B-158042, MAR. 30, 1966

B-158042, MAR. 30, 1966

TO MR. JAMES J. BIERBOWER:

YOUR LETTERS OF NOVEMBER 16 AND DECEMBER 29, 1965, AND CORRESPONDENCE FROM YOUR CLIENT, WOLF RESEARCH AND DEVELOPMENT CORPORATION, PROTEST THE AWARD OF A CONTRACT TO LOCKHEED ELECTRONICS CORPORATION, NEGOTIATED PURSUANT TO REQUEST FOR PROPOSALS (RFP) BG83 59-5-20P AND THE AUTHORITY OF 10 U.S.C. 2304 (A) (10), FOR COMPUTER PROGRAMMING AND OPERATION SUPPORT, AND NON-COMPUTER HARDWARE MAINTENANCE, AT THE MANNED SPACECRAFT CENTER (MSC), NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA), HOUSTON, TEXAS. THE SUBJECT CONTRACT IS A COST REIMBURSABLE TYPE, WITH BASE MINIMUM, COST INCENTIVE, AND PERFORMANCE AWARD FEES. UNDER THE COST INCENTIVE ARRANGEMENT IN THE CONTRACT, LOCKHEED DOES NOT SHARE IN OVERRUNS ABOVE OR UNDERRUNS BELOW TOTAL ESTIMATED COST, BUT SHARES ONLY IN THE COST INCREASES OR REDUCTIONS RELATED TO THE RATES FOR LABOR, OVERHEAD, AND GENERAL AND ADMINISTRATIVE (GANDA) EXPENSES.

THE DETAILS FOR THE SYSTEM OF EVALUATING OFFERS WAS ESTABLISHED BY A NASA APPOINTED SOURCE EVALUATION BOARD (SEB) AFTER THE ISSUANCE OF THE RFP ON JUNE 22, 1965, AND AFTER THE RECEIPT OF NINE PROPOSALS ON JULY 27, BUT PRIOR TO THEIR OPENING ON JULY 30. THE RFP ITSELF MERELY STATED THAT FOUR MAJOR FACTORS TO BE CONSIDERED IN THE EVALUATION OF THE PROPOSALS WERE:

"A. THE DEGREE, QUALITY AND PERTINENCE OF THE CONTRACTOR'S EXPERIENCE.

"B. THE CONTRACTOR'S UNDERSTANDING OF THE SCOPE AND COMPLEXITY OF THE WORK INVOLVED AND THE ADEQUACY OF HIS ORGANIZATION AND PLANNING TO ACCOMPLISH THE WORK AND TO CONTROL COST.

"C. THE EXPERIENCE AND AVAILABILITY OF KEY TECHNICAL AND MANAGEMENT PERSONNEL COMMITTED FOR THIS PROGRAM.

"D. THE COST PROPOSAL WILL BE CONSIDERED AS A REFLECTION OF THE CONTRACTOR'S UNDERSTANDING OF THE WORK AND THE PERTINENT FACTORS WHICH WILL AFFECT THE COST OF PERFORMING THIS CONTRACT.'

AN EXAMINATION OF THE FOUR MAJOR EVALUATION FACTORS DISCLOSES THAT THE FIRST AND THIRD WERE DIRECTED TO EVIDENCE OF THE OFFEROR'S GENERAL COMPETENCE, WHILE THE OTHER TWO WERE PRIMARILY CONCERNED WITH HIS UNDERSTANDING OF THE SCOPE, COMPLEXITY AND COST OF THE WORK TO BE REQUIRED BY THIS PARTICULAR CONTRACT. THE WORK REQUIRED BY THE CONTRACT WAS STATED IN THE RFP IN TERMS OF ,FUNCTIONS" AND EQUIPMENT INVOLVED IN PERFORMING THE SERVICES, AND THERE APPARENTLY WAS NO ATTEMPT TO PRECISELY QUANTIFY, OR TO DELINEATE ACCORDING TO SKILLS, THE ANTICIPATED PERSONNEL REQUIREMENTS ASSOCIATED WITH THE "FUNCTIONS" AND EQUIPMENT. THE EXPLANATION FOR STATING THE SCOPE OF THE WORK IN GENERAL TERMS IS THAT THE EXTENT OF THE EFFORT TO BE REQUIRED OF THE CONTRACTOR WOULD DEPEND ON THE OPERATIONAL ACTIVITY GENERATED AT AND BY THE MSC DURING THE TERM OF THE SERVICES CONTRACT.

