Feb 18, 2015

Every once in a while I come across cases or protests that serve as excellent tutorials. The protest of Prism Maritime, LLC is one such example. Prism protested the award of a task order to Valkyrie Enterprises by the Department of the Navy (DON) for alteration installation team support and asset staging services. The contract to be awarded would be cost reimbursable with both CPIF and CPFF elements.   The RFP stated that DON would perform a cost realism evaluation of the offerors’ proposed costs to determine whether those costs were realistic and complete to perform the contract in light of each offeror’s proposed technical approach and understanding of the requirements. One of Prism’s grounds of protest was that DON failed to perform an adequate cost realism analysis. From the GAO decision:

Since this is largely a labor-intensive contract, the agency was required to give meaningful consideration to whether the offerors’ proposed direct labor rates were realistic to attract and retain the personnel that will be required to perform the contract. Simply checking to determine whether or not an offeror has proposed the minimum Service Contract Act wage rate does not satisfy the agency’s burden of meaningfully considering whether the rates proposed are realistic.

Second, with respect to the evaluation of the Valkyrie proposal, no meaningful evaluation of the firm’s proposed wages could reasonably have been performed in any event, since Valkyrie did not specify which of its proposed employees were junior, mid-level and senior. It follows that, since the agency did not know what mix of staffing was being proposed, it could not have meaningfully judged whether the proposed rates were realistic.

The GAO also noted that DON improperly used the offeror’s proposed, rather than evaluated costs, in making the source selection decision. And finally, GAO found that DON ignored the type of contract that would be awarded noting that a major portion of the task order was CPIF where a lack of meaningful cost realism analysis can defeat the purpose of the incentive fee structure and cause performance risk.

Quick takeaways:

  1. For the source selection team – merely checking a contractor’s proposed rates against SCA rates does not meet the definition of analysis
  2. For contractors – specify the labor mix when bidding a contract with cost realism analysis as an evaluation factor and where proposed staffing is critical to show an understanding of the technical requirements
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