BNUMBER:  B-261827.3
DATE:  February 1, 1996


A protected decision was issued on the date below and was subject to a 
GAO Protective Order.  This version has been redacted or approved by 
the parties involved for public release..
Matter of:TDS, Inc.

File:     B-261827.3

Date:February 1, 1996

Brian A. Darst, Esq., Lee P. Curtis, Esq., and William Roberts III, 
Esq., Howrey & Simon, for the protester.
Daniel R. Weckstein, Esq., and Howard W. Roth III, Esq., Vandeventer, 
Black, Meredith & Martin, for MILCOM Systems Corporation, an 
interested party.
Michael S. Roys, Esq., Department of the Navy, for the agency.
Marie Penny Ahearn, Esq., David A. Ashen, Esq., and John M. Melody, 
Esq., GAO, participated in the preparation of the decision.


1.  Agency could properly make award on basis of initial proposals 
where solicitation advised offerors of this possibility and 
contracting officer's decision not to engage in discussions was 

2.  Protest that agency misevaluated cost proposals by upwardly 
adjusting protester's proposed cost and conversely failing to upwardly 
adjust awardee's proposed cost in certain cost elements, with result 
that protester's cost was higher than awardee's is denied, where 
upward adjustment of protester's cost was unobjectionable in the two 
challenged elements; evaluation of awardee's cost was unobjectionable 
in three of four challenged elements; and agency's calculated increase 
of [deleted] in fourth challenged element would not displace awardee 
as low offeror. 

3.  Protest that technical proposals were misevaluated and protester's 
lower-rated proposal should have been rated equal to awardee's 
higher-rated proposal need not be considered when, even assuming 
proposals should have been rated technically equal, solicitation 
provided that price would be controlling factor for substantially 
equal technical proposals, protester's evaluated cost was not low, and 
cost realism evaluation is unobjectionable.    


TDS, Inc. protests the Department of the Navy's award of a contract to 
MILCOM Systems Corporation, under request for proposals (RFP) No. 
N00612-94-R-8405, for engineering support services for the Naval 
Command, Control & Ocean Surveillance Center, Charleston, South 
Carolina.  TDS principally challenges the evaluation of cost and 
technical proposals.

We deny the protest.


The RFP, as amended, contemplated award of a cost-plus-fixed-fee, 
indefinite quantity contract for 1 base year with 4 option years, with 
additional options for level of effort increases for each year, to 
support cryptologic systems, counternarcotics systems, and special 
intelligence communications systems.  The support to be furnished by 
the contractor includes overall program management, acquisition 
engineering, system integration, assembly and installation, software 
engineering, system documentation and configuration management.  

The RFP provided for award to be made to the responsible offeror whose 
offer conforming to the solicitation was most advantageous to the 
government, price and other factors considered.  The solicitation 
listed the following technical evaluation factors, in descending order 
of importance:  corporate experience, personnel qualifications, 
detailed technical approach, management plan, and facilities.  
Management plan and facilities were of equal importance.

Although the solicitation stated that technical factors were 
moderately more important than cost, offerors were advised the 
importance of cost would increase "with the degree of equality of the 
proposals," such that "[w]here competing proposals [were] found to be 
substantially equal technically, price [would] be the controlling 
factor in award."  The solicitation stated that cost proposals would 
be evaluated for realism and understanding of the scope of work.  The 
solicitation established 28 labor categories, with stated minimum 
qualifications and estimated annual requirements for straight time, 
overtime and holiday time, for which offerors were to propose 
personnel.  Offerors were required to propose hourly rates for each 
labor category and to break down the costs to include base labor rate, 
overhead rate, G&A expense, other costs, profit, and a total labor 
rate.  The RFP cautioned that any proposal lacking realistic rates may 
result in a higher evaluated price.  Finally, the solicitation 
informed offerors that the government intended to evaluate proposals 
and award a contract without discussions and that, therefore, each 
offeror should ensure that its initial offer contained the offeror's 
best terms from both a cost and technical standpoint.

