… the purpose of evaluating price is usually aimed at ensuring that the government pays a fair and reasonable price, that is, that the price is not unreasonably high. The FAR states with regard to price evaluations undertaken in the more detailed Part 15 procedures that when the government is awarding a fixed-price contract, “[n]ormally, competition establishes price reasonableness.” FAR § 15.305(a)(1) (2005).

…

Absent strong evidence that [an awardee’s] prices are so low that it is unlikely that the contractor can perform the contract at the offered price, the plaintiff is not likely to succeed in showing that the responsibility determination… was arbitrary and capricious. See id.; Government Contracts Consultants, B-294335, 2004 C.P.D. ¶ 202 (Sept. 22, 2004) (holding in similar circumstances before GAO that a responsibility determination will not be set aside absent evidence that the contracting officer failed to consider available relevant evidence or violated a statute or regulation). While GAO’s standard is obviously not binding on this court, it provides useful guidance in determining the circumstances in which an award should be set aside when a protestor questions a putative awardee’s prices as being too low.

…

[T]he court is also mindful that a procuring agency “should be able to conduct procurements without excessive judicial infringement upon the agency’s discretion”…. Where, as here, the plaintiff’s arguments challenge the exercise of agency discretion and do not turn on any identified statutory or regulatory violation by the procuring agency, the public interest weighs in favor of not interfering with the procurement decision, absent clear evidence of irrationality…. Thus, the public interest weighs in favor of allowing the procurement to proceed, particularly where, as here, it will result in a significant cost savings to the government.

CC Distributors, Inc. v. United States, 65 Fed. Cl. 813 (2005).

Where, as here, fixed unit prices are being offered to the government, a protest that a bid should be rejected solely for being too low does not provide a legally cognizable basis for rejection of the bid. To the extent that an agency has concern that a firm’s pricing is too low, its recourse lies solely in finding the firm nonresponsible. Id. In making award to [the awardee], [the agency] determined the firm to be responsible, see Federal Acquisition Regulation (FAR) § 9.105-2(a)(1), and [the] protest based on [the awardee’s] allegedly low price amounts to a challenge to that affirmative determination of [the awardee’s] responsibility. Our Office does not consider challenges to affirmative responsibility determinations except in limited circumstances not alleged or present in this case.

AllWorld Language Consultants, Inc., B-298831, Dec. 14, 2006.

…our long-standing view [is] that a below-cost bid or offer is permissible in a fixed-price environment, since contract payment will be based on the offered price, which is not subject to adjustment during performance barring unforeseen circumstances.

Sealift, Inc., B-298588, Oct. 13, 2006.

[The protester] also argues that [the awardee’s] price is unreasonably low. With respect to a fixed-price award, a protester’s claim that an offeror submitted an “unreasonably” low price—even that the price is below the cost of performance—is not a valid basis for protest. An offeror, in its business judgment, properly may decide to submit a price that is extremely low. An agency decision that the firm can perform the contract at the offered price is an affirmative determination of responsibility, which we will not review except in circumstances not alleged here. Bid Protest Regulations, 4 C.F.R. § 21.5(c) (2005).

PHT, Inc., B-297313, Dec. 8, 2005.

…where…a solicitation contemplates the award of a fixed-price contract, the agency is not required to conduct a realism analysis. This is because a fixed-price (as opposed to a cost-type) contract places the risk and responsibility for loss on the contractor.

Government Contract Consultants, B-294335, Sept. 22, 2004.

Because the determination that a bidder or offeror is capable of performing a contract is largely committed to the contracting officer’s discretion, GAO will generally not consider a protest challenging such a determination. The exceptions are protests that allege that definitive responsibility criteria in the solicitation were not met and those that identify evidence raising serious concerns that, in reaching a particular responsibility determination, the contracting officer unreasonably failed to consider available relevant information or otherwise violated statute or regulation.

Agencies must consider price or cost to the government in evaluating competitive proposals. 10 U.S.C. § 2305(a)(3)(ii) (2006). While it is up to the agency to decide upon some appropriate, reasonable method for proposal evaluation, an agency must use an evaluation method that provides a basis for a reasonable assessment of the cost of performance under the competing proposals.

Herman Miller, Inc., B-407028, Oct. 19, 2012.

The Competition in Contracting Act of 1984 (CICA) requires contracting agencies to include cost or price as a factor that must be considered in the evaluation of proposals. 41 U.S.C. § 253a(c)(1)(B) (2006); see Federal Acquisition Regulation (FAR) §§ 15.304(c)(1), 15.305(a)(1). An evaluation and source selection that fail to give meaningful consideration to cost or price is inconsistent with CICA and cannot serve as a reasonable basis for award. It is up to the agency to decide upon the appropriate method for evaluation of cost or price in a given procurement, although the agency must use an evaluation method that provides a basis for a reasonable assessment of the cost of performance under the competing proposals.

