United States General Accounting Office

Washington, DC 20548 

Comptroller General

of the United States

Decision 

Matter of: Verestar Government Services Group 

File: B-291854; B-291854.2 

Date: April 3, 2003 

Michael R. Charness, Esq., Charmaine A. Howson, Esq., Robert J. Rothwell, Esq., and 

Suzanne D. Reifman, Esq., Vinson & Elkins, for the protester. 

John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Richard C. Johnson, Esq., 

Edmund M. Amorosi, Esq., Smith Pachter McWhorter & Allen, and Nicholas M. 

Beizer, Esq., WorldCom Inc., for WorldCom Government Markets, an intervenor. 

Mark Langstein, Esq., and Joan Maginnis, Esq., Department of Commerce, for the 

agency. 

Paul I. Lieberman, Esq., and Michael R. Golden, Esq., Office of the General Counsel, 

GAO, participated in the preparation of the decision. 

DIGEST 

1. Allegation that agency improperly made affirmative determination of 

responsibility does not raise serious concern that the contracting officer failed to 

consider available relevant information where the developed record establishes that 

extant adverse information cited in protest as evidencing the impropriety of the 

determination was considered by the contracting officer, who concluded that it did 

not warrant a nonresponsibility determination in light of an array of mitigating 

information that was also assessed by the contracting officer. 

2. Cost realism analysis of proposal for fixed-price contract was not required where 

the solicitation provided for waiver where, as here, more than one acceptable 

proposal was received; to the extent such an analysis was performed, agency 

reasonably concluded that awardee’s particular technical approach and industry cost 

trends established realism of proposed price, even though that price is substantially 

below both the protester’s price and the price at which the awardee/incumbent is 

currently performing the requirement. 

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. 
Page 2 B-291854: B-291854.2 

3. Under a “best value” procurement in which non-price factors are more important 

than price factors, award on the basis that the significantly lower priced proposal 

represents the best value to the government is unobjectionable because it is 

consistent with the evaluation criteria where the proposals were reasonably 

evaluated as essentially equal overall under the non-price factors. 

DECISION 

Verestar Government Services Group protests the award of a contract to WorldCom 

Government Markets under request for proposals (RFP) No. 52-DGNW-2-91006 

issued by the Department of Commerce, National Oceanic and Atmospheric 

Administration (NOAA) for the provision and operation of the International Satellite 

Communications Service (ISCS) to disseminate weather information and warnings to 

the international community. Verestar protests that the agency improperly 

determined that WorldCom was a responsible offeror. Verestar also asserts that the 

agency failed to conduct a proper cost realism analysis and improperly made an 

award determination on the basis of the low-price technically acceptable proposal, in 

derogation of the RFP award criteria. 

We deny the protest. 

BACKGROUND 

The RFP, issued on February 17, 2002, provides for the award of a fixed-price 

contract for a one-year base period with six one-year options, on the basis of a “best 

value” determination.1

 The RFP sets forth technical, management, past performance 

and price as evaluation factors, and provides that the non-price evaluation factors 

are significantly more important than price, but that price would become more 

important as the offerors’ relative non-price evaluations became more equal. RFP 

§ M.1.3. 

By the April 17 closing date for the submission of initial proposals, NOAA received 

proposals from WorldCom (the incumbent contractor that has performed the ISCS 

operations requirement for the past 8 years), and Verestar. Under the initial 

evaluation, the agency’s technical advisory committee (TAC) gave a slight point edge 

to Verestar’s technical proposal, and a slight edge to WorldCom’s proposal under the 

management factor. The TAC concluded that the two proposals were very close 

under the overall non-price evaluations, and that both offerors were capable of 

providing the required services. Agency Report (AR), Tab 11, Competitive Range 

Determination, at 12. Verestar’s initial proposed total price was $21,189,686 and 

WorldCom’s total price was $4,288,146. Id. at 8. On June 3, the contracting officer 

 

1

The RFP invited offerors to submit proposals for one or more of three subsystems, 

or for the whole system; both WorldCom and Verestar submitted proposals only on 

the basis of an award of the whole system. 
Page 3 B-291854: B-291854.2 

determined to include both proposals in the competitive range. Discussions were 

conducted, after which offerors submitted final proposal revisions (FPR) on July 10. 

