B-229711, Mar 1, 1988, 88-1 CPD ***

B-229711: Mar 1, 1988

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Protest that agency improperly failed to conduct cost realism analysis is denied where request for proposals (RFP) called for fixed price offers and clause regarding cost realism was omitted from RFP. While the RFP may have been ambiguous. The record shows that protester reasonably should have known that agency might not conduct a cost realism analysis. Protester was not prejudiced by agency's failure to conduct meaningful discussions concerning its high price because the protester's price was so much greater than lowest offers that the protester had no reasonable chance for award. Also failed to conduct meaningful discussions with the firm by not pointing out in discussions that its proposed prices were too high.

B-229711, Mar 1, 1988, 88-1 CPD ***

PROCUREMENT - Competitive Negotiation - Offers - Cost Realism - Evaluation - Administrative Discretion DIGEST: 1. Protest that agency improperly failed to conduct cost realism analysis is denied where request for proposals (RFP) called for fixed price offers and clause regarding cost realism was omitted from RFP. While the RFP may have been ambiguous, the record shows that protester reasonably should have known that agency might not conduct a cost realism analysis. PROCUREMENT - Competitive Negotiation - Discussion - Adequacy - Criteria 2. Protester was not prejudiced by agency's failure to conduct meaningful discussions concerning its high price because the protester's price was so much greater than lowest offers that the protester had no reasonable chance for award.

TS Infosystems, Inc:

TS Infosystems, Inc. (TSI) protests the award of a contract to Vanguard Technologies Corporation under request for proposals (RFP) No. N00600-87-R -3283, issued hy the Naval Regional Contracting Center, Washington, D.C., for operational and developmental support services for the Navy's Military Personnel Records Systems (MPRS), which contains personnel records for all Navy military personnel. /1/ TSI contends that the Navy failed to conduct a cost realism analysis of cost proposals as required by the terms of the solicitation, resulting in unequal competition, and also failed to conduct meaningful discussions with the firm by not pointing out in discussions that its proposed prices were too high.

We deny the protest.

The RFP, issued on June 22, 1987, contemplated the award of a firm fixed- priced contract for these services for a single base year period, plus four 1-year options. Performance under the contract was subject to the applicable wage rates pursuant to the Service Contract Act (SCA), 41 U.S.C. Sec. 351 et seq. (1982). The RFP required the submission of separate technical and cost proposals and stated that award would be made to the lowest-priced technically acceptable offeror. The RFP also required that the cost proposals contain a breakdown per lot and for the contract as a whole of base labor rates, wage increases, benefit rates, indirect costs and fee, as well as any other proposed "loading." Further, certain overtime, supplies, and equipment spare parts costs were pre- established by the Navy for evaluation purposes and included in the RFP's schedule as "not-to exceed" amounts. The RFP contained the following clauses which relate to the principal protest issue:

"4.1 Full-time accounting practices which propose individual labor rates that are derived by dividing the salary of the individual by the total hours projected to be worked in a salary period will not be accepted. Any rate that is based on full-time accounting and includes uncompensated overtime will be cost-realized upward to include such uncompensated overtime. Reference is made to the clause "Cost Realism" herein."

"6.1 The offeror is required to indicate within the cost proposal the annual salary and hourly rate of each person for whom a resume is submitted in the technical proposal. ... If the individual's salary/hourly rate is in excess of an average category of salaries, the offeror must specifically address how the difference in cost is to be absorbed. ... The Government reserves the right to determine the sufficiency and adequacy of the explanation and to use cost realism in accordance with the clause in Section M entitled Cost Realism."

However, despite the references in these two clauses to a "Cost Realism" clause in Section M, the RFP in fact contained no such clause.

The Navy subsequently established August 21 as the amended closing date. According to TSI, on August 13, prior to the closing date, the firm prepared and sent the following letter to the Navy:

"TSI, as a potential offeror on the above referenced proposal, hereby requests clarification of the RFP instructions. Specifically, Sections L4.1 and L6.1 of the RFP reference "Cost Realism". Section L6.1 indicates that clarification of the RFP can be found in Section M. Section M contains no such clause.

"During the week of August 10-14, 1987, TSI was unable to reach you regarding the missing reference to "Cost Realism" in Section M of the subject RFP. Therefore, we respectfully request your assistance in providing clarification regarding "Cost Realism."

The record shows that the Navy never received this letter.

Three proposals were received on August 21 and were subsequently evaluated. The technical evaluation panel considered all proposals received as technically unacceptable but capable of being made acceptable. Initial cost proposals were as follows:

(TABLE OMITTED)

Discussions were then conducted and revised proposals were received. The technical evaluation panel considered Vanguard's revised proposal as technically acceptable but still considered TSI's and SMC's revised proposals as technically unacceptable but capable of being made acceptable. Additional discussions were then held on October 8, during which the Navy, among other things, specifically urged TSI to review its staffing to ensure the adequacy of staffing to meet contractual requirements.

