Is FAR 15.404-1(d)(2) required under 16.505(b)

Deleted. I overlooked the cost reimbursement part completely. How is anyones guess.

@erock FAR 15.404-1(d)(2) says: "(2) Cost realism analyses shall be performed on cost-reimbursement contracts to determine the probable cost of performance for each offeror."

That language strikes me as clear. Yet you say you're planning to award a CPFF LOE contract. Why would you think you don't have to do a cost realism analysis on the HTRO?

Maybe I don't understand what you're planning to do, but if you determine the HTRO's estimated cost to be fair and reasonable without performing a cost realism analysis, what would you say if you got a protest that the HTRO's estimated cost is unrealistically low?

Cost realism analysis appears required in your situation (CPFF LOE task order). See quote below from a 2024 GAO protest decision regarding cost realism analysis on a FAR 16.505 task order award. Hyperlinks are direct links to GAO website with protest decisions.

From: General Dynamics Information Technology, Inc., B-422272, B-422272.2, Mar 15, 2024.

"When an agency evaluates proposals for award of a cost-reimbursement contract (or, as here, a task order), it must perform a cost realism analysis to determine the extent to which an offeror's proposed costs are realistic for the work to be performed. FAR 15.305(a)(1), 15.404-1(d), 16.505(b)(3); National Gov't Servs., Inc., B-412142, Dec. 30, 2015, 2016 CPD ¶ 8 at 8. Nonetheless, an agency's realism analysis need not achieve scientific certainty; rather, the analysis must provide a reasonable measure of confidence that the costs proposed are realistic based on information reasonably available to the agency at the time of its evaluation. SGT, Inc., B-294722.4, July 28, 2005, 2005 CPD ¶ 151 at 7. An agency is not required to conduct an in-depth cost analysis, see FAR 15.404-1(d)(1), or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. AdvanceMed Corp.; TrustSolutions, LLC, B-404910.4 et al., Jan. 17, 2012, 2012 CPD ¶ 25 at 13. Agencies are given broad discretion to make cost realism evaluations. Tridentis, LLC, B-410202.2, B-410202.3, Feb. 24, 2015, 2015 CPD ¶ 99 at 7. Consequently, our review of an agency's cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. Id."

Note the FAR citations after the first sentence. Protest was denied (agency won, i.e., GAO favorably reviewed their cost realism analysis). Read the General Dynamics decision in full for more details about what GAO looks at when evaluating an agency's cost realism procedures. Your lawyer should be able to find and summarize best practices from these and other cases (search terms: 16.505 and "cost realism").

P.S. Tip: Be cautious when assuming an entire FAR part is exempted if only one subpart (here, 15.3) is mentioned as exempt. I usually assume the opposite, and GAO is very technical in its FAR analysis (i.e., if it only exempts X, it doesn't necessarily exempt Y). Good, reasonable question, glad you asked.

Hope this helps!

Vern Edwards said:

That language strikes me as clear. Yet you say you're planning to award a CPFF LOE contract. Why would you think you don't have to do a cost realism analysis on the HTRO?

My thought, which I’m now thinking is wrong, is that because 16.505 doesn’t state cost realism is required than maybe it isn’t always necessary. I guess it’s more just keeping 15.3 out of 16.505, rather than all of Part 15?

Maybe I don't understand what you're planning to do, but if you determine the HTRO's estimated cost to be fair and reasonable without performing a cost realism analysis, what would you say if you got a protest that the HTRO's estimated cost is unrealistically low?

The plan was to include language that the government may conduct cost realism if the HTRO price is greater than 15% less than the IGCE.

@erock Your "quote" of me includes things I did not say. Be careful about quoting in the future.

Bottom line: I think that if (1) you don't perform a cost realism analysis and (2) the task order exceeds the protest threshold, and (3) you get a GAO bid protest about the realism of the selectee's estimated costs, then (4) you are going to lose.

I'm more succinct than AI.

erock said:

We do plan to include in the RFO a statement that the government will determine the need to evaluate cost realism IAW 15.4 if the HTRO proposed cost are 15% lower than the IGCE.

In addition to what’s already been said, what happens if the IGCE turns out much lower than all offerors? Do you still perform a cost realism analysis?

@Vern Edwards Didn't use AI. Personal knowledge and experience (including many years on DoD acquisitions, on both sides of contracts). I show my homework, so folks can read and decide for themselves on more than just my word. I came back to WIFCON after many years in classified land because I grew up on Bob's thoughtful moderating, and really appreciated the explanations, refrences, and resources I could dive into (including some of your longer posts). Those helped me get a true heading check and steer the ship past sharks with lasers. If things have changed under new management, duly noted, with sadness. But please don't dismiss us as AI, or this blog will soon become WIVCON (What Interests Vern in Contracting) ... another long-term sole source that lost sight of public benefit. Your reputation is partway there on Reddit now (search for WIFCON, none of those posts are mine).

