TITLE: B-310372.3, Pemco Aeroplex, Inc., June 13, 2008
BNUMBER: B-310372.3
DATE: June 13, 2008
***********************************************
B-310372.3, Pemco Aeroplex, Inc., June 13, 2008

   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: Pemco Aeroplex, Inc.

   File: B-310372.3

   Date: June 13, 2008

   David R. Hazelton, Esq., Roger S. Goldman, Esq., Kyle R. Jefcoat, Esq.,
   and Benjamin Wei, Esq., Latham & Watkins LLP, for the protester.

   Rand L. Allen, Esq., Paul F. Khoury, Esq., Scott M. McCaleb, Esq., Kara M.
   Sacilotto, Esq., Nicole P. Wishart, Esq., and William J. Grimaldi, Esq.,
   Wiley Rein, LLP, for The Boeing Company, an intervenor.

   Brent G. Curtis, Esq., and Kenneth C. Kitzmiller, Esq., Department of the
   Air Force, for the agency.

   Glenn G. Wolcott, Esq., and Ralph O. White, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. In responding to this Office's prior decision that sustained a previous
   protest and recommended that the agency perform and document a price
   realism and proposal risk analysis as contemplated by the solicitation,
   the agency was not required to reopen discussions with offerors to perform
   the necessary analysis.

   2. Agency's record documenting its various judgments and analysis
   regarding the impact of awardee's final proposal revisions reasonably
   supports the agency's conclusions with regard to price realism and
   proposal risk and complies with solicitation requirements.

   DECISION

   Pemco Aeroplex, Inc.[1] protests the Department of the Air Force's
   selection of Boeing Aerospace Operations, Inc. for award of a contract
   pursuant to request for proposals (RFP) No. FA8105-05-R-0014 to provide
   programmed depot maintenance (PDM) for KC-135 aircraft.[2]

   We deny the protest.

   BACKGROUND

   The solicitation was initially issued in August 2005 and, thereafter, was
   amended several times. As amended, the solicitation provided for award on
   a "best value" basis and established the following evaluation factors:
   mission capability, proposal risk, past performance and cost/price. RFP at
   78-79.

   With regard to proposal evaluations under the mission capability factor,
   the solicitation established various subfactors and provided that color
   ratings would be assigned at the subfactor level.[3]

   With regard to evaluation of proposal risk, the solicitation provided that
   risk assessments of "low," "moderate," or "high" would be made for each of
   the mission capability subfactors, and provided that these risk
   assessments would consider each offeror's proposed approach with regard to
   "the potential for disruption of schedule, increased cost, degradation of
   performance, and the need for increased Government oversight, as well as
   the likelihood of unsuccessful contract performance." Id. at 82-83.

   Finally, with regard to evaluation of cost/price, the solicitation
   contemplated award of a fixed-price contract. Nonetheless, section M of
   the solicitation provided that the agency would perform a price realism
   analysis based, in part, on data offerors were required to submit,
   including data regarding "labor, fringe benefits, overhead and G&A rates
   by year for all labor categories anticipated for use in the performance of
   this effort." RFP at 86.

   In September 2006, Pemco and Boeing each submitted initial proposals for
   the requirements at issue.[4] Boeing's initial proposal reflected
   [deleted][5].[6]

   Following receipt and review of initial proposals, the agency conducted
   discussions with each offeror. During discussions, the agency requested
   that Boeing explain [deleted].

   Boeing responded that [deleted].

   Thereafter, final proposal revisions (FPR) were requested and submitted in
   February 2007; notwithstanding its response to the agency during
   discussions, Boeing's FPR [deleted].[7] AR, Tab 27, FPR, at V3-57. It is
   undisputed that Boeing's proposal revisions following discussions offered
   no substantive explanation for [deleted].[8] It is also undisputed that
   the direct effect of Boeing's [deleted] was to reduce Boeing's proposed
   price by more than the total difference between Boeing's and Pemco's final
   evaluated prices.

   Following submission of the final proposal revisions, Boeing's and Pemco's
   proposals were evaluated with the following ratings.

