GAO: “Mechanical” Cost Realism Evaluation Was Improper

An agency’s cost realism evaluation was improper because the agency “mechanically” compared an offeror’s proposed staffing to an undisclosed government estimate.

In a recent bid protest decision, the GAO held that it was improper for the agency to apply its own estimates for labor hours and costs without considering the protester’s unique technical approach.

The GAO’s decision in CFS-KBR Marianas Support Services, LLC; Fluor Federal Solutions LLC, B-410586 et al. (Jan. 2, 2015) involved a Navy procurement for base operations support services.  The solicitation contemplated the award of a cost-reimbursement contract, which was to be awarded on a “best value” basis.  Among the evaluation factors, the Navy was to consider offerors’ proposed staffing and resources.

The Navy received eight proposals, and established a competitive range consisting of six.  Fluor Federal Solutions, LLC was one of the six offerors in the competitive range.

In evaluating initial proposals, the Navy compared offerors’ proposed staffing against an undisclosed government estimate.  After conducting this comparison, the Navy concluded that Fluor’s proposed staffing was insufficient.

The Navy’s cost evaluators used this information to upwardly revise Fluor’s most probable cost.  Additionally, when Fluor was informed in discussions that its staffing was too low, Fluor increased its proposed staffing, resulting in an increased price.

Following discussions, the Navy conducted a best value determination.  Although Fluor had the highest adjectival ratings on the non-price factors, Fluor’s price was significantly higher than those of two competitors.  The Navy awarded the contract to one of those competitors.

Fluor filed a bid protest with GAO.  Fluor argued that the Navy had improperly applied an undisclosed staffing estimate without considering Fluor’s unique technical approach to the work.  Fluor also contended that, by raising the issue in discussions, the Navy misled Fluor into unnecessarily raising its staffing, resulting in a considerably higher price.

The GAO agreed with Fluor on both counts.

With respect to the staffing estimate, the GAO wrote that “while an agency can utilize a reasonably derived estimate of labor hours based on the government’s experience as an objective standard to measure the realism of proposed costs, an agency may not mechanically apply its own estimate for labor hours or costs . . . without considering the offeror’s unique technical approach.”  In this case, “the agency’s initial evaluation was based on a mechanical application of the government estimate to the proposals that did not consider the offerors’ varying technical approaches.”

The GAO also determined that the improper application of the mechanical staffing estimate resulted in misleading discussions.  In this regard, the GAO wrote that “the agency’s discussion question relating to the adequacy of Fluor’s proposed staffing led it to increase its staffing to a degree that, ultimately, led its proposal to be noncompetitive.”  Because Fluor raised its staffing “in direct response to the agency’s discussion question,” and because the discussion question itself was based on a mechanical application of an undisclosed estimate, the GAO held that the Navy had engaged in misleading discussions.  The GAO sustained Fluor’s protest.

Agencies often use government estimates to evaluate offerors’ proposed staffing and costs, and the use of such estimates is not inherently improper.  However, as the Fluor Federal Solutions protest demonstrates, an agency may not mechanically apply an undisclosed government estimate without considering each offeror’s unique technical approach.

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