Link: GAO Opinion
Agency: Department of Defense
Disposition: Protest denied.
Keywords: Price Realism; Fixed Price Contract
General Counsel P.C. Highlight: An agency may, in its discretion, provide for a price realism analysis for the purpose of assessing whether an offeror’s price is so low as to evince a lack of understanding of the contract requirements or for assessing risk inherent in an offeror’s approach. However, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or risk associated with their proposal.
Analytic Strategies protests the award of a contract under a request for proposals (RFP), issued by the Department of Defense, for analytical and information technology support services.
The RFP, issued as a total small business set-aside, provided for the award of a fixed?price contract, with a base period of one year and four one-year option periods. Award would be made to the offeror submitting the proposal determined to represent the best value to the government based upon the following evaluation factors: technical approach, personnel, past performance, organizational capacity, management approach, and price.
Analytic Strategies’ proposal was evaluated as “confidence” under the past performance factor, “acceptable” under the technical approach, personnel, organizational capacity and management approach factors, and “acceptable” overall, at a proposed price of $4,616,475. The contracting officer noted in the source selection decision that Analytic Strategies’ “low price was the result of very low labor rates which were determined to be unrealistic for the approach proposed.”
Analytic Strategies argues that the solicitation did not provide for a price realism evaluation, and that the agency’s evaluation of the protester’s proposed price for realism was thus inconsistent with the solicitation’s terms. GAO states that before awarding a fixed-price contract, an agency is required to determine whether the price offered is fair and reasonable. An agency’s concern in making this determination in a fixed-price environment is primarily whether the offered prices are too high, as opposed to too low, because it is the contractor and not the government that bears the risk that an offeror’s low price will not be adequate to meet the costs of performance. An agency may, in its discretion, provide for a price realism analysis for the purpose of assessing whether an offeror’s price is so low as to evince a lack of understanding of the contract requirements or for assessing risk inherent in an offeror’s approach. However, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or risk associated with their proposal. Where a solicitation for a fixed-price contract omits a provision for realism but requests detailed cost or pricing information, GAO has found that an agency may properly consider whether an unreasonably low price poses proposal risk if the solicitation, in either the technical or price factors, provides for the evaluation of an offeror’s understanding of the requirements. Conversely, where the solicitation lacks either a technical or price evaluation factor that provides for the offerors’ understanding of the requirements, and the solicitation also does not require detailed cost or pricing information, then the agency may not consider whether unreasonably low prices pose proposal risk.
The RFP required that price proposals include price information as well as considerable direct and indirect cost information. The solicitation also provided that the proposals would be evaluated under the price factor for understanding and consistency with the offeror’s proposed approach to contract performance. Accordingly, the RFP provided adequate notice to the offerors that low prices could be considered as reflecting on their understanding or risk associated with their proposals. In evaluating price proposals, the agency analyzed “the proposed labor mix and skill associated with the provided labor rates and fixed unit prices . . . to determine if the prices proposed” were “reasonable and realistic for the type of work proposed.” In doing so, the agency calculated a blended labor rate for each offeror, and compared each offeror’s blended labor rate to the blended rates of the other offerors and the agency’s independent government cost estimate (IGCE). The record reflects that the blended labor rates of all of the offerors, other than Analytic Strategies, were relatively close to each other and to the IGCE. Analytic Strategies’ proposed blended labor rate was significantly less than those proposed by the other offerors and the IGCE. The record reflects that the agency did not select Analytic Strategies’ proposal for award because of the performance risk posed by its low pricing, a determination which GAO has found to be reasonably based. The protest is denied.