B-176311(3), OCT 26, 1973

B-176311(3): Oct 26, 1973

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YOU HAVE PROTESTED AGAINST THE PROPOSED AWARD OF A CONTRACT TO HUGHES AIRCRAFT COMPANY (HUGHES) UNDER REQUEST FOR QUOTATIONS (RFQ) DAAB07-72-Q-0220. PROPOSALS WERE EVALUATED AND. IT WAS DETERMINED THAT ALL PROPOSALS. WERE WITHIN THE "ZONE OF CONSIDERATION" AND ELIGIBLE FOR NEGOTIATIONS. NEGOTIATIONS WERE HELD WITH ALL OFFERORS. TECHNICAL AND COST EVALUATIONS OF THE REVISED PROPOSALS WERE CONDUCTED AND ON JUNE 21. ECOM WAS NOTIFIED OF RCA'S PROTEST AGAINST THE PROPOSED AWARD. ECOM HAS WITHHELD THE PROPOSED AWARD UNTIL THE ISSUES RAISED BY ALL THE PROTESTERS ARE RESOLVED. WITHOUT CERTAIN ATTACHMENTS WHICH WERE RESTRICTED FROM DISCLOSURE OUTSIDE THE GOVERNMENT. CERTAIN ADDITIONAL PORTIONS OF THE REPORT WERE PROVIDED.

B-176311(3), OCT 26, 1973

DENIALS OF PROTESTS MADE AGAINST THE PROPOSED AWARD OF A CONTRACT TO HUGHES AIRCRAFT COMPANY UNDER RFQ NO. DAAB07-72-Q-0220, ISSUED ON FEBRUARY 15, 1972, BY THE UNITED STATES ARMY ELECTRONICS COMMAND, FORT MONMOUTH, NEW JERSEY.

TO RADIO CORPORATION OF AMERICA:

BY LETTER DATED AUGUST 17, 1973, AND PRIOR CORRESPONDENCE, YOU HAVE PROTESTED AGAINST THE PROPOSED AWARD OF A CONTRACT TO HUGHES AIRCRAFT COMPANY (HUGHES) UNDER REQUEST FOR QUOTATIONS (RFQ) DAAB07-72-Q-0220, ISSUED ON FEBRUARY 15, 1972, BY THE UNITED STATES ARMY ELECTRONICS COMMAND (ECOM), FORT MONMOUTH, NEW JERSEY.

THE PROPOSED PROCUREMENT CALLS FOR FIVE EACH MOBILE MORTAR LOCATING RADAR (MMLR) AN/TPQ-36, ENGINEERING DEVELOPMENT MODELS, AND ANCILLARY ITEMS, ON A COST-PLUS-INCENTIVE-FEE (CPIF) BASIS. ON MARCH 30, 1972, FOUR OFFERORS RESPONDED TO THE RFQ (ITT GILFILLAN (ITT), HUGHES, RADIO CORPORATION OF AMERICA (RCA) AND GENERAL ELECTRIC COMPANY (GE)). PROPOSALS WERE EVALUATED AND, BASED UPON A REPORT DATED APRIL 28, 1972, IT WAS DETERMINED THAT ALL PROPOSALS, INCLUDING THAT OF RCA, WERE WITHIN THE "ZONE OF CONSIDERATION" AND ELIGIBLE FOR NEGOTIATIONS. IN MAY 1972, NEGOTIATIONS WERE HELD WITH ALL OFFERORS. ON MAY 26, 1972, THE CLOSING DATE FOR NEGOTIATIONS AND SUBMISSION OF BEST AND FINAL OFFERS, ALL OFFERORS SUBMITTED REVISED PROPOSALS. TECHNICAL AND COST EVALUATIONS OF THE REVISED PROPOSALS WERE CONDUCTED AND ON JUNE 21, 1972, THE CONTRACTING OFFICER DETERMINED THAT THE AWARD SHOULD BE MADE TO HUGHES.

ON JUNE 22, ECOM WAS NOTIFIED OF RCA'S PROTEST AGAINST THE PROPOSED AWARD. AS A RESULT OF THIS PROTEST, AND THOSE SUBMITTED BY GE AND ITT, ECOM HAS WITHHELD THE PROPOSED AWARD UNTIL THE ISSUES RAISED BY ALL THE PROTESTERS ARE RESOLVED.

IN AUGUST 1972, THE ARMY PROVIDED YOU AND THE OTHER PROTESTERS WITH COPIES OF ITS ADMINISTRATIVE REPORT, BUT WITHOUT CERTAIN ATTACHMENTS WHICH WERE RESTRICTED FROM DISCLOSURE OUTSIDE THE GOVERNMENT. ALL OF THE PROTESTERS OBJECTED TO THE OMISSION OF THE ATTACHMENTS AND, AS A RESULT, CERTAIN ADDITIONAL PORTIONS OF THE REPORT WERE PROVIDED. YOU AND ITT REQUESTED THE RELEASE OF ADDITIONAL PORTIONS OF THE REPORT FILED WITH THIS OFFICE. THESE REQUESTS WERE DENIED BY THE COMMANDING GENERAL OF ECOM. LATE SEPTEMBER 1972, BOTH YOU AND ITT APPEALED ECOM'S FAILURE TO RELEASE THE DISPUTED DOCUMENTS TO THE OFFICE OF THE SECRETARY OF THE ARMY UNDER THE FREEDOM OF INFORMATION ACT (5 U.S.C. 552). SUBSEQUENTLY, ON JANUARY 9 AND 10, 1973, SEPARATE "DEBRIEFING" CONFERENCES WERE HELD AT ECOM FOR EACH OF THE FOUR OFFERORS. HOWEVER, NO FURTHER DOCUMENTS WERE RELEASED. LETTERS DATED FEBRUARY 5, 1973, THE GENERAL COUNSEL OF THE ARMY ON BEHALF OF THE SECRETARY DENIED BOTH YOUR APPEAL AND THAT OF ITT.

