Matter of: Blue Cross Blue Shield of Texas, Inc. File: B-261316.4 Date: November 9, 1995 * REDACTED DECISION

Matter of: Blue Cross Blue Shield of Texas, Inc. File: B-261316.4 Date: November 9, 1995 * REDACTED DECISION

Agency was not obligated to advise offeror that its price for a portion of the proposal was higher than the government estimate where agency did not consider the price unreasonable. Agency's methodology for assessing a risk premium associated with each offeror's projected costs was reasonable and consistent with the evaluation scheme set forth in the solicitation. Awardee's reduction in price between initial proposals and best and final offers was reasonable where government estimate during this period decreased in an amount greater than the awardee's price reduction. Where one element of awardee's proposed pricing methodology significantly exceeded the government's estimate, agency's evaluation of awardee's proposal was reasonable where agency recognized and quantified the risk associated with awardee's proposed high price and considered that risk in making its source selection decision. [Deleted] Agency reasonably evaluated awardee's proposal as offering a "net" savings approach to resource sharing expenditures. Agency reasonably determined that award to offeror submitting lower-rated, lower-price proposal was in the government's best interest.

Attorneys

REDACTED DECISION

A protected decision was issued on the date below and was subject to a GAO Protective Order. This version has been redacted or approved by the parties involved for public release.

DECISION

Blue Cross Blue Shield of Texas, Inc. (BCBSTX) protests the award of a contract by the Office of the Civilian Health and Medical Program of the Uniformed Services to Foundation Health Federal Services, Inc. (FHFS) under request for proposals (RFP) No. MDA906-93-R-0004. [1] The RFP sought proposals to provide managed health care services for CHAMPUS beneficiaries in Arkansas, Oklahoma, Louisiana, and Texas. The RFP contemplated award of a contract for a base period with five 1-year options. BCBSTX protests that the agency failed to conduct meaningful discussions, improperly evaluated various aspects of its and FHFS' proposals, and failed to perform an appropriate cost/technical tradeoff.

We deny the protest.

BACKGROUND

The RFP was issued on November 1, 1993, and sought proposals for the development and operation of a health care delivery and support system for CHAMPUS beneficiaries in the States of Oklahoma and Arkansas and major portions of the States of Texas and Louisiana, which are collectively referred to as Region 6. Offerors were required to submit proposals in two parts: one part to perform administrative functions (primarily claims processing and support services) and one part to provide health care services. Separate technical and business proposals were required and the RFP provided that, in the source selection decision, technical factors would be given a weight of 60 percent and business factors a weight of 40 percent.

Regarding the health care portion of the contract, proposals were required to offer CHAMPUS beneficiaries three health care options with increasing levels of managed care. The required options were (1) "TRICARE Standard," under which beneficiaries select providers of their own choosing who are compensated on a fee-for-service basis; (2) "TRICARE Extra," under which the beneficiaries' health care is to be provided by members of the contractor's preferred provider organization (PPO); and (3) "TRICARE Prime," under which the beneficiaries' health care is to be provided through a contractor-established health maintenance organization (HMO).

The RFP stated that the government intended to award a fixed-price contract (with the price subject to specified adjustments during performance). For the administrative portion of the business proposal, the RFP required conventional firm, fixed-price proposals. Under the health care portion of the contract, the fixed-price nature of the contract was modified by a risk-sharing arrangement which is a key characteristic of OCHAMPUS managed-care solicitations. Under this arrangement, in the event of health care cost overruns or underruns, the government and the contractor will share the responsibility or benefits respectively through application of loss-sharing or gain-sharing formulas.

In the event of cost overruns, responsibility for excess costs will be shared by the government and the contractor, pursuant to the established formula, until the contractor has absorbed overruns equal to the amount of equity which the contractor offered to put at risk in its proposal. [2] At that point, the contract will begin to function on a cost reimbursement basis, with the government paying for all additional health care costs.

