TITLE: B-299504; B-299504.2, IBM Corporation, June 4, 2007
BNUMBER: B-299504; B-299504.2
DATE: June 4, 2007
***************************************************
B-299504; B-299504.2, IBM Corporation, June 4, 2007
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: IBM Corporation
File: B-299504; B-299504.2
Date: June 4, 2007
Thomas P. Humphrey, Esq., John E. McCarthy Jr., Esq., David Z.
Bodenheimer, Esq., Adelicia Cliffe Taylor, Esq., Jane R. Foster, Esq., and
Derek A. Hahn, Esq., Crowell & Moring LLP, for the protester.
Mark D. Colley, Esq., Christopher R. Yukins, Esq., Kristen E. Ittig, Esq.,
Cameron W. Fogle, Esq., and Antonella Karlin, Esq., Arnold & Porter LLP,
for CGI Federal, Inc., an intervenor.
Avital G. Zemel, Esq., and Kenneth A. Redden, Esq., Environmental
Protection Agency, for the agency.
Jonathan L. Kang, Esq., and Ralph O. White, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
1. Protest challenging agency's evaluation of offerors' price and cost
proposals is sustained where agency improperly adjusted upward portions of
protester's fixed-price proposal.
2. Protest alleging unreasonable technical evaluation is denied where
record supports agency's evaluation of protester's personnel approach.
3. Protest alleging misleading discussions is denied where protester
unreasonably relied on oral advice allegedly provided by agency during
discussions which deviated from solicitation instructions.
DECISION
IBM Corporation protests the award of a contract to CGI Federal, Inc.
under request for proposals (RFP) No. PR-HQ-05-12521, issued by the
Environmental Protection Agency (EPA) for the upgrade of the agency's
financial management system. The protester contends that the EPA's
evaluation of the offerors' price and technical proposals was
unreasonable. The protester also alleges that the agency did not conduct
meaningful discussions, and that the source selection decision was flawed.
We sustain the protest.
BACKGROUND
The EPA's Financial System Modernization Project (FSMP) calls for the
acquisition, implementation and hosting[1] of a software solution to
provide a new agency-wide financial management system for the agency's
Office of the Chief Financial Officer. The RFP sought proposals for the
new software solution and anticipated award of an
indefinite-delivery/indefinite-quantity (ID/IQ) contract with a 5-year
base term, and five 1-year options. The work under the contract will be
performed through the issuance of performance-based task orders.
The RFP identified two technical evaluation factors, technical merit (375
total points) and oral presentations and solution demonstration (125 total
points).[2] RFP at M-2-M-8. Offerors were required to submit proposals in
six volumes, titled: (1) minimum requirements matrix, (2) software
solution, (3) technical merit, (4) supporting documentation, (5) price
proposal,[3] and (6) solicitation set. RFP attach. 5, Proposal
Instructions. The "minimum qualifications matrix" volume was to be used by
each offeror to identify whether its proposal met each requirement, and,
if not, how the offeror would meet the requirement in the future. Id. at
attach. 6, Minimum Qualifications Matrix. Each offeror's matrix was
evaluated, overall, on a pass/fail basis. Id. Offerors were also required
to address potential conflicts of interest and provide a subcontracting
plan. RFP at M-8-M-9.
The RFP allowed offerors to propose how they would be reimbursed by the
agency for the work under each area of the contract, i.e., on a
fixed-price, labor hour, or time and materials (T&M) basis. RFP attach. 5,
at 17. The RFP also instructed offerors to include any assumptions or
exclusions from their price and cost proposals, including "contingency
allowances" for expected and unknown risks, RFP attach. 5, at 7, and
advised that the agency would evaluate proposals based on cost and price
realism. RFP at M-2. The agency further explained, during discussions,
that it would evaluate the "total cost of ownership" of each proposed
approach, as follows:
[P]ursuant to the definition of cost realism included in provision M.4
of the solicitation, EPA intends to consider the total cost of ownership
of the proposed solution as part of its evaluation of overall cost.
Total costs of ownership include [the offeror's] proposed price, the
costs to EPA for the operations and maintenance of EPA legacy systems
(as identified in Attachment 10 of the solicitation), as well as the
costs to EPA of EPA and [program management office] contractor resources
allocated to the project (as identified in Attachment 5 to the
solicitation).
Agency Report (AR), Tab 26, Agency Request for Final Proposal Revisions,
Oct. 19, 2006.
The RFP stated that award would be made to the "responsible offeror(s)
whose offer conforms to the solicitation and is most advantageous to the
Government cost or other factors considered," and that "all evaluation
factors other than cost or price when combined are significantly more
important than cost or price." RFP at M-2.
The EPA received four proposals, and performed an initial price and cost
and technical evaluation of each of them. Two of the four offerors were
eliminated from further consideration, leaving only CGI and IBM. The
agency then conducted discussions with these offerors, and requested final
proposal revisions (FPRs).
In its FPR, IBM proposed to perform all work on a fixed-price basis, with
the exception of one portion of the hosting requirements (described in
detail below), which was proposed on a T&M basis. AR, Tab 41, Source
Selection Determination (SSD), at 69. CGI proposed to perform [deleted] of
the work on a fixed-price basis, and [deleted] of the effort on a T&M
basis. Id. There is no dispute in the record that CGI proposed to perform
[deleted].
A technical evaluation panel (TEP) evaluated each FPR, and provided
separate reports to the contracting officer (CO). AR, Tab 31, TEP Final
Technical Report, Tab 38, TEP Final Price and Cost Report. The CO reviewed
the separate TEP reports and prepared a selection decision with final
technical and price and cost evaluations for each offeror. AR, Tab 41,
SSD.
The CO concluded that each offeror proposed an acceptable minimum
requirements matrix, subcontracting plan, and conflict of interest plan.
Id. at 10-13. For the technical evaluations, the CO evaluated the offerors
as follows:
+------------------------------------------------------------------------+
| | IBM | CGI |
|---------------------------------------------+-------------+------------|
|TECHNICAL MERIT | 256.2 | 240 |
|---------------------------------------------+-------------+------------|
|Technical and Functional | 72 | 54 |
| | | |
|-- Software Solution | 40.5 | 40.5 |
| | | |
|-- Implementation | 40.5 | 40.5 |
| | | |
|-- Hosting | | |
|---------------------------------------------+-------------+------------|
|Experience and Past Performance | 37.6 | 37.6 |
| | | |
|-- Organization Experience | 37.6 | 28.2 |
| | | |
|-- Past Performance | | |
|---------------------------------------------+-------------+------------|
|Management Approach | 16.8 | 16.8 |
| | | |
|-- Approach | 11.2 | 22.4 |
| | | |
|-- Personnel | | |
|---------------------------------------------+-------------+------------|
|ORAL PRESENTATIONS AND SOLUTION DEMONSTRATION| 90 | 80 |
|---------------------------------------------+-------------+------------|
|Oral Presentation | 20 | 20 |
|---------------------------------------------+-------------+------------|
|Solution Demonstration | 20 | 15 |
| | | |
|-- Business Scenarios | 15 | 15 |
| | | |
|-- Ability to Satisfy Goals of FSMP | 20 | 15 |
| | | |
|-- Navigation and Ease of Use | 15 | 15 |
| | | |
|-- Effectiveness of Offeror's Team | | |
|---------------------------------------------+-------------+------------|
|TOTAL SCORE (500 possible points) | 346.2 | 320 |
+------------------------------------------------------------------------+
AR, Tab 41, SSD at 5.
