Matter of: Florida Industrial Machinery, Inc. File: B-253140 Date: July 29, 1993

B-253140: Jul 29, 1993

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PROCUREMENT Contract Types Fixed-price contracts Price reasonableness The General Accounting Office will not disturb an evaluation on a solicitation for a fixed-price requirements contract for engine repairs where the record shows that the agency performed a detailed cost/price analysis in determining that the awardee's low price reflected the offeror's proposed approach and that the offeror demonstrated an understanding of the solicitation requirements. Which was issued on June 12. Offerors were to provide a fixed unit price for each of the following items: (1) four levels of repair for the engines to include certain services. Award was to be made to the offeror whose proposal was the most advantageous to the government considering price and other factors.

Matter of: Florida Industrial Machinery, Inc. File: B-253140 Date: July 29, 1993

PROCUREMENT Contract Types Fixed-price contracts Price reasonableness The General Accounting Office will not disturb an evaluation on a solicitation for a fixed-price requirements contract for engine repairs where the record shows that the agency performed a detailed cost/price analysis in determining that the awardee's low price reflected the offeror's proposed approach and that the offeror demonstrated an understanding of the solicitation requirements.

Attorneys

DECISION Florida Industrial Machinery, Inc. protests the award of a contract to Melton's Sales & Service, Inc. under request for proposals (RFP) No. F41608-92-R-0447, issued by the Department of the Air Force, Kelly Air Force Base, Texas, for the repair, overhaul, modification, testing, preparation for storage, and shipment of various gasoline and diesel engines and related components. Florida essentially argues that the agency did not adequately evaluate the "cost realism" of the awardee's proposal.

We deny the protest.

The RFP, which was issued on June 12, 1992, as a total small business set -aside, provided for the award of a fixed-priced requirement-type contract. Offerors were to provide a fixed unit price for each of the following items: (1) four levels of repair for the engines to include certain services, parts, and crating; (2) overhaul, repair and/or modifications of the component parts listed in the RFP; (3) six optional services required by the RFP; and (4) over and above hourly rates applicable to all over and above effort negotiated by the administrative contracting officer.

Award was to be made to the offeror whose proposal was the most advantageous to the government considering price and other factors. The solicitation provided that offerors' proposals would be evaluated on the basis of an integrated assessment of the offeror's ability to satisfy the requirements. The solicitation listed technical, management and cost as evaluation factors in order of importance (subfactors were also listed in descending order of importance). Under technical, the following subfactors were to be evaluated, in descending order of importance: (a) facilities; (b) equipment; (c) production plan; (d) material control; (e) safety; and (f) quality control. Under management, the subfactors were (a) experience; (b) personnel; (c) total quality management (TQM); and (d) technical order plan.

The evaluation was to consist of: (1) a color/adjectival rating, (2) a proposal risk rating, and (3) a performance risk rating. The RFP further provided that costs would be evaluated for completeness, reasonableness, realism, and to ensure that the offerors adequately understood the scope of the required work.

Three proposals were received by the closing time for receipt of initial proposals. After the initial evaluation, each offer was determined by the evaluation team to be in the competitive range, with no significant weaknesses and with each meeting at least the minimum standards in the areas of facilities, equipment, quality control, and experience. Florida's proposal was viewed as displaying exceptional strengths in the technical and management areas, and exceeding the minimum standards in the areas of production plan, material control, safety, personnel, TQM, and technical order plan. Melton also was rated as exceeding the standard in TQM and technical order plan. Florida received a rating of exceptional in the technical and management areas, while Melton and Offeror C both received color ratings of good in these areas. Performance and cost risks were considered to be low for each of the offerors in all areas due the fact that each of the offerors had prior experience in performing this type of repair and overhaul.

Best and final offers (BAFO) were requested by January 4, 1993. BAFOs, including options, were as follows:

Offeror

Florida $24,842,876 Melton 18,037,689 Company C 41,487,146

The source selection authority (SSA) concluded that, based on an integrated assessment of technical considerations and evaluated prices, the Melton proposal provided the best value to the agency. The SSA noted that although Melton's proposal was not the highest ranked technically, Melton met or exceeded all RFP requirements and offered the lowest evaluated price. The SSA concluded that the price offered by Melton was fair and reasonable and that the majority of the price difference between Melton and Florida reflected Melton's lower markup and overhead rate, lower cost of performance in-house, and lower material costs. Award was made to Melton on April 2, and this protest was filed with our Office on April 19.

Florida, the incumbent contractor, contends that the Air Force failed to properly conduct a cost realism analysis. Florida argues that, based on the higher prices offered by the other competitors, Melton's price is unrealistic and its offer should have been rejected.[1]

Where fixed-price contracts are solicited, "cost realism" ordinarily is not considered in the evaluation since a firm, fixed-price contract provides for a definite price and this contract type places upon the contractor the risk and responsibility for all contract costs and resulting profit or loss. Fairchild Space and Defense Corp., B-243716; B-243716.2, Aug. 23, 1991, 91-2 CPD Para. 190; Corporate Health Examiners, Inc., B-220399.2, June 16, 1986, 86-1 CPD Para. 552. However, agencies, in their discretion, may provide for a cost realism analysis in the solicitation of firm, fixed-price proposals for such purposes as measuring an offeror's understanding of the solicitation requirements. Id.

