Agencies get a lot of discretion when it comes to evaluating proposals. We’ve explored several different cases where GAO affirmed this principle. However, this principle is not absolute. Contrary to what some might think, there are limits on an agency’s discretion when it comes to how it evaluates proposals. Recently, the Air Force was reminded of this fact in a GAO protest concerning a price evaluation. We explore that decision here.
On March 24, 2024, the Air Force issued a solicitation for a task order for communications support services for the Combined Air and Space Center Operations Center for the U.S. Air Forces Central Command. As part of these services, professional roles would need to be provided by the awardee. As such, the solicitation included FAR 52.222-46. When included in a solicitation, this FAR clause provides that offerors must submit a compensation plan for professional employees that will work under the contract. The government, in turn, must evaluate the plan on whether it shows a proper understanding of the contract’s requirements. This includes considering impact on recruiting and retention, the realism of the plan, and its consistency with the overall compensation plan for the offering. We explored this clause in a similar GAO decision back in November 2024.
The solicitation also included DFARS 252.204-7024. This clause similarly says that the agency will consider, price risk, that is whether “a proposed price is consistent with historical prices paid for a product or a service or otherwise creates a risk to the Government.” It also says the agency will assess supplier risk, that is “the probability that an award may subject the procurement to the risk of unsuccessful performance or to supply chain risk.”
In its evaluation, the Air Force gave SMS Data Products Group (SMS) an outstanding rating for its proposal. However, it went with Trace Systems (Trace) for award as Trace’s proposed price was about $120 million, whereas SMS’ was nearly $200 million and Trace also received an outstanding rating. SMS also ranked behind another company, MicroTechnologies (MicroTech), who received an outstanding rating and had a price of about $150 million. SMS filed a protest arguing that the Air Force unreasonably evaluated Trace and MicroTech’s professional employee compensation plans, failed to conduct the analysis required under DFARS 252.204-7024, unreasonably evaluated technical proposals, and failed to evaluate the risk posed by Trace’s low price. GAO denied the protest with regards to the last two arguments but sustained the first two arguments.
Looking at FAR 52.222-46, GAO observed that it requires a two-pronged evaluation. The first prong is a price realism evaluation, and the second considers whether the proposed compensation is below those of predecessor contractors to see how it will impact program continuity. The Air Force, for its part, took the offerors’ proposed labor rates and compared them to an eight percent discount from the incumbent’s labor rates. If the rate was above this eight percent benchmark, the Air Force concluded it was realistic. If it was below this benchmark, there was a price realism concern. However, GAO noted that the Air Force never explained why it chose this eight percent benchmark. GAO puts it best:
The record, however, contains no explanation, discussion, or support for the Air Force’s application of the eight percent baseline. In other words, the agency has offered no rationale for why it believed a firm could maintain program continuity, uninterrupted high-quality work, and availability of required competent professional employees while paying them up to eight percent less than what the incumbent employees are currently being paid. In fact, there is no representation or record to support a conclusion that the agency in fact considered the elements of the FAR provision 52.222-46(b) analysis when it decided to use the eight percent baseline. We therefore sustain the challenge to the agency’s evaluation of the direct labor rate component of Trace’s proposed professional employee compensation plan.
Turning then to DFARS 252.205-7024, GAO noted that the record show that the contracting officer ran a supplier risk report on Trace, but failed to evaluate the price risk. While the Air Force tried to rest on its price evaluation as taking care of the price risk analysis, GAO observed that it found that price evaluation unreasonable, as discussed above. As such, the Air Force also failed to conduct the proper price risk analysis under DFARS 252.205-7024.
Summary FAR 52.222-46 seems to be tripping a good number of contracting officers up. In addition to this case and the one we explored back in November 2024, there are a number of other, recent cases where GAO sustained protests because the agency failed to follow FAR 52.222-46: Mantech Advanced Sys. Int’l, Inc., B-419657 (June 17, 2021); Guidehouse LLP; Jacobs Tech., Inc., B-420860.1 (Oct. 13, 2022); and The Bionetics Corp., B-419727 (July 13, 2021) among others. This is something contractors should be on the lookout for if professional services are part of a procurement. DFARS 252.205-7024 also is something that can easily trip agencies up. These provisions show the limits of agency discretion, and the keen-eyed contractor should be able to hold agencies accountable for these procurements that fail to account for these procedures.
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