B-184825, MAY 14, 1976, 55 COMP.GEN. 1111

B-184825: May 14, 1976

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CONTRACTS - NEGOTIATION - EVALUATION FACTORS - POINT RATING - EVALUATION GUIDELINES SOURCE SELECTION OFFICIALS' DETERMINATION THAT COMPETING PROPOSALS ARE TECHNICALLY EQUAL. DESPITE POINT SPREAD OF 47 OUT OF 1000 AND LOWER ECHELON REQUIRING ACTIVITY'S CONCLUSION THAT HIGHER RATED PROPOSAL IS SUPERIOR. IS NOT SUBJECT TO OBJECTION SINCE POINT SCORES ARE ONLY GUIDES FOR DECISION-MAKING. CONTRACTS - NEGOTIATION - EVALUATION FACTORS - POINT RATING - PRICE CONSIDERATION WHETHER DIFFERENCE IN POINT SCORES ASSIGNED TO COMPETING TECHNICAL PROPOSALS IS SIGNIFICANT IS FOR DETERMINATION ON BASIS OF WHAT DIFFERENCE MIGHT MEAN IN PERFORMANCE AND WHAT IT WOULD COST GOVERNMENT TO TAKE ADVANTAGE OF IT. AGENCY DECISION TO AWARD CONTRACT TO LESS COSTLY OFFEROR DESPITE COMPETING OFFEROR'S HIGHER TECHNICAL POINT RATING IS PROPER EXERCISE OF DISCRETION BY SELECTION OFFICIALS.

B-184825, MAY 14, 1976, 55 COMP.GEN. 1111

CONTRACTS - NEGOTIATION - EVALUATION FACTORS - POINT RATING - EVALUATION GUIDELINES SOURCE SELECTION OFFICIALS' DETERMINATION THAT COMPETING PROPOSALS ARE TECHNICALLY EQUAL, DESPITE POINT SPREAD OF 47 OUT OF 1000 AND LOWER ECHELON REQUIRING ACTIVITY'S CONCLUSION THAT HIGHER RATED PROPOSAL IS SUPERIOR, IS NOT SUBJECT TO OBJECTION SINCE POINT SCORES ARE ONLY GUIDES FOR DECISION-MAKING. CONTRACTS - NEGOTIATION - EVALUATION FACTORS - POINT RATING - PRICE CONSIDERATION WHETHER DIFFERENCE IN POINT SCORES ASSIGNED TO COMPETING TECHNICAL PROPOSALS IS SIGNIFICANT IS FOR DETERMINATION ON BASIS OF WHAT DIFFERENCE MIGHT MEAN IN PERFORMANCE AND WHAT IT WOULD COST GOVERNMENT TO TAKE ADVANTAGE OF IT. THEREFORE, AGENCY DECISION TO AWARD CONTRACT TO LESS COSTLY OFFEROR DESPITE COMPETING OFFEROR'S HIGHER TECHNICAL POINT RATING IS PROPER EXERCISE OF DISCRETION BY SELECTION OFFICIALS. CONTRACTS - NEGOTIATION - OFFERS OR PROPOSALS - EVALUATION - CONFLICT BETWEEN EVALUATORS WHERE PROCURING ACTIVITY BELIEVES ONE PROPOSAL IS SUPERIOR TO ANOTHER, DETERMINATION MADE BY HIGHER ECHELON WITHIN AGENCY THAT PROPOSALS ARE TECHNICALLY EQUAL IS NOT SUBJECT TO OBJECTION SINCE HIGHER LEVEL PERSONNEL WERE ACTING WITHIN THE SCOPE OF THEIR AUTHORITY FOR PROCUREMENT INVOLVED. CONTRACTS - NEGOTIATION - EVALUATION FACTORS - COST REALISM AGENCY'S SELECTION OF CONTRACTOR ON BASIS OF LOWER EVALUATED COSTS IS NOT IMPROPER, EVEN THOUGH EVALUATION SECTION OF SOLICITATION INDICATES COST REALISM AS THE LEAST IMPORTANT EVALUATION FACTOR, SINCE SOLICITATION, ON STANDARD FORM 33A, INDICATED THAT PRICE (COST QUANTUM) WOULD ALSO BE CONSIDERED AND COST OR PRICE MAY BECOME DETERMINATIVE FACTOR IN AWARD SELECTION WHEN COMPETING PROPOSALS ARE ESSENTIALLY EQUAL, NOTWITHSTANDING FACT THAT OTHER FACTORS ARE OF GREATER IMPORTANCE IN OVERALL EVALUATION SCHEME. CONTRACTS - REQUIREMENTS - ESTIMATED AMOUNTS BASIS - BEST INFORMATION AVAILABLE WHERE AGENCY CANNOT IDENTIFY PRECISE FUTURE REQUIREMENTS AND THEREFORE REQUESTS ESTIMATED COSTS ON BASIS OF HYPOTHETICAL PLAN WHICH INCLUDES THE TYPES OF TASKS AND SERVICES ACTUALLY REQUIRED, ESTIMATED COSTS SUBMITTED BY OFFERORS PROVIDE ADEQUATE BASIS FOR COST COMPARISON BETWEEN COMPETING PROPOSALS TO DETERMINE PROBABLE RELATIVE COST TO AGENCY OF ACCEPTING ONE PROPOSAL RATHER THAN ANOTHER. CONTRACTS - NEGOTIATION - EVALUATION FACTORS - COST REALISM AGENCY'S COST EVALUATION OF PROPOSALS IS NOT SUBJECT TO OBJECTION WHERE AGENCY'S DETERMINATION OF REALISM OF PROPOSED COSTS IS SUPPORTED BY REASONABLE BASIS, EVEN THOUGH AGENCY ESSENTIALLY RELIES ON INFORMATION CONTAINED IN PROPOSALS RATHER THAN SEEKING INDEPENDENT VERIFICATION OF EACH ITEM OF PROPOSED COSTS, SINCE EXTENT TO WHICH PROPOSED COSTS WILL BE EXAMINED IS MATTER FOR AGENCY. CONTRACTS - NEGOTIATION - OFFERS OR PROPOSALS - EVALUATION - ERRORS - NOT PREJUDICIAL WHERE AGENCY MAKES SOME ERRORS IN CONDUCTING COST EVALUATION OF PROPOSALS BUT RECORD INDICATES ERRORS WERE NOT PREJUDICIAL IN VIEW OF OVERALL EVALUATION, AWARD BASED ON OVERALL EVALUATION IS NOT SUBJECT TO OBJECTION. CONTRACTING OFFICERS - AUTHORITY - CONTRACT AWARDS WHERE PROCUREMENT IS CONDUCTED BY FIELD PURCHASING OFFICE BUT CONTRACT AWARD IS SIGNED BY DEPUTY CHIEF OF HIGHER ECHELON ORGANIZATION WITHIN AGENCY OF WHICH PURCHASING OFFICE IS A PART, AWARD IS VALID SINCE DEPUTY CHIEF'S CONTRACTING OFFICER AUTHORITY EXTENDS THROUGHOUT ORGANIZATION. CONTRACTS - NEGOTIATION - LATE PROPOSALS AND QUOTATIONS COURT INTEREST ALTHOUGH PROTEST ISSUES GOING TO SOLICITATION DEFECTS WERE FILED AFTER CLOSING DATE FOR RECEIPT OF PROPOSALS AND ARE THEREFORE UNTIMELY RAISED, GENERAL ACCOUNTING OFFICE WILL CONSIDER THEM BECAUSE OF INTEREST OF U.S. DISTRICT COURT IN GAO DECISION. CONTRACTS - NEGOTIATION - COST-TYPE - FEE BASED ON "ESTIMATED COST" OF ORDER PROVISION IN COST-TYPE INDEFINITE QUANTITY CONTRACT SPECIFYING THAT FEE TO BE PAID ON EACH DELIVERY ORDER WILL BE BASED ON "COSTS BEING PAID" DOES NOT RENDER CONTRACT CONTRARY TO STATUTORY PROHIBITION AGAINST COST-PLUS- PERCENTAGE-OF-COST CONTRACTS SINCE CONTRACT ITSELF DOES NOT CONFER ENTITLEMENT TO PAYMENT AND FEE FOR ACTUAL DELIVERY ORDER IS BEING BASED ON "ESTIMATED COST" OF EACH ORDER. ADVERTISING - SERVICES - PROCUREMENT - DELIVERY TYPE CONTRACT USE OF INDEFINITE DELIVERY TYPE OF CONTRACT TO PROCURE ADVERTISING SERVICES IS NOT IMPROPER SINCE APPLICABLE REGULATIONS PROVIDE ONLY THAT AGENCIES MAY USE BASIC ORDERING AGREEMENT FOR OBTAINING ADVERTISING SERVICES BUT DO NOT PRECLUDE USE OF OTHER CONTRACTUAL VEHICLES AND SINCE ADVERTISING SERVICES ARE A "COMMERCIAL ITEM." CONTRACTS - NEGOTIATION - COST-REIMBURSEMENT BASIS - INDEFINITE DELIVERY CONTRACT USE OF COST-REIMBURSEMENT PROVISIONS IN INDEFINITE DELIVERY CONTRACT IS NOT PROHIBITED BY REGULATIONS AND RECORD SUGGESTS THAT REGULATIONS WERE NOT INTENDED TO FORECLOSE AGENCY FROM AWARDING THIS TYPE OF CONTRACT.

IN THE MATTER OF GREY ADVERTISING, INC., MAY 14, 1976:

GREY ADVERTISING, INC. (GREY), HAS PROTESTED AGAINST THE DEPARTMENT OF THE NAVY'S AWARD OF A CONTRACT FOR RECRUITING ADVERTISING SERVICES TO TED BATES ADVERTISING, INC. (BATES). GREY'S PRIMARY CONTENTION IS THAT THERE WAS NO RATIONAL BASIS FOR THE NAVY'S AWARD SELECTION OF BATES RATHER THAN GREY AND THAT THE AWARD WAS CONTRARY TO THE EVALUATION CRITERIA ESTABLISHED FOR THE PROCUREMENT. GREY FURTHER CONTENDS THAT THE SOLICITATION ITSELF WAS DEFECTIVE BECAUSE (1) IT DID NOT CONTAIN A SUFFICIENTLY DEFINITIVE STATEMENT OF THE GOVERNMENT'S REQUIREMENTS AND (2) IT PROVIDED FOR THE AWARD OF A CONTRACT TYPE THAT WAS INCONSISTENT WITH REGULATORY PROVISIONS GOVERNING THE PROCUREMENT OF ADVERTISING SERVICES. IN ADDITION, GREY CHALLENGES THE AUTHORITY OF THE NAVY OFFICIAL WHO SIGNED THE CONTRACT TO ACT AS A CONTRACTING OFFICER FOR THIS PROCUREMENT. GREY ALSO SUGGESTS THAT THE CONTRACT AWARDED TO BATES CONTAINS AN ILLEGAL COST- PLUS-PERCENTAGE-OF-COST PAYMENT PROVISION.

THE PROCUREMENT WAS INITIATED ON NOVEMBER 29, 1974, WITH THE ISSUANCE BY THE NAVAL REGIONAL PROCUREMENT OFFICE (NRPO), WASHINGTON, OF REQUEST FOR PROPOSALS (RFP) NO. N00600-75-R-5279, WHICH SOLICITED PROPOSALS FOR A COST -PLUS-FIXED-FEE, INDEFINITE DELIVERY REQUIREMENTS CONTRACT FOR RECRUITING ADVERTISING SUPPLIES AND SERVICES FOR FISCAL YEAR 1976 AND TWO 1-YEAR OPTION PERIODS. ON JANUARY 15, 1975, PROPOSALS WERE RECEIVED FROM (1) GREY, (2) BATES, (3) WELLS, RICH, GREENE, INC., AND (4) KENYON AND ECKHARDT. THE TECHNICAL ASPECTS OF THE PROPOSALS WERE EVALUATED AND DISCUSSIONS WERE HELD WITH THE OFFERORS. REVISED PROPOSALS WERE THEN SUBMITTED. AS A RESULT OF AN EVALUATION OF THE REVISED PROPOSALS, WELLS, RICH, GREENE, INC., AND KENYON AND ECKHARDT WERE ELIMINATED FROM THE COMPETITIVE RANGE.

NAVY EVALUATORS THEN MADE SITE VISITS TO THE OFFICES OF GREY AND BATES DURING WHICH CERTAIN ASPECTS OF THEIR REVISED PROPOSALS WERE DISCUSSED. OTHER NAVY PERSONNEL EVALUATED THE COST ELEMENTS OF THE PROPOSALS. (GREY PROPOSED ESTIMATED COSTS OF $16,393,800 PLUS A FIXED FEE OF $901,659, FOR A TOTAL OF $17,295,459. BATES PROPOSED ESTIMATED COSTS OF $11,313,532 PLUS A FIXED FEE OF $471,944 FOR A TOTAL OF $11,795,476.) SUBSEQUENTLY, IT WAS DECIDED THAT BATES WAS ALSO OUTSIDE THE COMPETITIVE RANGE AND IT WAS SO NOTIFIED BY LETTER DATED MAY 12, 1975.

A DISPUTE THEN AROSE WITHIN THE NAVY AS TO WHETHER AWARD SHOULD BE MADE TO GREY. IT WAS THE OPINION OF NRPO AND THE REQUIRING ACTIVITY, THE NAVY RECRUITING COMMAND (NRC), THAT THE CONTRACT SHOULD BE AWARDED TO GREY. HOWEVER, THE NAVAL MATERIAL COMMAND (NAVMAT), A HIGHER ECHELON COMMAND WITHIN THE NAVY, REFUSED NRPO'S REQUEST FOR A BUSINESS CLEARANCE TO NEGOTIATE A CONTRACT WITH GREY. THE NAVMAT BUSINESS CLEARANCE OFFICER BELIEVED THAT BATES AND GREY HAD NOT BEEN COMPETING ON AN EQUAL BASIS AND THAT BATES HAD BEEN IMPROPERLY EXCLUDED FROM THE COMPETITIVE RANGE. AFTER VARIOUS DISCUSSIONS AMONG REPRESENTATIVES OF NRPO, NRC, NAVMAT, THE NAVAL SUPPLY SYSTEMS COMMAND (NAVSUP), AND THE NAVY'S OFFICE OF GENERAL COUNSEL, IT WAS DECIDED TO REINSTATE BATES IN THE COMPETITIVE RANGE, ISSUE AN AMENDMENT TO THE RFP WHICH WOULD EQUALIZE THE COMPETITIVE BASIS OF THE PROCUREMENT BY SETTING FORTH THE NAVY'S DOLLAR ($16 MILLION) AND MANHOUR (143,000) ESTIMATES FOR THE FISCAL YEAR REQUIREMENT (IT WAS BELIEVED THAT GREY, AS THE INCUMBENT CONTRACTOR, HAD BEEN AWARE OF THAT INFORMATION WHILE BATES WAS NOT), AND CHANGE THE TYPE OF CONTRACT TO BE AWARDED FROM A REQUIREMENTS TYPE CONTRACT TO AN INDEFINITE QUANTITY TYPE ON A COST-PLUS- FIXED-FEE BASIS, WITH MINIMUM AND MAXIMUM ORDERING LIMITATIONS.

BEST AND FINAL OFFERS WERE SUBMITTED BY GREY AND BATES ON JUNE 26, 1975. NRC AND NRPO AGAIN REQUESTED CLEARANCE TO AWARD TO GREY. AGAIN THE NAVMAT BUSINESS CLEARANCE OFFICER DENIED THE REQUEST, THIS TIME ON THE BASIS THAT THE BATES PROPOSAL PRESENTED "THE GREATEST VALUE TO THE GOVERNMENT," WHICH WAS THE AWARD STANDARD SET FORTH IN THE RFP.

NRC AND NRPO, HOWEVER, DISAGREED WITH THAT CONCLUSION. AFTER FURTHER DISCUSSION AMONG VARIOUS NAVY OFFICIALS, INCLUDING THE ASSISTANT SECRETARIES FOR INSTALLATIONS AND LOGISTICS AND MANPOWER AND RESERVE AFFAIRS, IT WAS DECIDED THAT AN ADDITIONAL COST ANALYSIS SHOULD BE PERFORMED. SUBSEQUENT TO THE PERFORMANCE OF THIS ANALYSIS BY THE DEPUTY CHIEF OF NAVAL MATERIAL, THE CHIEF OF NAVAL MATERIAL, THROUGH THE DEPUTY CHIEF, DIRECTED AWARD TO BATES. THE CONTRACT, SIGNED BY THE DEPUTY CHIEF OF NAVAL MATERIAL RATHER THAN THE NRPO CONTRACTING OFFICER, WAS AWARDED ON SEPTEMBER 2, 1975.

GREY PROTESTED TO THIS OFFICE ON AUGUST 26, 1975, APPARENTLY AFTER LEARNING THAT THE NAVY WAS CONSIDERING AWARDING THE CONTRACT TO BATES. SEPTEMBER 11, 1975, GREY ALSO SOUGHT JUDICIAL RELIEF FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA. ALTHOUGH THE COURT DENIED GREY'S MOTIONS FOR A TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION, IT DID INDICATE A DESIRE FOR A GAO DECISION ON THE MERITS OF THE PROTEST.

EVALUATION AND SELECTION

SECTION D OF THE RFP SET FORTH EIGHT EVALUATION FACTORS, LISTED IN DECREASING ORDER OF IMPORTANCE, WHICH WOULD PROVIDE THE BASIS FOR THE SELECTION OF A CONTRACTOR. MOST OF THE FACTORS WERE RELATED TO OFFEROR EXPERIENCE. FOR EXAMPLE, THE FIRST CRITERION MEASURED AN OFFEROR'S "DEMONSTRATED ABILITY, BASED UPON ITS PAST PERFORMANCE," TO DEVELOP VARIOUS CREATIVE AND INNOVATIVE FEATURES, WHILE ANOTHER CRITERION LOOKED TO THE OFFEROR'S "PAST EXPERIENCE AND PRESENT CAPABILITIES IN DEALING WITH TARGET AUDIENCES AKIN TO THOSE WHICH NAVY RECRUITING ADVERTISING IS DIRECTED." THE EIGHTH CRITERION WAS:

THE ESTIMATED COST TO PROVIDE A WIDE RANGE OF MANPOWER AND SERVICES AND TO PERFORM SPECIFIC KINDS OF WORK AS IDENTIFIED IN COST SCHEDULE AND THE AMOUNT OF FEE THE AGENCY WILL CHARGE.

