TITLE: B-297413; B-297413.2; B-297413.3, Puglia Engineering of California, Inc., January 20, 2006
BNUMBER: B-297413; B-297413.2; B-297413.3
DATE: January 20, 2006
******************************************************************************************
B-297413; B-297413.2; B-297413.3, Puglia Engineering of California, Inc., January 20, 2006

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

   Decision

   Matter of: Puglia Engineering of California, Inc.

   File: B-297413; B-297413.2; B-297413.3

   Date: January 20, 2006

   Mark G. Jackson, Esq., Derek D. Crick, Esq., and G. Matthew Koehl, Esq.,
   Preston Gates & Ellis LLP, for the protester.

   C. Scott Penner, Esq., John C. Dippold, Esq., and Sandip Soli, Esq.,
   Carney Badley Spellman, PS, for Todd Pacific Shipyards Corporation, an
   intervenor.

   Talbot J. Nicholas, II, Esq., Department of Homeland Security, United
   States Coast Guard, for the agency.

   Paula A. Williams, Esq., and Michael R. Golden, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Protest that the agency's evaluation of proposals was unreasonable and
   inconsistent with the stated evaluation criteria is denied where the
   record shows that the agency's evaluation was reasonable, and that the
   solicitation's evaluation criteria were fairly and consistently applied in
   the agency's assessment of both the protester's and the awardee's
   proposals.

   2. Source selection authority (SSA) performed a reasonable price/technical
   tradeoff in determining that the awardee's proposal represented the best
   value, where the SSA's judgment, based upon the results of a reasonable,
   documented technical evaluation, demonstrates the SSA's understanding of
   the evaluated strengths and weaknesses of the respective proposals, and
   shows a reasonable weighing of the offerors' respective technical and
   price advantages consistent with the solicitation's evaluation criteria.

   DECISION

   Puglia Engineering of California, Inc. (PECI) protests the award of a
   contract to Todd Pacific Shipyards Corporation under request for proposals
   (RFP) No. HSCG85-05-R-625306, issued by the Department of Homeland
   Security, United States Coast Guard, Maintenance & Logistics Command
   Pacific, for dockside maintenance services. PECI argues that the agency
   conducted a flawed evaluation of proposals and failed to perform a
   reasonable price realism evaluation; PECI contends that the selection
   decision was flawed for these reasons, and was improper on its face.

   We deny the protest.

   BACKGROUND

   The objective of this procurement is to improve delivery of maintenance
   and dockside ship repair services for the HEALY, a Coast Guard vessel. The
   HEALY is a unique research vessel used by both the national and
   international scientific communities and has the most rigorous mission
   schedule in the Coast Guard. The HEALY's primary mission generally lasts
   from late May until mid-November when the vessel returns to its homeport
   in Seattle, Washington for its annual winter maintenance. Since its
   commissioning, the Coast Guard has not been able to adequately perform
   vessel maintenance; therefore, the agency decided to issue a
   multiple-year, multiple-option ship repair contract in order to achieve
   its maintenance objectives and still serve the scientific community.
   Agency Report (AR) exh. 6, Acquisition Plan, at 1.

   The RFP, issued as a small business set-aside, contemplated the award of a
   fixed-price contract for a 1-year base period and four 1-year option
   periods. The services required are represented by four distinct types of
   efforts: (1) contractor advance planning for dockside availabilities; (2)
   contractor execution of dockside availabilities; (3)
   interavailability/voyage repairs; and (4) provisioned item procurement
   (material/equipment purchases). RFP at 3-10.

   The solicitation advised offerors that, in the award selection, the
   combined non-price factors would be considered significantly more
   important than price. RFP amend. 5, at 3. Under the evaluation factor for
   assessing technical quality, the solicitation established the following
   five technical elements, listed in descending order of importance:[1] (1)
   understanding scope of responsibilities (with four associated
   sub-elements);[2] (2) ability to manage purchasing /subcontractor effort
   (with two associated sub-elements); (3) contractor facilities (with one
   associated sub-element); (4) business base information (with one
   associated sub-element); and (5) past performance. RFP at 39-40. Proposals
   were to be evaluated under the technical factor to determine the extent to
   which the offerors exhibited a clear understanding of the work
   requirements, the means required to fulfill the requirements, and the
   extent to which they demonstrated an ability to meet or exceed the RFP
   requirements. SSP at 4-5; RFP at 39-40.

