Exception to the Rule: Evaluating Price at IDIQ Versus Order Level Is a Limited Exception

A recent COFC decision yielded some important insights about government contracting. We already wrote about some joint venture aspects of the decision. But the decision also touched on whether GSA’s solicitation violated federal procurement law by excluding price as an evaluation factor at the indefinite delivery indefinite quantity (IDIQ) level for a procurement.

In the SH Synergy, LLC v. United States, No. 22-CV-1466 (Fed. Cl. Apr. 21, 2023) decision, the Court of Federal Claims took a look at, among other things, small business joint ventures’ participation in the Polaris solicitation based on a challenge to the terms of the Polaris solicitation. The decision also examined whether a solicitation can ignore price at the IDIQ level and leave price evaluation solely to the order stage. The short answer–no. Price must be evaluated at the IDIQ level, at least for procurements such as Polaris.

“Under the Polaris Solicitations, GSA will award IDIQ contracts to the highest technically rated qualifying (HTRQ) offerors.” Offerors self-score based on four evaluation factors: (1) Relevant Experience; (2) Past Performance; (3) Systems, Certifications, and Clearances; and (4) Risk Assessment. The highest self-scored proposals, after an Acceptability Review, would receive awards. And GSA expected to award certain number of awards for different pools such as WOSB and SDVBOSB.

The court noted that, generally, agencies must “include cost or price to the Federal Government as an evaluation factor that must be considered in the evaluation of proposals.” 41 U.S.C. § 3306(c)(1)(B). But Polaris did not include any cost or price evaluation. GSA based the exclusion of price on 41 U.S.C. § 3306(c)(3), which provides an exception for “certain indefinite delivery, indefinite quantity multiple-award contracts . . . for services acquired on an hourly rate.” 41 U.S.C. § 3306(c)(3). This statute has not been incorporated into the FAR yet, but GSA incorporated it through a GSA class deviation.

The court looked closely at the statutory language allowing for an exclusion of price evaluation at the IDIQ level only when an agency is procuring ““task or delivery orders based on hourly rates” under 41 U.S.C. § 3306(c)(3). The court reasoned:

by including the phrase “task or delivery orders” immediately before the phrase “based on hourly rates,” Congress has unambiguously expressed its intent to limit the type of task orders eligible for the exception in Section 3306(c)(3) to only those “based on hourly rates.” See 41 U.S.C. § 3306(c)(3). The phrase “based on hourly rates” as used in Section 3306(c)(3) includes the transitive verb form of “base,” which means “to make, form, or serve as a base for[;] . . . to find a base or basis for — usu[ally] used with on or upon.” In turn, the noun form of “base” is defined as “the fundamental part of something.” Something is “fundamental” if it is “of central importance.”

(citations omitted)

So, time-and-materials and labor-hour contracts are based on hourly rates, but if hourly rates are merely “embedded in the contractor’s bid amount,” such as in a firm fixed price context, that is not enough to meet the statutory language to be “based on hourly rates.”

The Polaris solicitation included task order types not based on hourly rates: “Section 3306(c)(3) permits procuring agencies to avoid evaluating price at the IDIQ level only if the IDIQ contracts issued under the procurement ‘feature’ task orders ‘based on hourly rates,’ meaning time-and-materials and labor-hour task orders.” These type of task orders must “make up a featured, or predominant, portion of the task orders issued under the contract.” And “if GSA wishes to rely on Section 3306(c)(3) to avoid evaluating price at the IDIQ level, GSA must amend the Polaris Solicitations’ terms to clearly feature time-and-materials and labor-hour task order.”

Therefore, the court ordered GSA to amend the solicitation to either feature hourly-rate based task orders or to evaluate price and cost at the IDIQ level. This case represents an important aspect of procurements, that the Solicitation must comport with applicable law, including statutory law. Here, the exception to evaluating price at the IDIQ level is quite narrow, and Polaris is not allowed to utilize that exception unless it meets the narrow exception.

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