GAO Protest Sustain: Flawed Price Realism Analysis

We often see price realism in protests when the protester is making the claim that the awardee’s price, which was lower than the protester’s price, is low enough that the awardee would not be able to perform the work as solicited. Most often, GAO will determine that the agency’s price realism analysis was acceptable. However, in Criterion Corporation, B-422309 (Apr 16, 2024), the agency determined that the lowest priced offeror’s price was too low, and that the company could not possibly perform at the price offered. This led to the next lowest priced offeror receiving the award, and the lowest priced offeror protesting that decision, ultimately winning its argument.

Price Realism Basics

First things first, let’s start with a brief overview of what a price realism analysis includes. The purpose of a price realism analysis is to determine whether proposed prices:

  1. Are realistic for the work to be performed;
  2. Reflect a clear understanding of the requirements of the contract; and
  3. Are consistent with the offeror’s unique method of performance.

FAR 15.404-1(d)(3). The purpose of a price realism analysis is to assess the risk pertaining to contract performance for the proposal being assessed.

When GAO reviews an agency’s price realism analysis, GAO looks to whether the analysis performed by the agency was reasonable. Reasonable price realism analysis “must include consideration of the proposed technical approach.” Any price realism analysis that only compares prices will not pass GAO’s review. The depth of the analysis, however, is a matter reserved for the agency’s discretion.

Analysis of Criterion Corporation’s Proposal

As mentioned before, Criterion’s proposal was the lowest priced offer in response to the solicitation. The type of work solicited is not very important here. What is important is that the agency compared Criterion’s price with the average price of other offerors and the internal government estimate and determined that Criterion’s price was “unrealistically low.” This led to the price realism analysis.

When doing the price realism analysis, the agency noted that Criterion proposed a slightly greater number of FTEs than the second-lowest priced offeror, which led the agency to conclude that “Criterion’s proposed unit prices for the fixed-price CLINs must be unrealistic because Criterion simply could not propose more FTEs at its much lower overall price.” The agency also compared Criterion’s proposed labor rates, noting that its slightly lower than average rates, when compared to the second-lowest offeror led to the conclusion that “Criterion’s proposed unit prices for the fixed-price CLINs must be unrealistic because they could not possibly be consistent with the proposed labor rates.”

GAO’s Review of the Protest

GAO reviewed the agency’s price realism analysis and determined that the agency did not conduct a reasonable price realism analysis. Though the agency looked at the number of FTEs, the agency didn’t look at the technical aspects of Criterion’s proposal. As mentioned above, the agency compared Criterion’s proposal with that of the second-lowest offeror and concluded that the fact that Criterion’s proposal provided for more FTEs with a lower price than the other offerors meant that the price was not realistic. There was no consideration given to the different labor categories and labor mix, meaning the types and experience levels of the proposed workers or the labor utilization strategies.  GAO stated “without knowing how the labor mix and technical solutions compared there was no way for the agency to know if its conclusions about Criterion’s price were based on a true apples-to-apples comparison.”

In the end, GAO found that the agency did not perform a proper price realism analysis, and recommended that the agency conduct a new price realism evaluation of Criterion’s proposal, which should include an evaluation of the price in relation to the technical solution.

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