@erock Many years ago I sat in a seat much like yours. Two parting thoughts from your potential future self:

1. The answer to your question is a combination of basic principles. It's not obvious, which is why it's a worthy question. The key move in GAO's General Dynamics decision was putting together two rules for a cost-type task order situation: [a] their decade-old opinion in National Gov't Services, and [b] FAR 16.505(b)(3) (which has your answer, I think). [a] says that USG acquisition personnel have a duty to conduct cost realism, because for cost-type contracts, proposals are only estimates and the gov't is obligated to pay actual costs. Cost realism is a needed protection against excesses. [b] says: "(3) Pricing orders. If the contract did not establish the price for the supply or service, the contracting officer must establish prices for each order using the policies and methods in [FAR] subpart 15.4."

   Now, some would say, 'We have established labor category prices, and FAR 16.505(b)(3) doesn't specifically say cost realism, so not required, right?'. I think the opposite is true (and hold fire on that lecture on price vs. cost analysis, haters, I well know the difference ... bear with me a moment here): Base contract LCAT prices are building block cost elements (when combined with # of hours per category). Individual LCAT prices are assumed to be fair and reasonable because they were competed or determined to be so on the base contracts. However, they are NOT an established contract price for each task order's overall requirements. They're only established hourly rates for the workers. CPFF LOE task order offers are also not established contract prices, they are only contractor estimates and because it is CPFF LOE, the gov't will pay actual costs. In my view, the GAO looked at situation very similar to yours and interpreted FAR 16.505(b)(3) (along with the other FAR sections they cited, some discussed above) to require FAR 15.4 cost realism for FAR 16.505 task order acquisitions on cost-type contracts. You "establish prices" overall using "FAR subpart 15.4" cost realism--in other words, you analyze hours x quantity for cost realism for each task requirement (at the most basic level). Otherwise, FAR 16.505(b)(3) is meaningless. You have LOTS of leeway how you do it--perfectly acceptable to use only the cost realism methods you actually need, to do reasonable sampling, and to adjust the level of scrutiny to the value of the acquisition. It's also OK to change your methods for a future RFO. Each one is different, and you can improve for the next one. But "must perform a cost analysis" (General Dynamics opinion quoted above) means just that.

   My advice: Yes, you need to do cost realism analysis here, and you should say 'yes, we're doing cost realism' in the RFO. Be reasonable and practical. Keep it as simple as possible, and spell out in the RFO how you intend to analyze costs, then stick to plan. But I would NOT say something like 'cost realism is optional, if we feel like it'. I think that's incorrect.

2. One other philosophical point: Don't decide only out of fear of protest or just because someone (including me) says so. Do it because you believe its the right thing to do, based on the best guidance you've found and personally reviewed, beyond opinions. It may be more work, and it may be unpopular, but you'll likely get it right.

Hope that helps!

@6K Petunias

6K Petunias said:

The answer to your question is a combination of basic principles. It's not obvious, which is why it's a worthy question.

The answer was obvious. The plain language of the FAR made it so. All it took to answer the question was (1) a basic knowledge of the content of the FAR, (2) an understanding of the relationships among FAR parts, and (3) an understanding of how to read, interpret, and integrate the rules.

6K Petunias said:

The key move in GAO's General Dynamics decision was putting together two rules for a cost-type task order situation: [a] their decade-old opinion in National Gov't Services, and [b] FAR 16.505(b)(3) (which has your answer, I think).

Yes, that was a "key move": (1) knowing that FAR 15.404-1(d)(2) expressly applies to cost-reimbursement contracts, that (2) a "task order" is a contract, and that (3) a cost-reimbursement task order is a cost-reimbursement contract. Thus, do the cost-realism analysis. QED.

Who needs the GAO in such a case?

As for my reputation on Reddit, whatever it may be... if you put yourself out there, someone is not going to like you.

Ou phrontis?

As for my take on FAR Reform, a topic discussed in the link you provided, I have stated it in the May issue of The Nash & Cibinic Report, which will be posted to Wifcon shortly. In short... It's masterful people who will or will not make a difference, not rulebook reform. Anyone who thinks that simply cutting stuff out of the FAR will make acquisition better haven't been around long enough to know better and haven't done their homework.