TITLE: B-298694; B-298694.2; B-298694.3, Kellogg Brown & Root Services, Inc., November 16, 2006
BNUMBER: B-298694; B-298694.2; B-298694.3
DATE: November 16, 2006
****************************************************************************************
B-298694; B-298694.2; B-298694.3, Kellogg Brown & Root Services, Inc., November 16, 2006

   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.

   Decision

   Matter of: Kellogg Brown & Root Services, Inc.

   File: B-298694; B-298694.2; B-298694.3

   Date: November 16, 2006

   James J. McCullough, Esq., Steven A. Alerding, Esq., and Deneen J.
   Melander, Esq., Fried, Frank, Harris, Shriver & Jacobson LLP, for the
   protester.

   Richard L. Moorhouse, Esq., David T. Hickey, Esq., and Dorn C. McGrath
   III, Esq., Greenberg Traurig LLP, for Atlantic Contingency Constructors,
   LLC; William A. Roberts III, Esq., and Richard B. O'Keeffe Jr., Esq.,
   Wiley Rein & Fielding LLP, for Fluor International, Inc.; and J. Alex
   Ward, Esq., Edward Jackson, Esq., and Kristen G. Schulz, Esq., Jenner &
   Block LLP, for URS-IAP, LLC, the intervenors.

   Richard Welsh, Esq., Naval Facilities Engineering Command, for the agency.

   Sharon L. Larkin, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   1. Agency did not perform a reasonable cost realism evaluation when it
   deleted a certain element of cost from awardee's proposed indirect costs
   because other offerors accounted for this element as a direct cost; this
   evaluation did not result in a reasonable assessment of the probable cost
   of performing the contract associated with the awardee's proposal, given
   that the adjustment was inconsistent with Cost Accounting Standards 401
   and 402 and the firm's cost accounting practices, to which the firm was
   obligated to adhere in performing the contract.

   2. Protest of evaluation of protester's proposed contingency plan is
   sustained where the protester provided detailed arguments why the
   evaluation was unreasonable, which were consistent with the record, and
   the agency did not explain why the evaluation was reasonable in light of
   those arguments.

   DECISION

   Kellogg Brown & Root Services, Inc. (KBR) protests the award by the
   Department of the Navy of three global contingency construction contracts
   under request for proposals (RFP) No. N62470-06-R-6002 to Atlantic
   Contingency Constructors, LLC (ACC), Fluor International, Inc. (Fluor),
   and URS-IAP, LLC (URS). KBR contends that the agency misevaluated
   proposals under technical and cost factors.

   We sustain the protest.

   BACKGROUND

   This acquisition is for construction and related engineering services in
   response to global natural disasters, humanitarian assistance, conflict,
   or projects with similar characteristics. Agency Report (AR), Tab 23,
   Source Selection Board (SSB) Report, at 3. The RFP contemplated award of
   up to three cost-plus-award-fee, indefinite-delivery/indefinite-quantity
   (ID/IQ) contracts for a base year with four 1-year options. Award was to
   be made without discussions unless discussions were otherwise determined
   to be necessary. Id. at 68.

   The solicitation provided for award on a "best value" basis, considering
   corporate experience, past performance, contingency plan, management
   approach, small business utilization, and cost. The non-cost factors were
   of equal importance and together were more important than the cost factor.
   The past performance factor consisted of two subfactors listed in
   descending order of importance--past performance and safety. The
   management approach factor consisted of two equally rated
   subfactors--organization, home office support, and key personnel; and
   accounting and management systems and procedures. The small business
   utilization factor consisted of two equally rated subfactors--past
   performance in small business utilization, and participation of small
   business concerns for this program. Id.

   For the cost factor, offerors were required to submit a completed "cost
   model." This cost model, which was provided with the RFP, consisted of a
   spreadsheet for each year of the contract. In the cost model, offerors did
   not propose estimated direct costs, but instead the agency used fixed
   "plug" numbers for all of the direct costs (including "other direct
   costs") to be incurred under the contract. The total direct costs in the
   cost model were $186 million per year and $930 million for the 5-year
   contract period. For each contract year, offerors were to insert in the
   spreadsheet their rates, allocation bases, and totals for the indirect
   cost items of labor overhead, fringes, overhead, general and
   administrative (G&A), cost of facilities capital, and proposed award fee.
   The results for each yearly spreadsheet, including the plug numbers for
   direct costs, were summed to develop a total overall cost for each
   proposal. The cost model required offerors to "apply indirect rates in
   accordance with their established accounting system."[1] Offerors were
   also required to submit with their cost proposal the "[r]ate structure,
   allocation base, and other supporting rationale" for their proposed
   indirect costs. RFP amend. 3, Cost Model. The cost proposal instructions
   in the RFP required the offerors to provide specific support for the
   proposed indirect costs and stated:

     The proposal must completely identify all indirect costs that are known,
     including a list of labor categories that are charged as indirect costs.
     The proposal must also provide a list [of] the types of costs that are
     charged as Other Direct Costs. These costs are needed so the Government
     can conduct an equitable cost evaluation.

