United States Government Accountability Office

Washington, DC 20548

Comptroller General

of the United States

Decision

Matter of: KPMG LLP

File: B-406409; B-406409.2; B-406409.3; B-406409.4

Date: May 21, 2012

Michael A. Hordell, Esq., Michael R. Golden, Esq., Heather Kilgore Weiner, Esq., 

and Samuel Jack, Esq., Pepper Hamilton LLP, for the protester.

David S. Cohen, Esq., John J. O’Brien, Esq., and Gabriel E. Kennon, Esq., Cohen 

Mohr LLP, for Deloitte & Touche LLP, an intervenor. 

Christopher E. Gagne, Esq., and Arthur L. Passar, Esq., Central Intelligence 

Agency, for the agency.

Paul N. Wengert, Esq., Glenn G. Wolcott, Esq., and Sharon L. Larkin, Esq., Office of 

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

DIGEST

1. Agency conducted misleading discussions where it advised protester during 

discussions that it should provide resumes for all proposed personnel for the lifespan 

of the contract, but now asserts that the RFP did not require such submission of 

resumes. 

2. Agency failed to conduct an adequate cost realism analysis of proposals for costplus-fixed-fee level-of-effort contract where the record is devoid of any meaningful 

analysis by agency evaluators of their basis for accepting as realistic the awardee’s 

cost proposal, and record showed that, beginning a year into performance, the firm’s 

cost savings depended on replacement of staff whose resumes were relied upon for 

the awardee’s higher technical ratings. 

DECISION

KPMG LLP, of McLean, Virginia, protests the award of a contract to Deloitte & 

Touche LLP, of Arlington, Virginia, by the Central Intelligence Agency (CIA) under 

request for proposals (RFP) No. 2012-11120600005 for accounting and financial 

services in support of the Office of the Director of National Intelligence (ODNI). 

KPMG argues that the CIA held misleading discussions, misevaluated the 

proposals, failed to conduct a proper cost realism analysis, and made an 

unreasonable source selection decision. 

We sustain the protest. 

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-406409 et al.

BACKGROUND

The CIA issued the RFP on December 12, 2011, seeking proposals to provide 

services to assist in the preparation of auditable financial statements for the ODNI. 

RFP at 1. The RFP anticipated the award of a cost-plus-fixed-fee level-of-effort 

contract1 for a base year and four annual option periods2 to the firm whose proposal 

offered the best value. Agency Report (AR) at 2; RFP at 10, L-2.3

The RFP described the objectives of the contract as producing auditable financial 

statements each year by November 15, beginning with Fiscal Year 2014. After that, 

the contractor will support the agency’s efforts to resolve audit issues, so that the 

agency is able to obtain an unqualified opinion on the ODNI financial statements by 

Fiscal Year 2016. Statement of Work (SOW) at 3-4. The contract tasks were 

grouped into nine areas: program management, financial analysis, internal controls 

and compliance, financial statements preparation support, process redesign and 

policies/procedures, training, documentation support, audit support, and preparation 

of written products. SOW at 5-9. 

 

Since the RFP stated that the CIA intended to award a cost-reimbursement level-ofeffort contract, it provided that “the required level of effort for this requirement is 

fourteen (14) Full Time Equivalents [FTEs] for a period of one year (BASE) with 

options for an additional four years . . .” Id. at 4; RFP at 5. The SOW further 

allocated the 14 FTEs among three labor categories: program manager/senior 

technician (2 FTEs), financial support personnel (8 FTEs), and functional support 

specialist (4 FTEs). SOW at 10-11. The SOW established specific education and 

experience requirements for each labor category. Id.

Proposal Instructions

 

The RFP directed offerors to submit proposals addressing, among other things, the 

firm’s technical approach, management approach, past performance, security, and 

cost/price. RFP at L-3. Under the technical volume, the RFP directed offerors to 

provide a narrative description of the offeror’s approach, and to include resumes for 

“the proposed Project Manager, full time staff, and any other specialized staff the 

offeror believes might be required for backup.” RFP at L-5. For the management 

volume, the RFP directed each offeror to describe how its proposed team would be 

 1 See generally Federal Acquisition Regulation (FAR) §§ 16.306(d)(2), (4). 

2 The base contract period was to run from February 1, 2012, to January 31, 2013, 

and similarly for each of the four option years. RFP at 9. 

