GAO Upholds Agency’s Cancellation of LPTA Procurement with only One Acceptable Offer

Pop quiz: Your company is the only technically acceptable offeror in an lowest-priced, technically acceptable procurement. You win, right? Not when the agency cancels the solicitation, hoping that a cheaper offeror who was not technically acceptable will submit a bid if given another chance. GAO recently considered this very scenario.

In AvKARE, Inc., B-417250 (April 18, 2019), GAO considered a solicitation to supply a certain prescription drug to VA and other agencies. The objective of the contract was “to ensure [the] availability and consistency of product for nationwide usage and to obtain volume-based, committed use pricing.”

Award was to be made to the lowest-priced, technically acceptable (LPTA) offer. The agency would only consider U.S.-made end products or designated country end products, unless it failed to receive any such offers. Plus, if an offeror was not the manufacturer of the product, it, had to “submit a letter of commitment from the manufacturer assuring an uninterrupted source of supply sufficient to satisfy the agency’s requirements for the contract period.”

VA received five offers. Two were rejected because the products were made in India, a nondesignated country. One offeror failed to provide the required National Drug Code number.

VA established a competitive range with the final two offerors. The protester AvKARE submitted a timely revised proposal. The other offeror couldn’t get a letter of commitment assuring uninterrupted supply from its manufacturer, so VA rejected that offer as well.

If you’re scoring at home, four out of five offers were rejected, leaving AvKARE as the last technically acceptable offer standing. Since this was an LPTA procurement, AvKARE seemed to be sitting in the cat bird seat.

VA determined that AvKARE’s proposed price of $181,704,077 was not fair and reasonable “based on a comparison between AvKARE’s price, the government estimate,” and another offeror’s price. The government estimate was about $100 million less than AvKARE’s price (even in the federal government, $100 million isn’t chump change) and the other offer was about $127 million less.

So the VA declined to award and cancelled the solicitation, hoping that a cheaper offeror would try in the future.

AvKARE argued the price analysis was wrong and that “it was unreasonable for the agency to cancel the solicitation for the prospect of increased competition, particularly because the agency’s requirements have not changed.”

GAO agreed the price analysis was incorrect, but concluded the cancellation was reasonable. As to price analysis:

the agency’s estimate, as well as Offeror 2’s price, cannot reasonably be used as valid benchmarks for comparison because they both reflect prices that include sources of supply that do not comply with all of the terms of the solicitation, terms which likely increased AvKARE’s price.

In other words, the government estimate and other offeror’s price didn’t meet all the government requirements, so it wasn’t an apples to apples comparison.

As to cancellation, an agency merely has to show a “reasonable basis to cancel a solicitation after receipt of proposals.” (In a public bid situation, in contrast, there must be a “compelling reason” to cancel because everyone has seen the bids). As for what is reasonable, “the prospect of increased competition, and the potential for lower prices, generally provides a reasonable basis for the agency to cancel a request for proposals.”

Because the RFP called for “volume-based, committed use pricing” and AvKARE was $127 million higher than a competitor (even under a flawed comparison), GAO credited VA’s rationale:

it may be paying substantially more than is necessary for the requirement, particularly in light of the goal of obtaining volume-based pricing due to the efficiencies to be derived from a national requirements contract. While, as noted above, the record shows that the agency’s price analysis was flawed, it nonetheless also supports the agency’s assertion that there is a reasonable possibility that a decision not to cancel the solicitation would be prejudicial to the agency’s objectives given the potential for overpayment.

The VA also stated that it had heard from three firms who could potentially meet the requirements of the solicitation.

On the one hand, this seems like a tough blow for AvKARE. It was the only acceptable offer in an LPTA procurement. It followed all the rules and was still rejected by the agency. On top of that, GAO found that the price analysis was flawed.

On the other hand, the government is the customer. As long as it hasn’t awarded a contract, it should be able to do another procurement to try and get a better price if pricing is important. This decision confirms that GAO will be deferential to agencies when they cancel procurements, as long as there is a reasonable basis such as the prospect of lower prices.

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