TITLE: B-296783; B-296783.3, ITT Federal Services International Corporation, October 11, 2005
BNUMBER: B-296783; B-296783.3
DATE: October 11, 2005
**************************************************************************************
B-296783; B-296783.3, ITT Federal Services International Corporation, October 11, 2005

   DOCUMENT FOR PUBLIC RELEASE
   The decision issued on the date below was subject to a GAO Protective
   Order. This redacted version has been approved for public release.

   Decision

   Matter of: ITT Federal Services International Corporation

   File: B-296783; B-296783.3

   Date: October 11, 2005

   Kevin P. Connelly, Esq., Joseph J. Dyer, Esq., Grace Bateman, Esq.,
   Alexander X. Jackins, Esq., Z. Taylor Schultz, Esq., Amanda B. Weiner,
   Esq., and Jamison L. Weinbaum, Esq., Seyfarth Shaw LLP, for the protester.

   Karen L. Manos, Esq., John F. Stanton, Esq., and R. William Sigler, Esq.,
   Howrey LLP, for Kellogg, Brown & Root Services, Inc., an intervenor.

   Nancy J. Williams, Esq., Robert J. McKenney, Esq., Song U. Kim, Esq., and
   Richard C. Bennett, Esq., U.S. Army Corps of Engineers, for the agency.

   Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest challenging agency's evaluation of proposals is sustained where
   record shows that (1) agency improperly failed to consider a staffing
   understatement in awardee's proposal that could have had a material effect
   on the agency's technical and price/cost evaluation conclusions, and (2)
   agency's staffing estimates for various program requirements lacked a
   reasonable basis.

   DECISION

   ITT Federal Services International Corporation protests the award of a
   contract to Kellogg, Brown & Root Services, Inc. (KBR) under request for
   proposals (RFP) No. DACA78-03-R-0033, issued by the U.S. Army Corps of
   Engineers to acquire logistics support services throughout the Army's
   European theater of operations. ITT maintains that the agency misevaluated
   proposals.

   We sustain the protest.

   BACKGROUND

   The RFP contemplated the award of a combination firm fixed-price (FFP),
   cost-plus-award-fee (CPAF), indefinite-delivery, indefinite-quantity
   contract to meet a wide range of logistics support requirements for the
   Army in its European theater of operations for a base period and 4 option
   periods. The total period of performance is 58 months, and the maximum
   dollar value of the contract is approximately $1.2 billion. The RFP was
   divided among nine contract line items (CLINS) for each performance
   period. Four of the CLINS were for specific geographic areas to be
   supported (CLIN 0002 was for Bosnia, CLIN 0003 for Kosovo, CLIN 0004 for
   Hungary, and CLIN 0005 for Macedonia), and the remaining five CLINS were
   for theater-wide requirements such as facilities and equipment. Each CLIN
   was further divided into numerous sub-line items (SCLIN) that were for
   particular services to be provided. For purposes of preparing price/cost
   proposals, offerors were to provide lump-sum pricing for the FFP SCLINS;
   those lump-sum prices were to be based on historical workload and the
   performance work statement (PWS), both included in the RFP. As for the
   CPAF SCLINS, offerors were instructed to provide pricing either on the
   basis of labor hour estimates included in the RFP (although the labor
   hours were specified, offerors were required to provide their own labor
   mix) or, where no labor hours were specified, to provide both staffing and
   cost information.[1] RFP, sect. B.

   Award was to be made to the firm submitting the proposal deemed to offer
   the "best overall value" to the government, considering price/cost and two
   broad non-price/cost considerations--business/management/technical
   approach and past performance. The RFP advised that the price/cost and
   business/management/technical approach factors were equal in importance,
   and that each was significantly more important than past performance, and
   further, that the past performance and business/management/technical
   approach factors together were more important than price/cost. These broad
   evaluation criteria were further divided into numerous subfactors and
   elements as follows:

