Matter of: Advanced Sciences, Inc. File: B-259569.3 Date: July 3, 1995 REDACTED VERSION[*]

Matter of: Advanced Sciences, Inc. File: B-259569.3 Date: July 3, 1995 REDACTED VERSION[*]

The procuring agency's cost realism evaluation of the protester's offer was not reasonably based, where the agency ignored the protester's subcontractors' proposed [DELETED] cost containment measures and where it [DELETED] adjusted the protester's [DELETED] based upon the agency's view that [DELETED] but the agency had not performed any analysis to determine whether the protester's [DELETED], as the protester asserts. The procuring agency failed to conduct meaningful discussions with the protester where the agency did not inform the protester of the agency's evaluation determination that the protester's proposed [DELETED] were unrealistic and [DELETED] and that the agency did not believe that the protester could [DELETED], as promised, for [DELETED], and where the failure to inform the protester of the agency's evaluation concerns deprived the protester of the opportunity to support its [DELETED], exacerbating the agency's erroneous cost realism evaluation. The procuring agency did not act improperly, where, in response to a congressional inquiry and a number of anonymous communications alleging wrongdoing in the procurement, the agency replaced the source selection official and reevaluated offerors' proposals, and where the record shows that the agency had a reasonable basis for its procurement actions and was not motivated by bias against the protester or for another offeror.

Attorneys

DECISION

Advanced Sciences, Inc. (ASI) protests the award of a contract to Roy F. Weston, Inc. under request for proposals (RFP) No. DE-RP04-93AL82964, issued by the Albuquerque Operations Office, Department of Energy (DOE), for technical assistance services supporting the Waste Isolation Pilot Project (WIPP) in Carlsbad, New Mexico. [1] ASI protests that the agency's cost realism adjustments of its proposed costs were unreasonable, that meaningful discussions were not conducted, that Weston misrepresented the availability of key personnel, that the agency's selection of Weston was motivated by bias and improper influence, that Weston had an unavoidable and unmitigable organizational conflict of interest (OCI), and that Weston's selection did not represent the best value to the government.

The protest is sustained on the basis that the agency's cost realism evaluation was unreasonable and that meaningful discussions were not conducted with ASI.

BACKGROUND

The RFP contemplated the award of a level-of-effort, task order, cost- plus-fixed-fee contract for a 3-year base period with one 2-year option period. The contractor will provide technical and management services supporting the Carlsbad Area Office in its mission of management and evaluation of WIPP for the safe disposal of radioactive transuranic (TRU) waste generated from DOE defense related activities. [2] When operational, WIPP will be the planned destination for TRU waste from 10 storage sites. The support services include assisting the Carlsbad Area Office in meeting that office's program responsibilities regarding safe transportation, site operations, experimentation and testing, long-term regulatory compliance, and disposal of radioactive waste material. The contractor is required to maintain a dedicated facility near WIPP and the Carlsbad Area Office in southeast New Mexico.

The RFP provided that award would be made on a best value basis and that proposals would be evaluated in accordance with the agency's Acquisition Regulations Formal Source Evaluation Board (SEB) Handbook, dated October 1992. The following evaluation factors and subfactors were identified:

1. Technical

a. Technical approach b. Organization structure c. Key personnel and non-key technical personnel [3]

2. General Business

a. Administrative management b. Corporate experience c. Corporate commitment

3. Cost and financial considerations

a. Completeness b. Credibility c. Realism d. Other considerations

The RFP also informed offerors that the agency would evaluate proposed compensation for professional employees and, in this regard, contained the "Evaluation of Compensation for Professional Employees" clause, as set forth at Federal Acquisition Regulation (FAR) Sec. 52.222-46. [4] This clause provided that proposed compensation would be evaluated in terms of its impact upon recruiting and retention of employees and realism. Offerors were warned that professional compensation that was viewed as unrealistically low or not in reasonable relationship to the various job categories might be viewed as evidence of a failure to comprehend the complexity of the contract requirements.

The RFP provided that the technical factor was significantly more important than the general business factor, and that superior technical and general business proposals, even with a higher probable cost, would outweigh those determined to be of lesser technical merit. In this respect, the RFP stated that:

"the government will assess whether the point difference between or among competing Technical and General Business proposals indicates a superiority from a standpoint of: (1) what that point difference might mean in terms of anticipated performance; and (2) what the evaluated probable cost to the government would be to take advantage of the point difference."

Detailed proposal preparation instructions were provided, which, among other things, required offers to consist of three separate volumes: (1) the offer and other documents; (2) the technical and business proposals; and (3) the cost proposal. Volume I was to contain the offeror's executed solicitation form (standard form 33), representations, certifications and other statements, as well as the offeror's exceptions and/or deviations to terms and conditions of the model contract (that is, sections B through J of the solicitation), and a summary of exceptions and/or deviations taken in the other proposal volumes.

With regard to the technical and general business volume, offerors were informed that "[a] major emphasis will be placed on the backgrounds and qualifications of the personnel proposed by the offeror." Among other things, offerors were required to describe their proposed program organizational structure and relationship with subcontractors and to identify proposed key and non-key personnel. Regarding key personnel, offerors were required to provide resumes and "letters of intent" for four key personnel: a program manager; planning/scheduling/budgeting task manager; TRU waste research and development (R&D) task manager; and safety and regulatory assurance task manager. The RFP also required that offerors provide in their technical proposals a "Project Personnel Summary" listing the names of key personnel and non-key technical personnel proposed to support the contract. [5] This summary was required to:

"contain the following information: Individual's name, key or non-key personnel designation, solicitation labor classification, corporate labor category, education, years of experience (DOE related experience, non-DOE related experience, and total years of experience), availability status, technical capability and [statement of work] task related experience, and a short statement which summarizes the individual's professional experience."