   With regard to price, offerors were required to propose fixed prices for
   each of the contract line item numbers (CLIN) listed in section B of the
   solicitation that comprised various aspects of the maintenance and repair
   work. Included in section B was a base item, CLIN 0001, for planning
   fiscal year 2006 dockside availabilities, and 11 optional items (CLIN 0002
   through CLIN 0012). RFP at 2. The total evaluated price was to consist of
   the evaluation of the base and optional item prices and would be used
   exclusively for evaluation purposes.[3] RFP amend. 5, at 2. The
   solicitation included a document designated as attachment J.3, which was a
   comprehensive list of all tasks to be performed under each CLIN listed in
   section B and offerors were to provide detailed pricing information for
   each task listed on attachment J.3. RFP amend. 5, at 2. The RFP stated
   that proposed prices would be analyzed for price realism and
   reasonableness and cautioned that proposals which were unrealistically low
   in price would be considered indicative of the offeror's lack of
   understanding of the complexity and risks in the solicitation
   requirements. Id. at 3.

   Three firms--PECI, Todd, and a third offeror that is not a party to this
   protest--submitted initial proposals.[4] The agency's technical evaluation
   team (TET) evaluated each proposal, identifying strengths, weaknesses and
   deficiencies, and assigning adjectival ratings under each technical
   element and sub-element. The contract specialist separately evaluated
   price proposals and from this evaluation, he prepared written discussion
   questions regarding the offerors' price proposals. All three initial
   proposals were included in the competitive range. AR exh. 19, TET Interim
   Report; AR exh. 20, Negotiation Memorandum, at 4-5, and attach. B.

   Written and oral discussions were held, and final proposal revisions (FPR)
   were requested, received, and evaluated. The TET issued a final technical
   evaluation report which indicated the consensus scores and the technical
   ranking of the offerors. AR exh. 21, TET Final Report, at 12-21.

   The following matrix summarizes the overall technical evaluation results:

   +------------------------------------------------------------------------+
   |                                          |  PECI  | Todd  | Offeror C  |
   |------------------------------------------+--------+-------+------------|
   |OVERALL TECHNICAL (Merit/Risk)[5]         |  S/M   |  G/L  |  M to S/M  |
   |------------------------------------------+--------+-------+------------|
   |A. Understanding Scope of Responsibilities|  S/M   |  G/L  |    S/M     |
   |------------------------------------------+--------+-------+------------|
   |B. Ability to Manage Purchasing/          |  S/M   |  E/L  |    S/M     |
   |Subcontractor Effort                      |        |       |            |
   |------------------------------------------+--------+-------+------------|
   |C. Contractor Facilities                  |  G/L   |  G/L  |    M/H     |
   |------------------------------------------+--------+-------+------------|
   |D. Business Base Information              |  S/M   |  S/M  |    M/H     |
   |------------------------------------------+--------+-------+------------|
   |E. Past Performance                       |  G/L   |  G/L  |    S/M     |
   +------------------------------------------------------------------------+

   AR exh. 21, TET Final Report, at 4-5.

   The final evaluation report described the consensus evaluation findings
   for each offeror under the technical factor. The TET found Todd's FPR
   eliminated almost all weaknesses identified by the agency and in some
   instances Todd's FPR presented additional strengths. For example, under
   the most important technical element--understanding scope of
   responsibilities--the evaluators identified two additional strengths in
   Todd's FPR. Specifically, the TET found that Todd's final proposal
   demonstrated a long history of completing non-scheduled repairs as
   described in CLIN 0002 which the TET deemed a significant capability that
   greatly improved Todd's ability to successfully perform the services. The
   second additional strength noted under this technical element was Todd's
   demonstration of its strong history in translating third party designs, in
   identifying problem areas, in recommending solutions, and in working with
   the customer to achieve its satisfaction. Id. at 17-18.

   The TET evaluated PECI's final proposal as markedly improved under two
   technical elements--understanding scope of responsibilities and ability to
   manage purchasing/subcontractor efforts. As a result, many weaknesses were
   eliminated, but the TET concluded that PECI's FPR demonstrated no new
   evaluated strengths. However, under the past performance element, the
   protester's rating improved from marginal to good. Id. at 12-16.

