We’ve obtained a favorable decision from the General Accounting Office (GAO) for one of our clients, a decision that provides insight into statutory requirements that agencies consider cost or price as a significant evaluation factor when making a selection decision under a solicitation for competitive proposals. The decision is Boeing Sikorsky Aircraft Support, B-277263.2, Sept. 29, 1997.
Before we discuss the holding, here are the statutory requirements:
[Each] solicitation for sealed bids or competitive proposals . . . shall at a minimum include-
a statement of-
all significant factors and significant subfactors which the head of the agency reasonably expects to consider in evaluating sealed bids (including price) or competitive proposals (including cost or price, cost-related or price-related factors and subfactors, and noncost-related or nonprice-related factors and subfactors; and
the relative importance assigned to each of those factors and subfactors.
. . . .
In prescribing the evaluation factors to be included in each solicitation for competitive proposals, an executive agency-
shall clearly establish the relative importance assigned to the evaluation factors and subfactors, including the quality of the product or services to be provided (including technical capability, management capability, prior experience, and past performance of the offeror);
shall include cost or price to the Federal Government as an evaluation factor that must be considered in the evaluation of proposals; and
shall disclose to offerors whether all evaluation factors other than cost or price, when combined, are-
significantly more important than cost or price;
approximately equal in importance to cost or price; or
significantly less important than cost or price.
10 U.S.C. § 2305(a)(2), (3); 41 U.S.C. § 253a(b), (c) (emphasis added).
Boeing Sikorsky arose from a solicitation of competitive proposals for a successor contract to operate an industrial-type support activity which provides dedicated, highly responsive logistics support for special operations forces worldwide. The solicitation proposed a cost-plus-award fee, task order contract for a base year and four one-year options. The solicitation required an offer of a zero base fee, and imposed a ceiling of $1.2 billion over the contract term. Award was to be made to the offeror whose proposal represented the best value to the agency.
The solicitation provided, inter alia, that “the offeror’s ability to accurately estimate the cost of completing logistics support tasks and the overall cost of the offeror’s proposal will be evaluated.” The solicitation included a cost model providing for 11,504,850 direct labor hours in various designated labor categories over the proposed contract term of five years. Offerors were to propose a rate for each labor category, and all of the labor categories were to be aggregated into a single annual cost of labor. The solicitation announced that the “resulting total dollar figure will be used by the government as an indicator of total cost for the expected term of the contract.”
Despite these promises, the cost evaluation was not based on most probable total cost, but rather on an assessment of risk (high, moderate, or low) on four factors: award fee, cost realism, labor, and overhead. Risk assessments for cost realism were based on a comparison of costs proposed for seven sample tasks to the costs as estimated by the agency. Risk assessments for labor and overhead were based on a comparison of each offeror’s evaluated cost (using the cost model) as compared to a midpoint (calculated from the total evaluated costs of all of the offerors). No direct consideration was given to the total evaluated cost of the respective proposals.
The agency selected the incumbent contractor for award of the proposed contract, and after a debriefing in which it was revealed that the source selection official had not considered the most probable total cost of the competing proposals, we filed a timely protest with GAO. We argued that the selection decision, based as it was on risk assessments, rather than on most probable total cost, had violated 10 U.S.C. § 2305(a)(2)(A), which, as can be seen above, requires that cost or price be considered as a significant factor in the evaluation of competitive proposals. The agency argued that because the source selection plan established an evaluation scheme that dealt only with cost risk assessments, there was no need to consider the cost difference between competing proposals. GAO agreed with us, holding the agency to the announcements in the solicitation of an evaluation of overall cost for each proposal, and it granted the protest, recommending that the agency reopen the competition, allow the submission of revised cost proposals, and then conduct a reevaluation, this one focused on relative probable costs and the differences in those evaluated costs in the cost model over which offerors could exercise any control (among other things, the cost model included a “plug” number of $525 million in material and other direct costs that was the same for all offerors).