For the price and cost evaluation, the CO made adjustments to offerors'
proposals based on "cost realism" and "total cost of ownership" analyses.
Id. at 52-71. As relevant to the protest, the agency made four adjustments
to IBM's price and cost proposal based on two general types of cost
concerns. The first two adjustments were based on the agency's concern
that IBM's proposal did not capture all of the costs of IBM's approach to
the work, and that IBM would seek reimbursement for those costs. The third
and fourth adjustments to IBM's proposal were based on the agency's
concern that additional agency resources would be required based on IBM's
proposed approach.[4]
First, the EPA determined that both IBM's and CGI's proposals required
upward adjustments regarding the agency's Superfund Cost Recovery Package
and Image On-Line System (SCORPIOS) legacy application. The RFP explained
that "SCORPIOS summarizes the dollars spent on Superfund cleanup sites and
supports the recovery of those costs." RFP attach. 1, EPA Legacy System
Table, at 10-2.
Although neither IBM nor CGI proposed to replace SCORPIOS initially, their
FPRs both proposed to replace SCORPIOS. IBM's FPR states that: "The IBM
FSMP solution replaces 15 of 19 legacy applications including SCORPIOS to
realize the benefits of an integrated solution." AR, Tab 27, IBM FPR, Vol.
3, at 3 (emphasis in original, denoting FPR change). In the cost section
of its FPR, IBM stated that "[i]n implementation, IBM is replacing 15 of
19 legacy applications and delivering the systems in two releases over a
26 month period." Id., Vol. 5, at 2. In its charts and diagrams detailing
the replacement of legacy applications, IBM's FPR stated that SCORPIOS
would be replaced in Release Two of IBM's solution. Id., Vol. 3, at 9,
Figures B-4, B-5. With regard to the pricing of the SCORPIOS replacement,
IBM stated that for all areas other than a portion of its hosting
proposal, "IBM proposes firm fixed price (FFP) as the task pricing type
for each of the PWS task areas." AR, Tab 27, IBM FPR, Vol. 5, at 43.
Despite IBM's proposal to replace SCORPIOS on a fixed-price basis, the
agency concluded that the company had not adequately explained its price
and cost proposal or technical approach in its FPR. The agency calculated
an adjustment based on what the agency viewed as the likely cost of
replacing SCORPIOS. AR, Tab 41, SSD at 54. Similarly, the EPA concluded
that CGI's proposal to replace SCORPIOS on a T&M basis lacked a sufficient
number of hours to perform the work, and adjusted its proposal on that
basis. Id.
Second, the EPA concluded that IBM's proposal required an adjustment for
its Tier 3 hosting solution and contingency allotment. The RFP required
offerors to provide hosting for all software applications, other than
agency legacy applications, and divided these hosting requirements into
three tiers:
Tier 1: Basic Data Center, manage the computers and infrastructure
Tier 2: Tier 1 plus manage the application, help desk, break-fix, run
jobs, small patches
Tier 3: Tier 2 plus systems development and integration including major
new releases
RFP attach. 5, Proposal Instructions, at 9-10.
During discussions, the agency clarified for both offerors that the Tier 3
hosting requirements would fall into two categories: (1) contractor-driven
changes required by an offeror's own solution; and (2) government-driven
changes required by the agency to meet new and updated requirements, such
as legislative mandates or changes to government accounting rules. AR, Tab
29, Summary of Discussions, at 10; see also, Tab 41, SSD, at 54-55;
Hearing Transcript (Tr.) at 233:8-14.[5]
Initially, IBM proposed to perform all hosting work, including Tier 3
hosting, on a fixed-price basis. In its FPR, however, IBM proposed to
provide Tier 3 hosting on a T&M basis, but expressly estimated $0 for the
effort. Specifically, IBM stated "[t]his scope is zeroed and will be
directed on [a] T&M basis as required by EPA." AR, Tab 27, IBM FPR, Vol.
5, at 13. With respect to the "major new releases" component of Tier 3
hosting, IBM advised as follows:
[deleted].
AR, Tab 27, IBM FPR, Vol. 3, at 80-81.
The EPA concluded that an upward adjustment to IBM's proposal was required
for cost realism because IBM had not included any costs for anticipated
future releases of its proposed software solution, [deleted]. AR, Tab 41,
SSD at 55. The EPA adjusted IBM's Tier 3 costs upward to cover future
releases and also made an adjustment to provide a contingency allowance
relating to Tier 3 hosting. Id. Although IBM had included contingency
allowances for other areas of its proposal, it did not do so for Tier 3
hosting. Thus, the EPA calculated an adjustment by using the contingency
rate found elsewhere in IBM's proposal. AR, Tab 41, SSD at 56.
Third, the agency determined that IBM's proposal would require EPA to
incur additional costs for agency personnel in the implementation stage of
the work. The RFP required offerors to state their assumptions about the
number of hours that EPA staff would need to contribute to the
implementation effort here. RFP attach. 5, at 7. IBM's initial proposal
assumed approximately 214,000 hours of EPA staff effort. During
discussions, the agency advised both offerors that it could provide only a
limited number of staff hours to assist with implementation, as follows:
EPA clarifies that the EPA Resource levels identified during discussions
are limited to the development portion of any resultant contract, i.e.
EPA can dedicate no more than 20 full time employees to the project
until the proposed solution becomes the Agency financial system of
record. Additional subject matter experts can be provided by the
Government intermittently, but not for more than one week per occasion.
AR, Tab 41, SSD at 57.
IBM's FPR reduced its assumption for the number of EPA staff hours
required to a level consistent with the agency's notice that only 20 FTEs
per year would be available, but IBM did not increase its proposed hours
to cover the estimated 214,000 hours of EPA staff effort it estimated its
approach required; rather, IBM increased its proposed staffing by 19,436
hours. The CO assumed that EPA staff would be required to address any
short-fall, and calculated the cost of the additional agency staff time
and added the amount as an adjustment to IBM's evaluated price and cost.
In contrast, the agency did not make any adjustments to CGI's proposal for
EPA implementation resources.[6]
Fourth, and finally, the EPA calculated that the agency would incur
additional ongoing maintenance costs associated with the timing of IBM's
plan to replace the agency's Integrated Financial Management System (IFMS)
legacy application.[7] In this regard, for each of the legacy system
applications, including IFMS, the RFP identified the agency's annual costs
for operations and maintenance. Id. Offerors were required to identify the
timeframe for replacement of legacy applications, and complete a chart
indicating the agency's costs for continuing to provide support for the
applications during the transition. Id. at 10-4. Although IBM stated that
it would replace IFMS during the first stage of its proposed solution, the
agency concluded that IFMS could not be replaced until the second stage of
IBM's proposed solution. AR, Tab 41, SSD at 53-54. The EPA therefore
determined that it would incur operations and maintenance costs during the
additional time that the agency would be required to maintain IFMS.
