GAO: Understated Pricing Alone Isn’t “Unbalanced Pricing”

Under the FAR, unbalanced pricing may increase performance risk and can result in the government paying unreasonably high prices.  But the concept of unbalanced pricing is often misunderstood in practice.

As the GAO wrote in a recent bid protest decision, unbalanced pricing doesn’t exist merely because some of an offeror’s line item prices are low.  Rather, unbalanced pricing requires both understated and overstated line items–that is, some line items appear too high while others appear too low.

The GAO’s decision in First Financial Associates, Inc., B-415713, B-415713.2 (Feb. 16, 2018) involved a DHS solicitation to administer the agency’s child case subsidy program.  The solicitation was issued as a small business set-aside, and contemplated the award of a contract to the offeror providing the best value considering three factors: technical merit, past performance, and price.  The solicitation apparently called for offerors’ pricing proposals to include breakdowns by contract line item numbers.

After evaluating proposals, the agency awarded the contract to FEEA Childcare Services, Inc.  An unsuccessful offeror, First Financial Associates, Inc., then filed a GAO bid protest.  FFA challenged several aspects of the agency’s evaluation.  Among its challenges, FFA alleged that FEEA’s pricing was unbalanced because FEEA allegedly had priced some CLINs “extremely low.”

The GAO wrote that “[u]balanced 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.)”  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 to show simply that some line item prices in the proposal are understated.”

The GAO explained, “[w]hile both understated and overstated prices are relevant to the question of whether unbalanced pricing exists, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices, because low prices (even below cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing.”

In this case, “FFA only claims that some of FEEA’s CLIN prices are understated; FFA does not allege that any of the awardee’s CLIN prices are overstated.”  Therefore, “FFA provides no basis for us to question the agency’s price evaluation for allegedly failing to identify unbalanced prices.”

In the competitive world of government contracts, it’s not unusual for competitors to question one another’s pricing, and “unabalanced pricing” is one of those terms that is often thrown around when a competitor’s pricing appears suspect.  But as the First Financial Associates protest demonstrates, a proposal containing understated CLINs alone isn’t unbalanced–rather, unbalanced pricing requires both understated and overstated line items.