TITLE:  MacAulay-Brown, Inc., B-292515; B-292515.2, September 30, 2003
BNUMBER:  B-292515; B-292515.2
DATE:  September 30, 2003
**********************************************************************
MacAulay-Brown, Inc., B-292515; B-292515.2, September 30, 2003

   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:   MacAulay-Brown, Inc.
    
File:            B-292515; B-292515.2
    
Date:              September 30, 2003
    
Kevin P. Connelly, Esq., Joseph J. Dyer, Esq., and Z. Taylor Shultz, Esq.,
Seyfarth Shaw, for the protester.
G. Lindsay Simmons, Esq., Thad S. Huffman, Esq., Wm. David Byassee, Esq.,
and J. Eric Whytsell, Esq., Jackson Kelly, for Applied Research
Associates, Inc., an intervenor.
Clarence D. Long, III, Esq., and LTC Carol L. Hubbard, Department of the
Air Force, for the agency.
Paul E. Jordan, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
1.  Where protester*s primary proposal was to hire incumbent staff, and it
proposed higher salary rates but lower total compensation than the
incumbent contractor, agency reasonably evaluated proposal as posing
moderate risk based on potential inability to hire significant portion of
incumbent workforce.
    
2.  Agency satisfied requirement to conduct meaningful discussions by
communicating evaluators* concerns with the protester*s ability to
recruit/retain the incumbent workforce, thus leading the protester into
the area of its proposal needing improvement. 
    
3.  Agency*s failure to adjust awardee*s evaluated most probable cost
upward to reflect awardee*s proposed lowering of current salary rates and
proposed low escalation rate was reasonable where agency fully considered
these features of awardee*s cost proposal and concluded that they were
achievable and represented reasonable exercise of management control given
current employment market conditions.
    
4.  Cost/technical tradeoff was reasonable where source selection
authority considered technical distinctions between competing proposals
and specifically determined that higher technically rated proposal
represented best value despite higher cost.
DECISION
    
MacAulay-Brown, Inc. (MacB) protests the award of a contract to Applied
Research Associates, Inc. (ARA) under request for proposals (RFP) No.
F08637-02-R-6001, issued by the Department of the Air Force for scientific
engineering and manpower services (SEAMAS). MacB challenges the technical
evaluation, the cost analysis, and the best value award determination.
    

   We deny the protest.
    
BACKGROUND
    
The RFP sought proposals to provide SEAMAS support to assist the Air Force
Research Laboratory, Air Expeditionary Forces Technologies Division (AFRL)
in the execution of AFRL*s assigned mission as the Air Force*s lead agency
for research and development (R&D) in the areas of deployed base  systems,
force protection,  and weapon systems logistics.  The scope of the work
includes all aspects of planning, construction, instrumentation, testing,
and conducting, managing, briefing, and reporting of R&D activities within
the Expeditionary Forces Technology Division.  Offerors were expected to
propose all necessary personnel--physicists, engineers, chemists,
technicians, financial and other managerial personnel, and robotics
experts--to perform the required activities.  The RFP contemplated the
award of a cost-plus-award-fee contract for a base year, with 5 option
years.
    
Proposals were to be evaluated under four factors:  mission capability,
proposal risk, past performance, and cost, with the non-cost factors of
equal importance and, combined, of more importance than cost.  The mission
capability factor was further divided into the following subfactors (and
sub-subfactors):  technical performance (personnel plan; subcontracting
plan; and safety plan) and program management (field director; overhead
staff; processes for planning, documentation, and analysis of R&D tasks;
and cost control).  Proposals were to be rated under the technical factors
as blue/exceptional, green/acceptable, yellow/marginal, or
red/unacceptable.  Proposal risk was to be evaluated as high, moderate, or
low.  Past performance was to be rated as exceptional, very good,
satisfactory, neutral, and marginal.  Cost was to be evaluated on the
basis of reasonableness, realism, and most probable cost (MPC) based on
the realism analysis.  Award was to be made on a *best value* basis.
    
