THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER AND IS BEING RELEASED TO THE PUBLIC IN REDACTED FORM ON JANUARY 18, 1995 COUNT I DISMISSED IN PART AS UNTIMELY FILED: January 10, 1995 GSBCA 13107-P AT&T CORP., NETWORK SYSTEMS DIVISION, Protester, v. DEPARTMENT OF THE AIR FORCE, Respondent, and NORTEL FEDERAL SYSTEMS, INC., Intervenor. Francis J. O'Toole, David Lewis, Howard Stanislawski, and Joseph C. Port, Jr., of Sidley & Austin, Washington, DC; and Nathaniel Friends and Steven W. DeGeorge of AT&T, Silver Spring, MD, counsel for Protester. Clarence D. Long, III, Office of General Counsel, Department of the Air Force, Washington, DC; and Major Mark R. Land, USAF, Donald M. Weight, and George W. Holliday, McClellan Air Force Base, CA, counsel for Respondent. William H. Butterfield, Kevin P. Connelly, and Trisa J. Thompson of Seyfarth, Shaw, Fairweather & Geraldson, Washington, DC, counsel for Intervenor. Before Board Judges DANIELS (Chairman), DEVINE, and BORWICK. DANIELS, Board Judge. AT&T Corp., Network Systems Division (AT&T), protests that the Department of the Air Force's award of a contract for the supply of telecommunications systems to NORTEL Federal Systems, Inc. (NORTEL), violated statute and regulation. Among the seven counts of protest, AT&T maintains in Count I that the Air Force misevaluated NORTEL's "post-cutover" pricing scheme and in Count II that the agency misevaluated the awardee's cost performance risk. In cross-motions, NORTEL, an intervenor of right in this case, maintains that these two counts were untimely filed (or alternatively, that neither of them states a valid basis for protest), and AT&T urges us to grant it summary relief as to Count I and consequently as to the entire protest. We grant NORTEL's motion in part, dismissing Count I in part. AT&T's motion is denied. Findings of Fact 1. The procurement in question is known as the North American Standards Integrated Digital Telecommunications Systems acquisition. This procurement is part of an Air Force program to replace outdated telephone switching systems with the latest commercially-available digital integrated voice, data, image, and video information switching systems at Air Force and other Department of Defense installations. Complaint 13; Answer 13. 2. The solicitation called for the engineering, furnishing, installation, and testing of an estimated 130 systems at specified sites -- two for certain and the remainder on an indefinite delivery, indefinite quantity ordering basis. Complaint 16; Answer 16. Ordering of systems was to be possible over a five-year period, and ordering of follow-on support was to be permitted for an additional three years. Protest File, Exhibit C-1 at 1 of Executive Overview (Apr. 22, 1993). 3. The solicitation required the Air Force to award a contract "to the responsible Offeror whose offer, conforming to the solicitation, will provide the best value to the Government." Protest File, Exhibit C-2 at 116 of 121. 4. Each proposal was to be evaluated in five "areas." In descending order of importance, the areas were engineering, management, logistics, cost, and schedule. Protest File, Exhibit C-2 at 116 of 121. 5. The Air Force's source selection evaluation team concluded that in all areas except cost, "both [offerors] provided strong proposals." Taking the four non-cost areas as a whole, however, the team rated AT&T's proposal as superior to NORTEL's. Protest File, Exhibit E-6 at 24-25. The source selection authority relied on this conclusion in making his decision to award the contract to NORTEL. Id. at 47a; Statement of Uncontested Facts in Support of Protester's Motion for Summary Relief, Respondent's Statement of Disputed Facts (jointly referenced hereafter as "Uncontested Facts") 26. 6. The solicitation stated that the cost area evaluation would be divided into two components, an evaluated cost and a performance risk rating, which would be given equal weight. Protest File, Exhibit C-2 at 116 of 121. Each cost/price proposal was also to be evaluated for "completeness, realism and reasonableness." A cost realism analysis would be made "to determine if the overall costs in the proposal are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the various elements of the offeror's technical proposal." Id. at 120 of 121. 