Adequate Price Competition = Fair and Reasonable Price

Price reasonableness concerns itself with whether the offered price is too high. With the competition you received, it seems easy to say that $150K is not too high -- therefore, it is not unreasonable -- so therefore, it is reasonable based on adequate price compeition.

Price realism is another matter, but we don't usually do price realism analyses for FFP acquisitions.

Even though the $150K price is reasonable, I wonder if there is any possibility of a mistake. A prudent contracting officer might send the $150K offeror a note saying something like, "Because of the wide variance in the prices received, the Government invites you to carefully review your price and verify that it does not contain any mistake. Please notify me by _____ whether or not there is a mistake. This notice only asks you to verify whether or not there is a mistake -- it does not afford you an opportunity to revise your price."

Does adequate price competition establishes a fair and reasonable price [ipso facto]?

http://www.merriam-webster.com/dictionary/ipso%20facto "Full Definition of IPSO FACTO

: by that very fact or act : as an inevitable result"

My answer to your specific question is, "not necessarily". What if all prices received are too high or higher than you think that you want to pay? What if your solicitation is unclear and/or contains mistakes or latent ambiguities which might result in industry interpretations other than that intended?

EXAMPLE SCENARIO: In response to a anticipated FFP award, a LPTA solicitation with a Government estimate of $400K was issued and you receive three competitive quotes for $150K, $250K, and $325K.

Each quote is for the same quantity and delivery of identical services and the government would like to determine the price of $150K as fair and reasonable based on adequate price competition.

In this case, if you are satisfied that the quotes are "technically acceptable", that is, they meet your requirements and the lowest priced offeror is "responsible", you could say that the price is "fair and reasonable", based upon "adequate competition". I also think that "adequate competition" should represent a reasonable meeting of the minds about what can and will be provided for that price, where you are also evaluating the technical acceptability of the service.

Noting that each quote is "for the same quantity and delivery of identical services" , there is a huge spread of pricing for "identical services". The lowest quote is 60% of the second lowest, about 46% of the highest and is 38% of the government estimate. I would want to assure myself that the quotes are, in actuality, technically acceptable beyond a doubt. And I would probably examine the basis of the government's estimate with whoever prepared it. If your solicitation provides for some type of communications, I would probably take advantage of it.

Back in the old days of always using IFB's for construction contracts (where every bidder saw all the bid prices), my office was stuck a few times with ridiculously low priced contracts from dirt bags or from firms who ended up defaulting because they couldn't perform the scope of work for those prices without unbearable losses or went bankrupt trying to perform. I would ask myself, how the heck did the government award that contract? It would seem even more risky in your scenario, where the "winning" firm has no knowledge of any other quotes to check against before accepting the government's offer of award at that price.

Bottom line, I would take full advantage of the method that you are using to look beyond simply awarding based upon a seemingly 'good deal', j

justified on the basis of adequate price competition ["by that very fact" or as an "inevitable result"].

Joel,

Everything you say is right, but we don't want to mix matters. Whether or not the offeror can/will successfully perform the contract is a matter of responsibility, not price reasonableness. The contracting officer determine the price reasonable (based on adequate price competition) and still determine the offeror non-responsible (because he or she doesn't believe the offeror can/will successfully perform).

See FAR 15.404-1**(2):**

(2) The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price. Examples of such techniques include, but are not limited to, the following: (i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price (see 15.403-1[c](1)(i)).

However, a CO might observe something about bids, proposals, or quotes or have other information that suggests that the price might not be fair and reasonable.

See the Contract Pricing Reference Guides, Vol. 1, Price Analysis, Ch. 6, Comparing Prices.

https://acc.dau.mil/CommunityBrowser.aspx?id=379482

Joel,

Everything you say is right, but we don't want to mix matters. Whether or not the offeror can/will successfully perform the contract is a matter of responsibility, not price reasonableness. The contracting officer determine the price reasonable (based on adequate price competition) and still determine the offeror non-responsible (because he or she doesn't believe the offeror can/will successfully perform).

ji, I'll stand by my advice. I offer it so that people can decide whether to simply be purchasing agents, clerks, or smart business persons. If Jamaal is using LPTA, I think that other considerations than the cheapest price are also being considered. Here, the customer was apparently prepared to pay up to $400k, it it were necessary, to obtain the services. "We" should try to assure "ourselves" that the customer will receive and be satisfied with the services received.

I agree that we should try to assure ourselves that the customer will receive and be satisfied with the services received. However, if Jamaal has any of the concerns that your raised, he should not address them by calling the $150K price unreasonable. The price is reasonable according the the GAO's and COFC's jurisprudence. It might not be realistic, but that is another matter entirely -- and the offeror might not be able to perform at that price, but that is also another matter entirely.

Price realism is another matter, but we don't usually do price realism analyses for FFP acquisitions.

Who is "we" and for what types of contracts does "we" usually do price realism analysis?

We = federal contracting officers subject to the FAR.

A price realism analysis is not required for a FFP acquisition. The FAR requires a cost-realism analysis for cost-reimbursement contracts. FAR 15.404-1( d )( 2 ). The GAO has consistently acknowledged over the years that a realism analysis is not required for FFP (or T&M) acquisitions, and has further opined that an agency may not do a price realism analysis for a FFP (or T&M) acquisition unless the soliciation specifically allows for such.

Thus, my statement that we don't usually do price realism analyses for FFP acquisitions. Sometimes, we do -- but only if we had the forethought to include text in the solicitation specifically allowing for a realism analysis. The following might be helpful, from Beyel Brothers Inc., B-406640:

Beyel’s argument reflects a lack of understanding as to the distinction between price reasonableness and realism. The purpose of a price reasonableness review in a competition for the award of a fixed-price contract is to determine whether the prices offered are too high, as opposed to too low. Sterling Servs., Inc., B-291625, B-291626, Jan. 14, 2003, 2003 CPD ¶ 26 at 3; WorldTravelService, B-284155.3, Mar. 26, 2001, 2001 CPD ¶ 68 at 4 n.2. Arguments, such as the one raised by Beyel here, that an agency did not perform an appropriate analysis to determine whether prices are too low such that there may be a risk of poor performance concern price realism. C.L. Price & Assocs., Inc., B-403476.2, Jan. 7, 2011, 2011 CPD ¶ 16 at 3; SDV Solutions, Inc., B-402309, Feb. 1, 2010, 2010 CPD ¶ 48 at 4. A price realism evaluation is not required where, as here, a solicitation provides for the award of a fixed-price contract and does not include a requirement for a price realism evaluation. C.L. Price & Assocs., Inc., supra; WorldTravelService, supra , at 3.

Jamaal:

You are a welcome addition to the Wifcon membership and one day you will be answering more questions here than you ask. Learn to answer them properly.

You asked: "Does adequate price competition establish a fair and reasonable price [ipso facto]?" Then, you described an example.

When answering such a question, start with the governing rule or official guidance, if any. You'll notice that the first two responses to your question cited no such information. Instead, they offered unsupported personal views. Do you know them personally? Do you know whether they are competent and whether their assertions are true? Can you take what they said to others in your organization in support of any decision you might make? Now they're off track and bickering about their answers, and a third party is having to ask one them what he's talking about. They've gotten themselves into a back and forth that they probably cannot resolve since they're coming at the problem from two different places. One of them has referred to GAO and COFC "jurisprudence," as if those two forums have anything to do with your question. And he has not cited a single case. And now he's back with more distracting and irrelevant commentary.

