TITLE: B-297879, BAE Systems Norfolk Ship Repair Inc., March 29, 2006
BNUMBER: B-297879
DATE: March 29, 2006
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B-297879, BAE Systems Norfolk Ship Repair Inc., March 29, 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: BAE Systems Norfolk Ship Repair Inc.

   File: B-297879

   Date: March 29, 2006

   Thomas O. Mason, Esq., Robert E. Korroch, Esq., and Francis E. Purcell,
   Jr., Esq., Williams Mullen, for the protester.

   Robert M. Tata, Esq., Carl D. Gray, Esq., and Kevin J. Cosgrove, Esq.,
   Hunton & Williams LLP, for Earl Industries, LLC, an intervenor.

   Rhonda L. Russ, Esq., Naval Sea Systems Command, for the agency.

   Edward Goldstein, Esq., and Christine S. Melody, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Where solicitation for award of a cost-plus-award-fee contract required
   offerors to base their cost proposals on sample work items and further
   required offerors to use government estimates for labor hours and material
   costs for the sample work items unless offerors supported proposed
   deviations to the estimates by "clear and compelling" evidence, agency
   reasonably concluded that protester's proposed deviations, supported by
   non-binding fixed-price quotes for the sample work items, failed to meet
   the "clear and compelling" evidentiary standard.

   2. Agency's assignment of same overall adjectival rating to protester's
   and awardee's proposals despite protester's slightly higher past
   performance rating was reasonable where past performance was the least
   important technical factor and the record reflects that the agency
   reasonably considered the underlying substantive differences between the
   protester's and the awardee's proposals in making its technical and best
   value assessments.

   3. Protester's argument that its proposal should have been more highly
   rated under management capability factor because it received the highest
   possible rating under the past performance factor is unwarranted because
   the two factors at issue had different bases for evaluation.

   DECISION

   BAE Systems Norfolk Ship Repair Inc. protests the award of a contract to
   Earl Industries, LLC under request for proposals (RFP) No.
   N00024-05-R-4401, issued by the Department of the Navy for maintenance and
   modernization work on Dock Landing and Amphibious Transport Dock class
   ships (i.e., LSD and LPD class ships) homeported in Norfolk, Virginia. BAE
   alleges that the agency's cost and technical evaluations of its proposal
   were improper, resulting in a flawed source selection decision.

   We deny the protest.

   The RFP, issued on March 9, 2005, contemplated the award of a
   cost-plus-award-fee contract for execution planning and accomplishment of
   repair, maintenance, and alteration requirements of LSD 41/49 and LPD 4
   class ships. The RFP provided for the award of a base contract including
   execution planning for the first scheduled availability[1] for the USS
   Gunston Hall, as well as non-scheduled repair and alteration requirements
   between scheduled availabilities as ordered on various LSD and LPD class
   ships. [2] In addition, the RFP provided for 31 option items--the first
   option was for performance of the GUNSTON HALL availability, and the
   remaining options were for 15 additional scheduled availabilities and
   associated execution planning over a period of 7 years. RFP sect. B,
   Schedule of Supplies or Services and Prices.

   The RFP indicated that the agency would make award to the offeror whose
   proposal represented the best value to the government based on a
   consideration of two evaluated categories: technical and cost. Overall
   technical merit was considered more important than cost; however, the
   importance of cost would increase "as the differences in overall Technical
   merit among competing proposals decreas[ed]." RFP at 171. Under the
   technical category, the RFP listed three evaluation factors in descending
   order of importance: (1) management capability; (2) resource capabilities;
   and (3) past performance. The past performance factor was further divided
   into four subfactors of equal importance: (1) technical; (2) schedule; (3)
   management; and (4) cost. RFP at 177-78. In evaluating the management
   capability and resource capabilities factors, the agency assigned
   adjectival ratings of outstanding, very good, satisfactory, marginal, and
   unsatisfactory. The adjectival rating scheme used to score the past
   performance factor and subfactors differed slightly, with the agency
   assigning scores of outstanding, good, satisfactory, neutral, marginal, or
   unsatisfactory.

   As it relates to the protest, under the management capability factor,
   offerors were required to "provide a systematic approach that demonstrates
   a comprehensive understanding and application of management techniques,
   methods and procedures required to efficiently execute the requirements of
   this solicitation." RFP at 172.