THE RFP FURTHER PROVIDED THAT:

AWARD OF THE CONTRACT RESULTING FROM THIS SOLICITATION WILL BE INFLUENCED BY THE PROPOSAL WHICH OFFERS THE GREATEST VALUE TO THE GOVERNMENT. THE GOVERNMENT RESERVES THE RIGHT TO DETERMINE WHICH PROPOSAL DEMONSTRATES THE REQUIRED COMPETENCE FOR PERFORMING THE SERVICES DESCRIBED HEREIN AND WHICH PROPOSAL PRESENTS THE GREATEST VALUE TO THE GOVERNMENT.

THE COST SCHEDULE REFERRED TO IN THE EIGHTH EVALUATION CRITERION WAS INCLUDED IN THE RFP AS ATTACHMENT B AND WAS INTRODUCED WITH THE FOLLOWING REMARKS:

IN ORDER FOR THE NAVY TO EVALUATE THE COST OF YOUR SERVICES, IT WILL BE NECESSARY FOR YOU TO PROVIDE YOUR ESTIMATES OF THE COST OF INDIVIDUAL LINE ITEMS IN THE NAVY'S ADVERTISING AGENCY BUDGET. BECAUSE OF CHANGING REQUIREMENTS BY NAVY, COST FLUCTUATIONS, AND VARIATIONS BETWEEN EXISTING PLANS AND PROGRAMS AND THOSE YOU MAY INSTITUTE, SHOULD YOU BE AWARDED THE NAVY ADVERTISING CONTRACT, THIS IS, AT BEST, A DIFFICULT PROCEDURE TO IMPLEMENT.

HOWEVER, ON THE FOLLOWING PAGES THERE IS PROVIDED WHAT MIGHT BE CONSIDERED AN ADVERTISING PLAN THAT IS GENERALLY REPRESENTATIVE OF THE ITEMS YOU PROBABLY WOULD INCLUDE IN YOUR FUTURE ADVERTISING PLAN FOR NAVY.

PLEASE LIST AFTER EACH ITEM YOUR ESTIMATED COST TO PRODUCE/PLACE/CARRY OUT ACTION INDICATED.

IN THE MATTER OF MEDIA PLACEMENT, YOU CAN PRESUME THE TOTAL AMOUNTS GIVEN ARE REPRESENTATIVE OF THE SCOPE OF ACTIVITY WITHIN THAT MEDIUM AND SHOULD BE USED IN COMPUTING DIRECT LABOR, OVERHEAD AND FEE.

IN THE CASE OF MAGAZINE AD PRODUCTION, FOR OFFER PREPARATION PURPOSES ONLY, PRESUME THAT ALL ILLUSTRATIONS WILL BE PHOTOGRAPHS AND ALL WILL BE DRAWN FROM EXISTING FILES WITH NO NECESSITY FOR SPECIAL PHOTO SHOOTS FOR A SPECIFIC AD. ALSO COSTS FOR MAGAZINE ADS SHOULD INCLUDE ONLY WORK REQUIRED THROUGH ART AND MECHANICALS.

WHEREVER POSSIBLE, AN ATTEMPT IS MADE TO DEFINE AS CLEARLY AS POSSIBLE THE WORK TO BE ACCOMPLISHED. HOWEVER, BECAUSE OF THE WIDE VARIATIONS IN DETAILS OF SPECIFICATIONS, QUALITY STANDARDS REQUIRED, ETC., YOU WILL FIND MANY INSTANCES WHERE SUFFICIENT DETAILS ARE LACKING. IN THESE CASES PLEASE PROVIDE A FIGURE REPRESENTATIVE OF THE AVERAGE COST FOR YOUR AGENCY OF PRODUCING/PROVIDING THE MATERIALS OR SERVICE INDICATED.

YOU WILL HAVE THE OPPORTUNITY TO ASK QUESTIONS REGARDING SPECIFIC AREAS DURING THE PRE-PROPOSAL CONFERENCE.

KEEP IN MIND THAT WHILE THE FOLLOWING IS AN APPROXIMATION OF THE KEY PROJECTS IN A POSSIBLE AD PLAN, YOU MAY BE TASKED TO CARRY OUT ALL OR ANY OF THE ACTIVITIES LISTED UNDER THE SCOPE OF WORK IN SECTION F. OF THE REQUEST FOR PROPOSALS.

THERE FOLLOWED A LISTING OF SEVERAL ITEMS UNDER SUCH HEADINGS AS MAGAZINE PLACEMENT, DIRECT MAIL, OUTDOOR PLACEMENT, RESEARCH, INDIRECT COSTS, TRAVEL EXPENSES, PHOTO SHOOTS, AND MISCELLANEOUS. FOR MOST OF THE ITEMS OFFERORS WERE TO ESTIMATE THE COST TO THE NAVY; HOWEVER, FOR CERTAIN ITEMS THE RFP SET FORTH THE NAVY'S OWN DOLLAR ESTIMATE. OFFERORS WERE ALSO REQUESTED TO ENTER TOTAL COSTS IN SPACES DENOMINATED "TOTAL OF NET COSTS," "AGENCY FEE" AND "GRAND TOTAL." THESE FIGURES WERE ALSO TO BE ENTERED IN THE RFP SCHEDULE (SECTION E) UNDER THE HEADINGS "TOTAL ESTIMATED COST," "FIXED FEE," AND "TOTAL ESTIMATED COST PLUS FIXED FEE."

THE TECHNICAL PORTIONS OF THE PROPOSALS WERE EVALUATED BY A PROPOSAL EVALUATION PANEL (PEP) ESTABLISHED BY NRC. WHEN THE PEP COMPLETED ITS INITIAL EVALUATION, IT PREPARED A NUMERICAL AND NARRATIVE SUMMARY OF ITS WORK AND PRESENTED A REPORT TO NRC'S CONTRACT AWARD REVIEW PANEL (CARP). THE REPORT PROVIDED THE BASIS FOR QUESTIONS PRESENTED TO THE OFFERORS BY THE NRPO CONTRACT NEGOTIATOR DURING DISCUSSIONS WITH THE FOUR OFFERORS. FOLLOWING RECEIPT OF REVISED PROPOSALS, THE PEP WAS RECONVENED TO EVALUATE THE REVISED TECHNICAL OFFERS AND TO MAKE A FINAL REPORT TO THE CARP.

THE CARP WAS RESPONSIBLE FOR THE REVIEW AND VALIDATION OF THE WORK OF THE PEP. THE CARP EVALUATED THE PEP SCORES TO VALIDATE THE OBJECTIVITY AND ACCURACY OF THE SCORES AND THEN APPLIED PREDETERMINED WEIGHTS TO THE SCORES FOR THE SEVEN EVALUATED TECHNICAL CRITERIA. THE CRITERION WEIGHTS RANGED FROM 325 FOR CREATIVITY TO 5 FOR ESTIMATED COST, WITH A TOTAL POSSIBLE WEIGHTED SCORE OF 1,000. AS A RESULT OF THE CARP'S APPLICATION OF WEIGHTS TO THE PEP'S SCORING OF THE TECHNICAL CRITERIA, THE FOLLOWING SCORES, BASED UPON A TOTAL OF 995 POINTS, WERE ESTABLISHED:

GREY . . . 924.99 BATES . . . 872.63 WELLS, RICH AND GREENE, INC. . . . 831.8 KENYON AND ECKHARDT . . . 834.74

ON THE BASIS OF THESE SCORES, THE CARP RECOMMENDED AWARD TO GREY. SO DID THE COMMANDER OF NRC, WHO HAD BEEN DESIGNATED THE TECHNICAL SOURCE SELECTION AUTHORITY FOR THE PROCUREMENT. NRPO THEN FORWARDED A REQUEST FOR A BUSINESS CLEARANCE TO NAVMAT. AS INDICATED ABOVE, NAVMAT REFUSED NRPO'S REQUEST FOR CLEARANCE TO NEGOTIATE A CONTRACT WITH GREY. SUBSEQUENTLY, NRPO ISSUED AN AMENDMENT TO THE RFP WHICH, IN ADDITION TO SPELLING OUT NRC'S ESTIMATED ANNUAL DOLLAR AND MANHOUR REQUIREMENTS, STATED THAT COST SCHEDULE ENTRIES WOULD BE USED ONLY TO DETERMINE COST REALISM. GREY AND BATES THEN SUBMITTED REVISED BEST AND FINAL OFFERS WHICH WERE SCORED AS FOLLOWS: (TABLE OMITTED)

THE COMMANDER OF NRC AND NRPO BELIEVED THIS POINT SPREAD TO BE SIGNIFICANT AND RECOMMENDED AWARD TO GREY ON THAT BASIS. HOWEVER, NAVMAT CONCLUDED THAT THE TWO OFFERORS WERE RELATIVELY EQUAL TECHNICALLY AND THAT COST TO THE NAVY SHOULD THEREFORE BE THE DETERMINING FACTOR. THE COST SCHEDULE SUBMITTED WITH EACH OFFEROR'S BEST AND FINAL PROPOSAL INDICATED THE FOLLOWING: (TABLE OMITTED)

NAVMAT, AFTER DETERMINING THAT BATES' AND GREY'S PROPOSED COSTS AS LISTED IN THEIR COST SCHEDULES WERE REALISTIC, DECIDED THAT ON THE BASIS THOSE COST SCHEDULE FIGURES AN AWARD TO BATES WOULD SAVE THE NAVY $965,702 (THE DIFFERENCE BETWEEN $13,483,862 AND $12,518,160) FOR THE FIRST CONTRACT YEAR AND $2,897,106 IF THE TWO 1-YEAR OPTIONS WERE EXERCISED. IT WAS THIS JUDGMENT, THAT AWARD TO BATES WOULD BE LESS COSTLY THAN AWARD TO GREY, WHICH ULTIMATELY RESULTED IN THE SELECTION OF BATES.

THE PROTESTER CHALLENGES THIS SELECTION ON THREE GROUNDS:

1) NAVMAT ERRED IN DETERMINING THAT THE POINT SPREAD BETWEEN GREY AND BATES WAS NOT SIGNIFICANT, PARTICULARLY SINCE NRC AND NOT NAVMAT PERSONNEL HAD THE TECHNICAL EXPERTISE TO MAKE THAT DETERMINATION;

2) THE NAVY'S RELIANCE ON COST TO SELECT A CONTRACTOR WAS CONTRARY TO THE ESTABLISHED EVALUATION CRITERIA;

3) THERE WAS NO RATIONAL BASIS FOR NAVMAT'S DETERMINATION THAT AN AWARD TO BATES WOULD COST THE NAVY LESS THAN AN AWARD TO GREY, SINCE (A) THE COST SCHEDULE DID NOT REFLECT ACTUAL NAVY REQUIREMENTS AND WAS NOT INTENDED TO REFLECT ACTUAL PROBABLE COSTS AND (B) AN EXAMINATION OF THE GREY AND BATES PROPOSALS INDICATES THAT AWARD TO GREY AND NOT TO BATES WOULD RESULT IN LESS COST TO THE NAVY.

SIGNIFICANCE OF THE POINT SCORES

GREY ASSERTS THAT ITS PROPOSAL WAS CLEARLY TECHNICALLY SUPERIOR TO THE BATES PROPOSAL AND THAT THIS SUPERIORITY WAS REFLECTED IN THE DIFFERENCE BETWEEN THE POINT SCORES ASSIGNED TO THE TWO PROPOSALS. IN SUPPORT OF THIS ASSERTION, GREY REFERS TO THE ADJECTIVE RATINGS ASSIGNED TO EACH PROPOSAL, TO CERTAIN STATEMENTS OF NRC PERSONNEL AND THE NRPO CONTRACTING OFFICER, AND TO THE SWORN DEPOSITION OF ONE OF ITS EXPERT WITNESSES. THE ADJECTIVE RATINGS REFERRED TO BY GREY WERE RATINGS ASSIGNED TO VARIOUS POINT SCORE RANGES IN THE PEP EVALUATION SCHEME. FOR EXAMPLE, THE "GOOD" RANGE ENCOMPASSED 75 THROUGH 87.4 POINTS, THE "EXCELLENT" RANGE ENCOMPASSED 87.5 THROUGH 94.9 POINTS, AND THE "OUTSTANDING" RANGE INCLUDED SCORES OF 95 AND ABOVE. GREY WAS RATED AS "OUTSTANDING" IN TWO TECHNICAL EVALUATION CATEGORIES AND "EXCELLENT" IN THE REMAINING FIVE. BATES WAS RATED "EXCELLENT" IN FOUR CATEGORIES AND "GOOD" IN THE OTHER THREE. THE STATEMENTS REGARDING GREY'S TECHNICAL SUPERIORITY WERE GENERATED AFTER NAVMAT REFUSED NRPO'S FIRST REQUEST FOR A BUSINESS CLEARANCE TO NEGOTIATE A CONTRACT WITH GREY. IN RESPONSE TO NAVMAT'S ACTION, THE COMMANDER OF NRC PREPARED A POINT PAPER DATED JUNE 10, 1975, TO SHOW THAT THE POINT SPREAD BETWEEN BATES AND GREY REFLECTED AN ACTUAL, SIGNIFICANT SUPERIORITY IN GREY'S TECHNICAL PROPOSAL AND THAT GREY'S COSTS WERE REASONABLE. THE PAPER STATED THAT THE PEP AND CARP HAD EVALUATED GREY "AS BEING SUPERIOR IN EACH OF SEVEN TECHNICAL CRITERIA" AND THAT NRC CONSIDERED THE POINT SPREAD BETWEEN THE GREY AND BATES PROPOSALS TO BE SIGNIFICANT. ALSO, IN A MEMORANDUM FOR THE RECORD OF THE SAME DATE, THE NRPO CONTRACTING OFFICER STATED THAT:

* * * IT IS SIGNIFICANT THAT THE GREY PROPOSAL RECEIVED A HIGHER SCORE IN EACH OF THE SEVEN TECHNICAL CRITERIA. THIS INDICATES A TECHNICAL SUPERIORITY WHEN ONE CONSIDERS THAT A CAREFULLY SELECTED GROUP OF IMPARTIAL EVALUATORS DETERMINED GREY TO BE THE BEST QUALIFIED * * * .

THESE VIEWS WERE REITERATED IN A JULY 11, 1975 NRPO LETTER TO NAVMAT.

FURTHER, IS THE CONCLUSION OF GREY'S EXPERT WITNESS, A FORMER HIGH LEVEL GOVERNMENT PROCUREMENT OFFICIAL, THAT THE GREY AND BATES PROPOSALS WERE NOT TECHNICALLY EQUAL BUT THAT "THERE WAS A DEFINITE SUPERIORITY ON THE PART OF GREY IN THE AREA OF TECHNICAL COMPETENCE."

ON THE OTHER HAND, IT WAS THE JUDGMENT OF VARIOUS NAVMAT PERSONNEL THAT THE GREY PROPOSAL WAS NOT SIGNIFICANTLY SUPERIOR. NAVMAT BELIEVED THAT WHEN NUMERICAL SCORES ARE USED TO EVALUATE PROPOSALS, THE ULTIMATE SELECTION OF A CONTRACTOR FOR AWARD SHOULD BE THE RESULT OF PROCURING AGENCY "JUDGMENT" AS TO WHAT THE SCORES INDICATE AND NOT THE RESULT OF A QUANTUM DIFFERENCE IN POINT SCORES ALONE. FROM THE STATEMENTS MADE BY NRC AND NRPO, HOWEVER, NAVMAT BELIEVED THAT THOSE ACTIVITIES REACHED THEIR CONCLUSION PRIMARILY BECAUSE A POINT SCORING SYSTEM WAS UTILIZED UNDER WHICH GREY RECEIVED A HIGHER NUMERICAL SCORE AND NOT BECAUSE GREY WAS SUPERIOR IN ANY MEANINGFUL WAY.

NAVMAT'S GENERAL VIEW OF POINT SCORES IS CORRECT. WE HAVE CONSISTENTLY STATED THAT "TECHNICAL POINT RATINGS ARE USEFUL AS GUIDES FOR INTELLIGENT DECISION-MAKING IN THE PROCUREMENT PROCESS, BUT WHETHER A GIVEN POINT SPREAD BETWEEN TWO COMPETING PROPOSALS INDICATES THE SIGNIFICANT SUPERIORITY OF ONE PROPOSAL OVER ANOTHER DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH PROCUREMENT AND IS PRIMARILY A MATTER WITHIN THE DISCRETION OF THE PROCURING AGENCY." 52 COMP.GEN. 686, 690 (1973); 52 ID. 738, 747 (1973); ILC DOVER, B-182104, NOVEMBER 29, 1974, 74-2 CPD 301; TRACOR JITCO, INC., 54 COMP.GEN. 896 (1975), 75-1 CPD 253; MANAGEMENT SERVICES INCORPORATED, 55 COMP.GEN. 715 (1976), 76-1 CPD 74. AS WE SAID IN TRACOR JITCO, INC., SUPRA:

* * * UNIFORMLY, WE HAVE AGREED WITH THE EXERCISE OF THE ADMINISTRATIVE DISCRETION INVOLVED-- IN THE ABSENCE OF A CLEAR SHOWING THAT THE EXERCISED DISCRETION WAS NOT RATIONALLY FOUNDED-- AS TO WHETHER A GIVEN TECHNICAL POINT SPREAD BETWEEN COMPETITIVE-RANGE OFFERORS SHOWED THAT THE HIGHER- SCORED PROPOSAL WAS TECHNICALLY SUPERIOR. ON A FINDING THAT TECHNICAL SUPERIORITY WAS SHOWN BY THE POINT SPREAD AND ACCOMPANYING TECHNICAL NARRATIVE, WE HAVE UPHELD AWARDS TO CONCERNS SUBMITTING SUPERIOR PROPOSALS, ALTHOUGH THE AWARDS WERE MADE AT COSTS HIGHER THAN THOSE PROPOSED IN TECHNICALLY INFERIOR PROPOSALS. 52 COMP.GEN. 358 (1972); B-171696, JULY 20, 1971; B-170633, MAY 3, 1971. SIMILARLY, ON A FINDING THAT THE POINT SCORE AND TECHNICAL NARRATIVE DID NOT INDICATE SUPERIORITY IN THE HIGHER-RANKED PROPOSAL, WE HAVE UPHELD AWARDS TO OFFERORS SUBMITTING LESS COSTLY, ALBEIT LOWER-SCORED TECHNICAL PROPOSALS. SEE 52 COMP.GEN. 686 (1973); 50 ID., SUPRA. THIS REFLECTS OUR VIEW THAT THE PROCURING AGENCY'S EVALUATION OF PROPOSED COSTS AND TECHNICAL APPROACHES ARE ENTITLED TO GREAT WEIGHT SINCE THE AGENCIES ARE IN THE BEST POSITION TO DETERMINE REALISM OF COSTS AND CORRESPONDING TECHNICAL APPROACHES. MATTER OF RAYTHEON COMPANY, 54 COMP.GEN. 169 (1974); 50 ID. 390 (1970). OUR PRACTICE OF DEFERRING TO THE AGENCY INVOLVED IN COST/TECHNICAL TRADEOFF JUDGMENTS HAS BEEN FOLLOWED EVEN WHEN THE AGENCY OFFICIAL ULTIMATELY RESPONSIBLE FOR SELECTING THE SUCCESSFUL CONTRACTOR DISAGREED WITH AN ASSESSMENT OF TECHNICAL SUPERIORITY MADE BY A WORKING LEVEL EVALUATION COMMITTEE. SEE B-173137(1), OCTOBER 8, 1971. OUR REVIEW OF THE SUBJECT AWARD, THEREFORE, IS LIMITED TO DECIDING WHETHER THE RECORD REASONABLY SUPPORTS A CONCLUSION THAT THE AWARD WAS RATIONALLY FOUNDED. SEE MATTER OF VINNELL CORPORATION, B-180557, OCTOBER 8, 1974, 54 COMP.GEN.AT 898-9.

