Matter of: Pegasus Associates, Ltd. File: B-259515.3 Date: October 25, 1995 *REDACTED DECISION

B-259515.3: Oct 25, 1995

Additional Materials:


Shirley Jones
(202) 512-8156


Office of Public Affairs
(202) 512-4800

Protest alleging that agency allotted insufficient time for preparation of best and final offers is dismissed as untimely since this alleged solicitation impropriety was not challenged prior to the subsequent solicitation closing time. Protest challenging agency's evaluation of protester's cost proposal is denied where record shows that agency reasonably concluded. That protester's costs were unrealistic. Protest challenging agency's technical evaluation of protester's proposal is denied where record shows that agency reasonably evaluated protester's proposal in accordance with the stated solicitation criteria. Protest that agency gave awardee an improper opportunity to modify its technical approach is denied where record shows that awardee proposed alternate technical solution only in response to general discussion questions issued by the agency.

Matter of: Pegasus Associates, Ltd. File: B-259515.3 Date: October 25, 1995 *REDACTED DECISION

Protest alleging that agency allotted insufficient time for preparation of best and final offers is dismissed as untimely since this alleged solicitation impropriety was not challenged prior to the subsequent solicitation closing time. Protest challenging agency's evaluation of protester's cost proposal is denied where record shows that agency reasonably concluded--on the basis of protester's and awardee's proposed costs as well as a comparison with costs incurred for a similar procurement--that protester's costs were unrealistic. Protest challenging agency's technical evaluation of protester's proposal is denied where record shows that agency reasonably evaluated protester's proposal in accordance with the stated solicitation criteria. Protest that agency gave awardee an improper opportunity to modify its technical approach is denied where record shows that awardee proposed alternate technical solution only in response to general discussion questions issued by the agency, an opportunity which was similarly afforded the protester.



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.


Pegasus Associates, Ltd. protests the award of a contract to American Housing Technologies, Inc. (AHT) under request for proposals (RFP) No. DNA001-94-R-0030, issued by the Defense Nuclear Agency (DNA) for the conversion of various weapons facilities located in the former Soviet Union into housing production facilities. Pegasus contends that it was given insufficient time to prepare a best and final offer (BAFO), and that the agency improperly evaluated its cost and technical proposals. Pegasus also alleges that the awardee was improperly permitted to modify its technical approach.

We deny the protest.

The RFP was issued on April 29, 1994, as part of the Cooperative Threat Reduction (CTR) Program, which is designed to assist Russia, Belarus, Ukraine, and Kazakhstan in the elimination of their weapons of mass destruction and associated production facilities. [1] Under this contract, the successful awardee must (1) form a joint venture with a Russian partner; (2) convert an industrialized weapons facility into a privatized building systems production factory; (3) teach and train the Russian joint venture partner and all personnel about Western building technology, construction, and production techniques; and (4) build approximately 500 housing units for retired Soviet military officers.

The RFP contemplated the award of a cost reimbursement type contract and identified two areas to be evaluated: area A, technical/management superiority; and area B, the cost proposal. Under area A, offerors' technical proposals were to be evaluated according to the following eight evaluation criteria, which were listed in "descending order of importance" in the solicitation: Experience and Capabilities; Overseas Business; Leveraged USG [United States Government] Resources; Russian Participation; Initial Production Run; Long Term Plans; Facility Conversion; and Training. For their cost proposals, offerors were to propose a total contract cost as well as a "cost share" percentage, representing the percentage of contract performance costs which the contractor agreed to absorb; in essence, the cost share figure acted as a discount which the contractor agreed to apply to the total contract cost, resulting in a lower cost to the government. The RFP provided that cost proposals would be evaluated for "risk assessment" and "cost realism" and that while cost would not be scored or weighted, cost might "be a significant determining factor for contract award depending on the best mix of technical and cost considerations." In this regard, the solicitation advised offerors that contract award would "be made primarily on the basis of technical/management superiority (AREA A) with [Cost] (AREA B) being carefully considered."

By the June 28 closing date, 14 offers were received. On July 14, the agency completed its evaluation of offerors' initial technical proposals; on August 2, the agency completed its evaluation of each offeror's cost proposal. After conducting technical discussions with several of the offerors in early November--including AHT and the protester--the agency established a competitive range limited to these two firms' offers. By letter dated November 22, the remaining offerors were notified that their proposals had been excluded from further consideration.