   RFP at 66. These instructions were the subject of a question and answer
   included in Amendment No. 3 to the RFP, which read as follows:

     Q11 -- Please explain the requirement to identify labor categories that
     are charged as indirect costs. Should the Offeror provide a
     representative sample or a detailed list of every labor category that
     charges to overhead pools?

     A11 -- The information helps us to identify significant cost areas where
     an adjustment between direct and indirect may be necessary to make the
     prices more comparable. All labor categories should be included.

   Eight proposals were submitted in response to the RFP. A technical
   evaluation board (TEB) evaluated the technical proposals under the
   non-cost factors, and assigned adjectival ratings to proposals under each
   of the factors and subfactors. As relevant here, the TET ranked the
   proposals of the awardees and the protester as follows: Fluor--second,
   URS--third, ACC--fourth, and KBR--[REDACTED]. AR, Tab 21, TEB Report, app.
   A.

   The cost evaluation board (CEB) evaluated proposals under the cost factor.
   Based on the CEB's cost analysis and various audits by the Defense
   Contract Audit Agency (DCAA), a variety of probable cost adjustments were
   made to the offerors' proposed indirect costs.

   For example, with regard to KBR's cost proposal, "DCAA noted differences
   between the contractor's proposed indirect rates and the contractor's
   current forward pricing rate recommendations and/or DCAA audited rates,"
   which indicated to DCAA that KBR's proposed indirect rates were
   overstated. AR, Tab 22, CEB Report, at 22. The CEB adopted DCAA's
   recommendations regarding the estimated overstatement of KBR's indirect
   rates and lowered KBR's evaluated cost by [REDACTED]. Id. at 24.

   The CEB also determined that, based on its review, there were two areas in
   which one or more of the offerors differed in their accounting charging
   practices--program management office (PMO) and fringe benefit costs.
   However, the CEB was not able to confirm that it had completely identified
   all areas where accounting treatments by the various offerors of certain
   costs differed. Id. at 9. The CEB noted that while ACC and another
   offeror[2] (not an awardee or KBR) treat PMO costs as indirect costs in
   accordance with their established cost accounting practices, all other
   offerors treated these costs as direct costs. "[T]o be consistent with the
   direct treatment of PMO costs by the majority of the offerors," the CEB
   "reclassified" the PMO costs from indirect costs and removed them from the
   G&A rate cost pool, which reduced ACC's evaluated cost by $19,122,930.[3]
   Id. at 17.

   With regard to total evaluated cost, the CEB ranked the awardees and
   protester as follows: ACC--first (lowest), KBR---[REDACTED], Fluor--third,
   and URS--fifth. AR, Tab 22, CEB Report, at 32.

   The TEB and CEB reported their results to the SSB, which adopted the
   findings of both boards. The relevant ratings for the four proposals at
   issue in this protest were reported as follows:

   +------------------------------------------------------------------------+
   |                |   KBR    |     ACC      |     URS      |    Fluor     |
   |----------------+----------+--------------+--------------+--------------|
   |Technical       |[REDACTED]|     Good     |     Good     |  Excellent   |
   |----------------+----------+--------------+--------------+--------------|
   ||Corporate      |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||Experience     |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   ||Past           |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||Performance    |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   ||   |Past       |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||   |Performance|          |              |              |              |
   ||   |-----------+----------+--------------+--------------+--------------|
   ||   |Safety     |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||---------------+----------+--------------+--------------+--------------|
   ||Contingency    |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||Response Plan  |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   ||Management     |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||Approach       |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   |||Organization, |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   |||Home Office   |          |              |              |              |
   |||Support, and  |          |              |              |              |
   |||Key Personnel |          |              |              |              |
   |||--------------+----------+--------------+--------------+--------------|
   |||Accounting and|[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   |||Management    |          |              |              |              |
   |||Systems and   |          |              |              |              |
   |||Procedures    |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   ||Small Business |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   ||Utilization    |          |              |              |              |
   ||---------------+----------+--------------+--------------+--------------|
   |||Past          |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   |||Performance in|          |              |              |              |
   |||Small Business|          |              |              |              |
   |||Utilization   |          |              |              |              |
   |||--------------+----------+--------------+--------------+--------------|
   |||Participation |[REDACTED]|  [REDACTED]  |  [REDACTED]  |  [REDACTED]  |
   |||of Small      |          |              |              |              |
   |||Business      |          |              |              |              |
   |||Concerns for  |          |              |              |              |
   |||this Program  |          |              |              |              |
   |----------------+----------+--------------+--------------+--------------|
   |Evaluated Cost  |[REDACTED]|$1,033,644,690|$1,060,231,026|$1,045,099,517|
   |----------------+----------+--------------+--------------+--------------|
   +------------------------------------------------------------------------+

