Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

The GAO announced yesterday that it had decided to sustain Boeing’s protest of the Air Force’s selection of Northrop Grumman (who included the European company Airbus on its team) over Boeing for the $40 billion aerial tanker contract - a contract that could ultimately be worth $100 billion.  Considering the GAO’s history of denying most of the protests that come before it, today’s outcome is likely a surprise to the many who expected the Office to stand behind the Air Force’s source selection.  The much-discussed dispute has been waging since March 11, 2008 when Boeing filed its protest. Prior to this award, Boeing had been the Air Force’s only supplier of this type of aircraft for fifty years.   The actual sixty-nine page decision was filed under a protective order and has not yet been released. A public version will be made available once all interested parties review it and identify all sensitive information that must remain confidential.

The GAO reached its decision after extensively reviewing voluminous documents produced by the Air Force and hearing testimony from Air Force witnesses.  In its press release today, the GAO made it clear that it did not consider the merits of either company’s proposal and that it examined only whether the Air Force complied with the standards established in the statutory and regulatory schemes governing the federal procurement process. “Our decision should not be read to reflect a view as to the merits of the firms’ respective aircraft. Judgments about which offeror will most successfully meet the governmental needs are largely reserved for the procuring agencies…”   In their evaluation they concluded that the Air Force made “significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman.”  Senator Richard C. Shelby (R-Ala.) commented that “I cannot believe that in the most highly scrutinized procurement in the history of the United States, the GAO found so many errors.”

The GAO sustained Boeing’s protest for seven specific reasons, including: failure to review the proposals in lights of the solicitation criteria; violating the evaluation provisions of the solicitation, specifically the provision that, “no consideration will be provided for exceeding [key performance parameter] objectives; failure to demonstrate that the Air Force’s determination that Northrop Grumman’s tanker could refuel all current tanker-compatible receiver aircraft in accordance with current Air Force procedures, as required by the solicitation”; conducting misleading discussions with Boeing; “administrative oversight” in making an award despite “clear exception to a material solicitation requirement” in one of the requirements; unreasonable evaluation of military construction costs in “calculating the offerors’ most probably life cycle costs for their proposed aircraft,” an evaluation that if done properly would have resulted in Boeing having the lowest probable life cycle cost; and the improper increase of Boeing’s estimated non-recurring engineering costs in calculating, as well as the improper use of a simulation model in determining those costs. 

The Office recommended that the Air Force “reopen discussions with the offerors, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision, consistent with our decision.” It also recommended that the Air Force amend its solicitation if it does not “adequately state its needs” before conducting further discussions with the companies.  Additionally, if the Air Force chooses to award the contract to Boeing, the GAO recommends that it terminate the contract with Northrop Grumman, reimburse Boeing’s protest costs, including attorneys’ fees. By law, the Air Force has sixty days to inform the GAO of its response.   As Tom Schatz, president of the Citizens Against Economic Waste put it, “Air Force Officials didn’t miss it by a little, they apparently missed it by a mile.”

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In a decision issued on April 20, 2007, but published today because of a protective order, the GAO denied a protest by Olympus Building Services, Inc., B-296741.14; B-296741.15 against the award of a contract to Rowe Contracting Services, Inc., issued by the Defense Intelligence Agency (DIA) for janitorial services at the DIA Analysis Center. Olympus challenged the proposal evaluation and best value determination.

Among other things, Olympus asserted that Rowe’s proposal should not have been rated excellent under the technical factors because it did not include a required security awareness plan.  In this regard, in evaluating Rowe’s initial proposal, the Technical Evaluation Board (TEB) noted that Rowe had not provided a security awareness plan; the agency pointed this out to Rowe as a weakness during discussions.  In response, in its final proposal revision (FPR), Rowe provided a security awareness plan comprised of a short statement explaining, among other things, that Rowe was familiar with current Defense Security Services and DIA Regulations and security manuals, and stating that Rowe would comply with all DIA security policies. The FPR also included copies of several documents, including an Annual Security Awareness Briefing, a Refresher Security Briefing, and a Security Awareness Bulletin (self inspection handbook for contractors). The TEB determined that this information was sufficient to respond to its original concern.  Olympus argued that the information should not have been deemed sufficient because it did not include a narrative explaining how each of the included documents would be utilized during performance.

