Agency: Department of the Navy
Disposition: Protest Sustained
Decided: September 3, 2020
General Counsel P.C. Highlight: An agency may include in a solicitation a provision providing for a price realism evaluation, but where a solicitation merely reserves the agency’s right to conduct a price realism analysis, the agency is not obligated to conduct such an analysis.
Summary of Facts
Patronus Systems, Inc., a service-disabled veteran-owned small business (SDVOSB), protests the award of a contract to W&W Protection, LLC (WWP), under RFP No. N69450-19-R-1830. The RFP was issued by the Department of the Navy, Naval Facilities Engineering Command for guard services.
The RFP was issued on July 11, 2019 as an SDVOSB set-aside. The solicitation contemplated award of a single fixed-price contract with a 1-year base period and four 1-year option periods. The solicitation provided that award would be made to the lowest-priced technically acceptable offeror. The agency would evaluate offerors’ prices for reasonableness and balance and the price evaluation may consider whether prices are realistic in relation to the work to be performed, reflect a clear understanding of the requirements, and are consistent with other portions of the proposal. The solicitation indicated that a price that is found either unreasonably high or unrealistically low in relation to the proposed work may be indicative of an inherent lack of understanding of the solicitation requirements and may result in the overall proposal not being considered for award.
The Navy received nine timely proposals and made award without discussions to Patronus on November 27. An unsuccessful offeror submitted a timely agency level bid protest challenging the award, and the agency took corrective action. As part of its corrective action, the agency reevaluated initial proposals and established a competitive range with four offerors. In both the initial evaluation and the post-corrective action reevaluation, the Navy assessed Patronus’s proposal as technically acceptable with one weakness and WWP’s proposal as technically unacceptable with two deficiencies. The Navy conducted discussions and requested final revised proposals (FRPs).
The technical evaluators found that Patronus and WWP addressed the deficiencies in their initial proposals, and both proposals were technically acceptable. The agency also found both Patronus’s final proposed price of $8,633,455 and WWP’s final proposed price of $7,132,548 to be reasonable and balanced. Based on the evaluation record and in accordance with the solicitation, the source selection evaluation board (SSEB) recommended award to WWP, the lowest-priced technically acceptable offeror. The source selection authority (SSA) concurred in the technical and price evaluation findings and the SSEB’s recommendation. The SSA selected WWP for award, and recommended terminating for convenience the contract awarded to Patronus in November 2019. Patronus submitted this protest.
Basis of Protest
Patronus made two protest arguments: 1) that the Navy failed to conduct a price realism analysis; and 2) that the evaluators ignored inconsistencies between the labor hours proposed in the awardee’s technical and price proposals.
Protest Sustained on the Second Argument
GAO explained that when awarding a fixed-price contract, an agency is only required to determine whether offered prices are fair and reasonable. Price realism considers whether or not an offeror’s proposed price is too low. (Price Realism is different than Price Reasonableness, which you can read about here). GAO noted that price realism doesn’t necessarily need to be considered in evaluating proposals for the award of a fixed-price contract, because such contracts place the risk of loss on the contractor rather than the government. However, GAO explained that an agency may include in a solicitation a provision providing for a price realism evaluation to assess whether an offeror’s low price reflects a lack of understanding of the contract requirements or the risk inherent in a proposal.
Previous GAO decisions have concluded that “a solicitation’s express statement that unrealistically low prices may serve as a basis for rejection of a proposal included an implicit requirement for an agency to consider whether offerors’ prices were in fact unrealistic.” Patronus argues that the solicitation’s express statement regarding rejection of proposals with unrealistically low prices similarly obligated the Navy to perform a price realism analysis.
However, the Navy contends that the solicitation language here is distinguishable from the language discussed in previous GAO decisions. GAO explained that when a protester and agency disagree over the meaning of solicitation language, GAO resolves the matter by reading the solicitation as a whole and in a manner that gives effect to all of its provisions. GAO noted that the interpretation of the solicitation advanced by Patronus is unreasonable because it fails to take into account all the solicitation language. GAO determined that Patronus’s interpretation that the agency was obligated to perform a price realism analysis ignores the first sentence of the paragraph providing that the agency “may consider whether prices are realistic.” Read as a whole, the solicitation “clearly provide[s] that the agency reserved its right to conduct a price realism analysis, and if, and only if, the agency chose to conduct such an analysis could unrealistically low pricing form the basis for rejection of a proposal.” GAO concluded that “where a solicitation merely reserves the agency’s right to conduct a price realism analysis, the agency is not obligated to conduct such an analysis.” GAO denied this protest allegation.
Evaluation of WWP’s Proposal
As part of their management and technical approaches, the solicitation required offerors to include an organizational chart identifying “the direct and indirect labor hours and associated trade classification required to meet all requirements of the RFP.” Patronus argues that the Navy unreasonably ignored inconsistencies between the number of labor hours proposed in the WWP’s technical and price proposals. The solicitation provided that any inconsistency, whether real or apparent, between proposed performance and price must be clearly explained in the price proposal.
GAO noted that the SSEB found the number of labor hours proposed by WWP in the technical portion of its FRP to be inconsistent with the number of labor hours proposed in the price portion of its FRP. The SSEB did not find that WWP’s proposal adequately explained any inconsistencies, but concluded that “[a]lthough staffing levels between the price proposal and non-price proposal are conflicting, either demonstrates adequate staffing and it does not result in a change to the results of the evaluation.” Thus, the Navy maintains that the inconsistencies the SSEB found did not need to be resolved because the SSEB did not have any concerns about the noted inconsistencies as they were not considered an “indication of [WWP’s] failure to meet the minimum contract requirements.”
GAO concluded the Navy’s argument was unpersuasive. GAO also concluded the technical evaluators’ assessment of the hours proposed by WWP, as well as the SSEB’s reliance on the technical evaluators’ conclusion, was unreasonable. The Navy further argues that Patronus did not suffer any competitive harm from its treatment of the alleged discrepancies in WWP’s FRP because the SSEB also found that Patronus proposed different amounts of labor hours in the price and non-price portions of its FRP, and similarly concluded that these inconsistencies did not raise any concerns. GAO determined that while the record does reflect that the agency treated both offerors similarly, GAO couldn’t conclude that this rendered the agency’s evaluation reasonable.
GAO noted that the solicitation established a method for resolving discrepancies within an offeror’s price proposal, but was silent as to how any inconsistencies between an offeror’s price and technical proposals would be resolved, other than to require offerors to clearly explain such inconsistencies. Without resolution of the alleged discrepancies between the offerors’ technical and price proposals it is unclear how the agency and either offeror could reach a meeting of the minds regarding the terms of any resulting contract.
The GAO sustained the protest on this basis. GAO recommended that the Navy reevaluate proposals in a manner consistent with this decision, and make a new source selection decision based on that reevaluation.