The CO's final evaluation of IBM's and CGI's price and cost proposal, with
adjustments, was as follows:
+------------------------------------------------------------------------------+
| | IBM | CGI |
|--------------------------------+-----------------------+---------------------|
|PROPOSED PRICE[8] | $102,585,787 | $84,083,464 |
|--------------------------------+-----------------------+---------------------|
|TOTAL COST OF OWNERSHIP[9] | $126,658,999 | $110,482,570 |
|--------------------------------+-----------------------+---------------------|
|-- EPA Legacy System Costs | $17,266,664 | $22,384,000 |
|--------------------------------+-----------------------+---------------------|
|-- EPA Resources | $4,680,060 | $3,414,840 |
|--------------------------------+-----------------------+---------------------|
|-- PMO Resources | $2,126,488 | $600,266 |
|--------------------------------+---------------------------------------------|
|COST REALISM ADJUSTMENTS[10] | |
|--------------------------------+---------------------------------------------|
|-- IMFS Retirement | $0 - $5,038,334 | $249,344 |
|--------------------------------+-----------------------+---------------------|
|-- SCORPIOS Retirement | $1,250,000 | $2,375,000 |
|--------------------------------+-----------------------+---------------------|
|-- SCORPIOS Replacement | $7,086,000 | $2,942,540 |
|--------------------------------+-----------------------+---------------------|
|-- Tier III Hosting |$6,000,000 - $7,313,829| -- |
|--------------------------------+-----------------------+---------------------|
|-- Tier III Contingency | $360,000 - $2,222,800 | -- |
|--------------------------------+-----------------------+---------------------|
|-- EPA Resources, Hosting | $1,735,008 | $98,736 |
|--------------------------------+-----------------------+---------------------|
|-- EPA Resources, Implementation| $0 - $7,229,508 | -- |
|--------------------------------+-----------------------+---------------------|
|-- PMO Contractor Hours | -- |$360,584 - $2,634,742|
|--------------------------------+-----------------------+---------------------|
|-- [deleted] | -- | $[deleted] |
|--------------------------------+-----------------------+---------------------|
|-- Momentum Budgeting | -- | $1,048,306 |
|--------------------------------+-----------------------+---------------------|
|-- BAS/IRMS | -- | $2,909,982 |
|--------------------------------+-----------------------+---------------------|
|-- Training | -- | $0 - $1,363,677 |
|--------------------------------+-----------------------+---------------------|
|-- Testing | -- | $500,000 |
|--------------------------------+-----------------------+---------------------|
|MOST PROBABLE COST[11] | $143,090,007 -- | $120,967,063 -- |
| | | |
| | $158,534,478 | $125,004,898 |
+------------------------------------------------------------------------------+
AR, Tab 41, SSD at 52.
Based on her evaluations, the CO recommended that the contract be awarded
to CGI. The CO concluded that CGI's technical proposal was "highly
competitive with IBM, more so than even the 26.2 point differential over
500 points would indicate due to the significantly greater performance and
cost risks [associated with IBM's approach]." Id. at 72. With regard to
the price or cost difference between the offerors, the CO stated that "the
price savings of CGI's offer of $18.5 Million as proposed is likely to
widen significantly when the Government considers total cost of ownership
items such as EPA legacy system costs, EPA and [program management office]
resource costs, and cost adjustments related to the realism of the
offers." Id.
The CO signed the selection decision on January 1, 2007, and presented it
to the source selection authority (SSA) for his approval. In meetings on
January 8 and 12, the SSA met with the TEP chair and other representatives
of the Office of the Chief Financial Officer, who expressed concerns about
the proposed selection decision and about the Office's view that IBM's
proposal, and not CGI's, represented the best value to the government.
Decl. of SSA, at 1-2; Decl. of TEP Chair, at 1. By memorandum, dated
January 23, the TEP chair outlined his recommendation that the agency
conduct additional discussions with the offerors. Decl. of TEP Chair, at
1; AR, Tab 41, "FSMP Proposal Further Discussion Items." The TEP chair
drafted a second memorandum, dated January 30, titled "Response to Source
Selection Document," which further expressed the TEP chair's disagreement
with the CO's award recommendation. Although the SSA reviewed the January
23 memorandum, but not the January 30 memorandum, he states that he was
fully aware of the concerns expressed about the proposed selection
decision.[12] Decl. of SSA, at 1-2. The SSA approved the award to CGI by
signing the selection decision on January 31. AR, Tab 41, SSD, at 73; see
also Decl. of SSA, at 3. This protest followed.
DISCUSSION
IBM argues that the EPA improperly evaluated proposals, failed to conduct
meaningful and equal discussions and, as a result, made an unreasonable
selection decision. As discussed in detail below, we conclude that the
agency improperly adjusted fixed-price elements of IBM's proposal and
performed an unreasonable evaluation of CGI's price and cost proposal.
With regard to IBM's allegations concerning the technical evaluation, we
find that the record supports the agency's evaluation, and that the agency
conducted meaningful discussions with IBM. Because of the flaws in the
price and cost evaluation, however, we conclude that the selection
decision was unreasonable.
As a preliminary matter, our discussion of several of the issues set forth
below necessarily addresses differences between the contemporaneous
written record, and positions taken by the agency in response to the
protest. While we consider the entire record in resolving a protest,
including statements and arguments in response to a protest, in
determining whether an agency's selection decision is supportable, we
accord greater weight to contemporaneous evaluation and source selection
materials than to new judgments made in response to protest contentions.
Boeing Sikorsky Aircraft Support, B-277263.2, B-277263.3, Sept. 29, 1997,
97-2 CPD para. 91 at 15. In this regard, we accord lesser weight to
post-hoc arguments or analyses because we are concerned that judgments
made "in the heat of an adversarial process" may not represent the fair
and considered judgment of the agency, which is a prerequisite of a
rational evaluation and source selection process. Id. In contrast,
post-protest explanations that provide a detailed rationale for
contemporaneous conclusions and simply fill in previously unrecorded
details will generally be considered in our review of evaluations and
award determinations, so long as those explanations are credible and
consistent with the contemporaneous record. ITT Fed. Servs. Int'l Corp.,
B-283307, B-283307.2, Nov. 3, 1999, 99-2 CPD para. 76 at 6. As discussed
below, in several areas the agency's response to this protest is not
supported by the contemporaneous record.
Price and Cost Evaluation Issues
The protester first argues that the EPA made improper "realism"
adjustments to certain fixed-price elements of IBM's proposal, and failed
to equally or reasonably evaluate CGI's proposal. As discussed above, the
agency stated that it would perform both a cost realism and price realism
analysis, as well as assess the "total cost of ownership" associated with
offerors' proposals. In the discussion that follows, we address the
adjustments that were made to IBM's proposal for SCORPIOS replacement,
Tier 3 hosting requirements, EPA implementation efforts, and IFMS
retirement costs. We conclude with a discussion of EPA's evaluation of
certain elements of CGI's costs.
A cost realism analysis is required when an agency evaluates proposals for
the award of a cost-reimbursement contract. Under such a contract, an
offeror's proposed costs are not considered controlling because,
regardless of the costs proposed, the government is bound to pay the
contractor its actual and allowable costs. Federal Acquisition Regulation
(FAR) sections 15.305(a)(1), 15.404-1(d). Consequently, an agency must
perform a cost realism analysis to determine the extent to which an
offeror's proposed costs represent what the contract should cost, assuming
reasonable economy and efficiency. FAR sect. 15.404-1(d)(2); Hanford
Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para.