ON MARCH 2, 1973, ITT FILED A COMPLAINT IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (ITT GILFILLAN, INC. V. ROBERT E. FROEHLKE, CIVIL ACTION NO. 416-73) REQUESTING AN INJUNCTION AGAINST THE SECRETARY OF THE ARMY FROM WITHHOLDING THE REQUESTED DOCUMENTS. MEANWHILE, WE REQUESTED THAT THE PARTIES FILE THEIR RESPONSES TO THE PORTION OF THE ADMINISTRATIVE REPORT WHICH HAD BEEN RELEASED. ALL PARTIES COMPLIED WITH THIS REQUEST.

ON JUNE 28, 1973, HOWEVER, THE COURT ORDERED THE ARMY TO DISCLOSE SOME OF THE WITHHELD DOCUMENTS TO ITT WHILE EXEMPTING OTHERS FROM DISCLOSURE. AUGUST 1, 1973, ITT AND THE ARMY STIPULATED THAT THE ARMY WOULD RELEASE THE DOCUMENTS WHICH THE COURT ORDERED TO BE DISCLOSED; THAT NEITHER PARTY WOULD APPEAL THE ORDER OF THE DISTRICT COURT, AND THAT ITT WOULD FILE ITS COMMENTS ON OR BEFORE AUGUST 14, 1973. THE ARMY HAS PROVIDED YOU WITH COPIES OF THESE DOCUMENTS. ACCORDINGLY, WE HAVE DELAYED OUR DECISION TO PERMIT YOU TO COMMENT ON THE RELEASED DOCUMENTS. YOUR COMMENTS HAVE BEEN RECEIVED AND CONSIDERED BY THIS OFFICE.

YOU ASSERT THAT THE PROPOSED AWARD TO HUGHES IS IMPROPER FOR THE FOLLOWING REASONS THE GOVERNMENT'S COST ESTIMATES AND ITS MAN-MONTH ESTIMATE DERIVED THEREFROM ARE FAULTY; ECOM RELIED ON THESE ESTIMATES IN ITS EVALUATION AND FAILED TO ADEQUATELY ASSESS THE COST REALISM OF RCA'S PROPOSAL; ECOM ARBITRARILY REFUSED TO ASSIGN DUE WEIGHT TO RCA'S UTILIZATION OF EQUIPMENT ALREADY DEVELOPED AND ITS EIGHTEEN-MONTH STUDY EFFORT; AND ECOM HAS MADE CRITICAL DEVIATIONS FROM THE AWARD CRITERIA SET FORTH IN THE RFQ.

PERTINENT PORTIONS OF THE EVALUATION CRITERIA CONTAINED IN SECTION D OF THE RFQ ARE SET FORTH BELOW:

"D.1 BASIS FOR AWARD

ANY AWARD TO BE MADE WILL BE BASED ON THE BEST OVER-ALL PROPOSAL WITH APPROPRIATE CONSIDERATION GIVEN TO TECHNICAL PROPOSAL, PAST PERFORMANCE/MANAGEMENT, AND COST CONSIDERATION IN THAT ORDER OF IMPORTANCE.

OF THE THREE FACTORS SET FORTH ABOVE, TECHNICAL PROPOSAL, BY FAR, IS THE MOST IMPORTANT FACTOR AND BEARS GREATER WEIGHT THEN THE OTHER TWO FACTORS COMBINED.

OF THE LAST TWO FACTORS, PAST PERFORMANCE/MANAGEMENT BEARS THE GREATER WEIGHT.

TO RECEIVE CONSIDERATION FOR AWARD, A RATING OF NO LESS THAN 'ACCEPTABLE' MUST BE ACHIEVED IN EACH OF THE THREE FACTORS.

"D.2 FACTORS AND SUB-FACTORS TO BE EVALUATED, IN RELATIVE ORDER OF IMPORTANCE

A. TECHNICAL PROPOSAL FOR DEVELOPMENT PHASE

(1) ENGINEERING APPROACH

(2) ENGINEERING MAN-HOURS

B. PAST PERFORMANCE/MANAGEMENT

C. COST CONSIDERATION

(1) COST PROPOSAL

(2) COST REALISM

(3) USE OF GOVERNMENT PROPERTY

"D.3 EVALUATION APPROACH

A.(2) ENGINEERING MAN-HOURS - SUFFICIENCY AND REASONABLENESS OF OFFEROR'S ESTIMATE OF ENGINEERING MAN-HOURS REQUIRED TO ACCOMPLISH HIS SPECIFIC TECHNICAL APPROACH.

"C.(2) COST REALISM: AS PART OF PROPOSAL EVALUATION AND IN ORDER TO MINIMIZE POTENTIAL OR BUILD-IN COST GROWTH, THE GOVERNMENT INTENDS TO EVALUATE THE REALISM OF QUOTER'S PROPOSED COSTS IN TERMS OF THE QUOTER'S PROPOSED APPROACH. PROPOSALS MAY BE PENALIZED TO THE DEGREE THAT THE PROPOSED COSTS ARE UNREALISTICALLY LOW. TO ASSIST THE GOVERNMENT IN EVALUATING THIS AREA, QUOTERS ARE REQUIRED TO FURNISH THE FOLLOWING INFORMATION - A BRIEF BUT COMPREHENSIVE STATEMENT CONCERNING THE ESTIMATING PROCEDURES UTILIZED IN PREPARING THIS OFFER TO SPECIFICALLY INCLUDE A DESCRIPTION OF THE ORGANIZATION FOR ESTIMATING."

AS STATED, THE RECORD INDICATES THAT AS A RESULT OF THE INITIAL EVALUATION ALL OFFERORS WERE DETERMINED TO BE WITHIN THE COMPETITIVE RANGE. ALTHOUGH ENGINEERING MAN-HOURS AND THE COST PROPOSALS HAD BEEN EVALUATED INITIALLY THEY WERE NOT CONSIDERED IN DETERMINING THE COMPETITIVE RANGE. IN THIS REGARD, THE EVALUATION REPORT OF APRIL 28, 1972, STATES:

"B. ENGINEERING MANPOWER IS AN IMPORTANT CONSIDERATION. HOWEVER, BECAUSE OF THE WIDE SPREAD AND THE LOW VALUE OF THREE OF THEM IN MANPOWER ESTIMATES, WE ARE NOT FACTORING THEM INTO THE EVALUATIONS AT THIS TIME.

