Proposal Compensation Plans - Consistency is Paramount

Adnet Systems protested the award of a NASA contract to another bidder for a number of reasons, all of which were denied by the GAO (General Accountability Office). One of those protests involved the proposed level of compensation to be paid to incumbent employees.

Many solicitations require that the successful bidder on a successor contract hire the employees of the incumbent contractor, sometimes at no reduced benefit, or at least give them the right of first refusal. Compensation is a tricky thing - come in and offer employees less than what they are currently earning and one would expect rapid turnover and lost productivity. Bidders sometimes get very creative by factoring efficiency into their bid - something along the lines of we can do the same amount of work with 25 percent fewer employees because the incumbent contractor is fat and lazy and working under a cost reimbursable contract with no incentive to be lean and mean. It would be very interesting to see a study on whether these efficiencies ever materialize, whether compensation is actually reduced, whether employee turnover ever impacts productivity.

In the Adnet case, NASA assigned a weakness to Adnet's proposed total compensation plan. While Adnet's proposal guaranteed to maintain current compensation for incumbent employees, its proposal never explained exactly how it would fulfill these guarantees given that the firm proposed a reduction in labor costs while continuing the same level of service (expressed in FTEs) as delivered by the incumbent and as required by the solicitation.

Adnet appealed NASA's determination but the Comptroller General (CG) was unconvinced. The CG stated that the solicitation cautioned that offerors should ensure that their cost proposals were consistent with their technical proposals in all respects.

Due to the disconnect between Adnet's compensation guarantee in its technical proposal and its proposed rates in its cost proposal, we find reasonable the agency's concerns that Adnet would not be able to meet its guarantee and thus would not be able to hire and retain incumbent employees. On this record, the agency's assignment of this weakness was reasonable and consistent with the terms of the solicitation.

You can read the full GAO bid protest decision here.