The agency received 12 offers by the closing date, including one from 
TDS and two from MILCOM (each one with a different team of 
subcontractors).  The agency evaluated technical proposals based upon 
an adjectival rating scheme (with the ratings outstanding, better, 
acceptable, marginal and unacceptable).  As set forth below, one of 
MILCOM's proposals (MILCOM 1734 with SAIC-Amsec and Unisys as team 
members) received an overall "better" rating and was the highest 
ranked proposal.  TDS's proposal received an overall "acceptable" 
rating and was the lowest ranked of the four proposals--including 
MILCOM's second proposal (MILCOM 1735)--rated acceptable.  As adjusted 
for cost realism, MILCOM's was the low acceptable offer, and TDS's was 
fourth low.  The ratings (broken down for the three evaluators)[1] 
were as follows:

                      TDS                   MILCOM


   Experience         Better
                      Acceptable            Outstanding

   Personnel          Acceptable
                      Marginal              Better

   Approach           Acceptable
                      Acceptable minus      Better

   Management         Acceptable
                      Acceptable minus      Acceptable

   Facilities         Better
                      Acceptable            Better

   TECHNICAL          Acceptable plus
                      Acceptable            Better
The Navy determined that MILCOM's proposal (1734) was most 
advantageous to the government based on its highest technical rating 
and lowest evaluated cost among the proposals rated acceptable or 
better ([deleted] versus TDS's [deleted]).  Upon learning of the 
subsequent award to MILCOM on the basis of initial proposals, TDS 
filed this protest with our Office.


TDS first challenges the agency's determination to make award on the 
basis of initial proposals, arguing that "irregularities" in the 
procurement precluded award  without discussions.  We find nothing 
improper in the agency's decision to make award without discussions.  

TDS argues, for example, that making award based on MILCOM's initial 
proposal was unwarranted because MILCOM engaged in an improper "bait 
and switch" regarding its key personnel.  Specifically, TDS alleges 
that Unisys, a MILCOM subcontractor for approximately [deleted] 
percent of the work proposed, intends to use key personnel other than 
those persons identified in the resumes provided in its proposal to 
fulfill a portion of the key personnel duties.  According to the 
protester, this is evident from the use of "blended," or average, 
rates in Unisys's cost proposal, where the individual rates of a group 
of staff performing the same duties are averaged into one rate.  As an 
example, TDS points to Unisys's proposal of an individual to serve as 
a project manager, a key personnel position.  Unisys furnished a 
resume and letter of commitment for this individual, and indicated 
that he would be full-time, i.e., 2,080 standard hours.  The rate for 
this labor category, however, was based on the rates of four of 
Unisys's labor categories, with no category furnishing more than 50 
percent of the required effort.  TDS concludes that unnamed additional 
individuals will be performing part of the project manager function.

"Bait and switch" refers to an offeror's misrepresentation in its 
proposal of the personnel it expects to use during contract 
performance.  To demonstrate that a bait and switch has occurred, a 
protester must demonstrate not only that personnel other than those 
proposed are performing the services (i.e., that a switch has 
occurred), but also that the awardee represented in its proposal that 
it would rely on certain specified personnel in performing the 
services, that the agency relied on this representation in evaluating 
the proposal, and that it was foreseeable that the individuals named 
in the proposal would not in fact be available to perform the contract 
work.  See Free State Reporting, Inc., B-259650, Apr. 14, 1995, 95-1 
CPD  para.  199.  

We find no evidence of bait and switch.  Unisys's proposal of blended 
labor rates, where some work under a particular solicitation labor 
category would be performed by individuals other than those for whom 
resumes were submitted, was not inconsistent with its proposal of 
full-time key personnel for whom it submitted resumes, since the RFP 
provided estimated hours for particular key personnel labor categories 
in excess of the number of hours to be worked by the proposed 
personnel.  For example, the RFP estimated the agency's requirement 
under the program manager labor category as 14,000 straight time hours 
for the base year, i.e., 6.7 program managers (assuming 2,080 hours 
per man year).  However, the RFP provided that only four acceptable 
resumes were necessary for the highest possible score for program 
manager.  It thus is clear, we think, that the RFP contemplated that 
individuals other than those for whom resumes had been submitted would 
be used to complete a portion of the required work.  It follows that 
Unisys's proposal of blended rates did not evidence a bait and switch, 
and did not render the agency's decision to proceed with award without 
discussions improper. 

Since the solicitation advised all offerors that the government 
intended to make award on the basis of initial proposals without 
holding discussions and, as discussed below, there was a reasonable 
basis for concluding that MILCOM submitted the most advantageous 
offer, and there has been no showing of any other improprieties which 
would militate against an award based on initial proposals, there is 
no basis to object to the agency's decision not to conduct 
discussions.  Federal Acquisition Regulation (FAR)  sec.  15.610(a)(4); See 
Facilities Management Co., Inc., B-259731.2, May 23, 1995, 95-1 CPD  para.  