164 at 8-9. Although there is no requirement that an agency perform a cost
realism analysis when offerors propose to perform work on a T&M basis with
fixed-price labor rates, agencies may, as here, provide for such an
evaluation in a solicitation. Resource Consultants, Inc., B-290163,
B-290163.2, June 7, 2002, 2002 CPD para. 94 at n.1. Cost realism may
involve adjustments to proposed costs to calculate the most probable cost
to the government of the offeror's proposed approach.
In contrast, where an RFP contemplates the award of a fixed-price
contract, or fixed-price portion of a contract, an agency may also provide
in the solicitation 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.
Puglia Eng'g of California, Inc., B-297413 et al., Jan. 20, 2006, 2006 CPD
para. 33 at 6-7. Although the FAR does not use the term "price realism,"
it provides that cost realism analysis may be used to evaluate fixed-price
proposals as follows:
Cost realism analyses may also be used on competitive fixed-price
incentive contracts or, in exceptional cases, on other competitive
fixed-price-type contracts when new requirements may not be fully
understood by competing offerors, there are quality concerns, or past
experience indicates that contractors' proposed costs have resulted in
quality or service shortfalls. Results of the analysis may be used in
performance risk assessments and responsibility determinations. However,
proposals shall be evaluated using the criteria in the solicitation, and
the offered prices shall not be adjusted as a result of the analysis.
FAR sect. 15.404-1(d)(3).
Thus, as the FAR explains, a price realism analysis may affect the
technical evaluation, but cannot result in an adjustment of an offeror's
proposed fixed prices. Id.; see also Puglia Eng'g of California, Inc.,
supra; Verestar Gov't Servs. Group, B-291854, B-291854.2, Apr. 3, 2003,
2003 CPD para. 68 at 6 n.3; Marquette Med. Sys., Inc., B-277827.5,
B-277827.7, Apr. 29, 1999, 99-1 CPD para. 90 at 6. Specifically, an agency
cannot make upward price adjustments for cost elements that the agency
thinks may be priced too low. All Phase Environmental, Inc., B-292919.2 et
al., Feb. 4, 2004, 2004 CPD para. 62 at 8.
SCORPIOS Replacement
The EPA determined that IBM's proposal for replacing the SCORPIOS legacy
application required a cost adjustment to address the agency's concerns
that IBM did not adequately understand the effort required. IBM contends
that the adjustment was improper because its FPR clearly commits IBM to
replace SCORPIOS at a fixed price.[13] We agree with IBM.
The record shows that the agency did not reject or otherwise criticize
IBM's technical proposal based on any deficiencies, weaknesses or lack of
details regarding its proposal to replace SCORPIOS.[14] Specifically, the
selection decision found that IBM's proposal under the Software Solution
and Implementation subfactors met the RFP requirements, and the agency did
not identify any concerns regarding SCORPIOS.[15] See AR, Tab 41, SSD at
13-28. Instead, the criticism regarding SCORPIOS was expressed solely in
the price and cost evaluation, in the form of an adjustment to IBM's
proposed price.
The CO explained during the hearing that she could not determine whether
IBM's proposal was offering to replace SCORPIOS on a fixed-price or a T&M
basis. Tr. at 125:16-126:4. Since the agency was concerned that SCORPIOS
would have to be rebuilt, and that doing so would require approximately
40,000 hours, it calculated the cost of that time as $7,086,000, using
IBM's labor rates. AR, Tab 41, SSD at 54. Specifically, the CO was
concerned that, although IBM proposed no costs associated with replacing
SCORPIOS, the agency would be required to reimburse IBM the $7.1 million
estimated cost to replace the application.[16] Tr. at 129:8-22.
Our review of the record shows that IBM's proposal committed to replacing
SCORPIOS. IBM's proposal stated that it "replaces 15 of 19 legacy
applications including SCORPIOS." AR, Tab 27, IBM FPR, Vol. 3, at 3. IBM
also identified SCORPIOS as being replaced in Release 2 of its proposed
software solution. Id. at 9, Figures B-4, B-5. In addition, the record
shows that the agency understood that IBM proposed to replace SCORPIOS on
a fixed-price basis. The selection decision states that "IBM has proposed
to perform the entire priced effort on a [fixed-price] basis. This
excludes Tier 3 hosting which IBM did not price." AR, Tab 41, SSD at 69.
Aside from Tier 3 hosting, the agency did not identify any other area of
IBM's proposal that was not proposed on a fixed-price basis. The CO also
testified at the hearing that she understood Release Two of IBM's
solution, where SCORPIOS replacement would take place, to be proposed as
part of the fixed price proposal. Tr. at 169:16-19.
In sum, the EPA's criticism of IBM's approach to SCORPIOS replacement was
focused primarily on IBM's understanding of the requirement and whether
the firm would be able to perform the work. The contemporaneous record
shows that the agency did not specifically challenge IBM's intent to
perform the work on a fixed-price basis, but nonetheless adjusted IBM's
proposed price based on the concern that there would be additional costs
to the government. Because IBM proposed to replace SCORPIOS on a
fixed-price basis, the agency's adjustment to IBM's price was improper. As
the FAR and our cases make clear, an agency may account for concerns
regarding an offerors' understanding of a requirement in the form of a
performance risk evaluation, but may not adjust a fixed-price for purposes
of evaluation.[17] FAR sect. 15.404-1(d)(3); Puglia Eng'g of California,
Inc., supra, Verestar Gov't Servs. Group, supra; All Phase Environmental,
Inc., supra. On this basis, we conclude that the cost and price adjustment
here was improper.
Tier 3 Hosting Requirements
As discussed above, the EPA concluded that IBM's proposal for Tier 3
hosting, which was offered on a T&M basis, required a cost adjustment
because IBM estimated $0 for this effort. Tier 3 hosting involved two
categories of change requirements for offerors' software solutions:
contractor-driven changes and government-driven changes.
With respect to contractor-driven changes, the agency determined that
IBM's proposal required certain major releases, or upgrades, to its
software solution, but did not include any costs in its T&M proposal for
Tier 3 hosting to provide these releases. As mentioned earlier, IBM's FPR
changed its Tier 3 hosting approach from a fixed-price proposal to a T&M
proposal, and estimated $0 for the effort. AR, Tab 27, IBM FPR, Vol. 5, at
13. The agency thus concluded that IBM's proposal posed a risk because its
solution stated that major releases would be required, but identified no
costs associated with the effort. Id. 54-55; Vol. 3, at 80-81. The
protester argues that no adjustment was needed because its proposal stated
that, with the exception of government-driven, all other Tier 3 changes
would be provided under Tier 2. Protester's Comments on the Agency Report,
at 42-43; Protester's Post-Hearing Comments, at 31-32.
