United States Government Accountability Office

Washington, DC 20548

Comptroller General

of the United States

 

Decision

Matter of: American Technical Services, Inc.

File: B-407168; B-407168.2

Date: November 21, 2012

John A. Burkholder, Esq., McKenna Long & Aldridge LLP, for the protester.

Samuel Frazer, Esq., Department of the Navy, for the agency.

Noah B. Bleicher, Esq., and Sharon L. Larkin, Esq., Office of the General Counsel, 

GAO, participated in the preparation of the decision.

DIGEST

1. Protest that the agency performed an unreasonable cost realism analysis is 

denied where the record shows that the agency reasonably relied on indirect cost 

rate data that was provided by the protester specifically for cost analysis purposes.

2. Protest that the awardee’s subcontractor had an unequal access to information 

organizational conflict of interest is denied where the allegations were not based on 

hard facts.

DECISION

American Technical Services, Inc. (ATS), of Glendale, California, protests the 

issuance of a task order to AdapTech Corporation, of Clifton, Virginia, under request 

for proposals (RFP) No. N00024-11-R-3315, by the Department of the Navy for 

engineering support services.1

 ATS objects to the agency’s cost realism analysis 

and contends that the contractor selected for the task order has an unmitigated 

organizational conflict of interest.

We deny the protest.

 

1 Although the solicitation at issue here was captioned as an RFP, the Navy was in 

fact seeking task order proposals from small businesses holding SeaPort-e multiple 

award contracts in the Navy’s Southwest Zone 6 region. RFP at 59. We will adopt 

the Navy’s terminology throughout the decision.

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-407168, B-407168.2 

BACKGROUND

The Navy published the RFP at issue on April 19, 2011, seeking proposals from 

small businesses to provide technical, engineering, assessment, laboratory, 

calibration program, and test equipment analysis support services for the product 

engineering assessment department of the Naval Surface Warfare Center, Corona 

Division. RFP at 2, 5; Agency Report (AR) at 2. The RFP contemplated the 

issuance of a cost-plus-fixed-fee task order with a 1-year base period of 

performance and four 1-year option periods. RFP at 44, 51. The RFP provided that 

the task order would be issued on a best value basis, considering the evaluation 

factors of technical and management approach,2 past performance, and evaluated 

cost. RFP at 59-62. The technical and management approach factor was stated to 

be more important than the past performance factor, and the two together were 

significantly more important than the evaluated cost factor. RFP at 60. 

The RFP stated that the Navy would evaluate offerors’ cost/price proposals for price 

reasonableness and cost realism.3 RFP at 62. To facilitate this evaluation, offerors 

were instructed to provide costs and pricing for proposed labor hours and various 

labor categories, using their “most current labor rates and indirect rates.” RFP 

at 53, 57. In addition, offerors were asked to provide supporting cost data, including 

correspondence from Defense Contract Audit Agency (DCAA) showing that DCAA 

had approved the offeror’s proposed indirect rates. RFP at 57. The RFP advised 

that the Navy would use “[p]ertinent cost information, including but not limited to 

DCAA recommended rates” to determine the most probable cost of an offeror’s 

proposal. RFP at 62. The RFP further advised that the Navy would adjust 

proposed costs if such costs were found to be unrealistic. RFP at 62. 

Eight offerors, including ATS and AdapTech, submitted proposals before the 

solicitation closed on May 19, 2011. Agency Report (AR) at 2. In conducting the 

cost realism analysis of ATS’s proposal, a Navy contract specialist contacted DCAA 

for audited rate data in June 2011. AR, Tab 7A, Documents Related to ATS Cost 

Realism, at 17. DCAA informed the Navy that it did not have any current audited 

rate data for ATS. Id. at 16. Because DCAA did not have relevant rate information 

for ATS, the Navy contract specialist requested rate information directly from ATS. 

In an email dated September 20, 2011, the contract specialist wrote to ATS’s 

president:

 

2 The technical and management approach factor included the following three 

subfactors: (a) plan to accomplish; (b) personnel qualifications and experience; and 

(c) transition plan. RFP at 54.

