B-165938, MAY 16, 1969

B-165938, MAY 16, 1969

TO DUNLAP AND ASSOCIATES, INC:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 3, 1969, WITH ENCLOSURES, RELATIVE TO OUR DECISION OF MARCH 26, 1969, B-165938, TO YOU, WHEREIN WE DENIED THE PROTEST OF YOUR CORPORATION AGAINST AN AWARD OF A COST PLUS-A- FIXED-FEE CONTRACT ON JANUARY 6, 1969, TO THE WOOD-IVEY SYSTEMS CORPORATION PURSUANT TO ARMY REQUEST FOR QUOTATIONS NO. DAAD05-68-Q 1805, ISSUED BY THE PROCUREMENT DIVISION, ABERDEEN PROVING GROUND, MARYLAND.

YOU QUESTION THE ACCURACY OF CERTAIN STATEMENTS MADE IN THE CONTRACTING OFFICER'S ADMINISTRATIVE REPORT OF JANUARY 27, 1969. YOU REFER TO HIS STATEMENT IN PARAGRAPH (M) (1) OF PAGE 3 THEREOF TO THE EFFECT THAT IN THE RESUBMISSION OF YOUR PROPOSAL ON OCTOBER 2, 1968, YOUR FIRM CHANGED THE POINT OF PERFORMANCE FROM DARIEN, CONNECTICUT TO WASHINGTON, D.C. YOU STATE THAT THE FOREGOING STATEMENT AS TO CHANGE OF POINT OF PERFORMANCE IS INCORRECT AND THAT, ALSO, THE ARMY STATEMENT THAT RELOCATION COSTS AND TRAVEL COSTS WOULD BE PRIMARY AREAS OF CONCERN FOR NEGOTIATION IS EXAGGERATED. IN REGARD TO THE ALLEGED CHANGE IN POINT OF PERFORMANCE BY YOUR FIRM, WHILE OUR FILE DOES NOT CONTAIN A COPY OF YOUR REVISED PROPOSAL OF OCTOBER 2, 1968, THE RECORD DOES INCLUDE A LETTER OF THAT DATE WHEREIN MR. ECKENRODE, PRESIDENT OF YOUR FIRM, STATED "THIS (COST PROPOSAL) REPLACES THE COST PROPOSAL PREVIOUSLY SUBMITTED.' HENCE, YOUR REFERENCE TO LANGUAGE IN YOUR ORIGINAL PROPOSAL THAT PRIMARY WORK WILL BE DONE IN WASHINGTON DOES NOT CONTRADICT THE ARMY REPORT. THE FILE BEFORE US IS REPLETE WITH REFERENCES TO RELOCATION OR TRAVEL COSTS FROM DARIEN, CONNECTICUT. THE SUMMARY AND RECORD OF NEGOTIATIONS WITH MR. YATES OF YOUR FIRM IS AS FOLLOWS:

"I THEN QUESTIONED MR. YATES ABOUT DUNLAP POLICY WITH REGARDS TO RELOCATION COSTS. SINCE THE ORIGINAL PROPOSAL WAS BASED UPON WORK BEING CONDUCTED IN DARIEN, CONN., AND BECAUSE DUNLAP WILL PERFORM WORK IN THE WASHINGTON OFFICE THERE WILL OBVIOUSLY BE SOME RELOCATION COSTS. WHEN MR. YATES INDICATED THAT THEY DO NOT ANTICIPATE ANY CHARGES OF THIS NATURE I ADVISED THAT PROVIDED DUNLAP IS THE LOW OFFEROR AFTER NEGOTIATIONS, RESULTANT CONTRACT WILL STATE THAT IT IS AGREED THAT RELOCATION COSTS WILL NOT BE ALLOCABLE TO THE CONTRACT. IN LIEU OF ACCEPTING SAME MR. YATES SUGGESTED THAT HE WILL DISCUSS THIS MATTER WITH MANAGEMENT.

