A procuring agency need not inform an offeror, as part of discussions, that the offeror’s price is higher than those of its competitors.  According to a recent ruling of the Court of Federal Claims, the only exception is if the offeror’s price is so high as to preclude award to the offeror–an “unreasonable” price, in FAR parlance.

The Court’s decision in Lyon Shipyard, Inc. v. The United States (Nov. 27, 2013) comes on the heels of a recent GAO decision reaching a similar result.

The Lyon Shipyard case involved a Navy procurement for marine boatyard services.  The solicitation called for a “best value” evaluation, under which three factors would be considered: technical merit, past performance, and price.  The solicitation stated that an offeror’s proposal could be rejected if its proposed price was unrealistic, unreasonable, or unbalanced.

Lyon Shipyard, Inc. submitted a proposal.  After evaluating initial proposals, the Navy initiated discussions with the offerors remaining in the competitive range, including Lyon.  In the first round of discussions, the Navy informed Lyon that its price proposal was “significantly higher than the Government estimate” and asked Lyon to review certain specific elements of its pricing.

Lyon responded to the discussion question by stating that its pricing was developed “utilizing over twenty (20) years of past experience repairing these same small boats, including the last ten (10) years as an incumbent small boat IDIQ contractor.”  Lyon stated that it would consider changes to its price as part of its final proposal revision.

The Navy engaged in two additional rounds of discussions with offerors in the competitive range, including Lyon.  However, Lyon’s high price was not mentioned in these later rounds.  Lyon did not change its price in its final proposal revision.

In its evaluation of final proposals, the Navy assigned Lyon “Very Good” ratings for its technical merit and past performance.  However, Lyon’s price was the highest of the six remaining offerors.  In the best value tradeoff, the Navy stated that Lyon’s price was “considerably higher than the Government estimate and not in line with the other offerors.”  The source selection memorandum stated that although Lyon’s price was not “unfair or unreasonable” it would be “more difficult to justify as reasonable.”   The Navy made award to a lower-priced competitor.

Lyon filed a bid protest with the Court.  Lyon argued, in part, that the Navy should have informed Lyon that its price was excessive as compared to its competitors, and should have raised Lyon’s high price in the second and third rounds of discussions.

The Court wrote that “[c]ontrary to [Lyon’s] claim, there is no rule–either explicit or deriving from the notion that discussions must be ‘meaningful’–that required the Navy to discuss every weakness appearing in Lyon’s pricing proposal.”  The Court continued, “[i]n particular, the Navy was not obliged to advise Lyon that its price was higher than those of its competitors.  Rather, an agency is obliged to discuss an offeror’s price only if the price submitted would preclude award to the firm.”  But, “[s]uch was not the case here” because the Navy “had determined that this price was at least arguably reasonable, albeit too high.”

The Court also rejected the assertion that the Navy should have raised the issue of Lyon’s price in the second and third round of discussions.  The Court pointed out that in the first round of discussions, the Navy specifically informed Lyon that its price was high as compared to the independent government estimate. ”  The Court continued:

As a seasoned government contractor and a ten-year incumbent of two prior similar contracts, Lyon should not have presumed that it did not need to modify its final price because the Navy failed to raise any concerns about its high price in the second or third rounds of discussions. At the time it made its best and final offer, Lyon had no reason to think that the IGE had changed and every reason to believe that its price was still well above that estimate.

The Court denied Lyon’s bid protest.

The Lyon Shipyard case demonstrates that no matter the forum–GAO or Court of Federal Claims–an unsuccessful offeror will face tough sledding with an argument that its “reasonable” (but high) price should have been raised in discussions.  The case also serves as a cautionary tale that when the procuring agency informs an offeror that its price appears high, the offeror ignores that statement at its own peril.