Unless a solicitation for a fixed-price contract provides that the agency can conduct a price realism analysis, it can’t. Even so, agencies sometimes perform this analysis without alerting prospective offerors of the possibility.
If they do, however, the ground is fertile for a protest.
Let’s suppose you’re a contractor that provides services to the federal government. Typically, your contract will require you to pay your employees the prevailing wage rates promulgated under the Service Contract Act.
What if you suspect that, under previous contracts, your competitors failed to pay their employees the mandated prevailing rates? Can you use a pre-award bid protest to obligate a procuring agency to police possible ongoing non-compliance through solicitation provisions? If you say yes, perhaps you should keep reading.
An incumbent contractor won a protest at GAO recently where it argued that the awardee’s labor rates were too low, because they were lower than the rates the incumbent itself was paying the same people.
GAO faulted the agency for concluding that the awardee’s price was realistic without checking the proposed rates against the incumbent rates. In other words, GAO told the agency to start at the obvious place—the compensation of the current employees.
A company bidding to replace an incumbent service contractor cannot presume incumbent workers will take major pay cuts without setting itself up for a potentially successful protest.
FAR 22.12 generally requires successor service contractors to give a right of first refusal to qualified employees under the previous contract. And even when these nondisplacement rules don’t apply, many offerors’ proposals tout their efforts to retain incumbent employees. But asking incumbent employees to take significant pay cuts–and expecting them to accept–is unreasonable and can torpedo a proposal. Case in point: GAO sustained a protest recently against an awardee who had proposed high retention rate of incumbent workers, but lower pay for those positions.
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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.
An offeror’s proposal to hire incumbent personnel–but pay those personnel less than they are earning under the incumbent contract–presents an “obvious” price realism concern that an agency must address when price realism is a component of the evaluation.
In a bid protest decision, the GAO held that an agency’s price realism evaluation was inadequate where the agency failed to address the awardee’s proposal to hire incumbent personnel at discounted rates.
In a fixed-price procurement, an agency cannot reject an offeror for proposing a “too low” price unless the solicitation specifically contemplates a price realism evaluation.
This point is one of several interesting issues recently addressed by GAO in URS Federal Services, Inc., B-412580 et al. (Mar. 31, 2016). Another interesting issue—pertaining to an offeror’s protest of the awardee’s subcontractors’ size—will be addressed in a forthcoming post. But this post serves as a reminder of an important limitation to a protester’s ability to challenge an awardee’s price.