In short, instead of providing a useful answer, they've provided distractions.

When you start answering questions more authoritatively, do it right. If the question is grounded in regulation or policy, start by citing any pertinent regulations and official policy and guidance, THEN add commentary of your own IF you've got something informative to say.

Jamaal,

I hope my answer was helpful to you. But in case it didn't meet your needs, I have edited it below...

Price reasonableness concerns itself with whether the offered price is too high [for example, see GAO Bid Protest case B-406640, Beyel Brothers Inc., and DMS All-Star Joint Venture v. United States, Fed. Cl. No. 09-737C, January 26, 2010]. With the competition you received, it seems easy to say that $150K is not too high -- therefore, it is not unreasonable -- so therefore, it is reasonable based on adequate price compeition.

Price realism is another matter, but we don't usually do price realism analyses for FFP acquisitions. [The FAR requires it only for cost-reimbursement acquisititions. FAR 15.404-1( d )( 2 ).]

Even though the $150K price is reasonable, I wonder if there is any possibility of a mistake. A prudent contracting officer might send the $150K offeror a note saying something like, "Because of the wide variance in the prices received, the Government invites you to carefully review your price and verify that it does not contain any mistake. Please notify me by _____ whether or not there is a mistake. This notice only asks you to verify whether or not there is a mistake -- it does not afford you an opportunity to revise your price." [for example, see GAO Bid Protest case B-293042.3, PCA Aerospace,Inc.]

ji20874,

It's one thing to say that a price realism evaluation is not required by the FAR. It's another thing entirely to say that contracting officers subject to the FAR don't usually perform a price realism analysis on FFP acquisitions. What is the basis for your claim?

You wrote:

Price realism is another matter, but we don't usually do price realism analyses for FFP acquisitions. [The FAR requires it only for cost-reimbursement acquisititions. FAR 15.404-1( d )( 2 ).]

You are wrong. The FAR requires a cost realism analysis for cost-reimbursement contracts. Cost realism. Cost realism is not price realism. We don't do price realism analysis on cost-reimbursement contracts.

Hi, Jamaal,

I felt my ears burning!

Sorry to answer a question with a question. The way you worded the question leads me to think you are worried the price is to high, but the example seems inconguent with that.

Are you worried that the price is too low, or too high? Any concerns that your requirement is described adequately, given the wide range of proposed prices?

I think the worry about prices being too high is answered already. Bob Antonio has a great collection of GAO decisions here:

/legacy/reg/1129bd6bd840d275.html

regarding price realism (e.g. Lilly Timber is a good read) if you are worried prics are too low. I hope this was helpful.

I think that I answered the actual question correctly in the first part of my first post. If one receives several bids, quotes or offers that are all higher than you know or are pretty certain something can be bought for, the lowest price or the prices might not be fair and reasonable ipso facto. If one just decides to buy a thousand hammers for $400 each because that was the lowest quote and you know that they are otherwise available for $25, $50 or $100 each, then I'd say you are probably a fool.

In my opinion, Jamaals actual example didn't represent a problem with prices being too high to be reasonable.

ji20874:

You first mentioned GAO and COFC "jurisprudence" in the following quote:

However, if Jamaal has any of the concerns that your raised, he should not address them by calling the $150K price unreasonable. The price is reasonable according the the GAO's and COFC's jurisprudence.

Emphasis added.

The sentence in bold italics is nonsense. Neither of the cases you cited in Post #11 passed judgement on the fairness and reasonableness of any price nor made any holding on the relationship between adequate price competition and price reasonableness. Neither is pertinent to the question that Jamaal asked, which was: "Does adequate price competition establishes a fair and reasonable price [ipso facto]?" Neither provides any basis for saying that Jamaal's lowest quote is fair and reasonable. Both decisions addressed realism analysis, which was not a concern expressed by Jamaal. That issue came up between you and Joel. Jamaal cannot say that the lowest price he received is fair and reasonable based on anything in those decisions.

Whether or not the price of $150,000 is fair and reasonable turns in part on what information Jamaal has other than the quotes that he received. The wide spread among the prices proposed suggests that competition may have been ineffective, perhaps due to problems with the statement of work or other parts of the RFQ. $150,000 might be too much to pay for what the government actually wants. On the other hand, it might be a great deal.

When answering a question, we should answer the question asked:

"Does adequate price competition establishes a fair and reasonable price [ipso facto]?"

That was the only sentence in the OP that ended with a question mark.

Answer:

According to FAR 15.404-1**(2), "normally," yes, but see the** Contract Pricing Reference Guides, Vol.1, Ch. 6.

THEN add any personal commentary based on knowledge and experience. Provide citations to authoritative unofficial sources.

I'm not trying to educate you about this, ji20874. I'm trying to educate the next generation of Wifcon participants.

I hate it that Wifcon Forum has become a Q&A site, but since that's what it has become we should make it the best one that we can.

I understand the pertinent case law concerning price fair and reasonableness (too high) and price realism (too low and a right that must be reserved in FFP).

I understand that price realism isn't mentioned in the FAR and the boards and courts don't appear to distinguish it much differently from cost realism as used throughout the FAR.

My specific question is, CAN you PROPERLY say that the $150K in the scenario is fair and reasonable simply because it was received through adequate price competition?

My thought is that the FAR requires a comparison of the prices. I don't know what is required by that comparison, but since the prices, including the government estimate, are so widely dispersed, seemingly with no correlation, I believe it would be irresponsible to simply select the low and determine them fair and reasonable based solely on the above.

Just because I believe it would be irresponsible or unprofessional doesn't mean it's un-allowable or improper.

Jamaal,

The FAR does not require a comparison of the prices. Refer to FAR 15.404, what the FAR requires is proposal analysis (which can consist of various methodologies) to determine the final agreed-to price is fair and reasonable. In this case, you're using price analysis so I'd refer you to 15.404-1( b )( 2 ) where the FAR lists multiple price analysis techniques and procedures you can utilized in making a determination of price fair and reasonableness.

Vern has already quoted 15.404-1( b ) ( 2 ) ( i ) which discusses the technique of "comparison or proposed prices received in response to the solicitation" followed by "Normally, adequate price competition establishes a fair and reasonable price" which is precisely the rule you need to consider. The use of the word "normally" indicates that there are situations where adequate price competition does not establish a fair and reasonable price. Therefore, in my opinion, the answer to your question as to whether or not it does so "ipso facto" would be no.

If you're concerned about making the determination solely based on adequate price competition (the definition of which is worth looking up at FAR 15.403-1( c ) ( 1 )), then resort to additional price analysis techniques. I'd argue that the use of several different techniques will make your determination more sound anyways.

I understand that price realism isn't mentioned in the FAR and the boards and courts don't appear to distinguish it much differently from cost realism as used throughout the FAR.

Although the FAR itself does not use the term "price realism," it does discuss it and make an important distinction between realism analyses for cost-reimbursement contracts and fixed-price contracts. See FAR 15.404-1(d)(3):

Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when new requirements may not be fully understood by competing offerors, there are quality concerns, or past experience indicates that contractors’ proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals shall be evaluated using the criteria in the solicitation, and the offered prices shall not be adjusted as a result of the analysis.