The TAC performed a reevaluation based on the basis of the FPRs, which resulted in 

point scores of 690 for each technical proposal, and total non-price scores of 1,557 

for the WorldCom proposal, and 1,542 for the Verestar proposal. WorldCom’s final 

proposed total price was $3,877,617 and Verestar’s price was $12,423,441. AR, Tab 

17, Source Evaluation Board Report, at 7. 

On November 5, the source selection official (SSO) selected WorldCom for award. 

The SSO adopted the Source Evaluation Board (SEB) determination that the nonprice proposals were substantially equal, as a result of which the WorldCom 

proposal represented the best value to the government on the basis of its 

substantially lower price. AR, Tab 18, Source Selection Decision Memorandum. 

Because WorldCom had filed for Chapter 11 bankruptcy reorganization, the 

contracting officer gave extensive consideration to the circumstances of that filing 

and to related information and then determined that WorldCom was a responsible 

offeror. The agency awarded the contract to WorldCom on December 9. After 

receiving a debriefing, Verestar filed its protest with our Office on January 13, 2003, 

and filed a supplemental protest after receiving the agency report. 

PROTEST ALLEGATIONS 

Verestar alleges that NOAA made an improper affirmative determination of 

responsibility with respect to WorldCom, and that WorldCom had failed to meet an 

RFP requirement to submit certain certified financial statements. Verestar also 

alleges that NOAA failed to properly “cost realize” and substantially increase the 

most probable cost of WorldCom’s unrealistically low price proposal, and 

improperly concluded that WorldCom could meet the RFP technical requirements in 

view of WorldCom’s unreasonably low proposed price. Protest at 3. Finally, 

Verestar asserts that NOAA failed to perform a proper cost/technical tradeoff, and 

instead improperly made the award on the basis of the low cost technically 

acceptable proposal, contrary to the RFP award provision which calls for a bestvalue award under which non-price factors are more important than price. Id.

AFFIRMATIVE DETERMINATION OF RESPONSIBILITY 

Verestar’s primary protest allegation is “[i]f NOAA had properly performed an 

analysis of WorldCom’s abject financial condition and lack of integrity . . . it would 

have concluded that WorldCom was not responsible, and was therefore ineligible for 

award.” Id. Because the determination that an offeror is capable of performing a 

contract is largely committed to the contracting officer’s discretion, GAO will 

generally not consider a protest challenging an affirmative determination of 

responsibility except under limited, specified exceptions. 4 C.F.R. § 21.5(c) (2003). 

Our Office recently amended our Regulations in this regard (effective for protests 

such as this one, filed on or after January 1, 2003), to add as a specified exception 
Page 4 B-291854: B-291854.2 

“protests that identify evidence raising serious concerns that, in reaching a particular 

responsibility determination, the contracting officer unreasonably failed to consider 

available relevant information or otherwise violated statute or regulation.” Bid 

Protest Regulations, 67 Fed. Reg. 79,833, 79,835-36 (2002) (to be codified at 4 C.F.R. 

§ 21.5(c)). Verestar asserts that its protest allegation falls within this exception. We 

disagree. 

Verestar’s allegations regarding WorldCom’s responsibility are essentially a 

recitation of adverse published reports concerning the events leading up to and 

surrounding WorldCom’s July 21, 2002 filing for Chapter 11 bankruptcy protection, 

of which Verestar remarks “most of the Western World is aware.” Protest at 11. In 

conjunction with this allegation, Verestar makes what it characterizes as a separate 

objection that WorldCom failed to provide the certified financial information that 

was required by section L.7.3.3 of the RFP. Id. Verestar concludes that “[g]iven the 

plethora of information raising serious questions about WorldCom’s integrity and 

business ethics and the admitted lack of credibility concerning its financial 

condition, it is clear that the Contracting Officer failed to consider a host of evidence 

that should have led him to conclude that WorldCom was not a responsible 

contractor and should have been eliminated from the competition.” Protest at 14. 

