B-180557, OCT 8, 1974

B-180557: Oct 8, 1974

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SINCE GOVERNMENT'S COST ESTIMATE WAS OF CRITICAL IMPORTANCE IN DETERMINING WHETHER OFFERORS' PROPOSED COSTS WERE WITHIN REASONABLE RANGE OF GOVERNMENT COST ESTIMATE (WORTH 40 PERCENT OF TOTAL EVALUATION WEIGHT ASSIGNED TO COST AREA) IN NEGOTIATED PROCUREMENT ACCORDING 50 PERCENT OF ENTIRE EVALUATION WEIGHT TO COST. GAO CONCLUDES THAT SELECTION OF SUCCESSFUL OFFEROR AND RANKING OF ALL OTHER OFFERORS WAS NOT RATIONALLY FOUNDED WHERE. EITHER ESTIMATE WAS FAULTY OR OFFERED COSTS DID NOT REFLECT FULL UNDERSTANDING OF GOVERNMENT'S REQUIREMENTS. 2. GAO RECOMMENDS THAT PROCURING AGENCY NOT EXERCISE OPTION IN CONTRACT AWARDED WITHOUT RATIONAL FOUNDATION UNDER QUESTIONABLE GOVERNMENT COST ESTIMATE AND THAT IF FURTHER SERVICES ARE NEEDED DURING OPTION PERIOD REQUIREMENT SHOULD BE PROCURED USING GOVERNMENT COST ESTIMATE WHICH IS NOT SUBJECT TO QUESTION.

B-180557, OCT 8, 1974

1. SINCE GOVERNMENT'S COST ESTIMATE WAS OF CRITICAL IMPORTANCE IN DETERMINING WHETHER OFFERORS' PROPOSED COSTS WERE WITHIN REASONABLE RANGE OF GOVERNMENT COST ESTIMATE (WORTH 40 PERCENT OF TOTAL EVALUATION WEIGHT ASSIGNED TO COST AREA) IN NEGOTIATED PROCUREMENT ACCORDING 50 PERCENT OF ENTIRE EVALUATION WEIGHT TO COST, AND IN EVALUATING OTHER COST CONSIDERATIONS AND MANAGEMENT APPROACH IN GENERAL, GAO CONCLUDES THAT SELECTION OF SUCCESSFUL OFFEROR AND RANKING OF ALL OTHER OFFERORS WAS NOT RATIONALLY FOUNDED WHERE, BECAUSE OF UNEXPLAINED 30 PERCENT VARIATION BETWEEN GOVERNMENT ESTIMATED COST AND OFFERED COSTS, EITHER ESTIMATE WAS FAULTY OR OFFERED COSTS DID NOT REFLECT FULL UNDERSTANDING OF GOVERNMENT'S REQUIREMENTS. 2. GAO RECOMMENDS THAT PROCURING AGENCY NOT EXERCISE OPTION IN CONTRACT AWARDED WITHOUT RATIONAL FOUNDATION UNDER QUESTIONABLE GOVERNMENT COST ESTIMATE AND THAT IF FURTHER SERVICES ARE NEEDED DURING OPTION PERIOD REQUIREMENT SHOULD BE PROCURED USING GOVERNMENT COST ESTIMATE WHICH IS NOT SUBJECT TO QUESTION.

VINNELL CORPORATION:

REQUEST FOR PROPOSALS (RFP) DAAK01-74-R-2359 WAS ISSUED BY THE ARMY TROOP SUPPORT COMMAND ON SEPTEMBER 21, 1973, FOR NON-PERSONAL SERVICES NECESSARY TO OPERATE THE GOVERNMENT-OWNED, CONTRACTOR-OPERATED (GOCO) ARMY DEPOT AT CHARLESTON, SOUTH CAROLINA. SPECIFICALLY, THE SERVICES REQUIRED BY THE RFP WERE: (1) THE RECEIPT, PRESERVATION, STORAGE, AND PREPARATION FOR SHIPMENT OF ARMY WATERCRAFT; (2) THE MAINTENANCE AND MINOR REPAIR OF FACILITIES; AND (3) THE SECURITY AND CUSTODY OF A WAREHOUSE AND AN 80-TON RESERVE RAILROAD FLEET. THE PERIOD FOR PERFORMANCE OF THE CONTRACT WAS STATED TO BE 1 YEAR FROM DATE OF AWARD WITH AN OPTION FOR 2 ADDITIONAL YEARS OF SERVICES.

