THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN REDACTED FORM ON FEBRUARY 8, 1995 ____________________________________________________ DISMISSED IN PART/DENIED IN PART: January 23, 1995 ____________________________________________________ GSBCA 13028-P, 13068-P COMMUNICATION NETWORK SYSTEMS, INC., Protester, and SYSTEM TECHNOLOGY ASSOCIATES, INC., Intervenor, v. DEPARTMENT OF COMMERCE, Respondent, and GONZALES CONSULTING SERVICES, INC., Intervenor. Alan M. Grayson and Hugh J. Hurwitz of Law Offices of Alan M. Grayson, McLean, VA, counsel for Protester. Frank D. Pulis, Colorado Springs, CO, counsel for Intervenor System Technology Associates, Inc. Jerry A. Walz, F. Jefferson Hughes, and Lisa Obayashi, Office of General Counsel, Department of Commerce, Washington, DC, counsel for Respondent. Pamela J. Mazza, Andrew P. Hallowell, and Antonio R. Franco of Piliero, Mazza & Pargament, Washington, DC, counsel for Intervenor Gonzales Consulting Services, Inc. Before Board Judges DEVINE, BORWICK, and WILLIAMS. WILLIAMS, Board Judge. This is the second round of protests challenging the award by the Department of Commerce (DOC) of three contracts for automatic data processing equipment and services. On February 24, 1994, we granted the first protest filed by Communication Network Systems, Inc. (CNS) against three awards to System Technology Associates, Inc. (STA) finding that the agency failed to evaluate an appendix to CNS' proposal and that the agency improperly disclosed the Government estimate of labor hours under the first solicitation to a single offeror -- the awardee. To remedy these violations, the Board amended the agency's delegation of procurement authority (DPA) by directing the agency to terminate the award to STA, empanel a new source evaluation board (SEB) replacing two members, disclose the same information to all offerors, call for another round of best and final offers (BAFOs), and proceed in accordance with statute and regulation. Communication Network Systems, Inc. v. Department of Commerce, GSBCA 12705-P(12628-P), 94-2 BCA 26,843, 1994 BPD 63. After amending the requests for proposals (RFPs) and soliciting another round of BAFOs, the new SEB reevaluated BAFOs, and the source selection official (SSO) made an award to STA under solicitation number 52RANR400001 (RFP 1), and other awards to Gonzales Consulting Services, Inc. (GCS) under solicitation numbers 52RANR400002 and 52RANR400003 (RFPs 2 and 3).[foot #] 1 In GSBCA 13028-P, CNS challenges the award under RFP 1 to STA,[foot #] 2 and in GSBCA 13068-P, CNS and STA challenge the awards to GCS under RFPs 2 and 3. These protests were consolidated, and all parties elected to present their cases on the record without a hearing. CNS challenges all three awards on identical grounds, claiming that the agency improperly evaluated its proposal and failed to conduct meaningful discussions with it. Specifically, CNS contends that DOC improperly downgraded CNS' proposal because CNS' 1991 financial statement contained an accountant's disclaimer when its 1992 financial statement did not. Second, CNS contends that the agency erred by questioning CNS' rate because it included training costs and a bonus. Finally, CNS alleges that DOC failed to conduct adequate discussions concerning CNS' allegedly cumbersome the financial disclaimer, and the rates. CNS' Record Submission/Memorandum of Law at 10-20. As explained below, we deny CNS' protests, concluding that CNS has failed to demonstrate ----------- FOOTNOTE BEGINS --------- [foot #] 1 There is a fourth RFP which is not at issue here. [foot #] 2 Although GCS intervened in GSBCA 13028-P, it did not support either CNS or respondent. ----------- FOOTNOTE ENDS ----------- a violation of statute or regulation which caused it any prejudice in these procurements. In its protest against the awards under RFPs 2 and 3, STA contends that the procurement has taken an unconscionable period of time from initial solicitation in May 1993, until award in November 1994. Because STA has not claimed a violation of statute or regulation stemming from this alleged delay, we dismiss this ground for failure to state a valid basis of protest. In addition, STA contends that the re-evaluation decisions were not made in accordance with the solicitation or statute in that STA's technical and management ratings were improperly considered "equivalent" to those of the awardee, GCS, and that the cost realism analysis was seriously flawed. STA argues that the agency set STA's labor hours at 1,900 per man- year regardless of the fact that its employees would work fewer hours, and artificially priced all hours using the Government- developed salary rates rather than the current actual rates, thus inflating STA's costs. As explained below, we find no violation of law or regulation in the agency's technical evaluation and cost realism analysis which prejudiced any offeror and deny these grounds of protest. Findings of Fact The Solicitations On May 28, 1993, DOC issued three solicitations under the Small Business Administration's 8(a) program for computer operations, maintenance, administration, and research services for the Forecast Systems Laboratory of the National Oceanic and Atmospheric Administration (NOAA). Protest File, Exhibit 34. Specifically, RFP 1 sought software, systems analysis, and operations/maintenance support for the Wind Profiler Demonstration Network and Special Projects of the Demonstration Division, Forecast Systems Laboratory. Id. RFP 2 solicited computer operations, administration, and systems design support services for the Forecast Systems Laboratory. Id. Finally, RFP 3 sought hardware, software, and systems analysis support for the Forecast Systems Laboratory. Id. The three RFPs sought follow-on contracts; CNS has been the incumbent contractor performing the services solicited under RFP 2 since October 1, 1991. Id., Exhibit 22 at 4. The anticipated contracts were to be cost-plus-fixed-fee, level-of-effort contracts. Id., Exhibit 34 at 61.