FAR 15.404-1 Price Analysis Using Unacceptable Technical Proposals

It should be obvious but I would advise the person(s) evaluating pricing to determine or at least estimate if and how the unacceptable technical aspects of each of the other 4 proposals affected those price proposals. For example, If you are soliciting the quality level of a Caddy and someone proposed a Buick or a Chevy, that firm's pricing wouldnt really be representative of the specified requirement, would it? My caveat to you in using the pricing from the technically unacceptable proposals for your price analysis would be to determine the relevancy of those other prices to the specified requirements for pricing comparisons and consider that in the price analysis.

You said that the solicitation says that the price evaluation is conducted separately from the technical evaluation, which is common. Even so, the price evaluators should normally have access to the technical proposals to be able to determine whether the prices seem representative of the proposed technical proposal. They should probably also be able to learn what technical deficiencies were found in order to facilitate that evaluation. You apparently have enough information to determine that the technically acceptable proposal is unbalanced. The usual danger is technical evaluators being prejudiced by the pricing rather than the price evaluators being prejudiced by the technical aspects. In fact, someone normally has to put all this together to determine whether the proposed prices are fair and reasonable per discussion throughout 15.404 and 15.405.

I assume that the objective of the price analysis is to determine price reasonableness and not price realism. If that is correct, then the answer depends on why the technically unacceptable proposals are technically unacceptable. The key is comparability.

If the other proposals are technically unacceptable due to a reason that has a significant bearing on price or if their products and services are otherwise markedly different from the product or service offered by the selectee, then you should not use them unless you can make adjustments in their prices to offset the effect on price of deficiencies or other differences. If they are technically unacceptable for reasons that have no bearing on price and if their products or services are otherwise reasonably comparable to the product or service of the selectee, then I cannot think of any reason why you could not use them for price comparisons.

Onmeld, I didnt have time earlier to respond to your other issue of unbalanced pricing. Although you didn't ask a question, you identified as a possible issue and provided an opinion that it isnt necessary to document why its ok to award to a firm with unbalanced pricing. You said: "The provisions of 52.215-1 f(8) however are discretionary and only go to rejection of the proposal (which in this case we want to award on). If there is an explanation regarding the unbalace I believe we are OK to award (an would be OK even if we did not document an explanation)."

I don't necessarily agree that it "would be OK even if [you] did not document an explanation."

Please see 15.404-1 -- Proposal Analysis Techniques, (g) Unbalanced pricing.

Subparagraph (2) of this paragraph REQUIRES the KO to analyze prices to determine if they are unbalanced. OK, you've done that. However, once unbalanced prices are found (OK, you did find unbalancing here) the KO SHALL consider the following in making the source selection decision and in determining the competitive range, if conducting discussions:

"...(2) [All offers with separately priced line items or subline items shall be analyzed to determine if the prices are unbalanced]. If cost or price analysis techniques indicate that an offer is unbalanced, the contracting officer shall --

(i) Consider the risks to the Government associated with the unbalanced pricing in determining the competitive range and in making the source selection decision; and

(ii) Consider whether award of the contract will result in paying unreasonably high prices for contract performance."

Your KO SHALL "consider" the risks during the source selection and consider whether award will result in paying unreasonably high prices for contract performance. I believe that these considerations and resulting determinations or decisions should always be documented in the source selectiion documentation.

In the event that there is a protest over unbalancing, I've seen (even in the last week or two in the WIFCON digest of protest decisions. See:(W.B. Construction and Sons, Inc., , B-405818; B-405818.2, January 4, 2012, which is summarized on WIFCON at /legacy/reg/f86d6c07afc7a5d7.html ) where the GAO or a Court sustained issues when the KO had no documentation of his/her considerations and reasoning and the GAO did not accept after the fact explanations of what the KO supposedly considered and determined during the competition.

I'd also caution that, if this is a construction contract, in the event that the contractor defaults and the surety has to take over and complete the contract, the government can get into some serious trouble if it has overpaid the contractor due to unbalanced pricing or for other reasons. The surety normally must get by on the remaining unpaid contract balance from the government to complete the job, except for what extra losses and costs it can recover from the defaulted contractor. That is often like squeezing blood from a vampire's victim. I have seen cases over the years where the surety sued or claimed harm caused by owner negligence due to overpayments for overvalued work and the owner was required to reimburse the surety for those losses to help complete the remaining work. So, there may well be some risk to the government for unbalanced construction contract unit prices or for unbalanced lump sum prices in addition to the rather simple explanation provided in FAR 15.404-1. There is some discussion of unbalanced bidding in Nash and Cibinics' "Formation of Government Contracts" (mine is the Third Edition, which has been since updated).

If this is an unbonded type contract, such as one for services or supplies, unbalanced pricing can increase the risk of total cost to the government for reasons beyond that explained in the FAR. If one overpays a contractor who later defaults, it will probably cost more than the remaining contract balance to get another firm to complete the defaulted contract effort.

These are just some thoughts for you to consider.

Joel and Vern,

I really appreciate your comments, they have given me other avenues to ponder. Vern, I will have to request that they look at the price estimates in conjunction with the reasons why the proposals are unacceptable and see what affect those deficiencies have on the price. The purpose of the price evaluation was indeed to determine price reasonableness only.

Joel, Thank you for pointing out the extra step regarding the unbalanced pricing aspect of 15.404-1(g). Even though the total proposal price is fair and reasonable, there should still be an analysis by the KO that the actual or apparent unbalenced contract line items regarding the risk(s).