Link: GAO Opinion
Agency: Department of the Army
Disposition: Protests denied.
1. Protest that agency’s price evaluation of awardee’s low fixed-price was not in accordance with the solicitation criteria is denied where the record shows that the agency reasonably determined that awardee’s price was reasonable and realistically reflected the awardee’s understanding of the complexity and risk associated with the requirement.
2. Protest that agency failed to conduct meaningful discussions is denied where agency was not required to hold discussions regarding protester’s indirect labor rates, or its fuel, maintenance and insurance costs for vehicles, where these rates and costs were not considered a significant weakness or deficiency and did not prevent the protester from having a reasonable opportunity for award.
General Counsel P.C. Highlight:
The RFP provided that price would be evaluated using price and/or cost analysis techniques to determine the reasonableness and completeness of each offeror’s proposed coefficient. The RFP stated that the government was interested in proposals that offer value in meeting the requirements, with an acceptable performance risk, at a fair and reasonable price. GAO states that price realism is not ordinarily a consideration in fixed-price contracts, since the risk of performing the contract at the proposed price is borne by the contractor. Here, however, the agency elected to use a price realism review not to evaluate prices, but to assess the risk of poor performance in an offeror’s approach and to measure each offeror’s understanding of the solicitation’s technical requirements. The manner in which a price realism analysis is conducted is a matter subject to a contracting agency’s sound discretion, which GAO will not disturb unless it lacks a reasonable basis.
Here, the agency’s price realism analysis was reasonable. DMS’s protest is primarily based on its belief that the agency simply compared the proposed coefficients and did not consider He & I’s substantial reductions in price over the course of this extended procurement. DMS also contends that He & I’s price coefficient does not contain all the elements required by the RFP. The record shows that the agency specifically determined that each offeror’s total proposed coefficients were realistic based on each offeror’s understanding of the complexity and risk associated with the requirement. In this regard, the price analysis recognized that He & I calculated its coefficient factors using the latest five years of actual historical cost figures derived from 222 actual job order contract projects at Fort Sill, as well as using the 2009 Means Facility Construction Cost Data. In fact, the agency specifically found that He & I’s proposal actually posed significantly less risk than the other proposals. To the extent that DMS argues that He & I omitted certain cost elements from its coefficient calculation, DMS’s complaint amounts to no more than a challenge to He & I’s submission of a below-cost proposal. Such a complaint does not provide a basis for protest as there is no prohibition against an agency’s decision to accept a below-cost proposal on a fixed-price contract.
DMS next argues that the Army failed to engage in meaningful discussions by neglecting to bring to DMS’s attention two pricing issues, one regarding its indirect labor rates, the other regarding its gas, maintenance and insurance costs for vehicles. DMS also contends that the discussions were unequal in that the agency failed to mention to DMS its concerns with DMS’s price proposal, but directed He & I to specific deficiencies and areas of concern with respect to He & I’s price proposal. GAO states that it is a fundamental precept of negotiated procurements that discussions, when held, must be meaningful; that is, discussions may not mislead offerors and must identify deficiencies and significant weaknesses in each offeror’s proposal that could reasonably be addressed in a manner to materially enhance the offeror’s potential for receiving award.
The record shows that the Defense Contract Audit Agency’s (DCAA) initial price evaluation report noted that DMS’s indirect salary rates were, on average, [DELETED] percent higher than similar salaries in the same geographical area. The DCAA review noted that a lack of exact matches for the labor categories proposed by DMS could account for the differences. In a later price evaluation of DMS’s revised proposals, the DCAA noted that DMS’s indirect salaries were, on average, [DELETED] % higher than expected. With respect to the fuel, maintenance and insurance costs for vehicles, the DCAA review noted–both initially and in subsequent reviews–that DMS’s costs for these items appeared to be overstated. The record also shows that the agency did not consider DMS’s indirect labor rates or its other non-labor costs (such as fuel, maintenance and insurance costs for vehicles) to be a proposal deficiency or weakness. In fact, the contemporaneous evaluation record shows that the agency consistently concluded that DMS’s price was reasonable and that DMS demonstrated an understanding of the complexity of the requirement and the associated risks.
Although agencies are required to advise offerors through discussions of significant weaknesses or deficiencies in their proposals, agencies need not inform an offeror that its costs are not as competitive as those of another offeror. Accordingly, if an offeror’s costs are not as high as to be unreasonable and unacceptable for contract award, the agency may conduct meaningful discussions without raising the issue of the offeror’s price. Notwithstanding DCAA’s reports concerning the DMS indirect labor rates and vehicle-related costs, DMS’s prices were not evaluated as either unreasonable or unrealistic and, in fact, the record shows that DMS’s price was only slightly higher than the awardee’s. The agency was not obligated to advise DMS that its proposed prices were slightly higher than the awardee’s, and therefore we find that the agency’s discussions with DMS were adequate.
Finally, there is no evidence in the record that discussions were misleading. DMS maintains that because He & I lowered its prices over the course of this procurement, the agency must have coached He & I to lower its prices when asking the company for detailed cost breakdown information. The record simply does not support this allegation. Specifically, the record shows that because of He & I’s initial failure to provide a detailed cost breakdown, the agency was unable to perform a price realism analysis of He & I’s proposed coefficient. The agency simply requested He & I to provide the necessary cost breakdown for each price proponent that supported He & I’s proposed coefficient. The agency did not make any specific suggestion concerning the competitiveness of He & I’s price proposal but merely advised He & I on the items to be included, such as, materials, direct labor, overhead and profit. The protests are denied.