A function of the Department of Defense performed by 10 or more Department of Defense civilian employees may not be converted, in whole or in part, to performance by a contractor unless the conversion is based on the results of a public-private competition that --

* * * * *

(G) requires that the contractor shall not receive an advantage for a proposal that would reduce costs for the Department of Defense by -

(i) not making an employer-sponsored health insurance plan (or payment that could be used in lieu of such a plan), health savings account, or medical savings account available to the workers who are to be employed to perform the function under the contract;

(ii) offering to such workers an employer-sponsored health benefits plan that requires the employer to contribute less towards the premium or subscription share than the amount that is paid by the Department of Defense for health benefits for civilian employees of the Department under chapter 89 of title 5; or

(iii) offering to such workers a retirement benefit that, in any year, costs less than the annual retirement cost factor applicable to civilian employees of the Department of Defense under chapter 89 of title 5[.]

10 U.S.C. sect. 2461(a)(1)(G).

The protester argues that the Army allowed Ginn to substitute nominally compliant fringe benefit ratios, which were achieved, in essence, by shifting fringe benefit costs from one category to another, without regard to its actual costs for non-health and non-retirement fringe benefits. The protester points out that those costs were initially identified as 15.63 percent of Ginn’s labor costs, and 14.21 percent of Emcor’s labor costs, and the protester argues that these costs will have to be reimbursed by the government when incurred. Protest at 12.

The Army only generally disputes the protester’s argument on the merits, and mainly argues that the impact of the issue is not sufficient to overcome the cost comparison differential. Supp. AR at 26. In this regard, the Army asserts, in essence, that even if the protester’s arguments are correct, it was not prejudiced by any error here. The Army submits a memorandum from a DCAA financial liaison advisor, which quantifies the recalculation of Ginn’s fringe benefits as adding $4,097,427 in costs to Ginn’s proposal. Supp. AR, exh. 3, Memorandum from DCAA Financial Liaison Advisor, at 1. The Army argues that this amount would not change the result of the cost comparison study. Supp. AR at 26.

Ginn, on the other hand, argues that the fringe rates used to comply with 10 U.S.C. sect. 2461(a)(1)(G) should be understood as comparison numbers for purposes of the evaluation. Ginn reasons that when the Army warned that 10 U.S.C. sect. 2461(a)(1)(G) required it to increase Ginn’s and Emcor’s retirement benefit rate, it was appropriate for the firms to make offsetting reductions in their other fringe rates because the whole effort was to comply with 10 U.S.C. sect. 2461(a)(1)(G) “for evaluation purposes.” Ginn also emphasizes that it was clearly understood that the rates used to calculate its FPR cost proposal were not the actual rates to be charged under the contract.  Ginn Supp. Comments at 23. Ginn also argues that it is sufficient that Ginn’s overall fringe rate was increased to 36.25 percent for evaluation purposes, and that there is insufficient guidance available to establish the proper way to calculate a private-sector offeror’s fringe rates for comparison purposes.  Ginn Supp. Comments at 26.

When the agency’s cost evaluator reviewed Ginn’s technique, he characterized the approach as simply “moving the numbers around” for evaluation purposes. AR, Tab 23B, Final Ginn Cost Evaluation, at 4. We agree.

In our view, the approach taken by Ginn to address the requirements of 10 U.S.C. sect. 2461(a)(1)(G) essentially renders meaningless the goal of the statute. Ginn’s cost savings in offering lower-cost retirement benefits are simply relabeled as lower costs in other areas. In this regard, there is nothing in this record to support a conclusion that Ginn has actually reduced its employees’ benefits in other areas--such as sick leave, vacation time, and other non-retirement, non-health insurance related costs. Without such a showing, these costs may still be incurred, and when incurred will become reimbursable under the cost-reimbursement contract anticipated here. Thus the Army could not reasonably conclude that the new ratios accurately reflect Ginn’s accounting policies, procedures, and practices, and were in accordance with its indirect rate structure, as the RFP required. Cf. RFP at 81.

