Summary
There’s some rough seas ahead for building the pricing volume on this 5-year, $40+M engineering support contract until NAVAIR addresses some of some conflicting issues and clarifies scope of transition costs.
Overview
The Naval Air Warfare Center Aircraft Division Pax River Surface/Aviation Interoperability Laboratory (SAIL) solicitation (N00421-18-R-0045, NAICS 541330) is a follow-on to the current incumbent contract N00178-05-D-4663-M809, awarded in 2014 to Wyle Laboratories Inc, and expiring in April 2019. There are (8) incumbent subcontractors: American Electronic Warfare Associates, Engility Corporation, Heron Systems, ITG Global, LLC, Organizational Strategies, Inc. and Solute, Inc. As of February 2018, $23.1M of $44.1M has been obligated.
SAIL essentially functions as an operational U.S. Navy ship for aircraft in the Patuxent River MD area to test with and verify that their systems will be interoperable with before they are fielded and deployed. This contract will provide engineering, technical, operational, test and logistics services in support of the SAIL efforts related to conduct of Joint and Navy research and development (R&D) programs; systems integration; simulation and stimulation systems development, test planning and conduct; command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems interoperability; and, technology demonstration programs.
Contemplated Contract
The five-year contract contains both fixed price and cost type Contract Line Items (CLINs) with annual staffing of 27 FTEs. NAVAIR intends to award to one offeror on a best-value basis. All evaluation factors other than Price/Cost, when combined, are significantly more important than Price/Cost. Approximately 98 percent of work will be performed on-site at Naval Air Station (NAS) Patuxent River, the remaining 2 percent of work is to be performed at Contractor site(s) as required.
Cost Volume
The cost volume consists of 1) summary contractual information, 2) a populated copy of Section B CLINs and Sub-CLIN unit price, quantity and total prices 3) Completed Attachment P6 (Cost Summary Spreadsheet), and 4) Attachment P7 (Fully Burdened Labor Rates).
The RFP defines a ‘principal subcontractor’ as a subcontractor who provides at least 20% of the proposed total price (excluding prime fee) OR provides one or more key personnel. The current draft solicitation contains no special pricing requirements for principal subcontractors.
Full Documentation of Proposed Pay
The RFP requires extensive pay rate information for all proposed positions (for both prime and subs) including: Collective Bargaining Agreements (CBAs), Area Wage Determinations (AWDs), the most current Defense Contract Audit Agency (DCAA) Provisional Billing Rate Approval Letter, DCAA Final Billing Rate Approval Letter, and/or DCAA Forward Pricing Rate Agreement recommendation. Offerors must also provide a payroll verification form containing the title and direct labor rates, accompanied by a signed certification by an authorized representative of the company that the information contained in the form is correct. Rates for contingent hires require offer letters with salary information (with associated signed Letters of Intent). For non-key prospective hires and consultants, other substantiating information and consultant agreements substantiating the rates proposed are required. Finally, a submission of a total compensation plan is also required.
The RFP identified (7) of 21 labor categories as SCA covered. However, NAVAIR did not provide the current SCA wage determination letter(s) in the draft. Interestingly, there are (8) labor categories identified as key, of which, (2) (Electrical & Electronics Engineering Technician III and Engineering Technician VI) are identified as being both Key Person and SCA covered. The draft SOW contains labor category details including functions, Bureau of Labor Statistics Occupation Code Mapping, Key/No-Key annotation, Experience, and Education. The RFP does not specify whether any of the current incumbent staff are operating under a CBA.
To BOE or not BOE?
Part B, Section 3.3.1 instructs offerors to, “Demonstrate that the unit prices and the total proposed price/cost are reasonable, realistic, and commensurate with the work required by the solicitation and the technical and management approaches identified in the Technical Volume of the proposal. Show traceability with the CLINs, SubCLINs, PWS, proposed effort, proposed manning levels, and prices/costs.” This level of documentation is akin to a ‘Basis of Estimate’ and appears to be excessive given the fact that Section 3.6.2 instructs offerors to propose the RFP-provided labor categories and hours (Five-year total is 259,200 hours). Offerors should push back on this requirement and request the staffing approach be addressed fully in the technical volume.
Other Potential Pricing Issues
Fully Burdened Annual Labor Unit Cost
Section L, Part B, Section 3.3 advises that “Offerors proposing a fully burdened annual labor cost for any employee that exceeds $300,000 shall provide rationale in their cost proposal narrative that justifies the reasonableness of the proposed cost for the applicable employee(s)”. Based on the solicitation’s standard of 1,920 hours per year, the associated burdened tripwire rate is $156.25 per hour. Given typical wraps and profit, annual salaries above $95,000 ($90,000 for subcontractors) could exceed this tripwire. Section M3.2 warns offerors that “exceeded tripwire may ultimately be determined unreasonable absent justification”. Offerors should clarify whether ‘fully burdened’, as used in the sentence above, includes or excludes fee/profit.
