TITLE: B-296861, EDO Corporation, September 28, 2005
BNUMBER: B-296861
DATE: September 28, 2005
*********************************************
B-296861, EDO Corporation, September 28, 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: EDO Corporation

   File: B-296861

   Date: September 28, 2005

   Jeffrey P. Bialos, Esq., Christer L. Mossberg, Esq., John M. Wingate,
   Esq., and Bradley E. Prendergast, Esq., Sutherland, Asbill & Brennan LLP,
   for the protester.

   Maj. Lawrence Anderson, Maj. Christina M. Slicker, and Bridget E. Lyons,
   Esq. Department of the Air Force, for the agency.

   Mark D. Colley, Esq., and Kara L. Daniels, Esq., Holland & Knight LLP, for
   Raytheon Company, an intervenor.

   Paul E. Jordan, Esq., and John M. Melody, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Cost realism evaluation of protester's proposal was unobjectionable
   where record shows that upward cost adjustments were based on evaluators'
   reasonable assessments that proposal significantly understated labor hours
   needed to perform.

   2. Agency's identification of risk associated with protester's very low
   fixed production price is not relevant to award decision where selection
   authority did not cite the identified risk in making award decision.

   3. Agency reasonably evaluated protester's proposal as high risk, despite
   protester's experience, due to proposal's failure to include sufficient
   support for low proposed labor hours.

   DECISION

   EDO Corporation's EDO MTech, Inc. (EDO) protests the award of a contract
   to Raytheon Company under request for proposals (RFP) No.
   FA8626-04-R-2067, issued by the Department of the Air Force for
   development of the Smart Triple Ejector Rack (TER) bomb rack unit. EDO
   challenges the agency's cost realism evaluation of EDO's proposal and the
   resulting award to Raytheon.

   We deny the protest.

   The RFP contemplated the award of a cost-plus-fixed-fee contract to
   develop modifications to the TER-9A, with two fixed-price options to
   produce up to 60 units each. This is a follow-on effort to modify a
   portion of the existing TER-9A, a bomb carriage and release mechanism to
   carry precision guided (smart) weapons as well as conventional weapons on
   F-16 aircraft. The basic contract effort was expected to be completed in
   20 months. The RFP included a statement of objectives outlining the
   agency's expectations. Offerors were required to submit detailed technical
   proposals for development and production of the units, and detailed cost
   proposals including work breakdown structures (WBS) and basis of estimate
   (BOE) data as support.

   Proposals were to be evaluated on a "best value" basis considering four
   factors--mission capability, proposal risk, past performance (all of equal
   importance), and cost/price. The mission capability factor was divided
   into five subfactors, the first four of which--system performance; system
   engineering, system support, production readiness, and participation of
   small and small disadvantaged businesses, historically black colleges and
   universities, and minority institutions--were considered of equal
   importance. The technical factors combined were significantly more
   important than cost/price. Each mission capability subfactor was to be
   rated on a color/adjectival basis with individual risk ratings.[1]
   Proposed costs were to be evaluated for realism, including calculation of
   a most probable cost (MPC), and proposed prices were to be evaluated for
   reasonableness.

   Five proposals, including EDO's and Raytheon's, were received and were
   evaluated by the source selection evaluation team. Three proposals were
   included in the initial competitive range and the agency conducted written
   discussions with the three offerors. Based on evaluation of the offerors'
   responses, only EDO and Raytheon were included in the final competitive
   range. The agency conducted discussions with and obtained final proposal
   revisions (FPR) from both. The source selection authority (SSA)
   subsequently reopened negotiations and, following a third round of
   discussions, both offerors submitted revised FPRs. The agency concluded
   from its cost realism evaluation that EDO had failed to adequately support
   the adequacy of its proposed labor hours in various categories, and
   therefore added hours in those categories. EDO's MPC was adjusted upward
   based on the burdened cost of these additional hours and its risk rating
   under the system engineering subfactor was raised to high. The results of
   the final evaluation were as follows:

+------------------------------------------------------------------------------+
|                           |           EDO           |        Raytheon        |
|---------------------------+-------------------------+------------------------|
|Mission Capability         |                         |                        |
|---------------------------+-------------------------+------------------------|
|system performance         |        blue/low         |        blue/low        |
|---------------------------+-------------------------+------------------------|
|system engineering         |       green/high        |       green/low        |
|---------------------------+-------------------------+------------------------|
|system support             |        green/low        |       green/low        |
|---------------------------+-------------------------+------------------------|
|production readiness       |        green/low        |       green/low        |
|---------------------------+-------------------------+------------------------|
|small business             |        green/low        |       green/low        |
|---------------------------+-------------------------+------------------------|
|Past Performance           | significant/confidence  | significant/confidence |
|---------------------------+-------------------------+------------------------|
|Most Probable Cost         |       $2,739,118        |       $3,103,972       |
+------------------------------------------------------------------------------+

   Based on an integrated assessment of the evaluation factors, the SSA
   concluded that Raytheon's proposal represented the best value. While he
   found that both proposals met the RFP requirements, he concluded that
   Raytheon's proposed tasks under the systems engineering subfactor
   demonstrated a more complete plan to accomplish the work and provided
   greater confidence that the firm would deliver a final product on time,
   within cost, and would provide the required performance. Although EDO's
   proposal offered a lower price, the SSA found that its systems engineering
   approach was not adequately supported by sufficient labor hours, and
   therefore warranted a high risk rating. The SSA determined that Raytheon's
   lower risk outweighed any advantage attributable to EDO's lower cost, and
   therefore made award to Raytheon. After receiving notice of the award and
   a debriefing, EDO filed this protest.

   EDO challenges the award on numerous bases. We have considered all of
   EDO's arguments and find that they have no merit or did not prejudice the
   protester. We address EDO's most significant arguments below.

   MPC EVALUATION

   The RFP provided that an offeror's proposed costs would be evaluated to
   determine if they were realistic for the work to be performed, reflected a
   clear understanding of the requirements, and were consistent with the
   unique method of performance and materials described in the technical
   proposal. As part of this evaluation, the RFP called for calculation of an
   MPC that would include the basic requirements and all options, and would
   be calculated as the sum of contractor proposed cost of the system
   development and demonstration (SDD); other government costs (OGC)
   "includ[ing] Government test and integration/interface into the F-16 and
   aircraft platform"; proposed use of government furnished property (GFP) to
   include that identified by the offeror; and risk. RFP sect. M.1.6.3. EDO
   challenges the agency's calculation of the MPC in all but the risk area.

   EDO's Proposed Labor Hours

   EDO asserts that the agency's cost realism evaluation arbitrarily added
   the cost of additional labor hours to its MPC. Specifically, EDO complains
   that the additions were based on the evaluators' opinions instead of
   proven cost analysis techniques-- such as comparison with historical data
   or parametric cost estimating relationships--as suggested in Federal
   Acquisition Regulation (FAR) sections 15.404-1(b) and (c).

   When an agency evaluates proposals for the award of a cost-reimbursement
   contract, an offeror's proposed estimated costs are not considered
   controlling because, regardless of the costs proposed, the government is
   bound to pay the contractor its actual allowable costs. FAR
   sections 15.305(a)(1), 15.404-1(d). Consequently, a cost realism analysis
   must be performed by the agency to determine the extent to which an
   offeror's proposed costs represent what the contract should cost, assuming
   reasonable economy and efficiency. FAR sect. 15.404-1(d)(2); Hanford
   Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD
   para. 164 at 8-9. However, an agency is not required to conduct an
   in-depth cost analysis, see FAR sect. 15.404-1(c), or to verify each and
   every item in assessing cost realism; rather, the evaluation requires the
   exercise of informed judgment by the contracting agency. Cascade Gen.,
   Inc., B-283872, Jan. 18, 2000, 2000 CPD para. 14 at 8. Our review of an
   agency's cost realism analysis is limited to determining whether the
   analysis was reasonable. Systems Integration & Research, Inc., et al.,
   B-279759.2 et al., Feb. 16, 1999, 99-1 CPD para. 54 at 7-8.

