On November 13, 2013, GAO reaffirmed its view that normalization of costs is impermissible in acquisitions where offerors’ approaches are not required to be the same. In AXIS Management Group LLC, B-408575 (Nov. 13, 2013), the Department of the Interior’s (“the Agency”) decision to normalize offerors’ labor hours and labor mixes was found to be unreasonable because the Agency ignored the unique approach proposed by each of the offerors.  The acquisition sought laboratory operational support at the National Water Quality Laboratory (“NWQL”) using an indefinitely delivery, indefinite quantity contract.  Technical merit was identified as significantly more important that the total evaluated price.  Offerors’ price proposals were to consist of unit prices for two contract line items, one for front desk support and the other for information technology support, and to provide proposed “labor categories, number of hours and hourly rates for three CLINS: (1) laboratory support, (2) support services support, and (3) quality assurance labor categories,” and to ensure that they priced all of the task descriptions identified in the Solicitation.  Historical staffing levels, but not staffing estimated or annual labor hour requirements, were disclosed in the Solicitation.  The historical information identified staffing for only 12 of the 26 identified labor categories.

In evaluating proposals, the Agency found the protester’s proposed staffing and transition plan as “risky and unrealistic with USGS security requirements,” that it had no “contingency for possible delays if current employees don’t accept offer to work,” and AXIS proposed to use a labor hour year of 1,880 hours, rather than 1,920, which the Agency found to be of “concern for maintaining current work requirements.”  These issues were raised with AXIS and, during negotiations, AXIS was informed that it had addressed the concerns.  Ultimately, however, award was made to Cherokee Nations Technology Solutions, Inc. because the Agency had given it as higher technical rating and its evaluated price of was $4,813,859.16, was $101,012.94 lower than that of  AXIS’ total evaluated price.  AXIS’ total evaluated price, however,  reflected an upward adjustment of $1,089,899.30 (from its proposed $3,824,972,80) to account for the Agency’s perceived risk with respect to AXIS’ staffing plan.

AXIS thus protested, challenging both the evaluation if its proposed price and the conduct of discussions.  With respect to AXIS’ allegation that the Agency failed to conduct meaningful discussions relating to AXIS’ proposed staffing, GAO denied the protest because (1) the Agency did not find staffing to be a significant weakness, (2) had raised the issue with AXIS, and (3) had found that notwithstanding its quite significant adjustment, it “gave AXIS very high point scores for both the staffing plan and transition plan factors.”

With regard to the Agency’s upward adjustment of AXIS’ proposed price, however, GAO found that notwithstanding AXIS’ offer of an 1,880 labor hour year, the Agency adjusted it to 1,920  and “adjusted both offerors’ labor category mixes” “in order to ‘match the historical data and the current requirement of the NWQL.’”  In the Agency’s view “since the focus of the labor hour CLINs was on the hourly labor rates, the number of hours and labor mix to calculate the estimated full cost should be consistent for both offerors.”

GAO found that this constituted normalization of “each offerors’ labor hours and labor mix to conform to an internal government estimate of its current need.”  GAO explained that

Normalization involves the adjustment of offers to the same standard or baseline where there is no logical basis for a difference in approach or where there is insufficient information provided with the proposals. Information Ventures, Inc., B-297276.2 et al., Mar. 1, 2006, 2006 CPD ¶ 45 at 9. Normalization is not proper, however, where varying costs between competing proposals result from different technical approaches that are permitted by the RFP. Id.

Here, however, the Solicitation permitted differing approaches to accomplish the task descriptions and had “informed offerors that the government would assess each offeror’s understanding of the requirements and approach, including overall staffing, as a function of its technical evaluation.”  Hence, the Agency’s decision to ignore offerors approaches and, instead, to use plug figures for labor hours and labor mix, was inconsistent with the factors set forth in the Solicitation.  The GAO rejected the Agency’s argument that it had to normalize the offerors so that their approaches would meet the Government’s needs because it found (1) AXIS’ proposal did demonstrate compliance with the Solicitation’s requirements (note AXIS’ high point score) and (2) while the Agency did raise its concerns about AXIS’ proposed labor hours and mix during discussions, it did not inform AXIS that it intended to normalize offerors.  Finally, GAO dismissed the Agency’s contention that there was no competitive prejudice because both offerors were treated the same and the awardee had a higher technical rating, because AXIS had a materially lower price, such that it was premature to preordain a competitive result.

Hence, GAO has reaffirmed its view that treating all offerors’ proposals in the same manner does not necessarily mean that they have treated them fairly.

This post first appeared in the Government Contracts Blog.