3 For purposes of evaluating offers, the RFP stated that the agency would add the 

total evaluated costs for the base year to the total evaluated costs for the four option 

years. RFP at 59.
Page 3 B-407168, B-407168.2 

Please provide copies of two recent invoices, submitted by your 

company, for work performed under federal contracts. This 

information is necessary for the Government to conduct cost analysis 

for your proposal. Please provide this information no later than 

4:00PM PST, 21 September 2011. Thank you. 

AR, Tab 7A, Documents Related to ATS Cost Realism, at 13. In its response the 

next day, ATS provided the Navy with two invoices--one dated August 19, 2011, 

and one dated September 19, 2011--for work performed for the Navy under another 

command’s contract. Id.; AR at 7. The table below shows the indirect rates 

proposed by ATS in its offer and the indirect rates included in the invoices provided 

by ATS to the Navy contract specialist:

Indirect Rate ATS Proposed Rates ATS Invoice Rates

Overhead [deleted] [deleted]

G&A4 [deleted] [deleted]

M&S5 [deleted] [deleted]

AR at 4; See AR, Tab 2A, ATS Proposal, at 33, 36; AR Tab 7A, Documents Related 

to ATS Cost Realism, at 2, 7. 

ATS proposed an overall cost of $16,914,334.78. AR, Tab 4A, Post-Business 

Clearance Memorandum, at 19. Using the actual indirect rates from the two ATS 

invoices, the Navy contract specialist adjusted ATS’s cost upward by approximately 

$1.9 million for a total evaluated cost of $18,788,700.54.6

 

4 General and administrative costs.

 Id. at 25. A Source 

Selection Evaluation Board (SSEB) evaluated proposals and, as relevant here, 

rated ATS’s and AdapTech’s proposals as follows:

5 Material handling and subcontract administration costs.

6 AdapTech proposed an overall cost of $15,251,082.05, and the contract 

specialist adjusted its cost upward for a total evaluated cost of $16,343,503.66. AR, 

Tab 4A, Post-Business Clearance Memorandum, at 8, 15.
Page 4 B-407168, B-407168.2 

Offeror

Technical 

and 

Management 

Approach7

Past 

Performance8 Evaluated Cost

Proposed 

Cost

AdapTech Acceptable

Relevant / 

Satisfactory 

Confidence $16,343,503.66 $15,251,082.05

ATS Good

Very Relevant / 

Substantial 

Confidence $18,788,700.549 $16,914,334.78

AR at 5; AR, Tab 4A, Post-Business Clearance Memorandum, at 8, 46; AR, Tab 4B, 

Source Selection Authority Memo, at 1-9. 

In reviewing the SSEB’s evaluation findings, the source selection authority (SSA), 

who was also the contracting officer, noted that ATS received higher ratings than 

AdapTech in all of the RFP’s non-price factors. AR, Tab 4B, Source Selection 

Authority Memo, at 8. The SSA found that both firms submitted strong proposals 

and offered “essentially the same personnel,” but that ATS’s proposal was superior 

because the firm had received letters of intent from incumbent personnel and had a 

more experienced group manager than AdapTech. Id. at 7-8. However, the SSA 

found that ATS’s proposal superiority did not warrant paying a price premium of 

$815,065.63 per year. Id. at 8. Award was made to AdapTech on August 3, 2012, 

and following a debriefing, ATS filed this protest.

DISCUSSION

ATS protests that the Navy unreasonably evaluated ATS’s proposed costs and that 

this flawed cost realism analysis resulted in an unreasonable best value 

determination. Comments at 4. ATS also alleges that AdapTech should have been 

disqualified from competing for the task order due to an unmitigated organizational 

conflict of interest. Supplemental Protest at 6.

 

7 The possible ratings under the technical factor were outstanding, good, 

acceptable, marginal, and unacceptable. See AR, Tab 4B, Source Selection 

Authority Memo, at 7, 9.