Shortly thereafter, one of the eliminated offerors filed a protest at our Office challenging the exclusion of its proposal from the competitive range. As a result of the protest, this procurement was suspended until our Office issued a decision on April 10, 1995, upholding the agency's competitive range determination. See Comark Bldg. Sys., Inc., B-259515, Apr. 10, 1995, 95-1 CPD Para. 188. On April 20 and April 24, the agency met individually with AHT and Pegasus to discuss changes in the solicitation which resulted from the procurement delays and other changes in the government-to-government agreement between the United States and the Russian Federation [2] which underwrites the CTR program. On May 17, a round of cost proposal discussions was held with each offeror and BAFOs were requested to be submitted by May 22. On May 19, in response to a request by Pegasus, the BAFO closing date was extended to May 23. On that date, both Pegasus and AHT submitted BAFOs.

The results of the agency's BAFO evaluation were as follows:

Offeror BAFO Score Total Cost

Pegasus 85.5 $20,148,808 AHT 87 $24,999,147

After factoring in each offeror's proposed cost share, the total evaluated contract costs were as follows:

Total Cost after Factoring Offeror Cost Share in Cost Share Discount

Pegasus 0 $20,148,808 AHT 20 percent $19,999,954

On May 24, because AHT was scored slightly above Pegasus in technical merit, and because the agency determined that AHT's costs were "more certain," and therefore realistic, the agency awarded the contract to AHT. On June 19, after being notified of the award, Pegasus filed this protest.


Pegasus first contends that the agency allowed an insufficient amount of time to submit BAFOs. Pegasus contends that "[i]n the rush to meet the deadline" it did not elaborate upon its offered cost share, and that consequently the agency misunderstood and misevaluated this aspect of its cost proposal. Pegasus also contends that the agency improperly determined that its offered costs were unrealistic.

Pegasus next argues that the agency must have failed to adhere to the solicitation's technical evaluation criteria since--according to the protester--the technical strengths noted by the agency in its evaluation of Pegasus's technical proposal collectively demonstrated the required "technical/management superiority" which the RFP stated would be the basis for contract award. Finally, Pegasus maintains that the agency gave AHT an improper opportunity to revise its technical approach.


BAFO Deadline

Pegasus's contention that the agency failed to provide adequate time for the firm to properly prepare its BAFO is untimely. Under our Bid Protest Regulations, protests based upon alleged improprieties in a solicitation--such as Pegasus's contention that it was provided with insufficient time to prepare a BAFO--must be filed before the next closing time for receipt of proposals. 4 C.F.R. Sec. 21.2(a)(1) (1995); American Ass'n for the Advancement of Science, B-250927.2, Mar. 12, 1993, 93-1 CPD Para. 305. In this case, the record shows that after receiving Pegasus's request for a BAFO deadline extension, the agency transmitted a facsimile BAFO request to Pegasus on May 19 which extended the closing date to May 23. Since Pegasus failed to challenge this deadline prior to the time set for receipt of BAFOs on May 23, we dismiss this aspect of the protest as untimely.

Cost Evaluation

Pegasus contends that the agency improperly evaluated its cost proposal. First, Pegasus asserts that the agency improperly failed to award credit for and factor in its proposed $500,000 cost share; additionally, Pegasus contends that the agency unreasonably concluded that its cost proposal was unrealistic.

When an agency evaluates proposals for the award of a cost reimbursement contract, an offeror's proposed estimated costs of contract performance and proposed fees are not considered controlling since an offeror's estimated costs may not provide valid indications of the final actual costs that the government is required to pay. See Federal Acquisition Regulation (FAR) Sec. 15.605(d); Tecom, Inc., B-257947, Nov. 29, 1994, 94-2 CPD Para. 212. Consequently, a cost realism analysis must be performed by the agency to determine the extent to which an offeror's proposed costs represent what the contract should cost, assuming reasonable economy and efficiency. 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 is limited to determining whether the agency's cost realism analysis is reasonably based and not arbitrary. General Research Corp., 70 Comp.Gen. 279 (1991), 91-1 CPD Para. 183; Grey Advertising, Inc., 55 Comp.Gen. 1111 (1976), 76-1 CPD Para. 325.

