In a best value tradeoff evaluation, a procuring agency must consider the benefits of a lower-cost proposal, even if that proposal’s cost is not as close to the agency’s internal cost estimate as a higher-priced proposal.

As demonstrated by a recent GAO bid protest decision, it is improper in a tradeoff analysis for an agency to refuse to consider the relative benefits of paying a lower cost for a lower-rated proposal.

The GAO’s decision in DKW Communications, Inc., B-411182, B-411182.2 (June 9, 2015) involved a DARPA task order solicitation for unclassified IT services and support.  The solicitation stated that the award of the task order would be made on a best value basis, using tradeoff procedures between five factors: technical, management capability, personnel qualifications, past performance, and proposed cost and fee.  Cost proposals were also to be evaluated for reasonableness and realism.

DKW Communications, Inc. submitted a proposal.  DKW received an overall technical score of “Acceptable” and past performance score of “Satisfactory Confidence.”  DKW’s proposed cost of $83.1 million was upwardly adjusted to a most probable cost of $129.9 million.

Agile Defense, Inc. received an overall technical score of “Outstanding” and past performance score of “Substantial Confidence.”  Agile’s proposed cost of $144.5 million was upwardly adjusted to a most probable cost of $154.4 million.

The evaluation team recommended award to Agile.  The evaluation team noted that Agile received the highest non-cost scores.  The evaluation team stated that while Agile’s most probable cost was higher than DKW’s most probable cost, Agile’s proposal represented “significantly less cost risk” to the government because Agile’s higher proposed cost was closer to the government’s own internal cost estimate.  The source selection authority agreed with the evaluation team, and awarded the task order to Agile based on its higher non-cost scores and lower “cost risk.”

DKW filed a GAO bid protest challenging the award to Agile.  Among its allegations, DKW contended that DARPA failed to conduct a reasonable best value tradeoff by failing to consider the comparative costs of the proposals under consideration.  In other words, DKW argued that DARPA had not considered the benefit of its lower-cost proposal.

The GAO wrote that, in a best value determination “an agency must meaningfully consider cost to the government in making its selection decision.”  Specifically, “before an agency can select a higher-cost proposal that has been rated technically superior to a lower-cost, but acceptable one, the award decision must be supported by a rational explanation of why the higher-rated proposal is, in fact, superior, and explain why its technical superiority warrants paying a cost premium.”

In this case, the GAO stated, “[t]here is no evidence in the record that the agency considered cost to the government in making its source selection.”  The GAO continued:

Here, a rational tradeoff by the agency would have required it to consider whether the benefits of Agile’s technical proposal warranted paying more for that proposal (i.e., a cost premium), as opposed to accepting DKW’s lower-rated, lower-cost proposal. While the agency asserts that it conducted a rational tradeoff, and gave meaningful consideration to cost, our review of the record shows that the analysis was not rational. While DKW’s evaluated most probable cost of $129.9 million is clearly lower than Agile’s most probable cost of $154.4 million, the contemporaneous record does not reflect any consideration of this potential cost savings. Instead, the agency concluded that Agile’s cost proposal was more favorable simply because its higher proposed costs were closer to the agency’s estimate of the proposal’s most probable cost. Such an analysis does not consider the relative benefit of paying a lower cost, as required in a tradeoff analysis.

The GAO sustained DKW’s protest.

There is nothing inherently wrong about an agency, in a best value tradeoff, deciding to pay more for a higher-rated proposal.  However, as the DKW Communications GAO protest demonstrates, an agency must meaningfully consider the benefit of the potential cost savings associated with a lower-rated, lower-cost proposal.  If the agency fails to do so, the evaluation is improper.