[foot #] 3 Each RFP provided for a one-year base period plus a one-year option period. Id. at 8. ----------- FOOTNOTE BEGINS --------- [foot #] 3 All three RFPs are in Exhibit 34. In parts pertinent to these protests, the three RFPs contained identical language, except for the statements of work. References to identical language are to RFP 3, which is the first RFP in Exhibit 34. ----------- FOOTNOTE ENDS ----------- Paragraph H.8(a) addressed contractor training as follows: H.8 PERSONNEL QUALIFICATIONS (a) The Contractor shall use for the entire period of the contract only fully trained, experienced, and technically proficient personnel. Training and professional efficiency maintenance shall be performed by the Contractor at its own expense except when the Government has given prior approval for training to meet special (unique) requirements that are peculiar to a particular work assignment. The Government shall pay salaries and other direct charges plus allocable overhead and G & A associated with authorized training. Protest File, Exhibit 34 at 18. Paragraph L.8(b)(8) specified the financial information to be included in proposals in pertinent part: (8) The technical and management proposal must: (i) Contain audited financial statements, profit/loss statement and statement of retained earnings covering each of the offeror's last three annual accounting periods. (ii) Specify the financial capacity, working capital and other resources available to perform the contract without assistance from any outside source. (iii) Specify the financial capacity, working capital and other resources available to perform the contract with assistance from outside sources (provide evidence of these financial resources). Protest File, Exhibit 34 at 62-64. Paragraph L.8(c) set forth requirements for cost proposals as follows: (c) Cost Proposal Instructions (2) Specific Requirements The offeror must also submit the following detailed information to support the proposed budget: (i) Breakdown of direct labor cost by named person or labor category including number of labor- hours and current actual or average hourly rates. Indicate whether current rates or escalated rates are used. If escalation is included, state the degree (percent) and methodology. Direct labor or levels of effort are to be identified as labor-hours and not as a percentage of an individual's time. Indicate fringe benefit rate, if separate from indirect cost rate. (ii) The amount proposed for travel, subsistence and local transportation. (iii) Cost breakdown of material, equipment, administrative/clerical, on-call pager support and other direct costs including duplication/reproduction, meetings and conferences, postage, communication and any other applicable items. . . . Protest File, Exhibit 34 at 64-67. Paragraph M.2, Evaluation of Proposals and Award of Contract, advised vendors of the evaluation factors and subfactors and explained: The evaluation factors are listed below in descending order of importance with factor (b)(1) being more important than factor (b)(2) and factor (b)(3) of less [importance than] factor (b)(1) and (2). Subfactors are also listed in descending order of importance. The breakdown of the details which will be considered in the evaluation of each criterion is not exhaustive; rather it is meant to convey the breadth of the examination and the intended approach which will be used to rate the proposals. (b) Evaluation Criteria for Technical and Management Proposal (1) Management and Financial Approach (i) Organizational Policies (Salaries, Recruitment, Benefit Packages, Travel, Subcontracts, Consultants) (ii) Sub-contracting plans (iii) Financial approach of government contracts (iv) Management approach and responsiveness to terms, conditions, and time of performance (v) Adequacy of facilities (vi) Quality and control plan for contracts/subcontracts (2) Organization, Personnel, and Facilities (i) Geographic location of management support (ii) Evidence of good organizational and management practices (iii) Record of past experience (iv) Qualifications of personnel (v) Experience in similar or related fields (3) General Quality and Responsiveness of Proposal (i) Understanding of requirement (ii) Completeness and thoroughness Protest File, Exhibit 34 at 70-71. The RFPs did not disclose either the specific weights assigned or the maximum points available for the factors and subfactors. Id., Exhibit 34. The RFPs, in paragraph M.2(c), provided as follows with regard to evaluation of cost proposals: Cost proposals will be evaluated by a representative of the Contracting Officer to determine that they are fair, reasonable and adequately reflect costs associated with the work described in the offeror's proposal. Cost proposals will be referred to the Board upon completion of their technical and management evaluation for their review and evaluation. Protest File, Exhibit 34 at 71. Section M.2(e) of each RFP stated that award was to be made on the basis of "best overall value," with greater emphasis placed on technical and management approach than on cost. Protest File, Exhibit 34 at 72. That paragraph further specified: However, the Government will not make an award at a significantly higher overall cost to the Government to achieve slightly superior technical or management features. Id. The statement of work for RFP 1 advised offerors that in order for contractor personnel to stay technically current, the agency anticipated that three types of training would be required: vendor's short technical courses, training conferences, and on-site training aids/supplies. Protest File, Exhibit 34, RFP 1, Attachment 1 at 12. The statement of work continued: The need for specialized job-related training will be reviewed and approved by the CO on a case by case basis. All approved training is explicitly at Government expense and the contractor shall provide for the approved training and associated travel for its personnel. Id. The statement of work for RFP 1 further provided that the cost for short technical courses including travel and per diem should be $6,000 per year, for training conferences, $3,000 per year, and for on-site training aids and supplies, $5,000 per year, thus totaling $14,000 per year. Id. at 13. Finally, the statement of work reiterated that: "[t]raining not directly related to contractual activities or disapproved by the CO shall be conducted . . . at contractor's expense." Id. The statement of work for RFPs 2 and 3 also addressed contractor travel and training in pertinent part as follows: The contractor shall make provision for reasonable and necessary travel and training for its personnel assigned to perform the services required. For informational purposes, the total per year combined cost for travel and training is estimated to be $10,000. Protest File, Exhibit 34, RFP 2, Attachment 1 at 16; RFP 3, Attachment 1 at 16. Initial Proposals CNS proposed to use an to the maximum extent possible. Protest File, Exhibit 41(b). In its proposal CNS included a letter dated March 30, 1993, from its accountant, which stated in pertinent part: We have reviewed the accompanying balance sheet of CNS, Inc. as of December 31, 1992, and the related statements of income, changes in stockholder's equity, cash flows and supplementary schedules for the year then ended . . . . Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements and supplementary schedules in order for them to be in conformity with generally accepted accounting principles. Protest File, Exhibit 41(b). CNS also submitted a March 13, 1992, cover letter from its accountant, accompanying its 1991 financial statements, which stated in pertinent part: We have not audited or reviewed the accompanying financial statements and accordingly do not express an opinion or any other form of assurance on them. . . . . Management has elected to omit substantially all disclosures and a statement of cash flows. If the omitted disclosures and a statement of cash flows were included in the financial statements, they might influence the user's conclusions about the Company's financial condition. Accordingly, these financial statements are not designed for those who are not informed about such matters. Id. CNS proposed per year in direct costs for training and expenditures for training for its employees under RFP 1. Protest File, Exhibit 41(b) at 37, 41. For RFP 2 CNS proposed per year in direct costs for training and expenses for training. Protest File, Exhibit 41(b) at 37, 41 of Cost Proposal No. 2. Under RFP 3 CNS proposed per year in direct costs for training and expenditures for training. Protest File, Exhibit 41(b) at 37, 41 of Cost Proposal No. 3. Both GCS and STA also proposed to make extensive use of incumbent employees. Protest File, Exhibit 41. STA's labor estimates were developed using actual salary labor rates of individuals employed by an incumbent contractor where available, and used the statement of work for vacant positions. STA utilized "site-specific overhead rates." The site-specific overhead rates assumed that all four solicitations would be performed by STA. STA noted that if it were awarded contracts for less than the four solicitations, its site-specific overhead indirect rate could change. Protest File, Exhibit 50 at 4-6. Written Discussion Questions On August 23, 1993, DOC issued written discussion questions to all offerors with acceptable proposals, invited responses, and solicited BAFOs. Protest File, Exhibit 48. CNS received seventeen general questions covering all of its proposals, as well as several additional questions specific to each solicitation. Id. Among the general questions was question 12: 12. Protest File, Exhibit 48. DOC asked STA two questions specifically directed at the realism of its costs. In question 3 under RFP 2, DOC stated that many proposed labor rates were significantly lower than those in the statement of work and asked whether STA intended to fill these positions at the proposed labor rates. Protest File, Exhibit 48. In question 2 under RFP 3, DOC reiterated this question. Id. CNS' Initial BAFO In response to question 12, CNS stated: 12. Question: Answer: Protest File, Exhibit 51. STA's Initial BAFO In its initial BAFO in response to question 3, STA stated: 3. Question: Because FSL requires quality staff in these positions, it is worrisome that many proposed labor rates are significantly lower than those in the Statement of Work, particularly those of the Systems Analysts, Systems Managers, and Computer Programmers; is it the intent of STA to fill these positions at the proposed labor rates? Response: The STA direct labor rates used for those labor category positions under the contract, that have an identified individual assigned to that labor category position, are based upon an estimated actual or estimated actual-plus- escalation labor rate for that individual. These labor rates are based upon direct labor rates from June 1993, and are then escalated to October 1, 1993. For those direct labor rates for labor categories where there is no designated individual assigned to them, STA has used the Government's Estimated Labor Rate. Protest File, Exhibit 51. In its BAFO under RFP 3, STA responded to question 2 in pertinent part: 2. Question: . . . Also, because NOAA requires quality staff in these positions, it is worrisome that many proposed labor rates are significantly lower than those in the Statement of Work; is it the intent of STA to fill these positions with the proposed staff at the proposed labor rates? What staff will be working on which task? Response: . . . Pursuant to the concern about labor rates, STA offers that STA has incorporated the Government's Labor Estimates for the direct labor categories where no specific individual currently has been designated for that position. Where STA knows of the individual who currently has a position under the contract, STA has used that individual's actual direct labor rate from June 1993, and has escalated that direct labor rate to October 1, 1993. Although some of these actual-plus-escalation direct labor rates used by STA may be below the Government Labor Estimates in the Solicitation, STA believes its actual-plus- escalation direct labor rates to be accurate based upon the information obtained by STA. Protest File, Exhibit 51. The Initial Awards and Protests On September 23, 1993, CNS was notified that DOC would award all of the contracts under the RFPs to STA. Protest File, Exhibit 55. On October 7, 1993, CNS filed a protest, GSBCA 12628-P. The protest was dismissed without prejudice, subject to reinstatement, because of witness unavailability. The protest was reinstated as GSBCA 12705-P(12628-P). On February 24, 1994, this Board granted CNS' protest. Communication Network Systems, Inc. v. Department of Commerce, GSBCA 12705-P(12628-P), 94-2 BCA 26,843, 1994 BPD 63. The Board ruled that DOC failed to evaluate Appendix E of CNS' proposal properly, and that DOC improperly disclosed the Government's labor estimate to only one offeror. Id. The Board ordered DOC to terminate the award to STA, to empanel a new SEB, and to evaluate new BAFOs. Id. The Re-evaluation Process On February 