IN THE EVALUATION, PROPOSALS WERE NUMERICALLY SCORED ONLY UNDER THE SUBFACTOR OF ENGINEERING APPROACH. ACCORDING TO THE RFQ, THIS SUBFACTOR, WHICH IS ASSIGNED PARAMOUNT WEIGHT UNDER THE EVALUATION CRITERIA MEASURES AN OFFEROR'S UNDERSTANDING OF THE PROBLEM AND, AMONG OTHER THINGS, THE FEASIBILITY OF THE OFFEROR'S PROPOSED DESIGN.

AS A RESULT OF THE INITIAL SCORING UNDER THIS SUBFACTOR IT WAS CONCLUDED THAT FROM AN ENGINEERING DESIGN STANDPOINT ALL FOUR PROPOSALS WERE ACCEPTABLE. RCA'S PROPOSAL WAS RANKED THIRD UNDER THIS SUBFACTOR.

DISCUSSIONS WERE HELD WITH ALL FOUR OFFERORS FROM MAY 3 THROUGH MAY 15, 1972. THE RECORD INDICATES THAT ALL OFFERORS, EXCEPT HUGHES, WERE INFORMED THAT ECOM CONSIDERED THE COSTS AND LEVELS OF EFFORT PROPOSED TO BE TOO LOW OVERALL, ALTHOUGH HUGHES WAS INFORMED THAT ITS PRICE WAS CONSIDERED "LOW IN CERTAIN AREAS AND HIGH IN OTHERS." THE RECORD ALSO REVEALS THAT ALL OFFERORS WERE REQUESTED TO SUBMIT REVISED TECHNICAL PROPOSALS INCORPORATING RESPONSES TO TECHNICAL QUESTIONS RAISED DURING THE DISCUSSIONS. THEY WERE ALSO REQUESTED TO RESUBMIT COST PROPOSALS INCORPORATING CHANGES GENERATED BY THE SUPPLEMENTAL TECHNICAL PROPOSALS AND THE COMMENTS OF THE DEFENSE CONTRACT AUDIT AGENCY (DCAA), WHICH HAD AUDITED THE OFFERORS' COST PROPOSALS. IN ADDITION, OFFERORS WERE INSTRUCTED TO CONSIDER AN ECOM SUGGESTED INCENTIVE PLAN AND TO SUBMIT A FIXED-PRICE-INCENTIVE (FPI) PROPOSAL ALSO.

WHEN ECOM EVALUATED THE REVISED COST AND TECHNICAL PROPOSALS, INCLUDING ALL OF THE SUBFACTORS UNDER THE TECHNICAL CRITERION, IT FOUND THAT, NOTWITHSTANDING THE WARNINGS CONVEYED TO THE OFFERORS DURING NEGOTIATION, THEY ALL FAILED TO SIGNIFICANTLY RAISE THEIR PROPOSED LEVELS OF EFFORT. SINCE ONLY HUGHES' PROPOSED LEVEL OF EFFORT AND COST ESTIMATES WERE CONSIDERED REASONABLY IN LINE WITH THE GOVERNMENT ESTIMATES AND SINCE HUGHES RECEIVED THE HIGHEST SCORE UNDER THE SUBFACTOR OF ENGINEERING APPROACH, ECOM CONCLUDED THAT HUGHES WAS THE ONLY ACCEPTABLE OFFEROR AND SHOULD RECEIVE THE AWARD.

INITIALLY, YOU CONTEND THAT ECOM'S LEVEL OF EFFORT AND COST ESTIMATES AGAINST WHICH THE RCA PROPOSAL WAS EVALUATED WERE NOT ACCURATE. SUPPORT OF THIS CONTENTION YOU CITE THE FACT THAT BOTH OF THESE ESTIMATES WERE DERIVED PRIMARILY FROM COST EXPERIENCE UNDER THE AN/TPQ 28 RADAR CONTRACT. YOU OBJECT TO ECOM'S USE OF THIS COST EXPERIENCE BECAUSE YOU ASSERT THAT THE MAJORITY OF SUCH DOLLAR FIGURES ARE BASED ON THE COST-PLUS -FIXED-FEE (CPFF) PHASE OF THE CONTRACT WHICH WAS SUBJECT TO MASSIVE COST GROWTH. YOU ARGUE, CITING 47 COMP. GEN. 336 (1972), THAT CPFF CONTRACTS DO NOT PROVIDE AN ACCURATE BASE FOR ESTIMATING PROBABLE COSTS UNDER CPIF CONTRACTS BECAUSE OF THE GREATER INCENTIVE FOR COST COST CONTROL UNDER A CPIF CONTRACT. IN THIS CONNECTION, YOU INSIST THAT SINCE THE AN/TPQ-28 CONTRACT WAS FOR ADVANCED DEVELOPMENT AND THE SUBJECT PROCUREMENT IS FOR ENGINEERING DEVELOPMENT THEY ARE NOT COMPARABLE. FINALLY, YOU URGE THAT THE AN/TPQ 28 CONTRACT IS NOT A PROPER BASE FOR THE ESTIMATE BECAUSE IT REPRESENTS A MUCH MORE COMPLEX SYSTEM THAN THE AN/TPQ-36.