   +------------------------------------------------------------------------+
   |FACTORS               |SUBFACTORS        |ELEMENTS                      |
   |----------------------+------------------+------------------------------|
   |(1) Business/Mgmt/Tech|(1) Capabilities  |(1) Ability to Respond and    |
   |Approach              |                  |Mobilize                      |
   |                      |                  |(2) Depth and Size of the     |
   |                      |                  |Organization                  |
   |                      |                  |(3) Efficient Utilization and |
   |                      |                  |Balance of Resources          |
   |                      |                  |(4) General Personnel         |
   |                      |                  |(5) Innovative Technologies   |
   |                      |------------------+------------------------------|
   |                      |(2) Technical     |(1) Quality Control           |
   |                      |Requirements      |(2) Technical Approach        |
   |                      |                  |(3) Staffing                  |
   |                      |                  |(4) Property Utilization      |
   |                      |------------------+------------------------------|
   |                      |(3) Experience    |(1) Corporate                 |
   |                      |                  |(2) Team                      |
   |                      |                  |(3) Personnel                 |
   |                      |------------------+------------------------------|
   |                      |(4) Organization  |(1) Teaming Arrangements      |
   |                      |Structure         |(2) Organizational Approach   |
   |                      |                  |(3) Affiliates/Contractual    |
   |                      |                  |Arrangements                  |
   |                      |                  |(4) Cradle-to-Grave           |
   |                      |                  |Capabilities                  |
   |                      |------------------+------------------------------|
   |                      |(5) Management    |(1) Program Mgmt/Project Mgmt |
   |                      |Information System|(Systems)                     |
   |                      |                  |(2) Cost Control FFP/CP       |
   |                      |                  |(3) Overall Management Plan   |
   |                      |------------------+------------------------------|
   |                      |(6) Logistics     |(1) Approved Purchasing System|
   |                      |Management Plan   |(2) Administration of         |
   |                      |                  |Subcontracts/Consent          |
   |                      |                  |(3) Determination of Adequacy |
   |                      |                  |-- CAS Disclosure Statement   |
   |                      |                  |(4) Adequate System for       |
   |                      |                  |Performing Cost Type          |
   |----------------------+------------------+------------------------------|
   |(2) Past Performance  |(1) Corporate     |(1) Quality of Product/Service|
   |                      |                  |(2) Cost Control/Financial    |
   |                      |                  |Capability                    |
   |                      |                  |(3) Management Systems        |
   |                      |                  |(4) Business Relations        |
   |                      |                  |(5) Customer Service          |
   |                      |                  |(6) Schedule/Timeliness of    |
   |                      |                  |Performance                   |
   |                      |                  |(7) Management of Key         |
   |                      |                  |Personnel                     |
   |                      |                  |(8) Awards/Recognition        |
   |                      |------------------+------------------------------|
   |                      |(2) Team          |(1) Quality of Product/Service|
   |                      |                  |(2) Cost Control/Financial    |
   |                      |                  |Capability                    |
   |                      |                  |(3) Management Systems        |
   |                      |                  |(4) Business Relations        |
   |                      |                  |(5) Customer Service          |
   |                      |                  |(6) Schedule/Timeliness of    |
   |                      |                  |Performance                   |
   |                      |                  |(7) Management of Key         |
   |                      |                  |Personnel                     |
   |                      |                  |(8) Awards/Recognition        |
   |----------------------+------------------+------------------------------|
   |(3) Price/Cost        |(1) Completeness  |                              |
   |                      |------------------+------------------------------|
   |                      |(2) Cost Realism  |                              |
   |                      |------------------+------------------------------|
   |                      |(3) Price         |                              |
   |                      |Reasonableness    |                              |
   +------------------------------------------------------------------------+

   RFP at 129-30. Within the business/management/technical approach factor,
   the capabilities subfactor was deemed slightly more important than the
   technical requirements subfactor, which was deemed significantly more
   important than the experience, organization structure and management
   information systems subfactors, which in turn were deemed equal in
   importance and significantly more important than the logisticis management
   plan subfactor. RFP at 130. Within the past performance factor, corporate
   past performance was slightly more important than team past performance.
   RFP at 131. Finally, the three subfactors under the price/cost factor were
   equal in importance. RFP at 132.[2]

   The RFP advised that, under the business/management/technical approach
   factor, proposals would be assigned adjectival/proposal risk ratings of
   either exceptional/very low proposal risk, very good/low proposal risk,
   satisfactory/moderate proposal risk, marginal/high proposal risk or
   unsatisfactory/very high proposal risk. RFP at 128. (The record shows
   that, in practice, the agency assigned risk ratings to the proposals at
   the element level, and then assigned adjectival ratings at the subfactor
   and factor levels based on the risk ratings assigned. See, e.g. Source
   Selection Decision Document (SSDD), June 21, 2005, at 7-9.) For the past
   performance factor, the RFP advised that adjectival/performance risk
   ratings of exceptional/very low performance risk, very good/low
   performance risk, satisfactory/moderate performance risk, marginal/high
   performance risk, unsatisfactory/very high performance risk, or
   neutral/unknown performance risk would be assigned to the proposals. RFP
   at 128. Finally, in the price/cost area, proposals were evaluated for
   completeness, realism and reasonableness. In addition, proposals were
   assigned a price/cost risk rating of very low, low, moderate, high or very
   high. Id.

