Subfactor 1 under REP Evaluation Factor 1.0, Management and Operations Plan, reads as follows:

"Initial Staffing and Phase-In.-Provide detailed plans for initial staffing of the entire complement, for making fully operational all Contractor-Furnished Equipment, and Government-Furnished Equipment by contract start, and for other facets ensuring maximum continuity of service to the Government. The initial staffing plans shall include recruiting methods to be utilized, commitments assuring availability of all personnel including the degree of incumbent personnel retention, and planned phasing-in of personnel including initial orientation and training."

NASA contends that the consideration of an offeror's proposed method of applicant screening was not the imposition of a new, unpublished evaluation criterion, as argued by Metro, but rather was an inherent part of the published criteria.

Our Office has held that the major evaluation criteria listed in an RFP need not be broken down to reflect each specific factor actually considered in the detailed evaluation of proposals, so long as there is sufficient correlation between the stated criteria and the factors actually used. See Checchi and Company, B-187982, April 4, 1977, 77–1 CPD 232, and AEL Service Corporation, et al.. 53 Comp. Gen. 800 (1974), 74–1 CPD 217.

Based upon our review of the record, including Subfactor 1, the entire RFP and the argument of Metro, we believe that applicant screening is within the purview of “Initial Staffing and Phase-In" and, therefore, find nothing improper in the SEP's evaluation of the matter.

Secondly, Metro contends that while the SEP downgraded Metro's computerized work order system as being too complicated and more than was needed to perform the contract properly, the SEP did not reduce Metro's cost proposal by the $9,000 proposed cost for the system.

The contracting officer has responded to the above argument by stating that the $9,000 cost ($3,000 per year for the initial 2-year contract plus the 1-year priced option) was nominal, some other type of system would have been necessary to replace the system at some cost and the difference in cost would be inconsequential.

We note that the Source Selection Statement (SSS) finds that cost was not discriminatory in the contractor selection as there was only nominal difference in cost between all five offerors. All offerors' proposed costs were roughly $2.5 million for the 3-year period which was evaluated. Accordingly, even if Metro's costs for its work order system should have been reduced by some amount. even the full $9,000, such cost savings would have been insignificant compared to the total evaluated costs and would not have been sufficient to make cost a discriminator. In addition, it would not have made Metro the low cost offeror, as it alleges.

Thirdly, Metro challenges a finding in the SSS that Metro's technical operations plan did not address the reporting of technical problems which Metro argues was discussed in detail in its proposal. The contracting officer states that, while Metro's proposal did discuss the handling of technical problems, there was no plan as to the notification of NASA personnel when a serious technical problem arose. We have reviewed Metro's proposal and agree that it did not contain such a plan. In view of paragraph 1.2.9 of the Statement of Work in the RFP, which stated, "In the event of probable or actual equipment failure the Contractor shall immediately report to the Government orally and/or in writing specifying possible causes and estimated time for repair," we have no objection to the SEP's criticism of this area of Metro's proposal.

Next, Metro states that it was unfairly criticized in the SSS under the evaluation criteria "Continuing Plan" because it failed to adequately discuss turnover replacement, which portion of its proposal Metro contends it clarified and amplified in response to the following question posed by the SEP: "Explain specifically your plan for replacement personnel for Stationary Steam Engineers and Steam Plant Operators to maintain continuous service coverage during absences of the regular personnel."

Metro alleges that its original proposal and its 6-page submission in response to the above question were more than adequate and that the fact that the SEP continued to downgrade Metro in this area shows that the SEP was sepcifically looking for something upon which to downgrade Merto.

The contracting officer states that Metro was not downgraded for its proposed short-term personnel replacement which was clarified and expanded in its revised

proposal in response to the above question but for a weakness in its permanent personnel replacement plan. Metro treats these two areas as one in its protest, according to the contracting officer, when they were actually two distinct evaluation subcriteria. Metro's short-term personnel replacement plan was unclear in its original proposal and, therefore, the SEP posed the above question to clarify it. However, its permanent replacement plan was clear in its original proposal but contained a weakness in the judgment of the SEP because Merto planned to obtain the advice of the contracting officer's technical representative on potential employees prior to hiring, which was a matter the SEP considered to be the sole responsibility of the contractor.

Our Office has recognized that while an ambiquity or a portion of a proposal which is unclear should be clarified with the offeror, there is no requirement under NASA's negotiation procedures, contained in NASA Procurement Directive 70-15, to point out a weakness or deficiency. Management Services, Inc., 55 Comp. Gen 715, 729 (1976), 76-1 CPD 74.

Accordingly, as Metro was downgraded for an area of its proposal which it did not strengthen in its revised proposal (permanent personnel replacement), not the short-term personnel replacement which it was under the mistaken impression it was downgraded for, our Office has no objection to the evaluation in this

area.

