B-237503.4, Nov 25, 1991

DIGEST: 1. In its consideration of claim for proposal preparation costs, contracting agency has not established that effort offeror expended in preparing proposal was excessive where the protester reasonably concluded that extra work would result in a superior proposal. 2. No statute or regulation authorizes payment for costs incurred in pursuing a claim for proposal preparation costs and costs of filing and pursuing a protest. Likewise, payment of interest on claim is not authorized.

Attorneys

National Test Pilot School-- Claim for Costs:

National Test Pilot School (NTPS) requests that the General Accounting Office determine the amount it is entitled to recover from the Federal Aviation Administration (FAA) for proposal preparation costs under request for proposals (RFP) No. DTFA-02-89-R-00018, for training courses for test pilots and engineers, and for the costs of filing and pursuing its protest in National Test Pilot School, B-237503, Feb. 27, 1990, 90-1 CPD Para. 238, aff'd on recon., National Test Pilot School-- Recon., B-237503.2; B-237503.3, June 22, 1990, 90-1 CPD Para. 579.

We sustained NTPS' protest because we found that FAA failed to follow the RFP evaluation scheme which indicated that price and technical considerations were to be weighted equally and that the agency would determine the relative ranking of the technical proposals. /1/ We also awarded NTPS proposal preparation costs and the cost of filing and pursuing the protest.

NTPS initially submitted a claim to the FAA for $91,185.11. This consisted of a claim of $76,989.47 for proposal preparation based on 1,259.5 hours of labor, and a claim of $14,195.64 based on 204 hours of labor for filing and pursuing the protest.

FAA, after considering the claim and receiving the results of a Defense Contract Audit Agency (DCAA) audit, offered $17,412.95 to settle the claim. This offer was rejected by NTPS, which then asked our Office to decide the claim pursuant to our Bid Protest Regulations, 4 C.F.R. Sec. 21.6(e) (1991). NTPS now claims a total of $96,298.27, consisting of the $91,185.11 initially claimed and $5,113.16 for the time spent pursuing the claim after the initial submission to the FAA.

The two major areas of dispute between NTPS and FAA are NTPS' overhead rate and the number of hours NTPS spent in preparing its proposal.

OVERHEAD RATE

NTPS' claim was based on an overhead rate of 151.41 percent. Following its audit, DCAA recommended an overhead rate of 34.34 percent, which FAA used in formulating its settlement offer. The difference in the overhead rates is largely attributable to two factors. The first concerns allowability of the full amount of rent NTPS paid for its office building, classroom, and hangar. These facilities are owned by Flight Research, Inc. (FRI), which is owned by one of NTPS' directors.

DCAA partially disallowed the rental payment pursuant to Office of Management and Budget (OMB) Circular No. A-21, "Cost Principles for Educational Institutions." /2/

Under the applicable circular, rental costs under "less-than-arms length" leases are allowable only up to the amount that would be allowed if the educational institution owned the property. DCAA reduced the rent to the amount that would be allowable if NTPS owned the property and allowed for depreciation and real estate taxes.

NTPS contends that the lease of the building was indeed an arms length transaction because the director who owns FRI did not participate in the voting when NTPS decided to rent the property. NTPS also states that the Internal Revenue Service (IRS) has audited NTPS and concluded the lease was an arms-length transaction. /3/

DCAA is clearly correct. The applicable OMB circular defines a less than -arms-length lease as "one under which one party to the lease agreement is able to control or substantially influence actions of the other." The circular specifically lists the situation here-- a lease between organizations under common control through common directors-- as an example of a less-than-arms-length lease. Whether or not the NTPS director substantially influenced the organization's leasing decision, he had the ability to do so. Under the circumstances, we find that DCAA correctly reduced the rental costs in NTPS' expense pool.

The second major difference between DCAA and NTPS in computing the overhead rate is DCAA's inclusion of $406,327 in 1989 aircraft rental costs in determining NTPS' overhead allocation base, which totalled $659,505. The DCAA audit report states only that it believes an overhead allocation base of total expenditures exclusive of indirect expenses to be allocated is "more appropriate" than the NTPS approach. NTPS included only staff salaries in its computation and calculated its allocation base as $185,791.

With respect to the exclusion of aircraft rental costs from its allocation base, NTPS submitted a letter from its accountants to the FAA explaining that NTPS provides two basic types of courses: those consisting of classroom instruction only and those that combine classroom instruction with actual flight test training. Since NTPS does not own aircraft, it leases them for courses that include flight time and charges aircraft expenses directly to those courses.