In our view, IBM's proposal did not clearly establish that it would
provide the required major releases under the fixed-price portion of its
proposal for Tiers 1 or 2. Thus, we conclude that the EPA, consistent with
the evaluation scheme, reasonably determined that an adjustment to IBM's
T&M proposal was necessary to reflect the cost of contractor-driven
changes under the Tier 3 hosting requirements. We also think the agency's
adjustment for contingency costs related to Tier 3 hosting was similarly
reasonable, in that it was based on RFP requirements for contingency
allowances. To the extent that IBM believes that the EPA misevaluated its
proposal in this regard, the protester has not demonstrated that the
agency's evaluation was unreasonable. A protester's mere disagreement with
the agency's judgment in its determination of the relative merit of
competing proposals does not establish that the evaluation was
unreasonable. Synectic Solutions, Inc., B-299086, Feb. 7, 2007, 2007 CPD
para. 36 at 7.
The protester next argues that the agency's evaluation of required major
releases under Tier 3 was unequal, because the agency ignored a similar
concern regarding CGI's proposal. We agree. CGI's proposal expressly
limited the amount of Tier 3 hosting services it would provide on a
fixed-price basis. Specifically, the proposal advised that "Team CGI
included [deleted] minor releases over the course of the 10 year contract.
[deleted]." AR, Tab 28, CGI FPR, Vol. 5, at 17. As the agency evaluators
concluded, "CGI has clearly bounded the scope of the services by
specifying that the Tier 3 work is limited to [deleted] `minor releases.'"
AR, Tab 38, TEP Final Price and Cost Report, at 16.
Put differently, CGI's approach, on its face, excluded any future major
releases. Despite this exclusion of major releases, CGI's proposal
explained:
[deleted]
AR, Tab 28, CGI FPR, Vol. 2, at 2-86, Table 5.
The TEP identified this discrepancy between CGI's proposal's anticipated
need for major releases, and its limitation of Tier 3 upgrades to "minor
releases," as a concern. Specifically, the TEP advised that "[s]ince the
distinction is not abundantly clear between a major and minor release, EPA
may incur a cost impact if a major release is required." AR, Tab 38, TEP
Final Price and Cost Report, at 16. During the hearing, the TEP evaluator
stated that the TEP understood that if a major release were required over
the 10-year potential term of the contract, CGI's proposed fixed-price
would not cover such an event.[18] Tr. at 420-21, 424. Nonetheless, the
selection decision did not address the TEP's concern regarding this
issue.[19] As a result, we agree that the evaluation of CGI's proposal was
unreasonable to the extent that the agency did not resolve this concern,
i.e., whether CGI's "bounded" proposal for Tier 3 hosting met the
solicitation requirements for major releases.
As to the second category under Tier 3 hosting, government-driven changes,
the agency concluded that an adjustment to the T&M portion of IBM's
proposal was required. In this regard, the agency clearly advised offerors
that certain government-driven changes would be required during contract
performance, and IBM stated that it would provide those changes on a T&M
basis as directed--but provided an estimate of $0 for the effort. As with
the first category of changes, we find that IBM has not established how it
will provide government-driven changes within the context of the $0
estimate for the effort. We thus conclude that some adjustment by the
agency to IBM's proposal to account for government-driven changes was
reasonable.
As to the quantum of the adjustment for both categories of changes,
however, we conclude the agency did not have a rational basis for the
adjustments it made. The agency made two adjustments to IBM's Tier 3
proposal: a $6,000,000 - $7,313,829 adjustment for Tier 3 hosting, and a
$360,000 - $2,222,800 adjustment for the contingency reserve for Tier 3.
AR, Tab 41, SSD at 54-55. The agency made no adjustments to CGI's
proposal.
The record indicates that the EPA never calculated a most probable cost
for either category of the potential Tier 3 costs. Rather, in the case of
IBM, the agency simply added back to IBM's proposal certain of the costs
deleted from its FPR. Id. at 55, n.190. The record does not show that the
agency had any support for this adjustment. Tr. at 206:15-207:9;
389:12-390:15. For this reason, we conclude the quantum of the adjustment
to IBM's proposal is not supported by the record.
Additionally, because the EPA did not have a clear understanding of the
scope of the government-driven changes required as part of Tier 3 hosting,
the agency had no basis to determine whether CGI's limited commitment to
perform Tier 3 hosting met all of the solicitation requirements.[20] Thus,
we find that the agency's evaluation of CGI's proposal is not supported by
the record
EPA Implementation Resources
The EPA determined that for the implementation effort, IBM's proposal did
not adequately explain a change to its assumptions regarding the level of
effort that the agency would provide to support IBM's proposed solution.
IBM contends the adjustment was improper because, regardless of the
estimated level of hours it identified in its proposal for the agency and
for itself, IBM still committed to perform the implementation work on a
fixed-price basis. We agree with IBM.
As discussed above, offerors were required to state their assumptions
regarding the level of effort the agency would provide to support the
offerors' solutions. During discussions, the agency advised offerors that
it would limit the support provided by EPA staff to 20 FTEs per year for
the implementation effort. The agency acknowledges that IBM's FPR
appropriately reduced the number of EPA hours proposed from 214,000 to
85,026 for the term of the contract, to reflect the 20 FTE level
identified during discussions. Agency Post-Hearing Comments, at 14. While
IBM decreased EPA staffing hours by 128,974 hours, it increased its own
staffing by only 19,436 hours. The EPA determined that an adjustment to
IBM's proposal was required because IBM did not adequately explain how it
would perform the work under its proposal in light of the revised
staffing. Specifically the agency concluded that because IBM did not
increase its own staffing to cover the reduction in the EPA staffing
effort, the agency would be required to make up the difference by
providing more EPA staff resources. AR, Tab 41, SSD at 57.
The CO calculated the adjustment to IBM's proposal based on the difference
between the original hours proposed by IBM, less the increase in IBM staff
hours, multiplied by a rate of $66 per hour established for EPA personnel.
Id. On this basis, the CO concluded that "the value of this effort, if
needed and ultimately performed by EPA staff, would be approximately
$7,229,508 [] dollars. Therefore the CO has established a range for the
probable cost impact of $0 to $7,229,508." Id.
We find that the agency's adjustment was improper because the agency
unreasonably assumed, given IBM's proposal commitments, that agency
personnel would be required to perform any additional needed work.[21]
This conclusion was not reasonable because IBM's FPR assumptions
identified a specific number of hours to be provided by the agency during
implementation, and thereby left the balance of the implementation effort
to be performed under IBM's fixed-price proposal. Thus regardless of the
number of hours IBM estimated for its own effort, it would still be
required to perform at its fixed-price. We conclude that the agency's
evaluation was unreasonable because: (1) EPA ignored the fixed-price
nature of IBM's proposal, and (2) the adjustment made--regardless of how
it is categorized--was not supported by the record.[22]
IFMS Retirement
The CO determined that IBM's proposal for replacing EPA's Integrated
Financial Management System required a cost adjustment to reflect
additional costs the agency would incur in maintaining that application
during the transition to IBM's software solution. IBM argues that the
adjustment was improper because the agency did not establish the
likelihood that the agency would incur additional costs with sufficient
certainty. We agree with the agency.
The EPA's "total cost of ownership" assessment evaluated the costs to the
agency for maintaining legacy system applications such as IFMS, during the
contractor's transition to its solution. The selection decision noted that
although "IFMS will be retired during the second year of the contract"
there were "inconsistencies between when and how accounts receivable and
Project/Cost functions would be implemented." AR, Tab 41, SSD at 53-54.