Metro also contends that it was improperly penalized in the evaluation process for failing to discuss the relative authority of critical personnel, when its proposal contained a detailed discussion of the relative authority of key personnel, which, by definition, would include critical personnel. Metro argues that it was downgraded solely because of its choice of terms (key vs. critical).

The REP listed the Contract Manager, Steam Plant Foreman and Air Compressor Plant Foreman as key personnel and the four each Stationary Steam Engineers and Senior Air Plant Technicians as critical personnel. Metro's proposal contained a chart describing the authority and responsibility of the key personnel. There was no corresponding infromation regarding the critical personnel. While Merto states that its choice of terms determined its score in this area, under the terms of the RFP, both phrases had certain meanings and we note that the remaining portion of Metro's proposal employed the terms consistent with the REP. Therefore, as Metro's proposal did not discuss the relative authority of critical personnel, there was nothing improper in NASA's actions.

Metro states that its rating of satisfactory plus under Factor 1.0, Subfactor 1 (Initial Staffing and Phase-In), is inconsistent with the good plus rating it received under Factor 2.0 (Key and Critical Personnel). Factor 2.0 was an evaluation of the actual people proposed for the contract based on their resumes, while Factor 1.0, Subfactor 1, as quoted above, included the manner in which an offeror would start up performance. Therefore, as two different areas were being evaluated, there was no need for the rating to be the same. Upon our review, we find no inconsistency.

Metro also takes exception to the SSS, concluding that Mercury was graded too high on past experience whole Metro was downgraded and not given enough credit for its experience. NASA responds that Metro was given credit for its past performance of the Langley Base maintenance contract but that Mercury was given more points for steam plan and air compressor station facilities services being performed for the Environmental Protection Agency at Research Triangle Park, North Carolina, the same type contract under consideration here. We find nothing improper in this point allocation.

Additionally, Metro argues that it did not receive full consideration as a minority contractor in contravention of various Executive orders and congressional policy. The procurement was a small business set-aside and contained no evaluation factors relating to the minority status of an offeror. Therefore, since an award must be based on the evaluation criteria contained in a solicitation, it would have been improper for NASA to give Metro a competitive advantage due to its minority status.

Metro also questions NASA's award to Mercury during the 10-day period following the debriefing when NASA was aware of a probable protest being filed. Our Bid Protest Procedures only prohibit on award after a protest has been filed with our Office unless certain determinations are made. See 4 C.F.R. § 20.4 (1977). Therefore, as the protest was filed on January 20, 1978, and the award was made on January 16, 1978, our Office finds nothing improper in the action of NASA.

Finally, Metro states that it should have received the SSS substantially in advance of its debriefing instead of obtaining it only 1 hour prior to the debriefing. However, Metro was not prejudiced by its late receipt of the SSS as it did not affect the contractor selection process or the evaluation of the proposals. For the foregoing reasons, the protest is denied.

R. F. KELLY,

Deputy Comptroller General
of the United States.

The CHAIRMAN. If Congressman Wilson is here, I would appreciate it if you would stick around to hear his statement. Mr. EVANS. Thank you, Mr. Chairman.

The CHAIRMAN. I call the Honorable Charles Wilson, a Representative from Texas, as the next witness. I hope the others will pardon me for calling him out of schedule, but Mr. Wilson is a very busy man these days, and we understand that.

STATEMENT OF HON. CHARLES WILSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Representative WILSON. Mr. Chairman, I wish to thank you for allowing me to come before your committee today to testify regarding employee stock ownership plans (ESOP).

I became interested in ESOP's last December, and what I have observed over the past 7 months is, in my judgment, the kind of situation that we are faced with so often in which it is so difficult to nail down proof of bureaucratic malfeasance. Metropolitan Contract Services, Inc., a NASA contractor with a proven record of performance at a savings to Government, was denied a contract renewal because they had an ESOP as urged by Congress. There are three important points that I would like to bring out, and about which I think you should be aware.

No. 1, I was told in December by NASA that there was absolutely no complaint whatsoever with the performance of Metropolitan, that the performance had been good, that they had lived up to their contract and had, indeed, in some instances saved money. Second, during our conversation, I was told that NASA had questions about the value of the stock of this company. They questioned whether or not the stock was really worth as much as the employees were paying for it. I asked NASA whether they were prejudiced basically against the ESOP program or whether they thought somebody might be making too much money, which was really none of their business in my judgment, and I further asked if there were other contractors or subcontractors that had ESOP programs. This is the definitive part of my testimony-they told me there were many, many more. I say, OK, how many are there? And they say, we will write you a letter.

Third, my impression has always been that the intent of Congress was to encourage the use of ESOP's by companies contracting with the Federal Government. The Defense Contract Audit Agency determined in a recent survey that only 15 National Aeronautics and Space Administration contractors out of a total of 2.419 have ESOP's. I have been advised that the number of contractors with ESOP's will soon be reduced, totally disregarding the intent of Congress.