Actual health care costs will be a function of a large number of variables, such as the number of CHAMPUS beneficiaries who enroll in the HMO or PPO options, the level of provider discounts, inflation, and the contractor's ability to manage health care utilization. Offerors were required to propose "trend factors" (which are essentially multiplication coefficients) for each of the variables; the proposed trend factors represented the offerors' prediction of its cost performance in comparison to the agency's experience during the 12-month period immediately preceding contract performance. Data estimates regarding the government's experience during the preceding 12-month period (referred to as the "data collection period" or "DCP") was provided as part of the RFP. Thus, in the event an offeror was predicting that its costs would be identical to those experienced in the DCP, its proposed trend factor would be 1.0. If the offeror was predicting a cost decrease, its proposed trend factor would be less than 1.0, while if it was predicting a cost increase its proposed trend factor would be greater than 1.0. [3]

The RFP distinguished between trend factors over which the contractor was likely to have control and those over which the contractor was unlikely to have control. [4] Specifically, in projecting actual health care costs, the RFP stated that offerors' proposed controllable trend factors would be evaluated "based upon the justification and documentation provided for the trends in the business proposal" and upon "the government's estimate of the likely trends under the offeror's approach." Based on this assessment, the agency would adjust the offeror's proposed figures to reflect the agency's judgment regarding the actual costs that would be incurred under each offeror's approach. Regarding evaluation of the uncontrollable trend factors, the RFP stated that the agency would substitute its independent government cost estimate (IGCE) for those proposed by offerors, except in instances in which an offeror had "a signed capitation agreement with specified capitation rates." The
agency's final assessment of projected actual health care costs for each
offeror would reflect the costs proposed, as modified by the agency's
adjustments of either controllable or uncontrollable factors.

The RFP further explained that, after calculating the projected costs
associated with each proposal (including the fixed-price administrative
area and health care profit), the agency would estimate the cost to the
government (pursuant to the risk-sharing formula) of various percentages
of overruns and underruns relative to each offeror's projected cost. This
analysis was performed in order to assess each proposal's "sensitivity" to
cost overruns or underruns. [5] The resulting calculation would lead to a
further adjustment to the total probable cost for the proposal through the
addition of a "risk premium."

Initial proposals were received from five offerors, including BCBSTX and
FHFS, by August 31, 1994. Following evaluation, all five offerors'
proposals were determined to be within the competitive range and
discussions occurred between October 1994, and February 1995. Best and
final offers (BAFO) were submitted on February 27. Following BAFO
evaluation, FHFS' and BCBSTX's proposals were determined to be the two
proposals offering the greatest value to the government. BCBSTX's
proposal received a final technical score of 610.177 at a total evaluated
price of $2.361 billion; FHFS' proposal received a technical score of
566.239 at a total evaluated price of $1.988 billion. A best buy analysis
was performed, applying the appropriate weighting factors to the cost and
technical scores, which resulted in a best buy score of 956.795 for the
FHFS proposal and 936.824 for the BCBSTX proposal.

After considering underlying reports and analyses of the business proposal
evaluation team (BPET) and the source selection evaluation board (SSEB),
the source selection advisory council (SSAC) recommended that the source
selection authority (SSA) award a contract to FHFS, stating

"(1) While BCBSTX has significant strengths in the administrative
areas, these strengths were not perceived to be worth an additional
$120 million in costs to the Government. (2) In the area of health
care delivery, the strengths of FHFS, plus their lower cost of
approximately $370 million represent substantial cost savings to the
Government." [6]

The SSA reviewed the complete file and recommendations and selected FHFS
for contract award. The contract was awarded on April 28. On May 8,
BCBSTX filed its initial protest. Following an agency debriefing, BCBSTX
filed its first supplemental protest on May 19. The agency responded to
BCBSTX's initial and first supplemental protests in its report to our
Office on June 23. In a letter dated July 10, BCBSTX stated

"In light of the expansive Agency Report and documents supporting that
report, as well as our conclusion that certain of the grounds raised
in the original and first supplemental protest have been adequately
addressed by the agency, these comments focus only on those remaining
grounds of protest . . . [on] which [BCBSTX] requests the GAO to
render a decision." [7]

On July 10, BCBSTX filed a second supplemental protest based on
information obtained from the June 23 agency report.

