Negotiating with the federal government regarding pricing can sometimes feel like trying to win an RV from Bob Barker. Such was the experience of one protester. The government recommended a price increase during discussions and the contractor raised its price. The price increase, however, ultimately cost the offeror the award.
The agency’s conduct was subsequently protested before GAO, but GAO was not receptive.
Quality Control International, LLC, B-417984 (Comp. Gen. Dec. 20, 2019) involved a GSA procurement for maintenance and custodial services at various locations around Montana. The solicitation anticipated making an award to the offeror that represented the best value to the government.
Importantly, the Solicitation advised offerors that proposals would be evaluated for “low price, price reasonableness, price realism and balance.” Offerors were also cautioned that proposals with unrealistically low or unreasonable high pricing would be eliminated as unacceptable.
GSA received a number of proposals in response to the Solicitation, including the proposal submitted by Quality Control International (QCI).
During its evaluation, GSA identified a number of issues with QCI’s price. QCI’s total proposed price was $6,009,580 but GSA noted that the proposed G&A rates, overhead, and profit margin appeared to be unreasonably high. GSA also noted that a number of the cost items proposed by QCI were unrealistically low.
Following its evaluation, GSA conducted discussions with offerors. At this time, QCI was notified that GSA had identified unreasonable and unrealistic elements of its proposed price. GSA also instructed that “any items raised by the [g]overnment during the discussions must be addressed in writing in QCI’s revised proposal.”
In response, QCI reworked its price proposal to address GSA’s concerns. As a result, QCI’s price rose to $7,461,340. This was roughly $1.5 million more than its initial proposal. GSA subsequently reevaluated QCI’s price and concluded the unreasonable and unrealistic cost items had been rectified. Nevertheless, GSA remained concerned that QCI’s proposed markup rates were exceedingly high.
GSA subsequently conducted another round of discussions with offerors. At this time, QCI was notified about the concerns regarding its proposed markup rates. Offerors were also notified that GSA did not intend to conduct another round of discussions, so offerors were advised to submit their most competitive offers.
In response, QCI prepared a best and final offer. Responding to GSA’s feedback, QCI it lowered its proposed price to $7,247,080.
During its evaluation, GSA concluded that QCI’s best and final price was both reasonable and realistic. Nevertheless, another offeror, Phoenix Management, Inc., was evaluated to be slightly higher rated and slightly less expensive, with a proposed a price of $7,138,087. As such, GSA made an award to Phoenix Management.
In response, QCI filed a protest before GAO where it alleged that GSA had misled it during discussions regarding its pricing. According to QCI, but for GSA’s misleading discussions, it would not have revised its price by nearly $1.25 million. Absent the pricing modifications, QSI would have been lower priced than Phoenix Management and roughly equivalent technically. In QSI’s estimation, this would have made QSI the awardee.
GSA responded that it had provided QCI with accurate information about its price in good faith. It further argued that QCI was under no obligation to raise its price in response to GSA’s comments during discussions. According to GSA, that QCI decided to modify its proposal and upwardly adjust its pricing was a business decision, not something GSA compelled.
In resolving the protest, GAO first noted that agencies are generally prohibited from misleading or coercing an offeror to raise their price. Nevertheless, GAO explained, “[o]ur Office will not find coercion in discussions, however, where an agency in good faith provides accurate information to an offeror about its concern, and provides the offeror with the opportunity to explain or revise its rates or prices.”
As applied to QCI’s protest, GAO concluded GSA’s communications about price were not misleading. According to GAO, “the record demonstrates that, during discussions, the agency accurately raised its concerns regarding QCI’s proposed price, and then simply asked QCI to address issues the agency had identified with respect to QCI’s price proposal.” That QCI elected to raise its price was its business decision, at least so far as GAO was concerned. Indeed, GAO noted that QCI had neither demonstrated that GSA inaccurately reported its concerns, nor shown that QCI was compelled by GAO to increase its price. As such, GAO denied the protest.
GAO’s decision highlights one of the difficulties offerors face when negotiating with the government. While the government will sometimes identify issues in a proposal and request revisions, the manner and extent which those revisions are implemented are largely left to the discretion of individual offerors. This can place offerors, like QCI, in a challenging position. This is particularly true when the agency has identified pricing issues. Unfortunately, it is the type of risk that offerors in the federal market place regularly endure.
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