NASA did, in fact, send me a letter as they said they would. They listed 15 of their contractors that had ESOP's and in the past 2 days before I came here to testify, we checked with the treasurers of those 15 companies and found that only 7 of them actually had ESOP's. The others have some sort of a stock option program, which practically every corporation in the United States has, but not an ESOP.

And so, of the 15 that NASA told me had ESOP's out of the 2,419 contractors, there are only 7. And I would just represent to you, that this is, again, a classic example of bureaucrats overstepping their authority, deliberately trying to thwart the will of Congress, nitpicking, and the very thing about which I believe most of the American public is very concerned.

If the bureaucrats do not like a program, or they think somebody is making too much money, they can thwart the will, not only of the people, but of the Congress, and I think that is precisely what has hapened in this case, I believe there is an obvious prima facie prejudice on their part, and I think that any contractor that has an ESOP and tries to do business with NASA is going to have a very, very difficult time.

The CHAIRMAN. The NASA testimony raises the issue of whether the IBEW local played a part in the NASA decision. Do you know anything about that matter?

Does that local have members just working with just one company, or do they have members working with a lot of other competitors in the same area?

Representative WILSON. Oh, IBEW is one of the biggest unions in the country. They, of course, have them everywhere.

The CHAIRMAN. The thought occurred to me that it may be that some of the union officers may have some negative feelings regarding employee stockownership-I just would not know about that. If that had something to do with it, maybe we ought to find out something about that, too.

Representative WILSON. I think so. I would be happy to pursue

that.

The CHAIRMAN. I do not know. I just wondered if you knew anything about it.

Thank you very much. We will do the best we can to get to the bottom of it, Congressman Wilson.

Representative WILSON. Thank you.

The CHAIRMAN. Next we will call Mr. Frederick Neumann, Director of the Defense Contract Audit Agency.

STATEMENT OF FREDERICK NEUMAN, DIRECTOR, DEFENSE CONTRACT AUDIT AGENCY

Mr. NEUMAN. Mr. Chariman, I am Frederick Neuman, the Director of the Defense Contract Audit Agency. With me are Mr. Irving Sandler, on my right here, who is our Assistant Director for Policies and Plans; and on my left is Mr. John Quill, our counsel.

We are here at your invitation to tell you about the Defense Contract Audit Agency and to relate to you some of our views and the work

we perform in connection with the cost of employee stockownership plans.

First, a few words to describe the Agency and its mission.

The Defense Contract Audit Agency was established by the Department of Defense to perform all contract auditing for the Department of Defense and to provide accounting and financial services to contract negotiators and administrators. Our work is advisory to these officials who hold warrants authorizing them to bind the Government.

We do several major things in the course of our advisory services. We evaluate the reasonableness and allocability of estimated costs which are contained on contractor's proposals as they are furnished to the Government for purposes of negotiating Government contracts. We verify the propriety and acceptability of costs charged or allocated to flexibly priced contracts. These are contracts where the final price is based on a cost determination.

And, finally, we do look to detect any inefficient or uneconomical operations requiring correction by contractors in order to avoid the incurrence of excess costs on Government contracts.

In performing our audits, we use standards which are essentially the same as those governing audits performed by the major public accounting firms; that is, those prescribed by the American Institute of Certified Public Accountants. Our audits also conform to the Standards of Audits for Government Agencies, Programs, Activities and Functions which were promulgated in 1972 by the General Accounting Office and applied to the Agency's work by DOD implementation of the OMB Circular No. A-73.

We are a small organization with some 2,800 profesional accountants, many of whom are certified public accountants in the various States, and we are dedicated to assure, as best as we can, that the taxpayers of this country get a dollar's worth of value for a dollar spent in contracting for goods and services.

In performing our reviews, we determine the allowability of costs incurred, or to be incurred, under Government contracts by applying the applicable parts of Defense Acquisition Regulations, formerly called the Armed Services Procurment Regulations. Specifically dealing with ESOP, paragraph 15-205.6 deals with compensation for personal services and it provides the primary acquisition policy to determine the allowability of ESOP's for the Department of Defense. Additionally, DAR paragraph 15-201 stresses such factors as reasonableness of these costs and whether or not they are allocable to Government contracts.

I might add that Public Law 91-379, under which cost accounting standards are developed, is likewise applicable to this set of circumstances to determine what costs are properly assignable to defense

contracts.

OMB Circular No. A-73 requires all audit organizations to perform audit services for other executive branch activities wherever that would be the most economical and efficient way to obtain the needed audit. Accordingly, and as authorized in our own charter, which is DOD Directive 5105.36, we provide contract audit services to about 25 other Federal agencies at those contractor locations where DOD has a continuing audit interest, or where it is economical from a Government-wide point of view.