TITLE: Lockheed Martin Corporation, B-293679; B-293679.2; B-293679.3, May 27, 2004
BNUMBER: B-293679; B-293679.2; B-293679.3
DATE: May 27, 2004
**********************************************************************
Lockheed Martin Corporation, B-293679; B-293679.2; B-293679.3, May 27, 2004
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: Lockheed Martin Corporation
File: B-293679; B-293679.2; B-293679.3
Date: May 27, 2004
Marcia G. Madsen, Esq., David F. Dowd, Esq., Michael J. Farley, Esq., and
William L. Olsen, Esq., Mayer, Brown, Rowe & Maw, for the protester.
John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Sophia R. Zetterlund,
Esq., and Erin R. Karsman, Esq., Smith Pachter McWhorter & Allen, for
Alliant Techsystems, Inc., an intervenor.
Maj. Tami L. Dillahunt, and Lawrence M. Brady, Esq., Department of the
Army, for the agency.
Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Agency failed to conduct meaningful discussions where it did not
advise protester that *contractor-specific* cost savings included in
protester*s initial proposal would not be considered in the agency*s
evaluation.
2. Where agency provided protester with information during discussions
that the agency knew to be erroneous, and protester relied on that
information to its detriment, the agency*s discussions were misleading and
call into question the reasonableness of the source selection decision.
3. Agency*s evaluation of awardee*s proposal was not reasonable where,
notwithstanding the proposal*s failure to address the minimally required
description of features necessary to meet the performance requirements,
agency credited awardee*s proposal with meeting those requirements based
on an agency advisor*s perceptions regarding the capabilities of awardee*s
proposed subcontractor.
DECISION
Lockheed Martin Corporation protests the Department of the Army*s award of
a contract to Alliant Techsystems Inc. (ATK) under request for proposals
(RFP) No. DAAE30-03-R-0312 to perform system development and demonstration
(SDD) and low-rate initial production (LRIP) of the XM395 precision guided
mortar munition (PGMM). Lockheed protests, among other things, that the
agency failed to conduct meaningful discussions with regard to projected
ownership costs, and improperly credited ATK*s proposal with performance
that ATK did not propose.
We sustain the protest.
BACKGROUND
In February 2003, the agency published the solicitation at issue here,
seeking proposals for the SDD phase and LRIP phase of the PGMM
program.[2] The RFP advised offerors that the agency intended to award a
contract on the basis of the proposal offering the *best value* to the
government, and established the following evaluation factors, listed in
descending order of importance: technical, program plan/critical
processes, costs, past performance, and small disadvantaged business (SDB)
participation. RFP S:S: M.1.1, M.1.3, at 78. Under the most important
evaluation factor, technical, the RFP identified the following subfactors,
listed in descending order of importance: ownership costs;
maturity/complexity; performance; and logistics training, supportability,
safety and growth.[3] Id.
With regard to evaluation of ownership costs, one of the two most
important elements of the most important technical evaluation factor, the
RFP provided for the agency*s assessment of average unit production cost
(AUPC)--that is, the average cost, per round, associated with the
follow-on production contract--and provided that the AUPC of *[t]he
offeror*s proposed munition* would be evaluated based on an assessment of
*the bidders* production costs estimates.* RFP S: M.3.1.1.1, at 79. More
specifically, the RFP provided that the AUPC of *[t]he offeror*s proposed
munition* would be evaluated for *desirability* and indicated that the
*bidders* production cost estimates* would be subject to a cost realism
assessment, including an assessment of whether the proposal offered
*creative yet realistic* solutions. Id.
On April 15, 2003, initial proposals were submitted by four offerors,
including Lockheed and ATK. Regarding Lockheed*s proposed AUPC for
follow-on production, Lockheed*s proposal specifically advised the Army
that its costs were based, in part, on establishment of [deleted].[4]
Lockheed Initial Proposal, Exec. Summary, at 1, 12. In this context,
Lockheed*s proposal referenced a [deleted].[5] Id. In the *AUPC Model*
portion of its initial proposal, Lockheed also listed its [deleted], as
well as other rates that are *contractor specific* in that they assume
certain production activities will be performed at specified geographic
locations. Lockheed Initial Proposal, AUPC Model, at 1-6.
