United States Government Accountability Office

Washington, DC 20548

Comptroller General

of the United States

 

Decision

Matter of: EcoAnalysts, Inc.

File: B-406233; B-406233.2; B-406233.3

Date: March 19, 2012

Holly A. Roth, Esq., Michael Bhargava, Esq., and Diana Kwok, Esq., Manatt, Phelps 

& Phillips, LLP, for the protester.

Joseph J. Petrillo, Esq., and Karen D. Powell, Esq., Petrillo & Powell, P.L.L.C., for

EnviroScience, Inc., the intervenor.

Jeffrey M. Herrema, Esq., Environmental Protection Agency, and John W. Klein, 

Esq., and Sam Q. Le, Esq., Small Business Administration, for the agencies.

Charles W. Morrow, Esq., and James A. Spangenberg, Esq., Office of the General 

Counsel, GAO, participated in the preparation of the decision.

DIGEST

Where protester’s proposal, on its face, indicated that it would not comply with 

subcontracting limitation included in the solicitation, which required that at least 

50 percent of the cost of contract performance incurred for personnel be expended 

for employees of the offeror, the agency properly rejected the proposal as 

unacceptable. 

DECISION

EcoAnalysts, Inc., of Moscow, Idaho, protests the rejection of its proposal and the 

award of contracts to EnviroScience, Inc., of Stow, Ohio, and PG Environmental, 

LLC, of Herndon, Virginia, under request for proposals (RFP) No. SOL-CI-11-0023, 

issued by the United States Environmental Protection Agency (EPA), for technical 

support services. 

We deny the protest.

The RFP, issued on May 31, 2011 as a total small business set-aside, sought to 

procure technical support services to support the EPA Office of Water on National 

Aquatic Resource Surveys. These services include research and planning, field 

sampling-related activities, sampling logistics, laboratory analyses, analytical 

techniques and modeling, and reporting. The solicitation contemplated the award of 

multiple indefinite-delivery/indefinite-quantity (ID/IQ) task order contracts. Task 

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-406233 et al.

orders could be issued under the ID/IQ contracts on either a fixed-price or cost-plusfixed-fee basis. 

The RFP incorporated by reference the “Limitation on Subcontracting” clause set 

forth at Federal Acquisition Regulation (FAR) § 52.219-14. RFP at 43. As relevant

here, with respect to the limitation on subcontracting for services, this clause

requires that “[a]t least 50 percent of the cost of contract performance incurred for 

personnel shall be expended for employees of the concern.” FAR § 52.219-

14(c)(1).

Award was to be made on a best-value basis, considering five evaluation factors: 

(1) adequacy of past performance, (2) adequacy of quality assurance, 

(3) demonstrated technical approach, (4) adequacy of facilities and equipment, and 

(5) demonstrated qualifications of project manager. The combined weight of the 

non-price/cost factors was significantly more important than cost/price. Cost/price 

was not separately weighted but the RFP provided for a cost analysis, a price 

analysis, and a realism analysis. 

Four offerors submitted proposals in response to the RFP by the June 30 closing 

date, including EcoAnalysts, EnviroScience, and PG. Based on the evaluation of 

technical and cost proposals, the two most highly rated offerors were EcoAnalysts

and EnviroScience. However, during the cost evaluation, the cost auditor found that 

neither EcoAnalysts nor EnviroScience had held cost contracts with the 

government, had accounting systems which had been approved by a government 

agency, or addressed in their proposals the adequacy of their accounting systems 

as it related to accounting for costs under cost-type contracts. Because of the 

auditor’s findings, the contracting officer stated that she was unable to determine 

these firms had adequate accounting controls to support a cost contract, as 

required by FAR § 9.104-1(e), and found both offerors to be non-responsible. 

Agency Report (AR), Tab H, Non-responsibility Determination, at 1-2. Following the 

non-responsibility determinations, on September 13, the contracting officer referred 

the matters to the Small Business Administration (SBA) to be considered under the 

SBA’s Certificate of Competency (COC) process. AR, Tab J.2, COC Request, at 2. 

On October 7, the SBA declined to issue EcoAnalysts a COC.1

 1 The SBA did issue a COC determining that EnviroScience was responsible.

 The SBA 

determined that, based on the evidence that EcoAnalysts provided, the firm did not 

demonstrate that it has the ability to implement the cost accounting system required 

of a cost-type contract. Further, the SBA concluded that it appeared that 

EcoAnalysts was unable to meet the requirements imposed by the RFP’s limitation 

on subcontracting clause, and expressed concern with respect to EcoAnalyst’s

relationship with its large business subcontractor, [DELETED]. AR, Tab M.2, SBA 

Letter to EPA, at 1; Tab M.3, SBA Letter to EcoAnalysts at 1.
Page 3 B-406233 et al.

