TITLE: B-310801; B-310801.2, NHIC Corporation, February 12, 2008
BNUMBER: B-310801; B-310801.2
DATE: February 12, 2008
*********************************************************
B-310801; B-310801.2, NHIC Corporation, February 12, 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: NHIC Corporation
File: B-310801; B-310801.2
Date: February 12, 2008
Daniel R. Forman, Esq., John E. McCarthy Jr., Esq., Shauna E. Alonge,
Esq., and Jonathan M. Baker, Esq., Crowell & Moring LLP, for the
protester.
W. Jay DeVecchio, Esq., Kevin C. Dwyer, Esq., Daniel E. Chudd, Esq., Eric
R. Haren, Esq., and James C. Cox, Esq., Jenner & Block LLP, for Palmetto
GBA, LLC, an intervenor.
Christine Simpson, Esq., and Douglas Kornreich, Esq., Department of Health
& Human Services, for the agency.
Sharon L. Larkin, Esq., and James A. Spangenberg., Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest challenging cost realism analysis is denied, where agency
performed a comprehensive analysis of all major cost elements and relied
on subject matter experts to reasonably determine that proposed costs were
consistent with each offeror's technical approach and were realistic for
the work to be performed.
DECISION
NHIC Corporation protests the award of a contract to Palmetto GBA, LLC,
issued by the Department of Health & Human Services, Centers for Medicare
& Medicaid Services, for the administration of Medicare claims. NHIC
challenges the agency's cost realism evaluation.
We deny the protest.
The RFP provided for award of a cost-plus-award-fee contract for the
combined administration of Part A and Part B Medicare fee-for-service
claims. Under this contract, a "Medicare Administrative Contractor" (MAC)
is to provide claims processing, payment, and other administrative
services for "Jurisdiction 1," which consists of California, Nevada, Guam,
Northern Mariana Islands, American Samoa, and Hawaii. RFP sections B.1,
B.2. Both NHIC and Palmetto previously provided these services for various
jurisdictions under separate contracts for Part A and Part B Medicare
claims[1]; this is the first time that Parts A and B have been combined
under a single contract. Transcript (Tr.)[2] at 13-14, 33.
The RFP contemplated a 5-year period of performance, which included a
12-month "implementation" period, a 9-month "base period," four 1-year
option periods, and a 6-month period for "outgoing contractor workload
transition activities." RFP sect. F.2. The RFP provided that award of the
contract would be made on a best-value basis, considering the equally
weighted factors of technical approach, implementation, management
controls, past performance, and corporate experience; when combined, these
factors were more important than cost, which was not a weighted factor.
Id. sections M.2(a), M.3(a). The technical factors (which included equally
weighted subfactors and sub-subfactors) were assigned adjectival ratings
of outstanding, very good, good, marginal, or poor; and cost, which was
not assigned an adjectival rating, was evaluated to determine each
offeror's "total proposed estimated cost/price." Id. sect. M.2(d) and (e).
With regard to the evaluation of cost, the RFP required the agency to
perform a "cost reasonableness and realism" analysis, id. sect. M.2(a),
and further stated that
[t]he purpose of this cost realism [analysis] will be to determine what
the Government should realistically pay for the proposed effort, if the
offeror's proposed costs reflect the offeror's understanding of the
Government's requirements, and if the proposed costs are consistent with
the various elements of the offeror's technical proposal.
Id. sect. M.2(e). Risk, although not a separately rated factor, was to be
considered and "integrate[d]" into the rating assessments of each of the
factors for award. Id. sect. M.2(b).
The RFP instructed each offeror to provide a technical proposal explaining
its technical approach to performing the requirements described in the
statement of work, and a business proposal explaining the bases for its
proposed costs. To prepare the cost estimates contained in the business
proposal, offerors were instructed to use the "annual workloads" for the
base and option years as provided in the RFP. These workloads estimated
the number of items to be processed annually for various functions that
the MAC would perform under Medicare Parts A and B, including annual
workloads for claims processing; appeals processing; provider customer
service; provider reimbursement and audit; provider enrollment, inquiries,
and oversight; medical review; and other "Medicare Integrity Program"
services. Id. sect. L.11.
