TITLE: B-298249.6, B-298249.7, B-298249.8, B-298249.9, B-298249.10, B-298249.11, B-298249.12, B-298249.13, B-298249.14, B-298249.15, B-298249.16, B-298249.17, B-298249.18, B-298249.19, B-298249.20, Multimax, Inc.; NCI Information Systems, Inc.; BAE Systems Information Technology LLC; Northrop Grumman Information Technology, Inc.; Pragmatics, Inc., October 24, 2006
BNUMBER: B-298249.6, B-298249.7, B-298249.8, B-298249.9, B-298249.10, B-298249.11, B-298249.12, B-298249.13, B-298249.14, B-298249.15, B-298249.16, B-298249.17, B-298249.18, B-298249.19, B-298249.20
DATE: October 24, 2006
******************************************************************************************************************************************
B-298249.6, B-298249.7, B-298249.8, B-298249.9, B-298249.10,B-298249.11, B-298249.12, B-298249.13, B-298249.14, B-298249.15, B-298249.16, B-298249.17, B-298249.18, B-298249.19, B-298249.20, Multimax, Inc.; NCI Information Systems, Inc.; BAE Systems Information Technology LLC; Northrop Grumman Information Technology, Inc.; Pragmatics, Inc., October 24, 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: Multimax, Inc.; NCI Information Systems, Inc.; BAE Systems
Information Technology LLC; Northrop Grumman Information Technology, Inc.;
Pragmatics, Inc.
File: B-298249.6, B-298249.7, B-298249.8, B-298249.9, B-298249.10,
B-298249.11, B-298249.12, B-298249.13, B-298249.14, B-298249.15,
B-298249.16, B-298249.17, B-298249.18, B-298249.19, B-298249.20
Date: October 24, 2006
David S. Cohen, Esq., John J. O*Brien, Esq., Rowena Laxa, Esq., Laurel
Hockey, Esq., and Catherine Kroll, Esq., Cohen Mohr, for Multimax, Inc.;
Shelly L. Ewald, Esq., Timothy E. Heffernan, Esq., Louis B. Antonacci,
Esq., Meghan M. DiPerna, Esq., and Justin M. Hargrove, Esq., Watt, Tieder,
Hoffar & Fitzgerald, for NCI Information Systems, Inc; Drew A. Harker,
Esq., Matthew H. Solomson, Esq., Chad E. Miller, Esq., and Patricia L.
Stasco, Esq., Arnold & Porter, for BAE Systems Information Technology LLC;
Anne B. Perry, Esq., John W. Chierichella, Esq., Jonathan S. Aronie, Esq.,
Marko Kipa, Esq., Louis D. Victorino, Esq., and Keith R. Szeliga, Esq.,
Sheppard Mullin, for Northrop Grumman Information Technology, Inc.; Karen
R. Harbaugh, Esq., Robert E. Gregg, Esq., and Steven Tibbets, Esq.,
Squire, Sanders & Dempsey, for Pragmatics, Inc., the protesters.
Carl J. Peckinpaugh, Esq., and Helaine G. Elderkin, Esq., Computer
Sciences Corporation; Richard J. Webber, Esq., Lisa K. Miller, Esq., and
Craig S. King, Esq., Arent Fox, for CACI-ISS, Inc.; Richard O. Duvall,
Esq., David S. Black, Esq., Eric L. Yeo, Esq., and Caitlin K. Cloonan,
Esq., Holland & Knight, for Booz Allen Hamilton; Alexander J. Brittin,
Esq., and Margaret A. Dillenburg, Esq., for Science Applications
International Corporation; Gerald H. Werfel, Esq., Pompan, Murray &
Werfel, for STG, Inc.; Richard J. Conway, Esq., David M. Adler, Esq., and
Joseph R. Berger, Esq., Dickstein Shapiro, for Apptis, Inc.; and Grant H.
Willis, Esq., and Peter F. Garvin, III, Esq., Jones Day, for Electronic
Data Systems, the intervenors.
Raymond M. Saunders, Esq., Karl M. Ellcessor, Esq., and Lt. Col. Frank A.
March, Department of the Army, for the agency.
David A. Ashen, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Where agency identified certain proposed hourly labor rates as
significantly higher than independent government cost estimate (IGCE)
labor rates, offerors reasonably deduced--incorrectly, as record
shows--that rates not identified were not significantly higher than IGCE
rates, which led offerors to leave those rates unchanged in their final
proposal revisions; discussions therefore were misleading and protest is
sustained on that basis.
DECISION
Multimax, Inc., NCI Information Systems, Inc., BAE Systems Information
Technology LLC, Northrop Grumman Information Technology, Inc. (NGI), and
Pragmatics, Inc. protest the Department of the Army*s award of 11
contracts to other offerors, under request for proposals (RFP) No.
