B-148387, MAY 8, 1962

B-148387, MAY 8, 1962

TO OPERATIONS RESEARCH, INC:

WE REFER TO YOUR TELEGRAM OF MARCH 12, 1962, PROTESTING AWARD OF A CONTRACT UNDER REQUEST FOR PROPOSAL NO. ORDTL-CB-572, ISSUED BY THE DIAMOND ORDNANCE FUZE LABORATORIES, WASHINGTON, D.C., AND STATING AS THE BASIS FOR YOUR PROTEST THAT THE CONTRACT WAS AWARDED AT $256,000 ALTHOUGH YOUR BID WAS $137,000.

THE REQUEST FOR PROPOSAL, DATED NOVEMBER 20, 1961, WAS ISSUED AFTER A PRESOLICITATION CONFERENCE WITH PROSPECTIVE OFFERORS AT THE DIAMOND ORDNANCE FUZE LABORATORIES. IT INVITED PROPOSALS FOR AN APPLICATIONS STUDY FOR COMMUNICATIONS SYSTEM FOR DEPARTMENT OF THE ARMY RESEARCH AND DEVELOPMENT MANAGEMENT INFORMATION. THE REQUEST CONTEMPLATED AWARD OF A COST-PLUS-A-FIXED-FEE TYPE OF CONTRACT HAVINGA DURATION OF APPROXIMATELY 12 MONTHS. EVALUATION OF PROPOSALS WAS SCHEDULED ON THE BASIS OF THE GENERAL QUALITY AND RESPONSIVENESS OF THE PROPOSALS, THE ADEQUACY OF PERSONNEL AND FACILITIES, PAST PERFORMANCE RECORD OF SIMILAR OR RELATED WORK, THE MERIT OF THE PROPOSED PLANS FOR CONDUCT OF ACCOMPLISHMENT OF THIS WORK AND THE FAIRNESS AND REASONABLENESS OF THE PROPOSED COSTS. OFFERORS WERE SPECIFICALLY CAUTIONED THAT COST PROPOSALS CONSIDERED TO BE UNREASONABLE LOW, AS WELL AS THOSE CONSIDERED EXCESSIVELY HIGH, WOULD ADVERSELY AFFECT THE FINAL RATING OF THE PROPOSAL.

THE GOVERNMENT COST ESTIMATE FOR THE STUDY WAS $275,510. SEVEN PROPOSALS WERE RECEIVED CONTAINING ESTIMATED COSTS FROM $85,386 TO $341,395. THE SEVEN COMPANIES SUBMITTING PROPOSALS WERE RATED BY A TECHNICAL EVALUATION COMMITTEE IN ACCORDANCE WITH THE CRITERIA STATED IN THE REQUEST. THE TECHNICAL RATING OF YOUR COMPANY ON ALL FACTORS EXCEPT REASONABLENESS OF PROPOSED COST WAS SOMEWHAT HIGHER THAN ANY OF THE OTHER OFFERORS. HOWEVER, THE CONTRACTING AGENCY CONSIDERED THAT YOUR COST ESTIMATE OF APPROXIMATELY HALF THE GOVERNMENT'S ESTIMATE WAS UNREALISTIC, PARTICULARLY FOR TRAVEL AND DIRECT LABOR. YOUR ESTIMATE WAS FOUND INADEQUATE FOR THE DESCRIBED SCOPE OF WORK WHICH INCLUDES (1) VISITS TO MANY OF THE ARMY FIELD INSTALLATIONS INVOLVED TO ANALYZE THE GENERATION, COLLECTION, TRANSMISSION, ANALYSIS AND PRESENTATION OF DATA AND (2) ESTABLISHMENT OF A COMPLETELY OPERATING SYSTEM FOR FIVE RESEARCH AND DEVELOPMENT PROJECTS. YOUR PROPOSAL INDICATED A FAILURE TO PROVIDE FOR THE NECESSARY AMOUNT OF PAINSTAKING WORK REQUIRED AND TO FULLY APPRECIATE THE COMPLEXITY OF THE ARMY'S PROBLEM. YOUR PROPOSAL WAS REJECTED AND CONTRACT NO. DA-49-186-ORD -1058 WAS AWARDED TO MANAGEMENT SYSTEMS CORPORATION, CAMBRIDGE, MASSACHUSETTS. THIS CONTRACT WAS NOT IN THE AMOUNT OF $256,000, AS YOU ALLEGED, BUT WAS A COST-PLUS-A-FIXED-FREE CONTRACT IN WHICH THE FEE OF $17,491 WAS THE ONLY FIXED ELEMENT.

