Hire Incumbents, Reduce Their Wages

Just because a solicitation requires that successful bidders give hiring preference to incumbent employees, doesn't mean that the successful bidder has to pay those employees what they are currently earning. A recent GAO decision involving a Navy SeaPort-Enhanced multiple award contract (SeaPort-E) illustrates this point.

The Navy awarded a contract to Lockheed for information technology services and systems support for the Navy Personnel Command. SAIC, the incumbent on this contract (and losing bidder), argued that the Navy had not performed an adequate cost realism analysis because Lockheed had proposed labor rates for some labor categories that were lower than what SAIC was currently paying.

FAR requires that the Government perform cost-realism analyses on proposals for cost-type contracts. From the Government's standpoint, there is a high degree of risk in those types of contracts. Regardless of the costs proposed, the Government is bound to pay the contractor its actual and allowable costs. Cost realism analyses will help the Government determine the extent to which offerers' proposed costs represent what the contract should cost, assuming reasonable economy and efficiency.

In this case, SAIC assumed that a reasonable cost realism analysis must be based on a comparison of proposed rates to what the incumbent employees are currently earning, such that any proposed rates that are less than the incumbent employees' current wage rates were unrealistic. The GAO found this argument lacking. Current wage rates are not necessarily current market rates and SAIC provided no evidence to show that Lockheed's proposed rates were less than current market rates. Additionally, the GAO found no basis to conclude that Lockheed would be unable to hire qualified personnel for the contract, including some of the incumbent personnel.

You can read the full decision here.