Both NHIC and Palmetto submitted technical and business proposals in
response to the solicitation that were found to be in the competitive
range. Palmetto's initial proposed cost was [REDACTED] and NHIC's initial
proposed cost was [REDACTED]. Agency Report (AR), Tab 56, Source Selection
Determination, at 2. A technical evaluation panel (TEP) evaluated the
technical proposals and a business evaluation panel (BEP) evaluated the
business proposals.[3] To assist the BEP, a cost subject matter expert
(SME) initially performed a cost realism analysis based on historical data
from prior contracts. This analysis estimated that the cost to the
government of performance by Palmetto would likely be $709,558,450, and
the cost of performance by NHIC would likely be $600,294,065.[4] AR, Tab
91, Initial Cost Realism Analysis, at 33, 38. However, the SME stated that
this analysis "does not reflect any adjustments to account for any program
requirements changes which may have been implemented during or subsequent
to FY2006 that may be reflected in [each offeror's] proposed cost and
fee." Id.
After discussing the analysis with the cost SME and the evaluation teams,
the contracting officer determined that this initial cost realism analysis
had "limited applicability" because the analysis did not take into account
changes to program requirements, efficiencies or innovations due to each
offeror's unique technical approach, or differences in cost reporting
requirements between the MAC contract and prior contracts; in addition,
the cost realism analysis for Palmetto's proposal included costs
associated with a team member who performed prior contracts but who was
not proposed to perform the MAC contract here. Tr. at 43-55; Contracting
Officer's Statement paras. 5-6, 20-22. For these reasons, the contracting
officer and evaluation teams decided not to rely on this analysis and,
instead, decided to take a "bottom up" approach to the cost realism
evaluation. This "bottom up" approach was to "break [the proposal] down so
that we do account for [the offeror's] approach, that we can determine if
it reflects a clear understanding of the statement of work, and is it
realistic for the work to be performed?" Tr. at 51, 174; AR, Tab 56,
Source Selection Determination, at 4.
The TEP and BEP were asked to perform a new cost realism analysis to
determine whether proposed costs (including labor hours, labor rates, fee
structure, and other costs) were realistic based on each offeror's
approach. The functional areas evaluated for cost realism included (1)
implementation costs, (2) level of effort as it relates to claims
processing, provider customer service program, appeals, audit and
reimbursement, medical review/local coverage determinations, fraud and
abuse, Medicare secondary payer, and provider enrollment, (3) travel, (4)
subcontracts, and (5) fee proposed (base and award). E.g., AR, Tabs 59-62,
Final Cost Realism Analysis Memos and Supplemental Memos (Palmetto and
NHIC).
As part of this cost realism analysis, the BEP consulted with the Defense
Contract Audit Agency (DCAA), which reviewed the proposed costs (including
labor rates) and accounting practices of each offeror and their major
subcontractors.[5] AR, Tabs 71-81, DCAA Audit Reports. In addition, the
TEP was tasked to review whether the mix of labor categories and number of
hours proposed reflected a clear understanding of the requirements, were
consistent with the offeror's proposed approach, and were reasonable and
realistic for the work to be performed. Contracting Officer's Statement
paras. 32-33; Tr. at 492-93. Although several of the TEP members had
expertise in particular areas and performed their own independent
analysis, Tr. at 431-32, 499-502, SMEs for the functional areas were also
consulted and asked to assist with this analysis.[6] The SMEs reported
their analyses to the TEP, each indicating that there was no basis for
adjustment in all but one of the functional areas for one of the
offerors,[7] and provided the TEP with a list of questions about the
proposals to be forwarded to the offerors. E.g., NHIC Hearing exhs. 24(c)
and 28(c),
SME's Cost Realism Adjustments and Question Summaries of NHIC's and
Palmetto's Initial Business Proposals; exh. 31, Cost Realism Analysis
Worksheets, at 69-74. The TEP considered the SMEs' questions and, in some
cases, was able to answer the question without forwarding it to the
offeror or determined that a discussion question was unnecessary; other
questions were presented to offerors during discussions. Tr. at 234,
506-07.