IN A NEGOTIATED PROCUREMENT, THE RULES OF FORMALLY ADVERTISED, COMPETITIVE BIDDING, SUCH AS THE REQUIREMENT FOR AWARD TO THE LOWEST RESPONSIVE, RESPONSIBLE BIDDER, ARE NOT APPLICABLE AND A CONTRACTING AGENCY MAY LEGALLY TAKE INTO CONSIDERATION ALL FACTORS DEEMED ESSENTIAL TO THE PROCUREMENT. ON THIS SUBJECT, SECTION 3-805.2 OF THE ARMED SERVICES PROCUREMENT REGULATION STATES AS FOLLOWS:

"3-805.2 COST-REIMBURSEMENT TYPE CONTRACTS. IN SELECTING THE CONTRACTOR FOR A COST-REIMBURSEMENT TYPE CONTRACT, ESTIMATED COSTS OF CONTRACT PERFORMANCE AND PROPOSED FEES SHOULD NOT BE CONSIDERED AS CONTROLLING, SINCE IN THIS TYPE OF CONTRACT ADVANCE ESTIMATES OF COST MAY NOT PROVIDE VALID INDICATORS OF FINAL ACTUAL COSTS. THERE IS NO REQUIREMENT THAT COST -REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF EITHER (1) THE LOWEST PROPOSED COSTS, (2) THE LOWEST PROPOSED FEE, OR (3) THE LOWEST TOTAL ESTIMATED COST PLUS PROPOSED FEE. THE AWARD OF COST-REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS. THE COST ESTIMATE IS IMPORTANT TO DETERMINE THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT. THE AGREED FEE MUST BE WITHIN THE LIMITS PRESCRIBED BY LAW AND REGULATION AND APPROPRIATE TO THE WORK TO BE PERFORMED (SEE 3 808). BEYOND THIS, HOWEVER, THE PRIMARY CONSIDERATION IN DETERMINING TO WHOM THE AWARD SHALL BE MADE IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.'

IN VIEW OF THE COST-REIMBURSEMENT TYPE OF CONTRACT CONTEMPLATED, YOUR PROPOSAL IN THE NEGOTIATED PROCUREMENT CANNOT BE REGARDED IN THE SAME LIGHT AS A BID ON A FIXED PRICE CONTRACT UNDER ADVERTISED PROCUREMENT. YOUR PROPOSAL OF $137,979, WHICH IS NOT THE LOWEST OF THE SEVEN PROPOSALS, IS NOT IN ANY SENSE A LOWER BID THAN THE PROPOSAL OF $256,709 FROM THE SUCCESSFUL OFFEROR FOR THE REASON THAT NEITHER OF YOU WOULD BE BOUND BY THE COST ESTIMATES IN YOUR PROPOSALS. REGARDLESS OF THE ESTIMATE YOU SUBMIT, THE GOVERNMENT IS BOUND TO PAY ACTUAL COSTS IN THE EVENT OF AN AWARD UNDER THE COST-REIMBURSEMENT TYPE OF CONTRACT USED HERE.

UNDER THE NEGOTIATING AUTHORITY INVOKED IN THIS MATTER (10 U.S.C. 2304 (A) (10) (, BONA FIDE DETERMINATIONS CANNOT BE QUESTIONED WHEN THERE ARE REASONABLE GROUNDS FOR SUCH DETERMINATIONS. IN OUR OPINION, THE RECORD SUPPORTS THE REASONABLENESS OF THE CONTRACTING AGENCY'S CONCLUSION THAT YOUR EXCEPTIONALLY LOW ESTIMATES OF COST DEMONSTRATE A LACK OF UNDERSTANDING OF THE COMPLEXITIES OF THIS PARTICULAR PROBLEM. IF YOU HAD RECEIVED AN AWARD, THE ADDITIONAL COST OF TRAVEL AND DIRECT LABOR WHICH YOU MAY NOT HAVE FORESEEN WOULD HAVE INCREASED YOUR COSTS TO A FIGURE FAR ABOVE YOUR ESTIMATE. IN THIS SITUATION, WE HAVE NO BASIS FOR OBJECTION TO AN AWARD TO ANOTHER OFFEROR WHO HAS INCLUDED IN HIS ESTIMATE ALL THE WORK AND TRAVEL DEEMED NECESSARY BY THE ARMY.