The view of the protester is apparently that including aircraft rental costs in the base for allocating its overhead expenses-- which consist of those types of costs generally referred to as general and administrative expenses (G&A)-- will distort proper allocation. In theory, NTPS' argument is correct. Section 31.203(b) of the Federal Acquisition Regulation provides that the base selected for allocation of G&A to cost objectives should permit distribution of G&A "on the basis of the benefits accruing to the several cost objectives." G&A expenses do not necessarily benefit subcontracts like aircraft rentals. In other words, central administrative activity generating G&A costs may be directed far more to in-house efforts than to the efforts of vendors and subcontractors as reflected in subcontract prices. In many cases allocations that exclude subcontract costs such as those at issue here may produce the most equitable results. See, e.g., General Dynamics Corp., Convair Division, ASBCA No. 22461, 78-2 BCA Sec. 13,270; Ford Aerospace Com. Corp., Aeronutronic Division, ASBCA No. 23833, 83-2 BCA Sec. 16813.

The accountants for NTPS discussed this issue in a telephone conversation with DCAA auditors, and described DCAA's position in a letter to their client. The DCAA auditors said that, since there was no time-keeping or cost accounting system at NTPS, they could not determine the actual aircraft rental on a contract by contract basis. Consequently, DCAA included all of the firm's direct costs in the G&A allocation base. That apparently concluded the protester's efforts to have its accounting approach accepted. We find nothing in the agency record or information provided by the protester with respect to aircraft rental costs other than the statement that some NTPS contracts have them and others do not. While the protester may not have a cost accounting system, some evidence must be available-- even testimonial evidence-- with regard to whether, on a contract by contract basis during the year in question, aircraft were rented and their approximate cost. On the record before us, the percentage of contracts in which rental aircraft were used could be 90 percent or 10 percent, and such information is crucial to determining whether including rental costs in the allocation base will distort proper distribution of G&A.

Accordingly, we accept the DCAA recommended overhead rate using the actual expenses for fiscal year 1989. That overhead rate is 34.34 percent.

LABOR HOURS

The number of hours NTPS expended in preparing its proposal is the other main area of disagreement. NTPS claims costs for 1,259.5 hours of labor for proposal preparation. FAA considered this amount of time excessive because it represented the expenditure of 5 hours on proposal preparation for every 1 hour of classroom time in the resulting training course. FAA argues that instead of developing a proposed training curriculum outline as required by the solicitation, NTPS actually developed the prototype training course that was to be paid for under the contract. The agency states that it considers 30 minutes of proposal preparation time for each hour of classroom instruction to have been adequate and concludes that NTPS should be allowed 120 hours of labor for proposal preparation. FAA contends that these figures are reasonable because it checked with the awardee who stated that it had spent approximately 120 hours for proposal preparation. FAA also questions the validity of the claim because NTPS does not have a timekeeping system which tracks employees' efforts by task and time.

NTPS states that it spent the number of hours claimed preparing its proposal because it wanted to submit an outstanding proposal. The firm states that the superior evaluation rating it received shows that its effort was in fact worthwhile. NTPS does not contradict the agency's statement that its proposal did include prototype training courses, nor does it disagree that the creation of these courses consumed a significant number of the 1,259.5 hours claimed for proposal preparation.

A protester is not entitled to be reimbursed only for the expenses needed to produce a minimally acceptable proposal. There is nothing in the evaluation record indicating that NTPS' proposal contained extraneous material, and we do not believe that it was per se unreasonable for the firm to conclude that its proposal and thus its chances for award would be enhanced by showing the agency that it had the ability to prepare the prototype course. We do not think that the hours which NTPS spent and the costs it accumulated for preparing its proposal were disproportionate to a proposed contract of over $1.6 million. The agency has not shown that the hours expended on NTPS' proposal were unreasonable or excessive. See Omni Analysis-- Claim for Bid Protest Costs, 69 Comp.Gen. 433 (1990), 90-1 CPD Para. 436.

Regarding the timekeeping system at NTPS, there is no requirement that a protester produce contemporaneous records to establish its entitlement to the award of costs, as long as the evidence submitted is sufficiently precise to determine the reasonableness of the hours claimed. Techniarts Eng'g-- Claim for Costs, 69 Comp.Gen. 679, 90-2 CPD Para. 152. conclude that the evidence submitted by NTPS consisting of an invoice for each employee and the company's payroll records was sufficient.