3 Both sections L and M of the RFP were page numbered separately. To avoid 

ambiguity, our citations to pages in those sections will be “L-[page number]” (as 

above) or “M-[page number],” respectively. 
Page 3 B-406409 et al.

capable of performing the contract requirements, and also to describe the offeror’s 

ability to retain and recruit personnel consistent with the SOW. Id.

In the cost volume, the RFP directed offerors to provide a complete explanation of 

the basis for their costs. The RFP provided that “ALL of the instructions for the 

Cost/Price Volume apply to all Offerors, whether Prime or subcontractor.” RFP 

at L-9. The instructions further directed offerors to provide cost or pricing data “from 

the prime and subcontractors,” and a basis of estimate for the offeror’s costs, 

including a breakdown of the underlying cost elements. RFP at L-9. 

 With respect to 

the security requirements, the RFP directed offerors to describe the firm’s general 

approach to complying with the contract’s security requirements and to supply 

specific information about “each individual proposed employee,” including the 

individual’s full name, date of birth, social security number, background investigation 

and security clearance, and the date when the individual would begin work on the 

contract. RFP at L-8. 

Best Value Evaluation Scheme 

The RFP provided that proposals would be evaluated under four factors: technical, 

management, past performance, and cost. RFP at M-2. The RFP explained that 

award would be made to the firm whose proposal provided the best value, with the 

technical factor more important than the management factor, which was, in turn, 

more important than the past performance factor. The cost factor was described as 

significantly less important than the other factors combined. RFP at M-2 to M-3. 

Under the technical factor, the RFP listed two subfactors: personnel qualifications 

and skills, and technical capability and understanding of the requirements. Id. 

Under the management factor, the RFP listed one subfactor: staffing and 

availability. Id.

The RFP also established a fifth factor, security, to be evaluated on a pass/fail basis. 

The RFP stated that firms receiving a rating of “fail”, or whose security deficiencies 

were not correctable, would be eliminated from the competition. RFP at M-3 to M-4. 

The security factor evaluation was to consider the “clearance status of the proposed 

personnel,” among other things, and the RFP advised offerors that contractor 

personnel were required to hold a “current ODNI ISSA/TS [Industrial Security Staff 

Approval/Top Secret] clearance, or be eligible for immediate crossover.” RFP 

at M-4. 

 There were no subfactors under the other evaluation factors. 

Proposal Submission

The CIA received timely proposals from KPMG and Deloitte. Both firms’ initial 

proposals offered diminishing resources over the life of the contract; that is, each 

firm proposed either fewer personnel or less qualified personnel after an initial 
Page 4 B-406409 et al.

contract performance period. For example, KPMG’s initial proposal offered to 

provide 14 FTEs during the first [deleted].4

The CIA evaluated both proposals under the evaluation criteria using adjectival 

ratings of excellent, very good, satisfactory, marginal, or unacceptable. The initial 

technical and management evaluation ratings were as follows: 

 Thereafter, the proposal stated that the 

firm anticipated that the services would be less complex, and KPMG proposed to 

reduce staffing for the [deleted]. AR Binder 2, Tab 4, KPMG Initial Management 

Proposal, at 3. Similarly, Deloitte’s proposal indicated that after the base 

performance period, it would “transition” to less experienced personnel. 

Supplemental (Supp.) AR Binder 3, Tab 3, Deloitte Final Proposal Revision, at 1. 

Factor/Subfactor Deloitte KPMG

Technical Approach 

 1. Personnel Quals & Skills Very Good Very Good

 2. Technical Capability Very Good Very Good

Management Approach Very Good Very Good

Supp. AR Binder 3, Tab 8, Final Technical & Management Evaluation Report, at 1. 

Discussions

Following its evaluation of initial proposals, the CIA determined that both proposals 

had weaknesses that should be addressed prior to contract award. Accordingly, the 

source selection authority established a competitive range and authorized 

discussions. AR Binder 1, Tab 11, Competitive Range Determination, at 1. 

