The Government Accountability Office (GAO) denied an Austal USA protest against the winning bid of Huntington Ingalls Industries [HII] for Littoral Combat Ship (LCS) planning yard services, the office said on Tuesday.
GAO decided against Austal on Aug. 28, finding no basis to sustain the protest, but published the decision on Tuesday. The report revealed a key factor in the Navy’s decision was how it measured the degree to which Austal relied on several subcontractors.
In May Austal filed the protest over the $932 million award that covers technical planning, ship configuration, data, and logistics lifetime support required for the in-service LCSs (Defense Daily¸ May 22).
The Navy awarded the contract to HII in late April. The contract provides the LCS program with post-delivery life-cycle support like fleet modernization program planning, design engineering and modeling, and logistics support (Defense Daily, May 1).
The GAO decision confirmed the incumbent provider, General Dynamics’ [GD] Bath Iron Works, was the other losing offeror among the three bidders.
Austal challenged the award on several bases, primarily the Navy’s assignment of moderate risk to their technical proposals for Austal’s intended use of subcontractors while HII received lower risk for intended use of a wholly-owned subsidiary.
However, GAO said the solicitation provided that reliance on subcontractors would invite higher scrutiny in the evaluation process while it did not say proposals would be downgraded for relying on a corporate affiliate. “We have no basis to question the agency’s assessment in this regard,” the decision said.
GAO noted the solicitation defined risk as the potential for unsuccessful contract performance based on the probability of disruption to schedule increased cost or degradation of performance, need for government oversight, and likelihood of unsuccessful contract performance. That was later further refined with language referring to risk associated with an offeror’s reliance on subcontractors and gave evaluators the discretion to assess the likelihood of an offeror’s successful performance based on subjective judgment.
Specifically, GAO noted the solicitation said “risk will be increased the more the offeror’s experience and understanding is based primarily upon subcontractor team members rather than the offeror themselves. The Government considers that personnel who are not well established employees of the offeror increase the risk assessment.”
In this case, Austal proposed to subcontract 56.5 percent of the work, with almost 43 percent of the total effort to be subcontracted to one undisclosed subcontractor. The subcontractor, in turn, would subcontract 59 percent of its own work to another entity and original equipment manufacturers.
“We find nothing unreasonable in the agency’s assessment that such an approach–proposing subcontractors over which neither Austal nor [DELETED] exercise any institutional or organizational control–warranted a moderate degree of risk regarding the successful performance of the requirements,” the GAO said.
Austal argued in contrast to this subcontracting demerit the Navy did not assess HII’s proposal as the same level of subcontracting risk when 63 percent of HII’s work would be performed by corporate affiliate AMSEC.
Austal said there should be no distinction between it and HII relying on subcontractors and affiliates.
However, the Navy explained while Austal would use “multiple tiers of subcontractors over which the protester has no institutional or organizational control,” HII proposed using a single wholly-owned subsidiary. GAO said the Navy explained this provided an assurance of “internal accountability within a single corporate management framework.”
The Navy added the first four tier subcontractors under Austal’s proposal all operate independent of the company while HII plans to perform the entire contract via an interdivisional work order with an affiliate.
GAO found “it was not unreasonable for the agency to conclude that such an arrangement warranted a lower assessment of risk.”
“A corporate affiliate, particularly a wholly-owned subsidiary, as in this case, by its nature reflects an alignment of interests, which can reasonably be understood as ‘closer’ than that of a third-party subcontractor arrangement,” the GAO added.