B-179716, NOV 8, 1974, 54 COMP GEN 352

B-179716: Nov 8, 1974

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DATA - "REALISM" OF COST COST REALISM EVALUATION WHICH CONTAINED IMPROPER UPWARD ADJUSTMENT FOR ERRONEOUSLY DETERMINED OMISSION OF COST FOR TWO EMPLOYEES WAS NOT PREJUDICIAL TO PROTESTER'S POSITION FOR EVEN ASSUMING ALL OTHER COST ADJUSTMENTS TO PROTESTER'S PROPOSAL WERE ERRONEOUS WITH THE EXCEPTION OF STATE TAX. PROPER EVALUATION OF AWARDEE'S COSTS WOULD HAVE INDICATED THAT IT HAD PROPOSED LOWER REALISTIC COST THAN PROTESTER. CONTRACTS - NEGOTIATION - CUT-OFF DATE - COMPLIANCE WITH FORMALITIES ONCE REQUIREMENT FOR MEANINGFUL NEGOTIATIONS HAS BEEN MET AND BEST AND FINAL OFFERS HAVE BEEN SUBMITTED. IT IS INCUMBENT UPON AGENCY TO EVALUATE THESE OFFERS. DOES NOT CONSTITUTE FAILURE TO HAVE MEANINGFUL NEGOTIATIONS.

B-179716, NOV 8, 1974, 54 COMP GEN 352

CONTRACTS - NEGOTIATION - COST, ETC., DATA - "REALISM" OF COST COST REALISM EVALUATION WHICH CONTAINED IMPROPER UPWARD ADJUSTMENT FOR ERRONEOUSLY DETERMINED OMISSION OF COST FOR TWO EMPLOYEES WAS NOT PREJUDICIAL TO PROTESTER'S POSITION FOR EVEN ASSUMING ALL OTHER COST ADJUSTMENTS TO PROTESTER'S PROPOSAL WERE ERRONEOUS WITH THE EXCEPTION OF STATE TAX, PROPER EVALUATION OF AWARDEE'S COSTS WOULD HAVE INDICATED THAT IT HAD PROPOSED LOWER REALISTIC COST THAN PROTESTER. CONTRACTS - NEGOTIATION - CUT-OFF DATE - COMPLIANCE WITH FORMALITIES ONCE REQUIREMENT FOR MEANINGFUL NEGOTIATIONS HAS BEEN MET AND BEST AND FINAL OFFERS HAVE BEEN SUBMITTED, IT IS INCUMBENT UPON AGENCY TO EVALUATE THESE OFFERS, AND AGENCY'S FAILURE TO DISCLOSE QUANTUM OF SUBSEQUENT COST REALISM ADJUSTMENTS, WITH OPPORTUNITY FOR OFFERORS TO POINT OUT ERRORS, DOES NOT CONSTITUTE FAILURE TO HAVE MEANINGFUL NEGOTIATIONS. NEGOTIATION PROCESS CANNOT BE INDEFINITELY EXTENDED FOR PURPOSE OF PROVIDING OFFEROR OPPORTUNITY TO TAKE ISSUE WITH COST REALISM ANALYSIS. CONTRACTS - NEGOTIATION - AWARDS - PROPRIETY - EVALUATION OF PROPOSALS IN REQUEST FOR PROPOSALS (RFP) SETTING FORTH GOVERNMENT'S BEST ESTIMATE OF WORKLOAD AND SKILL REQUIREMENTS (115 MAN-YEARS OF EFFORT) AND FURTHER INDICATING THAT 115 LEVEL IS NOT FIXED BUT SIGNIFICANT DEVIATION MUST BE ADEQUATELY EXPLAINED, AWARD TO CONTRACTOR PROPOSING 104 MAN-YEARS IS NOT IMPROPER SINCE RFP PLACES NO MAN-YEAR FLOOR TO LIMIT PROPOSERS AND ULTIMATE DETERMINATION OF REASONABLENESS AND FEASIBILITY OF ANY OFFEROR'S PROPOSING SIGNIFICANTLY LESS THAN 115 MAN YEARS IS THAT OF TECHNICAL EVALUATORS. MOREOVER, 6 OF 7 PROPOSERS PROPOSED LESS THAN 106 MAN-YEARS AND CONTRACTOR IS NOW PERFORMING SATISFACTORILY AT OR BELOW 104 MAN-YEAR LEVEL. CONTRACTS - NEGOTIATION - "BUYING IN" - LEGALITY IN COST REIMBURSEMENT SITUATION AWARD TO OFFEROR SUBMITTING LOWEST COST CANNOT BE CONSIDERED "BUY-IN" (OFFERING COST ESTIMATE LESS THAN ANTICIPATED COST WITH EXPECTATION OF INCREASING COSTS DURING PERFORMANCE) BECAUSE AGENCY WAS AWARE OF WHAT REALISTIC ESTIMATE COST OF CONTRACTOR'S PERFORMANCE WAS BEFORE AWARD AND MADE AWARD BASED ON THAT KNOWLEDGE.

IN THE MATTER OF BELL AEROSPACE COMPANY; COMPUTER SCIENCES CORP., NOVEMBER 8, 1974:

ON MARCH 6, 1973, THE UNITED STATES ARMY AT WHITE SANDS MISSILE RANGE (WSMR) ISSUED REQUEST FOR PROPOSALS (RFP) NO. DAAD07-73-R-0095. THE RFP SOUGHT PROPOSALS FOR FURNISHING DATA CONVERSION AND ANALYSIS SERVICES AT WSMR FOR A 58 1/2-MONTH PERIOD WHICH INCLUDED CONTRACTOR PHASE-IN. THE RFP INDICATED THAT A COST-PLUS-AWARD-FEE CONTRACT WAS ANTICIPATED.

BY THE CLOSING DATE SET FOR RECEIPT OF PROPOSALS, MAY 4, 1973, SEVEN PROPOSALS WERE RECEIVED, EACH OF WHICH WAS INITIALLY FOUND ACCEPTABLE BY THE SOURCE SELECTION BOARD (SSB). NEGOTIATIONS WERE, THEREFORE, HELD WITH ALL OFFERORS FROM JUNE 28, 1973, THROUGH JULY 19, 1973, WITH BEST AND FINAL OFFERS TO BE RECEIVED BY JULY 31, 1973.

SUBSEQUENT TO RECEIPT OF BEST AND FINAL OFFERS THE SSB PERFORMED ITS FINAL TECHNICAL EVALUATION OF ALL PROPOSALS. MOREOVER, A COST REALISM ANALYSIS WAS PERFORMED WHEREBY "COST ADJUSTMENTS WERE MADE TO THE PROPOSALS *** WHERE NECESSARY TO REFLECT COST REALISM FOR EVALUATION PURPOSES AS STATED IN SECTION D, PARAGRAPH 3, PAGES 15 AND 16 OF THE RFP."