THE RECORD INDICATES THAT ON NOVEMBER 1, 1971, PRIOR TO THE ISSUANCE OF THE SUBJECT SOLICITATION, ECOM PREPARED AN INDEPENDENT GOVERNMENT COST ESTIMATE (IGCE) FOR FIVE ENGINEERING DEVELOPMENT SETS. THIS COST ESTIMATE WAS BASED PRIMARILY ON ACTUAL COSTS INCURRED IN FULLY COMPLETING ONE RADAR SET AND PARTIALLY COMPLETING TWO OTHERS UNDER THE AN/TPQ-28 CONTRACT. THESE ACTUAL COSTS WERE ADJUSTED FOR DESIGN AND QUANTITY CHANGES BETWEEN THE AN/TPQ-28 AND THE SUBJECT AN/TPQ-36 PROCUREMENT, AS WELL AS FOR INFLATION FACTORS.

DURING THE PERIOD BETWEEN THE DEVELOPMENT OF THE IGCE AND THE ISSUANCE OF THE RFQ, RESEARCH AND DEVELOPMENT EFFORTS WERE IN PROGRESS WHICH RESULTED IN A REDUCTION OF THE REQUIRED DESIGN EFFORT, WHICH INFORMATION WAS INCLUDED IN THE RFQ. ACCORDINGLY, A REVISED IGCE WAS PREPARED. THIS ESTIMATE WAS THEN INDIVIDUALIZED FOR EACH PROPOSAL BY MULTIPLYING THE GOVERNMENT ESTIMATE FOR THE 5 SETS BY A "SCALER" FACTOR RELATED TO THE ESTIMATED MISSION EQUIPMENT COSTS OF THE GOVERNMENT AND EACH OFFEROR. THE GOVERNMENT ESTIMATE OF 2500 MAN-MONTHS OF EFFORT (DURING THE EVALUATION ECOM CONVERTED THE OFFERORS' ESTIMATES WHICH WERE EXPRESSED AS MAN-HOURS TO MAN-MONTHS) FOR ITEM 0001 (5 RADAR SETS) WAS DERIVED FROM THE ORIGINAL IGCE DEVELOPED IN NOVEMBER 1971.

ALTHOUGH YOU CONTEND THAT ANOTHER METHOD OF DEVELOPING THESE ESTIMATES SHOULD HAVE BEEN UTILIZED BY ECOM, WE FIND NO BASIS FOR CONCLUDING THAT ANOTHER METHOD WOULD HAVE BEEN MORE APPROPRIATE THAN THAT USED. MATTERS SUCH AS THIS, THE ADMINISTRATIVE JUDGMENT AS TO THE METHOD TO BE USED IS ENTITLED TO GREAT WEIGHT. IN OUR VIEW THAT JUDGMENT MAY NOT BE OVERRULED BY THIS OFFICE, SO LONG AS IT IS REASONABLE. BASED ON OUR REVIEW OF THE RECORD BEFORE US WE CANNOT SAY THAT ECOM'S METHODOLOGY IN DEVELOPING ITS ESTIMATES WAS UNREASONABLE.

IN FURTHER REFERENCE TO THE MAN-MONTH ESTIMATE YOU NOTE THE GOVERNMENT'S CHANGE FROM A FIGURE OF 2500 MAN-MONTHS TO ONE OF 2200 MAN MONTHS, REFERRED TO BY ECOM PERSONNEL DURING THE JANUARY 9, 1973 DEBRIEFING.

IN A MEMORANDUM DATED APRIL 26, 1973, ECOM PERSONNEL OFFERED THE FOLLOWING EXPLANATION OF THE 2200 MAN-MONTH FIGURE:

"THERE WAS NEVER ANY FORMAL CALCULATION NOR IS THERE A DOCUMENTED RECORD OF THE 2200 MAN-MONTH FIGURE USED IN THE DEBRIEFING. IT AMOUNTED ESSENTIALLY TO A REVISION OF THE ORIGINAL GOVERNMENT ESTIMATE OF MAN-HOURS REQUIRED FOR ITEM 1, BASED ON A REDUCTION IN THE DESIGN EFFORT NEEDED AND WAS ALSO INTENDED TO REFLECT VARIATIONS IN THE OFFERORS' APPROACHES AND SUBCONTRACTING PLANS."

IN A PRIOR MEMORANDUM, DATED OCTOBER 19, 1972, THE EFFECT OF THE REDUCTION IN DESIGN EFFORT ON ECOM'S LEVEL OF EFFORT ESTIMATE WAS CHARACTERIZED AS FOLLOWS:

"IN OUR D/F TO YOU DATED 13 JUNE 72, SUBJECT: 'GOVERNMENT COST ESTIMATES OF GE, HUGHES, ITT-GILFILLAN, AND RCA PROPOSALS, AN/TPQ-36, SOLICITATION NO. DAAB07-72-220', IN RESPONSE TO YOUR REQUEST FOR ADDITIONAL INFORMATION, WE PRESENTED GOVERNMENT COST ESTIMATES FOR EACH OF THE FOUR BIDDERS. THIS D/F INCLUDED AN UPDATED AND REVISED INDEPENDENT GOVERNMENT COST ESTIMATE WHICH TOOK INTO ACCOUNT THE EFFECT OF CERTAIN TECHNICAL INFORMATION FURNISHED AS PART OF THE RFQ. WE DID NOT REDUCE THESE COST ESTIMATES INTO MAN-POWER ESTIMATES." THE RECORDS OF THE EVALUATION REVEAL THAT THE 2500 FIGURE WAS USED THROUGHOUT, AND THAT THE 2200 FIGURE WAS ESTABLISHED AFTER SELECTION OF HUGHES TO CORRESPOND WITH THE REDUCTION IN THE GOVERNMENT COST ESTIMATE RESULTING FROM THE REDUCED DESIGN EFFORT. DO NOT BELIEVE THAT THIS FACT REQUIRES THE CONCLUSION THAT THE EVALUATIONS ARE INVALID, SINCE THE 2500 FIGURE WAS UNIFORMLY APPLIED IN THE EVALUATION OF ALL PROPOSALS AND SINCE THE DISPARITY BETWEEN RCA'S PROPOSED LEVEL OF EFFORT AND THE GOVERNMENT'S ESTIMATE IS CONSIDERABLE, EVEN IF THE 2200 FIGURE IS SUBSTITUTED.

