Unbalanced pricing exists when despite an acceptable total evaluated price, the price of one or more line items is significantly over- or understated. Federal Acquisition Regulation (FAR) 15.404-1(g)(2) instructs contracting officers (COs) to analyze offers with separately priced line items or subline items to determine whether the prices are unbalanced. If unbalanced pricing is detected, the FAR requires that the CO consider the risks to the government in making the award decision and whether the contract award will result in paying unreasonably high prices for contract performance. If the performance or pricing risks associated with unbalanced pricing rise to unacceptable levels, the procuring agency may reject the offer containing the unbalanced pricing. Alternatively, the agency may accept the offer with unbalanced pricing if, after conducting a risk assessment, it determines that the offer does not pose an unacceptable performance risk and that the government is unlikely to pay unreasonably high prices. The methodology and scope of an agency’s cost or price analysis are matters within the agency’s discretion, and the GAO only reviews the record to ensure that the evaluation is reasonable and consistent with the terms of the solicitation and the applicable law.

At the outset of a small business set-aside procurement, the contracting officer (CO) assigns the procurement a North American Industry Classification System (NAICS) code, which has a corresponding size standard. The CO is also responsible for structuring the procurement as one for manufactured products or supply items, or for services. When a contract for manufactured products or supply items is set aside for small business, the prime contractor must either manufacture the end item or qualify under the nonmanufacturer rule. Entities may qualify as a manufacturer if they manufacture the end item in the United States. Under the relevant regulations, a manufacturing entity utilizes its own facilities to perform the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being procured. Notably, there can only be one manufacturer of an end item for size purposes. The Small Business Administration (SBA) conducts an analysis under three factors enumerated in 13 C.F.R. § 121.406(b)(2)(i) to determine whether an entity is the manufacturer. These factors are:

• (A) The proportion of total value in the end item added by the efforts of the entity, excluding costs of overhead, testing, quality control, and profit.
• (B) The importance of the elements added by the entity to the function of the end item, regardless of their relative value.
• (C) The entity’s technical capabilities; plant, facilities and equipment; production or assembly line processes; packaging and boxing operations; labeling of products; and product warranties.

The General Services Administration (GSA) Federal Supply Schedule (FSS) program requires pre-approved schedule contractors to publish an authorized FSS pricelist containing all the supplies and services they offer. The pricelists include the terms and conditions for each Special Item Number (SIN) on the contractors’ schedules. Federal Acquisition Regulation (FAR) 8.401 defines a SIN as a group of generically similar (but not identical) supplies or services intended to serve the same general purpose or function. When issuing requests for quotes (RFQs) under FAR subpart 8.4, procuring agencies may include a provision identifying a SIN and expressly limit the procurement to that SIN. In such procurements, only contractors with the identified SIN on their schedule contracts may compete to fulfill the requirement. Additionally, in service procurements, contractors may only propose labor categories (LCATs) that fall under the applicable SIN. However, procuring agencies do not always identify an applicable SIN or limit the contractors’ ability to only propose LCATs from a particular SIN. In the absence of such SIN limitations, contractors may compete for the RFQ if the quoted goods and services are available on their underlying FSS contracts without regard to a particular SIN.