28, 1994, DOC established a new SEB, and on March 9, 1994, a revised source evaluation and selection plan was issued for the three RFPs. Protest File, Exhibits 57, 59. On April 1, 1994, DOC issued amendments to the RFPs. Id., Exhibit 67. Amendment 4 to RFP 1 advised offerors that the Government's estimate of labor hours was 30,120 hours per year and advised offerors that this was derived by utilizing 1,900 productive hours per year for each position. Id. at 3. The amendments to all three RFPs incorporated revised Department of Labor wage determination, invited revised BAFOs due solely to the information included in the amendments, and specified the following regarding indirect cost rates: If any changes to the indirect cost rates have occurred since your last BAFO, this information shall also be provided. Indirect cost rates shall be based solely on award of this contract and not on any contingencies based on any combination of awards for Solicitations No. 52RANR400002 and 52RANR400003. Protest File, Exhibit 67. No discussions were conducted with the offerors. On or about April 15, 1994, offerors submitted their revised BAFOs. Id., Exhibit 68. Protest File, Exhibit 68. GCS submitted revised pages to its cost proposals because of changes in its direct labor hours and in its indirect rates. Id., Exhibit 67. STA proposed no change in its proposed estimated cost or fixed fee from its previously submitted BAFO. In its proposal, STA stated: "All time phased cost and pricing data which is identified in the STA proposal as commencing in October 1993, is now shifted by nine months to July 1, 1994." Id., Exhibit 68. In their revised BAFOs, CNS and GCS submitted additional information not solicited in the amendments to the RFPs. The SEB's Re-evaluation of RFP 1 The newly empaneled SEB scored revised BAFOs as follows for RFP 1: COMPANY REVIEWERS AND SCORES A B C AVG %OF500 Communication Network Systems Gonzales Consulting Services Productive Data Systems System Technology Assoc. Protest File, Exhibit 75 at 2. All proposals were acceptable. Id. at 3. The SEB explained: It is the consensus of the SEB members that STA be ranked technically the highest. There was no consensus for second technical position. In fact, the remaining three companies each received a second placement from [an] SEB member. Id. at 2. The SEB identified the following strengths and weaknesses for CNS: STRENGTHS CNS has: * Good financial position and appears to be able to handle large increases in work. * Addresses all aspects of technical SOW. * Experience doing similar work. * Good employee benefits and incentive plan. * Addressed "cafeteria" plan and employee benefits for part-time staff. * Appendix E provides comprehensive description of policies. WEAKNESSES CNS has: * * * Caused their auditor to render the opinion of their financial statements of "no opinion expressed" and "management has elected to omit substantially all disclosures and a statement of cash flows." * Calculations of contain costs which are of little or no benefit to the Government. * * * Protest File, Exhibit 75 at 5. CNS was rated satisfactory or higher for all subfactors. Protest File, Exhibits 109, 110, 111. One member of the SEB explained the Government's evaluation of overhead rates which included nonbeneficial items as follows: The Government provided for the offerors' training costs because of the anticipated FSL shift to an open systems environment. The funds were anticipated to be adequate, or more would be authorized for direct charges. While for professional efficiency maintenance training, including briefings, seminars, hands-on application skills and computer- based training, . . . I did not see much value coming to the Government by adding this to the especially where a substantial amount of training was provided for by the Government. I don't believe that their proposals were graded down by me for this because of the relatively small amount of money involved, but if they were, it was only points in my score. The bonus/incentive plan was discussed but was not considered significant by me. Because my scores were averaged into other evaluators['], this would only have lowered their scores by a third of that number. Declaration of Evaluator A[foot #] 4 (Evaluator A Declaration) (Dec. 8, 1994) 3. The same SEB member testified as follows regarding her overall impression of CNS: CNS' did not affect my score, nor did the letters from its auditors. I was and still am concerned by the however. If these three weaknesses are no longer a factor, STA and GCS would continue to rank above CNS. Evaluator A Declaration 4. The three weaknesses to which she referred were the training costs and the bonus included in as well as the and letters from auditors. Id. 3, 4. ----------- FOOTNOTE BEGINS --------- [foot #] 4 The declarations filed with the Board are signed and state the names of the evaluators. We refer to the evaluators as A, B, and C. ----------- FOOTNOTE ENDS ----------- Another evaluator, who served as chairman of the SEB, also testified that those items did not affect the source selection decision in any way. Declaration of Evaluator B (Evaluator B Declaration) (Dec. 12, 1994) 8. Rather, the chairman of the SEB testified that three weaknesses that CNS challenged in this protest out of the seven identified were minor weaknesses. Id. 3. Further, he stated that discussions could not have improved the financial history, the and Id. 7. With regard to the the SEB chairman did not think it his place to tell CNS how to organize its company. Id. The SSO's Decision on RFP 1 The SSO testified that she, too, considered CNS' deficiencies such as the and the to be more significant than or the accountant's disclaimer. Declaration of SSO (SSO Declaration) (Dec. 8, 1994) 76. She stated that CNS' did not concern her "as these 8(a) companies are small enough for the COTR [contracting officer's technical representative] to interact directly with the company president, which my contract specialist has done on numerous occasions." Id. The SSO did not deem attributable to training and bonuses to be significant either because these concerns amounted to about per year per contract for contracts expected to cost between $1,000,000 and $2,000,000 a year each. Id. Nor did the SSO deem the disclaimer in the accountant's letter significant because it was coupled with a CNS "strength" for good