TITLE: B-294358.8; B-294358.9; B-294358.10, University Research Company, LLC, April 6, 2006
BNUMBER: B-294358.8; B-294358.9; B-294358.10
DATE: April 6, 2006
************************************************************************************
B-294358.8; B-294358.9; B-294358.10, University Research Company, LLC, April 6, 2006
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: University Research Company, LLC
File: B-294358.8; B-294358.9; B-294358.10
Date: April 6, 2006
John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Tamara F. Dunlap, Esq.,
and David S. Stern, Esq., Smith Pachter McWhorter, and Joseph J. Petrillo,
Esq., Petrillo & Powell, for the protester.
John E. Jensen, Esq., Devon E. Hewitt, Esq., Daniel S. Herzfeld, Esq., and
Orest J. Jowyk, Esq., Pillsbury Winthrop Shaw Pittman, for IQ Solutions,
Inc., an intervenor.
Mogy E. Omatete, Esq., Department of Health and Human Services, for the
agency.
Ralph O. White, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protester's contention that agency performed an unreasonable technical
evaluation when it elected not to revise previous evaluation scores as a
result of corrective action limited to receiving revised proposals
addressing only reproduction services is denied where the evaluation
approach was consistent with the solicitation's evaluation scheme.
2. Protester's challenge to agency's decision to make an upward adjustment
to the protester's proposed costs is denied where the record shows that
the adjustment was reasonably tailored to address a unique feature in the
protester's cost proposal, and that if the adjustment had not been made,
there was a risk that the predictive value of the cost evaluation would
have been undermined.
DECISION
University Research Company, LLC (URC) protests a decision by the
Substance Abuse and Mental Health Services Administration (SAMHSA),
Department of Health and Human Services (HHS), to reselect IQ Solutions,
Inc. for the award of a contract pursuant to request for proposals (RFP)
No. 277-04-6091, issued for the operation of the SAMHSA Health Information
Network. URC argues that the agency's remedial review of reproduction
costs--undertaken in response to a decision from the Court of Federal
Claims--and its decision to make no changes in the technical evaluation
scores as a result of the revisions made to the proposals, were
unreasonable.
We deny the protest.
BACKGROUND
This is the third decision by our Office addressing this procurement. The
agency remedial action reviewed here was undertaken after the Court of
Federal Claims concluded that HHS acted arbitrarily by substituting a
government estimate for the reproduction costs calculated by URC and IQ in
their cost proposals; hence, the court held that the agency improperly
normalized[1] those costs. University Research Co., LLC v. United States,
65 Fed. Cl. 500, 513 (2005). Most of the other elements of the evaluation
here have been reviewed in either our prior decisions, or the prior
decision of the court, and were not part of the remedial action that is
the subject of this protest. We set forth below a limited overview of this
procurement.
The RFP here was released on December 19, 2003, and sought offers for a
contract that would realign SAMHSA's health information dissemination
efforts, which were previously obtained under multiple contracts.
University Research Co., LLC, B-294358 et al., Oct. 28, 2004, 2004 CPD
para. 217 at 2 ("University Research I"). Specifically, this solicitation
includes the operation of the National Clearinghouse for Alcohol and Drug
Information, the National Mental Health Information Clearinghouse, and
certain support services for the SAMHSA Office of the Administrator. A
minor part of the dissemination efforts covered by this contract involves
the reproduction of health information materials. See RFP attach. 1
(Performance Work Statement).
The RFP was set aside for small businesses, and anticipated the award of a
cost-plus-award-fee contract for a base period of 1 year followed by four
1-year options. RFP at 1, 56. Section M of the RFP advised that
"[a]lthough technical factors are of paramount consideration in the award
of the contract, past performance and cost/price are also important to the
overall contract award decision." RFP at 70. The RFP also identified four
technical evaluation criteria (totaling 100 points) and advised that past
performance would be worth an additional 36 points. RFP at 70-73. The four
technical evaluation criteria and the weight assigned to each were:
(1) understanding the project, 15 points; (2) technical approach, 35
points; (3) key personnel, 35 points; and (4) management plan and
facilities, 15 points.
By the February 6, 2004, initial closing date, HHS received proposals from
six offerors. Shortly thereafter, the agency established a competitive
range for award comprised of the proposals submitted by IQ, URC, and a
third company. After discussions, receipt of revised proposals, and
reevaluation, HHS concluded that IQ's proposal offered the best value to
the government.
URC filed a protest with our Office challenging that decision. During that
protest, the selection official admitted during a hearing that her
selection document misstated the award recommendation she had received
from agency project officers, who are allowed under HHS procedures to make
award recommendations along with those made by agency evaluators.
University Research I, supra, at 6-7. As a result, we sustained URC's
protest, and recommended that the agency make a new selection decision
using a different selection official. Id. at 11.
