In the Matter of: HUMAN RESOURCES COMPANY, INC. Appellant.

DHSS/Div. of Administrative Services RFP No. 97-0012 Case No. 97-009

The Department of Health and Human Services [DHSS] issued RFP 97-0012 on May 5, 1996. It requested proposals to provide foster parent training. Responses were due June 7, 1996. Three firms responded. DHSS issued a notice of intent to award the contract to Northwest Resource Associates, the existing contractor. Human Resources Company, Inc., [HRC] another respondent, protested. The protest was upheld. [1]

HRC requested an award of costs as the prevailing party. [6/3/97] The Commissioner advised HRC that the request was governed by AS 36.30.585 and he referred the matter to a hearing officer. [7/3/97]

HRC thereafter submitted an itemized statement containing these items: [2]

1. Proposal Preparation and Writing Laura Kelley, 106 hrs. @$125/hr. Jan Tatlow, 29.5 hrs. @$48/hr. 2. Copying and Binding 3. Express Mail 4. Travel (Anchorage to Juneau) 5. Hotel and Meals 6. Attorney costs, 15 hrs. @$150/hr. Total

$13,250.00 $1,416.00 $78.47 $58.30 $998.00 $442.00 $2,250.00 $18,492.77

DHSS objected that HRC had failed to provide adequate documentation of the claimed proposal preparation costs, in that it was "quite difficult... to determine how many hours each day were ostensibly devoted to preparing the foster parent proposal, [and] there is no evidence of what tasks were actually accomplished during the specified hours." [Obj. at 3] DHSS also objected that there was "no...evidence that [Ms. Kelley's] fee is reasonable..." [Obj. at 4] DHSS suggested using the wage rates proposed by HRC for these employees in its proposal as the measure of the "reasonable bid preparation costs." [Id.] DHSS also objected that the total cost, including the wage rate and the time spent on preparation of the proposal, was excessive, in light of the fact that only 41 pages of the proposal represented "original material". [Obj. at 4-5] Finally, DHSS objected that the costs and attorney's fees incurred in the RFP protest and appeal are not recoverable. [Obj. at 5-6]

A costs bill hearing was held on September 23, 1997, at which the parties argued their position. Neither submitted additional documentation. [3]

A. Attorney's Fees and Other Costs of Protest.

HRC argues that the purported failure of DHSS to provide a protest review means that the first time its proposal and protest was "fully and actually considered" was at the appeal stage, before the hearing officer. It argues that "[t]his unusual set of circumstances is one of the issues supporting HRC's claim that attorney fees and costs should be added to proposal preparation costs." [undated, received 7/28/97]

This argument does not justify awarding attorney's fees and other costs incurred in connection with the protest and the appeal as an element of damages. Expenses incurred in connection with a protest and appeal are completely unrelated to proposal preparation. Nothing about this case made such expenses "unusual": they are the same expenses any protester incurs. In contract litigation at common law, the cost of obtaining a judicial remedy is not an element of the recoverable damages. Similarly, in the case of public contracts, the cost of obtaining administrative relief is not an element of the recoverable damages. AS 36.30.585(c). [4]

Whether such expenses are recoverable as costs, rather than as damages, is a different question. Although AS 36.30.585(c) expressly limits damages, it does not specifically address costs incurred in pursuing a protest. Because the Model State Procurement Code, which was the basis for the Alaska Procurement Code, expressly precludes an award of attorney's fees incurred in connection with a protest, [5] and because substantial constitutional issues would be raised by an award of costs incurred in an administrative proceeding in the absence of specific statutory authority, [6] I conclude that AS 36.30.585(c) should be interpreted as barring an award of costs incurred in pursuing a protest.

B. Reasonable Costs of Proposal Preparation.

1. Employee Time.

The cost of an employee's time in preparing a proposal is a recoverable cost, even though no payment to a third party is involved. See, Diverco, Inc., Comp. Gen. Dec. B-240639.5 (May 21, 1992), 7 Comp. Gen. Par. 106,647 (CCH). However, the cost of the employee's time is not measured by the amount that the employee could have earned in performing similar work for a third party. Rather, it is the actual cost to the employer, as measured by the employee's actual wage rate, together with a reasonable amount for overhead and fringe benefits. See, W.S. Spotswood & Sons, Comp. Gen. Dec. B-236713.3 (July 19, 1990), 5 Comp. Gen. Par. 104,554 (CCH).

