I've been told that the Government has the authority to provide vendors with a "target price range" in solicitation materials. The DHS PIL discusses this in one of their publications.
Do you know which authority(ies) allow the Government to use this approach? And do you have references to any discussions on where using this approach might be valuable?
Thanks for your guidance.
For the Department of Defense (DoD) conducting acquisitions subject to the Federal Acquisition Regulation (FAR) there is no prohibition against including a target price range in solicitations. While solicitation including a target price range is possible, it is not common because it can limit competition and potentially complicate subsequent source selection. Just because something is allowable does not mean it is a good practice to do it.
An overview perspective of FAR direction regarding competition and transparency helps understanding why target price ranges are not common in solicitations. One can summarize the guiding principles for the Federal Acquisition System presented at FAR 1.102 as, 'always seek transparency and competition.'
DoD must publicize contract actions in order to increase competition, broaden industry participation, and assist small business concerns of all types in obtaining contracts and subcontracts (FAR 5.002). FAR part 11 - Describing Agency Needs focuses on objective description of the qualities, traits, and functions sought in the supplies or services required. FAR part 11 is silent on price ranges. These directions serve to increase transparency and thus potentially increase competition.
FAR part 10 - Market Research directs DoD to study available markets to understand what is available in the market to meet agency needs (FAR 10.001). FAR 10.002(b)(1)(vii) mentions conducting market research in relation to discovering if small business can potentially meet the agency requirement at a "fair market price." Concern with ultimately establishing the fairness and reasonableness of award prices builds from this point and continues into the instructions to agencies in FAR part 15 - Contracting by Negotiation. Contracting officers must purchase supplies and services from responsible sources at fair and reasonable prices (FAR 15.402(a)). Market research helps the contracting officer recognize when a price is fair and reasonable. Market research does not dictate to industry discrete prices as fair and reasonable.
Review of FAR subpart 15.2 illustrates that contracting officers must solicit proposals from potential contractors by transparently stating the government's needs and intentions for how it will go about meeting those needs. FAR 15.303(b)(4) directs the contracting officer to evaluate proposals solely on the factors and sub-factors published in the solicitation. These highlighted directions from the FAR illustrate the principle: Tell the market what the government intends to do, and then do precisely that.
Prices are set by the market unless established by law or regulation, for example, utility prices. The potential contractor is at liberty to propose prices they deem appropriate. If a contracting officer publishes a solicitation stating award will be selected from offers falling in a particular price range, and no offers meet that evaluation factor, the contracting officer has no path to award. The contracting officer must either amend the solicitation or cancel and resolicit in order to award. Both options are detrimental to acquisition schedule and could risk expiration of funds according to fiscal law.