TITLE:  DynCorp Technical Services LLC, B-284833.3; B-284833.4, July 17, 2001
BNUMBER:  B-284833.3; B-284833.4
DATE:  July 17, 2001
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DynCorp Technical Services LLC, B-284833.3; B-284833.4, July 17, 2001

Decision

Matter of: DynCorp Technical Services LLC

File: B-284833.3; B-284833.4

Date: July 17, 2001

Carl J. Peckinpaugh, Esq., and Charles S. McNeish, Esq., DynCorp Technical
Services LLC, for the protester.

Sharon A. Jenks, Esq., Gregory H. Petkoff, Esq., and Maj. Deborah L.
Collins, Department of the Air Force, for the agency.

Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

  1. Protest challenging a cost comparison conducted pursuant to Office of
     Management and Budget Circular No. A-76 is sustained, where the agency
     did not consider the cost of government-furnished material as a common
     cost item, as it should have, but accepted the in-house cost estimate,
     which deducted the value of government-furnished material to be
     supplied to the winner of the competition, and did not adjust the
     protester's proposal for a cost-reimbursement contract, which did not
     deduct the value of the government-furnished material.
  2. In a negotiated procurement conducted pursuant to Office of Management
     and Budget Circular No. A-76, in which the private-sector offer was to
     be selected on the basis of a cost/technical tradeoff, and where the
     solicitation encouraged offerors to exceed the solicitation's minimum
     performance schedule, the agency improperly failed to ensure that the
     in-house cost estimate and the protester's offer were based upon the
     same scope of work and performance standards, where the protester
     proposed an accelerated performance schedule, which exceeded the
     minimum requirements and contributed to the protester's selection as
     the offeror to compete against the agency's most efficient organization
     (MEO), and the MEO proposed to satisfy the minimum performance schedule
     requirements.

DECISION

DynCorp Technical Services LLC protests the decision of the Department of
the Air Force under request for proposals (RFP) No. F41689-99-R-0025 to
retain in-house (rather than contract-out) performance of base operation
services at Maxwell Air Force Base and Gunter Annex in Alabama. The decision
to retain the services in-house was as a result of a cost comparison
pursuant to Office of Management and Budget (OMB) Circular No. A-76, which
compared DynCorp's proposal to perform the work against the technical
performance plan and management plan of the agency's Most Efficient
Organization (MEO). [1]

We sustain the protest.

The RFP provided for the award of a cost-plus-incentive-fee contract (with
fixed overhead) for base operation services for a 2-month mobilization
period, a 2-month basic period, and 5 option years. [2] RFP sect. B-1 at 3.
Notwithstanding the initial 2-month period stated for mobilization of
personnel, equipment and material, offerors were not required to fully
assume responsibility for the contract work until 90 days after the
commencement of the basic period--that is, 30 days into the first option
period. [3] RFP, attach. 9, Transition Plan for Maxwell Base Operating
Support Functions, at 1. In addition, the RFP stated that it "encourage[d]
innovation by potential service providers seeking ways to shorten the
scheduled transition time and to minimize problems during the transition"
and that "[i]t is the Government's intention to withdraw its workforce as
the service provider demonstrates the capability of assuming full
responsibility in each service area." Id.

Offerors were informed that the RFP was issued as part of a government cost
comparison to determine whether accomplishing the specified work under
contract or by government performance was more economical. If government
performance was determined to be more economical, then no award under the
RFP would be made and the solicitation would be canceled. [4]

The services sought are in 18 areas: information technology, community
services, custodial, emergency management, energy management, engineering
services, environmental, transportation, site maintenance, housing, human
resources, airfield support, supply, operations and maintenance, resource
management, publications and forms management, space management, and
marketing and publicity. RFP Performance Requirements Document (PRD). [5]
For these service areas, the PRD described performance requirements,
workload estimates, and historical material consumption. The PRD also
identified facilities, property, and material to be furnished by the
government. Regarding government-furnished material, offerors were informed
that:

[t]he contractor will be provided an initial inventory of supplies/materials
at contract start as indicated in the [PRD]. Any additional
supplies/materials for [base operation support] or authorized customers
shall be provided by the contractor. The contractor shall bid those costs
into either the target cost (CPIF CLIN) or the firm fixed-overhead CLIN.