The CIA provided each offeror a written discussion letter. For KPMG, the discussion 

letter advised the firm, among other issues, that its proposed staffing was 

unacceptable, stating: 

KPMG has failed to propose the required Fourteen (14) FTEs as 

mandated and has therefore failed to meet the requirements of the 

solicitation. As a result, the Government does not have a realistic cost 

estimate based on KPMG’s submission. Resumes should be provided 

for all personnel proposed to perform over the lifespan of the contract. 

AR Binder 1, Tab 12, Discussions Letter from CIA to KPMG, at 1. 

 4 Specifically, KPMG’s proposal provided resumes for [deleted], whose efforts 

provided a total of 14 FTEs during [deleted]. See Agency Report (AR) Binder 2, 

Tab 3, KPMG Initial Technical Proposal, appx. A, at A-1 to A-33. 
Page 5 B-406409 et al.

In discussions with Deloitte, the agency raised a similar concern with Deloitte’s 

proposal to “transition” to less qualified personnel after the initial performance 

period, stating: 

Deloitte should either submit resumes for the less experienced 

personnel forecasted, or revise the cost proposal to reflect the labor 

categories for the resumes provided in the initial proposal in order for 

the Cost and Technical/Management Teams to make a fair cost 

determination. 

Supp. AR Binder 3, Tab 6, Discussions Letter from CIA to Deloitte, Jan. 13, 2012, 

at 1. 

The CIA also posed a question to Deloitte regarding the absence of pricing 

information for Deloitte’s subcontractors, stating that the initial proposal was 

incomplete in that regard and requesting that Deloitte “submit all required 

information for subcontractors as specified in [RFP] Section L, [¶] 7.4.1.” 

Submission of Final Proposal Revisions

Id. 

In its final proposal revision (FPR), KPMG stated that it was eliminating the staff 

reductions initially proposed [deleted], and instead would be maintaining its staff at 

14 FTEs for all years of contract performance. AR Binder 2, Tab 9, KPMG Final 

Management Proposal Revision, at 3; AR Binder 2, Tab 10, KPMG Final Cost 

Proposal Revision, at 9-11, 16. Additionally, KPMG provided resumes for all of its 

proposed personnel. AR Binder 2, Tab 9, KPMG Final Technical Approach Proposal 

Revision, at 5-6 & app. A, at A-1 to A-39; KPMG Final Management Proposal 

Revision, at 4-5. 

In contrast, Deloitte responded in its FPR that “it is very difficult to provide resumes 

of specific individuals that we plan to transition into the contract.” Supp. AR 

Binder 3, Tab 5, Deloitte Final Technical Proposal Revision Cover Letter, at 1. 

Instead, Deloitte stated that it was “provid[ing] a representative resume for each 

labor category,” explaining that the resumes were submitted to reflect “the types of 

skills and experience that we envision delivering in the out years.” Id.

Deloitte’s final cost proposal revision included a complex explanation for its labor 

costs. The proposal stated that the firm followed two practices for its proposed 

direct costs. First, for the [deleted] key personnel, Deloitte’s proposed costs were 

[deleted]. In contrast, for the non-key personnel, Deloitte used “blended” rates, 

which were calculated as [deleted]. Supp. AR Binder 3, Tab 5, Deloitte Final Cost 

Proposal Revision, at VII-66 to VII-70. Deloitte explained that its blended rates were 

determined by dividing the range of direct labor rates for each labor category into 

at 1-2. 
Page 6 B-406409 et al.

[deleted] (consistent with the forward pricing rate recommendation5 applicable to the 

company), and then selecting a [deleted]. Id.

Deloitte also stated that due to the RFP’s security clearance requirement, “the 

salaries necessary to attract such personnel are on the higher side of the salary 

ranges in the survey.” However, contrary to that assertion, for [deleted] of the 

[deleted] blended rates, Deloitte used only rates in the [deleted].

at VII-70. 

6

 Id.

