Successful GAO Price Realism Protest Requires the Right Solicitation

Small businesses are frustrated when underbid by competitors for federal task orders.  These businesses may challenge awards based on price realism.  They may even have evidence the contract cannot be performed at the offered price.  While the evidence may be compelling and change the outcome of an award decision, it will not be considered – unless the solicitation specifically requires an evaluation of the price realism.

In the Matter of Earth Resources Technology

This evaluation principle was reiterated on September 18, 2018 when the Government Accountability Office (GAO) released an unprotected version of its decision in the Matter of:  Earth Resources Technology Inc., File:  B-416415; B-416415.2, dated:  August 31, 2018.

The GAO decision discussed two other issues (unstated evaluation criteria is allowed if reasonable; and, agencies can ignore information about key personnel if the information is not in the proposal), but it is the GAO’s price realism decision that deserves quotation:

“Protest that the agency failed to reasonably evaluate whether the awardee would be able to perform the task order at the price proposed is dismissed where the solicitation did not provide for the evaluation of the realism of vendors’ prices.”

The case involved Earth Resources Technology Inc. (ERT), a Maryland small business, that protested the issuance of a task order to another small business.

ERT argued that the Department of Commerce, National Oceanic and Atmospheric Administration (NOAA), unreasonably evaluated the offerors’ technical proposals and failed to assess whether the awardee could perform the task order requirements at its proposed price.  It argued the awardee couldn’t perform the task order because its price was 25 percent less than the independent government cost estimate (IGCE).  ERT complained NOAA “unreasonably failed to evaluate whether the awardee’s price was too low to achieve the level of performance set forth in its technical proposal” because the awardee’s price was so much lower.  In other words, NOAA did not conduct a price realism evaluation.

GAO, on the other hand, reasoned that the RFP stated that NOAA was supposed to evaluate whether offerors’ proposed prices were fair and reasonable, i.e., not unreasonably high.

Price Reasonableness v. Price Realism

The RFP stated that the, “The Government will conduct a price analysis in accordance with FAR 15.404-1 to determine that the offeror’s proposed pricing is fair and reasonable and consistent with the terms and limits of the base IDIQ.”  The RFP however, did not state, expressly or otherwise, that the agency would evaluate whether vendors’ proposed prices were realistic, i.e., too low for the work proposed.

The GAO wrote that “On this record, we conclude that the agency was not required to evaluate whether (the competitor’s) proposed price was too low to perform the ta sk order, and therefore dismiss this argument because it fails to state a valid basis of protest.  4 C.F.R. § 21.5(f).”

The GAO noted that when agencies seek to award time-and-materials task orders with fixed labor rates, price realism is not ordinarily considered, because a fixed-priced order places the risk and responsibility for costs and resulting profit or loss on the contractor (citing HP Enter. Servs., LLC, B-413888.2 et al., June 21, 2017, 2017 CPD ¶ 239 at 5; see FAR § 15.402(a)).  The GAO stated that if an agency is going to conduct a price realism analysis before awarding a fixed-price contract or task order for the limited purpose of assessing whether an offeror’s or vendor’s low price reflects a lack of technical understanding of risk, offerors or vendors must be advised that the agency will conduct such an analysis (citing FAR § 15.404-1(d)(3);  Emergint Techs., Inc., B-407006, Oct. 18, 2012, 2012 CPD ¶ 295 at 5-6).

According to the GAO, “A price realism review assesses whether proposed prices are too low, such that there may be a risk of poor performance.  See Federal Acquisition Regulation (FAR) § 15.404-1(d); C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3.”

As a result, if an agency’s solicitation does not expressly provide for the evaluation of price realism, the GOA will only find that price realism should be considered when:

(1) the solicitation states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding; and,

(2) the solicitation states that a proposal can be rejected for offering low prices.

Therefore, when challenging an award because your competitors’ prices appear too low, examine the solicitation carefully.  If it does not require the agency to evaluate price realism, agencies are not required or permitted to conduct a realism evaluation in awarding a fixed-price contract or task order.

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