Regarding the cost volume, the RFP required offerors to provide a summary of their proposed labor for identified positions within stated labor categories for the base and option periods and to identify per year for each of the proposed personnel the proposed direct productive labor hours, labor rates, and total cost. This information was to be provided for both the offeror and all proposed subcontractor personnel. The RFP stated, for evaluation purposes, the direct productive labor hours for each personnel position and labor category, against which offerors' proposed rates would be applied. [6] As amended, the solicitation also contained clause H.07, "Advanced Agreement--Personnel Costs," by which the solicitation sought the offeror's agreement that direct labor rates stated by the offeror, and as included in the contract as awarded, would not increase by more than 2 percent per year without the contracting officer's approval. In pertinent part, this clause provided:

"Any costs incurred which result from an increase of two percent above the negotiated direct labor rates and which have not been previously approved by the [c]ontracting [o]fficer, shall be disallowed pursuant to this advanced cost agreement and the cost principles in [Federal Acquisition Regulation] Part 31 as supplemented by [Department of Energy Acquisition Regulation] 931, and is not subject to the `Disputes' clause." [7]

DOE received five proposals, including Weston's and ASI's, by the closing date for receipt of proposals. [8] All offerors submitted supplemental proposals when the RFP was subsequently amended. Weston's and ASI's initial proposals were evaluated by the SEB as follows:

Technical Score Cost Points/Adjectival [9] Proposed Evaluated

Weston [DELETED] [DELETED][DELETED] [10] ASI [DELETED] [DELETED][DELETED]

The SEB concluded that ASI's proposed costs were not realistic, finding that:

"[DELETED]."

Additionally, the SEB found that ASI's proposed costs were not credible because [DELETED].

Offerors' potential for organizational conflicts of interest (OCI) was also evaluated, as provided for by the RFP. The SEB concluded that while both ASI and Weston had potential OCIs, neither offeror had substantive or unavoidable issues that would preclude award. [11]

The source selection official (SSO) was briefed by the SEB as to its evaluation conclusions and determined that three offers, including those of Weston and ASI, were in the competitive range.

Oral and written discussions were conducted with each offeror. Among other things, ASI was asked to provide [DELETED]. ASI was also asked to clarify its [DELETED]. In addition, the agency conducted discussions with both ASI and Weston concerning their proposed model contracts. After receipt of written responses to the agency's discussion questions and after discussions concerning model contract terms, discussions were closed, and best and final offers (BAFO) requested.

Weston's and ASI's BAFOs were evaluated by the SEB in its August 23, 1994, final report, as follows:

Technical Score Cost Points/Adjectival Proposed Evaluated

Weston [DELETED] [DELETED] [DELETED] ASI [DELETED] [DELETED] [DELETED]

Weston's higher technically rated proposal reflected the SEB's judgment that Weston's technical and business approaches exceeded the requirements of the RFP and contained no weaknesses. ASI's technical and business approaches were viewed as [DELETED].

With regard to the offerors' cost proposals, the SEB found Weston's proposed costs to be credible and realistic. ASI's proposed costs, however, were found to be not credible because [DELETED]. The SEB [DELETED] adjusted ASI's proposed costs by [DELETED] to reflect [DELETED]. [12]

Finally, the SEB noted potential OCI concerns with regard to proposed subcontractors of both Weston and ASI. [13] In addition, the SEB noted a potential OCI involving one of Weston's proposed key persons--its [DELETED] manager--who was employed by a subcontractor. The SEB concluded that all of ASI's and Weston's potential OCI problems could be avoided or mitigated.

The SSO through this stage of the procurement was Bruce Twining, the manager of the Albuquerque Operations Office. Hearing Transcript (TR) at 385. [14] However, prior to the SEB's final briefing to the SSO, DOE replaced Mr. Twining, as SSO, with George Dials, the manager of the Carlsbad Area Office, because program responsibility for WIPP had been transferred from the Albuquerque Operations Office to the Carlsbad Area Office. TR at 17.

The SEB briefed Mr. Dials as to its evaluation conclusions and, in accordance with DOE's procedures, made no award recommendation. On September 14, Mr. Dials signed his source selection statement, concluding that ASI's proposal represented the best value to the government, because ASI could be expected to [DELETED]. Mr. Dials also determined that Weston's subcontractors' potential OCI problems could only be mitigated by [DELETED]. In Mr. Dials's judgment, mitigation of Weston's potential OCI would [DELETED].

