The Government Accountability Office (GAO) has just sustained a protest in which the protester argued that the awardee's proposal should have been rejected as unacceptable on the basis that its price was too low. The solicitation established that the agency would evaluate whether bidders' prices were unrealistically low and the record reflected a failure by the agency to perform a price realism evaluation of the awardee's low price.
The solicitation advised offerors that "unrealistically" low prices "may" serve as a basis for rejection of a proposal. GAO said: "Implicit in the solicitation's reference to 'unrealistically' low prices is the presumption that the agency would actually consider whether an offeror's price is in fact unrealistic and, as a consequence, unacceptable."
The Air Force in this case argued that the evaluation for price realism was optional because the solicitation said unrealistically low price proposals "may" be found unacceptable. Wrong, says GAO. The use of the term "may" refers to the agency's discretion to reject an unrealistically low price, as opposed to reserving to the agency the right to evaluate prices for realism in the first place.
GAO sustained the protest because the agency failed to contemporaneously evaluate whether the awardee's low price, which was 17 percent below the government's estimate, was realistic.
What is a price realism analysis? Price analysis is covered in FAR 15.404-1(b), There are various techniques listed with preference for the first two. Price realism is covered in FAR 15.404-1(d)(3) where the regulation states cost realism may be used on competitive fixed-price contracts in certain circumstances. GAO has made it clear that if the solicitation uses the magic words indicating unrealistically low prices may be cause for rejection, the agency must then carry through and perform the analysis. What is the analysis? It is to determine whether the proposed price is realistic for the work to be performed, reflects a clear understanding of the contract requirements and is consistent with the contractor's technical proposal.
In our opinion, also implicit in such solicitation language is the requirement to check whether the pricing is unbalanced. See FAR 15.404-1(g).
bill@spriggslawgroup.com www.spriggslawgroup.com
Thursday, May 9, 2013
Tuesday, May 7, 2013
PROCUREMENT TRENDS SO FAR IN 2013
We can only report on what we see. We don't see everything and report only on what is happening in our corner of experience. However, there are some noticeable trends so far in 2013 worthy of note. They involve source selection, protests, sequestration related pullbacks of outsourced work and claims. Here are some of the things we've noticed.
Protests seem to be trending upward. GAO publishes its statistics once a year and the last publication does not show what we're seeing now. More contractors are seriously considering and actually filing protests. And, the rate of sustained protests, particularly over the last few months, is trending downward. Frankly, we can't even remember the last protest sustained by GAO. The grounds for protesting seem to center around allegations of unreasonable evaluations and source selection decisions that don't follow the published evaluation factors. There is an increase in claims that best value procurements have been turned into lowest price, technically acceptable (LPTA). One thing is clear: agencies are finding ways to go to the lowest priced offeror. Contractors beware. The lowest price may win no matter what the evaluation factors may say.
Evaluation factors are not clear. That's often been the case in the past, but it appears there may now be a purpose in lack of clarity. Contractors need to clear up any ambiguity in how they will be judged before they submit their proposals. They should especially beware of best value procurements which leave any question as to whether the agency really is looking for the lowest price. Agencies should be candid and spell out exactly what they mean when they suggest the that as the technical proposals are subjectively judged to be close to equal, price becomes more important. What does close to equal mean? How important will price become?
With regard to claims, we also see a trend that they are increasing. We've seen several examples in which the agency has reduced work on task orders because of sequestration. The problem is that on fixed priced orders, cutting back is a partial termination which permits the contractor to submit a termination settlement proposal which also reprices the remaining work. The real problem arises in commercial item contracts where the agency proposes a modification descoping the work. The changes clause in these contracts says changes can only be made by mutual agreement. Unilateral changes are a breach of the contract. And then there is the problem contractors have with the way the commercial item contract termination for convenience clause is written. It has been interpreted to restrict the type of recovery afforded under the non commercial item clause.
We've also seen a trend in which agencies are treating fixed priced work as if it were time and materials. In a time and materials contract, contractors have precious little opportunity for relief when hours are reduced. We are seeing some contractors struggling with the way to reprice the remaining work.
In the case of fixed price commercial contracts, we are seeing some contractors resorting to the old breach of contract claim. (As we've written, constructive changes were a fiction of the past to make breaches of contract compensable under the changes clause so the Boards of Contract Appeals would have jurisdiction.) Again, agencies cannot impose unilateral changes in commercial item contracts. That's a breach. Unilaterally imposed reductions of work are terminations for convenience. It remains to be seen whether contractors can successfully argue these reductions are breaches of contract.
So as far as trends go from our little corner of the world, protests and claims trend upward and successful protests trend downward. Claims are still in their infancy. The need for careful review of evaluation factors could never be more more important.
bill@spriggsconsultingservices.com www.spriggsconsultingservices.com
Protests seem to be trending upward. GAO publishes its statistics once a year and the last publication does not show what we're seeing now. More contractors are seriously considering and actually filing protests. And, the rate of sustained protests, particularly over the last few months, is trending downward. Frankly, we can't even remember the last protest sustained by GAO. The grounds for protesting seem to center around allegations of unreasonable evaluations and source selection decisions that don't follow the published evaluation factors. There is an increase in claims that best value procurements have been turned into lowest price, technically acceptable (LPTA). One thing is clear: agencies are finding ways to go to the lowest priced offeror. Contractors beware. The lowest price may win no matter what the evaluation factors may say.
Evaluation factors are not clear. That's often been the case in the past, but it appears there may now be a purpose in lack of clarity. Contractors need to clear up any ambiguity in how they will be judged before they submit their proposals. They should especially beware of best value procurements which leave any question as to whether the agency really is looking for the lowest price. Agencies should be candid and spell out exactly what they mean when they suggest the that as the technical proposals are subjectively judged to be close to equal, price becomes more important. What does close to equal mean? How important will price become?
With regard to claims, we also see a trend that they are increasing. We've seen several examples in which the agency has reduced work on task orders because of sequestration. The problem is that on fixed priced orders, cutting back is a partial termination which permits the contractor to submit a termination settlement proposal which also reprices the remaining work. The real problem arises in commercial item contracts where the agency proposes a modification descoping the work. The changes clause in these contracts says changes can only be made by mutual agreement. Unilateral changes are a breach of the contract. And then there is the problem contractors have with the way the commercial item contract termination for convenience clause is written. It has been interpreted to restrict the type of recovery afforded under the non commercial item clause.
We've also seen a trend in which agencies are treating fixed priced work as if it were time and materials. In a time and materials contract, contractors have precious little opportunity for relief when hours are reduced. We are seeing some contractors struggling with the way to reprice the remaining work.
In the case of fixed price commercial contracts, we are seeing some contractors resorting to the old breach of contract claim. (As we've written, constructive changes were a fiction of the past to make breaches of contract compensable under the changes clause so the Boards of Contract Appeals would have jurisdiction.) Again, agencies cannot impose unilateral changes in commercial item contracts. That's a breach. Unilaterally imposed reductions of work are terminations for convenience. It remains to be seen whether contractors can successfully argue these reductions are breaches of contract.
So as far as trends go from our little corner of the world, protests and claims trend upward and successful protests trend downward. Claims are still in their infancy. The need for careful review of evaluation factors could never be more more important.
bill@spriggsconsultingservices.com www.spriggsconsultingservices.com
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