Several rounds of discussions were held with offerors that resulted in
each offeror making adjustments to proposal pricing. As reflected in final
proposal revisions (FPR), NHIC decreased its proposed cost to $450,598,174
(based on approximately [REDACTED] labor hours), and Palmetto increased
its proposed cost to $357,663,785 (based on approximately [REDACTED] labor
hours). AR, Tab 56, Source Selection Determination, at 2; Tab 58, SSB
Presentation, at 10. As part of the ongoing cost realism analysis, the TEP
evaluated the discussion responses and FPRs by "verify[ing]" and
"validat[ing]" the responses provided by the offerors. Tr. at 512. In most
instances, further input from SMEs was deemed unnecessary, although some
consultation with SMEs did occur. Tr. at 503, 508-09. Ultimately, the TEP
was responsible for making recommendations to the BEP as to whether
adjustments to proposed labor hours were warranted. Tr. at 455, 532. No
adjustments were recommended. AR, Tabs 59-62, Final Cost Realism Analysis
Memos and Supplemental Memos (Palmetto and NHIC).
The results of the SME and TEP analyses were forwarded to the BEP for
consideration. Based on all of the information before it, the BEP
concluded that each offeror's proposed costs "are realistic for the work
to be performed; reflects a clear understanding of the requirements; and
are consistent with the unique methods of performance and materials
described in the Offeror's Technical Proposal." E.g., AR, Tab 59, Final
Cost Realism Analysis Supplemental Memo (Palmetto), at 2, 4; see Tab 60,
Final Cost Realism Analysis Supplemental Memo (NHIC); Tabs 61-62, Final
Cost Realism Analysis Memos.
The contracting officer presented the results of the technical and cost
evaluation to the source selection board (SSB) and source selection
authority (SSA). Tr. at 108-09. With regard to the technical evaluation,
both NHIC's and Palmetto's proposals were rated "very good" overall and
found to be "essentially technically equal." AR, Tab 56, Source Selection
Determination, at 2. With regard to the cost evaluation, the contracting
officer explained how the cost realism analysis was performed and
identified the costs of each offeror's proposal for direct labor, fringe,
overhead, travel, subcontractors, other direct costs, and base and award
fee. AR, Tab 57, Supplemental SSB Presentation, at 5; Tab 58, SSB
Presentation, at 10, 13. Recognizing that there was a $92 million delta
between NHIC's and Palmetto's proposals, the contracting officer advised
the SSB and SSA, in some detail, that Palmetto's proposed costs were
realistic due to its business strategy, proposed innovations, and
efficiencies.[8] AR, Tab 57, Supplemental SSB Presentation, at 2-4; Tr. at
89-92, 105-06. For example, among the various reasons identified by the
contracting officer why Palmetto's proposed costs were realistic
(described more fully below), she noted that, unlike NHIC, Palmetto
[REDACTED]. See Tr. at 26. After reviewing all of the presented
information, the SSA selected Palmetto's lower cost and technically equal
proposal for award. NHIC protested to our Office, complaining that the
agency's cost realism analysis was inadequate, undocumented, and flawed,
and did not reasonably account for the $92 million difference between
proposals.[9]
When an agency evaluates a proposal for the award of a cost-reimbursement
contract, an offeror's proposed estimated costs are not dispositive
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); Tidewater Constr.