THE PROPOSAL EVALUATION AND AWARD FACTORS FOR THE COST-PLUS-FIXED-FEE CONTRACT TO BE AWARDED FOR THE SERVICES CONSISTED OF COST (WEIGHTED ONE HALF), TECHNICAL (WEIGHTED ONE-QUARTER), AND MANAGEMENT (WEIGHTED ONE QUARTER).

SIX PROPOSALS, INCLUDING OFFERS FROM VINNELL CORPORATION AND GLOBAL ASSOCIATES, WERE RECEIVED BY THE PROCURING ACTIVITY ON NOVEMBER 9, 1973. EACH PROPOSAL WAS SUBSEQUENTLY EVALUATED IN ACCORDANCE WITH A PROPOSAL EVALUATION PLAN, SPECIFICALLY INCLUDING "COST REALISM" CONSIDERATION, PREPARED PRIOR TO THE RFP RELEASE DATE. THIS PLAN ALSO PROVIDED THAT THE DEGREE TO WHICH OFFERED COSTS WERE WITHIN A "REASONABLE RANGE" OF THE GOVERNMENT'S ESTIMATED COST FOR THE SERVICES WAS WORTH 40 PERCENT OF THE TOTAL EVALUATION WEIGHT ASSIGNED TO COST.

VINNELL AND GLOBAL WERE GIVEN VIRTUALLY EQUAL SCORES AS A RESULT OF THIS EVALUATION. THE SCORES AND COSTS PROPOSED WERE:

GLOBAL - COSTS PROPOSED: $880,332

COST (MAXIMUM 500 POINTS) - 380

TECHNICAL (MAXIMUM 250 POINTS) - 209.6 (AVERAGED)

MANAGEMENT (MAXIMUM 250 POINTS) - 243.6 (AVERAGED)

TOTAL - 833.2

VINNELL - COSTS PROPOSED: $426,096

COST - 370

TECHNICAL - 233.4 (AVERAGED)

MANAGEMENT - 231.8 (AVERAGED)

TOTAL - 835.2

PRIOR TO NEGOTIATIONS WITH COMPETITIVE-RANGE OFFERORS, THE ARMY ADVISED VINNELL OF THE "PARTICULAR AREAS OF INTEREST" IT HAD IN THE COMPANY'S PROPOSAL, NAMELY:

"(A) DISCREPANCY BETWEEN ORGANIZATION CHART MANNING OF 58 PERS, WHILE SCHEDULE B TO DD 633 INDICATED 53 PERS, AND TOTAL LABOR HOURS ON SCHEDULE B BREAKS OUT TO APPROXIMATELY 31 PERS.

"E. APPARENT INADEQUACY OF CLERICAL AND ADMINISTRATIVE SUPPORT TO CONTRACT."

"EXPLORATORY" DISCUSSIONS WERE SUBSEQUENTLY HELD WITH VINNELL ON DECEMBER 10, 1973. VINNELL EXPLAINED THAT FULL-TIME MANNING WOULD BE 33 PERSONS AND THAT THE DIFFERENCE BETWEEN ORGANIZATIONAL CHART MANNING AND "COSTED MAN-YEARS MANNING" WAS DUE TO "CROSS-UTILIZATION" OR "MULTI FUNCTIONAL" USE OF EMPLOYEES. VINNELL ALSO PROVIDED "BREAK-OUT" SHEETS TO SHOW HOW LABOR SKILLS WOULD BE CROSS-UTILIZED.

