Requirement that Agency Review Realism of Low Labor Rates Did Not Preclude It from Assessing Realism of All Proposed Rates; Agile Defense, Inc. v. United States, Fed Cir. 2019-1954

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Appeal of COFC decision denying protest is affirmed. The solicitation required the agency to review labor rates that were more than one standard deviation lower than the average of proposed rates. Rates that were within one standard deviation were considered realistic. The protester argued that the agency improperly reviewed rates that were within one standard deviation. The court reasoned that while rates within the deviation were considered realistic, nothing in the solicitation prohibited the agency from reviewing those rates. Nor did the explicit requirement to review below-deviation rates implicitly preclude the agency from reviewing within-deviation rates.

The Defense Information Systems Agency issued a solicitation seeking a variety information technology services. The solicitation contemplated the award of multiple IDIQ contracts. The solicitation provided that award would be made on a lowest-price, technically acceptable basis.

The solicitation stated that DISA would perform a cost realism analysis on proposed cost-reimbursable labor rates. Specifically, DISA would develop an average from the proposed rates and then calculate the standard deviation for each rate. Rates that were one standard deviation below the average were considered realistic. If a proposed rate was more than one standard deviation below the average rate, then DISA would review the supporting documentation. If the documentation did not support the rate, DISA would adjust the rate to be equal to the average.

Agile Defense, Inc. submitted a proposal. DISA determined that many of Agile’s proposed rates were below more than one standard deviation from the average rate. The rates were below-deviation because Agile had based its rates on salaries paid to a pool of workers that included workers who did not meet solicitation requirements. Concerned with Agile’s overall pricing methodology, DISA also examined Agile’s rates that fell within one standard deviation. The agency determined that those rates were also based on wages paid to worker pools that included workers who did not meet minimum solicitation requirements.

DISA notified Agile of this issue during discussions. Agile submitted a revised proposal in which it increased its rates. The rate increase, however, resulted in a total evaluated price that was too high to place Agile among the lowest-priced offerors. Thus, Agile was not selected for award.

Agile filed a protest with the Court of Federal Claims, challenging DISA’s cost realism analysis. COFC denied the protest. Agile appealed to the Federal Circuit.

On appeal, Agile argued DISA’s cost realism analysis was inconsistent with the solicitation. The solicitation provided that a rate that is one standard deviation below the average was considered realistic. Thus, Agile contended, DISA was required to accept all rates that were one standard deviation and thus should not have considered the realism of Agile’s rates that fell within the deviation.

The court did not accept Agile’s argument. The solicitation did not state that rates within the deviation must be deemed realistic. Rather, it stated that within-deviation rates would be “considered” realistic “subject to cost analysis techniques in accordance with FAR 15.404.” Thus within-deviation rates were not per se realistic, but instead subject to additional cost realism scrutiny. Nothing in the language of the solicitation limited DISA  to only assessing the realism of below-deviation rates.

Agile contended that because the solicitation explicitly required DISA to review below-deviation rates, it implicitly precluded the agency from reviewing other proposed rates. But the court noted there was no authority suggesting that an instruction to perform a rigorous analysis of certain proposed rates precludes an agency from reviewing other proposed rates. Indeed, contracting officers enjoy wide latitude in conducting a cost realism analysis.

In a final reductio ad absurdum argument, Agile contended that if DISA were allowed to analyze within-deviation rated it could lead irrational results, permitting DISA to subject a rate that $0.01 less than the average to more scrutiny that a rate that was below-deviation. The court noted that procurement decisions are subject to a rational basis review under the APA. There was no need to assume permitting DISA to review within-deviation rates would lead to irrational or inexplicable results.

Agile is represented by Stephanie Wilson and Terrence O’Connor of Berenzweig Leonard LLP. The government is represented by Barbara E. Thomas, Joseph H. Hunt, Mariana Terese Acevedo, William James Grimaldi, Robert Edward Kirschman, Jr., and Douglas K, Mickle of the Department of Justice.

COFC - Agile Defense