B-181075, OCT 30, 1974

B-181075: Oct 30, 1974

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IT WAS NOT UNREASONABLE FOR THE CONTRACTING OFFICER TO ADJUST THE PROTESTER'S COST PROPOSAL OF $841. ON THE BASIS THAT ITS LACK OF COST REALISM IN CERTAIN AREAS INDICATED AN ULTIMATE COST TO THE GOVERNMENT GREATER THAN THAT PROPOSED IF AN AWARD WERE MADE TO THE PROTESTER. REQUEST FOR PROPOSALS (RFP) NO. 10-2-0045-4 WAS ISSUED BY THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA). THREE PROPOSALS WERE RECEIVED. EACH OF WHICH WAS FOUND TECHNICALLY ACCEPTABLE. THE LOWEST ESTIMATED COST PLUS FEE WAS SUBMITTED BY SCOTT SERVICES. IT WAS NASA'S INTENT UPON RECEIPT OF THE THREE ACCEPTABLE PROPOSALS TO AWARD THE CONTRACT ON THE BASIS OF THE LOWEST PROBABLE COST. THE EVALUATION OF THE PROPOSALS AND THE SELECTION FOR AWARD WERE IN ACCORDANCE WITH NASA PROCUREMENT REGULATION SEC. 3.804-2 (1970 ED.

B-181075, OCT 30, 1974

IN EVALUATING COST PROPOSALS IN CONNECTION WITH THE AWARD OF A COST PLUS- FIXED-FEE CONTRACT, IT WAS NOT UNREASONABLE FOR THE CONTRACTING OFFICER TO ADJUST THE PROTESTER'S COST PROPOSAL OF $841,434 UPWARD BY $37,519, ON THE BASIS THAT ITS LACK OF COST REALISM IN CERTAIN AREAS INDICATED AN ULTIMATE COST TO THE GOVERNMENT GREATER THAN THAT PROPOSED IF AN AWARD WERE MADE TO THE PROTESTER.

SCOTT SERVICES, INCORPORATED:

ON OCTOBER 29, 1973, REQUEST FOR PROPOSALS (RFP) NO. 10-2-0045-4 WAS ISSUED BY THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA), KENNEDY SPACE CENTER, FLORIDA. THE RFP SOLICITED COST-PLUS-FIXED-FEE PROPOSALS FOR FURNISHING THE NECESSARY MANAGEMENT, PERSONNEL, FACILITIES AND EQUIPMENT TO PROVIDE THE MAIL AND DISTRIBUTION SUPPORT SERVICES AT THE CENTER.

BY THE EXTENDED CLOSING DATE SET FOR RECEIPT OF PROPOSALS, DECEMBER 10, 1973, THREE PROPOSALS WERE RECEIVED, EACH OF WHICH WAS FOUND TECHNICALLY ACCEPTABLE. THE LOWEST ESTIMATED COST PLUS FEE WAS SUBMITTED BY SCOTT SERVICES, INCORPORATED (SCOTT) IN THE AMOUNT OF $841,434. IT WAS NASA'S INTENT UPON RECEIPT OF THE THREE ACCEPTABLE PROPOSALS TO AWARD THE CONTRACT ON THE BASIS OF THE LOWEST PROBABLE COST. THE EVALUATION OF THE PROPOSALS AND THE SELECTION FOR AWARD WERE IN ACCORDANCE WITH NASA PROCUREMENT REGULATION SEC. 3.804-2 (1970 ED. REV. 4), WHICH WAS INCORPORATED BY REFERENCE, IN THE RFP. FURTHERMORE, THE RFP INFORMED ALL PROSPECTIVE OFFERORS THAT "REALISM OF COST ELEMENTS" CARRIED A RELATIVE WEIGHT OF "1", THE HIGHEST OF ANY OF THE FACTORS TO BE CONSIDERED IN EVALUATING THE PROPOSALS.

IN ACCORDANCE WITH NASA PR SEC. 3-801.2(D) (1970 ED. REV. 6), THE CONTRACTING OFFICER (THE SOURCE SELECTION OFFICIAL), REQUESTED AND RECEIVED A COST ANALYSIS OF ALL THREE PROPOSALS. THE ANALYSIS, WHICH INCLUDED "PROBABLE COSTS AND FEES TO THE GOVERNMENT", WAS REQUIRED BECAUSE THE RFP SOLICITED A PRICE PROPOSAL FOR THE FIRST TWELVE MONTHS OF OPERATION AND A PRICED OPTION FOR THE SECOND TWELVE-MONTH PERIOD. SCOTT, AFTER CONSIDERATION OF THE "PROBABLE COSTS AND FEE" DELINEATED IN THE COST ANALYSIS, BECAME THE SECOND LOW OFFEROR.