In early September, prior to the signing of Mr. Dials's source selection statement, DOE headquarters received a congressional inquiry concerning alleged wrongdoing in the procurement; during the same time period, DOE headquarters also received an anonymous phone call and facsimile transmitted letter alleging wrongdoing in the procurement and that ASI had exercised improper influence during the procurement. [15] On September 14, the director of DOE's Office of Clearance and Support suspended the procurement pending an investigation, and the next day a procurement analyst from the Office of Clearance and Support was assigned to investigate the procurement. Video Record (VR) at 10:02. [16] The procurement analyst spoke with Mr. Dials and various SEB members, reviewed evaluation documentation, and concluded that there were three areas of concern in the procurement: (1) that Mr. Dials had an apparent personal conflict of interest because of his social relationship with "individuals in key organizational positions" in two of the three competitive range offerors"[17]; (2) that the SEB's cost analysis of ASI's BAFO was incomplete because it had not considered whether ASI's subcontractor's technical and cost proposals were consistent; and (3) that the SSO's treatment of Weston's subcontractors' potential OCI problems appeared inconsistent with that of ASI's subcontractors' potential OCI problems. VR at 10:12-10:13.

On October 3, the SEB was reconvened to review ASI's and Weston's BAFO cost proposals and potential OCI problems. VR at 10:27. On October 19, Mr. Twining, the manager of the Albuquerque Operations Office, was renamed as the SSO for the procurement by the Under Secretary of Energy. The SEB issued its final-revised report on October 28, and briefed Mr. Twining on October 31. Regarding ASI's BAFO cost proposal, the SEB found that:

"[DELETED]."

The SEB also noted that [DELETED]. [18] The SEB's supplemental analysis resulted in an additional [DELETED] adjustment of [DELETED]. [19] The SEB also noted [deleted]. TR at 560. The SEB's revised total probable cost estimate for ASI's BAFO was [DELETED], as compared to the SEB's revised total probable cost estimate for Weston's BAFO of [DELETED].

Regarding Weston's and ASI's subcontractors' potential OCI, the SEB again determined that neither offeror presented OCI problems that could not be mitigated or avoided by the offerors' avoidance and mitigation plans. Specifically, regarding the potential Weston subcontractors' OCI problems, with which Mr. Dials was concerned, the SEB found that these concerns could be mitigated by managing the assignment of work or, if necessary, replacing Weston's proposed [DELETED] manager with a Weston or other subcontractor employee of similar qualifications. [20] The SEB also reviewed ASI's subcontractor's potential OCI problem, and confirmed its earlier view that ASI's proposed subcontractor also had a potential OCI, which could be avoided by ASI's avoidance methodology plan.

Mr. Twining selected Weston's proposal as representing the best value to the government. Mr. Twining concluded that Weston's higher technical and business proposal ratings reflected actual technical superiority that [deleted]. In this regard, Mr. Twining noted in his source selection statement that Weston had agreed to a number of provisions that shifted cost risk from the government to Weston; specifically, that "Weston will administer the RFP's Advance Agreement on Personnel Costs by controlling labor costs within plus two percent (+2%) of the negotiated average rates by labor category," that Weston had obtained similar agreements for its subcontractors, [21] and that Weston had also agreed to ceilings on indirect general and administrative expenses for all contract years and for the labor rates for its program manager and safety and regulatory task manager. Mr. Twining also concluded that Weston had provided an acceptable OCI avoidance plan that mitigated the evaluated potential OCI concerns regarding that firm's proposed subcontractors and [DELETED] manager.

Contract award was made to Weston on November 25, 1994, and this protest followed on December 2. [22]

DISCUSSION

Cost Realism Evaluation

ASI challenges the agency's cost realism evaluation of its proposal. Among other things, ASI protests that DOE unreasonably adjusted [DELETED]. [23] In this regard, the record shows that the revised cost realism adjustment for [DELETED].

When agencies evaluate proposals for the award of cost reimbursement contracts, an offeror's proposed estimated costs are generally not dispositive, because regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. FAR Sec. 15.605(d). 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 of an agency's exercise of judgment in this area is limited to determining whether the agency's cost evaluation 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.

As a general rule, the maxim that the government bears the risk of cost overruns in the administration of a cost reimbursement contract is reversed when a contractor agrees to a cap or ceiling on its reimbursement of allowable costs. BNF Technologies, Inc., B-254953.3, Mar. 14, 1994, 94-1 CPD Para. 274; Vitro Corp., B-247734.3, Sept. 24, 1992, 92-2 CPD Para. 202. An offeror that proposes a cost cap or ceiling has shifted the risk of overruns from the government, such that upward adjustments to capped costs are improper, unless the caps are ineffective or can be circumvented. MAR, Inc., B-255309.4; B-255309.5, June 8, 1994, 94-2 CPD Para. 19; BNF Technologies, Inc., supra.

Here, we find that ASI's subcontractors' contractual acceptance of the RFP's "Advance Agreement--Personnel Costs" did not result in legally binding cost caps or ceilings. [24] The record shows that ASI "flowed- down" RFP provision H.07 into each of the subcontracts, and each of the subcontractors, for which DOE made upward costs adjustments, committed to the following provision in their subcontract agreements, as provided to DOE with ASI's BAFO:

"[DELETED]."

As the above language provides, requests for reimbursement of costs in excess of 2 percent of the negotiated rates may be made and the contracting officer retains the right to approve personnel costs in excess of 2 percent of the agreed rates. During the performance of this contract, DOE will be required, as each task order is negotiated, to approve the personnel and labor rates proposed for the task. This means that the agency may be presented with situations where obtaining the personnel with the desired or required qualifications could require that the agency permit the subcontractors to exceed the negotiated labor rates. Given the parties' contemplation that the negotiated labor rates may be exceeded with the contracting officer's permission, the subcontractors' proposed advance agreements on personnel costs are not unqualified cost caps or ceilings. See Information Sys. & Networks Corp., B-258684.2; B-258684.3, Apr. 4, 1995, 95-1 CPD Para. 255.

