Oftentimes, government contracting agencies attempt to support their cost evaluation methods and ultimate award solely on the cost submitted by the contractor. However, a flawed evaluation can become target to a bid protest at the Government Accountability Office (GAO).
Cost Evaluation Methods in Cost-Reimbursement Contracts
When an agency evaluates pricing and cost proposals for the award of a cost-reimbursement contract, the contractor’s proposed estimated cost of contract performance is not the end of the cost evaluation analysis. Read information about Federal Cost-Reimbursement Contract Types.
The contracting agency is still required to pay the contractor its actual and allowable costs. See Federal Acquisition Regulation, FAR 16.301. Cost realism evaluations in cost-reimbursement contracts are alive and well. Bidders should be aware of this requirement.
- The government must do a cost realism analysis to decide the extent to which your proposed costs represent what the contract costs are likely to be under your unique technical approach, assuming reasonable economy and efficiency. FAR 15.305(a)(1), 15.404-1(d)(1), (2);
- Where a contract involves the provision of a large amount of labor, agencies are required to consider the cost realism of an offeror’s proposed labor rates. See ITT Federal Serv’s Int’l Corp.
Proposing Low Rates Under Service Contract Act
Sometimes, depending on the facts, agencies often misevaluate low-cost proposals. For example, when a contractor, in attempt to get a win by offering low rates, a bid protest sustainment could arise when the offeror proposes bare minimum labor rates under the Service Contract Act. See also litigating unbalanced pricing in bid protests.
Looking at the offeror’s unique approach, the agency may fail to conduct proper cost evaluation methods by not looking at whether the offeror can actually recruit employees at such a low rate.
The specific technical approach submitted by the offeror becomes the central issue when addressing the government’s cost evaluation methods. If there are no named or committed employees, there could be a risk of not being able to hire people.
- If you are going to propose low rates under the Service Contract Act, make sure that you have letters of commitment from your employees.
- An Agency’s cost assessment methods and cost-realism evaluations can be attacked in a GAO bid protest.