"RELOCATION COSTS. MR. YATES STATED THAT IT IS COMPANY POLICY TO REIMBURSE PERSONNEL FOR RELOCATION COSTS, THEREFORE CAN NOT AGREE TO A CONTRACTUAL STATEMENT THAT WOULD INDICATE SAME WOULD NOT BE ALLOCABLE TO THE CONTRACT. AT THE PRESENT TIME DUNLAP DOES NOT ANTICIPATE ANY SUCH CHARGES, HOWEVER, SHOULD THEY OCCUR SAID REIMBURSEMENT WILL BE APPLIED AS AN INDIRECT COST AND WILL BE WITHIN THE 40 PERCENT CEILING RATE NEGOTIATED. WHEN I ADVISED THAT FOR COMPETITIVE EVALUATION PURPOSES I WILL EVALUATE DUNLAP'S OFFER ON THE BASIS OF 40 PERCENT OVERHEAD, MR. YATES IMMEDIATELY RESPONDED BY SAYING THEY SHOULD BE EVALUATED WITH THE NEGOTIATED RATE OF 24.34 PERCENT, HOWEVER IF ANY RELOCATION COSTS OCCUR THEY WILL BE FROM THE 40 PERCENT CEILING RATE. SINCE MR. YATES VERY CLEARLY PLACED AN EMPHASIS ON -IF RELOCATION COST OCCUR- I RESPONDED BY REFERRING TO DUNLAP'S TECHNICAL PROPOSAL, PARTICULARLY TO PERSONNEL TO BE ASSIGNED (SEE PAGE 22 OF THE PROPOSAL). I ALSO REFERRED TO THE STATEMENT OF WORK, PARTICULARLY TO THE RATE OF PERFORMANCE. IF MR. ECKENRODE WILL BE THE PROGRAM MANAGER AS SPECIFIED AND SINCE THE RESULTANT CONTRACT WILL REQUIRE THAT MR. ECKENRODE BE IN THE WASHINGTON OFFICE ON THE AVERAGE OF 1/2 MAN YEARS TIME PER YEAR FOR EACH OF THE THREE CONTRACT YEARS, HOW AND WHERE WILL REIMBURSEMENT BE APPLIED. IT IS THEREFORE OBVIOUS THAT RELOCATION COSTS WILL BE ALLOCABLE TO THE CONTRACT. MR. YATES WAS THEN ADVISED THAT SAID FACTOR WILL BE CONSIDERED IN THE FINAL EVALUATION FOR AWARD - AGREED.

* * * * * * * "* * * PURSUANT TO NEGOTIATIONS OF 29 NOV 68 BETWEEN MR. R. YATES, DUNLAP AND ASSOC., AND THE CONTRACT SPECIALIST, IT IS COMPANY POLICY OF DUNLAP TO APPLY TRAVEL COSTS (OTHER THAN MARKETING TRAVEL) AS A DIRECT COST TO THE CONTRACT. SINCE FIVE (5) DUNLAP EMPLOYEES ARE PRESENTLY LIVING IN DARIEN, CONN. AND BECAUSE MR. YATES FIRMLY STATES THAT DUNLAP AGREES THAT -NO RELOCATION/MOVING COSTS WILL BE ALLOCABLE TO THE CONTRACT- IT IS REASONABLE TO ASSUME THAT TRAVEL COSTS FOR THE FIVE (5) MEN, NAMELY, MESSRS. ECKENRODE, DUNLAP, PROMISEL, MCGAY AND FURTH WILL BE APPLIED AS DIRECT COSTS AFTER CONTRACT AWARD. REPEATED EFFORTS BY THE CONTRACT SPECIALISTS TO OBTAIN FIGURES FOR FIRST RELOCATION/MOVING COSTS AND SECOND, TRAVEL COSTS HAVE PROVEN FRUITLESS. THE CONTRACT SPECIALIST THEREFORE PLACES NONRELIANCE IN THE FINAL OFFER FROM DUNLAP AND ASSOCIATES. MR. YATES OF DUNLAP AND ASSOCIATES WAS SO ADVISED * * *.'

ADDITIONALLY, THE "COMPARISON OF FINAL OFFERS" STATES IN A FOOTNOTE THAT:

"DUNLAP COST ESTIMATE OVERHEAD RATE INCLUDES ONLY $1,200.00 FOR GENERAL TRAVEL. PROPOSAL INITIALLY QUOTED TO BE PERFORMED IN DARIEN REVISED TO WASHINGTON DC CONTRACTOR AGREED THAT NO RELOCATION/MOVING COSTS WOULD BE ALLOCABLE. FIVE (5) DARIEN, CONN., EMPLOYEES WILL REQUIRE AN ABNORMAL AMOUNT OF TRAVEL FROM DARIEN TO WASH. D.C. NO COST IN PROPOSAL FOR EXTRA TRAVEL.' WE FIND NO BASIS IN THE RECORD FOR CONCLUDING THAT RELOCATION COSTS AND TRAVEL COSTS WERE NOT ,PRIMARY AREAS OF CONCERN FOR NEGOTIATION.' RATHER, MR. YATES OF YOUR FIRM WAS MADE AWARE OF THE ARMY CONCERN IN THESE AREAS AS EVIDENCED BY THE CONTRACT SPECIALIST'S STATEMENT OF NEGOTIATIONS DATED NOVEMBER 29, 1968, AS FOLLOWS:

"RELOCATION/MOVING COSTS. DUNLAP WILL AGREE THAT -NO RELOCATION/MOVING COST WILL BE ALLOCABLE TO THE CONTRACT.- WHEN I SUGGESTED THAT AN ABNORMAL AMOUNT OF TRAVELING WILL BE CONDUCTED ON THE BASIS THAT THE FOLLOWING PERSONS WILL NOT MOVE OR RELOCATE, MR. YATES STATED THAT IT IS COMPANY POLICY TO HANDLE -TRAVEL OTHER THAN GENERAL MARKETING AS A DIRECT CHARGE.- PERSONS LIVING IN DARIEN AREA WHO ARE LISTED TO WORK ON THIS JOB. R. T. ECKENRODE J. WM. DUNLAP D. M. PROMISEL R. T. MCGAY L. FURTH

"UPON CONCLUSION, WE REVIEWED ALL ELEMENTS DISCUSSED AND I ADVISED MR. YATES OF THE FACT THAT I STILL HAVE A -NON-RELIANCE FACTOR IN DUNLAP'S PROPOSAL, THAT SAID NON-RELIANCE IS IN AMOUNT OF TRAVEL- I THEN EXPLAINED THAT I WOULD EVALUATE THE PROPOSAL WITH THOSE OF COMPETITORS WITH DUE EMPHASIS PLACED UPON: "A. OVERHEAD FACTOR "B. TRAVEL FACTOR"

YOU STATE THAT THE ISSUE WHICH THE ARMY REPORT FAILS TO RECOGNIZE IS THE VALIDITY OF USING ARBITRARY CEILING OVERHEAD RATES AS A BASIS OF PRICE COMPARISON. YOU ALSO QUESTION THE ACTION OF THE ARMY IN PLACING A CEILING ON ONLY THE ENGINEERING OVERHEAD FOR PURPOSES OF THE EVALUATION. YOU ALSO STATE THAT HAD ALL OR SOME OTHER ELEMENTS OF PRICE BEEN AFFORDED THE SAME TREATMENT, WOOD-IVEY'S PRICE MAY WELL HAVE BEEN GREATER. THE CONTRACT AWARD HERE PROTESTED WAS NEGOTIATED WITH BOTH OFFERORS AND EACH WAS AFFORDED AMPLE OPPORTUNITY TO MEET THE ARMY COST CRITERIA. WE HAVE REVIEWED THE RECORD OF NEGOTIATIONS AND FIND THAT YOUR FIRM WAS UNWILLING TO SATISFY THE CONTRACTING OFFICER'S DOUBTS AS TO YOUR ESTIMATED RELOCATION OR TRAVEL COSTS. WHILE THIS FACTOR OF COST COULD POSSIBLY HAVE BEEN RESOLVED BY FURTHER NEGOTIATION, THE FACT REMAINS THAT YOUR FIRM WAS UNSUCCESSFUL IN BARGAINING WITH THE GOVERNMENT WITH THE RESULT THAT THE AWARD WAS MADE TO THAT OTHER OFFEROR WHOSE PROPOSAL WAS SUCCESSFULLY NEGOTIATED TO A LOWER COST THAN YOUR PROPOSAL. SUCH NEGOTIATIONS AS WERE CONDUCTED HERE UNDER THE CONCEPT OF "COMPETITIVE" NEGOTIATION WERE NOT IMPROPER OR CONTRARY TO THE GUIDELINES PRESCRIBED IN PART 8, SECTION III OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR).

YOU STATE THAT ON PAGE 3 OF OUR DECISION WE CITE ASPR 3-806 (B) AND 3- 808.5 (B) (3). YOU CONTEND THAT SINCE ASPR 3-806 (B) DEALS WITH PROFIT OR FEE AND ASPR 3-808.5 (B) (3) DEALS WITH COMPUTATION OF PROFIT OR FEE ON OVERHEAD EXPENSES, NEITHER OF THESE SUBJECTS PLAYED ANY ROLE IN THE NEGOTIATION OR EVALUATION OF THE PROCUREMENT INSOFAR AS THE RECORDS DISCLOSE. ASPR 3-806 (B) WAS CITED BY OUR OFFICE FOR THE PURPOSE OF POINTING OUT THAT "GOVERNMENT PROCUREMENT IS CONCERNED PRIMARILY WITH THE REASONABLENESS OF THE PRICE WHICH THE GOVERNMENT ULTIMATELY PAYS.' AS TO ASPR 3-808.5 (B) (3), SUCH REGULATION WAS CITED BECAUSE IT COVERED, AMONG OTHER ITEMS OF EXPENSE, THE EVALUATION OF ENGINEERING OVERHEAD -- WHICH WAS THE SUBJECT OF CONSIDERABLE NEGOTIATION WITH YOU ON YOUR REVISED PROPOSAL.