TDS challenges the evaluation of cost proposals.  In its cost realism 
analysis, the Navy generally took the following steps:  (1) verified 
that offerors priced all estimated hours; (2) reviewed the offered 
labor rates for the Service Contract Act non-exempt (i.e., wage 
determination) employees to ensure that they complied with the 
Department of Labor minimum wages; (3) reviewed the labor rates of the 
professional labor categories, comparing them to rates on other 
contracts, to ensure that they were sufficient to attract and retain 
skilled personnel; (4) reviewed the escalation of proposed 
professional labor rates; (5) obtained rate checks from the Defense 
Contract Audit Agency (DCAA) on G&A and overhead rates; and (6) 
confirmed that each offeror had a cost accounting system sufficient 
for a cost type contract.  In addition, the agency examined proposals 
for uncompensated overtime which, if offered, was required by the RFP 
to be identified and reflected by an adjustment to hourly professional 
rates for such hours in accordance with Defense Federal Acquisition 
Regulation Supplement (DFARS)  sec.  252.237-7019.  If uncompensated 
overtime was proposed, a separate evaluation was performed to 
determine whether the actual wage rate was unrealistically low so as 
to have a possible negative effect on contract performance.  As a 
result of this analysis, MILCOM's proposed cost ([deleted]) was 
adjusted upward by [deleted] to [deleted], and TDS's ([deleted]) was 
adjusted upward by [deleted], to [deleted].  

TDS argues that a reasonable cost realism evaluation would have led 
the Navy to adjust MILCOM's prices upward by at least $3,786,416.  TDS 
also argues that its proposed costs were realistic and should not have 
been increased.  TDS concludes that its evaluated cost should have 
been lower than MILCOM's.

When a cost reimbursement contract is to be awarded, a cost realism 
analysis must be performed by the agency.  See FAR  sec.  15.801 and 
15.805.  However, an agency is not required to conduct an in-depth 
cost analysis or to verify each and every item in conducting its 
analysis.  The Warner/Osborn/G&T Joint Venture, B-256641.2, Aug. 23, 
1994, 94-2 CPD  para.  76.  The evaluation of competing cost proposals 
requires the exercise of informed judgment by the contracting agency 
involved, since it is in the best position to assess what the contract 
should cost, assuming reasonable economy and efficiency, and must bear 
the difficulties or additional expenses resulting from a defective 
cost analysis.  Id.  Consequently, our review is limited to a 
determination of whether an agency's cost evaluation was reasonably 
based and not arbitrary.  General Research Corp., 70 Comp. Gen. 279 
(1991), 91-1 CPD  para.  183; Science Applications Int'l Corp., B-238136.2, 
June 1, 1990, 90-1 CPD  para.  517.  We find that the Navy's realism 
analysis was reasonable. 
TDS's Cost Proposal

a.  Professional Salary Escalation

TDS challenges the salary escalation rate used by the agency in 
calculating the most probable cost of TDS's proposal.  The Navy 
upwardly adjusted TDS's proposed wage rates for professionals by 2 
percent for each option year because the firm had proposed no 
escalation in salaries over the 5-year contract period.  The agency 
concluded that freezing salaries for 5 years was unrealistic, and 
would contribute to excessive personnel turnover and negatively affect 
TDS's ability to obtain qualified personnel.  (The contract negotiator 
considered the fact that TDS's subcontractor had proposed a [deleted] 
percent escalation rate to support this assessment.)  The contracting 
officer based the 2-percent escalation factor on the 2- to 4-percent 
annual escalation proposed by other offerors and the 3- to 4-percent 
escalation forecast in the Data Resource Index data available from 

TDS argues that the annual 2-percent escalation adjustment was 
unreasonable because the agency failed to consider the fact that in 
many cases its professional rates start out higher and remain higher 
than those proposed by MILCOM.[3]

TDS has not shown that the Navy's assumption of a 2-percent annual 
escalation of professional salaries was unreasonable.  TDS's own 
proposal indicated that professional wages would increase over the 
contract period.  For example, TDS stated in its cost proposal that 
the salaries of professional employees will be reviewed annually and 
that raises or merit increases may be made.  In addition, the proposal 
stated that "when new [non-professional wage rate] labor 
determinations are implemented TDS reviews the impact of the 
determination on the entire contract, and quite often increases the 
pay of the professional staff accordingly."  As for the use of a 
2-percent escalation factor, we note that this was lower than the rate 
forecast in data available from DCAA, was at the low end of the range 
of escalation factors proposed by other offerors, and was lower than 
the escalation factor ([deleted] percent) proposed by TDS's own 
subcontractor.  There is no basis to conclude that the application of 
a 2-percent escalation factor was unreasonable.  

b.  Uncompensated Overtime

TDS challenges the cost realism adjustment made to account for TDS's 
proposed overtime hours.  The government estimate included in the 
solicitation for use in preparing proposals provided an estimate of 
annual overtime hours.  While TDS listed its overtime compensation 
rate for the proposed overtime as "N/C," interpreted by the agency as 
no charge, and stated that its professional employees "are not 
eligible for overtime pay," the proposal also stated that TDS did not 
use uncompensated overtime.  The contracting officer adjusted TDS's 
cost upward to reflect the concern that if TDS did not use 
uncompensated overtime (and the cost proposal showed no adjustment for 
uncompensated overtime), the required overtime must be compensated, in 
which case the government was at risk of having to reimburse TDS.