Deloitte also provided cost information for its subcontractors, consisting of hourly 

labor rates. Supp. AR Binder 3, Tab 5, Deloitte Final Technical Proposal Revision 

Cover Letter, at 1; Supp. AR Binder 3, Tab 5, Deloitte Final Cost Proposal, at 

VII-176 to VII-187k. 

 These 

blended rates were then used by Deloitte to calculate its proposed costs for each 

year of contract performance. Supp. AR Binder 3, Tab 5, Deloitte Final Cost 

Proposal Revision, at VII-8 through VII-43. 

Evaluation of Final Proposal Revisions 

The CIA evaluated the FPRs and concluded that both of the final proposals 

eliminated the weaknesses the agency identified during discussions. While the 

evaluators made no changes to KPMG’s ratings, they ultimately identified several 

strengths in the proposal. Specifically, the evaluators assigned two minor strengths 

to KPMG’s final proposal revision under the personnel qualifications subfactor: 

(1) that personnel proposed for the financial support personnel and the functional 

support specialist positions exceeded the minimum qualifications in all areas, and 

(2) that the program manager exceeded all minimum requirements. The evaluators 

also identified a minor strength for KPMG under the technical capability subfactor for 

proposing a useful plan for a [deleted]. Under the management factor, the 

evaluators identified as a significant strength KPMG’s comprehensive plan [deleted], 

and as a minor strength, KPMG’s plan for [deleted]. Supp. AR Binder 3, Tab 8, 

Final Technical & Management Evaluation Report, at 6-7. 

The evaluators also identified several strengths in Deloitte’s final proposal revision. 

Under the personnel qualifications subfactor, the evaluators assessed two major 

strengths for Deloitte: (1) for the qualifications of the proposed program manager 

and senior technician, because the strength of their resumes gave the evaluators 

 5 A forward pricing rate recommendation is defined as “a rate set unilaterally by the 

administrative contracting officer for use by the Government in negotiations or other 

contract actions when forward pricing rate agreement negotiations have not been 

completed or when the contractor will not agree to a forward pricing rate agreement.” 

FAR § 2.101. 

6 Specifically, [deleted] was factored into only one labor category, while the 

[deleted] was not used in any of the labor categories. Id. 
Page 7 B-406409 et al.

confidence in the offeror’s ability to successfully achieve [deleted]; and (2) that all of 

the personnel proposed for the financial support personnel and functional support 

specialist positions exceeded the minimum experience requirements, including 

[deleted]. Id. at 4. The evaluators identified no strengths for Deloitte under the 

technical approach subfactor, while under the management factor, the evaluators 

identified one major strength and one minor strength. The major strength was 

assessed because Deloitte’s management approach had been used to obtain 

[deleted], and the firm had [deleted]. The minor strength was that the firm had a 

solid approach to [deleted]. Id.

A cost evaluation team (CET) was assigned to assess the realism of the offerors’ 

proposed costs. The cost evaluators concluded that a most probable cost could not 

be determined for either firm, stating as follows: 

at 5. 

A most probable cost estimate was not done for either company. 

KPMG, LLP proposed . . . all fourteen personnel throughout the life of 

the contract making their proposal evaluation fairly straightforward. 

Deloitte’s pricing decreases in the option years due to their strategy of 

providing higher priced, higher qualified personnel in the early years of 

the effort . . . and then replacing them with less expensive, but still 

qualified personnel in the later years. Deloitte does not provide an 

exact date when this will occur, but states that it will take place when 

“experience and innovation” allow them to transition personnel. When 

the technical evaluation team . . . reviewed the representative resumes 

for proposed personnel who may be used in the out years, it gave 

them a high degree of confidence that their qualifications still exceeded 

the minimum asked for in the SOW. Upon further review, this posed 

no issue when evaluating their proposal. 

AR Tab 16, CET Final Report, at 4. 

The CET report then made identical brief statements that each offeror’s proposed 

costs were realistic because they were consistent with the firm’s technical proposal, 

and were “consistent with the Government Cost Estimate.”7

 Id.

An auditor’s notes, which were attached to the cost evaluation report, contained 

specific concerns regarding Deloitte’s final cost proposal revision. Among these was 

the concern that Deloitte failed to provide cost or pricing data for the firm’s 

subcontractors, as required by both RFP ¶ L.7.3 and the agency’s discussion 

at 5 (KPMG) 

& 7 (Deloitte). 