   The agency received three proposals (from ITT, KBR, and a third firm) and,
   after initial evaluations, included all three in the competitive range.
   The agency then engaged in numerous rounds of discussions and received
   numerous proposal revisions. After receiving and evaluating the offerors'
   final proposal revisions (FPR), the agency arrived at the following broad
   evaluation results:

   +-------------------------------------------------------------------------+
   |Factors                      |ITT         |KBR              |Offeror A   |
   |-----------------------------+------------+-----------------+------------|
   |Business/Management/Technical|Very Good   |Exceptional-Minus|Very Good   |
   |Approach:                    |            |                 |            |
   |-----------------------------+------------+-----------------+------------|
   |Price/Cost (FFP/CPAF)        |            |                 |            |
   |                             |            |                 |            |
   |Total Proposed               |$221,314,971|$234,007,948     |$257,399,847|
   |Total Evaluated              |$224,872,080|$233,292,707     |$260,891,328|
   |Total Evaluated, SSA[3]      |$224,639,372|$234,962,847     |$260,662,913|
   |-----------------------------+------------+-----------------+------------|
   |Price/Cost Performance Risk  |Moderate    |Low Risk         |Low Risk    |
   |                             |Risk        |                 |            |
   |-----------------------------+------------+-----------------+------------|
   |Past Performance:            |Very Good   |Very Good Plus   |Exceptional |
   +-------------------------------------------------------------------------+

   On the basis of these evaluation results, the agency determined that KBR's
   proposal offered the best overall value to the government. Award was made
   to KBR, and ITT's protest followed.

   ITT challenges the evaluation and award on numerous grounds. We will
   review a procuring agency's evaluation of technical proposals to ensure
   that the evaluation was reasonable and consistent with the terms of the
   solicitation and applicable statutes and regulations. L-3 Communications
   Westwood Corp., B-295126, Jan. 19, 2005, 2005 CPD para. 30 at 5. We have
   reviewed all of ITT's assertions and, on the basis of the issues discussed
   below, find that the evaluation was unreasonable in certain respects. The
   remaining issues are either without merit or academic in light of our
   recommended corrective action.

   ADEQUACY OF PROPOSED STAFFING

   The record shows that the predominant consideration in the agency's source
   selection decision related to the adequacy of ITT's and KBR's proposed
   staffing. Specifically, the agency found that ITT had understated its
   staffing in two of the major work areas covered by the RFP,[4] tactical
   vehicle/non-tactical vehicle equipment maintenance, non-tactical vehicle
   transportation motor pool operations (TV/NTV) and program management. With
   regard to the TV/NTV area, the agency's concern focused on SCLIN 0003CZ,
   which was the FFP SCLIN for TV/NTV in Kosovo. With regard to the program
   management area, the agency's concerns focused on SCLIN 0002AAA, the CPAF
   SCLIN for program management in Bosnia, and SCLIN 0003AA, the FFP SCLIN
   for program management in Kosovo.

   The basis for the agency's conclusions regarding the adequacy of the
   offerors' staffing was its comparison of the firms' proposed staffing to
   one of two government-generated estimates. The first of these estimates
   was the independent government cost estimate (the IGCE standard), and the
   second was an estimate of the labor hours necessary to perform selected
   SCLINS that was prepared by the agency's labor services analysis (LSA)
   group (the LSA standard); the LSA standard was prepared and used by the
   LSA group for SCLINS for which the group considered the IGCE insufficient
   or inaccurate. See, e.g., LSA Analysis Report, June 3, 2005, at 1.

   The agency compared each offeror's proposed staffing to the estimates to
   determine whether the staffing was within 15 percent (above or below) of
   the estimate. Where the agency determined that a firm's proposed staffing
   was not within 15 percent of the estimate, and also determined that the
   firm had not offered what the agency considered an adequate explanation of
   how it would accomplish the work given its staffing and technical
   approach, the agency then measured and "monetized" the difference between
   the proposed staffing and the estimate. (For example, in evaluating ITT's
   proposal, the record shows that the agency determined that the FFP SCLINS
   had been understated by $7,878,947 for labor hours and the CPAF SCLINS by
   $3,042,962. Addendum to the Price/Cost Evaluation Report on Final Revised
   Proposals Submitted May 24, 2005, Source Selection Evaluation Board,
   USAREUR Support Contract, at 6.)