…

While it is up to the agency to decide upon some appropriate and reasonable method for the evaluation of offerors’ proposed prices, an agency may not use an evaluation method that produces a misleading result. The method chosen must also include some reasonable basis for evaluating or comparing the relative costs of proposals, so as to establish whether one offeror’s proposal would be more or less costly than another’s. Id.; see FAR § 15.405(b) (“the contracting officer’s primary concern is the overall price the government will actually pay”).

I.M. Systems Group, B-404583, B-404583.2, B-404583.3, Feb. 25, 2011.

In a “best value” procurement, it is the function of the source selection authority to perform a tradeoff between price and non-price factors, that is, to determine whether one proposal’s superiority under the non-price factor is worth a higher price. Even where, as here, price is stated to be of less importance than the non-price factors, an agency must meaningfully consider cost or price to the government in making its selection decision. Specifically, before an agency can select a higher-priced proposal that has been rated technically superior to a lower-priced but acceptable one, the award decision must be supported by a rational explanation of why the higher-rated proposal is, in fact, superior, and explaining why its technical superiority warrants paying a price premium.

Coastal Environments, Inc., B-401889, Dec. 18, 2009.

Cost or price to the government must be included in every RFP as an evaluation factor, and agencies must consider cost or price to the government in evaluating competitive proposals. 41 U.S.C. § 253a(c)(1)(B) (1994); FAR §15.304(c)(1). This requirement means that an agency may not exclude a technically acceptable proposal from the competitive range without taking into account the relative cost of that proposal to the government.

Meridian Management Corporation, B-285127, July 19, 2000.

The parties agree that the management sub-factor of the technical factor of the Solicitation called for a price realism analysis. The FAR does not mandate any particular method of conducting a price realism analysis and “the nature and extent of a price realism analysis, as well as an assessment of potential risk associated with a proposed price, are generally within the sound exercise of the agency’s discretion.” Pemco Aeroplex, Inc., B-310372.3, 2008 (Comp. Gen. June 13, 2008). The agency’s “discretion is even more pronounced when the Solicitation is silent regarding the methodology to be used in conducting a ‘price realism analysis.’” Info. Scis. Corp. v. United States, 73 Fed. Cl. 70, 102 (2006); PharmChem, Inc., B-291725.3 et al., 2003 WL 21982424, at *6 (Comp. Gen. July 22, 2003) (explaining that price realism analysis can be reasonably conducted by “evaluat[ing] each line item and the total price for each proposal and compar[ing] them with [the] independent estimate and with other offerors’ prices”). An agency’s price realism analysis lacks a rational basis if the contracting agency made “irrational assumptions or critical miscalculations.” OMV Med., Inc. v. United States, 219 F.3d 1337, 1344 (Fed. Cir. 2000).

D & S Consultants, Inc. v. United States, 101 Fed. Cl. 23 (2011).

As noted, the parties disagree whether a price realism evaluation was required here because [the] RFP did not expressly provide for one. However, even where a solicitation does not expressly require a price realism evaluation, we will conclude that such an evaluation is required where (1) the RFP expressly states that the agency will review prices to determine whether they are so low that they reflect a lack of technical understanding, and (2) the RFP states that a proposal can be rejected for offering low prices.

Optex Systems, Inc., B-408591, Oct. 30, 2013.

When an agency evaluates a proposal for the award of a cost-reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. Consequently, the agency must perform a cost realism analysis to determine the extent to which an offeror’s proposed costs are realistic for the work to be performed. An agency is not required to conduct an in-depth cost analysis, or to verify each and every item in assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency. Further, an agency’s cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide some measure of confidence that the proposed costs are reasonable and realistic in view of other cost information reasonably available to the agency as of the time of its evaluation. We review an agency’s judgment in this area to see that the agency’s cost realism evaluation was reasonably based and not arbitrary.

Wyle Laboratories, Inc., B-407784, Feb. 19, 2013.

When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated cost of contract performance is not considered controlling since, regardless of the costs proposed by the offeror, the government is bound to pay the contractor its actual and allowable costs. Federal Acquisition Regulation (FAR) § 16.301. As a result, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach, assuming reasonable economy and efficiency. FAR §§ 15.305(a)(1), 15.404-1(d)(1), (2). Based on the results of the cost realism analysis, an offeror’s proposed costs should be adjusted when appropriate. FAR § 15.404-1(d) (2)(ii). An agency’s cost realism analysis need not achieve scientific certainty; rather, the methodology employed must be reasonably adequate and provide a measure of confidence that the agency’s conclusions about the most probable costs under an offeror’s proposal are reasonable and realistic in view of the cost information reasonably available to the agency at the time of its evaluation—including the information provided by the offeror in its proposal. We review an agency’s judgment in this area only to see that the agency’s cost realism evaluation was reasonably based and adequately documented.

