TITLE: B-297235; B-297235.2, Global, A 1st Flagship Company, December 27, 2005
BNUMBER: B-297235; B-297235.2
DATE: December 27, 2005
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B-297235; B-297235.2, Global, A 1st Flagship Company, December 27, 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: Global, A 1^st Flagship Company

   File: B-297235; B-297235.2

   Date: December 27, 2005

   William A. Roberts III, Esq., Richard B. O'Keeffe, Jr., Esq., Michael S.
   Caldwell, Esq., and William J. Grimaldi, Esq., Wiley Rein & Fielding LLP,
   for the protester.

   Michael J. Gardner, Esq., Troutman Sanders LLP, for George G. Sharpe,
   Inc., an intervenor.

   Robert J. McMullen, Esq., and Lori S. Chofnas, Esq., Department of the
   Navy, for the agency.

   Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   In procurement that placed greater importance on technical factors,
   agency's establishment of a competitive range of one, which consisted of
   the awardee's technically unacceptable initial proposal and which excluded
   protester's "highly acceptable" technical proposal, on the basis that
   protester's evaluated cost/price was 15 percent higher than the awardee's,
   was not reasonable where the agency's cost/price evaluation reflected
   various flaws and erroneous assumptions.

   DECISION

   Global, A 1^st Flagship Company protests the Department of the Navy's
   award of a contract to George G. Sharpe, Inc. under request for proposals
   (RFP) No. N00140-05-R-0042. The solicitation sought proposals to operate
   and maintain East Coast inactive ships for the Naval Inactive Ship
   Management Office (NISMO) in Philadelphia, Pennsylvania. Global maintains
   that the agency's establishment of a competitive range consisting of only
   Sharpe's proposal reflected various evaluation errors and lacked a
   reasonable basis.

   We sustain the protest.

   BACKGROUND

   In May 2005, the agency issued solicitation No. N00140-05-R-0042 seeking
   proposals to operate and maintain East Coast inactive ships under a
   cost-reimbursement contract for a base period and four 1-year option
   periods. The solicitation provided that the successful offeror will
   furnish direct labor, supervision, administrative support, and (with the
   exception of government furnished property) all materials necessary to
   perform the solicitation's requirements. RFP at 16. Global is the
   incumbent contractor for the protested procurement; Sharpe holds a similar
   contract for operation and maintenance of inactive ships on the West
   Coast.

   The solicitation stated that proposals would be evaluated on the basis of
   cost/price and the following technical evaluation factors which were
   listed in descending order of importance: technical and management
   approach; corporate experience; past performance;[1] personnel resources,
   and small business participation. RFP at 106. Offerors were advised that
   technical factors were more important than cost/price. Id. The
   solicitation further provided that "[i]f [an] offeror's proposal is
   determined unacceptable in any of the technical evaluation factors and/or
   subfactors, the proposal may not be considered for award." RFP at 107.

   With regard to cost/price proposals, the solicitation listed the
   government's estimated levels of required staffhours, by labor category
   and contract period;[2] offerors were required to propose labor rates, by
   contract period, for the various labor categories. With regard to costs
   for materials, the solicitation contained what the contracting officer
   described as "plug-in" numbers, Hearing Transcript (Tr.) at 21;[3] that
   is, numbers that, for purposes of the cost/price evaluation, would be
   applied to all offerors' proposals.[4] However, the solicitation did not
   specifically identify the items the government intended to be reflected in
   the materials "plug-in" numbers.[5] In this regard, the solicitation
   stated: "the term `material' includes supplies, equipment, hardware,
   automatic data processing equipment, and software." RFP at 62. However,
   the solicitation also stated, "The Government shall furnish all
   [necessary] tools/equipment/vehicles/ property/ADP/other equipment, as
   specified in Attachments 6, 7, 8 and 9. . . . In the event the material is
   not available, the Contractor is authorized to procure material which will
   be reimbursed as an Other Direct Cost (ODC)." RFP at 29. The agency
   declined to provide further information regarding the items contemplated
   by the materials "plug-in" numbers, publishing the following question and
   answer in a solicitation amendment:

   Question: . . . Would the government please provide a breakdown of the . .
   . Material costs that it has provided?