DURING SUBSEQUENT ORAL DISCUSSIONS, EACH OFFEROR RECEIVED TECHNICAL AND COST QUESTIONS PERTINENT TO ITS PARTICULAR PROPOSAL WHICH WERE RAISED BY NASA CONTRACTING OFFICIALS. EACH OFFEROR WAS REQUESTED TO FURNISH WRITTEN RESPONSES TO THE QUESTIONS TO BE SUBMITTED, TOGETHER WITH ITS BEST AND FINAL OFFER, BY APRIL 2, 1974. AFTER RECEIPT OF BEST AND FINAL OFFERS, THE CONTRACTING OFFICER REQUESTED A SECOND COST ANALYSIS AS TO THE PROBABLE COSTS WHICH WOULD BE INCURRED WITH EACH OFFEROR. UPON THE BASIS OF THIS INFORMATION, THE CONTRACTING OFFICER ADJUSTED EACH OF THE THREE PROPOSALS IN ORDER TO ASSESS ITS PROBABLE COST TO THE GOVERNMENT.

AS A RESULT OF THE ABOVE, THE APPARENT LOW OFFER SUBMITTED BY SCOTT WAS SUPPLANTED BY THE LOWER PROBABLE COST PROPOSAL OF ATLANTIC TECHNICAL SERVICES, INCORPORATED (ATLANTIC), AS REFLECTED IN THE CHART BELOW:

PROPOSED COSTS PROBABLE COSTS

ATLANTIC TECHNICAL SERVICES, INC. $865,038 $869,547

SCOTT SERVICES, INC. $841,434 $878,963

NEW WORLD SERVICES, INC. $891,542 $889,910

THE CONTRACTING OFFICER PROPOSES TO MAKE AWARD TO ATLANTIC, THE INCUMBENT CONTRACTOR, BECAUSE IN HIS JUDGMENT THAT OFFER WILL RESULT IN THE LOWEST PROBABLE COST TO THE GOVERNMENT. SCOTT PROTESTED THE PROPOSED AWARD, AND PENDING RESOLUTION OF SCOTT'S PROTEST, ATLANTIC IS FURNISHING THE REQUIRED SERVICES UNDER AN INTERIM CONTRACT.

SCOTT CONTENDS THAT IT SHOULD RECEIVE THE AWARD BECAUSE IT SUBMITTED THE LOW, ACCEPTABLE OFFER; THAT THE CONTRACTING OFFICER HAD NO AUTHORITY TO UNILATERALLY ADJUST ITS COST PROPOSAL WITHOUT ITS KNOWLEDGE OR APPROVAL; THAT THE ADJUSTMENTS WERE MADE IN ORDER TO ASSURE AWARD TO THE INCUMBENT CONTRACTOR; AND THAT THE ADJUSTMENTS TO ITS COST PROPOSAL WERE MADE BY THE CONTRACTING OFFICER UNREASONABLY.

SCOTT DID SUBMIT THE LOWEST ESTIMATED COST PLUS FEE. HOWEVER, AS IS APPROPRIATE FOR COST-REIMBURSEMENT TYPE CONTRACTS, AND AS THE OFFERORS WERE SPECIFICALLY ADVISED BY THE SOLICITATION, THE REALISM OF THEIR PROPOSED COSTS WAS SUBJECTED TO AN INDEPENDENT ANALYSIS BY THE PROCURING AGENCY. THE CONTRACTING OFFICER CONCLUDED THAT SCOTT HAD UNDERSTATED ITS PROBABLE COSTS BY $37,529, AND THAT AMOUNT WAS ADDED TO SCOTT'S PROPOSAL FOR EVALUATION PURPOSES. OUR REVIEW OF THE RECORD DOES NOT REVEAL THAT THIS EVALUATION WAS MADE FOR THE PURPOSE OF ASSURING AWARD TO ATLANTIC. THUS, THE SOLE ISSUE FOR OUR CONSIDERATION IS WHETHER THE CONTRACTING OFFICER'S EVALUATION OF THE COST REALISM OF SCOTT'S PROPOSAL WAS UNREASONABLE.

INITIALLY, WE SHOULD POINT OUT THAT IT IS NOT OUR FUNCTION TO EVALUATE PROPOSALS IN ORDER TO DETERMINE WHICH PROPOSAL SHOULD BE SELECTED FOR AWARD. IN OUR DECISION WHICH IS REPORTED AT 50 COMP. GEN. 390, 410 (1970), WE STATED:

"OUR OFFICE HAS NOTED 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 APPROACH INVOLVED. B-152039, JANUARY 20, 1964. WE BELIEVE THAT SUCH JUDGMENT 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 COST ANALYSIS."