These two required functions are currently provided through IFMS. Id. at
54. The agency's concern, therefore, was that although IBM's proposal
stated that costs to the agency for IFMS would terminate by the end of
Release One of IBM's software solution, the fact that the two functions
would not be provided under the solution until Release Two, meant that the
agency would continue to incur expenses in providing those functions
through IFMS.
Under IBM's proposal, Release One is scheduled for months 1 through 14 of
contract performance, and Release Two is scheduled for months 15 through
29. AR, Tab 27, IBM FPR, Vol. 3, at 30-31. IBM's proposal stated that IFMS
will be replaced in Release One of the IBM solution. IBM FPR, Vol. 3, at
9, Figure B-4. The agency concluded that the retirement of IFMS would take
place in month 14 of the contract, based on IBM's calculation of legacy
costs for the agency, which terminated at that time.[23] AR, Tab 27, IBM
FPR Vol. 5, at 41, Table C-19. The technical volume of IBM's proposal,
however, states that the accounts receivable and project/cost functions
will be replaced in Release Two of the IBM solution. IBM FPR, Vol. 3, at
9-10, Figures B-5, B-6.
We conclude that the agency reasonably identified a cost risk on the
grounds that "it is not clear from IBM's proposal that this functionality
will be available prior to [IBM's software] Release 2." AR, Tab 41, SSD at
54. The agency assessed a "range for net cost risk of $0 to $5,038,334"
for agency operations and maintenance costs through Release Two.[24] Id.
On this record, we conclude that the adjustment of IBM's total cost of
ownership to the agency for continued IFMS legacy costs was reasonable and
consistent with the RFP's evaluation scheme, given IBM's proposed schedule
for IFMS retirement.[25]
Other CGI Costs
The protester also alleges that the EPA unreasonably evaluated several
aspects of CGI's proposal. As discussed below, we conclude that the
agency's evaluation of CGI's proposal was unreasonable only regarding the
[deleted] of its software solution; we deny the remaining IBM challenges
to the EPA's evaluation of CGI's price and cost proposal.
CGI proposed to provide its proprietary Momentum software solution to
perform the FMSP contract; [deleted] CGI's Momentum software. AR, Tab 28,
CGI FPR, Vol. 2, at 2-104-05. In its proposal, CGI stated that it will
[deleted]. Id. at 2-105. As discussed above, CGI's proposal for Tier 3
hosting was limited to providing [deleted] "minor releases" to its
software. Id., Vol. 5, at 17. In contrast, CGI's proposal identified a
"major release" as "[deleted]." Id., Vol. 2, at 2-86, Table 5. CGI's
fixed-price proposal for Tier 3 hosting included upgrades to Momentum
[deleted] as part of the [deleted] minor releases. See Tr. 468:3-469:3;
AR, Tab 28, CGI FPR, Vol. 3, at B-73-74.
In its final technical report, the TEP concluded that CGI's [deleted] was
a strength. AR, Tab 31, TEP Final Technical Report, at 17. In its final
price and cost report, however, the TEP concluded that CGI's approach
posed other risks because "CGI will have to [deleted]," and that the risks
posed a likely cost risk to the agency. AR, Tab 38, TEP Final Price and
Cost Report, at 11. The TEP was concerned that if the [deleted] required
CGI to "[deleted]," then the effort might be a "major release" that was
outside the scope of CGI's fixed-price proposal for Tier 3 hosting. Tr. at
473:14-23, 475:2-476:7, 476:13-477:13. The TEP concluded that the likely
cost risk to the government would "not be less than" $[deleted]. AR, Tab
38, TEP Final Price and Cost Report, at 11.
In the selection decision, the CO agreed with the TEP that CGI's proposed
cost should be adjusted to account for the [deleted] risk. AR, Tab 41, SSD
at 59-60. The CO determined, however, that because CGI had already
proposed to provide software upgrades in its fixed-price proposal for Tier
3 hosting, the cost risk would only be $[deleted], i.e., the difference
between the TEP's estimate of $[deleted] for [deleted] and the $[deleted]
that CGI had already proposed for Tier 3 hosting. Id.
We conclude that the CO's determination was unreasonable because it did
not address the TEP's concern that CGI's proposal to [deleted] was an
upgrade that might not be covered by its existing Tier 3 hosting
proposal.[26] The TEP believed that CGI's [deleted] posed an additional
$[deleted] in cost risk because that effort might constitute a "major,"
rather than a "minor" release. Thus, it was unreasonable for the CO to
conclude that CGI's existing Tier 3 proposal, which by its terms covered
only "minor releases," addressed that cost risk. In this regard, the CO
did not dispute the $[deleted] cost risk concern, but rather believed
without any support that this amount would be absorbed by CGI's Tier 3
proposal. Although the CO here accepted the TEP's cost risk estimate of
$4.3 million for [deleted], she had no basis to conclude that the actual
risk would be limited to $[deleted].
In sum we conclude that the EPA's evaluation of IBM and CGI's price
proposals was flawed and sustain the protest on this basis. Our review of
the record shows that the agency should not have included "adjustments" to
IBM's proposed price/cost as follows: (1) SCORPIOS Replacement, and (2)
EPA Resources, Implementation. These two errors lead to a reduction of
between $7,086,000 to $14,315,508 in IBM's "most probable cost." The
agency's evaluation of CGI's price and cost proposal for providing Tier 3
hosting was also flawed because it did not consider CGI's proposal with
regard to the need for major releases. In addition, the agency did not
have a clear basis for determining the size of the adjustment for Tier 3
hosting for either offeror's proposal. Finally, we conclude that the
agency's evaluation of CGI's proposal to [deleted] was unreasonable.[27]
Technical Evaluation Issues
IBM raises several challenges to the EPA's evaluation of its proposal, and
argues that the agency treated the offerors unequally. We have considered
all of the allegations regarding the technical evaluation, and find that
none warrant sustaining the protest.
For example, the protester contends that the agency's evaluation of its
proposal under the personnel subfactor of the management approach
evaluation factor was flawed because it unreasonably criticized the
staffing approach for project managers.
The EPA's evaluation of IBM's proposal concluded that IBM had proposed
approximately 14,000 hours for the project manager labor category over the
24-month implementation period, but that IBM had identified only two
individuals with a project manager title. AR, Tab 41, SSD at 43; Tr. at
335:12-15. Thus, the contacting officer concluded that IBM's proposed
staffing of two identifiable project managers did not provide an adequate
approach to filling the hours it proposed. This issue--whether the project
managers proposed could perform the 14,000 hours identified in IBM's
proposal--was the sole criticism discussed regarding IBM's proposal under
the personnel subfactor, and led to IBM's score of 11.2 out of 28 possible
points for the personnel element of the management approach subfactor.[28]
During the hearing, the CO explained the she relied on IBM's technical
proposal to determine the hours proposed for the project manager position.
Tr. at 348:14-20; see also AR, Tab 41, SSD at 43, Tab 31, TEP Final
Technical Report, at 61. The CO states that she also relied on the TEP
Final Technical Report on IBM's technical proposal, but also independently
calculated the hours in IBM's technical proposal for her conclusion. Tr.
at 336:12-338:8.
