SMS Data Products Group, Inc.

The procurement

CAOC communications support for U.S. Air Forces Central Command, competed as a task order under the Army's RS3 multiple-award IDIQ contract, with fixed-price labor and cost-reimbursable travel, materials and equipment. After a pass/fail phase, the management and staffing plan was weighed against price. All three offerors were rated Outstanding: Trace Systems Inc. at $121,396,298, MicroTechnologies at $151,254,337, and SMS at $199,589,312. Trace won.

The protest

The FOPR incorporated FAR 52.222-46. The Air Force compared professional labor rates with the incumbent's and flagged those more than 8 percent below. Six of Trace's nine professional rates were initially flagged; after an interchange notice, one remained, at 11.2 percent below, and the agency accepted it. SMS argued the Air Force never analyzed whether Trace could keep qualified professionals while paying less than the incumbent.

The agency’s answer

The Air Force said its compensation evaluation was reasonably based, not arbitrary, and consistent with the solicitation and applicable regulations. It treated rates within 8 percent of incumbent rates as within a realistic range, used an interchange notice to address the rates that fell further below, and described its review as an in-depth price realism evaluation under FAR 52.222-46.

What decided it

The agency flagged only rates over 8 percent below incumbent pay and never explained that line or tested retention at lower pay.

GAO found the Air Force mechanically flagged only rates more than 8 percent below incumbent rates, with nothing in the record explaining or supporting that baseline, and no rationale for why a firm could maintain program continuity, high-quality work and competent staff while paying up to 8 percent less. GAO also sustained a separate ground that the Air Force ran a supplier risk report instead of the price risk analysis DFARS 252.204-7024 requires, denied SMS's other grounds, and recommended reevaluation, a new tradeoff and selection decision, and reimbursement of SMS's protest costs.