TITLE: Northrop Grumman Information Technology, Inc.; Broadwing, B-295526; B-295526.2; B-295526.3; B-295526.4; B-295526.5; B-295526.6;, March 16, 2005
BNUMBER: B-295526; B-295526.2; B-295526.3; B-295526.4; B-295526.5; B-295526.6;
DATE: March 16, 2005
**********************************************************************
Decision
Matter of: Northrop Grumman Information Technology, Inc.; Broadwing
Communications LLC; Level 3 Communications, Inc.; Qwest Government
Services, Inc.; MCI WORLDCOM Communications, Inc.
File: B-295526; B-295526.2; B-295526.3; B-295526.4; B-295526.5;
B-295526.6; B-295526.7; B-295526.8; B-295526.9; B-295526.10
Date: March 16, 2005
John C. Chierichella, Esq., Anne B. Perry, Esq., Jonathan S. Aronie, Esq.,
CharmaineA A. Howson, Esq., and Jaime H. Weinberg, Esq., Sheppard Mullin,
for Northrop Grumman Information Technology, Inc.; Camron S. Hamrick,
Esq., MarciaA G. Madsen, Esq., David F. Dowd, Esq., Adrian L. Steel, Jr.,
Esq., William L. Olsen, Esq., and Michael J. Farley, Esq., Mayer, Brown,
Rowe & Maw, for Broadwing Communications LLC; Rand L. Allen, Esq., John A.
McCullough, Esq., James T. Bruce, III, Esq., and John W. Kuzin, Esq.,
Wiley Rein & Fielding, for Qwest Government Services, Inc.; David A.
Churchill, Esq., Kevin C. Dwyer, Esq., HeatherA M. Trew, Esq., and David
B. Robbins, Esq., Jenner & Block, for MCI WORLDCOM Communications, Inc.;
Shelly L. Ewald, Esq., Timothy H. Heffernan, Esq., Todd R. Metz, Esq., and
Julie L. Gentry, Esq., Watt, Tieder, Hoffar & Fitzgerald, for Level 3
Communications LLC, the protesters.
Richard J. Conway, Esq., David N. Adler, Esq., Scott Arnold, Esq., Austi
Fulk, Esq., and Lynne DeSarbo, Esq., Dickstein, Shapiro, Morin & Oshinsky,
for AT&T, an intervenor.
Lori R. Larson, Esq., David A. Ingold, Esq., Holly L. Hagen, Esq., and
John T. Kirsch, Esq., Internal Revenue Service, Department of the
Treasury, for the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest is sustained where Department of Treasury negotiated during
procurement for network services a memorandum of understanding (with the
Office of Management and Budget and General Services Administration's
Federal Technology Service) that significantly changed the approach set
forth in solicitation and Federal Acquisition Regulation to determining
whether to exercise the options, making it significantly less likely that
the options would be exercised, and thus materially altering the basis
upon which offerors prepared their proposals.
DECISION
Northrop Grumman Information Technology, Inc., Broadwing Communications
LLC, Level 3 Communications LLC, Qwest Government Services, Inc., and MCI
WORLDCOM Communications, Inc. protest the Department of the Treasury,
Internal Revenue Service's (IRS), award of a contract to AT&T, under
request for proposals (RFP) No. TIRNO-04-R-00001, for the Treasury
Communications Enterprise (TCE) network. The protesters challenge the
evaluation of proposals and several other aspects of the procurement.
We sustain the protests.
b) No compromise of continuity;
c) Strict adherence to the post-award schedulea**a**neither ahead of nor
behind schedule will be acceptable to the Government.
SOW S C.3.2.1.
Award was to be made to the responsible offeror whose proposal was most
advantageous and represented the best overall value to the government
based upon consideration of price and five non-price criteria: (1)
transition, including whether the proposed transition and implementation
approach demonstrates a comprehensive, sound, and reasonable approach to
ensuring a seamless transition of all sites to the TCE network,
demonstrates successful experience in transitioning networks of similar
size and complexity, minimizes disruption to business operations,
mitigates risk, demonstrates a thorough understanding of the requirements,
and assumes responsibility for government equipment so as to reduce the
burden to the government for removal of equipment from the government
inventory; (2)A technical requirements for managed services, including
whether the proposal demonstrates a comprehensive, sound, and reasonable
approach to providing fully managed WAN services, and whether the approach
to continuity of operations and disaster recovery is reasonable and
effective, demonstrating redundancy, resiliency, and ability to provide
uninterrupted service, as well as the demonstrated ability to recover from
unavoidable service disruptions; (3)A operations and management approach
to managed services; (4) corporate experience and past performance; and
(5) small business participation/subcontracting plan.
The RFP provided with respect to price that, in addition to completing the
ScheduleA B pricing tables furnished with the solicitation, the offeror
was to "develop a model delivery order(s) showing their quantities of each
Section B CLIN [Contract Line Item Number] needed to support its proposed
TCE solution for each of the first 10A years." RFP S L.10.4. In this
regard, the solicitation advised that
[f]or purposes of an award decision, an evaluated price will be derived
from the Model Delivery Order(s). The proposed prices for all items,
including those in the Model Delivery Order(s) and other proposed items,
will also be evaluated for price reasonableness through comparison with
other proposed prices, other contract vehicles, as well as through other
price analysis techniques. The Model Delivery Order(s) will also be
evaluated for consistency with the Managed Services proposal.
