In a fixed-price procurement, an agency cannot reject an offeror for proposing a “too low” price unless the solicitation specifically contemplates a price realism evaluation.
This point is one of several interesting issues recently addressed by GAO in URS Federal Services, Inc., B-412580 et al. (Mar. 31, 2016). Another interesting issue—pertaining to an offeror’s protest of the awardee’s subcontractors’ size—will be addressed in a forthcoming post. But this post serves as a reminder of an important limitation to a protester’s ability to challenge an awardee’s price.
At issue in URS Federal was an Army procurement seeking the maintenance, repair, overhaul, modification, and upgrade of military vehicles and other equipment at the Red River Army Depot. The solicitation was issued to holders of Strategic Solutions IDIQ contracts, and identified various labor categories and quantities of labor for each task and performance period. The solicitation instructed offerors to provide fully-loaded fixed labor rates for each category.
The award was to be made to the lowest-priced technically-acceptable offeror. In making this determination, the Army was to first determine the total evaluated price for each offeror, by multiplying each offeror’s fully-burdened labor rates by the estimated quantities for each labor category. The Army would then add each category together for all performance periods.
After determining the offerors’ total evaluated prices, the Army would then assess the lowest-priced offeror’s acceptability. If that offeror was acceptable, it would receive the award; if not, the Army would then move on to determine the technical acceptability of the next-lowest priced offeror. It would repeat this process until an award was made.
URS (the incumbent contractor) and VSE Corporation were two of the six offerors that submitted an award. URS’s price was nearly $256 million; VSE submitted the lowest price at less than $244 million. The Army then evaluated VSE’s proposal as being technically-acceptable, and named it the awardee.
URS protested the award decision on several bases. Among them, URS said that VSE’s price was unrealistically low and should have been rejected.
The Army disagreed. It noted that the solicitation did not contemplate that proposals would be evaluated for price realism. Instead, the solicitation said only that a proposal’s cost/price would be evaluated “based on the consideration of affordability, reasonableness, and completeness.”
GAO agreed with the Army, finding support in the FAR 15.402(a)’s “general rule in awarding fixed price contracts [that] agencies are only required to determine that prices are not unreasonably high.” Though the FAR allows an agency to conduct a price realism analysis in a fixed-price procurement to assess an offeror’s lack of technical understanding or risk, the solicitation must specifically advise offerors that price realism will be considered. “Absent a solicitation provision so advising offerors,” GAO held, “agencies are neither required, nor permitted, to conduct a price realism analysis in awarding a fixed-price contract.”
The instant solicitation had no such provision. Nothing in the solicitation informed offeros that a proposal could be rejected on the basis of a low price. Thus, GAO denied this aspect of URS’s protest.
In a fixed price procurement, an offeror might have compelling reasons to propose a low price. In certain circumstances, in fact, an offeror might even propose to work for free. But as we have previously written, an offeror may not be excluded from competition on the basis of its low price in a fixed-price procurement unless the solicitation specifically says that price realism will be evaluated. In URS Federal Services, GAO reaffirmed this important principle.