DISCUSSION

Meaningful Discussions

BCBSTX first protests that the agency failed to engage in meaningful
discussions regarding the price it proposed to perform the administrative
portion of the contract. In this regard, BCBSTX's initial price for
administrative services exceeded the government's estimate by
approximately [deleted] percent. BCBSTX asserts that "[an offeror's]
price should be the subject of discussions if that price exceeds the
government's own corresponding price estimate" and, on that basis,
maintains that the award to FHFS should be overturned. [8]

The agency responds that although BCBSTX's initially proposed price for
administrative services exceeded the IGCE by approximately [deleted]
percent, the agency did not view that price as unreasonably high.
Accordingly, the agency concluded that any specific advice to BCBSTX's
regarding its proposed administrative price would have, effectively,
communicated to BCBSTX that its price was too high in relation to another
offeror. [9]

An agency may not inform an offeror of a cost it must meet to obtain
further consideration or of its relative price standing, Innovative
Training Sys., B-251225.3, Oct. 19, 1993, 93-2 CPD Para. 232, and need not
inform an offeror that its cost is too high unless the government has
reason to think the cost is unreasonable. Price Waterhouse, 65 Comp.Gen.
205 (1986), 86-1 CPD Para. 54; Applied Remote Technology, Inc., B-250475,
Jan. 22, 1993, 93-1 CPD Para. 58; Warren Elec. Constr. Corp., B-236173.4;
B-236173.5, July 16, 1990, 90-2 CPD Para. 34. Further, an agency has no
duty to enter into price discussions with an offeror solely because its
price is significantly higher than the prices proposed by other offerors.
In fact, pursuant to Federal Acquisition Regulation (FAR) Sec.
15.610(e)(2), an agency is prohibited from informing an offeror that its
price is high in relation to another offeror's, unless its price is
unrealistic for what is offered.

Here, the RFP did not designate a particular approach which offerors were
required to employ in performing the administrative services; rather, each
offeror was responsible for preparing its own technical approach and
proposed price based on its analysis of what would be most advantageous to
the government. The agency found that BCBSTX's technical approach to
performing the administrative functions was superior and its overall
technical rating reflected numerous strengths. In this context, the
agency did not view BCBSTX's price for administrative services as
unreasonably high; rather, it simply concluded ultimately that the
associated technical benefits were not worth the additional cost to the
government. On this record, given that an agency is not required to
inform an offeror that its price is higher than the government estimate
unless the agency believes the price is unreasonable, the agency's
decision not to advise BCBSTX that its administrative price was higher
than the IGCE is unobjectionable.

Agency's "Sensitivity Analysis"

BCBSTX next challenges the "sensitivity analysis" employed by the agency
to assess a "risk premium" for each proposal. BCBSTX protests that the
agency's analysis in this regard was flawed in that it "assume[d] that
BCBSTX and FHFS were equally likely to overrun or underrun health care
costs."

BCBSTX's complaint fails to recognize that, before performing the
sensitivity analysis, the agency conducted an extensive evaluation of each
offeror's projected health care costs, thoroughly considering the unique
aspects of each offeror's proposed controllable trend factors.
Specifically, the agency adjusted each offeror's proposed price in each
instance where it was not fully persuaded that the costs proposed
accurately reflected the costs likely to be incurred, given the offeror's
proposed approach. The result of this evaluation was a most probable cost
for each offeror's proposal which reflected the agency's best judgment as
to the likely costs to be incurred by each offeror. Accordingly, the
agency's subsequent sensitivity analysis assumed that the likelihood of
overruns or underruns, in relation to the agency's best judgment of the
offerors' respective costs, would be the same for all offerors. In
essence, the agency reasonably believed that its individual assessments of
the offerors' likely costs were equally reliable. See QualMed, Inc.,
B-257184.2, Jan. 27, 1995, 95-1 CPD Para. 94. Accordingly, we find no
basis to question this aspect of the agency's cost analysis.

FHFS' BAFO Price Reduction

BCBSTX next protests that the agency erred in its cost evaluation of FHFS'
proposal by failing to specifically evaluate the reasons for FHFS'
reduction in health care costs in its BAFO. BCBSTX accurately notes that
FHFS' health care costs were reduced by approximately [deleted] percent
between submission of its initial proposal and its BAFO. BCBSTX asserts
"there is nothing in the record that shows that [the agency] questioned
this reduction, evaluated whether it was reasonable, or assessed the
impact of the reduction on FHFS' technical capabilities."