VINNELL INSISTED THAT THE AMOUNT OF SUPERVISORY AND CLERICAL SUPPORT NEEDED FOR THE CONTRACT WAS NOT INADEQUATE CONSIDERING: (1) THE AMOUNT OF AUTHORITY VESTED IN VINNELL'S PROPOSED OPERATIONS MANAGER; (2) THE ALREADY ESTABLISHED RELATIONSHIP BETWEEN SUPERVISORS AND WORKERS; AND (3) THE COMPANY'S PROCEDURE OF HAVING OPERATIONAL WORKERS EXECUTE REPORTS WITHOUT ASSISTANCE OF CLERICAL WORKERS. FURTHER, VINNELL MAINTAINED THAT ITS PROPOSED QUALITY ASSURANCE AND INSPECTION MANNING WAS ADEQUATE AND THAT THE REQUIREMENTS OF THE PROPOSED CONTRACT (IN RELATIONSHIP TO INVENTORY CONTROL, ADMINISTRATIVE SUPPORT, AND INSPECTION) WERE NOT MUCH GREATER THAN THOSE INVOLVED IN RUNNING A "DECENT SIZED MOTOR POOL."

SUBSEQUENTLY, FINAL PROPOSALS WERE EVALUATED. THE RAW SCORE EVALUATOR WORKSHEETS SHOW THAT GLOBAL RECEIVED A 50 PERCENT HIGHER "RAW" SCORE THAN VINNELL RECEIVED FOR PROPOSING "REASONABLE AND REALISTIC" COSTS AND COSTS WHICH WERE WITHIN A REASONABLE RANGE OF GOVERNMENT ESTIMATED COSTS. THE NARRATIVE ACCOMPANYING VINNELL'S SCORE IN THESE AREAS SHOWS THAT THE RAW SCORE EVALUATORS CONSIDERED VINNELL HAD: (1) PROPOSED HOURS AND COSTS THAT WERE "FAR BELOW NORMAL" (I.E., FAR BELOW THE GOVERNMENT ESTIMATE); (2) OMITTED CERTAIN DIRECT COSTS; AND (3) PROPOSED COSTS THAT WERE "FAR BELOW" THE GOVERNMENT'S COST ESTIMATE. BY CONTRAST, THE RAW SCORE EVALUATORS CONSIDERED THAT, ALTHOUGH GLOBAL COULD HAVE BETTER UTILIZED SOME LABOR SKILLS BY USE OF CROSS UTILIZATION OR TEMPORARY EMPLOYEES, GLOBAL'S PROPOSED COSTS WERE IN A "REASONABLE RANGE OF VARIANCE" FROM THE GOVERNMENT COST ESTIMATE.

THE RAW SCORE WORKSHEETS WERE THEN "WEIGHTED" IN ACCORDANCE WITH THE ORIGINAL EVALUATION PLAN. THE FINAL COSTS AND EVALUATED SCORES WERE:

GLOBAL - FINAL COSTS PROPOSED: $824,865

COST - 400

TECHNICAL - 237.3

MANAGEMENT - 247.1

TOTAL - 884.4

VINNELL - FINAL COSTS PROPOSED: $425,512

COST - 300

TECHNICAL - 236

MANAGEMENT - 231.8

TOTAL - 767.8

THE FINAL SCORE EVALUATION WAS SUPPLEMENTED WITH AN EVALUATION MADE BY THE CONTRACT PRICE ANALYST. HE NOTED THAT VINNELL HAD PROPOSED APPROXIMATELY 50 PERCENT FEWER MANNING HOURS THAN THE AVERAGE NUMBER OF MANNING HOURS PROPOSED BY THE OTHER COMPETITIVE RANGE OFFERORS AND THAT VINNELL'S PROPOSAL SHOWED SEVERAL LABOR SKILLS (LOCOMOTIVE ENGINEER, MATERIAL INSPECTOR, RECEIVING SPECIALIST, SHIPPING SPECIALIST) WITH AN "EXTREMELY LOW HOURLY REQUIREMENT."