On December 22, 2004, a new selection official again selected IQ for
award. In the areas of past performance and technical merit, the selection
official made minor changes to the initial ratings that need not be set
forth here. More significant adjustments, however, were made in the area
of cost realism. With respect to IQ, the agency added the cost of two
full-time speechwriters to the proposal; normalized four elements of other
direct costs applicable to all offerors; and normalized the estimated
savings to be recovered through user fees. Source Selection Determination,
Dec. 22, 2004, at 7-9. In all, IQ's proposed costs were adjusted upward by
approximately [deleted].[2] With respect to URC, the selection official's
adjustments were limited to the second and third types of adjustments
described above--i.e., normalized costs for the four elements of other
direct costs and normalized estimated savings to be recovered through user
fees. In all, URC's proposed costs were adjusted upward by approximately
[deleted].[3]
As before, the selection official set out a summary of the final technical
and past performance scores of both offerors (as modified during the
reevaluation), and the total proposed and evaluated costs. This summary is
reflected below:
+------------------------------------------------------------------------+
| | IQ Solutions | URC |
|----------------------+--------------------+----------------------------|
|Final | | |
| | 94.4 points | 92.8 points |
|Technical Score | | |
|----------------------+--------------------+----------------------------|
|Final Past | | |
| | 33.12 points | 32.33 points |
|Performance | | |
|----------------------+--------------------+----------------------------|
|Total | | |
| | [deleted] | [deleted] |
|Proposed Costs | | |
|----------------------+--------------------+----------------------------|
|Total | | |
| | $61.130 million | $67.274 million |
|Evaluated Costs | | |
+------------------------------------------------------------------------+
Id. The selection official reasoned that since the technical and past
performance scores were essentially equal, IQ's proposal, with its lower
evaluated costs, offered the best value to the government. Id.
After receiving notice of the agency's revised selection decision, and a
subsequent debriefing, URC filed a second protest to our Office. URC's
second protest challenged almost every facet of the revised evaluation.
On April 20, 2005, our Office denied URC's second protest, but noted four
separate errors in the agency's evaluation and cost realism review.
University Research Co., LLC, B-294358.6, B-294358.7, Apr. 20, 2005, 2005
CPD para. 83 at 27-29 ("University Research II"). However, none of these
errors resulted in a reasonable possibility of prejudice to URC, id., as
none of them led our Office to conclude that, but for the agency's
actions, URC would have had a substantial chance of receiving the
award.[4] McDonald Bradley, B-270126, Feb. 8, 1996, 96-1 CPD para. 54 at
3; see Statistica, Inc. v. Christopher, 103 F.3d 1577, 1581 (Fed. Cir.
1996). In this regard, the corrected final scores and evaluated costs
(accounting for these errors) reflected in our second decision are as
follows:
+------------------------------------------------------------------------+
| | IQ Solutions | URC |
|----------------------+--------------------+----------------------------|
|Final | | |
| | 92.2 points | 92.8 points |
|Technical Score | | |
|----------------------+--------------------+----------------------------|
|Final Past | | |
| | 32.16 points | 33.12 points |
|Performance | | |
|----------------------+--------------------+----------------------------|
|Total | | |
| | [deleted] | [deleted] |
|Proposed Costs | | |
|----------------------+--------------------+----------------------------|
|Total | | |
| | $62.118 million | $67.198 million |
|Evaluated Costs | | |
+------------------------------------------------------------------------+
University Research II, supra, at 27.
Upon receipt of our second decision, URC filed a protest at the Court of
Federal Claims, reiterating several of the challenges to the evaluation
URC had raised here. In all respects but one, the court reached the same
conclusions as our Office; however, in the one of the four areas of other
direct costs that were normalized by the agency, i.e., reproduction costs,
the court concluded that the agency's actions were arbitrary. University
Research Co., LLC v. United States, supra ("University Research III"). In
the court's view, URC's advantage over IQ in the area of reproduction
costs "could have far exceeded [IQ's] overall edge of $6.1 million;" thus,
the court enjoined the agency from proceeding with its award to IQ. Id. at
513, 515.
Faced with the court's decision, HHS elected to clarify its requirement
for reproduction work, reopen discussions with URC and IQ, and seek
revised cost information (and revised technical proposals, if needed)
limited to the subject of reproduction services. AR, Tab 7. At first, URC
opposed the corrective action, arguing that IQ might improperly adopt
URC's approach to meeting the agency's reproduction needs, thereby
eliminating URC's competitive advantage in this area. AR, Tab 8. After IQ
represented to the parties that it would not adopt URC's approach, URC
withdrew its objection and reported to the court that the parties had
reached an agreement on corrective action. AR, Tab 9.
