United States Government Accountability Office

Washington, DC 20548

Comptroller General

of the United States

 

Decision

Matter of: Noridian Administrative Services, LLC

File: B-401068.13 

Date: January 16, 2013

Paul F. Khoury, Esq., Daniel P. Graham, Esq., Kathryn Bucher, Esq., Brian G. 

Walsh, Esq., Tracye Winfrey Howard, Esq., and Katherine R. McDonald, Esq., 

Wiley, Rein LLP, for the protester.

Daniel R. Forman, Esq., Peter J. Eyre, Esq., Jonathan M. Baker, Esq., Grant J. 

Book, Esq., Stephan D. Rice, Esq., Jacinta L. Alves, Esq., Derek R. Mullins, Esq., 

Margaret, A. Nielsen, Esq., Crowell & Moring LLP, and Barbara A. Duncombe, Esq., 

and Suzanne Sumner, Esq., Taft Stettinius and Hollister LLP, for National 

Government Services, Inc., the intervenor. 

Anthony E. Marrone, Esq. and Jamie B. Insley, Esq., Department of Health and 

Human Services, for the agency.

Glenn G. Wolcott, Esq., and Sharon L. Larkin, Esq., Office of the General Counsel, 

GAO participated in the preparation of the decision.

DIGEST

Protest challenging the agency’s cost realism evaluation of protester’s proposal is 

denied where agency reasonably concluded, based on the information contained in 

the protester’s proposal and its response to discussion questions, that proposed 

cost/price reductions below protester’s historical costs, which were to purportedly 

flow from protester’s innovations, were already reflected in protester’s historical 

costs since the proposed innovations had been previously implemented. 

DECISION

Noridian Administrative Services, LLC, of Fargo, North Dakota, protests the award 

of a contract to National Government Services, Inc. (NGS), of Indianapolis, Indiana, 

under request for proposals (RFP) No. RFP-CMS-2007-0013, issued by the 

Department of Health and Human Services, Centers for Medicare and Medicaid

Services (CMS), to obtain Medicare administrative contractor services. The

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-401068.13

protester argues that the agency’s cost/price realism evaluation of NAS’s proposal 

was improper. 

We deny the protest. 

BACKGROUND

In August 2007, CMS first published the solicitation at issue, seeking proposals to 

perform a cost-plus-award-fee contract as the Medicare Administrative Contractor 

(MAC)1 in a geographic area identified as “jurisdiction 6” for a 1-year base period 

and four 1-year option periods.2 Following the selection of an awardee in 2009, 

protests were filed challenging that selection decision. Thereafter, the agency 

cancelled the award, amended the solicitation,3 and sought new proposals. 

As amended, the solicitation provided for a best value award decision reflecting 

consideration of two factors: offeror capability4 and cost/price.5

 

1 Pursuant to the Medicare Prescription Drug Improvement and Modernization Act 

of 2003 (MMA), MACs perform the claims services that were previously performed 

by “fiscal intermediaries” and “carriers.” Prior to enactment of the MMA, fiscal 

intermediaries were generally responsible for processing Medicare claims from 

institutional providers (for example, hospitals and nursing facilities) under Part A of 

the Medicare program, and carriers were responsible for processing Medicare 

claims from professional providers (for example, physicians and diagnostic 

laboratories) under Part B of the Medicare program.

 RFP amend. 7, 

at 127-33. Of relevance to this protest, the solicitation provided that cost/price 

proposals would be evaluated for realism, elaborating that “[t]he purpose of this cost 

2 The statement of work (SOW) for jurisdiction 6 includes Part A and Part B 

Medicare workload for the states of Illinois, Minnesota, and Wisconsin, as well as 

home, health and hospice (HH&H) workload for Alaska, American Samoa, Arizona, 

California, Guam, Hawaii, Idaho, Michigan, Minnesota, Nevada, New Jersey, New 

York, Northern Mariana Islands, Oregon, Puerto Rico, U.S. Virgin Islands, 

Wisconsin, and Washington. Agency Report (AR), Tab A.3, RFP amend. 7, at 2; 

Contracting Officer’s Statement at 1. 

3 In June 2010, the agency issued RFP amendment Nos. 7 and 8, substantially 

revising sections L and M of the solicitation. 

