Agency Reasonably Rejected Proposal Due to Stingy, Unsupported Labor Rates; OBXtek, Inc., GAO B-417880 et al.


Protest challenging agency’s rejection of a proposal as ineligible is denied. The agency rejected the protester’s proposal because the labor rates were lower than minimum rates set forth in the solicitation, and the protester was unable to justify the lower rates. The protester argued that the agency had applied unstated criteria in evaluation the proposed rates, but GAO found that offerors were on notice that the agency would evaluate rates to assess whether offerors could attract and retain staff. The protester also argued that the agency had erred in considering past performance information as part of its price evaluation. But an agency can reasonably consider one element of proposal under different evaluation criteria. The protester further argued that the price evaluation was flawed because the agency refused to accept the protester’s salary surveys. GAO found that the agency could reasonably reject surveys that it found unreliable and instead require actual compensation data from the protester.

The Defense Health Agency issued two RFP’s for the award of task orders to provide contracting and acquisition support services. The RFP’s included a Labor Category Minimum Compensation Matrix that provided minimum hourly rates for each labor category. Offerors that proposed rates below the rates identified in the minimum compensation matrix were required to demonstrate that they could hire and retain staff despite the low rates.

OBXtek, Inc. submitted proposals in response to the RFP’s. The vast majority of the OBXtek’s proposed rates were lower than the rates provided in the compensation matrix. DHA found that OBXtek’s justification for the low rates was based salary survey data that did not provide a reliable baseline. Accordingly, DHA concluded that OBXtek had failed to justify its low rates and thus was ineligible for award. OBXtek protested.

OBXtek first contended that DHA applied unstated evaluation criteria in its price evaluation by relying on an internal agency memorandum that included an evaluation methodology that was not disclosed in the RFPs. Thus, there was nothing in the RFPs that put offerors on notice of the specific data points the agency was seeking.

GAO did not agree that DHA’s areas of consideration could not anticipated from the criteria in the RFPs. The RFP required offerors who proposed low labor rates to provide evidence showing that they could hire and retain personnel. Whether an offeror has been historically able to attract and retain staff at low rates is a logical basis of consideration because this provides evidence that proposed rates are appropriate. Indeed, OBXtek’s own proposal provided a lot of information about its fill rates, which indicated that the company had anticipated that type of data would be relevant to the evaluation.

GAO further found that the OBXtek apparently misunderstood the standard GAO applies when assessing an agency’s evaluation of labor rates. When a solicitation provides that an agency will evaluate rates to ensure that offerors will be able to attract and retain employees, the evaluation is effectively a price realism analysis. GAO does not require agencies to disclose their methods of price analysis so long as the methods are reasonable. Here, the agency’s method for evaluating price was apparently reasonable, so GAO had no reason to question DHA’s conclusions.

Next, OBXtek argued that DHA had erred in considering outdated past performance information. Specifically, OBXtek complained that DHA had considered an interim CPARS. GAO determined, however, that the agency did not rely on the interim, allegedly outdated CPARS. Rather, DHA’s concern had been OBXtek’s fill rate on a current contract with the Air Force.

OBXtek also argued that DHA should not have considered negative past performance information—specifically, its problems with staffing on another contract—as part of the price evaluation. In doing so, OBXtek contended, DHA double counted or exaggerated the significance of the past performance factor. GAO rejected this argument noting that an agency may properly consider an element of a proposal under more than one evaluation criterion where the element is relevant and reasonably related to each criterion under which it is considered.

OBXtek asserted that the price evaluation was unreasonable because DHA declined to accept the company’s salary survey data and instead insisted on actual historic compensation data. GAO found that this argument amounted to disagreement with DHA’s judgment. Even accepting OBXtek’s assertion that many employers rely on salary survey data, DHA was not thereby compelled to rely on that data. DHA was not confident that the data in the surveys reflected the actual compensation required to attract and retain qualified staff, particularly in the absence of evidence that OBXtek had actually hired and retained staff at those rates.

Finally, OBXtek argued that DHA had erred in evaluating the company’s proposed fringe benefits by comparing them to the benefits received by federal employees instead of those provided in the private sector. GAO did not find this problematic. Given that the potential applicant pool for many of the positions required by the RFPs would be limited to current or former federal employees, it was entirely reasonable for DHA to evaluate OBXtek’s proposed fringe benefits against federal benefits.

OBXtek is represented by Aron C. Beezley, Sarah Osborne, Lisa Markman, and Patrick R. Quigley of Bradley Arant Boult Cummings LLP. The intervenor, Amyx, is represented by James Y. Boland, Christina Wood, and Michael Francel of Venable LLP. The agency is represented by Ian F. Rothfuss, and John G. Terra of the Defense Health Agency. GAO attorneys Michael Willems and Edward Goldstein participated in the preparation of the decision.

GAO – OBXtek