THEREFORE, IT IS OUR VIEW THAT THE ADMINISTRATIVE JUDGMENT IN THESE MATTERS IS ENTITLED TO GREAT WEIGHT AND SHOULD NOT BE DISTURBED UNLESS SHOWN TO BE ARBITRARY. 52 COMP. GEN. 198, 205 (1972). THE PROPRIETY OF OF USING INDEPENDENT GOVERNMENT COST ESTIMATES AS AN AID IN DETERMINING THE REASONABLENESS AND REALISM OF COST AND TECHNICAL APPROACHES HAS BEEN APPROVED IN SEVERAL OF OUR DECISIONS. MATTER OF RAYTHEON CO., B-180414, SEPTEMBER 3, 1974, 54 COMP. GEN. .

FROM OUR REVIEW OF THE RECORD AND FOR THE REASONS SET FORTH BELOW, WE CONCLUDE THAT NO BASIS EXISTS FOR OBJECTING TO THE "COST REALISM" ADJUSTMENTS MADE TO SCOTT'S PROPOSAL.

SCOTT FIRST CONTENDS THAT THE CONTRACTING OFFICER'S UPWARD ADJUSTMENT OF ITS PROPOSED WAGE RATES BY $6,268 WAS NOT PROPER.

THE INSTANT PROCUREMENT WAS DEEMED TO BE SUBJECT TO THE SERVICE CONTRACT ACT OF 1965, 41 U.S.C. SEC. 351 (1970 ED.). PURSUANT TO THAT ACT, THE RFP WAS ACCOMPANIED BY A DEPARTMENT OF LABOR WAGE DETERMINATION ESTABLISHING THE MINIMUM MONETARY WAGES AND FRINGE BENEFITS TO BE RECEIVED BY SOME OF THE CLASSES OF EMPLOYEES NEEDED FOR PERFORMANCE OF THE CONTRACT. THE MINIMUM MONETARY WAGES AND FRINGE BENEFITS OF THE REMAINING CLASSES OF EMPLOYEES SUBJECT TO THE ACT HAD TO BE "CONFORMED" TO THOSE LISTED IN THE WAGE DETERMINATION, THAT IS:

"*** CLASSIFIED BY THE CONTRACTOR SO AS TO PROVIDE A REASONABLE RELATIONSHIP BETWEEN SUCH CLASSIFICATION AND THOSE LISTED IN THE (WAGE DETERMINATION), AND SHALL BE PAID SUCH MONETARY WAGES AND FURNISHED SUCH FRINGE BENEFITS AS ARE DETERMINED BY AGREEMENT OF THE INTERESTED PARTIES, WHO SHALL BE DEEMED TO BE THE CONTRACTING AGENCY, THE CONTRACTOR, AND THE EMPLOYEES WHO WILL PERFORM ON THE CONTRACT OR THEIR REPRESENTATIVES." CFR SEC. 4.6(B)(2) (1973).

SCOTT'S PROPOSAL WAS BASED UPON THE ASSUMPTION THAT 80 PERCENT OF THE INCUMBENT CONTRACTOR'S EMPLOYEES WOULD REMAIN TO WORK FOR SCOTT IF IT BECAME THE SUCCESSOR CONTRACTOR. HOWEVER, FOR 4 OF THE "CONFORMED" CLASSIFICATIONS ENCOMPASSING 10 OF THE 37 EMPLOYEES TO PERFORM THE CONTRACT, SCOTT PROPOSED LOWER WAGE RATES THAN THOSE THEN BEING PAID OR PROPOSED BY THE INCUMBENT CONTRACTOR. IN EVALUATING THE COST REALISM OF SCOTT'S PROPOSAL, THE CONTRACTING OFFICER HAD TO JUDGE THE LIKELIHOOD OF THE INCUMBENT EMPLOYEES WORKING FOR SCOTT AT WAGES LESS THAN THEY HAD BEEN PAID. IT IS REPORTED BY NASA THAT SCOTT "UPON REQUEST FROM THE CONTRACTING OFFICER DURING THE TECHNICAL ORAL DISCUSSIONS, DID NOT FURNISH CONFIRMATION THAT INCUMBENT EMPLOYEES WOULD BE WILLING TO WORK FOR SCOTT AT THE LOWER LABOR RATES PROPOSED BY SCOTT." THE CONTRACTING OFFICER CONCLUDED THAT:

"*** THE INCUMBENT'S PROPOSED WAGE RATES FOR THE FOUR LABOR CLASSIFICATIONS WOULD BE THE WAGE RATES MOST LIKELY TO BE PAID BY ANY FIRM PROPOSING TO HIRE THOSE INCUMBENT EMPLOYEES, AS DID SCOTT. IT WOULD NOT HAVE BEEN REASONABLE TO ASSUME THAT THE INCUMBENT EMPLOYEES WOULD AGREE TO CONFORMED WAGE RATES LOWER THAN WHAT THEY ALREADY RECEIVED."