   The cost realism analysis of EDO's labor hours was reasonable. Each
   offeror's cost proposal was to be based on the number of labor hours,
   material, and indirect costs necessary to accomplish the statement of work
   as proposed to be performed by the offeror. As part of the cost proposal,
   offerors were required to submit WBSs and BOE information, defined as
   detailed data supporting the estimates in the system development and
   demonstration (SDD) chapter, and to "completely describe the philosophy
   and methodology used in developing the estimates together with appropriate
   references to any historical supporting cost data." RFP sect. L.5.3.2.
   EDO's initial cost proposal did not include detailed [deleted] data, but
   after two rounds of discussions, which included specific requests by the
   agency for the BOEs, EDO furnished detailed WBSs and BOEs in its revised
   FPR. When the evaluators--an armament integration engineer and an armament
   integration technical expert--reviewed the FPR, they found that the
   proposed hours were not sufficient. Evaluators' Declaration at 1, Aug. 23,
   2005. Based on the evaluators' experience, they adjusted EDO's proposed
   labor hours in various categories, using EDO's proposal as guidance. The
   evaluators only added hours when EDO did not provide a sufficient
   explanation for why the proposed hours were adequate for the tasks
   proposed. Id. at 2. Where EDO's proposed hours were supported with
   historical references--such as program titles or contract numbers, as
   required by RFP sect. L.5.3.2(c)--no hours were added. In making these
   adjustments, the evaluators also gave consideration to EDO's experience,
   as documented in its proposal. Contracting Officer's Statement at 12. In
   all, the evaluators added more than 7,000 hours to the [deleted] hours
   proposed by EDO. These additional hours were multiplied by the appropriate
   labor rates and the resulting cost was added to EDO's proposed cost in
   calculating the MPC.

   EDO asserts that no additional labor hours were required and maintains
   that the agency has not provided a sufficient rationale for the
   adjustments. EDO's assertions are without merit. The agency's
   contemporaneous cost documentation includes a matrix identifying the bases
   for all but two of the labor hour increases, and two spreadsheets, one of
   which includes embedded comments identifying the remaining bases for
   additional hours. Agency Report (AR) Tab 9. In addition, the agency has
   provided several declarations detailing the evaluators' steps and
   rationales in making the labor hour and cost adjustments.[2]

   Example--PM Labor Hours

   The evaluators noted that EDO only proposed [deleted] hours for the
   proposed project manager (PM) over the 20-month performance period, or
   less than [deleted]  per month. This was inconsistent with the evaluators'
   view of the PM position. Based on the complexity of the deliverables and
   development effort, the evaluators viewed the PM as essentially
   responsible for the success of the entire program; the PM would have to
   manage every aspect of the program, ensuring that technical tasks were
   completed and that funds were expended on time, and also would have to
   update the estimated time of completion to determine whether the program
   was ahead or behind schedule. Consistent with the evaluators' view, EDO's
   WBSs and BOEs identified seven tasks that the PM would perform, including
   [deleted]. Evaluators' Declaration at 3. EDO's proposal described the PM
   as [deleted]. EDO Proposal, Vol. I, at 38. Based on their view of the PM
   position and the specific tasks proposed by EDO, the evaluators determined
   that a full-time PM was required; they therefore added 1,723 labor hours
   for the PM over the 20-month performance period. Evaluators' Declaration
   at 4. They also added another 108 hours to cover the PM's attendance at
   three interface control working group meetings and the technical
   interchange meetings; since the evaluators' experience was that these
   meetings were attended by the government, contractor (EDO), aircraft
   contractors, and weapons contractors, they concluded that the PM, as the
   contract point person responsible for the overall success of the contract,
   should attend the meetings. Evaluators' Declaration at 5-7. Subsequently,
   the evaluators met and determined that, given the duties and
   responsibilities of the PM as described in EDO's proposal and the
   complexity of the program, there remained a high level of risk in EDO's
   ability to complete the tasks even with the additional hours; they
   therefore determined that an additional 1,300 hours should be added in
   order to make the PM full time for the entire 20-month program.
   Evaluators' Supplemental Declaration, Sept. 6, 2005, at 1-2. This
   justification appears reasonable, and EDO has not shown otherwise.