W91QUZ-05-R-0004, under the agency*s Information Technology Enterprise
Solutions-2 Services (ITES-2S) procurement for information technology (IT)
services. The protesters assert that the agency failed to conduct
meaningful discussions, and that its evaluation of proposals and resulting
source selection were unreasonable.
We sustain the protests.
BACKGROUND
The solicitation provided for award of multiple
indefinite-delivery/indefinite-quantity contracts for a 3-year base
period, with three 2-year options, to furnish IT services worldwide in
support of Army enterprise infrastructure goals. Specifically, as set
forth in the solicitation*s statement of objectives (SOO),
ITES-2S contemplates services-based solutions under which contractors may
be required to provide a full range of IT equipment. Therefore, end-to-end
solutions to satisfy worldwide development, deployment, operation,
maintenance, and sustainment requirements are included. Additionally
included is support to analyze requirements, develop and implement
recommended solutions, and operate and maintain legacy systems, and
equipment. It is the intention of the Government to establish a scope that
is broad, sufficiently flexible to satisfy requirements that may change
over the period of performance, and fully comprehensive so as to embrace
the full complement of services that relate to IT.
SOO at C.2.0. The solicitation provided for work to be accomplished
through the issuance of task orders, primarily on a fixed-price or
time-and-materials basis, awarded generally on the basis of a competition
among the ITES-2S contract holders. RFP sect. J, attach. 4, Task Order
Procedures.
Offerors were required to propose fully-loaded hourly labor rates for a
minimum of 104 required labor categories at both a government site and a
contractor site (for a total of 208 rates in the base year), which would
be used by the contractors in competing for task orders (unless the
contractors proposed lower rates). These rates, subject to an annual
escalation rate proposed by each offeror, were applied to the annual
estimated hourly requirements for each labor category, with the resulting
totals combined with annual other direct costs (ODC) as specified in the
solicitation and increased by a fixed markup proposed by each offeror for
each ODC category, to yield an overall Total Proposed Contract Price
(TPCP).
Eight awards were contemplated (including up to four to small businesses),
but the RFP also stated that *[t]he Government reserves the right to make
no, one or multiple awards; the Government also reserves the right to make
more than eight awards.* RFP sect. M.1. The awards were to be made to the
offerors whose proposals were determined to be the *best value* on the
basis of three evaluation factors: (1) mission support (with subfactors
for performance-based approach, performance-based task approach, and small
business participation); (2) performance risk (past performance, corporate
experience, and financial; and (3) price. The non-price factors were
significantly more important than price.
Seventeen proposals were received. The Army entered into discussions with
all 17 offerors, issuing written items for negotiation (IFN) and affording
each offeror the opportunity to make an oral presentation. Subsequently,
the agency determined that all proposals (one offeror withdrew) had no
weaknesses or deficiencies, and that none of the TPCPs was unreasonably
high, and requested final proposal revisions (FPR). Based on her
evaluation of the FPRs, the source selection authority (SSA) selected
11 proposals for award: Apptis, Inc., Booz Allen Hamilton (BAH), CACI-ISS,
Inc., Computer Sciences Corporation (CSC), QSS, STG, Inc., EDS
Corporation, General Dynamics, IBM, Inc., Lockheed Martin (LM), and SAIC,
Inc.
Upon learning of the awards, Multimax, NCI, BAE, NGI, and Pragmatics filed
protests in our Office (B-298249.1, B-298249.2, B-298249.3, B-298249.4,
B-298249.5). The Army subsequently advised us that its evaluation ratings
for the financial subfactor under the performance risk evaluation factor
failed to account for all information received during discussions, and
that it thus would reevaluate the proposals and make new price/technical
tradeoff decisions. We dismissed the protests as academic on May 12, 2006.