   In those instances where the agency was evaluating the FFP aspect of the
   requirement, it did not add these additional sums to the offerors' prices.
   Instead, the record shows that the agency compared the
   over/understatements of the offerors' proposed FFP pricing to the firms'
   proposed profit on the contract. In those instances where the agency was
   evaluating the CPAF SCLINS, the agency made a most probable cost (MPC)
   adjustment to the offeror's proposed cost. These considerations led the
   agency to assign risk ratings under the price/cost evaluation factor, and
   also under the business/management/technical approach factor. (For
   example, the agency assigned ITT's proposal a high risk rating under one
   of the elements of the technical requirements subfactor under the
   business/management/technical approach factor, and also assigned its
   proposal a moderate price/cost performance risk rating based on both its
   comparison of ITT's profits to the evaluated understatement of its FFP
   pricing, and its consideration of the evaluated understatement of labor
   hours under one of the CPAF SCLINS.[5] SSEB Briefing, June 3, 2005, at
   82-85.

   Evaluation in the TV/NTV Functional Area, SCLIN 0003CZ

   ITT asserts that the agency misevaluated its and KBR's proposals in the
   TV/NTV functional area. The record shows that the agency arrived at its
   estimate of labor hours using historical workload data included in the RFP
   (Technical exhibit 5.1.3.4-0001), as well as its consideration of the
   terms of the PWS. The historical workload data was presented in the form
   of a table that listed six different maintenance activities and provided
   the number of occurrences for each; when totaled, the historical workload
   information provided was as follows:

   +------------------------------------------------------------------------+
   |                    Task                    |   Occurrences Per Year    |
   |--------------------------------------------+---------------------------|
   |          CAP Repair and Services           |          44,700           |
   |--------------------------------------------+---------------------------|
   |  Tactical Vehicles Repairs and Seervices   |          43,800           |
   |--------------------------------------------+---------------------------|
   |          Vehicle Contact Missions          |           7,230           |
   |--------------------------------------------+---------------------------|
   |         Vehicle Recovery Missions          |           1,980           |
   |--------------------------------------------+---------------------------|
   |  Generators, Light Sets, Radar Equipment   |          67,560           |
   |--------------------------------------------+---------------------------|
   |                 Wash Racks                 |          49,800           |
   +------------------------------------------------------------------------+

   RFP, Tech. exh. 5.1.3.4-0001. The agency then multiplied these numbers by
   the number of hours it estimated would be required, on average, to
   accomplish the various tasks, as follows:

   +------------------------------------------------------------------------+
   |           Task           |Occurrences Per|Avereage Hours| Total Labor  |
   |                          |     Year      |Per Occurrence|Hours Per Year|
   |--------------------------+---------------+--------------+--------------|
   | CAP Repair and Services  |    44,700     |      5       |   223,500    |
   |--------------------------+---------------+--------------+--------------|
   |Tactical Vehicles Repairs |    43,800     |      5       |   219,000    |
   |      and Seervices       |               |              |              |
   |--------------------------+---------------+--------------+--------------|
   | Vehicle Contact Missions |     7,230     |      5       |    36,150    |
   |--------------------------+---------------+--------------+--------------|
   |Vehicle Recovery Missions |     1,980     |      5       |    9,900     |
   |--------------------------+---------------+--------------+--------------|
   | Generators, Light Sets,  |    67,560     |      .8      |    54,048    |
   |     Radar Equipment      |               |              |              |
   |--------------------------+---------------+--------------+--------------|
   |        Wash Racks        |    49,800     |      .2      |    9,960     |
   |--------------------------+---------------+--------------+--------------|
   |                          |               |    Total:    |   552,558    |
   +------------------------------------------------------------------------+

   LSA Summary Report for Vehicle Maintenance CLINS, June 1, 2005, at 2. The
   agency then added an additional 34,002 hours to arrive at its estimate of
   586,560 labor hours for SCLIN 0003CZ. Id. at 2-3.

   In the evaluation, the agency concluded that ITT had understated the hours
   necessary to perform this functional area by 198,963 hours, LSA Summary
   Report, supra, at 8, and that this understaffing resulted in its FFP
   proposal being understated by $3,068,179. SSEB Briefing, June 3, 2005, at
   213. In contrast, since KBR's offer of 570,076 hours was only
   approximately 3 percent below the estimate, the agency found that its
   proposed staffing was reasonable and realistic to satisfactorily perform
   all aspects of the requirement, LSA Summary Report, supra, at 10, and
   found no price/cost understatement for this aspect of the requirement.

   ITT asserts that the agency misevaluated KBR's proposal in this area
   because, while KBR's total hours were in alignment with the agency's
   estimate for SCLIN 0003CZ, its calculations were based on fewer
   occurrences than the number specified in the RFP. Specifically, the record
   shows that KBR based its proposal on 26,820 occurrences for CAP Repairs
   and Services (as opposed to the 44,700 occurrences stated in the RFP) and
   on 32,850 occurrences for Tactical Vehicles Repairs (as opposed to the
   43,800 occurrences stated in the RFP). KBR FPR, May 24, 2005, at 6dd-6ee.

