This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its July 2019 decision in ATA Aerospace, LLC, the U.S. Government Accountability Office (GAO) ordered a re-evaluation after finding that the government evaluators were unable to support the conclusion of their price realism analysis with proper evaluation records. The case dealt with a bid protest in relation to a Request for Proposals (RFP) issued by the Department of the Air Force for research and development services in relation to space experiment programs.
In its RFP, the Air Force stated that it would conduct a price realism analysis to assess the reasonableness of proposed pricing prior to making a contract award decision:
As relevant to this protest, under the cost/price factor, offerors proposed a price for each of the three initial task orders. Id. at 156. The proposed price for each individual task order was evaluated for both reasonableness and realism. Id. The RFP stated that a price was reasonable if it represented a price “that a prudent person would pay in the conduct of competitive business.” Id. The RFP also explained that the agency would evaluate the cost realism of the proposed costs to evaluate “the extent to which proposed costs are realistic for the work to be performed; reflective of a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the [o]fferor’s technical proposal.” Id. The RFP provided that the agency would compute a most probable cost based on the anticipated performance costs and proposed fee, and that the offeror’s proposed estimated costs were not controlling for source selection purposes. Id. The agency also calculated a total evaluated price, which was the sum total of the most probable cost for each of the three initial task orders as computed by the agency. Id. If the proposed cost for any of the three task orders was determined to be unreasonable or unrealistic, the total evaluated price would be determined to be unreasonable or unrealistic. Id.
While the GAO determined that a price realism analysis need not achieve scientific precision, it held that those assessments should not be arbitrary and should be reasonably adequate in assessing the proposed rates:
While an agency’s cost realism analysis need not achieve scientific certainty, the methodology employed must be reasonably adequate and provide some measure of confidence that the rates proposed are reasonable and realistic in view of other cost information reasonably available to the agency at the time of its evaluation. Tantus Techs., Inc., B-411608, B-411608.3, Sept. 14, 2015, 2015 CPD ¶ 299 at 10. Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. TriCenturion, Inc.; SafeGuard Servs., LLC, B-406032 et al., Jan. 25, 2012, 2012 CPD ¶ 52 at 6.
The GAO found that there were significant unreconciled discrepancies regarding proposed work hours in the two bids competing for the space technology research and integrated vehicle experiments (referred to as STRIVE in the decision) contract, andthe GAO found no evidence that the Air Force conducted a proper price reasonableness analysis of those bids:
On this record, we find that the agency has failed to explain its findings regarding each offeror’s proposed labor hours as compared to the STRIVE contract historical data. There is no explanation or analysis in the evaluation record for how the agency could rationally conclude that both offerors’ proposed labor hours and labor mix were consistent with and analogous to the historical data for the STRIVE contract task orders, where ATAA proposed more than double the labor hours and cost that MEI proposed. Despite this lack of analysis, the agency relied, in large part, on this unsupported conclusion in determining that each offeror’s proposed cost for task order 3 was realistic. As a result, we find that the agency’s cost realism evaluation is not supported by the record and is unreasonable.
The agency argues that it conducted a reasonable and thorough cost realism evaluation and carefully reviewed MEI’s proposed labor hours, categories, and labor mix to determine that they were consistent with MEI’s technical proposal and reflected a clear understanding of the requirements, and that MEI’s proposed cost elements were realistic for the work to be performed. MOL at 14-16. However, as noted above, the agency’s determination that both offerors’ proposed costs were realistic relied on its seemingly illogical conclusion that the offerors’ strikingly divergent levels of proposed labor hours were somehow both consistent with the historical data for the STRIVE contract. Indeed, the cost/price consensus evaluation and the SSEB report simply restate the same findings from the quantitative analysis regarding the comparison of proposed labor hours to the historical data. See AR, Tab 8, ATAA Tech. Evaluations, at 548; Tab 9, MEI Tech. Evaluations, at 26-27; Tab 16, SSEB Report, at 79-80, 115-116. Thus, this unsupported conclusion carried through the agency’s evaluation and was never questioned by the source selection official during the agency’s evaluation.
The agency also argues that ATAA’s higher proposed labor hours and cost were the result of ATAA proposing more services than were required by the RFP. MOL at 14; see also AR, Tab 18, SSDD, at 39. However, while this may provide a reason why ATAA’s proposed cost was higher than MEI’s proposed cost, in this circumstance, it does not address whether either offeror’s proposed cost was realistic. Indeed, it does not provide an explanation for how the agency could have concluded that both offerors’ proposed labor hours and mix–with their significant and obvious disparity–were analogous to the STRIVE contract historical data, or how the agency could reasonably rely on that conclusion as a basis for finding the offerors’ proposed costs to be realistic.
In fact, the GAO found that there were no evaluation records to substantiate the conclusions made in support of the contract award decision:
In addition, the record contains no explanation of the agency’s conclusory statement that MEI “is still capable of accomplishing the requirements” of task order 3 despite the fact that MEI’s proposed cost was half of the GCE. Rather, the agency merely noted the discrepancy, asserted that MEI was still capable of performing, and provided no explanation or analysis of how it reached this conclusion. We find that this conclusion also is not supported by the record and therefore cannot conclude that it is reasonable.
In sum, the agency’s determination that MEI’s most probable cost for task order 3 was realistic was based, in large part, on its unsupported conclusions that both offerors’ proposed labor hours and mix were analogous to the STRIVE contract historical data, and that despite MEI proposing a cost that was half of the GCE, it was still capable of performing the task order 3 requirements. Accordingly, we find that the agency has failed to adequately explain the underlying basis for its determination that both offerors proposed costs are realistic, and therefore we cannot conclude that the cost realism evaluation was reasonable; we sustain the protest on this basis.
The GAO therefore ordered the Air Force to conduct a re-evaluation and maintain proper records of that re-evaluation. As this case shows, the failure to properly document an evaluation process can undermine the defensibility of any resulting contract award decision and force a purchasing institution to rescind its initial contract award and revisit its evaluations.