The agency*s reevaluation led to the following results:
+------------------------------------------------------------------------+
| | Mission Support | Performance Risk | TPCP |
| | | | |
| | (Performance, | (Past Performance, | |
| | Performance/Task, | Corporate | |
| | Small Business) | Experience, | |
| | | Financial) | |
|---------------+-------------------+--------------------+---------------|
| BAH | Good | Low |$12,891,797,818|
| | | | |
| |(Good, Outstanding,|(Low, Very Low, Low)| |
| | Good) | | |
|---------------+-------------------+--------------------+---------------|
| Apptis | Good | Low |13,048,326,171 |
| | | | |
| |(Good, Good, Good) |(Very Low, Low, Low)| |
|---------------+-------------------+--------------------+---------------|
| QSS | Good | Low |13,121,880,799 |
| | | | |
| | (Good, Good, |(Moderate, Very Low,| |
| | Outstanding) | Low) | |
|---------------+-------------------+--------------------+---------------|
| CACI-ISS | Good | Very Low |13,391,706,671 |
| | | | |
| |(Good, Good, Good) |(Very Low, Low, Low)| |
|---------------+-------------------+--------------------+---------------|
| IBM | Good | Low |13,709,298,174 |
| | | | |
| | (Good, Good, |(Low, Very Low, Low)| |
| | Outstanding) | | |
|---------------+-------------------+--------------------+---------------|
| CSC | Good | Low |13,788,431,819 |
| | | | |
| |(Good, Outstanding,| (Low, Low, Low) | |
| | Outstanding) | | |
|---------------+-------------------+--------------------+---------------|
| STG | Good | Very Low |13,848,350,913 |
| | | | |
| | (Good, Good, |(Very Low, Very Low,| |
| | Acceptable) | Very Low) | |
|---------------+-------------------+--------------------+---------------|
| Pragmatics | [REDACTED] | [REDACTED] | [REDACTED] |
|---------------+-------------------+--------------------+---------------|
| EDS | Good | Low |14,109,977,896 |
| | | | |
| | (Good, Good, |(Moderate, Low, Low)| |
| | Outstanding) | | |
|---------------+-------------------+--------------------+---------------|
|Lockheed Martin| Good | Very Low |14,306,616,917 |
| | | | |
| |(Good, Outstanding,|(Very Low, Very Low,| |
| | Acceptable) | Very Low) | |
|---------------+-------------------+--------------------+---------------|
| General | Good | Low |14,421,393,555 |
| Dynamics | | | |
| |(Good, Good, Good) |(Very Low, Low, Low)| |
|---------------+-------------------+--------------------+---------------|
| SAIC | Good | Low |$14,554,346,258|
| | | | |
| |(Good, Outstanding,| (Low, Low, Low) | |
| | Acceptable) | | |
|---------------+-------------------+--------------------+---------------|
| Multimax | [REDACTED] | [REDACTED] | [REDACTED] |
|---------------+-------------------+--------------------+---------------|
| BAE | [REDACTED] | [REDACTED] | [REDACTED] |
|---------------+-------------------+--------------------+---------------|
| NGI | [REDACTED] | [REDACTED] | [REDACTED] |
|---------------+-------------------+--------------------+---------------|
| NCI | [REDACTED] | [REDACTED] | [REDACTED] |
+------------------------------------------------------------------------+
Based on her review of the revised evaluation reports and a new series of
77 head-to-head comparisons among the proposals, the SSA made awards to
the 11 original awardees. Multimax, NCI, BAE, NGI, and Pragmatics
thereupon filed these protests with our Office.
CHANGE IN REQUIREMENTS
Multimax, NCI, BAE and NGI assert that the Army improperly failed to amend
the solicitation to reflect an increase in its requirements and permit
offerors to submit revised proposals. The protesters maintain that the
Army was required to amend the solicitation because it apparently decided
to mandate, rather than merely authorize, use of ITES-2S for the
acquisition of IT services. In this regard, in the source selection
decision (SSD), the SSA explained her determination to award 11 rather
than 8 contracts as based, in part, on the fact that *it has come to my
attention that senior leadership within the Army is considering the
possibility of mandating the use of ITES-2S for information technology
services acquisitions. If that scenario were to arise, there is a
possibility that more work might be performed under ITES-2S than was
estimated when the Government developed its acquisition strategy.* SSD at
28. According to the SSA, *[h]aving three additional contractors would
provide the Army a larger base of contractors to handle this potential
increase in workload.* Id. The protesters assert that, had they known of
the loss of any future opportunity to market IT services to the Army
outside of the ITES-2S contract vehicle, and of the additional work to be
ordered under ITES-2S when it was made mandatory, they would have proposed
lower prices.
Where an agency*s requirements change materially after a solicitation has
been issued, it must issue an amendment notifying offerors of the change
and affording them an opportunity to respond. Federal Acquisition
Regulation (FAR) sect. 15.206(a); Northrop Grumman Info. Tech., Inc. et
al., B-295526 et al., Mar. 16, 2005, 2005 CPD para. 45 at 13; Symetrics
Indus., Inc., B-274246.3 et al., Aug. 20, 1997, 97-2 CPD para. 59 at 6.
This rule applies even after the submission of final proposal revisions,
up until the
time of award. Northrop Grumman Info. Tech., Inc. et al., supra; Digital
Techs., Inc., B-291657.3, Nov. 18, 2004, 2004 CPD para. 235 at 3; NV
Servs., B-284119.2, Feb. 25, 2000, 2000 CPD para. 64 at 17. Amending the
solicitation provides offerors an opportunity to submit revised proposals
on a common basis that reflects the agency*s actual needs. Dairy Maid
Dairy, Inc., B-251758.3 et al., May 24, 1993, 93-1 CPD para. 404 at 7-9.
We find that there was no material change in the Army*s requirements.