The protester points to a disagreement between the CO and TEP regarding
the staffing proposed in IBM's Price and Cost proposal. AR, Draft TEP
Final Price and Cost Report, Dec. 8, 2006, at 26-27. We conclude the CO
reasonably relied on the information in the technical proposal for
purposes of evaluating the personnel element, and the protester does not
provide a reasonable basis to challenge the CO's analysis regarding that
proposal.
To the extent that the protester argues that its own proposal was
inconsistent as between its technical and price and cost volumes, and that
the CO should have relied on the more favorable of the two possible
interpretations under its proposal, we disagree. It is an offeror's
responsibility to submit a well-written proposal, with adequately detailed
information, which allows a meaningful review by the procuring agency.
CACI Techs., Inc., B-296946, Oct. 27, 2005, 2005 CPD para. 198 at 5. In
this regard, the CO noted that the RFP required offerors' technical and
price proposals to match regarding areas such as proposed staffing, and
that the protester's proposal did not do so. Tr. at 347:16-348:13.
Discussions
The protester next argues that the EPA failed to conduct meaningful
discussions regarding several issues. The record, however, does not
support the protester's allegations with regard to any of the areas where
it argues that the agency failed to provide meaningful discussions.
For example, IBM argues that it was misled during discussions regarding
page limitations. Specifically, IBM claims that the agency advised IBM
that Volume 3 of its proposal exceeded the page limitation, but orally
advised that IBM could include additional pages regarding its work
breakdown structure (WBS) and integrated master plan (IMP) in Volume 5,
rather than Volume 3 of its proposal--despite the fact that the RFP
expressly required that these matters be addressed in Volume 3. IBM
contends that it relied on the agency's advice and placed those items in
Volume 5, which, unlike Volume 3, had no page limitations. In evaluating
IBM's proposal, the agency did not provide the WBS and IMS documents to
the evaluators because they were not contained in Volume 3; the agency
evaluators concluded that the absence of a detailed WBS and IMP
constituted a weakness in the proposal. AR, Tab 41, SSD at 23.
The protester argues that the agency's discussions here were misleading,
and therefore not consistent with the agency's obligation to ensure that
discussions are meaningful. See L-3 Comm. Corp., BT Fuze Prods. Div.,
B-299227, B-299227.2, Mar. 14, 2007, 2007 CPD para. __ at 18-19. The
agency denies making such a statement, and notes that such instructions
would have been contrary to the RFP instructions.
Because the allegedly misleading agency statements would have resulted in
a material deviation from the solicitation, namely the page limitation,
the protester could not reasonably rely on such oral advice--even if the
record demonstrated that the agency made such a statement, which it does
not. S3 LTD, B-287019.2 et al., Sept. 14, 2001, 2001 CPD para. 165 at 6.
Offerors cannot rely on oral modifications to an RFP which are
inconsistent with its written terms, absent a written amendment to the RFP
or written confirmation of the oral modification. Id. This clear principle
provides fairness to all parties by ensuring that competitions are
conducted under equal terms, and protects both protesters and agencies
from the kind of credibility disputes raised here, as well as protecting
the integrity of the procurement process overall. Id.
Selection Decision
The selection decision states that the difference between the offerors'
proposals was $18.5 million, and that the difference was "likely to widen
significantly." AR, Tab 41, SSD at 72. The record shows, as discussed
above, that the agency's adjustments to the offerors' price and cost
proposals had numerous errors that materially affected the evaluation. In
addition, the agency's evaluation of Tier 3 hosting was flawed because the
agency lacked a clear basis for the adjustments to IBM's proposal and
because of the errors regarding the evaluation of CGI's proposal. The
agency's evaluation of CGI's proposal regarding [deleted] was also flawed.
Moreover, the selection decision relied upon its determination that IBM's
proposal presented "significantly greater performance and cost risks" as
compared to CGI--a determination that may no longer be valid given the
evaluation errors discussed above. AR, Tab 41, SSD at 72. Because these
evaluation errors in the selection decision result in a material change to
the relative difference between the evaluated price and cost of these
proposals, we conclude that IBM was prejudiced and thus the selection of
CGI's proposal for award cannot stand. See McDonald Bradley, B-270126,
Feb. 8, 1996, 96-1 CPD para. 54 at 3; Statistica, Inc. v. Christopher, 102
F.3d 1577, 1581 (Fed. Cir. 1996).
CONCLUSION AND RECOMMENDATION
We recommend that the EPA reevaluate offerors' proposals, consistent with
this decision. We further recommend that the agency reexamine its
requirements regarding its SCORPIOS application, and provide offerors an
opportunity to revise their proposals if the agency believes, as it now
argues, that neither offeror's proposed software solution is suitable for
addressing the agency's requirements currently met by the SCORPIOS
application. At the conclusion of this process, we recommend that the
agency make a new source selection decision.[29] If CGI is not determined
to offer the best value to the government, the agency should terminate
CGI's contract for the convenience of the government.
We also recommend that IBM be reimbursed the costs of filing and pursuing
this protest, including reasonable attorney fees. Bid Protest Regulations,
4 C.F.R. sect. 21.8(d)(1) (2007). IBM should submit its certified claim
for costs, detailing the time expended and cost incurred, directly to the
contracting agency within 60 days after receipt of this decision. 4 C.F.R.
sect. 21.8(f)(1).
The protest is sustained.
Gary L. Kepplinger
General Counsel
------------------------
[1] Hosting generally means storing and maintaining software or data on
one computer, and allowing other computers to access it.
[2] The technical merit evaluation factor had three subfactors: (1)
technical and functional, with three elements--(i) software solution, (ii)
implementation, and (iii) hosting; (2) experience and past performance,
with two elements-- (i) organizational experience, and (ii) past
performance; and (3) management approach, with two elements--(i) approach,
and (ii) personnel. The oral presentations and solution demonstration
evaluation factor had two subfactors: (1) oral presentation; and (2)
solution demonstration, with four elements-- (i) business scenarios, (ii)
ability to satisfy the goals of the FSMP, (iii) navigation and ease of
use, and (iv) effectiveness of the offeror's team. RFP at M-2-M-8.
[3] Although the RFP requested that offerors submit "price" proposals, the
record of the agency's evaluation of proposals refers to both price and
cost proposals, and price and cost evaluations. Here, we use the term
"price and cost" to refer to both the proposals and the evaluations.
[4] The protester does not challenge adjustments to its proposed price or
cost that are not identified here.
[5] Our Office conducted a hearing on May 8-9, 2007 to further develop
certain protest issues. We took the testimony of the contracting officer
and a TEP evaluator who was designated by the agency as a witness who
could address issues regarding that panel.
[6] For the record, EPA's adjustment for implementation costs blurs the
distinction between a realism adjustment and an assessment of costs that
the government will incur for its own required efforts. Specifically, the
EPA lists the adjustment in the selection decision as a realism increase
to IBM's price; however, the agency calculates the adjustment as the cost
of additional EPA personnel required to assist with the implementation.
[7] IFMS is the EPA's core financial system. It supports budget and
accounting functions, such as updating ledgers and preparing financial
statements and budget reports. RFP attach. 1, EPA Legacy System Table, at
10-2.
[8] As noted above, these proposals contained both fixed-price and T&M
components.
[9] The total cost of ownership in the chart above is comprised of the
offerors' proposed price and cost, plus the agency's estimated amounts for
resources the agency would need to provide for EPA legacy system operation
and maintenance, EPA resources, and program management office contractor
(PMO) costs.