The GAO concluded that the RFP did not require that the security awareness plan be presented in any particular format or include any particular information; thus, the fact that the plan could have included additional information did not require the agency to find it deficient.  “The plan Rowe presented included information addressing security awareness and, given the absence from the RFP of detailed informational requirements, we think the agency reasonably could determine that this information was sufficient to address its concerns. Olympus’s disagreement with the agency’s conclusion is not sufficient to establish that the evaluation is unreasonable.”

While the outcome of the protest might have been the same for other reasons, we find it to be somewhat inconsistent, based on prior GAO decisions, for the GAO to take the position that instead of providing a security awareness plan, it was sufficient for Rowe to simply furnish a “short statement” explaining that it was familiar with DIA security policies.  A “plan” is usually required to enable a TEB to be certain that an offeror has thought out the implementation of agency policy.  The GAO has frequently found that the mere recitation of compliance with an RFP requirement is not sufficient to demonstrate compliance.  The fact that the TEB was willing to accept a “short statement” instead of a security awareness plan should not have endorsed by the GAO.

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The Navy recently awarded three cost-plus-award-fee, indefinite-delivery/indefinite-quantity (ID/IQ) contracts to Fluor International, Inc., URS-IAP, LLC (a joint venture of URS Corporation and IAP Worldwide Services, Inc.) and Atlantic Contingency Constructors, LLC (a limited liability company managed by The Shaw Group) for global contingency construction. Each contract was for a base year with four one year options, and the value of each contract was approximately one billion dollars. The contractors were to provide construction and related engineering services in response to war fighting needs, global natural disasters, and humanitarian assistance.

The awards were made following a "best value" evaluation based on experience, past performance, contingency planning, management, small business utilization, and cost. Non-cost factors were considered more important than cost. A disappointed offeror, Kellogg Brown & Root Services, Inc. (“KBR”), filed a GAO protest asserting that the Navy misevaluated the proposals under technical and cost factors. The GAO agreed and issued a decision sustaining the protest.

In a rather complicated and detailed analysis, the GAO determined that the cost comparison performed by the Navy was flawed because the agency did not perform a reasonable cost realism evaluation. Specifically, the Navy’s evaluators deleted a certain element of cost from ACC’s proposed indirect costs because other offerors had accounted for the same element as a direct cost. KBR argued that if this adjustment had not been made, KBR’s evaluated cost would have been lower than ACC’s. The protester went on to argue that it was unreasonable for the agency to make an adjustment to ACC’s costs when it was apparent that there were other instances where the offerors had treated costs differently for accounting purposes that were not accounted for in the cost evaluation.  Given the multiple accounting variances among the offerors, the agency’s “singling out” of certain ACC costs to adjust from indirect costs to direct costs was unreasonable, according to KBR, and represented unequal treatment.  Significantly, the GAO commented that “The agency has offered no substantive response to this KBR contention, which, based on this record, appears to have merit.” The GAO concluded that the agency’s adjustment to ACC’s proposal was unreasonable and prejudicial to KBR because it resulted in ACC’s proposal being evaluated as having a lower cost than KBR’s.

In another aspect of this protest, KBR contended that the agency misevaluated its proposal and the proposals of URS and ACC under many of the technical factors.  In particular, KBR asserted that the agency overlooked a number of strengths, and assessed a number of weaknesses that were unreasonable with regard to the contingency plan factor.  The Navy responded in cursory fashion that KBR’s proposal was “more general” and provided “limited details,” and contended that the protester’s arguments reflect only “mere disagreement” with the agency.  The GAO disagreed and concluded that “Our review of the record shows more than “mere disagreement.”  The protest was therefore sustained because “the record does not, on its face, support the agency’s ratings, and the agency has otherwise failed to explain the difference in ratings.”

The GAO recommended that the Navy reevaluate the proposals, conduct discussions if necessary, and make a new source selection decision. If based on this new evaluation, the agency determines that one or more of the awardees are no longer in line for award, the GAO recommended that the agency should terminate the awardees’ contracts and make awards consistent with the new selection decision.

This decision is important because it represents a departure from the GAO’s frequent reluctance to look behind the discretion of source selection officials, as long as some justification is provided for their decisions. Given the very large and important defense contractors involved, and the subject matter of the procurement, it will be interesting to see if the Navy complies with the GAO's recommendations, and whether there is ultimately a new list of awardees. One thing is certain; with this much money involved additional challenges to the procurement are likely to arise. See Kellogg Brown & Root Services, Inc., B-298694; B-298694.2; B-298694.3, November 16, 2006.

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