Subsequently, on July 13, HHS issued an amendment to the solicitation with
significant upward revisions to the amount of reproduction--essentially,
photocopying--anticipated here. Specifically, the amendment advised that
it was providing information "to replace the statement given in Task IV,
Section C.1 of the Statement of Work as Bullet 11." RFP amend. 2, at 2.[5]
The information provided in amendment 2 consisted of annual estimates for
the base year, and for each of the 4 option years, of the amount of black
and white pieces (described as single sheets) and color pieces that would
need to be reproduced under the contract. The new estimates were:
Annual Reproduction Estimates
(stated in millions of pieces)
+------------------------------------------------------------------------+
| | Black and White | Color | Total |
|-----------------+---------------------+---------------+----------------|
|Base Year | 22.2 | 14.8 | 37.0 |
|-----------------+---------------------+---------------+----------------|
|Option Year 1 | 25.6 | 17.0 | 42.6 |
|-----------------+---------------------+---------------+----------------|
|Option Year 2 | 28.9 | 19.6 | 48.5 |
|-----------------+---------------------+---------------+----------------|
|Option Year 3 | 33.3 | 22.5 | 55.8 |
|-----------------+---------------------+---------------+----------------|
|Option Year 4 | 38.3 | 25.9 | 64.2 |
|-----------------+---------------------+---------------+----------------|
|All Years | 148.2 | 99.9 | 248.1 |
+------------------------------------------------------------------------+
RFP amend. 2, at 2. In addition, a request for clarifications letter was
provided to both URC and IQ; this letter sought revised reproduction costs
and any changes to each offeror's approach to providing reproductions. AR,
Tabs 11-12.
On July 26, responses were received from both URC and IQ. The responses
were reviewed by a technical team, and by a cost analyst, who prepared
discussion questions for both offerors. The technical reviewers concluded
that the reproduction approaches of both offerors would meet the
government's requirements, while the cost analyst raised matters to be
addressed in each offeror's final proposal revisions (FPR). Contracting
Officer's (CO) Statement at 2. On October 11, FPRs were received from both
offerors. The FPRs were reviewed by the CO and the cost analyst, as the
technical reviewers had identified no additional issues that needed to be
addressed. Id. at 3. The total revised reproduction costs proposed by the
offerors were very close: URC estimated its reproduction costs at
[deleted], IQ estimated [deleted]. AR, Tab 41, at 8, 10.
URC's revised proposal, including its FPR, introduced a pricing feature we
will refer to as a "two-tiered, fixed-price cap." Specifically, URC
offered to charge the agency a fixed price--applicable to both black and
white and color impressions[6]--of [deleted] per impression, provided that
the number of impressions in any given month did not exceed one-twelfth of
the total annual estimate.[7] AR, Tab 31 (URC's FPR), at 9. In the event
the number of impressions in any given month were to exceed one-twelfth of
the total annual estimate, URC offered a higher combined price of
[deleted] per impression; this higher price is applicable only to the
number of required impressions in excess of the URC-imposed limit. Id. The
lower-priced cap of [deleted] per impression is fixed for the life of the
contract. Id. at 15. The higher-priced cap of [deleted] per impression is
fixed for the base year, and escalates annually thereafter.[8] Id. at 9.
In contrast, IQ's revised proposal, including its FPR, adopts a more
traditional approach. IQ does not propose fixed-price caps, but instead
calculates separate estimated unit costs for black and white impressions,
and for color impressions, and does so for the base year, and each option
year. AR, Tab 32, at 10. IQ's proposal also provides detailed supporting
calculations showing how it estimated the proposed unit costs. For
example, in the base year IQ estimates a unit cost of [deleted] for black
and white impressions, and [deleted] for color impressions. Id.
In attempting to evaluate the different cost approaches, the agency noted
that URC's proposed costs were calculated entirely using the lower
fixed-price cap amount, based upon an apparent assumption that HHS would
use the risk of higher costs to smooth out fluctuations in the workload
over the course of the year. See Protester's Comments, Feb. 13, 2006, at
16-17. Given URC's approach, HHS asked for monthly information on
photocopying from its incumbent contractor, which is also URC's proposed
subcontractor for this work. The incumbent contractor provided the agency
with historical data showing significant seasonal fluctuation in the
agency's clearinghouse activity--the activity which generates the demand
for photocopying. AR, Tab 33, at 1. Using this historical information, HHS
concluded that the number of impressions would exceed the monthly limit
set by URC in 5 of 12 months each year. As a result, the agency decided
that URC's approach presented a high risk that costs would be higher than
those reflected in the company's proposal, and recalculated URC's costs
applying the higher fixed-price cap for 5 months of each year. AR, Tab 35.
With respect to IQ's proposed photocopying costs, HHS reviewed the
calculations provided in IQ's revised proposal, and decided that there was
little risk of a cost overrun in the proposal. As a result, the agency
made no adjustment to IQ's proposed photocopy costs. AR, Tab 39.
On December 20, 2005, the selection official prepared a revised selection
document, again selecting IQ for award. AR, Tab 41. In many respects, the
most recent selection decision builds on the analysis and evaluation
results previously reviewed and found reasonable by our Office, and by the
court.
To summarize the revised selection document, we start by noting that the
selection official observed that the reproduction effort here was,
proportionately, a small part of the effort envisioned by this contract.