As our Office explained in the preamble to our revised regulations, the revision is 

“intended to encompass protests where, for example, the protest includes specific 

evidence that the contracting officer may have ignored information that, by its 

nature, would be expected to have a strong bearing on whether the awardee should 

be found responsible.” 67 Fed. Reg. 79,833, 79,834 (2002). 

In this instance, Verestar is correct that there was an abundance of readily available 

adverse information that by its nature could reasonably be expected to be relevant to 

a determination of whether WorldCom should be found responsible. However, as 

the record developed, it became abundantly clear that the contracting officer was 

well aware of the adverse information referenced by Verestar, and recognized that it 

was relevant to a determination of WorldCom’s responsibility. Rather than ignoring 

this information, the contracting officer specifically considered it in making his 

determination. In this regard, the contracting officer stated his concern that 

WorldCom had filed for bankruptcy “amid much concern about their internal 

financial practices, improper reported earnings for the preceding two years, and 

other ethical issues.” AR, Tab 20, Post Negotiation Memorandum, at 19. The 

contracting officer indicates that “[a]s part of the [resulting] research into the 

responsibility determination, a [General Services Administration (GSA)-conducted] 

WorldCom [b]ankruptcy summit conference was attended to gain current and long 

term-feel for WorldCom’s capabilities,” along with other research. Id. at 17. The 

contracting officer took notice that GSA had exercised its FTS (Federal Technology 

Service) option with WorldCom, that WorldCom still maintains its large 

infrastructure, communication licenses and key personnel, that WorldCom personnel 

who acted illegally and irresponsibly have been removed, that the company is 
Page 5 B-291854: B-291854.2 

currently under close oversight and scrutiny of its business decisions and practices, 

and that the new leadership of WorldCom has a history of business integrity and 

honesty. Id. The contracting officer also considered WorldCom’s record of 8 years 

of satisfactory performance of this contract and that WorldCom had the wherewithal 

to provide service in this follow-on requirement. Id. Additionally, the contracting 

officer considered that other agencies such as the Federal Aviation Administration 

recently awarded WorldCom a new contract, and that WorldCom provides 

communications services to many sensitive Department of Defense (DOD) activities, 

as a result of which it was considered highly unlikely that DOD would allow the 

demise of WorldCom. Id. at 19. 

With respect to the certified financial information for the past three annual 

accounting periods which section L.7.3.3 of the RFP required as part of the proposal 

submission (not as a performance requirement, but obviously for its relevance in 

determining offeror responsibility), the record is clear that WorldCom did submit the 

required financial information in its proposal. AR, Tab 8, WorldCom proposal, 

at F-1-55. When WorldCom filed for bankruptcy, it announced that it was reviewing 

its financial statements which would result in restated financials. As a result, in 

making his responsibility determination, the contracting officer explicitly recognized 

the inaccuracy of this financial information and researched and considered other 

information in order to assess WorldCom’s financial responsibility, as outlined 

above. AR, Tab 20, Post Negotiation Memorandum, at 17. 

In sum, the record establishes that the contracting officer had before him the 

adverse information that Verestar asserts he failed to consider. More important, the 

record is also clear that the contracting officer specifically considered the 

significance of this information in conjunction with other information that he 

obtained and which he viewed as ameliorating the concerns and risks that had been 

raised, whereupon the contracting officer made the considered affirmative 

determination that WorldCom was responsible and could perform. Accordingly, in 

light of the developed record, the protest does not raise a serious concern that the 

contracting officer unreasonably failed to consider relevant information or otherwise 

violated statute or regulation. 

PRICE REALISM ANALYSIS 

Verestar alleges that WorldCom’s proposal is “underpriced,” and that NOAA “failed 

to properly cost realize WorldCom’s proposal and improperly concluded that 

WorldCom could meet the RFP’s technical requirements for its proposed price.” 

Protest at 3. Verestar points out that WorldCom’s price is more than 50 percent 

lower than its current contract price under an RFP that requires system upgrades. 