In this case, counsel for HRC represented at the costs bill hearing that the claimed rate of $125 per hour for Ms. Kelley is the amount that she can earn in providing similar services to third parties. It is plainly not her actual rate of compensation at HRC, nor has HRC established the actual rate of compensation paid to Ms. Tatlow. [7] The median wage in Anchorage/MatSu for writers and editors is $17.88; for purchasing agents it is $22.50; for sales representatives, $16.19; and for attorneys, $32.35. [8] I find that the reasonable value of the services rendered by Ms. Kelley and Ms. Tatlow is $23.43 per hour, which is the rate at which HRC offered to provide their services to DHSS.

2. Hours Claimed.

The degree of documentation that is necessary to support a claim for proposal preparation costs varies with the circumstances. In this case, I find that the documentation submitted is adequate. Although the calendars are difficult to decipher, they do contain entries indicating the hours worked and in some cases the nature of the activity. The cost component of HRC's proposal was $414,288 for one year, with a potential for two additional years at the same amount. It is reasonable to expect that the amount of time spent in preparing a proposal of this magnitude would be substantial. Developing a responsive proposal would require review and careful analysis of DHSS's 31 page RFP and the attachments to it, planning for the preparation of a foster parent training curriculum, ensuring that adequate space and personnel to provide the services could be obtained, developing a budget, and similar preparatory work, in addition to actually drafting a proposal. I have independently reviewed the RFP and HRC's proposal. I find that the amount of time claimed was reasonable.

I recommend that HRC be awarded $3,174.77, representing $23.43 per hour for a total of 135.5 hours, for the cost of personnel in preparing the proposals, and $136.77 for out of pocket costs (copying, binding and delivery), for a total award of $3,311.54.

DATED this 21st day of October, 1997.

______________________________
Andrew M. Hemenway
Hearing Officer

1. HRC objected that the process had unfairly favored the existing contractor. The hearing officer concluded that "HRC was not treated fairly in the request for proposal process, the evaluation of their proposal and particularly in the handling of their protest and appeal." [Dec. at 6] The contract award was not vacated. However, the hearing officer made a number of recommendations for the award of the next contract, intended "to ensure a level playing field for all participants." [Id. at 7]

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2. An earlier itemized statement included 105 hours for Ms. Kelley, as well as 25 hours for Ms. Tatlow at the rate of $45 per hour. The amounts for copying and express mail were $70.07 and $50.00, respectively. The discrepancy in the two statements has not been explained.

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3. The procedures set forth in Civil Rule 79 were adopted by the hearing officer. [8/1/97] Pursuant to the Civil Rule 79(c) (1) and the hearing officer's letter, the hearing was restricted to argument and the submission of documentary materials.

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4. The conceptual basis for the award of proposal preparation costs to a prevailing protester is that these costs represent the appropriate measure of damages for breach of the implied contract of fair consideration of the proposal. See, King v. Alaska State Housing Authority, 633 P.2d 256, 263 (Alaska 1981). AS 36.30.585(c) reflects that rationale.

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5. Model State and Local Procurement Code, Section 9-101(7) & Commentary at (7). The Alaska Procurement Code, as initially submitted to the legislature, was "based on the Model Procurement Code." 1986 Senate Journal at 1550 (Report of the Senate Select Interim Committee on Procurement Practices and Procedures).

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6. An agency's authority to award costs implicates two constitutional doctrines: separation of powers and the delegation doctrine. See, e.g., People v. District Court, 808 P.2d 831, 835-36 (Colo. 1991); Cohn v. Department of Corrections of Washington, 895 P.2d 857, 859-60 (Wash. App. 1995). The judicial branch, because of the doctrine of separation of powers, may not award costs for proceedings before an administrative agency in the absence of specific statutory authority. State v. Smith, 593 P.2d 625, 630-31 (Alaska 1979). In Stepanov v. Homer Electric Association, 814 P.2d 731, 737 (Alaska 1991), the court held that the Alaska Public Utilities Commission, because it is an administrative agency whose powers are "essentially regulatory", may not award costs to a party to proceedings before it in the absence of specific statutory authority. Arguably, Stepanov does not preclude an award of attorney's fees in the absence of specific statutory authority by an agency whose powers are not "essentially regulatory," although clearly no agency could actually compel payment of such an award in the absence of an appropriation for that purpose.

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7. Indeed, there is no evidence in the record to establish that Ms. Kelley or Ms. Tatlow was paid any amount at all for their work in preparing the proposal. Ms. Kelley's calendar pages indicate that she performed all of her work in the early morning hours, in the evenings, and on weekends. She was apparently engaged in full time employment with the University of Alaska Anchorage during the period in question. [HRC Prop. at Attachment G] DHSS, however, has not objected to payment of a reasonable sum for the services provided.

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8. Alaska Department of Labor, "Alaska Wage Rates 1996" at 17 (April, 1997).

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