   With regard to the evaluation of cost, the RFP advised offerors to submit
   proposed estimated costs based on two notional work item packages included
   within section L of the solicitation. As clarified by the agency in
   response to questions from the offerors, the notional work packages
   included sample work items--not to be construed as actual work items under
   the contract. See Request for Clarification, Ref. No. EC027, Mar. 21,
   2005. One notional package consisted of 28 LSD class ship work items and
   the other consisted of 9 LPD class ship work items. For each work item,
   the RFP provided offerors with the number of direct labor hours and
   material costs that the government estimated would be required to perform
   the work. Offerors were required to use the government's estimates in
   preparing their cost proposals; however, an offeror could propose a
   deviation, which would be accepted if supported by "clear and compelling
   evidence." Specifically, the RFP stated as follows:

   Offerors are to use the Government-provided manhour and material estimates
   for each notional package and propose these amounts. An Offeror may
   provide evidence to support an adjustment to these amounts by proposing
   and supporting revised man-hour and/or material dollar amounts per
   individual work item. If an Offeror provides clear and compelling evidence
   that an adjustment is warranted, the Government will adjust that Offeror's
   man-hour and/or material dollar estimates for the individual work item(s)
   addressed, to the extent it is determined that the offered rationale
   supports such an adjustment. If support of an Offeror's proposed
   adjustment to an individual work item is less than clear and compelling,
   the Government estimate will be used to calculate an estimated cost to the
   Government for that work item.

   RFP at 165.

   If an offeror's proposal deviated from the estimates provided by the
   government, the RFP stated that the offeror's data offered in support of
   the deviation should "at a minimum" include: (1) the offeror's
   "[t]echnical approach for accomplishing each work item and supporting
   rationale or work item estimate (e.g.,: standards, historical costs on
   similar tasks, factors, return costs, etc)"; (2) "[p]rime and/or
   subcontractor labor man-hours by craft and by work item paragraph"; (3) a
   "copy of each vendor quote received, clearly identifying total
   subcontractor labor man-hours and material dollars by work item, with a
   description of subcontracted efforts"; and (4) "[p]rime and/or
   subcontractor [cost of furnished materials] for each work item showing
   description, quantity, unit price and total price." RFP at 167-68.

   Based on the offerors' cost proposals, the RFP provided that the
   government would perform a cost-realism analysis, considering

   the Offerors' proposed labor hours, labor rates, material costs, burden
   rates and other costs in light of information available to the Contracting
   Officer, including Government estimates for: (1) direct labor hours; (2)
   material costs; (3) direct labor costs; (4) overhead and G&A costs; and
   (5) any other costs which are likely to be incurred by the Offeror in
   performance of the requirements of the RFP.

   RFP at 168. This analysis would be used to develop a projected cost to the
   government of the offeror's actual performance of the contract.

   Four offerors, including Earl and BAE,[3] submitted proposals by the April
   18 closing date. [Deleted], had entered into a teaming agreement in
   competing under the subject solicitation, which provided an allocation of
   scheduled work between team members, depending on which, if any, of the
   teaming partners received award of the contract. AR, Tab 8 at P. A Navy
   technical evaluation review panel (TERP) evaluated offerors' technical
   proposals, and a separate Navy cost analysis panel (CAP) concurrently
   began evaluating the offerors' cost proposals. Following the initiation of
   proposal evaluations, on May 6, the Navy amended the RFP to provide
   updated labor hour and material cost estimates for several of the notional
   work packages, opened discussions with all offerors, and requested revised
   proposals. Revised proposals were received on May 31, and then were
   evaluated by the TERP and CAP. On August 4, the RFP was again amended,
   additional cost issues were raised with offerors through an additional
   round of discussions, and the agency requested final proposal revisions.
   Final proposals were received on August 18 and upon completion of the
   technical and cost evaluations, the TERP and CAP provided their
   evaluations to the agency's best value advisory council (BVAC). Results of
   these evaluations were as follows:

   +------------------------------------------------------------------------+
   |Offeror|   Mgmt   |  Resource  |   Past    |    Overall     |   Final   |
   |       |Capability|Capabilities|Performance|Technical Rating| Projected |
   |       |          |            |           |                |   Cost    |
   |-------+----------+------------+-----------+----------------+-----------|
   |A      |[deleted] |[deleted]   |[deleted]  |[deleted]       |[deleted]  |
   |-------+----------+------------+-----------+----------------+-----------|
   |BAE    |[deleted] |[deleted]   |[deleted]  |[deleted]       |[deleted]  |
   |-------+----------+------------+-----------+----------------+-----------|
   |Earl   |Very Good |Very Good   |Good       |Very Good       |$70,221,185|
   |-------+----------+------------+-----------+----------------+-----------|
   |B      |[deleted] |[deleted]   |[deleted]  |[deleted]       |[deleted]  |
   +------------------------------------------------------------------------+

   AR at 7.

   Upon completion of a cost/technical trade-off among the various offers,
   the BVAC prepared a report and presented its findings to the agency's
   source selection authority (SSA), recommending the selection of Earl's
   proposal as the best value to the government. AR, Tab 22, BVAC Report to
   SSA; AR, Tab 23, BVAC Presentation to SSA. After reviewing "all source
   selection documentation relevant to this acquisition" and concurring with
   the CAP's conclusion that Earl's proposal would result in the lowest cost
   to the government, the SSA determined that Earl's proposal represented the
   best value to the government. AR, Tab 24, Source Selection Decision. Upon
   learning of the agency's decision, and after receiving a debriefing, BAE
   filed its protest with our Office.

   BAE alleges that the Navy improperly evaluated its cost and technical
   proposals. With regard to the cost evaluation, BAE contends that the Navy
   improperly rejected its proposed deviations from the RFP's labor hour and
   material cost estimates, resulting in an improper upward cost adjustment
   of more than [deleted]. According to BAE, its proposed deviations were
   supported by fixed-price subcontractor quotes, which the Navy arbitrarily
   rejected, in contravention of the RFP, as insufficient evidence to support
   BAE's proposed deviations. With regard to the Navy's technical evaluation,
   BAE raises two issues. First, BAE argues that the Navy acted unreasonably
   in assigning BAE [deleted] since BAE's past performance rating was higher
   than that of Earl. Second, BAE maintains that it should have received a
   rating of [deleted] under the management capability factor, as opposed to
   [deleted] since it received a rating of [deleted] under the past
   performance factor. As a final matter, BAE alleges that these errors
   resulted in an erroneous cost/technical trade-off and best value
   determination by the Navy.

   Cost Evaluation

   BAE challenges the agency's evaluation of its proposed costs for nine work
   items in the LSD notional work package and three work items in the LPD
   work package.[4] Specifically, BAE argues that the agency improperly
   rejected its proposed deviations from the RFP's labor hour and material
   cost estimates, which BAE supported with fixed-price subcontractor quotes.
   According to BAE, the Navy's conclusion that the deviations were not
   supported by clear and compelling evidence, since the subcontractor quotes
   were based on notional work and therefore not binding, was inconsistent
   with the terms of the RFP, which required offerors to base their proposals
   on the notional work items. Moreover, BAE contends that "a fixed-price
   quote is the strongest evidence of cost realism" and that its proposal
   therefore provided sufficient evidence to support its proposed deviations
   from the government's labor hour and material cost estimates. Protester's
   Comments at 4.

   As a general matter, in reviewing protests relating to the propriety of an
   agency's evaluation, our Office does not reevaluate proposals; our review
   is limited to considering whether the agency's evaluation was reasonable
   and consistent with the solicitation's evaluation scheme, as well as
   applicable statutes and regulations. L-3 Communications Westwood Corp.,
   B-295126, Jan. 19, 2005, 2005 CPD para. 30 at 5. A protester's mere
   disagreement with the agency's judgment is not sufficient to establish
   that the agency acted unreasonably. Command Mgmt. Servs., Inc.,
   B-292893.2, June 30, 2004, 2004 CPD para. 168 at 3. In negotiated
   procurements, unless specifically prohibited by the solicitation, offerors
   generally may propose to meet agency requirements with staffing levels
   and/or materials different from the government's estimates. See Crestmont
   Cleaning Serv. & Supply Co., Inc., B-254486 et al., Dec. 22, 1993, 93-2
   CPD para. 336 at 4. Here, the RFP included the government's estimates for
   labor hours and materials costs for the sample work items and while the
   RFP expressly permitted offerors to deviate from the government's
   estimates, the RFP provided that an offeror's deviations would only be
   accepted if it was supported by "clear and compelling" evidence. RFP at
   165. Otherwise, the government estimates would be used to calculate the
   estimated cost for the sample work item. Id.