Nevertheless, the subcontractors' proposed advance agreements on personnel costs could not be ignored in the agency's evaluation, as was done here. The agency sought the offerors' agreement to the advance agreement on personnel costs contained at H.07 of the RFP. Through agreement to this solicitation provision, DOE sought to minimize the risk of cost overruns by ensuring that during the administration of the contract only the contracting officer could determine whether the costs of contract performance would exceed those originally proposed. This sole right of the contracting officer to determine the allowability of personnel costs in excess of the negotiated rates provides a measure of control generally lacking in cost reimbursement contracts. In our view, the subcontractors' proposed advanced agreements for personnel costs were significant cost containment measures, which the agency was obligated to consider. See Information Sys. & Networks Corp., supra.

The agency argues that it did consider ASI's [deleted] proposed advanced cost agreements under the "other considerations" subfactor to the cost evaluation factor, and points to its October 28 final-revised SEB report, which states that [DELETED] which were considered by the contracting officer in his Price Discussions Memorandum. The record shows, however, that the Price Discussion Memorandum, which was prepared for the SEB's August 23 report, accepted ASI's subcontractors' advanced personnel costs agreements as binding cost caps. [25] The Memorandum formed the basis for the SEB's original final cost evaluation that found ASI's probable costs of performance to be [DELETED]. In contrast, there is no mention or discussion of the subcontractors' personnel costs advance agreements in the agency's subsequent October cost realism evaluation. [26] In fact, there is no evidence in the record demonstrating that the SEB, in the revised October 28 cost evaluation, or later, considered the effect of ASI's subcontractors' promised advanced personnel costs agreement. Further, there also is no evidence in the record to indicate that Mr. Twining, as SSO, was informed of the probable effect of ASI's subcontractors' advanced cost agreements on ASI's estimated costs of performance.

We think that the cost containment measures provided by ASI's subcontractors' proposed advanced agreements required the agency to consider the likelihood of whether the contracting officer would be required to approve higher labor rates to obtain the qualified personnel proposed. We recognize that the agency believed that [DELETED]. [27] The record shows, however, that DOE made no attempt to ascertain the [DELETED]. In this regard, the SEB chairman testified in the hearing that although the SEB had discussed [DELETED], the SEB had not undertaken an analysis to determine [DELETED]. TR at 231, 234-35, 370-71. Without performing this analysis, the agency could not reasonably ascertain the likelihood that the contracting officer would be required to [DELETED].

In sum, we find that DOE did not reasonably evaluate the effect of ASI's subcontractors' advanced personnel costs agreements in assessing the subcontractors' probable costs of performance; that is, the agency failed to determine whether [DELETED]. Given [DELETED], [28] we find that it is a reasonable possibility that the agency's evaluated probable costs for ASI's subcontractors were substantially overstated.

ASI also protests the agency's approximately [DELETED] adjustment of its proposed [DELETED]. As noted above, the agency in its cost realism analysis did not believe that ASI [DELETED]; the agency adjusted the [DELETED]. In its protest, ASI explains [DELETED]. Specifically, ASI states that [DELETED]. [29] We recognize that ASI's explanation for [DELETED] was not presented to the agency for its consideration. As explained below, we find this is due to the agency's failure to conduct meaningful discussions. Moreover, as noted above, there is no support in the record for the agency conclusion that [DELETED], because the agency failed to ascertain [DELETED]. Given ASI's unrebutted explanation for [DELETED], we find defective the agency's cost realism analysis that made no effort to determine [DELETED]. [30]

In sum, we find DOE did not reasonably assess the realism of ASI's proposed costs. From our review of the record, it appears that ASI's probable costs of performance could be [DELETED] than that evaluated by DOE and considered by the SSO in his source selection decision, such that the SSO's best value selection of Weston's proposal without consideration of ASI's [DELETED] cannot be said to be reasonably based. See BNF Technologies, Inc., supra; Tennessee Wholesale Drug Co., Inc., B-243018 et al., June 28, 1991, 91-2 CPD Para. 9.

Discussions

ASI also protests that DOE did not conduct meaningful discussions because DOE failed to inform ASI that the agency had determined [DELETED].

DOE responds that it provided ASI with numerous questions concerning ASI's proposed [DELETED] that reasonably led ASI into the areas of ASI's proposal the agency deemed to be deficient. Additionally, DOE argues that it was not until the submission of ASI's BAFO that the agency understood that ASI was proposing to [DELETED]; thus, DOE argues, it had no obligation to bring this matter to ASI's attention.

FAR Sec. 15.610(c)(2) requires that a contracting agency "[a]dvise the offeror of deficiencies in its proposal so that the offeror is given an opportunity to satisfy the [g]overnment's requirements." Although discussions need not be all encompassing, discussions are required to be meaningful; that is, an agency is required to point out weaknesses, excesses, or deficiencies in proposals unless doing so would result in technical transfusion or technical leveling. FAR Sec. 15.610(c) and (d); E.L. Hamm & Assocs., Inc., B-250932, Feb. 19, 1993, 93-1 CPD Para. 156. In general, agencies must lead offerors into areas of their proposals that require amplification or correction, Son's Quality Food Co., B-244528.2, Nov. 4, 1991, 91-2 CPD Para. 424, and discussions should be as specific as practicable considerations will permit. E.L. Hamm & Assocs., Inc., supra; Data Preparation, Inc., B-233569, Mar. 24, 1989, 89-1 CPD Para. 300.