 7 The government estimate comparison in the record compares each offeror’s total 

annual proposed cost to a single total annual government estimate for each year. 

Id. at 9. The record contains no more detailed government estimate. 
Page 8 B-406409 et al.

questions. Id. at 10.8

Deloitte does not provide an exact date when this will occur, but states 

that it will take place when ‘experience and innovation’ allow them to 

transition personnel. As such the decrease in pricing is not assured as 

it is based on an intangible occurrence. 

 The auditor’s notes also observed that, although Deloitte’s 

pricing decreased in the option years by transitioning personnel to lower-cost 

replacement staff, 

The auditor concluded that there was “[n]o reasoning to compute a [most probable 

cost]” and therefore the most probable cost was each offeror’s “actual costs.” 

Id. 

Id. 

The auditor further observed that a comparison of the offerors’ labor rates to publicly 

available data was “problematic” because available data was dated, and was not 

based on a survey of rates for personnel with security clearances. Finally, the 

auditor suggested that a comparison of rates between the two offerors would be 

more relevant, but observed that there were significant rate differences between the 

two proposals which were “attributable largely to Deloitte’s proposal strategy.” In 

conclusion, the auditor simply noted that the total proposed costs for both firms were 

lower than the government estimate.9

 Id.

The source selection decision listed the final evaluation results as follows:

at 10. 

Factor/Subfactor Deloitte KPMG

Technical Approach Very Good Very Good

 1. Personnel Quals./Skills Exceptional Very Good

 2. Technical Capability Satisfactory Very Good

Management Approach Very Good Very Good

Past Performance Exceptional Exceptional

Security Pass Pass

Cost $15.4 million $16.2 million

AR Binder 1, Tab 18, Source Selection Decision, at 2-3. 

Source Selection Decision

In reviewing the evaluation results, the source selection authority noted the 

excellence of KPMG’s staffing at the program manager position, and the capabilities 

 8 Since the attached auditor’s notes are not numbered, we have continued the 

numbering from the cost evaluation report, in order to cite to the notes. 

9 As noted above the government estimate in the record consists of annual amounts. 

It appears this statement refers to the total 5-year cost estimate. 
Page 9 B-406409 et al.

of Deloitte’s senior technician and the staff proposed for its financial support 

personnel positions. Id. at 3. The selection authority then repeated the CET 

evaluation of Deloitte’s costs, noting that the firm had proposed to replace the 

original staff with less experienced, less expensive personnel, and that Deloitte had 

described this transition as dependent on the firm’s “experience and innovation.” 

Despite this observation, the selection authority reiterated the CET’s view that this 

presented “no issue” for evaluation. Id.

The selection decision then addressed which firm’s proposal offered the best value. 

The selection authority observed that Deloitte had received slightly higher evaluation 

ratings than KPMG; he also stated that while KPMG had “several strengths [for 

particular labor categories] and a slightly better Technical Approach,” Deloitte’s 

proposal had more important strengths, “particularly . . . in the most heavily-weighted 

Personnel Qualifications and Skills [sub]factor,” that would be “more beneficial to the 

program.” 

at 4. 

Id. While noting that the cost factor was less important, the selection 

authority concluded that Deloitte’s proposal offered a significant cost savings 

compared to KPMG’s proposal. Id. at 5. Based on those conclusions, the selection 

authority chose Deloitte for award. Id.

DISCUSSION

 This protest followed. 

