Link: GAO Opinion
Agency: Army Corps of Engineers
Disposition: Protest denied.
Keywords: Unbalanced bidding
General Counsel P.C. Highlight: In a bid that includes separate line items, each line item must be reasonably and fairly priced and cannot be overstated or understated in a way that gives the contractor excessive advanced payments, even where the overall price is fair and reasonable. But, the Government is free to accept an unbalanced bid if a risk analysis shows that there is not an unacceptable level of risk involved in accepting the bid. FAR § 15.404-1(g)
After issuing an invitation for bids (IFB), the U.S. Army Corps of Engineers awarded a contract to CJW Construction, Inc. for excavation and dredging related work at Camp Pendleton in California. JND Thomas Company, Inc., the second lowest bidder, protested that the awardee’s bid was materially unbalanced and posed an unacceptable risk to the government.
Generally, unbalanced pricing exists where the prices of one or more line items are significantly overstated or understated, despite an acceptable total evaluated price. In the present case, JND asserted that for certain items CJW’s figures were higher than other bidders’ prices and higher than the agency’s independent government estimate (IGE). JND also claimed that CJW’s figures for certain line items were lower than the IGE and all other bids and insufficient to cover the cost of performing the work. Where the overstated line items are at the front end of a contract and the understated ones at the back end, the contractor receives more money early in the contract, essentially as advance payments, and creates a risk that the understated items at the end of the contract will not be completed or not performed adequately.
GAO did not find any evidence of unbalanced bidding here. While some prices were higher than JND’s and the IGE’s bids, CJW’s prices were not the highest of all the bidders. For the prices that JND claimed were too low, GAO accepted CJW’s explanation that it would cover its costs through the sale of salvaged material.
Even in instances where a bid is determined to be unbalanced, an agency need not reject the bid if it determines that the award of the contract will not result in the government paying an unreasonably high price for the performance or otherwise present an unacceptable level of risk. Here, the Corps of Engineers performed a risk assessment based on past-performance and based on estimates made by CJW in its bid. It concluded that there was not a significant risk of non-performance and not a significant risk of paying unreasonably high prices by awarding the contract to CJW. As such, JND’s protest was denied.