RFP S M.3.5. The solicitation further advised that price proposals would
be "evaluated for accuracy, completeness, and reasonableness," and "to
determine if prices are realistic for the work to be performed, reflect a
clear understanding of the requirements, and are consistent with Offeror's
Managed Services proposal." Id.
Transition was more important than the other non-price factors when
considered individually; technical approach and program operations and
management were equal in weight; past performance and small business
participation were equal in weight and less important than all other
factors. When combined, the non-price factors were approximately equal to
price in importance.
Seven proposals were received by the closing time on July 14. Based on
its evaluation of initial proposals, Treasury determined that discussions
were not required. The evaluation results, as set forth in the October 15
Source Selection Advisory Committee (SSAC) briefing and in the Source
Selection Decision Document (SSDD) signed at the conclusion of the SSAC
briefing, were as follows:
+--------------------------------------------------------------------------+
|A |Northrop |MCI |Qwest |Broadwing|Level 3 |AT&T |
|--------------+---------+---------+---------+---------+------------+------|
|Non-Price |A |A |A |A |A |A |
|--------------+---------+---------+---------+---------+-------------------|
|A |Transition |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Technical |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Operations |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
| |and | | | | | | |
| |Manage-ment| | | | | | |
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Experience/|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
| | | | | | | | |
| |Past | | | | | | |
| |Performance| | | | | | |
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Small |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
| |Business | | | | | | |
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Summary |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
| |Rating | | | | | | |
|--------------+---------+---------+---------+---------+-------------------|
|Price |A |A |A |A |A |A |
|--------------+---------+---------+---------+---------+-------------------|
|A |Proposed |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
|--+-----------+---------+---------+---------+---------+---------+---------|
|A |Evaluated |[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|[DELETED]|
|--+-----------+---------+---------+---------+---------+---------+---------|
+--------------------------------------------------------------------------+
The summary evaluation in the SSAC briefing and SSDD indicated that
[DELETED] had taken exception to the required performance measures and
service levels, rendering its technical approach unacceptable, and had
conditioned its pricing such that its prices were actually
timea**anda**materials charges rather than fixed prices. The SSAC
briefing stated that [DELETED] had only priced [DELETED] percent of the
locations. As for [DELETED], the SSAC briefing stated that it "did not
provide pricing for all locations. Pricing is missing for [DELETED]% of
sites, many of which are high capacity category 1 locations." SSAC
Briefing atA 22. The SSDD, prepared for and signed by the source
selection authority (SSA), stated that award to AT&T without discussions
was justified on the basis that AT&T's proposal was the low-priced and the
highesta**rated, being the only one to receive better (or higher) ratings
on all non-price evaluation factors. Award was made to AT&T on
DecemberA 3. Upon learning of the award, the protesters filed these
protests with our Office.
Memorandum of Understanding
On December 2, the day before the award to AT&T, the Chief Information
Officer for Treasury (Treasury CIO), the Commissioner of the General
Services Administration's (GSA) Federal Technology Service (FTS), the
Administrator of the Office of Management and Budget's (OMB) Office of
Federal Procurement Policy (OFPP), and the Administrator of OMB's Office
of Electronic Government (E-Government) signed a memorandum of
understanding (MOU) regarding the possible migration of Treasury's TCE
requirements to the forthcoming GSA FTS-Networx telecommunications
services contract at the expiration of the 3-year TCE base period.
The protesters assert that the MOU represented a fundamental and material
change in the manner in which the determination whether to exercise the
options would be made, and that it was unreasonable to require offerors to
prepare their proposals without disclosing this information. We agree
with the protesters.
MOU Negotiations
The record, including testimony at the hearing our Office conducted in
this matter, indicates that GSA FTS, OFPP and Congressional sources made
clear to Treasury prior to award of the TCE contract that they disapproved
of its proceeding with the TCE contract effort rather than meeting its
network requirements under the forthcoming government-wide GSA FTS-Networx
telecommunications services contract. In this regard, approximately 2
weeks after the Treasury CIO assumed his position in the middle of June
2004, he was advised by the GSA FTS Commissioner of GSA's disappointment
that it would not have an opportunity to satisfy Treasury's TCE
requirements. Hearing Transcript (Tr.) at 442a**43. Shortly thereafter,
the Treasury CIO learned that there was "a great deal of consternation" at
OMB over Treasury's TCE initiative. Tr. at 444-45. Similarly, the record
suggests that there was Congressional concern that, by seeking to satisfy
its network requirements under its own contract, Treasury was diluting the
government's buying power in the marketplace and undercutting GSA's
Networx contract. Tr. at 445-46, 452, 558-59.
In response to these concerns, the Treasury CIO met with the OFPP
Administrator in September and suggested that the point when Treasury
starts considering options would "be a good time for us to look at and
consider whatever it is that GSA has on the table." Tr. at 449-51. The
OFPP Administrator responded that "we think we can live with that, but we
want something in writing." Tr. atA 450. Approximately 1 week later, the
Treasury CIO and the FTS Commissioner met and assigned Treasury and GSA
teams the task of preparing "something that will allow us to be able to
work together collaboratively, that will allow us to be able to assess and
evaluate whether Treasury, assuming that we had put into place TCE and
assuming that GSA had put into place Networx, would be in a position where
we could do an evaluation or assessment, make a determination which was
the better value for the government." Tr. atA 451.
