Matter of: ACS Construction Company, Inc. of Mississippi; ECI Construction, Inc.; C Construction Co.,Inc. File: B-250372.2; B-250372.3 Date: February 5, 1993

B-250372.2,B-250372.3: Feb 5, 1993

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PROCUREMENT Sealed Bidding Invitations for bids Evaluation criteria Prices Overhead costs Provision in solicitation for construction contract requiring bidders to propose overhead rates to which they will be bound in negotiation of change orders does not subject contractors to unreasonable risk. Formula for evaluating impact of each bidder's proposed delivery schedule and overhead on price is neither contrary to Competition in Contracting Act of 1984. The protesters assert that the method for evaluating price is highly speculative and does not ensure award on the basis of the lowest cost to the government. Each offeror is required to provide. Which will vary depending upon the performance period of the contract.

Matter of: ACS Construction Company, Inc. of Mississippi; ECI Construction, Inc.; C Construction Co.,Inc. File: B-250372.2; B-250372.3 Date: February 5, 1993

PROCUREMENT Sealed Bidding Invitations for bids Evaluation criteria Prices Overhead costs Provision in solicitation for construction contract requiring bidders to propose overhead rates to which they will be bound in negotiation of change orders does not subject contractors to unreasonable risk; formula for evaluating impact of each bidder's proposed delivery schedule and overhead on price is neither contrary to Competition in Contracting Act of 1984, which requires that award decision consider only price and price- related factors, nor unreasonable where agency bases estimate of increase in cost of performance due to change orders on best historical data available.

Attorneys

DECISION ACS Construction Company, Inc. of Mississippi, ECI Construction, Inc., and C Construction Co., Inc. protest the terms of invitation for bids (IFB) No. DACA21-92-B-0070, issued by the Corps of Engineers. The protesters assert that the method for evaluating price is highly speculative and does not ensure award on the basis of the lowest cost to the government.

We deny the protests.

The solicitation, issued on August 26, 1992, by the agency's Savannah Engineering District for construction of corps and brigade headquarters at Fort Bragg, North Carolina, includes the clause at Federal Acquisition Regulation (FAR) Sec. 52.214-19, providing for award on the basis of price and price-related factors. For evaluation purposes, the agency provided a formula known as "estimated total cost," in which it adds to bidders' prices certain factors representing the potential for delays and changes in the course of contract performance. This methodology, originally developed in the Corps's Omaha Engineering District, has been tested on a Corps-wide basis since October of 1990.

Each offeror is required to provide, along with its bid price, a proposed performance period, overhead rate, and extended overhead rate (field office costs per calendar day). For purposes of award, the agency adds three evaluation factors to each bidder's price. First, the agency estimates its own costs for supervision and administration of the contract, which will vary depending upon the performance period of the contract. The agency uses the daily liquidated damage rate in the contract ($238) to approximate its daily administrative costs. This daily rate is multiplied by the bidder's proposed performance period. That amount is increased by 30.5 percent, to reflect the average performance period growth historically experienced in the Corps district because of contract changes made by the agency during performance.

Second, the agency estimates the additional overhead costs it will incur because of changes the government is likely to make in the contract requirements during performance. Historically, the Savannah Engineering District has experienced a 3.9 percent increase in costs as a result of these changes. The bidder's own overhead amount (its overhead rate times its construction price) is multiplied by 3.9 percent to estimate overhead cost increases. Third, the agency estimates the additional "extended overhead" or field office costs that it will owe the contractor because of likely agency-ordered changes in contract requirements during performance. The bidders provide an extended overhead rate in the form of a daily charge. The Corps estimates the amount it will incur by multiplying the daily charge by the average increase in contract performance period experienced by the Savannah Engineering District (30.5 percent times the bidder's proposed performance period). The agency adds these three figures to the bid price to produce an estimated total cost for award purposes.

The protesters argue that the agency's method of selecting a contractor based on estimated total cost is contrary to the requirements of the Competition in Contracting Act of 1984 (CICA), 10 U.S.C. Sec. 2305(b)(3) (1988), which provides that in the case of sealed bidding, agencies will award contracts "considering only price and the other price-related factors included in the solicitation." The protesters argue that the agency is asking bidders to take into account a speculative factor in contract growth wholly within agency control. The protesters contend that factors such as overhead and extended overhead on anticipated claims are not "price-related" as the term is defined by the FAR Sec. 14.201-8 (FAC 90-10).