   The agency concedes that it did not take these understated occurrences
   into consideration in its evaluation of KBR's proposal, and goes on to
   calculate that this resulted in an overall understatement in KBR's
   proposal of 938,561.8 hours over the life of the contract, with a
   corresponding dollar value of $4,007,658.80. Supplemental Agency Report,
   Aug. 31, 2005, at 12. The agency argues, however, that this evaluation
   error had no effect on the outcome, since both the government's and KBR's
   staffing calculations were only estimates and, in the final analysis,
   KBR's proposed staffing was within 15 percent of the government's estimate
   of total hours, and KBR offered substantially more hours than ITT for this
   functional area.

   The agency's argument misses the point. The fact that KBR's total labor
   hours number aligned with the agency's estimate for total labor hours was
   irrelevant, since that number was calculated using a number of occurrences
   figure lower than that provided in the RFP. Using a lower number of
   occurrences resulted in an artificially low number for KBR's total labor
   hours. Since the contractor will have no control over the number of
   occurrences, that number should have been the same for all
   offerors--indeed, it appears the agency understood this when it provided a
   specific figure in the RFP. Based on its own proposal, KBR will need
   additional hours to perform the work where all occurrences are accounted
   for; in fact, as the parties acknowledge, KBR would need 938,561.8 more
   hours to perform all occurrences. Thus, the agency should have concluded
   that KBR understated its staffing.

   We note as well that KBR estimated in its FPR that it would need 6.99 and
   6.32 hours, respectively, to perform Tactical Vehicles repairs and
   services and CAP repair and services, compared to the agency's figure of 5
   hours per occurrence in each category. In its preceding proposal revision,
   KBR estimated that it actually needed some 20 percent more time per
   occurrence in these areas, and used figures of 8.57 and 7.74 hours per
   occurrence respectively. KBR FPR, at 6dd-6ee. It appears that KBR's FPR
   reduction was merely in response to a discussion question in which the
   agency noted that its staffing in this area was approximately 20 percent
   above the government estimate. However, KBR's proposal offers no
   meaningful explanation of how it was able to achieve these further
   efficiencies in light of its technical approach. Id. This was inconsistent
   with the instructions in the RFP:

     The offeror shall provide a concise narrative summary for each priced
     CLIN/SCLIN of the contract base program year discussing the technical
     approach used to satisfy the PWS requirements. The offeror should
     provide detailed rationale and explanation to support the level of
     manhours and the skills and skill mixes . . . proposed.

   RFP sect. L.4 (b)(2)(b). The record thus suggests that KBR's staffing in
   this area may be even further understated than it appears to be from its
   FPR.

   Adequacy of the Government's Labor Estimates

   ITT asserts that there is no reasonable basis for the agency's labor hour
   estimates in the area of program management.[6] The protester asserts that
   there is no reasonable explanation of the variance between the two
   different labor hour standards (the IGCE standard and the LSA
   standard).[7] The record shows that the IGCE for labor hours was 377,776
   hours for SCLIN 0002AA, and 425,680 hours for SCLIN 0003AA. Amended KTR
   Program Management Document, May 27, 2005, at 1. These figures were
   changed to 244,106 hours for SCLIN 0002AAA and 243,214 for SCLIN 0003AA.
   Id. The protester asserts that the LSA standard for SCLIN 0003AA (the FFP
   SCLIN for program management in Kosovo) did not take into consideration
   the fact that the LSA also recomputed and relied on a labor hours standard
   for SCLIN 0003CZ, the TV/NTV functional area for Kosovo, that was some
   742,408 hours per year (356 full time equivalents (FTEs)) [8] lower than
   the number of hours used in the IGCE standard. According to the protester,
   the LSA standard for SCLIN 0003AA should have taken into consideration the
   fact that program management staffing would be dramatically lower given
   the significantly lower number of FTEs that would have to be managed under
   the TV/NTV functional area.

   The protester is correct regarding the agency's calculation of the LSA
   standard for SCLIN 0003AA. The LSA standard for the TV/NTV function (SCLIN
   0003CZ) was reduced substantially below the number of hours used to
   calculate the IGCE standard. The IGCE standard used a figure of 1,328,968
   hours to perform the TV/NTV function, whereas the LSA standard used a
   figure of 586,560 hours. As noted, this resulted in a reduction in the
   agency's staffing estimate by approximately 356 FTEs. It follows that,
   with such a substantial reduction in the number of personnel to be
   managed, there should have been a corresponding reduction in the number of
   FTEs estimated by the agency for the program management functional area
   (i.e. SCLIN 0003AA). However, there is nothing in the record showing that
   the agency ever considered the impact of its change in the TV/NTV
   functional area on its estimate for the program management functional
   area.