An initial draft of the MOU, prepared by Treasury, provided that Treasury
would transition its network requirements from TCE to the GSA contract
vehicle at the completion of a "cost benefit analysis, if the analysis
determines that the FTS contract vehicle is more advantageous for the
Treasury." E-mail from SSA to the SSAC Chairman/Director of IRS
Procurement, Oct. 1, 2004. However, an October 22 draft prepared by GSA
instead described the purpose of the MOU as "defin[ing] the steps both GSA
and the Department of Treasury will take to efficiently migrate current
and future TCE requirements to the government-wide Networx program."
Ea**mail from GSA FTS Crossover Manager, Oct. 22, 2004. The SSAC
Chairman/Director of IRS Procurement has stated that this provision for
definitely transitioning Treasury's network requirements to a GSA contract
vehicle,
would represent a fundamental change in the TCE Request For Proposals and
that if such language was to be included in the MOU, the solicitation
would be amended to notify offerors of such a change and to appropriately
allow the offerors the opportunity to modify their proposals.
Declaration of TCE Program Manager/Technical Chairman, Jan. 19, 2005. The
Treasury CIO testified that he viewed GSA's revision of the MOU to be a
"breach" and inconsistent with a "cooperative agreement." Tr. at 453-54.
The MOU was subsequently revised to provide for a "best value" analysis to
determine whether Treasury would transition its network requirements to
the forthcoming FTS-Networx contract. After being reviewed by
Congressional staff, the MOU was signed. The TCE contract was then
awarded to AT&T. Tr. at 456-59, 509; Declaration of SSAC
Chairman/Director of IRS Procurement, Jan. 19, 2005.
MOU Provisions
The stated purpose of the final MOU is as follows:
establishes the roles and responsibilities of [GSA FTS and Treasury]
pursuant to determining if the Department of Treasury should migrate its
[TCE] requirements to the Government-wide Networx upon expiration of the
TCE contract base period and the award of FTSa**Networx.
MOU at 1. The MOU provides that GSA FTS and Treasury agree: to include
Treasury in Networx planning activities; to "[i]dentify requirements and
priorities relevant to current and future TCE needs to be included in the
Networx RFPs"; to allow Treasury to "[p]articipate in government-wide
Networx transition activities"; to exchange TCE and Networx contract
information; and to "reach agreement on common performance metrics and the
methodology for defining *total cost of ownership.'" MOU at 3-4. In this
regard, the MOU specifically provided that "[t]ransition costs will not be
factored into the cost analysis performed." MOU at 3.
Treasury and GSA FTS further agreed to "work together to conduct a best
value analysis, using the methodology agreed to in this MOU, in order to
determine whether exercising the TCE option years or transitioning to
FTS-Networx are in the best interest of the Government." Id. In this
regard, the MOU specifically provided that Treasury "agrees to . . .
transition to FTSa**Networx at the completion of the best value analysis
if the analysis determines that use of FTS-Networx is in the best interest
of the government." MOU at 4. Further, according to the MOU, "if
Treasury and GSA cannot come to agreement or reasonable determination as
to best value, Treasury and GSA jointly will present their business case
to OMB for adjudication." MOU at 3.
The contracting officer may exercise options only after determining that--
(1) Funds are available;
(2) The requirement covered by the option fulfills an existing Government
need;
(3) The exercise of the option is the most advantageous method of
fulfilling the Government's need, price and other factors (see paragraphs
(d) and (e) of this section) considered; and
(4) The option was synopsized in accordance with Part 5 unless exempted .
. . .
FAR S 17.207(c). Further, the TCE solicitation itself provided that the
option exercise decision would focus on the quality of the contractor's
performance. Specifically, the RFP provided that
TCE is a performance-based contract with a two-tiered incentive schema.
The first tier is based on Contractor performance reflected in a balanced
annual scorecard that will be used to determine whether option years will
be exercised, and the second tier links Contractor performance to the
Contractor's allowable invoice charges on a monthly basis.