The Corps replies that use of three factors added to bid price is consistent with CICA's requirements that sealed bid contracting be used if time permits and award is made on price and other price-related factors, and with FAR Sec. 14.201-8, which defines price-related factors to include "foreseeable costs or delays to the government" and other price-related factors. The Corps concludes that its evaluation method bases the award on price and price-related factors and thus does not violate CICA and FAR requirements. We agree.

FAR Sec. 14.201-8 identifies five factors that "may" be applicable in the evaluation of bids; these factors include application of the Buy American Act, taxes, the administrative costs of making multiple awards, the cost of changes where a bidder requests a change that does not constitute ground for rejection, and foreseeable costs or delays resulting from the need for first article approval or transportation. The listing of these factor is not intended to preclude the use of other relevant price-related factors in evaluating bids. Tek-Lite, Inc., B-230298, Mar. 8, 1988, 88-1 CPD Para. 241. The evaluation formula here considers three factors--the costs of contract administration, overhead on change orders, and field office or "extended overhead" costs, and we conclude that all three are price-related as contemplated by CICA.

In order to avoid extended negotiations over change orders, the Corps requires each offeror to propose an overhead rate to be applied to change orders and has provided a formula to calculate the cost impact of high overhead rates upon contract performance. As long as the solicitation provides for evaluation of overhead and contains a reasonable basis for applying overhead in the price evaluation, overhead may be considered as a price-related factor. Cleveland Gen., B-225804.2, Apr. 23, 1987. We find nothing unreasonable in the Corps's determination that in order to determine which bid will most likely result in the lowest cost to the government, it is necessary to consider the impact of potential changes. Selection of the low evaluated bidder under the IFB formula may not result ultimately in the lowest cost to the government, but on the average, selection of that bidder and delays averaging 30.5 percent likely will result in a lower cost to the government than would the selection of a bidder solely on the basis of bid price.

To the extent that the protesters argue that the evaluation method penalizes those bidders who maintain better control over their progress, often by incurring heavy overhead expenses, they misconstrue the purpose of the evaluation scheme. The formula neither rewards or punishes individual bidders for their failure to perform well or on-time, but to recognize that despite the Corps's best efforts to describe its needs accurately, it is usually impossible to fully anticipate those needs. It is the Corps's experience that a certain amount of cost growth and delay from change orders is virtually inevitable in its construction projects. In the Savannah District that growth averages 3.9 percent. The Corps has therefore reasonably made provision in the evaluation for the likelihood that some portion of the agency's needs will only be recognized in the course of performance and that these needs will have to be satisfied through the changes clause. While the value of future changes cannot be determined with any certainty and is beyond the control of the contractor, we do not think that the evaluation method being used here presents an unreasonable risk. A solicitation is not defective merely because it may put contractors at risk that payments will not cover the actual cost of performance. S.P.I.R.I.T Specialist Unlimited, Inc., B-237114.2, Mar. 8, 1990, 90-1 CPD Para. 257. There is some amount of risk inherent in any procurement, and offerors are expected to use their professional expertise and business judgment in taking these risks into account in computing their offers; agencies may decide to impose reasonable risks on contractors in order to limit the burdens on the government. Neil Gardis & Assocs., Inc., B-238672, June 25, 1990, 90-1 CPD Para. 590; see also A & E Indus., Inc., B-226997 et al., June 19, 1987, 87-1 CPD Para. 616. Here, both the bidder and the agency are committed to the overhead rate offered by the bidder; the bidder is as likely to reap the benefit of a rate that is too high as it is to suffer the consequences of a rate that is too low. Moreover, the agency's authority to make changes in the contract, which is based on the fixed overhead rates, is limited. The bidder is ultimately protected by the agency's estimated value of changes and the cardinal change rule, by which a court may consider the cumulative delay and disruption caused by an excessive number of changes in determining whether those changes exceed the contract's scope of work. See Atlantic Dry Dock Corp. v. United States, 773 F.Supp. 335 (M.D.Fla. 1991). In sum, we do not think that the requirement to provide fixed overhead rates prior to award creates an unreasonable risk for bidders.

We deny the protests.