While it is clear from the SSD that the SSA believed there was a
possibility that use of the contract would be made mandatory, there is no
evidence that this ever occurred. The Army states that *[t]here is not
currently nor was there ever any proposal or initiative to make use of
ITES-2S mandatory,* Agency Comments, Aug. 28, 2006, at 10, and the SSA
asserts that she was never advised that use of the ITES-2S was to be made
mandatory. Specifically, she explains, while she had understood from
informal conversations prior to the initial awards in April 2006 that the
Army*s Chief Information Officer (CIO) was *considering the possibility of
directing Army personnel to use ITES-2S,* the Army CIO *did not consult
with me directly on this matter . . . Nor were any written materials ever
presented to me regarding this issue.* Declaration of SSA, Aug. 8, 2006,
at 1.[1]
The Director of the Army Small Computer Program (ASCP), which includes the
ITES-2S procurement, also states that she was never advised that use of
the ITES-2S was to be mandatory. She has submitted a declaration in which
she states as follows:
I am unaware of any Army policy or initiative that mandates the use of
ITES-2S for Army IT services procurements. To my knowledge, the Army is
not currently planning any proposed policy or initiative that would
require ITES-2S to be used for IT services procurements. Nor, to my
knowledge, has such a policy previously been under development. It is
highly unlikely, in my view, that such a policy will ever be implemented,
as there are serious questions about its desirability and feasibility.
Declaration of Director of ASCP, Aug. 28, 2006.
Finally, the Deputy Principal Director for Governance, Acquisition and
Chief Knowledge Office, Office of the Army CIO, who is responsible for
initiating and developing IT contracting policy for the Army, has
submitted a declaration in which he states that he is *unaware of any
proposal or initiative to make use of the ITES-2S contract
mandatory--either . . . as of July 12, 2006, or at any time in the past.
In fact, if such a proposal or initiative existed, my office would either
have the lead or be actively involved.* Declaration of Deputy Principal
Director, Aug. 28, 2006.
The protesters note that current Army policy establishes such a strong
preference for the use of ASCP contract vehicles such as ITES-2S, that its
use is tantamount to mandatory. In this regard, for example, a draft
version of the agency*s *Department of the Army IT Purchasing Guide: How
to Procure Commercial Information Technology Hardware, Software and
Services,* dated Summer 2006, provides that *the ASCP office is the
primary source for hardware, software and services,* and that
[i]f your purchase is other IT products [--i.e., other than software,
desktops or notebooks--] or services and the cost is greater than $25K, or
if the required item or service is available on an ASCP contract, but you
have justification, such as better pricing, for purchasing the item or
service from another source, you must request a waiver from ASCP. See
[Department of the Army Pamphlet] 25-1-1, para 11-2.
Army IT Purchasing Guide at 5-6.
As noted by the Army, however, the draft Army IT Purchasing Guide reflects
the same policy as it existed prior to the closing date for receipt of
FPRs (March 27, 2006). Thus, for example, the November 2005 version of
Army Pamphlet 25-1-1, referenced above in the draft Army IT Purchasing
Guide, provides as follows:
Army customers must look to meet their requirements using ASCP contracts
before making commercial IT purchases from other sources.
. . . . .
If there is an existing ASCP indefinite delivery indefinite quantity
contract or blanket purchase agreement (BPA) available, the system or
service is obtained from that contract to the maximum extent practical.
. . . . .
The ASCP is the main source for commercial IT purchases greater than $25K.
ASCP has an array of fully competed contract vehicles to meet most Army
requirements. These contract vehicles must be considered before buying
from contract vehicles from other sources. If an Army customer chooses
other than an ASCP contract vehicle, ASCP must first grant a waiver.
Army Pamphlet 25-1-1, sections 11-1, 11-2.
We conclude that there is no evidence that, at the time of the awards,
there was any likelihood of a material change in existing Army policy
favoring use of ITES-2S. It follows that there was no significant change
in the Army*s requirements that would necessitate amending the ITES-2S
solicitation and affording offerors an opportunity to propose to the new
requirements.
PRICE
The protesters assert that the Army applied an unreasonable, mechanistic
formula in evaluating proposed labor rates. In addition, they assert that
this resulted in a failure to conduct meaningful discussions. We agree.
Price Evaluation Methodology
Multimax, BAE and Pragmatics assert that the Army*s evaluation of proposed
labor rates was unreasonable. In this regard, the Army reports that it
employed a two-step approach to evaluating labor rates for purposes of
determining price reasonableness, detecting unbalanced pricing, and
identifying labor rates to question during discussions: first, it compared
an offeror*s rate for a labor category to the IGCE rate for that category,
and then it compared the rate to the mean of all offerors* evaluated rates
for each labor category using a two-standard-deviation measure. The
agency*s price evaluator explained the second step as follows:
Next, the Price evaluation team calculated the mean of all offerors*
evaluated labor rates for each labor category. The mean evaluated labor
rates were then used to calculate the standard deviation from the mean. In
order to determine the most appropriate measure of comparison, the
following were calculated: mean plus and minus one standard deviation,
mean plus and minus two standard deviations, and mean plus and minus three
standard deviations. A comparison was made, using the three separate
standard deviations, to determine which offerors* average labor rates for
each labor category fall outside the range of each standard deviation. The
majority of the offerors* average labor rates fell outside the range of
one standard deviation and no offeror*s average labor rates fell outside
the range of three standard deviations. Therefore, it was determined that
two standard deviations was the most appropriate measure of comparison to
use for the reasonableness assessment.