For the comparison of fringe benefits rates to be meaningful, either Ginn must show how its other costs will be reduced, or the comparison must hold steady the other fringe benefit costs, while increasing the insurance/health and retirement benefit fringe rates to the appropriate ratios. Since a cost realism analysis must account for all costs that will be incurred, and the analysis here provides no meaningful basis to accept Ginn’s revised “all other” fringe/overhead rates, the cost realism analysis is unreasonable. See E.L. Hamm & Assocs., Inc., B‑280766.3, Apr. 12, 1999, 99-1 CPD para. 85 at 10 (protest sustained where cost realism analysis provided no basis to accept offeror’s significantly lower overhead rate rather than its higher DCAA-approved overhead rate).

Ginn’s Efficiency Assumption

With respect to Ginn’s assumption that it will achieve a 10 percent increase in efficiency in performing SOs and IJOs, the protester argues that the Army should not have accepted this assumption because Ginn provided no support for this claim. Supp. Protest at 5-8. The Army argues that with respect to SOs, the evaluators were “not trying to make a value judgment as to [Ginn]’s claim of a 10 [percent] efficiency factor because such a judgment was not necessary.” Supp. AR at 13. With respect to Ginn’s assumption of 10 percent efficiency over the IJO workload figures in the RFP, the Army argues that offerors were not required to use the IJO workload stated in the RFP, and asserts that the evaluators found Ginn’s assumption, and resulting staffing levels to be acceptable because they “met the standard.”  Supp. AR at 16.

In our view, the record provides no support for the Army to accept Ginn’s assumed 10 percent improvement in efficiency, either as a technical approach or more importantly, in support of using lower staffing numbers in its cost proposal. As the Army noted in its initial evaluation, the RFP did not provide sufficiently detailed SO workload information for an offeror to assess its efficiency. With respect to the IJO workload, as noted above, the PWS stated that offerors “shall use the workload listed below to develop their individual proposals.” Revised PWS at 147. The solicitation also required offerors to “address as specifically as possible” the offeror’s actual methodology to accomplishing the PWS. The evaluators questioned the basis for Ginn’s assumption of increased efficiency, and raised the issue in discussions. Yet Ginn’s revised proposals provided no factual support for its increased efficiency assumption. In short, the Army had no basis to accept Ginn’s key assumption that it could perform either the SOs or the IJOs with 10 percent fewer labor hours and a correspondingly lower cost. By nevertheless accepting the cost proposal based on this assumption, the Army’s cost realism analysis was unreasonable. See Northrop Grumman Info. Tech., Inc., B-400134.10, Aug. 18, 2009, 2009 CPD para. 167 at 6-7 (protest sustained where agency did not consider evaluator’s concern that awardee’s claim of staffing efficiencies to justify lower staffing was unsupported).

In attempting to calculate the effect of this issue on the cost comparison, the protester asserts that the additional cost to perform SOs without the 10 percent efficiency factor was more than $500,000, and the additional cost to perform IJOs was more than $1 million. Supp. Protest at 7-8. Although the Army and Ginn dispute the protester’s argument, neither has provided an alternative calculation for assessing the degree to which the protester was prejudiced. Our Office reviewed Ginn’s FPR cost proposal and we are unable to determine the precise amount of the additional cost for Ginn’s performance of SOs. However, since IJOs were priced as a separate line item, based on our review of Ginn’s FPR cost proposal spreadsheet, we conclude that the 10 percent reduction in labor costs for efficiency unjustifiably reduced its costs by more than $1 million, over the life of the contract.

Supply Support Cost

Finally, the protester argues that it was unreasonable for the Army to accept Ginn’s claim that it could omit the cost of the FTEs for supply support provided by Sunbelt in the cost proposal. The protester argues that under the terms of its proposal, Ginn has stated that it will include those labor costs in the price of supplies at Sunbelt’s “private hardware store,” and thus the realistic cost of performance by Ginn had to include those costs. Supp. Protest at 4.

The Army asserts that “it is undisputed that [Ginn] proposed not to charge the Army for the cost of the Sunbelt employees and not to charge more for the material items in order to recoup the cost of those employees.” Supp. AR at 10. The Army also argues that there is no support for the protester’s claim that the Army will pay a marked-up cost for supplies. Therefore the Army reasonably expects that “Sunbelt would be willing . . . to provide labor and still charge reasonable prices” in exchange for serving as the exclusive source of materials and supplies at West Point. Id. The Army also argues that it intends to incorporate the relevant portion of Ginn’s proposal into the contract, and will hold Ginn to those terms. Id.

