Bid Protest Weekly Newsletter by Bryan R. King, Attorney, General Counsel PC
Date: Wednesday, May 1, 2013, 1:50pm EST
PAE Government Services, Inc., B-407818, March 5, 2013
In conducting an evaluation of offerors’ proposals, an agency is required to evaluate the offered prices for their reasonableness. This price reasonableness analysis looks to whether the offered price is too high for that procurement. The question of whether an offered price is too low is a different issue, and is not always required to be posed by the agency. Where the agency is seeking to make an award of a cost-reimbursable contract, whether the offered price is too low is extremely important, as the agency is on the hook for the actual costs incurred by the contractor, regardless of the proposed amount. Thus, the FAR requires procuring agencies to conduct a cost realism analysis on all procurements for cost-reimbursable contracts to determine if the proposed cost is realistic for the work performed.
When evaluating proposals for award of a fixed-price contract, however, procuring agencies are generally not required to conduct a price realism analysis. In a fixed-price contract, the contractor bears all of the risk of offering a low price; therefore whether the price is unrealistically low is less important to the government. However, in certain instances an agency may still elect to perform a price realism analysis on fixed-price awards, such as where there is concern that a low price may indicate an offeror’s lack of understanding of the solicitation’s requirements. However, offerors must be given reasonable notice in the solicitation that a price realism analysis will be conducted. A recent protest decision addressed the issue of whether a solicitation provided such notice of a price realism analysis.
In PAE Government Services, Inc., the protester challenged an agency’s evaluation, arguing that the agency failed to conduct a price realism analysis. The protester acknowledged that the solicitation did not specifically state that a price realism analysis would be conducted, however the protester contended that the solicitation effectively provided for one with other language. The protester pointed out that the solicitation required offerors to relate its offered price to sections of the statement of work, and break out its offered price to the lowest practical detail. The protester also cited language in the solicitation advising offerors that they should attempt to lower their operating costs, but also assure the Government that the requirements of the contract would be met.
The protester argued that because the solicitation required detailed price information and an assurance that it could meet the requirements of the solicitation, it essentially informed offerors that a price realism analysis would be conducted. GAO disagreed and denied the protest. GAO reasoned that the solicitation did not explicitly state that it would analyze price to evaluate offerors’ understanding of the technical requirements, nor did it advise offerors that a proposal may be eliminated based upon low price. Thus, GAO concluded that the agency reasonably determined that a price realism analysis was not required.