   EDO asserts that adding any hours for its PM is improper because the RFP
   did not require any specific threshold of PM participation and did not
   require the PM to perform all program management tasks.[3] EDO notes that
   its past performance proposal showed that, in several projects performed
   in overlapping performance periods, it [deleted], thus supporting its
   proposal of a part-time PM here. EDO Comments at 30. This argument is
   without merit. The RFP clearly required each offeror to completely
   describe the philosophy and methodology used in developing the BOEs,
   together with appropriate references to any historical supporting cost
   data, in its cost proposal. RFP sections L.5.1.1, L.5.3.2. Further, the
   RFP specifically advised that the burden of proof for cost credibility
   rested with the offerors and cautioned offerors to include fully
   responsive cost information only in the cost/price section of the
   proposal. RFP sect. L.5.1.1. EDO did not support its proposal of a
   part-time PM in its cost proposal, and there was no duty on the
   evaluators' part to search the technical proposal volumes to see if they
   could find some credible support for the proposed hours. In view of the
   importance of the PM position, and given the responsibilities assigned the
   PM in EDO's own proposal, we find no basis for taking exception to the
   labor hours added to EDO's proposal for this position. EDO's disagreement
   with the evaluators' judgment does not render the evaluation unreasonable.
   See Command Mgmt. Servs., Inc., B-292893.2, June 30, 2004, 2004 CPD
   para. 168 at 3.

   Example--Software Development Labor Hours

   EDO asserts that the addition of labor hours associated with software
   development and related tasks was based only on the evaluators'
   "intuition," and was not reasonably supported. More specifically, EDO
   maintains that the evaluators ignored its past experience with the
   [deleted] system, from which it proposed to extend and reuse more than
   75 percent of the source lines of code required for the Smart TER-9A. EDO
   Comments at 30-31.

   This argument is without merit. Contrary to EDO's perception, the
   evaluators did credit EDO in the software development area for its past
   experience. For example, with regard to developing and writing code for
   the [deleted] emulation mode and Smart and Dumb TER modes, the evaluators
   gave EDO the "benefit of the doubt based on demonstrated experience," and
   only added hours in conjunction with development of new code. Evaluators'
   Declaration at 21. The evaluators added these hours after noting that EDO
   had proposed only [deleted] hours to write [deleted]  lines of new code.
   The evaluators determined that there was "an absolute minimum estimate of
   one hour per each new line of code (and it usually takes longer)," and
   therefore reasoned that "the time to produce [deleted] lines of new code
   would be [deleted] hours." Since only [deleted] of EDO's [deleted]
   proposed hours were designated for code writing, the evaluators added 200
   hours, which also were intended to cover the absence from EDO's proposal
   of any hours for coding updates. Id. Apart from asserting that these
   additions are arbitrary and unsupported, EDO does not explain how the
   evaluators' reasoning was flawed. In our view, this and the other
   software-related additions were reasonable; EDO has not shown otherwise.

   Evaluation of EDO's Production Price

   Noting that the RFP called for inclusion of the cost of options in the
   MPC, EDO asserts that the agency erred by failing to calculate an MPC for
   its production price. EDO also asserts that the evaluation of its
   production price was flawed because it included a comparison to a
   higher-priced, older system--the [deleted]--and improperly concluded that
   its lower proposed price was risky.

   The evaluation of EDO's production price was unobjectionable. While the
   RFP called for the MPC to include options (RFP sect. M.1.6.3), it did not
   specify how this aspect of the MPC was to be calculated. The agency
   compared EDO's proposed production price to its own estimate and pricing
   information for other bomb release units, including the older [deleted]
   system. Noting that the [deleted] units cost more than $100,000 and that
   the estimate for the Smart TER-9A exceeded $54,000, the evaluators found
   EDO's proposed price of [deleted] unrealistic. Price Competition
   Memorandum at 2, 6, and 8. We see nothing unreasonable in the agency's
   methodology or in its analysis of EDO's production price.