In this case, the record shows that in its BAFO, Pegasus offered to provide the agency with "$500,000 in working capital for the implementation of this contract award." Pegasus further classified the $500,000 amount combined with Pegasus's "building system technology" as a "cost share contribution . . . valued at $2.5 million." In its protest, Pegasus contends that the agency failed to consider this cost share contribution in its evaluation of Pegasus's proposal.

In response, the agency reports that it did not deduct $500,000 from Pegasus's proposed total contract cost, or otherwise consider the offered "$500,000 cash and building system technology" to be a reliable "cost share" contribution, since Pegasus only offered the $500,000 amount as "available for working capital resources." If Pegasus intended for the $500,000 amount to be deducted as a cost share discount from its proposed total contract cost, the agency maintains that Pegasus should have explained this in its BAFO--as AHT did. This particular cost feature was not proposed by the protester until the submission of its BAFO. Since Pegasus offered no explanation for how the $500,000 amount would be applied to this contract, and since the "available for working capital resources" language did not eliminate the potential for this amount to be reclaimed by the protester as a cost-reimbursable expense, we think that the agency properly refused to discount this amount as a cost share from Pegasus's proposed total contract cost. It is an offeror's obligation, when introducing changes in its BAFO, to demonstrate how its revised offer will satisfy the government's requirements since the agency is not required to reopen discussions to afford an offeror an opportunity to demonstrate compliance. Purvis Sys., Inc., 71 Comp.Gen. 203 (1992), 92-1 CPD Para. 132. Where, as here, a contractor does not provide an adequate cost explanation in its BAFO, the agency is not required to assume the risk or speculate as to how particular cost information is to be factored into the contractor's total cost. See id.; BellSouth Telecommunications, Inc., B-258321, Jan. 6, 1995, 95-1 CPD Para. 10.

Pegasus next contends that the agency improperly determined that its proposed costs for building the 500 housing units called for by the RFP were unrealistic. The record shows that the RFP specified that with regard to housing costs, "the [Russian Federation] requested the [housing] unit [cost] range be targeted at $10,000 - $20,000." In light of this solicitation language, Pegasus contends that its offered housing cost of $16,600 per unit should not have been rejected or questioned by DNA. Moreover, because the awardee proposed a housing unit cost of $26,000, which exceeds the target housing unit cost range listed in the RFP, Pegasus further asserts that the awardee's housing costs should have been determined unrealistic.

The agency responds that although Pegasus proposed a housing unit cost which fell within the stated target housing cost range, the protester nonetheless failed to demonstrate in its cost proposal how this cost was realistic. First, the agency asserts that Pegasus's proposed housing unit cost was questionable since the physical size of the house proposed by Pegasus was 5 percent smaller than the dimensions required by the RFP. Consequently, the agency determined that the cost of Pegasus's proposed housing unit, scaled to the proper size, would necessarily increase. Next, although the agency specifically asked Pegasus to "provide a clear breakdown of the amount associated with each of the components mentioned in [its] cost proposal" as well as "documentation that supports the costs . . . proposed" in its BAFO, the protester failed to provide this requested detail. Instead, the protester's BAFO set forth only general, unsupported sums for various housing costs; for example, instead of providing the cost for each component--i.e., cabinets, fixtures, etc.--Pegasus proposed a general lump sum--a "module core unit" cost figure--of $4,500. In contrast, AHT backed out each of its proposed costs down to the specific components--e.g., kitchen cabinets: $452; bath vanity and top: $88.53. Without the requested breakdown, and in comparison to the costs proposed by AHT as well as costs proposed on other conversion contracts, the agency concluded that Pegasus's proposed lump sums were underestimated and, therefore, unreliable.

Another component of Pegasus's proposed housing unit cost which concerned the agency was the protester's proposed labor costs. Pegasus proposed 500 man-hours to build each house at an hourly labor wage rate of $1. After comparing this proposed wage rate to the labor rates proposed by AHT, as well as those proposed and paid for similar conversion contracts in Belarus, DNA determined that Pegasus's proposed hourly $1 labor wage rate figure was understated--by as much as $1.25.