   AR, Tab 23, SSB Report, at 7-8; Tab 21, TEB Report, app. A.

   The SSB performed a comparative analysis of proposals based on each factor
   and subfactor, and assessed overall rankings to the relevant proposals as
   follows: Fluor--first, URS--second, and ACC--third. The SSB did not
   specifically compare KBR's proposal to ACC's, since ACC's proposal was
   rated higher technically and was determined to be of lower cost, but did
   compare KBR's proposal to URS's and Fluor's. The SSB noted KBR's
   "excellent" corporate experience relative to Fluor and URS, but noted that
   KBR's past performance was inferior, primarily due to "significant
   weaknesses" noted in the performance of [REDACTED] where KBR received
   [REDACTED] ratings. AR, Tab 23, SSB Report, at 17, 29. KBR's contingency
   plan was found to be less "comprehensive," "much more general," and
   "relied on [KBR's] previous experience to demonstrate the plan to respond
   to contingency requirements rather than providing a detailed contingency
   response plan." Id. at 18, 29-30. KBR's proposal was also rated inferior
   to Fluor's and URS's under the management factor because, according to the
   agency, the proposal provided less detail in certain areas, [REDACTED] of
   KBR's accounting and management systems were found by DCAA to be
   [REDACTED] and DCAA found [REDACTED] associated with KBR's CAS disclosure
   statements. Id. at 19, 30. Under the small business utilization factor,
   the SSB found "no advantage" to Fluor's proposal over KBR's, but found
   that URS's proposal was superior to KBR's due to advantages under the past
   performance in utilizing the small business program subfactor. Id.  at 20,
   31. The SSB determined that the technical superiority of Fluor's and URS's
   proposals were worth the additional evaluated cost as compared to KBR's
   proposal. Id.

   The source selection authority adopted the findings of the SSB, and made
   award to Fluor, URS, and ACC. These protests followed.

   COST EVALUATION

   KBR protests the cost evaluation of ACC's proposal, contending that the
   agency was not permitted to "reclassify" ACC's PMO costs because this
   would be inconsistent with ACC's established cost accounting practices.
   KBR notes that if this adjustment had not been made, KBR's evaluated cost
   would have been lower than ACC's. KBR also protests that it was
   unreasonable for the agency to make the particular adjustment to ACC's
   costs, where it is apparent that there were other instances where the
   offerors treated costs differently for accounting purposes that were not
   accounted for in the cost evaluation.

   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 an
   offeror, the government is bound to pay the contractor its actual and
   allowable costs. Metro Mach. Corp., B-297879.2, May 3, 2006, 2006 CPD
   para. 80 at 9. As a result, a cost realism analysis is required to
   determine the extent to which an offeror's proposed costs represent the
   offeror's likely costs in performing the contract under the offeror's
   technical approach, assuming reasonable economy and efficiency. Federal
   Acquisition Regulation (FAR) sections 15.305(a)(1), 15.404-1(d)(1), (2);
   The Futures Group Int'l, B-281274.2, Mar. 3, 1999, 2000 CPD para. 147 at
   3. A cost realism analysis involves independently reviewing and evaluating
   specific elements of each offeror's cost estimate to determine whether the
   estimated proposed cost elements are realistic for the work to be
   performed, reflect a clear understanding of the requirements, and
   are consistent with the methods of performance and materials described in
   the offeror's proposal. FAR sect. 15.404-1(d)(1); Advanced Commc'n Sys.,
   Inc., B-283650 et al., Dec. 16, 1999, 2000 CPD para. 3 at 5. Based on the
   results of the cost realism analysis, an offeror's proposed costs should
   be adjusted when appropriate. FAR sect. 15.404-1(d)(2)(ii). The evaluation
   of competing cost proposals requires the exercise of informed judgment by
   the contracting agency; we review an agency's judgment in this area only
   to see that the agency's cost realism evaluation was reasonably based and
   not arbitrary. Metro Mach. Corp., supra.

