Navy's Cost Realism Analysis Was Flawed

Target Media bid on a Navy SEAPORT-e solicitation to provide engineering and professional services in support of ship maintenance systems information technology. Target didn't receive the award and challenged the Navy's award to Imagine One. Among other challenges, Target Media argued that the Navy conducted an unreasonable cost realism analysis.

Target argued that the cost realism evaluation was flawed because the Navy did not compare the compensation proposed by Imagine One to the rates paid to incumbent employees or to the prevailing market rates for such personnel to determine whether Imagine Once's cost approach aligned with its proposed technical approach.

Where a cost-reimbursement contract is to be awarded, an offeror's estimated costs of contract performance should not be considered controlling since the estimates may not provide valid indications of the final actual costs which the Government is required to pay. That's why the Government must perform cost realism analyses to determine what the costs are likely to be under the offeror's technical approach, assuming reasonable economy and efficiency.

The Comptroller General (CG or GAO) concluded that the Navy's cost realism analysis did not reasonable assess the likely costs stemming from Imagine One's proposed approach. Imagine One's proposal was based on a plan to recruit and retain a substantial number of contract personnel from outside the current employ of both Imagine One and its proposed contractor. It depended, to a large extent, on recruiting new hires or incumbent staff. However, the Navy's cost realism analysis did not analyze the realism of the proposed rates through such methods as comparing Imagine One (and its subcontractor) direct labor rates to prevailing market rates or to the salaries paid to incumbent staff. Instead, the Navy examined internal payroll data provided by Imagine One to verify proposed rates.

The CG found that the Navy's cost realism evaluation failed to properly account for the technical approach proposed by Imagine One. While Imagine One proposed to staff a substantial portion of its personnel from external sources, the  Navy limited its analysis to internal cost data from Imagine One (and its subcontractor). The Navy should have assessed the realism of the proposed rates through such methods as comparison of the rates to prevailing market rates, the rates paid to incumbent employees, or the rates proposed by other offerors.

The CG sustained the protest on these grounds and recommended that the Navy perform a proper cost realism evaluation and professional compensation plan evaluation of Imagine One's proposal, and then rely on thsoe evaluations as part of its source selection determination. If, after that analysis, Target Media is determined to offer the best value to the Government, the Navy should terminate Imagine One's contract for convenience and award the contract to Target Media. Target Media was also awarded cost of filing and pursuing the protest.

You can read the full decision here.