RFP S F.3. The scheme as set forth in the RFP was quite elaborate. Under
the second tier of the scheme, the contractor's monthly invoices were
subject to reduction in the event of poor performance as measured against
such performance measures as service capacity installation/upgrade time,
scheduled installation success rate, and compliance with site specific
service requirements. The first tier of the scheme, that is, the "annual
scorecard that will be used to determine whether option years will be
exercised," id., consisted of a 12a**month total score of the monthly
performance scorecard and the average result of an annual customer
survey. The RFP linked the exercise of options to the quality of the
contractor's annual performance as follows:
RFP S F.4.[1]
The MOU departed from both the FAR framework and the RFP scheme by
providing that Treasury and GSA FTS would work together to conduct a
besta**value analysis using the methodology agreed to in the MOU, to
determine whether exercising the TCE options or transitioning to
FTS-Networx would be in the best interest of the government, rather than
focus on the TCE contractor's performance record. The provision for OMB
to adjudicate any ultimate disagreement between Treasury and GSA if they
cannot come to agreement as to best value constitutes a further
departure. Although the Treasury CIO testified that Treasury nevertheless
would retain the ultimate authority over the exercise of the TCE options,
Tr. atA 489a**92, the MOU unambiguously indicated otherwise. As the SSA
testified, the decision under the MOU as to whether to exercise the TCE
options will be "a joint decision that should be reached between GSA and
the Department of Treasury," and in the event of a disagreement between
the two, OMB will "make the final decision." Tr.A atA 234a**35.[2] By
including in the option exercise decision process the GSA FTS Commissioner
and the OFPP Administratora**a**who were of the view that the best
interest of the government was to be found in concentrating the
government's buying power, and satisfying Treasury's network requirements,
under GSA's Networx program, and not under a separate Treasury
contracta**a**the MOU made the exercise of the options significantly less
likely. Likewise, the MOU also made exercise of the options less likely
by providing that the best value determination would focus not on
Treasury's best interest, but on the best interest of the government as a
whole, presumably including GSA and its Networx contract
initiative.[3]
In view of the significant costs and risks associated with transitioning
Treasury's network requirements, the technical evaluation team recommended
that, in considering whether to transition from TCE to Networx: "Any cost
comparison in 3A years must be against total costs. The cost of
transition from TCE to Networx must be included. . . . The risk to
business operations during transition must be included." E-mail from
Chairman Technical Evaluation Team to TCE Program Manager, Sept. 22, 2004;
Tr. at 277-80. In this regard, the monetary costs of any transition were
expected to be significant, amounting to "[m]illions of dollars, millions
and millions of dollars." Tr. at 105.
Notwithstanding the magnitude of the likely transition costs in the event
of a transition of Treasury's network requirements to another, Networx
contractor, the MOU precluded consideration of transition costs of all
types when determining whether to exercise options. Specifically, while
the initial draft of the MOU did not address whether the contemplated
besta**value analysis would include consideration of transition costs, the
final MOU was amended to provide that "[t]ransition costs will not be
factored into the cost analysis performed." MOU at 3. (According to the
SSA, the term "transition costs" includes a variety of costs, including
the "costs of disruption to ongoing operations when you change vendors."
Tr. atA 103-05.) Although the SSA recognized that "there were people at
the program level that felt very strongly that the transition costs should
be included . . . to basically include all costs," he ultimately concluded
that
what we needed to doa**a**I hate to use this worda**a**but was to appease
GSA to get on with it so we could award this contract. I did not think
that including thea**a**whether we included the transition costs or
nota**a**that GSA could be competitive with our procurement.
Tr. at 89. Likewise, according to the Treasury CIO, GSA "argued
strenuously" against including transition costs in the besta**value
analysis, and it was necessary to exclude their consideration as a
"concession" to GSA. Tr. at 500-01, 534. Similarly, according to the
SSAC Chairman/Director of IRS Procurement, excluding consideration of
transition costs also served to "placate OMB." Tr. atA 291. Omission of
transition costs--a factor that clearly would have weighed in favor of
exercising the options--from the besta**value determination under the MOU
served to further erode the likelihood that the options would be
exercised.
Failure to Amend Solicitation
Where an agency's requirements change after a solicitation has been
issued, the agency must issue an amendment to notify offerors of the
changed requirements and afford them an opportunity to respond. FAR
15.206(a); Symetrics Indus., Inc., Ba**274246.3 et al., Aug. 20, 1997,
97-2 CPD P 59 at 6. An agency must amend the solicitation to reflect a
significant change in the government's requirements, even after the
submission of final proposal revisions, up until the time of award.
Digital Techs., Inc., B-291657.3, Nov. 18, 2004, 2004 CPD P __ at __; NV
Servs., Ba**284119.2, Feb. 25, 2000, 2000 CPD P 64 at 17; see United Tel.
Co. of the Northwest, Ba**246977, Apr. 20, 1992, 92-1 CPD P 374 at 7-9,
affd, Department of Energy et al., Ba**246977.2 et al., July 14, 1992,
92-2 CPD P 20; cf. Occua**Health, Inc., B-270228, Ba**270228.3, Apr. 3,
1996, 96-1 CPD P 196 at 4 (procuring agency improperly failed to notify
offerors that it no longer intended to exercise or evaluate the
solicitation's options where it knew this fact prior to the receipt of
best and final offers). Amending the solicitation provides offerors an
opportunity to submit revised proposals on a common basis that reflects
the agency's actual needs. Dairy Maid Dairy, Inc., B-251758.3 et al.,
MayA 24, 1993, 93-1 CPD P 404 at 7- 9.
Here, the MOU significantly changed the approach to determining whether to
exercise the TCE options in ways that, in total, made it significantly
less likely that the TCE options would be exercised. In fact, in light of
all of the information in the record indicating that all of the other
government entities that would be involved in the option exercise decision
believed that Treasury's requirement should transition to the GSA Networx
contract, it appears that the MOU made it more likely that the options
would not be exercised than that they would. This represented a material
change to the basis upon which offerors prepared their proposals.[4]
Treasury thus was required to advise offerors of the new approach to
determining whether to exercise the TCE options and provide them an
opportunity to submit revised proposals on a common basis that reflects
the agency's actual needs. Accordingly, we sustain the protest on this
basis.