   The agency contends that it conducted a proper cost realism analysis of
   the cost proposals. It acknowledges that ACC was "required by its approved
   cost accounting systems" to include PMO costs as indirect costs, but
   asserts that since all but one other offeror proposed these costs as
   direct costs, the reclassification was necessary so that the agency could
   be "consistent in its evaluation." Supplemental Agency Report (SAR) at 3.

   The agency's cost realism analysis of ACC's proposal was not reasonable.
   As the agency admits, ACC's cost accounting practices specifically require
   that ACC include PMO costs as indirect costs. In fact, ACC's cost
   proposal, including a G&A rate that included PMO costs, was consistent
   with the RFP's cost model instructions requiring offerors to "apply
   indirect rates in accordance with their established accounting system."
   RFP amend. 3, attach. 2, Cost Model.

   CAS 401--which is applicable to ACC--requires a contractor's practices in
   estimating costs for a proposal to be consistent with cost accounting
   practices used by the contractor in accumulating and reporting costs.
   48 C.F.R. sect. 9904.401-20 (2005). This requirement is imposed because
   "[c]onsistency in the application of cost accounting practices is
   necessary to enhance the likelihood that comparable transactions are
   treated alike," so that, among other things, there is "financial control
   over costs during contract performance." Id. More significantly, CAS
   402--also applicable to ACC--states:

     All costs incurred for the same purpose, in like circumstances, are
     either direct costs only or indirect costs only with respect to final
     cost objectives. No final cost objective shall have allocated to it as
     an indirect cost any cost, if other costs incurred for the same purpose,
     in like circumstances, have been included as a direct cost of that or
     any other final cost objective. Further, no final cost objective shall
     have allocated to it as a direct cost any cost, if other costs incurred
     for the same purpose, in like circumstances, have been included in any
     indirect cost pool to be allocated to that or any other final cost
     objective.

   48 C.F.R. sect. 9904.402-40. Because of these requirements, ACC was and
   will be required to account for its costs in a manner consistent with its
   established accounting practices during the course of this contract
   performance. General Research Corp., B-241569, Feb. 19, 1991, 91-1 CPD
   para. 183 at 9; CACI, Inc.--Fed., B-216516, 84-2 CPD para. 542 at 10-13.
   Consequently, in determining ACC's evaluated probable cost for performing
   this contract, the agency could not reclassify costs that ACC treats as
   indirect costs in its accounting system as direct costs. See General
   Research Corp., supra; CACI, Inc.--Fed., supra.

   The agency argues that this adjustment was necessary in order to allow for
   a more "equitable" comparison of the cost proposals. In effect, the agency
   here has selectively "normalized" the cost elements included in the
   offerors' indirect cost pools. Normalization is a technique sometimes used
   within the cost evaluation/adjustment process that involves measuring
   offerors against the same cost standard or baseline where there are no
   logical differences in approach or in situations where insufficient
   information is provided in the proposals. General Research Corp., supra.
   Such a normalization process was improper here because ACC's proposal
   necessarily accounted for PMO costs as part of its indirect costs, which
   were required to be accounted for in a like manner under this contract.[4]
   Therefore, the agency's "normalization" of PMO costs among the offerors
   with different accounting systems necessarily resulted in an unreasonable
   estimate of the offerors' proposed costs for performing this contract.
   General Research Corp., supra, at 5-6, 9. Moreover, the agency has never
   explained why deleting PMO costs from proposed indirect costs will result
   in a more equitable comparison of proposals. There is no evidence in the
   record that the shifting of costs from indirect to direct can result in a
   number that represents the probable costs of a particular proposal in
   performing the contract, because there is no indication that the cost
   model's plug number represents the direct cost approach that will be taken
   by each contractor.[5]

   The agency asserts that because an RFP amendment advised offerors, in
   response to an offeror's question, that a "standing PMO" would not be
   funded, offerors were on notice that PMO costs were "within the scope of
   direct costs fixed by the Navy." Agency Brief (Oct. 20, 2006) at 2; see
   RFP amend. 3, attach. 1, Q&A 44. The agency posits that its cost
   evaluation adjustment to account for ACC's different treatment of PMO
   costs was therefore appropriate in order to allow for an "equitable"
   comparison of the proposals. This argument is meritless for a variety of
   reasons. First, the statement that the agency would not fund a "standing
   PMO" does not suggest that PMO costs were included as direct costs; if
   anything, it suggests the opposite. Also, as noted above, the agency does
   not explain how this statement would allow ACC to vary from its
   established accounting practices with regard to PMO costs. Finally, there
   is no evidence that any PMO costs were included in the "plug" numbers for
   direct costs.