Three proposals, including those of MacB and ARA, were received and
evaluated by the source selection team (SST).  After completion of the
initial evaluation, the SST conducted discussions with all offerors and
obtained final proposal revisions.  The final evaluation results for the
three offerors were as follows:
    
    

   +------------------------------------------------------------------------+
|                       |MacB           |ARA            |Offeror 3       |
|-----------------------+---------------+---------------+----------------|
|  Mission Capability   |               |               |                |
|-----------------------+---------------+---------------+----------------|
|  Technical Perf./Risk |Blue/Moderate  |Blue/Low       |Blue/Moderate   |
|-----------------------+---------------+---------------+----------------|
| Program Mgmt./Risk    |Blue/Low       |Blue/Low       |Green/Moderate  |
|-----------------------+---------------+---------------+----------------|
|   Past Performance    |Exceptional    |Exceptional    |Satisfactory    |
|-----------------------+---------------+---------------+----------------|
|         Cost          |$77.4 million  |$82.6 million  |$76.5 million   |
+------------------------------------------------------------------------+

    
In making the award determination, the source selection authority (SSA)
made an integrated assessment of the proposals under the RFP*s evaluation
criteria.  The SSA concluded that the strengths associated with ARA*s
proposal, combined with the low risk associated with its approach, made
ARA*s proposal the best value, despite its higher cost.  After receiving
notice of the award and a debriefing, MacB filed this protest. [1]
    
TECHNICAL EVALUATION
    
In reviewing a protest of an agency*s proposal evaluation, it is not our
role to reevaluate proposals.  Rather, we will consider only whether the
evaluation was reasonable and consistent with the terms of the
solicitation and applicable statutes and regulations.  CWIS, LLC,
B‑287521, July 2, 2001, 2001 CPD P: 119 at 2.
    
MacB*s Proposal
    
In its evaluation of MacB*s proposal under the technical subfactor of the
mission capability factor, the agency found that MacB was *depending on
hiring the technical experts that are currently filling positions.* 
Agency Report (AR), Tab 8 at 24.  In assessing risk, the agency considered
each offeror*s total compensation including fringe benefits and pension
plans.  Statement of SSA, July 11, 2003; Affidavit of SST Member, July 11,
2003.  Because ARA*s total compensation exceeded MacB*s, the agency
concluded that there was *moderate risk that some of these contract
personnel will not accept an offer* and that this could *potentially cause
some disruption of schedule, increased cost, or degradation of
performance.*  AR, Tab 8, at 24; Contracting Officer*s Statement at 4.
    
MacB asserts that the agency erred in evaluating its proposal as a
moderate risk, disputing the assessment that its lower overall
compensation rates represent an increased risk of its successful hiring of
the incumbent workforce.  In MacB*s view, its proposal should have been
evaluated as low risk based on its proposal of salary rates higher than
most of those proposed by ARA, and its proposal of escalation rates over
the life of the contract that were significantly higher than those
proposed by ARA. 
    
This argument is without merit.  While MacB proposed to hire the incumbent
personnel at salary rates higher than those proposed by ARA in many labor
categories, the agency based its risk assessment on a comparison of MacB*s
total compensation package to ARA*s, on the theory that current ARA
employees may not accept MacB*s offer of employment for lower total
compensation.  In this regard, the agency found that ARA proposed higher
fringe benefits and significantly higher pension benefits, which made
ARA*s total compensation package higher than MacB*s, notwithstanding
MacB*s higher proposed salary rates.  The agency concluded that it would
be *irrational to assume that a professional employee would not consider
the various components of compensation when considering employment
opportunity [and that] [i]t is reasonable to assume that an employer*s
pension plan is a significant consideration . . . .*  Contracting
Officer*s Statement at 4.  We find nothing unreasonable in the agency*s
assessment; we thus find no basis to object to the agency*s rating MacB*s
proposal a moderate performance risk.  See Comprehensive Health Servs.,
Inc., B‑285048.3 et al., Jan. 22, 2001, 2001 CPD P: 9 at 3‑4
(where an offeror proposes to hire the incumbent workforce at lower
compensation than the employees currently receive, it is reasonable for
the agency to conclude that the proposal presents a risk that the offeror
will not be able to hire all the incumbent workforce). 
    