Verestar points out that the solicitation calls for a cost realism analysis and reserves 

the government’s right to adjust the offerors’ most probable cost on the basis of this 

analysis. Protest at 7. Verestar further asserts that had the agency performed a 

proper cost realism analysis it would have adjusted WorldCom’s price to a level that 
Page 6 B-291854: B-291854.2 

would have made Verestar’s proposal lower priced. Protest at 15-16. Where an 

agency evaluates proposals for award of a cost-reimbursement contract, an offeror’s 

proposed estimated costs are not controlling since, regardless of the costs proposed, 

the government is bound to pay the contractor its actual and allowable costs. 

Advanced Sciences, Inc., B-259569.3, July 3, 1995, 95-2 CPD ¶ 52 at 11. Accordingly, 

a cost realism analysis must be performed to determine the probable cost of 

performance for each offeror when a cost-reimbursement contract is contemplated. 

Federal Acquisition Regulation (FAR) § 15.404-1(d)(2). This concern is not present 

in the evaluation of proposals when a fixed-price contract is to be awarded, as here, 

since the government’s liability is fixed and the risk of cost escalation is borne by the 

contractor. PHP Healthcare Corp., B-251933, May 13, 1993, 93-1 CPD ¶ 381 at 5. 

However, since the risk of poor performance when a contractor is forced to provide 

services at little or no profit or with an inadequate or undercompensated workforce 

is a legitimate concern in evaluating proposals, an agency may provide for a price 

realism analysis for the purpose of assessing the risk inherent in an offeror’s 

proposal. Sabreliner Corp., B-284240.2, B-284240.6, Mar. 22, 2000, 2000 CPD ¶ 68 

at 6.2

 The nature and extent of an agency’s price realism analysis are matters within 

the agency’s discretion, and our review of an agency’s price realism evaluation is 

limited to determining whether it was reasonable and consistent with the 

solicitation’s evaluation criteria. AST Envtl., Inc., B-291567, Dec. 31, 2002, 2002 CPD 

¶ 225 at 2. 

Here, the solicitation provided for a cost/price realism analysis, (the RFP uses the 

terms price and cost interchangeably), and as the protester notes, reserved the 

government’s option to use the analysis to adjust the offer to a most probable cost. 

RFP § M.1.3(4).3

 However, the RFP also recognized that: “FAR section 15.305 

permits waiving a price analysis and a cost analysis when solicitations will be a firmfixed price competitive proposal. No analysis will be performed if multiple, 

acceptable fixed-price proposals are received.” RFP § M.5. In this instance, the 

agency did receive more than one acceptable proposal, and “a determination was 

made that a cost analysis is unwarranted because sufficient competition exists to 

make an award based upon financial and technical capabilities of the Offerors.” AR, 

 

2

 Verestar points out that FAR § 15.404-1(d)(3) permits the use of cost realism 

analyses for certain fixed-price contracts. In the first instance, the provision is only 

applicable to fixed-price incentive contracts or to exceptional cases such as when 

new requirements may not be fully understood by competing offerors, which are 

inapposite here. In any case, even under this exception, no price adjustment could 

be warranted since the provision explicitly provides that “the offered prices shall not 

be adjusted as a result of the analysis.” Id.

3

 In our view, such an adjustment would have been impermissible here since the RFP 

calls for award of a fixed-price contract, without a mechanism for an upward 

adjustment of prices. PHP Healthcare Corp, supra, at 5. 
Page 7 B-291854: B-291854.2 

Tab 15, Business Advisory Committee Final Report, at 9. Accordingly, the RFP did 

not require that the agency perform a cost/price realism analysis in the 

circumstances that are present here. 