Price realism has been a protest issue before the GAO and the COFC. It has not been an issue at the boards of contract appeals except for the period when the old GSBCA handled protests of IT procurements. The GAO has noted significant distinctions between cost realism and price realism. See e.g., NJVC, LLC, B-410035, 2014 CPD ¶ 307, October 15, 2014:

Where a solicitation contemplates the award of a fixed-price contract, an agency may provide in the solicitation for the use of a price realism analysis for the purpose of measuring an offeror's understanding of the requirements. IBM Corp., B–299504, B–299504.2, June 4, 2007, 2008 CPD ¶64 at 10 –11. Price realism involves many of the same considerations as cost realism, except with an analysis of price, instead of elements of cost. See id. (analogizing price realism to cost realism analysis stated in the FAR). Price realism, however, may also be used by the agency to evaluate whether an offeror can realistically perform its technical solution at the fixed price proposed in order to assess the risk inherent in an offeror's proposed approach. DynCorp Int'l LLC, B–407762.3, June 7, 2013, 2013 CPD ¶160 at 8–9; Triad Int'l Maint. Corp., B–408374, Sep. 5, 2013, 2013 CPD ¶208 at 8. This is so because, unlike a cost realism analysis where a probable cost of performance is determined, no adjustment to price is permitted in a fixed-price contract. See id. Analyzing whether an offeror's fixed price is so low that it reflects a lack of understanding of solicitation requirements is the crux of a price realism evaluation. Science Applications Int'l Corp., B–407105, B–407105.2, Nov. 1, 2012, 2012 CPD ¶310 at 10. Likewise, consideration of whether an offeror's fixed price is so low that it creates a risk that the firm cannot perform its proposed technical solution at the price offered is also a price realism analysis. See IBM Corp., supra, at 10–11.

For those who want to know more, I wrote a lengthy piece about price realism analysis in the January 2014 edition of The Nash & Cibinic Report, "Price Realism: A Primer."

Matthew:

I do not agree or disagree with your initial statement. First, the discussion was limited to establishing price fair and reasonableness through adequate price competition. Secondly, I don't understand how your reference negates the statement, in it's context, or suggests the FAR doesn't require a comparison of prices in a competitive LPTA procurement (exceptions such as technically unacceptable offers noted).

Nonetheless, the the rest of what you said is what I would like to develop and understand. Can you explain your last paragraph a little more? You say that if I would like to make the determination based solely on adequate price competition then I should resort to additional price analysis techniques.

Vern:

Thank you for the references. You also stated "Whether or not the price of $150,000 is fair and reasonable turns in part on what information Jamaal has other than the quotes that he received. ". I believe this to be true, and was searching for an authoritative reference that says as much. I believe I found it in the CPRG VOL 1 Chp 6.1.1.

Unfortunately, absent a mandate like "shall" it's hard to get people to consider official or unofficially guidance. It's easier to bypass what's right for what's seemingly allowable - that is accept any price received under competition as fair and reasonable.

Joel:

You did address my specific question and I thank you for taking the time. Furthermore, I agree with what you put in your posts, but I want to know what the rules supporting it are. I wouldn't have an issue working through a scenario like this, I just want some supported information on adequate price competition establishing price fair and reasonableness ipso facto.

I just finished my first read of the Contract Pricing Reference Guide Vol 1 Chapter 6.1.1, which uses terms like should, could, and normally. To me, that suggest what a prudent businessperson would do.

As a result, the answer to the original question, for me, is no. I don't believe adequate price competition establishes fair and reasonable prices in and of itself. In order to be consistent with the rules I know of, price analysis is required...the degree of such price analysis will vary, but in this scenario simply comparing prices and determining the lowest is by default fair and reasonable is not a reasonable price analysis absent additional findings.

I'm fully convinced not all will see it that way and could determine otherwise. Maybe I could have asked the question another way:

Given the scenario, would a determination of the lowest price being fair and reasonable, solely on the basis of adequate price competition, be compliant with the governing rules?

Jamaal,

If you're looking for a "shall" statement to support the use of price analysis beyond merely relying on the basis of adequate price competition for determining price fair and reasonable, perhaps a combination of the following will suffice:

FAR 15.404-1( a ) ( 2 ) states "Price analysis shall be used when certified cost or pricing data are not required." Moreover, FAR 15.404-1( b ) ( 3 ) states in part "...if the contracting officer determines that information on competitive proposed prices...is not available or is insufficient to determine that the price is fair and reasonable, the contracting officer may use any of the remaining techniques as appropriate to the circumstances applicable to the acquisition."

As for your previous question, it wasn't clear that your intent was a preference on making the determination solely based on adequate price competition. My point was that a better way to determine a price fair and reasonable is to use multiple methods of price analysis that arrive at the same/similar conclusion (with the amount of effort tailored to the nature of the acquisition at hand).

In relation to your comments on what is right vs allowable and what a prudent business-person would do, don't forget what the FAR states at 1.102( d ) which encourages sound business judgment as the driving force when exercising authority in situations that involve the exercise of initiative (though I don't think this is one of those, it may be a point to bring up if someone just wants to hit the easy button rather than perform additional analysis as a "sanity" check).

Lastly, if this is an issue that you have found yourself disagreeing with your Contracting Officer, sometimes the best you can do is present your argument and let him/her make the decision. There are inevitably going to be situations you encounter where you disagree with a CO (or when you become a CO where you disagree with policy or maybe even a SSA), but you have to ultimately respect the person with the authority to make the decision (unless the decision is immoral, unethical, or illegal).

...Unfortunately, absent a mandate like "shall" it's hard to get people to consider official or unofficially guidance. It's easier to bypass what's right for what's seemingly allowable - that is accept any price received under competition as fair and reasonable.

Jamaal, you are apparently dealing with FOOLS, if they demand cookbook, mandated rules or case law for determining price reasonableness. The FAR has never been specific enough to lead those by the hand who havent any clue how to determine if they are paying a reasonably fair price for something.

Your scenario, with widely varying prices for the "same quantity and delivery of identical services" and an even higher government estimate (which might or might not represent any kind of reality) suggests to me that it wouldn't be very prudent to simply declare the lowest price "fair and reasonable" because there was "adequate competition" and make an award.

I would suggest taking full advantage of the acquisition method chosen to assure that both the government and the industry understand the stated scope of work. You may end up avoiding problems for both the contractor and the government if the scope of work isn't clear or doesn't represent what the government really intends.

I've found over the years that taking short cuts up front in the contract formation often results in difficulties and messes down the road that somebody had to deal with and that harmed one or both parties. To me, it is "easier" to get it right up front...

Oh, I found that a primary rule of thumb for negotiating a new contract or a change to a contract is to make sure that everyone mutually understands the intended scope of work and intended requirements.

I've found that as a junior member of a larger team my opinion, logic, or informational guidance is not likely to sway popular belief. Especially, not when it leads to additional work.

As a contracting officer I prefer to provide my team with references that support my decisions. It's easy enough to direct a contract specialist to provide more findings, but I'd rather compel them that additional findings are required not because I ask but, because it's appropriate given the scenario. My hope is that by equipping them with information will make us all better in the long run.

Thanks y'all! Hopefully the wifcon readers found the discussion beneficial. I know I did.

Jamaal:

I've found that as a junior member of a larger team my opinion, logic, or informational guidance is not likely to sway popular belief. Especially, not when it leads to additional work.

Here is your original scenario:

In response to a anticipated FFP award, a LPTA solicitation with a Government estimate of $400K was issued and you receive three competitive quotes for $150K, $250K, and $325K.