Price Evaluation
The protesters challenge the agency's price evaluation, asserting that the
evaluated pricing as reported to the SSA did not reasonably reflect the
likely cost to the government of the various proposals. In this regard,
the protesters assert that AT&T failed to comply with the solicitation
requirement to propose fixed prices; that AT&T submitted an ambiguous
price proposal; and that the resulting evaluated price understated the
likely costs to be incurred under AT&T's proposal. In addition, several
of the protesters challenge the evaluated costs attributed to their
proposals.
The RFP required offerors to complete Schedule B pricing tables with local
loop prices for different increments of bandwidth for each of the agency's
sites in the three categories of sites (Category 1, 2 and 3); network
transport prices for each class of service (CoS 1, 2, and 3) and category
of site for each increment of bandwidth; and fixeda**price labor rates
(with estimated quantities) for special projects to be priced on a
timea**and-materials basis. In addition, offerors were to price specific
enhanced services, including managed firewall, intrusion protection, and
virus protection, and encrypted links between IRS data centers. Offerors'
prices were required to be "fully loaded fixed unit prices, inclusive of
all allowances, taxes, surcharges, fees or other applicable price
adjustments." RFP S L.10.4.
Of particular importance for these protests, in addition to completing the
Schedule B pricing tables furnished with the solicitation, each offeror
was required to develop a model delivery order (MDO), from which the
offeror's evaluated price would be derived, "showing quantities of each
Section B CLIN needed to support its proposed TCE solution for each of the
first 10 years." RFP SA L.10.4. The solicitation advised that price
proposals would be "evaluated for accuracy, completeness, and
reasonableness," and "to determine if prices are realistic for the work to
be performed, reflect a clear understanding of the requirements, and are
consistent with Offeror's Managed Services proposal." RFP S M.3.5.
Agencies generally are required by the Competition in Contracting Act of
1984 (CICA) to include cost or price as a significant factor in the
evaluation of proposals. 41 U.S.C. S 253a(c)(1)(B) (2000); FAR
SA 15.304(c)(1); Kathpal Techs., Inc.; Computer & Hi-Tech Mgmt., Inc.,
Ba**283137.3 et al., Dec. 30, 1999, 2000 CPD P 6 at 9. While agencies
have considerable discretion in determining the particular method used in
evaluating cost or price, that method should, to the extent possible,
accurately measure the cost to be incurred under competing proposals.
Eurest Support Servs., B-285813.3 et al., July 3, 2001, 2003 CPD P 139 at
7; Lockheed, IMS, B-248686, Sept.A 15, 1992, 92-2 CPD P 180 at 6. Where a
source selection decision is based on figures that do not reasonably
represent the difference in costs to be incurred under competing
proposals, the source selection is not reasonably based. See Preferred
Sys. Solutions, Inc., Ba**292322 et al., Aug. 25, 2003, 2003 CPD P 166 at
9; Gemmo Impianti SpA, B-290427, Aug. 9, 2002, 2002 CPD PA 146 at 5-6.
Based upon our review of the record, we find that the agency's price
evaluation understated the cost of AT&T's proposal and otherwise was
unreasonable. We discuss some examples below.
AT&T Local Loop Pricing
As an initial matter, we agree with the protesters that the local loop
pricing in AT&T's MDO did not reasonably reflect the prices to be paid
under the contract as set forth in AT&T's Schedule B pricing tables. In
this regard, the price evaluation report for AT&T stated that AT&T's
"Section B, CLIN prices, do not readily correspond to the unit prices used
to derive the evaluated price in the [MDO]," such that the evaluator was
"unable to determine that the evaluation price for the local loop pricing
was correctly computed." AT&T Price Evaluation Report, Aug. 16, 2004, at
6-7. The evaluation report concluded as follows:
While well prepared, AT&T's price proposal still contains some errors and
ambiguities that need clarification, the most significant being the local
loop prices in its [MDO] which constitutes approximately [DELETED] of the
total [MDO] price. Upon adequate resolution of these issues and concerns,
a technical evaluation of the Offeror's price proposal should be completed
as part of the cost realism review.
Id. at 8.
The record indicates that the uncertainty with respect to whether AT&T's
MDO price, upon which its pricing was evaluated for award, accurately
corresponded to the solicitation Schedule B tables, under which AT&T would
be paid during contract performance, resulted in part from the fact that
[DELETED].[5]
Treasury, on the other hand, notes that AT&T's [DELETED].
We find Treasury's evaluation of AT&T's local loop pricing to be
unreasonable. Treasury has not explained, nor is it otherwise apparent,
why AT&T in performing the TCE contract would not be justified in pricing
requested service at a Category 1 site under the corresponding Category 1
entry in its contract table B-2, and pricing requested service at a
Category 2 site under the corresponding Category 2 entry in its contract
table B-2 [DELETED]. Since AT&T's MDO pricing was lower than the
corresponding Schedule B [DELETED] pricing [DELETED], the evaluated price
reported to the SSA, which was based upon the MDO pricing, was
unreasonable. As for whether AT&T's Category 1 entry in its contract
table B-2 [DELETED], we find the proposal in this regard at best
ambiguous; the B-2 table references [DELETED] do not unambiguously
indicate that [DELETED].