financial position. Id. In sum, she did not base her source selection decision on any of these factors. The SSO further explained: [E]ven if CNS's score was slightly higher, I would still concur with the SEB's determination that STA offered the greatest technical and management advantages for RFP # 1, . . . . Furthermore, the SEB reports demonstrate that CNS was consistently offeror by around more than the next lower offeror, for each contract, regardless of whether or not . . . cost realism had been applied. There were no technical features of the CNS proposals that would have outweighed this cost disadvantage, even if they were considered technically equal to STA and GCS. Costs were audited and evaluated for cost realism. As stated in the RFP, NOAA was more concerned with technical and management features than with low cost. The SEB concluded, and I as Contracting Officer/Source Selection Official concurred, that in the specific circumstances of RFP # 1, the technical and management features of STA's proposal outweighed the minimal cost advantage of GCS. SSO Declaration 77, 78. Re-evaluations Under RFPs 2 and 3 Technical - RFP 2 The new SEB scored revised BAFOs as follows for RFP 2: COMPANY REVIEWERS AND SCORES ------------------------------------------------------------ -- A B C AVG %of500 ------------------------------------------------------------ -- Communication Network Systems Gonzales Consulting Services Productive Data Systems System Technology Associates Protest File, Exhibit 90 at 2. The total spread of the technical scores was 32 points, which represents 6% of the maximum 500 points. It was the consensus of the SEB members that although STA had the highest average score, GCS was technically equal to it. Protest File, Exhibit 90 at 2. The SEB noted: CNS and GCS were also evaluated with the additional information they provided in the second round of Best and Final Offers. Attachment #2 shows the scores considering the additional information provided from CNS and GCS. The additional information does not change the technical ranking of the companies, nor would it change the best value recommendation. Id. The scores for STA's technical and management proposals dropped in the re-evaluation. STA had been scored highest in the prior evaluation of BAFOs under solicitations 2 and 3. Protest File, Exhibit 53 at 2. STA's individual scores were with its average being for solicitation 2. STA received these identical scores for solicitation 3. Id. The two evaluators who gave STA the highest ratings were no longer part of the SEB during the re-evaluation. Id., Exhibits 90, 91. The new evaluator gave STA a score of and GCS a score of Id., Exhibit 90 at 2. The SEB listed the following strengths and weaknesses for GCS' proposal under RFP 2: Protest File, Exhibit 90 at 5. The SEB listed the following strengths and weaknesses for STA's proposal under RFP 2: Protest File, Exhibit 90 at 7. Technical - RFP 3 The scores for proposals under RFP 3 were: COMPANY REVIEWERS AND SCORES ------------------------------------------------------------ -- A B C AVG %of500 ------------------------------------------------------------ -- Communication Network Systems Gonzales Consulting Services Productive Data Systems System Technology Assoc. It is the consensus of the SEB members that although STA has the highest average score, STA and GCS are considered by the Board as being technically equal. Protest File, Exhibit 91 at 2. The total spread among the technical scores was 32 points, which represents 6% of the maximum 500 points. Id. The SEB identified the following strengths and weaknesses for GCS' proposal under solicitation 3: Protest File, Exhibit 91 at 5. The SEB listed the following strengths and weaknesses for STA's proposal under RFP 3: Protest File, Exhibit 91 at 7. Costs - RFP 2 The evaluated costs under RFP 2 were: Government Estimate Proposed Cost 1. GCS 2. STA 3. PDS 4. CNS Protest File, Exhibit 90 at 8. Costs - RFP 3 The evaluated costs under RFP 3 were: Government Estimate Proposed Cost 1. STA 2. GCS 3. PDS 4. CNS *Indirect rates used assume award of all contracts (i.e., "composite" rate). Protest File, Exhibit 91 at 8. The SEB explained: Two rates actually exist for STA. The first represents the rate provided by STA in their BAFO. This was based on using a "composite" labor overhead rate; i.e. a rate that STA would use if all 4 solicitations . . . were awarded to STA. The second rate is the Government's estimate of STA's costs using the "individual" O/H rate for [RFPs 2 and 3] rather than the "composite" O/H rate. Analysis of the above costs demonstrates that GCS and STA bid below the Government estimate. The closeness of the technical scores together with their approximately equal costs and STA's bid costs using a "composite" labor O/H rate prompted further analysis of the realism of GCS' and STA's costs. In its proposal, STA used salary rates that it considered realistic. The SEB believes that these rates are too low. The SEB chose to use the SOW rates which it considered the most realistic available. Whenever the SOW rates were used in the SEB's analysis, the GCS costs were lowest. The SEB chose a cost realism approach that used SOW rates, a standard 1900 hours per year, indirect cost rates proposed by each offeror (individual rate not the composite rate for STA) and fixed fee proposed by each offeror. Protest File, Exhibit 91 at 89. The agency's 1,900-hour man-year was derived by subtracting 80 hours for federal holidays and vacation, and personal and sick leave, from the 2,080-work hours available for an entire year. Evaluator A Declaration 7. The SEB chairman explained the decision to utilize the statement of work rates and the 1,900- hour man-year: [A]ll [offerors] indicated that they would attempt to employ incumbents. Because the labor pool would thus be the same for all, we did not think it made sense to assume that the direct labor would differ from company to company. We also concluded that each of the SOW rates [was] the most realistic rate available. . . . One [reason] was that two of the four companies seemed to have used these rates exclusively to structure their proposals. In response to a discussion question . . . as to whether STA would be able to obtain the quality personnel needed at what appeared to be unrealistically low rates . . . STA adopted the SOW rates for all positions which were