While KPMG raises various allegations, our decision focuses on two, which we 

conclude have merit and were prejudicial to KPMG. First, the CIA misled KPMG 

during discussions by informing it that the firm should provide resumes for all 

personnel for the lifespan of the contract, yet subsequently declined to hold Deloitte 

to the same standard. As discussed below, this difference in approach required 

KPMG to base its costs on specific highly-trained personnel who had obtained 

security clearances, while Deloitte was permitted to estimate lower costs after the 

base period for personnel not yet identified--but presumed to be less costly than the 

personnel Deloitte would use for the base period. Second, the CIA conducted a 

cursory and inadequate cost realism analysis, failed to assess whether either 

offeror’s cost approach corresponded to its technical approach, and failed to 

reasonably assess a most probable cost for either offeror.10

 10 We do not address several of KPMG’s arguments because correcting the errors 

identified above will require the CIA to conduct meaningful discussions, obtain 

revised proposals, evaluate the revised proposals, and perform an appropriate cost 

realism analysis. During the course of this protest, the CIA and Deloitte sought 

dismissal of certain issues. After considering the parties’ arguments, we informed 

the parties that two of KPMG’s assertions would be dismissed as follows: (1) the 

assertion that the agency improperly required KPMG to propose 14 FTEs during 

each year of contract performance is dismissed as an untimely challenge to the 

terms of the RFP; and, (2) KPMG’s challenges to the agency’s ratings assigned to 

Deloitte’s proposal under the two technical subfactors (which KPMG argued were 

 

(continued...)
Page 10 B-406409 et al.

Misleading Discussions

KPMG first notes that, consistent with the RFP requirement that offerors “must 

include a professional resume” for all proposed personnel, RFP at L-5, the CIA 

instructed KPMG during discussions that it must propose 14 FTEs in each contract 

year, and that “[r]esumes should be provided for all personnel proposed to perform 

over the lifespan of the contract.” AR Binder 1, Tab 12, Discussions Letter from CIA 

to KPMG, at 1. As quoted above, KPMG notes that the CIA’s discussions with 

Deloitte provided essentially the same instruction (“Deloitte should either submit 

resumes for the less experienced personnel forecasted, or revise the cost proposal 

to reflect the labor categories for the resumes provided . . .”). Supp. AR Binder 3, 

Tab 6, Discussions Letter from CIA to Deloitte, Jan. 13, 2012, at 1. Yet, the agency 

thereafter found Deloitte’s submission of a single “representative resume” for each of 

the three labor categories to be acceptable. On this record, KPMG argues that it 

was misled by the agency during discussions and/or subsequently treated unequally, 

because although KPMG complied with the agency’s direction, Deloitte did not--and, 

indeed, Deloitte’s noncompliance formed the basis for effectively lowering its 

evaluated costs. 

The CIA responds that the RFP did not require resumes for employees that were 

proposed to perform beyond the initial performance period, that the agency’s 

discussions question to KPMG did not reflect a mandatory requirement, and that 

KPMG bears the responsibility for its voluntary decision to submit resumes of 

existing employees for the full term of the contract. CIA Response to Third 

Supplemental Protest, at 4-6. The CIA further asserts that, even if the RFP, or the 

agency’s discussions, required KPMG’s submission of additional resumes, the 

agency could waive the requirement, and if it has done so here, the agency’s actions 

did not prejudice KPMG. We disagree. 

In negotiated procurements, whenever discussions are conducted by an agency, 

they are required to be meaningful, equitable, and not misleading. Metro Mach. 

Corp., B-295744, B-295744.2, Apr. 21, 2005, 2005 CPD ¶ 112 at 19. In conducting 

discussions with offerors, agency personnel also may not engage in conduct that 

favors one offeror over another. FAR § 15.306(e)(1). Thus, agencies may not 

engage in what amounts to disparate treatment of the competing offerors. Front 

Line Apparel Group, B-295989, June 1, 2005, 2005 CPD ¶ 116 at 3-4. Where the 

manner in which an agency communicates with an offeror during discussions 

misleads an offeror into responding in a way that does not address the agency’s 

concerns, the discussions are inadequate. Metro Mach. Corp., B-281872 et al.

 

(...continued)

inherently inconsistent) are dismissed as speculative and lacking a sufficient factual 

basis. 4 C.F.R. §§ 21.2(a)(1), (f) (2012). 

, 

Apr. 22, 1999, 99-1 CPD ¶ 101 at 6-7. Thus, for example, where an agency advises 
Page 11 B-406409 et al.

an offeror in discussions to revise its proposal in a way that does not reflect the 

agency’s evaluation, the discussions are misleading. SeKON Enter., Inc.; Signature 

Consulting Group

Here, as discussed above, the agency clearly advised KPMG that it “should” provide 

personnel resumes “for all personnel proposed to perform over the lifespan of the 

contract.” In the context of the CIA’s current position that the RFP did not require 

submission of resumes for personnel that were proposed to perform beyond the 

initial performance period, the agency’s discussions with KPMG were clearly 

misleading.

