By: Paul Emanuelli
This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2020 decision in Noble Supply & Logistics, Inc., the U.S. Government Accountability Office (GAO) granted a redraft and reissue order after determining that the government failed to properly assess competing prices. The dispute dealt with acquisition of a large volume of hardware maintenance and repair products valued at $1.84 billion for the Navy, $670 million for the Army, $354 million for the Air Force, and $481 million for the Marine Corps. A losing bidder challenged the price evaluation process, arguing that the government engaged in a distorted assessment of cost since its evaluators only considered unit prices for price reasonableness, but failed to compare the actual costs of competing bids based on anticipated contract volumes. The GAO agreed with the complainant:
The protester argues that the solicitation’s evaluation and source selection methodology fails to meaningfully consider price in contravention of applicable procurement laws and regulations. The agency responds that its evaluation of vendors’ pricing solely for reasonableness is appropriate and consistent with our decisions regarding the use of a highest-technically rated reasonably-priced (HTRRP) selection methodology. We disagree with the agency. When, as here, an agency seeks to establish BPAs under the FSS, the use of an HTRRP source selection methodology fails to fulfill the agency’s obligation to consider the “lowest overall cost alternative” to the government as required by 41 U.S.C. § 152(3)(B) and FAR §§ 8.404(d) and 8.405-3(a)(1)-(2). Accordingly, we sustain the protest on this basis. The protester also argues that the solicitation’s required pricing structure is inconsistent with the underlying FSS contract, and the agency has failed to explain how the two are consistent other than to assert that it has used this pricing structure in the past. Based on the record before us, we find that the solicitation is inconsistent with the terms of the underlying FSS contract, and we sustain the protest on this basis as well.
While the GAO agreed that the government was not required to award to the low bidder, it found that the evaluators had to assess the actual cost of competing bids when conducting their price evaluations:
This is not to say that, when conducting an FSS procurement, agencies must use a lowest-price technically acceptable procurement model, and are precluded in all cases from selecting a more advantageous quotation at a higher price. To the contrary, the FAR contemplates the consideration of “the lowest overall cost alternative,” and specifies that the government may consider features in addition to price when making its source selection decision. See FAR § 8.404(d). This assessment, however, requires at a minimum, a comparative consideration of price in conjunction with any additional features and benefits to the government.
The GAO found the government’s price realism analysis was inadequate since it only assessed whether the unit prices were too high. However, that approach to evaluating cost failed to factor the head-to-head assessment of competing prices into the evaluation, and therefore failed to properly take value-for-money considerations into account as required by the procurement rules:
Here, the record reflects that the solicitation originally established a price evaluation that contemplated conducting a head-to-head comparison of vendors’ prices for a “market basket” of 250 specified items for each of the four contemplated BPAs. AR, Tab 3, Original RFQ, at 40-42 and at attachs. B.1, B.2, B.3, B.4, Industrial Supplies Market Baskets. The agency, however, amended the solicitation to remove the market basket approach, and settled on a price evaluation that solely considers the reasonableness of each product’s unit price in each vendor’s product catalog. See AR, Tab 5, RFQ amend. 2, attach. A, Q & A, at 23. The contracting officer explains that the agency will input each vendor’s entire catalog price list into GSA’s Price Point PLUS Portal (4P Tool), which is a GSA developed market research tool that provides multiple data points to assist GSA contracting staff in determining whether fair and reasonable pricing has been obtained. COS at 3 ¶ 15. The tool will review each of the items in a vendor’s catalog to determine if the pricing for the item is within current market thresholds. Id. The tool will then create a report showing which items are within market thresholds and for which items additional information is needed to determine if the item falls within market thresholds. Id. The agency will review any items not found within market thresholds and either conduct additional market research or seek additional information from the vendor to justify the pricing. Id. at 3 ¶ 16.
The sole purpose of a price reasonableness review, however, is to determine whether prices are too high. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3. Such an evaluation, by its nature, does not provide a basis to assess whether one vendor’s pricing will result in the “lowest overall cost alternative” as required under an FSS procurement. Without any comparative assessment of prices, any best-value determination will be made without a weighing of the value and benefits associated with a vendor’s approach against its associated cost to the government.
Such an approach is not permitted in the context of an acquisition under the FSS program.
Additionally, we note that the prices the agency will evaluate for reasonableness are the vendors’ schedule prices, as well as any discounts to those prices. GSA, however, already determined vendors’ schedules prices to be fair and reasonable when it awarded the vendors’ schedule contracts. See FAR § 8.404(d); AR, Tab 2, Acquisition Plan, at 7. Logic suggests that discounts to reasonable prices would also be reasonable–i.e., not too high. See Verizon Federal, Inc., B-293527, Mar. 26, 2004, 2004 CPD ¶ 186 at 6 (“In awarding the FSS contracts upon which the quotations were based, the [GSA] determined that the labor rates were fair and reasonable. FAR § 8.404(a)(1)(ii). In light of the fact that [the awardee] quoted labor rates that were approximately 25 percent lower than its FSS contract labor rates, we see no basis to conclude that [the awardee’s] price was unreasonable.”). The agency acknowledges in its acquisition planning documents that “[t]he prices under the resultant BPAs will have already been determined fair and reasonable by the vendor’s GSA [FSS] 51V or 75 Contracting Officer.” AR, Tab 2, Acquisition Plan, at 7.
It is clear that the agency’s planned HTRRP evaluation methodology does not provide for a comparison of the price of performance under competing quotations; rather the agency’s contemplated price evaluation will consist only of making an ostensibly pre-determined price reasonableness finding. Such an evaluation does not satisfy the agency’s obligation to make a best-value source selection decision that, at a minimum, considers price and results in the lowest overall cost alternative to meet the government’s needs. See 41 U.S.C. § 152(3)(B); FAR §§ 8.404(d), 8.405-3(a)(1), and 8.405-3(a)(2).
The GAO therefore ordered the government to amend its solicitation so that its price evaluation took the actual costs of competing pricing into account in the evaluation and award decision.
As this case illustrates, while mass product orders may create significant complexities in estimating volumes and comparing competing pricing, those complexities do not give public institutions free licence to ignore the assessment of actual costs based on a comparison of competing price offers. To be defensible, price evaluations need to integrate the actual costs of competing bids into the evaluation and award decision.