WE BELIEVE IT IS CLEAR FROM THESE CASES THAT THE QUESTION OF WHETHER A DIFFERENCE IN POINT SCORES IS SIGNIFICANT IS FOR DETERMINATION ON THE BASIS OF BOTH WHAT THAT DIFFERENCE MIGHT MEAN IN TERMS OF PERFORMANCE AND WHAT IT WOULD COST THE GOVERNMENT TO TAKE ADVANTAGE OF IT. AS WE SAID IN 52 COMP.GEN. 358 (1972), THE "DETERMINATIVE ELEMENT * * * (IS) NOT THE DIFFERENCE IN TECHNICAL MERIT SCORES PER SE, BUT THE CONSIDERED JUDGMENT OF THE PROCURING AGENCY CONCERNING THE SIGNIFICANCE OF THAT DIFFERENCE." 52 COMP.GEN.AT 365. THUS, FOR EXAMPLE, IN B-173137(1), OCTOBER 8, 1971, WHERE IT WAS DETERMINED THAT TWO FIRMS WERE TECHNICALLY EQUAL DESPITE ONE FIRM'S TECHNICAL POINT SCORE EDGE OF 15.8 POINTS (ON A 100 POINT SCALE), WE VIEWED THE AWARD TO THE LOWER-SCORED COMPETING FIRM "AS EVIDENCING A DETERMINATION THAT THE COST PREMIUM INVOLVED IN MAKING AN AWARD TO (THE HIGHER-RATED) FIRM WOULD NOT BE JUSTIFIED IN LIGHT OF THE ACCEPTABLE LEVEL OF TECHNICAL COMPETENCE AVAILABLE AT A SOMEWHAT LOWER COST." SEE ALSO 50 COMP.GEN. 246 (1970), IN WHICH WE EXPRESSED SIMILAR VIEWS IN UPHOLDING AWARD TO A FIRM RECEIVING A POINT SCORE THAT WAS 6 POINTS (OUR OF 100) LOWER THAN THAT RECEIVED BY A COMPETITOR. ALSO, IN ILC DOVER, SUPRA, WE UPHELD A CONTRACTING OFFICER'S DETERMINATION THAT A POINT SPREAD OF 2.75 OUT OF 100 "WAS 'INSUFFICIENT IN THE LIGHT OF THE SUBSTANTIALLY HIGHER COST' ASSOCIATED WITH THE PROTESTER'S PROPOSAL."

ON THE OTHER HAND, WE HAVE UPHELD AN AWARD TO A HIGHER-RATED (14 POINTS OUT OF 100) OFFEROR WITH SIGNIFICANTLY HIGHER PROPOSED COSTS BECAUSE WE VIEWED THE AWARD "AS REFLECTING A DETERMINATION THAT THE COST PREMIUM INVOLVED WAS JUSTIFIED TAKING INTO ACCOUNT THE SIGNIFICANT TECHNICAL SUPERIORITY OF (THE WINNING OFFEROR'S) PROPOSAL. B-170181, FEBRUARY 22, 1971. SEE ALSO 52 COMP.GEN. 358, SUPRA (WHERE THE TECHNICALLY SUPERIOR OFFEROR WAS RATED 3 POINTS HIGHER THAN A COMPETING FIRM); RIGGINS & WILLIAMSON MACHINE COMPANY, INCORPORATED, ET AL., 54 COMP.GEN. 783 (1975), 75-1 CPD 783; PLANNING RESEARCH CORPORATION, B-182962, JULY 15, 1975, 75-2 CPD 37; BELLMORE JOHNSON TOOL COMPANY, B-179030, JANUARY 24, 1974, 74-1 CPD 26. HOWEVER, WHERE AWARD WAS MADE TO AN OFFEROR WHOSE TECHNICAL PROPOSAL WAS SCORED ABOUT 5 PERCENT HIGHER THAN A COMPETITOR'S TECHNICAL PROPOSAL BUT WHOSE PRICE WAS APPROXIMATELY FOUR-AND-ONE-HALF TIMES HIGHER, WE SAID THE RECORD DID NOT INDICATE THAT THE TECHNICAL SUPERIORITY OF THE ONE OFFEROR "WARRANTED AN AWARD TO HIM AT A SUBSTANTIALLY HIGHER PRICE" AND THAT THEREFORE THE RECORD DID NOT SUPPORT THE CONCLUSION THAT THE AWARD MADE WAS MOST ADVANTAGEOUS TO THE GOVERNMENT. DESIGN CONCEPTS, INC., B-184658, JANUARY 23, 1976, 76-1 CPD 39.

FURTHERMORE, WHILE POINT SCORES, TECHNICAL EVALUATION NARRATIVES, AND ADJECTIVE RATINGS MAY WELL BE INDICATIVE OF WHETHER ONE PROPOSAL IS TECHNICALLY SUPERIOR TO ANOTHER AND SHOULD THEREFORE BE CONSIDERED BY SOURCE SELECTION OFFICIALS, SEE EPSCO, INCORPORATED, B-103816, NOVEMBER 21, 1975, 75-2 CPD 338, WE HAVE RECOGNIZED THAT SELECTION OFFICIALS ARE NOT BOUND BY THE RECOMMENDATIONS MADE BY EVALUATION AND ADVISORY GROUPS. BELL AEROSPACE COMPANY, 55 COMP.GEN. 244 (1975), 75-2 CPD 168; TRACOR JITCO, INC., SUPRA; 51 COMP.GEN. 272 (1971); B-173137(1), SUPRA. THIS IS SO EVEN THOUGH IT IS THE WORKING LEVEL PROCUREMENT OFFICIALS AND EVALUATION PANEL MEMBERS WHO MAY NORMALLY BE EXPECTED TO HAVE THE TECHNICAL EXPERTISE RELEVANT TO THE TECHNICAL EVALUATION OF PROPOSALS. ACCORDINGLY, WE HAVE UPHELD SOURCE SELECTION OFFICIALS' DETERMINATIONS THAT TECHNICAL PROPOSALS WERE ESSENTIALLY EQUAL DESPITE AN EVALUATION POINT SCORE DIFFERENTIAL OF 81 OUT OF 1000, SEE 52 COMP.GEN. 686, SUPRA, AND DESPITE CONTRACTING OFFICER RECOMMENDATIONS THAT AWARD BE MADE TO THE OFFEROR WITH THE HIGHEST TECHNICAL RATING. SEE 52 COMP.GEN. 738, SUPRA.

AS INDICATED BY THE FOREGOING, SOURCE SELECTION DECISION-MAKING IS VESTED IN THE "CONSIDERABLE RANGE OF JUDGMENT AND DISCRETION" OF THE SELECTION OFFICIALS, EPSCO, INCORPORATED, SUPRA, WHO HAVE A "VERY BROAD DEGREE OF DISCRETION * * * IN DETERMINING THE MANNER AND EXTENT TO WHICH (THEY) WILL MAKE USE OF TECHNICAL EVALUATION RESULTS." DEPARTMENT OF LABOR DAY CARE PARENTS' ASSOCIATION, 54 COMP.GEN. 1035, 1040 (1975), 75-1 CPD 353. EXERCISING THAT DISCRETION, THEY ARE SUBJECT ONLY TO THE TESTS OF RATIONALITY (SEE TRACOR JITCO, INC., SUPRA, WHERE WE QUESTIONED THE SELECTION DECISION AS NOT "RATIONALLY JUSTIFIED BUT ULTIMATELY FOUND IN A LATER DECISION, ON THE BASIS OF A SUBSEQUENT SUBMISSION FROM THE PROCURING AGENCY, THAT THE SELECTION DECISION WAS SUPPORTABLE, 55 COMP.GEN. 499 (1975), 75-2 CPD 344) AND CONSISTENCY WITH ESTABLISHED EVALUATION FACTORS. SEE EPSCO, INCORPORATED, SUPRA. WE THINK THE RECORD ADEQUATELY ESTABLISHES THAT THE NAVY'S ULTIMATE SELECTION OF A CONTRACTOR WAS RATIONALLY FOUNDED. THE RECORD SHOWS THAT NAVMAT, IN CONJUNCTION WITH THE NAVY'S OFFICE OF GENERAL COUNSEL, CLOSELY SCRUTINIZED THE GREY AND BATES PROPOSALS ALONG WITH NRC'S AND NRPO'S RATIONALE FOR RECOMMENDING AWARD TO GREY. IT WAS THE CONSIDERED OPINION OF NAVMAT AND OTHER HIGH LEVEL NAVY PERSONNEL THAT THE PROPOSALS WERE SUBSTANTIALLY EQUAL TECHNICALLY. THIS CONCLUSION WAS BASED IN PART ON THEIR BELIEF THAT THE POINT SCORES ALONE DID NOT AUTOMATICALLY REFLECT SIGNIFICANT TECHNICAL SUPERIORITY AND IN PART ON THE PEP'S RECOGNITION THAT THE HIGHER GREY SCORE COULD BE DUE TO THE "NATURAL ADVANTAGE" OF THE INCUMBENT CONTRACTOR AND ACCOMPANYING "JUDGMENT THAT EITHER GREY * * * OR * * * BATES * * * COULD SATISFY THE REQUIREMENTS OF U.S. NAVY ADVERTISING."

ALTHOUGH GREY CORRECTLY POINTS OUT "THAT THERE IS NOTHING ILLEGAL" ABOUT AN INCUMBENT CONTRACTOR'S ADVANTAGES OVER COMPETITORS, AND WE HAVE OFTEN STATED THAT THE GOVERNMENT IS NOT REQUIRED TO EQUALIZE SUCH ADVANTAGES, SEE HOUSTON FILMS, INC., B-184402, DECEMBER 22, 1975, 75-2 CPD 404; H. J. HANSEN COMPANY, B-181543, MARCH 28, 1975, 75-1 CPD 187, NEITHER IS THE GOVERNMENT REQUIRED TO IGNORE THE FACT THAT A PARTICULAR SCORING DIFFERENTIAL MIGHT BE DUE TO ADVANTAGES OF INCUMBENCY. FOR EXAMPLE, AN AGENCY, IN DETERMINING WHICH OF TWO COMPETING PROPOSALS SHOULD BE ACCEPTED FOR AWARD, MIGHT WELL FIND IT SIGNIFICANT THAT ONE OFFEROR'S HIGHER EVALUATION SCORE RESULTS FROM SUPERIOR RATINGS IN EVALUATION CATEGORIES UPON WHICH INCUMBENCY WOULD IMPACT RATHER THAN IN OTHER AREAS WHERE THE AGENCY MIGHT FIND A POINT SPREAD TO BE MEANINGFUL IN INDICATING ACTUAL TECHNICAL SUPERIORITY FOR PURPOSES OF THE PARTICULAR PROCUREMENT. ACCORDINGLY, WE THINK THE PEP'S BELIEF THAT EITHER BATES OR GREY COULD PERFORM THE CONTRACT SATISFACTORILY PROVIDED AN ADEQUATE BASIS FOR NAVMAT'S DETERMINATION THAT THE PROPOSALS WERE ESSENTIALLY EQUAL TECHNICALLY.

FURTHERMORE, WE DO NOT BELIEVE THAT THE VALIDITY OF THAT DETERMINATION IS VITIATED BECAUSE IT WAS MADE AT THE NAVMAT LEVEL RATHER THAN AT THE NRC AND NRPO LEVEL. ALTHOUGH GREY MAKES MUCH OF THE FACT THAT THE COMMANDER OF NRC WAS TO BE THE TECHNICAL SOURCE SELECTION AUTHORITY AND LATER THE SOURCE SELECTION AUTHORITY AND THAT THE EXPERTISE TO DETERMINE THE NRC'S RECRUITING ADVERTISING NEEDS WAS AT THE NRC LEVEL, IT IS NOT IMPROPER FOR HIGHER LEVELS OF AUTHORITY BOTH WITHIN THE DEPARTMENT OF DEFENSE AND CIVILIAN AGENCIES TO ULTIMATELY MAKE SOURCE SELECTION DECISIONS FOR LOWER LEVEL PROCURING ACTIVITIES. FOR EXAMPLE, IN B-173137(1), SUPRA, THE CONTRACTING OFFICER AND BOARD OF AWARDS OF THE U.S. ARMY KOREA PROCUREMENT AGENCY RECOMMENDED AWARD TO THE OFFEROR RECEIVING THE HIGHEST NUMERICAL SCORE FROM TWO EVALUATION BOARDS. HOWEVER, U.S. ARMY PACIFIC, A HIGHER ECHELON COMMAND WHICH HAD TO APPROVE THE AWARD, DID NOT AGREE WITH THE POINT SCORES, AND SUBMITTED THE MATTER TO THE ASSISTANT SECRETARY OF THE ARMY. THE ASSISTANT SECRETARY AGREED WITH U.S. ARMY PACIFIC THAT AWARD SHOULD BE MADE TO ANOTHER OFFEROR. ALSO, IN A CASE SIMILAR TO THIS ONE, WE SAID THE FOLLOWING:

IN SUMMARY, WE FIND THAT ALTHOUGH SANDERS RECEIVED A HIGHER POINT SCORE IN THE INITIAL EVALUATION OF TECHNICAL PROPOSALS AND THE CONTRACTING OFFICER RECOMMENDED AWARD TO SANDERS, ARMY PROCEDURES REQUIRED THAT THE AWARD SELECTION BE REVIEWED AT A HIGHER LEVEL WITHIN THE ARMY. AS A RESULT OF THIS REVIEW IT WAS DETERMINED * * * THAT IN FACT THE PROPOSALS WERE SUBSTANTIALLY EQUAL IN TECHNICAL MERIT. ON THE OTHER HAND, IT WAS DETERMINED, BASED ON THE ARMY'S ANALYSIS OF THE PROPOSALS OF THE TWO FIRMS, THAT AEL'S PROPOSAL WAS SIGNIFICANTLY MORE ADVANTAGEOUS FROM A COST STANDPOINT. IT WAS THE CONSIDERED JUDGMENT OF THE REVIEWING EVALUATORS * * * THAT AN AWARD TO AEL WOULD BE IN THE BEST INTERESTS OF THE GOVERNMENT. 52 COMP.GEN. 738, 747, SUPRA. SEE ALSO 53 COMP.GEN. 5 (1973), IN WHICH WE UPHELD AN AWARD MADE BY THE FEDERAL AVIATION ADMINISTRATION (FAA) DESPITE THE PROTESTER'S ALLEGATION THAT THE OFFICE OF THE SECRETARY OF TRANSPORTATION HAD UNLAWFULLY INTERVENED IN THE FAA PROCUREMENT BY DISREGARDING FAA'S RECOMMENDATION TO AWARD TO A PARTICULAR OFFEROR AND DIRECTING AWARD TO A COMPETING FIRM. CF. CONGRESS CONSTRUCTION CORP. V. UNITED STATES, 314 F.2D 527, 161 CT.CL. 50. (1963). HERE, NAVMAT BECAME INVOLVED IN THE PROCUREMENT BECAUSE OF THE REGULATORY REQUIREMENT FOR IT TO GRANT A BUSINESS CLEARANCE PRIOR TO AWARD. SEE ARMED SERVICES PROCUREMENT REGULATION (ASPR) SECS. 1-403, 3- 101(C) (1974 ED.), NAVY PROCUREMENT DIRECTIVES (NPD) 1-403.50 (1974), AND 50 COMP.GEN. 739 (1971). NAVMAT, IN THE EXERCISE OF ITS DISCRETIONARY JUDGMENT, REFUSED TO GRANT A BUSINESS CLEARANCE FOR AN AWARD TO GREY. A RESULT, AWARD WAS ULTIMATELY MADE TO BATES. WE SEE NOTHING INCONSISTENT BETWEEN NAVMAT'S ROLE IN THIS CASE AND THE NORMAL NAVY SOURCE SELECTION PROCESS.