THE REFERENCED COST REALISM PROVISION STATED THAT:

COST REALISM - *** THE CONTRACTOR'S COST PROPOSAL WILL BE EVALUATED TO CONSIDER THE FOLLOWING:

A. ARE THE PROPOSED LABOR COSTS REALISTIC, REASONABLE, AND CONSISTENT WITH THE WORK TO BE PERFORMED AS OUTLINED IN THE OFFEROR'S TECHNICAL PROPOSAL.

B. ARE THE OTHER PROPOSED COSTS REALISTIC, REASONABLE, AND CONSISTENT WITH THE WORK TO BE PERFORMED AS OUTLINED IN THE OFFEROR'S TECHNICAL PROPOSAL.

D. IS THE COST PROPOSAL SUBMITTED BY THE CONTRACTOR COMPLETE AND IN ACCORDANCE WITH THE RFP INSTRUCTIONS.

NOTE: COST/COST REALISM WILL BE AN IMPORTANT FACTOR IN CONTRACTOR SELECTION. THE FOREGOING CRITERIA WILL BE EMPLOYED IN PERFORMING COST EVALUATION TO DETERMINE THE ULTIMATE PROBABLE COST TO THE GOVERNMENT FOR THE PERFORMANCE OF THE CONTRACT. ***

THE RESULTS OF THE SSB'S TECHNICAL EVALUATION WERE AS FOLLOWS:

TECHNICAL SCORE

COMPUTING & SOFTWARE INC. (C&S) 97.2

KENTRON HAWAII, LTD 95.9

LOCKHEED ELECTRONIC 95.3

ITT, FEDERAL ELECTRIC CORPORATION 95.1

BELL AEROSPACE COMPANY 93.7

COMPUTER SCIENCES CORPORATION (CSC) 93.6

CONTROL DATA CORPORATION 89.9

IN A MEMORANDUM DATED AUGUST 22, 1973, THE CONTRACTING OFFICER, SPEAKING OF HIS SELECTION OF A CONTRACTOR FOR AWARD, CHARACTERIZED THE TECHNICAL EVALUATION AS FOLLOWS:

*** THE FINDINGS OF THE SOURCE SELECTION BOARD PRELIMINARY REPORT REVEALED THAT *** THE SPREAD IN THE SCORES INDICATED NO DISCERNIBLE GAP IN THE SCORES. THE SPREAD BETWEEN THE LOW AND HIGH SCORES ASSIGNED BY THE BOARD WAS 7.3 POINTS WITH A LOW OF 89.9 AND A HIGH OF 97.2. THE BOARD CONCLUDED THAT ALL SEVEN OFFERORS HAVE DEMONSTRATED THE ABILITY TO PERFORM THE WORK REQUIRED IN THE SOLICITATION WITH AT LEAST A LOW RISK OF FAILURE OR BETTER. THE NEAR EQUAL SCORES ASSIGNED BY THE SOURCE SELECTION BOARD WERE SUPPORTED IN PART BY THE FOLLOWING OBSERVATIONS MADE AS A RESULT OF A THOROUGH AND DETAILED EVALUATION:

A. ALL OF THE OFFERORS CURRENTLY HOLD SIMILAR CONTRACTS TO THE ONE PROPOSED AND IN GENERAL HAVE HELD THIS TYPE OF CONTRACT FOR MANY YEARS.

B. ALL OF THE PROPOSALS INDICATED AT LEAST A GOOD LEVEL OF UNDERSTANDING OF THE REQUIREMENTS.

IN CONCLUSION, THE BOARD RECOMMENDED THAT COST NEGOTIATIONS BE CONDUCTED WITH ALL OFFERORS.

THE CONTRACTING OFFICER THEN WENT ON IN THIS MEMORANDUM TO RANK FIRMS IN ORDER OF LOWEST REALISTIC COST.

IN OBTAINING AND ACCEPTING FINAL COST REALISM FIGURES, THE CONTRACTING OFFICER PROCEEDED THROUGH A NUMBER OF STEPS. FIRST, AFTER RECEIPT OF BEST AND FINAL OFFERS, MR. ROBERT L. PENN, A CONTRACT PRICE ANALYST TRAINEE, WAS REQUESTED TO PERFORM A COST REALISM ANALYSIS ON THE SEVEN PROPOSALS RECEIVED. (NOTE: MR. ALFREDO VALDEZ, WHO WAS THE WSMR CONTRACT PRICE ANALYST AND A C.P.A., WAS NOT AVAILABLE FOR ASSISTANCE IN THE ANALYSIS AS HIS LAST DAY OF DUTY WAS JULY 13, 1973.) ON AUGUST 2, 1973, MR. PENN PREPARED HIS COST REALISM REPORT (PENN REPORT) WHICH INDICATED THAT C&S HAD GROSSLY UNDERSTATED ITS PAYROLL BURDEN, I.E., FRINGE BENEFIT COSTS, ETC., WHILE ALSO UNDERSTATING CERTAIN OTHER DIRECT COSTS (FN1) PENN CONCLUDED THAT C&S'S REALISTIC COSTS WERE $5,790,971. HE ALSO FELT THAT BELL HAD UNDERSTATED ITS PAYROLL BURDEN AND OTHER DIRECT COSTS BY SIGNIFICANTLY SMALLER SUMS AND STATED THAT BELL'S REALISTIC COSTS WERE $5,654,042.

FN1 PREVIOUSLY, ON JULY 13, 1973, PENN HAD SUBMITTED A COST ANALYSIS REPORT ON C&S INDICATING THAT C&S HAD UNDERSTATED PAYROLL BURDEN BY $118,135.

PENN'S REVIEW OF ALL SEVEN PROPOSALS IS SUMMARIZED AS FOLLOWS:

REALISTIC TECHNICAL

COST SCORE

BELL $5,654,042 93.7

C&S 5,790,971 97.2

KENTRON HAWAII, LTD 6,123,742 95.9

LOCKHEED 6,179,956 95.3

CSC 6,624,207 93.6

ITT, FEDERAL ELECTRIC CORP 6,626,233 95.1

CONTROL DATA 6,974,204 89.9

THIS REVIEW WAS SUBMITTED TO THE CONTRACTING OFFICER ON AUGUST 6, 1973. HOWEVER, ON AUGUST 10, 1973, MR. PABLO B. MONTOYA, ADMINISTRATIVE CONTRACTING OFFICER (ACO) ON THE CONTRACT THEN BEING PERFORMED BY THE INCUMBENT CONTRACTOR (C&S), WROTE A MEMORANDUM AT THE REQUEST OF THE CONTRACTING OFFICER, WHICH OUTLINED HIS EXCEPTIONS TO THE PENN REPORT IN THE AREAS OF FRINGE BENEFITS TO BE PAID. (NOTE THE DEPARTMENT OF LABOR WAGE DETERMINATION INCLUDED IN THIS CONTRACT REQUIRES THAT THE CONTRACTOR PAY $0.46 PER HOUR TO EACH EMPLOYEE IN FRINGE BENEFITS.) PENN HAD ESSENTIALLY CONCLUDED THAT C&S HAD NOT PROVIDED IN ITS COSTS FOR THE FULL PAYMENT OF THE REQUISITE FRINGE BENEFIT PACKAGE.

