Link: GAO Opinion
Agency: Department of the Interior, National Park Service
Disposition: Protest Sustained in part.
Keywords: Price reasonableness; Price realism
General Counsel P.C. Highlight: An agency’s concern in making a “price reasonableness” determination focuses primarily on whether the offered prices are higher than warranted. Although not required, an agency may also provide for a “price realism” analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing whether an offeror’s low price reflects on its understanding of the contract requirements or the risk inherent in an offeror’s approach.
Milani Construction, LLC, of Washington, D.C., protested the award of a contract to Corinthian Contractors, Inc., of Arlington, Virginia, under an RFP issued by the National Park Service, Department of the Interior (DOI), for the rehabilitation of Anacostia Park, Washington, D.C.
The RFP called for award of a fixed priced construction contract covering substantial road demolition, construction, and reconstruction in the park as well as other park construction projects. The Park Service originally estimated the project would cost $6.8 million. Each proposal was to be evaluated under the following criteria: technical merit, past performance, and price. Technical and past performance together were roughly equal to price. The Park Service intended to select the offeror proposing the best value for the government in accordance with the terms of the solicitation.
Milani proposed to perform the project for $4.48 million and Corinthian, the eventual awardee, proposed to perform for $4.9 million or 9.8% higher. The Park Service Technical Evaluation Panel considered Milani’s lower price to present a higher risk of performance problems. The TEP also concluded that Milani’s low price for the paving line item, when combined with the Milani’s lack of experience in this area, indicated that Milani might not completely understand the paving requirements. Milani’s technical proposal was third highest while Corinthian’s proposal was the highest rated technically. The source selection authority determined that Corinthian’s highest technically rated, higher-priced proposal represented the best value to the government.
Milani argued that the RFP informed offerors only that their prices would be evaluated for reasonableness and balance and not whether the proposed fixed price was realistic or reflected on the offeror’s ability to perform the work. An agency’s concern in making a “price reasonableness” determination focuses primarily on whether the offered prices are higher than warranted. Although not required, an agency may also provide for a “price realism” analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing whether an offeror’s low price reflects on its understanding of the contract requirements or the risk inherent in an offeror’s approach. However, where there is no relevant evaluation criterion pertaining to low generally concerns the offeror’s responsibility, i.e., the offeror’s ability and capacity to successfully perform the contract at its offered price.
Milani argued, in effect, that the agency’s use of a “price realism” analysis without adequate warning in the RFP amounted to an undisclosed evaluation criteria in this fixed price competition, where the offeror and not the Government bears the risk of loss if the proposed price is too low. The GAO agreed.
Since the submission of even a “below-cost” price is not by itself improper, 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 the risk associated with their proposal. Because the RFP in this case did not provide that notice, the Agency’s use of a “price realism” analysis was improper and prejudicial to Milani. The GAO sustained the protest and recommended that the Agency re-evaluate the existing proposals or amend the solicitation to give offerors fair warning of their intent use a price realism analysis and offerors then be provided with an opportunity to submit final proposal revisions.