Protesting Results of the Government’s Price Realism Analysis

When evaluating the pricing of prospective contractors, the government must determine whether the proposed pricing is realistic for the work to be performed. The government performs price realism analysis to ensure that the offerors’ pricing reflects a clear understanding of the technical performance requirements. While the Federal Acquisition Regulation (FAR) does not provide agencies with a specific roadmap to conduct price realism analysis, the government must still conduct realism analysis on proposed pricing where the solicitation so requires. Furthermore, the government must also conduct such an analysis if the solicitation advises offerors that the government will review proposed pricing to ensure that the prices are not so low that they demonstrate a lack of understanding of the technical requirements. In the latter scenario, the solicitation must also warn offerors their proposed solution may be rejected if the government determines their proposed pricing as unrealistic. By conducting price realism analysis in such situations, the government ensures that offeror pricing is consistent with the proposed technical solution.

In B-422309, the Government Accountability Office (GAO) sustained a protest alleging that the price realism analysis conducted by the Air Force was unreasonable. The April 2024 bid protest decision concerned a Request for Proposal (RFP) that contemplated the award of an indefinite-delivery, indefinite quantity (IDIQ) contract for base operations support services at the Homestead Air Reserve Base in Florida. Under the IDIQ contract, the Air Force planned to issue fixed-price, time and material (T&M) and cost-reimbursable task orders for the management of materiel, fuel, and services such as ground transportation, traffic operations and real property maintenance. The evaluation under the RFP was to be conducted in two phases, first of which involved an evaluation of proposed pricing. Notably, the RFP advised prospective offerors that their proposed pricing would be evaluated for price realism, if necessary. The RFP also warned prospective offerors that their proposed prices must be based on their corresponding technical approach and demonstrate a logical correlation to the staffing proposed in the technical approach. All offerors with unfavorable proposed pricing were to be excluded from the competition after the first phase. Under the second phase of the evaluation, the Air Force would evaluate the offerors’ proposals for technical acceptability, starting with the lowest priced proposal. To conclude the second phase, the technically acceptable proposals would be evaluated for past performance, with the Air Force finally awarding the contract to the proposal offering the most favorable combination of price and past performance.

To arrive at the total evaluated price (TEP) for the price evaluation in phase one, the Air Force required offerors to submit their proposed prices in two parts. Part 1 required offerors provide unit prices for each fixed-price contract line item number (CLIN). Meanwhile Part 2 required offerors to complete a pricing workbook with various worksheets to calculate the TEP. For the “firm-fixed-price (FFP) worksheet”, the offerors were required to enter the unit prices for each fixed-price CLIN, along with a material handling fee, and a mobilization fee. For the “service contract labor standards worksheet” and the “construction wage rate worksheet”, the offerors had to provide fully burdened normal duty hour (NDH) and overtime (OT) time and materials (T&M) labor rates for various labor categories (LCATs). The government had provided estimated NDH and OT labor hours for each LCAT in these two sheets for the calculation of an extended price for each LCAT. The extended price for each LCAT for NDH and OT hours was then added to arrive at a total price for each year on the service contract labor standards and the construction wage rate worksheets. Finally, the “summary worksheet” automatically calculated the TEP based on the unit prices and the extended total labor pricing for the FFP and T&M CLINs. The protestor’s proposal was one of many received by the Air Force before the proposal submission deadline in November, 2023. Based on the protestor’s TEP, which was significantly lower than the internal government estimate (IGE) and the average proposed price, the Air Force determined that it was necessary to conduct a price realism analysis on the protestor’s proposal.

Based on the results of the price realism analysis, the protestor’s proposal was rejected after phase one of the evaluation for proposing unrealistically low pricing. In conducting the price realism analysis, the Air Force not only noted that the protestor’s TEP was lower than the IGE and average price for all offerors but was also significantly lower than the second-low offeror’s TEP. The Air Force then compared the protestor’s technical proposal with the second-low offeror’s technical proposal and noted that the protestor actually proposed slightly more full time equivalents (FTEs). On the basis of this comparison, the Air Force concluded that the protestor’s unit prices for the fixed-price CLINs must be unrealistic because the protestor could not have proposed more FTEs at its much lower TEP. The Air Force then compared the protestor’s T&M labor rates to that of the second-low offeror and noted that the protestor’s labor rates were only slightly lower on average. Based on this observation, the Air Force again concluded that the protestor’s unit prices for the fixed-price CLINs must be unrealistic. The protestor alleged that the price realism methodology adopted by the Air Force was unreasonable.

The GAO agreed with the protestor, beginning its analysis by first explaining that while the depth of a price realism analysis is within the sound exercise of the government’s discretion, it was still the government’s responsibility to ensure that such an analysis is reasonable. Furthermore, to be considered reasonable, the government’s price realism analysis must include a consideration of the concerned offeror’s proposed technical approach. That is, a price realism analysis based only on a comparison of proposed prices is inherently flawed as it is bereft of the consideration of each offeror’s technical approach. In this case, the record did not demonstrate that the Air Force conducted a reasonable price realism analysis because it did not consider the protestor’s technical solution, including its proposed labor mix or labor utilization strategy. In its price realism analysis, the Air Force only compared the number of proposed FTEs by the protestor and the second-low offeror, along with their proposed T&M labor rates. Such a price realism analysis was unreasonable as it did not provide any meaningful information about the performance risks inherent in the protestor’s proposed solution due to its allegedly unrealistically low pricing. Since the Air Force failed to consider the protestor’s proposed labor mix or labor utilization strategy, the GAO concluded that the price realism analysis was unreasonable. Importantly, the GAO noted a previous decision in which the price realism analysis limited to comparing the proposed prices of offerors was considered reasonable because the government had determined that the offerors’ technical approaches were similar. However, in this case the GAO concluded that the Air Force could not have made such a determination without comparing the labor mix and technical solutions even though the proposed FTEs were similar.

Contractors facing adverse price realism determinations should remember that when conducting a price realism analysis, it is the government’s obligation to examine their proposed technical solution in conjunction with their proposed pricing and a failure to do so may be protested. When protesting government determinations of unrealistic pricing, prospective contractors should first ensure that the pre-conditions necessary for the government to conduct a price realism analysis exist in their particular situation. That is, the solicitation expressly advised interested contractors that the government would conduct a price realism analysis. Without such an express directive, the solicitation must advise offerors that their proposed pricing would be reviewed to ensure it reflects an understanding of the technical requirements and that proposals may be rejected if an offeror’s pricing is unrealistically low. If these preconditions are met, protestors challenging the government’s determination of unrealistic pricing may allege that the government failed to follow the price realism analysis instructions in the solicitation. While it may be within the government’s discretion to conduct the price realism analysis using an appropriate method if the solicitation does not contain such instructions, such a method must be reasonable and protestors may still succeed if the government fails to adequately support its findings or document the results of its analysis.

This Bid Protest Insight provides a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.

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Protesting Results of the Government’s Price Realism Analysis

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