EcoAnalysts requested permission to provide further information to the contracting 

officer pertaining to its responsibility, which the contracting officer permitted. AR, 

Tab S1, Contracting Officer’s Reconsideration of Non-Responsibility Determination, 

at 2. On November 22, EcoAnalysts offered, among other things, the following 

additional information regarding its proposal’s noncompliance with the RFP’s 

limitation on subcontracting clause:

The SBA’s letter informing EcoAnalysts of its denial to issue COC 

notes that EcoAnalysts’ original proposal to EPA suggests we would 

not be able to meet the subcontracting limitations for small business 

set aside contracts under [FAR §] 52.214-19. EcoAnalysts is fully 

capable of meeting the subcontracting limitations by performing the 

majority of labor on a cost basis. When EcoAnalysts prepared the 

cost proposal for submittal to EPA using the cost exercise template 

provided, we allocated [DELETED] of the total direct labor hours to 

EcoAnalysts, [DELETED] (subcontractor), and [DELETED]

(subcontractor) with the intent of demonstrating that EcoAnalysts was 

responsible for the majority of the work (on an hours basis). However, 

SBA correctly pointed out that limits on subcontracting are based on 

cost, not hours, and because [DELETED] rates are on average higher 

than EcoAnalysts’, EcoAnalysts inadvertently proposed to do less than 

50% of the direct labor (on a cost basis). We stand corrected in our 

approach to labor allocations among our team and commit to 

allocating resources in a manner that ensures EcoAnalysts is 

responsible for a minimum of 51% of the direct labor costs.

AR, Tab R.2, EcoAnalysts Letter to EPA, at 1-2. 

In response to the admission by EcoAnalysts that its proposal was noncompliant 

with the subcontracting limitation, the EPA’s cost auditor again reviewed 

EcoAnalysts’ proposal for compliance with the limitation on subcontracting 

requirement. For this purpose, the auditor properly utilized the SBA’s regulations 

governing the requirement, which defines the “cost of contract performance incurred

for personnel” as “[d]irect labor costs and any overhead which has only direct labor 

as its base, plus the concern’s General and Administrative (G&A) rate multiplied by 

the labor cost. See AR, Tab A.3, Auditor’s Statement (Dec. 19, 2011); 13 C.F.R. 

§ 125.6(e)(2) (2011). The auditor found that EcoAnalysts’ proposal indicated that 

the firm would only be incurring 46.47 percent of the costs of the contract for 

personnel with its own employees. AR, Tab A.3, Auditor’s Statement (Dec. 19, 

2011). Based on the auditor’s findings, the contracting officer concluded that 

EcoAnalysts’ proposal, as submitted, did not meet the limitation on subcontracting 

requirements, and was therefore technically unacceptable. See AR, Tab S.1, 

Contracting Officer’s Reconsideration of Non-Responsibility Determination. On 

November 29, the agency eliminated EcoAnalysts’ proposal from the competition 
Page 4 B-406233 et al.

because of its noncompliance with the subcontracting limitation.

2

 AR, Tab T, 

Contracting Officer Letter to EcoAnalysts, Nov. 29, 2011. On December 13, the 

EPA awarded contracts, without conducting discussions, to EnviroScience and PG.3

 

This protest by EcoAnalysts followed. 

EcoAnalysts contends that the EPA’s decision to reject its proposal as technically 

unacceptable on the basis that it did not meet the RFP’s limitation on subcontracting 

requirement was unreasonable.

4

As a general matter, an agency’s judgment as to whether a small business offeror 

will be able to comply with a subcontracting limitation presents a question of 

responsibility for review by the SBA. See 13 C.F.R. § 125.6(f); Spectrum Sec. 

Servs., Inc., B-297320.2, B-297320.3, Dec. 29, 2005, 2005 CPD ¶ 227 at 6. 

However, our Office has consistently held that where a proposal, on its face, should 

lead an agency to the conclusion than an offeror has not agreed to comply with the 

subcontracting limitation, the matter is one of the proposal’s acceptability. 

Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD ¶ 18 at 6; KIRA Inc., 

B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3; National Med. 

Staffing, Inc.; PRS Consultants, Inc.

 2 The contracting officer also determined EcoAnalyst still had not shown that it had 

an adequate accounting system and was thus still considered non-responsible. AR, 

Tab S.2, Supplement to Contracting Officer’s Reconsideration of Non-Responsibility 

Determination (Jan. 5, 2012).