   Answer: The solicitation is clear on its face.

   Agency Report, Tab 3, RFP amend. 1, at 10.

   Eight offerors, including Global and Sharpe, submitted proposals by the
   June 23, 2005 closing date; the proposals were subsequently evaluated with
   regard to cost/price and technical factors.[6] Five of the other offerors'
   technical proposals were rated "U(b)"--that is, "unacceptable, not capable
   of being made acceptable"--and were not further considered for award.[7]
   Agency Report at 5. Global's technical proposal was rated [deleted] under
   [deleted] and "HA" overall. Id. Sharpe's proposal was rated [deleted]
   under [deleted];[8] overall, Sharpe's proposal was rated "U(a)."[9] Agency
   Report at 6.

   In comparing Global's and Sharpe's technical proposals, the agency
   concluded that [deleted][10];[11] and that, overall, Global's "highly
   acceptable" technical proposal was superior to Sharpe's "unacceptable, but
   capable of being made acceptable" proposal. Id.

   In evaluating the cost/price proposals, the contracting officer performed
   a cost realism analysis, making various adjustments for purposes of the
   evaluation. For example, in evaluating Sharpe's proposal, the agency found
   that Sharpe had failed to propose any labor costs under [deleted] labor
   categories for option years [deleted].[12] The contracting officer
   concluded that this omission was a clerical error on Sharpe's part, and,
   in evaluating Sharpe's cost/price, he projected costs in those categories
   for the periods omitted from Sharpe's proposal. In evaluating Global's
   cost/price proposal, the contracting officer, among other things, compared
   the costs that Global had proposed for specific ODCs against the amounts
   that Global had billed for similar items under the prior contract during
   fiscal year 2004 (FY 04). For items where the FY 04 costs were higher than
   those proposed, the contracting officer increased Global's proposed costs
   to the FY 04 levels; for items where the FY 04 costs were lower than those
   proposed, the contracting officer applied the proposed amounts. Tr. at
   83-85. Overall, after various adjustments, the evaluated cost/price
   associated with Sharpe's technically unacceptable proposal was
   $36,364,589; the evaluated cost/price for Global's highly acceptable
   technical proposal was $41,882,892.[13] Agency Report, Tab 12, Competitive
   Range Determination, at 9.

   Based on the technical and cost/price ratings, the contracting officer
   established a competitive range consisting of only Sharpe's proposal. In
   excluding Global's higher-technically-rated proposal from the competitive
   range, the contracting officer relied on the evaluated cost/price
   difference between the two proposals, stating: "[T]he technical benefit
   associated with Global is greatly outweighed by the significant difference
   in realistic cost (Global is 15.2% / $5,518,303.30 higher than Sharpe.)
   Therefore, Global's combined technical and cost/price proposal would not
   be considered among the most highly rated." Agency Report, Tab 12, at 11.
   The contracting officer added, "[T]here is no reasonable expectation that
   Global would submit a FPR [final proposal revision] with a significantly
   lower cost realistic price." Id. At the GAO hearing, the contracting
   officer further testified that, based on Global's evaluated cost/price
   being 15 percent higher than Sharpe's, he concluded that Global had no
   reasonable chance for award. Tr. at 29.

   Thereafter, the agency conducted discussions with Sharpe, during which
   Sharpe revised its proposal in a manner that complied with the
   solicitation requirements regarding [deleted] and submitted proposed costs
   for the labor categories it had omitted from its initial proposal.
   Following these revisions, the agency evaluated Sharpe's revised proposal
   as "highly acceptable" and awarded a contract to Sharpe. This protest
   followed.

   DISCUSSION

   Global protests that the contracting officer's determination to exclude
   Global's proposal from the competitive range was based on various errors
   and lacked a reasonable basis. We agree.