   +------------------------------------------------------------------------+
   |                                |      Boeing       |       Pemco       |
   |--------------------------------+-------------------+-------------------|
   |Mission Capability Subfactors   |                   |                   |
   |--------------------------------+-------------------+-------------------|
   |Depot Maintenance               | Blue/Exceptional  | Blue/Exceptional  |
   |                                |                   |                   |
   |Proposal Risk                   |     Low Risk      |     Low Risk      |
   |--------------------------------+-------------------+-------------------|
   |Supply Chain Management         | Blue/Exceptional  | Green/Acceptable  |
   |                                |                   |                   |
   |Proposal Risk                   |     Low Risk      |     Low Risk      |
   |--------------------------------+-------------------+-------------------|
   |Transition                      | Blue/Exceptional  | Blue/Exceptional  |
   |                                |                   |                   |
   |Proposal Risk                   |     Low Risk      |     Low Risk      |
   |--------------------------------+-------------------+-------------------|
   |Program Management              | Green/Acceptable  | Green/Acceptable  |
   |                                |                   |                   |
   |Proposal Risk                   |     Low Risk      |     Low Risk      |
   |--------------------------------+-------------------+-------------------|
   |Small Business                  | Green/Acceptable  | Green/Acceptable  |
   |                                |                   |                   |
   |Proposal Risk                   |     Low Risk      |     Low Risk      |
   |--------------------------------+-------------------+-------------------|
   |Past Performance                |   Satisfactory    |   Satisfactory    |
   |--------------------------------+-------------------+-------------------|
   |Cost/Price                      |  $1,165,138,187   |  $1,180,186,789   |
   +------------------------------------------------------------------------+

   AR, Tab 6, Proposal Analysis Report (PAR), at 78, 166.

   Based on this evaluation, the source selection authority (SSA) concluded
   that Boeing's proposal was superior with regard to mission capability;
   that Pemco's proposal was superior with regard to past performance; that
   performance risk was not a significant discriminator; and that Boeing
   offered the lowest total evaluated price (TEP). AR, Tab 5, Source
   Selection Decision Document, at 22. In light of these assessments, the SSA
   concluded: "Pemco's better record of past performance is not sufficient to
   outweigh the benefits of Boeing's superior Mission Capability proposal and
   $15,048,062 lower TEP." Id. Thereafter, Boeing's proposal was selected for
   contract award.

   In September 2007, Pemco filed a protest with this Office, maintaining
   that the agency's evaluation of proposals was flawed with regard to
   various aspects of the procurement, including its consideration of price
   realism and proposal risk related to Boeing's final proposal revisions
   that [deleted]. As noted above, the solicitation specifically provided
   that the agency would assess price realism and proposal risk based on each
   offeror's proposed approach to contract performance.

   In December 2007, we sustained Pemco's protest to the extent it challenged
   the agency's evaluation of cost/price. In this regard, we found that the
   agency's procurement record contained no documentation regarding a price
   realism analysis that considered the effect of the [deleted] incorporated
   into Boeing's final proposal revisions, nor any evidence that the agency
   considered the potential proposal risk created by Boeing's [deleted]. We
   noted that, in the absence of documented agency analysis regarding this
   matter, we were unable to determine that the realism and risk assessments
   required by the solicitation were reasonably performed; accordingly, we
   sustained the protest based on the agency's failure to create a record
   addressing these matters. We recommended that the agency perform and
   document price realism and risk assessments, taking into consideration the
   [deleted] Boeing introduced in its final proposal revisions.