Although GAO has not hesitated to sustain source selections made without quantifying most probable costs when solicitations clearly announce that the agency will not conduct a traditional most probable cost analysis and no one files a timely preaward protest, Ingalls Shipbuilding, Inc., B-275830, April 7, 1997, 97-1 CPD ¶ 180, at 11-12, where, as in Boeing Sikorsky, agencies do not announce an intent to deviate from the statutory scheme, GAO holds agencies to the statutory requirements to give significant consideration to evaluated cost or price. The lead case is Coastal Science and Engineering, Inc., B-236041, Nov. 7, 1989, 89-2 CPD ¶ 436.
Coastal Science concerned a selection decision made under a numeric weighting scheme in which technical scores were weighted at ninety percent and price was weighted at ten percent. The awardee’s technical proposal had obtained a technical score of 141.8 points out of a possible 180 points, and the protester’s technical proposal was scored at 130.1 points. Both proposals were considered as “adequate.” The solicitation provided that “technical quality is more important than cost or price.” The awardee’s proposed price was $78,773, while the protester’s proposed price was $47,093. Under the numeric weighting scheme, the awardee’s proposal obtained the higher score, and an award was made accordingly.
GAO sustained the protest, deciding that the numeric weighting scheme violated the statutory requirement that evaluated price be given significant consideration in any selection decision:
[W]e find that while the solicitation indicated that technical was more important than price, it did not offer any suggestion of the magnitude of the disproportion between the weights actually assigned-90 percent versus 10 percent. . . . [B]ecause here this differential so minimizes the potential impact of price that it makes a nominal technical advantage essentially determinative, irrespective of an overwhelming price premium, we also question whether such a formula is consistent with the requirement of the Competition in Contracting Act (CICA) that price be one of thesignificant factors in the evaluation of competitive proposals. 41 U.S.C. §§ 253a(b)(1); 253b(d)(4) (Supp. IV 1986). We note that if the formula utilized by the agency had afforded price even a 15 percent weighing factor, Coastal would have received a higher total score than Woodward.
Coastal Science, 89-2 CPD, at 3.
In other decisions, GAO has explained that the statutory requirement demands that agencies give significant consideration to evaluated cost or price, Lockheed IMS, B-248686, Sept. 15, 1992, 92-2 CPD ¶ 180, at 6, and that, to the extent possible, the evaluation must accurately measure the costs to be incurred under competing proposals, Electronic Warfare Integration Network, B-235814, Oct. 16, 1989, 89-2 CPD ¶ 356, at 5. Evaluated costs under competing proposals must be reasonably quantifiable, i.e., there must be identifiable requirements for specific supplies or services, as well as a reliable basis to estimate a price or cost for these requirements. Comdisco, Inc., B-214409.2, Oct. 18, 1984, 84-2 CPD ¶ 416, at 6 (undefined support services that were valued by the schedule contractor at $24,000 offered at no charge under a multiple award schedule contract). Where costs expected to be incurred for delivery of specific supplies or services are largely fixed, and would exist regardless of which firm receives the award, such costs need not be considered. Sun Company, Inc., B-275193, Jan. 29, 1997, 97-1 CPD ¶ 56, at 4-5. Likewise, where a particular proposal offers cost savings not directly related to the acquisition, these cost savings need not be considered in the evaluation. BellSouth Telecommunications, Inc., B-258321, Jan. 6, 1995, 95-1 CPD ¶ 10, at 9.
Boeing Sikorsky teaches that under the statutory requirements requiring significant consideration of evaluated cost or price, a proper source selection can only be made after quantification of the most probable cost of the competing proposals, followed by a consideration of the cost differences among the proposals, and Coastal Science teaches that while agencies can place significant emphasis on noncost-related or nonprice related evaluation factors and subfactors, rather than on cost or price, the role of cost or price in the selection decision cannot be diminished to the point that a nominal technical advantage decides the outcome, irrespective of an overwhelming cost or price premium, unless this evaluation scheme is clearly announced in the solicitation and it is not timely protested. If agencies contemplate any other sort of rubric for a particular acquisition, they are well-advised to clearly set this out in the solicitation document and hope that it is not timely challenged, else they risk a solicitation that cannot be sustained, or a selection decision that can be easily, and successfully, overturned.
— Cy Phillips
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