Unreasonable Cost Adjustment Leads to Sustained Protest

Of late the pages of this blog have been entirely coronavirus and COVID-19 obsessed—and for good reason. But that does not stop the Government Accountability Office from deciding bid protests.

With all that’s been going on, writing about a GAO decision regarding run-of-the-mill unreasonable cost realism evaluation is downright refreshing.

According to the opinion, Sayres and Associates Corp. protested a task order award the Navy awarded to Reliability and Performance Technologies d/b/a RP Technologies for engineering support services.

The agency told Sayres it was giving RP the award because RP’s proposal was technically superior and had a lower “total evaluated cost.” This was news to Sayres since the proposal it submitted was about $1.5 million less than the task order award cost.

This was a cost-reimbursable contract where the government would have to pay the contractor’s actual costs, which meant that the agency had to perform a cost-realism analysis and adjust the offeror’s cost according to the agency’s most probable cost expectation.

Offerors were to propose an escalation factor to estimate future wage increases and to explain the rationale or cite to historical information. The decision redacts Sayres’ proposed escalation rate, but apparently the Navy viewed it as too low.

It adjusted Sayres’ total proposed costs by 5.34% which resulted in an increase of $2.15 to its bottom line. The adjustment increased the proposal costs from $40.33 million to $42.79 million. RP’s total evaluated cost was $41.84 million.

The Navy said the reason for the increase was that historical data was not provided to support an escalation rate below the Global Insight Rate of 3.3%. But Sayres had provided historical data. It gave the Navy information about what it had paid its people and how it had increased their salaries for the previous five years.

The Navy argued at GAO that it viewed the numbers that Sayres provided as “unverified” and that Sayres failed by not providing screenshots of salaries.

By the way, it’s illegal to make a false statement to the federal government for the purposes of receiving a federal contract, and has been since, oh, ’round about the middle of the Civil War. So, whether the data was verified or not, Sayres could have been in serious trouble had it provided false information.

In any case, the Navy apparently didn’t buy it, adjusting the rate to 3.3%. GAO found this unreasonable finding that the “record shows that Sayres’ proposed an escalation rate substantiated by five years of detailed historical data.” Further, GAO found that Sayres met its obligations under the solicitation by showing not only the historical data but also by explaining the “bases for its proposed escalation rate in its cost narrative, explaining the various strategies it employs to attract and retain a competitive workforce while maintaining its escalation rate.”

GAO found that the Navy did not meaningfully consider the historical data or rationale and instead merely compared the proposed rate to the 3.3% Global Insight Rate. It sustained the protest and recommended that the Navy go back and consider the supporting information Sayres provided.

The takeaway here is that the government may not adjust an offeror’s cost simply because it believes the proposed cost is too low when it ignores evidence that the price is realistic.

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