yatNumber of Sites
The evaluated prices as reported to the SSA improperly failed to reflect a
common number of sites to be serviced. Treasury reports that the
solicitation attachment listing 1,042 Treasury sites for which service was
required included a number of errors. Second Agency Report atA 20. As a
result, and as recognized in Treasury's price evaluation reports,
offerors' MDOs were based on different total numbers of sites to be
served, as well as different numbers of high bandwidth Category 1, lesser
bandwidth Category 2, and least bandwidth Category 3 sites, as follows:
+------------------------------------------------------------------------+
|A |Category 1 |Category 2 |Category 3 |Total |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |70 |63 |862 |995 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |73 |66 |916 |1,055 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |63 |76 |857 |996 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |58 |83 |855 |996 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |61 |77 |828 |966 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |54 |59 |850 |963 |
|--------------+---------------+---------------+---------------+---------|
|[DELETED] |102 |117 |618 |837 |
+------------------------------------------------------------------------+
However, notwithstanding the significant differences with respect to the
total number of sites and numbers of sites within each category in the
offerors' MDOs, Treasury did not adjust offerors' proposed prices so as to
ensure that the evaluated prices reflected a common number of sites to be
serviced. For example, Treasury did not adjust [DELETED]'s evaluated
price upward notwithstanding the fact that, by Treasury's own calculation,
[DELETED] had excluded from its MDO pricing [DELETED] sites for which
service was required. Based upon the assumption that the omitted sites
were a representative sample of the total universe of sites, and because
the [DELETED] sites represented approximately [DELETED] percent of the
1,042 sites listed in the agency attachment, Treasury reports that it
determined that the [DELETED] omitted sites warranted an upward adjustment
to [DELETED]'s proposed price of between [DELETED] (a [DELETED]A percent
increase in [DELETED]'s proposed price) and [DELETED]. Second Agency
Report at 20, 42a**43; Tr. atA 657-59, 777-79. However, although the SSA
had specifically questioned the TCE Program Manager/Technical Chairman as
to whether [DELETED]'s price was complete, the SSA was not advised of this
required upward evaluated price adjustment, with the result that the SSA
erroneously concluded that no changes in [DELETED]'s proposal were
required. Tr. at 782, 1253, 1349. In our view, Treasury's failure to
base the evaluated prices for all offerors on a common number of sites to
be serviced was unreasonable.
In addition, it appears the SSAC briefing presented to the SSA, and the
draft SSDD prepared for the SSA, were misleading in the characterization
of [DELETED]'s price proposal as it related to the number of sites
priced. The SSAC briefing did not include an evaluated price for
[DELETED] on the basis that [DELETED] "did not provide pricing for all
locations. Pricing is missing for [DELETED]% of sites, many of which are
high capacity category 1 locations." SSAC Briefing atA 22. Likewise,
while the draft SSDD prepared for the SSA specified as the evaluated price
for [DELETED] its proposed price, it stated that [DELETED] would not be
able to lower its prices because it had "failed to price [DELETED]A sites,
the majority of those sites were the Class of Service 1 sites, which are
the highest in price." SSDD at 7. In contrast, [DELETED]'s price
proposal was described as "complete and accurate." Id. In fact,
[DELETED]'s MDO pricing included [DELETED] sites, only [DELETED]A fewer
than [DELETED]'s MDO pricing. In our view, the respective
characterizations of [DELETED]'s and [DELETED]'s price proposals did not
reasonably reflect the extent of the similarity between [DELETED]'s and
[DELETED]'s pricing.[6]
AT&T [DELETED]
The record further indicates that AT&T failed to propose the required
fixed prices. As noted above, offerors were required to propose "fully
loaded fixed unit prices, inclusive of all allowances, taxes, surcharges,
fees or other applicable price adjustments." RFP S L.10.4. AT&T's price
proposal, however, stated as follows:
[DELETED]
AT&T Price Proposal, S C.2.1.2. Since AT&T's prices were [DELETED], it is
clear that AT&T failed to offer the required "fully loaded fixed unit
prices, inclusive of all allowances, taxes, surcharges, fees or other
applicable price adjustments." RFP SA L.10.4. Indeed, in response to
[DELETED]'s similar [DELETED], the agency's price analysis report for
[DELETED] stated that "[t]his is contrary to the Solicitation requirement
for fixed prices." [DELETED] Price Evaluation Report at 16. Treasury
nevertheless accepted AT&T's pricing as proposed, characterizing the
pricing as "complete and accurate," SSDD at 7, and made no adjustments in
this regard in the evaluated price reported to the SSA. This failure to
account for the conditional nature of AT&T's pricing was unreasonable.
AT&T Increase in Bandwidth
The RFP required that offerors "assume 5% growth in bandwidth capacity per
site per year for each year of the TCE contract." RFP S L.10.4.
Although AT&T generally referred in its proposal to [DELETED], AT&T Price
Proposal, S C.2.2.3, Treasury's price evaluation report for AT&T indicated
that "[w]e are unable to verify if the 5% growth in bandwidth capacity
each year . . . were implemented in" AT&T's MDO. AT&T Price Evaluation
Report, Oct. 8, 2004, at 2. Treasury maintains that it was reasonable to
assume that AT&T in fact complied with the bandwidth growth requirement on
the basis that [DELETED]. Treasury concedes, however, that it was unable
to ascertain from AT&T's MDO, and thus did not in fact determine, whether
AT&T's MDO pricing in fact reflected the required "5% growth in bandwidth
capacity per site per year for each year of the TCE contract." RFP S
L.10.4; Tr. at 661-64, 870a**72. In these circumstances, where [DELETED],
we find that Treasury lacked a reasonable basis for concluding that AT&T's
MDO pricing took this requirement into account.