Here, the record demonstrates that the SEB in its competitive range report found that ASI's and its subcontractors' proposed costs were not realistic or credible. Specifically, the SEB found that ASI's costs were not credible because [DELETED].

We have reviewed the written discussions questions ASI received, as well as those questions that the agency asserts informed ASI of the agency's evaluation concerns, and find that none of the questions reasonably informed ASI that the agency viewed [DELETED]. [31] For example, DOE asked ASI to clarify how it would [DELETED]. While we think these questions adequately informed ASI of the agency's concerns regarding the ambiguity and inconsistencies in ASI's initial technical and cost proposals, they do not hint at the agency's concern that [DELETED]. While DOE argues that it could not determine the realism of ASI's [DELETED] until it had clarified ASI's technical approach, which the agency asserts did not occur until after receipt of the BAFO, the fact remains that the agency in fact evaluated ASI's [DELETED] as [DELETED] prior to conducting discussions.

Furthermore, the record shows that the agency was still conducting discussions with offerors after receipt of the offerors' written discussions responses in May. TR at 324. ASI's written discussions responses, including its [DELETED], reasonably informed DOE that ASI intended to [DELETED]. Because DOE already believed that ASI could not [DELETED], DOE should have been aware at this time of its concern that [DELETED]. DOE did not, however, inform ASI during discussions in June concerning the offeror's model contract terms that it viewed ASI's [DELETED] as being [DELETED] or viewed its proposal to [DELETED] to be a weakness.

The agency's failure to conduct meaningful discussions and inform ASI of DOE's evaluated concerns with the realism of ASI's [DELETED] exacerbated the errors in the agency's cost realism analysis. As noted above, ASI in this protest has offered an explanation as to why [DELETED]. This is information that could have been provided to DOE if the agency had afforded ASI meaningful discussions. Instead, the basis for ASI's [DELETED] was not provided to the agency during its evaluation of proposals and was not considered.

Bias

ASI also protests that the DOE's selection of Weston's proposal for award was motivated by bias against ASI and for Weston. As evidence of this asserted bias, ASI points to the DOE headquarters investigation of the procurement, the replacement of Mr. Dials with Mr. Twining as SSO for the procurement, and the revision of the SEB's "final" report which resulted in a [DELETED] adjustment in ASI's proposed costs. ASI also asserts, in this regard, that the replacement of SSOs was invalid because Mr. Dials, while acting as the authorized SSO, had already made a binding selection decision.

Because government officials are presumed to act in good faith, we do not attribute unfair or prejudicial motives to them on the basis of inference or supposition. Ameriko Maintenance Co., B-253274; B-253274.2, Aug. 25, 1993, 93-2 CPD Para. 121. Thus, where a protester alleges bias on the part of government officials, the protester must provide credible evidence clearly demonstrating a bias against the protester or for the awardee and that the agency's bias translated into action that unfairly affected the protester's competitive position. E.J. Richardson Assocs., Inc., B-250951, Mar. 1, 1993, 93-1 CPD Para. 185.

At the hearing conducted in this protest, we obtained the testimony of DOE's program analyst, the chair of the SEB, the contracting officer, Mr. Dials, and Mr. Twining concerning, among other things, the protester's allegations of bias. Given the unusual facts presented by this procurement--such as the changing of SSOs after the signing of the initial source selection decision document and the significant revision of the SEB's cost realism evaluation of ASI's BAFO cost proposal after the intervention of DOE headquarters in this procurement--we gave the protester fairly wide latitude in its examination of the agency's witnesses. As explained below, the protest record, including the hearing testimony, does not establish that DOE's actions in the procurement were motivated by bias for Weston or against ASI.

First, regarding the change in SSOs, we find from the hearing testimony and the record that DOE's replacement of Mr. Dials with Mr. Twining was motivated by the agency's concern that there was an appearance of a personal conflict of interest involving Mr. Dials. Specifically, DOE's program analyst provided an affidavit and testified at the hearing that during his investigation of the procurement he learned that Mr. Dials might have a potential conflict of interest based upon Mr. Dials's friendship and social contacts with officials of ASI and the third competitive range offeror and based upon Mr. Dials's private business meeting with the official from the third competitive range offeror, at which meeting Mr. Dials and the other individual discussed the services that the firm had been previously providing WIPP. [32] VR at 10:14-10:15. Mr. Dials confirmed in his testimony that he in fact does have a social relationship and contacts with officials of both firms and also confirmed the business meeting with the official of the third offeror. TR at 7-10.

