TITLE:  Creative Information Technology, Inc., B-293073.10, March 16, 2005
BNUMBER:  B-293073.10
DATE:  March 16, 2005
**********************************************************************
   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: Creative Information Technology, Inc.

   File: B-293073.10

   Date: March 16, 2005

   Dorn C. McGrath III, Esq., and Richard L. Moorehouse, Esq., Greenberg
Traurig LLP, for the protester.

   Richard J. Webber, Esq., and Lisa K. Miller, Esq., Arent Fox PLLC, for
Daston Corporation, and Keith J. Harrison, Esq., and Rogelyn D. McLean,
Esq., King Pagano & Harrison, for Focused Management, Inc., intervenors.

   Robert L. Duecaster, Esq., and Capt. Kris M. Gawin, Department of the
Army, for the agency.

   Edward Goldstein, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Agency's discussions with protester were not meaningful where the agency
estimated that the work under the solicitation required seven
full-time-equivalent employees (FTE) (which resulted in a government
estimate of approximately $13 million), the protester initially proposed
to staff the effort with 37 FTEs (which resulted in a price of
approximately $110 million) and the agency advised the protester during
discussions merely that its price appeared to be "overstated."

   DECISION

   Creative Information Technology, Inc. (CITI) protests the award of
contracts to Daston Corporation and Focused Management, Inc. by the
Department of the Army under solicitation No. DASW01-03-R-0040, for
information management/information technology support services to the
Army's Information Management Support Center.  CITI argues that the Army
failed to conduct meaningful discussions.

   We sustain the protest.

   BACKGROUND

   The Army issued the RFP on May 23, 2003 in an effort to acquire
information management/information technology support services for more
than 80 agencies and activities in Headquarters, Department of the Army. 
The RFP divided this overarching requirement into six separate lots, each
constituting requirements for a separate functional area.[1] 

   For all of the lots under the RFP, the solicitation sought
performance-based solutions to address the agency's requirements, which
were set forth, by lot, under the performance work statement (PWS).  The
RFP advised offerors that awards would be "based on a best value analysis"
of three factors:  management/technical, past performance, and cost/price,
and that an offeror's cost/price must be determined to be fair and
reasonable to be acceptable for award.  RFP amend. 3, at 6.  The RFP also
advised that the management/technical factor was more important than the
past performance factor, and that management/technical and past
performance combined were more important than cost/price.   

   Lot V, "strategic analysis," which is the subject of this protest, was set
aside for section 8(a) business concerns[2] and contemplated multiple
awards of indefinite-delivery/indefinite-quantity contracts for a base
period of 1 year, plus four 1-year options.  RFP amend. 8, at 5.
     According to the PWS, lot V included requirements for "plans and
policy," "technology assessment," "hardware/software testing," "research,
analysis, and recommendations," "information resource management," and
"technical writing."  RFP Section C.5.5.  The solicitation advised that
all task and delivery orders under the lot V contracts would be issued on
either a fixed-price or time-and-materials (T&M) basis for either
"on-site" or "off-site" locations.  As a consequence, offerors were
required to submit four separate prices as follows:

   (1) a fixed price for performing all the work on-site;

   (2) a fixed price for performing all the work off-site;

   (3) a T&M price for providing all the work on-site; and

   (4) a T&M price for providing all the work off-site.

   RFP amend. 8, at 5.

   The RFP expressly advised that the total price for purposes of evaluation
would be determined by adding the amount offered for each of the four
price categories identified above.  Id.  The fixed and T&M prices were
based on proposed labor categories for which offerors were instructed to
submit fixed loaded hourly labor rates for the direct labor, and the
numbers of hours per category required to perform the requirements set
forth in the PWS.  RFP Section L, at 185-186.  More specifically with
regard to the labor hour estimates, in questions and answers incorporated
in the RFP, one of the offerors asked and the agency answered as follows:

   24.  Our understanding from the Cost/Price Proposal Instructions is that
we are to propose not only labor categories and labor rates but also the
'estimated number of hours' per labor category.  Are we to assume that we
will be given a task order for the particular [PWS] section involved (e.g.
C.5.4) and that we are to estimate the number of hours per labor category
to perform that task order?  If not, what work is to serve as the basis
for our estimate of the level of effort?