YOU ALSO CONTEND THAT ECOM'S EVALUATION OF THE MAN-HOURS AND COSTS PROPOSED BY RCA WAS ERRONEOUS IN THAT ECOM FAILED TO PROPERLY CONSIDER RCA'S STUDY EFFORT AND USE OF EXISTING TECHNOLOGY. IN THIS CONNECTION, YOU HAVE PROVIDED US WITH INFORMATION WHICH YOU BELIEVE SHOWS THAT RCA RECOGNIZED IN ITS PROPOSAL THAT APPROXIMATELY 1145 MAN-MONTHS OF EFFORT WAS REQUIRED IF NONE OF THE EFFORT WAS OFFSET BY RCA'S STUDY EFFORT AND USE OF EXISTING TECHNOLOGY.

SPECIFICALLY, YOU ARGUE THAT OVER AND ABOVE THE 460 MAN-MONTH FIGURE PROPOSED IN RCA'S FINAL OFFER, RCA'S PRIOR STUDY AND UTILIZATION OF EXISTING TECHNOLOGY VALUED AT 685 MAN-MONTHS BY RCA ARE APPLICABLE TO THE PROCUREMENT, AND THAT WHEN CONVERTED INTO LABOR COST THIS RESULTS IN AN INCREASE OF NEARLY $3,000,000 IN RCA'S COST ESTIMATE.

IN SUMMARY, YOU CONTEND THAT SINCE THE FUNCTION OF THE SUBFACTOR OF ENGINEERING MAN-HOURS IS TO ASCERTAIN WHETHER AN OFFEROR HAS THE CAPABILITY AND UNDERSTANDING TO PERFORM THE TASK IT WAS ARBITRARY FOR ECOM TO MERELY COMPARE RCA'S PROPOSED MAN-HOURS AND COSTS TO THE GOVERNMENT'S ESTIMATES AND COMPLETELY IGNORE THE EFFECT OF RCA'S PRIOR STUDY AND UTILIZATION OF ITS EXISTING TECHNOLOGY CLEARLY SET FORTH IN ITS PROPOSAL.

THE RECORD INDICATES, HOWEVER, THAT THE ECOM EVALUATORS CONSIDERED RCA'S CLAIM REGARDING THE EFFECTS OF ITS PRIOR STUDIES AND IN-HOUSE FINANCED PROJECTS ON ITS MAN-HOUR ESTIMATE BUT WERE NOT PERSUADED THAT THESE FACTORS JUSTIFIED RAISING RCA'S PROPOSED COST AND MAN-MONTH FIGURES. THEREFORE, WE DO NOT AGREE WITH THE CONTENTION THAT THE EVALUATORS DID NOT CONSIDER RCA'S CLAIMS OF PRIOR STUDY AND INVESTMENT.

YOU NEXT ASSERT THAT SINCE THE RCA PROPOSAL WAS DETERMINED TO BE ACCEPTABLE UNDER THE SUBFACTOR OF "MATERIAL LIST" THAT IT WAS INCONSISTENT FOR ECOM TO CONCLUDE THAT RCA'S MAN-MONTH FIGURE WAS UNREALISTICALLY LOW. YOU ARGUE THAT IN VIEW OF THE FACT THAT THIS SUBFACTOR MEASURES THE PROPRIETY AND REASONABLENESS OF MATERIALS INTENDED TO BE USED IN RELATION TO THE OFFEROR'S SPECIFIC TECHNICAL APPROACH, AN ACCEPTABLE RATING UNDER THIS FACTOR WOULD SEEM TO INDICATE THAT RCA'S ESTIMATE WHICH WAS BASED LARGELY ON EXISTING ITEMS WAS JUSTIFIED.

ALTHOUGH IT DOES APPEAR THAT THE SUBFACTOR OF "MATERIAL LIST" DOES HAVE A RELATIONSHIP TO THE SUBFACTOR OF ENGINEERING MAN-HOURS, WE ARE UNABLE TO AGREE WITH YOUR CONTENTION THAT AN ACCEPTABLE RATING UNDER THIS SUBFACTOR REQUIRES A CORRESPONDING ACCEPTABLE RATING UNDER THE ENGINEERING MAN-HOURS SUBFACTOR.

YOU ALSO ASSERT THAT IN DISQUALIFYING RCA'S PROPOSAL UNDER BOTH THE COST REALISM AND THE ENGINEERING MAN-HOUR SUBFACTORS ECOM ACTED ARBITRARILY. YOU STATE THAT RCA WAS PENALIZED TWICE BECAUSE OF ITS ALLEGED LOW MANPOWER ESTIMATE. YOU CONTEND THAT THE MANPOWER ESTIMATE SHOULD NOT HAVE BEEN CONSIDERED IN CONNECTION WITH THE COST REALISM SUBFACTOR. IN THIS REGARD, YOU CONTEND THAT ECOM VIOLATED THE RULE THAT THE MINIMUM STANDARDS WHICH WILL BE REQUIRED FOR AWARD MUST BE CLEARLY SPELLED OUT IN THE SOLICITATION. ALSO, YOU NOTE THAT THE RFQ PROVIDED THAT AN OFFEROR MUST RECEIVE A RATING OF NO LESS THAN ACCEPTABLE IN EACH OF THE THREE FACTORS, WHILE RCA WAS DISQUALIFIED BECAUSE ITS PROPOSAL WAS DEEMED UNACCEPTABLE UNDER ONLY TWO SUBFACTORS.