The agency evaluated the initial proposals and, based on that evaluation,
established a competitive range consisting of Lockheed*s and ATK*s
proposals. With regard to Lockheed*s proposed AUPC, the agency*s
evaluation assigned a value of [deleted] per round. Since this evaluated
amount exceeded both the RFP*s stated *threshold* and *goal* amounts,[6]
the agency assigned a [deleted] rating and [deleted] risk to Lockheed*s
proposal with regard to ownership costs.[7] Initial Evaluation Report,
Ch. 1. However, in calculating Lockheed*s AUPC, the agency *excluded
[Lockheed*s] proposed [deleted] savings.* First Contracting Officer*s
Statement, at 6. In explaining the basis for excluding the proposed
[deleted] savings, the Army states that it excluded all proposed costs
that were *contractor specific* because, the agency asserts, it may
compete the contract for follow-on production; thus, production costs that
are unique to a given offeror may not be realized. The agency elaborates
that, due to the potential for future competition of the proposed design,
the agency*s evaluation of ownership costs was *design specific, not
contractor specific,* and adds, *we used industry rates in computing the
AUPC, not contractor specific rates.* [8] Id.
Separate and apart from the agency*s exclusion of *contractor-specific*
costs, the record establishes that the agency*s calculation of Lockheed*s
ownership costs incorporated a significant error. At the hearing
conducted by our Office in connection with this protest,[9] the agency
evaluator responsible for assessing AUPC testified that, in evaluating
Lockheed*s proposed AUPC, the agency erroneously applied cost factors that
differed significantly from the cost factors applied to the other
offerors* proposals.[10] Specifically, the evaluator testified as
follows:
Q. [D]id I understand your testimony to be that the initial
[evaluation] report reflects different evaluation models for [another
offeror*s] proposal than for Lockheed Martin*s?
A. From my best memory of this, all the offerors, with the exception
of Lockheed Martin, used the CER [cost estimating relationship] factors
that I presented today.
Q. The offerors did? . . .
A. I -- we, the government, used in their evaluation of all the
offerors, with the exception of Lockheed Martin, we used the factors I
have presented today, which give you higher numbers. In this first
evaluation, we used a different factor for -- different factor
relationship for the first proposal for Lockheed Martin.
Q. Why?
A. It*s an error. Say it how it is. It*s an error. . . . It is
something that slipped by me, I will tell you. I had all four [proposals]
. . . and my direction to everybody was [*]use the same thing.[*] And it
just -- it just slipped by me. . . . I found out about it just as the
numbers were getting done.[[11]]
Tr.1 at 308-10.
Thereafter, the agency opened discussions with both competitive range
offerors. As part of discussions, the agency provided each offeror with
the portion of the agency*s initial evaluation report that related to
their respective proposals. Although the information provided by the
agency to Lockheed advised Lockheed that the Army had evaluated its AUPC
at [deleted] per round, and had assigned a [deleted] rating with [deleted]
risk, nothing in the information provided to Lockheed suggested that
*contractor-specific* costs generally, or Lockheed*s proposed [deleted]
savings specifically, had been excluded from consideration. Additionally,
although the agency was aware, prior to discussions, that its calculation
of the [deleted] AUPC incorporated the agency*s erroneous application of
improper cost factors for [deleted] costs, it did nothing to advise
Lockheed of this error.
During discussions, Lockheed*s representatives specifically referenced the
[deleted] savings and further discussed various other contractor-specific
savings that could be effected by changing the geographic location for
certain production activities. In addition, Lockheed discussed various
*design-specific* changes, including the [deleted] of its proposed
munition. During discussions, the agency gave no indication that only
*design-specific* savings would be reflected in the agency*s calculation
of AUPC or, alternatively, that *contractor-specific* savings would be
excluded from the calculation.
Final proposal revisions (FPRs) were subsequently requested, and both
offerors submitted FPRs by September 17. In its FPR, Lockheed made
various changes to its proposal in order to lower its AUPC, but did not
fundamentally reconfigure its proposed munition. Among other things,
Lockheed*s FPR reflected an [deleted].
Upon receipt of the FPRs, the agency evaluated them and, as discussed
above, again calculated Lockheed*s AUPC by excluding any savings related
to the proposed [deleted] on the basis that such savings were
*contractor-specific.*[12] First Contracting Officer*s Statement, at 6.
