Government Contracts Monitor

Good News: You Can Still Win a Protest on Price Analysis Grounds

January 27, 2014

By: Eric Whytsell

When conventional wisdom says that protests challenging an agency’s price analysis are hard to win, it’s right. They are. The nature of the price analysis used falls within the agency’s reasonable discretion -- and agencies often have little trouble establishing that their price analysis was reasonable. However, the recent case of AXIS Management Group LLC, B-408575 (Comp. Gen. Nov. 13, 2013), demonstrates that protesters can still win on price analysis grounds – if they have the right facts to work with and take the right approach.

AXIS involved an award to Cherokee Nations Technology Solutions, Inc. (“Cherokee”) by the Department of the Interior, U.S. Geological Survey (USGS), for laboratory operational support at the agency’s National Water Quality Laboratory (NWQL). The Request for Proposals (RFP) sought proposals for an indefinite-delivery/indefinite-quantity contract with task orders to be issued on a fixed-price and labor-hour basis for services to be performed over one base year and up to four option years. The RFP called for proposal evaluation on a best value basis, with price and four non-price factors considered. Overall technical merit was significantly more important than evaluated price, but price would become the determining factor between proposals judged to be essentially equal in technical merit.

Offerors were instructed to submit unit pricing for two fixed-price contract line item numbers (CLINs) and to propose labor categories, number of hours and hourly rates for three other CLINs. For each of these CLINs, the RFP required offerors to list proposed labor categories, number of hours, and rates on an included pricing sheet. Offerors were instructed that all task descriptions identified in the SOW must be priced.

The SOW provided historical staffing levels for 26 separate labor categories from fiscal year (FY) 2006 through FY 2012, but the historical data showed staffing for only 12 of the 26 identified labor categories, with the data listed as fractions of full-time equivalent (FTE) staffing. The solicitation did not list the historical labor hours for each FTE. The SOW did, however, set forth training, quality assurance, safety management, work days/hours requirements as well as various task descriptions. The task descriptions corresponded to the CLINs set forth in the schedule of supply/services as well as the pricing sheet. Each task description set forth performance-based tasks, contractor qualification, training, and quality assurance requirements. Finally, while the SOW set forth historical staffing levels, it did not include staffing estimates or annual labor hour requirements.

After establishing a competitive range consisting of AXIS and Cherokee, the agency conducted discussions with each offeror. In its initial technical evaluation with AXIS, the agency found no deficiencies, various strengths, and a few weaknesses, most notably that AXIS’ labor mix caused “a concern in regards to laboratory technician positions [because] 1880 hours per year is 40 hours below the standard and is a concern for maintaining current work requirements.” The competitive range determination also synopsized AXIS’ technical evaluation, identifying concerns with AXIS’ use of 1880 hours per year (instead of 1920) as a basis for its labor hours CLINs. The agency discussed these concerns (as well as others) with AXIS, but AXIS chose not to submit a revised proposal.

The agency ultimately awarded the contract to Cherokee based on its higher technical rating and lower evaluated price of $4,813,859.16 versus AXIS’ evaluated price of $4,914,872.10. After a timely debriefing, AXIS protested, arguing in part that the agency failed to conduct a rational price evaluation. More specifically, AXIS contended that the agency improperly adjusted its evaluated price to conform to an internal agency objective for level of effort and labor mix, despite its technical evaluation finding that AXIS’ proposed solution “was appropriate, contained strengths, and warranted an acceptable rating.”

As noted above, the Government Accountability Office (GAO) reviews an agency’s proposal evaluation for reasonableness and to ensure it is consistent with the terms of the solicitation, applicable statutes and regulations. GAO does not second guess the agency’s decision with respect to the “depth” of the price analysis used, only that the analysis performed is reasonable.

Here, while AXIS had based its proposed price of $3,824,972.80 on an 1880 hour per year FTE, its proposed labor rates, and its proposed labor mix based on its understanding of the SOW, the agency adjusted AXIS’ proposed labor hours upwards from 1880 to 1920 in order to “match the historical data and the current requirement of the NWQL.” Citing the same reason, the agency also adjusted both offerors’ labor category mixes. According to the agency, “since the focus of the labor hour CLINs was on the hourly labor rates, the number of hours and labor mix to calculate the estimated full cost should be consistent for both offerors.” These adjustments raised AXIS’ evaluated price to $4,914,812.10.

GAO found the agency’s actions in this regard to constitute an improper normalization of the offerors’ labor hours and labor mix because the “varying costs between competing proposals result from different technical approaches that are permitted by the RFP.” The RFP “required offerors to submit proposed labor hours, labor rates, and a labor mix based on their assessments of task descriptions set forth in the SOW” and provided that the technical evaluation would assess each offeror’s understanding of the requirements and approach, including overall staffing. According to GAO, it was unreasonable under those circumstances for the agency to substitute the labor hours and labor mix proposed by AXIS with its own internal estimates because such substitution ignores the RFP-established potential for differing labor hours and labor mix based on differing technical approaches.

GAO summarized its holding as follows: “[W]here, as here, an RFP permits offerors to propose a technical approach and informs them that it intends to evaluate that approach, including proposed labor hours, labor rates and labor mix, its subsequent price evaluation cannot ignore proposed labor hours and labor mix, as such an evaluation ignores the potential for differing hours and labor mix based on differing technical approaches.”

The takeaway? If you want to prevail on a price analysis protest, you cannot simply attack the price analysis in a vacuum. Instead, you must focus on establishing an inconsistency between what the RFP says about the nature of the evaluation and what price analysis was actually performed.

J. Eric Whytsell is the attorney responsible for the content of this article.

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