In addition to the housing unit and labor cost issues discussed above, the agency also determined that several cost components of Pegasus's BAFO were elevated and therefore unrealistic. First, DNA determined that Pegasus's proposed costs for office furniture and equipment--apparently required for the facility conversion portion of the work--were inexplicably high, particularly because the protester failed to provide any supporting cost breakdown or explanatory detail. Additionally, Pegasus made it clear in its proposal that it intended to take $1.5 million of the earmarked $20 million for this procurement and use this sum as "seed money" to attract other investors to this project; however, Pegasus did not identify who the targeted investors or partners would be.

Given Pegasus's failure in its BAFO to explain both its cost share strategy and its proposed costs, we find the agency's concerns and subsequent evaluation of Pegasus's proposed costs as unrealistic to be reasonable.

Although Pegasus contends that AHT's proposal should have been deemed unrealistically high--on the ground that $26,000 exceeds the housing cost target range stated in the RFP--unlike Pegasus, AHT demonstrated the realism of its proposed costs by backing out each cost component on an element-by-element basis. Further, the agency's comparison of AHT's costs with those paid for similar conversion contracts in Belarus shows that AHT's proposed costs are reasonable. Finally, in addition to providing a realistic cost proposal, as requested by the RFP, AHT proposed an additional 20-percent cost share discount to the agency. Under these circumstances, we find no basis to object to the agency's cost evaluation.

Technical Evaluation

The record shows that for the most part, the agency awarded Pegasus strong technical scores for the evaluation categories of Experience and Capabilities; Overseas Business; Russian Participation; Long Term Plans; Facility Conversion; and Training. Pegasus contends that as a result of these ratings, the agency should have determined the protester to be technically superior to AHT since these categories collectively demonstrate the required "technical/management superiority" which the RFP emphasized would constitute the key factor in the award selection decision. The record does not support this contention.

Although Pegasus received strong scores for the above-referenced evaluation categories, other evaluation findings under the categories of Leveraged USG Resources and Initial Production Run reasonably led the agency to conclude that Pegasus was not technically superior to AHT.

The category for which Pegasus received the lowest score was Leveraged USG Resources. For this category, offerors were required to address the following technical concerns, which were outlined by the agency in the RFP:

"Does [the] proposal leverage USG resources? Does the proposal provide for cost sharing or some form of technical leveraging? Does the proposed project optimize the number of [housing] units that will be built?"

Under this category, Pegasus's proposal was downgraded since it failed to propose a cost share figure or otherwise explain how it proposed to leverage. Moreover, as noted above, the agency was concerned about Pegasus's generalized assertion that it would use $1.5 million to attract other businesses and investors to participate in the CTR program; although Pegasus stated this intention, it did not name or identify any prospective partners or investors.

The agency also noted technical deficiencies in Pegasus's proposal under the evaluation category of Initial Production Run. As stated in the RFP, for this factor, the agency in part evaluated offers to assess whether the technical proposals "[met] the guidelines in the statement of work." Since Pegasus's proposed housing units were 5 percent smaller than the dimensions required by the RFP, and since Pegasus's proposed units deviated from various design requirements in the RFP--such as failing to provide the required number of doors per house--the agency downgraded Pegasus's proposal under this category.

The evaluation of technical proposals is within the discretion of the procuring agency since it is responsible for defining its needs and the best method of accommodating them, and must bear the burden resulting from a defective evaluation. See Innovative Sys. Consulting, Inc., B-257375.2, Nov. 14, 1994, 94-2 CPD Para. 182. In cases challenging an agency's technical evaluation, our Office will not independently reevaluate the proposals anew, but instead will examine the agency's evaluation to ensure that it was reasonable and in accord with the RFP criteria. Xeta Int'l Corp., B-255182, Feb. 15, 1994, 94-1 CPD Para. 109. In this regard, a protester's disagreement with the agency's technical judgment, without more, does not show the agency's evaluation was unreasonable. ESCO, Inc., 66 Comp.Gen. 404 (1987), 87-1 CPD Para. 450.

We have carefully scrutinized both the protester's and the awardee's proposals and the corresponding evaluation documentation and conclude that the agency reasonably evaluated both technical proposals.