Additionally, in evaluating Lockheed*s final AUPC, the agency applied the
cost factors for [deleted] costs that the agency evaluator testified
should have been applied in evaluating Lockheed*s initial proposal. Final
Total Cost of Ownership Report at 7. As noted above, the result of this
change, alone, increased Lockheed*s evaluated AUPC by over [deleted].
Based on its final evaluation, the agency evaluated Lockheed*s AUPC to be
[deleted]. Because this amount still exceeded the RFP*s stated $15,000
threshold for AUPC, the agency again assigned Lockheed*s proposal a
[deleted] rating with regard to ownership costs.
On December 31, ATK*s proposal was selected for award. During the GAO
hearing, the source selection authority testified that Lockheed*s
[deleted] rating for ownership costs played a significant role in his
source selection decision. Tr.3 at 44.
On February 11, 2004, the agency provided Lockheed a debriefing. During
that debriefing, the agency, for the first time, advised Lockheed that, in
calculating AUPC, the agency had not considered any *contractor-specific*
costs, including the savings flowing from Lockheed*s proposed [deleted].
This protest followed.
DISCUSSION
Lockheed first protests that the agency failed to engage in meaningful
discussions with regard to the *contractor-specific* cost elements of
Lockheed*s proposed AUPC. Additionally, Lockheed protests that the
evaluated AUPC provided to Lockheed during discussions--which, due to the
agency*s errors, was materially understated--misled Lockheed. We agree
that the agency*s discussions were fundamentally flawed.
It is a fundamental precept of negotiated procurements that discussions,
when conducted, must be meaningful; that is, discussions may not mislead
offerors and must identify deficiencies and significant weaknesses in each
offeror*s proposal that could reasonably be addressed in a manner to
materially enhance the offeror*s potential for receiving award. Federal
Acquisition Regulation (FAR) S: 15.306(d); Metro Mach. Corp., B-281872 et
al., Apr. 22, 1999, 99-1 CPD P: 101; Bank of Am., B‑287608,
B‑287608.2, July 26, 2001, 2001 CPD P: 137. Specifically, an agency
may not, through its questions or silence, lead an offeror into responding
in a manner that fails to address the agency*s actual concerns; may not
misinform the offeror concerning a problem with its proposal; and may not
misinform the offeror about the government*s requirements. Price
Waterhouse, B‑254492.2, Feb. 16, 1994, 94-1 CPD P: 168 at 9-11; DTH
Mgmt. Group, B‑252879.2, B-252879.3, Oct. 15, 1993, 93-2 CPD P: 227
at 4.
Here, as discussed above, despite Lockheed*s inclusion in its initial
proposal of *contractor-specific* savings, including the savings
associated with the [deleted], the agency declined during discussions to
indicate in any way that such savings would be excluded from the agency*s
calculation of AUPC.[13] The agency asserts that Lockheed should have
known that *contractor-specific* savings would be excluded from the
agency*s AUPC calculation due to the RFP*s statements that an *independent
Government estimate* of AUPC would be conducted and that various
estimating tools would be used to *either validate contractors* cost
estimates or to develop Government cost estimates.* RFP S: M.3.1.1.1. We
disagree.
Neither the language of the solicitation, nor the information provided by
the agency during discussions, reasonably placed the offerors on notice
that *contractor-specific* savings would have no effect on the agency*s
calculation of AUPC. Although we agree that, if the agency actually
intends to compete the follow-on production contract, there is nothing
inherently unreasonable in evaluating only *design-specific* costs,[14]
the offerors were not clearly advised of this. As noted above, the RFP
stated that the agency would evaluate the AUPC of *the offeror*s proposed
munition* and that such evaluation would be based on an assessment of *the
bidders* production cost estimates.* RFP S: M.3.1.1.1. Further, the
agency clearly knew, or should have known, that Lockheed*s initially
proposed AUPC was based on *contractor-specific* costs, including the
costs associated with the proposed [deleted]; yet the agency failed to
advise Lockheed during discussions that such costs would be replaced with
*industry rates* in calculating the evaluated AUPC. Consistent with the
terms of the solicitation, and the information provided during
discussions, Lockheed reasonably believed that it could reduce its
evaluated AUPC by increasing its proposed *contractor-specific* savings.