8 The possible ratings under the past performance factor were not relevant/no 

confidence, somewhat relevant/limited confidence, relevant/satisfactory confidence, 

and very relevant/substantial confidence. See AR, Tab 4B, Source Selection 

Authority Memo, at 7, 9.

9 ATS’s evaluated price was the highest considered for award.
Page 5 B-407168, B-407168.2 

ATS asserts that the agency’s cost realism analysis was unreasonable because the 

Navy relied on the “wrong cost data” when it adjusted ATS’s indirect labor rates 

upward based on invoices from 2011. Protest at 4; Comments at 2. ATS argues 

that the Navy should have used two 2012 ATS invoices for its cost realism 

evaluation rather than the older 2011 invoices, because the 2012 invoices reflected 

lower indirect rates.10 Comments at 2. According to the protester, had the agency 

relied on the lower indirect rates from the more recent 2012 invoices, the cost 

realism analysis “would have resulted in an infinitesimal upward adjustment, if any 

at all.” Id. at 3. 

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

contract, the agency must perform a cost realism analysis to evaluate the extent to 

which an offeror’s proposed costs are realistic for the work to be performed. 

Federal Acquisition Regulation (FAR) § 15.404-1(d); Hanford Envtl. Health Found., 

B-292858.2, B-292858.5, Apr. 7, 2004, 2004 CPD ¶ 164 at 9; Tidewater Constr. 

Corp., B-278360, Jan. 20, 1998, 98-1 CPD ¶ 103 at 4. Based on the results of the

cost realism analysis, an offeror’s proposed costs should be adjusted when 

appropriate. FAR § 15.404-1(d)(2)(ii). An agency is not required to conduct an 

in-depth cost analysis, see FAR § 15.404-1(c), or to verify each and every item in 

assessing cost realism; rather, the evaluation requires the exercise of informed 

judgment by the contracting agency. Cascade Gen., Inc., B-283872, Jan. 18, 2000, 

2000 CPD ¶ 14 at 8. Because the contracting agency is in the best position to 

make this determination, we review an agency’s judgment in this area only to see 

that the agency’s cost realism evaluation was reasonably based and not arbitrary. 

Hanford Envtl. Health Found., supra, at 8-9.

As discussed above, the contract specialist here asked ATS to provide “two recent 

invoices” for work performed under federal contracts and explicitly told ATS that the 

information was “necessary for the Government to conduct cost analysis for your 

proposal.” AR, Tab 7A, Documents Related to ATS Cost Realism, at 13. In 

response, ATS provided the Navy with two very recent invoices--one of which was 

dated only one day before the Navy’s request--that reflected higher indirect rates 

than what ATS had proposed. ATS did not provide any explanation for why the 

more recent invoice rates were higher than the proposed rates; did not object to the 

Navy’s use of the invoices in the evaluation; and did not later provide more recent 

invoices for the agency’s consideration. In fact, we note that the invoices ATS 

argues should have been used did not exist when the Navy requested the 

 

10 Specifically, ATS points to two invoices that ATS submitted for payment to the 

Navy--one on January 24, 2012, and the other on February 7, 2012--for 

“comparable” work under a different Navy contract. Comments at 2. The indirect 

rates ATS charged on the February invoice were lower than the rates charged on 

the January invoice. See id.
Page 6 B-407168, B-407168.2 

information.11 On this record, we find nothing objectionable about the agency’s 

reliance in its cost realism analysis on invoices ATS itself provided.12 

Next, the protester contends that the agency should have “disqualified” AdapTech 

from competing for the task order due to an organizational conflict of interest (OCI). 

Supp. Protest at 6. Specifically, ATS alleges that a company that performed work 

for AdapTech’s subcontractor under a different contract had access to “staffing, 

personnel and cost information” of one of ATS’s subcontractors here. Id. at 7. ATS 

contends that this information provided AdapTech with an unfair competitive 

advantage and constitutes an unequal access to information OCI. Id. at 6-7.