This allegation is inconsistent with the record. First, the final BPET
report specifically listed the differences in FHFS' health care costs
between its initial proposal and BAFO, by option period and contract line
item, reflecting the agency's individual assessment of each aspect of
FHFS' revised price. More importantly, BCBSTX's protest fails to take
into consideration the fact that the government's IGCE for health care
costs decreased by approximately [deleted] percent between submission of
initial proposals and BAFOs. This reduction was based on revised DCP data
as well as changes in the RFP requirements. [10] Finally, in raising this
issue, BCBSTX neglects to mention that its own proposed health care costs
decreased between submission of initial proposals and BAFOs by almost
[deleted] percent. On the record presented here, this portion of BCBSTX's
protest is without merit.

Evaluation of DRG Capital/DME Costs

BCBSTX next protests that the agency failed to reasonably evaluate FHFS'
proposal with regard to one of the cost categories--diagnostic related
group (DRG) capital and direct medical education (DME) costs. [11] BCBSTX
notes that FHFS' proposal was significantly higher than the agency's IGCE
for DRG capital/DME costs and maintains that the agency failed to properly
consider the risk associated with this aspect of FHFS' proposal.

The estimated data in the DCP period regarding DRG capital/DME costs
supported the agency's IGCE of [deleted] million in DRG capital/DME costs
for the base period and [deleted] million over the entire contract period.
FHFS' proposed costs for the entire contract period amounted to [deleted]
million. As discussed above, the RFP provided for adjustments to
offerors' proposed prices on the basis of changes in DCP data. Because
FHFS' proposed DRG capital/DME costs were significantly greater than the
government's IGCE, a change in the baseline DCP data would have a
magnifier effect on FHFS' proposed price. [12] BCBSTX asserts that the
agency failed to give appropriate consideration to this risk during its
evaluation of FHFS' proposal.

Contrary to BCBSTX's allegation, the agency did, in fact, thoroughly
consider the potential impact of FHFS' proposed DRG capital/DME costs.
The BPET report specifically stated

"There is one additional element of risk we wish to bring to the
attention of the SSAC concerning [FHFS] . . . . There is an issue
concerning [FHFS'] proposed prices for DRG capital and Direct Medical
Education (DME) costs which creates some additional risk to the
Government, as follows: . . . [FHFS] formally proposed approximately
[deleted] million for DRG capital/DME costs over the life of the
contract. This amount is approximately [deleted] times the level of
DRG capital/DME costs that we estimated that FHFS would experience
under our cost realism estimates ([deleted] million). While our cost
realism methodology reflects our estimate for these costs rather than
[FHFS'] estimate (because these costs are classified as an
uncontrollable cost factor), our methodology does not take into
account the risk associated with the fact that, under the RFP's bid
price adjustment provisions, the contractors' proposed prices for DRG
capital/DME in each Option Period will be multiplied by the ratio of
the actual level of these costs in the DCP to the DCP level projected
in the RFP. Further, while the [deleted] million of DRG capital/DME
costs projected for the DCP is relatively low compared to health care
costs overall, the effect of this DCP adjustment would be magnified
because of FHFS' significant overestimate of these costs during the
Option Periods."

Consistent with this recognition of risk, and properly taking into account
the risk-sharing provisions of this procurement, the agency calculated
that FHFS' proposed DRG capital/DME costs added a risk factor of
approximately [deleted] million to FHFS' proposed price; FHFS' final
evaluated price properly reflected this assessment. In the context of
evaluating FHFS' DRG capital/DME costs, the agency also considered whether
FHFS' status as the incumbent health care services provider for
approximately 15 percent of the Region 6 CHAMPUS beneficiaries affected
its risk assessment. [13] Noting that DRG capital/DME costs are
controlled by hospitals rather than the contractor and that FHFS does not
own any hospitals in Region 6, the agency concluded that it would not
assess further risk based on FHFS' status as the health care provider for
BRAC sites in Region 6. Finally, the agency noted that FHFS' high
estimate for DRG capital/DME expenses would have an equally magnified
impact on its adjusted price in the event the actual DCP data was lower
than the government's estimate--that is, if actual DRG capital/DME costs
for the DCP were lower than estimated, FHFS' adjusted price would decrease
significantly. Given that the DCP estimate represented the most accurate
information available regarding what the actual DCP data would be, the
agency concluded there was the same likelihood that the actual DCP data
would be less than the initial estimate as there was a likelihood that the
data would be greater than the initial estimate.