SINCE THE ENGINEERING MAN-HOURS AND COST REALISM SUBFACTORS WERE RANKED SECOND IN IMPORTANCE UNDER THEIR RESPECTIVE FACTORS IN THE RFQ IT IS CLEAR THAT THESE SUBFACTORS WERE EXTREMELY IMPORTANT ITEMS TO BE CONSIDERED IN THE AWARD SELECTION. IN THIS REGARD THE RFQ EXPLAINED THAT "PROPOSALS MAY BE PENALIZED TO THE DEGREE PROPOSED COSTS ARE UNREALISTICALLY LOW." OUR OPINION, THEREFORE, AN OFFEROR SHOULD HAVE KNOWN FROM THE CRITERIA SET FORTH IN THE RFQ THAT IF IT PROPOSED UNREALISTICALLY LOW MANPOWER OR COST ESTIMATES THAT THIS WOULD HAVE A SERIOUS IMPACT ON ITS RATING UNDER THE TECHNICAL AND COST PROPOSAL FACTORS.

YOU NEXT URGE THAT THE CONTRACTING OFFICER'S TWO METHODS OF EVALUATING COST REALISM (CONTAINED IN TAB L. OF THE ADMINISTRATIVE REPORT) WERE ERRONEOUS. ONE OF THE METHODS USED WAS BASED ON THE AVERAGE PROPOSED PRICE OF THE OFFERORS. YOU CONTEND THAT THIS METHOD IS INVALID BECAUSE IT COMPARES EACH OFFEROR'S PRICE AGAINST THE AVERAGE PRICE WITHOUT REFERENCE TO THE OFFEROR'S TECHNICAL APPROACH. WE AGREE THAT THIS METHOD DOES NOT ESTABLISH THE COST REALISM OF A PROPOSAL IN TERMS OF THE OFFEROR'S PARTICULAR APPROACH. HOWEVER, AS INDICATED, THE CONTRACTING OFFICER ALSO DETERMINED COST REASONABLENESS ON THE BASIS OF A RANGE OF PLUS OR MINUS ONE-THIRD OF THE IGCE FOR EACH PROPOSAL.

YOU ALSO ATTACK THIS METHOD AS ARBITRARY AND UNREASONABLE. YOU ASSERT THAT RELIANCE BY THE GOVERNMENT ON SUCH AN IMPRECISE ESTIMATE IS INCOMPATIBLE WITH THE USE OF A COST-REIMBURSABLE TYPE CONTRACT. SUPPORT OF THIS POSITION YOU CITE 47 COMP. GEN. 336 (1967) WHEREIN WE HELD THAT IT IS INCONSISTENT FOR AN AGENCY TO USE COST-REIMBURSEMENT CONTRACTING ON THE ONE HAND, WHILE ON THE OTHER HAND MAINTAINING THAT ESTIMATED COSTS ARE CAPABLE OF BEING DETERMINED TO SUCH A DEGREE OF CERTAINTY THAT ANY OFFERED ESTIMATED COSTS OTHER THAN THOSE STATED BY THE GOVERNMENT ARE UNREALISTIC.

IN DETERMINING THE ONE-THIRD RANGE THE RECORD INDICATES THAT THE CONTRACTING OFFICER RELIED ON THE FOLLOWING RATIONALE:

"THE PROCUREMENT IS FOR ED (ENGINEERING DEVELOPMENT) WHICH BY ITS NATURE CONTAINS UNCERTAINTIES. THESE UNCERTAINTIES MAKE TOTAL ACCURACY IN COST FORECASTING BY GOVERNMENT OR INDUSTRY LIKEWISE UNCERTAIN. INDUSTRY MAY BE ABLE TO EFFECT SOME INTERNAL TRADE OFFS AND EFFICIENCIES WHICH WILL BEAR ON TOTAL COST AND CREATE FURTHER DIVERGENCE FROM ANY ESTIMATE MADE PRIOR TO PERFORMANCE. TO COMPENSATE FOR THIS REALITY AND QUANTIFY MY CONFIDENCE LEVEL IN THE GOVERNMENT ESTIMATES, I HAVE DETERMINED THAT, FOR AN EFFORT OF THIS MAGNITUDE, IT IS REASONABLE TO EXPECT ACTUAL COSTS TO BE WITHIN ABOUT ONE-THIRD OF THE GOVERNMENT ESTIMATE, WHICH I BELIEVE REPRESENTS A VERY LIBERAL ESTIMATE. VIEWING THESE LIMITS THERE IS ONLY ONE OFFEROR REASONABLY CLOSE TO THIS TOLERANCE."

IN THE CIRCUMSTANCES, IT APPEARS TO US THAT THE CONTRACTING OFFICER WAS ACTING WITHIN HIS DISCRETION IN ESTABLISHING A RATHER WIDE RANGE TO COMPENSATE FOR WHAT HE CONSIDERED UNCERTAINTIES INHERENT IN THIS TYPE OF ENGINEERING DEVELOPMENT PROGRAM.

FURTHER, WE DO NOT AGREE THAT THE LANGUAGE YOU CITE FROM 47 COMP. GEN. 336, SUPRA, IS DIRECTLY APPLICABLE TO THE CASE AT HAND. IN THAT CASE WE CRITICIZED THE AGENCY FOR ITS FAILURE TO REOPEN NEGOTIATIONS AFTER AGENCY PERSONNEL DETERMINED THAT ALL OFFERORS HAD PROPOSED COST ESTIMATES FOR A COST-TYPE CONTRACT WHICH WERE CONSIDERED TO BE UNREASONABLY LOW. AS A RESULT OF THIS DETERMINATION THE AGENCY BASED ITS AWARD SELECTION SOLELY ON THE PROPOSED FEE FLOOR AND HEALTH BENEFIT COSTS. IT WAS OUR OPINION THAT THIS METHOD OF SELECTION CONSTITUTED A CHANGE IN THE STATED EVALUATION APPROACH THAT WOULD HAVE RESULTED IN A CONTRACT OTHER THAN THAT CONTEMPLATED BY THE SOLICITATION. WE EMPHASIZED IN THAT CASE THAT THE AWARD WAS IMPROPER BECAUSE NONE OF THE OFFERORS WAS GIVEN THE OPPORTUNITY TO JUSTIFY THE REASONABLENESS OF ITS COST ESTIMATES.