   In performing the price reasonableness and realism analyses, the contract
   specialist compared and contrasted various elements of the offerors' final
   proposed prices. Specifically, he did a comparison of the proposed prices
   with each other, a comparison of the proposed prices to the independent
   government estimate, and an analysis of each offeror's proposed labor
   rate. AR exh. 22, Price Negotiation Memorandum (PNM), at 3-14. In this
   regard, PECI proposed a labor rate of [DELETED] per hour, and the contract
   specialist compared this to a June 16, 2005 Defense Contract Audit Agency
   (DCAA) computed rate for an affiliated company of [DELETED] per hour with
   an added [DELETED] profit to arrive at a fully burdened straight time rate
   of [DELETED] per hour. Id. at 9; AR exh. 25, Puglia Written Debriefing, at
   4. The contract specialist concluded that the difference between these two
   rates indicates

   that the firm has understated its labor price by [DELETED]. Confining the
   discussion to labor costs alone, this means that [PECI] may have
   understated its Total Price by [DELETED]. Further understatement of price
   is due to the absence of escalation factors in [PECI's] proposal.

   AR exh. 22, PNM, at 9.

   The PNM (which, as noted below, eventually served as the source selection
   decision document) identified the offerors' total evaluated prices
   (evaluated by totaling the proposed base and optional item prices, as
   called for by the RFP), as well as the contract specialist's "adjusted" or
   "factored" prices (based on the assessment of "price realism"), as
   follows:

+------------------------------------------------------------------------------+
|                  |    Total Evaluated Price    |      "Adjusted" Price       |
|------------------+-----------------------------+-----------------------------|
|PECI              |          [DELETED]          |          [DELETED]          |
|------------------+-----------------------------+-----------------------------|
|Offeror C         |          [DELETED]          |          [DELETED]          |
|------------------+-----------------------------+-----------------------------|
|Todd              |          [DELETED]          |          [DELETED]          |
+------------------------------------------------------------------------------+

   AR exh. 22, PNM, at 16.

   The PNM stated that the offerors' proposed prices, as set forth in the
   middle column in the above table, would "be utilized in the trade-off."
   Id. at 16. The PNM contains a trade-off analysis between Todd's proposal
   and each of the other two proposals. The analysis found that although all
   three offerors understood the complexity of the work involved in this
   project and that each was capable of performing the maintenance work on
   the HEALY, the proposal submitted by Todd was the most technically
   advantageous proposal. AR exh. 22, PNM, at 18. In this regard, the PNM
   stated as follows:

   In the second comparison [with PECI], one might justify engaging a firm
   with a lesser technical score if substantial savings were absolutely
   assured. However, in making such a choice, HEALY's maintenance and
   logistics providers would be required to defer or abandon altogether the
   objective of obtaining an optimal technical source for HEALY maintenance.
   Based upon the rationale in the Acquisition Plan for issuing this
   procurement and the solicitation which speaks to the complexity of HEALY
   dockside maintenance, [the agency] must choose the firm with the highest
   technical capability unless reasonable evidence suggests that the price
   for obtaining that capability is not justified. As indicated in the
   Technical Evaluation Report, Todd possesses superior planning and
   execution capabilities necessary to optimize HEALY dockside maintenance.
   At this point, [PECI] does not. [PECI's] price, while very attractive,
   cannot be assured post-award. Furthermore, questions remain about the true
   cost of [PECI's] involvement on an eventual contract, as indicated
   elsewhere in this Memorandum. That uncertainty only serves to reinforce
   the recommendation for Todd.

   In the analyst's opinion, the advantages of having Todd perform HEALY
   [dockside] maintenance is worth the additional financial outlay
   (regardless of whether that amount is based upon the original proposed
   values or adjusted values).

   Id. at 18-19.

   Although there is no separate source selection decision document, the SSA
   concurred in the recommendation by appending his signature on the
   signature page of the PNM. As a result, award was made to Todd. After a
   debriefing, these protests followed. In its initial and supplemental
   protests, PECI has raised numerous issues concerning the conduct of this
   procurement. We have considered each issue and find them all to be without
   merit. We discuss what we view as the key contentions below.