   The agency argues that KBR was not prejudiced because it was also the
   beneficiary of a downward cost adjustment in its indirect costs. However,
   as noted above, the adjustment to KBR's probable costs was to properly
   account for an apparent overstatement in several of its indirect rates,
   which is an entirely different proposition than reclassifying costs that
   had been properly included in indirect cost pools to direct costs.

   Finally, as noted by the protester, several of ACC's indirect cost rates
   are significantly less than those proposed by the other offerors, which
   KBR suggests evidences that costs which other offerors charged as indirect
   costs may be charged as direct costs by ACC. KBR contends that given the
   multiple accounting variances amongst the offerors, the agency's "singling
   out" of ACC's PMO costs to adjust from indirect costs to direct costs was
   unreasonable and represented unequal treatment. The agency has offered no
   substantive response to this KBR contention, which, based on this record,
   appears to have merit.

   In sum, the agency's adjustment to ACC's proposal was unreasonable and
   prejudiced KBR because it resulted in ACC being evaluated as having a
   lower cost than KBR, such that no cost/technical tradeoff was performed.

   CONTINGENCY PLAN EVALUATION

   KBR also contends that the agency misevaluated its proposal and the
   proposals of URS and ACC under many of the technical factors. In reviewing
   such protests, our Office does not reevaluate proposals, but instead
   examines the record to determine whether the agency's judgment was
   reasonable and in accord with the RFP criteria. Abt Assocs., Inc.,
   B-237060.2, Feb. 26, 1990, 90-1 CPD para. 223 at 4. A protester's mere
   disagreement with the agency's judgment does not establish that an
   evaluation was unreasonable. UNICCO Gov't Servs., Inc., B-277658, Nov. 7,
   1997, 97-2 CPD para. 134 at 7.

   Under the contingency plan factor (which was equal in weight to the other
   non-cost factors), the RFP stated that the evaluation would "consider[]
   the effectiveness of the offeror's contingency response plan to perform
   work for this contract," and advised offerors that the government was
   seeking "approaches that maximize quality, result in optimal use of
   resources, are cost effective, and are highly responsive to the interests
   of the Navy and its customers." RFP at 61. Offerors were instructed to
   provide the following information in their proposals:

     1. Address plan to minimize response time between the award of a task
     order and the mobilization to the site. Include a discussion on
     coordination of subcontractor for quick response.

     2. Address plan to obtain materials, equipment, and workforce globally,
     including areas with limited/constrained resources.

     3. Address plan to provide design and engineering services, including
     incidental support services

     4. Address plan to control and monitor costs for both the prime and
     subcontractors. Specifically describe cost control measures that will be
     employed to monitor subcontractor costs in a contingency environment.

   Id.

   KBR asserts with regard to the contingency plan factor that the agency
   overlooked a number of strengths, and assessed a number of weaknesses that
   were unreasonable. The agency responded in cursory fashion that KBR's
   proposal was "more general" and provided "limited details," and contended
   that the protester's arguments reflect only "mere disagreement" with the
   agency. AR at 17; SAR at 9.

   Our review of the record shows more than "mere disagreement." In its
   protest filing, KBR provided citations to its proposal showing where in
   KBR's proposal the firm addressed each of the areas identified in the RFP
   for this factor, and showing where it addressed items the agency stated
   were weaknesses. KBR also made detailed arguments why its proposal was
   deserving of strengths or significant strengths, including pointing out
   where other offerors received similar strengths. See, e.g., KBR's Protest
   at 14-23. The agency has failed to respond to these specific allegations.
   Moreover, the TEB report contains only one short statement that "KBR's
   only support for their [contingency] response plan was to reference past
   projects and provided a general overview of their plans for contingency
   response," and identified the following unelaborated weakness in KBR's
   proposal under the contingency plan factor:

     Very limited detail provided on existing resources and how these
     resources will be coordinated. Contractor mainly used past contracts to
     show responses. Very limited detail provided for subcontractor
     agreements, pre-positioned materials, equipment or people.