We know what the policy says about comparisons of prices received through adequate price competition. We also know that you have concluded that it does not work in your scenario. What we don't know is how you came to that conclusion. In order to persuade your opponents in your organization, assuming that they are amenable to persuasion, that your conclusion is sound, you must explain your reasoning and justify your proposed alternate course of action.

A first question is whether you did, in fact, get adequate price competition. The mere fact that you received quotes from more than one firm does not mean, ipso facto (to use your phrase), that the RFQ produced adequate price competition. In your opening post you said: "Each quote is for the same quantity and delivery of identical services...." And for the same quality? Are you sure?

Sealed bidding is the classic example of determining price reasonableness based on the comparison of prices obtained through adequate price competition. See FAR 14.408-2. The famous case of A.B. Dick Co., 89-2 BCA ¶ 21731, ASBCA No. 32572, Feb. 22, 1989, is one in which there was the appearance of adequate price competition, but not the actuality.

The USAF CO conducted a sealed bid acquisition of copying machines. The specification said: "Provide reproduced copies 8½ inches wide x 11 inches long and 8½ inches wide x 14 inches long without manually changing paper trays." What the government wanted was "dual cassette" (two paper tray) copiers, but it was not familiar with the industry terminology. The low bidder was A. B. Dick. It turned out that the low bidder had offered a copier with only one paper tray that could produce copies of both sizes without manually changing paper trays. According to the board:

Dick based its bid on providing single cassette copiers with a manual by-pass feature which would permit manually feeding legal-size paper stock when the cassette was loaded with letter-size paper. Single cassette copiers with a manual by-pass feature were a common product in the copier industry in 1985 when the contract at issue was advertised and awarded. Dick's smallest dual cassette copier had a standard cost 25 to 30 percent higher than its single cassette copier.

There was nothing in the IFB that required mechanical feeding, or precluded manual feeding of the paper stock into the copier. There is no evidence that the single cassette machines which Dick intended to provide could not have met the specified monthly maximum copy requirements for each machine/location, even if the entire monthly quantity were manually fed through the by-pass.

Dick's price was much lower than the nearest competitor, and one competitor warned the CO that Dick could not provide "dual cassette copying" at that price. The CO asked Dick to verify and "certify" that its bid was based on dual cassette copying. Dick responded as follows:

We certify that our bid is in compliance with Part I, Section C, paragraph 3.d which states: “Provide reproduced copies of 8½ inches wide x 11 inches long and 8½ inches wide x 14 long without manually changing paper trays.”

Despite having been warned and having a clue, the CO awarded the contract without further inquiry and then terminated it for default when the company delivered the one-tray machines, saying that Dick knew or should have known what the government had meant by its spec. The board concluded that each party had known of the other party's intention and so there was no meeting of the minds and no contract to terminate:

The Government knew, or ought to have known, that the specification as advertised could be met by at least two different types of copier—dual cassette or single cassette with manual by-pass. In this regard, it should be remembered that the single cassette copier with manual by-pass was a common industry product when the contract was advertised, bid and awarded. Dick knew, from the Government's verification request after the opening of bids, that the Government wanted to restrict the specification to permit only the dual cassette copier. However, Dick's carefully worded reply to that request did not accept the Government's restrictive interpretation, and the Government knew or ought to have known from that response that its interpretation had not been accepted.

In these circumstances, we find an absence of manifestations by the parties of mutual assent to a fundamental term of the proposed contract. Where, as here, the parties attach materially different meanings to their manifestations and each party has reason to know the meaning attached by the other, there is no enforceable contract.

The board affirmed its decision upon reconsideration, 90-1 BCA ¶ 22535, December 5, 1989.

Technically, there was adequate price competition as we define it today. See FAR 15.403-1[c](1)(i):

(1) Adequate price competition. A price is based on adequate price competition if—

(i) Two or more responsible offerors, competing independently, submit priced offers that satisfy the Government's expressed requirement and if—

(A) Award will be made to the offeror whose proposal represents the best value (see 2.101) where price is a substantial factor in source selection; and

There is no finding that the price of the otherwise successful offeror is unreasonable. Any finding that the price is unreasonable must be supported by a statement of the facts and approved at a level above the contracting officer....

Emphasis added. FAR presumes that the "expressed" requirement is clear and unambiguous and that the offerors are competing on the same basis.

The competition in A. B. Dick did not produce adequate price competition, because the bidders did not compete on the same basis. The low price could not be said to be fair and reasonable based on comparison of proposed prices obtained through adequate price competition, because the competitors' prices were not comparable. They were not comparable because the government did not clearly and unambiguously specify what it actually wanted. Upon learning what was what, the CO should have cancelled the solicitation and conducted a new competition with a properly written spec.

A. B. Dick is a case in which it appeared that there had been adequate price competition when, in fact, there had not, because the government's "expressed requirement" was subject to more than one reasonable interpretation and did not yield comparable prices.

In your scenario you are buying services, and service specifications (statements of work) are especially susceptible of vagueness and ambiguity. The price spread in your example, from $150,000 to $325,000, suggests that something is amiss. Until you sort that out, I don't think you can be sure that you have, in fact, had adequate price competition.

It's easy enough to direct a contract specialist to provide more findings, but I'd rather compel them that additional findings are required not because I ask but, because it's appropriate given the scenario. My hope is that by equipping them with information will make us all better in the long run.

Jamaal:

When I stumbled across a scenario such as yours in the distant past, I would have to prove to the agency that something was wrong before the agency would pay attention. That is what you will have to do to get your point across to contract specialists or higher-ups.

There are two items in your scenario that I would attempt to analyze to make my point. The first is the government estimate. Take it apart. What does your analysis of it say? Was it done conscientiously?

The second part involves the quote below

three competitive quotes for $150K, $250K, and $325K.

I believe that is from your original post. As I read it, I initially viewed that phrase as an oxymoron. What do those quotes have to do with any competition for the same service? Look at Vern's example directly above. To make any point, you will have to go through the government's requirement and the 3 offers and determine if there is a problem. If there is, what is it? Why are those offers spread like that? Unfortunately, with the low dollar scenario you present, there may be limited information to do an analysis.

In the end, you may find that the government estimate is well supported and that the government requirement was clear and the offerors all understood it. They actually may be competitive quotes.

Either way your analysis works out, keep this procurement as an example for your records so you may use it as a device to teach your staff.

---------------------------------------

My thanks to all the contributors on this forum for taking the time to post information so others may read it.

A number of factors could account for the differences in the quotes. The biggest component of service total cost in my experience is labor: rates x time. If that's true in this case, then:

Rates are often related to geography. Look at where the work will be done. If one offeror is in New York City and another in Tulsa Oklahoma, I would expect higher rates for the offeror in New York. If all three offerors will perform in the same locality, that probably is not going to be the case.

Incumbency can affect interpretation of the statement of work. An incumbent might know that the work will take more or less hours than the others expect. The government estimate is $400K. If the incumbent proposed the $325K, that might suggest something about the know-how of the firms that quoted lower amounts.

Hard to say. A lot to think about. However, at $150,000, people in your office might not think it's worth much thought.

Jamaal, if there was a way to "LIKE" the last three posts (#25-27) by Vern and Bob, I would express that in the strongest terms. Thanks to you,gentlemen.

I was also wondering about how much time one could devote to properly determine that everyone mutually understands the same scope of work because of the small size of the acquisition. I didn't mention that because we are documenting a discussion of the principles that should apply to answer your basic question, whether a large or small contract action.