Best and final offers (BAFOs) were received on October 15, and all BAFOs were determined to be technically acceptable. At no time during the previous discussions did the Navy indicate to TSI that its prices were unrealistically high or were considered unreasonable by the Navy. The offerors' price standings on a fixed-price basis after BAFOs were as follows:

(TABLE OMITTED)

Award was thereafter made to Vanguard as the lowest-priced, technically acceptable offeror. We note that during negotiations, the Defense Contract Audit Agency (DCAA) performed extensive audits of the cost proposals but the audits were not considered by the Navy. The Navy did not perform a cost realism analysis but awarded the fixed priced contract on the basis of adequate price competition. After a telephonic debriefing of TSI, this protest followed on November 30.

TSI, referencing RFP provisions 4.1 and 6.1, and similar related provisions, argues that the RFP required that the Navy perform a cost realism analysis and that Vanguard did not submit a cost-realistic proposal. TSI maintains that it proposed staffing (the major cost element) at SCA rates that were virtually identical to Vanguard's staffing, so that simple arithmetic indicates that Vanguard's offered prices were below the actual cost of performance in general administrative expenses, overhead, other direct costs, overtime and hardware maintenance. Thus, according to TSI, Vanguard's proposal does not meet the RFP's requirement for cost realism. TSI also states that its proposal reflects the use of "cost-realistic pricing methodologies," and that had TSI known that such methodologies were not required, it Would have significantly reduced its prices. Thus, TSI concludes that it was not allowed to compete on an equal basis.

As the protester was aware prior to receipt of initial proposals, the RFP contained provisions which referenced a cost realism clause in Section M; however, the RFP contained no such clause. Moreover, a cost realism analysis is conducted when a cost reimbursement contract is to be awarded; such an analysis is not generally associated with the award of fixed-price contracts. See Federal Acquisition Regulation Sec. 16.202 (FAC 84-5). Here it was clear that a fixed-price proposal was to be awarded and TSI, having submitted a fixed-price offer, obviously understood that a contract was to be awarded on that basis. Thus, while the RFP may not have been totally free of ambiguity, we think it should have been reasonably clear to TSI that the agency Eight not conduct a cost analysis, and we find no basis to object to the Navy's failure to do so.

To the extent that TSI is objecting to the ambiguity in the RFP concerning cost realism, under our Bid Protest Regulations, 4 C.F.R. Sec. 21.2(a)(1) (1987), protests based upon alleged improprieties in a solicitation which are apparent prior to the closing date for receipt of initial proposals must be filed prior to that date. Here, TSI knowingly competed under the terms of the RFP without filing a timely protest and only complained after award of the contract to a competitor. /3/ Accordingly, a protest on this issue is untimely.

To the extent TSI is concerned that the Navy should have found Vanguard's proposal unacceptable because of unrealistic pricing, we point out that where a fixed-price contract of this type is contemplated, the agency need only determine that the awardee has the ability to provide the labor required to perform the contract at the fixed labor rates proposed. This involves a matter of responsibility, the affirmative determination of which we do not review except in circumstances not present here. Armament Engineering Co., B-228239, Oct. 9, 1987, 87-2 CPD Para. 349.

With regard to the meaningful discussions issue, TSI states that its high price constituted a defect which should have been the subject of discussions. The Navy responds that it pointed out 13 different areas in TSI's proposal as deficient, and that, in fact, TSI reduced its prices as a result of these discussions by $6,374,704. Further, the Navy states that it did not consider TSI's price as unrealistically high even though the government estimate was $30 million because the estimate was outdated (prepared 1 year before the solicitation was issued) and did not reflect increases in the backlog of work. Thus, the agency did not consider TSI's price to be deficient.

We note that TSI states that its offer was the only cost realistic offer submitted and alleges that the other firms' offers were below cost. According to the protester, therefore, the deficiencies in pricing were in its competitors' proposals. Thus, even if discussions had been conducted on price, we do not think that TSI would have reduced its price sufficiently to make its proposal competitive simply because the agency suggested that its price was "too high." Specifically, even after the firm reduced its price by $6,374,704 after discussions, TSI's price was more than 38 percent higher than the price of the successful offeror after BAFOs. Given this major price disparity, we cannot conclude that TSI would have made additional drastic reductions in its price. Accordingly, we deny this protest ground.

The protest is denied.

/1/ The MPRS consists of a central master microfiche file of Naval military personnel records, a number of smaller satellite or auxiliary duplicate microfiche files, and a duplicate microfiche security file. The contract is for comprehensive operational services for the MPRS, which is essentially a government-owned, contractor-operated facility.

/2/ The contracting officer prorated all three offerors' prices to reflect a revised December 1, 1987 start date.

/3/ TSI suggests that its August 13 letter constituted an agency level protest. First, this letter was never received by the agency. Second, even assuming it was an agency-level protest, the subsequent receipt of proposals constituted initial adverse agency action, and TSI did not file a subsequent protest with our Office within 10 working days thereafter. See 4 C.F.R. Sec. 21.2(a)(3). TSI also suggests that since it was aware of the DCAA audit, it did not timely protest the omission of the cost realism clause because it reasonably believed the Navy intended to evaluate cost realism. However, the DCAA audit occurred after the expiration of the firm's time for filing a protest with our Office. Thus, the audit did not "lull" TSI into believing a cost realism was required under the RFP, precluding the firm from filing a timely protest.