, B-238694, B-238694.2, June 4, 1990, 

3 While EcoAnalysts argues that in executing its contract with PG, the agency 

conducted discussions with PG by allowing the firm to change its ceiling rates, the 

record does not support this contention. As explained by the agency, the 

contracting officer inadvertently incorporated all three of PG’s proposed indirect 

rates as ceiling rates in the initial “G-4 Indirect Costs Clause,” rather than the one 

rate proposed by PG. The record reflects that the contracting officer merely 

corrected her mistake to conform to PG’s proposal, by revising the information in 

this clause. See Supp. AR (Feb. 3, 2012) at 1-2. In any event, the record does not 

demonstrate, nor has EcoAnalysts shown, that PG’s proposal was otherwise 

technically unacceptable, as was the case with EcoAnalysts’ proposal as submitted.

4 EcoAnalysts also protests the EPA’s initial determination that EcoAnalysts was 

non-responsible, the referral of the matter to the SBA, the SBA’s decision not to 

issue a COC, and the agency’s ultimate determination that EcoAnalysts was nonresponsible because it did not show that it had an adequate accounting system for a 

cost contract. We do not consider these issues, and the numerous variants of 

them, because, for the reasons set out below. we find that the EPA properly 

eliminated EcoAnalysts’ proposal as technically unacceptable for its noncompliance 

with the subcontracting limitation. 
Page 5 B-406233 et al.

90-1 CPD ¶ 530 at 4. In this regard, a proposal that fails to conform to a material 

term or condition of the solicitation, such as the subcontracting limitation, is 

unacceptable and may not form the basis for an award. TYBRIN Corp., 

B 298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5.

Here, the agency reasonably found, and our review confirms that, EcoAnalysts’ 

proposal included only 46.5 percent of the firm’s personnel cost in its direct labor 

base. EcoAnalysts admitted to the EPA that it proposed to incur less than 

50 percent of the direct labor, and in its protest, EcoAnalysts acknowledges that its 

proposal reflected that its share of the direct labor costs incurred for personnel was 

only 46.5 percent, which is less than required to comply with the limitation on 

subcontracting requirement. See AR, Tab R.2, EcoAnalysts Letter to EPA, at 1-2; 

Protest at 17 n.4.

EcoAnalysts nevertheless argues that it was unreasonable for the EPA to conclude 

that EcoAnalysts “could not and would not comply with the subcontracting limitation”

and reject its proposal, given EcoAnalysts’ assurances to the EPA in its 

November 22 letter (and previously to the SBA) that EcoAnalysts would comply with 

the subcontracting limitation requirements. EcoAnalysts also argues that in 

determining that the firm would not incur at least 50 percent of the costs of 

personnel, the EPA and the SBA unreasonably ignored the bulk of the personnel 

costs for laboratory services to be performed under the contract by EcoAnalysts 

personnel, which were included in its cost proposal as other direct costs (ODC). 

As noted above, for purposes of complying with the subcontracting limitation 

requirement, the applicable regulation requires the cost incurred for personnel to be 

based on direct labor costs and any overhead which has only direct labor as its 

base, plus the concern’s G&A rate multiplied by the labor costs. 13 C.F.R. 

§ 125.6(e)(2). This definition does not appear to include the consideration of labor 

costs embedded in ODCs. The ODCs here are for laboratory services and were a 

plug number ($22,050,000) included in all offerors’ cost proposals. The ODC plug 

number accounts for such elements as labor, equipment, supplies, materials, and 

other non-labor costs. In any case, EcoAnalysts provided no information in its 

proposal as to the personnel costs for its own employees for the laboratory services

that would allow the agency to consider them in determining whether that firm would 

satisfy the subcontracting limitation. Thus, the agency reasonably disregarded the 

ODCs in determining EcoAnalyst’s compliance with the subcontracting limitation. 

See Addx Corp., B-404888, May 4, 2011, 2011 CPD ¶ 89 at 4 (for purposes of 

determining compliance with subcontracting limitation the agency should rely upon 

the contents of the proposal).

Although EcoAnalysts offered to, and states that it could, comply with the 

requirement, the proposal was reasonably found to be technically unacceptable as 

submitted. EcoAnalysts’ offers to comply with the subcontracting limitation do not 

render acceptable a proposal that is noncompliant on its face. TYBRIN Corp.,
Page 6 B-406233 et al.

supra, at 5-6. To make EcoAnalysts’ proposal acceptable would have required the 

EPA to conduct discussions and allow EcoAnalysts to revise its cost proposal. 

However, the agency was not obligated to conduct discussions with EcoAnalysts for 

this purpose, where, as here, the agency made award without discussions to other 

offerors with technically acceptable proposals. See Orincon Corp., B-276704, 

July 18, 1997, 97-2 CPD ¶ 26 at 4-6. 

The protest is denied.

Lynn H. Gibson

General Counsel