   AR, Tab 21, TEB Report, at 74-75.

   Our review of the record does not show that KBR's contingency plan is more
   limited or general than the awardees' plans. Although URS proposed a plan
   that was approximately twice as long as the other offerors', KBR, Fluor,
   and ACC all provided contingency plans of similar length. From our review,
   it is not apparent that the level of detail in any of the plans is
   significantly different. Notwithstanding KBR's specific protest
   contentions, the agency has failed to provide any specific examples of
   where the plans are dissimilar, and none are apparent from the record. All
   offerors appear to have addressed the requirements of the RFP and all
   offerors cited past projects as examples to demonstrate how their plan
   would successfully be implemented. Although KBR perhaps cited a few more
   examples than the other offerors, the agency has not explained why this is
   a weakness and not a strength, given that the examples appear to
   demonstrate that the proposed contingency plan has been implemented
   successfully. Given that the record does not, on its face, support the
   agency's ratings, and the agency has otherwise failed to explain the
   difference in ratings, we sustain the protest on this ground.

   OTHER TECHNICAL EVALUATION CONTENTIONS

   KBR also asserts that the agency misevaluated its proposal under the past
   performance, management approach, and small business utilization factors;
   and that the agency misevaluated URS's and ACC's proposals under the
   corporate experience, past performance, and management approach factors.
   Based on our review of the record, we find the protester's allegations to
   be without merit with the exception of the following protest grounds, to
   which the agency has not adequately responded: (1) for various task
   orders, the agency failed to consider favorable past performance that was
   in its possession, and considered only unfavorable performance without
   considering (or explaining the inconsistencies with) more favorable
   performance reports; (2) KBR's proposal was entitled to numerous strengths
   and was undeserving of weaknesses under the organization, home office
   support, and key personnel subfactor of the management approach factor;
   (3) KBR's proposal was entitled to a higher rating under the small
   business utilization factor; and (4) the agency misevaluated URS under the
   corporate experience factor by considering the performance of
   subcontractors when, according to KBR, it is "unlikely" that the
   subcontractors will perform the work. It is unclear from the record, and
   the agency's cursory response to the allegations, whether the agency's
   evaluation is reasonable under these factors. Although we do not sustain
   the protest on these grounds, given our recommendation below, the agency
   should consider the protester's arguments identified above in performing
   its reevaluation.

   We recommend that the agency reevaluate proposals under the technical and
   cost factors, conduct discussions if determined necessary, and make a new
   source selection decision.[6] If based on this new evaluation, the agency
   determines that one or more of the awardees are no longer in line for
   award, the agency should terminate the awardees' contracts and make awards
   consistent with the new selection decision. We also recommend that KBR be
   reimbursed the costs of filing and pursuing its protest, including
   reasonable attorney's fees. 4 C.F.R. sect. 21.6(d) (2006). In accordance
   with section 21.8(f)(1) of our Bid Protest Regulations, KBR must file its
   certified claim for costs, detailing the time expended and costs incurred,
   directly with the agency within 60 days of receipt of this decision.

   The protest is sustained.

   Gary L. Kepplinger

   General Counsel

   ------------------------

   [1] The RFP stated that the offeror's proposed indirect rates would serve
   as maximum ceiling rates during the life of the contract. RFP at 66.

   [2] This other offeror accounted for fringe benefits differently from the
   other offerors.

   [3] Because direct costs were pre-determined plug numbers in the cost
   model, no adjustments were made to ACC's or any other offeror's direct
   costs.

   [4] Offerors are entitled to establish their own accounting systems
   consistent with applicable CAS requirements. See CACI, Inc.--Fed., supra,
   at 12.

   [5] The agency asserts that KBR's challenge to the cost evaluation is an
   untimely challenge to an alleged solicitation defect, given that a
   solicitation amendment informed offerers that complete indirect and other
   direct cost information was required because "[t]he information helps us
   to identify significant cost areas where an adjustment between direct and
   indirect may be necessary to make the prices more comparable." Agency
   Brief (Oct. 20, 2006) at 2; see RFP amend. 3, attach. 1, Q&A 11. This
   advice could not be reasonably construed as providing for a cost
   evaluation that was inconsistent with CAS and did not compute the actual
   probable costs of an offeror's proposal as required by FAR sect.
   15.305(a)(1) and sect. 15.404-1(d)(1), (2).

   [6] The agency may want to review its cost model to ensure that it
   accurately reflects probable costs and is not inconsistent with CAS.