Protest challenging the agency’s upward cost realism adjustment to the protester’s cost proposal is denied, where the protester’s proposed 95 percent retention rate for exempt staff was at odds with its proposal to reduce costs for exempt staff by replacing senior employees with junior staff. GAO also denied the protester’s allegation that the awardee failed to notify the agency of the potential unavailability of key personnel, where both the protester and awardee had experienced attrition since the time of initial proposals, because multiple protests had dragged out the procurement process for four years.
DZSP 21 LLC protested the Navy’s award of a base operations support services contract to Fluor Federal Solutions LLC, arguing the agency misevaluated proposals.
This procurement has been subject to multiple protests. GAO sustained Fluor’s first protest and dismissed its second protest as moot after the Navy took corrective action in response to GAO’s advice that it was likely to sustain the challenge. After the Navy selected DZSP for award for a third time, Fluor filed another protest, which was sustained. After another round of corrective action, the Navy selected Fluor for award, and this protest followed.
The agency’s corrective action in response to the second protest, which was resolved after an alternative dispute resolution procedure, involved limited discussions and proposal revisions. In response to those limited discussions, DZSP introduced a new approach relating to the compensation of its exempt employees in a revision to its cost proposal. However, DZSP did not make a similar change to its technical proposal. In short, DZSP proposed to replace incumbent workers at a rate of a defined percent of its exempt workforce per year and hire new, lower-paid, employees in their place. These new employees would be paid a defined percent of the hourly rates identified in DZSP’s proposal, and this would result in a “decrement” factor applied to all exempt employees’ compensation. Further, the employees that were not replaced in a particular contract year would be given a 1 percent escalation to their hourly rates of compensation (until such time as they were replaced), and this would result in constant exempt employee compensation costs that would not increase over the life of the contract.
In its decision sustaining Fluor’s third protest, GAO noted an inconsistency in the agency’s treatment of Fluor and DZSP in relation to their proposed compensation for their exempt employees. On the one hand, the agency evaluators criticized Fluor for proposing to retain 95 percent of the incumbent exempt employees, but offering hourly rates that the evaluators considered potentially inadequate to achieve that retention rate. In contrast, the agency evaluators did not similarly criticize DZSP for proposing the approach described above, which contemplated an eventual replacement of the entire incumbent exempt employee workforce at least once during performance, even though DZAP also claimed a 95 percent retention rate.
During this reevaluation, the agency’s consideration was limited to the offerors’ cost proposals. The agency determined that DZSP’s cost and technical proposals were inconsistent, and therefore made an upward adjustment to DZSP’s proposed rates of compensation for its exempt employees. The agency found that the cost proposal identified a 95 percent retention rate for incumbent employees; failed to provide any meaningful cost or pricing data to support its proposed annual turnover rate for exempt employees; failed to provide information in its revised cost proposal to justify abandoning its previous estimating practices which utilized multi-year escalation of compensation rates; failed to provide supporting information to demonstrate the feasibility of using the lower compensation rate for new hires; and failed to support the mathematical calculation that its approach would result in a “decrement” factor for all exempt employee compensation. After reaching these conclusions, the agency applied a 1.29 percent escalation factor to DZSP’s exempt employee rates of compensation that resulted in an upward adjustment to its evaluated cost.
DZSP argued this upward adjustment was unreasonable, because the findings of the cost and technical evaluators were inconsistent. Previously, the technical evaluators found DZSP’s proposed annual turnover rate and proposed compensation rate for new hires to be realistic. According to DZSP, this inconsistency rendered the agency’s upward cost adjustment unreasonable.
GAO disagreed. While GAO agreed with DZSP that there was an unreasonable evaluation finding in the record, the error occurred with the conclusions of the SSA, rather than those of the cost evaluation team. GAO noted the SSA agreed that DZSP’s employee replenishment program was unreasonable and unrealistic, but nonetheless credited the DZSP technical proposal with a strength under the staffing and resources factor for proposing to retain between 90 and 95 percent of the incumbent workforce.