In this regard she estimated that the reproduction effort would account
for approximately $4 to $5 million of the total estimated costs of $60 to
$65 million. AR, Tab 41, at 4. She also explained that, in her view, there
was nothing in the limited revisions here that should generate any change
to the technical or past performance scores given these offerors.
Specifically, she concluded that both firms would be able to fulfill the
government's reproduction requirements with their approaches; she reached
this conclusion based on input received from agency technical experts. As
a result, she elected not to adjust the technical scores of either offeror
based on their approaches to photocopying. Id.
With no changes to the technical and past performance scores assigned to
these proposals, the selection official concluded the proposals could be
viewed as essentially equal. The relevant point scores are set forth
below.
+------------------------------------------------------------------------+
| | IQ Solutions | URC |
|----------------------+--------------------+----------------------------|
|Final | | |
| | 92.2 points | 92.8 points |
|Technical Score | | |
|----------------------+--------------------+----------------------------|
|Final Past | | |
| | 32.16 points | 33.12 points |
|Performance | | |
+------------------------------------------------------------------------+
Id. at 15.
With respect to the evaluation of costs, our table below attempts to
isolate the relative cost of, and cost realism adjustments to, the
revisions made to these proposals after the corrective action taken in
response to the court's decision. Thus, we: (1) show the total proposed
costs of both offerors less their prior proposed costs of reproduction
(including fee, etc.); (2) identify each offeror's revised proposed costs
for reproduction; (3) provide the sum of numbers (1) and (2) above to show
each offeror's revised total proposed costs; (4) show the total evaluated
costs, including all cost realism adjustments other than those made to
revised reproduction costs; (5) identify the cost realism adjustment made
to each offeror's revised reproduction costs; and (6) provide the sum of
numbers (4) and (5) above to show each offeror's total revised evaluated
costs at the end of the agency's cost realism assessment.
+------------------------------------------------------------------------+
| | URC | IQ |
|------------------------------+---------------------+-------------------|
|(1) Total Proposed Costs | [deleted] | [deleted] |
| | | |
|(less prior Proposed | (AR, Tab 41, at 10) |(AR, Tab 41, at 8) |
|Reproduction Costs) | | |
|------------------------------+---------------------+-------------------|
|(2) Revised Proposed | [deleted] | [deleted] |
| | | |
|Reproduction Costs | (AR, Tab 41, at 10) |(AR, Tab 41, at 8) |
|------------------------------+---------------------+-------------------|
|(3) Total Revised Proposed | [deleted] | [deleted] |
|Costs | | |
| | (AR, Tab 41, at 14) |(AR, Tab 41, at 14)|
|------------------------------+---------------------+-------------------|
|(4) Total Evaluated Costs | $67.635 million | $61.981 million |
|(with all realism adjustments | | |
|other than | (AR, Tab 41, at 14) |(AR, Tab 41, at 14)|
| | | |
|for Reproduction Costs) |(CO's Supp. State. at| |
| | 11) | |
|------------------------------+---------------------+-------------------|
|(5) Plus cost realism | $1.647 million | -- 0 -- |
|adjustment for Reproduction | | |
|Costs | (AR, Tab 55, at 3) | |
| | | |
| | (Supp. AR, at 8) | |
|------------------------------+---------------------+-------------------|
|(6) Total Revised Evaluated | $69.282 million | $61.981 million |
|Costs | | |
| | (Supp. CO State. at |(Supp. CO State. at|
| | 12) | 12) |
+------------------------------------------------------------------------+
Given the selection official's conclusion that the proposals here were
essentially equal under the technical merit and past performance
evaluation factors, and given that URC's evaluated costs were
approximately $7.3 million higher than IQ's evaluated costs, the selection
official again chose IQ for the award. Supp. CO Statement at 12.
This protest followed.
DISCUSSION
In its most recent protest, URC argues that HHS acted unreasonably when it
elected not to revise the technical evaluation scores in this competition
as a result of the proposal changes made to meet the agency's revised
reproduction needs. With respect to the cost realism review, URC attacks
both the agency's upward adjustment to URC's proposed reproduction costs,
and the agency's decision to make no upward adjustments to IQ's proposed
costs.
In the discussion that follows, we find that the agency reasonably
concluded that while no changes were necessary in the technical scores for
these proposals, an upward adjustment in URC's proposed costs was needed
as a result of URC's unique approach to structuring its cost proposal.
Given these conclusions, and the fact that URC's and IQ's proposals remain
essentially equal under the technical and past performance evaluation
factors, we need not address in detail URC's arguments regarding IQ's
proposed costs, because, even if we agreed with URC on every front--and we
do not--IQ would remain the offeror with the lowest evaluated costs.
Technical Evaluation
URC argues that the agency erred in not making changes to the technical
evaluation scores previously assigned during this procurement as a result
of the changes URC and IQ made in their proposals for providing
reproduction services. In fact, URC argues that as many as 65 out of 100
possible evaluation points could have been affected by the revised
photocopying costs (and approaches) solicited here. URC Comments, Feb. 13,
2006, at 5.