Memorandum of Agency Price Evaluator to Source Selection Evaluation Board
(SSEB) Chairperson, Nov. 29, 2005, at 2-3; Agency Comments, Sept. 21,
2006, at 3.[2]
Under this two-step approach, the agency would issue an IFN to an offeror
questioning a proposed labor rate as significantly overstated (or
understated) only if the rate both exceeded (or was lower than) the IGCE
rate, and was more than two standard deviations greater (or less) than the
mean rate of all offerors for that category. According to the contracting
officer (who was responsible for conducting discussions and determining
overall price reasonableness), the two-step evaluation was used to
identify *extraordinary outlier rates,* that is, *rates that were
significantly overstated or understated and which might pose a risk to the
Government of paying an unreasonable amount during performance. . . .
Rates that did not meet [both] tests were not considered outliers and were
not questioned.* Second Declaration of Contracting Officer at 1; see
Agency Comments, Sept. 8, 2006, 3-8, 16; Agency Comments, Sept. 21, 2006,
at 3; Declaration of Agency Price Evaluator, Aug. 18, 2006, at 1.[3]
The two-standard-deviation formula resulted in an extremely wide range of
acceptable rates for the labor categories.[4] For example, looking just at
the initial labor rates for government site labor, some of the more
extreme ranges were as follows:
+------------------------------------------------------------------------+
| | IGCE Rate | Acceptable Range |
| | | |
| | |Mean-plus-two-standard-deviation|
| | | Test |
|---------------------------+-----------+--------------------------------|
|Program Manager-Senior |$[REDACTED]| $[REDACTED] |
|---------------------------+-----------+--------------------------------|
|Project Administrator |[REDACTED] | [REDACTED] |
|---------------------------+-----------+--------------------------------|
|Applications Systems |[REDACTED] | [REDACTED] |
|Analyst-Senior | | |
|---------------------------+-----------+--------------------------------|
|Systems Engineer-Senior |[REDACTED] | [REDACTED] |
|---------------------------+-----------+--------------------------------|
|Software Engineer-Senior |[REDACTED] | [REDACTED] |
|---------------------------+-----------+--------------------------------|
|Software |[REDACTED] | [REDACTED] |
|Engineer-Intermediate | | |
|---------------------------+-----------+--------------------------------|
|Software Engineer-Associate|[REDACTED] | [REDACTED] |
|---------------------------+-----------+--------------------------------|
|IT Certified |[REDACTED] | [REDACTED] |
|Professional-Senior | | |
|---------------------------+-----------+--------------------------------|
|Disaster Recovery |[REDACTED] | [REDACTED] |
|Contingency Administrator | | |
|---------------------------+-----------+--------------------------------|
|Information Security |[REDACTED] | [REDACTED] |
|Specialist-Senior | | |
|---------------------------+-----------+--------------------------------|
|Information Security |[REDACTED] | [REDACTED] |
|Specialist-Intermediate | | |
|---------------------------+-----------+--------------------------------|
|Information Security |[REDACTED] | [REDACTED] |
|Specialist-Associate | | |
|---------------------------+-----------+--------------------------------|
|Systems |[REDACTED] | [REDACTED] |
|Administrator-Senior | | |
+------------------------------------------------------------------------+
SSA Initial Briefing Materials, Nov. 28, 2005, app. A; SSA Final Briefing
Materials, June 14, 2006, app. B.[5]
As illustrated by the chart, the upper end of the range was significantly
above the IGCE for some of the labor categories, and in some instances was
nearly, or more than, twice the IGCE (such as $[REDACTED] versus the
$[REDACTED] IGCE rate for Application System Analyst-Senior, $[REDACTED]
versus the $[REDACTED] IGCE rate for Software Engineer-Senior, and
$[REDACTED] versus the $[REDACTED] IGCE rate for Information Security
Specialist-Senior). Likewise, the lower end, in some instances, was below
the federal minimum wage or was even a negative number (such as
$[REDACTED] for Project Administrator, $[REDACTED] for Information
Security Specialist-Senior, and $[REDACTED] for Information Security
Specialist-Associate). There is no indication that the agency ever
reviewed the results of the formula to assure that the prices at the
extreme end of the ranges reflected reasonable pricing; rather, the agency
mechanistically applied the formula and accepted the results without
further analysis. We conclude that the agency*s methodology did not
provide a valid means for identifying *outlier* (questionable) rates, and
this aspect of the evaluation therefore was unreasonable. See generally
Metro Mach. Corp., B-297879.2, May 3, 2006, 2006 CPD para. 80 at 9-10
(mechanical application of an agency*s own estimates for labor hours or
costs to determine evaluated costs, without the exercise of informed
judgment by the contracting agency in independently analyzing the
offeror*s proposed costs based upon its particular approach and
circumstances, was unreasonable); The Jonathan Corp.; Metro Machine Corp.,
B-251698.3, B-251698.4, May 17, 1993, 93-2 CPD para. 174 at 11-13; United
Int*l Eng*g, Inc. et al., B-245448.3 et al., Jan. 29, 1992, 92-1 CPD para.