Nonetheless, the record reflects that the agency did take cognizance of WorldCom’s 

relatively low price and considered whether it was realistic. In this regard, the 

agency recognized that WorldCom’s technical solution was significantly different 

from Verestar’s in ways which are substantially less expensive. WorldCom proposed 

to reuse the existing hardware with minimal replacement (as was permitted under 

the RFP), which represented substantial savings in nonrecurring costs in comparison 

with Verestar’s proposal to [DELETED]. AR, Tab 17, SEB Report, at 8. With respect 

to recurring operations, Verestar proposed to [DELETED], while WorldCom 

proposed a dynamic bandwidth system which permitted the entire network to be 

shared with other users during idle times or periods with low ISCS traffic, which is 

efficient and lower in cost than both Verestar’s [DELETED], and the configuration 

under WorldCom’s incumbent contract network which includes shared and unshared 

segments. Id. The agency also recognized that there was a downward trend in 

pricing because of the competitive environment within the industry. AR, Tab 20, 

Post Negotiation Memorandum, at 14. Under the circumstances presented here, we 

see no basis to question the propriety of the agency’s price realism assessment. 

AWARD DETERMINATION 

Verestar contends that the agency improperly failed to do a cost/technical tradeoff 

and instead awarded on the basis of the low-priced, technically acceptable proposal 

in contravention of the RFP award criteria which called for a best value tradeoff in 

which non-price factors were more important than price. Protest at 3. Here, the 

RFP evaluation scheme explicitly provides that price would increase in importance 

as the non-price proposals became close to equal. In a negotiated procurement with 

a best value evaluation plan where selection officials reasonably regard proposals as 

being essentially equal technically, price can become the determining factor in 

making award notwithstanding that the evaluation criteria assigned price less 

importance than technical factors. M-Cubed Info Sys., Inc., B-284445, B-284445.2, 

Apr. 19, 2000, 2000 CPD ¶ 74 at 8. While Verestar’s argument posits the non-price 

superiority of its proposal, in fact, the record reflects that the Verestar proposal was 

evaluated as substantially equal to WorldCom’s. Accordingly, Verestar’s objection 

that by considering price to be determinative, the agency improperly converted the 

procurement into one in which award was made on the basis of the low-cost 
Page 8 B-291854: B-291854.2 

technically acceptable proposal is without merit; rather, the agency’s decision to use 

low price as the determining factor between two equally rated proposals was fully 

consistent with the RFP award criteria.4

The protest is denied. 

Anthony H. Gamboa 

General Counsel 

 

4

 Verestar has raised a number of other issues and reformulations of issues, none of 

which provide a basis to sustain the protest. Some of these issues, such as Verestar’s 

protest of the agency’s evaluation of weaknesses in its proposal, and the agency’s 

alleged failure to bring these weaknesses to Verestar’s attention during discussions 

are untimely. Verestar first raised these issues in its supplemental protest, which 

was untimely filed more than 10 days after the debriefing at which it received 

detailed information outlining the evaluated weaknesses, as a result of which 

Verestar knew or should have known these bases for protest. 4 C.F.R. § 21.2(a)(2) 

(2003). Verestar’s objections to aspects of WorldCom’s proposal evaluation reflect 

the protester’s mere disagreement with the agency’s evaluation, which does not 

render it unreasonable. CORVAC, Inc., B-244766, Nov. 13, 1991, 91-2 CPD ¶ 454 at 5. 

Other WorldCom proposal evaluation allegations arise from Verestar’s objection that 

WorldCom unfairly benefited from its incumbency status. It is common for an 

incumbent to possess and receive evaluation credit for unique advantages which the 

government is not required to neutralize, and this advantage does not constitute an 

unfair competitive advantage or represent preferential treatment by the agency. 

Crofton Diving Corp., B-289271, Jan. 30, 2002, 2002 CPD ¶ 32 at 6. Finally, Verestar 

raises issues which do not constitute valid bases for protest, such as its contention 

that in light of the evaluation posture after initial evaluation, it was improper for the 

agency to include Verestar’s proposal in the competitive range. Champion Bus. 

Servs., Inc., B-290556, June 25, 2002, 2002 CPD ¶ 109 at 2. In this regard, we also 

note that Verestar acknowledges that it was explicitly advised by the agency during 

discussions that in order “to remain competitive, it would have to reduce its price by 

75%,” and Verestar elected not to do so because it “interpreted [this] statement as a 

negotiation tactic to try to reduce its price.” Protester’s Supplemental Comments, 

at 13. We have considered all of Verestar’s other protest allegations and find them 

without merit.