Corp., B-278360, Jan. 20, 1998, 98-1 CPD para. 103 at 4. Consequently, the
agency must perform a cost realism analysis to determine the extent to
which an offeror's proposed costs are realistic for the work to be
performed. FAR sect. 15.404-1(d)(1). An agency is not required to conduct
an in-depth cost analysis, see FAR sect. 15.404-1(c), or to verify each
and every item in assessing cost realism; rather, the evaluation requires
the exercise of informed judgment by the contracting agency. Cascade Gen.,
Inc., B-283872, Jan. 18, 2000, 2000 CPD para. 14 at 8. Further, an
agency's cost realism analysis need not achieve scientific certainty;
rather, the methodology employed must be reasonably adequate and provide
some measure of confidence that the rates proposed are reasonable and
realistic in view of other cost information reasonably available to the
agency as of the time of its evaluation. See SGT, Inc., B-294722.4, July
28, 2005, 2005 CPD para. 151 at 7; Metro Mach. Corp., B-295744;
B-295744.2, Apr. 21, 2005, 2005 CPD para. 112 at 10-11. Because the
contracting agency is in the best position to make this determination, we
review an agency's judgment in this area only to see that the agency's
cost realism evaluation was reasonably based and not arbitrary. Hanford
Envtl. Health Found., B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD para.
164 at 8-9.
NHIC contends that the cost realism analysis was not adequately
documented. Although the record consists of multiple documents and reports
reflecting the analysis performed by the SMEs, TEP, and BEP, NHIC contends
that the documents themselves do not explain the agency's rationale and
contain only "checked boxes [referring to worksheets where a SME or TEP
member checked "yes" or "no" as to whether there was a basis for adjusting
costs], conclusory assertions, and discussions questions" to show that
costs were realistic. NHIC's Post-Hearing Comments at 2.
We find that the record shows that the agency performed a comprehensive
and thorough cost realism analysis that considered all of the major cost
elements for each of the functional areas to be performed under the
contract. The agency relied on the TEP members and SMEs, each of whom has
special expertise in the functional areas, to review whether the proposed
labor hours and mix of labor categories were realistic for the work to be
performed and were consistent with the offeror's technical approach.
In addition, the BEP consulted with the DCAA to verify that labor rates
and other costs were reasonable.
The record contains extensive contemporaneous documentation--numerous
spreadsheets, worksheets, discussion questions and responses, and
reports--that were created by the SMEs, TEP, and BEP. Although it is true
that the documents are replete with conclusory statements that proposed
costs were realistic, the record nonetheless evidences that a
comprehensive cost realism analysis was performed and contains documents,
such as the briefing slides to the SSB and the source selection
determination, that provide the rationale for the agency's cost realism
conclusions.[10] E.g., AR, Tab 58, SSB Presentation, at 10-13; Tab 57,
Supplemental SSB Presentation, at 2-4; Tab 56, Source Selection
Determination, at 3-4; see also Contracting Officer's Statement paras.
61-73.
During the hearing held by our Office, and as reflected in the
contemporaneous documents, the agency explained why, and how, the
evaluators determined that Palmetto's proposed costs, including labor
costs, were realistic, even though they were lower than the costs proposed
by NHIC.[11] Specifically, as stated above, Palmetto took advantage of the
opportunity, throughout its proposal, to [REDACTED]. Tr. at 26. Other
identified reasons for Palmetto's lower costs were that Palmetto
[REDACTED] and identified a number of "efficiency drivers" for claims
processing, appeals, and medical review. AR, Tab 56, Source Selection
Determination, at 2-3; Tab 57, Supplemental SSB Presentation, at 2-4;
Contracting Officer's Statement paras. 61-73; Tr. at 17-27, 30-31, 34,
38-39, 105-06, 406-17. Specific examples of some of these "efficiency
drivers" for three of the major activities (claims processing, appeals,
and medical review), as enumerated in the contemporaneous documents,
include:
. Claims Processing
[REDACTED]
. Appeals
[REDACTED]
. Medical Review
[REDACTED]
AR, Tab 56, Source Selection Determination, at 3; Tab 57, Supplemental SSB
Presentation, at 2-4.