RFP sect. H-908(b) at 33. With respect to material necessary to perform
maintenance services, the estimated value of the material to be furnished
the contractor was stated to be $1,318,089. See PRD sect.sect. 7 (energy management
area), 8 (engineering services), 11 (site maintenance), and 16 (operations
and maintenance).

Offerors were also informed that in selecting the offer that would compete
against

the MEO, the agency would evaluate offers under the following evaluation
factors:

 Past performance

 Mission capability

        Performance management

        Program management

        Technical capability

        Mobilization and transition

 Cost

 Proposal risk

RFP sect. M at 68. The RFP provided that past performance, mission capability,
and proposal risk were together significantly more important than cost. Id.
A detailed description of each of the evaluation factors was provided that
explained how proposals would be evaluated. Among other things, offerors
were informed that the agency would adjectivally evaluate proposals as being
either exceptional, acceptable, marginal, or unacceptable. An offeror's
proposal would receive an exceptional rating, if it "exceeds specified
minimum performance or capability requirements in a way beneficial to the
Air Force." RFP sect. M-900 at 69.

Offerors were also informed that the agency would determine an offeror's
probable cost of performance, as follows:

[t]he probable cost to the Government will be based on the Government's cost
realism analysis. The cost realism analysis will be an independent
Government review and evaluation of each offeror's proposed cost estimate by
the [contract line items] in Schedule B. The Government's probable cost is
determined by adjusting each offeror's proposal to reflect any additions or
reductions in cost elements to realistic levels based on the results of the
Government's cost realism analysis . . . . The Government's probable cost
may differ from the proposed cost and will reflect the Government's best
estimate of the cost of any contract that is most likely to result from the
offeror's proposal.

RFP sect. M-900 at 71-72.

The Air Force received eight offers in response to the RFP. Contracting
Officer's Statement at 2. Several rounds of discussions were conducted with
the offerors, including DynCorp, and oral presentations and best and final
offers were received. With respect to mobilization and transition, DynCorp
offered an accelerated performance schedule under which DynCorp would be
fully staffed as of C day (the first day of the basic period) and would
incrementally have its personnel assume responsibility for the service areas
with full assumption of all the work 60 days after C day (or 30 days earlier
than required by the PRD). [6] See Statement of Contract Officer's
Representative (June 18, 2001); DynCorp Technical Proposal, Revision No. 7,
Figure 2.4-1 (July 14, 2001). DynCorp's cost proposal, which included the
costs of all its proposed staff from C day, was consistent with this
accelerated schedule. See Statement of Contract Specialist (June 18, 2001)
at 1.

DynCorp's technical proposal was evaluated by the agency's evaluation team
as follows:

 Past performance               Exceptional

 Mission capability

     Performance management     Exceptional/Low risk

     Program management         Exceptional/Low risk

     Technical capability       Acceptable/Low risk

     Mobilization and           Exceptional/Low risk
     transition

Under the mobilization and transition subfactor, the evaluators favorably
cited DynCorp's offered accelerated transition schedule as one of a number
of strengths justifying DynCorp's overall exceptional rating. Agency Report,
Tab 16, SSA Technical Leveling Briefing (Nov 1, 2000) at 23. With respect to
the accelerated transition schedule, the evaluators noted that DynCorp
offered "[r]ecruiting and employing experienced, trained, and qualified
personnel available as of the first day of performance," an "aggressive
mobilization period [that] provides for a convincing case that the offeror
can complete the transition period in their proposed compressed schedule,"
and an "option for an accelerated 60 day schedule saving the government time
and money." Hearing exh. No. 1, Evaluation Notices, at 4. [7]