IN THE CASE AT HAND, RCA WAS INFORMED OF ECOM'S DOUBTS REGARDING ITS OVERALL COST ESTIMATE AND WAS GIVEN AN OPPORTUNITY TO ESTABLISH THE REASONABLENESS OF ITS COST ESTIMATE. WHILE IT IS TRUE THAT IN THE CITED CASE WE QUESTIONED THE REASONABLENESS OF THE CONTRACTING OFFICER'S PLACING UNDUE RELIANCE ON THE GOVERNMENT'S COST ESTIMATE, IT IS CLEAR THAT THE THRUST OF OUR CRITICISM WAS AIMED AT THE DANGER OF SUCH RELIANCE IN THE ABSENCE OF ADEQUATE COST NEGOTIATIONS.

CONCERNING RCA'S FPI PROPOSAL THE RECORD INDICATES THAT THIS PROPOSAL WAS CONSIDERED BUT ECOM DETERMINED THAT A COST TYPE CONTRACT WOULD BE IN THE GOVERNMENT'S BEST INTEREST. WE HAVE HELD THAT THE DETERMINATION OF THE TYPE OF CONTRACT TO BE NEGOTIATED IS TO BE MADE BY THE AGENCY BASED ON ITS VIEW OF THE GOVERNMENT'S BEST INTEREST. SEE 46 COMP. GEN. 632 (1967) AND 10 U.S.C. 2306(A).

IN REGARD TO THE NEGOTIATIONS HELD IN THIS CASE, WHILE YOU ADMIT THAT ECOM PERSONNEL STATED THAT THEY FOUND RCA'S OVERALL PRICE TO BE LOW, YOU CONTEND THAT THE STATEMENTS OF ECOM PERSONNEL DURING THE NEGOTIATIONS IN CONJUNCTION WITH CERTAIN PROVISIONS OF THE RFQ GAVE THE IMPRESSION OF A STRONG DESIRE ON ECOM'S PART FOR A LOW-COST PROGRAM. THE MEMORANDUM OF NEGOTIATIONS CONTAINED IN THE RECORD BEFORE THIS OFFICE IS SILENT REGARDING THE STATEMENTS YOU ALLEGE WERE MADE BY ECOM PERSONNEL. CONCERNING THE PROVISIONS IN THE RFQ IN REGARD TO COST SAVINGS, IT IS EVIDENT THAT THESE STATEMENTS MUST BE READ IN THE CONTEXT OF THE COST REALISM SUBFACTOR. WE DO NOT BELIEVE IT IS REASONABLE TO CONCLUDE THAT AN OFFEROR COULD SUBMIT AN UNREASONABLY LOW PROPOSAL BECAUSE THE RFQ WARNED AGAINST "GOLD PLATING." ACCORDINGLY, IT IS OUR OPINION THAT RCA WAS ADEQUATELY ADVISED OF ECOM'S MISGIVINGS ABOUT THIS ASPECT OF THE RCA PROPOSAL.

NEXT YOU ARGUE THAT ECOM MAY HAVE INCORRECTLY EVALUATED HUGHES' ENGINEERING MAN-HOUR ESTIMATE. YOU NOTE THAT THE JUNE 5, 1972 EVALUATION REPORT INDICATES THAT HUGHES DID NOT ALTER ITS LEVEL OF EFFORT ESTIMATE IN ITS BEST AND FINAL OFFER. THE JUNE 21, 1972 REPORT, WHICH CONCLUDES THAT THE HUGHES' LEVEL OF EFFORT ESTIMATE MAY BE MARGINAL, LIKEWISE MAKES NO MENTION OF A REDUCTION IN THE HUGHES ESTIMATE. HOWEVER, YOU POINT OUT THE FACT THAT A MEMORANDUM OF A MEETING HELD AT ECOM ON JUNE 8, 1972, STATES THAT HUGHES REDUCED ITS LEVEL OF EFFORT ESTIMATE IN ITS BEST AND FINAL OFFER. IT IS YOUR CONCLUSION THAT ECOM'S ACCEPTANCE OF HUGHES' PROPOSED LEVEL OF EFFORT ESTIMATE MAY HAVE BEEN BASED ON INACCURATE INFORMATION.

A COST ANALYSIS OF THE HUGHES BEST AND FINAL OFFER DATED JUNE 14, 1972 (THE COURT DID NOT ORDER THIS DOCUMENT TO BE RELEASED) INDICATES THAT HUGHES DID REDUCE ITS LEVEL OF EFFORT ESTIMATE TO SOME EXTENT IN ITS BEST AND FINAL OFFER. ALTHOUGH THIS REDUCTION IS NOT REFLECTED IN THE JUNE 5 EVALUATION REPORT IT WAS CONSIDERED IN THE JUNE 14 COST ANALYSIS. WE ARE ALSO INFORMED THAT THIS REDUCTION CAUSED ECOM TO LOWER ITS APPRAISAL OF THE HUGHES' ESTIMATE FROM "ACCEPTABLE" IN THE JUNE 5 EVALUATION REPORT TO "MARGINAL" IN THE JUNE 21 REPORT. IT IS EVIDENT FROM THE ABOVE THAT ECOM WAS AWARE OF THE REDUCTION IN HUGHES' LEVEL OF EFFORT ESTIMATE BUT DID NOT CONSIDER IT SIGNIFICANT ENOUGH TO DISQUALIFY HUGHES.