    24.  Answer:  For the purpose of estimating hours on the IDIQ use the PWS
and estimate hours to the lot/function area assuming all tasks within that
lot were awarded to your company.

   RFP amend. 2, at 25-26. 

   In addition, the solicitation directed offerors to assume that a
full-time-equivalent (FTE) employee worked 2,080 hours per staff year, and
to plan for providing support 12 hours per day, 5 days per week and to
estimate 7,000 customers for the base period, with an estimated growth in
customers of 5 percent per year, for each of the option years.  RFP
amends. 7 and 8.  The Army also made available to potential offerors a
"Cost-Benefit Analysis (CBA) Final Report" prepared by Booz, Allen &
Hamilton, as well as other documents, through a "technical library"
website.  Contracting Officer's (CO) Statement at 5.        

   The Army received 12 timely proposals by the RFP's amended closing date of
June 8, 2004.[3]  After an initial round of evaluations, the summary of
the overall technical ratings and prices for the 12 offerors was as
follows:

   +------------------------------------------------------------------------+
|Offeror                      |Technical Rating     |Total Price         |
|-----------------------------+---------------------+--------------------|
|Offeror A                    |Very Good            |$18,725,622.13      |
|-----------------------------+---------------------+--------------------|
|Focused Management           |Very Good            |$30,325,057.54      |
|-----------------------------+---------------------+--------------------|
|Daston                       |Very Good            |$10,603,679.20      |
|-----------------------------+---------------------+--------------------|
|CITI                         |Satisfactory         |$110,394,232.03     |
|-----------------------------+---------------------+--------------------|
|Offeror B                    |Satisfactory         |$49,697,128.00      |
|-----------------------------+---------------------+--------------------|
|Offeror C                    |Satisfactory         |$28,424,704.69      |
|-----------------------------+---------------------+--------------------|
|Offeror D                    |Satisfactory         |$13,689,475.97      |
|-----------------------------+---------------------+--------------------|
|Offeror E                    |Unsatisfactory       |$167,465,813.52     |
|-----------------------------+---------------------+--------------------|
|Offeror F                    |Unsatisfactory       |$30,651,734.76      |
|-----------------------------+---------------------+--------------------|
|Offeror G                    |Unsatisfactory       |$49,142,816.52      |
|-----------------------------+---------------------+--------------------|
|Offeror H                    |Unsatisfactory       |Incomplete          |
|-----------------------------+---------------------+--------------------|
|              Offeror I      |Unsatisfactory       |$15,793,166         |
+------------------------------------------------------------------------+

   Agency Report (AR), Tab16, Memorandum of Competitive Range Determination
at 6.

   It is significant to note that CITI's June 8 price was based on a total of
37 FTEs per year across 11 labor categories for performing the
requirements of lot V, while Daston's price was based on only 3.75 FTEs
per year across 6 labor categories, and Focused Management proposed 12
FTEs per year across 12 labor categories.  The independent government cost
estimate (IGCE) prepared for the lot V requirement estimated a total cost
of $13,062,405.60 based on using seven FTEs across four labor categories. 
AR, Tab 4, IGCE.

   After the initial evaluation, the Army set a competitive range and
eliminated from the competition the five offerors with overall
unsatisfactory technical ratings.  The agency sent written discussion
letters to the seven firms remaining, seeking responses to identified
weaknesses, deficiencies, and questions/clarifications.  In its letter to
CITI, the agency identified several technical weaknesses, past performance
deficiencies, and under the heading "Questions/Clarifications" included
the following statement:

   Based on the Government['s] initial review of your proposed revised
price/cost it appears that CITI's total proposed price/cost is overstated
for this requirement.  Please review your revised price/cost proposal.

   AR, Tab 16, Discussion Letter from Contracting Officer to CITI, Sept. 3,
2004, at 3.

   In the discussion letter to Focused Management, the agency included an
identical statement regarding Focused Management's total proposed
price/cost.  See AR, Tab 16, Discussion Letter from Contracting Officer to
Focused Management, Sept. 3, 2004 at 2.