7. The solicitation explained that "[f]or the purpose of comparing the evaluated costs, a total estimated contract price will be established for each proposal using the methodology set forth in Appendix D to the PPI [Proposal Preparation Instructions]." Protest File, Exhibit C-2 at 120 of 121. Appendix D stated that "[t]he Total Estimated Contract Price, for proposal evaluation purposes, will be estimated by summing the price for all initial systems, model systems, and CLINs/SLINs/ELINs [contract line item numbers/subline item numbers/exhibit line item numbers] as discussed in this Appendix." Id., Exhibit D-7 at 1 of Appendix D. The appendix states that for each CLIN from 1000 to 9999, "pricing for the Offeror defined CLINs is accounted for in the initial system and model system DOPs [delivery order proposals]." Id. at 10 of Appendix D. 8. Appendix D additionally stated, "For administrative purposes, the total estimated amount of the contract will be calculated by adding [two specified] amounts to the Total Estimated Contract Price." Id. These amounts were "(1) $75,000 per site to account for possible installation of In-House Distribution Systems . . . and over-and-above efforts . . . , and (2) 20% of the [total proposed prices for line items related to initial and model system deliveries] to account for potential system reconfiguration, upgrade, and expansion efforts. . . ."[foot #] 1 Protest File, Exhibit D-7 at 1 of Appendix D; Uncontested Facts 19. The Proposal Preparation Instructions stated that the total estimated contract amount was to be determined "for proposal evaluation purposes." Protest File, Exhibit D-7 at 34. ----------- FOOTNOTE BEGINS --------- [foot #] 1 During the planning of this acquisition, in estimating a total value which the contract awarded under this procurement would have, the Air Force included an amount "to cover the estimated amount of system upgrades, expansions and reconfigurations of the systems after they are cutover." Based on experience gained under two programs, the agency used "a factor of 20 percent of the total system acquisition costs . . . to project potential amounts needed for upgrade, expansion and reconfiguration of the system after cutover." The computed figure was $__________. Protest File, Exhibit E-1 at 23. ----------- FOOTNOTE ENDS ----------- 9. NORTEL's proposal contained a specific category called "Extension Pricing," which was applicable to "items ordered for a system after initial cutover for the system." Uncontested Facts 22. The Air Force considers that "cutover" occurs when a particular system is installed and accepted. Respondent's Statement of Disputed Facts 23. Thus, items ordered "post- cutover" include all those for reconfiguration, upgrade, and expansion of installed systems. Each NORTEL-proposed line item, from 1000 through 7999, contained extension pricing, and a substantial number of these post-cutover prices were significantly higher than NORTEL's pre-cutover prices for identical line items. Under the contract, if the Air Force orders any of these items for a system at any time after the system has been installed, it will have to pay substantially higher prices for the same line items than pertained prior to cutover. Uncontested Facts 22, 23. 10. The Air Force evaluated NORTEL's total estimated contract price as $262,605,585, and AT&T's as $___________, or ____ percent higher than NORTEL's.[foot #] 2 The source selection authority determined that some of the benefits of AT&T's proposal have measurable cost savings, but that "the additional benefits . . . [do] not justify the additional costs." He consequently decided that NORTEL's proposal offers the best overall value to the Government. Protest File, Exhibits E-6 at 46a-47a, E-7. 11. The Air Force's cost evaluators also added to the total estimated contract price for each offeror, as per Appendix D, $75,000 per site and twenty percent of the total proposed prices for line items related to initial and model system deliveries. Thus, they added $9,750,000 to each offeror's price, and also added $34,942,717 to NORTEL's price and $__________ to AT&T's. The total estimated amount of the contract was thus, for NORTEL, $307,298,302; and for AT&T, $___________. Protest File, Exhibit E-6 at 33. Of the last two figures, AT&T's is $__________ higher than NORTEL's. 12. The Air Force's cost evaluators understood that NORTEL's extension prices "will be used for system reconfiguration, upgrade and expansion." Protest File, Exhibit