   Following receipt of our decision, the agency took various actions to
   implement our recommendations. AR, Tab 59 at 9-10; Tab 60 at 6-19, 68-69;
   Tab 61 at 71-75, 179-80. Among other things, the agency compared the level
   of [deleted] with the level of [deleted] that have been recently required
   to perform similar tasks by the Air Force's "organic" facility at Tinker
   Air Force Base.[9]

   The agency also analyzed, and documented its consideration of, Boeing's
   [deleted]. This analysis concluded that the [deleted] in Boeing's final
   proposal revisions were [deleted]. Further, the agency's analysis
   considered the impact that the [deleted] may have on the contract's
   workload requirements.[10] In this regard, the agency's analysis
   acknowledged that, within a given [deleted] could cause [deleted], but
   also concluded that such [deleted] would not be significant enough to
   [deleted].[11] Finally, in assessing proposal risk, the agency considered
   the data and analysis discussed above, and further concluded that Boeing's
   proposed use of its [deleted] would decrease proposal risk with regard to
   the potential for schedule disruption, cost increases, and the need for
   government oversight. COS at 15; AR, Tab 60, at 6-7.

   Following its risk and realism analysis, the Air Force again concluded
   that Boeing's proposal reflected the best value to the government. This
   protest followed.

   DISCUSSION

   Pemco protests that, following the receipt of this Office's prior
   decision, the agency was required to reopen discussions with the offerors.
   Pemco also argues that the substance of the agency's evaluation and
   analysis following receipt of our decision was flawed for various reasons.
   As discussed below, we reject these assertions.

   First, Pemco asserts that the agency was obligated to reopen discussions
   with the offerors in order to obtain additional information prior to
   performing the price realism and risk analysis required by the
   solicitation and recommended by our Office, and that its failure to do so
   rendered the subsequent source selection decision improper.

   As a general rule, the details of implementing recommendations of our
   Office are within the sound discretion and judgment of the contracting
   agency, and we will not question an agency's ultimate manner of
   compliance, so long as it remedies the procurement impropriety that was
   the basis for our recommendation. See, e. g., Partnership for Response and
   Recovery, B-298443.4, Dec. 18, 2006, 2006 CPD para. 3 at 3; ST Aerospace
   Engines Pte, Ltd., B-275725.3, Oct. 17, 1997, 97-2 CPD para. 106 at 5. In
   this regard, an agency's discretion generally extends to determining
   whether it is necessary to reopen discussions and obtain proposal
   revisions. See SDS Int'l, Inc. B-291183.4, Apr. 28, 2003, 2003 CPD para.
   127 at 6; Computer Assocs. Int'l, B-292077.2, Sept. 4, 2003, 2003 CPD
   para. 157 at 5.

   Here, our decision sustaining Pemco's prior protest was based on the
   absence of any agency documentation reflecting the agency's judgments
   regarding price realism and proposal risk in the context of Boeing's final
   proposal revisions. Pemco's assertion that the agency was required to
   reopen discussions appears to be based on a perception that our Office
   found Boeing's proposal to be informationally deficient; we did not.[12]
   In this regard, it is not the function of our Office to evaluate
   proposals; rather, we will examine the procurement record created by the
   agency to determine whether the agency's evaluation was consistent with
   the solicitation requirements and applicable statutes and regulations.
   E.g. Pacific Ship Repair and Fabrications, B-279793, July 23, 1998, 98-2
   CPD para. 29 at 3-4.

   Since our prior decision was based on an informational deficiency in the
   agency's evaluation record, it was not unreasonable for the agency to
   correct that deficiency by performing, and documenting, the required
   analyses based on the information that was already available. Pemco's
   assertion that the agency was obligated to reopen discussions with all of
   the offerors is without merit.

   Next, Pemco challenges various aspects of the agency's price realism and
   risk analysis performed in response to our recommendation. In this regard,
   Pemco identifies various standards, essentially arguing that the agency
   should have considered the standards as dispositive benchmarks in
   determining whether [deleted] were realistic and reflected higher proposal
   risk. More specifically, Pemco asserts that any conclusion that Boeing's
   final proposal revisions were realistic and did not reflect increased
   proposal risk was precluded by: the [deleted] in Pemco's own final
   proposal; the [deleted] in Boeing's initial proposal; and the [deleted] in
   the agency's internal government estimate (IGE). We have considered all of
   Pemco's arguments and find no basis for sustaining its protest.