FURTHER, YOU BELIEVE THE RECORD REVEALS THAT HUGHES WAS PRESELECTED IN THE ABOVE-MENTIONED MEETING HELD ON JUNE 8, 1972, PRIOR TO THE COMPLETION OF THE EVALUATION AND THE AWARD DETERMINATION OF JUNE 21, 1972. IN THIS CONNECTION, YOU CITE THE JUNE 5 TECHNICAL EVALUATION REPORT AS INDICATING THAT WHILE ECOM TECHNICAL PERSONNEL FELT THAT THE RCA LEVEL OF EFFORT ESTIMATE WAS LOW, THEY PROPOSED TO SOLVE THE PROBLEM BY RECOMMENDING THAT THE RISK BE PLACED ON THE CONTRACTOR. IN ADDITION, YOU CONTEND THE JUNE 5 REPORT INDICATES THAT THE ECOM EVALUATORS FELT AT THAT TIME THAT RCA'S MATERIAL AND MANUFACTURING COSTS SHOULD BE ANALYZED IN ORDER TO TEST THE CREDIBILITY OF THE LEVEL OF EFFORT ESTIMATE. YOU ALSO DIRECT OUR ATTENTION TO A MEMORANDUM CONTAINING MINUTES OF THE MEETING OF ECOM PERSONNEL INVOLVED IN THIS PROCUREMENT HELD ON JUNE 8, 1972. THIS MEMORANDUM QUOTES THE RANKING ECOM PROCUREMENT OFFICIAL AT THE MEETING AS ASKING "IF ANYONE HAD RESERVATIONS IF AN AWARD WERE MADE TO HAC." IT IS YOUR CONCLUSION THAT A PREFERENCE FOR HUGHES EXPRESSED AT THE JUNE 8 MEETING RESULTED IN AN ARBITRARY REVERSAL OF THE POSITION TAKEN IN THE JUNE 5 EVALUATION. YOU NOTE THAT THE FINAL TECHNICAL EVALUATION REPORT DATED JUNE 21 INDICATES THAT ECOM THEREAFTER VIEWED ALL THE OFFERORS' PROPOSED MAN-HOUR ESTIMATES (EXCEPT HUGHES) TO BE SO LOW THAT THEIR PROPOSALS WERE UNACCEPTABLE.

WE DO NOT BELIEVE THE RECORD SHOWS THAT HUGHES WAS "PRE-SELECTED" FOR THE AWARD. ALTHOUGH THE JUNE 5 EVALUATION REPORT DOES NOT STATE THAT RCA'S LEVEL OF EFFORT ESTIMATE WAS COMPLETELY UNACCEPTABLE THE JUNE 5 REPORT INCLUDES THE STATEMENT THAT IN ECOM'S VIEW "A STRONG POSSIBILITY EXISTS THAT A CONTRACT WITH ANY OF THESE FIRMS (ITT, GE AND RCA) WILL CULMINATE IN A COST OVERRUN AND A POSSIBLE DELAY IN DELIVERY BECAUSE OF LOW MANPOWER ESTIMATES." FURTHER, THIS REPORT INDICATES THAT IN THE OPINION OF ECOM TECHNICAL PERSONNEL "MAN-POWER ESTIMATES BY RCA REMAIN VERY LOW." IT IS CLEAR THEREFORE, THAT ON JUNE 5 ECOM TECHNICAL PERSONNEL HAD SUBSTANTIAL DOUBTS CONCERNING RCA'S ABILITY TO SUCCESSFULLY PERFORM THE CONTRACT. CANNOT CONCLUDE FROM THE ABOVE THAT ECOM'S ULTIMATE CONCLUSION THAT THE RCA TECHNICAL PROPOSAL WAS UNACCEPTABLE WAS THE RESULT OF IMPROPER SELECTION PROCEDURES.

THROUGHOUT YOUR ARGUMENT YOU HAVE EMPHASIZED THE POINT THAT ECOM WAS ARBITRARY IN IGNORING THE COST SAVINGS INHERENT IN RCA'S LOWER COST ESTIMATE. IN THIS CONNECTION, YOU HAVE CONTENDED THAT EVEN IN AN OVERRUN SITUATION THE ULTIMATE COST TO THE GOVERNMENT WOULD BE LOWER IF THE CONTRACT WERE AWARDED TO RCA. OF COURSE, THIS ARGUMENT IS PREMISED ON YOUR CONCLUSION THAT THE RCA PROPOSAL IS TECHNICALLY ACCEPTABLE AND SUBSTANTIALLY EQUAL TO THE HUGHES PROPOSAL. AS MENTIONED ABOVE, WE FIND NO BASIS TO DISAGREE WITH ECOM'S CONTRARY CONCLUSION. IN THE INSTANT CASE THE HUGHES PROPOSAL WAS SELECTED FOR AWARD BECAUSE IN ECOM'S OPINION IT WAS THE ONLY PROPOSAL WHICH OFFERED AN ACCEPTABLE LEVEL OF EFFORT AND AN ACCEPTABLE COST ESTIMATE. WE HAVE HELD IN A SIMILAR SITUATION THAT THE AWARD OF COST-REIMBURSEMENT CONTRACTS REQUIRES PROCUREMENT PERSONNEL TO EXERCISE INFORMED JUDGMENTS AS TO WHETHER SUBMITTED PROPOSALS ARE REALISTIC CONCERNING THE PROPOSED COSTS AND TECHNICAL APPROACHES INVOLVED. WE BELIEVE THAT SUCH JUDGMENTS MUST PROPERLY BE LEFT TO THE ADMINISTRATIVE DISCRETION OF THE CONTRACTING AGENCIES INVOLVED, SINCE THEY ARE IN THE BEST POSITION TO ASSESS "REALISM" OF COSTS AND TECHNICAL APPROACHES, AND MUST BEAR THE MAJOR CRITICISM FOR ANY DIFFICULTIES OR EXPENSES EXPERIENCED BY REASON OF A DEFECTIVE ANALYSIS. SEE 50 COMP. GEN. 390 (1970).

ALTHOUGH YOU HAVE DISPUTED ECOM'S VIEW AND POINTED OUT SEVERAL SHORTCOMINGS IN ITS EVALUATION OF THE PROPOSALS, WE ARE NOT ABLE TO CONCLUDE THAT ECOM'S SELECTION OF HUGHES WAS ARBITRARY OR OTHERWISE IMPROPER.

ACCORDINGLY, YOUR PROTEST IS DENIED.

ENCLOSED ARE COPIES OF OUR DECISIONS OF TODAY TO ITT AND GE, RESPECTIVELY, IN CONNECTION WITH THEIR PROTESTS UNDER THIS PROCUREMENT.