   The protester also maintains more generally that the record contains no
   adequate explanation for the change in the government's labor hours
   estimate (from the IGCE standard to the LSA standard) for SCLINs 0002AAA
   and 0003AA.

   The record shows that, in calculating the number of hours necessary for
   SCLINS 0002AAA and SCLIN 0003AA, the IGCE standard apparently had included
   the staffing required for two other SCLINS (SCLINS 004AAA and 0005AAA, the
   program management functional area SCLINS for Hungary and Macedonia).
   Amended KTR Program Management Document, May 27, 2005, at 1. The record
   further shows that there were two variables that were considered by the
   agency in making these changes, the number of hours per year for FTEs and
   the number of FTEs overall for each functional area. We find nothing
   objectionable in the agency's recalculation of the number of labor hours
   per FTE; because the IGCE standard had used what was subsequently
   considered an unreasonably high number of hours per FTE, the agency
   reasonably averaged the offerors' number of hours per FTE to arrive at a
   revised figure for use in the LSA standard. Id.

   However, the agency's explanation for arriving at the number of FTEs
   required to perform these functional areas is problematic. The record
   shows that the agency used KBR's proposed staffing approach as the basis
   for arriving at the distribution of FTEs among the various SCLINS.
   Specifically, the cognizant agency personnel determined that, because
   KBR's staffing approach was similar to the IGCE staffing approach, they
   would use KBR's proposed staffing to arrive at the appropriate number of
   FTEs for the various program management functional area SCLINS; they
   concluded that this would provide a more realistic FTE and hour count for
   the government standard. Amended KTR Program Management Document, May 27,
   2005, at 1.

   Both the agency and the awardee maintain that there was nothing improper
   in the agency's actions because, by using KBR's proposed staffing approach
   as the basis for establishing the agency's evaluation standard, the agency
   actually reduced the FTEs under SCLINs 0002AAA and 0003AA more than if
   ITT's proposed staffing had been used.

   The agency's actions were improper. The agency's use of an offeror's
   staffing approach to arrive at the government's standard was not a
   reasonable substitute for an agency-generated estimate based on historical
   workload data and the PWS requirements. While the agency's estimate and
   the staffing approach proposed in the KBR proposal could be similar, in
   the absence of an analysis from the agency reconciling the two, there was
   no reasonable basis for the agency to use the KBR staffing approach as its
   benchmark for evaluation purposes. Using the KBR staffing approach without
   such an analysis had the effect of possibly giving KBR an improper
   competitive advantage since, obviously, KBR's staffing automatically would
   be deemed acceptable, while ITT's would not.[9]

   We note as well that the agency performed this recalculation of the
   government standard after receiving FPRs. Thus, in addition to the
   standard being problematic in and of itself, ITT was not afforded the
   opportunity to align its proposed staffing with the revised LSA standard
   for program management.

   As a final matter, the record shows that the total hours calculation for
   SCLIN 0002AAA relied upon by the agency in evaluating the offers may have
   included an error. In this regard, the narrative portion of the Amended
   KTR Program Management Document concludes that the staffing for this SCLIN
   may have been calculated on the basis of excessive staffing under one
   functional code and that, as a consequence, some additional 15 FTE should
   be removed from the agency's calculations. Specifically, the document
   states:

     Also, the Government's skill mix seemed excessive in the
     Business/Finance/Accounting functional code and an additional 15 FTEs
     were removed. This makes the revised Government Standard for SCLIN
     0002AAA 207,537.

   Amended KTR Program Management Document, May 27, 2005 at 1. This final
   number, 207,537 hours, is measurably smaller than the number used by the
   agency for evaluating the proposals under SCLIN 0002AA, 244,106 hours, and
   the record contains no explanation for this variance.

   In view of the foregoing considerations, we find that the agency's
   staffing estimates used to evaluate the proposals in the program
   management functional area were unreasonable.