TDS argues that it was improper to adjust its proposed cost upward to 
account for the proposed overtime since its proposal indicated that it 
did not pay overtime and, according to the protester, the Navy was 
aware of TDS's practice of not paying its professional employees for 
overtime hours based on TDS's past contracts with the agency.

The fact that TDS's proposal indicated that it did not pay overtime, 
or that TDS may not have previously paid its professional staff for 
overtime, does not demonstrate that the cost realism adjustment was 
unreasonable.  Again, TDS proposed overtime hours in response to the 
solicitation requirement to base cost proposals on specified annual 
overtime hours.  Although TDS now characterizes these hours as 
"uncompensated overtime," TDS's proposal stated that its employees did 
not work uncompensated overtime.  TDS's failure to specifically 
identify in its proposal and account for any uncompensated overtime, 
as required by DFARS  sec.  252.237-7019, left it unclear how it would 
compensate the employees working the overtime.  Since TDS's proposal 
also did not provide for professional employees who work overtime to 
receive compensatory time off, the agency could reasonably assume that 
the employees would be paid at straight time rates for the overtime 
hours.  Further, although TDS listed "N/C" as its overtime 
compensation rate and proposed an "O/T Direct Labor Cost" of $0 for 
the required overtime hours, its proposal did not preclude recovery of 
the cost of any straight-time compensation paid its employees for 
working these hours.  Accordingly, the agency reasonably concluded 
that there was a risk of the government's being charged for any and 
all hours worked on the contract, and therefore reasonably adjusted 
TDS's evaluated costs upward to reflect such risk.

MILCOM's Cost Proposal 

a. Professional Wage Rates

TDS challenges the Navy's acceptance of the awardee's proposed 
professional labor rates (and those of its subcontractors) on the 
basis that the rates were below the average of the rates contained in 
wage rate survey data submitted by the awardee and those contained in 
a separate survey of wages for the geographic area of 
performance--Charleston, South Carolina--submitted by a competitor.  

This argument is without merit, since there is no basis for concluding 
that the survey averages were controlling for purposes of determining 
reasonableness.  Rather, we think the fact that the surveys contained 
ranges of rates (high to low) suggests that reasonable salaries may 
vary within a geographic area depending upon an offeror's specific 
circumstances, the view apparently adopted by the agency.  We note 
that, under TDS's stricter view, some of TDS's own professional rates 
would be unreasonable since they were also below the survey averages.  
TDS has made no showing that MILCOM's rates, which fell within the 
survey's salary ranges, were so low that they would hinder the firm's 
ability to recruit and retain qualified staff. 

b.  DCAA Audit

TDS challenges the Navy's failure to obtain a DCAA audit of MILCOM's 
proposal to verify the firm's indirect G&A rates.
When the Navy contacted DCAA to verify MILCOM's proposed G&A rates, it 
was informed that no rates were available because MILCOM did not 
currently have any cost-type contracts.  Although DCAA generally 
recommended an audit of MILCOM's proposal, the Navy did not believe 
that an audit was required in view of the highly competitive 
procurement situation with respect to this procurement.  However, the 
Navy contract negotiator did discuss MILCOM's cost proposal with DCAA 
and the DCAA auditor agreed with the negotiator's assessment that 
MILCOM's proposed reductions to the G&A rate approved by DCAA in 
fiscal year 1994 were conservative.  (The DCAA 1994 approved rate was 
[deleted] percent; MILCOM's proposed rates here were [deleted], 
[deleted], [deleted], [deleted] and [deleted] percent, respectively, 
for the base year and 4 option years.)  In fact, the Navy negotiator 
expected MILCOM's actual rates to be even lower due to the potential 
size of this contract (and the resulting increase in the base over 
which MILCOM's G&A expense would be apportioned).    