MacB asserts that the moderate risk rating failed to take into account the
fact that, in addition to proposing to hire the incumbent employees, its
proposal included detailed plans for recruiting and hiring replacement
personnel.  However, while MacB*s proposal indeed included a plan for
*recruiting and hiring additional and replacement personnel* (MacB
Proposal at 71-72), it clearly emphasized MacB*s primary *intention to
recruit all qualified incumbent personnel,* and emphasized its success
rate in accomplishing that plan under other contracts.  Id. at 2‑6,
65-68.  It thus was reasonable for the agency to focus on this principal
approach in its evaluation.[2]
    
MacB asserts that the agency*s reliance on differences in total
compensation is suspect because the agency did not actually calculate
total compensation as part of the cost evaluation.  This argument is
without merit.  While the agency did not prepare a formal calculation, it
nonetheless clearly identified its basis for concluding that ARA*s
proposed total compensation exceeded MacB*s by breaking out each offeror*s
base year direct labor, overhead, overhead rate, fringe benefits, pension,
and pension as a percentage of direct labor; these figures support the
agency*s conclusions regarding ARA*s offer of higher total compensation. 
The agency*s conclusions regarding the firms* comparative compensation
levels also is supported by MacB*s and ARA*s protest submissions. 
Specifically, MacB*s calculation of the total compensation for 84 commonly
proposed employees shows that ARA*s total compensation exceeded that of
MacB throughout the 6-year contract life by a total of some [deleted]
million.[3]  Jackson Declaration 2, Sept. 1, 2003, Attach. 1.  Similarly,
ARA*s calculation of the total compensation for all 125 proposed employees
demonstrated that ARA*s total compensation exceeded MacB*s by some
[deleted] million over the life of the contract.  Kiraly Supplemental
Report, Aug. 28, 2003, attach. B. 
    
ARA*s Proposal
    
MacB asserts that ARA*s proposal unreasonably was rated blue/exceptional
and low risk despite the fact that ARA*s proposed salary rates are some
[deleted] percent lower than ARA*s current rates for 69 of the 125
proposed personnel, and that ARA has proposed to escalate labor costs by
only [deleted]  percent each year.  It concludes that there is a risk that
ARA will not be able to retain the incumbent workforce for the base year,
retain a significant number of them over the life of the contract, will
experience a cost increase to retain the workforce, or will replace its
more experienced staff with minimally qualified personnel. 
    
This argument is without merit.  The agency was fully aware of ARA*s
proposed reduction in salary rates as well as its annual cost escalation
factor.   AR, Tab 22 at 10; Contracting Officer Statement at 5.  While a
number of ARA*s job category salaries were reduced by [deleted]  percent,
a number of others were increased above the current levels, resulting in
an overall reduction of only [deleted]  percent, a reduction that the
contracting officer did not consider significant.[4]  In any case, as
discussed above, the risk assessment reasonably was based on the total
compensation proposed by the offerors.  Even with its somewhat lower
salary rates for some employees, ARA*s total compensation package was
higher than MacB*s.   The agency reasoned that the difference in
compensation packages, specifically retirement benefits, presented a
greater employee retention risk to MacB than the salary rate reductions
did to ARA.  Further, there is nothing in ARA*s initial or revised
proposals that indicates ARA intends to downgrade or replace its incumbent
workforce to achieve the proposed salary reductions.  We thus find no
basis for questioning the agency*s assigning ARA*s proposal a blue
technical rating and a low performance risk rating. 
    
DISCUSSIONS
    
MacB asserts that the agency failed to provide it with meaningful
discussions because it did not specifically point out the moderate risk it
associated with MacB*s ability to hire incumbent personnel.
    
Although discussions must address at least deficiencies and significant
weaknesses identified in proposals, the scope and extent of discussions
are largely a matter of the contracting officer*s judgment.  In this
regard, we review the adequacy of discussions to ensure that agencies
point out weaknesses that, unless corrected, would prevent an offeror from
having a reasonable chance for award.  For discussions to be meaningful,
they must lead offerors into the areas of their proposals requiring
amplification or revision.  The Communities Group, B‑283147, Oct.
12, 1999, 99-2 CPD P: 101 at 4.
    
The agency provided MacB with meaningful discussions.  Specifically, it
issued several evaluation notices (EN), two of which requested
clarification of MacB*s plans to use incumbent personnel.  The first
sought clarification of the *commitment of individuals listed as key
technical personnel . . . and . . . who they propose to fill key . . .
positions if incumbents are not interested.*  AR 14 at 1.  A second EN
sought clarification of an apparent contradiction in MacB*s proposal
relating to its plan to offer the right of first refusal to incumbent
personnel while at the same time proposing to have 30 percent of the
effort staffed by subcontractor personnel.  Id.  While these ENs did not
specifically refer to *risk,* they clearly were sufficient to communicate
the agency*s concerns about MacB*s ability to successfully acquire the
incumbent workforce, upon which the moderate risk rating ultimately was
based. This satisfied the requirement for meaningful discussions in this
area.
    