E-18 at 4. Nevertheless, in evaluating NORTEL's cost proposal, the Air Force did not at all evaluate the proposed "post-cutover" pricing. Uncontested Facts 31. The Air Force also did not perform any realism analysis of reconfiguration, upgrade, and expansion costs to compare the costs of such effort using NORTEL's pre-cutover pricing to the costs of such effort using NORTEL's post-cutover pricing. Id. 38. Nor did the Air Force compare the costs of reconfiguration, upgrade and expansion using ----------- FOOTNOTE BEGINS --------- [foot #] 2 AT&T's price is actually ____ percent higher than Nortel's. ----------- FOOTNOTE ENDS ----------- NORTEL's post-cutover pricing to the independent estimate the agency had earlier made. Id. 40; see n.1. 13. The twenty percent amount calculated by the Air Force under Appendix D instructions for potential reconfiguration, upgrade, and expansion (Finding 11) was made using NORTEL's pre- cutover prices. Protest File, Exhibit E-6 at 33. According to a consultant retained by protester, if the agency had made the same calculation using NORTEL's post-cutover prices, the result would have been $__________ -- $__________ more than the agency determined. Affidavit of Kevin L. Martin (Dec. 29, 1994) 8. 14. The Air Force assigned NORTEL's cost proposal a low performance risk. The agency did not take NORTEL's post-cutover pricing into account in making this assessment. Uncontested Facts 46. Discussion Under the rubric of Count I, "Misevaluation of NORTEL's Post-Cutover Pricing Scheme," AT&T alleges that the agency failed properly to evaluate NORTEL's post-cutover prices by irrationally applying the estimating methodology set forth in Appendix D to the Proposal Preparation Instructions; failing to find NORTEL's pricing materially unbalanced; and failing to perform a "most probable cost analysis" which assessed the reasonableness and realism of the cost to the agency of accepting NORTEL's proposal. In Count II, AT&T contends that the Air Force improperly failed to perform any performance risk to NORTEL's cost proposal attributable to the firm's post-cutover pricing arrangement. The motions filed by AT&T and NORTEL raise questions as to the nature of the Air Force's commitment, as expressed in the solicitation, to evaluate cost proposals. Appendix D required the Air Force to make two separate calculations as to the cost of proposals; the agency had to find both a "total estimated contract price" and a "total estimated amount of the contract." The former figure was to be used "[f]or the purpose of comparing . . . evaluated costs"; the latter was variously required to be used "[f]or administrative purposes" and "for proposal evaluation purposes." Findings 7, 8. Neither of these figures, according to the Appendix's instructions, was to reflect post-cutover prices proposed by an offeror. The directions for calculating the total estimated contract price said so directly. Finding 7; see also Finding 9. The directions for the total estimated amount of the contract did so, as well, in that they established a formula for taking into consideration potential costs of reconfiguration, upgrade, and expansion, and the formula was keyed to proposed prices for line items related to initial and model system deliveries. Finding 8. Thus, with regard to both total estimated contract price and total estimated amount of the contract, the Air Force acted consistently with requirements it placed on itself when it did not include the higher post-cutover prices included in NORTEL's proposal. To the extent that AT&T may be objecting in Count I to the Air Force's failure to consider the post-cutover prices in calculating NORTEL's total estimated contract price or total estimated amount of contract, it is in effect objecting that the instructions contained in Appendix D make no sense. Such a complaint would only be timely, under our Rule 5(b)(3)(i), if filed before the closing time for receipt of proposals. Because this challenge was filed well after that time, as NORTEL suggests, it is untimely. NCR Corp., GSBCA 9787-P, 89-1 BCA 21,499, at 108,323-24, 1988 BPD 331, at 12-13; Command Corp. of West Virginia, GSBCA 9747-P, 89-1 BCA 21,455, at 108,117-18, 1988 BPD 310, at 6-7; Babcock & Wilcox d/b/a Power Computing Co., GSBCA 9531-P, 88-3 BCA 20,987, at 106,031, 1988 BPD 150 at 3-4. Simply calculating the offerors' total estimated contract prices and total