Months in First Contract Year
As noted in the price evaluation reports for the protesters, while AT&T's
MDO was based on a first contract year consisting of 9 months, the
protesters' MDOs, incorrectly in the agency's view, were based on a first
contract year consisting of 12A months. Level 3 Price Evaluation Report
at 4; MCI Price Evaluation Report at 7; Broadwing Price Evaluation Report
at 6; NG Price Evaluation Report at 4; Qwest Price Evaluation Report at
6. However, the evaluated prices for the protesters in the SSAC briefing
and SSDD did not reflect the necessary reduction to ensure evaluation on a
common basis, that is, on the basis of a 9-month first contract year. In
its report responding to the protests, Treasury has calculated the
resulting reduction in the protesters' first year pricing as no more than
a 25 percent decrease, and more likely only a 10 to 15A percent reduction
(because vendors typically amortize transition costs over the first 18
months of any contract). Second Agency Report atA 44. Even if the error
is at the lower end of this range, we find that Treasury's failure to
properly take into account in the evaluated prices reported to the SSA the
offerors' differing assumptions as to the length of the first contract
year was unreasonable.
Price Realism
The protesters assert that Treasury did not reasonably evaluate the
realism of AT&T's prices. In this regard, the solicitation provided that
price proposals would be evaluated "to determine if prices are realistic
for the work to be performed, reflect a clear understanding of the
requirements, and are consistent with Offeror's Managed Services
proposal." RFP SA M.3.5.
Where, as here, an RFP contemplates the award of a fixed-price contract,
the agency generally is not required to conduct a realism analysis; this
is because a fixed-price (as opposed to a cost-type) contract places the
risk and responsibility for loss on the contractor. WorldTravelService,
B-284155.3, Mar. 26, 2001, 2001 CPD P 68 at 3; PHP Healthcare Corp.,
B-251933, May 13, 1993, 93-1 CPD P 381 at 5. However, an agency may, as
the agency did here, provide for the use of a price realism analysis for
the limited purpose of measuring offerors' understanding of the
requirements or to assess the risk inherent in an offeror's proposal. PHP
Healthcare Corp., supra. The nature and extent of a price realism
analysis ultimately are matters within the sound exercise of the agency's
discretion, and our review of such an evaluation is limited to determining
whether it was reasonable and consistent with the solicitation's
evaluation criteria. Cortez, Inc., B-292178 et al., July 17, 2003, 2003
CPD P 184 atA 3; Rodgers Travel, Inc., B-291785, Mar. 12, 2003, 2003 CPD P
60 at 4.
Here, the agency's contemporaneous documentation of the evaluation of
whether AT&T's prices were realistic included little more than the
conclusion in the SSDD that AT&T's proposed prices "are determined
reasonable and realistic," and a brief mention of AT&T in the agency's 1
and 1/3-page Summary of Price Feasibility for all offerors, as follows:
AT&T
AT&T's solution [DELETED]. The price appears to accurately reflect the
costs associated with [DELETED].
Summary of Price Feasibility at 2. In its report to our Office on the
protests, Treasury states that the agency reviewed each proposal "at a
high level across fourA broad factors," including the offeror's current
assets and capabilities, what the offeror planned to build, what the
offeror planned to integrate from teaming partners, and what the offeror
planned to buy. Second Agency Report at 13-14. When asked at the hearing
to explain the price realism evaluation of AT&T's proposal, the TCE
Program Manager/Technical Chairman cited the above four-factor approach
and generally referred to the fact that (1) AT&T [DELETED]. Tr. at
718-22, 1123a**30.
However, neither the TCE Program Manager/Technical Chairman in his
testimony, nor the agency otherwise, furnished any details as to how the
agency concluded that AT&T's prices reasonably reflected its likely costs
of furnishing [DELETED]. The apparent conclusion that AT&T had a viable
approach to performing the contract did not indicate that the prices
proposed for that approach were realistic. Thus, we find that the agency
procurement record does not show that the agency undertook a reasonable
price realism evaluation.
CONCLUSION
We sustain the protests on the basis that the changes introduced in the
MOU relative to the approach to option determination set forth in the
solicitation and the FAR, made it significantly less likely that the TCE
options would be exercised, thus materially altering the basis upon which
offerors prepared their proposals. We also sustain the protests on the
basis that the agency's price evaluation was unreasonable in that it
understated the cost of AT&T's proposal, failed to account for ambiguities
in AT&T's proposal, and failed to ensure that the price evaluation was on
a common basis.[7]
We recommend that the agency amend the solicitation to reflect its actual
approach to option determination, open discussions with all offerors,
obtain revised proposals, and evaluate the revised proposals in a manner
consistent with the solicitation requirements.[8] If Treasury determines
that an offeror other than AT&T has submitted the besta**value proposal,
the agency should terminate AT&T's contract and make award to that other
offeror. We also recommend that the agency reimburse the protesters their
costs of pursuing this protest, including reasonable attorneys'
fees. 4A C.F.R S 21.8(d) (2004). The protesters should submit their
certified claims for costs, detailing the time expended and the costs
incurred, directly to the contracting agency within 60 days of receipt of
this decision. 4 C.F.R. SA 21.6(f)(1).