As a result of cost discussions, DynCorp increased its estimated costs in a
number of areas, including estimated material costs, in response to repeated
agency queries requesting justification for material costs that were less
than the historical consumption figures. Agency Report, Tab 11, Cost
Evaluation Report (Aug. 11, 2000), at 28. After the final proposal
revisions, the Air Force accepted DynCorp's proposed costs and made no
probable cost adjustments to DynCorp's proposed costs. Agency Report, Tab
11, Cost Evaluation Report (Aug. 11, 2000) at 1. DynCorp's offer was
selected to be compared to the in-house cost estimate. Agency Report, Tab
12, Source Selection Decision, at 3.

After selection of DynCorp's offer, the MEO's technical performance plan and
management plan were opened and evaluated by the agency's evaluation team.
Contracting Officer's Statement at 5. Discussions were conducted with the
MEO, and revisions made to the technical performance plan/management plan.
The MEO's technical performance plan received the identical evaluation
ratings that DynCorp's offer had achieved under the mission capability
factor. The source selection authority (SSA) was briefed as to the relative
technical quality of DynCorp's and the MEO's proposals, and concluded that
DynCorp and the MEO offered "the same level of performance and performance
quality." Agency Report, Tab 16, SSA Decision to Proceed to Cost Comparison
(Nov. 3, 2000), at 1.

With respect to the mobilization and transition subfactor, the SSA accepted
the evaluators' conclusions that both DynCorp and the MEO offered
exceptional recruiting and training plans and comprehensive transition
plans. The evaluators noted that DynCorp offered "an optional 60 day
phase-in schedule should the Government choose to accelerate the
change-over." Agency Report, Tab 16, SSA Technical Leveling Briefing (Nov 1,
2000), at 23. The Air Force accepted the protester's 60-day transition
schedule. Statement of the Administrative Appeal Process Review Team Chief
(May 9, 2001) at 6-7. In contrast, the MEO proposed to meet the RFP's
minimum phase-in schedule, which required full assumption of the contract
work within 90 days of C day. See RFP, attach. 9, Transition Plan for
Maxwell Base Operating Support Functions, at 1.

The SSA directed the agency to proceed to the cost comparison, and the
in-house cost estimate was opened. As a result of the initial cost
comparison, the Air Force found that performance by the MEO cost less than
performance by DynCorp. Specifically, after adjustments, the agency
concluded that the MEO's cost of performance would be $182,497,773 as
compared to DynCorp's costs of $189,064,524, a difference of more than $6.5
million. Agency Report, Tab 17, Cost Comparison Form (Nov. 27, 2000).

After receiving a debriefing, DynCorp appealed the agency's cost comparison
decision to the administrative appeal process authority (AAPA). Agency
Report, Tab 21, DynCorp Appeal (Dec. 26, 2000). DynCorp asserted 15 errors
in the agency's cost comparison that would, if corrected, result in the
selection of DynCorp's offer as being lower cost than the MEO. Among other
things, DynCorp complained that it had offered an earlier performance
schedule (that is, full performance from the first day of the basic
period--C day) than that offered by the MEO. DynCorp also challenged the
MEO's lower estimated material costs, and complained that the MEO took a
credit against its estimated material costs for the value of the
government-furnished material and did not propose to replenish the
inventory, as did DynCorp.

The AAPA appointed a review team to aid him in reviewing the appeal. The
AAPA reviewed the solicitation, the evaluation record and cost comparison
documents, and the MEO's technical performance plan and management plan, and
interviewed technical evaluators, the independent review officer, and MEO
preparation personnel. Statement of the Administrative Appeal Process Team
Chief at 2-3. From this review, the AAPA prepared a draft decision, which
was circulated to the MEO, an employees union, and DynCorp for comments.
Subsequently, the AAPA issued a decision, which partially approved some of
DynCorp's appeal grounds. Agency Report, Tab 25, Appeal Decision (Mar. 29,
2001).