Limits on Pass-Through and Fee Rates
Fee for CPFF CLINs are capped at 8.0%. This limitation is applicable to both the prime and subcontractors. Subcontractor profit rate must also not exceed the prime’s profit rate. ‘Pass-Through’ rate on subcontract costs are limited to 8.0%. Offerors with large G&A rates should either consider proposing a separate subcontract handling indirect pool (along with a revised G&A rate) or a capped G&A rate applied to subcontractor costs. In most cases, subcontract handling rates fall well below 8%, which means companies that adopt a separate sub-contract handling fee will likely fully recoup their indirect costs. Offerors should clarify whether ‘pass-through rate’ is inclusive or exclusive of prime contractor profit on subcontractor cost. Section M also forewarns offerors that if there are discrepancies in rates between Section B, Attachment (P6), and Volume 3 Narrative, Section B prevails.
Unallowable Costs
Section 3.1.5 of the SOW states, “The costs of general purpose business expenses required for the conduct of the Contractor’s normal business operations are not an allowable direct cost in the performance of this contract. General purpose business expenses include, but are not limited to, the cost for items such as telephones and telephone charges, reproduction machines, word processing equipment, personal computers and other office equipment and office supplies.” It's sensible and appropriate for NAVAIR to disallow direct charge of corporate ‘desktop’ costs since staff will sit on-site at NAVAIR and will be provided with office space, computers, and phones, etc (as specified in 3.1.2.1). However, we still think the basic language of this clause is overly broad and recommend offerors request tighter language such as the language provided in NAVAIR’s example or as specified within Section 3.1.2.1 of the SOW.
Total Evaluated Price – Option Extension
Section M4.0 states total evaluated cost/price will also include the six month performance period permitted under the clause. It will be calculated by dividing the final proposed contract year by twelve (12) to establish an estimated monthly amount; thereafter, the monthly amount will be multiplied by six to establish the estimated cost for the six (6) month option to extend services. Companies should figure this additional 6-month option extension into their pricing strategy.
Unpriced Transition?
Part B, Section 1.3 instructs offerors to address their Management and Transition Plan and notifies offerors that a written transition plan must be provided within 30 days of contract award. The current draft does not appear to request offerors to price their transition. It is also unclear whether a separate Transition Out CLIN will be established whose period of performance precedes the main contract CLINs. Offerors should confirm whether or not the plug labor specified in the RFP is inclusive of “Transition Out” activities.
Potential Costs
It’s also unclear what NAVAIR intends to do with the following instruction found in Section 3.5: “The Offeror shall identify additional costs that would be incurred that have not been identified in the solicitation and describe in detail the performance that would cause these costs. Also, describe any assumptions with regard to Government actions (e.g., providing resources whether it be equipment or people) that enabled the proposed price/cost to be lower and identify the amount by which it is lower.”
We are also concerned with language found in Section M regarding additional Government costs applied to probable cost- “In addition, adjustments to the cost portion of the offer may be made to include Government costs required to accomplish the Offeror’s proposed approach (e.g., additional Government-Furnished Property/Government-Furnished Information required by the Offeror to implement its approach) with the exception of those costs to the Government that are equal to all Offerors.”
We urge caution, especially with respect to identifying ODC costs that are represented as additional costs. NAVAIR’s instructions do not contain any additional scoping details and assumptions for their ODC plug figures.
No Exceptions (Well, Maybe)
Section 3.6.1 instructs offerors to propose the RFP-provided separate annual ODC plug figures for Travel and Material that totals $20.7M. The plug is considered an unburdened costs and offerors can elect price their offer with or without their applicable burden. However, the RFP advises, “If the Offeror chooses not to burden ODCs, then the Offeror shall propose an H-clause to identify this special term and condition.” We’re not sure how this language squares with Section L.1 which warns offerors, “The Government advises the Offeror that taking exception or deviating from any term or condition of the RFP may result in the assessment of a deficiency to the proposal.” Companies should exercise caution and seek clarification from NAVAIR regarding whether adding a Section H clause would be construed as ‘taking exception’ from the RFP that might result in a deficiency.
Conclusion
We think there’s some rough seas ahead for building the pricing volume until NAVAIR addresses some of some conflicting issues and clarifies scope of transition costs. This appears to be another ‘rate-drill’ type of solicitation with detailed backup required for all direct and indirect rates proposed.
About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at
https://www.federalpricinggroup.com/.