122 at 11. We therefore sustain the protests of Multimax, BAE and
Pragmatics on the basis that the Army failed to reasonably evaluate
proposed labor rates.
Misleading Price Discussions
The price evaluation also is problematic because the results of the
agency*s analysis were used to determine which prices to bring to
offerors* attention during discussions as possibly being unreasonably
high, and thus potentially determined which prices offerors would adjust
in their FPRs. In this regard, NGI and Multimax assert that the price IFNs
they received during discussions failed to reasonably advise them of
numerous labor rates that should have been brought to their attention as
significantly overstated and, moreover, that they were misled into
believing that only the few rates identified in the IFNs significantly
exceeded the IGCE rates. The protesters maintain that, had they known that
numerous of their proposed rates not identified during discussions were
significantly higher than the corresponding IGCE rates, they would have
reduced those rates in their FPRs, just as they reduced the rates that
were identified in the IFNs as overstated.
It is a fundamental precept of negotiated procurements that discussions,
when conducted, must be meaningful; that is, discussions must identify
deficiencies and significant weaknesses in each offeror*s proposal that
could reasonably be addressed so as to materially enhance the offeror*s
potential for receiving award. PAI Corp., B-298349, Aug. 18, 2006, 2006
CPD para. 124 at 8; Spherix, Inc., B-294572, B-294572.2, Dec. 1, 2004,
2005 CPD para. 3 at 13. An agency fails to conduct meaningful discussions
where it fails to apprise an offeror that its prices were viewed as
unreasonably high. Price Waterhouse, B-220049, Jan. 16, 1986, 86-1 CPD
para. 54 at 6-7. Further, an agency may not mislead an offeror--through
the framing of a discussion question or a response to a question--into
responding in a manner that does not address the agency*s concerns;
misinform the offeror concerning a problem with its proposal; or misinform
the offeror about the government*s requirements. Metro Mach. Corp.,
B-281872 et al., Apr. 22, 1999, 99-1 CPD para. 101 at 6. In conducting
exchanges with offerors, agency personnel also may not *engage in conduct
that . . . favors one offeror over another,* FAR sect. 15.306(e)(1); in
particular, agencies may not engage in what amounts to disparate treatment
of the competing offerors. Front Line Apparel Group, B-295989, June 1,
2005, 2005 CPD para. 116 at 3-4.
Here, in the discussions questions issued to NGI and Multimax (as well as
to other offerors such as BAE) questioning the proposed rates for
particular labor categories as significantly overstated, the agency
advised as follows: *Your proposed labor rates are significantly higher
than the Independent Government Cost Estimate (IGCE) rates for the
following labor categories . . . . The offeror should consider revising
the price proposal. If you do not revise the identified rates, please
provide an explanation for the basis of the rate.* See IFN to NGI no. 51,
Nov. 3, 2005; IFN to NGI no. 298, Jan. 6, 2006; IFN to BAE no. 50, Nov. 3,
2005; IFN to BAE no. 297, Jan. 6, 2006; IFN to Multimax no. 49, Nov. 11,
2006. Thus, there was no reference in the IFNs to the agency*s reliance on
the two-standard-deviation calculation, but instead only to the proposed
labor rate being *significantly higher than* the IGCE as the basis for the
IFN.
The Army*s price discussions with NGI and Multimax (as well as with BAE)
were inadequate because, due to the agency*s reliance on the
two-standard-deviation formula to identify *outlier* rates--and the broad
range of acceptable prices resulting from the formula--it failed to bring
to the protesters* attention numerous rates that reasonably should have
been considered significantly overstated. In this regard, the record shows
that proposed rates that were not questioned in the IFNs could actually
exceed the IGCE rates by a greater percentage than the rates that were
identified. Thus, for example, although NGI*s rate for [REDACTED] at the
contractor site was [REDACTED] percent higher than the IGCE rate, this
rate was not identified in an IFN because it was within the wide range of
acceptable prices established under the formula. At the same time,
although NGI*s proposed rate for [REDACTED] at the contractor site was
only [REDACTED] percent higher than the IGCE rate, because it fell outside
the range established by the two-standard-deviation test, NGI was advised
that its rate was *significantly higher* than the IGCE. There simply is no
reasonable basis for bringing the former rate to the offeror*s attention,
but not the latter.