   The Federal Acquisition Regulation (FAR) provides that an agency "shall
   establish a competitive range comprised of all of the most highly rated
   proposals." FAR sect. 15.306(c)(1). Although agencies are not required to
   retain proposals in the competitive range that the agency reasonably
   concludes have no realistic chance for award, SDS Petroleum Prods., Inc.,
   B-280430, Sept. 1, 1998, 98-2 CPD para. 59 at 5, where, as here, a
   determination to exclude a proposal is based entirely on the proposal's
   higher evaluated cost, the agency's cost realism analysis must be
   reasonably thorough, accurate and complete. See SGT, Inc. B-294722.4, July
   28, 2005, 2005 CPD para. 151. Where an agency's cost realism analysis
   reflects material errors or flawed assumptions it cannot be considered
   reasonable. Future-Tec Mgmt. Sys, Inc., B-283793, Mar. 20, 2000, 2000 CPD
   para. 59.

   Here, as discussed in more detail below, the record establishes that the
   agency's cost realism analysis and its cost/price evaluation contained
   various errors and, as a result, the agency's competitive range
   determination lacked a reasonable basis. Further, the record does not
   reasonably support the contracting officer's determination that Global
   could not significantly lower its evaluated cost/price in response to
   discussions.

   We initially note that, in this procurement, there is no dispute that the
   direct labor costs proposed by Global and Sharpe--which constitute the
   most significant portion of this services contract--were very nearly the
   same,[14]Agency Report, Tab 8 at 10, 16; accordingly, in assessing the
   bases for the overall cost/price difference between the two proposals,
   direct labor costs are not a material part of that difference. The
   contracting officer also acknowledged that the cost/price difference
   between the two proposals did not flow from some unique aspect of the
   offerors' technical proposals (for example, a unique efficiency
   incorporated in Sharpe's proposal or a unique inefficiency attributable to
   Global's proposal). Tr. at 31-33, 79-80. Rather, the contracting officer
   testified that there were two primary cost/price elements that formed the
   basis for the difference in the offerors' evaluated cost/price: other
   direct costs (ODCs) and fee. Tr. at 32. With regard to fee, Global
   proposed a total fee of [deleted], which the agency assigned an evaluated
   cost/price value of [deleted]. Agency Report, Tab 18, at 1; Tab 8, at 10.
   Sharpe proposed a total fee of [deleted], which the agency assigned an
   evaluated cost/price of [deleted]. Agency Report, Tab 19, at 1, 2; Tab 8,
   at 16.

   With regard to ODCs, Global proposed [deleted], which reflected the costs
   for various specifically described items, as required by the
   solicitation;[15] Global's cost/price proposal also reflected the
   "plug-in" numbers for materials. Agency Report, Tab 8, at 10. In contrast,
   Sharpe proposed [deleted]. Agency Report, Tab 8, at 16. Following its
   debriefing, Global protested that either several of the items Global
   proposed as ODCs represented costs that Sharpe would, of necessity, incur
   and that these costs were improperly omitted from Sharpe's proposal or,
   alternatively, that the agency believed the costs for many of Global's
   itemized ODCs were covered under the materials "plug-in" number, in which
   case the agency should have conducted discussions and permitted Global to
   revise its proposal to eliminate double-counting of costs.

   The agency does not dispute that many of the items proposed by Global as
   ODCs reflect costs that both offerors are likely to incur. Nonetheless,
   the agency initially took the position that all of the ODC costs proposed
   by Global were covered in Sharp's indirect cost pools.[16] Agency Report,
   Tab 8, at 33. Upon further development of the protest record, the agency
   acknowledged that some of the costs it initially asserted were covered
   within Sharpe's indirect cost pools were, in fact, routinely billed as
   ODCs under Sharpe's similar West Coast contract. Tr. at 105-06, 116. Based
   on disclosure of this information, the agency now concedes that Sharpe's
   evaluated cost/price should have been higher. Agency Report at 17; Agency
   Post-Hearing Brief at 12.