4 Offeror capability was further divided into two equally weighted subfactors: past 

performance and technical understanding. RFP amend. 7, at 130-31.

5

 The evaluated cost/price for the base year requirements was added to the 

proposed cost/price of the four, one-year options, to calculate a total evaluated 

cost/price. RFP amend. 7, at 128. 
Page 3 B-401068.13

realism [evaluation] will be to determine what the Government should realistically 

pay for the proposed effort.” Id. at 128. 

Initial proposals responding to the June 2010 solicitation were submitted in 

July 2010; thereafter, discussions were conducted and final revised proposals were 

submitted. On September 30, 2011, the agency selected NGS for award; that 

award was, again, challenged by a protest in October 2011. In January 2012, the 

agency again advised this Office that it was taking corrective action, elaborating that 

it would either re-evaluate proposals on the basis of the existing record or reopen 

the procurement and request proposal revisions. Email from CMS to GAO, Jan. 25, 

2012. 

On February 17, 2012, the agency once again requested submission of revised 

proposals. Proposals were submitted on March 13, 2012 by three offerors, 

including NAS and NGS.6

question: 

 Thereafter, the agency conducted discussions with the 

offerors. In evaluating NAS’s proposed cost/price, the agency found that proposed 

costs for [deleted] were substantially lower than the agency’s estimate. 

Accordingly, on June 7, the agency asked NAS the following discussion 

NAS has not provided any information to support the proposed 

[deleted] costs for its J6 proposal. At this time, please clearly 

delineate NAS’ proposal assumptions for all [deleted] costs. 

AR, Tab 6.B, Agency Discussion Questions to NAS, at 20. 

On June 28, NAS responded by submitting various charts breaking down its 

historical costs7 and using those historical costs as a baseline from which proposed 

savings were projected. AR, Tab 7.d, NAS Response at 82-83. NAS further 

explained that the cost savings were due to innovations it was proposing--

specifically, [deleted]. AR, Tab 7.d, NAS Response at 82-83. The proposed 

[deleted] savings purportedly flowing from its proposed innovations was $[deleted]. 

Source Selection Decision at 54. 

 

6 The proposal of the third offeror is not relevant to resolution of NAS’s protest and 

is not further discussed in this decision. 

7 Specifically, NAS’s response referenced the [deleted] costs it had incurred in 

performing as a MAC contractor in Jurisdiction 3 during the period from June 2011

through September 2011. AR, Tab 7.d, NAS Response to Discussion Questions, at 

82-83. 
Page 4 B-401068.13

In evaluating NAS’s proposal and response to the discussion questions, the agency 

noted that NAS’s initial proposal stated that the proposed [deleted] innovations had 

already been implemented in the [deleted], before the historical data period that 

NAS used as the basis for calculating projected cost/price savings. Contracting 

Officer’s Statement, Nov. 7, 2012, at 5; AR, Tab 9.2, [deleted]. 

Based on NAS’s initial proposal, along with NAS’s response to the agency’s 

discussions questions, the agency concluded that, because the proposed 

innovations had been implemented prior to the period that NAS used as a basis for 

its proposed cost/price savings, NAS would not realistically experience additional 

cost/price savings, over and above its historical costs. Accordingly, the agency 

made an upward adjustment to NAS’s evaluated cost/price in the amount of 

$[deleted]. 

Final revised proposals were submitted on July 25, 2012; these proposals were 

evaluated with the following results. 

NGS NAS

Past Performance Green Green

Technical Understanding Green Green

Overall Offeror Capability Green Green

Evaluated Cost/Price $330.1 million $339.9 million

Source Selection Decision at 2.

Thereafter, the agency selected NGS for award based, in part, on NGS’s lower 

evaluated cost/price. This protest followed. 

DISCUSSION

NAS protests that the agency’s cost realism adjustment with regard to NGS’s 

proposed costs savings for [deleted] was improper. We disagree. 

