GAO: Agencies Must Explain Cost Realism Evaluation Determinations

GAO recently held in ATA Aerospace, LLC, B-417427 (July 2, 2019) that agencies are required to explain how offerors’ proposed labor hours and prices are, or are not, in line with historical data from predecessor contracts when conducting cost realism evaluations.

ATA Aerospace protested the award of RFP No. FA9453-18-R-0003. The RFP sought a number of services to support the goals of the Air Force’s Research Laboratory, Space Vehicles Directorate, Integrated Experiments and Evaluation Division. Specifically, the selected contractor was to provide “concept design, development, integration, test and evaluation of new space technologies, innovative, engineering prototypes, and new employment concepts.”

Among other things, ATA protested the Air Force’s cost realism evaluation. Cost realism evaluations, described at FAR 15.404-1(d) and discussed in a number of previous blog posts, are generally intended to determine whether an offeror understands the contract requirements and has proposed a price realistic for the work to be performed. In a nutshell, this often means the proposed price can’t be too low in a cost-reimbursement proposal. In this case, the Air Force was required to evaluate offeror’s proposed prices to perform on three different task orders for reasonableness and realism.

At issue was ATA’s proposed price for the third task order, which included services supporting the Air Force’s small satellite space experiments and satellite programs. ATA proposed a significantly higher number of required labor hours and associated price under this task order than the other offerors, including the awardee. Still, the Air Force concluded that the proposed labor hours for both ATA and the ultimate awardee were “‘consistent and analogous’ with the historical data for similar work,” despite the discrepancy.

In the end, the awardee’s overall proposed price of around $44 million was similar to the government cost estimate and was considered “realistic.” By contrast, ATA’s $85 million price was almost double the government cost estimate. As a result, ATA was not selected for award.

ATA’s primary argument pointed out the Air Force’s cost realism evaluation determined that both ATA and the awardee had proposed realistic prices for the third task order. In reviewing ATA’s arguments, GAO first explained how cost realism analysis is conducted stating that “[w]hile an agency’s cost realism analysis need not achieve scientific certainty, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information reasonably available to the agency at the time of its evaluation.”

Contrary to the Air Force’s position that both ATA and the awardee proposed realistic prices and proposed hours, GAO sustained ATA’s protest based on a relatively simple discrepancy in the evaluation: “[t]here [was] no explanation or analysis in the evaluation record for how the agency could rationally conclude that both offerors’ proposed labor hours and labor mix were consistent with and analogous to the historical data . . . where ATAA proposed more than double the labor hours and cost that [the awardee] proposed.”

Overall, this case serves as a reminder to review any agency’s cost realism analysis closely for whether the analysis is consistent with the proposed approach for different offerors. If you have questions or concerns related to cost realism evaluations, contact Koprince Law!