NEVERTHELESS, IN AN ATTEMPT TO ROUGHLY PRESCRIBE WHAT NASA THEN CONSIDERED WOULD BE THE MAGNITUDE OF THE TASK, THE RFP STATED "THAT APPROXIMATELY 400 PERSONNEL WILL BE NEEDED IN THE TECHNICAL SUPPORT AREAS AT THE END OF THE TWO MONTH PHASE-IN, WITH A FAIRLY UNIFORM BUILDUP TO 500 BY THE END OF THE FIRST CONTRACT YEAR.' A STAFFING AND PHASING-IN PLAN FOR PROPOSED PERSONNEL WAS REQUIRED OF OFFERORS TO ASSIST THE MSC IN DETERMINING SPECIFICALLY WHAT WAS BEING OFFERED TO MEET THIS REQUIREMENT.

IN JULY, AFTER THE RFP HAD BEEN ISSUED, MSC MADE DETAILED ESTIMATES OF THE MAN-HOURS AND WAGE RATES, AS WELL AS THE QUANTITY OF THE VARIOUS PERSONNEL SKILLS, OR SKILL-MIX, IT THOUGHT WOULD CONSTITUTE A DESIRABLE AND REALISTIC APPROACH TO PERFORMING THE PROPOSED CONTRACT. THESE ESTIMATES, WHICH WERE NOT DISCLOSED TO OFFERORS, RESULTED IN A PRIVATE GOVERNMENT COST ESTIMATE OF APPROXIMATELY $4.38 MILLION.

THE DETAILED EVALUATION PROCEDURE ESTABLISHED BY THE SEB BEFORE IT OPENED OFFERS WAS TO BE CONDUCTED IN THREE MAJOR STEPS AS FOLLOWS:

STEP 1: A) TECHNICAL EVALUATION - 630 POINTS

B) BUSINESS MANAGEMENT EVALUATION - 270 POINTS

STEP 2: PERFORMANCE EVALUATION - 100 POINTS

STEP 3: QUESTION AND ANSWER SESSION - PLUS OR MINUS 10 PERCENT OF

THE INDIVIDUAL SCORE, NOT TO EXCEED 100 POINTS. THE RELATIVE NUMERICAL WEIGHTS ASSIGNED TO THE TECHNICAL EVALUATION (630 POINTS) AND TO THE BUSINESS MANAGEMENT EVALUATION (270 POINTS) WERE CHOSEN IN RECOGNITION OF THE FACT THAT THE TECHNICAL ASPECTS OF THIS PROCUREMENT ARE OF GREATER IMPORTANCE AND MORE CRITICAL TO NASA THAN THE BUSINESS AND COST ASPECTS.

THE SOURCE EVALUATION BOARD ESTABLISHED A TECHNICAL COMMITTEE AND A BUSINESS MANAGEMENT COMMITTEE TO PERFORM THE DETAILED EVALUATION OF THE WRITTEN PROPOSALS. THESE COMMITTEES IN TURN CREATED SUBCOMMITTEES TO ASSIST THEM IN AN EVALUATION WHICH DISCLOSED THAT THE FOLLOWING FIVE PROPOSERS, LISTED IN ORDER OF RELATIVE MERIT, HAD SUBMITTED OFFERS CLEARLY SUPERIOR TO THE REMAINING FOUR:

GENERAL ELECTRIC COMPANY

LING-TEMCO-VOUGHT, INCORPORATED

LOCKHEED ELECTRONICS COMPANY

WOLF RESEARCH AND DEVELOPMENT CORPORATION

COMPUTER SCIENCES CORPORATION

LOCKHEED, THE ULTIMATELY SUCCESSFUL OFFEROR, WAS RANKED ONLY FOURTH BY THE TECHNICAL COMMITTEE, JUST BELOW WOLF. THE ADMINISTRATIVE REPORT ESTABLISHES THAT LOCKHEED'S RELATIVELY LOW STANDING AT THIS POINT WAS IN PART ATTRIBUTABLE TO PENALTIES IT INCURRED BECAUSE OF ITS POOR STAFFING PLAN. IN ADDITION TO PROPOSING TOO FEW PERSONNEL AND TOO SLOW A BUILD-UP OF SUCH PERSONNEL, IT ALSO HAD A LESS EXPENSIVE LABOR SKILL-MIX THAN WAS CONSIDERED DESIRABLE. AT THE SAME TIME, CERTAIN EVALUATION SUBCOMMITTEES GAVE LOCKHEED'S PROPOSAL A HIGH RANKING BECAUSE OF EXTENSIVE OPERATIONAL EXPERIENCE RELEVANT TO THE REQUIREMENTS OF THE RFP. IN ADDITION, LOCKHEED'S OPERATING PLANS WERE WELL DOCUMENTED, AND THE PROPOSED KEY PERSONNEL WERE CONSIDERED GENERALLY TO HAVE VERY GOOD QUALIFICATIONS.