   As for the evaluators' risk assessment, there is no indication that this
   assessment adversely impacted the source selection. In this regard, the
   evaluators accepted EDO's price without adjustment, as they were required
   to do given that this aspect of the procurement was fixed-price and any
   cost risk was EDO's, not the agency's. Supplemental Contracting Officer's
   Statement at 9. Further, the SSA was aware that EDO's basic effort MPC and
   fixed-price options were lower than Raytheon's and that EDO's blue/low
   risk rating under the system performance subfactor was based in part on
   its having surpassed the affordability objective for the production units.
   While the SSA was also aware that the evaluators considered the production
   price to be unrealistic and risky, there is no evidence that these
   assessments were considered in, or had any impact on, his award decision.
   Rather, the record shows that the SSA's consideration of risk was
   associated only with the basic cost--and not the fixed-price
   option--aspect of the procurement. Specifically, the SSA noted that
   "[w]hile EDO's proposal offered a lower price, its . . . approach, . . .
   was not adequately supported by sufficient proposal hours, and was
   determined to be high risk in its ability to deliver a product to the
   government without overruns to their proposed cost and an extension in
   schedule. It was determined that it is not in the best interest of the
   government to accept the higher risk proposal, although proposed at a
   lower cost." AR, Tab 17 at 2. Under these circumstances, we find nothing
   unreasonable in this aspect of the evaluation.

   Calculation of OGC and GFP

   EDO asserts that the MPC calculation is flawed because it includes no cost
   for OGC and GFP. In EDO's view, calculation of these costs could have
   given it an advantage over Raytheon, since a more experienced offeror such
   as itself might require less GFP and its possession of pre-certified
   testing equipment could lessen the OGC factor. EDO Comments at 26.

   This argument is without merit. The agency did not cost GFP for either
   offeror, since GFP cost was to be based on offerors' "proposed use" (RFP
   sect. M.1.6.3(a)(3)), and neither offeror proposed any GFP beyond that
   listed in the RFP. The agency did not cost OGC because government test and
   integration costs were to be handled under a separate contract and were
   otherwise included within the 5-percent risk calculation for each offeror.
   Supplemental Contracting Officer's Statement at 8. While EDO disagrees
   with the agency, it has not established that any different amount should
   have been included. We conclude that the evaluation in this area was
   reasonable.

   PROPOSAL RISK ASSESSMENT

   EDO asserts that the agency failed to take its experience into account
   when rating it as high risk under the systems engineering subfactor.

   In reviewing a protest of an agency's proposal evaluation, our review is
   confined to a determination of whether the agency acted reasonably and
   consistent with the terms of the solicitation and applicable statutes and
   regulations. United Def. LP, B-286925.3 et al., Apr. 9, 2001, 2001 CPD
   para. 75 at 10-11.

   The risk assessment here was unobjectionable. The RFP provided for the
   evaluation of proposal risk associated with the offerors' approach
   covering the various mission capability subfactors to determine the
   likelihood and consequence of performance shortfalls, schedule slips,
   increased costs, the need for increased government oversight, and the
   likelihood of unsuccessful contract performance. RFP sect. M.1.4. A high
   risk rating was defined as "[l]ikely to cause significant disruption of
   schedule, increased cost or degradation of performance." Id. EDO received
   evaluation credit for its past experience, as reflected in its superior
   technical and past performance scores. However, EDO received a high
   proposal risk rating due to its significant understatement of labor hours
   necessary to accomplish its proposed tasks. With respect to proposal risk
   assessments, the appropriate point of departure is the proposal, not the
   agency's experience with the offeror, no matter how good its performance
   may have been. Modern Techs. Corp. et al., B-278695 et al., Mar. 4, 1998,
   98-1 CPD para. 81 at 7. While EDO's proposal referred to its experience
   and success in relevant technology, it simply failed to provide sufficient
   support for its proposed effort in its cost proposal as required by RFP
   sect. L.5.1.1. Consequently, the evaluators added labor hours and
   determined that EDO's failure to propose them initially indicated a high
   risk of unsuccessful performance, notwithstanding its experience. We find
   nothing unreasonable in this determination.