[10] The items listed as "cost realism adjustments" in the chart above are
the adjustments made by the agency to the offerors' proposals, including
cost realism adjustments to offerors' time and materials and fixed-price
proposal elements, and additional total cost of ownership adjustments
which were not included in the previous category. Several categories, and
the totals, reflect a range of the agency's estimate of probable costs.
[11] The most probable cost is comprised of the offeror's proposed price
and cost, the total cost of ownership, and all of the cost realism
adjustments.
[12] During the protest, the parties have disputed the accuracy and
relevance of this second memorandum, which purports to identify numerous
flaws and uncertainties in the selection decision. As, discussed below, we
conclude that the record shows that the agency's evaluation of offerors'
price and cost proposals was flawed, and that these flaws had a material
effect on the award decision. We need not address the parties' contentions
regarding the validity or relevance of the TEP chair's criticisms of the
selection decision.
[13] The protester does not challenge the agency's evaluation of costs
associated with the retirement of SCORPIOS, as opposed to these challenges
of the replacement costs.
[14] The RFP did not require offerors to provide SCORPIOS functionality,
nor did it require offerors to replace SCORPIOS. The RFP did not discuss
SCORPIOS in the "Concept of Operations" summary detailing the agency's
requirements, RFP attach. 4, and did not identify SCORPIOS in the list of
requirements in the minimum requirements matrix.
[15] The agency notes that the RFP required offerors to provide a detailed
approach linking the cost or price proposals to specific areas of
offerors' technical proposals. Tr. at 121:7-22 (citing RFP attach. 5,
sect. 1.2.5). During the hearing, the CO and the TEP evaluator also stated
that the agency believed that neither IBM nor CGI could perform the work
because the functionality for SCORPIOS was inherently beyond the scope of
the financial management software solutions proposed by the offerors. Tr.
at 159:8-14, 563:18-22, 589:20-590:17.
[16] With regard to CGI's proposal, the contracting officer's concerns
were essentially the same. AR, Tab 41, SSD, at 58-59. Although CGI
estimated that the replacement effort would require 10,060 hours, the
agency increased CGI's cost for this effort to the 40,000 hours estimated
by the TEP. Id. at 59.
[17] In some respects, IBM's proposal appears analogous to a below-cost
offer to the extent that SCORPIOS replacement was added to IBM's FPR,
without a clear increase to the fixed price. The fact that a firm, in its
business judgment, submits an offer that may not include any profit or be
below-cost, or may be an attempted buy-in, does not render the firm
ineligible for award. All Phase Environmental, Inc., supra; McDonnell
Douglas Corp., B-259694.2, B-259694.3, June 16, 1995, 95-2 CPD para. 51 at
9. This is so because below-cost pricing is not prohibited and the
government cannot withhold an award from a responsible offeror merely
because its low offer is, or may be, below cost. All Phase Environmental,
Inc., supra. To the extent the agency wanted to question IBM's willingness
to perform or its responsibility (which would have involved an inquiry
about IBM's capability to absorb these costs itself) the agency could have
done so. What the agency could not do in conducting a price realism
analysis, was make upward price adjustments for cost elements that the
agency thinks may be priced too low. Id.
[18] To the extent that the agency stated in the SSD that IBM's proposal
is technically unacceptable because of the failure to propose costs for
Tier 3 hosting, AR, Tab 41, SSD at 72, this criticism would appear to
apply in equal force to CGI based on that offeror's failure to include
major releases in its Tier 3 proposal.
[19] CGI argues in its comments on the hearing that it is not certain that
CGI's software would require a major release, and that, in any event,
CGI's proposed [deleted] would address such concerns. CGI Post-Hearing
Comments, at 26-27. However, the contemporaneous record does not show that
the agency considered these arguments in evaluating CGI's proposal, or
otherwise understood CGI's proposal in the manner now advanced in CGI's
comments.
[20] The record here suggests that CGI's proposal for [deleted] may cover
government-driven changes. See AR, Tab 28, CGI FPR, Vol. 3, at B-73. To
the extent that the agency believed, however, that there would be certain
government-driven changes required under Tier 3, CGI's proposal does not
appear to address this requirement. The contracting officer did not
discuss CGI's Tier 3 proposal in the price and cost evaluation, and thus
there is no record as to whether the agency ever determined whether CGI's
proposal provided Tier 3 hosting for government-driven requirements.
[21] As the protester notes, the EPA determination conflicts with its own
statement to offerors that the agency would not be able to provide more
than 20 FTEs per year in support of implementation.
[22] The agency also argues that certain limitations in IBM's proposal
meant that a reduction to EPA staff hours would not be made up by IBM
efforts under the fixed-price portion of its proposal. See Agency
Post-Hearing Comments at 14-15. We do not believe that this post-protest
argument provides a basis to support the agency's evaluation here.
Although the agency now points to several areas of IBM's proposal
suggesting limitations, this analysis is not reflected in the
contemporaneous record, and the agency does not argue that the CO
considered these issues at the time of the evaluations.
[23] IBM's proposal lists IFMS legacy costs for the first 12 months as
$6,100,000, and $1,016,666 for the second 12 months--the agency noted that
the second figure was the same annual rate as the first 12 months,
prorated to cover only the first 2 months of the second year. AR, Tab 41,
SSD at 54.
[24] The $5,083,334 figure was the difference between the $6,100,000
identified in the RFP for a 12-month period of agency IFMS costs, and the
$1,016,666 for 2 months already contained in IBM's proposal for the second
year of performance. AR, Tab 41, SSD at 54 n.182.
[25] The adjustment for IMFS can be distinguished from the agency's
adjustment for EPA implementation resources. The IFMS adjustment concerned
a cost for the agency's own efforts that the RFP advised offerors would be
considered; the implementation adjustment addressed IBM's assumptions
regarding the level of effort its proposal would require from the agency
personnel. We conclude that the EPA implementation adjustment was
unreasonable because IBM had stated that it would perform the
implementation work on a fixed price basis; thus any reduction in staffing
from EPA would be required to be performed by IBM under the terms of its
fixed-price proposal.
[26] The contracting officer also noted that CGI's proposed [deleted]
cover the $[deleted] value. AR, Tab 41, SSD at 59-60. We note that the
$[deleted] would almost cover the $[deleted] adjustment identified by the
contracting officer, but would not cover the $[deleted] concern identified
by the TEP.
[27] The protester has also raised various issues regarding certain other
price and cost errors regarding the evaluation of offerors' proposals. We
have reviewed all of the protester's arguments, and conclude that only
those identified above provide a basis to sustain the protest.
[28] During the hearing, the TEP evaluator confirmed that the project
manager hour issue was the TEP's "predominant" concern regarding IBM's
proposal under this subfactor. Tr. At 607:3-22.
[29] The protester also requests that we recommend that EPA's Office of
the Chief Financial Officer have significant input into any future source
selection decisions. In our view, this is a matter within the agency's
discretion; we will not make specific recommendations regarding the
staffing or composition of a source selection team absent circumstances
not present here, such as clear evidence of bad faith on the part of the
agency. See, e.g., Beneco Enters., Inc., B-283512.3, July 10, 2000, 2000
CPD para. 176.