LOCKHEED WAS RANKED FIRST BY BOTH THE BUSINESS AND THE COST SUBCOMMITTEES IN THE BUSINESS MANAGEMENT EVALUATION. THE COST SUBCOMMITTEE ANALYZED EACH PROPOSER'S SUBMISSION, INCLUDING ITS BREAKDOWNS FOR PROPOSED MAN- HOURS, SKILLS, AND AVERAGE HOURLY RATES FOR THE VARIOUS SKILLS, FOR THE PURPOSE OF COMPARING SIGNIFICANT ASPECTS OF THE PROPOSAL WITH THOSE OF THE GOVERNMENT'S JULY ESTIMATE TO ASSIST IN EVALUATING SUCH FACTORS AS UNDERSTANDING, SOUNDNESS,REASONABLENESS, AND CREDITABILITY.

SINCE EXAMINATION OF THE SCORES OBTAINED IN THE TECHNICAL AND BUSINESS MANAGEMENT AREAS REVEALED THAT FOUR OF THE PROPOSALS WERE BELOW A NUMERICAL BREAKPOINT WHICH THE SEB THEN CONSIDERED NECESSARY TO WARRANT FURTHER CONSIDERATION, ONLY THE TOP FIVE PROPOSERS WERE EVALUATED BY THE PERFORMANCE EVALUATION COMMITTEE. HOWEVER, THE DIFFERENCE BETWEEN THE HIGH AND LOW POINT SCORES ALLOCATED BY THIS COMMITTEE WAS LESS THAN 10, AND DID NOT CHANGE THE RELATIVE STANDING OF THE OFFERORS.

THE PURPOSE OF THE QUESTION AND ANSWER SESSION WAS TO PROVIDE THE FIVE REMAINING PROPOSERS WITH THE OPPORTUNITY TO CLARIFY, CONFIRM, OR ELABORATE ON THE CONTENTS OF THE WRITTEN PROPOSALS. GENERAL QUESTIONS WERE DEVELOPED FOR ALL FIVE PROPOSERS, AND SPECIFIC QUESTIONS WERE DEVELOPED TO PERMIT CLARIFICATION OF INDIVIDUAL PROPOSALS. EACH PROPOSER WAS PERMITTED A FIXED TIME OF 2 1/2 HOURS IN WHICH TO ANSWER QUESTIONS AND/OR MAKE ANY COMMENTS THE PROPOSER DEEMED DESIRABLE OR NECESSARY. AFTER THE QUESTION AND ANSWER PERIOD, LOCKHEED WAS ELEVATED TO THE FIRST RANKING, AND WOLF WAS DROPPED TO THE FIFTH POSITION. LOCKHEED'S DISCUSSION DURING THE QUESTION AND ANSWER PERIOD OF ITS CORPORATE EXPERIENCE AND ORGANIZATION WAS CONSIDERED AN IMPROVEMENT OF ITS ORIGINAL WRITTEN PROPOSAL. ADDITION, THE SPECIFIC STAFFING PLAN DISCUSSED BY LOCKHEED IS SAID TO HAVE INDICATED AN UNDERSTANDING OF THE PROBLEM OF STAFFING, AND WAS ALSO CONSIDERED AN IMPROVEMENT.

AFTER ANALYZING THE FINAL SCORES, THE SEB DETERMINED THAT

(1) ALL FIVE CONTENDING COMPANIES WERE TECHNICALLY COMPETENT TO PERFORM THE REQUIRED SERVICES, AS REFLECTED IN THE FINAL SCORES;

(2) THE EVALUATION CRITERIA, THE WEIGHTS, AND THE EVALUATION PROCESSES USED TO EVALUATE THE WRITTEN PROPOSALS WERE SOUND, VALID PROCEDURES THAT COULD NOT BE SUCCESSFULLY CHALLENGED; AND

(3) DESPITE THESE CONSIDERATIONS, THE CLOSE NUMERICAL GROUPING OF THE COMPETING COMPANIES DID NOT REFLECT THE TRUE RELATIVE MERITS OF THEIR PROPOSALS.

