In discussions, a procuring agency is not required to inform a prospective contractor that its costs are higher than those of its competitors, unless those costs are so high as to be unreasonable.

This important potential limitation on the scope of discussions was at issue in a recent GAO bid protest decision, in which the GAO held that an agency had not erred by failing to inform an offeror that its proposed costs were approximately $3 million higher than the awardee’s.

The GAO’s decision in George C. Sharp, Inc., B-408306 (Aug. 5, 2013) involved a Navy procurement for inactive ship maintenance and repair services.  The solicitation called for award to be made on a best value basis, considering performance and management approach, past performance, personnel resources, and cost.  With respect to cost, the solicitation advised offerors that the Navy would perform a cost realism evaluation and consider the offeror’s ability to project costs “which are realistic and reasonable.”

The Navy received proposals from four offerors, including a proposal from George C. Sharp, Inc., the incumbent contractor.  In discussions, the Navy informed Sharp that its costs appeared understated in certain specific areas, based on a consideration of Sharp’s costs under the incumbent contract, as well as information available from the Defense Contract Audit Agency and Defense Contract Management Agency.  The Navy also advised Sharp to review its proposed fee “taking into account the competitive environment under which this solicitation has been issued.”

Sharp responded by providing additional justification to support its costs.  In its final proposal revision, Sharp reduced its fixed fee, but made no other changes to its proposed costs.  Sharp’s final cost proposal was $27,473,049.  The Navy subsequently informed that the contract had been awarded to a competitor, which had proposed costs of $24,369,425.

Sharp filed a GAO bid protest.  Sharp alleged, in part, that the Navy should have advised Sharp to lower its costs in order to be competitive with the awardee’s proposal.

The GAO rejected this argument.  Citing a prior bid protest decision, the GAO wrote, “[w]here, as here, an offeror’s costs are high in comparison to those of its competitors, the agency may, but is not required to, address the matter during discussions.”  The GAO continued, “[a]ccordingly, if an offeror’s costs are not so high as to be unreasonable and unacceptable for contract award, the agency may reasonably conduct meaningful discussions without advising the offeror that its costs are not competitive.”  The GAO denied Sharp’s protest.

The George C. Sharp GAO bid protest decision illustrates an important limit on the scope of discussions: unless a prospective contractor’s proposed costs are so high as to render its proposal unreasonable and unacceptable for award, the agency has no obligation to mention that the proposed costs are significantly higher than those of other offerors.  It’s all the more reason for offerors to carefully re-evaluate their own proposed costs before submitting a final proposal revision–even if the procuring agency has not mentioned that those costs are high.