NHIC contends that there is no basis to conclude that any of the proposed
"efficiency drivers" would result in cost savings, since the agency failed
to quantify any of the asserted cost savings. However, an adequate cost
realism analysis does not require an in-depth verification of each and
every item; an agency may reasonably rely on statements in an offeror's
proposal which demonstrate the realism of its proposed costs, without
independently verifying each item of proposed costs. Pacific Architects
and Eng'rs, Inc., B-274405.2, B-274405.3, Dec. 18, 1996, 97-1 CPD para. 42
at 7; Ferguson-Williams, Inc.; Hawk Mgmt. Servs., Inc., B-232334,
B-232334.2, Dec. 28, 1988, 88-2 CPD para. 630 at 6. Here, Palmetto's
proposal explained that its "labor estimating approach" was based on
[REDACTED]. Palmetto's proposal identified [REDACTED].[12] Agency Hearing
exh. A, Palmetto's Initial Proposal, at 26-61. As the contracting officer
explained, Palmetto "did a really good job of laying out `this is what
we've been doing, this is what we're going to do for you now, and this is
the impact.'"[13] Tr. at 91, 174. The SMEs and TEP members considered
this information contained in Palmetto's proposal, looked to see whether
the approach was feasible, and based on their own experience, could find
no basis to upwardly adjust Palmetto's proposed costs.[14] Tr. at 453,
483, 492-93, 522-23. NHIC has not shown that the agency's evaluation was
unreasonable.
NHIC also complains that the evaluation cannot be found reasonable because
the agency needed more information to conduct its analysis. In this
regard, it notes that the SMEs advised the TEP that there was no basis to
adjust Palmetto's proposed costs, but at the same time posed questions
that suggested that information was needed before such a determination
could be made. NHIC points to the analysis of Palmetto's initial proposal
in the functional area of provider education and training, which is one
aspect of the provider customer service program. There, the SME reported
that Palmetto's subcontractor "did not provide a description of the labor
categories used for the [provider customer service program]" and thus it
"is not clear what kind of work people in each of these categories will be
doing," and therefore recommended that this be a discussions question.
NHIC Hearing exh. 28(c), SME's Cost Realism Adjustments and Question
Summary of Palmetto's Initial Business Proposal, at 4. NHIC notes that
despite this statement, the contemporaneous worksheets of the SME's
analysis show a check mark in the box indicating that there was no basis
to adjust Palmetto's proposed costs.[15] NHIC Hearing exh. 31, Cost
Realism Analysis Worksheets, at 69.
As the SME who evaluated this area explained at the hearing, "the title of
[the labor] category did provide some description of what that [full time
equivalent] would be doing. So there was some basis to make a
determination" as to whether the proposed costs were realistic. Tr.
at 368-69; see Tr. at 371-72, 377. Where, for example, she saw a category
that was identified as "representative," she assumed it referred to a
"customer services representative" or "written correspondence
representative." Tr. at 369. However, she recommended to the TEP that a
discussion question be presented to Palmetto seeking further description
of the labor categories. A discussion question was presented to Palmetto,
and the firm responded. Although the SME was not asked to review
Palmetto's response, one of the TEP members reviewed the information and
determined that there was no basis to adjust Palmetto's proposed labor
hours. Tr. at 377, 471.
We acknowledge that the record does not contain any documentation
confirming that a TEP member analyzed Palmetto's costs for provider
customer service after receipt of that firm's discussion responses, other
than a conclusory statement by the BEP that Palmetto "adequately addressed
this issue" during discussions. AR, Tab 61, Final Cost Realism Memo
(Palmetto), at 3. However, even if we were to conclude error here, NHIC
has not shown that it has been prejudiced as a result.[16] That is, NHIC
has not shown that Palmetto's costs are understated for the provider
customer service program (or any other area for that matter), or that the
agency was incorrect in concluding that adjustments were not warranted.