, B-405921, B-405921.2, Jan. 17, 2012, 2012 CPD ¶ 26 at 7 

(protest sustained where agency discussions advising protester to increase staffing 

level were not based on initial evaluation, and agency gave no consideration to 

increased staffing level in evaluation of revised proposal). 

11 Further, in cases such as this, we need not establish with certainty 

what the protester’s approach would have been if the discussions had been 

meaningful; rather, a protester’s reasonable assertion of a claim that it could have 

improved its competitive position is sufficient to demonstrate prejudice. Hughes STX 

Corp., B-278466, Feb. 2, 1998, 98-1 CPD ¶ 52 at 11. In this regard, KPMG has 

reasonably maintained that the agency’s misleading discussions precluded the firm 

from proposing its own cost-saving approach. See

Inadequate Cost Realism Analysis

Second Supp. Protest (Mar. 26, 

2012) at 20-22; Third Supp. Protest (Apr. 16, 2012) at 24, 31. We find this sufficient 

to establish prejudice. Accordingly, we sustain the protest on this basis. 

KPMG also argues that the CIA failed to conduct a reasonable cost realism analysis 

as required by the RFP and, instead, accepted the offerors’ proposed costs without 

any meaningful analysis. Protest at 38; First Supplemental (Supp.) Protest at 5-8. 

Upon reviewing Deloitte’s proposal under the terms of our Office’s protective order, 

KPMG argued that the evaluators apparently failed to recognize several anomalies 

in Deloitte’s cost proposal. For example, KPMG contends that Deloitte’s cost 

proposal was based on less-well-qualified replacement personnel beginning at the 

first option year, in February 2013; that Deloitte’s cost proposal used labor costs for 

 11 The CIA’s assertion, that its use of the word “should” did not convey a mandatory 

requirement, is wholly unpersuasive. In the context of the discussions at issue, a 

reasonable offeror would understand that the agency’s discussions established a 

duty; that is, if KPMG wished to be considered compliant with the RFP, it was 

required to submit resumes for all proposed personnel for all 5 years of contract 

performance. As we have noted previously, terms like “may” and “should” are 

capable of expressing a mandate. USIA Underwater Equip. Sales Corp., 

B-292827.2, Jan. 30, 2004, 2004 CPD ¶ 32 at 4 (solicitation statement that offered 

item “should” meet particular standards was a statement of a mandatory term, thus 

protester’s proposal was properly rejected as unacceptable).
Page 12 B-406409 et al.

a subcontractor that were not based on the rate in the subcontractor’s 

accompanying cost proposal; and that Deloitte’s own labor costs were not based on 

specific personnel, but instead reflected [deleted] rates for personnel--apparently 

without security clearances. Second Supp. Protest at 16, 38-51; Third Supp. Protest 

at 23-26 & 46-53; Protester’s Final Comments, at 5-15. KPMG further notes that, to 

the extent the CIA evaluators performed any cost realism analysis on Deloitte’s 

proposal, they expressed the view that Deloitte’s cost savings were “not assured” 

and “intangible.” Under these circumstances, KPMG argues that Deloitte’s proposed 

cost could not provide a reasonable basis for the source selection decision here. 

Second Supp. Protest at 38-42. We agree. 

When an agency evaluates proposals for the award of a cost-reimbursement 

contract, an offeror’s proposed costs are not controlling since such costs may not 

accurately reflect the actual costs the government will incur. FAR § 15.404-1(d). 

While, in conducting an adequate cost analysis, an agency is not required to verify 

each and every variable, it must reasonably consider the extent to which the costs 

reflected in the offeror’s technical approach reflect what the contract should cost, 

assuming reasonable economy and efficiency. ATLIS Fed. Servs., Inc., 

B-275065.2, B-275065.3, Feb. 12, 1997, 97-1 CPD ¶ 84 at 8, 10. In this regard, we 

will review an agency’s judgment to see that the agency’s cost realism evaluation 

was reasonable, not arbitrary, and adequately documented. Honeywell Tech. 