Our standard in reviewing a protester's challenges to an agency's
evaluation of proposals is to examine the record to determine whether the
agency's judgment was reasonable and consistent with stated evaluation
criteria, and with applicable statutes and regulations. ESCO, Inc.,
B-225565, Apr. 29., 1987, 87-1 CPD para. 450 at 7.
As a preliminary matter, we think it is useful to reiterate the reason
for, and the nature of, the revisions made to these proposals. In its
review, the Court of Federal Claims concluded that IQ was apparently
confused about the reproduction requirements of this contract when it
submitted its final cost proposal during the previous stage of this
competition. University Research Co. III, supra, at 513. As a result, the
court concluded that it was arbitrary for the agency to normalize the
costs of reproduction services, rather than seek clarifications from IQ.
Id. To implement the court's findings, identical letters were issued to
URC and IQ revising the agency's reproduction requirements and seeking
clarifications limited to responding to the additional reproduction
information provided. AR, Tabs 11, 12. As instructed, the responses of
both offerors were very limited; while the materials submitted appear
extensive, they amount generally to identifying the equipment to be used,
explaining how the agency's reproduction requirements will be met,
calculating a revised cost to the agency, and providing detailed backup
support materials such as lease and service agreements. Id., Tabs 31, 32.
When the selection official here received the revised reproduction
proposals from URC and IQ, she asked HHS employees with subject matter
expertise on reproduction (the reviewers worked in the agency's print
shop) to review the equipment identified, and determine whether the
proposed approaches would be adequate to meet the government's
requirements; they concluded that the approaches of both companies would
meet the government's needs. CO's Statement, at 2. Separate cost analysts
identified other issues for the selection official, which led to
discussions before the call for FRPs limited to the reproduction issue.
With respect to URC's contention that these submissions should have
triggered revisions in the point scores of these offerors, we note first
that there was little in this RFP's evaluation scheme directly related to
reproduction services, given the nature of four factors--understanding the
project, technical approach, key personnel, and management plan and
facilities--and the narrative explanation provided for each of them. RFP
at 71-72. For example, the first of the factors that URC contends should
have been reassessed was the "understanding the project" evaluation
factor. The narrative explanation of this factor begins:
The offeror demonstrates understanding of the scope and complexity of the
public health and knowledge dissemination challenges posed by severe
mental illnesses as viewed primarily from the perspective of consumers and
their families, policymakers, and mental health care providers.
RFP at 71. We find little in the language quoted above, and little in any
of the other four paragraphs of narrative associated with this evaluation
factor, that would cause us to conclude that the agency acted improperly
in not reassessing proposals under this factor. In short, this factor was
assessing the offeror's understanding of a host of services associated
with operating these public health clearinghouses, only a small part of
which involves the operation of photocopy machines.[9]
We think the protester's best argument for a technical reassessment can be
found under the fourth evaluation factor, "management plan and
facilities." The most relevant portion of the narrative explanation
associated with this factor states:
The offeror should provide a plan to implement and maintain all facilities
and equipment necessary to conduct the tasks outlined in the SOW
[Statement of Work]. The offeror should demonstrate resource capacity and
capabilities to ensure successful operation and completion of the SOW
tasks, including adequate physical space, facilities, necessary office
equipment, computer hardware, computer software, and any other equipment
(such as audio/visual and delivery vehicles) necessary to perform the
project. The offeror should have an adequate plan for self-assessment,
evaluation, and continuous improvement.
RFP at 73. Even here, however, we see nothing that requires revising the
offerors' scores under this evaluation factor as a result of these more
detailed proposals to provide reproduction services. For example, while we
agree that reproduction equipment appears to fall within the scope of the
term "necessary office equipment" in the evaluation factor quoted above,
reproduction equipment is but one of many types of office equipment used
to perform these services. Moreover, "necessary office equipment" is but
one element of several that are assessed under this factor, which in total
was worth only 15 points. Thus, in our view, even if changes were made
here as a result of identified reproduction equipment--and we have seen
nothing in these pleadings to suggest what those changes might be--any
changes would appear to be de minimis at best.
Our inquiry does not stop with section M, however. We also note that
little of the solicitation's description of the services required here is
devoted to the subject of making reproductions. The RFP's performance work
statement describes a broad range of services and briefly mentions that
there will be a certain amount of reproduction effort required under this
contract. Specifically, the RFP's 33-page detailed description of services
devotes a total of 2 1/2 lines to describing reproduction services. RFP
attach. 1 (Performance Work Statement), at 29.[10] Moreover, the entire
mention of reproduction services found in the RFP's section L (wherein the
agency provides instructions to offerors about information that must be
included in their proposals) is set forth below:
Corporate Capabilities, Facilities and Equipment
(1) The Offeror should demonstrate that adequate facilities, space and
equipment (personal computers, laptop computers, modems, work processing,
xerographic, facsimile) are available for the accomplishment of project
goals and objectives.
