, stating, for example: *We're very committed to picking up each and
everyone of [the incumbent employees] . . . and I see absolutely no
'show-stoppers' on why we can't do that . . . .* Audiotape of Agency
Discussions with ESU, July 29, 2002.
[4] As part of its oral presentation ESU explained how its revised wage
rates for each labor category were based upon the average of the DOL area
wage determination, a local chamber of commerce wage survey, and regional
wage rates. Audiotape of Agency Discussions with ESU, July 29, 2002.
[5] While the agency pointed out to ESU the specific wage rates that the
agency believed were materially low, the protester does not allege that
the agency ever directed it to propose specific wage rates for any labor
categories.
[6] In fact, ESU's average labor rate was the lowest of all five offerors'
average rates within the competitive range. Agency Report, Tab D, Source
Selection Authority Presentation (Second Round), at 21.
[7] While the Buying Team rated Mainthia's proposal as Significant/Modest
with regard to value characteristic 2, the SSA determined that Mainthia's
proposal warranted a rating of Significant. Likewise, while the Buying
Team rated Mainthia's proposal as Modest with regard to value
characteristic 6, the SSA determined that Mainthia's proposal should be
rated as Significant. Agency Report, Tab C, Source Selection Decision, at
5-6.
[8] Similarly, it was ESU's decision to propose the indirect and profit
rates that it used in its proposal.
[9] Moreover, as set forth above, there is no evidence that the agency
engaged in any activity here that would have previously constituted an
improper auction (e.g., indicating to an offeror a price it must meet in
order to receive further consideration).