unfilled, without any claim that these were excessive. Also, based on our experience with previous changes from one contractor to another, we believed that there would be significant turnover in incumbent personnel. . . . This and anticipated further turnover render past rates less meaningful. Also, we believe that the labor market in this area is quite competitive for the computer expertise we need in our shift to open systems over the next few years. . . . Besides the higher cost for the specialized skills which we will need during . . . this contract, the economy in Boulder has fully recovered . . . with the . . . effect of a higher demand for workers with these skills. Evaluator B Declaration 12. The SEB did not consider STA's actual rates to be realistic. Evaluator A Declaration 6. Although STA used the statement of work rates for every open position and claimed to have actual figures for incumbent employees, STA did not alter its proposed rates in its revised BAFO (submitted some seven months after its initial BAFO), but instead rolled its rates proposed for fiscal year 1994 forward by nine months. The SEB concluded that STA's rates were out of date. Evaluator A Declaration 6; Evaluator B Declaration 13. The SEB failed to include the fixed fee for GCS' subcontractor in the final spreadsheets, but when this was corrected, GCS' cost was still lowest. Evaluator A Declaration 10, Charts E-2, F-2; Evaluator B Declaration 13. The Central Administrative Support Center's Cost Analyst performed an independent cost realism analysis on information provided by the SEB for RFP 3 and came to the same conclusion as the SEB. Protest File, Exhibit 91 at 9. The SSO's Decision Under RFPs 2 and 3 The SSO concluded that selection of GCS represented the best overall value to the Government under RFPs 2 and 3. Protest File, Exhibits 93, 94. The SSO testified: The SEB concluded, and I as Contracting Officer/Source Selection Official concurred, that in the specific circumstances of RFPs 2 and 3, the technical and management features of STA's proposals and GCS's proposals were equal, with no significant difference, and that, of all the offerors, GCS was the least expensive offeror after cost realism as to both # 2 and # 3, making GCS the best value for both. In all three, I concluded that CNS was below STA and GCS technically. SSO Declaration 78. The SSO explained her cost realism analysis: [T]he cost realism analysis . . . concluded that GCS offered the lowest costs when we applied a common direct labor rate to all four offerors, using the SOW rates as most realistic, and then applied their individual overhead and G & A rates and fixed fee. All four offerors indicated that they were going to use the incumbent employees, thus there was no logical reason to anticipate that the direct labor rates would differ for the same employees from contractor to contractor. In addition, the Statement of Work rates seemed most realistic to the SEB and contracts personnel for hiring the personnel needed to perform these contracts. Further, our observations of the local labor market indicate that it mirrors the national market in becoming more difficult to hire personnel with critical computer skills. The SEB reasonably used these rates to determine the realistic cost of performance of each offeror. Indeed, two offerors apparently used the SOW rates for every position and even STA used the SOW rates for vacant positions. . . . [W]e always considered the STA numbers unrealistic, and led them into this area in discussions . . . . SSO Declaration 82. Discussion CNS' Protests Did DOC Fail to Evaluate CNS' Proposal Properly? CNS contends that DOC improperly evaluated its proposal in two respects: by downgrading it because of an accountant's disclaimer in its financial statement and by questioning elements which the agency claimed did not confer any benefit on the Government. DOC properly downgraded CNS because its accountant's cover letter accompanying its 1991 financial statement contained a disclaimer. The accountant said that CNS' management had elected to omit all disclosures and a cash flow statement -- matters which, according to the accountant, "might influence the user's conclusions about the company's financial condition." Protest File, Exhibit 41(b). The solicitation requirements regarding offerors' financial information were clear. Clause L.8(a) mandated that the technical and management proposal "contain audited financial statements covering each of the offeror's last three annual accounting periods." CNS did not comply. Not only were the 1991 financial statements unaudited, they were incomplete. Thus, the agency properly downgraded CNS for failing to meet this requirement. Moreover, CNS has not demonstrated prejudice by virtue of this "downgrading" because it received a satisfactory ranking for this subfactor, and the agency determined that CNS was in a good financial position despite this concern. CNS' allegation regarding the training and bonus costs included in its is equally unmeritorious. CNS contends that the agency impermissibly concluded that these costs did not benefit the Government. Again, CNS did not comply with the RFPs. Clause H.8(a) of the solicitations required that training be performed by the contractor at its own expense unless the Government gave prior approval for training to meet unique requirements peculiar to a work assignment under the contract. The RFPs' statements of work designated the specific amounts of training costs the Government deemed appropriate. CNS not only included those training costs, but also added other training costs The agency properly questioned this in a cost reimbursement contract, where the solicitation required allowable training costs to be separately designated. Importantly, however, the agency's concern about CNS' training costs did not translate into any prejudice to CNS whatsoever -- it did not affect the evaluation or selection. The same is true of CNS' complaint that the agency downgraded it because its incentive bonus which was included was not beneficial to the Government. CNS has failed to demonstrate that the agency's concern with this weakness impacted its score or ranking. In contrast, the agency has established that all of these weaknesses -- the financial disclaimer and the inclusion of the training and bonus costs in -- were minor in the overall context of this procurement.