The protests are sustained.
Anthony H. Gamboa
General Counsel
------------------------
[1] In his testimony, the SSA conceded the paramount role of the
contractor's performance in the determination of whether exercise of the
options is the most advantageous method of fulfilling the government's
needs:
Question: And [offerors] could believe that if the funding was there and
the needs were there and they performed well, that they would have a high
likelihood of the options being exercised?
. . . .
Answer: I think it's reasonablea**a**at least in my opinion, it was
reasonable for a vendor to assume that if they performed based on the
metrics that were provided, that they would have an increased likelihood
of exercising those out years anda**a**provided that there was
availability of funding, which is always a key driver, and that the
requirement stayed the same for the Federal Government.
. . . .
But based on a status quo, based on excellent performance, a vendor could
reasonably bea**a**bea**a**you know, could assume that they would have a
very high likelihood of having those option years exercised by the
Government.
Tr. at 167-69.
[2] The Treasury CIO has testified that he did not intend to act
inconsistently with the requirements of the FAR with respect to the
exercise of options. Tr. at 498-99, 591. Nevertheless, the MOU, on its
face, was inconsistent with the requirements of the FAR in that the MOU
provided for adjudication by OMB. Moreover, the Treasury CIO also
testified that he considered the MOU "binding" and that he and all
Treasury personnel under his authority will "comply with the MOU as
written." Tr. at 531-32, 544.
[3] The Treasury CIO testified that he understood the MOU besta**value
inquiry to concern only the interest of Treasury. Tr. at 1093-96.
However, the record supports a different interpretation, consistent with
the MOU's use of the broader phrase "the Government." Specifically, the
record includes a copy of the draft MOU (apparently as of October 1),
which provides that Treasury agreed to "[t]ransition the TCE to the GSA
contract vehicle at the completion of the cost benefit analysis, if the
analysis determines that the FTS contract vehicle is more advantageous for
the Treasury." Ea**mail from TCE SSA to SSAC Chairman /Director of IRS
Procurement, Oct. 1, 2004. When the Treasury CIO then furnished a copy of
the draft MOU to one of two budget examiners at OMB responsible for
Treasury matters, she advised as follows:
If by "the Treasury" you mean the government's treasury, then this is OK
and should be clarified. If you mean more advantageous for the Department
of the Treasury, then there may be a problem. I believe that [the GSA FTS
Commissioner] and [the OFPP Administrator] expect to review this *better
value' determination in the most broad sensea**a**best value for the
government. This may or may not correspond to best value for the
Department.
E-mail from OMB Budget Examiner to Treasury CIO, Oct. 5, 2004.
Subsequently, the draft MOU was revised to state that Treasury was
committed to moving its requirements to a GSA contract vehicle if doing so
was in the "best interest of the government." MOU at 4. In addition, the
overall purpose language from the MOU quoted above, providing for
determining whether exercise of the TCE options would be "in the best
interest of the Government," MOU at 3, was added. In our view, the only
reasonable interpretation of these changes is that Treasury had agreed to
an MOU providing for an evaluation of best interest on the basis of the
government's interest as a whole--presumably including GSA and its Networx
initiative--even if not in Treasury's best interest.
[4] In this regard, the SSAC Chairman/Director of IRS Procurement was of
the view that changing the TCE contract to a 3a**year contract, from a
potential 10a**year contract, "would represent a fundamental change in the
TCE Request for Proposals," Declaration of SSAC Chairman Director of IRS
Procurement, Jan. 19, 2005; according to the SSAC Chairman/Director of IRS
Procurement, since the "whole concept of a managed service over three
years may have been fundamentally changed," offerors would have had to
make "significant changes to their proposal" had they been advised that
the TCE contract was only a 3-year contract, rather than a 10-year
contract. Tr. atA 300a**02. Likewise, the SSA agreed that offerors might
have proposed a different technical solution and price for a three-year as
opposed to a 10-year contract. Tr. atA 207-08. Likewise, for example, a
[DELETED] vice president has stated in a sworn declaration that had
[DELETED] known of the MOU's shift in focus for option determination away
from the emphasis under the RFP on contractor performance, and the
resulting reduced likelihood that the options would be exercised,
[DELETED] likely would have modified its approach to [DELETED], its
contract pricing approach, and its technical approach. Declaration of
[DELETED] Vice President,. Feb. 3, 2005.
[5] Similarly, the protesters have noted [DELETED].
[6] While it appears that [DELETED] included somewhat fewer CategoryA 1
sites ([DELETED]) than did [DELETED] ([DELETED]), the SSAC briefing and
SSDD did not reasonably reflect the relative difference in this regard.
[7] Although we have not addressed all of the protesters' challenges to
the evaluation, it appears that the challenges concern matters that are
susceptible to being eliminated by discussions. Since we are recommending
that Treasury conduct discussions with offerors, the agency should raise
during those discussions the agency's concerns with the offerors'
proposals.
[8] In the event that it is in fact no longer likely that Treasury will
exercise the TCE options, such that it is not in the best interest of the
government to include the options in the evaluation, the agency should
amend the solicitation to delete the provision for option evaluation and
provide offerors an opportunity to submit revised proposals on a common
basis that reflects the agency's actual needs in this regard. See FAR S
17.206.