Furthermore, we note that the quantity of hours for the provider customer
service program is very small in relation to the overall contract. Agency
Hearing exh. A, Palmetto's Initial Proposal, at 28. Thus, we cannot see
how an adjustment in this area, even if warranted, would overcome the
$92 million cost difference between proposals.[17]
NHIC also asserts that the agency should have relied more heavily on the
initial cost realism analysis, which the agency rejected in favor of
performing its "bottom up" approach, particularly given that this was a
cost analysis technique permitted by the FAR. NHIC's Comments at 20; see
FAR sect. 15.404-1(c)(2)(i)(B). However, the FAR does not require that
agencies rely on historical data comparisons, and, in any event, the
agency reasonably explained why the historical data used here to compile
the initial cost realism analysis (as well as the independent government
estimate) was of "limited applicability," especially since it did not take
into account each offeror's specific approach. Tr. at 49-50. Similarly,
NHIC contends that the agency should have compared proposals to reconcile
labor hour disparities. NHIC's Comments at 9; FAR sect.
15.404-1(c)(2)(iii)(C). Again, the FAR does not mandate such comparisons
and, in this case, such a comparison would not be meaningful without
considering the differences in technical approaches. See The Futures Group
Int'l, B-281274.2, Mar. 3, 1999, 2000 CPD para. 147 at 8 n.15.
In sum, NHIC has not shown the agency's "bottom up" cost realism
evaluation to be unreasonable. As discussed above, the agency followed a
process that is consistent with the FAR, in that the agency "independently
review[ed] and evaluat[ed] specific elements of each offeror's proposed
cost estimate to determine whether the estimated proposed cost elements
are realistic for the work to be performed; reflect a clear understanding
of the requirements; and are consistent with the unique methods of
performance and materials described in the offeror's technical proposal."
FAR sect. 15.404-1(d)(1). Moreover, except for its arguments that
historical data should have been the basis for the cost realism analysis,
which we have rejected, NHIC has not demonstrated, or even attempted to
quantify, that cost realism adjustments in the challenged areas would have
eliminated the $92 million cost differential and resulted in NHIC's most
probable cost being lower than Palmetto's; thus, NHIC has not shown that
its proposal, which was technically equal to Palmetto's, had a substantial
chance for award.
NHIC also asserts that the contracting officer provided the SSB and SSA
with "materially inaccurate and unsupported information" upon which to
base the source selection decision. NHIC's Post-Hearing Comments at 42.
For example, it asserts that the briefing slides presented to the SSB and
SSA "grossly understated the delta in proposed labor hours." Id. In
support of this argument, NHIC points to a briefing slide that identified
each offeror's proposed costs; the slide stated that the costs for NHIC
were based on "approximately [REDACTED] direct labor hours including
subcontractors," and for Palmetto were based on "approximately [REDACTED]
labor hours including subcontractors; excluding Service Center labor and
Key Personnel and other managers in indirect rates." Id. at 43-44; AR, Tab
58, SSB Presentation, at 10. NHIC contends that the labor hour totals did
not include NHIC's subcontractor and did include Palmetto's service center
labor, which had the effect of understating the labor hour
differential.[18] However, the contracting officer rebutted the accuracy
of NHIC's contention, Tr. at 99-100, 103, and explained that the labor
hour difference was presented as an approximation that was rounded to the
nearest [REDACTED]. Tr. at 100-04. The record does not evidence that the
SSB or SSA was misled as to the labor hour or cost differential between
proposals.
As another example, NHIC contends that the contracting officer falsely
represented in the briefing slides that Palmetto proposed less expensive
labor rates than NHIC, contending that its fully burdened labor rates are,
in fact, lower than Palmetto's. However, the contracting officer explained
that her reference to lower labor rates referred to direct labor costs
only and that she made that clear to the SSB and SSA, Tr. at 208-09, and
the briefing slides identified all of the cost elements for each offeror
for both their original and final proposals, including direct labor,
fringe, overhead, travel, subcontractors, other direct costs, general and
administrative costs, base fee, and award fee. AR, Tab 58, SSB
Presentation, at 10. The record does not show that the SSB or SSA was
misled.
