Cost Realism Evaluation in Government Contract Pricing

Oftentimes bidders find that their cost realism evaluation in government contracting may be flawed and they may want to file a bid protest. A common problem in the evaluation process is when the agency fails to properly evaluate whether the number of hours proposed by each contractor is realistic from a cost standpoint. If warranted in the solicitation, a government contracting agency should demonstrate and document its analysis of the cost realism of widely varying labor hours proposed by each offeror.

What is Cost Realism Analysis? 

Cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed, show a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s technical proposal.

Proper Agency Evaluation 

When conducting a cost realism evaluation in government contract pricing, the agency should decide the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s unique technical approach, assuming reasonable economy and efficiency. See FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2).

GAO Bid Protest Analysis: GAO has ruled that when an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated cost of contract performance is not considered controlling for cost realism because, regardless of the costs proposed by the offeror, the government is bound to pay the contractor its actual and allowable costs. See Magellan Health Servs., B-298912, Jan. 5, 2007, 2007 CPD ¶ 81 at 13; Federal Acquisition Regulation (FAR) § 16.301.

When filing a bid protest that alleges an improper analysis in government contract pricing, GAO will only review an agency’s analysis to determine whether it was reasonably based and not arbitrary.

  •  For a proper evaluation, the agency should not simply verify that you provided all required cost information.
  • The government is required to take reasonable and documented steps to assess what costs are likely to be incurred under each offeror’s technical approach and to explain the basis for its conclusion that the proposed costs are realistic for the work to be performed. See FAR § 15.404-1(d)(2).

Note: Price analysis and cost realism techniques under FAR § 15.404-1(b)(2)(i) are for the purpose of establishing a fair and reasonable price, while the techniques for various evaluations in government contracting is for the purpose of determining whether proposed costs are too low. See FAR § 15.404-1(d)(1). Read information about Federal Cost-Reimbursement Contract Types.

For help filing a bid protest that challenges an improper agency cost realism analysis and evaluation in government contract pricing, call our bid protest lawyers at 1-866-601-5518 for a Free Initial Consultation.

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