On this record, the agency failed to conduct meaningful discussions
because it failed to advise Lockheed that *contractor-specific* savings
would not be reflected in the agency*s calculation of AUPC.
Similarly, the agency*s specific advice to Lockheed during discussions
that its initial proposal reflected an AUPC of [deleted]--when the agency
knew at that time that this amount was significantly understated due to
the agency*s erroneous application of improper cost factors--reflects a
separate, material discussion flaw. That is, Lockheed was materially
misled with regard to the cost factors the agency intended to ultimately
apply. We will not speculate regarding the changes that Lockheed may have
made to its FPR if the agency had conducted meaningful discussions; in our
view, the record establishes that the agency*s discussion flaws were
sufficiently material to establish prejudice.[15] Accordingly, the
agency*s subsequent source selection decision was not reasonably based.
Lockheed also protests that the agency improperly credited ATK*s proposal
with meeting the RFP*s countermeasure requirements based on performance
that ATK did not propose. We agree.
Specifically, with regard to evaluation under the performance
subfactor,[16] the solicitation provided that the proposed munition would
be evaluated on its performance against enemy countermeasures and
specified three particular countermeasures against which performance would
be assessed. RFP S: M.3.1.1.3, at 81. In this regard, section L of the
RFP directed that each offeror *shall provide estimates for the number of
additional rounds needed to achieve threshold performance* in the context
of the specified enemy countermeasures, and stated: *Compelling rationale
for each estimate shall be provided. As a minimum, rationale shall
include a full description of design features that enable stated
performance.* RFP S: L.17.2.2.3, at 71 (emphasis added).
In its proposal, ATK identified [deleted] approaches to deal with
countermeasures that required [deleted]. Specifically, at the hearing
conducted by our Office, the agency*s lead SSEB evaluator responded to
questions concerning the countermeasure requirements as follows:
Q. Do I understand you to say that. . . [deleted] proposed the
[deleted] CCM [counter-countermeasure] approach?
A. Yes.
Q. Okay. . . . which would be incorporation of [deleted] technology, I
assume?
A. Not exactly. The incorporation of [deleted] CCM techniques. The
actual [deleted] will [deleted] because of the different [deleted].
Tr.2 at 136.
After acknowledging that [deleted] associated with ATK*s proposed approach
would be [deleted], the agency evaluator responded to further questioning
as follows:
Q. [Did ATK] tell you what [deleted] approaches they were going to use
[to respond to the countermeasures]?
A. No, they did not. Mr. [deleted] told me that.
Q. Mr. [deleted] was one of your advisers in the evaluation?
A. Yes.
Q. And he told you what ATK was going to do in its proposal?
A. He told me what [deleted] [an ATK subcontractor] knew and had in
their back pocket.
Q. I guess to follow up, that was not an ATK proposal, was it?
A. No, it was not.
Tr.2 at 137.
Finally, the agency evaluator testified that ATK*s subcontractor had not
provided ATK with the specific information regarding [deleted] because to
do so would have required *[the subcontractor*s] giving proprietary
secrets to ATK.* Tr.2 at 138. The evaluator elaborated: [deleted]. Id.
Since an offeror is not bound to provide goods or perform services that it
has not offered to provide or perform, agencies may properly evaluate
proposals only on the basis of the information and representations
contained therein. See, e.g., Microcosm, Inc., B-277326 et al., Sept.
30, 1997, 97-2 CPD P: 133 at 6-7. Here, as shown above, the agency
credited ATK*s proposal with meeting the required level of
counter‑countermeasure performance--even though ATK*s proposal did
not address the [deleted] necessary to achieve the specified level of
performance. Rather, the agency*s determination that ATK*s proposal
*include[d] a full description of design feature[s] that enable stated
performance* was based on an agency advisor*s perception of the knowledge
and capabilities of an ATK subcontractor. Since ATK*s proposal did not
address the [deleted], it is not clear that all of the costs associated
with ATK*s proposed [deleted] were included in its proposal, nor that ATK,
or its subcontractor, is bound to provide the [deleted] the agency assumed
to be part of ATK*s proposal. Based on this record, the agency*s
evaluation of ATK*s proposal lacks a reasonable basis.