SINCE THE ADDITIONAL COST OF $6,268 BETWEEN SCOTT'S PROPOSED RATES AND THE INCUMBENT'S CONFORMED RATES WOULD BE ALLOWABLE UNDER THE CONTRACT, THE CONTRACTING OFFICER ADDED THAT AMOUNT TO SCOTT'S PROPOSAL FOR EVALUATION PURPOSES. UNDER THESE CIRCUMSTANCES, WE DO NOT BELIEVE THE CONTRACTING OFFICER WAS UNREASONABLE IN HIS UPWARD ADJUSTMENT OF THE PROTESTER'S PROPOSAL.

SECONDLY, THE PROTESTER ARGUES THAT THE CONTRACTING OFFICER HAD NO JUSTIFICATION FOR THE 19 PERCENT ($1,500 PER YEAR) UPWARD ADJUSTMENT OF ITS PROPOSAL TO REFLECT SHIFT PREMIUM AND OVERTIME PAY. THE RECORD INDICATES THAT SCOTT DID NOT PROPOSE ANY SHIFT PREMIUM IN ITS PROPOSAL DESPITE THE FACT THAT THE RFP IN NUMEROUS INSTANCES MADE SPECIFIC REFERENCE TO THE NEED FOR SHIFT WORK IN THE PERFORMANCE OF THE CONTRACT, AND INSTRUCTED OFFERORS TO INCLUDE A SHIFT PREMIUN IN THE PRICING OF THEIR PROPOSALS UNLESS AN ADEQUATE EXPLANATION WAS GIVEN AS TO WHY SHIFT PREMIUM WAS NOT PRICED. WHEN ASKED ABOUT THIS OMISSION IN ITS PROPOSAL DURING THE COURSE OF NEGOTIATIONS, SCOTT STATED THAT IT DID NOT INTEND TO PAY A SHIFT PREMIUM BECAUSE IT BELIEVED THAT SHIFT WORK COULD BE AVOIDED.

THE RECORD ON THIS ISSUE REFLECTS A BASIC DISAGREEMENT BETWEEN SCOTT AND THE CONTRACTING OFFICER AS TO WHETHER THE CONTRACT COULD BE SATISFACTORILY PERFORMED WITHOUT THE USE OF SHIFT WORK. SCOTT'S POSITION IS THAT REGULAR WORKING PERIODS CAN BE SCHEDULED TO ACCOMMODATE PEAK WORKLOADS. HOWEVER, THE CONTRACTING OFFICER'S OPINION, BASED ON THE NEED FOR SHIFT WORK UNDER PREDECESSOR CONTRACTS, IS THAT SOME SHIFT WORK WILL BE REQUIRED. THEREFORE, HE ADDED $1,000 TO SCOTT'S PROPOSAL FOR EVALUATION PURPOSES TO REPRESENT THE PROBABLE COST OF SHIFT PREMIUM IF SCOTT WERE AWARDED THE CONTRACT. THIS IS THE SAME AMOUNT PROPOSED BY THE INCUMBENT CONTRACTOR FOR SHIFT PREMIUM AND ONE-HALF THAT PROPOSED BY THE THIRD OFFEROR.

WE BELIEVE THE CONTRACTING OFFICER IS IN THE BEST POSITION TO ASSESS THE NEEDS OF THE AGENCY, AND SINCE HIS EVALUATION WAS BASED UPON PAST EXPERIENCE AND WAS CONSISTENT WITH THE AMOUNTS PROPOSED BY THE OTHER OFFERORS, WE CANNOT CHARACTERIZE IT IS UNREASONABLE. IN REGARD TO THE ADJUSTMENTS MADE TO SCOTT'S PROPOSAL FOR OVERTIME PAY, THE RFP REQUIRED THAT ALL OFFERORS PROPOSE AN OVERTIME AMOUNT EQUAL TO TWO PERCENT OF THE TOTAL LABOR COST OF THOSE POSITIONS ELIGIBLE FOR OVERTIME. SINCE THE RECORD INDICATES THAT SCOTT'S PROPOSAL WAS EVALUATED UPWARD BY $521.00 IN ORDER TO INCLUDE THE ADDITIONAL AMOUNT OF OVERTIME COSTS RESULTING FROM CONFORMING THE LABOR RATES AS DETAILED ABOVE, AND A TWO PERCENT OVERTIME PREMIUM FOR THE SENIOR DISTRIBUTION CONTROL CLERK, WHICH FACTOR WAS EXCLUDED FROM THE PROTESTER'S COST PROPOSAL, OUR OFFICE HAS NO OBJECTION AND AGREES THAT THE CONTRACTING OFFICER REASONABLY ADJUSTED THE SUBJECT PROPOSAL TO REFLECT THE OVERTIME COSTS.