CONSISTENCY WITH EVALUATION CRITERIA

THE ORIGINAL RFP ESTABLISHED "ESTIMATED COST TO PROVIDE A WIDE RANGE OF MANPOWER AND SERVICES AND TO PERFORM SPECIFIC KINDS OF WORK AS IDENTIFIED IN COST SCHEDULE AND THE AMOUNT OF FEE" AS THE LEAST IMPORTANT EVALUATION FACTOR. AMENDMENT NO. 0004 PROVIDED THAT THE FIGURES CONTAINED IN THE COST SCHEDULE "WILL BE USED ONLY TO DETERMINE COST REALISM." GREY ARGUES THAT SINCE THE AMENDMENT "MADE CLEAR THAT 'COST' WAS TO BE MEASURED FOR 'REALISM' ONLY, NOT FOR 'AMOUNT OF COST' OR 'LOWEST COST TO THE GOVERNMENT,'" IT WAS IMPROPER FOR THE NAVY TO EVALUATE COST ON A QUANTUM BASIS. IN ADDITION, GREY ARGUES THAT EVEN IF COST REALISM COULD BE EQUATED TO LOW COST, THE NAVY'S RELIANCE ON COST TO SELECT BATES WAS IMPROPER BECAUSE IT HAD THE EFFECT OF TURNING THE LEAST IMPORTANT EVALUATION CRITERION INTO THE MOST IMPORTANT ONE.

WE RECOGNIZE THAT "AS A MATTER OF SOUND PROCUREMENT POLICY, * * * OFFERORS (SHOULD) BE ADVISED OF THE EVALUATION FACTORS TO BE USED AND THE RELATIVE IMPORTANCE OF THOSE FACTORS * * * (SINCE) COMPETITION IS NOT SERVED IF OFFERORS ARE NOT GIVEN ANY IDEA OF THE RELATIVE VALUES OF TECHNICAL EXCELLENCE AND PRICE." SEE SIGNATRON, INC., 54 COMP.GEN. 530, 535 (1974), 74-2 CPD 386, AND CASES CITED THEREIN. SEE ALSO ASPR SEC. 3- 501(B) (SEC. D). FURTHERMORE, ONCE OFFERORS ARE INFORMED OF THE CRITERIA AGAINST WHICH PROPOSALS WILL BE EVALUATED, IT IS INCUMBENT UPON THE PROCURING ACTIVITY TO ADHERE TO THOSE CRITERIA. SEE, E.G., EPSCO, INCORPORATED, SUPRA; SIGNATRON, INC., SUPRA; WILLAMETTE-WESTERN CORPORATION, ET AL., 54 COMP.GEN.375 (1974), 74-2 CPD 259 AND CASES CITED THEREIN.

HERE, HOWEVER, THE NAVY DID FOLLOW ITS ESTABLISHED EVALUATION CRITERIA. AMENDMENT 0004 INFORMED OFFERORS THAT "COST REALISM" WOULD BE OF CONCERN IN EVALUATING COST SCHEDULE FIGURES. WHILE NRC'S COST AND FEE REVIEW PANEL EVALUATED ONLY "COST EFFICIENCY" AND FEE RATHER THAN COST REALISM (THE PANEL FELT THAT COST REALISM WAS ELIMINATED AS A VIABLE EVALUATION CRITERION BY THE DISCLOSURE TO OFFERORS OF THE NAVY'S COST AND MANHOUR ESTIMATES), NAVMAT, IN CONSIDERING THE LIKELIHOOD OF BATES BEING ABLE TO PERFORM IN ACCORDANCE WITH ITS PROPOSED COSTS (SEE BELOW), DID IN EFFECT MAKE A COST REALISM DETERMINATION.

THE ESTABLISHMENT OF COST REALISM AS AN EVALUATION FACTOR, HOWEVER, DOES NOT PRECLUDE CONSIDERATION OF COST QUANTUM. OBVIOUSLY, A DETERMINATION THAT AN OFFEROR'S PROPOSED COSTS ARE REALISTIC WOULD NOT AUTOMATICALLY INDICATE THAT THE PROPOSAL WAS MOST ADVANTAGEOUS TO THE GOVERNMENT WITH RESPECT TO COST SINCE THOSE REALISTIC COSTS MIGHT SIGNIFICANTLY EXCEED WHAT THE GOVERNMENT WOULD HAVE TO INCUR UNDER A COMPETING PROPOSAL WHICH WAS ALSO COST REALISTIC. THUS, IN DETERMINING WHICH PROPOSAL OFFERS "THE GREATEST VALUE TO THE GOVERNMENT" OR WOULD "BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED" (SEE PARAGRAPH 10 OF STANDARD FORM 33A, PAGE 13 OF RFP), AN AGENCY, IN CONSIDERING COST, WOULD NECESSARILY HAVE TO TAKE INTO ACCOUNT COST QUANTUM AS WELL AS COST REALISM. SEE ILC DOVER, SUPRA. WHILE IT WOULD BE PREFERABLE FOR THIS TO BE EXPLICITLY INDICATED IN THE EVALUATION SECTION OF THE SOLICITATION, "WE DO NOT BELIEVE THAT THE ABSENCE OF SUCH A STATEMENT IN THE SOLICITATION MAY BE INTERPRETED TO MEAN THAT PRICE WOULD RECEIVE NO CONSIDERATION IN THE AWARD SELECTION." 52 COMP.GEN. 738, 747, SUPRA. IN THAT CASE, THE SOLICITATION PROVIDED THAT COST, WHICH WAS DESCRIBED IN TERMS OF REALISM, WOULD BE THE LEAST IMPORTANT EVALUATION FACTOR. ALTHOUGH ONE OFFEROR WAS RATED HIGHER TECHNICALLY, IT WAS ULTIMATELY DETERMINED THAT THE TWO COMPETING PROPOSALS WERE ESSENTIALLY EQUAL AND THAT THE AWARD SHOULD BE MADE TO THE OFFEROR WITH THE LOWER PROPOSED COSTS. WE UPHELD THE AWARD.

HERE, WHILE WE BELIEVE THE NAVY SHOULD HAVE MADE IT CLEARER THAT COST QUANTUM WAS NOT TO BE EXCLUDED FROM CONSIDERATION IN THE SELECTION OF AN OFFEROR FOR AWARD, WE NOTE, AS MENTIONED ABOVE, THAT THE RFP DID SPECIFY ON STANDARD FORM 33A THAT "PRICE" WOULD BE CONSIDERED IN DETERMINING THE AWARD MOST ADVANTAGEOUS TO THE GOVERNMENT, AND WE HAVE PREVIOUSLY HELD THAT THIS STANARD FORM 33A PROVISION IS SUFFICIENT TO PUT OFFERORS ON NOTICE THAT PRICE (COST QUANTUM) "WOULD BE A FACTOR IN THE EVALUATION OF PROPOSALS AND THE AWARDING OF THE CONTRACTS." 52 COMP.GEN. 161, 163 (1972). FURTHERMORE, WE FIND NOTHING IN THE RECORD WHICH INDICATES THAT EITHER BATES OR GREY WAS MISLED INTO BELIEVING THAT COST QUANTUM WOULD BE IGNORED IN THE SELECTION PROCESS.

WITH REGARD TO GREY'S SECOND POINT, WE CANNOT AGREE THAT THE NAVY'S CONSIDERATION OF COST QUANTUM IN THIS CASE WAS PRECLUDED BY THE DESIGNATION OF COST AS THE LEAST IMPORTANT EVALUATION FACTOR, SINCE IT IS WELL SETTLED THAT WHERE AN AGENCY REGARDS PROPOSALS AS ESSENTIALLY EQUAL TECHNICALLY, COST OR PRICE MAY BECOME THE DETERMINATIVE CONSIDERATION NOTWITHSTANDING THE FACT THAT IN THE OVERALL EVALUATION SCHEME COST WAS OF LESS IMPORTANCE THAN OTHER CRITERIA. 52 COMP.GEN. 738, SUPRA; 52 ID. 161, SUPRA; 50 ID. 246, SUPRA. INDEED, UNDER 10 U.S.C. 2304(G), PRICE MUST BE GIVEN APPROPRIATE CONSIDERATION IN THE AWARD OF ALL NEGOTIATED GOVERNMENT CONTRACTS.

ACCORDINGLY, WE FIND THAT THE SELECTION OF BATES ON THE BASIS OF ITS LOWER PROPOSED COSTS WAS NOT CONTRARY TO THE ESTABLISHED EVALUATION FACTORS.

RATIONALITY OF THE COST DETERMINATION

THE COST EVALUATION WHICH RESULTED IN THE SELECTION OF BATES WAS PREDICATED ON RFP COST SCHEDULE FIGURES SUBMITTED BY THE TWO OFFERORS. GREY CLAIMS THAT THE USE OF SUCH FIGURES COULD NOT PROVIDE A RATIONAL BASIS FOR DETERMINING WHICH PROPOSAL, UPON ACCEPTANCE, WOULD RESULT IN LESS COST TO THE NAVY BECAUSE THE COST FIGURES WERE RELATED ONLY TO A "HYPOTHETICAL" ADVERTISING PLAN AND NOT ANY DEFINITIVE STATEMENT OF WHAT WOULD BE REQUIRED UNDER THE CONTRACT. ACCORDING TO GREY, NEITHER OFFEROR INTENDED NOR WAS EXPECTED TO PERFORM THE CONTRACT TO BE AWARDED FOR THE ESTIMATED COST AND FIXED FEE SUBMITTED WITH THE COST SCHEDULE. RATHER, STATES GREY, UNDER THE INDEFINITE QUANTITY CONTRACT WORK WAS TO BE DEFINED IN INDIVIDUAL COST-PLUS-FIXED-FEE DELIVERY ORDERS, WITH NO TOTAL ESTIMATED COST AND FIXED FEE ATTACHING TO THE CONTRACT ITSELF. THUS, ASSERTS GREY, THE NAVY COULD NOT RATIONALLY SELECT ONE OFFEROR OVER ANOTHER ON THE BASIS OF LOWER TOTAL ESTIMATED COST AND FEE BECAUSE THERE WAS NO SUCH ESTIMATED COST AND FEE. FURTHERMORE, IT ASSERTS THAT EVEN IF THE COST SCHEDULE FIGURES COULD BE USED, A PROPER COST ANALYSIS WOULD HAVE INDICATED THAT GREY, NOT BATES, HAD ACTUALLY OFFERED A LOWER REALISTIC COST PROPOSAL.

IT IS TRUE THAT THE RFP DID NOT CONTAIN A COMPLETELY COMPREHENSIVE STATEMENT OF WORK. THE SCHEDULE SECTION OF THE RFP CALLED FOR THE PROVIDING OF "SERVICES OF COMPETENT PERSONNEL TO CONDUCT A PROGRAM OF PAID ADVERTISING" IN VARIOUS MEDIA AND TO CREATE AND PRODUCE VARIOUS TYPES OF ADVERTISING MESSAGES (SUCH AS NEWSPAPER ADS, OUTDOOR ADS, RADIO AND TELEVISION SPOT MESSAGES, AND MAGAZINE INSERTS) AND FOR PROVIDING SUPPORT THROUGH SUCH THINGS AS MARKETING PLAN, RESEARCH, FIELD SUPPORT, SEMINARS, AND SPORTS PROMOTIONS. THESE REQUIREMENTS WERE EXPLAINED TO SOME EXTENT IN ACCOMPANYING SPECIFICATIONS. HOWEVER, THE AMOUNT AND PRECISE NATURE OF THE REQUIRED SERVICES WERE NOT SPECIFIED. INSTEAD, AS INDICATED ABOVE, THE RFP INCLUDED AN "ATTACHMENT B" WHICH WAS DENOMINATED "COST SCHEDULE." THIS COST SCHEDULE SET FORTH "WHAT MIGHT BE CONSIDERED AN ADVERTISING PLAN THAT IS GENERALLY REPRESENTATIVE OF THE ITEMS (AN OFFER) WOULD INCLUDE IN (ITS) FUTURE ADVERTISING PLAN FOR NAVY," AND STATED THAT "WHILE THE FOLLOWING IS AN APPROXIMATION OF THE KEY PROJECTS IN A POSSIBLE AD PLAN, (AN OFFEROR) MAY BE TASKED TO CARRY OUT ALL OR ANY OF THE ACTIVITIES LISTED UNDER THE SCOPE OF WORK IN (THE SPECIFICATION SECTION)."

WE DO NOT AGREE, HOWEVER, THAT THE LACK OF A COMPREHENSIVE STATEMENT OF WORK THEREBY AUTOMATICALLY PRECLUDED AN EFFECTIVE COST COMPARISON OF COMPETING PROPOSALS OR THAT OFFERORS WERE NOT ON NOTICE THAT SUCH A COMPARISON WOULD BE MADE. THE INTRODUCTION TO THE COST SCHEDULE SECTION OF THE RFP INFORMED OFFERORS THAT "IN ORDER FOR THE NAVY TO EVALUATE THE COST OF YOUR SERVICES, IT WILL BE NECESSARY FOR YOU TO PROVIDE YOUR ESTIMATES OF THE COST OF INDIVIDUAL LINE ITEMS IN THE NAVY'S ADVERTISING AGENCY BUDGET" AND THEN REQUESTED THEM TO "LIST AFTER EACH ITEM (IN THE COST SCHEDULE) YOUR ESTIMATED COST TO PRODUCE/PLACE CARRY OUT ACTION INDICATED." FURTHERMORE, SECTION D PROVIDED THAT PROPOSALS WOULD BE EVALUATED ON THE ESTIMATED COST TO PROVIDE "A WIDE RANGE OF MANPOWER AND SERVICES" AND TO PERFORM THE KIND OF WORK IDENTIFIED IN THE COST SCHEDULE. ALTHOUGH AMENDMENT 0004 TO THE RFP ADVISED OFFERORS THAT THEIR FIGURES CONTAINED IN THE COST SCHEDULE "WILL BE USED ONLY TO DETERMINE COST REALISM," SUCH A DETERMINATION IN ITSELF REQUIRES AN ANALYSIS AND EVALUATION OF THE FIGURES SUBMITTED, WITH POSSIBLE SUBSTITUTION OF GOVERNMENT FIGURES FOR AN OFFEROR'S FIGURES FOUND TO BE UNREALISTIC. SEE 50 COMP.GEN. 390, 410 (1970); SCOTT SERVICES, INCORPORATED, B-181075, OCTOBER 30, 1974, 74-2 CPD 232. THUS, IT WAS CLEAR FROM THE SOLICITATION THAT THE COST SCHEDULE WOULD BE USED TO EVALUATE COSTS.

ADMITTEDLY, THE FIGURES SUBMITTED IN THE COST SCHEDULE COULD NOT BE USED TO DETERMINE THE PROBABLE TOTAL ESTIMATED COST PLUS FIXED FEE OF THE CONTRACT TO BE AWARDED, SINCE THE COST SCHEDULE DID NOT PURPORT TO INCLUDE ALL WORK THAT WOULD BE REQUIRED UNDER THE CONTRACT. THE NAVY ITSELF RECOGNIZED THIS WHEN IT INFORMED OFFERORS IN RFP AMENDMENT NO. 0004 THAT THE NAVY'S ESTIMATE FOR FY 1976 WORK ORDERS WAS "$16 MILLION EXCLUDING FEE" AND THAT THE "COST SCHEDULE IS NOT INTENDED TO TOTAL" THAT ESTIMATE. HOWEVER, WHILE RELIANCE COULD NOT BE PLACED ON THE COST SCHEDULE FIGURES FOR DETERMINING THE PROBABLE SPECIFIC DOLLAR COST TO THE NAVY OF ACCEPTING EITHER THE BATES OR GREY PROPOSAL, WE BELIEVE THAT THE COST SCHEDULE COULD PROPERLY BE USED FOR MAKING A COST COMPARISON BETWEEN COMPETING PROPOSALS TO DETERMINE THE PROBABLE RELATIVE COST TO THE NAVY OF ACCEPTING ONE PROPOSAL RATHER THAN ANOTHER. NRC'S OWN COST AND FEE REVIEW PANEL RECOGNIZED THIS WHEN IT STATED THAT "THE PANEL FELT THAT THE COST SCHEDULE * * * WITH ITS ASSUMPTIONS, PLACED BOTH (OFFEROR) AGENCIES ON AN EQUAL FOOTING, THEREBY, PERMITTING A VALID COMPARISON OF ESTIMATED COSTS."

IN THIS REGARD, WE POINT OUT THAT WHEN COST-TYPE CONTRACTS ARE TO BE AWARDED, SINCE ALL ALLOWABLE COSTS INCURRED BY A CONTRACTOR WILL BE REIMBURSED AND "ESTIMATES OF COST MAY NOT PROVE VALID INDICATORS OF FINAL ACTUAL COSTS," ASPR 3-803(C), THE GOVERNMENT'S EVALUATION IS GEARED TO A DETERMINATION OF THE "REASONABLENESS AND REALISM" OF PROPOSED COSTS. SEE SIGNATRON, INC., SUPRA. THE GOVERNMENT'S DETERMINATION IS IN REALITY NO MORE THAN AN INFORMED JUDGMENT OF WHAT COSTS WOULD BE INCURRED BY ACCEPTANCE OF A PARTICULAR PROPOSAL, SEE E.G., BELL AEROSPACE COMPANY, ET AL, 54 COMP.GEN. 352, 359 (1974), 74-2 CPD 248; PRC COMPUTER CENTER, INC., ET AL, 55 COMP.GEN. 60, 78 (1975), 75-2 CPD 635, AND THAT JUDGMENT MAY OR MAY NOT PROVE TO BE ACCURATE AS THE CONTRACT IS PERFORMED. THE FACT THAT THE GOVERNMENT'S JUDGMENT PROVES TO BE INACCURATE MIGHT COST THE GOVERNMENT MORE THAN WAS ANTICIPATED, BUT WOULD NOT NEGATE EITHER THE VALIDITY OF THE JUDGMENT AT THE TIME IT WAS MADE OR THE CONTRACT AWARDED AS A RESULT OF THAT JUDGMENT. AS WE HAVE RECOGNIZED, WHETHER SUBMITTED PROPOSALS ARE COST REALISTIC "MUST PROPERLY BE LEFT TO THE ADMINISTRATIVE DISCRETION OF THE CONTRACTING AGENCIES * * * (WHICH) MUST BEAR THE MAJOR CRITICISM FOR ANY DIFFICULTIES OR EXPENSES EXPERIENCED BY REASON OF A DEFECTIVE COST ANALYSIS." 50 COMP.GEN. 390, 410, SUPRA; 53 ID. 240 (1973); RAYTHEON COMPANY, 54 COMP.GEN. 169 (1974), 74-2 CPD 137; PRC COMPUTER CENTER, INC., ET AL, SUPRA.