When agencies evaluate proposals for award of contracts with cost
reimbursement aspects, the agency must perform a cost realism analysis to
determine the extent to which an offeror's proposed costs represent the
true cost to the government. CACI, Inc.--Fed., 64 Comp.Gen. 71 (1984),
84-2 CPD Para. 542. Because the contracting agency is in the best
position to make this cost realism determination, our review of an
agency's exercise of judgment in this area is limited to determining
whether the determination was reasonably based and not arbitrary. General
Research Corp., 70 Comp.Gen. 279 (1991), 91-1 CPD Para. 183, aff'd,
American Management Sys., Inc.; Department of the Army--Recon., 70 Comp.
Gen. 510 (1991), 91-1 CPD Para. 492; Grey Advertising, Inc., 55 Comp.Gen.
1111 (1976), 76-1 CPD Para. 325.

Here, we find the agency's evaluation of the risk associated with FHFS'
proposed DRG capital/DME expenses reasonably based. As noted above, the
agency did, in fact, consider the potential impact that FHFS' proposed DRG
capital/DME costs could have on the government's costs, accurately
calculating a potential [deleted] million additional risk to the
government under the appropriate risk-sharing provisions of the RFP. This
assessment was properly reported to and considered by the SSA in the
ultimate decision to award the contract to FHFS. Regarding the agency's
assumption that increases or decreases in relation to its estimated DCP
data were equally likely, BCBSTX offers no evidence that the DCP data
would be more likely to be either higher or lower than the initial
estimate. Accordingly, we find no basis to question the agency's
evaluation of this portion of FHFS' proposal.

[Deleted]

Evaluation of FHFS' Resource Sharing

BCBSTX next protests that award to FHFS was improper because FHFS'
proposal "made inconsistent and ambiguous representations concerning
resource sharing." BCBSTX maintains that the agency was obligated to
reject FHFS' proposal because it could not reasonably evaluate what FHFS
intended to propose in this regard.

Under the provisions of this RFP, resource sharing refers to the
contractor's placement of resources--that is, personnel and/or
equipment--at military treatment facilities (MTFs) with the purpose of
encouraging beneficiaries to use the MTFs. Because costs associated with
MTFs are easier to control, such expenditure of resources can result in
net program savings; that is, the level of resources spent to encourage
MTF use may be less than the savings resulting from those expenditures.

This portion of BCBSTX's protest is based on the fact that, in one of the
exhibits which the RFP required offerors to submit, FHFS proposed "0"
resource sharing expenditures; yet, its proposal contemplated program
savings based on resource sharing expenditures. Thus, BCBSTX asserts that
FHFS' proposal was internally inconsistent and, therefore, should have
been rejected as unacceptable.

The agency responds that it evaluated FHFS' "0" entry as reflecting a
"net" approach to resource sharing. [14] The agency notes that this
interpretation of FHFS' proposal was consistent with other portions of
FHFS' business and technical proposal in which it clearly contemplated
resource sharing expenditures. Specifically, FHFS' business proposal
explicitly stated that FHFS intended to incur [deleted] million for
resource sharing in option year 1; [deleted] million in option year 2;
[deleted] million in option year 3; [deleted] million in option year 4;
and [deleted] million in option year 5. Similarly, FHFS' technical
proposal devoted [deleted] pages to discussing how it intended to
coordinate with MTFs to identifying resource sharing opportunities and
specifically stated that FHFS would "project the amount of resources and
actual cost of obtaining them" and "subtract the resource sharing expense
from the projected CHAMPUS cost."

In determining whether a proposal must be rejected as technically
unacceptable a procuring agency must assess whether the proposal,
reasonably read as a whole, offers to perform all material terms of the
solicitation without exception. See, e.g., Keyes Fibre Co., B-225509,
Apr. 7, 1987, 87-1 CPD Para. 383. Here, we conclude that the agency
reasonably determined, based on its review of FHFS' entire proposal, that
FHFS' "0" proposal for resource savings in one of the required exhibits
represented a "net" savings approach. [15] Accordingly, we find no merit
in this portion of BCBSTX's protest.