At any rate, those three posts are excellent.

ji20874:

Understanding that the courts make the distinction that price reasonableness is to determine if a price is too high, I believe it's worth mentioning that many working and authoritative definitions of fair and reasonableness include an analysis that the price is fair to both parties. If we accept these definitions, determining that a price is not too high only satisfies one element of fair and reasonable.

I mention this mainly because I notice you did not mention the term fair in any of your posts. Not sure if it was intentional or not but, clarifying the existence of two elements, Fair AND Reasonable, may be helpful to the community of readers at large.

Thanks for your posts and references!

Jamaal:

You're right about lowness being an issue when determining what is fair and reasonable. However, that issue arises in connection with negotiations, when the government seeks a price that is lower than the one proposed. It is not an issue in your example, in which firms have submitted competitive quotes, but there have been no negotiations.

In my opinion, when firms are preparing competitive bids, proposals, or quotes, they are solely responsible for determining whether the amounts they seek are fair and reasonable compensation for their work. COs are not nannies. When conducting an analysis of competitive bids, proposals, and quotes, a CO need not be concerned with determining whether the amounts sought by the competitors are fair and reasonable for themselves. It is when a CO decides to bargain for a lower price that he or she must be concerned about whether the lower price being sought for the government is fair and reasonable to the competitors.

Moreover, I do not think that fairness and reasonableness is a matter of what is fair and reasonable to a particular firm. It is a matter of what is fair and reasonable in light of market conditions and competitive proposal terms. If a particular concern cannot deliver competitive quality at a competitive market price, that is not the concern of the CO except as a matter of fairness and reasonableness to the government and, perhaps, of cost or price realism. When a CO is negotiating a price for a new contract, it's too bad if a particular firm cannot recover its costs or make a profit at the market competitive price for market competitive quality. But it's just too bad. It's not unfair or unreasonable for the CO to seek a market competitive price. (A different pricing principle applies when a CO seeks to negotiate an "equitable adjustment" under the terms of an existing contract.)

Of course, COs must be concerned about the possibility of mistakes and defective, vague, or ambiguous specs, in which case the government has court-imposed legal obligations that it must fulfill.

Vern:

Agreed. It seems fair to both parties could or would also include a meeting of the minds to ensure the government's "expressed requirement" is mutually understood and was not subject to more than one reasonable interpretation, mistakes in pricing, vague, or ambiguous specs, etc.

Or is this outside the scope of fair and covered elsewhere?

It seems to me that if it's just too bad for the contractor, then why are we using anything other than IFB or price only methods? In circumstances where you are evaluating "technical acceptability" of a quote or offer, it should be paramount concern that both parties at least understand what the requirement is.

Jamaal:

I think that mutual understanding of the government's requirement is a necessary condition for fair and reasonable pricing. Which raises an issue:

It is notoriously difficult to specify and assess service quality, especially for long-term (one year or longer) and complex (multiple tasks and multiple performances under varying conditions and circumstances) requirements. It may be the biggest challenge to acquisition practitioners in our time. That raises two questions:

First, given the difficulty of clear and unambiguous specification of long-term and complex services, is competitive proposal writing and price competition under FAR Part 15, with its limited opportunities for in-depth discussion and price negotiation, a good way to acquire such services?

Second, if the answer to the first question is no, then might architect-engineer style competence-based contractor selection followed by one-on-one, in depth contract and price negotiations (see FAR 36.602) produce better specification and mutual understanding and better pricing that the Part 15 approach and thus be a better method for contractor selection and contract formation? Might that process also be more cost efficient than Part 15?

Joel: Agreed.

In this case, firms submitted "quotes", so it may a solicitation for commercial services under some simplified acq method (e.g., shortcuts built in)?

Jamaal's scenario referred to LPTA. It may be off topic, but since the push for using LPTA, has there been an increase in the percentage of Request for Equitable Adjustments (REA)/Claims?

I can only speak from what I've seen in my agency, but I'm seeing more REAs/Claims now than before the push to use LPTA as the source selection process. I've read a claim in which the filing contractor stated the government shouldn't used LPTA as the source selection process.

The $150K could be fair and reasonable, but if the government ends up receiving an REA/Claim, there may be an underlying problem.

I thought this recent decision was interesting and worth sharing http://www.gao.gov/assets/680/673709.pdf . GAO sustained this protest on for a LPTA solicitation because the RFQ did not reference that price realism would be an evaluation criteria and the Government deemed the lowest bidder as technicall unacceptable on concerns of LOE risk for a fixed price effort.

Thanks, WhoKnows. The GAO's decision is exactly on point with my postings in this thread (or rather, my postings were exactly on point with the GAO jurispridence).

An extract from the decision, with emphasis added and internal citations omitted--

Before awarding a fixed-price contract, an agency is required to determine that the price offered is fair and reasonable. FAR § 15.402(a). An agency’s concern in making a price reasonableness determination focuses primarily on whether the offered prices are higher than warranted. Although not required, an agency may also provide for a price realism analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing whether a vendor’s low price reflects a lack of understanding of the contract requirements, or risk inherent in a vendor’s approach. However, where there is no relevant evaluation criterion pertaining to realism or understanding, a determination that a vendor’s price on a fixed-price contract is too low generally concerns the vendor’s responsibility, i.e., the vendor’s ability and capacity to successfully perform the contract at its offered price. Agencies therefore may not conduct a price realism analysis without first advising vendors that the agency intends to do so.

That GAO decision is based on long-standing case law. It has nothing to do with the issues initially raised by Jamaal. A pointless distraction that is not face-saving.

You asked -"would a determination of the lowest price being fair and reasonable, solely on the basis of adequate price competition, be compliant with the governing rules?"

I ask you, could you defend your determination to a wise tribunal? did you consider all pertinent facts? Where there any inconsistencies vis a vis the lowest price? i.e. was it much TOO low?

Ask yourself, what do I have besides the competition? Is there pertinent price history? what price did we expect? Do they understand the requirement? what is our G.E. amount? Again, it is about the situation in which the determination is made. Have you considered all pertinent information? Do you have enough?

If you believe you could defend your decision to an objective, outside, unbiased party, then reduce it to writing. No man is an island. the governing rules put the burden on the one who determines the price fair and reasonable.

Happy Trails!

That GAO decision is based on long-standing case law. It has nothing to do with the issues initially raised by Jamaal. A pointless distraction that is not face-saving.

I agree.

Who said that Jamaal should perform a price realism analysis? I suggested taking "full advantage of the acquisition method chosen to assure that both the government and the industry** understand the stated scope of work. [Jamaal] might end up avoiding problems for both the contractor and the government if the scope of work isn't clear or doesn't represent what the government really intends."

I also said that "I've found over the years that taking short cuts up front in the contract formation often results in difficulties and messes down the road that somebody had to deal with and that harmed one or both parties. To me, it is "easier" to get it right up front..."

**I didn't limit the term "industry" to one firm. There are widely varying prices for the "same quantity and delivery of identical services" and a much higher government estimate that might or might not represent the same understanding of the requirements by everyone.

I would be initially concerned about possible confusion over the scope of work.

If Jamaal is satisfied that the scope is mutually understood, then one should decide if and how to discuss price. As the GAO said, if the government thinks that the risk of performance failure due to a low price is too high, then there are other steps that would follow.