The AAPA denied DynCorp's appeal concerning the government-furnished
material, finding that the MEO properly estimated the amount of material
necessary to perform the work and reduced its estimated material costs for
the contract work by the amount of the government-furnished material. In
this regard, the AAPA found that the government-furnished material was
provided to "reduce the overall cost of contract performance." Agency
Report, Tab 25, Appeal Decision, at 22-25. The AAPA did not address the fact
that the MEO deducted the value of the government-furnished material and
that DynCorp's proposal did not. [8]

The AAPA also denied DynCorp's appeal that the MEO should be "leveled" to
DynCorp's offered accelerated performance schedule. The AAPA found that,
although DynCorp offered to fully assume the contract work 30 days earlier
than did the MEO, DynCorp and the MEO were both evaluated as being
exceptional under the mobilization and transition subfactor and were
therefore, in the AAPA's and agency's view, at equivalent levels of
performance. Id. at 3-4.

The AAPA directed that a revised cost comparison be conducted in accordance
with his decision. The agency determined that, even after the AAPA directed
adjustments were made, performance in-house was $1.1 million less costly
than performance by DynCorp, as shown by the following table:

                                 MEO                   DynCorp

 Total proposed costs            $197,935,127          $183,791,276

 Contract administration         0                     5,724,210

 One-time conversion costs       0                     467,994

 Federal income tax              0                     (918,956)

 Total adjusted costs            197,935,127           189,064,524

 Minimum conversion              (10,000,000)          0
 differential

 Final adjusted costs            $187,935,127          $189,064,524

Agency Report, Tab 27, Revised Cost Comparison Form (Mar. 27, 2001).

Following notification of the results of the revised cost comparison,
DynCorp protested to our Office. DynCorp challenges numerous aspects of the
cost comparison, all of which were raised in its administrative appeal.

Where, as here, an agency has conducted a cost comparison under OMB Circular
No. A-76, thus using the procurement system to determine whether to contract
out or to perform work in-house, our Office will consider a protest alleging
that the agency has not complied with the applicable procedures in its
selection process or has conducted an evaluation that is inconsistent with
the solicitation criteria or is otherwise unreasonable. See Trajen, Inc.,
B-284310, B-284310.2, Mar. 28, 2000, 2000 CPD para. 61 at 3. To succeed in its
protest, the protester must demonstrate not only that the agency failed to
follow established procedures, but also that its failure could have
materially affected the outcome of the cost comparison. BAE Sys,. B-287189,
B-287189.2, May 14, 2001, 2001 CPD para. 86 at 19.

Here, DynCorp notes that, although the MEO deducted the value of the
government-furnished material ($1.3 million) as a credit against its total
estimated material costs, DynCorp did not take or receive a similar credit
for the value of the government-furnished material. Instead, DynCorp's cost
proposal reflected the firm's estimate of all the anticipated material costs
for contract performance, unreduced by the value of the government-furnished
material. [9] DynCorp asserts that the value of the government-furnished
material is a common cost item that should be treated similarly in DynCorp's
proposal and the in-house cost estimate. Protester's Comments at 18. DynCorp
contends that if the $1,318,089 of government-furnished material had been
deducted from DynCorp's estimated costs, as was done with the in-house cost
estimate, DynCorp would have been found to offer performance at a lower cost
than the MEO.

The RSH and Air Force Instruction (AFI) 38-203 (Aug. 1, 2000) provide
guidance for the preparation of the in-house cost estimate and conduct of
the cost comparison between the private-sector offeror and the MEO. In
developing the government's estimated cost of performance, the RSH provides
that costs, which would be same for both in-house and contractor performance
(that is, "common" or "wash" costs),

should not be computed or entered into the cost comparison. RSH, part II,
ch. 2, para. A.3. With respect to material costs, the RSH provides that:

[m]aterial costs are calculated only if the materials are used by the
activity and will not be provided to the contractor or [interservice service
agreement] provider by the Government

and directs the agency to:

[r]eview the [performance work statement] to determine the materials
required for in-house performance that will not be furnished to the
contractor or [interservice service agreement] provider.