   Next, as discussed above, in performing its cost realism analysis of
   Global's proposal, the agency compared Global's proposed ODC's to the
   levels Global had incurred in FY 04. However, the record establishes that
   the level of direct labor performed by Global during FY 04 was
   significantly higher than the level of direct labor projected for each of
   the five contract periods. Further, the agency acknowledges that the
   amount of costs that will be incurred for several of the ODC categories
   proposed by Global are directly related to the levels of labor hours that
   are performed. Accordingly, following development of the protest record,
   including the GAO hearing, the agency acknowledged that the costs Global
   proposed for such related ODC categories "should not have been raised for
   cost realism purposes." Agency's Post-Hearing Brief at 12.

   The record also establishes that in performing the cost realism analysis
   of Sharpe's cost/price proposal, prior to the competitive range
   determination, the contracting officer understated Sharpe's evaluated
   cost/price with regard to fee. Specifically, as discussed above, Sharpe's
   initial proposal failed to include labor costs for various labor
   categories that were required by the solicitation. Based on his
   determination that this was a clerical error, the contracting officer
   projected the labor costs that Sharpe's proposal should have included;
   however, in making this projection, the contracting officer failed to
   apply any fee to the projected labor costs--[deleted]. The agency
   acknowledges that the contracting officer mistakenly "failed to include"
   any fee associated with the projected labor costs. Agency Post-Hearing
   Brief at 13.

   As a result of the agency's various mistakes and erroneous assumptions,
   the agency acknowledges that the $5.5 million difference in evaluated
   cost/price of the two offerors was overstated. In its report responding to
   Global's protest, the agency suggested that the properly evaluated
   cost/price difference between the two proposals should have been $4.5
   million. Agency Report at 17. Following the GAO hearing, the agency
   further lowered its calculation of the proper differential, stating that
   the evaluated cost/price difference between the two proposals should have
   been [deleted].[17] Agency Post-Hearing Brief at 2 n.2. Nonetheless, the
   agency asserts that this [deleted] cost/price difference between the two
   proposals (which constitutes a difference of approximately [deleted]
   percent) would still have resulted in exclusion of Global's proposal from
   the competitive range. Accordingly, the agency maintains that Global's
   protest should be denied despite the agency's various cost/price
   evaluation errors. We reject the agency's argument.

   In light of the multiple errors in the agency's cost/price evaluation, we
   find no reasonable basis for the agency's exclusion of Global's proposal
   from the competitive range. Further, we give no weight to the agency's
   post-protest assertions that a cost/price differential of [deleted]
   percent between the two proposals would have reasonably led to the same
   result.[18] As a general rule, an agency's post-protest arguments that are
   based on judgments the agency asserts it would have made are afforded
   little weight where, as here, such judgments are made in the heat of
   litigation and based on facts that were not previously considered and that
   are materially different from those on which the agency relied in making
   the original decision. KEI Pearson, Inc., B-294226.3, B-294226.4, Jan. 10,
   2005, 2005 CPD para. 12 at 8 n.13; Boeing Sikorsky Aircraft Support,
   B-277263.2, B-277263.3, Sept. 29, 1977, 97-2 CPD para. 91 at 15.

   In addition to the agency's flawed cost/price evaluation, the record does
   not reasonably support the contracting officer's conclusion that, if
   Global had been included in discussions, it could not have been reasonably
   expected to significantly lower its evaluated cost/price. Agency Report,
   Tab 12, at 11.

   First, as discussed above, the record establishes that one of two primary
   bases for the cost/price difference between the two proposals was the
   difference in the offerors' respective fees. Global proposed an evaluated
   fee of [deleted]; Sharpe proposed an evaluated fee of [deleted]. Agency
   Report, Tab 8, at 10, 16. Global maintains that, had discussions been
   conducted, it would have lowered its proposed cost/price in various ways,
   including reducing its proposed fee. Declaration of Global President, Oct.
   27, 2005, at 1, 3. The contracting officer expresses doubt that Global
   would have lowered its fee during discussions, noting that he would not
   have raised the issue of fee, specifically--or of costs, generally--with
   Global during discussions.[19] In that regard, the contracting officer
   further testified that it's "not my job" to "get every dime on the price
   or the fee in this case."[20] Tr. at 138.

