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).