THE SEB FURTHER DETERMINED THAT WHILE INFORMATION DEVELOPED DURING THE QUESTION AND ANSWER SESSION COULD BE UTILIZED TO OBTAIN A MORE REALISTIC DISCRIMINATION BETWEEN THE COMPETING COMPANIES IF CERTAIN IMPORTANT KEY FACTORS WERE EVALUATED IN GREATER DEPTH, ITS PREVIOUS EVALUATION OF THE PERFORMANCE AREA (10 PERCENT OF THE TOTAL SCORE) HAD NOT PROVIDED A BASIS FOR SUCH DISCRIMINATION. THEREFORE, THE BOARD DECIDED TO APPLY THE 100 POINTS PREVIOUSLY ASSIGNED TO THE PERFORMANCE AREA TO A "KEY FACTOR ANALYSIS," BUT AGREED THAT SINCE ITS PROCEDURES EMPLOYED TO EVALUATE THE WRITTEN PROPOSALS WERE SOUND, THE "ANALYSIS" SHOULD NOT DISTURB THE INTEGRITY OF PREVIOUS SCORING RESULTS. THE SEB SELECTED TWO KEY FACTORS BASED ON IMPORTANCE TO THE OBJECTIVE OF THE PROCUREMENT: "/A) ACTUAL ESTIMATED COSTS TO THE GOVERNMENT, (B) THE PROPOSED CONTRACTOR MANAGEMENT TEAM.'

THE BOARD QUESTIONED THE VALIDITY OF THE VARIOUS PROPOSED HOURLY RATES BECAUSE OF A MARKED DIFFERENCE BETWEEN THEM. IT WAS THOUGHT THAT THIS DIFFERENCE WAS CAUSED BY THE DIFFERENT SKILL LEVEL MIXES PROPOSED BY THE FIVE FIRMS. IN ORDER TO COMPARE ANTICIPATED COSTS ON A MORE REALISTIC AND COMMON BASIS, THE SEB ELIMINATED RELOCATION AND FEE COSTS FROM ITS JULY ESTIMATE (REDUCTING THAT ESTIMATE TO $3.79 MILLION) AND APPLIED THE NASA MAN-HOURS AND SKILL LEVEL ESTIMATES, AS CONTAINED IN THE MSC JULY COST ESTIMATE, TO THE HOURLY LABOR RATES FOR THE VARIOUS SKILLS, AND TO THE OVERHEAD AND GANDA RATES, AS PROPOSED BY THE FIVE FIRMS. AN EXAMINATION OF THESE RECONSTRUCTED ESTIMATES OF COSTS DISCLOSED THAT THE ESTIMATED COST OF CONTRACTING WITH LOCKHEED WOULD BE $3.45 MILLION, PLUS THE COST OF OVERTIME, RELOCATION, AND AWARD FEE, WHICH WERE NOT INCLUDED IN THE MSC RECONSTRUCTED ESTIMATES.

ALTHOUGH LOCKHEED'S AVERAGE UNIT PRICE PER MAN-HOUR INCREASED FROM $3.31 TO $3.49, WHEN BASED ON THE MSC ESTIMATED MAN-HOURS AND SKILL MIX, THE COST OF DOING BUSINESS WITH THE OTHER FOUR FIRMS AS ESTIMATED ACCORDING TO THE COMMON BASIS, WAS GREATER THAN BOTH THE $3.45 MILLION ESTIMATED FOR LOCKHEED AND THE $3.79 MILLION GOVERNMENT ESTIMATE. HOWEVER, SINCE ALL OFFERS WERE FOUND TO BE WITHIN 10 OR 12 PERCENT OF THE MSC RECONSTRUCTED JULY ESTIMATE OF $3.79 MILLION, THE SEB DECIDED THAT ITS RECONSTRUCTED COSTS DID NOT PROVIDE A BASIS FOR DISCRIMINATION IN DEPTH, AND THEREFORE ASSIGNED THE FULL 100 POINTS TO AN EVALUATION OF THE PROPOSED MANAGEMENT TEAMS. THE BOARD FOUND LOCKHEED'S MANAGEMENT TEAM TO BE CLEARLY AND SUBSTANTIALLY SUPERIOR TO THOSE PROPOSED BY OTHER FIRMS. IN ACCORDANCE WITH THE SEB MANUAL, A "SUMMARY SCHEDULE" SHOWING THE OVERALL TOTAL SCORES, TOGETHER WITH AN ADJECTIVE RATING, WAS PREPARED AS FOLLOWS:

1 (LOCKHEED) 782 (PREFERRED)

2 715 (ACCEPTABLE)

3 714 (ACCEPTABLE)

4 657 (NOT DESIRABLE)

5 (WOLF) 590 (UNACCEPTABLE)