RSH, part II, ch. 3, para.para. C.1, C.2. The Air Force's own instructions also
provide that common or wash costs not be computed and identifies
government-furnished equipment, facilities and materials as examples of such
costs. AFI 38-203, ch. 12, para. 12.4.1.

The Air Force does not dispute that the in-house cost estimate deducted the
value of the government-furnished material from its estimated material costs
and that DynCorp's cost proposal does not expressly account for, or mention,
the government-furnished material. The Air Force apparently believes,
however, that it need not account for DynCorp's failure to address the
government-furnished material in its proposal because this was DynCorp's
approach to performing the contract. See Statement of Contract Specialist
(June 7, 2001) at 2-3; VT at 10:08.

We do not believe that DynCorp's failure to account for the
government-furnished material could be ignored by the agency, where the MEO
took a credit for the government-furnished material. As indicated above, the
RFP provided for the award of a cost reimbursement contract, which required
the Air Force to evaluate offerors' probable costs of performance. Federal
Acquisition Regulation sect. 15.305(a)(1); CACI, Inc.--Fed., B-216516, Nov. 19,
1984, 84-2 CPD para. 542 at 14 (evaluation of realistic costs of performance can
include both upward and downward adjustments). As acknowledged by the AAPA
in resolving DynCorp's challenge to the MEO handling of the costs of the
government-furnished material, the government-furnished material would be
provided to either DynCorp or the MEO "in order to reduce the overall cost
of contract performance." Agency Report, Tab 25, Appeal Decision (Mar. 29,
2001), at 23; see also Statement of Administrative Appeal Process Team Chief
(May 9, 2001) at 20 ("it would be imprudent for either the protester or the
MEO to not consider the value of this Government-Furnished Material when
calculating costs"). Although the MEO accounted for the government-furnished
material, DynCorp did not, which unrealistically increased DynCorp's
probable costs of performance. [10] As the Air Force acknowledges, during
performance of a contract, DynCorp would receive the government-furnished
material at no cost and be required to use it for the Air Force's benefit,
reducing DynCorp's incurred material costs and thus its cost of performing
the contract. VT at 10:07, 10:08-09.

In sum, we find that the value of the government-furnished material, which
would be provided to either the successful private-sector offeror or the
MEO, is a common cost item that should have been deducted from both sides'
estimated material costs. DynCorp, however, did not reduce the value of its
estimated material costs by the value of the government-furnished material,
[11] and the Air Force did not make any adjustments to DynCorp's estimated
material costs to account for the value of the government-furnished
material. Deducting the value of the government-furnished material
($1,318,089) from DynCorp's estimated material costs reduces DynCorp's total
adjusted costs to $187,746,435, as compared to the MEO's total adjusted
costs of $187,935,127. Accordingly, performance by DynCorp is less costly
than performance by the MEO. [12]

DynCorp also complains that the MEO did not offer the same level of
performance and quality during the basic and first option period as that
proposed by DynCorp. Specifically, DynCorp states that it offered to be
fully staffed to perform the contract on C day (the first day of the basic
period) and to fully assume responsibility for the contract work by 60 days
after C day, which is 30 days quicker than was required by the PRD and than
the schedule offered by the MEO. DynCorp argues that the Air Force evaluated
DynCorp's mobilization and transition plans as being exceptional with low
risk and selected DynCorp to compete against the MEO based upon its superior
approach to mobilization and transition, including DynCorp's accelerated
performance. In contrast, the in-house cost estimate was based upon the MEO
fully assuming responsibility for performance of the service areas work only
90 days after C day, the minimum required by the PRD. DynCorp states that if
the MEO were brought up to the same level of performance as that offered by
DynCorp, that is,