RFP at 65 (sect. L.2.B.a.(4)(g)(1)).
In short, we see nothing about the evaluation scheme here, or about the
proposals submitted by IQ and URC, that would have required HHS to
recalculate the previous evaluation scores in response to these limited
revised proposals.
Evaluation of URC's Proposed Costs
We turn next to the only adjustment the agency actually made in this
limited reopened competition--the upward adjustment that was made to URC's
proposed costs. As indicated above, URC proposed an approach that has been
termed a "two-tiered, fixed-price cap," stated as a price per impression,
depending on the number of impressions required during any given month.
Specifically, if the number of impressions in any given month did not
exceed one-twelfth of the total annual estimate, URC provided one, much
lower, consolidated price of [deleted] per impression. If the number of
impressions exceeded one-twelfth of the total annual estimate in any given
month, URC's consolidated price rose to [deleted] per impression for the
base year, and escalated further each year thereafter.
When faced with this unusual price arrangement in a cost-reimbursement
environment, and when it noticed that URC's estimated costs for
reproduction were calculated entirely using the lower price per
impression, HHS decided to obtain historical information about monthly
variations in the number of impressions. HHS then used this information to
attempt to determine the most likely cost of performance by URC, and made
an upward adjustment to URC's costs to account for the months of the year
when reproduction services might exceed one-twelfth of the annual total
estimate. In URC's view, this action was unreasonable.
When an agency evaluates proposals for the award of a cost-reimbursement
contract, an offeror's proposed estimated costs of performance are not
dispositive, since, regardless of the costs proposed, the government is
required to pay the contractor its actual and allowable costs. University
Research II, supra, at 22; Jacobs COGEMA, LLC, B-290125.2, B-290125.3,
Dec. 18, 2002, 2003 CPD para. 16 at 26; CWIS, LLC, B-287521, July 2, 2001,
2001 CPD para. 119 at 3. Accordingly, a cost realism analysis must be
performed when a cost-reimbursement contract is contemplated in order to
determine the probable cost of performance for each offeror. Federal
Acquisition Regulation sect. 15.404-1(d)(2).
We find unpersuasive URC's contention that HHS acted improperly in
attempting to calculate the likely impact of a cost approach that URC, not
HHS, introduced to this procurement. As an initial matter, we note that
the RFP here does not include any language that supports URC's apparent
premise that the required number of impressions in any given month would
be equal to one-twelfth of the annual total estimate.[11] Moreover, as a
matter of common sense it stands to reason that when an agency estimates
its reproduction needs on an annual basis, some months might involve more
than one-twelfth of that total and some months might involve less.
As a general rule, the use of approaches such as cost ceilings, caps, or
even fixed rates like those here, in a cost-reimbursement environment, can
shift the responsibility for cost overruns from the government to the
contractor, and can provide a powerful tool for controlling costs to the
government--provided there is no reason to question the effectiveness of
the approach. Halifax Tech. Servs., Inc., B-246236.6 et al., Jan. 24,
1994, 94-1 CPD para. 30 at 6; Vitro Corp., B-247734.3, Sept. 24, 1992,
92-2 CPD para. 202 at 7. When, however, contractor-imposed conditions on
cost-control devices risk undermining the predictive value of an agency's
cost evaluation, the agency must take steps to ascertain the effect of
such conditions. Comarco, Inc., B-258204.6, Oct. 26, 1995, 96-1 CPD
para. 12 at 7. Here, we think the knowledge that, in the past, the
reproduction workload fluctuated from one month to the next, required the
agency to evaluate the impact of these fluctuations on URC's proposed
costs. See id.
URC defends its pricing approach, and criticizes the agency's adjustment,
by arguing that it was unreasonable for the agency not to use URC's
pricing mechanism as an incentive to send more of the reproduction work to
the Government Printing Office, in order to "smooth out" any fluctuations
in the reproduction workload. In our view, URC's pricing approach,
apparently intended to manipulate the government's management of its
workload, raised cost issues the agency needed to consider if it was not
planning to make changes in how it managed its workload, which the agency
was neither inclined, nor required, to do. Thus, we find that the agency
acted reasonably in attempting to evaluate the effect of this approach on
the likely cost of contract performance.[12]
Evaluation of IQ's Proposed Costs
URC also argues that HHS should have made several upward adjustments to
IQ's proposed costs. Given the results of our review of the technical
evaluation, and of the adjustment to URC's proposed costs, URC must
overcome a difference of $7.3 million in evaluated costs between
essentially equal proposals in order to show that its proposal, rather
than IQ's, offered the best value to the government. As set forth below,
we find that URC cannot make the showing it must to prevail here.
