GAO: Price Realism Not Ordinarily Permitted in Fixed-Price Procurements
A recent Government Accountability Office ("GAO") bid protest decision provides a reminder of when an agency may conduct a price realism analysis in fixed-price contracts. So, the next time you want to challenge a competitor's low price, remember that agencies are neither required nor permitted to conduct a price realism analysis in a fixed-price procurement unless the solicitation calls for it either expressly or impliedly.
The protest of Inbound, LLC, B-419853.5, July 30, 2021, 2021 CPD ¶ ___ involved the protester's challenge to the establishment of multiple blanket purchase agreements ("BPA") under an request for quotation ("RFQ") issued by the Department of Agriculture, Forest Service ("Agency") for wildland firefighter services. The protester's primary argument was that the Agency failed to conduct a price realism analysis of the other offerors' quotes as part of its price evaluation.
Briefly, in January 2021, the Agency issued the RFQ to procure "Type 2 wildland firefighter crews for 34 host unit coordinate centers (HUCC) throughout the United States." The RFQ anticipated the establishment of multiple fixed-price BPAs for a period of 5 years with annual reviews. Relevant here, the Agency was to evaluate price by determining whether it was fair and reasonable. In that regard, the RFQ provided that vendors were to provide a price quotation consisting of itemized pricing for each location offered and included the following provision:
An analysis will be conducted on the unit price proposed to determine the demonstrated understanding of the level of effort and equipment needed to successfully perform these services. Fair and Reasonableness will be determined by comparing current competition, historical data, and the Government Estimate. Rates must be determined fair and reasonable to be considered for an agreement.
Following evaluations, the Agency concluded that that two of the protester's three proposed firefighter crews were "higher than the maximum price the agency viewed as reasonable" and did not award it a BPA for those crews. Instead, the Agency established BPAs with 52 other vendors and a single BPA for the protester's reasonably priced crew. The protest followed.
Here, the protester's main argument was that the Agency failed to conduct a price realism analysis on the low prices of its competitors' quotes. Specifically, the protester asserted that the RFQ required the Agency to conduct a price realism analysis, which the Agency failed to perform. [1] The Agency argued that the RFQ did not require a price realism analysis and, as such, was not allowed to perform that analysis. Instead, the Agency evaluated price to determine whether prices were "fair and reasonable."
Ultimately, GAO denied the protest after concluding that the RFQ did not provide for a price realism analysis, either expressly or impliedly. [2] Regarding implied price realism, GAO concluded that while the RFQ did commit the Agency to analyzing whether prices reflected an adequate understanding of the solicitation requirements, the RFQ failed to include any language stating that the Agency could reject proposals for offering prices that were too low. Thus, because the RFQ did not state that the Agency could reject proposals for offering prices that were too low, the Agency was also not required to perform a price realism analysis. [3] Hence, GAO denied the protest.
Takeaway
This protest provides a timely reminder on when an agency may conduct a price realism analysis in fixed-priced contracts. Where a solicitation does not contemplate a price realism analysis under a fixed-price contract, the government cannot perform it. Thus, contractors should carefully read solicitations both prior to bidding and prior to lodging any protest to determine whether the agency committed itself to performing such an analysis. Again, with price realism, the watchwords are: (1) a provision calling for a price realism analysis or (2) a provision that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding combined with a provision that the agency can reject a proposal for offering low prices.
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[1] The purpose of a price realism analysis is to determine whether prices are too low, such that there may be a risk of poor performance, or to confirm a vendor’s understanding of the requirements of the solicitation. FAR 15.404-1(d); C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3.
[2] GAO's decisions have found, in the absence of an express price realism provision, GAO will only conclude that a solicitation contemplates a price realism analysis where the solicitation explicitly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and where the solicitation states that a proposal can be rejected for offering low prices. DynCorp Int'l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 9; STG, Inc., B-411415, B-411415.2, July 22, 2015, 2015 CPD ¶ 240 at 14.
[3] Absent a solicitation provision providing for a price realism analysis, agencies are neither required nor permitted to conduct one in awarding a fixed-price contract. DynCorp Int'l LLC, supra at 9.
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