   DISCUSSION

   Price Evaluation

   PECI maintains that the agency's price evaluation was unreasonable,
   complaining that the Coast Guard improperly determined that its proposal
   was unrealistically priced. Protest at 7-8; Protester's Comments, Nov. 28,
   2005, at 2-5; Protester's Response to Agency's and Intervenor's Reply
   Briefs, Dec. 13, 2005, at 2.

   Where, as here, an RFP contemplates the award of a fixed-price contract,
   an agency may provide for the use of a price realism analysis for the
   limited purpose of measuring an offeror's understanding of the
   requirements or to assess the risk inherent in an offeror's proposal.
   Rodgers Travel, Inc., B-291785, Mar. 12, 2003, 2003 CPD para. 60 at 4;
   Star Mountain, Inc., B-285883, Oct. 25, 2000, 2000 CPD para. 189 at 2. The
   nature and extent of the agency's price analyses are matters within the
   sound exercise of the agency's discretion, and our review of such an
   evaluation is limited to determining whether it was reasonable and
   consistent with the provisions of the solicitation. Id. Among the price
   analysis techniques that may be used is an analysis based on previous
   proposed prices or contract prices. Federal Acquisition Regulation (FAR)
   sect. 15.404-1(b)(2).

   We agree with the protester that the contract specialist's "adjustments"
   to the fixed prices proposed were problematic. A price realism analysis,
   if conducted, may affect the technical evaluation; it cannot properly lead
   to adjustment of proposed fixed prices. See Verestar Gov't Servs. Group,
   B-291854, B-291854.2, Apr. 3, 2003, 2003 CPD para. 68 at 6 n.3. If the
   selection decision had been based on those "adjusted" or "factored"
   prices, the procurement might have been fatally flawed. The tradeoff
   analysis in the PNM, however, was explicitly based on the unadjusted
   proposed prices, and the source selection decision, as quoted above,
   explicitly found that "the advantages of having Todd perform [the work] is
   worth the additional financial outlay (regardless of whether that amount
   is based upon the original proposed values or adjusted values)."
   Accordingly, any flaws in the conduct of the price realism analysis did
   not prejudice PECI. Competitive prejudice is an essential element of a
   viable protest and where no prejudice is shown, or is otherwise not
   evident from the record, our Office will not sustain a protest, even if a
   deficiency in the procurement is found. Orion Int'l Tech., Inc., B-293256,
   Feb. 18, 2004, 2004 CPD para. 118 at 3.

   Meaningful Discussions

   PECI asserts that the agency failed to hold meaningful discussions
   regarding the firm's price proposal. Specifically, the protester complains
   that the agency failed to discuss: (1) that the firm allegedly proposed an
   extraordinarily low number of labor hours; (2) that the protester did not
   include a price escalation factor; and (3) that the firm's labor rate was
   understated by [DELETED] percent. Protester's Second Supplemental
   Comments, Dec. 29, 2005, at 1-2.

   We need not address these issues at length because here, too, there is no
   reasonable possibility that any defect in the conduct of the discussions
   prejudiced PECI. All of these topics relate to the agency's perception
   that PECI had underpriced its proposal. If the firm had suffered in the
   competition because of any of them--either in the technical evaluation or
   in the price evaluation--more complete discussions would have given the
   firm the opportunity to address the agency's concerns and potentially
   improve its competitive position. Here, however, if the discussions had
   raised these matters and the protester had then addressed them by revising
   its proposal, the protester would presumably have raised its price, by
   increasing the number of proposed labor hours, or adding a price
   escalation factor, or increasing its labor rate (or some combination of
   the three). Doing so would have hurt PECI's competitive position, not
   helped it, so it appears that the lack of discussion of any of these three
   areas, actually helped PECI.[6] In fact, none of these matters
   disadvantaged the protester, since the tradeoff analysis was based on the
   proposed prices, not the contract specialist's "adjusted" prices.

   Price/Technical Tradeoff

   PECI challenges the reasonableness and sufficiency of the SSA's
   price/technical tradeoff, asserting that the SSA failed to determine what
   additional benefits would result from accepting Todd's higher-priced
   proposal. Protester's Comments, Nov. 28, 2005, at 5-8.[7] Where a
   solicitation emphasizes the significantly greater importance of technical
   factors over price, an agency has considerable discretion to award to an
   offeror with a higher technical rating and a higher price. WPI,
   B-288998.4, B-288998.5, Mar. 22, 2002, 2002 CPD para. 70 at 10. Where a
   tradeoff is made, it must be documented, and the documentation shall
   include the rationale for any business judgments and tradeoffs made or
   relied on by the SSA, including benefits associated with additional costs;
   the tradeoff, however, need not be quantified. FAR sect. 15.308. We will
   review the reasonableness of the SSA's judgment concerning the
   significance of the proposal differences and whether the selection is
   justified in light of the announced RFP criteria. Northrop Grumman Tech.
   Servs., Inc.; Raytheon Tech. Servs. Co., B-291506 et al., Jan. 14, 2003,
   2003 CPD para. 25 at 35-36.