[foot #] 5 As two members of the SEB testified, even if CNS' scores had not been downgraded for these weaknesses, adding points back into CNS' score would not have resulted in CNS being deemed the most advantageous proposal. Evaluator A Declaration 3; Evaluator B Declaration 3, 5, 6. Instead, CNS' were reasons why CNS' proposal was not deemed most advantageous to the Government. Thus, because CNS has not demonstrated that it was prejudiced by any of the actions of which it complains, it is not entitled to relief. E.g., Fortran Corp. v. Department of Transportation, GSBCA 12952-P, (Oct. 24, 1994) 1994 BPD 245, at 7; see also, Laptop Falls Church, Inc. v. Department of Justice, GSBCA 12953-P, et al., (Nov. 1, 1994) 1994 BPD 261, at 19. We note that even had CNS received a higher point score based upon these factors, the agency is not bound to make an award solely based upon scoring, or upon the rankings of the SEB. Rather, in a best value procurement, selection officials possess the discretion to look beneath the scores and assess on a larger scale and on a comparative basis the relative strengths and weaknesses of the proposals. See Arthur Andersen Co., GSBCA 8870-P, 87-2 BCA 19,922, at 100,815, 1987 BPD 94, at 18, (SEB evaluation may be rejected by SSAC because "discretion ----------- FOOTNOTE BEGINS --------- [foot #] 5 We recognize that in the letter advising CNS of award the agency offered to discuss information regarding "significant" weaknesses in its proposals at a debriefing. Our de novo review of this record convinces us that to the extent this characterization was intended to apply to these three weaknesses, it was inappropriate. ----------- FOOTNOTE ENDS ----------- must be exercised by each level in the evaluation and selection process."); Barron Builders and Management Co., B-225803, 87-1 CPD 645, at 5 (June 30, 1987) (source selection officials not bound by technical scores). Did DOC Conduct Meaningful Discussions with CNS? CNS complains that DOC failed to conduct discussions with it concerning its allegedly the disclaimer in its financial statement, and the matter of whether its costs benefitted the Government. Federal Acquisition Regulation (FAR) 15.610 provides guidance to contracting officers in conducting written or oral discussions. FAR 15.610(b) provides that the content and extent of the discussions is a matter of the contracting officer's judgment based upon the particular facts of each acquisition. Further, FAR 15.610(c) states that the contracting officer shall "advise the offeror of deficiencies in its proposal so that the offeror is given an opportunity to satisfy the Government requirements and . . . attempt to resolve any uncertainties concerning the technical proposal and other terms and conditions of the proposal." Contracting officers are directed not to help an offeror bring its proposal up to the level of other proposals by pointing out weaknesses resulting from the offeror's lack of diligence, competence, or inventiveness in preparing the proposal. Further, it is well established that agencies are not obligated to conduct all-encompassing discussions or to discuss every element of a technically acceptable proposal that has received less than the maximum possible score. E.g., System Automation Corp., GSBCA 8204-P, 86-1 BCA 18,654, at 93,819, 1985 BPD 158, at 23; JTC Environmental Consultants, Inc., B-229882, B-229882.2, May 2, 1988, 88-1 CPD 420. Applying these principles, we conclude that the agency was not required to discuss any of these weaknesses. CNS' proposal was acceptable, and none of these areas was sufficiently significant to warrant discussions. Furthermore, despite the accountant's disclaimer, CNS' financial condition was evaluated as good. The did not adversely impact the evaluation of CNS or the source selection decision; the SSO discounted this because, in her experience, 8(a) contractors frequently deal with the Government directly through the company president. In the context of a cost reimbursement procurement, the training costs and bonus being included in were not the type of deficiencies or uncertainties required to be discussed. In any event, the training costs were discussed with CNS. In question 12, CNS was explicitly asked CNS' response did not change the fact that it also included training costs in its it simply clarified that such training was separate from the Government-approved technical training. CNS' response did not address the Government's concern. Thus, the Board concludes that the agency did not violate statute or regulation by failing to conduct meaningful discussions with CNS. STA's Allegations Does STA's Allegation that DOC took an Unconscionable Amount of Time to Make an Award State a Valid Basis of Protest? Intervenor STA alleges that the three procurements at issue have taken an unconscionable period of time from the initial solicitation in May 1993 until award to GCS in November 1994. STA complains that the milestones in the revised source evaluation and selection plan called for contract award on May 1, 1994, but contract award did not occur until November 4-8, 1994. STA seeks no relief as a result of this allegation and cites no regulation or statute allegedly violated by this conduct. As such, STA has failed to state a valid basis of protest, and this allegation is summarily dismissed. Was DOC's Re-evaluation of Proposals Under RFPs 2 and 3 in Accordance with the RFP? STA next complains that DOC's "normalization" process was not in accord with the RFP or the revised source evaluation and selection plan. STA apparently is contending here that the agency erred when it concluded that STA's and GCS' proposals were technically equivalent and looked to cost realism to distinguish the two proposals. Such a process is completely consistent with the RFP. Paragraph M.2(e) provided that award would be made to the offeror whose proposal contains the combination of factors offering the best overall value to the Government. Further, paragraph M.2(c) expressly advised offerors that cost proposals would be evaluated to determine that they are fair, reasonable, and adequately reflect costs associated with the work described in the proposal. This language in the solicitation empowered the Government to assess which of two essentially equal technical offers was the most realistic in terms of cost and was the most likely to be the lower cost