Army weighs options as GAO sustains protests of logistics contract

The Army is considering whether to reopen the source selection process for the $150 billion Logistics Civil Augmentation Program (LOGCAP) IV contract after a congressional watchdog sustained the protests of two losing bidders.

Last week, the Government Accountability Office announced that it had upheld protests from two teams that had lost out on the massive 10-year overseas logistics contract: IAP Worldwide Services Inc. and Contingency Management Group LLC.

In June, the Army's Sustainment Command awarded the fourth version of its LOGCAP contract to three firms: the incumbent contractor, KBR of Houston; former contract holder DynCorp International LLC of Fort Worth, Texas; and Fluor Intercontinental Inc. of Greenville, S.C. Protests were filed the following month.

GAO found that the Army badly mishandled the evaluations of the five proposals. The awards were to be made based on a best value basis, considering such factors as management, past performance, technical approach and cost.

Specifically, the proposals were based on a hypothetical scenario involving the delivery of services in Sierra Leone. The technical approach outlined in Fluor's proposal contained material that differed substantially from the solicitation's scenario, however, and the Army failed to consider this discrepancy in its evaluation, according to GAO.

"We found that the agency's evaluation of Fluor's technical proposal was unreasonable and evidenced unequal treatment," GAO said in a statement.

GAO added that the Army "misunderstood" KBR's technical proposal for providing equipment "and evaluated this approach in a manner that was inconsistent with its evaluation of another offeror."

The Army also did not consider comments from the Defense Contract Audit Agency concerning KBR's business system and failed to properly explain how it had evaluated the contractors' proposed staffing concerning the use of Iraqi workers, expatriates and third-country nationals, the statement said.

GAO recommended that the Army request revised proposals from all five bidders and use the submissions to make a new source selection. If one or more of the original three winners is not selected, the old award should be "terminated" and a new contract let to the successful offerors, the statement said.

The department has not released a public version of its protest decision because the ruling "contains proprietary and source-selection-sensitive material" and is under protective order. The protest ruling was issued on Oct. 5; a public version is expected at a later date.

Army spokesman Daniel Carlson said the service was "reviewing the [decision's] impact and evaluating our options. We will continue to support our troops in the field through our LOGCAP III contract while we work through this issue."

LOGCAP III, signed in 2001 and held exclusively by KBR, expires in December, although the Army could exercise an option and extend it if needed.

KBR said it was "disappointed" with GAO's decision and was awaiting direction from the Army for its next move.

"KBR has a proven track record of providing our customer, the U.S. Army, with quality service under the LOGCAP III contract," said spokeswoman Heather Browne. "Our service to the troops is unmatched, and we remain proud of the work we have performed. We will continue to provide the service that is expected of us under the LOGCAP III contract and look forward to the opportunity to provide service under LOGCAP IV."

In a statement, IAP Worldwide Services said the ruling confirms that the firm's proposal "provided best value to the government, and reflected the ability of IAP and its team members to deliver services reliably, effectively and efficiently to the U.S. Army."

IAP heads up a contractor team that includes industry behemoths such as Blackwater Worldwide, CACI International Inc. and Lockheed Martin Corp. Contingency Management Group, created to compete for the LOGCAP IV contract, is comprised of AECOM Government Services, PAE Government Services and Shaw Group.

The use of multiple contractors on LOGCAP IV is a departure from the sole-source strategy the Army has employed since it first awarded the logistics contract in 1992.

The Army said the move would enhance competition on individual task orders and reduce the risk of relying on a single provider. The Army has paid KBR roughly $23 billion under the current LOGCAP contract, but federal auditors have uncovered at least $1 billion in disputed costs.

The three prime contractors will compete to deliver fuel, water and food, as well as field operations such as postal services, laundry and sanitation, to troops in Iraq, Afghanistan and Kuwait.

The indefinite quantity, indefinite delivery contract has a one-year base with nine option years that could be worth up to $150 billion. The three companies are each capped at $5 billion per year, although the Army does not expect the firms to reach the maximum value in any given year.

Previous LOGCAP incarnations relied primarily on cost-plus task orders in which the Army and the contractor negotiated a price based on an estimate and adjusted the cost as needed. The government then paid the contractor a base reimbursement fee -- typically 1 percent -- on each task order and an added 2 percent award fee if the work was done efficiently and honestly.