Government Contracts Cost Realism Analysis Resulted in Disparate Treatment
Wednesday, August 29, 2018

Cost Realism Analysis Resulted in Disparate Treatment

By Government Contracts Editorial Staff

The Comptroller General sustained a protest of a cost realism analysis because the government’s methodology resulted in disparate and heightened scrutiny of the protester’s proposal while failing to evaluate the realism of the awardee’s proposed labor rates. The request for proposals to provide support services to the Nuclear Enterprise Support Directorate’s balanced survivability assessments teams contemplated the award of a cost-plus-fixed-fee contract, with options. The RFP stated the government would perform a cost realism analysis and calculate an offeror’s most probable cost. As part of the analysis, the government conducted a “labor rate review,” adjusting direct labor rates only where it obtained verification of the rates from the Defense Contract Audit Agency. This resulted in upward MPC adjustments of $82,555 to the awardee’s cost proposal and $847,618 to the protester’s proposal. The government also declined to accept the protester’s proposed three-percent reduction in labor rates. In selecting the awardee’s $61,853,816 MPC proposal over the protester’s more highly rated $79,905,368 MPC proposal, the source selection authority found there was “not enough value in the advantages of the [protester’s] proposal to justify $18,051,552, or [a] 29.18% increase in cost to perform the work.” The protester, which was the incumbent, contended the government’s decision to adjust only labor rates verified by the DCAA was unreasonable, resulted in disparate treatment, and failed to meaningfully analyze the awardee’s proposed direct labor rates.

Exclusive Reliance on DCAA-Verified Rates. The Comptroller General found the government’s use of historical direct labor rates verified by the DCAA unobjectionable, and there was no basis to question the government’s decision not to accept the protester’s proposed rate reductions and to use historical rates instead. However, the government erred in using DCAA-verified rates exclusively and failing to meaningfully analyze direct labor rates that DCAA did not verify. Because the protester was the incumbent, the government adjusted many of its rates to conform to those paid under the incumbent contract. In contrast, the government adjusted only two of the awardee’s proposed rates and apparently did not scrutinize the awardee’s other proposed rates. Even though rates proposed by other offerors and the independent government cost estimate were available and the IGCE showed the government’s estimates of direct labor costs were generally much higher than those proposed by the awardee, the government made no further MPC adjustments to the awardee’s rates. The government’s exclusive use of DCAA-verified rates was unreasonable and resulted in disparate treatment. It also was unreasonable for the government to attribute greater confidence to the awardee’s proposal for attempting to recruit incumbent employees without analyzing the impact of the awardee’s significantly lower direct rates. The Comptroller General recommended that the government conduct a reasonable cost realism analysis of the two proposals and a new best-value tradeoff analysis. (ENSCO, Inc., 33 CGEN ¶116,055)

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