Cost/Technical Tradeoff

Finally, BCBSTX protests that the agency failed to conduct a reasonable
cost/technical tradeoff. BCBSTX notes that the RFP provided that
technical factors would be given a weight of 60 percent and cost/price
factors a weight of 40 percent for purposes of the cost/technical
tradeoff, and that its proposal was rated technically superior to FHFS'
proposal. In view of this, BCBSTX asserts that the agency failed to
adequately justify its decision to award a contract on the basis of FHFS'
lower technically rated, lower-priced proposal.

In responding to this portion of BCBSTX's protest, the agency has provided
a detailed description, along with supporting documentation, describing
the analysis it performed in arriving at the source selection decision.
As discussed above, the BPET and the SSEB performed evaluations of the
individual aspects of each offeror's technical and business proposals.
During the evaluation there were "crosstalks" among the evaluators to
ensure a complete understanding of each offeror's approach. The
conclusions of the BPET and the SSEB were formally documented, extensively
detailing the perceived strengths and weaknesses of each proposal, and
were included in the final reports which were forwarded to the SSAC. In
instances where the SSAC had questions or concerns regarding the
evaluation, questions were sent back to the BPET or SSEB for appropriate
written responses. In addition, the SSAC was briefed extensively by the
BPET and the SSEB in face-to-face meetings. After determining that FHFS'
and BCBSTX's proposals offered the greatest value, the SSAC focused on the
various strengths of each proposal. In performing this analysis, the SSAC
prepared two tables, which listed each of BCBSTX's and FHFS' proposal
strengths by technical task and, under the heading "value to the
government," specifically assessed each strength as having low, medium, or
high value to the government. Finally, based on its review of the entire
record before it, as well as its own documented analysis, the SSAC
concluded

"Analysis of the strengths of the technical proposals of [BCBSTX] and
FHFS reveals savings to the Government in two areas. (1) While
BCBSTX has significant strengths in the administrative areas, these
strengths were not perceived to be worth an additional $120 million in
costs to the Government. (2) In the area of health care delivery,
the strengths of FHFS, plus their lower cost of approximately $370
million, represent substantial costs savings to the Government."

The SSA executed the source selection statement on April 28, 1995. In
that statement, the SSA stated that he had reviewed all of the SSEB, BPET
and SSAC reports, along with various other documents. In his statement,
he summarized the strengths of both BCBSTX and FHFS, as well as each
offeror's expected costs and various aspects of those costs, concluding

"I believe that the Best Buy Analysis clearly substantiates award to
the number one best buy offeror, FHFS. The difference in total
proposed price of FHFS' proposal ($1.822 million) versus that of
BCBSTX ([deleted] million) of [deleted] million is a very significant
factor of this final award decision. While the cost realism analysis
decreases this difference to $373 million, the proposal submitted by
FHFS continues to provide a very advantageous price to the
Government."

In a negotiated procurement, an agency may make award to a lower-priced,
lower technically rated offeror if it determines that the price premium
involved in awarding to a higher-rated, higher-priced offeror is not
justified given the acceptable level of technical competence obtainable at
the lower price. Securiguard, Inc.; Vance Uniformed Protection Servs.;
MVM, Inc., B-254392.8 et al., Feb. 9, 1994, 94-1 CPD Para. 92; W.M.
Schlosser Co., Inc., B-247579.2, July 8, 1992, 92-2 CPD Para. 8. We will
review such tradeoffs to assure that they are reasonable in light of the
evaluation scheme. Lockheed Corp., B-199741.2, July 31, 1981, 81-2 CPD
Para. 71.

Here, the record amply supports the reasonableness of the agency's
cost/technical tradeoff. The record specifically reflects that the SSA
reviewed and considered each of the BPET, SSEB, and SSAC reports which
extensively documented the strengths and weaknesses of each offeror. In
this regard, the SSAC report included a head-to-head comparison of
BCBSTX's and FHFS' respective strengths, by task to be performed,
assessing a relative value to the government applicable to each strength.
Accordingly, we find without merit BCBSTX's assertion that the agency
failed to perform or adequately document its cost/technical tradeoff.