WHILE ORDINARILY AN EVALUATION OF THE PROBABLE RELATIVE COST TO THE GOVERNMENT OF COMPETING PROPOSALS WOULD BE BASED ON A DEFINITIVE STATEMENT OF WORK, HERE THE UNCERTAINTIES OF FUTURE BUDGETING AND PERSONNEL REQUIREMENTS PRECLUDED THE NAVY FROM PREDICTING ITS ACTUAL RECRUITING ADVERTISING NEEDS WITH ANY MORE SPECIFICITY. NONETHELESS, IT APPEARS THAT THE COST SCHEDULE INCORPORATED THE MAJOR "KEY" ELEMENTS OF WHAT WOULD BE REQUIRED UNDER THE CONTRACT SO AS TO PERMIT A VALID COMPARISON OF PROPOSALS ON THE BASIS OF EACH OFFEROR'S COST SCHEDULE ENTRIES. FURTHERMORE, IT APPEARS FROM THE BEST AND FINAL OFFERS SUBMITTED BY BATES AND GREY THAT AT LEAST TWO OF THEIR COST SCHEDULE ENTRIES-- INDIRECT COSTS AND FIELD FORCE-- WERE IN FACT BASED ON THE NAVY'S ACTUAL ANTICIPATED ANNUAL REQUIREMENTS RATHER THAN ON A HYPOTHETICAL REQUIREMENT. THUS, WE THINK THE PROPOSALS SUBMITTED DID PROVIDE THE NAVY WITH A REASONABLE BASIS FOR DETERMINING THE PROBABILITY OF INCURRING GREATER TOTAL COSTS UNDER ONE PROPOSAL RATHER THAN ANOTHER. THE RECORD SHOWS THAT THE NAVY'S ULTIMATE COST DETERMINATION WAS BASED UPON AN EXAMINATION OF COST PROPOSALS BY NAVMAT'S BUSINESS CLEARANCE OFFICER AND UPON A COST ANALYSIS PERFORMED BY THE DEPUTY CHIEF OF NAVAL MATERIAL FOR PROCUREMENT AND PRODUCTION. IT WAS THE BUSINESS CLEARANCE OFFICER WHO FIRST DETERMINED THAT ACCEPTANCE OF THE BATES PROPOSAL WOULD BE LESS COSTLY TO THE NAVY THAN ACCEPTANCE OF THE GREY PROPOSAL. IN A MEMORANDUM DATED JULY 29, 1975, THAT OFFICIAL EXPLAINED HIS RATIONALE FOR CONCLUDING THAT LOWER COSTS WOULD ATTACH TO THE BATES PROPOSAL. AFTER NOTING THAT THE BEST AND FINAL COST SCHEDULE FIGURES INDICATED THAT BATES WOULD COST THE GOVERNMENT $965,702 LESS ANNUALLY (BASED ON A DIFFERENCE OF $762,752 IN ESTIMATED COSTS AND $202,950 IN FEE) AND THAT THE COST SCHEDULE FIGURES DID "PROVIDE A BASIS FOR COMPARISON AND ANALYSIS OF THE OFFERORS' COST PROPOSALS," HE STATED THE FOLLOWING:

IN DETERMINING THE REASONABLENESS AND REALISM OF THE OFFERORS' COST PROPOSALS THIS OFFICE FIRST LOOKED AT THE INITIAL PROPOSALS SUBMITTED BY THE FOUR OFFERORS. BATES' INITIAL PROPOSAL OF $11,313,532 FELL BETWEEN TWO OTHER OFFERS OF $10,684,685 AND $13,741,469. GREY'S INITIAL PROPOSAL OF $16,393,800 WAS NOT RESPONSIVE TO THE RFP IN THAT, AS STATED ABOVE, IT WAS BASED ON HISTORICAL COSTS RATHER THAN THE COST SCHEDULE UPON WHICH THE OTHER OFFERORS WERE PROPOSING.

THE COST SCHEDULE WAS STRUCTURED SO THAT IT IDENTIFIED THE COSTS ASSOCIATED WITH DISCRETE TASKS. NRPO WASHINGTON COMPILED A TABLE WHICH SET FORTH THE COSTS PREPARED BY EACH OFFEROR UNDER THE INDIVIDUAL TASKS OF THE COST SCHEDULE. WITH THE EXCEPTION OF GREY, WHO WAS PROPOSING ON A DIFFERENT BASIS, THE OFFERORS WERE ALL CONSIDERED REASONABLE.

DD FORM 633'S WERE ALSO RECEIVED WITH INITIAL PROPOSALS AND REVIEWED BY THIS OFFICE TOGETHER WITH THE UPDATED COST DATA ACCOMPANYING THE OFFERORS' BEST AND FINAL OFFERS. THE BATES SUBMISSION CLEARLY DOCUMENTED THE BASIS FOR ITS INCREASE BETWEEN THE INITIAL PROPOSAL AND THE BEST AND FINAL OFFER. THE INCREASE WAS PRIMARILY THE RESULT OF INFORMATION PROVIDED IN THE REQUEST FOR BEST AND FINAL OFFERS WHICH FOR THE FIRST TIME GAVE THE GOVERNMENT'S ESTIMATE OF THE NUMBER OF HOURS REQUIRED. THIS RESULTED IN BATES INCREASING ITS ESTIMATE OF THE MANHOURS REQUIRED FOR SPECIFIC LABOR CATEGORIES.

GREY'S BEST AND FINAL OFFER AND THE COST DATA SUBMITTED THEREWITH WAS A SUBSTANTIAL DEPARTURE FROM ITS INITIAL PROPOSAL. FOR THE FIRST TIME IT SUBMITTED ITS COST PROPOSAL ON THE BASIS OF THE COST SCHEDULE.

IN THE VIEW OF THIS OFFICE, THE BEST AND FINAL COST PROPOSAL SUBMITTED BY BATES IS CONSIDERED REALISTIC IN TERMS OF THE GOVERNMENT'S REQUIREMENTS AS SET FORTH IN THE COST SCHEDULE OF THE RFP AND BATES' VIEW OF THIS OFFICE THAT THERE IS NO EVIDENCE TO CONCLUDE THAT GREY'S OFFER, ALTHOUGH SUBSTANTIALLY HIGHER IN COST AND FEE THAN BATES', IS NOT REALISTIC ALSO. THIS JUDGMENT IS BASED UPON (1) THE COMPARISON OF THE TWO PROPOSALS WITH THOSE SUBMITTED BY THE TWO OFFERORS WHICH HAD EARLIER BEEN DROPPED FROM THE COMPETITION; (2) AN ANALYSIS OF THE COST SCHEDULE SUBMISSIONS OF ALL OFFERORS; (3) AN ANALYSIS OF THE COST AND PRICING DATA SUBMITTED BY BATES AND GREY; AND (4) OVER YEARS EXPERIENCE AS THE NAVY OFFICIAL AUTHORIZED TO AND SPECIFICALLY CHARGED WITH THE RESPONSIBILITY OF REVIEWING AND APPROVING OR DISAPPROVING THE BUSINESS ASPECTS OF ITS MAJOR CONTRACTS.

ACCORDINGLY, IN MY JUDGMENT, BOTH THE COST AND FEE DIFFERENCES BETWEEN BATES AND GREY ARE SUBSTANTIAL AND THE SPREAD IN ESTIMATED COST IS REAL RATHER THAN APPARENT.

THE SUBSEQUENT COST ANALYSIS, REFERRED TO BY NAVMAT AS AN "INDEPTH COST ANALYSIS," "CONFIRMED THE PREVIOUS ANALYSES AND JUDGMENTS THAT BATES' ESTIMATED COSTS PLUS FIXED FEE FOR THE PERFORMANCE OF THE SUBJECT CONTRACT WERE SUBSTANTIALLY LOWER THAN THOSE OF GREY." THIS COST ANALYSIS WAS DESCRIBED BY THE NAVY AS FOLLOWS:

REAR ADMIRAL EVANS IN HIS ANALYSIS READ AND REVIEWED THE INITIAL COST PROPOSALS AND ACCOMPANYING DD FORM 633'S, SUBMITTED BY THE FOUR ORIGINAL OFFERORS. HE CONSIDERED THE DCAA AUDIT REPORT CONDUCTED ON GREY'S INITIAL COST PROPOSAL. FURTHER, HE HAD BEFORE HIM BOTH BATES' AND GREY'S BEST AND FINAL OFFERS. FINALLY HE CONSIDERED THE COMMENTS MADE BY REPRESENTATIVES OF THE NRC AND THE NRPO'S BUSINESS CLEARANCE IN SUPPORT OF GREY'S COST PROPOSAL.

HE STARTED HIS ANALYSIS BY COMPARING THE BOTTOM LINE COST ESTIMATES SUBMITTED BY THE FOUR OFFERORS IN THEIR INITIAL PROPOSALS. WITH THE EXCEPTION OF GREY, THE OFFERORS WERE CLUSTERED WITHIN A REASONABLY CLOSE RANGE. IN ITS BEST AND FINAL OFFER, GREY TOO JOINED THE RANGE OF THE OTHER OFFERORS. AN ATTEMPT WAS THEN MADE TO CORRELATE THE INDIVIDUAL COST ELEMENTS OF THE FOUR OFFERORS' PROPOSALS (CONSIDERING BATES' AND GREY'S BEST AND FINAL OFFER). THIS DID NOT RESULT IN ANY MEANINGFUL CONCLUSIONS.

AN ATTEMPT WAS THEN MADE TO CORRELATE THE DIFFERENCES BETWEEN GREY'S AND BATES' INITIAL COST PROPOSALS AND THEIR BEST AND FINAL OFFERS. ALTHOUGH GREY'S ESTIMATED COST DROPPED SUBSTANTIALLY, AS A BOTTOM LINE FIGURE AS WELL AS INDIVIDUAL COST ELEMENTS, NO MEANINGFUL JUSTIFICATION WAS GIVEN FOR THE CHANGE. TO THE CONTRARY, GREY COMMENTED ON THE SWEEPING REDUCTION BETWEEN ITS INITIAL PROPOSAL AND ITS BEST AND FINAL OFFER AS FOLLOWS:

"THUS, OUR ORIGINAL SUBMISSION WAS RELEVANT TO NAVY'S NEEDS, AND FULLY REFLECTIVE OF GOOD VALUE TO THE NAVY. HOWEVER, IT WAS NOT A LITERAL RESPONSE TO THE PRECISE SPECIFICATIONS OF THE RFP. OUR NEWEST SUBMISSION, CONTAINED ON THE FOLLOWING PAGES, IS ALSO REFLECTIVE OF GOOD VALUE, BUT IT IS BASED ON CLOSE ADHERENCE TO THE RFP."

GREY ALSO STATED IN ITS BEST AND FINAL OFFER THAT WHILE ITS EXPERIENCE INDICATED THAT IT WOULD EXPEND APPROXIMATELY 153,632 MAN HOURS, IT WAS PROPOSING ON THE BASIS OF 143,000 MAN-HOURS AS "DESCRIBED IN YOUR INSTRUCTIONS." ALSO OF CONCERN TO REAR ADMIRAL EVANS WAS GREY'S SUBSTANTIAL REDUCTION IN THE AREA OF RESEARCH. THE DESCRIPTION OF THIS ITEM REMAINED UNCHANGED FROM THE ISSUANCE OF THE SOLICITATION TO CONTRACT AWARD. FURTHER, GREY, ITSELF, HAD PREPARED THE WORK STATEMENT FOR THIS AREA AND SHOULD HAVE BEEN IN A POSITION TO ACCURATELY ESTIMATE ITS COST. HOWEVER, ITS COST ESTIMATE DROPPED FROM $375,600 TO $187,189 IN ITS BEST AND FINAL OFFER WITH NO APPARENT JUSTIFICATION.

IN VIEW OF THE LACK OF TRACKABILITY OF GREY'S COST REDUCTIONS AND IN LIGHT OF THE AUDITOR'S UNFAVORABLE COMMENTS ON CERTAIN ASPECTS OF GREY'S INITIAL PROPOSAL, IT WAS CONSIDERED THAT NEITHER GREY'S HISTORICAL COSTS NOR ITS BEST AND FINAL OFFER MERITED SUFFICIENT CREDIBILITY TO SERVE AS A BENCHMARK FOR THE DETERMINATION OF REASONABLE COST.

BATES, ON THE OTHER HAND, SUBMITTED A DETAILED JUSTIFICATION FOR THE COST INCREASE BETWEEN ITS INITIAL PROPOSAL AND ITS BEST AND FINAL OFFER, INCLUDING SPECIFIC IDENTIFICATION OF INCREASES IN EACH CATEGORY OF LABOR. BATES COMMENTED ON ITS INCREASE FROM 93,746 TO 123,380 MAN HOURS AS FOLLOWS:

"THE ABOVE NUMBERS ARE BASED ON A 1600 HOUR MAN-YEAR. WE UNDERSTAND THAT THE NAVY'S EXPERIENCE OF 143,000 MAN-HOURS IS BASED ON AN 1820 HOUR MAN- YEAR. WERE WE TO USE THE SAME FIGURE FOR MAN-HOURS IN A YEAR, OUR TOTAL WOULD BE APPROXIMATELY 143,000. IN ANY CASE, WE BELIEVE OUR REVISED STAFFING WILL BE UP TO:

. . . THE NORMAL WORK LOAD.

. . . SEASONAL PEAK WORK LOADS.

. . . CRASH PROGRAMS, EMANATING EITHER FROM LAST-MINUTE CHANGES OR CONGRESSIONAL INQUIRIES.

"IN FACT, WE WOULD ANTICIPATE THAT AT A NUMBER OF TIMES DURING THE YEAR OUR EXECUTIVES AND OUR PROFESSIONAL STAFF WOULD PUT IN MANY MORE THAN THE ORDINARY NUMBER OF WORKING HOURS. BUT THESE PEOPLE ARE NOT PAID OVERTIME, AND WE WOULD NOT EXPECT THE NAVY TO PAY FOR ANY EXTRA HOURS THEY WORKED."

REAR ADMIRAL EVANS THEN TURNED TO CONSIDERATION OF THE INDIVIDUAL COST ELEMENTS OF THE TWO BEST AND FINAL OFFERS. IN THIS AREA, LEAD FULFILLMENT AND DIRECT MAIL WERE PARTICULARLY IMPORTANT SINCE NRC HAD INDICATED THAT THESE WERE AREAS WHERE BATES MAY HAVE MISUNDERSTOOD THE NAVY'S REQUIREMENTS. ANALYSIS REVEALED, HOWEVER, THAT GREY HAD A LONGSTANDING SUBCONTRACTOR IN THESE AREAS (CHAPMAN,) WITH WHOM IT HAD PREVIOUSLY BEEN AFFILIATED. THE SOLICITATION, HOWEVER, CONTAINED NO REQUIREMENT THAT LEAD FULFILLMENT OR DIRECT MAIL MUST BE PERFORMED BY CHAPMAN. IN THESE AREAS, BATES, HAVING AN IN-HOUSE CAPABILITY, INDICATED THAT IT WOULD EITHER PERFORM THE WORK IN-HOUSE OR IT WOULD SOLICIT COMPETITIVE BIDS FOR THE WORK. IT WAS THUS REASONABLE TO CONCLUDE THAT BATES' ESTIMATED COST WOULD BE LESS IN THIS AREA.

ALSO, IN THE AREA OF OVERHEAD RATES AND DIRECT LABOR, IT APPEARED THAT BATES OFFERED AN ADVANTAGE OVER GREY. IT WAS RECOGNIZED THAT BATES AND GREY HAD DIFFERENT METHODS OF ACCOUNTING WITH RESPECT TO NONPRODUCTIVE MAN -HOURS. IT WAS FELT, HOWEVER, THAT BATES OFFERED A SUBSTANTIAL SAVINGS IN THE AREA OF DIRECT LABOR, SINCE THEY PROPOSED TO PERFORM FOR 123,000 MAN- HOURS WHEREAS GREY ESTIMATED DIRECT LABOR REQUIREMENTS AT 143,000 MAN- HOURS AND INDICATED IT MIGHT TAKE AS MUCH AS 153,632. IN THIS REGARD, IT WAS APPARENT FROM ITS DETAILED BREAKDOWN OF LABOR THAT BATES UNDERSTOOD THE NAVY'S REQUIREMENTS AND ITS ESTIMATE OF MAN-HOURS WAS CONSIDERED TO BE REASONABLE. TO CONFIRM BATES' PROPOSED RATES, REAR ADMIRAL EVANS REQUESTED A DCAA AUDIT REPORT WHICH DID, IN FACT, CONFIRM BATES' OVERHEAD RATES AS REASONABLE. FINALLY, IT WAS INDISPUTABLE THAT BATES' FIXED FEE WAS SIGNIFICANTLY LESS THAN THAT OFFERED BY GREY.

AGAINST THE BACKGROUND OF THIS ANALYSIS, ADMIRAL EVANS CONCLUDED THAT THERE WAS NO REASONABLE BASIS TO EXPECT THAT GREY COULD PERFORM THE NAVY RECRUITMENT ADVERTISING REQUIREMENTS AT LESS THAN THE COST ESTIMATE WHICH IT PROPOSED. IN FACT, THERE WAS A CONCERN, IN VIEW OF THE UNSUPPORTED COST REDUCTIONS AND OF THE DCAA AUDIT CRITICISMS OF ITS INITIAL PROPOSAL, THAT GREY COULD PERFORM AT THE COST ESTIMATE SET FORTH IN ITS BEST AND FINAL OFFER, ADMIRAL EVANS ALSO CONCLUDED THAT BATES' ESTIMATED COST WAS REASONABLE AND THERE WAS NO EVIDENLE TO INDICATE THAT THEY COULD NOT PERFORM WITHIN THE PROPOSED ESTIMATED COST. AS A RESULT HE DETERMINED THAT BATES OFFERED THE MOST ADVANTAGEOUS COST AND FEE PROPOSAL. IN MAKING THIS DETERMINATION, REAR ADMIRAL EVANS CONFIRMED HIS PREVIOUS DECISION AND REACHED THE SAME CONCLUSION THAT MR. RULE HAD PREVIOUSLY REACHED.