WHILE WE AGREE THAT AN OFFEROR MAY SEEK THROUGH HIS PROPOSAL TO GAIN A COMPETITIVE ADVANTAGE BY OFFERING A LOW OVERHEAD RATE, THE GOVERNMENT HAS THE RESPONSIBILITY TO PROTECT ITSELF AGAINST COST OVERRUNS BY IMPOSING A PERCENTAGE CEILING ON OVERHEAD. IF IN FURTHERING THE CONCEPT OF ,COMPETITIVE" NEGOTIATION, THE GOVERNMENT CHOOSES TO EVALUATE A PROPOSAL ON THE BASIS OF A CEILING PERCENTAGE RATHER THAN ON THE BASIS OF THE LOW OVERHEAD RATE AS PROPOSED BY THE OFFEROR, THE OFFEROR HAS NO BASIS TO OBJECT IF SUCH EVALUATION RENDERS HIS PRICE HIGHER THAN HIS COMPETITOR.

YOU REFER TO PAGE 3 OF OUR DECISION WHEREIN WE INDICATED THAT OUR OFFICE RELIES UPON THE JUDGMENT OF THE PROCUREMENT AGENCY'S SPECIALISTS UNLESS THE ACTION WAS "ERRONEOUS, ARBITRARY, OR NOT MADE IN GOOD FAITH.' YOU CONTEND THAT THE JUDGMENT OF THE PROCUREMENT OFFICIALS IN THIS PROCUREMENT WAS ERRONEOUS AND ARBITRARY. YOU ALLEGE THAT THE GOVERNMENT'S BEST INTERESTS WOULD HAVE BEEN SERVED HAD THE AWARD BEEN MADE TO YOUR FIRM AND THAT THE AWARD TO WOOD-IVEY CONTAINS SUCH ELEMENTS OF ILLEGALITY AS TO WARRANT THE CANCELLATION THEREOF.

WE BELIEVE THAT THE AWARD MADE TO WOOD-IVEY IS VALID BECAUSE IT WAS MADE IN ACCORDANCE WITH ACCEPTABLE NEGOTIATION PROCEDURES TO THE LOWEST-PRICED TECHNICALLY QUALIFIED OFFEROR. ALSO, YOUR ALLEGATION CONCERNING THE JUDGMENT OF THE PROCUREMENT OFFICIALS INVOLVED IS FACTUALLY UNSUPPORTED AND APPARENTLY BASED ON A MISCONCEPTION OF THE NEGOTIATIONS AS CONDUCTED.

IN A NEGOTIATED PROCUREMENT, SUCH AS THE IMMEDIATE ONE, THE RULES OF FORMALLY ADVERTISED COMPETITIVE BIDDING ARE NOT APPLICABLE AND THERE MAY BE CONSIDERED ALL FACTORS DEEMED ESSENTIAL TO THE PROCUREMENT IN MAKING THE AWARD. IN THIS REGARD, ASPR 3-805.2 STATES:

"COST-REIMBURSEMENT TYPE CONTRACTS. IN SELECTING THE CONTRACTOR FOR A COST-REIMBURSEMENT TYPE CONTRACT, ESTIMATED COSTS OF CONTRACT PERFORMANCE AND PROPOSED FEES SHOULD NOT BE CONSIDERED AS CONTROLLING, SINCE IN THIS TYPE OF CONTRACT ADVANCE ESTIMATES OF COST MAY NOT PROVIDE VALID INDICATORS OF FINAL ACTUAL COSTS. THERE IS NO REQUIREMENT THAT COST- REIMBURSEMENT TYPE CONTRACTS BE AWARDED ON THE BASIS OF EITHER (1) THE LOWEST PROPOSED COST, (2) THE LOWEST PROPOSED FEE, OR (3) THE LOWEST TOTAL ESTIMATED COST PLUS PROPOSED FEE. THE AWARD OF COST-REIMBURSEMENT TYPE CONTRACTS PRIMARILY ON THE BASIS OF ESTIMATED COSTS MAY ENCOURAGE THE SUBMISSION OF UNREALISTICALLY LOW ESTIMATES AND INCREASE THE LIKELIHOOD OF COST OVERRUNS. THE COST ESTIMATE IS IMPORTANT TO DETERMINE THE PROSPECTIVE CONTRACTOR'S UNDERSTANDING OF THE PROJECT AND ABILITY TO ORGANIZE AND PERFORM THE CONTRACT. THE AGREED FEE MUST BE WITHIN THE LIMITS PRESCRIBED BY LAW AND APPROPRIATE TO THE WORK TO BE PERFORMED (SEE 3-808). BEYOND THIS, HOWEVER, THE PRIMARY CONSIDERATION IN DETERMINING TO WHOM THE AWARD SHALL BE MADE IS: WHICH CONTRACTOR CAN PERFORM THE CONTRACT IN A MANNER MOST ADVANTAGEOUS TO THE GOVERNMENT.'

ACCORDINGLY, ON THE RECORD BEFORE US, THE DECISION OF MARCH 26, 1969, IS AFFIRMED.