Problems Found With Agency’s Price Realism Analysis

The GAO sustained a protest filed by two unsuccessful offerors that the agency did not conduct a proper price realism analysis.

In this procurement, the Request for Proposals (RFP) sought fixed-price proposals for computer support services for agency locations both in the U.S. and around the world.  The procurement was valued at $500 million. As part of the RFP, proposals were to be subject to a price realism analysis.

Generally, the GAO noted that a price realism analysis need not be conducted during the evaluation of proposals for the award of a fixed-price contract.  However, in light of the various negative impacts on both the agency and the contractor arising from an offeror’s overly optimistic proposal, an agency may expressly provide for a price realism analysis, such as it did here.  If the GAO receives a protest against an agency’s price realism analysis, the focus of the GAO review is on whether the agency acted reasonably and in a manner consistent with the solicitation’s requirements.

In this protest, the GAO found two problems.  First, the GAO found significant disparities between the staffing in the awardee’s technical/management proposal and its pricing proposal. The awardee’s price proposal contained staffing that decreased steadily throughout the option years to a level significantly below that outlined in its technical/management proposal.  Nothing in the awardee’s proposal explained the decline in option year staffing.  A second problem was that the awardee’s proposal described a staffing strategy for hiring incumbent personnel, but the awardee offered labor rates that were significantly below the rates offered by the incumbent contractor.  The GAO found the agency’s failure to consider this in its price realism analysis to be unreasonable.

In sustaining the protest, the GAO again recognized that agencies are not necessarily required to perform realism evaluations in fixed price contract settings.  Nonetheless, if the agency undertakes to do so as was the case here, the agency’s evaluation must be consistent with the provisions of the FAR governing the conduct of price realism evaluations and, more specifically, with any evaluation standards established in the solicitation.  For this procurement, the RFP specifically provided the technical/management  and price proposals would be evaluated for consistency with each other.  But the agency did not observe, much less analyze, the fact that the staffing included in the awardee’s proposed pricing was inconsistent with the staffing proposed in its technical/management proposals.  Thus, the GAO sustained the protests.  Separately, the GAO also found the agency had mislead the protesters over how the incentive fee should be priced when submitting offers RFP.

In sustaining the protests, the GAO recommended that the agency evaluate the revised proposals in a manner consistent with the terms of the RFP and make a new source selection decision, as well as following other recommendations.  The GAO also recommended that the agency reimburse the protesters for the costs of filing and pursuing their respective protests, including reasonable attorneys fees.

General Dynamics One Source, LLC; Unisys Corporation, B-400340.5, B-400340.6, January 20, 2010.