EXAMPLE SCENARIO: In response to a anticipated FFP award, a LPTA solicitation with a Government estimate of $400K was issued and you receive three competitive quotes for $150K, $250K, and $325K.

Each quote is for the same quantity and delivery of identical services and the government would like to determine the price of $150K as fair and reasonable based on adequate price competition.

Jamaal,

Yes, you may determine the $150k price fair and reasonable. The price isn't too high, and you aren't assessing price realism so you're not assessing too low. Apparently, you are satisfied that all three quotes are based on the same delivery and performance and quality expectations, and I suppose you are not on constructive notice of the possibility of a mistake. You have multiple quotations from apparently responsible sources on identical requirements. Yes, yes, yes, you may determine the price fair and reasonable based on adequate price competition. With these facts, you cannot call it unreasonable. The IGCE variance has nothing to do with price reasonableness based on adequate price competition.

If you have some reason to think the $150k quoter isn't promising the same delivery and performance and quality expectations as the other quoters, you may ask some questions in a clarifications or discussions approach. If the quoter stands by its price, well, you may call it reasonable.

If you think the quoter will not successfully perform, well, this is a matter of responsibility. The price is reasonable, but the quoter may be non-responsible. There is no connection between price reasonableness and responsibility.

I can't say much more, so I'll sign off of this topic. Other commenters seemingly don't want you to determine the price fair and reasonable based on adequate price competition. You decide.

The opening inquiry was as follows:

Does adequate price competition establish a fair and reasonable price [ipso facto]?

(Ipso facto is Latin for “by that very fact,” i.e., in and of itself.)

Ji20874 says:

Yes, you may determine the $150k price fair and reasonable. The price isn't too high, and you aren't assessing price realism so you're not assessing too low. Apparently, you are satisfied that all three quotes are based on the same delivery and performance and quality expectations, and I suppose you are not on constructive notice of the possibility of a mistake. You have multiple quotations from apparently responsible sources on identical requirements. Yes, yes, yes, you may determine the price fair and reasonable based on adequate price competition. With these facts, you cannot call it unreasonable. The IGCE variance has nothing to do with price reasonableness based on adequate price competition.

That, like ji20874’s other comments, is not responsive to the question, which is whether adequate price competition, in and of itself, establishes price fairness and reasonableness.

FAR 15.404-1**(2)(i) says that adequate price competition “normally” establishes price fairness and reasonableness. It does not say that it** necessarily establishes price fairness and reasonableness.

The Contract Pricing Reference Guides -- to which COs are referred by FAR 15.404-1(a)(7) -- Vol. 1, Ch. 0, say this about determining price reasonableness:

A reasonable price is a price that a prudent and competent buyer would be willing to pay, given available data....

Your determination of whether an offer is fair and reasonable is a matter of judgment. There is no simple formula in which you can just plug in a few values and receive a firm answer of fair and reasonable. Determining what is fair and reasonable depends on market conditions, your alternatives for meeting the requirement, price-related factors, and the non-price evaluation factors that relate to each procurement. It also depends on what price you can negotiate with an offeror.

That does not say that the lowest quoted price is necessarily fair and reasonable.

In this thread, several of us have indicated to Jamaal that there are other things to consider when determining price fairness and reasonableness beside simple price comparisons. Based on what I can recall and determine based on a review of the posts, no one has said that ji20874 cannot determine price fairness and reasonableness based on adequate price competition. In Post #3, Joel said “not necessarily” and pointed out other things to consider. I did the same in subsequent posts, as did Matt Fleharty, Bob Antonio, Weno2, and br549dewey. I said that I would be wary, given the price spread among the quotes. Something seems off.

Ji20874’s position rests on language in GAO and court decisions about the distinction between price reasonableness and price realism. He said: “The price is reasonable according to the GAO’s and COFC’s jurisprudence.” Those tribunals have said that the primary objective of evaluations of price reasonableness is to determine whether a price is too high, while the primary objective of evaluations of price realism is to determine whether a price is too low. That’s interesting, but what does it have to do with Jamaal’s question? Does adequate price competition, in and of itself, establish price fairness and reasonableness?

ji20874’s reasoning goes like this:

**Since a determination of price reasonableness is concerned with whether a price is too high, and since the $150,000 quote in Jamaal’s LPTA example was the lowest received, and since each quote “**is for the same quantity and delivery of identical services,” it follows that $150,000 is not too high and that it is, therefore, reasonable. Yes, yes, yes.

Other posters to this thread, myself included, have been more cautious. I reject ji20874’s reasoning as an overly simplistic formula: unsound and inconsistent with the guidance in FAR and in the Contract Pricing Reference Guides.

While GAO and court decisions are legally significant, they are not the opinions of contracting practitioners and are of only limited value in determining what is sound contracting practice. As a friend of mine says about GAO decisions: "Stupid is not illegal." GAO attorneys do not have to document and justify determinations of price reasonableness to IGs and management reviewers. The decisions that ji20874 has cited are of no utility whatsoever in answering Jamaal's question: Does adequate price competition, in and of itself, establish price fairness and reasonableness?

Since the opening post, Jamaal has told us that he is concerned that a determination of reasonableness based on the quotes received would be hasty. Only he has all the facts. j****i20874’s “Yes, yes, yes, you may determine the price fair and reasonable based on adequate price competition,” should, in the context of this thread, be filed in the category of Sloppy Advice.

That GAO decision is based on long-standing case law. It has nothing to do with the issues initially raised by Jamaal. A pointless distraction that is not face-saving.

Your right and I should have been more specific. What I was trying to convey by providing that GAO case was that unless you had a true technical discrepany, (like the great example you provided regarded the Sealed Bidding scenario), you could not determine a proposal as technically unacceptable by utilizing Price Realism where it was not listed in a RFP (at least that is how I interpreted the decision).

I agree that while competition does cover the requirements of determining of "Fair and Reasonable" it makes sense to still investigate if a price would seem to good to be true to avoid potential default or a product that does not meet expectations.

I said I was bowing out, but since my previous comments haven't been fairly characterized, I'll make one more comment in the interest of fairness.

The original poster said all three quoters promised to deliver the same quantity and delivery of identical services on a firm-fixed-price basis. I take the original poster at his word. Three quoters providing quotations for the same quantity and delivery of identical services is adequate price competition.

Vern thinks the $150K price might be unreasonable, or he at least denies anyone else the privilege of saying the price is reasonable based on adequate price competition under the facts as set forth in the original posting. He wrote, "I said that I would be wary, given the price spread among the quotes. Something seems off." I agree that something might be off, based on the disparity in prices, but I disagree that the price is therefore unreasonable (or cannot be determined to be reasonable) -- I follow the GAO jurisprudence that price reasonableness is concerned with whether a proposed price is too high, not too low. If I thought a price was too low, I would not determine the price to be unreasonable. Apparently, others would.

Rather, I would deal with the low price by (1) considering whether a mistake was made, (2) conducting some clarifications and/or discussions to satisfy myself that the quoter understands the requirement, and/or (3) dealing with the low price as a matter of responsibility. But I would do (1), (2), and/or (3) without determining the price to be unreasonable. If Jamaal did determine the price to be unreasonable, and used that unreasonable price (too low) as the basis for selecting another higher-price quoter for award, that determination could be the basis for the GAO sustaining a protest against the award decision for introducing an unstated evaluation factor. The GAO case cited earlier makes this point well.

Jamaal, let us know whether you decicde to determine the $150K price reasonable or unreasonable.

ji20874:

This was for the purpose of discussion.