   PREJUDICE

   An essential element of every viable protest is prejudice and we will not
   sustain a protest absent a showing that prejudice has been demonstrated or
   is otherwise evident. University Research Co., LLC, B-294358 et al., Oct
   24, 2004, 2004 CPD para. 217 at 10; see Statistica , Inc. v Christopher,
   103 F.3d 1577, 1581 (Fed. Cir. 1996). We find that the flaws in these two
   areas of the agency's evaluation could have affected the outcome of the
   competition.[10]

   Cost Evaluation Impact

   The record shows that, in evaluating ITT's proposal, the agency found that
   the firm had understated its FFP costs by approximately $8.7 million, $7.8
   million of which was attributable to its evaluated understaffing of the
   requirement. Addendum to the Price/Cost Evaluation Report on Final Revised
   Proposals Submitted May 24, 2005, Source Selection Evaluation Board,
   USAREUR Support Contract, at 6. The overwhelming majority of this
   understatement is attributable to ITT's evaluated understatement of the
   staffing necessary for SCLINS 0003AA and 0003CZ. SSEB Briefing, June 3,
   2005, at 213. In a similar vein, ITT's CPAF cost was increased by an MPC
   adjustment of approximately $3.5 million for evaluation and source
   selection purposes.[11] Addendum to the Price/Cost Evaluation Report on
   Final Revised Proposals Submitted May 24, 2005, Source Selection
   Evaluation Board, USAREUR Support Contract, at 6. A substantial portion of
   this ($3,042,692) is attributable to ITT's alleged understaffing under
   SCLIN 0002AAA. Id.

   As noted above, the firms' total evaluated prices/costs were $224,639,372
   for ITT and $234,962,847 for KBR, a difference of approximately $10.3
   million. Given our conclusion regarding the accuracy of the government's
   estimate for SCLIN 0002AAA, there is the possibility that there will be a
   change in the agency's MPC adjustment for ITT's alleged understaffing in
   this functional area. Any such change could, correspondingly, increase
   ITT's overall evaluated price/cost advantage; to the extent such a change
   occurred, the SSA would have to evaluate this in connection with a new
   best value determination.

   In a similar vein, given our conclusion regarding the accuracy of the
   government estimate for SCLIN 0003AA, there exists the possibility that
   the agency will make a different determination regarding the adequacy of
   ITT's staffing in this area; the amount by which its FFP proposal in this
   area is evaluated as understated therefore could change. Finally, as
   noted, the agency concedes that it failed to consider approximately $4
   million in understated price/cost in its evaluation of KBR's proposal
   under SCLIN 0003CZ.

   We conclude that the offerors' total evaluated prices could change based
   upon a proper evaluation using adequate estimates, and that the agency's
   evaluation of the offerors' understatement of their FFP prices/costs also
   could change.

   Risk Rating/Technical Evaluation Considerations

   As discussed, in evaluating the FFP aspect of the proposals, the record
   shows that the agency found that ITT understated its FFP by approximately
   $8.7 million. The agency compared this amount to the firm's total profit
   of approximately $13.2 million. Similarly, the agency evaluated KBR as
   having understated its FFP by $2.3 million, and compared that figure to
   KBR's total profit of approximately $13.7 million.

   The record shows that the agency used this comparison, along with its
   assessment of the offerors' accounting system risk, to arrive at
   performance risk ratings in the area of price/cost. SSEB Briefing, June 3,
   2005, at 200. On this basis, the agency assigned the ITT proposal a
   moderate price/cost performance risk rating based on its conclusion that
   ITT had notably understated its FFP hours. Id. at 250. (The record also
   shows that the agency assigned the firm a moderate doubt rating in the
   area of cost realism because of ITT's alleged understatement of its labor
   hours. Id. at 189, 250.) In comparison, the agency assigned the KBR
   proposal a low price/cost performance risk rating, but did not take into
   account its error in evaluating its staffing in the TV/NTV area. Id. Given
   our analysis above, we find there exists a reasonable possibility that the
   offerors' price/cost performance risk ratings could change in any
   reevaluation.

   The record also shows that, under the technical requirements subfactor of
   the business/management technical approach factor, the agency assigned ITT
   a rating of satisfactory. SSEB Briefing, June 3, 2005, at 81. This rating
   was based in large measure on the agency's assignment of a high risk
   rating to the ITT proposal under the technical approach element of this
   subfactor, which in turn was based on ITT's alleged understaffing under
   both the FFP and CPAF SCLINS. Id. at 82-85. In comparison, KBR received a
   very good rating under this subfactor, based largely on the agency's
   conclusion that KBR's staffing was sufficient to meet the requirements.
   Id. at 88-90. Given our discussion above, we find that there exists a
   reasonable possibility that these ratings could change in any
   reevaluation.

   On the record before us, we conclude that changes in the evaluation areas
   discussed above could affect the agency's ultimate source selection
   decision. Accordingly, we sustain ITT's protest.