Here, the RFP stated that price would be evaluated for realism and to ensure the offeror understood the requirement. It did not, however, specify the manner or degree of analysis to which proposals would be subjected. In our opinion, the Air Force did all that was required in the way of a price analysis under the RFP.

As required by the RFP, offerors provided limited cost and pricing data. The Air Force evaluated the realism of the offerors' proposed prices, which included analyzing each offeror's proposed material, labor hours and rates. The evaluation team received assistance in conducting the realism analysis from the contract production manager and from the cognizant Defense Contract Audit Agency (DCAA). The production manager provided government estimates for material, labor hours and labor rates which were based upon average actual rates from the last 5 years of contract performance.[2] The evaluators used this information and applied an adjustment factor for inflation to cover the 5-year period of the contract.

DCAA advised the agency that recent reviews had not been performed for Florida and Melton but reported that prior reviews had not revealed any negative information or significant problems with proposed rates. Based on the competition for this work and the DCAA's findings, the rates proposed by the offerors were determined by the contracting officer to be fair and reasonable.

An analysis of the offerors' pricing was conducted based upon evaluation of the proposed labor hours for handling, data recording, teardown, and "quotation," which are the initial steps for engine repair. The proposed labor hours for this work for all offerors were lower than the historical data. For a number of selected engine items, the agency compared the prices quoted by offerors to the incumbent contractor's actual cost of repairing/overhauling each of these items. The production manager reviewed the labor hours proposed. He believed the hours proposed by each offeror were realistic and reasonable based on their technical proposals, and that the differences among offerors were attributable to each offeror's subjective evaluation of the technical orders and statement of work and differences in proposed approach to the work which were found acceptable by the technical evaluation team.

Each offeror's proposed costs were compared to actual current costs for the same or similar items from prior contracts. Each offer was evaluated on its own merit and determined to be reasonable in accordance with the terms and conditions of the solicitation. The evaluation team determined that each offeror's costs for each element of the work was set forth in a realistic manner and that each offeror's individual method of addressing costs was realistic.

The agency found that the price differences among the offerors for material and labor were attributable to: (1) the range of discounts the offerors believed they could obtain from the materials suppliers; (2) the higher costs associated with subcontracting more of the work compared to in-house performance; (3) prior experience and individual interpretation of the statement of work and technical orders which describe how repair and overhaul is to be accomplished; (4) markup applied to material costs; and (5) differences in overhead and general and administrative and other indirect costs.

Florida maintains that the large price disparity between offerors should have made it obvious to the SSA that Melton's proposal was unrealistic and unacceptable.

As stated above, the record demonstrates that the agency performed a detailed technical and price evaluation of proposals. As a result of this evaluation, the SSA concluded that Melton's proposal met or exceeded all RFP requirements and that Melton proposed an experienced team of managers and employees, existing facilities and equipment, and could deliver a quality product on schedule. The agency's evaluators recognized the disparity in prices between offerors but concluded that the prices quoted by each of the offerors were acceptable based upon the technical team's verification that each of the offerors had an adequate understanding of the required scope of work. The difference in price between the proposals offered by Florida and Melton was attributed to, among other things, the fact that Florida needed to subcontract more of the work than Melton which resulted in higher costs for Florida, and that Melton proposed lower markup factors for materials and lower overhead rates. Other than to object to Melton's low prices, Florida has not specifically challenged the technical evaluation. Based on this record, we have no basis to question the agency's determination that Melton's proposal was technically acceptable and reflected the offeror's understanding of the work to be performed.

As Florida points out, prices for certain items proposed by Melton are significantly lower than the other offeror's prices and the historical estimate, and are not necessarily fully explained by the differences in markup or approach to performing the work. For these categories of work, it appears to us that Melton simply may have submitted a below-cost offer. However, where as here, the proposal properly is considered technically acceptable and reflects an understanding of the work to be performed, we have no legal basis to object to the submission or acceptance of a below- cost offer. See Process Control Technology, Inc., B-249395, Oct. 30, 1992, 92-2 CPD Para. 312.

The protest is denied.

1. In its comments to the agency report filed with our Office on June 9, Florida states that when BAFOs were requested, the contracting officer included a model contract to be signed by the offerors which did not incorporate previous amendments or responses to questions. Florida alleges that two changes to the RFP were made in the BAFO model contract. Florida argues that these changes have a cost impact on contractors. To the extent Florida is objecting to the provisions of the model contract, its protest is untimely. The model contract was included with the BAFO request which was dated December 21, l992, and which required BAFOs to be submitted by January 4, 1993. Any concerns with the model contract should have been protested prior to the time for receipt of BAFOs. 4 C.F.R. Sec. 21.1(a) (1993).

2. While there were some differences between the current buy and the last buy, the production manager advised the contract team that in his opinion the prior contract information was an adequate basis for comparison of each offeror's proposed material and labor costs.