I'm interested in how you would process the following changes to the scenario:

In response to desiring three FFP multiple award task order contacts, a LPTA solicitation with a Government estimate for as sample project of $800K was issued and you receive four proposals for $150K, $250K, $325, and $625K.

Similarly, each proposal is for the same quantity and delivery of identical services.

Would you use the same approach in saying adequate price competition, in and of itself, establishes fair and reasonable prices?

ji20874:

Again, GAO jurisprudence has nothing to do with the issue at hand. Moreover, the question is not whether the $150,000 is or is not reasonable. The question is whether the $150,000 can be said to be reasonable based on adequate price competition, in and of itself, that is, without further inquiry.

I don't know whether the $150,000 quote is too high or too low. It might be neither. It might be one or the other. But on the face of things, the disparity among the quotes suggests that further investigation would be appropriate before making any declaration.

You would declare the price to be reasonable because it is the lowest received, without futher investigation. ("Yes, yes, yes.") And your rationale? Because GAO says reasonableness is about being too high and a price can't be too high if it's the lowest received. That's nonsense.

The Contract Pricing Reference Guides say that a reasonable price is one that a prudent and competent buyer would pay. In light of the disparity among quotes, and notwithstanding Jamaal's assertion that they all proposed the identical services, would a prudent and competent buyer declare the $150,000 to be fair and reasonable without first making some inquiries? It could be that $150,000 is too much to pay for the service that quoter is actually planning to render based on its interpretation of the statement of work. The $325,000 might be much more reasonable. We simply do not have enough facts to know. So maybe we should get more facts. If we need more facts than the prices themselves, then adequate price competition cannot, ipso facto, be the basis for determining the price to be fair and reasonable.

Jamaal said that all quotes were based on identical services. Whatever can that mean? The quoters wouldn't have said "identical." The quoters would have said what A.B. Dick said: "My quote is based on your requirements." So identicality is some kind of conclusion or assumption. We don't know if there were comprehensively descriptive technical proposals. So we don't know how the quoters interpreted those requirements or how the government interpreted the quotes. Did all quoters interpret them the same way and in the same way as the government? Did they actually propose to do identical work and identical quality work? Would the government get the exact same acceptable service from each? That seems unlikely, and if not, then the $150,000 quote might not be too low. It might be too high. I don't think we can take Jamaal's opening statement at face value if we want an intelligent discussion of his question.

In light of the facts that we've been given, I would send a buyer to training to learn to be a prudent and competent buyer if he or she came to me and said that the $150,000 is reasonable because of GAO jurisprudence and because it was the lowest quote received.

Vern thinks the $150K price might be unreasonable, or he at least denies anyone else the privilege of saying the price is reasonable based on adequate price competition under the facts as set forth in the original posting.

Don't you see, Vern? You're the bad guy!

Yes. Well, I guess I can carry that weight.

"Fair and reasonable" is a construct. We see that it is more involved than a few stipulations or a few slides. Although a fair and reasonable price determination has been summarized in many ways, and likewise described and detailed in numerous ways, it is a construct that is really an abbreviated way of naming a very involved subset (pricing) of a very large body of knowledge (contracting). It is a construct we go back to because the determination is about getting appropriate consideration "in contract". i.e. can we support accepting this price on behalf of the Government? A GAO decision will give us insight, but still does not give us complete, in depth understanding. Hence, we have entire books and guides written on this little term - "fair and reasonable".

So what do we do? We study this construct, "fair and reasonable price", year after year, with its many dimensions and particulars, so that we are better able to assess if a specific scenario supports a determination of a fair and reasonable price. What else to do? One can have experienced peers read his or her Price Memorandum. A good friend/peer can tactfully play the devil's advocate, helping us identify flaws or holes in our logic. We keep learning, and listening, and the construct steadily comes to mean more to us, and our understanding gets deeper, and wider, as we learn and practice contracting.

No man is an island.

P.S. I like reading the decisions, but take pause at the time involved...

br549dewey:

Can you explain this statement a little further?

It is a construct we go back to because the determination is about getting appropriate consideration "in contract". i.e. can we support accepting this price on behalf of the Government?

I've never read or heard of fair and reasonable determination being linked to appropriate consideration in the manner stated above. What is this statement based on since money is only one form of consideration?

Jamaal,

Your new scenario changes everything, doesn't it?

You no longer have a real price for a real task -- you have a pretend price for a pretend task. Everything I wrote earlier was for a real price for a real task, which I thought was your question. I don't do sample tasks for pretend pricing purposes for IDIQ contracts -- I prefer meaningful evaluations. The approach with pricing a sample task might show how an offeror might price something in the future, but the price is ephemeral. I would not say you have adequate price competition unless you had three quoters proposing firm fixed prices for identical delivery and performance, as you described in your original posting.

Anyway, in your new scenario, you need to carefully study how the offeror built its $150K price, and decide how much confidence you have in it and how likely the pricing approach can be replicated in the future after award. Sounds like a price realism analysis, doesn't it? Do you have words in your solicitation talking about realism or confidence or understanding? With a sample task, you don't get prices -- you get insights into pricing approaches. The GAO has spoken on the matter of using sample tasks for pricing purposes in situations similar to yours -- they are concerned about ephemeral prices, too. I recommend you look into the GAO jurisprudence on this matter.

The approach with pricing a sample task might show how an offeror might price something in the future, but the price is ephemeral.

I wouldn't call sample task prices "ephemeral," which means short-lived. I would call them "artificial," which is the term used by the GAO in C. W. Government Travel, Inc. -- Reconsideration, B-295530.2, July 25, 2005, 2005 CPD ¶ 139, footnote 2:

We have previously acknowledged that prices or costs proposed in the context of hypothetical sample tasks in a solicitation for an ID/IQ contract, while somewhat artificial in nature, may permit the government to assess the probable cost of competing offerors-provided that the solicitation takes into account offerors' differing technical approaches and meaningfully evaluates the costs or prices underlying their proposals. See, e.g., S.J. Thomas, supra, at 5; SCIENTECH, Inc., B–277805, B–277805.2, Jan. 20, 1998, 98–1 CPD Paragraph 33 at 7–8.

Why use sample tasks? Because: (1) the GAO says that CICA requires the evaluation of price or cost to the government in every source selection, (2) the GAO says that labor rates are not service prices and that in order to have a price you must have quantities as well as rates, and (3) sample tasks are supposed to be indicative of the quantities of the various kinds of labor that an offeror will use in performance, and sample task prices are thus indicative of future cost to the government. See R & G Food Service, Inc., d/b/a Port-A-Pit Catering, B-296435.4, Sep. 5, 2005, 2005 CPD ¶ 194.

Given the nature of task order contracts, you have to use sample tasks or a pricing model when conducting a competition for a task order contract. See SCIENTECH, Inc, cited in the quote above:

While we understand that it is somewhat artificial to use hypothetical sample tasks in a solicitation for an indefinite delivery, indefinite quantity contract, where the actual work will be competed through task orders, sample tasks permit the government to assess the probable cost of competing offerors in light of both the offerors' differing technical approaches and their labor rates and fees. As an alternative, an agency may simply multiply offerors' proposed labor rates by estimated quantities of labor hours for each labor category (such estimates may be based, for example, on the agency's recent experience); that method, while simpler, does not take into account differences in offerors' technical approaches.

it appears that most agencies prefer sample tasks to pricing models.

