Price Realism Evaluation in Proposals

Filing a bid protest based upon allegations that the agency failed to conduct a proper price realism evaluation analysis can be tricky. The reason why government contractors fail in GAO protests is mostly because they find themselves arguing how the agency is supposed to conduct the price realism evaluation. An argument on this level may fail if it does not show how the agency failed to follow the FAR or the expressed solicitation requirements.

Issues that come up during a bid protest for price realism can include the offeror’s proposed labor mix, staffing levels and full-time equivalent personnel (FTE).

What is the Agency’s Obligation When Litigation Price Realism Evaluation Bid Protests?

First, as in all bid protest litigation, government contracting agencies must have detailed explanations to support their proposal evaluation decisions.

• The evaluation record must at least show a rational basis.
• Agencies must explain how it evaluated the price realism of your cost proposal.
• Price realism is generally focused on whether your pricing is too high – fair and reasonable (fixed-price contracts. or portion of a contract (such as a fixed-price CLIN)) See FAR § 15.402(a))

What are the General Rules of Law Governing Price Realism?

As a general matter, government contracting agencies must comply with all procurement regulations, and must also follow the stated solicitation requirements.

For cost-reimbursement contracts, your proposed costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. See Federal Acquisition Regulation (FAR) §§ 15.305(a)(1); 15.404-1(d); Palmetto GBA, LLC, B‑298962, B-298962.2, Jan. 16, 2007, 2007 CPD ¶ 25 at 7.

The Source Selection Board’s decision must show supporting documentation that it performed  a cost analysis to determines the extent to which your proposed costs are realistic for the work to be performed. See FAR § 15.404‑1(d)(1).

Cost realism evaluation analysis does not have to be exact and achieve scientific certainty; rather, 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 as of the time of its evaluation. See SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7.

• GAO only reviews the source selection record to see whether the agency’s cost realism analysis was reasonable.

When an agency makes its decision to conduct a price realism evaluation analysis discretionary, but when the agency chooses to conduct such an evaluation, it must reasonably do so.

Common Mistakes Made by Agency When Conducting Price Realism Evaluations

• Not having their price/cost analyst evaluated the realism of the labor rates – having the technical evaluation team conduct it instead. See also information about SCA fringe benefits.
• Making conclusions regarding the realism of price/cost based on the overall proposed labor mix and level of effort – Agency must distinguish between the cost-reimbursement and fixed-price CLINs.
• Not making sure that the cost or price realism evaluation considers the unique technical approaches proposed by each offeror.
• Making general conclusions – GAO generally would not review the Agency’s pricing evaluation as complete.

If you are a government contractor seeking help in a protest that challenges the agency failed to perform its price realism evaluation, call our bid protest lawyers for immediate help. 1-866-601-5518. FREE INITIAL CONSULTATION.