The protester argued the agency had improperly directed offerors to treat certain costs as indirect costs. The protester reasoned that if it treated these costs as indirect costs, then it would run afoul of a DFARS rule that requires contractors to segregate direct and indirect costs. But GAO found the protester had interpreted the agency’s instruction too literally. The agency had advised offerors to treat the costs at issue as “in essence” indirect costs. The agency had attempted to use indirect costs as an analogy of how to treat these particular costs. The agency had not literally instructed offerors to treat these costs as indirect costs.
Livanta LLC, GAO B-420970, B-420970.2
Background
The Defense Health Agency (DHA) issued an RFP seeking a contractor to help assess the quality of healthcare services delivered under TRICARE, the health care program for active duty service members. The RFP contained 23 contract-line items. Total evaluated price would be the sum of the fixed-price CLINSs. Before proposals were due, Livanta LLC filed a protest challenging the terms of the RFP.
Analysis
Identification of All Items as CLINs
DFARS 204.7103-1 requires agencies to identify all items and services as separate line items. Livanta contended the RFP didn’t adhere to this DFARS provision because it didn’t contain separate CLNS for some of the program management and information technology functions.
But GAO noted that DFARS 204-7102-1 provides that when services involve ancillary functions—like packaging or transportation—the agency doesn’t need to establish separate line items for the ancillary functions. Here, GAO reasoned, the program management and IT tasks identified were ancillary functions supporting larger tasks. The RFP did not need to identify separate line items for these ancillary tasks.
Accounting System
Livanta complained that DHA had unreasonably instructed offerors to treat program management and IT services as indirect costs and to incorporate those costs into unit pricing. Livanta noted that DFARS 252.242-7006 requires contractors to maintain an adequate accounting system that properly segregates direct and indirect costs. Livanta reasoned that it could not treat program management and IT tasks as indirect costs and still maintain a proper accounting system that segregated direct and indirect costs.
GAO found that Livanta had misinterpreted DHA’s instructions. While responding to offerors’ questions, DHA had stated that the program management and IT costs were “in essence indirect costs” that were not directly tied to a line item, so DHA would not direct offerors on how or where to price those costs. GAO believed Livanta had misread this instruction as literally stating that the costs would be indirect costs. But DHA had intended to draw an analogy between how offerors could incorporate these costs with the way they typically incorporate indirect costs. The use of the words “in essence” indicated that the comparison should not be taken literally. DHA had not actually instructed offerors to treat the program management and iT costs as indirect costs.
Unmapped Tasks
Livanta also alleged that some primary tasks—enhancing the clinical quality of websites, researching medical practices—were not mapped to any particular CLIN. GAO didn’t agree. The clinical quality of website task had been identified with a task by a solicitation amendment. The medical research task was reasonably included in a larger assessment task.
Livanta is represented by Daniel P. Graham, Tara L. Ward, and Elizabeth G. Hummel of McDermott, Will & Emery LLP. The agency is represented by Morgan L. Hilgendorf and Bradley E. Richardson of the Defense Health Agency. . GAO attorneys Todd C. Culliton and Tania Calhoun participated in the preparation of the decision.
–Case summary by Craig LaChance, Senior Editor