The above example is not an isolated one. NGI calculates that
[REDACTED] of its proposed labor rates that were not identified during
price discussions were similar to this example--they exceeded the
corresponding IGCE rate by a higher percentage than one or more of the
rates identified in its price IFNs. NGI notes further that [REDACTED] of
its unquestioned rates exceeded the IGCE rates by a greater percentage
than did some rates that were questioned in other offerors* IFNs.
Likewise, the record indicates that Multimax was not advised that its
proposed rates for a significant number of labor categories were higher
than the corresponding IGCE rates, despite the fact that these proposed
rates deviated from the IGCE by a greater percentage than rates that were
identified in discussions with Multimax or other offerors. Multimax
calculates that [REDACTED] of its unquestioned rates (only [REDACTED] of
its rates were identified in IFNs) exceeded the IGCE rates by a greater
percentage than the rates that were questioned in other offerors* IFNs
(during initial price discussions).
We conclude that not only were offerors not adequately advised of all of
their significantly overstated rates, but the agency*s failure to identify
the additional rates actually misled the offerors into believing that
those rates did not require further adjustment.[6] In these circumstances,
we conclude that the agency failed to conduct meaningful discussions with
the protesters.
The Army questions whether the protesters have established that they
suffered competitive prejudice as a result of the agency*s approach to
discussions. A reasonable possibility of prejudice is a sufficient basis
for sustaining a protest. McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1
CPD para. 54 at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577,
1581 (Fed. Cir. 1996); Creative Info. Tech., Inc., supra; The Jonathan
Corp.; Metro Mach. Corp., supra, at 10. The record includes the
protesters* calculation of the price reductions they would have proposed
had the agency identified the additional labor rates during discussions;
these calculations show total price reductions of $[REDACTED] for NGI and
$[REDACTED] for Multimax. Based on these reductions, the protesters*
prices would have been lower than one or more awardees with equal or lower
technical ratings. Since the protesters* calculations are consistent with
their responses to the price IFNs they received--i.e., they lowered their
rates in response to the price IFNs--and their lower prices may have
affected the award determination, we find that there is a reasonable
possibility that the protesters were prejudiced by the agency*s actions.
The Army argues that, had it advised the protesters of additional labor
rates that significantly exceeded the IGCE rates, it also would have
provided similar information to the awardees, thus affording them a
similar opportunity to reduce their rates. The Army suggests that the
result would have been a *wash.* However, the Army*s speculation as to
what would have occurred if all offerors had been provided the same
opportunity to revise their proposals is insufficient to rebut the
apparent prejudice to the protesters from the misleading discussions. See
Creative Info. Tech., Inc., supra; The Jonathan Corp.; Metro Mach. Corp.,
supra, at 10. Accordingly, we sustain NGI*s and Multimax*s protests on the
ground that the agency provided inadequate, misleading discussions.
Unequal Discussions
NCI and BAE assert that they were not afforded meaningful discussions with
respect to their proposed labor rates, and instead were denied the
opportunity provided other offerors to enhance their proposals* potential
for award by addressing labor rates that significantly exceeded the IGCE
rates. We agree.
During discussions, the Army identified as significantly higher than the
corresponding IGCE rates proposed rates that were as little as 3.67
percent (during the initial price discussions) or 3.27 percent (during the
second round of price discussions) higher than the IGCE rates. Meanwhile,
as alluded to above, the agency did not identify other labor rates that
were very much higher than the IGCE rates.[7] For example, [REDACTED] of
NCI*s initially proposed labor rates was identified as significantly
higher than the IGCE rates, despite the fact that NCI proposed rates that
exceeded the IGCE by as much as [REDACTED] percent. Likewise, only
[REDACTED] of BAE*s proposed rates were identified as significantly higher
than the corresponding IGCE rates, despite the fact that other of BAE*s
proposed rates exceeded the IGCE by as much as [REDACTED] percent. In
contrast, one of the awardees had 69 of its proposed rates identified as
significantly higher than the IGCE rates, another had 27 rates identified,
and another 20 rates.
Again, this example is not an isolated one. NCI calculates that
[REDACTED], and BAE [REDACTED], of their unquestioned labor rates exceeded
the IGCE rate by a higher percentage than rates brought to the attention
of other offerors. NCI has calculated that it would have lowered its labor
rates in a manner that would have reduced its TPCP by $[REDACTED] had it
been advised of these additional overstated rates; BAE calculates that it
would have reduced its price by $[REDACTED]. These price reductions--which
have not been brought into question by the agency--would have resulted in
the protesters* prices being lower than those of one or more awardees with
equal or lower technical ratings. NCI Comments, Sept. 13, 2006, ex. 1; BAE
Comments, Sept. 8, 2006, at 7, chart 3. Accordingly, we sustain the
protests of NCI and BAE on the ground that the agency failed to provide
them meaningful discussions.