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

contract, an offeror’s proposed estimated cost of contract performance is not 

considered controlling since, regardless of the costs proposed by the offeror, the 

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

Machine Corp., B-402567, B-402567.2, June 3, 2010, 2010 CPD ¶ 132 at 6; 

Honeywell Tech. Solutions, Inc., B-400771, B-400771.2, Jan. 27, 2009, 2009 CPD 

¶ 49 at 17; see Federal Acquisition Regulation (FAR) § 16.301. As a result, a cost 

realism analysis must be performed by the agency to determine the extent to which 

an offeror’s proposed costs represent what the contract costs are likely to be under 

the offeror’s technical approach, assuming reasonable economy and efficiency. 
Page 5 B-401068.13

FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2); The Futures Group Int’l, B-281274.2, 

Mar. 3, 1999, 2000 CPD ¶ 147 at 3. 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’s cost realism analysis need not achieve scientific

certainty; rather, the methodology employed must be reasonably adequate and 

provide a measure of confidence that the agency’s conclusions about the most 

probable costs under an offeror’s proposal are reasonable and realistic in view of 

the cost information reasonably available to the agency at the time of its 

evaluation--including the information provided by the offeror in its proposal. See

Metro Mach. Corp., supra. We review an agency’s judgment in this area only to see 

that the agency’s cost realism evaluation was reasonably based and adequately 

documented. Honeywell Tech. Solutions, Inc., supra, at 18; Jacobs COGEMA, 

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

Here, NAS acknowledges that its initial proposal specifically stated that the 

proposed [deleted] innovations had been “implemented” in the [deleted]. 

NAS Comments, Nov. 19, 2011, at 3. Nonetheless, NAS complains that its use of 

the word “implemented” “merely indicate[d] that [NAS] had begun [deleted].

8

 NAS 

Comments, Nov. 19, 2011, at 3. NAS argues that “[a]s with any innovation, it takes 

time for savings to be realized as the revised processes are phased in and 

integrated into existing operations” and, therefore, some additional savings were 

realistic. Id. 

An offeror has the burden of submitting an adequately written proposal and runs the 

risk that its proposal will be evaluated unfavorably where it fails to do so. United 

Def. LP, B-286925.3 et al., Apr. 9, 2001, 2001 CPD ¶ 75 at 19; Carlson Wagonlit 

Travel, B-287016, Mar. 6, 2001, 2001 CPD ¶ 49 at 3, 6. Further, in evaluating 

proposals, it is generally reasonable for an agency to rely on information the offeror 

provides in its proposal. Able Bus. Techs., Inc., B-299383, Apr. 19, 2007, 2007 

CPD ¶ 75 at 5; NCR Gov’t Sys. LLC, B-297959, B-297959.2, May 12, 2006, 2006 

CPD ¶ 82 at 8-9. 

As discussed above, there is no dispute that NAS’s proposal stated that its 

proposed innovations had been “implemented” in [deleted]--that is, prior to the 

period from which NAS drew the historical data used to calculate its projected 

savings. Further, the record is clear that, during discussions, the agency requested 

that NAS “clearly delineate NAS’ proposal assumptions for all [deleted] costs.” 

AR, Tab 6.B, Agency Discussion Questions to NAS, at 20. Based on our review of 

the record, we find nothing in NAS’s response to the agency’s explicit request that 

should have put the agency on notice that additional cost/price savings could be 

 

8 NAS further asserts that: “[the word] ‘Implement’ means nothing more than to ‘put 

into effect’ . . . [and] is not synonymous with [the word] ‘complete’.” NAS 

Comments, Nov. 19, 2012, at 3. 
Page 6 B-401068.13

reasonably expected to flow from NAS’s already-implemented innovations. On this 

record, we find nothing unreasonable in the agency’s cost realism adjustment to 

NAS’s proposal.9

 

The protest is denied. 

Susan A. Poling 

General Counsel

 

9 We also note that the source selection authority contemporaneously considered 

the potential cost/technical tradeoff that would have been required if NAS’s 

proposed cost/price had not been adjusted in any way. In this regard, the source 

selection decision states: “[E]ven if the government did not consider any cost 

realism adjustments to NAS FPR proposed costs . . . [NAS’] lower cost would not 

mitigate the analysis above and NAS would not be considered the highest 

technically rated Offeror.” Source Selection Decision at 56. While that analysis 

reflects consideration of proposed costs/prices and cost/price adjustments that vary 

from the specific [deleted] cost/price adjustment discussed above, in our view the 

agency reasonably considered various alternatives in reaching its source selection 

decision and, based on the entire record, we find no basis to sustain NAS’s protest.