   The agency received revised proposals from the firms in the competitive
range on September 10 and final proposal revisions were received on
September 20.  The final overall technical ratings and prices for the six
firms that remained in the competition were as follows:[4]

   +------------------------------------------------------------------------+
|Offeror                   |Technical Rating       |Total Price          |
|--------------------------+-----------------------+---------------------|
|Daston                    |Very Good              |$10,603,679.20       |
|--------------------------+-----------------------+---------------------|
|Focused Management        |Very Good              |$19,389,897.00       |
|--------------------------+-----------------------+---------------------|
|B                         |Very Good              |$38,716,236.00       |
|--------------------------+-----------------------+---------------------|
|CITI                      |Satisfactory           |$89,847,300.35       |
|--------------------------+-----------------------+---------------------|
|C                         |Satisfactory           |$24,359,544.00       |
|--------------------------+-----------------------+---------------------|
|D                         |Satisfactory           |$13,689,475.97       |
+------------------------------------------------------------------------+

   CITI's final total price was based on a total of 27 FTEs per year across
11 labor categories, while Focused Management's final total price was
based on 9 FTEs across 9 labor categories and Daston's total price
remained unchanged from its initial price, which was based on 3.75 FTEs
per year across 6 labor categories. 

   When the agency conducted its evaluation of the final proposals and made
its best value determination, it mistakenly used CITI's initial total
price of $110,394,232.03, rather than its final price of $89,847,300.35. 
Based on CITI's initial higher price, the source selection official
concluded that CITI's total price was "unreasonably high" and
"unrealistic," while concluding that the total prices of the other five
firms were reasonable and realistic.  AR, Tab 18, Award Decision
Memorandum, Sept. 24, 2004, at 4.  Concluding that the proposals from
Daston and Focused Management were the best value, the Army made award to
these firms on September 30.  After receiving a debriefing from the agency
on October 6, CITI filed a protest with our Office on October 8 arguing
that the agency improperly evaluated CITI's price and that the agency's
evaluation of its technical proposal was flawed.  Recognizing the error
with regard to CITI's price, the agency informed our Office that it was
taking corrective action and indicated that it would re-evaluate CITI's
proposal and revise the award decision, if necessary.  Based on the
agency's corrective action, we dismissed CITI's protest as academic on
November 2.

   Based on its re-evaluation of CITI's final proposal, the agency did not
disturb the awards to Daston and Focused Management.  The Army concluded
that CITI's technical proposal contained several weaknesses and that its
overall technical rating of "satisfactory" remained unchanged.  The Army
also noted that CITI's total price of $89,847,300.35 was the highest of
the offerors in the competitive range and that its lower-rated technical
proposal did not justify award at its higher price.  AR, Tab 20, Final
Technical Evaluation Report and Addendum, Dec. 1, 2004, at 6.  Unlike the
award determination of September 24, the Army's revised award
determination did not address the question of whether it considered CITI's
total price to be reasonable. 

   The Army informed CITI of its decision with regard to the re-evaluation
and revised determination on December 10 and this protest followed.

   DISCUSSION

   CITI argues that the agency failed to engage in meaningful discussions
when it informed CITI that its total price appeared to be
"overstated."[5]  The Army, however, contends that its discussions with
CITI were meaningful because it essentially informed CITI that its price
was too high and thereby satisfied its obligation to inform CITI of the
general area of concern with its proposal.   

   When contracting agencies conduct discussions with offerors in the
competitive range, such discussions must be meaningful.  Kaneohe Gen.
Servs., Inc., B-293097.2, Feb. 2, 2004, 2004 CPD paragraph 50 at 3.  In
order for discussions to be meaningful, agencies must advise an offeror of
weaknesses, excesses, or deficiencies in its proposal, correction of which
would be necessary for the offeror to have a reasonable chance of being
selected for award.  In this regard, the actual content and extent of
discussions are matters of judgment primarily for determination by the
agency involved, and we generally limit our review of the agency's
judgments to a determination of whether they are reasonable.  J.G. Van
Dyke & Assocs., B-248981, B-248981.2, Oct. 14, 1992, 92-2 CPD paragraph
245 at 4.  Specifically, with regard to the adequacy of discussions of
price, an agency generally does not have an obligation to tell an offeror
that its price is high, relative to other offers, unless the government
believes the price is unreasonable.  State Mgmt. Servs., Inc.; Madison
Servs., Inc.,
B-255528.6 et al., Jan. 18, 1995, 95-1 CPD paragraph 25 at 5-6; Marwais
Steel Co., B-254242.2, B-254242.3, May 3, 1994, 94-1 CPD paragraph 291 at
6. 