   Price realism is not ordinarily considered in the evaluation of proposals
   for the award of a fixed-price contract, because these contracts place the
   risk of loss upon the contractor. However, in light of various negative
   impacts on both the agency and the contractor that may result from an
   offeror's overly optimistic proposal, an agency may, as here, expressly
   provide that a price realism analysis will be applied in order to measure
   the offerors' understanding of the requirements and/or to assess the risk
   inherent in an offeror's proposal. See, e.g., Wackenhut Servs., Inc.,
   B-286037, B-286037.2, Nov. 14, 2000, 2001 CPD para. 114 at 3; Molina
   Eng'g, Ltd./Tri-J Indus., Inc. Joint Venture, May 22, 2000, B-284895, 2000
   CPD para. 86 at 4. Although the Federal Acquisition Regulation (FAR)
   identifies permissible price analysis techniques, FAR sect. 14.404-1, it
   does not mandate any particular approach; rather, the nature and extent of
   a price realism analysis, as well as an assessment of potential risk
   associated with a proposed price, are generally within the sound exercise
   of the agency's discretion. See Legacy Mgmt. Solutions, LLC, B-299981.2,
   Oct. 10, 2007, 2007 CPD para.197 at 3; Comprehensive Health Servs., Inc.,
   B-310553, Dec. 27, 2007, 2007 CPD para. 9 at 8. In reviewing protests
   challenging an agency's evaluation of these matters, our focus is whether
   the agency acted reasonably and in a way consistent with the
   solicitation's requirements. See, e.g., Grove Res. Solutions, Inc.,
   B-296228, B-296228.2, July 1, 2005, 2005 CPD para. 133 at 4-5.

   Here, as discussed above, the record establishes that the agency performed
   various analyses regarding price realism and proposal risk in the context
   of Boeing's final proposal revisions. Specifically, the agency's actions
   included an analysis of the [deleted] proposed by Boeing to [deleted] with
   the [deleted] that have been most recently experienced [deleted]
   internally at Tinker Air Force Base; an analysis of Boeing's [deleted];
   consideration of the impact [deleted] will have on [deleted] within the
   context of the provisions of this solicitation; consideration of the
   [deleted] contemplated to [deleted]; consideration of the [deleted]
   proposed; comparison of offerors' [deleted], [deleted], and [deleted];
   recognition of, and adjustment for, the offerors' different methods of
   [deleted]; and consideration of Boeing's proposed use of its [deleted] to
   [deleted] and mitigate the potential risk for schedule disruption, cost
   increases, and need for government oversight. AR, Tab 59 at 9-10; Tab 60
   at 6-19, 68-69; Tab 61 at 71-75, 179-80.

   Although Pemco raises the full range of possibitilites--that is, that the
   agency should not have considered certain information, that the agency
   should have considered certain other information, that the agency should
   have performed alternative analyses, and/or that the price realism and
   risk assessments should have been dispositively resolved by comparison to
   various benchmarks including Pemco's own proposal--its protest fails to
   demonstrate that any of the agency's actions, inactions, or analyses are
   inconsistent with, or contrary to, the terms of the solicitation or
   applicable statute or regulation. As discussed above, an agency has
   considerable discretion in determining the nature and extent of required
   price realism and proposal risk assessments in the context of fixed-price
   contracts. Based on our review of the record, we conclude that Pemco's
   various arguments challenging the agency's analysis and judgments reflect
   Pemco's mere disagreement or dissatisfaction with the agency's
   determinations.[13]

   Accordingly, based on our review of the entire record, including the
   agency's documentation responding to our prior decision, we see no basis
   to question the adequacy or reasonableness of the agency's actions, its
   analysis, or its conclusions. Pemco's protest challenging the agency's
   cost/price evaluation is without merit.

   The protest is denied.[14]

   Gary L. Kepplinger
   General Counsel

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

   [1] We understand that Pemco is now doing business as Alabama Aircraft
   Industries, Inc. Since the protester refers to itself as Pemco, our
   decision does the same.