GREY ARGUES THAT THE NAVY COULD NOT RATIONALLY CONCLUDE FROM A COMPARISON AND ANALYSIS OF PROPOSALS THAT BATES WOULD COST THE NAVY LESS AND THAT "ALL OF THE COST ANALYSIS IN THIS PROCUREMENT WAS * * * DEFECTIVE." ACCORDING TO GREY, THE BUSINESS CLEARANCE OFFICER "LOOKED ONLY AT THE SUMMARY FIGURES OF THE FOUR ORIGINAL ESTIMATES AND MADE NO ATTEMPT TO EXAMINE DISCRETE ITEMS OF COST," AND "DID NOT UNDERTAKE ANY ANALYSIS OF THE COST AND PRICING DATA SUBMITTED BY BATES AND GREY WHICH WOULD HAVE REVEALED * * * THE GROSS DISPARITIES RESULTING FROM BATES' INCORRECT ASSUMPTIONS WITH REGARD TO THE COST OF SUBCONTRACTED ACTIVITY IN THE AREAS OF DIRECT MAIL AND LEAD FULFILLMENT * * * ," WHILE ADMIRAL EVANS, IN PERFORMING HIS COST ANALYSIS, MADE ONLY A "SKIMPY AND INADEQUATE" ANALYSIS THAT WAS REPLETE WITH ERRORS. GREY CLAIMS THAT A PROPER COST ANALYSIS WOULD HAVE SHOWN GREY TO BE LOWER THAN BATES IN ESTIMATED REALISTIC COST PLUS FEE BY SOME $464,535. SPECIFICALLY, GREY ASSERTS THAT NAVMAT'S COST ANALYSIS WAS ERRONEOUS IN THE FOLLOWING RESPECTS:

1) IN FINDING THAT NO MEANINGFUL JUSTIFICATION WAS GIVEN BY GREY FOR THE SUBSTANTIAL DROP IN ESTIMATED COST FROM GREY'S INITIAL PROPOSAL TO ITS BEST AND FINAL;

2) IN FINDING THAT BATES HAD LOWER OVERHEAD RATES;

3) IN CONCLUDING THAT BATES' ESTIMATED COST IN THE AREAS OF OUT-OF POCKET FIELD FORCE AND TRAVEL EXPENSES, LEAD FULFILLMENT AND DIRECT MAIL WERE REALISTIC;

4) IN CONCLUDING THAT BATES COULD PERFORM THE CONTRACT WITH LESS MAN HOURS.

WE SEE NO NEED TO CONSIDER THE FIRST ALLEGED ERROR. DESPITE THE FINDING OF "NO MEANINGFUL JUSTIFICATION" FOR GREY'S DOWNWARD REVISION OF ESTIMATED COSTS AND SOME EARLIER INDICATIONS THAT THOSE COSTS WOULD THEREFORE NOT BE REGARDED AS REALISTIC, THE RECORD SHOWS THAT NAVMAT ULTIMATELY DETERMINED THAT GREY'S PROPOSED COSTS, ALBEIT HIGHER THAN BATES', WERE IN FACT REALISTIC. GREY, OF COURSE, IS NOT CHALLENGING THE DETERMINATION THAT ITS PROPOSAL WAS REALISTIC; WHAT IT OBJECTS TO IS NAVMAT'S FINDING THAT THE BATES PROPOSAL, WITH ITS LOWER COST FIGURES, WAS ALSO REALISTIC. IT IS THUS THE OTHER AREAS WHERE GREY ALLEGES ERROR THAT ARE OF CONSEQUENCE TO THIS PROTEST.

IN THE AREA OF OVERHEAD, BATES' PROPOSAL INDICATED DEPARTMENTAL OVERHEAD RATES OF FROM 40 TO 70 PERCENT AND A CORPORATE OVERHEAD (G & A) RATE OF 30 PERCENT. THE DEFENSE CONTRACT AUDIT AGENCY (DCAA) EVALUATED THESE RATES AND FOUND THEM TO BE REASONABLE. IN HIS COST ANALYSIS, ADMIRAL EVANS ACCEPTED THE 30 PERCENT G & A RATE AND COMPUTED A COMPOSITE DEPARTMENTAL OVERHEAD RATE OF 46.5 PERCENT. FROM GREY'S PROPOSAL, ADMIRAL EVANS COMPUTED A COMPOSITE DEPARTMENTAL OVERHEAD RATE OF 72.6 PERCENT AND A 25 PERCENT G & A RATE.

GREY CLAIMS THAT ADMIRAL EVANS' ANALYSIS OF OVERHEAD IS ERRONEOUS IN TWO RESPECTS. FIRST, GREY STATES THAT ADMIRAL EVANS IMPROPERLY COMPUTED GREY'S G & A RATE AS A PERCENTAGE OF DIRECT LABOR COSTS RATHER THAN AS A PERCENTAGE OF DIRECT LABOR PLUS DEPARTMENTAL OVERHEAD COSTS. SECOND, GREY ASSERTS THAT BATES' OVERHEAD RATES CAN BE DETERMINED ONLY BE ADJUSTING BATES' COST FIGURES TO TAKE INTO ACCOUNT THE LABOR AND OVERHEAD COSTS BATES INCLUDED IN THE FIELD FORCE CATEGORY IN WHICH GREY INCLUDED ONLY OUT -OF-POCKET (TRAVEL) TYPE COSTS. WE AGREE THAT AN ERROR WAS MADE IN THE COMPUTATION OF GREY'S G & A RATE. RATHER THAN THE 25 PERCENT COMPUTED BY ADMIRAL EVANS, A PROPER COMPUTATION BASED ON DIRECT LABOR AND DEPARTMENTAL OVERHEAD WOULD REFLECT A G & A RATE OF 14.5 PERCENT.

WE ALSO AGREE THAT, IF OVERALL OVERHEAD RATES WERE TO BE COMPARED, IT WOULD HAVE BEEN APPROPRIATE FOR THOSE RATES TO BE COMPUTED ON THE SAME BASIS FOR BOTH OFFERORS. SINCE THE COMPUTATION OF GREY'S OVERHEAD RATES WAS BASED ON ALL DIRECT LABOR, THE BATES OVERHEAD RATES SHOULD ALSO HAVE BEEN COMPUTED ON THAT BASIS. AS GREY POINTS OUT, THIS WOULD HAVE THE EFFECT OF INCREASING BATES' COMPOSITE DEPARTMENTAL OVERHEAD RATE FROM 46.5 PERCENT TO 51 PERCENT. GREY FURTHER INDICATES THAT THIS WOULD ALSO INCREASE BATES' G & A RATE FROM 30 PERCENT TO 31.2 PERCENT. HOWEVER, BATES CLEARLY PROPOSED A CORPORATE OVERHEAD RATE OF 30 PERCENT. GREY'S COMPUTATION OF THE HIGHER RATE IS BASED ON THE DOLLAR FIGURES OBTAINED FROM BATES' INCLUSION OF TRAVEL COSTS IN COSTS. JUST AS IT WAS APPROPRIATE TO INCLUDE BATES' FIELD FORCE LABOR IN INDIRECT COSTS FOR DETERMINING OVERHEAD RATES, IT WAS ALSO APPROPRIATE, AS GREY RECOGNIZED ELSEWHERE IN ITS SUBMISSIONS, TO EXCLUDE THESE OUT-OF-POCKET TRAVEL COSTS FROM THE OVERHEAD COMPUTATION.

A COMPUTATION BASED ON THESE ADJUSTMENTS INDICATES THAT BATES RETAINS A SMALL BUT PERCEPTIBLE OVERHEAD RATE ADVANTAGE, AS SHOWN BY THE FOLLOWING EXAMPLE BASED ON A HYPOTHETICAL DIRECT LABOR COST OF $1 MILLION. (TABLE OMITTED)

HOWEVER, GREY ALSO STATES THAT BATES AND GREY USED DIFFERENT METHODS OF COSTING DIRECT LABOR WHICH PRECLUDES A DIRECT COMPARISON OF DEPARTMENTAL OVERHEAD RATES. ACCORDING TO GREY, BATES INCLUDED NONPRODUCTIVE DIRECT LABOR COSTS IN ITS DIRECT LABOR RATE, THEREBY EXCLUDING THEM FROM OVERHEAD, WHILE GREY DEVELOPED A LABOR RATE WHICH REQUIRED THE INCLUSION OF NONPRODUCTIVE LABOR COSTS IN OVERHEAD POOLS. THIS DIFFERENCE IN ACCOUNTING METHODS, SAYS GREY, CAN CAUSE OVERHEAD AND DIRECT LABOR RATES TO VARY BY SOME 20 PERCENT EVEN THOUGH ACTUAL COST REMAINS THE SAME. THEREFORE, WHAT MUST BE CONSIDERED IS NOT THE OVERHEAD RATES PER SE, BUT RATHER THE ACTUAL COST TO THE NAVY FOR THE NUMBER OF PRODUCTIVE MAN-HOURS REQUIRED TO PERFORM THE CONTRACT. IN THIS REGARD, GREY OFFERS FURTHER ANALYSIS WHICH PURPORTS TO SHOW THAT BATES' COST PER PRODUCTIVE MAN-HOUR IS HIGHER THAN GREY'S AND THAT BATES WILL THEREFORE COST THE NAVY MORE IN INDIRECT COSTS THAN WOULD GREY.

GREY'S CONCLUSION IS BASED ON THE ASSUMPTION THAT 143,000 PRODUCTIVE MAN- HOURS WILL BE REQUIRED FOR BATES TO PERFORM THE CONTRACT. HOWEVER, BATES PROPOSED TO PERFORM WITH 123,380 HOURS. IN ITS BEST AND FINAL OFFER, BATES RECOGNIZED THAT THE NAVY HAD ESTIMATED A "NEED FOR 143,000 MAN-HOURS OF AGENCY STAFF TIME" AND EXPLAINED WHY IT WAS PROPOSING LESS. AFTER SETTING FORTH THE NUMBER OF PROPOSED HOURS IN EACH DEPARTMENTAL CATEGORY, BATES STATED THAT:

THE ABOVE NUMBERS ARE BASED ON A 1600 HOUR MAN YEAR. WE UNDERSTAND THAT THE NAVY'S EXPERIENCE OF 143,000 HOURS IS BASED ON A 1820 HOUR MAN YEAR. WERE WE TO USE THE SAME FIGURE FOR MAN HOURS IN A YEAR, OUR TOTAL WOULD BE APPROXIMATELY 143,000. * * *

THE NAVY, AFTER REVIEWING THE PROPOSED BREAKDOWN OF HOURS, ACCEPTED THAT EXPLANATION AND AGREED THAT BATES COULD PERFORM WITH THE NUMBER OF HOURS PROPOSED.

GREY, HOWEVER, ASSERTS THAT THIS DECISION MERELY REFLECTS ACCEPTANCE OF THE "UNTESTED ASSERTION" OF AN "OUTSIDE BIDDER WITH NO PRIOR EXPERIENCE IN THIS TYPE OF WORK DESPITE THE HISTORICAL EXPERIENCE OF THE INCUMBENT AND THE INDEPENDENT ESTIMATES PREPARED BY NRC AND NRPO." GREY ALSO CONTENDS THAT BATES ERRED IN ASSUMING THAT THE NAVY'S ESTIMATE OF 143,000 MAN-HOURS WAS NOT "AN ACTUAL PRODUCTIVE HOUR ESTIMATE."

IN THE AREAS OF TRAVEL AND FIELD FORCE, GREY PROPOSED OUT-OF-POCKET EXPENSES OF $96,000 AND $84,000 RESPECTIVELY, WHILE BATES PROPOSED EXPENSES OF $24,483 AND $50,400 RESPECTIVELY. THE NAVY FOUND BOTH SETS OF FIGURES TO BE REALISTIC. GREY, HOWEVER, STATES THAT SINCE BATES HAD NO PRIOR EXPERIENCE WITH THE NAVY ADVERTISING ACCOUNT, "THERE IS NO WAY THAT BATES CAN REALISTICALLY PREDICT THEIR COSTS IN THIS AREA" AND THAT THE BATES ESTIMATES ARE THEREFORE "WITHOUT ANY RATIONAL BASIS IN FACT." GREY SUGGESTS THAT THE "ONLY SOLID DATA ON WHICH TO COMPARE THE GREY AND BATES FIGURES ARE THE PER DIEM RATES AND THE MILEAGE CHARGES FOR PRIVATE VEHICLES. GREY PROPOSED A $30 PER DIEM RATE AND A CHARGE OF 12 CENTS PER MILE, WHILE BATES PROPOSED A $55 PER DIEM RATE AND A MILEAGE CHARGE OF 14 CENTS. THUS, ACCORDING TO GREY, A REALISTIC EVALUATION WOULD SHOW THAT GREY, RATHER THAN BEING $71,517 AND $33,600 MORE COSTLY THAN BATES IN THESE CATEGORIES, WOULD ACTUALLY BE LESS COSTLY BY SOME INDETERMINATE AMOUNT.

IN THE AREAS OF DIRECT MAIL AND LEAD FULFILLMENT, GREY PROPOSED $1,267,229 AND $998,225 RESPECTIVELY, WHILE BATES PROPOSED COSTS OF $837,083 AND $260,760. NAVMAT FOUND THAT GREY'S HIGHER PROPOSED COSTS STEMMED FROM ITS USE OF A SUBCONTRACTOR WITH WHICH IT HAD PREVIOUSLY BEEN AFFILIATED, WHILE BATES WOULD EITHER PERFORM THE WORK IN-HOUSE OR SOLICIT COMPETITIVE BIDS FOR THE WORK. THUS, EXPLAINS THE NAVY, IT WAS "REASONABLE TO CONCLUDE THAT BATES' ESTIMATED COST WOULD BE LESS IN THIS AREA."

GREY DISPUTES THIS CONCLUSION, ASSERTING THAT BATES DOES NOT HAVE AN IN- HOUSE CAPABILITY IN THESE AREAS AND THAT "BATES NEVER SOLICITED COMPETITIVE QUOTES AND, IN FACT, COULD NOT HAVE DONE SO BECAUSE IT STILL LACKED * * * UNDERSTANDING" OF THE NAVY'S DIRECT MAIL AND LEAD FULFILLMENT REQUIREMENTS SO AS TO BE ABLE TO PREPARE A STATEMENT OF WORK THAT WOULD SUPPORT SUCH A COMPETITION. GREY FURTHER REFERS TO THE FACT THAT BATES, RATHER THAN OBTAINING COMPETITIVE QUOTES, HAS FOUND IT NECESSARY TO UTILIZE GREY'S SUBCONTRACTORS.

WE HAVE CAREFULLY CONSIDERED GREY'S ARGUMENTS. WHILE IT IS CLEAR FROM THE RECORD IN THIS CASE THAT THE NAVY NEITHER SOUGHT TO INDEPENDENTLY VERIFY EACH ITEM OR CATEGORY OF PROPOSED EXPENSE IN THE BATES AND GREY PROPOSALS NOR CONDUCTED THE TYPE OF "IN-DEPTH" COST EVALUATION THAT HAS BEEN PERFORMED IN OTHER CASES, SEE, E.G., BELL AEROSPACE COMPANY, ET AL, SUPRA; LTV AEROSPACE CORPORATION, 55 COMP.GEN. 307 (1975), 75-2 CPD 203, WE ARE UNABLE TO CONCLUDE THAT THE NAVY'S DETERMINATION THAT AWARD TO BATES WOULD RESULT IN LESS COST TO THE NAVY WAS WITHOUT A RATIONAL BASIS.

AS WAS POINTED OUT ABOVE, A CONTRACTING AGENCY'S EVALUATION OF COMPETING COST PROPOSALS INVOLVES THE EXERCISE OF INFORMED JUDGMENT, AND WE "WILL NOT SECOND-GUESS A COST REALISM DETERMINATION UNLESS IT IS NOT SUPPORTED BY A REASONABLE BASIS." MANAGEMENT SERVICES, INCORPORATED, 55 COMP.GEN. 715, 76-1 CPD 74, SUPRA. SUCH DETERMINATIONS MAY BE REASONABLE EVEN THOUGH A DETAILED "IN-DEPTH" ANALYSIS IS NOT CONDUCTED. SEE, FOR EXAMPLE, ILC DOVER, SUPRA, IN WHICH WE UPHELD THE NAVY'S DETERMINATION THAT AN OFFEROR'S PROPOSED COSTS WERE "FAIR AND REASONABLE FOR THE EFFORT PROPOSED," EVEN THOUGH THE RECORD DID NOT INDICATE THAT THE NAVY DID ANYTHING MORE THAN "CAREFULLY" EVALUATE PROPOSALS AND OBTAIN DCAA FIELD PRICING SUPPORT. ON THE OTHER HAND, WE WILL NOT ACCEPT AN AGENCY'S JUDGMENT WHEN IT IS CLEARLY UNREASONABLE; FOR EXAMPLE, WHERE AN AGENCY FAILS TO NORMALIZE PROPOSED COST DIFFERENCES FOR A CERTAIN ITEM WHEN IT IS CLEAR THAT THERE WOULD BE A COMMON COST PER POUND FOR THAT ITEM REGARDLESS OF WHO THE CONTRACTOR WAS, SEE LOCKHEED PROPULSION COMPANY ET AL, 53 COMP.GEN. 977, 994 (1974), 74-1 CPD 339; WHEN THE NORMALIZATION IS PERFORMED IMPROPERLY, SEE DYNALECTRON CORPORATION ET AL, SUPRA; OR WHEN AN AGENCY, WITHOUT EXPLAINING THE BASIS FOR ITS ACTION, RELIES ON A GOVERNMENT ESTIMATE TO REJECT PROPOSALS DEVIATING FROM THAT ESTIMATE BUT ACCEPTS A COMPETING PROPOSAL WHICH ALSO DEVIATES FROM THE ESTIMATE. SEE VINNELL CORPORATION, B-180557, OCTOBER 8, 1974, 74-2 CPD 190. IN MOST CASES, HOWEVER, IN VIEW OF THE BROAD DISCRETION VESTED IN PROCUREMENT OFFICIALS TO MAKE COST REALISM EVALUATIONS, WE WILL ACCEPT THE AGENCY'S JUDGMENT EVEN IN CASES WHERE THE RECORD DOES NOT PROVIDE A FULL EXPLANATION OR RATIONALIZATION FOR COST DIFFERENCES BETWEEN PROPOSALS. SEE PRC COMPUTER CENTER, INC., ET AL, SUPRA, AND CASES CITED THEREIN.