   The issue here is whether the Army's discussions with CITI were meaningful
where the Army advised CITI merely that its total price appeared
"overstated," given the unique circumstances of this case--specifically,
the extraordinary disparity between CITI's proposed level of effort and
price as compared to the government estimate as well as the level of
effort and prices of the other offerors in the competitive range.  We
conclude that they were not.  In addressing this issue, we recognize that
it is within the agency's discretion to decide whether to inform an
offeror that its price is considered too high and to reveal the results of
the analysis supporting that conclusion or to indicate to all offerors the
cost or price that the government's price analysis, market research, and
other reviews have identified as reasonable.  See FAR 15.306(e).  The
question is whether the agency's judgment in this instance was reasonable.

   While an agency is not required to "spoon-feed" an offeror during
discussions as to each and every item that could be revised to improve its
proposal, see ITT Fed. Sys. Int'l Corp., B-285176.4, B-285176.5, Jan. 9,
2001, 2001 CPD paragraph 45 at 6, agencies must impart sufficient
information to afford offerors a fair and reasonable opportunity to
identify and correct deficiencies, excesses or mistakes in their
proposals.  Matrix Int'l Logistics, Inc., B-272388.2, Dec. 9, 1996, 97-2
CPD paragraph 89 at 9.  In this case, we conclude that CITI could not be
reasonably expected to have understood the true nature and magnitude of
the agency's concern with its proposal based upon the information provided
by the Army during its discussions with CITI, thus rendering those
discussions essentially meaningless.

   The record reflects that the lot V requirement was subject to wide price
disparities among the initial 12 offerors, where the highest price was
more than $160 million and the lowest price was barely $10.6 million. 
CITI's initial price of approximately $110 million was the second highest
price, more than eight times the Army's estimate of approximately $13
million, and ultimately found to be unreasonably high, as noted above. 
Despite the difference in prices, the record does not reflect any effort
by the agency to address the wide disparity. 

   In reviewing CITI's initial price as well as CITI's revised price of
approximately $90 million,[6] it is readily apparent that CITI's much
higher price was the result of its higher level of staffing for lot V when
compared with the Army's and the awardees's staffing.[7]  CITI's final
price was based on a staffing plan utilizing 27 FTEs per year, which
amounted to 56,100[8] staff hours per year dedicated to completion of the
lot V requirement, compared with the Army's estimate of 7 FTEs per year
totaling 14,560 staff hours, Daston's proposal of 3.75 FTEs per year
totaling 7,800 staff hours, and Focused Management's proposal of 9 FTEs
totaling 18,720 staff hours per year.  In addition, CITI's staffing was
spread across 11 different labor categories, compared with the Army's use
of 4 labor categories in preparing its estimate, Daston's proposal based
on 6 labor categories, and Focused Management's use of 9 categories. 

   By informing CITI only that its total price was "overstated," the Army
failed to convey, in any meaningful way, the magnitude of the disparity in
prices.  Moreover, by characterizing the issue simply as one of price, the
agency failed to address the underlying cause of CITI's unreasonable
pricing[9]--CITI's misconception of the level of effort anticipated by the
Army for the lot V requirements.  As a consequence, CITI could not
reasonably have understood the agency's concern with its proposal or the
fact that its proposal required fundamental changes in order to have a
reasonable chance of being selected for award.  Accordingly, the agency's
discussions were not meaningful.

   The Army argues that CITI's protest should not be sustained because CITI
has failed to establish that it was prejudiced by the lack of meaningful
discussions, given that  its price was significantly higher and its
technical ratings lower than those of the two awardees.  However, where,
as in this case, an agency fails in its duty to hold meaningful
discussions and argues that the protester was not prejudiced as a result
of that failure, we will not substitute speculation for discussions and we
will resolve any doubts concerning the prejudicial effect of the agency's
actions in favor of the protester; a reasonable possibility of prejudice
is a sufficient basis for sustaining the protest.  The Jonathan Corp.;
Metro Mach. Corp., B-251698.3; B-251698.4, May 17, 1993, 93-2 CPD
paragraph 174.  In other words, it must be clear from the record that the
protester was not prejudiced in order to deny the protest.  See American
Dev. Corp., B-251876.4, July 12, 1993, 93-2 CPD paragraph 49.   That is
not the case here.