estimated amounts of contract in accordance with Appendix D, however, was not the only requirement the Air Force imposed on itself for analyzing the cost impact of accepting either of the offerors' proposals. The agency also obligated itself to evaluate the realism of the costs associated with each proposal, and to assess the risk that performance of a proposal could be had at the evaluated prices. Counts I and II of AT&T's protest assert that neither of these tasks was completed in a rational way. These allegations pertain to matters which AT&T could not have known about prior to the debriefing at which it maintains it learned of them. The protest was filed within ten days of that debriefing. Count II, and Count I to the extent that it contains assertions other than the one dismissed above, are timely. Rule 5(b)(3)(ii). The Air Force has admitted that it did not evaluate cost realism or assess performance risk as to NORTEL's higher, "extension" prices for line items ordered after cutover -- notwithstanding the agency's understanding that if in reconfiguring, upgrading, or expanding a system after cutover, it orders these items, it will have to pay the higher prices. Findings 12, 14. On its face, this admission appears to place in doubt the validity of the cost evaluation -- certainly as to one of the two equal components, performance risk, and also as to the other evaluated cost, to the extent that the cost realism analysis should have had an impact on it. DALFI, Inc., GSBCA 8755-P, 87-1 BCA 19,552, at 98,808, 1986 BPD 228, at 25, reconsideration denied, 87-1 BCA 19,584, 1987 BPD 15. The fact that the higher prices were not included in stipulated calculations does not mean that the agency cannot reasonably be expected to pay them. Because the agency anticipates spending tens of millions of dollars after cutover, Finding 8 n.1, ignoring the higher prices completely appears to have been irrational. The extent to which NORTEL's higher post-cutover prices should have affected the realism of the calculated total estimated contract price and total estimated amount of contract is far from clear, however. Based on the fragmentary record developed at this point in the case, we do not know how AT&T's consultant developed his calculation of the real cost of NORTEL's proposal, or whether his figure has any relationship to the costs one could reasonably expect the Air Force to incur under a contract with NORTEL. See Finding 13. A consultant retained by the agency has suggested a reason which, if proven, would indicate that the higher prices should have little impact on the cost realism and performance risk of NORTEL's proposal: The Air Force has no notion of the specific items, components, or systems that will require reconfiguration, upgrade and/or expansion or when such efforts will occur. Further, given the rapid advancement of technology, it is highly likely that the reconfiguration, upgrade and/or expansion will involve components that are in development or will be developed in the future. Only a small portion of the 20% estimate was intended to be . . . items presently on the subject contract. Declaration of Thomas R. Porter (Jan. 5, 1995) 9. Furthermore, the parties disagree vigorously as to whether _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ----------- FOOTNOTE BEGINS --------- ----------- FOOTNOTE BEGINS --------- ----------- FOOTNOTE BEGINS --------- __ ________. If, as the Air Force and Nortel assert, ____________ ______________________________, this could have an impact on the realism and performance risk of that proposal, and consequently on the relative standing of the offerors as to cost. In short, the case is far too complex and problematical at the present time for us to conclude, as AT&T wishes, that because AT&T's technical proposal was higher rated than NORTEL's (Finding 5), and according to its consultant's calculations, the NORTEL proposal would ultimately prove more expensive to the Government (Findings 11, 13), award should have been made to AT&T. We therefore deny AT&T's motion for summary relief. ----------- FOOTNOTE ENDS ----------- Decision NORTEL's motion to dismiss is GRANTED IN PART. Count I of the protest is DISMISSED IN PART AS UNTIMELY FILED. AT&T's motion for summary relief as to Count I is DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ DONALD W. DEVINE ANTHONY S. BORWICK Board Judge Board Judge