   Similarly, in support of Global's assertion that it would have lowered its
   cost/price during discussions, Global identified specific portions of its
   cost/price proposal (none of which would have affected its technical
   approach) that would have been revised. For example, Global provided
   information indicating that, shortly after submission of its proposal,
   Global successfully negotiated [deleted], asserting that, had the agency
   conducted discussions, it would have revised its proposal to reflect the
   lower rates. Declaration of Global President, Oct. 27, 2005, at 1-2. In
   discussing this issue during the GAO hearing, the contracting officer
   asserted that the information Global had provided was not "germane." In
   this regard, he testified: "The Navy may have benefited from that
   [reduction in Global's [deleted] costs] but that's not germane to the
   decision. I wasn't trying to project so much what happened but say what's
   right in front of me." Tr. at 59.

   The purpose and responsibility of a procuring agency in conducting
   discussions is to lead offerors into areas of their proposals that need
   revision. See, e.g., Creative Mgmt. Tech., Inc., B-266299, Feb. 9, 1996,
   96-1 CPD para. 61. More specifically, in conducting meaningful
   discussions, agencies should point out aspects of an offeror's proposal
   which, unless addressed, will prevent that offeror from having a
   reasonable chance for award. See, e.g., Northrop Grumman Info. Tech.,
   Inc., B-290080 et al., June 10, 2002, 2002 CPD para. 136.

   We cannot, of course, reach a definitive conclusion as to what the result
   of discussions with Global would have been. The record is clear, however,
   that at the time of the competitive range determination, Global's higher
   evaluated cost/price was the only aspect of its proposal precluding its
   selection for award. Accordingly, particularly in a procurement such as
   this that emphasized technical factors over cost/price, discussions with
   Global would have required that the contracting officer raise the issue of
   Global's cost/price in order for those discussions to be meaningful and
   legally adequate. Id. Based on our review of the entire record, we find
   inadequate support for the contracting officer's determination that Global
   could not have sufficiently lowered its cost/price or fee in response to
   discussions to make it competitive for award. Accordingly, we conclude it
   was unreasonable for the agency to establish a competitive range
   consisting of only Sharpe's technically unacceptable proposal, and
   excluding Global's "highly acceptable" proposal, solely on the basis of
   what the agency now acknowledges was only a [deleted] percent difference
   between the offerors' cost/price proposals.

   The protest is sustained.

   RECOMMENDATION

   In light of our conclusion above that, based on the facts presented here,
   the agency could not reasonably exclude Global's proposal from the
   competitive range based solely on the cost/price differential between
   Sharpe's and Global's proposals, we recommend that the agency reopen
   negotiations, include Global's proposal in the competitive range, conduct
   discussions with Sharpe and Global, request revised proposals, and make a
   new source selection decision, fully documenting the basis for that
   decision in order to facilitate subsequent review. If Global's proposal is
   selected for award, the agency should terminate Sharpe's contract and
   award a contract to Global. We also recommend that Global be reimbursed
   its reasonable costs of filing and pursuing this protest. 4 C.F.R. sect.
   21.8(d)(1) (2005). The protester should submit its certified claim,
   detailing the time expended and costs incurred, directly to the agency
   within 60 days of receiving this decision. 4 C.F.R. sect. 21.8(f)(1).

   Anthony H. Gamboa

   General Counsel

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

   [1] The solicitation provided that corporate experience and past
   performance were of equal importance.

   [2] Total estimated staffhours for the base period and four option periods
   were 197,400, 176,720, 197,400, 165,440, and 139,120, respectively. RFP at
   7-8.

   [3] Our Office conducted a hearing in connection with this protest, during
   which testimony was provided by the contracting officer.

   [4] The "plug-in" numbers for materials, by contract period, were:
   $2,616,520, $2,147,833, $2,147,833, $1,313,900, and $760,000. RFP at 107.

   [5] At the GAO hearing, the contracting officer acknowledged that, during
   the procurement, he believed the "plug-in" numbers reflected the
   historical annual costs for materials. Tr. at 22, 58. However, he also
   acknowledged that, following submission of Global's protest, he learned
   that these "plug-in" numbers were significantly higher than the historical
   annual costs for materials. Tr. at 49, 95.