The protest is denied.

Comptroller General
of the United States

1. Throughout this decision, we refer to the program as CHAMPUS, and the agency as OCHAMPUS.

2. The RFP required offerors to place a minimum of $60 million of equity at risk with at least $15 million pledged per year, but permitted them to exceed this minimum in order to make their proposals more attractive to the government.

3. Because the DCP data provided in the RFP was preliminary, the RFP stated that the data would be revised at two specified points during contract performance. The revised data would lead to adjustments in the contractor's proposed price for purposes of applying the risk sharing formula. Thus, the contractor's actual performance would be more accurately measured in light of its required operating environment.

4. Controllable trend factors included provider discounts, resource sharing, and penetration rates. Uncontrollable trend factors included inflation, volume tradeoff, and diagnostic related group capital and direct medical education expenditures.

5. For example, a proposal that offered more than the minimum required level of equity at risk would be less "sensitive" to cost overruns since the point of total government responsibility for costs would be delayed.

6. This $370 million figure represents the overall evaluated cost differential, which includes the $120 million in administrative costs.

7. Accordingly, our decision today does not address the issues raised in BCBSTX's initial and first supplemental protest which BCBSTX did not pursue following receipt of the agency report. Datum Timing, Div. of Datum, Inc., B-254493, Dec. 17, 1993, 93-2 CPD Para. 328; Heimann Sys. Co., B-238882, June 1, 1990, 90-1 CPD Para. 520.

8. In its July 10 comments, BCBSTX for the first time asserted that certain questions posed by the agency during discussions were designed to affirmatively mislead BCBSTX. The record is clear that BCBSTX knew all of the information on which this allegation is based after the agency debriefing on May 5. Accordingly, BCBSTX was required to raise this issue within 10 working days after the debriefing. 4 C.F.R. Sec. 21.2(a)(2) (1995). Since BCBSTX did not raise this allegation until July 10, the issue is untimely raised and will not be considered.

9. The records shows that, in fact, two other offerors proposed administrative prices significantly higher than BCBSTX, and a third offeror's proposed administrative price was virtually identical to BCBSTX.

10. For example, the RFP requirements were changed between submission of initial proposals and BAFOs to incorporate a "uniform benefit" in the CHAMPUS program. This change provided a basis for some cost reduction.

11. DRG payments are prospective payments for hospital operating costs that are based on the diagnosis of the patient and resources routinely needed to treat that condition; DRG payments generally do not vary. DRG capital/DME payments are retrospective payments to hospitals that are not included in prospective DRG hospital payments; DRG capital costs include interest, rent and depreciation. DME costs are expenses directly related to conducting graduate medical education programs, such as the salaries of interns and residents. Hospitals submit invoices for DRG capital/DME costs directly to the contractor. The portion of a hospital's DRG capital/DME costs applicable to the CHAMPUS program is determined by multiplying the hospital's total DRG capital/DME costs by the ratio of CHAMPUS patient days to total patient days. Thus, DRG capital/DME costs are controlled by the hospital, not the contractor. Consistent with this, the RFP provided that DRG capital/DME costs were to be treated as an uncontrollable trend factor.

12. That is, a 50-percent increase or decrease in the DCP data, which would result in a [deleted] million increase or decrease to the IGCE (50 percent of [deleted] million), would result in a [deleted] million increase or decrease in FHFS' proposed price (50 percent of [deleted] million).

13. FHFS is the incumbent contractor providing health care services to CHAMPUS beneficiaries in Base Realignment and Closure (BRAC) sites in Region 6. The BRAC sites account for approximately 15 percent of the DCP health care costs in the Region.

14. That is, the agency evaluated FHFS' proposal as anticipating savings as a result of its resource sharing expenditures at a level in excess of its resource sharing expenditures. Thus, the agency concluded that FHFS' proposed savings due to resource sharing were decreased by the amount of its expenditures; accordingly, its resource sharing expenditures were proposed at "0" to ensure that the agency did not inadvertently subtract those expenditures from its proposed savings a second time.

15. In QualMed, Inc., B-257184.2, Jan. 27, 1995, 95-1 CPD Para. 94, we similarly rejected the argument BCBSTX now raises under virtually identical circumstances.