THE CONTRACTING OFFICER, AFTER EXAMINING THE VIEWS OF PENN AND MONTOYA, THEREAFTER DECIDED THAT FURTHER PRICE ANALYSIS WAS IN ORDER. HOWEVER, SINCE MR. PENN WAS ON ANNUAL LEAVE AND WAS SCHEDULED IMMEDIATELY THEREAFTER TO ATTEND A 2-WEEK PROCUREMENT COURSE AT FORT LEE, VIRGINIA, MR. ROBERT A. MENUSAN, ALSO A COST ANALYST TRAINEE, WAS DESIGNATED TO PERFORM AN INDEPENDENT PRICE ANALYSIS.

MR. MENUSAN'S REPORT DATED AUGUST 17, 1973 (MENUSAN REPORT), INDICATED, AMONG OTHER THINGS, THAT BELL HAD FAILED TO INCLUDE THE SALARIES OF TWO EMPLOYEES IN ITS FINAL COST PROPOSAL. MENUSAN, THEREFORE, FOR PURPOSES OF COST REALISM ANALYSIS, ASSUMED THAT BELL HAD INTENDED TO INCLUDE THESE PERSONNEL AND, ACCORDINGLY, ADJUSTED BELL'S DIRECT LABOR COSTS UPWARD BY $60,251. MOREOVER, DUE TO A REVISION IN BELL'S LABOR MIX, MENUSAN FOUND THAT THE PAYROLL BURDEN RATE SHOULD HAVE BEEN ADJUSTED UPWARD SOMEWHAT. BELL'S COSTS WERE FURTHER ADJUSTED UPWARD BY AN ADDITION TO OTHER DIRECT COSTS. MENUSAN FOUND BELL'S REALISTIC COSTS TO TOTAL $5,723,702.

WITH REGARD TO C&S'S COST PROPOSAL, MENUSAN INITIALLY MADE THE ASSUMPTION THAT C&S WAS INCLUDING IN ITS COSTS THE REQUISITE AMOUNT FOR FRINGE BENEFITS. BASED ON THIS FACT, HE FOUND THAT C&S'S REAL COSTS WERE $5,506,579 WHICH HE RECOGNIZED IN HIS REPORT AS "TENTATIVE." HOWEVER, MENUSAN WENT ON IN HIS REPORT TO ESSENTIALLY REJECT THIS ASSUMPTION AND "*** SIMPLY DETERMINE THE COST IMPACT OF C&S PAYING THE MINIMUM BENEFITS REQUIRED BY LAW." THIS LED TO HIS CALCULATION OF A NEW REALISTIC COST OF $5,729,434 FOR C&S.

MENUSAN'S FINDINGS WERE IN SUMMARY:

REALISTIC TECHNICAL

COST SCORE

BELL $5,723,702 93.7

C&S 5,729,434 97.2

CSC 6,624,207 93.6

MENUSAN, WHILE NOT MAKING ANY RECOMMENDATION, CONCLUDED THAT:

A. BOTH BELL AEROSPACE AND C&S *** (HAD) SUBSTANTIALLY UNDERESTIMATED THE COSTS OF PERFORMANCE ON THIS CONTRACT. HOWEVER, BELL'S UNDERESTIMATION COULD CONCEIVABLY BE PRIMARILY ACCIDENTAL IN NATURE, SINCE THE COST OF THE TWO CLERKS WAS OMITTED FROM THE INITIAL PROPOSAL.

B. ON THE OTHER HAND, THIS OFFICE HAS BEEN WARNED FROM THE START OF THE QUESTIONABLE TACTICS USED BY C&S IN DEVELOPING THEIR PROPOSAL AND OF THE INCONSISTENCIES THAT SEEM TO CONTINUALLY ARISE IN COMPARING THE NEW CONTRACT PROPOSAL TO CURRENT PERFORMANCE.

THE CONTRACTING OFFICER WAS THEREAFTER ADVISED BY THE LEGAL OFFICE THAT SINCE 29 CFR 4.52 (DEPARTMENT OF LABOR (DOL) REGULATIONS RELATING TO THE SERVICE CONTRACT ACT) ALLOWS A CONTRACTOR TO PROVIDE EQUIVALENT FRINGE BENEFITS IN LIEU OF CASH FRINGE BENEFITS, THERE WAS A DISTINCT POSSIBILITY THAT FRINGE BENEFITS PROPOSED BY C&S WERE NOT IDENTIFIED SPECIFICALLY AND/OR SEGREGATED IN ITS COST PROPOSAL BUT WOULD BE PAID AND WERE ALREADY INCLUDED IN C&S'S PROPOSED COSTS. THUS, A REVISED COST ANALYSIS GOING TO THE SPECIFIC ISSUE OF C&S'S FRINGE BENEFITS WAS RECOMMENDED -

BECAUSE THE (THEN) CURRENT CONTRACT WITH C&S EXPIRED 31 AUGUST 1973, THE DIRECTOR OF PROCUREMENT FELT A SPEEDY RESOLUTION OF THIS QUESTION WAS ESSENTIAL. SINCE NO CONTRACT PRICE ANALYST WAS AVAILABLE FOR REVIEW OR DISCUSSION OF THE COST ANALYSIS AT THIS TIME ((MENUSAN HAVING TERMINATED HIS EMPLOYMENT AT WHITE SANDS ON AUGUST 17, 1973)), THE DIRECTOR REQUESTED MR. PABLO B. MONTOYA *** TO MAKE AN INDEPENDENT REVIEW OF THE MENUSAN REPORT AS IT RELATED TO PROPOSED PAYMENT OF FRINGE BENEFITS. ***

MONTOYA ISSUED HIS REPORT ON AUGUST 21, 1973. AFTER A DETAILED DISCUSSION OF THE EQUIVALENCIES OF CERTAIN C&S OFFERED FRINGE BENEFITS WITH THOSE REQUIRED BY THE WAGE DETERMINATION, MONTOYA CONCLUDED THAT IF ADDITIONAL VACATION IN EXCESS OF THAT REQUIRED BY THE WAGE DETERMINATION WAS, AS MONTOYA FELT, A PROPER FRINGE BENEFIT FOR CONSIDERATION OF EQUIVALENCIES, THEN "*** IT PROBABLY WOULD HAVE BEEN ESTABLISHED THAT C&S MEETS THE REQUIREMENT OF $.46 (PER HOUR) AND NO ADJUSTMENT TO LABOR BURDEN WOULD HAVE BEEN NECESSARY. C&S'S REALISTIC COSTS THEN WOULD BE $5,502,225, LESS NEW MEXICO TAX ADJUSTMENTS. (NOTE MENUSAN FOUND C&S'S MOST REALISTIC COST TO BE $5,729,434; PENN SIMILARLY FOUND $5,790,971.)