DOCUMENTED SUMMARY FINDINGS, INCLUDING THE SUMMARY SCHEDULE AND THE SEB'S RECONSTRUCTED ESTIMATES OF THE COSTS OF CONTRACTING WITH ANY ONE OF THE FIVE COMPETING FIRMS, WERE PRESENTED BY THE SEB TO THE ADMINISTRATOR OF NASA ON OCTOBER 6, 1965. FOLLOWING THE PRESENTATION, THE ADMINISTRATOR MET WITH A SMALL GROUP OF NASA PERSONNEL WHO HAD HEARD THE PRESENTATION. AFTER SOLICITING AND RECEIVING THEIR VIEWS, THE ADMINISTRATOR EXPRESSED CONCERN OVER THE ABILITY OF NASA PROCEDURES OR ANY OTHER PROCEDURES TO FAIRLY EVALUATE SUCH HIGHLY COMPETITIVE PROPOSALS. HOWEVER, HE CONCLUDED THAT LOCKHEED HAD SECURED THE HIGHEST RATING FROM THE SEB BECAUSE OF THE SUPERIORITY OF ITS PROPOSAL AND ITS MANAGEMENT TEAM OVER THAT OF ANY COMPETING FIRM, AND WE ARE ADVISED THAT HE SELECTED LOCKHEED FOR FURTHER CONTRACT NEGOTIATIONS BECAUSE, AT THIS STAGE OF THE COMPETITION, HE CONCLUDED ONLY LOCKHEED WAS WITHIN A COMPETITIVE WAGE.

AFTER THE DECISION TO NEGOTIATE SOLELY WITH LOCKHEED, BUT PRIOR TO THE COMMENCEMENT OF SUCH NEGOTIATIONS, NASA INCREASED ITS JULY ESTIMATE OF THE DIRECT LABOR MAN-HOURS REQUIRED FOR THE JOB BY 9 PERCENT. THIS INCREASE RESULTED FROM A RE-EVALUATION OF CURRENT INFORMATION AND FROM SOME ACCELERATION ANTICIPATED IN THE FLIGHT PROGRAM. IN ADDITION TO THE MAN- HOUR INCREASE, THE GOVERNMENT'S NEW PRENEGOTIATION ESTIMATE ALSO INCLUDED COSTS CONNECTED WITH A DECISION BY NASA TO HAVE THE WORK PERFORMED OFF- SITE, RATHER THAN TO HAVE IT PERFORMED ON-SITE WITH GOVERNMENT FACILITIES AND OFFICE EQUIPMENT. THESE COSTS INCLUDED RENT FOR THE OFFICE FACILITIES, EQUIPMENT PURCHASES AND AN INCREASE IN THE OVERHEAD RATE OF APPROXIMATELY 3 PERCENT. FURTHERMORE, THE NEW GOVERNMENT ESTIMATE INCLUDED $10,000 FOR HAND TOOLS, AND, AS HAD BEEN INDICATED IN THE PRESENTATION TO THE ADMINISTRATOR, AN INCREASE FOR MATERIALS. THE INCREASE FOR TOOLS AND MATERIALS, WHICH AMOUNTED TO $110,000, RESULTED FROM THE GOVERNMENT'S DECISION TO HAVE THE CONTRACTOR FURNISH ITS OWN TOOLS AND MATERIALS IN LIEU OF THE GOVERNMENT FURNISHING THEM. THESE VARIOUS INCREASES WERE REFLECTED IN THE NEGOTIATED CONTRACT AMOUNT, AND REPRESENTED AN INCREASE OF .74 MILLION DOLLARS OVER THE RECONSTRUCTED ESTIMATE OF CONTRACTING WITH LOCKHEED. NEGOTIATIONS, AND THE CONTRACT WHICH WAS AWARDED PURSUANT THERETO, WERE BASED ON THE GOVERNMENT'S ESTIMATE OF MAN-HOURS, SKILL MIX, MATERIALS, TOOLS, AND OFF-SITE FACILITIES AND EQUIPMENT COST ESTIMATES, TOGETHER WITH LOCKHEED'S PROPOSED AWARD FEE RATE AND ITS PROPOSED OVERHEAD, LABOR AND GANDA RATES. LOCKHEED REDUCED ITS PROPOSED AWARD FEE RATE AND, IN ORDER TO ACCOUNT FOR AN EMPLOYEE'S SAVINGS PLAN TO BE INITIATED ON JANUARY 1, 1966, INCREASED ITS OVERHEAD RATE BY 2 PERCENT. ESSENTIALLY, ITS PROPOSED LABOR AND GANDA RATES WERE UNCHANGED, AND AN AMOUNT NEGOTIATED FOR OVERTIME WAS RELATIVELY INSIGNIFICANT. RELOCATION COSTS PROPOSED BY LOCKHEED, WHICH WERE ONLY ABOUT 10 PERCENT OF THE AMOUNT ESTIMATED BY MSC, WERE INCREASED BY 83 PERCENT DURING THE NEGOTIATIONS. NASA EXPLAINS THAT THE INCREASE IN THE RELOCATION COST ESTIMATE WAS NECESSARY BECAUSE THE MAN-HOURS ON WHICH LOCKHEED'S INITIAL COST PROPOSAL HAD BEEN BASED HAD TO BE INCREASED BY 20 PERCENT IN ORDER TO CONFORM TO THE MSC FINAL ESTIMATE OF DIRECT LABOR MAN- HOURS. THE CONTRACT FIGURE OF $4.5 MILLION IS REACHED BY ADDING TO THE RECONSTRUCTED MSC JULY COST ESTIMATE THE .74 MILLION FIGURE EXPLAINED PREVIOUSLY, AND THE COST OF THE AWARD FEE, OVERTIME, RELOCATION AND 2 PERCENT INCREASE IN OVERHEAD.

