Trading on inside information unfair to competition

The Office of Inspector General of the US Dept. of Veterans Affairs has determined that it was unfair to award a contract to an incumbent based on an evaluation that gave the incumbent points for its knowledge of the existing system and reduced points for bidders who lacked that knowledge. File this under leveling the playing field.

Final Report: Review of Secure VA-Chief Information Security Officer Support Services Acquisition Process

The technical evaluation process favored awarding the contract to the incumbent, Booz-Allen Hamilton, based on its performance as VA’s Information Assurance and Information Technology Security Services contractor for the past two years.

Documentation shows that the panel considered knowledge or unfamiliarity of VA procedures and practices as “strengths” or “weaknesses” in assessing the “understanding of the problem” requirement in the RFQ. As a result, the panel assigned nine “significant strengths” to the Booz-Allen Hamilton proposal; six of those “strengths” made specific references to knowledge of VA procedures and practices.

However, the lack of knowledge of VA procedures and practices was identified as a weakness in the evaluation of other offerors. The strengths and weaknesses associated with knowledge of VA procedures and practices were key factors in the decision to award the contract to Booz-Allen Hamilton.

VA traded off lower cost in favor of vendors’ technical knowledge of VA procedures and practices in evaluating the offers. If knowledge of VA procedures and practices had not been used as a key evaluation factor, another vendor might have won the contract at lower cost to the Government.

Booz-Allen Hamilton’s proposal was the highest cost option; however, the weighting of its knowledge and experience with VA procedures and practices was a key factor in Booz-Allen Hamilton winning the technical evaluation and ultimately the contract award decision.

We disagree with Management’s contention that Booz-Allen Hamilton’s nine significant strengths justified selecting it for contract award despite the fact that it was the highest bidder. As noted in the Source Selection Decision Document, Booz-Allen Hamilton’s cost of approximately $133 million reflected a premium of 16 percent ($18 million) and 22 percent ($24 million) over the two other offerors.

VA justified this premium because of the perceived significant strength and low technical risk from Booz-Allen Hamilton’s extensive knowledge, understanding, experience, and expertise in support of VA’s enterprise-wide information security and risk management program.

Further, although it would have been helpful to substantiate the selection decision, Management did not provide a labor-rate cost analysis justifying the premium price paid for the contract award. Such an analysis would have compared the labor rates of all proposals and determined whether Booz-Allen Hamilton’s labor rates were reasonable.

While the award decision may have resulted in a low risk to the Government and a decreased learning curve as Management asserted, VA should not have paid a premium price for the incumbent’s knowledge.

In our opinion, favoring the incumbent during the selection process did not promote full and open competition in accordance with the Federal Acquisition Regulation.

This practice puts VA at risk of awarding future “de-facto” sole source contracts at greater expense to the Government because of reduced competition.

Management based its assertion on a GAO ruling that “It is common for an incumbent to possess and receive evaluation credit for unique advantages which the government is not required to neutralize, and this advantage does not constitute an unfair competitive advantage or represent preferential treatment by the agency.”

We agree that organizational knowledge can be a key consideration in evaluating offers and a deciding factor when multiple bids are indistinguishable.

[Subtext: Here, bids were distinguishable by significant price differentials, without justification the price paid was reasonable.]

However, this ruling as well as another GAO decision cited by Management further emphasized the importance of disclosing in the RFQ how relative experience will be evaluated during the selection process and when giving credit to the incumbent. As such, VA should have identified such knowledge as a significant evaluation factor in the RFQ before using it as criteria for rating purposes. We maintain that the Department’s failure to disclose knowledge of VA practices as a significant evaluation factor prevented all vendors from submitting comparable proposals to emphasize their specific VA experience, placing potential contractors at a disadvantage in the bidding process.

Therefore, we will evaluate VA’s contract award decisions in future audits to determine if evaluation panels assess vendor proposals based solely on evaluation factors stated in the solicitations.