When the federal government awards a contract, the government must ensure that the price it pays is “fair and reasonable.” In other words, the government cannot pay a price that is too high.
If a contract is awarded on the basis of competitive proposals, an agency may be able to establish price reasonableness by comparing the prices proposed by competing offerors. But as demonstrated in a recent GAO bid protest decision, competition alone doesn’t mean that the prices received are reasonable–the government still must compare offerors’ prices to determine reasonableness.
When I went out for pizza with my family the other night, the only number that mattered to me when I got the check was the bottom-line price. It didn’t matter to me what the price for each pizza or each lemonade was, as long as the total price was within my budget.
For an agency evaluating a proposal for reasonableness in a fixed-price setting, the same holds true: it is the bottom-line price that matters, not the individual items that add up to the bottom-line price. The GAO recently had the opportunity to review this concept in a bid protest decision.
When an agency decides to hold discussions with offerors, must it discuss with an offeror the price proposed for the contract? Not unless that offeror’s proposed price is so high as to be unreasonable.
As the GAO held in a recent bid protest decision, unless an offeror’s price is so high as to make its proposal unacceptable, the offeror is not entitled to be informed during discussions that its price is too high–even if the price is significantly higher than competitors.
A procuring agency need not inform an offeror, as part of discussions, that the offeror’s price is higher than those of its competitors. According to a recent ruling of the Court of Federal Claims, the only exception is if the offeror’s price is so high as to preclude award to the offeror–an “unreasonable” price, in FAR parlance.
The Court’s decision in Lyon Shipyard, Inc. v. The United States (Nov. 27, 2013) comes on the heels of a recent GAO decision reaching a similar result.
Price reasonableness and price realism are both benchmarks against which a procuring agency may evaluate an offeror’s price, but price reasonableness and price realism–though they are often confused for one another–are not the same thing.
As the GAO explained in a recent bid protest decision, one of the terms involves consideration of whether an offeror’s price is too low, whereas the other evaluates whether the price is too high. The distinction is particularly important for fixed-price procurements, in which the question of whether pricing is too low is not one the procuring agency is always required to ask.
When is a competitor’s low price simply too low to be realistic? Maybe never, at least when it comes to challenging the low price in a GAO bid protest.
As seen in a recent GAO bid protest decision, when a fixed-price solicitation does not call for a price realism analysis, the procuring agency is not required to conduct one–and a competitor will not succeed in challenging the award on the basis of a supposedly unrealistically low price.