RECOMMENDATION
We recommend that the Army reopen discussions with offerors, consistent
with our conclusions above, and then request revised proposals. The agency
may then determine the number of awards it deems appropriate. If the
evaluation of revised proposals results in a determination that one or
more of the current awardees* proposals no longer represent the best value
to the government, the agency should terminate such contracts. We also
recommended that Multimax, NCI, BAE, NGI, and Pragmatics be reimbursed
their costs of filing and pursuing their protests, including reasonable
attorneys* fees, with regard to the price evaluation and discussions
issues. 4 C.F.R. sect. 21.8(2)(1) (2006). In accordance with 4 C.F.R.
sect. 21.8(f)(1), the protesters* certified claims for such costs,
detailing the time expended and costs
incurred, must be submitted directly to the agency within 60 days after
receipt of this decision.
The protests are sustained.
Gary L. Kepplinger
General Counsel
------------------------
[1] The SSA has further stated that there was no intention to raise the
$20 billion contract ceiling set forth in the solicitation. Declaration of
SSA, Aug. 7, 2006, at 1.
[2] According to the Department of Defense*s (DOD) Contract Pricing
Reference Guides, the standard deviation is a measure of dispersion of the
samples or observations using the square root of the variance (with the
variance of a sample being the average of the squared deviations between
each observation and the mean). In a distribution that is approximately
normal, plus or minus one deviation will include approximately 68 percent
of the total observations in the sample; plus or minus two deviations will
include approximately 95 percent of the total observations; and plus or
minus three deviations will include approximately 99.7 percent of the
total observations. However, of particular importance here, because all
values are squared, a single observation that is far away from the mean
can substantially affect both the variance and the standard deviation. DOD
Contract Pricing Reference Guides, vol. 2, ch. 3.3.
[3] The record indicates that, in a limited number of instances during the
first of the two rounds of price discussions, the agency questioned an
offeror*s rate for a particular labor category as being overstated even
though it did not exceed the IGCE rate for that category. Specifically,
during the initial round of price discussions, the Army questioned 123 of
the offerors* over 3,500 labor rates as being significantly higher than
the IGCE rates for the categories questioned (as well as 28 labor rates
for being significantly understated); in 9 of these cases, however, the
rates were questioned as being significantly in excess of the IGCE even
though they only exceeded the range of acceptable rates established by the
mean-plus-two-standard-deviation test, and in fact were not higher than
the IGCE rates for those categories. Agency Comments, Sept. 8, 2006, at
10; Agency Comments, Sept. 21, 2006, at 3. (During the second round of
price discussions, the Army questioned 69 labor rates as being
significantly higher than the IGCE and 25 as being significantly
understated. Agency Comments, Sept. 8, 2006, at 10.)
[4] The extremely wide range of acceptable labor rates appears to have
resulted from the fact that, as noted above, rates that were far from the
mean disproportionately increased the range described by the
two-standard-deviation calculation.
[5] Application of the formula also resulted in a wide range of acceptable
hourly rates for some labor categories at contractor sites, such as, for
example, $[REDACTED] to $[REDACTED] for Program Manager-Intermediate,
where the IGCE was $[REDACTED]. SSA Initial Briefing Materials, Nov. 28,
2005, app. A; SSA Final Briefing Materials, June 14, 2006, app. B.
[6] We note that, with respect to NGI, the agency confirmed during
discussions that only the identified labor rates were overstated.
Specifically, during NGI*s oral presentation, the contracting officer
explained the IFN to NGI as follows: *We*re basically identifying the
proposed labor rates that are significantly higher than the IGCE rates.*
Videotape of NGI Oral Presentation/Discussions at 1:15-1:16. The
contracting officer confirmed NGI*s interpretation of his explanation in
this regard when answering the following questions from NGI:
NGI : . . . I was just curious what significantly meant in terms of the
delta between the cost estimate and what you saw here.
Contracting Officer: Yeah . . . we generally . . . I mean . . . we can*t
really give you that.
NGI: Right, but I guess my question is, is it just these [REDACTED] rates?
Contracting Officer: It*s just the rates we*ve identified.
Id. at 1:17-1:18.
[7] The reference above to labor rates identified during discussions as
being overstated but exceeding the IGCE rates by as little as 3.27 and
3.67 percentage does not account for the proposed labor rates identified
during discussions as being overstated but which in fact were less than
the IGCE rates. The Army maintains that these rates were erroneously
identified as being overstated. Agency Comments, Sept. 8, 2006, at 10;
Agency Comments, Sept. 21, 2006, at 3.