This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its March 2006 decision in Information Ventures, Inc., the U.S. Government Accountability Office (GAO) ordered the Department of Health and Human Services to conduct a re-evaluation after finding that the initial evaluation applied an unreasonable cost analysis to competing proposals. The case involved a Request for Proposals (RFP) issued by the Centers for Disease Control and Prevention for technical support services. The RFP summarized the evaluation criteria as follows:
The RFP advised offerors that proposals would be evaluated on the basis of technical strength, past performance, and cost, and stated that technical strength and cost would be of “approximately equal value” in the agency’s award determination. RFP at 51-52. The technical strength evaluation factor had four subfactors: methodologies and management approach (30 points), technical approach and understanding the requirement (30 points), qualifications of individuals (30 points), and understanding the purpose and objective (10 points). Id. at 51.
The complainant alleged that the Department’s application of these criteria was unreasonable, maintaining that the Department applied an arbitrary “cost realism” analysis to competing proposals that failed to properly take into account the divergent approaches and instead substituted the Department’s own estimates. The GAO agreed that the evaluation was unsound:
The agency’s rationales and analyses cited above clearly demonstrate that the agency increased each offeror’s proposed hours to the agency’s estimate of the required hours, without any consideration of the hours that would be required under each offeror’s technical approach. An adjustment of offerors’ proposed hours to the government estimate is not reasonable where, as here, the government estimate is based on assumptions not disclosed by the agency and where offerors were free to propose different approaches. The Jonathan Corp.; Metro Mach. Corp., supra.
[T]he agency made no effort to determine whether either offeror’s technical approach would allow performance with fewer than 800 hours, or require more than 800 hours. We therefore believe that this cost evaluation resulted in an improper normalization.
Importantly, the agency’s determination that 800 hours was the minimum required for performance is at odds with information disclosed in the RFP. As discussed above, the RFP advised offerors that the project director position would require an estimated 25-30 hours per month of effort. RFP amend. 4 at 25. The agency’s cost realism increases, however assumed a minimum of 66 hours per month.
After finding that the Department had relied on undisclosed and unreasonable factors to determine the resource requirements of the competing proponents, the GAO ordered the resubmission and re-evaluation of proposals.
When assessing cost, purchasing institutions should be careful to construct a clear evaluation structure that aligns transparent quantity estimates with a clear pricing structure. When those two critical components are out of synch, the integrity and defensibility of an evaluation can be seriously compromised.