GAO found the SSA’s assignment of a strength in relation to DZSP’s proposed retention rate inconsistent with the clear language of the protester’s cost proposal, which expressly stated DZSP proposed to replace a higher percentage of its exempt staff each year of contract performance. GAO found the agency’s error was the SSA’s assignment of a strength to DZSP’s retention rate, not the upward cost realism adjustment.
Next, DZSP challenged the agency’s evaluation of Fluor’s proposal under the staffing and resources evaluation factor. DZSP alleged the agency unreasonably assigned Fluor a strength for offering to retain 95 percent of the incumbent staff. The protester argued that the agency’s technical evaluators found that Fluor’s proposed rates of compensation for exempt employees were too low, and that these low rates could result in Fluor being unable to retain the incumbent exempt workforce, as it proposed to do. In contrast, the CET and SSA assigned a strength to this area of Fluor’s proposal. DZSP argued the technical evaluators were correct.
GAO denied these grounds of protest, finding that even if DZSP is correct, it was not prejudiced by the alleged error, because DZSP was also erroneously assigned a strength in this area.
Next, DZSP argued that certain of Fluor’s key personnel have become unavailable since proposals were submitted, and that Fluor failed to advise the agency of this fact. GAO found no merit to this argument, explaining that while an offeror generally is required to advise an agency where it knows that one or more key employees have become unavailable after the submission of proposals, there is no such obligation where the offeror does not have actual knowledge of the employee’s unavailability.
GAO noted that the Navy made its original award decision in 2014, and found no obligation for Fluor to remain in constant contact with its proposed employees for four years, nor for the proposed employees to stand by waiting for an employment opportunity. Of the four employees identified by DZSP, one was a Fluor employee in good standing at the time of the original offer. While the individual had been released during a reduction in force, Fluor initiated contact with the individual when it was awarded the contract. The other three individuals were not employed by Fluor at the time of initial proposals, but had signed letters of intent expressing their willingness to work on the contract. Although none were currently employed by Fluor, none had advised Fluor that they were not available to work on the contract, should the opportunity arise.
Further, GAO noted that some of DZSP’s proposed key employees resigned or retired since the submission of initial proposals. Nonetheless, DZSP submitted an affidavit asserting these individuals were available to work on the contract should DZSP receive the award. GAO found that both firms may have issues with the availability of key personnel, but that neither intentionally misrepresented their availability, and therefore there was no basis to sustain these protest grounds.
Finally, DZSP challenged the agency’s evaluation of the Guam receipts tax in connection with evaluating the offerors’ cost proposals. According to DZSP, the two firms used a different basis for calculating the GRT, and more specifically for calculating a credit taken against the GRT known as the Guam Registered Apprenticeship Program credit. DZSP maintains that Fluor used a more generous basis to calculate the GRAP credit than DZSP used, which provided Fluor with an unfair competitive advantage in its cost proposal. Specifically, DZSP argued that Fluor took into consideration the direct wages of not only its apprentices, but also its journeymen instructors in calculating the GRAP credit, whereas DZSP used only its apprentices’ direct wages in calculating the credit.
GAO dismissed these grounds of protest, finding that the calculation of the GRT was directly at issue in Fluor’s second protest, because Fluor alleged that it had calculated the GRT differently than DZSP. In responding to that allegation, DZSP argued that there was no basis for the agency even to have known about Fluor’s use of the higher figure, and also that there was no legal obligation for the agency to have accounted for it in performing its cost realism evaluation. Because DZSP previously argued that the agency was not required to observe or account for Fluor’s calculation of the GRAP in its cost realism evaluation, it cannot now argue the opposite.
DZSP 21 LLC is represented by Jason A. Carey, Anuj Vhora, Nooree Lee, John W. Sorrenti, and Alexis N. Dyschkant of Covington & Burling, LLP. Fluor Federal Solutions LLC is represented by Richard B. O’Keeffe, Jr., Samantha S. Lee, George E. Petel, and William A. Roberts III of Wiley Rein LLP. The government is represented by Patricia J. Battin and Richard J. Huber, Department of the Navy. GAO attorneys Scott H. Riback and Tania Calhoun participated in the preparation of the decision.