MONTOYA DID NOTE, HOWEVER, THAT EVEN IF THE EXTRA VACATION WERE NOT CONSIDERED AS AN EQUIVALENT FRINGE BENEFIT, THE NEW C&S REALISTIC COST WOULD BE APPROXIMATELY $5,629,000.

MR. MONTOYA REEMPHASIZED HIS POSITION IN AN AUGUST 24, MEMORANDUM WHERE HE STATES THAT:

3. RELATIVE TO MY PREVIOUS STATEMENT ON FRINGE BENEFITS RESULTING FROM VACATION IN EXCESS OF THAT REQUIRED, IT WAS NOT MY INTENTION TO STATE IN A MANNER TO CAUSE DOUBT IN ANYBODY'S MIND THAT THE REMAINING FRINGE BENEFITS ARE FOR EXCESS VACATION. I AM CERTAIN THAT THE CONTRACTOR IS PROVIDING FRINGE BENEFITS OVER AND ABOVE THAT REQUIRED FOR VACATION. THIS IS REFLECTED IN AND VERIFIABLE TO THE CONTRACTOR'S POLICY. THROUGH A DETAILED COMPUTATION INVOLVING THE VACATION RATES, THE NUMBER OF EMPLOYEES IN THE VARIOUS CATEGORIES, AND THE DIRECT LABOR COSTS, THE EXCESS VACATION FRINGE BENEFITS CAN BE DETERMINED. THE DIRECT LABOR COSTS ARE THE BASE FOR SUCH COMPUTATION BECAUSE THE CONTRACTOR COSTS THE MAXIMUM NUMBER OF MAN-HOURS IN A PERIOD; THEN WHEN VACATION IS TAKEN, HE CREDITS DIRECT LABOR AND DEBITS VACATION.

WITH REGARD TO THE ADJUSTMENT OF BELL'S DIRECT LABOR COSTS, WE NOTE THAT BELL'S REVISED MANNING INDICATED THAT 101 POSITIONS WOULD BE STAFFED. BELL'S REVISED COST PROPOSAL DATED JULY 30, 1973, IN SCHEDULE 2, "SCHEDULE OF DIRECT LABOR EXPENSE," INDICATES THE INCLUSION OF 99 PERSONS IN BELL'S DIRECT LABOR EXPENSE. SIMILARLY, SCHEDULE 2B OF THE REVISED COST PROPOSAL, ENTITLED "RECONCILIATION OF TOTAL AVAILABLE HOURS TO STRAIGHT TIME DIRECT LABOR HOURS," ALSO INDICATES TOTAL PERSONNEL OF 99 AND ALSO TOTAL DIRECT LABOR (STRAIGHT TIME) OF 99. HOWEVER, SCHEDULE 5 OF BELL'S JULY 30 COST PROPOSAL, ENTITLED "SCHEDULE OF ARIZONA HOME OFFICE EXPENSE," CLEARLY INDICATES THAT ESSENTIALLY TWO POSITIONS RELATING TO MANAGEMENT AND PERSONNEL SERVICES WOULD BE PERFORMED OUT OF TUCSON. (FN2)

FN2 ARIZONA HOME OFFICE EXPENSE COVERS THE EXPENSE OF NON-CORPORATE LEVEL MANAGERIAL PERSONNEL WHO WILL EXPEND DIRECT TIME AT THE WHITE SANDS PROJECT AND IN TUCSON, AUDITING AND REVIEWING, WITH THE GOAL OF CONSTANTLY IMPROVING PERFORMANCE IN THE TECHNICAL, MANAGEMENT, QUALITY, AND COST ASPECTS OF THE CONTRACT. IT ALSO INCLUDES THE COST OF DIRECT CHARGE CLERICAL PERSONNEL AT TUCSON WHO WILL BE RESPONSIBLE FOR THE PAYROLL WRITING, LABOR DISTRIBUTION, ACCOUNTS PAYABLE, INVOICING, AND FINANCIAL REPORTING FUNCTIONS OF THE CONTRACT.

BELL'S TOTAL COST SUMMARY (SCHEDULE 1) REFLECTED IN DIRECT LABOR THE 99 PERSONNEL LEVEL ESTABLISHED IN SCHEDULE 2 BUT ALSO CLEARLY INCLUDED THE ARIZONA HOME OFFICE EXPENSE IN ITS DIRECT COST FOR MATERIAL, LABOR AND OTHER EXPENSES PLUS PAYROLL BURDEN.

INDEED, IT WAS UPON THIS BASE FIGURE OF 99 THAT MENUSAN ADDED THE ADJUSTMENTS WHICH HE DEEMED NECESSARY TO ACHIEVE A REALISTIC COST ANALYSIS OF THE BELL PROPOSAL. SPECIFICALLY, MENUSAN INDICATED THAT:

IN THEIR REVISED MANNING PROPOSAL DATED 30 JUL 73, BELL LISTED 101 POSITIONS TO BE STAFFED. HOWEVER, IN THEIR REVISED COST PROPOSAL OF THE SAME DATE, ONLY 99 POSITIONS WERE ACCOUNTED FOR. EXAMINATION AND COMPARISON OF THE MANNING PROPOSAL AND THE COST PROPOSAL REVEALED THAT BELL HAD FAILED TO INCLUDE THE SALARY COSTS OF TWO CLERKS IN THE ADMINISTRATIVE SERVICES GROUP. FOR THE PURPOSES OF EVALUATION, IT MUST BE ASSUMED THAT BELL INTENDED TO INCLUDE THESE CLERKS. ***

MENUSAN ACCORDINGLY MADE AN ADJUSTMENT FOR THIS "ERROR" OF OMISSION IN THE AMOUNT OF A $60,251 INCREASE IN BELL'S DIRECT LABOR COST. COMPARISON OF BELL'S REVISED PROJECT MANNING WITH ITS DIRECT LABOR COST SCHEDULE DOES INDICATE THAT ONE CLERK (ACCOUNTING) AND ONE CLERK (EMPLOYEE RELATIONS) WERE NOT INCLUDED IN BELL'S DIRECT LABOR EXPENSE. HOWEVER, SCHEDULE 5 OF BELL'S COST PROPOSAL DOES INDICATE THAT TWO PERSONS WHOSE SALARIES WERE NOT INCLUDED IN DIRECT LABOR EXPENSE WOULD BE PARTICIPATING IN THE PROJECT OUT OF BELL'S TUSCON OFFICE.

MOREOVER, BELL'S TOTAL LABOR EXPENSE FOR THE TWO PERSONS WORKING OUT OF TUCSON SIGNIFICANTLY EXCEEDED THE $60,251 ADJUSTMENT MADE BY MENUSAN FOR BELL'S OMISSION OF THESE TWO CLERKS.

