[Protest of Cost-Plus-Award-Fee Contract Under Navy RFP]

A U.S. district court requested a GAO opinion on a protest of a Navy contract award under a solicitation for services and materials. The protester asserted that the Navy improperly performed the cost evaluation of proposals and should have either awarded it the contract or conducted further negotiations. GAO does not question a cost analysis of proposals unless it is shown to be unreasonable. Although the Navy found that the protester's proposal was technically equal to the awardee's, it increased its cost realism analysis 69 percent over the protester's proposed costs by increasing the protester's staffing levels and using certain personnel costs as direct charges. GAO could not say that the Navy's cost analysis was unreasonable. However, GAO found that the Navy added costs for accounting personnel to the protester's proposed direct costs without proper verification of the appropriate treatment of this cost under the protester's accounting system or cost accounting standards. If the Navy had a requirement for the accounting function to have dedicated personnel, offerers should have been advised of the fact in the request for proposals. The protester also complained that the Navy awarded the contract at an estimated cost which was higher than the evaluated cost. Contract awards can be higher than the evaluated costs; however, while GAO could not find that the Navy's assessment of the protester's or the awardee's evaluated costs was unreasonable, it did find that award without further discussions was an unusual and poor business practice. An additional protest concerning the treatment of an award fee was dismissed as untimely; and GAO agreed with the protester that the award fee in the awardee's contracted violated regulated fee limitations. GAO found that further negotiations should be held with the offerers, revised cost proposals should be solicited and, unless the awardee is the successful offerer on recompetition, its contract should be terminated. Accordingly, the protest was sustained.