Can pricing from quotes that are determined to be technically unacceptable be used as a basis for determining the technically acceptable quote fair and reasonable? If not, do I consider the technically acceptable quote as only one response as far as pricing goes and include a statement of price reasonableness?
From the guidance found at Federal Acquisition Regulation (FAR) 15.404-1(b)(1) – Price analysis for commercial and non-commercial items:
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Price analysis is the process of examining and evaluating a proposed price to determine if it is fair and reasonable without evaluating its separate cost elements and proposed profit. Price analysis may, however, be supported by cost analysis of cost elements and/or profit when price analysis alone cannot determine a fair and reasonable price.
FAR 15.404-1(b)(2) states “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)).”
From FAR 15.403-1 (c)(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
(B) 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.
From DFARS 215.403-1(c)(1)(A)(1): “…The determination of adequate price competition must be made on a case-by-case basis. Even when adequate price competition exists, in certain cases it may be appropriate to obtain additional data to assist in price analysis.”
In the Department of Defense Source Selection Procedures Guide, dated 4 March 2011, paragraph A.5 on Page A-3 discusses the requirement for performing price analysis in LPTA source selections as follows:
The LPTA procedure is applied to known, firm requirements, usually readily available in the commercial marketplace where a fair and reasonable price determination is based on adequate price competition. Therefore, price analysis will normally be used to determine the total evaluated price to support the selection of the lowest priced, technically acceptable offeror. Although in exceptional cases when the determination of fair and reasonable price requires additional information, the PCO may conduct a cost analysis to support the determination of whether the proposed price is fair and reasonable.
Also, from the Contract Pricing Reference Guide (CPRG) Section 6.1.1– Other Proposed Prices:
Comparison of a proposed price with other proposed prices received in response to the same solicitation is generally considered one of the preferred techniques best bases for price analysis, because all offers were submitted to meet the same requirement during the same time period.
The CPRG Section 6.1.1 further states when using proposed prices for comparison, “any proposed price used as a basis for price analysis must meet the following general requirements:
•The price must be submitted by a firm competing independently for contract award.
•The price must be part of an offer that meets Government requirements.
•Award must be made to the offeror whose proposal represents the best value to the Government.
The guidance in the CPRG also provides these cautions:
•Do not use the price from any offer that you would not consider for contract award as a basis for price analysis.
•Never use an offer from a firm that you have determined is nonresponsible.
•In sealed bidding, never use a nonresponsive bid.
The CPRG finally provides the following guidance with regard to comparing the proposed price to other proposed prices: “In negotiations, never use a price from a proposal that is technically unacceptable.”
Generally, prices of technically unacceptable offers are not included in the price analysis. If the technical team and contracting officer believe the proposals were close to being technically acceptable, they could be kept in the competitive range and included in discussions. It will ultimately come down to the Contracting Officer’s determination of adequate price competition based on the standard found in FAR 15.403-1(c)(1) and DFARS 215.403-1(c)(1)(B). Namely that “two or more responsible offerors, competing independently, submit priced offers that satisfy the Government’s expressed requirement…” Do technically unacceptable proposals satisfy the Government’s expressed requirement? This is a question that must be answered by the Contracting Officer. Depending on the circumstances of the acquisition, the answer could be different on a case-by-case basis. Since there is not a one-size-fits all standard for “satisfy the Government’s expressed requirement”, there is some room for interpretation.
According to the DoD Source Selection Procedures Guide “price analysis will normally be used to determine the total evaluated price to support the selection of the lowest priced, technically acceptable offeror.” According to the CPRG price analysis “always involves some form of comparison with other prices.” While comparison to proposed prices is the most preferred basis of price analysis, the CPRG in Section 6.1.1 cautions against using the price from a technically unacceptable proposal as a basis for price comparison. In such a situation, other price analysis techniques identified in FAR 15.404-1(b)(2), such as a comparison to historical prices or commercial prices, may need to be considered as other potential alternatives for analyzing the proposed price(s) of the apparent successful offeror. In fact, this is probably a situation where it would make sense to use more than one price analysis technique if possible. The CPRG discusses how the use of “multiple” price comparisons will lead to “increased confidence in the price analysis decision.”
Ultimately, though, it is the Contracting Officer’s responsibility to determine if adequate price competition exists and if the apparent successful offeror’s price can be determined fair and reasonable on the basis of competition alone. The starting point in making that determination needs to be the solicitation. In JBlanco Enterprises, Inc., B-402905, Aug. 5, 2010, the RFP notified offerors that if their technical volume was deemed technically unacceptable the agency would not evaluate their proposed price or past performance. Therefore, the Contracting Officer needs to consider what the solicitation says about evaluating the proposed prices and past performance of technically unacceptable proposals.
In the end, it will still come down to the Contracting Officer using sound business judgment to decide if the proposed prices of the technically unacceptable proposals can be used for price comparison and whether that comparison alone is sufficient for determining fair and reasonable. If the Contracting Officer is not satisfied with a price comparison based on competition alone, she has several other options available in the FAR and DFARS. In accordance with FAR 15.404-1(b)(1), cost analysis can be used to support price analysis when price analysis alone is not sufficient to determine fair and reasonable. And, according to DFARS 215.403-1(c)(1)(A)(1) even when there is adequate competition, there still may be situations where it’s appropriate to obtain additional data (such as sales data) to support the price analysis decision. Therefore, if the Contracting Officer is not satisfied with making a fair and reasonable determination based on price competition alone, she should consider using other price analysis techniques and if necessary, request additional data, up to and including cost data, from the prospective contractor.
Finally, are the proposed prices from the technically unacceptable proposals invalid for use in the price analysis decision? The guidance in the CPRG is just that, guidance. While the CPRG cautions that “in negotiations, never use a price from a proposal that is technically unacceptable,” that does not mean that the Contracting Officer is legally prohibited from evaluating the proposed prices of technically unacceptable proposals or from making a comparison based on these prices. However, the FAR and case law consistently make clear that proposals deemed technically unacceptable are ineligible for award and an agency “need not consider (a technically unacceptable proposal’s) price in setting competitive range.”
Therefore, the Contracting Officer is not prohibited from evaluating the proposed prices of technically unacceptable proposals or from using those prices for comparison but needs to use sound judgment in determining if the comparison would be valid. Whether the comparison would be valid would depend on how the following two questions are answered: what bearing does the technically unacceptable aspect(s) of the proposal have on the proposed price(s) for the product or service and would the technically unacceptable product or service otherwise be reasonably comparable to the product or service of the apparent successful offer? If the answers are “it does not have a significant bearing” and “yes, they are reasonably comparable”, then a case could be made for using these other proposed prices as one basis of comparison for the price analysis. However, even here, it’s still advisable to use other price analysis techniques if possible for price comparison and, if necessary, request additional data from the prospective contractor to support price reasonableness.