Valkyrie Enterprises Wins Its Protest! Recently, the General Accountability Office (GAO) sustained a protest challenging the United States’ Navy’s cost realism evaluation where their evaluation failed to reasonably evaluate the protester’s proposed direct labor rates. Valkyrie Enterprises, LLC submitted a bid on a proposal (RFP No. N00024-16R-3157) issued by the Department of the Navy to provide engineering, logistics and program support services for the Naval Surface Warfare Center. A task order was issued to The McHenry Management Group, Inc. (McHenry), a small business of Chesapeake, Virginia, instead of Valkyrie, who then filed a protest.
Price Realism V. Price Reasonableness
Cost or price realism is the evaluation of a proposed offer by the agency and then determining whether it is too low to adequately preform the work required. Price reasonableness, another method of proposal evaluation, looks at a proposal to determine whether the cost is too high.
On November 18, 2016, the Navy issued the RFP to holders of the Navy’s SeaPort Enhanced multiple-award, indefinite-delivery, indefinite-quantity (IDIQ) contract pursuant to Federal Acquisition Regulation (FAR) part 16.
The RFP anticipated the issuance of a cost-plus-fixed-fee, level-of-effort task order with a 12-month base period and four 12-month option periods to the offeror whose proposal represented the best value to the agency, considering the following three factors in descending order of importance:
past performance, and
The technical factor contained three equally-important subfactors that were considered:
management approach, and
On February 14, 2018, the Navy established a competitive range consisting of Valkyrie and McHenry and opened discussions with the two firms. On August 22, the Navy advised Valkyrie that there were “no weaknesses or deficiencies in [its] technical proposal” but that “[a] cost realism analysis was performed and [its] proposed costs of $31,342,307.50 [were] increased to $31,841,773.22 (Evaluated cost).” The Navy’s letter requested submission of Final Proposal Revisions (FPR) by August 28, 2018.
Navy Announces In Letter It Will Use A New Cost Realism Evaluation, Not The One In The Solicitation
Rather than proceed to award based on the August 2018 FPRs, the Navy reopened discussions in February 2019 after discovering an error in its cost realism methodology. On February 8, 2019, the Navy advised Valkyrie and McHenry that the agency was using a new methodology to evaluate whether an offeror’s costs were realistic. Under this revised approach, “[p]roposed direct labor rates supported by payroll data, contingency hire letters, Forward Pricing Rate Agreements (FPRAs), and subcontractors proposed on a Labor Hour basis were considered to be realistic.” If an offeror’s proposed direct labor rate was considered to lack such support, the rate was compared to the 25th percentile of the rate for that labor category provided on the website salary.com. If an offeror’s unsupported proposed rate fell below the salary.com 25th percentile rate, the Navy raised the rate to the salary.com rate for the cost realism evaluation.
In the February 2019 discussion’s letter, the Navy provided Valkyrie with the salary.com 25th percentile hourly and annual salary rates for the solicitation’s job categories. The Navy advised Valkyrie that the protester’s proposed labor rates for new hires in 10 positions were unrealistically low and were being raised to the salary.com rates. The Navy also informed Valkyrie that the agency was similarly increasing the new hire direct labor rates for two of Valkyrie’s subcontractors. The agency requested FPRs from Valkyrie and McHenry by the revised deadline of February 15.
In response to the Navy’s request, Valkyrie raised its direct labor rates for all new hires. As a result, Valkyrie’s total proposal cost rose by approximately $3.5 million.
After Being Made To Raise Its Prices, Valkyrie Was Not Selected
The final McHenry Enterprises proposal costs came in at $32,887,134. Valkyrie’s final proposal costs were $37,608,840.
Valkyrie rated better than McHenry – Good as opposed to Acceptable -- in the technical performance category and in all three of the subcategories of that category. In conducting the best-value tradeoff decision, the Navy determined that the superiority of Valkyrie’s proposal under the technical and past performance factors did not warrant an approximately 14 percent cost premium. The Navy selected McHenry as the offeror whose proposal represented the best value to the agency.
Valkyrie protested the decision.
GAO Sustains the Protest
The GAO sustained Valkyrie’s objections to the salaries of some of its employees and its subcontractors being increased. In addition, Valkyrie contended that McHenry’s proposed key personnel were not available and that the agency’s best-value tradeoff decision was unreasonable. The alleged “bait and switch” protest was not sustained and a decision on the best-value tradeoff decision was not reached because the hearing officer did not need to decide it.
Thomas Armstrong, the GAO General Counsel, writing the opinion stated:
The Navy argues that this protest is untimely because the offerors were notified that a new price realism evaluation would be used as opposed to the one listed in the proposal. The hearing officer disagreed with that stating the language of the proposal prevailed and the Navy’s narrow interpretation is not consistent with the plain meaning of the provision which does not exclude payroll data as documentary support for proposed new hire rates.
The Navy wanted to evaluate the offers using the cost realism evaluation methodology of the salary.com 25th percentile rates that constituted a floor for new hire rates and that would have precluded Valkyrie from supporting its proposed new hire rates with its current payroll data. The Hearing Officer found this method to be untenable. “The agency’s decision to exclude an offeror’s existing payroll data as substantiation of its new hire rates is not described in the cost realism methodology, whether in the RFP or the discussions letter revisions.”
“In sum, we find that the Navy’s cost realism evaluation was unreasonable because it did not adequately consider Valkyrie’s and a subcontractor’s proposed direct labor rates for new hires. Because a reasonable cost realism evaluation could result in a change to the evaluated most probable costs of performance and in light of the protesters’ superiority to McHenry under the non-price evaluation factors, we find that the protester has established competitive prejudice because a new best-value tradeoff could result in Valkyrie being selected for award.
We recommend that the Navy, consistent with our decision, conduct and document a new cost realism evaluation of Valkyrie’s and [DELETED]’s new hire direct labor rates. We further recommend that, upon the completion of a new cost realism evaluation, the agency prepare a new source selection decision and, if the awardee is other than McHenry, terminate the award to McHenry for the convenience of the government and make a new award.”
The Hearing Officer recommended the Navy reimburse Valkyrie the costs associated with filing and pursuing its protest, including reasonable attorneys’ fees. They asked the protester to submit a certified claim for costs, detailing the time expended and costs incurred within 60 days after the receipt of this decision.
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