WHILE YOU DO NOT TAKE ISSUE WITH NASA'S SOURCE EVALUATION BOARD (SEB) PROCESS, YOU ALLEGE THAT THE ABOVE CONTRACT WAS AWARDED (1) IN ARBITRARY AND CAPRICIOUS DISREGARD OF THE FACT THAT LOCKHEED'S UNREASONABLY LOW COST PROPOSAL DISCLOSED AN INADEQUATE UNDERSTANDING OF THE SCOPE AND COMPLEXITY OF THE WORK, WHICH LACK OF UNDERSTANDING RESULTED IN ITS POOR SHOWING IN 3 OF 4 MAJOR EVALUATION FACTORS, QUOTED ABOVE; (2) IN VIOLATION OF BID PROCEDURE RULES SET DOWN IN THE RFP PACKAGE AND IN NASA PROCUREMENT REGULATIONS; (3) EITHER AS A RESULT OF LOCKHEED "BUYING-IN" TO THE PROCUREMENT BY UNDERSTATING ESTIMATED MAN HOURS AND THE NUMBER OF SKILLED PERSONNEL, WITH THE REALIZED HOPE OF INCREASING THE ESTIMATED UNIT COST DURING NEGOTIATIONS, OR AS A RESULT OF NASA'S INCREASING THE SCOPE OF THE WORK SO MUCH AS TO REQUIRE A 40 PERCENT ESCALATION IN LOCKHEED'S PROPOSED PRICE, IN WHICH CASE IT SHOULD BE CONCLUDED THAT THE CONTRACT PRICE OF $4.5 MILLION WAS NOT FOR THE WORK ON WHICH OFFERS WERE SOLICITED; AND (4) IN A MANNER WHICH CLEARLY DISCRIMINATES AGAINST FREE AND OPEN COMPETITION BETWEEN ALL QUALIFIED BIDDERS.

CONTRARY TO YOUR ALLEGATION, LOCKHEED DID NOT DO POORLY IN 3 OF 4 MAJOR FACTORS WHICH THE RFP ADVISED WOULD BE CONSIDERED IN EVALUATING OFFERS. GENERALLY, LOCKHEED WAS SCORED VERY HIGHLY REGARDING THE "DEGREE, QUALITY AND PERTINENCE OF THE CONTRACTOR'S EXPERIENCE," AND "THE EXPERIENCE AND AVAILABILITY OF HIS TECHNICAL AND MANAGEMENT PERSONNEL COMMITTED FOR THIS PROGRAM.' LOCKHEED ALSO SCORED WELL WITH RESPECT TO "HIS ORGANIZATION AND PLANNING TO ACCOMPLISH THE WORK AND TO CONTROL COSTS.' ON THE OTHER HAND, THE RECORD SHOWS THAT LOCKHEED WAS REPEATEDLY PENALIZED ON THE BASIS THAT ITS STAFFING PLAN AND LABOR SKILL-MIX, WHICH WERE FACTORS BEARING MOST DIRECTLY ON THE PROPOSED COSTS, DISCLOSED A LACK OF UNDERSTANDING OF THE SCOPE AND COMPLEXITY OF THE WORK INVOLVED. IN SHORT, THE RECORD DEMONSTRATES THAT LOCKHEED OBTAINED ITS RELATIVE RANKING WITH RESPECT TO THE MAJOR EVALUATION FACTORS IN THE RFP IN SPITE OF, RATHER THAN IN THE ABSENCE OF, PENALTIES FOR FAILURE TO DEMONSTRATE AN ADEQUATE UNDERSTANDING OF THE SCOPE AND COMPLEXITY OF THE WORK INVOLVED.

