Tag Archives: price realism

Hiring Incumbent Employees At Low Labor Rates–What Could Go Wrong?

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A company bidding to replace an incumbent service contractor cannot presume incumbent workers will take major pay cuts without setting itself up for a potentially successful protest.

FAR 22.12 generally requires successor service contractors to give a right of first refusal to qualified employees under the previous contract. And even when these nondisplacement rules don’t apply, many offerors’ proposals tout their efforts to retain incumbent employees. But asking incumbent employees to take significant pay cuts–and expecting them to accept–is unreasonable and can torpedo a proposal. Case in point: GAO sustained a protest recently against an awardee who had proposed high retention rate of incumbent workers, but lower pay for those positions.

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GAO Reaffirms Agencies’ Broad Discretion to (Not) Consider Price Realism for Fixed-Price Contracts

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As a general rule, an agency is only required to evaluate a fixed-price offer for reasonableness (that is, whether the price is too high). Agencies are not required to evaluate fixed-price offers for realism (that is, whether the price is too low) and, in fact, cannot do so unless the solicitation advises offerors that a realism evaluation will be conducted.

GAO recently reaffirmed this principle when it denied a protest challenging an agency’s refusal to consider the realism of offerors’ fixed prices as part of a corrective action, even though the agency suspected that at least one offeror’s price was unrealistically low.

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GAO: Lower-Paid Incumbents An “Obvious” Price Realism Concern

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An offeror’s proposal to hire incumbent personnel–but pay those personnel less than they are earning under the incumbent contract–presents an “obvious” price realism concern that an agency must address when price realism is a component of the evaluation.

In a bid protest decision, the GAO held that an agency’s price realism evaluation was inadequate where the agency failed to address the awardee’s proposal to hire incumbent personnel at discounted rates.

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GAO: Awardee’s Low Price Isn’t Too Low, Absent a Price Realism Evaluation

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In a fixed-price procurement, an agency cannot reject an offeror for proposing a “too low” price unless the solicitation specifically contemplates a price realism evaluation.

This point is one of several interesting issues recently addressed by GAO in URS Federal Services, Inc., B-412580 et al. (Mar. 31, 2016). Another interesting issue—pertaining to an offeror’s protest of the awardee’s subcontractors’ size—will be addressed in a forthcoming post. But this post serves as a reminder of an important limitation to a protester’s ability to challenge an awardee’s price.

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GAO: If Price Realism Will Be Evaluated, Offerors Must Be Notified

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Agencies must notify offerors when price realism will be evaluated under a fixed price solicitation.

Recently, the GAO sustained a protest where a procuring agency rejected an offeror’s proposal because the offeror’s quoted prices were significantly lower than the government’s estimate–even though the solicitation did not notify offerors that price realism would be evaluated.

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Preaward Notice Did Not Affect Timeliness Of Price Realism Protest

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An agency’s preaward notice did not start the “clock ticking” for an unsuccessful competitor’s subsequent GAO bid protest.

In a recent decision, the GAO held that the protesters were not required to file their GAO bid protests within 10 days of receiving the agency’s preaward notice because the protests were based on an allegation that the agency had failed to conduct a price realism evaluation–and the protesters were not made aware of the awardee’s price in the preaward notice.

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Price Realism Evaluation: Only If Solicitation Says So

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An agency awarding a fixed-price contract can only evaluate offerors’ proposals for price realism–that is, determine whether offerors’ proposed pricing is so low as to be unrealistic–if the solicitation calls for a price realism evaluation.

In a recent bid protest decision, the GAO confirmed that when a fixed-price solicitation does not advise offerors that a price realism evaluation will be conducted, the agency is not permitted to reject an offeror’s proposal because of unrealistically low pricing.

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