proposal. Thus, this allegation is denied. Did DOC Err When it Concluded that GCS' Proposals were Equivalent to Those of STA Under RFPs 2 and 3? STA complains that even though its technical/management proposals were deemed superior by the SEB in the initial evaluation, under the second evaluation its proposal was deemed equivalent to GCS'. STA surmises that because this change occurred even though STA's technical/management proposals were unchanged, "the reconstituted SEB felt constrained to 'hold back' STA's ratings." Declaration of Robert Ben (Dec. 8, 1994) 2. STA's allegations are wholly speculative and unsupported by the record. Instead, the difference in STA's scoring appears to be attributable to the removal from the SEB of two members who had scored STA from 110-150 points higher than GCS and their replacement by a member who scored STA only 13-25 points higher than GCS. In short, there is no evidence suggesting that the re- evaluated scores are erroneous. Thus, this allegation is denied. STA also argues in its reply that the SEB's consideration of material submitted by CNS and GCS in their revised BAFOs beyond the cost information the amendments solicited and not authorized by the amendments, was improper and prejudicial. The SEB evaluated CNS' and GCS' proposals with and without the additional material. The evaluation with the additional material did not change the rankings or the best value determination. While it was improper for the agency to consider the material, no prejudice has been demonstrated.[foot #] 6 Was Respondent's Cost Realism Analysis as to RFPs 2 and 3 Flawed? STA complains that the cost realism analysis performed by the agency was not disclosed in either the selection plan or the RFP. Further, STA complains that the agency's cost realism analysis was predicated upon "fictional" labor rates and assumed a standard productivity year of 1,900 hours while actual federal salaries are based upon a 2,087-hour year. STA complains because DOC used the salaries in the statement of work instead of what it deemed was more appropriate data -- such as what incumbents were being paid and DCAA-audited rates offered by the offerors. Thus, STA contends that the agency miscalculated the direct labor cost by nearly 10% (2,087 - 1,900 = 187/1,900 = 9.4%). STA's Record Submission at 9. Finally, STA contends that the agency's analysis was mathematically flawed because DOC omitted the subcontractors' fixed fee under both RFPs 2 and 3 in calculating its estimate of cost for GCS. We reject all of STA's challenges to the agency's cost realism analysis. First, there is no merit to STA's contention that the RFP did not contemplate a cost realism analysis. The RFP in paragraph M.2(c) expressly advised offerors that "cost proposals will be evaluated . . . to determine that they are fair, reasonable, and adequately reflect costs associated with the work described in the offeror's proposal." This is all that the agency did here.[foot #] 7 ----------- FOOTNOTE BEGINS --------- [foot #] 6 The additional material should not have been considered and thus may not be deemed part of CNS' and GCS' BAFOs. [foot #] 7 Section L also alerted offerors to specific requirements for cost proposals such as a breakdown of their direct labor costs by person or category including the number of (continued...) ----------- FOOTNOTE ENDS ----------- Turning to the agency's cost realism analysis, we note at the outset that, "in general, cost realism determinations are 'by their nature business judgments which call for the exercise of discretion by Government officials.' Thus, unless we find that the exercise of this judgment was 'clearly defective' we will not upset it 'even if the protester's contrary opinion is not unreasonable.'" SoftTech, Inc. v. Department of the Air Force, GSBCA 11708-P, 92-3 BCA 25,080, at 125,017, 1992 BPD 116, at 18; quoting Program Resources, Inc., GSBCA 8879-P, 87-2 BCA 19,816, 1987 BPD 65. Applying this standard, we conclude that STA has not demonstrated that the agency's cost realism analysis violated statute or regulation. DOC's use of a productivity year of 1,900 hours was consistent with amendment 4 to RFP 1 and was based upon a productive work year after deducting appropriate vacation, etc. The agency's use of the salaries set forth in the statement of work was based upon other offerors' use of those rates, the agency's experience with incumbents (in particular the high turnover), and DOC's considered judgment that it would likely have to pay higher rates to secure the type of personnel it required in the future.[foot #] 8 The agency's conclusion that STA's proposed rates were less realistic and outdated is also fully supported by the record. Finally, the omission of the subcontractors' fixed fee under one of the agency's calculations, when corrected, did not alter the result that GCS was the low cost offeror. Therefore, this error had no impact on the ultimate cost realism analysis. In conclusion, we recognize that FAR 15.605(d) provides that in awarding a cost reimbursement contract, the cost proposal should not be controlling, since advance estimates of cost may not be valid indicators of final actual cost. Rather, according to that regulation, the primary consideration should be which offeror can perform the contract in a manner most advantageous to the Government. Here, given that the agency properly concluded that the proposals of GCS and STA were technically equivalent, DOC had discretion as to which proposal to select, and its cost realism analysis was a proper discriminator. Decision ----------- FOOTNOTE BEGINS --------- [foot #] 7 (...continued) labor hours and the actual or average hourly rates as well as their methodology, fringe benefit rates, etc. [foot #] 8 Although STA has also questioned the fringe benefit rate applied by the agency, it has not demonstrated any impropriety in the agency's rate and has given us no reason to suggest that its rate must be the one utilized. ----------- FOOTNOTE ENDS ----------- For the reasons stated above, the protests are DISMISSED IN PART/DENIED IN PART. The suspensions of the agency's delegation of procurement authority for RFPs 2 and 3 lapse by their terms. _____________________________ MARY ELLEN COSTER WILLIAMS Board Judge We concur: ____________________________ ____________________________ DONALD W. DEVINE ANTHONY S. BORWICK Board Judge Board Judge