The Navy's failure to obtain an audit of MILCOM's proposal was 
unobjectionable.  While DCAA audits can be of assistance to a 
contracting officer in evaluating proposed costs, they are only 
advisory in nature and therefore are not required for a proper cost 
analysis.  Motorola, Inc., B-254489; B-254489.2, Dec. 15, 1993, 93-2 
CPD  para.  322; Anamet Labs., Inc., B-241002, Jan. 14, 1991, 91-1 CPD  para.  31.  
Moreover, the Navy did request input from DCAA regarding MILCOM's 
proposed G&A rates, but DCAA did not have this information.[4]  DCAA 
instead confirmed to the Navy that "MILCOM's estimates (projections) 
have been fairly accurate in the past," and agreed with the agency's 
assessment that MILCOM's proposed reductions appeared conservative in 
view of the additional work MILCOM was expected to receive as a result 
of the contract award.  We conclude that the agency's failure to 
obtain a DCAA audit of MILCOM's proposal did not render the cost 
evaluation unreasonable. 
c.  Blended Rates

TDS contends that the agency should have increased MILCOM's evaluated 
cost to account for its subcontractor's (Unisys) use of blended rates, 
when the work in a proposal labor category would be performed by more 
than one individual.  In explaining this contention, TDS states that:

     "[i]n developing its labor rates, UNISYS used a weighing factor 
     inconsistent with the MILCOM technical proposal.  Specifically 
     various internal labor categories were weighed . . . to develop 
     an average rate, whereas the technical proposal identified only 
     one (1) or in some instances two (2) key employees per labor 
     category.  Since the weighing in the cost proposal is 
     inconsistent with . . . MILCOM's technical proposal, this UNISYS 
     weighing resulted in an erroneous depiction of the actual costs 
     which will be incurred using key employees." 

This argument is without merit.  As discussed above, MILCOM's 
technical proposal properly was based on the use of some unnamed 
personnel under certain key positions.  The fact that the blended rate 
in the cost proposal reflected the labor categories of these unnamed 
individuals would explain the disparity between the number of 
categories included in the blended rate and the number of individuals 
identified in the technical proposal.  There is no showing that 
Unisys's blended rate for any given position included lower-rate labor 
categories that would not be used to fill that position.  The blended 
rates thus provided no basis for an upward cost adjustment.

d.  Wage Determination

TDS complains that the agency failed to consider the impact on the 
evaluation of a modified wage determination for fringe benefit rates, 
which increased benefits to $2.56 per hour from the $2.39 rate set 
forth in the last wage determination included in the solicitation, and 
which was received by the agency prior to award.  See FAR  sec.  
22.404-6(c).  As noted by the agency, however, since both MILCOM and 
TDS proposed a health and welfare fringe benefits rate of $2.39 per 
hour, both proposed health and welfare fringe benefits rates would 
have to be adjusted upward by the same amount.[5]  Further, according 
to the agency (and unrefuted by the protester), even accounting for 
differences in overhead, G&A and fixed fee, the evaluated cost of 
MILCOM's proposal relative to TDS's would only increase by [deleted], 
which would not displace MILCOM as the low offeror.  The failure to 
consider the increased rate in the evaluation thus did not affect the 


TDS alleges a number of improprieties in the evaluation of technical 
proposals, concluding that its proposal should have been rated equal 
to MILCOM's; according to the protester, "MILCOM is no more 
technically qualified to perform the work than TDS."

Even assuming TDS were correct that its proposal should have been 
rated technically equal to MILCOM's, the solicitation provided that in 
the case of substantially equal technical proposals, cost would be the 
controlling factor.  Since MILCOM's proposal was reasonably found to 
offer a lower cost, TDS would not have been in line for award even if 
its proposal were rated technically equal to MILCOM's.  See ROH, Inc., 
B-258810.2, Apr. 10, 1995, 95-1 CPD  para.  187 (prejudice is an essential 
element of every protest).  

The protest is denied.

Comptroller General
of the United States     

1. The record does not include a consensus adjectival rating for each 
evaluation factor.  Accordingly, the ratings given by each of the 
three evaluators are set forth above. 

2. Although originally stated to be acceptable, after the filing of 
                                            the protest one 
                                            evaluator's rating of 
                                            MILCOM's proposal under 
                                            the management factor was 
                                            discovered to be in error.  
                                            The correct rating, listed 
                                            above, was marginal. 

3. Although TDS also argues that the adjustment was unreasonable 
because the agency did not make comparable adjustments to MILCOM's 
allegedly low professional rates, as discussed below, MILCOM's rates 
have not been shown to be unrealistic.

4. Where rate checks are unavailable for certain items of cost, the 
agency may rely on information contained in an offeror's cost proposal 
in performing a cost evaluation.  See Radian, Inc., B-256313.2; 
B-256313.4, June 27, 1994, 94-2 CPD  para.  104.

5. One of MILCOM's subcontractors proposed [deleted] per hour; in its 
cost realism analysis, the agency adjusted the rate upward to $2.39 
per hour.