YOUR ALLEGATION THAT THE NEGOTIATION FOR THIS CONTRACT VIOLATED THE BID PROCEDURE RULES SET FORTH IN THE RFP PACKAGE AND IN NASA PROCUREMENT REGULATIONS REFERS TO THE RFP CLAUSE,"LIMITATION ON NEGOTIATION," QUOTED INFRA, AND TO NASA PROCUREMENT REGULATIONS 3.501/B//LVII), PROVIDING FOR THE OPTIONAL USE OF SUCH CLAUSE. THE SUBJECT CLAUSE READS AS FOLLOWS:

"LIMITATION ON NEGOTIATION: THE GOVERNMENT WILL LIMIT ITS NEGOTIATIONS ON ESTIMATED COST AND FIXED FEE TO THE COST ESTIMATE SUBMITTED WITH THE ORIGINAL PROPOSAL. THE GOVERNMENT WILL NOT CONSIDER ANY INCREASE IN ESTIMATED COST UNLESS THE ORIGINAL PROPOSAL HAS BEEN ALTERED IN SCOPE. ANY SUCH MODIFICATION IN THE SCOPE OF WORK, WHETHER INCREASING OR DECREASING THE WORK, AND WHETHER INITIATED BY THE GOVERNMENT OR BY THE COMPANY, WILL BE SEPARATELY IDENTIFIED AND JUSTIFIED. NEGOTIATION OF THE CHANGE THAT SUCH MODIFICATION WILL CAUSE IN THE ORIGINALLY SUBMITTED ESTIMATED COST AND FEE WILL NOT BE CONDUCTED AS PART OF A COMBINED OVERALL NEGOTIATION OF ESTIMATED COST AND FEE.'

THE CLAUSE QUOTED ABOVE IDENTIFIES A "MODIFICATION IN THE SCOPE OF WORK" WITH AN ALTERATION IN THE SCOPE OF THE ORIGINAL PROPOSAL, AND STATES IN EFFECT THAT INCREASES IN ESTIMATED COSTS WILL NOT BE CONSIDERED UNLESS THE SCOPE OF THE WORK AND OF THE ORIGINAL PROPOSAL HAS INCREASED. SINCE VIRTUALLY ALL OF THE NEGOTIATED INCREASES IN THE MSC RECONSTRUCTED ESTIMATE OF THE COST OF CONTRACTING WITH LOCKHEED, WHICH WAS THE BASIS OF THE NEGOTIATIONS, AND SUBSTANTIALLY MORE THAN HALF OF SUCH INCREASES IN LOCKHEED'S ORIGINALLY PROPOSED ESTIMATED COST, WERE RELATED TO A MODIFICATION IN THE SCOPE OF THE WORK BY NASA, IT APPEARS THAT THERE WAS NO SIGNIFICANT DEVIATION FROM THE REQUIREMENTS IN THE "LIMITATION ON NEGOTIATION" CLAUSE. MOREOVER, WE BELIEVE THAT THE USE OF SUCH CLAUSE MAY NOT BE ENTIRELY APPROPRIATE WHERE, AS HERE, THE STATEMENT OF REQUIREMENTS IS SO GENERAL THAT NASA CAN INCREASE ITS ESTIMATE OF NEEDED MAN-HOURS BY 9 PERCENT WITHOUT CHANGING THE STATEMENT OF THE WORK. UNDER THESE CIRCUMSTANCES, IT WOULD APPEAR TO PLACE A RATHER HEAVY BURDEN ON OFFERORS TO INSIST THAT THEY ACCURATELY MEASURE FROM GENERALLY STATED REQUIREMENTS THE EFFORT WHICH THEY MUST PUT FORWARD TO MEET SUCH REQUIREMENTS.

WE THINK YOUR ALLEGATION THAT LOCKHEED MAY HAVE OBTAINED THE PRIVILEGE OF NEGOTIATING WITH NASA ON A SOLE-SOURCE BASIS BY "BUYING IN" WITH AN UNREASONABLY LOW ESTIMATE OF COSTS IS UNTENABLE. NASA KNEW IT WOULD HAVE TO REIMBURSE ACTUAL RATHER THAN ESTIMATED COSTS. MOREOVER, THE MSC RELIED ON ITS OWN ESTIMATE OF ACTUAL COSTS, AND LOCKHEED'S PROPOSAL WAS REPEATEDLY PENALIZED FOR UNDERSTATING FACTORS WHICH CONTRIBUTED TO ITS COST PROPOSAL BEING SUBSTANTIALLY LOWER THAN THE MSC ESTIMATE. FURTHERMORE, IT IS CLEAR FROM THE ABOVE-STATED FACTS THAT LOCKHEED DID NOT OBTAIN A CONTRACT FOR WORK OTHER THAN THAT SOLICITED. AS WE HAVE INDICATED, THE DIFFERENCE BETWEEN LOCKHEED'S PROPOSED COSTS AND ITS CONTRACT PRICE IS ATTRIBUTABLE ONLY IN PART TO NASA'S INCREASING THE SCOPE OF THE WORK, AND THIS INCREASE WAS OF SUCH A NATURE THAT THE STATEMENT OF THE WORK REMAINED UNCHANGED. THE REMAINDER OF THE DIFFERENCE WAS A RESULT OF LOCKHEED'S HAVING UNDERESTIMATED COSTS. WITH RESPECT TO YOUR CONCERN THAT LOCKHEED'S LOW COST PROPOSAL HAS BEEN ,ESCALATED" INTO A $4.5 MILLION CONTRACT, IT IS WELL TO RECALL NOT ONLY THAT THE CONTRACT PRICE IS AN ESTIMATE BASED ON THE MSC'S JUDGMENT OF REALISTICALLY DEFINED DIRECT COSTS, BUT ALSO THAT UNDER THE COST INCENTIVE ARRANGEMENT IN THE CONTRACT, THE CONTRACTOR DOES NOT IN ANY EVENT RECEIVE AN INCENTIVE FEE BY PERFORMING WITH FEWER MAN-HOURS OF LABOR, MATERIALS, TOOLS, RENT AND OTHER DIRECT COSTS THAN STIPULATED IN THE CONTRACT.