The protest is sustained.
RECOMMENDATION
We recommend that the agency reopen negotiations, conduct meaningful
discussions with the competitive range offerors, request final revised
proposals, and evaluate those proposals consistent with applicable
statutes and regulations, as well as the solicitation*s stated
requirements.[17] If, as a result of this reevaluation, Lockheed*s
proposal is selected for award, the agency should terminate ATK*s contract
for the convenience of the government and make award to Lockheed. We also
recommend that Lockheed be reimbursed the reasonable costs of filing and
pursuing the protest, including attorneys* fees. 4 C.F.R. S: 21.8(d)(1)
(2004). The protester should submit its certified claim for such costs,
detailing the time expended and the costs incurred, directly to the
contracting agency within 60 days after receipt of this decision.
Anthony H. Gamboa
General Counsel
------------------------
[1] The agency states that the XM395 PGMM will be *the Maneuver
Commander*s organic, extended range, indirect fire, precision munition,*
and that *[t]he weapon platform for this munition is the U.S. Army*s 120
mm Battalion Mortar System . . . Stryker Brigade Combat Team.* Source
Selection Evaluation Plan at 1.
[2] The SDD and LRIP represent the third and fourth (of five) phases of
the PGMM program. The first phase, which is referred to as *advanced
technology development* (ATD), was performed under a contract awarded in
1994. The second phase, referred to as *component advanced development*
(CAD) was performed under a contract awarded in 2002. The fifth and final
phase, referred to as *follow-on production* (FOP) will be performed under
a subsequent contract. Agency Post‑Hearing Comments, May 10, 2004,
at 1.
[3] The solicitation provided that ownership costs and maturity/complexity
were of equal importance and were *slightly more important* than the
performance subfactor, which was *significantly more important* than the
remaining subfactors. RFP S: M.2, at 78.
[4] More specifically, Lockheed*s proposal stated that, [deleted]. As
proposed by Lockheed, [deleted] the costs associated with production of
these portions of the munition would be lower due to [deleted].
[5] [Deleted].
[6] Section M of the RFP stated: *Average Unit Production Cost (AUPC)
threshold is $15K with a goal of $5K.* RFP S: M.3.1.1.1, at 79.
[7] The RFP advised offerors that the following adjectival ratings, and
associated definitions, would be applied to the technical evaluation
factors: *Dark Blue* (excellent understanding of requirements, strengths
far outweigh weaknesses, no significant weaknesses); *Green* (good
understanding of requirements, strengths slightly outweigh weaknesses, no
significant weaknesses); *Yellow* (acceptable understanding of
requirements, strengths offset by weaknesses, no significant weaknesses)
*Pink* (shallow understanding of requirements, weaknesses outweigh
strengths, no significant weaknesses); *Red* (significant weaknesses or
deficiencies, requirements can only be met with major proposal changes).
RFP S: M.3.2.1, at 85. The RFP also provided for risk assessments of
*high,* *moderate,* and *low.* RFP S: M.3.2.2, at 86.
[8] In short, where productions costs were considered uniquely related to
an offeror, the agency replaced the proposed costs with its own assessment
of what an *industry rate* would be.
[9] In resolving this protest, our Office conducted a hearing over a 2-day
period, during which testimony was provided by various agency witnesses,
including the contracting officer, the co-chair of the source selection
evaluation board (SSEB), the SSEB lead evaluator, the agency evaluator
responsible for accessing AUPC, an agency advisor that participated in
oral discussions, and Lockheed*s program manager. Because the agency*s
procurement record includes classified material, a portion of the hearing
was closed, that is, the hearing was limited to personnel with appropriate
security clearances and conducted at a secure Army facility within
Ft. Belvoir, Virginia; a portion of the Ft. Belvoir proceeding was not
closed. The agency subsequently provided an unclassified version of the
transcript for the closed portion of the hearing. For purposes of
referencing the various hearing transcripts, our decision refers to the
transcript for the portion of the hearing conducted at GAO as *Tr.1*; to
the hearing transcript for the closed portion of the hearing at Ft.