   The record reflects that the government's estimates were largely based
   upon historical costs for work items identical or similar to those
   contained in the notional packages. AR at 8; AR, Tab 20, Final CAP Report,
   at 1. These historical costs, in many instances, were derived from work
   BAE had previously performed for the Navy. AR at 9-25. In evaluating BAE's
   cost proposal, the Navy denied the large majority of BAE's proposed
   deviations from the labor hour and material cost estimates because they
   were not supported by "clear and compelling" evidence and adjusted BAE's
   proposed cost upward by [deleted] for a final projected cost to the
   government of [deleted]. AR, Tab 22, BVAC Report, at 7.

   BAE supported many of its proposed deviations with fixed-price
   subcontractor quotes. The Navy, however, raised several concerns with
   BAE's reliance on these quotes to support its deviations. Specifically,
   the Navy indicated that it could not discern whether the quotes were
   obtained competitively or on a sole-source basis; it questioned whether
   the subcontractors had a clear understanding of the requirements; and it
   noted that the majority of subcontractor quotes failed to provide a
   breakdown of their labor hours by craft as required by the RFP. AR, Tab
   20, Final CAP Report, at 29, 31. The agency also questioned the inherent
   reliability of the quotes because they were based on sample work items and
   were therefore not binding. AR at 20, 24. Moreover, the Navy questioned
   the validity of the subcontractor quotes because in several instances BAE
   had submitted quotes from a subcontractor [deleted]. AR, Tab 20, CAS
   Report, at 30. Given these concerns, the Navy rejected BAE's proposed
   deviations in most instances for lack of "clear and compelling" evidence.

   BAE's challenge to the agency's cost evaluation focuses principally on the
   Navy's concerns about the reliability of the quotes stemming from the fact
   that they were based on sample work items and therefore not binding--BAE
   does not specifically address any of the other concerns raised by the
   agency in connection with the quotes. BAE correctly indicates that the RFP
   required offerors to base their proposals on the notional work packages.
   The Navy's assessments concerning the reliability of BAE's subcontractor
   quotes, however, were made in the context of weighing the reliability of
   the quotes for cost realism purposes. Specifically, the Navy evaluated
   BAE's fixed-price quotes solely in the context of determining whether, as
   required by the RFP, BAE had supported, by clear and compelling evidence,
   its deviations from government labor hour and material cost estimates. In
   considering the evidence supporting BAE's proposed deviations, the Navy
   took into account the fact that the subcontractor quotes were not binding,
   and concluded that this limited their value as a predictor of cost
   realism, since the subcontractor could, without penalty, charge higher
   costs, which the government would be bound to pay under any contract
   awarded to BAE. The fixed-price character of the quotes was thus
   reasonably found to be less than "clear and compelling" evidence in
   support BAE's lower proposed labor hours and material costs.

   While the non-binding nature of the quotes submitted by BAE in support of
   its deviations may have stemmed from the fact that the RFP required BAE to
   base its cost proposal on sample work items, nothing in the RFP required
   BAE to support its deviations with subcontractor quotes. As noted above,
   the Navy's estimates were based on historical costs for the same or
   similar work items, which in many instances were from work performed by
   BAE. Since the RFP required the agency to assess the evidence supporting
   proposed deviations, it was reasonable for the Navy to consider the terms
   and the context of the evidence for the purpose of considering its weight
   in evaluating cost realism. Thus, we conclude that the Navy acted
   reasonably and consistent with the RFP in concluding that the fixed-price
   quotes included with BAE's proposal for the sample work were inherently
   less reliable than the agency's own historical cost information for work
   that was similar or the same as the sample work items. Moreover, while BAE
   argues that its fixed-price quotes were supported with sufficient
   information and provided the best evidence of likely cost to the
   government, in our view its arguments in this regard amount to mere
   disagreement with the government's evaluation, which does not render it
   unreasonable. Continental RPVs, B-292768.2, B-292768.3, Dec. 11, 2003,
   2004 CPD  para. 56 at 7.