YOUR VIEW THAT THE NEGOTIATION PROCEDURE DISCRIMINATED AGAINST FREE AND OPEN COMPETITION IS BASED ON THE FACT THAT SINCE LOCKHEED WAS CHOSEN FOR SOLE-SOURCE NEGOTIATIONS, ONLY THAT FIRM WAS GIVEN AN OPPORTUNITY TO CORRECT WEAKNESSES, SUCH AS ITS UNDERSTATEMENT OF FACTORS CONTRIBUTING TO ITS LOW COST ESTIMATE. IN OUR OPINION THIS VIEW OF THE NEGOTIATION PROCEEDINGS ENTIRELY OVERLOOKS THE ELABORATE AND PAINSTAKING EFFORT WHICH THE SEB EXERCISED IN ITS DETERMINATION TO REACH A FAIR CONCLUSION ON THE RELATIVE STANDING OF THE OFFERORS, INCLUDING THE ESTABLISHMENT OF A QUESTION AND ANSWER PERIOD DURING WHICH ALL 5 OFFERORS WERE GIVEN AN OPPORTUNITY TO IMPROVE THEIR PROPOSALS. YOU HAVE SAID THAT YOU DO NOT TAKE ISSUE WITH THE SEB PROCESS. IT IS THIS VERY PROCESS UNDER WHICH YOUR PROPOSAL WAS ULTIMATELY FOUND "UNACCEPTABLE," AND WHICH IS THE FOUNDATION OF THE ADMINISTRATOR'S DETERMINATION THAT NOTWITHSTANDING ISOLATED WEAKNESSES IN LOCKHEED'S PROPOSAL, FOR WHICH IT WAS DULY PENALIZED BY THE SEB, AND NOTWITHSTANDING THE RELATIVELY SMALL DIFFERENCES IN THE NUMERICAL SCORES PRIOR TO THE APPLICATION OF THE "KEY FACTOR ANALYSIS," LOCKHEED, AND ONLY LOCKHEED, WAS IN COMPETITIVE RANGE.

SECTION 2304 (G) OF 10 U.S.C. PROVIDES IN RELEVANT PART THAT "WRITTEN OR ORAL DISCUSSIONS SHALL BE CONDUCTED WITH ALL RESPONSIBLE OFFERORS WHO SUBMIT PROPOSALS WITHIN A COMPETITIVE RANGE, PRICE, AND OTHER FACTORS CONSIDERED.' WE CANNOT EMPHASIZE TOO STRONGLY THAT THE LEGISLATIVE HISTORY OF SECTION 2304 (G) DEMONSTRATES THAT DECISIONS AS TO WHICH FIRMS ARE AND WHICH FIRMS ARE NOT WITHIN A COMPETITIVE RANGE IS A MATTER OF ADMINISTRATIVE DISCRETION WHICH THIS OFFICE SHOULD CONSIDER REVERSING ONLY UPON A CLEAR SHOWING THAT SUCH DETERMINATION WAS MADE IN ARBITRARY ABUSE OF THAT DISCRETION. BASED UPON AN EXHAUSTIVE REVIEW OF A VOLUMINOUS ADMINISTRATIVE RECORD ON THIS PROCUREMENT, IT IS OUR OPINION THAT THERE WERE ONLY MINOR ERRORS OR DEVIATIONS FROM ACCEPTED PRACTICES. WE SHALL BRING THESE ERRORS AND DEVIATIONS TO THE ATTENTION OF THE ADMINISTRATOR. HOWEVER, WE MUST CONCLUDE THAT THE ADMINISTRATOR'S DETERMINATION TO LIMIT NEGOTIATIONS TO LOCKHEED WAS REASONABLE BASED ON THE INFORMATION BEFORE HIM, AND CLEARLY A PROPER EXERCISE OF HIS AUTHORITY.