Finally, NHIC complains that discussions were "misleading" in that the
agency asked only "superficial and narrow questions" and failed to alert
NHIC that its direct labor hours were overstated, thus leading NHIC to
believe that its staffing levels were competitive. NHIC's Comments at
36-45. However, unless an offeror's proposed cost is so high as to be
unreasonable or unacceptable, an agency is not required to tell an offeror
during discussions that its proposed cost is high in comparison to a
competitor's proposed cost, even where cost is the determinative factor
for award. DeTekion Sec. Sys., Inc., B-298235, B-298235.2, July 31, 2006,
2006 CPD para. 130 at 15;
Cherry Road Techs.; Electronic Data Sys. Corp., B-296915 et al., Oct. 24,
2005, 2005 CPD para. 197 at 20. Here, the agency found NHIC's proposed
cost to be reasonable and realistic for its technical approach. No
discussions concerning NHIC's higher cost was required.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] Although both contractors have performed this work, NHIC is an
incumbent contractor for Jurisdiction 1. Tr. at 89.
[2] Transcript citations refer to the hearing on the protest that our
Office held on January 9, 2008.
[3] A past performance evaluation panel evaluated past performance.
[4] The independent government estimate, which was also based on
historical data, was $536,897,009. AR, Tab 91, Initial Cost Realism
Analysis, at 37, 42.
[5] Where the DCAA recommended adjustments, the agency notified the
offeror during discussions, and the offeror made the appropriate
adjustments in subsequent revised proposals. Agency's Legal Memorandum at
46.
[6] The areas analyzed by SMEs were claims processing, provider customer
service program, appeals, audit and reimbursement, medical review/local
coverage determinations, comprehensive error rate testing, Medicare
secondary payer, unique requirements, fraud and abuse, and implementation.
AR, Tab 56, Source Selection Determination, at 4.
[7] An initial upward adjustment to Palmetto's proposal was recommended
for its proposed audit and reimbursement costs, based on the agency's
belief that the costs of one of Palmetto's proposed subcontractors were
understated. However, Palmetto addressed the agency's concerns during
discussions and upwardly adjusted its proposed costs accordingly, thus
making an adjustment to the proposed costs unnecessary. AR, Tab 61, Final
Cost Realism Analysis Memo (Palmetto), at 8-9.
[8] The RFP placed a premium on the offeror's use of innovations. RFP
sect. M.3; Statement of Work, sect. C.4.3.
[9] In its initial protest, NHIC also challenged the technical and risk
evaluation, contending that it was unreasonable for both proposals to
receive the same technical rating because the agency "failed to give
proper consideration to the technical impact of Palmetto's low pricing"
and NHIC, as an incumbent, better "understands what is required to
successfully perform [the agency's] requirements." Protest at 17-19. In
its comments, NHIC provided a number of specific examples to support its
protest, all of which are premised on its belief that Palmetto's staffing
must be unrealistically low because NHIC's proposed staffing was higher.
We find this argument unpersuasive, given that both offerors have
previously performed this work and their proposals offered different
technical approaches. The agency has explained that it evaluated each
offeror's proposed staffing to ensure that the proposed labor mix and
number of hours were consistent with their approach and were feasible, Tr.
at 483, 493, and specifically with regard to Palmetto, the agency has
shown how the firm based its proposed labor mixes and number of hours on
[REDACTED]. Tr. at 17-40; Agency Hearing exh. A., Palmetto's Initial
Proposal, at 25-61. NHIC has provided no convincing evidence that the
agency's evaluation, or Palmetto's technical approach, was unreasonable or
inconsistent with the RFP.
