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As a general rule, an agency is only required to evaluate a fixed-price offer for reasonableness (that is, whether the price is too high). Agencies are not required to evaluate fixed-price offers for realism (that is, whether the price is too low) and, in fact, cannot do so unless the solicitation advises offerors that a realism evaluation will be conducted.
GAO recently reaffirmed this principle when it denied a protest challenging an agency’s refusal to consider the realism of offerors’ fixed prices as part of a corrective action, even though the agency suspected that at least one offeror’s price was unrealistically low.
Under FAR 15.404-1(d)(3), an agency may evaluate fixed-price contracts for realism “in exceptional cases,” but it is not required to do so. Ripple Effect Communications, B-413722.2 (Jan. 17, 2017), confirmed the breadth of an agency’s discretion to evaluate—or not—fixed price offers for realism.
Ripple Effect involved a challenge to the terms of a corrective action following Venesco, LLC’s protest challenging an award made to Ripple. Venesco argued in its protest that the Army improperly declared its price to be unrealistic, in part because the solicitation was ambiguous as to whether offerors’ fixed prices would be evaluated for realism. The Army then announced that the procurement would be resolicited, and made clear that price realism would not be evaluated.
Ripple then protested the scope of this corrective action, arguing that the Army should be required to evaluate offerors’ prices for realism. Ripple noted that the Army’s evaluation of Venesco’s proposal already revealed concerns with Venesco’s labor rates, “which were far below the average of all evaluated proposals in all but one labor category.” Thus, “it would be unreasonable for the agency not to consider the risk posed by Venesco’s prices.”
In response to these arguments, the Army noted that it never intended to evaluate offerors’ proposed prices for realism. And although Venesco’s debriefing noted concern with unrealistic prices, the Army called this a “conclusory finding” that was not actually based on a completed price realism evaluation. In any event, offerors’ ability to submit revised proposals (including prices) mitigated any need for a price realism evaluation.
GAO agreed with the agency and denied the challenge to the corrective action. In doing so, it relied on an agency’s broad discretion to evaluate (or not) price realism under fixed-price solicitations:
Because the solicitation contemplates the award of a fixed-price contract, the agency’s intended evaluation approach is consistent with the Federal Acquisition Regulation (FAR), which establishes that an agency “may . . . in exceptional cases,” provide for a price realism evaluation when awarding a fixed-price contract, but is not required to do so. Given the agency’s broad discretion to decide whether to include a price realism evaluation in this instance, we have no basis to conclude that the agency’s decision was unreasonable.
Denying Ripple’s protest, GAO reaffirmed the principle that agencies have broad discretion to evaluate fixed-price offers for realism. Ripple Effect shows the breadth of this discretion—even where an agency has reason to suspect an offeror’s fixed-price might be unrealistically low, it is not required to evaluate that price for realism unless the solicitation specifically says otherwise.