In its comments filed after receipt of the agency report (and after review
of IQ's cost proposal by a URC cost expert admitted to the protective
order here), URC calculated a total of $6.1 million in upward adjustments
($4.386 million associated with reproductions, and $1.703 million
associated with warehouse space) it argued should be made to IQ's cost
proposal. Protester's Comments, Feb. 13, 2006, at 12. Even if we assume
that URC is right in both areas, its evaluated costs would still exceed
those of IQ by approximately $1.2 million. Since the proposals here are
essentially equal, we see no reason to conclude that the agency would
select URC for award, even if IQ's proposed costs were increased as URC
contends.
In its supplemental comments--filed after receipt of detailed and
convincing rebuttal arguments from HHS and IQ in answer to certain of
URC's contentions about IQ's proposed costs--URC proffered several new
adjustments to IQ's proposed reproduction costs, not previously argued.
Specifically, URC's cost expert revised his previous assumptions regarding
the average size of reproduction orders that HHS would place with its
contractor, as opposed to placing those orders with the Government
Printing Office (GPO). (By using lower-sized average orders, URC's expert
spreads the fixed cost of each reproduction run over fewer impressions,
thereby increasing the amount of the adjustments to IQ's costs.) In
explanation, he states, "I have revised this analysis based on the
recognition, in the [IQ] original technical proposal, of limitations
resulting from regulations of the [GPO]." Protester's Supp. Comments, Mar.
7, 2006, attach. 1 at 2. Thus, URC posits alternate adjustments to IQ's
costs based on whether one assumes an average order size for reproductions
of 5,000 impressions (generating a total adjustment of $6.9 million), or
2,500 impressions (generating a total adjustment of $9.7 million). Id. at
3.
In our view, these revised calculations are, in essence, new arguments
untimely raised. Our Bid Protest Regulations require protesters to raise
issues within 10 days of the time a protester knows, or should have known,
of the basis for its protest. 4 C.F.R. sect. 21.2(a)(2) (2005). In
addition, neither our regulations, nor the statutory deadlines under which
we operate, permit the piecemeal presentation of protest arguments. See
QualMed, Inc., B-257184.2, Jan. 27, 1995, 95-1 CPD para. 94 at 13. The
agency report here was provided to the protester, and presumably to its
expert, on February 2, 2006, and the protester filed its comments 10
working days later. These supplemental arguments, raised more than 1 month
after receipt of the agency report, follow filings by the agency and IQ
that effectively rebut certain arguments found in URC's comments--for
example, URC's contention that IQ did not propose sufficient labor to
provide the reproduction services required here.[13] Moreover, the
unwarranted piecemeal nature of these arguments is highlighted by the cost
expert's admission, quoted above, that the most recent calculations are
based on reviewing anew IQ's initial proposal, which was first provided to
URC in August 2004 as part of our initial review of this procurement.
Since we conclude that URC has raised these supplemental contentions in an
untimely fashion, and since the late presentation of these contentions has
deprived the agency and IQ of a meaningful opportunity to rebut them, we
will not consider URC's revised calculations in detail. Even accepting,
however, URC's untimely contentions regarding the adjustments associated
with an average order size of 5,000 impressions, IQ would still be the
offeror with the lowest evaluated costs (given that these adjustments of
$6.9 million are less than the $7.3 million difference in proposed costs).
Furthermore, given the effective rebuttal of URC's argument regarding IQ's
labor capacity, the same observation likely would apply with respect to
URC's contentions regarding the adjustments associated with an average
order size of 2,500 impressions. The materials prepared by URC's cost
expert, however, simply do not permit the ready isolation of the amount of
the argued adjustment associated with labor capacity to allow for its use
in rebuttal.[14] Thus, we conclude that URC's arguments in its
supplemental comments are not only untimely, but do not show that those
adjustments were appropriate, or even that it was prejudiced by the
agency's decision not to make them.
In short, based on the record here, URC cannot overcome the difference in
evaluated costs to establish that it was prejudiced by any of the errors
it contends were made. Wyle Labs., Inc., B-288892, B-288892.2, Dec. 19,
2001, 2002 CPD para. 12 at 17-18.
The protest is denied.
Anthony H. Gamboa
General Counsel
------------------------
[1] Our Office has recognized that when an agency performs a cost realism
analysis, it may be appropriate to normalize certain costs in order to
achieve a greater degree of cost realism; generally, the purpose of
normalizing is to segregate cost factors which are "company unique" from
those that are generally applicable to all offerors and therefore subject
to normalization. SGT, Inc., B-281773, B-281773.4, Apr. 1, 1999, 99-1 CPD
para. 77 at 8.
[2] Source Selection Determination, Dec. 22, 2004, at 14 (showing IQ's
proposed costs as [deleted], and its evaluated costs as $61.130 million).
[3] Source Selection Determination, Dec. 22, 2004, at 14 (showing URC's
proposed costs as [deleted], and its evaluated costs as $67.274 million).