   RECOMMENDATION

   We recommend that the agency reexamine the adequacy of its staffing
   estimates for all functional areas and revise them as appropriate in light
   of the discussion above, as well as any other considerations that the
   agency may think appropriate in light of its reexamination. We further
   recommend that the agency obtain revised proposals from the offerors,
   evaluate those proposals, conduct discussions if necessary, and make a new
   source selection decision on the basis of its reevaluation. If, at the
   conclusion of these activities, the agency determines that another
   offeror's proposal offers the best overall value to the government, we
   recommend that the agency terminate KBR's contract for the convenience of
   the government and make award to the firm selected, if otherwise proper.
   Finally, we recommend that ITT be reimbursed the costs associated with
   filing and pursuing its protest, including reasonable attorneys' fees. 4
   C.F.R. sect. 21.8(d)(1). ITT's certified claim for costs, detailing the
   time spent and the costs incurred must be submitted to the agency within
   60 days of receiving of our decision. 4 C.F.R. sect. 21.8(f)(1).

   The protest is sustained.

   Anthony H. Gamboa
   General Counsel

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

   [1] Some of the CPAF SCLINS included unpriced contract requirements.

   [2] The elements under the subfactors also were assigned varying weights.

   [3] The source selection authority (SSA) made several minor adjustments to
   the offerors' evaluated prices/costs. SSDD at 12-14.

   [4] The agency determined that ITT and KBR also understated their proposed
   FFP labor hours in other functional areas, but the record shows that the
   SSA focused primarily on the TV/NTV and program management areas in his
   decision. SSDD, June 21, 2005 at 25-31.

   [5] Under the price/cost factor, the agency's performance risk rating did
   not take into consideration over/understatements in the offerors' CPAF
   SCLINS. Rather, the price/cost performance risk rating considered only
   over/understatements in the offerors' FFP SCLINS, plus the agency's
   assessment of the risk associated with the offerors' accounting systems.
   Final Source Selection Evaluation Board (SSEB) Briefing, June 3, 2005, at
   200.

   [6] In its initial report, the agency suggested that these assertions were
   untimely because, during the course of discussions, the agency provided
   ITT with information that allowed it to determine the number of labor
   hours used in preparing the government's estimate (specifically, ITT was
   advised of the percentage by which its proposed staffing was understated
   relative to the government estimate). Initial Agency Report, Aug. 1, 2005,
   at 10-11. We find the assertion timely. Without the underlying documents
   showing how the various estimates were calculated, or the impact that the
   agency's staffing comparisons had on ITT's technical and cost evaluations,
   there was no reasonable basis for ITT to have challenged the agency's
   estimates. ITT raised this issue within 10 days of obtaining this
   information. 4 C.F.R. sect. 21.2(a)(2) (2005).

   [7] As noted, the LSA group prepared revised estimates for selected
   SCLINS. The record shows that the LSA group prepared LSA standards for
   these two areas, and that the agency ultimately used these standards to
   make its staffing comparisons.

   [8] We arrive at this number of FTEs by dividing the total number of hours
   (742,408) by 2,080 hours, a typical work year. We note, however, that the
   number of hours used by the offerors to compute their staffing differed
   and were typically lower than this. Accordingly, the protester maintains
   that the number of FTEs is higher; we need not resolve this question
   because we find that the 2,080 hour work year provides an adequate
   measurement for purposes of our discussion.

   [9] As discussed above, that the record shows that the agency's staffing
   estimate for program management failed to account for reductions in the
   agency's staffing estimate in the TV/NTV functional area; had the agency
   performed a proper, independent analysis to arrive at its program
   management staffing estimate, it may well have accounted for this
   discrepancy.

   [10] We note that, in connection with the protest, the agency has
   submitted an affidavit in which the source selection official addresses
   the shortage in KBR's staffing in the TV/NTV area and concludes that this
   would not have altered his source selection decision. Not only is this
   affidavit not probative, since it was prepared in the heat of litigation,
   Gemmo Impianti SpA, B-290427, Aug. 9, 2002, 2002 CPD para. 146 at 4-5;
   Boeing Sikorsky Aircraft Support, B-277263.2, B-277263.3, Sept. 7, 1997,
   97-2 CPD para. 91 at 15, but it does not address the reasonableness of the
   agency's estimates for the program management functional area or the
   impact those estimates had on the source selection decision. Moreover, it
   does not discuss the impact of this evaluation error on the technical or
   risk ratings assigned to the proposals.

   [11] As noted, the SSA made minor adjustments to the agency's final
   evaluated prices/costs. For ITT, the record shows that the SSA reduced the
   firm's total by $232,708 to account for fee added to the firm's offer
   during the MPC evaluation. SSDD at 13, n. 9.