   [2] The agency's initial source selection decision for this procurement
   was made in September 2007; shortly thereafter, Pemco filed a protest
   challenging that decision. In December 2007, this Office issued a decision
   sustaining a portion of Pemco's prior protest, recommending that the Air
   Force take certain corrective actions. Pemco Aeroplex, Inc., B-310372,
   Dec. 27, 2007, 2008 CPD para. 2. This protest challenges the agency's
   actions taken in response to our prior decision.

   [3] The mission capability subfactors were depot maintenance, supply chain
   management, transition, program management, and small business; the
   solicitation provided for ratings of "Blue/Exceptional,"
   "Green/Acceptable," "Yellow/Marginal," and "Red/Unacceptable." Id. at 80.

   [4] A third proposal was also submitted by another offeror; that proposal,
   and the agency's evaluation thereof, are not relevant to this protest and
   are not further discussed.

   [5] The solicitation requirements were divided into three types of work:
   basic PDM work (work that is performed on all aircraft), intermittent
   tasks (IT) (tasks that are recurring, but not performed on all aircraft),
   and "over and above" (O&A) work (unanticipated repairs that exceed 200
   manhours or $20,000 in material costs). Basic PDM work constitutes a
   substantial portion of the contract requirements.

   [6] [deleted]

   [7] In May 2007, the agency reopened discussions for the limited purpose
   of addressing certain past performance matters, seeking submission of
   second final proposal revisions (SFPR) in June. Boeing's SFPR reflected
   the [deleted].

   [8] Indeed, in responding to Pemco's protest regarding this matter, Boeing
   expressly acknowledged that the [deleted] was not connected in any way to
   a technical change in its proposed approach to contract performance,
   stating: "Boeing decided for business reasons to assume the risk
   [associated with [deleted]]."

   [9] PDM on KC-135 aircraft is currently performed both by the Air Force
   itself at Tinker Air Force base (frequently referred to as "organic" PDM)
   and by an outside contractor or contractors (until recently, the outside
   contractor work has been divided between Boeing and Pemco).

   [10] In this regard, the agency points out that the impact of the
   [deleted] is mitigated by the solicitation provisions that contemplate
   periodic adjustments to the [deleted]. In short, even though the contract
   is characterized as "fixed price," the solicitation contemplates periodic
   renegotiation of the required [deleted], along with negotiated adjustments
   to the contractor's compensation.

   [11] The agency also performed additional analyses, including
   consideration of [deleted]; consideration of [deleted] proposed; and
   comparison of offerors' [deleted]. The agency's analysis further
   recognized, and made adjustments for, the offerors' different methods of
   [deleted]. Contracting Officer's Statement (COS) (Apr. 18, 2008) at 5-6,
   11-12; AR, Tab 60, at 3, 6, 14-15, 68-69.

   [12] Indeed, our decision sustaining Pemco's protest recognized that
   Boeing's proposal contained a "relatively detailed explanation of
   [deleted] and its application to performance of the solicitation
   requirements." Pemco Aeroplex, Inc., B-310372.2, Dec. 27, 2007, 2008 CPD
   para. 2 at 11.

   [13] For example, Pemco asserts that the impact of [deleted] has a greater
   potential to [deleted] than was recognized by the agency; Pemco's argument
   in this regard reflects mere disagreement with the agency's judgment. We
   note that Pemco has not challenged the agency's position that, pursuant to
   the provisions of this solicitation, the impact of [deleted] is mitigated
   by the solicitation provisions that contemplate periodic adjustments to
   [deleted] which are to be negotiated during contract performance.

   [14] In addition to the issues specifically discussed above, Pemco raised
   additional arguments, or variations of the arguments discussed above,
   regarding the agency's source selection process. For example, Pemco has
   essentially renewed its arguments, which we previously denied, regarding
   Boeing's past performance and its impact on this procurement decision.
   Pemco also asserts that the agency failed to conduct meaningful
   discussions and complains that the agency did not properly consider
   Pemco's recently-acquired small business status. We have considered all of
   Pemco's arguments and find no basis for sustaining its protest.