IT SEEMS, THEREFORE, THAT BELL HAD, IN FACT, AND NOTWITHSTANDING THE MENUSAN VIEW, ACCOUNTED IN ITS COST PROPOSAL FOR EACH OF THE 101 PERSONS LISTED IN ITS REVISED PROJECT MANNING, 99 IN DIRECT LABOR COSTS AND TWO IN THE SCHEDULE OF ARIZONA HOME OFFICE EXPENSE. THE SUBSEQUENT ADDITION OF $60,000 TO BELL'S DIRECT LABOR EXPENSE WITHOUT ANY SIMILAR DEDUCTION OF THE AMOUNT FROM BELL'S STATED ARIZONA HOME OFFICE EXPENSE WAS IMPROPER.

BELL THUS CONCLUDED THAT BASED ON THIS MISTAKE ALONE ITS REALISTIC PRICE BASED ON THE MENUSAN FIGURES IS AT A MINIMUM $65,000 LOWER THAN C&S'S, AND IT CONTENDS FURTHER THAT IN ACTUALITY THE PRICE DIFFERENCE IS SIGNIFICANTLY GREATER THAN THIS AMOUNT.

C&S, ON THE OTHER HAND, CONTENDS THAT THE ARMY HAS IMPROPERLY ADJUSTED ITS COSTS UPWARD BY A SIGNIFICANT AMOUNT AND THAT IF THE PROPER ADJUSTMENT HAD BEEN MADE IT WOULD BE LOWER IN PRICE EVEN ASSUMING THAT BELL HAD BEEN ERRONEOUSLY ADJUSTED UPWARD BY $60,000 IN DIRECT LABOR.

DURING THE PENDENCY OF THIS PROTEST DOL HAS BEEN EXAMINING THE AMOUNT OF FRINGE BENEFITS ACTUALLY BEING PAID BY C&S TO ITS EMPLOYEES. SINCE C&S ARGUES THAT ITS PROPOSED PRICE INCLUDES THE COST OF THE REQUIRED FRINGE BENEFITS, PAYMENT BY THE GOVERNMENT TO C&S AT A RATE COVERING THESE PROPOSED COSTS SHOULD INDICATE THAT C&S IS PAYING THE $0.46 PER HOUR REQUIRED OF IT BY THE WAGE DETERMINATION. THE DOL INVESTIGATION DID NOT, HOWEVER, REVEAL THAT THIS WAS THE CASE; RATHER, DOL HAS FOUND THAT C&S IS DEFICIENT IN AN AMOUNT OF 13.5 CENTS PER HOUR. THUS, C&S'S ACTUAL COSTS ARE 13.5 CENTS PER HOUR MORE THAN ITS PROPOSED COSTS IN THE AREA OF LABOR BURDEN. (FN3) AN ANALYSIS OF THIS ADJUSTMENT TO PROPOSED LABOR BURDEN COSTS WHEN ADDED TO THE OTHER PROPER COST ADJUSTMENTS BY MENUSAN, WHICH HAVE NOT BEEN QUESTIONED BY C&S, INDICATES THAT C&S'S TOTAL REALISTIC COST IS $5,614,027 RATHER THAN THE $5,729,434 INDICATED IN THE MENUSAN REPORT.

ON THE OTHER HAND, IF WE ASSUME THAT IN ADDITION TO THE ABOVE-NOTED $60,000 ALL OTHER COST ADJUSTMENTS MADE BY MENUSAN TO BELL'S PROPOSAL (WHETHER INDEPENDENTLY OR AS A RESULT OF PENN'S IMPROPER ANALYSIS) WERE ERRONEOUS WITH THE EXCEPTION OF THE NEW MEXICO GROSS RECEIPT TAX, THEN BELL'S REALISTIC COSTS WOULD TOTAL $5,622,511 OR $8,484 MORE THAN C&S'S. IN THIS REGARD, BELL ARGUES THAT THE NEW MEXICO GROSS RECEIPT TAX IS NOT APPLICABLE TO ELEMENTS OF THIS PROJECT NOT BEING PERFORMED IN NEW MEXICO (I.E., ADMINISTRATIVE AND TUCSON CLERICAL OPERATIONS). CHAPTER 72 OF THE NEW MEXICO STATUTES AT SECTION 16A-7 PROVIDES:

B. FOR THE PRIVILEGE OF USING SERVICES RENDERED IN NEW MEXICO, THERE IS IMPOSED ON THE PERSON USING SUCH SERVICES AN EXCISE TAX EQUAL TO FOUR PERCENT (4%) OF THE VALUE OF THE SERVICES AT THE TIME THEY WERE RENDERED. THE SERVICES, TO BE TAXABLE UNDER THIS SUBSECTION, MUST HAVE BEEN RENDERED AS THE RESULT OF A TRANSACTION WHICH WAS NOT INITIALLY SUBJECT TO THE GROSS RECEIPTS TAX BUT WHICH TRANSACTION, BECAUSE OF THE BUYER'S SUBSEQUENT USE OF THE SERVICES, SHOULD HAVE BEEN SUBJECT TO THE GROSS RECEIPTS TAX.

THE GOVERNMENT IS PURCHASING SERVICES, INCIDENTAL SUPPORTIVE ELEMENTS OF WHICH (I.E., ADMINISTRATIVE, PAYROLL, MANAGEMENT, AND OTHER G&A OVERHEAD COSTS) WILL BE PERFORMED OUTSIDE NEW MEXICO. THESE INCIDENTAL, OUT-OF- STATE ELEMENTS RATHER THAN BEING "SERVICES" AS DEFINED BY THE STATUTE ARE MORE PROPERLY CONSIDERED SUPPORTIVE ELEMENTS, I.E., LIKE THE USUAL OVERHEAD ELEMENT, WITHOUT WHICH THE INSTATE ELEMENTS COULD NOT BE PERFORMED. CLEARLY, THE GOVERNMENT DOES NOT BUY SUPPORTIVE ELEMENTS IN AND OF THEMSELVES. RATHER, THESE ELEMENTS CONSTITUTE AN INCIDENTAL PORTION OF THE PRICE PAID FOR THE ACTUAL ACCOMPLISHMENT OF THE SPECIFIED TASKS. THEREFORE, FOR PURPOSES OF THE NEW MEXICO LAW, IT APPEARS REASONABLE FOR THE AGENCY TO HAVE INCLUDED THESE INCIDENTAL ELEMENTS IN COMPUTING THE "VALUE OF THE SERVICES" BEING PURCHASED IN NEW MEXICO. SEE M. STEINTHAL & CO., INC. V. SEAMANS, 455 F.2D 1289 (D.C. CIR., 1971).

