Price Realism: GAO Rejects “Incumbent Knows Best” Argument

When an incumbent contractor loses a follow-on contract to a lower-priced competitor, the incumbent sometimes complains that after successfully performing the contract, it “knows what it takes” to get the job done, and that based on its experience, the competitor’s price is unrealistically low.

It is a perfectly logical argument, with one big problem: it can be very difficult to convince the GAO that an incumbent knows better than the procuring agency what constitutes a realistic fixed price for a contract.  The difficulty in succeeding with such an “incumbent knows best” price realism protest is demonstrated in a recently released GAO bid protest decision, GAO Protest of Resource Ltd., B-406496, B-406492.2 (June 6, 2012).

The Resource Ltd. GAO bid protest decision involved an Air Force procurement for custodial services at facilities in the United Kingdom.  The solicitation contemplated the award of a fixed-price IDIQ contract on a lowest-price, technically acceptable basis.

Resource, the incumbent for approximately 60% of the services, was one of five offerors.  After discussions, the Air Force awarded the contract to Sodexo, Ltd., as the lowest-priced, technically acceptable offeror.

Resource filed a GAO bid protest, challenging the Air Force’s price realism analysis.  Resource alleged, in part, that as the incumbent, it could effectively judge whether Sodexo’s price was realistic, and that Sodexo’s price was too low.

The GAO rejected this argument.  It wrote that the Air Force properly considered the basis for Sodexo’s pricing and determined the pricing to be realistic.  Thus, “Resource’s various arguments challenging the agency’s analysis and judgments reflect Resource’s mere disagreement or dissatisfaction with the agency’s determinations, and provide no basis to object to the agency’s analysis.”  The GAO denied Resource’s bid protest.

The Resource Ltd. GAO bid protest decision demonstrates that just because a contractor has served as the incumbent, the GAO will not easily conclude that the contractor knows better than the procuring agency whether a competitor’s price is realistic.  Where, as in this case, the agency thoroughly considers the awardee’s price and deems it realistic, it can be an uphill battle to convince the GAO that the agency’s judgment was lacking.

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