All of the contemporaneous evidence in the record, as well as all the hearing testimony, shows that DOE's determination that Mr. Dials should be replaced as SSO was motivated by the agency's concerns of the appearance of a personal conflict of interest. VR at 10:26. In this regard, Mr. Dials himself noted that his discussions with the program analyst focused on the question of his "alleged or perceived personal conflict of interest," TR at 34-36, and Mr. Dials believed that DOE's concern with an appearance of a personal conflict of interest was the reason for his removal as SSO. TR at 40. We are not unmindful of the fact that, as the protester points out, Mr. Dials had informed DOE's assistant manager for administration in the Albuquerque Operations Office of his social contacts with officials of ASI and the other firm before his appointment as SSO, TR at 16-18, VR at 10:14; this, however, does not preclude the agency's higher-level procurement officials from determining that it was inappropriate to have the award selection determined by someone with active social contacts with officials of competing firms. In this regard, contracting agencies are admonished to avoid any conflict of interest or appearance of a conflict of interest in government procurements. FAR Sec. 3.101-1; see Lancaster & Co., B-254418, Dec. 14, 1993, 93-2 CPD Para. 319.

We also find that the Under Secretary of Energy validly replaced Mr. Dials with Mr. Twining as the SSO during the procurement. The authority of agency officials to make source selections and awards under competitive proposal procedures flows from the procurement authority granted to the head of the agency. FAR Sec. 1.601; see Oklahoma Aerotronics, Inc.-- Recon., B-237705.2, Mar. 28, 1990, 90-1 CPD Para. 337. Here, the procurement authority of the Secretary of Energy was delegated through the agency's Procurement Executive to the head of each contracting activity. Department of Energy Acquisition Regulation Sec. 901.601. The authority to act as a source selection official, or to in turn delegate this authority, was delegated by the Secretary of Energy through the Procurement Executive to the Deputy Secretary and Under Secretary for procurements in excess of $50M. See DOE Order 4210.1C, May 18, 1992. Inherent in this authority to appoint source selection officials is the power to review source selection decisions, reverse or vacate those decisions, make new source selection decisions, and cancel and re-delegate the authority to act as a source selection official. See Oklahoma Aerotronics, Inc.--Recon., supra; Scheduled Airlines Traffic Offices, Inc., B-229883, Mar. 29, 1988, 88-1 CPD Para. 317. We find the Under Secretary for Energy acted appropriately when he redelegated the authority to act as SSO in this procurement from Mr. Dials to Mr. Twining, given the Under Secretary's specific delegation of authority to appoint source selection officials and DOE's concern regarding Mr. Dials's appearance of a personal conflict of interest. [33]

Next, we find that DOE headquarters had a reasonable basis to be concerned with the accuracy of the SEB's August final report findings regarding ASI's evaluated probable costs and regarding Weston's and ASI's potential OCI problems. At the time of the SEB's briefing to Mr. Dials, the SEB chairman was concerned that the SEB's cost realism evaluation of ASI's BAFO cost proposal was defective. In this regard, the chairman informed Mr. Dials at the briefing that he had no confidence in the SEB's evaluated probable costs for ASI and believed that [DELETED]. [34] TR at 145-46, 516-17. The chairman's concern was motivated by [deleted], TR at 145-46, and his concern that [deleted]. TR at 147-48. When DOE's procurement analyst learned of this, he informed headquarters that the SEB's probable cost determination for ASI's offer may be [DELETED]. VR at 10:20-10:22, 10:24-10:25.

Regarding the offerors' potential OCI concerns, the record shows that the procurement analyst learned in his investigation that the SEB and Mr. Dials had not agreed upon whether Weston's potential OCI could be mitigated and avoided and that Weston's technical rating was reduced due to potential OCI concerns, without these concerns having been discussed with Weston; this information was also conveyed to DOE headquarters. VR at 10:17-10:19.

Based upon these circumstances, DOE reasonably concluded, we think, that the evaluation should be revisited, and the SEB should be requested to reevaluate ASI's and Weston's proposed costs and their potential OCI problems to determine whether the board's evaluation findings were accurate and to ensure a fair competition. See PRC, Inc., 71 Comp.Gen. 530 (1992), 92-2 CPD Para. 215 (contracting agencies have broad authority in negotiated procurements to take corrective action, such as reconvening evaluation boards, where such action is necessary to ensure a fair and impartial competition).

Finally, there is no evidence in the record indicating that DOE headquarters influenced the SEB's or Mr. Twining's decisions. Throughout the hearing, all the agency's witnesses stated that their only communications with headquarters regarding this procurement involved the headquarters investigation of the propriety of the procurement after the allegations of wrongdoing and headquarters direction to reconvene the SEB to ensure that the cost and OCI evaluations were accurate. TR at 404-05, 536, 541; VR at 10:27, 10:29-10:30. Each witness unequivocally stated that there was no direction or suggestion from DOE headquarters as to what the results of the evaluation should be or which offeror should be selected. TR at 201-02, 207, 405, 541; VR at 10:31-10:32, 14:05-14:06.

In sum, we find that the replacement of the SSO, the reevaluation of cost proposals, and Weston's selection for award was not motivated by bias on the part of DOE officials. [35]

Material Misrepresentation of Key Personnel

ASI also protests that Weston misrepresented the availability of its proposed [DELETED] manager and [DELETED] manager, two of its four key personnel for this procurement, and that this materially influenced DOE's consideration of Weston's proposal. The record shows that Weston was not aware until after the submission of its BAFO that these proposed key personnel would not be available to work on the contract. Since we are sustaining ASI's protest on other grounds and recommend that DOE reopen negotiations with the offerors, which will require that offerors again confirm the availability of its proposed key personnel, we would ordinarily dismiss this issue as academic. However, ASI argues that Weston's failure to notify the agency, after submission of BAFOs, of changes in the availability of its proposed key personnel is an intentional, bad faith misrepresentation that requires the termination of Weston's contract and its exclusion from the competition.