PRIOR TO AWARD, THE NEGOTIATOR RECEIVED A DOCUMENTED "RECONCILIATION" OF THE GOVERNMENT'S COST ESTIMATE ($1,692,926.02) FOR THE WORK AND THE PROPOSED AWARD PRICE ($824,865). THE SUBSTANTIAL VARIANCE BETWEEN THE COSTS WAS ATTRIBUTED CHIEFLY TO THE GOVERNMENT'S ASSUMPTION THAT GLOBAL PROPOSED A MORE EFFICIENT AND ECONOMICAL USE OF LABOR THAN THAT SET FORTH IN THE GOVERNMENT ESTIMATE IN WORK FUNCTIONS RELATING TO PRESERVATION AND STORAGE, SHIPPING, MAINTENANCE AND OPERATION, AND CUSTODIAL AND SECURITY. AND, IN ANY EVENT, BECAUSE THE GOVERNMENT'S COST ESTIMATE WAS "QUALIFIED TO THE EXTENT OF A VARIATION OF PLUS OR MINUS TWENTY-FIVE PER CENT," GLOBAL'S TOTAL PROPOSED COSTS WERE STILL CONSIDERED TO BE WITHIN A REASONABLE RANGE OF THE ESTIMATE.

AFTER SECURING THE NECESSARY APPROVALS FOR THE PROPOSED AWARD, THE CONTRACTING OFFICER AWARDED THE CONTRACT TO GLOBAL ON JANUARY 24, 1974.

ESSENTIALLY, VINNELL CLAIMS THAT THE DEPARTMENT RELIED ON THE CONTENTS OF AN ERRONEOUS GOVERNMENT COST ESTIMATE TO EVALUATE PROPOSALS. THE EVALUATORS, IN THE PROTESTER'S VIEW, IRRATIONALLY PENALIZED VINNELL IN THE COST AREA FOR PROPOSING HOURS AND COSTS SHARPLY BELOW THE GOVERNMENT ESTIMATE. VINNELL ALSO URGES THAT THE EVALUATORS IRRATIONALLY REWARDED GLOBAL IN THE COST AREA, EVEN THOUGH GLOBAL'S PROPOSED COSTS (APPROXIMATELY $800,000) WERE ROUGHLY 30 PERCENT LOWER THAN THE LOWER RANGE OF THE GOVERNMENT ESTIMATE, AS QUALIFIED, (APPROXIMATELY $1,200,000) BECAUSE GLOBAL'S PROPOSED COST WAS IMPROPERLY CONSIDERED IN A REASONABLE RANGE OF VARIANCE OF THE GOVERNMENT COST ESTIMATE. WE AGREE.

GOVERNMENT COST ESTIMATES MAY PROPERLY BE USED IN DETERMINING THE REALISM OF PROPOSED COST AND TECHNICAL APPROACHES. SEE MATTER OF RAYTHEON COMPANY, B-180414, SEPTEMBER 3, 1974, 54 COMP. GEN. . AND WE HAVE NOTED THAT THE PROCURING AGENCY'S JUDGMENT AS TO THE METHODS USED IN DEVELOPING THE GOVERNMENT'S COST ESTIMATE AND THE CONCLUSIONS REACHED IN EVALUATING PROPOSED COSTS ARE ENTITLED TO GREAT WEIGHT. 54 COMP. GEN., SUPRA; B- 176311(2), OCTOBER 26, 1973.

WE HAVE CAUTIONED, HOWEVER, AGAINST UNDUE RELIANCE ON GOVERNMENT COST ESTIMATES, IN VIEW OF THE PERFORMANCE UNCERTAINTIES INHERENT IN COST TYPE CONTRACTING (47 COMP. GEN. 336 (1967)), AND CRITICIZED USE OF A GOVERNMENT COST ESTIMATE TO EXCLUDE OFFERORS WHOSE PRICES EXCEEDED THE GOVERNMENT COST ESTIMATE BY MORE THAN 10 PERCENT (50 COMP. GEN. 16 (1970)).

THE DEPARTMENT INSISTS THAT ITS INDEPENDENT ESTIMATE, AS QUALIFIED, WAS VALID AND THAT GLOBAL WAS WITHIN A REASONABLE RANGE (30 PERCENT) OF THE LOWER RANGE OF THE ESTIMATE.