Belvoir (from which classified information has been redacted by the
agency) as *Tr.2*; and to the hearing transcript for the portion of the
hearing conducted at Ft. Belvoir that was not closed, as *Tr.3.*
[10] The agency used cost estimating relationships (CERs) in its
assessment of what the agency evaluator described as [deleted]; such costs
included those associated with [deleted]. Tr.1 at 300; Protester*s
Hearing exh.,Vol. 1, Tab 7.
[11] The record is clear that the agency*s erroneous application of
differing cost factors resulted in a significantly lower evaluated AUPC
for Lockheed than would have otherwise occurred. Specifically, with
regard to [deleted], the agency*s initial evaluation of Lockheed*s AUPC
reflected costs per round of [deleted] (for a total of [deleted]).
Protester*s Hearing exh., Vol. 1, Tab 7. In its subsequent evaluation of
Lockheed*s final revised proposal, in which the agency applied the factors
it acknowledges should have been applied in the initial evaluation, the
evaluated amounts for these same costs were [deleted] (for a total of
[deleted]). Final Total Cost of Ownership Evaluation Report, at 7. There
is no dispute that the significant difference in evaluated costs for these
line items resulted from the agency*s application of differing cost
factors--not from changes to Lockheed*s proposal. In short, separate and
apart from the agency*s decision to exclude consideration of
*contractor-specific* costs, the agency*s initial evaluation of Lockheed*s
proposed AUPC was understated by [deleted] per round ([deleted]).
[12] Following submission of the FPRs on September 17, the agency
apparently became concerned about its decision to exclude the proposed
[deleted] savings from the AUPC calculation. Inconsistent with its
determination that such costs could not be considered because they were
*contractor-specific,* by letter dated September 24, the agency asked that
Lockheed provide *clarifying* information regarding its proposed
[deleted]. In responding to this protest, the agency now asserts that the
documentation provided by Lockheed concerning the proposed [deleted] was
inadequate, and maintains that the absence of sufficient supporting
documentation provides an alternative basis for excluding consideration of
the proposed savings. We find no credible basis for this purported
rationale. At the hearing, after confirming the agency*s position that it
had excluded consideration of all *contractor-specific* costs, the agency
evaluator was asked to identify any information that Lockheed could have
provided in response to the agency*s alleged concerns regarding adequate
supporting documentation that would have rendered the proposed savings
something other than *contractor-specific* savings. Tr.1 at 22. In
response, the evaluator acknowledged, *I really would not have expected
anything.* Id. In light of this testimony, which is consistent with the
balance of the contemporaneous record, we give no weight to the agency*s
assertion that, in calculating AUPC, it excluded consideration of the
[deleted] based on Lockheed*s failure to provide adequate supporting
documentation.
[13] During the GAO hearing, the agency evaluator testified: *[W]e were
told that we had to ask the exact same questions of [each] offeror, to be
fair.* Tr.1 at 199. This advice is directly contrary to the FAR, which
provides that discussions should be *tailored to each offeror*s
proposal.* FAR S: 15.306(d)(1).
[14] As noted above, the agency states that its calculation of AUPC
excluded *contractor-specific* cost savings due to the agency*s intent to
subsequently compete the follow-on production contract; accordingly,
proposed savings specific to a given offeror will not be realized if that
offeror is not awarded the follow-on production contract. We note,
however, that the terms of ATK*s proposal regarding [deleted], on which
the award here was based, would appear to effectively preclude such
competition [deleted]. Agency*s Award Decision Document, at 3‑28.
We further note that such a proposal of [deleted]--which would reasonably
lead to reduced [deleted] costs for the agency--would appear to constitute
*contractor-specific* cost savings.
[15] The record contains significant evidence that, following receipt of
the agency*s evaluation report during discussions, Lockheed seriously
considered various [deleted] that would have significantly reduced the
AUPC of its proposed munition. Ultimately, Lockheed did not [deleted],
attempting to reduce its evaluated AUPC through other means, including
[deleted], which as discussed above, was reasonably consistent with the
provisions of the RFP and the agency*s discussions.
[16] As noted above, the performance subfactor was *slightly* less
important than the two most important subfactors, ownership costs and
maturity/complexity.
[17] In the event the agency intends to calculate AUPC in a manner that
replaces *contractor-specific* costs with *industry rates,* offerors
should be so advised.