Of significance to this protest, AHT outscored Pegasus under the three most important technical factors: Experience and Capabilities, Overseas Business; and Leveraged USG Resources. Under the Experience and Capabilities factor, AHT earned a strong score by presenting itself as a consortium of seven different firms--collectively joined for the purpose of merging strong background experience in construction, development, material supply and manufacturing, field construction marketing and sales, civil and environmental engineering, consulting and legal review. In contrast, although Pegasus also received a high score, we conclude the agency reasonably awarded the protester a slightly lower score than AHT since--unlike AHT--Pegasus offered no production experience background.

With regard to the Overseas Business technical factor, we think the slightly higher point score awarded AHT for this factor reasonably reflects the qualitative difference between AHT's and Pegasus's type of overseas experience. AHT holds hands-on overseas business experience as a result of performing a Romanian conversion project which required the construction of a 1,500 housing unit complex in that country. While Pegasus's proposal demonstrated that it has forged strong business relationships with several Russian and Polish production companies who have performed similar work to that required here, unlike AHT, the protester does not have direct overseas experience.

Finally, we think the agency reasonably awarded AHT a higher score under the Leveraged USG factor. Pegasus's failure to explain its cost share strategy, discussed above, constituted a reasonable basis for the agency's downgrading of this portion of Pegasus's technical proposal. In contrast to Pegasus's vague proposed cost share, AHT offered a clear 20-percent cost share, along with supporting detail as to how the cost share would be applied.

In sum, given the record here, particularly the evaluation of the first three technical factors, as well as the noted deficiencies in Pegasus's proposal for the Leveraged USG Resources and Initial Production Run factors, we conclude that the agency reasonably determined that Pegasus's technical proposal was not superior to that of AHT.

Improper Discussion Opportunity

Pegasus contends that AHT was given an improper opportunity to change its proposed building technology; essentially, the protester maintains that AHT should not have been permitted to change its proposed building strategy or materials. We find this contention without merit.

The agency posed the following discussion questions to AHT in early November:

"What are the mid to long term prospects for sourcing materials and supplies to Russia? How will AHT develop these sources? . . ."

"Can the panelized system be executed with wood framing? If so, how does this affect the proposal in terms of cost and schedule?"

Apparently in response to these questions, in its BAFO AHT modified its proposed building system from a steel and gypsum pre-fabricated panel system to a more traditional wood frame system.

We fail to see any impropriety in the agency's questions or AHT's response. On the contrary, the agency complied with its duty to hold meaningful discussions with AHT, see SAIC Computer Sys., B-258431.2, Mar. 13, 1995, 95-1 CPD Para. 156; Stone & Webster Eng'g Corp., B-255286.2, Apr. 12, 1994, 94-1 CPD Para. 306, and, in response, AHT revised its proposal, as it properly could do. See Serv-Air, Inc., B-258243.4, Mar. 3, 1995, 95-1 CPD Para. 125; American Nucleonics Corp., B-193546, Mar. 22, 1979, 79-1 CPD Para. 197.


We conclude that the agency's technical and cost evaluations were both reasonable. The result of these evaluations shows that AHT submitted a slightly higher-rated technical proposal for a lower, realistic, and reasonably based cost. Under these circumstances, the award to AHT is unobjectionable.

The protest is denied.

Comptroller General of the United States

1. In November 1991, Congress authorized funding to assist republics of the former Soviet Union to destroy nuclear, chemical, and other weapons; transport, store, disable and safeguard weapons in conjunction with their destruction; and establish safeguards against proliferation. The program was originally referred to as the Nunn-Lugar Act or the Safe, Secure and Dismantlement (SSD) Program, but has recently been renamed the Cooperative Threat Reduction (CTR) Program. On January 11, 1993, the Assistant to the Secretary of Defense (Atomic Energy) assigned DNA CTR program management execution responsibilities which include project and acquisition planning, procurement, financial management, and performance oversight. Twenty million dollars have been earmarked for this procurement.

2. The Russian Federation is comprised of Russia, Belarus, Ukraine, and Kazakhstan.

Oct 29, 2020

Oct 28, 2020

Oct 27, 2020

  • Silver Investments, Inc.
    We dismiss the protest as untimely because it was filed more than 10 days after the protester knew, or should have known, the basis for its protest.

Looking for more? Browse all our products here