Review the case law facts set for below:

1. What aspect(s) of the offerors' estimates should have been evaluated by the Project Officer (COR)?

2. Consider the labor rate positions taken by Magellan and HHS. Which one do you

concur with? (Explain)

GAO Protest

The Division of Federal Occupational Health (FOH), Department of Health and Human Services issued a request for proposal to award a cost-plus-fixed-fee contract for a base year, together with four 1-year options, for the required "Employee Assistance Services (EAP)." In general terms, the SOW required the contractor to provide all personnel and equipment necessary to perform the EAP services needed to assist employees in their efforts to resolve personal problems that may adversely affect work performance "in the quickest, least restrictive, most convenient, and least costly manner while strictly respecting clients' confidentiality."

The RFP included four technical factors: technical approach and management plan; key personnel and personnel management; past performance; and continuous quality improvement process. The RFP expressed the basis for award as follows:

The technical proposal will receive paramount consideration in the selection of the Contractor(s) for this acquisition, although estimated cost will also be considered. In the event that the technical evaluation reveals that two or more Offerors are approximately equal in technical ability, then the estimated cost will become paramount.

Five offerors submitted proposals. Two were included in the competitive range - Magellan (the incumbent contractor) and Ceridian.

Pursuant to negotiations, the technical evaluation panel assessed changes to the technical proposals and assigned 104.08 total points (Magellan) and 97.33 total points (Ceridian).

As to cost submissions, the RFP instructed offerors to base their cost proposals on cost tables included with the solicitation. The cost tables, one for the base year and each option year, included various direct labor categories as well as estimated quantities of hours for each labor category. For example, the Field Consultant labor category had an estimated quantity of 256,495 hours per year, and the Field Counselor labor category had an estimated quantity of 91,416 hours per year. The RFP also advised offerors that the levels of effort set forth in the cost tables represented HHS's current estimates for the base year and option year requirements for the required EAP services, and that as part of their proposals, offerors were required to propose costs for the levels of effort stipulated in each of these tables. HHS noted that Magellan had proposed fewer hours than required by the RFP and increased Magellan's proposed hours for the Field Consultant and Counselor categories to the RFP's required levels resulting in a total estimated cost of $170,090,773 (Magellan).Ceridian's estimated cost was $150,163,847.

The contracting officer subsequently awarded the contract based to Ceridian based upon its significantly lower cost estimate and relative technical parity with Magellan's technical proposal. Magellan protested the award alleging an inadequate HHS cost realism analysis.

Although Magellan concurred with the agency's adjustment to the direct labor hours for field consultants and field counselors, it stated that Ceridian's proposed labor rates for these categories should also have been adjusted. It pointed out that Ceridian's labor rates were significantly less than those currently paid under HHS contract for those same positions although Ceridian proposed to hire most of the current staff. It emphasized that if Ceridian is to recruit and retain such staff, it is likely that Ceridian will have to pay higher rates than proposed. Consequently, direct labor costs will be significantly higher than proposed or Ceridian will not successfully recruit sufficient staff experienced in serving FOH customers in the highly specialized manner required. Ceridian then would have to recruit and train more inexperienced staff than projected in the proposal. The more new staff recruited, the greater the risk of decreased quality of service that would be unacceptable to customer organizations. Finally, Magellan emphasized that none of its current staff had been approached to date regarding working for Ceridian.

HHS replied that it was aware of this issue and had raised it with Ceridian during negotiations. Ceridian provided a copy of its 2006 salary rate structure which showed the targeted reference point for employees' salaries. HHS verified the proposed rates to the ranges shown in the salary rate structure provided by the offeror, matching each labor category to the zone and grade shown in the documentation. HHS concluded that the offeror's proposed labor rates to be acceptable for the purpose of establishing a budget for direct labor.