[4] For the record, and because HHS largely incorporates our earlier
findings into its current analysis, the specific errors noted in our
second decision were that: (1) IQ's technical score should be lowered from
94.4 to 92.2 to give proper effect to the selection official's decision to
eliminate the impact of the significantly lower scores given URC by one
evaluator (rather than remove the lowest score given each offeror, as the
selection official initially elected); (2) IQ's past performance score
should be lowered from 33.12 to 32.16, and URC's score lowered from 33.23
to 33.12, to correct averaging errors in the agency's past performance
review; (3) IQ's evaluated costs should be adjusted upwards by [deleted],
to capture the cost of [deleted] additional square feet of warehouse space
not accounted for in that company's proposal; and (4) URC's evaluated
costs should be lowered by [deleted], to reflect the application of URC's
lower G&A rate, rather than its subcontractor's higher rate, to an
otherwise appropriate adjustment to URC's other direct costs. Id.
[5] The original provision in the RFP stated: "Reproduce (black and
white--60 percent and color--40 percent) approximately 1.6 million pieces
(single sheets) each month during the first year of operation, with a
15-20 percent increase for each year thereafter." RFP attach. 1
(Performance Work Statement), at 29. Upon deletion of this provision,
there was no guidance in the solicitation regarding monthly amounts of
copying.
[6] During discussions, and in response to questions raised by URC, HHS
changed the terminology to describe the amount of photocopying required by
the solicitation from "pieces" to "impressions." AR, Tab 24 (RFP amend. 4,
at 1). The distinction captured by this change is not at issue in this
protest, and will not be discussed here; however, we will use the term
"impressions" from this point forward.
[7] URC refers to its pricing approach as a "cap," AR, Tab 31, at 9,
although in actuality URC's approach is more like a conditional fixed
price, as we see no indication in this record that URC will ever bill the
agency less than [deleted] per impression. Nonetheless, for ease of
reference, we will use the nomenclature adopted by URC and the agency, and
refer to this device as a fixed-price cap.
[8] G&A and fee are also added to these "caps," the agency is not billed
at these amounts. See AR, Tab 31, at 17-18.
[9] We reach a similar conclusion with respect to the RFP's technical
approach evaluation factor.
[10] This reference was deleted in its entirety by amendment 2 to the RFP,
wherein HHS revised its reproduction requirements as part of its
implementation of the corrective action taken after the court decision.
RFP amend. 2, at 2.
[11] We note that the language in the initial version of the RFP that URC
points to for support of its contention that the solicitation anticipated
fixed monthly amounts of reproduction needs was deleted by amendment 2 of
the RFP. Given the deletion of the RFP language using monthly estimates,
we do not understand why protester's counsel continues to rely upon it.
Compare Protester's Comments, Feb. 13, 2006, at 6 n.1, 14, and 15 with RFP
amend. 2 (July 13, 2005), at 2. In addition, we think URC was uniquely
placed among the offerors to understand the risk of its approach; URC's
proposed subcontractor for the reproduction work is the incumbent
providing these services. It was the incumbent that provided the agency
the historical monthly data HHS used in its cost realism analysis.
[12] Though only peripherally related to the cost realism review, we note
that URC argues that HHS conducted a disparate evaluation when it used
monthly historical data not provided in the RFP to assess URC's proposed
costs, but did not use the same data to assess the capacity of the two
offerors in the technical evaluation. Again, we disagree. There is no
evidence in this record that the agency intended to assess labor capacity,
or the capacity of the proposed reproduction equipment, with an eye
towards possible variations in the monthly reproduction workload over the
5-year period of this contract. Rather, the agency looked to whether the
labor and equipment proposed were sufficient to meet the agency's
requirements assuming an approximately steady annual amount of
reproduction over the life of the contract, and reasonably concluded that
they were. Under the circumstances here, where a unique proposed pricing
approach, unforeseen and unrequested by the agency, reasonably triggered
an attempt to consider the cost implications of that cost proposal, we see
no reason the agency had to export that tailored cost analysis approach to
its technical evaluation.
[13] Specifically, URC argued in its comments that IQ proposed only one
shift of labor, and that in the option years, the quantity of reproduction
services could not be accomplished on IQ's machines in the course of a
single 8-hour shift per workday. HHS pointed out that IQ had, in fact,
proposed [deleted] employees to perform these services, and was silent in
its proposal on the subject of shifts. Given that the reproduction
services were located in a warehouse that was available to the agency 24
hours per day, the agency and IQ pointed out that the company retained the
management discretion to use the proposed employees in [deleted] shifts,
if needed, to meet the agency's reproduction needs. Supp. CO's Statement
at 5. In addition, HHS and IQ pointed out the restrictive nature of many
of the assumptions employed by URC's cost expert to make the argument that
the reproduction work would require more than one shift of labor on IQ's
reproduction equipment. We have reviewed these assumptions and think they
undercut the credibility of URC's arguments; they do not establish that
the agency acted unreasonably in accepting IQ's proposed costs.
[14] IQ also noted the difficulty in isolating the costs associated with
different adjustments in the materials prepared by URC's cost expert. IQ's
Supp. Comments, Mar. 7, 2006, at 10.