IT IS NOT OUR FUNCTION TO DECIDE WHETHER AN INDEPENDENT GOVERNMENT ESTIMATE IS VALID OR WHETHER AN OFFEROR'S PROPOSAL FALLS WITHIN A "REASONABLE RANGE" OF THAT ESTIMATE.

NEVERTHELESS, WE THINK IT IS QUESTIONABLE WHETHER ANY COST PROPOSAL WHICH IS MORE THAN 30 PERCENT BELOW THE LOWER LIMIT OF THE QUALIFIED RANGE OF A GOVERNMENT ESTIMATE CAN BE SAID, WITHOUT FURTHER EXPLANATION, TO BE REASONABLY WITHIN THAT RANGE. THE PRINCIPAL EXPLANATION WHICH THE ARMY TENDERS HERE ARE THE REPEATED STATEMENTS IN THE "RECONCILIATION" OF COSTS MEMO THAT THE DEPARTMENT ASSUMED GLOBAL HAD PROPOSED A "MORE EFFICIENT AND ECONOMICAL USE" OF MANNING. BUT THESE ASSUMPTIONS ARE NOT RELATED TO ANY DETAILED ANALYSES CORROBORATING GLOBAL'S ALLEGED SUPERIOR EFFICIENCY.

WE ALSO NOTE THAT ALL OTHER BEST AND FINAL COST PROPOSALS WERE 30 PERCENT OR MORE BELOW THE GOVERNMENT'S ESTIMATE, AND THAT THE DEPARTMENT DID NOT ATTEMPT TO RESOLVE THE DISCREPANCY BETWEEN THE GOVERNMENT'S COST ESTIMATE AND PROPOSED COSTS THROUGH MEANINGFUL NEGOTIATIONS WITH THESE OFFERORS.

ON THIS RECORD, WE ARE INCLINED TO SHARE VINNELL'S VIEW THAT THE GOVERNMENT'S COST ESTIMATE WAS FAULTY. ON THE OTHER HAND, ONE MIGHT ALSO INFER FROM THE RECORD THAT ALL COST PROPOSALS WERE DEFICIENT AND DID NOT REFLECT A FULL UNDERSTANDING OF WHAT THE GOVERNMENT'S REQUIREMENTS ACTUALLY WERE.

IN ANY EVENT, SINCE THE GOVERNMENT'S COST ESTIMATE WAS OF CRITICAL IMPORTANCE IN DETERMINING SPECIFICALLY WHETHER AN OFFEROR'S PROPOSED COSTS WERE "WITHIN A REASONABLE RANGE OF THE GOVERNMENT COST ESTIMATE" (WORTH 40 PERCENT OF THE TOTAL EVALUATION WEIGHT ACCORDED COST) AND IN EVALUATING OTHER COST CONSIDERATIONS AND MANAGEMENT APPROACH IN GENERAL, WE MUST CONCLUDE THAT THE SELECTION OF GLOBAL AND THE RANKING OF ALL OFFERORS WAS NOT RATIONALLY FOUNDED. EVEN WITH THIS IN MIND, HOWEVER, WE ARE UNABLE TO CONCLUDE THAT VINNELL SUBMITTED THE SUPERIOR PROPOSAL OF ALL OFFERED APPROACHES OR THAT IT SHOULD HAVE RECEIVED THE AWARD.

CONSEQUENTLY, AND RECOGNIZING THAT THE FIRST YEAR OF GLOBAL'S CONTRACT IS SUBSTANTIALLY COMPLETED, WE ARE RECOMMENDING THAT THE DEPARTMENT NOT EXERCISE THE OPTION IN GLOBAL'S CONTRACT AND THAT FURTHER SERVICES BEYOND JANUARY 1975, IF REQUIRED, BE PROCURED USING A GOVERNMENT COST ESTIMATE WHICH IS NOT SUBJECT TO QUESTION.

TO THE EXTENT THE PROTEST REQUESTED OUTRIGHT AWARD TO VINNELL OF THE CONTRACT IN QUESTION, IT IS DENIED.