The sample task approach is artificial, but CICA leaves you with no choice if you don't want to use a pricing model. I had this to say in "Postscript: Evaluating Cost To The Government When Quantities Are Unknown," The Nash & Cibinic Report (April 2000):

The policymakers must face the facts: (a) the Government is increasingly dependent on contracts for services that do not include complete specifications of tasks or expected results at the time of award, the use of such contracts is unavoidable in light of the Government's drive to replace Government employees with contractors, and [c] such contracts cannot be priced in the ordinary sense of that term.

In light of these facts, it is not reasonable for statutes or regulations to effectively require agencies to use dubious price evaluation techniques when they conduct source selections for task order contracts and other contracts for long-term, complex service requirements. Nor is it practicable for agencies to evaluate contractor management and labor productivity on a competitive basis. A better policy would be to (1) allow agencies to use an architect-engineer-type of procedure to select sources for such contracts, (2) rely on Contracting Officers to negotiate advance cost agreements regarding direct labor, indirect costs, and profit or fee at the time of contract award, and (3) rely on COs to obtain fair and reasonable prices for services during the course of contract performance. Rules about the obligation of funds can be satisfied in a number of ways.

Of course, none of this has any bearing on the answer to the original question, which was about adequate price competition as a basis for determining price reasonableness.

I don't understand why the use of an actual, seed task order* wouldn't be another acceptable alternative to a sample task order or to a "pricing model" (?) in the initial competition for award of Single Award or Multiple Award Task Order base contracts (SATOCs or MATOCs). As the first task order award, a seed task order would bind any offeror/proposer to its prices or prices and rates if awarded the seed (first) task order, which is superior, in my opinion, to an artificial, non-binding, hypothetical sample task order. Proposers can promise the moon in non-binding sample task order competitions.

*A seed task order is for a real service or a real design-build or construction project.

br549dewey:

Can you explain this statement a little further?

It is a construct we go back to because the determination is about getting appropriate consideration "in contract". i.e. can we support accepting this price on behalf of the Government?

I've never read or heard of fair and reasonable determination being linked to appropriate consideration in the manner stated above. What is this statement based on since money is only one form of consideration?

Hi. I am referring to the price existing in a dynamic contractual setting. The price is established within a context that includes, but is not limited to related factors, such as time for delivery, means of delivery, time and method of inspection, quality control requirements, and on and on... So, a price might seem to be fair and reasonable, until we look further at other terms of the contract that impact price. If you have ever negotiated with Cost as an Independent Variable (CAIV), you have seen how related factors can be negotiated until a "price" is reached. Price does not exist in a vacuum. Note that when we point out flaws in our G.E.s, we almost always see how the G.E. overstated or understated these related factors - e.g.cost of testing and samples, time to access the base, the cost of QC reports, and so forth. - Dewey

I don't understand why the use of an actual, seed task order* wouldn't be another acceptable alternative to a sample task order or to a "pricing model" (?) in the initial competition for award of Single Award or Multiple Award Task Order base contracts (SATOCs or MATOCs).

You can use a "seed" task as a sample task order. However, a proposal in response is actual pricing only for the chosen seed order. The seed is still just a sample. It is artificial for other future orders. You can argue that it's better than a fictional order, because the contractor is actually bound, but that argument is open to several objections. The seed task may not be representative of other future orders. Once under contract, the contractor might adopt a different pricing strategy. Etc.

You can use a "seed" task as a sample task order. However, a proposal in response is actual pricing only for the chosen seed order. The seed is still just a sample. It is artificial for other future orders. You can argue that it's better than a fictional order, because the contractor is actually bound, but that argument is open to several objections. The seed task may not be representative of other future orders. Once under contract, the contractor might adopt a different pricing strategy. Etc.

True enough, especially for SATOC's which I would not recommend for construction or design-build product lines. For MATOC's, one must rely on competition and the ability to negotiate in a competitive situation to obtain reasonable prices for follow on orders. Establishing some unit pricing might be useful but I generally advocate caution in locking in long term unit prices or elements of cost or pricing for construction ID/IQ contracts due to so many variables and the volatility of the market (labor, materials, subs, suppliers, type of construction, location, local site conditions, risks, etc.).

My earlier post was in response to the point that the GAO said only "sample tasks" or "pricing models" are allowable price evaluation methods for the initial ID/IQ competition. I have never considered a real FFP task order to be a "sample task". To me, comparing sample tasks to real tasks are like comparing the business development or marketing part of a business to the engineering, production or other unit that actually executes the task order.

I was taught almost 40 years ago as a consulting engineer not to rely on the statements, promotions or even certifications of manufacturing or construction company marketing departments. My boss demanded that the heads of engineering, product manufacturing or other production/execution certify whatever certifications or representations that we would have review and approval authority over. And since that time I've learned that proposers generally propose and someone else executes the project. This isn't always true. There were certain firms, like Peter Kiewit, where the actual project team had to prepare the proposals or bid, then execute it. Our most successful projects were often where this type of arrangement was evident.

A couple of things I have not seen mentioned:

1.) While I recognize this isn't answering the question, if you get quotes that differ wildly from the IGCE, it might be prudent to examine the basis for the IGCE. Did they cut and paste something from the past? Did they pencil whip it just to meet the requirements of the contracting office?

2.) The FAR's language leaves the door open, IMO, for a specialist to do additional analysis above and beyond the existence of adequate price competition. I tell the specialists that work for me that if they are uncomfortable with a price being fair and reasonable, they should attempt to do additional analysis to gain another data point or points. There are seven total examples of price analysis in 15.404(B )(2). Can one of those additional methods be utilized to gain further insight?

Eventually, you'll have to make a recomendation to your CO. That means you'll need to exercise some discretion and business judgment. I think this thread is a good start.

A couple of things I have not seen mentioned: 1.) While I recognize this isn't answering the question, if you get quotes that differ wildly from the IGCE, it might be prudent to examine the basis for the IGCE. Did they cut and paste something from the past? Did they pencil whip it just to meet the requirements of the contracting office?

Keith, I disagree with your statement that examining the basis of the government's estimate hasn't been mentioned. At least two posts here by separate responders discussed that. I do agree with your recommendation.

2.) The FAR's language leaves the door open, IMO, for a specialist to do additional analysis above and beyond the existence of adequate price competition. I tell the specialists that work for me that if they are uncomfortable with a price being fair and reasonable, they should attempt to do additional analysis to gain another data point or points. There are seven total examples of price analysis in 15.404(B )(2). Can one of those additional methods be utilized to gain further insight?

Not sure who your question is directed to but yes, one or more of those additional techniques described in 15.404-1( b )(2) may be used to gain further insight. Doing so might well validate the recommendations made to examine the basis of the government's estimate and to communicate with one or more of the firms that furnished quotes to ensure that both the government (including both the requirements drafter(s) and the estimator(s) understand the requirements. And doing so might validate that the lowest quoted price or that two or more quoted prices received are fair and reasonable.

Thanks for your input.

Just noticed an old thread this morning that offers another perspective when a price might appear to be "too good to be true". See it at /threads/904-too-good-to-be-true

By the way, dwgerard mentioned a fishing boat named "Change Order". I saw a forty something foot sport fisher by that name docked next to the sailboat we rented for a week in Key West several years ago. There was a hired crew staying on it, polishing,etc. I was so mad that I wanted to drill a hole in it and sink it...but I managed to get over it. 😊