Contrary to the Army’s argument, Ginn’s proposal states that Sunbelt is basically providing a “private hardware store,” and will provide staffing without adding to the cost of the material items. However, Ginn acknowledges that--as in any retail environment--the costs of “the store employees are included in the cost of the item.” AR, Tab 12, Ginn Revised Proposal, vol. D, at 54. This latter statement suggests that Ginn’s costs for materials and supplies, which will be reimbursed by the Army, will include labor costs. In our view, the analysis must distinguish between reasonable retail prices at a hardware store and the cost of supplies that a contractor would be allowed to recover under a cost-reimbursement contract, which the plug number represents.  We also think the Army cannot reasonably argue that it can steadfastly limit the prices at Ginn’s “private hardware store” when the proposal appears to provide otherwise. In short, the Army’s cost realism analysis does not reasonably account for the cost of performing supply services.

The protester asserts that the wage cost of the FTEs, based on the applicable wage determination, would be $610,128.79 over the term of the contract. Supp. Protest at 5. Again, while the Army and Ginn dispute the protester’s position on the merits, neither has provided an alternative calculation for purposes of assessing the prejudice from this flawed evaluation.

Competitive Prejudice

To succeed in a protest against a cost comparison under OMB Circular A-76, the protester must demonstrate not only that the agency failed to follow established procedures, but also that its failure could have materially affected the outcome of the cost comparison. Trajen, Inc., B-284310, B-284310.2, Mar. 28, 2000, 2000 CPD para. 61 at 3; Dyneteria, Inc., B-222581.3, Jan. 8, 1987, 87-1 CPD para. 30 at 2.

As noted above, the cost comparison here resulted in a decision that Ginn’s proposal offered the lowest costs by $4,194,700. In our view, the errors identified above call into question the savings that the Army calculated would be achieved by awarding a contract for public works services to Ginn. These are (1) $4,097,427 (for the increased retirement benefit cost), (2) more than $1 million (for the unrealistic 10 percent efficiency assumption), and (3) approximately $610,128.79 (for the supply function).  Although the exact figures are not entirely certain from this record, the sum of these amounts significantly exceeds the cost comparison differential. Accordingly, in our view the protester was competitively prejudiced by the errors in the evaluation, and we sustain the protest.

RECOMMENDATION

In sustaining a protest challenging an agency’s evaluation of proposals, we ordinarily recommend that the agency review the procurement and take appropriate actions to correct any improprieties. Under the specific circumstances here, our recommendation would be for the Army to reasonably reevaluate Ginn’s costs, including reassessing whether Ginn provided a reasonable basis in its proposal for the savings in the areas identified in our decision, including holding discussions with Ginn and the other offerors if additional supporting information would be needed for a meaningful reevaluation.

The protester points out that such a recommendation in this case would be barred by sect. 8023 of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, which states as follows:

None of the funds appropriated by this Act shall be available to perform any cost study pursuant to the provisions of OMB Circular A-76 if the study being performed exceeds a period of 24 months after initiation of such study with respect to a single function activity or 30 months after initiation of such study for a multi-function activity.

Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, Pub. L. No. 110-329, div. C, title VIII, 122 Stat. 3619, 3626 (Sept. 30, 2008). As relevant here, the effect of the provision is to bar the Army from using funds appropriated under the statute to perform any multi-function study (as was performed here) more than 30 months after the study was initiated. In our view the 30-month deadline has plainly passed for this study.

Accordingly, because any recommendation by our Office to correct the evaluation here would result in the Army expending funds to continue to perform the study at issue, we will not make such a recommendation. New Dynamics Corp., B-401272, July 8, 2009, 2009 CPD para. 150 at 13-14; see also Rosemary Livingston--Agency Tender Official, B‑401102.2, July 6, 2009, 2009 CPD para. 135 at 13-14, recon. denied, Department of the Navy--Request for Modification of Remedy, B-401102.3, Aug. 6, 2009, 2009 CPD para. 162 at 4. Since it appears from the record that the contract may not have been awarded, see Supp. Contracting Officer’s Statement, at 1, we recommend that the Army cancel the RFP and not proceed with the award of a contract to Ginn. However, if a contract has been awarded to Ginn, we recommend that the Army terminate it for the convenience of the government.

The protest is sustained.  (Frank A. Bloomer--Agency Tender Official, B-401482.2; B-401482.3, October 19, 2009) (pdf)