L-3 Communications Corporation, Ocean Systems Division, B-

L-3 Communications Corporation, Ocean Systems Division, B- BNUMBER: B-281784.3; B-281784.4 DATE: April 26, 1999 TITLE: L-3 Communications Corporation, Ocean Systems Division, B- 281784.3; B-281784.4, April 26, 1999 ********************************************************************** DOCUMENT FOR PUBLIC RELEASE The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release. Matter of:L-3 Communications Corporation, Ocean Systems Division File: B-281784.3; B-281784.4 Date:April 26, 1999 John H. Horne, Esq., Steffanie F. Walke, Esq., Carl A. Gebo, Esq., David C. Hammond, Esq., and Mary Baroody Lowe, Esq., Powell, Goldstein, Frazer & Murphy, for the protester. Thomas L. McGovern III, Esq., Michael F. Mason, Esq., Robert J. Kenney, Jr., Esq., and S. Gregg Kunzi, Esq., Hogan & Hartson; and Bucky P. Mansuy, Esq., for Lockheed Martin Integrated Systems, Inc., the intervenor. Josie C. Serracin, Esq., Michael Glennon, Esq., Eileen White, Esq., Kelly Swartz, Esq., and Trina Alexander, Esq., Department of the Navy, Naval Sea Systems Command, for the agency. Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision. DIGEST 1. Protest of agency's upward adjustment to protester's cost proposal in evaluation for cost realism is sustained where agency improperly relied on an unaudited summary of indirect rate data obtained from the Defense Contract Audit Agency (DCAA) which was rescinded by the protester as unauthorized and invalid shortly after submission to DCAA. Although DCAA failed to notify the contracting agency, prior to award, of the rescission of those rates, agency's use of the rescinded rates nevertheless was improper because the agency made no attempt at verifying their reliability, despite the fact that the rates were unsupported, summary in nature, and not reviewed by DCAA. Further, even after the contracting agency had actual knowledge of the rescission of those rates, it improperly continued to rely on those rates in conducting post-award re-analysis of the protester's indirect rates. 2. Agency's disallowance of protester's proposed uncompensated overtime (UCOT) is unobjectionable where contemporaneous evaluation record adequately documents agency's legitimate concerns regarding the protester's proposal's lack of detail about the firm's successful use of UCOT on prior contracts, and the UCOT proposal's potential adverse effects on employee morale and retention, and contract performance. DECISION L-3 Communications Corporation, Ocean Systems Division, protests the award of a contract to Lockheed Martin Integrated Systems, Inc. under request for proposals (RFP) No. N00024-98-R-6207, issued by the Department of the Navy, Naval Sea Systems Command (NAVSEA), for the design and production of Omnibus Towed Array Systems. L-3 contends that the agency improperly adjusted its proposed costs upward in evaluating the firm's proposal for cost realism; specifically, the protester challenges as unreasonable the agency's upward adjustment of L-3's proposed indirect rates on the basis of alleged erroneous and invalid L-3 rate data obtained from the Defense Contract Audit Agency (DCAA), failure to accept L-3's "fixed price" subcontractor costs as proposed, and disallowance of L-3's proposed uncompensated overtime. Additionally, L-3 protests the propriety of the agency's best value determination on the ground that selection of an offeror that submitted the lower-cost, lower technically rated proposal was unreasonable and inconsistent with the RFP's evaluation scheme, which provided that the technical considerations were to be more important than cost.[1] We sustain the protest in part, and deny it in part.[2] BACKGROUND The solicitation The RFP, issued on April 16, 1998, contemplated the award of a cost-plus-fixed-fee, level-of-effort engineering services contract, with options for cost-plus-incentive-fee low rate initial production (LRIP) and an ordering provision for fixed-price full rate production of Navy towed systems.[3] Offerors were to base their proposals on four sample tasks considered indicative of the type of work required under the contract. Section M of the RFP set forth the evaluation factors for award, where the technical proposal was "more important" than the cost proposal.[4] RFP sec. M, para. 2.1, at 222. Offerors were advised of the agency's willingness to pay a cost premium for a technically superior proposal offering the best value to the government. RFP sec. M, para. 3.3, at 230. Sections L and M of the RFP provided instructions regarding the preparation and submission of cost proposals. Offerors were notified that the agency would evaluate proposals for reasonableness and realism. RFP sec. M, para. 2.7.1, at 225.