BELL ADDITIONALLY CONTENDS THAT THE ARMY FAILED TO CONDUCT NEGOTIATIONS AS REQUIED BY 10 U.S.C. 2304(G) IN THAT:

1. AT NO TIME WAS BELL ADVISED OF THE AGENCY'S DOUBTS AS TO THE COST REALISM OF THE BELL PROPOSAL, AND AT NO TIME WAS BELL GIVEN THE OPPORTUNITY TO ESTABLISH THE REASONABLENESS OF SUCH PROPOSAL;

2. THE COST REALISM ADJUSTMENTS WERE MADE IMPROPER WHILE HAVING A MATERIAL IMPACT ON THE AWARD DECISION;

3. THE COST ADJUSTMENT PROCESS HERE PERFORMED WAS DEROGATIVE OF ASPR 3- 804, (1973 ED.), WHICH STATES THAT "COMPLETE AGREEMENT OF THE PARTIES ON ALL BASIC ISSUES SHALL BE THE OBJECTIVE OF THE CONTRACT NEGOTIATIONS. ORAL DISCUSSIONS OR WRITTEN COMMUNICATIONS SHALL BE CONDUCTED WITH OFFERORS TO THE EXTENT NECESSARY TO RESOLVE UNCERTAINTIES RELATING TO THE PURCHASE OR THE PRICE TO BE PAID;" AND

4. THE MENUSAN REPORT WAS PREPARED WITHOUT REGARD TO PRE-BEST-AND FINAL DISCUSSIONS HELD BETWEEN PENN AND BELL (NOTE SUPRA OUR DISCUSSION OF MENUSAN'S $60,000 COST ADJUSTMENT TO BELL'S PROPOSAL).

OUR OFFICE HAS RECOGNIZED THE IMPORTANCE OF ANALYZING PROPOSED COSTS IN TERMS OF THEIR REALISM SINCE, REGARDLESS OF THE ESTIMATE SUBMITTED, THE GOVERNMENT IS IN A COST-REIMBURSEMENT CONTRACT BOUND TO PAY THE CONTRACTOR ACTUAL AND ALLOWABLE COSTS. SEE 50 COMP. GEN. 390 (1970); B 178445, OCTOBER 4, 1973; B-152039, JANUARY 20, 1964. SEE, ALSO, ASPR 3 805.2. THIS RESPECT, IT IS INCUMBENT UPON THE AGENCY TO EXERCISE JUDGMENTS AS TO WHETHER THE COSTS SUBMITTED ARE REALISTIC. MATTER OF RAYTHEON COMPANY, 54 COMP. GEN. 169 (1974); 50 COMP. GEN. 390, SUPRA; B 178445, SUPRA; B- 174003, FEBRUARY 10, 1972.

ALSO, WE NOTE AN EQUALLY IMPORTANT PROVISION IN ASPR 3-804, 32 CFR 3.804 (1973), CITED BY THE PROTESTER, WHICH INDICATES THAT THE PURPOSE OF NEGOTIATIONS IS TO RESOLVE UNCERTAINTIES IN OFFERORS' PROPOSALS AND THUS ELIMINATE THE NECESSITY TO COME TO AGREEMENT AT A LATER TIME.

MOREOVER, CONCERNING THE CONSIDERATION OF COSTS IN COST-REIMBURSEMENT PROCUREMENTS, OUR OFFICE HAS HELD IN 50 COMP. GEN. 739 (1971), AT PAGE 745, THAT:

*** THE TIME FOR EXPLORING THE COST ASPECTS OF A PROPOSAL - THAT IS, ALL PROPOSALS WITHIN A COMPETITIVE RANGE - IS DURING THE COURSE OF NEGOTIATIONS AND NOT AT SOME TIME AFTER THE RECEIPT OF BEST AND FINAL OFFERS. ***

WHILE WE AGREE THAT NEGOTIATIONS ARE NECESSARY TO RESOLVE UNCERTAINTIES RELATING TO THE PURCHASE OR PRICE TO BE PAID, THERE IS A POINT AFTER WHICH COST NEGOTIATIONS MUST BE CONCLUDED AND COST ANALYSIS MUST BEGIN. U.S.C. SEC. 2304(G) (1970) HAS BEEN INTERPRETED SO AS TO REQUIRE CONDUCTING MEANINGFUL NEGOTIATIONS. HOWEVER, ONCE THIS REQUIREMENT HAS BEEN MET AND BEST AND FINAL OFFERS HAVE BEEN RECEIVED, IT IS, IN THE ABSENCE OF MORE, THEN INCUMBENT UPON THE AGENCY TO CONCLUSIVELY EVALUATE THESE BEST AND FINAL OFFERS. WE DO NOT FEEL THAT THE FAILURE TO DISCLOSE THE QUANTUM OF COST ADJUSTMENTS MADE IN COST ANALYSIS OF THE BEST AND FINAL OFFERS, WITH AN OPPORTUNITY FOR THE OFFERORS TO POINT OUT ERRORS, CONSTITUTES A FAILURE TO HAVE MEANINGFUL NEGOTIATIONS.

IN THIS CASE, THE COST REALISM STUDY WAS PERFORMED AFTER SUBMISSION OF BEST AND FINAL OFFERS. WE RECOGNIZE THAT SUCH A STUDY SHOULD BE MADE IN THIS KIND OF SITUATION. ON THE OTHER HAND, THE NEGOTIATION PROCESS CANNOT BE INDEFINITELY EXTENDED FOR THE PURPOSE OF PROVIDING THE OFFEROR AN OPPORTUNITY TO TAKE ISSUE WITH THE COST REALISM STUDY OR ANY OTHER EVALUATION DETERMINATION. IF THE OFFEROR FEELS THAT ANY ASPECT OF THE EVALUATION WAS IMPROPER, HE MAY PROTEST AND THE MATTER WILL BE CONSIDERED.

AS WE HAVE NOTED EARLIER, BASED ON OUR CALCULATIONS AND WITH THE INPUT OF A DOL ANALYSIS, IT APPEARS THAT C&S, THE HIGH TECHNICAL SCORER, WAS ALSO THE LOW-COST OFFEROR; THUS, BY ALL RIGHTS C&S WOULD HAVE RECEIVED AWARD IF A PROPER COST REALISM ANALYSIS HAD OCCURRED. THEREFORE, THE AWARD WHICH WAS MADE TO C&S, THE RIGHTFUL AWARDEE, BUT FOR REASONS NOT KNOWN TO THE AGENCY, SHOULD NOT BE TERMINATED.

