When, in discussions, a procuring agency tells a contractor that an aspect of the contractor’s proposal is a weakness, the natural response is to correct the problem.  In one recent GAO bid protest decision, however, correcting a weakness may have cost a contractor a $30 million award.

In EMR, Inc., B-406625 (July 17, 2012), the procuring agency informed the contractor that certain labor rates appeared low in comparison to other offerors’ rates, and labeled the low rates a weakness.  In response, the contractor raised the rates in question, thereby increasing its overall price–then narrowly lost out on a low-price, technically acceptable contract.

The GAO’s verdict?  The agency did nothing wrong.

The EMR, Inc. GAO protest arose out of an Air Force solicitation for construction and engineering services.  The solicitation set forth a low-price, technically-acceptable evaluation scheme, and provided that offerors’ pricing would be evaluated for both price realism and price reasonableness.

EMR, Inc. submitted a timely proposal.  The Air Force subsequently opened discussions with offerors.

The Air Force sent EMR an evaluation notice, stating that the field rates for certain labor categories “appear to be low in relation to other offerors.”  The notice described the low labor rates as a “weakness,” and stated that “[t]he offeror shall verify that the prices are what it intended to propose or make adjustments as necessary and provide the revised prices in response to this Evaluation Notice.”

EMR, understandably, adjusted its rates in response to the evaluation notice.  Although EMR also lowered certain other rates as part of its final proposal revision, the upward adjustment in the field rates identified as a weakness caused an increase in EMR’s total price.  After receiving final proposal revisions, the Air Force made award to a competitor, which had proposed a “slightly” lower total price.

EMR filed a GAO bid protest.  EMR alleged, in part, that the Air Force had misled or coerced it into raising its total evaluated price during discussions.

The GAO rejected EMR’s argument and denied the protest.  The GAO noted that EMR’s initial labor rates for the categories in question were, in fact, lower than those of other offerors.  It held that the Air Force “did not require EMR to raise its labor rates,” but “simply directed” that EMR either verify its lower rates or adjust them.  Citing prior GAO authority, the GAO wrote, ” [w]e will not find coercion in discussions where, as here, the agency in good faith provides accurate information to an offeror, even where the offeror uses that information to its ultimate competitive detriment.”

The GAO’s decision may comport with prior GAO case law, but it still leaves a bad taste in my mouth.  EMR was left in a no-win situation: accept a weakness (and the attendant risk that the Air Force would reject its price as unrealistic), or raise its rates, and lose the contract to a lower-priced offeror.

For EMR, losing an award simply because it tried to correct an identified weakness has to be a particularly bitter pill to swallow.  For other contractors, the EMR, Inc. GAO bid protest decision is worth careful consideration.  As the case suggests, if a procuring agency identifies any rates as too low in the context of a low-price, technically acceptable proposal, fixing the issue may cause an even bigger problem.