   Technical Evaluation

   With regard to the technical evaluation, BAE argues that it should have
   received a higher overall technical rating than Earl [deleted] since BAE's
   past performance was superior to that of Earl.

   The RFP provided for the evaluation of three technical factors, with past
   performance as the least important of the three factors. While BAE
   [deleted] under the first two factors, with regard to past performance,
   BAE received [deleted] while Earl received the second highest rating of
   "good." The record reflects that, in its evaluation, the Navy considered
   the underlying substantive differences between BAE and Earl's proposals in
   making its technical and best value assessments. Specifically, the Navy
   noted that there was little difference with regard to the technical
   aspects of the firms' proposals since [deleted] and both had experience
   with the class of ships under the solicitation. AR, Tab 22, BVAC Report at
   9. With regard to Earl's lower past performance rating, the Navy noted
   problems with Earl's history of meeting cost reporting requirements. This,
   however, was not viewed as a "major issue" by the Navy since the problems
   related to Earl's first cost-type contract and Earl had shown incremental
   improvement in this area. Id. On this record, the agency's conclusion that
   BAE's [deleted] overall technical merit is without objection
   notwithstanding BAE's [deleted] under the past performance factor. Dismas
   Charities, Inc., B-289575.2, B-289575.3, Feb. 20, 2004, 2004 CPD para. 66
   (despite protester's scoring advantage for past performance, agency
   reasonably concluded that proposals were equal under all technical factors
   combined, leading to award based on awardee's lower price).

   As a final matter, BAE argues that its proposal should have been rated
   [deleted] as opposed to [deleted] under the management capability
   technical evaluation factor since the Navy, in evaluating BAE's proposal
   under this factor, "relied heavily" on BAE's past performance record, for
   which it was rated [deleted]. BAE's Comments at 17. While the record
   reflects that the Navy considered BAE's extensive history and experience
   with LSD and LPD class ships in its evaluation under the management
   capability factor, the fundamental nature of the two evaluation factors at
   issue was separate and distinct under the provisions of the RFP. The
   management capability factor provided for evaluating offerors' management
   techniques, methods, and procedures for executing the requirements of the
   solicitation--considering how the offeror proposed to address the
   requirements of the RFP--while the past performance factor provided for an
   assessment of the contractor's performance on prior contracts--and thus
   was historical in nature. Given the different scope of the two factors,
   BAE's reliance on its past performance rating to challenge its management
   capability rating is misplaced and its protest in this regard is without
   merit. [5]

   The protest is denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] The agency explains that the availability work involves "relatively
   short, labor-intensive Chief of Naval Operations (CNO) maintenance, repair
   and modernization periods, generally scheduled at specific times
   throughout a ship's operating cycle." Agency Report (AR) at 3 n.3.

   [2] The solicitation indicated that the following LSD 41/49 and LPD 4
   Class ships would be homeported in Norfolk, VA during all or part of the
   contract: (1) USS Whidbey Island; (2) USS Gunston Hall; (3) USS Fort
   McHenry; (4) USS Ashland; (5) USS Carter Hall; (6) USS Oak Hill; (7) USS
   Nashville; and (8) USS Ponce. RFP at 48.

   [3] As explained by the agency, Norfolk Shipbuilding & Drydock Corporation
   submitted an initial proposal and during the course of the procurement was
   acquired by BAE on June 24, 2005.

   [4] BAE's protest challenged the Navy's evaluation of 17 work items in the
   LSD work package and 4 work items in the LPD notional work package. The
   agency addressed each work item challenged by BAE in its report. In its
   comments, however, BAE discussed only nine of the LSD work items and three
   of the LPD work items, which it had originally challenged; thus we
   consider BAE to have abandoned its challenge to the remaining work items,
   which were not addressed in its comments. See Symplicity Corp., B-297060,
   Nov. 8, 2005, 2005 CPD para. 203 at 5 n.6

   [5] Because we conclude that BAE's challenges to the Navy's cost and
   technical evaluations are without merit, BAE's objection to the Navy's
   best value determination--based solely on the alleged improper cost and
   technical evaluations--likewise is without merit.