   RECOMMENDATION

   We recommend that the agency reopen discussions, advise CITI that its
price is unreasonably high and reflects a level of effort substantially in
excess of the level of effort contemplated for lot V, and request new
final proposal revisions.  The agency should document its evaluation and
its new source selection decision.  If the agency concludes that either of
the awardees is no longer in line for award, the agency should terminate
their respective contracts and make award to the appropriate offeror.  We
also recommend that the protester recover the costs of filing and pursuing
its protest, including reasonable attorneys' fees.  4 C.F.R. Section
21.8(d) (2004).  The protester should submit its certified claim for costs
detailing the time expended and costs incurred, directly to the agency
within 60 days of receipt of this decision. 
4 C.F.R. Section 21.8(f)(1).

   The protest is sustained.

   Anthony H. Gamboa

   General Counsel

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

   [1] The six lots under the RFP were:  (I) desktop support services; (II)
application development; (III) audit and governance services; (IV)
business unit requirements; (V) strategic analysis; and (VI) training.

   [2] Section 8(a) of the Small Business Act, 15 U.S.C. Section 637(a)
(2000), authorizes the Small Business Administration to enter into
contracts with government agencies and to arrange for the performance of
such contracts by letting subcontracts to socially and economically
disadvantaged small business concerns.

   [3] The initial closing date for receipt of proposals was July 7, 2003 and
the agency received 12 timely proposals at that time.  For reasons not
relevant to resolution of this case, however, the agency issued several
amendments and sought revised proposals from the 12 original offerors and
all 12 submitted timely revised proposals.  CO Statement at 1.

   [4] One of the firms in the competitive range lost its section 8(a) status
and was therefore no longer eligible for award.  As a consequence, only
six firms remained in the final stage of the competition.  CO Report at 2.

   [5] CITI also challenged the agency's evaluation of its technical
proposal.  Because we are sustaining the protest and recommending that the
agency obtain revised proposals, this issue has been effectively rendered
academic.  In addition, CITI argued that Daston's price was
"unrealistically low," thus challenging the Army's price realism
analysis.  This argument is without merit.  First, the RFP only indicated
that the Army would evaluate price for reasonableness.  To the extent the
record reflects that the Army did in fact perform a price realism
analysis, and determined that Daston's prices were realistic, the Army's
conclusions in this regard were reasonable since they were based on
extensive price analysis of the offerors' labor rates, which included
among other things, comparing them with rates under other multi-vendor
contracts, U.S. Department of Labor statistics, and information technology
salary surveys.  AR, Tab 18, Award Decision Memorandum, at 4-5.  

   [6] In a supplemental submission from the agency requested by our Office,
the Army notes that it has never characterized CITI's revised price of
nearly $90 million as "unreasonably high" or "unrealistic."  Supplemental
Report, Feb. 1, 2005, at 2.  The fact is that the agency's reevaluation
simply never addressed the issue of the reasonableness of CITI's revised
price; moreover, while it is lower than CITI's initial price, CITI's
revised price appears unreasonably high on its face since it remained
nearly 7 times the government estimate, was nearly 9 times higher than
Daston's price and was more than 4.6 times higher than Focused
Management's price.  In fact, the agency's report in response to the
protest described CITI's revised price as "unrealistically high." AR, Tab
1, Legal Memorandum, at 3.  

   [7] CITI indicates that when it prepared its proposal, it relied on the
Booz, Allen & Hamilton Cost Benefit Analysis report from the Army's
technical library and that the report suggested a much higher level of
effort for the lot V requirement than that assumed by the Army's cost
estimate.  CITI further maintains that by including the report in the
technical library, the Army effectively misled CITI where the report
deviated from the government estimate.  While CITI may have relied upon
the report to its detriment in the preparation of its proposal, the record
does not suggest that this error was the result of any improper action by
the agency, since the Army did not make any representations about the
report in the RFP or suggest to offerors that they should base their
proposals on the findings contained in the report.  

   [8] The number of staff hours per year is determined by multiplying the
number of FTEs by 2,080 hours (the number of hours set by the agency as
representing one FTE for the purpose of evaluating proposals). 

   [9] As noted above, the Army also described Focused Management's
substantially lower initial price of approximately $30 million as
"overstated."