GAO: Offeror’s High Labor Hours Need Not Be Raised In Discussions

An agency was not required to inform an offeror that its proposed base year labor hours were too high, even though the offeror proposed more than twice as many labor hours as the awardee.

In a recent bid protest decision, the GAO held that a procuring agency did not act improperly by failing to raise the protester’s high labor hours in discussions, because the protester’s labor hours, while much higher than the awardee’s, were not deemed unacceptably high under the RFQ’s lowest-price, technically acceptable evaluation scheme.

The GAO’s decision in Salient Federal Solutions, Inc., B-410174, B-410174.4 (Apr. 1, 2016) involved a DLA RFQ for a task order to provide sustainment and audit support services for DLA’s Subsistence Total Order and Receipt Electronic System.  The RFQ was issued under FAR 8.4 (Federal Supply Schedules) and contemplated the award of a fixed-price task order under the successful offeror’s GSA schedule contract.  Award was to be made on a lowest-price, technically acceptable basis.  The awardee was to perform the services for a base period, with two potential option periods.

The RFQ required each offeror to provide a work breakdown structure that detailed the level of effort in terms of proposed labor categories and hours for each of 13 tasks identified in the performance work statement.  The RFQ stated that the work breakdown structure would be evaluated to ensure that the offeror’s proposed labor mix, level of effort, methodology, and processes could successfully meet the RFQ’s objectives and mitigate risks.

Salient Federal Solutions, Inc. was one of three offerors submitting quotations.  Salient proposed a total of 33,600 labor hours for the base period.  Primescape Solutions, Inc. also submitted a proposal.  Primescape proposed 14,654 labor hours in the base period.  Salient’s proposed price was approximately $22.7 million; Primescape proposed a total price of approximately $18 million.

In its initial evaluation of proposals, the DLA determined that Salient’s proposed labor hours for the base period “appeared high.”  The DLA determined, however, that the proposed labor hours were adequate to perform the work and not so high as to render Salient’s proposal unacceptable.  With respect to the option years, the DLA determined that Salient’s proposed hours were unacceptably low for 11 of the 13 tasks.

The DLA opened discussions with Salient and Primescape.  In its discussions letter to Salient, the DLA advised Salient that its labor hours were insufficient for 11 tasks in each of the two option years.  The DLA did not notify Salient of any concerns regarding Salient’s high labor hours in the base year.  In response to the discussions letter, Salient increased its proposed hours in the option years, but did not reduce its proposed labor hours for the base year.

After concluding a second round of discussions, the DLA re-evaluated the proposals of Salient and Primescape, and found both proposals to be technically acceptable.  The DLA awarded the task order to Primescape as the lowest-priced, technically acceptable offeror.

Salient filed a GAO bid protest.  Salient argued, in part, that the DLA misled Salient in discussions by failing to inform Salient that it proposed too many labor hours for the base year.  Salient suggested that, by questioning Salient’s proposed labor hours for the option years while remaining silent on the hours proposed for the base year, the DLA misled Salient into proposing too many total hours–resulting in a price significantly higher than Primescape’s.

The GAO wrote that “[a]s a general matter, it is within an agency’s discretion to inform a vendor during discussions that its price appears to be high in comparison to other vendors’ proposed prices.”  In this case, “the record shows that DLA did not conclude that Salient’s proposed hours were unreasonably high; rather, the [DLA] concluded that Salient’s labor hours in the base period were adequate.”

The GAO continued: “[a]t no time did DLA find Salient’s proposal technically unacceptable as a result of too many labor hours in the base year.  Therefore, the agency was not required to raise Salient’s higher labor hours vis-a-vis Primescape’s proposed labor hours–and thus higher price–in discussions.” The GAO denied Salient’s protest.

I can’t help but feel sorry for Salient’s predicament.  Salient proposed more than twice as many labor hour as Primescape, but the DLA didn’t bother to raise that fact in discussions.  But while it might have been a good idea (and nice thing to do) to raise the issue in discussions, the DLA was not legally required to do so, since Salient’s high labor hours did not render its proposal unacceptable.

It’s worth keeping in mind that the Salient Federal Solutions case arose under a LPTA procurement.  It is not clear that the GAO would have reached the same result had this been a best value competition under FAR Part 15.  FAR 15.306(d) requires a contracting officer to identify an offeror’s deficiencies and significant weaknesses during discussions.  In a LPTA procurement, with a pass/fail evaluation system, “significant weaknesses” aren’t really at issue.  But had this been a best value competition, it is possible that the DLA’s identification of Salient’s “apparently high” labor hours might have been deemed a significant weakness (though not a deficiency), requiring the matter to be raised in discussions.  I’ll keep my eyes peeled for any future GAO cases on this issue.