[10] NHIC relies on National City Bank of Indiana, B-287608.3, Aug. 7,
2002, 2002 CPD para. 190, where our Office sustained the protest because
the cost realism analysis was not adequately documented. In that case,
unlike here, the agency did not consult SMEs and the record was devoid of
any documentation created by the technical evaluation board that purported
to evaluate the realism of the awardee's proposed staffing reductions;
there existed only an undated, unsigned "Memo to File" that contained a
2-sentence statement that the technical evaluation board was asked if the
awardee's staffing reductions were realistic, and the technical evaluation
board responded that the reductions were realistic. Id. at 12-13.
[11] While we generally accord greater weight to contemporaneous evidence
of an evaluation and source selection decision, we will consider
post-protest explanations that provide a rationale for contemporaneous
conclusions where, as here, those explanations are credible and consistent
with the contemporaneous record. EDO Corp., B-296861, Sept. 28, 2005, 2005
CPD para. 196 at 5 n.2; Manassas Travel, Inc., B-294867.3, May 3, 2005,
2005 CPD para. 113 at 3.
[12] NHIC contends that its proposal identified similar efficiencies and
innovations, but the agency persuasively explains that NHIC's proposal
[REDACTED]. Tr. at 26, 151, 154-55, 169, 417-18, 520-21, 577, 580.
[13] For example, Palmetto identified that [REDACTED]. Similarly, Palmetto
[REDACTED], which translated into [REDACTED], and proposed to [REDACTED].
Agency Hearing exh. A, Palmetto's Initial Proposal, at 34-35. NHIC asserts
that because [REDACTED], the expansion of [REDACTED] would result in
savings that are "immaterial." NHIC Post-Hearing Comments at 57-58.
However, we note that besides the foregoing efficiencies, Palmetto's
proposal identifies a number of other efficiencies and innovations that,
in the aggregate, the agency could reasonably conclude demonstrated the
realism of Palmetto's proposed labor hours and costs. Agency Hearing exh.
A, Palmetto's Initial Proposal, at 26-51. NHIC has failed to show that the
claimed savings would not be achieved.
[14] In some instances, where technology innovations did not have a great
impact on historical data, the evaluators used historical data to validate
the cost realism of Palmetto's approach. Tr. at 335, 339-40, 424-25.
[15] It is unclear from the record who checked the box. As various agency
witnesses explained, some worksheets were completed by the SMEs, and
others were completed by the TEP based on the SMEs' analysis. Tr. at 438,
464, 497, 534. Although NHIC argues that the agency's "confus[ion]" over
who was responsible for checking the box reveals a flawed evaluation,
NHIC's Post-Hearing Comments at 11, we find this to be inconsequential as
to whether the underlying analysis was reasonable.
[16] Competitive prejudice is a necessary element to every protest; we
will not sustain a protest unless the protester shows that but for the
agency's error, it has a substantial chance for award. McDonald-Bradley,
B-270126, Feb. 8, 1996, 96-1 CPD para. 54 at 3; Statistica, Inc. v.
Christopher, 103 F.3d 1577, 1581 (Fed. Cir. 1996).
[17] NHIC points to another example, where the SME evaluating NHIC's
proposal for the provider outreach and education function noted that NHIC
had not provided its assumptions regarding the percentage of calls it
expected to handle by "interactive voice response" (IVR) technology. NHIC
Hearing exh. 24(c), SME's Cost Realism Adjustments and Question Summary of
NHIC's Initial Business Proposal, at 3-4. Citing a SME comment in the
contemporaneous documentation, NHIC concludes that the SME made
inappropriate assumptions regarding NHIC's IVR usage. Id. at 4. However,
we fail to see how NHIC was prejudiced by the assertedly incorrect
assumption because the agency did not make any adjustments to NHIC
proposed costs as a result of this assumption.
[18] That is, NHIC contends that including additional subcontractor to
NHIC's labor hours, as the slide represented, would have increased the
[REDACTED] labor hour total. Conversely, excluding Palmetto's service
center labor, as the slide represented, would have reduced Palmetto's
[REDACTED] labor hour total. Thus, NHIC argues, the labor hour
differential was even larger than represented in the slide.