   MEANINGFUL DISCUSSIONS

   In its comments on the agency's report, EDO asserts that the agency
   improperly failed to hold discussions with it concerning its understated
   labor hours, risk associated with its production prices, and alleged
   negative past performance information. EDO asserts that, had the agency
   brought up these matters in discussions, it could have satisfactorily
   defended its proposal and past performance. EDO Comments at 12-24. Protest
   grounds such as this must be raised within 10 days after the basis for
   protest is known or should have been known. Bid Protest Regulations, 4
   C.F.R. sect. 21.2(a)(2) (2005). Here, with regard to the labor hour and
   production pricing issues, the agency provided the evaluation documents on
   which these arguments are based during the debriefing held on June 30,
   2005 and in the agency report filed on August 11. Information concerning
   EDO's past performance was provided to the protester in a supplemental
   document disclosure on August 18.

   However, EDO raised these issues for the first time in its comments, which
   were filed on August 30, more than 10 days after it received these
   documents. Accordingly, these protest grounds are untimely and will not be
   considered.[4]

   The protest is denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] The color ratings included blue/exceptional, green/acceptable,
   yellow/marginal, and red/unacceptable. Risk ratings included low,
   moderate, and high. Past performance ratings included exceptional/high
   confidence, very good/significant confidence, satisfactory/confidence,
   marginal/little confidence, and unsatisfactory/no confidence.

   [2] EDO asserts that our Office should not consider these documents
   created in response to the protest because they were not contemporaneous
   evaluation documents. See Boeing Sikorsky Aircraft Support, B-277263.2,
   B-277263.3, Sept. 29, 1997, 97-2 CPD para. 91 at 15. While we accord
   greater weight to contemporaneous source selection materials, we will
   nonetheless consider the entire record, including statements and arguments
   made in response to a protest, in considering whether an agency's source
   selection decision is supportable. Id. Post-protest explanations that
   provide a detailed rationale for contemporaneous conclusions may, as is
   the case here, simply fill in previously unrecorded details, and will
   generally be considered in our review of the rationality of the selection
   decision as long as those explanations are credible and consistent with
   the contemporaneous record. Jason Assocs. Corp., B-278689 et al., Mar. 2,
   1998, 98-1 CPD para. 67 at 6.

   [3] EDO also asserts that the additions are improper because adding 3,131
   hours to its [deleted] proposed hours results in a total of [deleted] 
   hours, which is more than a full-time equivalent over a 20-month period.
   In this regard, EDO notes that the agency based its calculation on 92
   weeks, an average of 41 hours per week, when 20 months actually
   encompasses 87 weeks and a standard work year is 2,000 hours, less than
   the 41 hours per week used by the evaluators. EDO Supplemental Comments at
   13, n.12. EDO has not provided any calculation of the impact of the cost
   of the alleged excess hours. Our own calculations indicate that adjusting
   the hours as suggested by EDO would result in an MPC of $2,589,139 instead
   of the $2,739,118 used by the agency, a difference of $149,979. Since the
   SSA specifically determined that EDO's lower cost proposal did not
   outweigh the risk associated with it, and therefore awarded the contract
   to Raytheon at its higher MPC of $3,103,972, there is no reason to believe
   that this somewhat reduced MPC would have had any effect on the tradeoff
   and award decision.

   [4]In any event, none of these grounds has merit. Despite the RFP's
   requirements for BOEs, EDO did not provide them until the third round of
   discussions. It was at this time that the agency was able to identify
   EDO's detailed basis for the hours it had proposed. Where as here, an
   offeror introduces defects into its proposal in its FPR, it runs the risk
   that the agency will exercise its discretion not to reopen discussions.
   Metcalf Constr. Co., Inc., B-289100, Jan. 14, 2002, 2002 CPD para. 31 at
   5. As to the production price, as discussed above, the agency accepted it,
   simply noting the apparent risk. Similarly, with regard to past
   performance, the record reflects that the agency did not downgrade EDO's
   proposal for any past performance weakness and, in fact, rated it as
   significant confidence, the second highest rating. Since these two matters
   had no adverse impact on EDO's evaluation, there was no need for the
   agency to raise them in discussions.