SCOTT INITIALLY OBJECTED TO THE ACTION OF THE CONTRACTING OFFICER IN INCREASING ITS OVERALL WAGE RATES 4 PERCENT FOR THE SECOND CONTRACT YEAR. THIS ADJUSTMENT WAS PROMPTED BY THE FACT THAT SCOTT PROPOSED SECOND YEAR LABOR COSTS AT THE SAME HOURLY RATES FOR EACH CATEGORY OF WORK AS THE FIRST YEAR. IT IS THE ADMINISTRATIVE POSITION THAT SCOTT'S FAILURE TO INCREASE ANY WAGE RATES FOR THE SECOND YEAR IS UNREALISTIC IN THAT IT COMPLETELY IGNORES THE LIKELIHOOD OF A NEW WAGE DETERMINATION IF THE GOVERNMENT EXERCISES ITS OPTION FOR AN ADDITIONAL YEAR OF SERVICE.

ALTHOUGH SCOTT HAD QUESTIONED THE PROPRIETY OF THIS EVALUATION FACTOR, IT STATED IN ITS MOST RECENT LETTER TO OUR OFFICE: "WE WILL NOT QUARREL WITH THIS ACTION, HOWEVER, IF THE NASA CONTRACTING OFFICER CAN SHOW THAT THIS SAME 4 PERCENT ESCALATION WAS USED IN ALL OTHER BIDS RECEIVED." OUR EXAMINATION OF THE FILE SHOWS THAT THE EVALUATED PROBABLE COSTS OF THE OTHER TWO OFFERORS INCLUDED AN INCREASE IN LABOR COSTS FOR THE SECOND YEAR OF PERFORMANCE IN EXCESS OF FOUR PERCENT. THEREFORE, WE SHALL NOT FURTHER DISCUSS THIS BASIS FOR PROTEST.

FINALLY, SCOTT PROTESTS THE PROPRIETY OF THE CONTRACTING OFFICER'S GENERAL AND ACCOUNTING RATE (G&A) ADJUSTMENT WHICH WAS FACTORED AT THE PROPOSED CEILING PERCENTAGE FOR PURPOSES OF COST EVALUATION. THE RFP REQUIRED EACH OFFEROR TO PROPOSE G&A EXPENSES IN ACCORDANCE WITH ITS NORMAL PRACTICES AND ALSO TO PROPOSE A CEILING RATE FOR G&A WHICH, IF EXCEEDED, WOULD NOT BE REIMBURSEABLE UNDER THE CONTRACT. THE SOLICITATION ALSO ADVISED OFFERORS THAT "ATTRACTIVE CEILING RATES COULD BE ONE OF THE DETERMINING FACTORS IN SELECTION." AFTER THE DEFENSE CONTRACT AUDIT AGENCY PERFORMED AN AUDIT OF THE PROTESTER'S PROPOSAL AT THE CONTRACTING OFFICER'S REQUEST, SCOTT AGREED TO MAKE AN ADJUSTMENT IN ITS G&A ACCOUNT WHICH RESULTED IN A G&A RATE OF 5.4 PERCENT WITH A CEILING RATE OF 6.3 PERCENT IN ITS FINAL COST SUBMISSION.

IT IS THE ADMINISTRATIVE POSITION THAT THE USE OF PROPOSED G&A CEILINGS IN EVALUATING THE PROBABLE COST OF PROPOSALS IS REASONABLE AND NECESSARY IN ORDER TO ASSESS THE MAXIMUM COST TO THE GOVERNMENT. AS WE STATED PREVIOUSLY, IT IS NOT THE FUNCTION OF OUR OFFICE TO EVALUATE PROPOSALS AND THEREFORE, SINCE ALL PROPOSALS WERE EVALUATED AT THE PROPOSED CEILING RATES FOR G&A, WE CANNOT CONCLUDE THAT THE CONTRACTING OFFICER'S ADJUSTMENT OF SCOTT'S PROPOSAL IN THIS RESPECT WAS UNREASONABLE. ACCORDINGLY, THE PROTEST IS DENIED.