COST EVALUATION
    
MacB asserts that the agency should have made an upward MPC adjustment to
reflect ARA*s low proposed salary rates, escalation rates, and other
costs.  According to MacB, had the agency performed these adjustments, the
difference between MacB*s and ARA*s costs would have been even greater. 
    
Where an agency evaluates proposals for award of a cost-reimbursement
contract, an offeror*s proposed estimated costs are not considered
controlling, since these estimated costs may not provide valid indications
of the final actual costs that the government is required, within certain
limits, to pay.  Advanced Communication Sys., Inc., B-283650 et al., Dec.
16, 1999, 2000 CPD P: 3 at 5.  A cost realism analysis is the process of
independently reviewing and evaluating specific elements of each offeror*s
proposed cost estimate to determine whether the estimated proposed cost
elements are realistic for the work to be performed, reflect a clear
understanding of the requirements, and are consistent with the unique
methods of performance described in the offeror*s technical proposal. 
Federal Acquisition Regulation S: 15.404-1(d)(1).  Because the agency is
in the best position to make this cost realism determination, our review
is limited to determining whether its cost evaluation was reasonably based
and not arbitrary.  Kalman & Co., Inc., B-287442.2, Mar. 21, 2002, 2002
CPD P: 63 at 9. 
    
The evaluation of ARA*s cost proposal was reasonable.  In performing its
realism analysis, the agency reviewed the cost proposals and relied on
input from the Defense Contract Audit Agency.  Specifically, the cost
analysis included a comparison of each offeror*s labor costs to the
government estimate; an evaluation of each offeror*s method of estimating
labor costs, by labor category, and a comparison of labor costs by
category; analysis and evaluation of the average rate per hour for all
labor categories; verification of proposed indirect rates; assessment of
accounting system adequacy and financial capability of each offeror; and
evaluation of each offeror*s estimate to determine if it complied with the
solicitation requirements relating to cost proposals.  AR, Tab 22, at 
9-10.  The evaluation also included an analysis of the revised cost
proposals submitted by the offerors.  Id. at 9. 
    
In reviewing ARA*s revised cost proposal, the agency specifically noted
the firm*s reductions in various salary rates, escalation rates, overhead,
and fee.  With regard to the salary and escalation rates, while the agency
found the reductions *unusual,* it concluded that they *were within
management*s discretion and therefore reasonable to assume the reductions
could be achieved.*  AR, Tab 22, at 8.  With regard to its decrease in
overhead, the agency found the change reasonable in light of the changes
in required labor categories.  Even though the agency did not adjust the
proposed costs, it specifically considered the issues of the offerors*
MPCs.  Specifically, while the agency noted that all three offerors had
proposed significantly lower costs than those in the government*s
estimate, based on its *evaluation of cost realism [it] found no rationale
for applying any cost adjustment to any of the Offerors* proposal data.* 
AR, Tab 22, at 8.  In this regard, the agency also noted that the award
fee clause in the RFP included a provision for cost management, and
concluded that *[t]o the extent that the successful offeror [is] unable to
perform within the estimated cost parameters, the award fee [could] be
adjusted and the risk to the Government mitigated.*  AR, Tab 22 at 8-9. 
Thus, it is clear that the agency fully considered ARA*s cost proposal,
and specifically determined that ARA*s salary, and escalation and overhead
rates, while somewhat low, were achievable.  The protester has provided no
basis for us to conclude that this determination was unreasonable.
    
SOURCE SELECTION
    
MacB asserts that the SSA*s decision was flawed because he failed to
consider the impact of ARA*s lower salary and escalation rates in making
his selection decision.  MacB also asserts that the SSA failed to accord
MacB*s lower cost appropriate weight in the tradeoff decision. 
    
Source selection officials have broad discretion in determining the manner
and extent to which they will make use of the technical and cost
evaluation results, and their judgments are governed only by the tests of
rationality and consistency with the stated evaluation criteria.  Chemical
Demilitarization Assocs., B-277700, Nov. 13, 1997, 98-1 CPD P: 171 at 6. 
Where, as here, the RFP allows for a cost/technical tradeoff, the
selection official retains discretion to select a higher-priced, but
technically higher-rated submission, if doing so is in the government*s
best interest and is consistent with the solicitation*s stated evaluation
and source selection scheme.  4-D Neuroimaging, B-286155.2, B-286155.3,
Oct. 10, 2001, 2001 CPD P: 183 at 10.
    