IN B-172061, FEBRUARY 22, 1972, WE STATED THAT WHERE AWARD WAS WITHHELD FROM A BIDDER PRIMARILY FOR REASONS WHICH MAY HAVE BEEN "INAPPROPRIATE" BUT THERE EXISTED ANOTHER VALID BASIS FOR REJECTING THE BIDDER, THE DETERMINATION NOT TO AWARD WAS NOT ARBITRARY OR CAPRICIOUS. IN THE INSTANT CASE, WHILE THE AGENCY DID ACT IMPROPERLY IN A NUMBER OF RESPECTS, NO SINGLE ACT OR OMISSION OR ANY COMBINATION THEREOF APPEARS TO BE SO GROSS AS TO RENDER THE AWARD TO C&S ILLEGAL. THEREFORE, IN DECIDING WHETHER TO RECOMMEND TERMINATION OF THE CONTRACT OUR OFFICE MUST TAKE INTO ACCOUNT ANY PREJUDICE THESE IMPROPER ACTS HAD ON THE PROTESTING PARTIES. SINCE WE HAVE CONCLUDED ABOVE THAT EVEN ACCEPTING ALMOST IN TOTO BELL'S ARGUMENTS ABOUT THE IMPROPER QUANTUM OF COST ADJUSTMENTS TO ITS PROPOSAL, C&S'S PROPERLY CALCULATED COSTS WERE LESS THAN BELL'S, WE FAIL TO SEE ANY PREJUDICE RESULTING TO BELL EVEN THOUGH THE AGENCY DID NOT ACT IN ACCORDANCE WITH PROPER PROCEDURES.

CSC ARGUES THAT THE AGENCY HAS ACTED IMPROPERLY IN ACCEPTING A PROPOSAL WHICH OFFERED A LEVEL OF EFFORT OF LESS THAN 115 MAN-YEARS. THE RFP, AS NOTED ABOVE, CALLED FOR DATA CONVERSION AND ANALYSIS AND OTHER ASSOCIATED SERVICES IN ACCORDANCE WITH WSMR PURCHASE DESCRIPTION 1963-73 DATED DECEMBER 15, 1972. SECTION "J" OF THE RFP SETS OUT THE LEVEL OF EFFORT CONTEMPLATED WHICH WAS BASED ON HISTORICAL DATA. THE LEVEL OF WORK SET FORTH THEREIN "REPRESENTS THE GOVERNMENT'S BEST ESTIMATE OF WORKLOAD AND SKILL REQUIREMENTS."

SECTION "J" ALSO INDICATES THAT THE ORGANIZATIONAL STRUCTURE TO PERFORM THE REQUIRED SERVICES IS TO BE DETERMINED BY THE CONTRACTOR BUT AT THE SAME TIME LISTS ALL THE SKILL REQUIREMENTS NECESSARY TO ACCOMPLISH THE JOB OR PROJECT FUNCTIONS NECESSARY. EACH PROJECT FUNCTION TO BE PERFORMED IS SET OUT USUALLY WITH GENERAL ESTIMATES OF THE MANPOWER REQUIRED FOR EACH FUNCTION AND/OR THE AVERAGE ESTIMATED DAILY AMOUNT OF WORK ASSIGNED TO EACH JOB FUNCTION TOGETHER WITH THE HISTORICAL PRODUCTIVITY OF INDIVIDUALS PERFORMING WITHIN THE GIVEN PROJECT FUNCTION.

MOREOVER, THE SECTION SETS FORTH AN ANNUAL TOTAL REQUIREMENT OF 239,200 MAN-HOURS WHICH IS THE EQUIVALENT TO 115 MAN-YEARS AT 2,080 HOURS PER MAN- YEAR.

DURING THE QUESTION AND ANSWER SESSION AND SITE INSPECTION HELD ON MARCH 27, 1973, ALL POTENTIAL OFFERORS WERE ALLOWED TO POSE QUESTIONS AT EACH WORKSITE. ATTENDEES WERE REQUESTED BY THE AGENCY TO SUBMIT THEIR QUESTIONS TO THE PROCUREMENT ACTIVITY IN WRITING SO THAT BOTH THE QUESTIONS AND ANSWERS COULD BE INCORPORATED BY AMENDMENT INTO THE RFP. AN AMENDMENT DATED APRIL 11, 1973, 35 QUESTIONS WERE SO INCORPORATED. NUMBER OF THESE QUESTIONS DEALT WITH WORKLOAD AND GENERAL AREAS OF CONTRACTOR RESPONSIBILITY FOR PERFORMANCE. SPECIFICALLY, QUESTION 23 STATED:

IS 115 (MAN-YEAR) PERSONNEL FIXED OR APPROXIMATE TO ALLOW FOR OFFEROR'S ESTIMATE?

ANSWER: THE 115 PERSONNEL IS NOT FIXED BUT IS THE GOVERNMENT'S ESTIMATE OF THE PERSONNEL REQUIRED TO PERFORM THE WORK DESCRIBED IN THE RFP. ANY SIGNIFICANT DEVIATIONS MUST BE ADEQUATELY DESCRIBED IN THE OFFEROR'S PROPOSAL.

CSC CONTENDS THAT BY AWARDING THE CONTRACT TO C&S WITH A LEVEL OF EFFORT SIGNIFICANTLY BELOW THE 115 LEVEL, THE AGENCY HAS ACTED IMPROPERLY. CSC IMPLIES THAT NEITHER THE RFP NOR A SITE VISIT COULD HAVE GIVEN AN OFFEROR SUFFICIENT INFORMATION UPON WHICH IT COULD SUBMIT A PROPOSAL CORRESPONDING TO THAT WHICH THE ARMY WAS IN ACTUALITY SEEKING. THIS, IT IS ALLEGED, RESULTED IN AN UNFAIR ADVANTAGE FOR THE INCUMBENT CONTRACTOR (C&S). CSC SUGGESTS THAT WITHOUT A FIXED AND INFLEXIBLE MINIMUM LEVEL OF EFFORT MEANINGFUL NEGOTIATIONS ARE NOT POSSIBLE.

IT IS TRUE THAT IN MANY SITUATIONS INCUMBENT CONTRACTORS EXPERIENCED IN THE NUANCES OF A PARTICULR INSTALLATION OR FACILITY DO IN FACT HAVE A COMPETITIVE EDGE. SEE 53 COMP. GEN. 198 (1973). THIS ADVANTAGE, HOWEVER, DOES NOT COME ABOUT NECESSARILY THROUGH ANY IMPROPRIETY ON THE PART OF THE AGENCY BUT MERELY FLOWS TO A REASONABLY PRUDENT BUSINESSMAN (SMALL OR LARGE) WHO MAY HAVE ACQUIRED BY HIS INCUMBENCY A SOMEWHAT UNIQUE UNDERSTANDING OF THE CONTRACT REQUIREMENTS AT THE GIVEN INSTALLATION.