The FAR requires that contracting officials avoid, neutralize or mitigate potential 

significant conflicts of interest so as to prevent an unfair competitive advantage or 

the existence of conflicting roles that might impair a contractor’s objectivity. FAR 

§§ 9.504(a), 9.505. The responsibility for determining whether an actual or 

apparent conflict of interest will arise, and to what extent the firm should be 

excluded from the competition, rests with the contracting agency. Aetna Gov't 

Health Plans, Inc.; Found. Health Fed. Servs., Inc., B-254397.15 et al., July 27, 

1995, 95-2 CPD ¶ 129 at 12. As relevant here, an unequal access to information 

OCI exists where a firm has access to nonpublic information as part of its 

performance of a government contract and where that information may provide the 

firm a competitive advantage in a later competition for a government contract. FAR 

§§ 9.505(b), 9.505-4; CapRock Gov't Solutions, Inc.; ARTEL, Inc.; Segovia, Inc., 

B-402490 et al., May 11, 2010, 2010 CPD ¶ 124 at 25; Maden Techs., B-298543.2, 

Oct. 30, 2006, 2006 CPD ¶ 167 at 8.

A protester must identify hard facts that indicate the existence or potential existence 

of a conflict; mere inference or suspicion of an actual or potential conflict is not 

enough. TeleCommunication Sys. Inc., B-404496.3, Oct. 26, 2011, 2011 CPD 

¶ 229 at 3; see Turner Constr. Co., Inc. v. United States, 645 F.3d 1377, 1387 (Fed. 

Cir. 2011); PAI Corp. v. United States, 614 F.3d 1347, 1352 (Fed. Cir. 2010). The 

identification of conflicts of interest are fact-specific inquiries that require the 

 

11 The protester argues that the Navy “knew or should have known” that ATS’s 

indirect rates had lowered since 2011, because the contract specialist and 

contracting officer held the same positions for both this task order and the one 

under which ATS submitted the 2012 invoices. Comments at 2-3. However, there 

is no evidence that ATS ever asked that the 2012 invoices be considered for this 

procurement here.

12 To the extent that the protester complains that the Navy conducted its cost 

realism analysis “10 or 11 months” before the task order was issued, we find that 

the protester has not shown this interval to be unreasonable. See Protester’s 

Surreply at 1.
Page 7 B-407168, B-407168.2 

exercise of considerable discretion. Axiom Res. Mgmt., Inc. v. United States, 564 

F.3d 1374, 1382 (Fed. Cir. 2009).

Here, ATS complains that a company that performed work for AdapTech’s 

subcontractor on a different contract had access to the staffing, personnel, and 

labor rates of the protester’s subcontractor. ATS, however, has not alleged hard 

facts to demonstrate the existence of an OCI. For example, ATS has not detailed 

what specific staffing, personnel, or labor rate information the company supposedly 

obtained during the prior contract; whether or how that information was conveyed to 

AdapTech; or how the information even relates to this procurement. Indeed, there 

is no evidence that AdapTech was involved in the prior contract, that the company 

that allegedly received information will be involved in performance of the task order 

here, or that the company that allegedly received the information has any ongoing 

relationship (business or contractual) with AdapTech. In sum, ATS has provided 

none of the facts that would be needed to show that the issuance of the task order 

to AdapTech was tainted by an unmitigated OCI.13 See AR at 14. 

The protest is denied.

Lynn H. Gibson

General Counsel

 

13 Moreover, as the agency points out, 11 of the 13 labor categories proposed by 

ATS’s subcontractor were subject to a wage determination under the Service 

Contract Act (SCA), which imposed minimum levels for the rates for these labor 

categories. AR at 10-11. For these 11 SCA positions, ATS’s subcontractor 

proposed to pay the minimum wage determination rate, thus nullifying any alleged 

competitive advantage stemming from nonpublic information. With respect to the 

remaining two positions--those not covered by the SCA--AdapTech’s subcontractor 

actually proposed a higher rate for one of the positions. AR at 12. On this record, 

we find no evidence that AdapTech enjoyed an advantage due to an impermissible 

unmitigated OCI.