MacB*s arguments are without merit.  The SSA explains that he was aware of
ARA*s lower and reduced salary rates and concluded that ARA could retain
its personnel due to its higher total compensation, including its offer of
a *good* pension plan, which MacB did not offer.  SSA Declaration, Aug.
22, 2003, P:P: 4-6.  While the SSA does not specifically mention his
consideration of ARA*s lower annual escalation rate, his declaration
refers to the *comprehensive and reasonable* cost analysis performed by
the evaluators, which *conclusions and findings [were] supported by the
facts.*  Id. at P: 7.  Since these conclusions and findings included
consideration of ARA*s low escalation rate, there is no basis to conclude
that the SSA did not adequately consider this matter in making his
selection decision.[5] 
    
In addition, the SSA specifically recognized the relative weights of the
factors, including the increasing importance of cost as proposals became
more equal.  AR, Tab 7, at 1.  He then concluded:
    
Based on my integrated assessment of all proposals submitted for SEAMAS
and the specified evaluation criteria, it is my decision that the proposal
submitted by ARA represents the best overall value to the Air Force. 
ARA*s cost proposal is approximately 6 % higher than [MacB]*s proposal . .
. .  While [MacB] has an excellent Mission Capability rating and an
excellent Past Performance rating, the moderate proposal risk rating
associated with their Technical Performance caused me great concern. 
Therefore, it is my determination that the strengths evident in ARA*s
technical proposal combined with the low risk associated with their
approach justifies the increased cost to the Air Force. 
Id. at 6-7.  We find nothing unreasonable in the SSA*s determination that
the strengths and lower risk associated with ARA*s proposal warranted
award to ARA despite its higher proposed cost. 
    
The protest is denied.
    
Anthony H. Gamboa
General Counsel
    
    
    

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

   [1] MacB raises a number of arguments.  We have reviewed them all and find
that none has merit.  This decision addresses only the more significant
issues. 
[2] MacB also asserts that the rating of moderate risk is inconsistent
with the assessments of a majority of the evaluators who recognized
strengths in MacB*s personnel plan.  We note that, in fact, a majority of
the SST--four of its six members-- identified risk in MacB*s proposal.  In
any case, differences in evaluator ratings do not establish that the
evaluation process was flawed or otherwise irrational.  Unisys Corp.,
B-232634, Jan. 25, 1989, 89-1 CPD P: 75.
[3] This assessment appeared to contradict Mr. Jackson*s first declaration
in which he included a chart depicting MacB*s total compensation as
exceeding ARA*s between the second and third option years and continuing
for the last 2 years.  Jackson Declaration 1, Aug. 10, 2003 at P: 41.  In
response to our request, Mr. Jackson explained that the P: 41 chart was
based on an agency report chart that calculated the total compensation for
a single labor category for the base year.  Jackson Declaration 3, Sept.
3, 2003.  Mr. Jackson*s original chart merely extrapolated the information
for a single employee, as increased by the offerors* respective annual
escalation rates.  In addition, Mr. Jackson admitted that his original
chart used incorrect information and, as corrected, showed that MacB*s
*total compensation* for the single employee did not exceed ARA*s until
after the third option year.  Id. at P: 4.
[4] In addition, ARA explains that, while it proposed various salary rates
lower than those under its current contract, it did not propose to reduce
any incumbent employee*s salary.  Affidavit of ARA Senior Vice President,
Aug. 19, 2003, at P: 7.  Instead, it believed that it could implement the
[deleted]  percent wage rate reduction based on, among other things,
historical growth under the predecessor contract, the low inflation
environment, management*s capability to control overall costs, and
historical and predicted turnover.  Id. at P: 6.
[5] MacB also asserts that, had the SSA looked behind the blue ratings
under the mission capability factor, it would have found that MacB*s
proposal was technically superior.  MacB bases this allegation on its
proposal*s receiving five *exceeded* ratings under the seven
sub-subfactors, and ARA*s receiving only four.  However, while MacB*s
proposal apparently enjoyed a single sub-subfactor advantage, the detailed
selection statement makes plain that the SSA was aware of and considered
the relative strengths and differences in the two offerors* proposals
under the relevant sub and sub-subfactors, and did not merely rely on the
evaluators* ratings.  AR, Tab 7, at 2-4.