THE INSTANT RFP PROVIDES NO MAN-YEAR FLOOR TO LIMIT THE PROPOSERS. FURTHER DOES NOT REQUIRE ANY OFFEROR TO JUSTIFY BUT MERELY DESCRIBE ITS UTILIZATION OF LESS THAN 115 MAN-YEARS, UNLIKE THE SITUATION SET FORTH IN 53 COMP. GEN. 198, SUPRA. THE ULTIMATE DETERMINATION AS TO THE REASONABLENESS AND FEASIBILITY OF ANY OFFEROR'S PROPOSING SIGNIFICANTLY LESS THAN THE 115 MANNING LEVEL IS THAT OF THE TECHNICAL EVALUATORS, AND OUR OFFICE DOES NOT PROPOSE TO CHALLENGE THEIR FINDINGS WHERE IT APPEARS THAT SIX OUT OF SEVEN PROPOSALS SUBMITTED INDICATED MANNING WITHIN A RANGE OF 101-106 MAN-YEARS, WHILE ONLY CSC PROPOSED 115 MAN-YEARS. INDEED, IT APPEARS THAT C&S IS PERFORMING QUITE ADEQUATELY AT, OR EVEN BELOW, ITS LEVEL OF EFFORT OF 104 MAN-YEARS. WE OBSERVE IN THIS RESPECT THAT BELL PROPOSED ONLY 101 MAN-YEARS. THE ABOVE-NOTED FACTS CLEARLY INDICATE THAT MOST OFFERORS, AND NOT JUST THE INCUMBENT, REALIZED THAT CERTAIN LABOR SAVING TECHNIQUES COULD BE APPLIED TO THE PROJECT WITHOUT COMPROMISING PERFORMANCE. CSC'S ARGUMENT THAT A SPECIFIC LEVEL OF EFFORT FLOOR SHOULD BE REQUIRED OVERLOOKS THE BENEFIT TO THE GOVERNMENT OF HAVING EXPERIENCED OFFERORS UTILIZE THEIR RESPECTIVE EXPERTISES TO DETERMINE HOW TO REDUCE LABOR AND HENCE LABOR COST. IN 53 COMP. GEN. 198, SUPRA, AT PAGE 200, IN ANALOGOUS CIRCUMSTANCES WE HELD WITH RESPECT TO OFFEROR-PROPOSED EFFICIENCIES THAT:

IT IS CLEAR FROM THE LANGUAGE OF THE SOLICITATION THAT ANY PROPOSAL WHICH COULD LESSEN THE NUMBER OF MAN-HOURS REQUIRED AND THUS REDUCE THE TOTAL COST WAS DESIRABLE. *** THIS UNAMBIGUOUS PROVISION OF THE SOLICITATION ALLOWED ALL PARTICIPANTS THE SAME OPPORTUNITY TO SUBMIT OFFERS DEVIATING FROM THE GOVERNMENT ESTIMATE OF MAN-HOURS. ***

IN THAT CASE, LIKE THE PRESENT ONE, A MAJORITY OF OFFERORS DID PRESENT OFFERS BELOW THE GOVERNMENT ESTIMATE. WHILE THE NATURE OF THE SERVICES IN 53 COMP. GEN., 198, SUPRA, AND THE INSTANT SOLICITATION ARE QUITE DIVERGENT, WE STILL DO NOT FEEL THAT WHERE THE GOVERNMENT IN GOOD FAITH GIVES ITS BEST ESTIMATE OF THE MANNING TO BE PERFORMED BUT CERTAIN OFFERORS INDICATE THAT THEY CAN PERFORM ADEQUATELY WITH SUBSTANTIALLY FEWER HOURS THAN THE GOVERNMENT HAS ESTIMATED, THE GOVERNMENT HAS ANY FURTHER OBLIGATION EITHER TO RESTRICT THE MANAGEMENT CAPABILITIES OF THESE FIRMS BY ESTABLISHING A MAN-HOUR FLOOR OR NECESSARILY TRANSFUSING THE CAPABILITIES OF THESE LOW MAN-HOUR OFFERORS BY AMENDING THE GOVERNMENT'S GOOD FAITH BEST ESTIMATE. SEE MATTER OF ABC MANAGEMENT SERVICES, INC. ET AL., 53 COMP. GEN. 656 (1974). SEE, ALSO 53 COMP. GEN. 198, SUPRA.

CSC FURTHER ALLEGES THAT THE CONTRACTOR HAS ESSENTIALLY BOUGHT IN, IN THAT THE ARMY AWARDED C&S A COST CONTRACT AT A PRICE WHICH DOES NOT ENABLE C&S TO PAY BOTH THE BASIC WAGE AND THE FRINGE BENEFITS SET FORTH IN THE DOL WAGE DETERMINATION. THUS, CSC CONCLUDES THAT THE CONTRACTOR WILL ATTEMPT TO RECOUP THE BALANCE OF HIS ACTUAL COSTS AFTER AWARD AND IMPLIES THAT THESE ACTUAL COSTS WOULD BE HIGHER THAN THOSE OF OTHER PROPOSERS.

AS NOTED ABOVE, IT IS PRECISELY FOR SITUATIONS SUCH AS THIS THAT AGENCIES CONDUCT COST REALISM EVALUATIONS. SPECIFICALLY, ARMED SERVICES PROCUREMENT REGULATION (ASPR) 3-805.2 (1973 ED.) RELATING TO COST- REIMBURSEMENT TYPE CONTRACTS STATES THAT:

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 (A) THE LOWEST PROPOSED COST, (B) THE LOWEST PROPOSED FEE, OR (C) 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 OVER RUNS. 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 S3.808 OF THIS SUBPART). 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.

NOTE ASPR 3-807.2(A) REQUIRES SOME FORM OF PRICE OR COST ANALYSIS IN CONNECTION WITH EVERY NEGOTIATED PROCUREMENT TO ASSURE REASONABLNESS OF THE PRICING RESULT.

SINCE OUR CALCULATIONS USING DOL FINDINGS FOR FRINGE BENEFIT UNDERPAYMENT AS NOTED ABOVE INDICATE THAT C&S'S REALISTIC COSTS ARE LOWER THAN THE REALISTIC COSTS OF ANY OTHER PROPOSER, WE SEE NO BASIS TO SUPPORT THE ALLEGATION THAT C&S ATTEMPTED TO OBTAIN THE AWARD BY KNOWINGLY OFFERING A COST ESTIMATE LESS THAN ANTICIPATED COST WITH THE EXPECTATION OF INCREASING ITS ESTIMATED COST DURING PERFORMANCE. FIRST, C&S KNEW FROM THE RFP THAT ITS COSTS WOULD BE SUBJECT TO ANALYSIS FOR REALISM; SECOND, THE GOVERNMENT WAS AWARE OF WHAT THE REALISTIC ESTIMATE OF THE COST OF C&S'S PERFORMANCE WAS BEFORE AWARD AND MADE AWARD BASED ON THAT KNOWLEDGE. (INDEED, THE GOVERNMENT HAD, IN RETROSPECT, BEEN OVERLY CAUTIOUS IN CALCULATING THE REALISTIC COSTS OF C&S'S PERFORMANCE.)

FOR THE REASONS NOTED ABOVE, THE PROTESTS OF BELL AND CSC ARE DENIED.