HERE, WE DO NOT BELIEVE THAT THE NAVY'S OVERALL JUDGMENT CAN BE REGARDED AS UNREASONABLE, EVEN THOUGH THAT JUDGMENT MAY HAVE BEEN BASED IN PART ON ERRONEOUS BELIEFS WITH RESPECT TO THE EFFECT OF THE COMPUTED OVERHEAD RATES AND THE IN-HOUSE CAPABILITIES OF BATES FOR DIRECT MAIL AND LEAD FULFILLMENT ACTIVITIES. FOR EACH CATEGORY OF COST ABOUT WHICH GREY COMPLAINS, THE RECORD INDICATES THAT THE NAVY COULD HAVE REASONABLY CONCLUDED THAT BATES WOULD COST THE NAVY LESS. IN THE AREA OF MANHOURS, BATES PROVIDED A BREAKDOWN OF DIRECT LABOR ALONG WITH AN EXPLANATION FOR THE DEVIATION FROM THE NAVY'S ESTIMATE. IN THE AREA OF TRAVEL AND FIELD FORCE OUT-OF-POCKET EXPENSES, BATES SUBMITTED A BREAKDOWN OF PROPOSED TRIPS AND THE EXPENSES ASSOCIATED WITH EACH. IN BOTH AREAS, THE NAVY EXAMINED THE BREAKDOWN AND FOUND NO REASON TO QUESTION THE PROPOSED COSTS, ACCEPTING BATES' EXPLANATION FROM THE MANHOUR DEVIATION AND BELIEVING THAT BATES NEED NOT INCUR THE SAME TRAVEL EXPENSES AS GREY SINCE "THE 'NUMBER OF TRIPS' IS A FUNCTION OF MANY INHERENT VARIABLES WHICH DIFFER DRASTICALLY FROM FIRM TO FIRM * * * ."

IN THE AREAS OF DIRECT MAIL AND LEAD FULFILLMENT, BATES PROPOSED COSTS THAT WERE APPROXIMATELY $430,000 AND $737,000 LOWER THAN GREY'S PROPOSED COSTS. AS STATED ABOVE, THE NAVY ACCEPTED BATES' LOWER COST ESTIMATES BECAUSE THE NAVY BELIEVED BATES WOULD EITHER PERFORM IN-HOUSE OR COMPETITIVELY SUBCONTRACT. ALTHOUGH GREY VIGOROUSLY DISPUTES THE EXISTENCE OF ANY BATES IN-HOUSE CAPABILITY IN THESE AREAS AND CLAIMS THAT THE NAVY COULD HAVE READILY DETERMINED FROM BATES' PROPOSAL THAT BATES WOULD SUBCONTRACT FOR THE REQUIRED EFFORT, IN FACT THE BATES PROPOSAL WAS NOT SO CLEAR ON THIS POINT. BATES DID INDICATE, FOR THE DIRECT MAIL AREA, THAT IT "WOULD BID THESE ITEMS OUT TO THREE OR MORE SUPPLIERS WHEN THE SPECIFIC JOBS CAME UP." HOWEVER, FOR LEAD FULFILLMENT, BATES EXPLAINED HOW IT ESTIMATED THAT THE EFFORT WOULD INVOLVE 780,000 PIECES OF MAIL (REMARKABLY CLOSE TO THE FIGURE (752,348) GREY USED WHICH WAS BASED ON ACTUAL PREVIOUS YEAR EXPERIENCE) AND BROKE OUT THE COSTS INVOLVED. SPECIFIC REFERENCE WAS MADE TO SUBCONTRACTING ANY OF THE WORK. FURTHERMORE, IT APPEARS THAT NRC ITSELF READ BATES' PROPOSAL AS OFFERING TO PERFORM BOTH DIRECT MAIL AND LEAD FULFILLMENT IN-HOUSE, SINCE A SYNOPSIS OF COST PROPOSALS PREPARED BY NRC STATED THAT BATES WOULD DO THOSE SPECIFIC JOBS IN-HOUSE.

WITH REGARD TO THE SUBSTANTIAL COST SAVINGS AVAILABLE TO BATES THROUGH COMPETITIVE SUBCONTRACTING AS OPPOSED TO GREY'S CONTINUED USE OF A SUBCONTRACTOR WITH WHICH IT HAD BEEN AFFILIATED, IT APPEARS THAT GREY IS CORRECT IN ASSERTING THAT BATES DID NOT HAVE SUBCONTRACTOR QUOTES. ALSO NOTE THAT AFTER AWARD OF THE CONTRACT, THE NAVY, BELIEVING IT "TO BE ESSENTIAL THAT THERE BE NO BREAK IN FULFILLMENT SERVICES * * * DURING THE PERIOD OF TRANSITION" FROM GREY TO BATES, URGED BATES TO RETAIN GREY'S THIRD TIER SUBCONTRACTOR FOR LEAD FULFILLMENT. WE FURTHER NOTE THAT BATES, WITH NAVY'S APPROVAL, HAS SOLE SOURCE SUBCONTRACTED WITH GREY'S SUBCONTRACTOR FOR BOTH DIRECT MAIL AND LEAD FULFILLMENT FOR THE PERIOD ENDING JUNE 30, 1976, IT BEING "BATES' INTENTION BOTH TO EVALUATE THE NAVY DIRECT MAIL PROGRAM DURING THE TRANSITION PERIOD" TO DETERMINE WHETHER TO HANDLE DIRECT MAIL IN HOUSE AND TO CONDUCT COMPETITIVE BIDDING FOR FUTURE LEAD FULFILLMENT ACTIVITIES. THESE CIRCUMSTANCES INDICATE THAT IT WOULD HAVE BEEN PRUDENT FOR THE NAVY TO HAVE EXAMINED BATES' PROPOSAL IN THESE AREAS MORE CLOSELY TO DETERMINE THE LIKELIHOOD OF BATES' BEING ABLE TO IMMEDIATELY SUBCONTRACT COMPETITIVELY. HOWEVER, THE EXTENT TO WHICH COST PROPOSALS NEED BE EXAMINED IS WITHIN THE DISCRETIONARY JUDGMENT OF THE PROCURING AGENCY AND, AS EXPLAINED ABOVE, THE FACT THAT THE AGENCY DID LESS THAN IT MIGHT HAVE OR EVEN MADE AN OUTRIGHT ERROR IN JUDGMENT DOES NOT RENDER THAT JUDGMENT ILLEGAL OR IMPROPER.

IN SHORT, WHILE GREY ESSENTIALLY TAKES THE POSITION THAT BATES' COST FIGURES COULD HAVE NO VALIDITY BECAUSE BATES WAS NOT EXPERIENCED IN HANDLING THE NAVY ACCOUNT, THE NAVY, CHARGED WITH EVALUATING PROPOSALS, CAME TO A DIFFERENT CONCLUSION. IN SO DOING, IT LOOKED NOT ONLY AT THE INDIVIDUAL COST CATEGORIES DISCUSSED ABOVE, BUT ALSO AT THE RANGE OF ESTIMATED COSTS RECEIVED FROM ALL FOUR ORIGINAL OFFERORS. IT ALSO CONSIDERED THE APPROXIMATELY $200,000 DIFFERENCE IN FEE BETWEEN BATES AND GREY. WHILE THE NAVY'S EVALUATION MAY NOT HAVE BEEN ERROR FREE, TERMINATION OF THE RESULTANT CONTRACT WILL NOT BE REQUIRED FOR THAT REASON ALONE IF THE AWARD IS OTHERWISE PROPER AND SUPPORTABLE. BELL AEROSPACE COMPANY, ET AL, SUPRA. HERE, DESPITE SOME SHORTCOMINGS IN THE COST EVALUATION, WE THINK THE RECORD SHOWS THAT THE NAVY'S JUDGMENT THAT AWARD TO BATES WOULD BE LESS COSTLY THAN AN AWARD TO GREY WAS RATIONALLY FOUNDED. THE AWARD BASED ON THAT EVALUATION IS THEREFORE NOT LEGALLY OBJECTIONABLE.

CONTRACTING OFFICER AUTHORITY

GREY CONTENDS THAT THE DEPUTY CHIEF OF NAVAL MATERIAL FOR PROCUREMENT AND PRODUCTION, WHO SIGNED THE CONTRACT AWARD TO BATES, WAS NOT A CONTRACTING OFFICER OF NRPO, THE COGNIZANT PROCUREMENT ACTIVITY, AND THEREFORE HAD NO AUTHORITY TO AWARD THIS CONTRACT. CONSEQUENTLY, ARGUES GREY, THE AWARD IS INVALID.

WE DO NOT AGREE. ASPR SEC. 1-201.3 DEFINES A CONTRACTING OFFICER AS A PERSON WHO BY VIRTUE OF HIS POSITION OR BY APPOINTMENT IS A "CONTRACTING OFFICER * * * WITH THE AUTHORITY TO ENTER INTO AND ADMINISTER CONTRACTS * * * ." NPD SEC. 1-405.50 STATES THAT "THE HEAD OF EACH NAVY PROCURING ACTIVITY IS HEREBY DESIGNATED A CONTRACTING OFFICER * * * ." ASPR SEC. 1- 201.14 IDENTIFIES BOTH HEADQUARTERS, NAVMAT AND THE OFFICE OF THE DEPUTY CHIEF OF NAVAL MATERIAL (PROCUREMENT AND PRODUCTION) AS PROCURING ACTIVITIES. THUS, BOTH THE CHIEF AND DEPUTY CHIEF OF NAVAL MATERIAL, BY VIRTUE OF THEIR POSITIONS, ARE NAVMAT CONTRACTING OFFICERS. NAVMAT IS COMPOSED OF ITS OWN HEADQUARTERS AND SEVERAL LOWER ECHELON SYSTEM COMMANDS, INCLUDING NAVSUP (OF WHICH NRPO IS A PART). SEE OPNAVINST 5450.176, AUGUST 6, 1969 AND NAVMATINST 5460.2A, JULY 28, 1975. ALTHOUGH GREY ARGUES THAT NAVMAT DOES NOT HAVE SPECIFIC PROCUREMENT COGNIZANCE OVER NAVSUP AND NRPO BECAUSE OF CERTAIN NPD PROVISIONS WHICH GREY READS AS GIVING NAVMAT ONLY A POLICYMAKING FUNCTION, WE NOTE THAT ONE OF THE SPECIFIC FUNCTIONS ASSIGNED TO THE CHIEF OF NAVAL MATERIAL IS TO "SUPERVISE AND DIRECT ALL FUNCTIONS, PROGRAMS, AND ACTIVITIES OF THE NAVAL MATERIAL COMMAND." OPNAVINST 5450.176. THIS BROAD STATEMENT OF AUTHORITY, WE THINK, NECESSARILY ENCOMPASSES THE PROCUREMENT OPERATIONS OF NAVMAT'S LOWER ECHELON COMPONENTS. SINCE THE DEPUTY CHIEF OF NAVAL MATERIAL IS A NAVMAT CONTRACTING OFFICER, WE FIND GREY'S CONTENTION THAT THE DEPUTY CHIEF HAD NO CONTRACTING OFFICER AUTHORITY FOR THIS PROCUREMENT TO BE WITHOUT MERIT.

OTHER ISSUES

GREY'S OTHER CONTENTIONS, REGARDING THE ALLEGED COST-PLUS-PERCENTAGE OF- COST PAYMENT PROVISION, THE FAILURE OF THE NAVY TO USE THE PROPER TYPE OF CONTRACT, AND THE LACK OF A DEFINITE WORK STATEMENT IN THE SOLICITATION, ARE ALL UNTIMELY. SECTION 20.2(B)(1) OF OUR BID PROTEST PROCEDURES PROVIDES THAT PROTESTS BASED UPON ALLEGED IMPROPRIETIES IN A SOLICITATION WHICH ARE APPARENT PRIOR TO THE CLOSING DATE FOR RECEIPT OF PROPOSALS SHALL BE FILED PRIOR TO THE CLOSING DATE. THAT SECTION FURTHER PROVIDES THAT "ALLEGED IMPROPRIETIES WHICH DO NOT EXIST IN THE INITIAL SOLICITATION BUT WHICH ARE SUBSEQUENTLY INCORPORATED THEREIN MUST BE PROTESTED NOT LATER THAN THE NEXT CLOSING DATE FOR RECEIPT OF PROPOSALS * * * ." FED.REG. 17979 (1975). HERE THE ALLEGED DEFECTS REFERRED TO IN GREY'S LATTER TWO CONTENTIONS WERE APPARENT PRIOR TO THE INITIAL CLOSING DATE, AND THE ALLEGED DEFECT REGARDING THE PAYMENT PROVISION WAS APPARENT AFTER THE ISSUANCE OF SOLICITATION AMENDMENT NO. 0004. GREY, HOWEVER, DID NOT PROTEST UNTIL TWO MONTHS AFTER BEST AND FINAL OFFERS WERE SUBMITTED.

ORDINARILY THIS OFFICE, IN RULING ON A PROTEST, WILL NOT CONSIDER ISSUES WHICH ARE UNTIMELY RAISED. SEE E.G., BAGANOFF ASSOCIATES, INC., 54 COMP.GEN. 44 (1974), 74-2 CPD 56. HERE, HOWEVER, THE DISTRICT COURT HAS EXPRESSED AN INTEREST IN OUR DECISION ON GREY'S PROTEST. ALTHOUGH IT IS NOT CLEAR IF THE COURT IS SPECIFICALLY INTERESTED IN THESE UNTIMELY ISSUES, WE BELIEVE IT WOULD BE APPROPRIATE UNDER THE CIRCUMSTANCES TO TREAT THESE ISSUES BRIEFLY. DYNALECTRON CORPORATION, 54 COMP.GEN.1009 (1975), 75-1 CPD 341.

LEGALITY OF FEE PAYMENT PROVISION

THE RFP, AS AMENDED, AND THE CONTRACT AWARDED TO BATES PROVIDE THAT "PAYMENT OF THE FIXED FEE SHALL BE IN AN AMOUNT WHICH IS IN THE SAME RATIO TO TOTAL FIXED FEE AS THE COSTS BEING PAID, ARE IN RELATION TO TOTAL ESTIMATED COST * * * ." GREY, IN SUPPORT OF ITS CLAIM THAT THE NAVY COULD NOT MAKE A RATIONAL COST COMPARISON BETWEEN GREY AND BATES, TAKES THE POSITION THAT THERE IS NO FIXED FEE FOR THE CONTRACT. IN THIS REGARD, GREY ASSERTS THAT THE QUOTED PROVISION RELATES ONLY TO PAYMENT OF FIXED FEE ON INVOICES UNDER A PARTICULAR DELIVERY ORDER, AND THAT THE TERM "TOTAL FIXED FEE" REFERS TO THE FIXED FEE, WHICH, ALONG WITH ESTIMATED COST, GREY BELIEVES WOULD HAVE TO BE NEGOTIATED FOR EACH DELIVERY ORDER ISSUED UNDER THE CONTRACT. THE NAVY, ON THE OTHER HAND, STATES THAT THE "TOTAL FIXED FEE" REFERS TO THE TOTAL FIXED FEE FOR THE CONTRACT, AND THAT THE FEE FOR A PARTICULAR DELIVERY ORDER WILL BE DETERMINED IN ACCORDANCE WITH THE RATIO TEST SET FORTH ABOVE. GREY THEN ARGUES THAT UNDER THAT INTERPRETATION, THE CONTRACT WOULD RUN AFOUL OF THE STATUTORY PROHIBITION AGAINST COST-PLUS-PERCENTAGE-OF COST CONTRACTS FOUND IN 10 U.S.C. 2306(A) (1970) BECAUSE THE AMOUNT OF FEE TO WHICH BATES WOULD BE ENTITLED UNDER EACH DELIVERY ORDER WOULD BE TIED TO "COSTS BEING PAID" RATHER THAN ESTIMATED COSTS.

WE AGREE WITH THE NAVY THAT ACCEPTANCE OF THE BATES PROPOSAL RESULTED IN A CONTRACT WITH A STATED FIXED FEE OF $500,000, AND THAT THE QUOTED PAYMENT PROVISION REFERS TO THAT STATED TOTAL CONTRACT FEE. WE DO NOT AGREE WITH GREY, HOWEVER, THAT THE QUOTED LANGUAGE THEREFORE RENDERS THE CONTRACT ILLEGAL. ON ITS FACE, THE PAYMENT PROVISION WOULD PERMIT THE PARTICULAR PERCENTAGE OF THE TOTAL CONTRACT FEE WHICH IS TO BE PAID UNDER A DELIVERY ORDER TO DEPEND UPON THE COSTS PAID UNDER THE DELIVERY ORDER. HOWEVER, THE PAYMENT PROVISION, WHILE PROVIDING FOR A METHOD OF PAYMENT BY THE GOVERNMENT UPON THE CONTRACTOR'S SUBMISSION OF INVOICES, DOES NOT BY ITSELF ESTABLISH THE AMOUNTS TO WHICH THE CONTRACTOR WOULD BE ENTITLED. RATHER, CONTRACTOR ENTITLEMENT TO PAYMENT IS DEPENDENT UPON DEFINITIZED DELIVERY ORDERS WHICH SPECIFY BOTH THE ESTIMATED COST AND THE FIXED FEE APPLICABLE TO EACH ORDER. IN THIS REGARD, WE NOTE THAT THE FIRST DELIVERY ORDER ISSUED UNDER THIS CONTRACT PROVIDED THAT THE FIXED FEE APPLICABLE TO THE DELIVERY ORDER WOULD BE BASED ON "THE ESTIMATED COST" OF THE ORDER RATHER THAN THE "COSTS BEING PAID" UNDER THE ORDER. THUS, ALTHOUGH THE CONTRACT LANGUAGE ITSELF MAY BE INARTFULLY WORDED, WE SEE NO BASIS FOR FINDING THAT THE CONTRACT IS OF THE COST-PLUS-PERCENTAGE-OF-COST TYPE.