   [6] Technical proposals were evaluated using adjectival ratings of "highly
   acceptable" or "HA"; "acceptable" or "A"; "unacceptable, but capable of
   being made acceptable" or "U(a)"; and "unacceptable, not capable of being
   made acceptable" or "U(b)." Agency Report at 5 n.3.

   [7] The other proposal not at issue here was rated "U(a)." None of the
   other offerors have protested any aspect of this procurement; accordingly,
   our decision does not further discuss their proposals.

   [8] [deleted]

   [9] As noted above, the solicitation expressly provided that "[i]f [an]
   offeror's proposal is determined unacceptable in any of the technical
   evaluation factors and/or subfactors, the proposal may not be considered
   for award." RFP at 107.

   [10] [deleted]

   [11] [deleted]

   [12] Sharpe's proposal did not include labor costs in option years
   [deleted] for the labor categories of [deleted]. Agency Report, Tab 9, at
   24, 26, 28. The government's total estimated hours for these labor
   categories during these contract periods were [deleted], respectively. Id.

   [13] The government's estimated value for this contract was $48,853,170.
   Agency Report, Tab 8, at 3.

   [14] A collective bargaining agreement is in place with regard to much of
   the direct labor that either offeror will use to perform this contract.
   Tr. at 12.

   [15] The solicitation provided that, in proposing ODCs, an offeror "shall
   include an itemization of those costs." RFP at 104.

   [16] The agency states that Sharpe holds various other government
   contracts and, accordingly, maintains various indirect cost pools; in
   contrast, Global holds only this government contract and, accordingly,
   direct charges some costs that Sharpe would apply to an indirect cost
   pool. Agency Report at 11; Tr. at 26.

   [17] Specifically, the agency stated: "The net impact of correcting for
   mistakes and considering new issues raised during the protest amounts to a
   cost realistic reconciliation of approximately [deleted]. . . . This still
   results in a cost realistic difference of approximately [deleted] between
   the two offerors." Agency Post-Hearing Brief at 2 n.2.

   [18] Even if the agency's cost/price evaluation did not reflect multiple
   errors, it is not clear, based on the facts presented, that the agency
   could reasonably have created a competitive range consisting of only
   Sharpe's technically unacceptable proposal, and excluding Global's highly
   acceptable proposal, based solely on a 15-percent higher evaluated
   cost/price without some basis for concluding that a cost/price reduction
   would negatively affect its technical approach. Cf. Systems Integrated,
   B-225055, Feb. 4, 1987, 87-1 CPD para. 114 (protest of exclusion from
   competitive range denied where protester's proposal offered a 30-percent
   higher evaluated cost/price, and protester might well have been required
   to reduce the quality of its proposed labor mix or weaken the favorable
   technical aspects of its offer in order to reduce the 30-percent
   cost/price differential).

   [19] In this regard, the following exchange with the contracting officer
   took place:

   Q.    I guess the question is more directly, couldn't Global have lowered
   its fee had they been included in discussions?

   A.     Global may have. [However] . . . if I had gone out in discussions
   with Global, I would not have told Global, ["] Dear Global, I would like
   you to lower your fee.["] I would not have done that. . . .

   Q.    . . . [B]ut had you gone out . . . and conducted discussions, you
   certainly would have said ["]Dear Global, your price is too high,["]
   wouldn't you?

   A.     No, sir.

   Tr. at 34-35.

   [20] Again, the following exchange with the contracting officer took place
   during the GAO hearing:

   Q.    [A]bsent knowing that [Global] wouldn't [lower their fee], why
   didn't you include them in the competitive range? . . . .

   A.     . . . It's not my job - I don't know if it was ever my job but I
   don't think my peers and my professionals and everybody thinks it's my job
   to go out and get every dime on the price or the fee in this case and get
   the cheapest fee. That's not my job, I would suggest with all due respect.

   Tr. at 137-38.