Solutions, Inc., B-400771, B-400771.2, Jan. 27, 2009, 2009 CPD ¶ 49 at 17; Jacobs 

COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD ¶ 16 at 26. 

Thus, we will sustain a protest where the cost realism analysis was not adequately 

documented. E.g., National City Bank

Here, the CIA asserts that it only needed to consider the realism of the offerors’

rates, and that it did so. The CIA further maintains that the evaluators’ statement 

that Deloitte’s lower costs were “not assured” and “intangible” did not mean that they 

were unrealistic. Supp. AR (Apr. 5, 2012) at 12-15. The CIA also argues that 

Deloitte’s proposed blended direct labor cost rates were permitted by the RFP and 

were, therefore, realistic. Second Supp. AR (Apr. 24, 2012) at 17-20. Finally, in 

response to KPMG’s challenge that the cost evaluation failed to detect that Deloitte 

had used lower rates for a subcontractor than the subcontractor itself proposed, the 

CIA argues that the error is insignificant. 

, B-287608.3, Aug. 7, 2002, 2002 CPD ¶ 190

at 12-13 (record lacked documentation that technical evaluation board had 

considered whether awardee’s proposed staffing reductions realistically conformed 

to its technical approach). 

Id.

In our view, the record here reflects no meaningful agency consideration of when--

or if--Deloitte’s proposal to “transition” to less experienced personnel, and the cost 

reductions associated with that approach, would actually occur. To the contrary, the 

agency expressly acknowledged that this critical event is “not assured” and 

“intangible” and, because of that, “a most probable cost estimate was not done.” 

AR, Tab 16, CET Final Report, at 4. Not only did the agency bypass this issue, but 

at 20-21. 
Page 13 B-406409 et al.

the record indicates that the technical evaluators merely concluded that Deloitte’s 

staffing approach “posed no issue,” and that the cost evaluators “took no exception” 

to either offeror’s direct, indirect, overhead, and general and administrative costs. 

AR Binder 1, Tab 17, Source Selection Evaluation Board Report, at 3; AR Binder 1, 

Tab 18, Source Selection Decision, at 4. In short, the agency failed to provide any 

reasonable basis for estimating the probable costs it will incur under the contract it 

awarded--a prerequisite to the award of every cost-reimbursement contract by the 

federal government. See Advanced Research Projects Agency--Recon., 

B-259479.3, July 18, 1995, 95-2 CPD ¶ 26 at 4; see also

In light of the clear impact on projected costs of Deloitte’s approach to performing 

this contract, as well as the agency’s misleading discussions with KPMG regarding 

its staffing approach, we find the agency’s documentation purporting to support its 

cost evaluation to be inadequate. Accordingly, we sustain the protest on this basis. 

FAR § 15.404-1(d)(2). 

RECOMMENDATION

We recommend that the CIA reopen the record; perform a reasonable cost realism 

analysis regarding the existing proposals; and hold meaningful discussions with both 

offerors. During discussions, the agency should identify any concerns about the 

realism of the proposed costs, and clarify whether resumes are required for all 

personnel over the life of the contract. (We think that clarifying the agency’s position 

on resumes is particularly important since the agency indicated to KPMG during 

discussions that resumes were required, waived the requirement for Deloitte, and 

argued here that resumes were not required.) Following the conclusion of 

discussions, the CIA should request a new round of final proposals, evaluate them 

(including assessing cost realism), and make a new source selection decision. If 

KPMG is selected for award, we recommend that the contract awarded to Deloitte 

be terminated. Finally, we recommend that the CIA reimburse KPMG’s costs of 

filing and pursuing its protest. 4 C.F.R. § 21.8(d)(1). KPMG’s certified claim for 

costs, detailing the time expended and costs incurred, must be submitted to the CIA 

within 60 days after this decision. 4 C.F.R. § 21.8(f)(1). 

The protest is sustained. 

Lynn H. Gibson 

General Counsel