An offeror's intentional, bad faith misrepresentation concerning personnel that materially influences an agency's consideration of its proposal generally provides a basis for proposal rejection or termination of a contract award based upon the proposal. See Informatics, Inc., 57 Comp. Gen. 217 (1978), 78-1 CPD Para. 53. Here, we find no evidence in the record demonstrating that Weston's failure to notify the government of changes in its proposed key personnel after the close of discussions was motivated by an intent to deceive the agency. Accordingly, we have no basis to conclude that Weston's conduct rises to the level of an intentional, bad faith misrepresentation that would justify the termination of its contract and Weston's exclusion from the competition.

OCI

ASI also challenged DOE's determination that the potential OCI problems presented by [DELETED] Weston subcontractors and a proposed key person could be avoided or mitigated; in this regard, ASI argues that even if the potential OCI presented by Weston's proposal could be mitigated or avoided, DOE unreasonably failed to consider whether the OCI avoidance and mitigation plan would affect Weston's technical rating. This ground of protest, which was first raised in ASI's third protest, is untimely.

ASI should have known the basis of this protest allegation when it received the agency's January 18, 1995, protest report that provided ASI with the October 28, 1994, final-revised SEB report and Mr. Twining's source selection decision. The SEB report described in detail how DOE analyzed Weston's potential OCI and whether the potential OCI could be avoided or mitigated. In addition, Mr. Twining's selection document informed ASI as to the SSO's determination that Weston's potential OCI was mitigable and avoidable, and the record otherwise informed ASI of the agency's consideration, or lack of consideration, of the effect of Weston's mitigation plan on Weston's technical evaluation rating. ASI's protest of this issue, however, was not filed until February 24, more than 10 working days after ASI's receipt of the January 18 report. Our protest regulations require that protests not based upon alleged improprieties in a solicitation be filed no later than 10 working days after the protester knew, or should have known, of the basis for protest whichever is earlier. 4 C.F.R. Sec. 21.2(a)(2). Although ASI's challenge is untimely, we note from our review of the record that it does not appear that DOE considered whether the mitigation or avoidance of either Weston's or ASI's potential OCI would affect either offeror's technical evaluation ratings. Given our determination to sustain the protest on other grounds and our recommendation to reopen negotiations, this matter can be considered by DOE in its subsequent evaluation of proposals.

CONCLUSION

In conclusion, we find that DOE's probable cost analysis of ASI's proposal was defective, such that the SSO's selection decision based upon the agency's erroneous evaluated probable costs cannot be said to be reasonable. We also find that DOE failed to conduct meaningful discussions with ASI when it failed to inform that offeror of the agency's serious evaluated concerns with ASI's proposed costs and its ability to hire qualified personnel.

We recommend that DOE reopen negotiations, conduct meaningful discussions with ASI and Weston, request revised proposals, and make a new source selection decision. [36] If ASI is determined to offer the best value to the government under the RFP criteria, DOE should terminate the award to Weston and make award to ASI. We also find that ASI is entitled to recover its reasonable costs of filing and pursuing the protest, including attorneys' fees. 4 C.F.R. Sec. 21.6(d)(1). The protester should submit its certified claim for protest costs directly to the agency within 60 days of receiving this decision. 4 C.F.R. Sec. 21.6(f)(1).

* The decision issued on July 3, 1995, contained proprietary information and was subject to a General Accounting Office protective order. This version of the decision has been redacted. Deletions in text are indicated by "[DELETED]."

1. The waste isolation pilot project is a research and development facility to demonstrate the safe disposal of radioactive waste.

2. The Westinghouse Isolation Division is the current management and operating contractor for WIPP.

3. Offerors were informed that under this subfactor, as amended:

"The offeror's proposed key personnel (for the five year effort) and non-key technical personnel (for the first year effort) will be evaluated based on their availability, experience, education, professional credentials, and demonstrated performance as it relates to the ability to accomplish the [statement of work] Technical Requirements based on the information provided in the key personnels' resumes, and the information provided in the Project Personnel Summary for key personnel as well as the non-key personnel. The offeror's proposed personnel will be evaluated against the personnel requirements of the position requirements, as set forth in [the RFP]." [Emphasis in original.]

4. This clause is required to be included in procurements for negotiated service contracts where the contract amount is expected to exceed $500,000 and the service to be provided will require meaningful numbers of professional employees. FAR Sec. 22.1103.

5.[DELETED].

6. Direct productive labor hours were defined as actual working hours exclusive of vacation, holiday, sick leave and other absences and include all contractor and subcontractor technical staff but excluding support personnel such as secretaries, receptionists, computer support or mail clerks. The solicitation stated a total of 808,704 direct productive labor hours for the 5-year contract term; this is equivalent to 432 full time equivalent (FTE) personnel. The RFP required 76 FTE personnel for the first contract year.

7. In response to offerors' questions concerning RFP provision H.07, the agency in a solicitation amendment informed offerors that:

"The intent of this provision is to control labor expenditures, on a labor category basis. Thus, if the offeror proposes "average" labor rates for any labor category, then the Contractor will have to identify each individual direct labor rate which reflects an increase in excess of the two percent negotiated rate for each labor category. This information should be specified in the applicable Task Order Task Plan and the contractor must receive the Contracting Officer's approval prior to incurring the cost in order for the cost to be allowable." [Emphasis in original.]

