B-180414, SEP 3, 1974

B-180414, SEP 3, 1974

PRECIS-UNAVAILABLE

SECRETARY OF THE AIR FORCE:

WE ENCLOSE A COPY OF OUR DECISION OF TODAY DENYING THE PROTEST OF THE RAYTHEON COMPANY AGAINST THE AWARD OF A DEVELOPMENT CONTRACT ON A COST PLUS-INCENTIVE-FEE (CPIF) BASIS TO CUTLER-HAMMER. INC. (AIL DIVISION), FOR THE AWARD OF THE (ILLEGIBLE) SUBSYSTEM FOR THE B-1 AIRCRAFT.

WE POINT OUT, NOTWITHSTANDING OUR DENIAL OF THE PROTEST, THAT THE PROCURING ACTIVITY DID NOT RESOLVE THE SUBSTANTIAL PRICE DISCREPANCY EXISTING BETWEEN AIL'S FINAL PROPOSED PRICE FOR THE DEVELOPMENT WORK AND THE GOVERNMENT'S INDEPENDENT COST ESTIMATE FOR THE WORK. AWARD, WITHOUT DISCUSSIONS TO RESOLVE THIS DISCREPANCY, WAS INCONSISTENT WITH ASPR 3- 405.4(B) WHICH CONTEMPLATES THE NEGOTIATION OF REALISTIC TARGET COSTS FOR CPIF CONTRACTS TO PROVIDE AN INCENTIVE TO THE CONTRACTOR TO EARN UP TO THE MAXIMUM FEE THROUGH HIS INGENUITY AND EFFECTIVE MANAGEMENT. SEE 47 COMP. GEN. 336, 346 (1967). THE FAILURE TO RESOLVE THE PRICING DISPARITY ALSO RESULTED, IN EFFECT, IN THE ELIMINATION OF THE COST REALISM DIRECTIVE OF THE PROPOSAL INSTRUCTIONS AS IT APPLIED TO DEVELOPMENT COST.

WE ALSO NOTE THAT RAYTHEON'S DEVELOPMENT COST ESTIMATE WAS CONSIDERED UNREALISTIC. WE THINK IT WOULD HAVE BEEN PREFERRABLE FOR THE PROCURING AGENCY TO HAVE ADVISED THE OFFERORS DURING NEGOTIATIONS THAT THEIR DEVELOPMENT COST PROPOSALS WERE GENERALLY CONSIDERED UNREALISTIC IN LIGHT OF THE GOVERNMENT ESTIMATES, AND, WITHIN THE CONTEXT OF THAT ADVICE, THE SPECIFIC AREAS OF UNREALISTIC PROPOSED COSTS, LIMITED ONLY BY THE PRINCIPLE THAT AN OFFEROR'S UNIQUE COST AND TECHNICAL APPROACH SHOULD NOT BE DISCLOSED.

WE THEREFORE RECOMMEND THAT STEPS BE TAKEN TO ENSURE MEANINGFUL COST NEGOTIATION WITH COMPETING OFFERORS TO RESOLVE DISPARTIES BETWEEN PROPOSED COSTS AND GOVERNMENT ASSESSED COSTS IN FUTURE PROCUREMENTS.

WE ALSO NOTE THAT THE PROPOSAL INSTRUCTIONS FOR THE PROCUREMENT PROVIDED FOR THE INCLUSION OF "ESCALATION" IN THE COST PROPOSAL. EACH OFFEROR WAS INSTRUCTED TO DETERMINE AND APPLY A FACTOR TO ITS "BASE YEAR" DOLLAR ESTIMATES. WE HAVE HELD THAT IT IS PREFERABLE FOR OFFERORS TO BE INFORMED IN THE PROPOSAL INSTRUCTIONS OF THE GOVERNMENT'S ESTIMATE OF INFLATION SO AS TO PROVIDE A COMMON BASIS FOR PROPOSAL PREPARATION AND EVALUATION. SEE 53 COMP. GEN. (B-173677, JUNE 24, 1974). CONSEQUENTLY, WE RECOMMEND THAT A COMMON INFLATION FACTOR BE PROVIDED TO ALL OFFERORS IN FUTURE PROCUREMENTS WHEN "ESCALATION" IS TO BE CONSIDERED.

FINALLY WE NOTE THAT THE DETAILED, WRITTEN RECORD OF THE ORIGINAL ANALYSES AND RATIONALE OF ALL THOSE WHO TOOK PART IN SOURCE SELECTION WAS NOT MADE AVAILABLE TO US UNTIL WE MADE A FORMAL REQUEST AFTER RECEIPT OF TWO ADMINISTRATIVE REPORTS.

YOUR PROCURING ACTIVITIES SHOULD BE ADVISED THAT WE NEED ORIGINAL ANALYSES AND RATIONALE FOR A COMPLETE REVIEW WHENEVER A PROTEST INVOLVING SOURCE SELECTION HAS BEEN MADE. THIS MATERIAL SHOULD BE SENT AS PART OF THE INITIAL PROTEST REPORT TO GAO IN THE FUTURE.

PLEASE ADVISE US OF THE ACTION TAKEN IN RESPONSE TO OUR COMMENTS AND RECOMMENDATIONS.

THE PROTEST WAS THE SUBJECT OF REPORTS DATED MARCH 27, MAY 29, JUNE 19, AND JULY 15, 1974, FROM THE CHIEF, CONTRACT MANAGEMENT DIVISION, AND A REPORT DATEED JULY 29, 1974, FROM THE CONTRACTING OFFICER. THE CLASSIFIED REPORTS ARE RETURNED.