   From our review of the detailed PNM (including the final TET report),
   which the SSA adopted, we find that his decision was reasonable and
   consistent with the evaluation criteria. That is, the PNM reflects the
   SSA's understanding that Todd's technical proposal was superior to PECI's
   proposal under the most important technical element, understanding the
   scope of responsibilities. Under the second most important technical
   element, ability to manage purchasing/subcontractor effort, PECI's
   proposal also was not evaluated as highly as Todd's proposal. In addition,
   the PNM specifically noted that Todd possessed superior planning and
   execution capabilities that would optimize dockside maintenance of the
   HEALY.

   The SSA weighed Todd's evaluated technical superiority against PECI's
   lower proposed price (approximately [DELETED] lower). Contrary to the
   protester's arguments, the SSA recognized PECI's price advantage, but
   noting that the RFP provided that the non-price evaluation factors were in
   the aggregate significantly more important than price, the SSA determined
   that Todd's proposal reflected the best value to the government based upon
   its evaluated technical superiority. AR exh. 22, PNM, at 18-19. Although
   PECI disagrees with the underlying evaluation and the SSA's judgment, its
   disagreement does not demonstrate that the SSA's tradeoff assessment was
   unreasonable; rather, we find that the decision reflects a reasonable
   price/technical tradeoff assessment.

   In sum, based on our review of the record, we conclude that the Coast
   Guard's evaluation and source selection decision were reasonable and in
   accordance with the terms of the solicitation.

   The protest is denied.[8]

   Anthony H. Gamboa
   General Counsel

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

   [1] The relative weights were identified in the agency's internal Source
   Selection Plan (SSP); these weights were not identified in the
   solicitation. AR exh. 9, SSP, at 4.

   [2] The solicitation did not disclose the relative weights of the
   associated technical sub-elements. RFP at 40.

   [3] The RFP informed offerors that pricing for the optional items would be
   subject to "negotiation" based upon actual maintenance needs and that the
   "negotiated pricing" would "supersede pricing of the notational
   requirements in the awarded contract." RFP at 17-18. The offerors
   responded to the solicitation without objection to this language, and we
   resolve the protest consistent with the RFP terms. We point out, however,
   that, if the successful offeror will have no legal obligation to perform
   the optional item work using the rates in its proposal, the prices
   proposed ultimately may not reflect the actual costs of performing this
   contract.

   [4] The agency reports that all three firms had recent experience working
   on the HEALY at the vessel's homeport. Contracting Officer (CO) Statement,
   at 2.

   [5] In assessing technical merit, the TET used adjectival ratings of
   excellent (E), good (G), satisfactory (S), marginal (M), and
   unsatisfactory (U). Risk was assessed as either high (H), moderate (M), or
   low (L). AR exh. 9, SSP, at 5-6.

   [6] For the record, we note that one of the three issues, concern about
   the firm's proposed labor hours, appears to have been raised in the
   agency's July 13, 2005 discussion letter, identifying as topics for
   discussion PECI's labor hour estimates for work items D-5, D-18, and D-22
   through D-27 on attachment J.3, as well as the protester's labor hours,
   and its material and subcontract costs and prices for work items D-22
   through D-27 on attachment J.3, which pertained to weight handling
   systems, which the agency reports--and PECI does not dispute--were the
   most costly work items. AR exh. 13, PECI Discussion Letter, encl. 1.

   [7] We do not address further PECI's challenges to the price/technical
   tradeoff, inasmuch as they are all premised on the evaluation of PECI's
   and Todd's proposals, which we have found reasonable.

   [8] In its initial and supplemental protest filings, PECI raised
   additional issues that have since been expressly withdrawn. Protester's
   Comments, Nov. 28, 2005, at 8, 9.