8. ASI is the incumbent contractor.

9. Proposals receiving 65 to 79 percent of the 1,000 available technical points were rated as "good," which DOE defined as meeting "expected capabilities" and "response represents an average quality"; those receiving 80 to 89 percent of the available points were rated "excellent," which was defined as exceeding expected capabilities and "response represents an above-average quality"; and those receiving 90 to 100 percent of the available points were rated "outstanding," which was defined as substantially exceeding expected capabilities and "response reflects a quality beyond that normally expected."

10."M" equals million.

11. The third offeror was evaluated as presenting OCI problems, for which the offeror had proposed no avoidance or mitigation plan.

12.[DELETED].

13. The third offeror was evaluated as presenting actual OCI problems due to its own, and its subcontractors', prior work on WIPP.

14. A hearing was conducted pursuant to 4 C.F.R. Sec. 21.5 (1995) for the purpose of receiving testimony from a number of agency witnesses, as well as from Weston's proposed [DELETED] manager.

15. Among other things, the anonymous communications alleged that Mr. Dials had directed the SEB to make no award recommendation, where the SEB wished to recommend Weston for award. As noted above, DOE's procedures provide that the SEB will not make an award recommendation to the SSO, and the record shows that no selection recommendation was made to Mr. Dials and that Mr. Dials did not direct the SEB, or any of its members, to not make or to remove an award recommendation. TR at 22-23.

16. A portion of the hearing was conducted in Albuquerque, New Mexico and was transcribed by a court reporter, while another portion was conducted in the General Accounting Office hearing room in Washington, D.C., and was recorded on videotape.

17. DOE did not find that Mr. Dials had an actual personal conflict of interest, and the record shows that Mr. Dials disclosed these social relationships to DOE prior to his appointment as SSO.

18.[DELETED].

19.[DELETED].

20. The SEB disagreed with Mr. Dials that another Weston subcontractor presented any OCI concern that would have to be mitigated or avoided.

21.[DELETED].

22. The procurement has been stayed pending our decision in this matter.

23. ASI also protested that the cost realism adjustments for [DELETED] were unreasonable because [DELETED].

24. One of ASI's [DELETED] proposed major subcontractors' agreements did not contain the "Advance Agreement--Personnel Costs" clause. DOE made no upward cost adjustment in this subcontractor's proposed costs.

25. In the Price Discussions Memorandum, the contracting officer specifically noted and accepted the "2% ceiling on personnel cost[s]" included in ASI's largest subcontractors' BAFO. As indicated above, all of ASI's subcontractors' BAFOs, for which DOE made [DELETED] cost adjustments, included the identical advanced agreement language.

26. The SEB in its October final-revised report substantially adjusted ASI's probable costs [DELETED].

27. Some members of the SEB were of the view that [DELETED]. TR at 583- 85. As described below, DOE failed to inform ASI during discussions that [DELETED]; ASI was thus deprived of any opportunity to explain [DELETED]. Also, the record is clear that the SEB and SSO did not consider the effect of [DELETED]; there was also hearing testimony indicating that [DELETED]. TR at 584.

28.[DELETED].

29.[DELETED].

30.[DELETED].

31. The SEB chair in his testimony admitted that none of the agency's written discussions question indicated to ASI that [DELETED]. TR at 241.

32. This business meeting occurred while Mr. Dials was an ex-officio member of the SEB and before his appointment as SSO. As indicated above, Mr. Dials is the manager of the Carlsbad Area Office and has program responsibility for WIPP.

33. While it is true that the SEB Handbook states, as ASI asserts, that the SSO will make the selection decision, the Handbook does not purport to restrict the authority of the agency's procurement officials to review procurement decisions and reappoint source section officials. Indeed, the Handbook specifically recognizes the procurement authority of agency headquarter's officials and that the authority of source selection official is delegated though these higher-level procurement officials.

34. While Mr. Dials testified that he did not recall the SEB chairman expressing concern with ASI's evaluated probable costs, TR at 51, 54, the SEB chairman and contracting officer testified that the SEB chairman did in fact raise this concern. TR at 145-46, 516-17; see also VR at 11:10- 11:11 (others confirmed the SEB chairman's statement to the DOE procurement analyst).

35. The protester also complained that a number of "unauthorized" DOE officials had access to source selection sensitive procurement information. This allegation is without merit. The officials named by ASI, such as DOE's program analyst from the Office of Clearance and Support, are authorized to receive procurement information as necessary to review procurements. See, e.g., Oklahoma Aerotronics, Inc.--Recon., supra. In recognition of this fact, DOE's SEB Handbook designates such officials as "standing members" of every agency SEB and thus entitled to receive and review such information. The protester also complains that the anonymous complaint regarding the proposed award to ASI also indicates that there was an unauthorized disclosure of procurement information; this was not specifically investigated by DOE, see VR at 10:47-10:48, and there is no information in the record indicating the source of the anonymous complaint.

36. We are not recommending that DOE reopen negotiations with the third competitive range offeror because the agency determined that offeror had an OCI that could not be mitigated or avoided and that made the offeror ineligible for award.