In its December 2016 decision in Target Media Mid Atlantic, Inc., the GAO ruled that the Navy had failed to conduct a proper cost realism analysis in its award of a cost-plus contract. As the GAO noted, when evaluating bids on cost-plus contracts, the government should not accept bidder cost estimates at face value “since the estimates may not provide valid indications of the final actual costs.” However, the GAO found that the government failed to meet the requirements of a valid cost analysis since it never compared the cost estimates against prevailing market rates or against the salaries of incumbent staff. It therefore ordered the government to conduct a re-evaluation.
