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Fixed-price contracts allow the government to purchase goods and services for set prices and allocate the cost risk of performance to the contractor—if the contractor offers to perform the work for too low of a price, then it may reap little profit, or even take a loss. Thus, the government’s primary concern in evaluating fixed-price proposals is the reasonableness of the offeror’s price—i.e., whether the fixed price is too high. See FAR 15.402(a) (requiring contracting officers to purchase supplies and services “at fair and reasonable prices”). The government may, at its discretion, also perform a price realism evaluation of a fixed-price proposal to assess whether the proposed price is too low—“whether an offeror’s low price reflected its understanding of the contract requirements or to avoid the risk of poor performance from a contractor that is forced to provide services at little or no profit.” Esegur-Empresa de Seguranca, SA, B-407947 et al., Apr. 26, 2013, 2013 CPD ¶ __; see also FAR 15.404-1(d)(3).

Previously, the Government Accountability Office (GAO) had held that even when an agency “reserves the right” to conduct a price realism evaluation of fixed-price proposals, the agency is not required to conduct such an analysis where “the RFP did not expressly state that the agency would” do so. Guident Techs., Inc., B-405112.3, June 4, 2012, 2012 CPD ¶ 166 at 13 n.9 (emphasis added). In limited circumstances, the GAO had imposed an obligation on agencies to perform price-realism evaluations for fixed-price proposals, but only where “[a] reasonable reading of the solicitation” was that the agency would conduct such an evaluation. Halfaker & Assocs., B-407919 et al., Apr. 10, 2013, 2013 CPD ¶ __ at 9 n.5; Waterfront Techs., Inc., B-401948.16 et al., June 24, 2011, 2011 CPD ¶ 123 at 15 n.16.

Recently, however, the GAO read a seemingly ambiguous solicitation provision as definitively implying a presumption that an agency would conduct a price realism analysis. In Esegur-Empresa de Seguranca, SA, B-407947 et al., Apr. 26, 2013, 2013 CPD ¶ __, a Navy fixed-price commercial item acquisition for unarmed crime prevention patrols in Portugal, the GAO held that the following RFP provision “contemplated a price realism evaluation”:

Unrealistically high, low, or unbalanced prices may serve as a basis for rejection of the proposal. The price evaluation will document the reasonableness and completeness of the total evaluated price.

Id. at 2 (quoting RFP). In deciding that the solicitation required a price realism analysis, the GAO reasoned, “[i]mplicit in the solicitation’s reference to ‘unrealistically’ low prices is the presumption that the agency would actually consider whether an offeror’s price is in fact unrealistic, and, as a consequence, unacceptable.” Id. at 4. The GAO cited to Halfaker, Waterfront, and Guident, supra, for the proposition that “[t]he RFP’s use of the term ‘may’ . . . refers to the agency’s discretion to reject an unrealistically low price, as opposed to reserving to the agency the right to evaluate prices for realism in the first instance.” Id.

Thus, Esegur-Empresa puts agencies on notice that, for fixed-price procurements, if the evaluation criteria references “unrealistic prices,” the agency may be obligated to conduct a realism analysis. It will be worth monitoring how the GAO applies Esegur-Empresa’s presumption in situations where fixed-price solicitations do not “expressly state” that the agency will conduct a price realism evaluation.