NTPS is therefore entitled to the hours claimed for proposal preparation, with the following exception. FAA challenged the 88 labor hours of an employee listed on NTPS' invoice because no payroll records were submitted to substantiate the hours. NTPS has not responded to this contention and we disallow these hours under the proposal preparation claim.

Accordingly, based on the above determinations regarding the calculation of NTPS' overhead rate and the hours claimed by NTPS for preparation of its proposal, we find that NTPS is entitled to $45,425.13 in proposal preparation costs. This figure includes $9,585 in direct labor and $3,291.48 in overhead for two consultants who assisted in the preparation of NTPS' proposal. DCAA allowed overhead for the consultants since, as we explained above, it calculated overhead using a G&A allocation base of total expenditures, including consultant expenses. See Management Concepts, Inc., IBCA No. 1601-7 82, 84-2 BCA Sec. 17,491.

COST OF FILING&AND PURSUING THE PROTEST AND OTHER COSTS

NTPS claims $14,195.64 in bid protest costs. Specifically, NTPS claims $13,190.04 for 188 hours of time spent by two of its employees in filing and pursuing the protest, and $1,005.60 for an outside consultant to assist in the preparation of its protest. NTPS arrived at the $13,190.04 total for its employees by adding to the actual wages overhead calculated at NTPS' proposed rate of 151.41 percent. Since we have concluded that NTPS' claim should be calculated using a rate of 34.34 percent, we allow a total of $6,892.08, for NTPS' own employees, consisting of the wages paid and overhead calculated at 34.34 percent.

With regard to the consultant, FAA did not allow the $1,005.60 claimed because, according to the agency, it was not supported by an invoice. our review of the record, however, we found an invoice submitted by the consultant to NTPS. The invoice prepared by NTPS shows that NTPS arrived at the $1,005.60 total by adding to the $400 cost billed by the consultant $605.60 in overhead. Since the $400 billed by the consultant is properly supported, we allow it. In addition, as we explained above, since the firm's G&A allocation base included consultant expenses, DCAA allowed overhead for this consultant. Accordingly, NTPS is entitled to a total of $7,429.44 in protest costs, including $137.36 in overhead for the consultant.

NTPS has also claimed $5,113.16 in costs incurred in pursuing the claim and attempting to reach a settlement with FAA. We disallow this amount because these costs are unrelated to the protest, and currently there is no regulation or statute that authorizes the cost of pursuing the claim. Princeton Gamma-Tech, Inc.-- Claim for Costs, 68 Comp.Gen. 400 (1989), 89-1 CPD Para. 401. Finally, NTPS' claim for payment of interest on its claim for costs is not reimbursable since payment of interest on such claims is not authorized by any statute. Techniarts Eng'g-- Claim for Costs, 69 Comp.Gen. 679, supra.

CONCLUSION

Based on the 34.34 percent overhead rate and the above noted adjustments, we find NTPS to be entitled to $45,425.13 in proposal preparation costs and $7,429.44 in protest costs, for a total of $52,854.57. /1/ NTPS offered a total price of $1,791,141, while the University of Tennessee offered a price of $1,640,759. The agency made award to the University based solely on its low price.

/2/ OMB Circular No. A-122 "Cost Principles for Nonprofit Organizations" is applicable to NTPS, a non-profit educational organization. OMB Circular No. A-21 "Cost Principles for Educational Institutions", is applicable to colleges and universities. The circulars contain the same principle regarding allowability of rental costs under"less-than-arms- length" leases.

/3/ IRS officials have advised us that no written determination was made regarding the nature of the lease.

Finally, NTPS' claim for payment of interest on its claim for costs is not reimbursable since payment of interest on such claims is not authorized by any statute. Techniarts Eng'g-- Claim for Costs, 69 Comp.Gen. 679, supra.

CONCLUSION

Based on the 34.34 percent overhead rate and the above noted adjustments, we find NTPS to be entitled to $45,425.13 in proposal preparation costs and $7,429.44 in protest costs, for a total of $52,854.57.

/1/ NTPS offered a total price of $1,791,141, while the University of Tennessee offered a price of $1,640,759. The agency made award to the University based solely on its low price.

/2/ OMB Circular No. A-122 "Cost Principles for Nonprofit Organizations" is applicable to NTPS, a non-profit educational organization. OMB Circular No. A-21 "Cost Principles for Educational Institutions", is applicable to colleges and universities. The circulars contain the same principle regarding allowability of rental costs under"less-than-arms- length" leases.

/3/ IRS officials have advised us that no written determination was made regarding the nature of the lease.