Agency: Department of the Navy
Disposition: Protest Denied
Decided: May 12, 2020
Keywords: Unbalanced Pricing, Price Realism
General Counsel P.C. Highlight:
Protest alleging that awardee’s pricing is unbalanced is dismissed where the protester fails to make the threshold showing that one or more of the awardee’s prices was overstated and where the agency reasonably determined that the risk of unbalanced pricing was low.
Summary of Facts
Mancon, LLC protests the award of a contract to Noble Supply and Logistics, Inc. (Noble) under RFP No. N00189-18-R-0007, issued by the Department of the Navy for materials and logistical services. The RFP stated that the proposal would be evaluated under four factors, including price. The total evaluated price was to be calculated by adding the offeror’s proposed prices for: services for each year of performance; test market basket, comprising items commonly sold at the Navy stores in Crane; and the total material price, reflecting discounted commodity groups. In addition, offerors were to include any pricing catalogs they referenced. The RFP instructed that price was to be evaluated for reasonableness and the method of evaluation was “solely within the discretion of the contracting officer.”
The agency received timely proposals from five offerors, including Noble and Mancon. Noble’s proposed price for services was lower than the Independent Government Estimate (IGE) and significantly lower than all the other offerors. Noble’s proposed prices for commodities and discounted commodities were also lower than those of other offerors, and its overall test market basket price was significantly lower than the prices of all the other offerors. Mancon’s proposed price for services was higher than the IGE and similar to those proposed by other offerors. However, the solicitation did not provide for a price realism evaluation and under the fixed-price contract, the contracting officer (CO) noted that “the burden of risk is placed on the contractor to ensure that the requirements of the contract are met at the price proposed.”
The CO then conducted an unbalanced pricing evaluation of Noble’s test market basket items by comparing the unit prices of each item identified in Noble’s test market basket to other offerors’ prices and commercially available pricing. The majority of Noble’s items were lower than the average of the other offerors’ prices, while 8 items were priced higher. After conducting market research, the CO found comparable pricing for five of the 8 items, but was unable to find comparable pricing for the remaining 3. She concluded that “the overall risk of unbalanced pricing is low” and that Noble’s proposal provided the best value to the government. On January 14, 2020, the Navy awarded the contract to Noble and Mancon filed this protest.
Basis of Protest
Mancon asserts that the Navy’s evaluation of Noble’s price proposal was unreasonable because the agency failed to adequately consider the risks posed by Noble’s unbalanced pricing scheme, and its unrealistically low prices.
GAO explained that “unbalanced pricing exists where the prices of one or more line items are significantly overstated or understated, despite an acceptable total evaluated price (typically achieved through underpricing of one or more other line items).” GAO noted that “to prevail on an allegation of unbalanced pricing, a protester must show that one or more prices in the allegedly unbalanced proposal are overstated; it is insufficient for a protester to show simply that some line item prices in the proposal are understated.” While both understated and overstated prices are relevant to the existence of unbalanced pricing, the primary risk is the overstatement of prices. Low prices are not improper, do not necessarily provide risk to the Government and do not, in themselves, establish unbalanced pricing.
GAO further explained that “if there is an unbalanced offer, the agency is required to consider the risks to the government that the unbalancing will result in unreasonably high prices during contract performance.” GAO reviews agency determinations regarding unbalanced prices for reasonableness.
Here, while Mancon alleges that Noble’s prices for a few items in its catalog were outrageous, GAO found that the examples provided by Mancon do not concern Noble’s test basket items. The RFP established a price evaluation methodology based on the test market basket and the total material price. The prices in offerors’ catalogs were not part of the evaluation of price, so GAO concluded they cannot form the basis of an unbalanced pricing allegation.
Moreover, GAO found that while Mancon provided a few examples of Noble’s allegedly excessive prices, Mancon’s central allegation is that Noble’s prices were unrealistically low. GAO noted that this argument essentially is challenging the realism of Noble’s prices. However, the RFP did not provide for a price realism evaluation, and “absent a price realism provision, there is nothing objectionable in an offeror’s proposal of low, or even below-cost, prices.” Moreover, the Agency cannot conduct a price realism analysis if the RFP does not provide for this evaluation.
Finally, GAO found that the CO identified and considered the minimal evidence of unbalanced pricing in Noble’s proposal. Specifically, she found that 3 of the 303 items identified in Noble’s test market basket were higher than items proposed by other offerors and concluded they represented an insignificant percentage of the test market basket and “are not expected to place the Government at significant risk of paying unbalanced prices.”
GAO concluded that the Navy satisfied the FAR’s requirements to conduct an unbalanced pricing analysis and reasonably determined that the risk posed to the government was not significant enough to render Noble’s proposal unacceptable.
The GAO denied the protest on this basis.