TYPE OF CONTRACT

GREY CONTENDS THAT THE INDEFINITE DELIVERY TYPE CONTRACT ENVISIONED BY THE RFP AND ACTUALLY AWARDED TO BATES IS AN IMPROPER VEHICLE FOR PROCURING ADVERTISING SERVICES. GREY ARGUES, FIRST, THAT ASPR PROVIDES ONLY FOR PROCURING ADVERTISING SERVICES THROUGH THE USE OF A BASIC ORDERING AGREEMENT (BOA) AND, SECOND, THAT AN INDEFINITE QUANTITY CONTRACT CAN ONLY BE USED FOR OBTAINING NEEDED AND RECURRING "COMMERCIAL OR MODIFIED COMMERCIAL" SERVICES. GREY FURTHER ARGUES THAT A INDEFINITE DELIVERY CONTRACT CANNOT INCLUDE COST REIMBURSEMENT PROVISIONS.

ASPR PART 8 "SETS FORTH PROCEDURES TO BE FOLLOWED IN PLACING PAID ADVERTISING IN MEDIA FOR (I) MILITARY * * * PERSONNEL PURPOSES * * * ." ASPR SEC. 4-803.6, PLACING ADVERTISING THROUGH ADVERTISING AGENCIES, STATES THAT:

(A) GENERAL. BASIC ORDERING AGREEMENTS MAY BE ENTERED INTO WITH ADVERTISING AGENCIES TO PROVIDE PROFESSIONAL ADVERTISING SERVICES. THE USE OF AN ADVERTISING AGENCY TO ASSIST IN PRODUCING AND PLACING EFFECTIVE ADVERTISEMENT MAY BE ADVISABLE WHEN A SIGNIFICANT NUMBER OF ADVERTISEMENTS IS TO BE PLACED IN SEVERAL PUBLICATIONS AND IN NATIONAL MEDIA.

ALTHOUGH GREY ASSERTS THAT THIS PROVISION PROVIDES THE ONLY METHOD OF CONTRACTING FOR ADVERTISING SERVICES, THE PROVISION ITSELF STATES ONLY THAT A BOA MAY BE USED, AND WE DO NOT BELIEVE THAT BOA'S ARE REQUIRED TO THE EXCLUSION OF ALL OTHER CONTRACTUAL VEHICLES WHEN THE SERVICES OF AN ADVERTISING AGENCY ARE TO BE OBTAINED. FURTHERMORE, ASPR SEC. 3- 410.2(C)(I) PROVIDES THAT SUPPLIES OR SERVICES MAY BE ORDERED UNDER A BOA ONLY IF IT IS IMPRACTICABLE TO OBTAIN COMPETITION THROUGH FORMAL ADVERTISING OR NEGOTIATION. SINCE THE NAVY DETERMINED THAT IT WAS PRACTICABLE TO COMPETE ITS ADVERTISING NEEDS, NO PURPOSE WOULD HAVE BEEN SERVED BY ITS ENTERING INTO A BOA, AND IT WAS THEREFORE FREE TO SELECT THE CONTRACT TYPE "WHICH WILL PROMOTE THE BEST INTERESTS OF THE GOVERNMENT." ASPR SEC. 3-401(A)(2).

GREY ALSO CONTENDS THAT ASPR SEC. 3-409.3, WHICH STATES THAT AN INDEFINITE QUANTITY CONTRACT "SHOULD BE USED ONLY WHEN THE ITEM OR SERVICE IS COMMERCIAL OR MODIFIED COMMERCIAL," PRECLUDES THE USE OF THAT TYPE OF CONTRACT HERE BECAUSE THE SERVICES OF AN ADVERTISING AGENCY ARE NOT SUCH SERVICES. WE NOTE, HOWEVER, THAT "COMMERCIAL ITEM" IS DEFINED BY ASPR SEC. 3-807.1(B)(2BII) AS INCLUDING "BOTH SUPPLIES AND SERVICES, OF A CLASS OR KIND WHICH (A) IS REGULARLY USED FOR OTHER THAN GOVERNMENT PURPOSES, AND (B) IS SOLD OR TRADED IN THE COURSE OF CONDUCTING NORMAL BUSINESS OPERATIONS." MOREOVER, ASPR SEC. 3 807.1(B)(2DII) DESCRIBES "ADVERTISING OR PROMOTION" AS A SERVICE NORMALLY PROVIDED "COMMERCIAL PURCHASERS." VIEW OF THE BROAD DEFINITION OF "COMMERCIAL SERVICES" AND THE SPECIFIC MENTION OF ADVERTISING SERVICES AS THOSE SERVICES CUSTOMARILY SUPPLIED TO "COMMERCIAL PURCHASERS," WE CANNOT STATE AS A FACTUAL MATTER THAT ADVERTISING SERVICES ARE NOT ENCOMPASSED BY ASPR SEC. 3-409.3. IN ANY EVENT, EVEN IF WE WERE TO ASSUME OTHERWISE, THE VALIDITY OF THE PROCUREMENT WOULD NOT BE AFFECTED SINCE WE HAVE HELD THAT THE USE OF THE WORD "SHOULD" IN THIS PROVISION DOES NOT IMPOSE A MANDATORY REQUIREMENT AND DOES NOT CONFER ANY RIGHTS ON OFFERORS. B-154594, SEPTEMBER 22, 1964 AND DECEMBER 18, 1964.

FINALLY, GREY CONTENDS THAT AN INDEFINITE DELIVERY CONTRACT CANNOT BE USED WHEN COST-REIMBURSEMENT COMPENSATION IS CONTEMPLATED. GREY REFERS TO ASPR SEC. 3-409(C), WHICH STATES THAT:

DEPENDING ON THE SITUATION, INDEFINITE DELIVERY TYPE CONTRACTS MAY PROVIDE FOR (1) FIRM FIXED PRICES, (II) PRICE ESCALATION, (III) PRICE REDETERMINATION, OR (IV) PRICES ESTABLISHED (PURSUANT TO CATALOG OR MARKET PRICES, WITH AN ADJUSTMENT FACTOR OF A FIXED PERCENTAGE DISCOUNT APPLICABLE TO THE PRICE IN EFFECT ON THE DATE OF EACH ORDER.) * * *

AND TO ASPR SEC. 3-409.4, WHICH STATES THAT ORDERS PLACED UNDER INDEFINITE DELIVERY CONTRACTS:

SHALL CONTAIN THE FOLLOWING INFORMATION, CONSISTENT WITH THE CONTRACT TERMS:

(III) ITEM NUMBER, DESCRIPTION, QUANTITY ORDERED, AND CONTRACT PRICE.

AS IMPLIEDLY PRECLUDING THE USE OF COST REIMBURSEMENT INDEFINITE DELIVERY CONTRACTS. ACCORDING TO GREY, COST TYPE PROVISIONS CANNOT BE USED IN INDEFINITE DELIVERY CONTRACTS BECAUSE THESE ASPR PROVISIONS REFER ONLY TO FIXED PRICE PAYMENT METHODS AND REQUIRE INCLUSION OF PRICE IN ANY ORDER PLACED PURSUANT TO AN INDEFINITE DELIVERY CONTRACT.

WE WOULD AGREE THAT IT IS UNUSUAL FOR AN INDEFINITE DELIVERY CONTRACT TO PROVIDE FOR ANYTHING OTHER THAN FIXED PRICE COMPENSATION. HOWEVER, WE DO NOT BELIEVE THAT ASPR SEC. 3-409(C) MAY BE REGARDED AS LEGALLY PROSCRIBING THE USE OF COST TYPE REIMBURSEMENT PROVISIONS. THE LANGUAGE HERE IS SIMILAR TO THE LANGUAGE OF ASPR SEC. 4-803.6, DISCUSSED ABOVE, IN THAT IT SETS FORTH ONLY THAT INDEFINITE DELIVERY CONTRACTS MAY PROVIDE FOR VARIOUS FIXED PRICE REIMBURSEMENT METHODS; NOWHERE IS THERE ANY PROSCRIPTION AGAINST THE USE OF OTHER REIMBURSEMENT METHODS. ALTHOUGH THERE IS A RULE OF STATUTORY CONSTRUCTION WHICH HOLDS, IN EFFECT, THAT THE EXPRESSION OF SPECIFIC ALTERNATIVES AUTOMATICALLY EXCLUDES OTHER POSSIBLE ALTERNATIVES, THAT RULE "IS INCREASINGLY CONSIDERED UNRELIABLE * * * FOR ITS STANDS ON THE FAULTY PREMISE THAT ALL POSSIBLE ALTERNATIVE OR SUPPLEMENTAL PROVISIONS WERE NECESSARILY CONSIDERED AND REJECTED * * * ." NATIONAL PETROLEUM REFINERS ASSOCIATION V. FEDERAL TRADE COMMISSION, ET AL, 482 F.2D 672, 676 (D.C. CIR. 1973), CERT. DENIED 415 U.S. 951 (1974). CF. JERRY FAIRBANKS PRODUCTIONS, B-181811, MARCH 14, 1975, 75-1 CPD 154, IN WHICH WE HELD THAT WHILE IT WAS "SOMEWHAT UNUSUAL" FOR A PROMPT PAYMENT DISCOUNT TO BE OFFERED ON A COST-REIMBURSEMENT CONTRACT, "ASPR DOES NOT PROHIBIT CONSIDERATION OF OFFERED DISCOUNTS IN SUCH CIRCUMSTANCES (ALTHOUGH IT ONLY SPECIFICALLY PROVIDES FOR USE OF DISCOUNT CLAUSES IN FIXED PRICE CONTRACTS. * * * )." HERE THERE IS EVIDENCE OF RECORD, IN THE FORM OF ASPR COMMITTEE MINUTES, WHICH INDICATES THAT ASPR SEC. 3 409(C) DOES NOT PREVENT AN AGENCY FROM AWARDING INDEFINITE DELIVERY CONTRACTS WITH OTHER THAN FIXED PRICE REIMBURSEMENT PROVISIONS. ACCORDINGLY, WE FIND NO MERIT IN THIS CONTENTION.

INDEFINITE WORK STATEMENT

GREY CONTENDS THAT THE "RFP WAS DEFECTIVE IN THAT NO DEFINABLE STATEMENT OF WORK EXISTED FOR THE SUPPLIES AND SERVICES TO BE PROVIDED UNDER THE CONTRACT AND THEREFORE NO BASIS EXISTED FOR MEANINGFUL COST COMPARISON."

THIS ISSUE WAS ESSENTIALLY CONSIDERED IN CONNECTION WITH OUR REVIEW OF THE RATIONALITY OF THE NAVY'S COST DETERMINATION, SUPRA. AS INDICATED, WE BELIEVE THAT THE RFP DID CONTAIN A WORK STATEMENT THAT WAS SUFFICIENTLY DEFINITE SO AS TO PERMIT BOTH A PROPER COST COMPARISON AND AN AWARD OF AN INDEFINITE QUANTITY CONTRACT, AND WE SEE NO NEED TO CONSIDER THE MATTER FURTHER.

CONCLUSION

THE SELECTION OF BATES TO PROVIDE THE NAVY WITH RECRUITING ADVERTISING SERVICES WAS THE CULMINATION OF A LENGTHY COMPETITIVE PROCUREMENT. MANY RESPECTS-- THE USE OF AN INDEFINITE DELIVERY CONTRACT TO PROCURE ADVERTISING SERVICES RATHER THAN A BOA; THE DISPUTE WITHIN THE NAVY OVER WHICH OFFEROR SHOULD BE SELECTED FOR CONTRACT AWARD; EXECUTION OF THE AWARD DOCUMENT BY THE DEPUTY CHIEF OF NAVAL MATERIAL RATHER THAN THE NRPO CONTRACTING OFFICER; THE USE OF A LESS THAN DETAILED STATEMENT OF WORK-- THE PROCUREMENT WAS UNUSUAL.

DESPITE THESE UNUSUAL ASPECTS, HOWEVER, OUR REVIEW OF THE RECORD HAS DISCLOSED NO ASPECT OF THIS PROCUREMENT WHICH CAN BE REGARDED AS CONTRARY TO LAW OR REGULATION. WE HAVE FOUND SOME SHORTCOMINGS IN THE SELECTION PROCESS-- THE FAILURE TO ADVISE OFFERORS IN THE EVALUATION SECTION OF THE RFP THAT COST QUANTUM AS WELL AS COST REALISM WOULD BE CONSIDERED; THE COMPUTATION AND EVALUATION OF OVERHEAD RATES-- BUT THE RECORD INDICATES THAT THOSE SHORTCOMINGS WERE NOT PREJUDICIAL TO GREY IN THE OVERALL SELECTION.

WITH REGARD TO THE COST EVALUATION, WE HAVE BEEN UNABLE TO DETERMINE FROM THE RECORD PRECISELY HOW THE NAVY PERFORMED AN "IN-DEPTH" COST ANALYSIS. INDEED, IT APPEARS TO US THAT THE NAVY COULD HAVE EXPLORED THE COST DIFFERENCES IN THE VARIOUS COST SCHEDULE CATEGORIES IN GREATER DETAIL WITH A VIEW TOWARD INDEPENDENTLY VERIFYING SPECIFIC COST ITEMS. HOWEVER, THE EXTENT TO WHICH A PROCURING AGENCY SHOULD ANALYZE PROPOSED COSTS BEFORE IT IS WILLING TO RELY ON THE REALISM OF THOSE COSTS IS A MATTER OF AGENCY JUDGMENT, AND THAT JUDGMENT IS NOT SUBJECT TO LEGAL OBJECTION UNLESS THERE IS NO RATIONAL BASIS FOR IT. ACCORDINGLY, THE FACT THAT THE NAVY DID NOT INDEPENDENTLY VERIFY EACH ELEMENT OF THE BATES PROPOSAL IS NOT, BY ITSELF, FATAL TO THE VALIDITY OF THE CONTRACT AWARD. FURTHERMORE, IT APPEARS TO US THAT THE NAVY DID HAVE A RATIONAL BASIS FOR CONCLUDING THAT AWARD TO BATES WOULD RESULT IN LESS EXPENSE TO THE NAVY THAN WOULD AWARD TO GREY. IN THIS REGARD, THE RECORD SHOWS THAT, WITH RESPECT TO EACH OF THE COST CATEGORIES QUESTIONED BY THE PROTESTER, THE NAVY HAD REASON TO BELIEVE THAT BATES COULD PERFORM FOR LESS THAN GREY. THE NAVY DOES APPEAR TO HAVE ERRED IN BELIEVING THAT BATES WOULD PERFORM THE DIRECT MAIL EFFORT IN- HOUSE. THE NAVY ALSO DID LITTLE TO VERIFY WHAT COST SAVINGS WERE AVAILABLE FROM COMPETITIVE SUBCONTRACTING FOR BOTH DIRECT MAIL AND LEAD FULFILLMENT AS OPPOSED TO THE GREY SUBCONTRACTING ARRANGEMENT. NONETHELESS, IN VIEW OF THE EXPLANATIONS AND BREAKDOWN PROVIDED BY BATES IN ITS COST PROPOSAL AND THE JUDGMENTAL NATURE OF THE NAVY'S CONCLUSIONS IN THESE AREAS, WE CANNOT SAY THAT THE NAVY ACTED ARBITRARILY IN ACCEPTING THE LOWER BATES FIGURES FOR THESE CATEGORIES. AS INDICATED ABOVE, THE AWARD OF A COST-TYPE CONTRACT INVOLVES RELIANCE ON ESTIMATES, WHICH THEMSELVES ARE NO MORE THAN JUDGMENTS AS TO WHAT PARTICULAR CONTRACT TASKS SHOULD COST. IT IS NOT TO BE EXPECTED THAT THESE ESTIMATES AND JUDGMENTS WILL BE UNIVERSALLY ACCEPTED OR EVEN PROVE TO BE ACCURATE IN ALL CASES. HERE, THE NAVY DETERMINED, IN ITS JUDGMENT, THAT BATES' ESTIMATED COSTS WERE REALISTIC. THIS JUDGMENT WAS BASED ON BATES' EXPLANATIONS FOR ITS PROPOSED COSTS, ON THE NAVY'S AWARENESS OF FACTS WHICH SUGGESTED PLAUSIBLE REASONS FOR BATES BEING ABLE TO PERFORM AT A LOWER COST THAN GREY, AND ON THE RELATIVE COST FIGURES OF THE FOUR OFFERORS.

THUS, WHAT THIS SOURCE SELECTION ULTIMATELY INVOLVED WAS THE EXERCISE OF DISCRETIONARY JUDGMENT. IN EXERCISING THAT JUDGMENT, THE NAVY'S SELECTION OFFICIALS CHOSE BATES RATHER THAN GREY. IT IS CONCEIVABLE THAT OTHER SELECTION OFFICIALS, FACED WITH THE SAME RECORD, WOULD HAVE SELECTED GREY. THIS, OF COURSE, DOES NOT RENDER ILLEGAL OR IMPROPER THE JUDGMENT THAT WAS ACTUALLY MADE. AS INDICATED, THE NAVY HAS SHOWN, ON THE RECORD, THAT IT HAD A REASONABLE BASIS FOR ARRIVING AT THAT JUDGMENT. AS WE HAVE OFTEN STATED, THE AGENCY'S JUDGMENT IN THESE MATTERS "MUST BE AFFORDED GREAT WEIGHT" SINCE THE "OVERALL DETERMINATION OF THE RELATIVE DESIRABILITY AND TECHNICAL ADEQUACY OF PROPOSALS IS PRIMARILY A FUNCTION OF THE PROCURING AGENCY, AND SUCH DETERMINATION WILL BE QUESTIONED BY OUR OFFICE ONLY UPON A CLEAR SHOWING OF UNREASONABLENESS, AN ARBITRARY ABUSE OF DISCRETION, OR A VIOLATION OF THE PROCUREMENT STATUTES AND REGULATIONS." RIGGINS & WILLIAMSON MACHINE COMPANY, INCORPORATED, ET AL, 54 COMP.GEN. 783, SUPRA, AT 790. GREY, DESPITE ITS CHALLENGE OF THE NAVY'S JUDGMENT, HAS FAILED TO MAKE THAT CLEAR SHOWING.

THE PROTEST IS DENIED.