Noridian Administrative Services, LLC, B-401068.13, Jan. 16, 2013.

Where, as here, a solicitation provides for the issuance of a fixed-price task order, an agency may provide for the use of a price realism analysis for the limited purpose of measuring a vendor’s understanding of the requirements or assess the risk inherent in a vendor’s quotation. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion. Our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation.

Preferred Systems Solutions, Inc., B-407234, B-407234.2, Nov. 30, 2012.

[The protester’s] objection that [the awardee’s] total price is too low does not provide a valid basis to question the agency’s price reasonableness evaluation. [The protester’s] arguments reflect a lack of understanding as to the distinction between price reasonableness and realism. Here, the [solicitation] only provides for a price reasonableness evaluation. The purpose of such a price reasonableness review is to determine whether the prices offered are too high, as opposed to too low. Arguments 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. A price realism evaluation is not required where, as here, the solicitation only provides for a price reasonableness evaluation.

AT&T Systems, Inc., B-407152, Nov. 16, 2012.

[The protest] that [the awardee’s] price is too low fails to state a valid basis of protest. Where, as here, the award of a fixed-price contract is contemplated, an agency is not required to perform a realism analysis unless the solicitation so requires. In this regard, there is no prohibition against a procuring agency’s acceptance of low or below-cost offer under a solicitation for a fixed-priced contract. Because the solicitation here did not require a realism analysis, [the protester’s] complaint that the agency should have performed one is not cognizable.

Global Protection Group, B-407221, Nov. 26, 2012.

A price realism evaluation does not contemplate adjusting offerors’ prices. As provided by regulation, and explained in our decisions, where, as here, a solicitation provides for the award of a fixed-price contract, the contracting agency may not adjust offerors’ prices for purposes of evaluation. Federal Acquisition Regulation § 15.404-1(d)(3). Rather, a price realism evaluation involves an assessment of an offeror’s low fixed price to determine whether the low price reflects a lack of understanding of contract requirements or risk inherent in its approach—precisely what the agency did here.

While it is within an agency’s discretion to provide for a price realism analysis in awarding a fixed-price contract to assess understanding or risk, see FAR § 15.404-1(d)(3), offerors competing for such an award must be given reasonable notice that a business decision to submit low pricing will be considered as reflecting on their understanding or the risk associated with their proposals. Where there is no relevant evaluation criterion pertaining to price realism, a determination that an offeror’s price on a fixed-price contract is too low generally concerns the offeror’s responsibility, i.e., the offeror’s ability and capacity to perform successfully at its offered price.

…

Because below cost prices are not inherently improper, when offerors are competing for award of a fixed-price contract, as explained above, they must be given reasonable notice that their business decision to submit a low-priced proposal can be considered in assessing their understanding or the risk associated with their proposal. Since the agency failed to provide such notice, we agree with the protester that the agency improperly relied on an unstated evaluation factor in determining that the protester’s proposed pricing was so low as to call into question its understanding of the solicitation requirements and its ability to perform.

Emergint Technologies, Inc., B-407006, Oct. 18, 2012.

An agency is not generally required to perform price realism analysis with regard to fixed-rate proposals, since the risk of loss in such situations is on the contractor, nonetheless, an agency may choose to perform such analysis. In instances where price analysis is performed, the FAR contemplates various price analysis techniques, including the comparison of proposed prices to each other, to an independent government estimate, and to competitive published price lists. FAR § 15.404-1(b)(2). Further, we have found an agency’s realism analysis regarding labor rates to be reasonable where the agency relied on information obtained from internet websites.

Oklahoma State University, B-406865, Sept. 12, 2012.

Although [the protester] essentially disagrees with the level of scrutiny applied by the agency to [the awardee’s] low proposed prices, an agency has considerable discretion in determining the nature and extent of required price realism and proposal risk assessments in the context of fixed-price contracts. Based on our review of the record, we conclude that [the protester’s] various arguments challenging the agency’s analysis and judgments reflect [the protester’s] mere disagreement or dissatisfaction with the agency’s determinations, and provide no basis to object to the agency’ analysis here.

…

IGEs are, by their nature, inexact and agencies may change them after receipt of bids or proposals where a review of the bids or proposals shows that the initial IGE was incorrect in its assessment of the level-of-effort necessary to perform the requirement or in its prediction of fair and reasonable prices as compared to the actual pricing disclosed by competition.

Resource Ltd., B-406492, B-406492.2, June 6, 2012.

Contrary to [the protester’s] claims, the RFP did not require an in-depth CLIN-by-CLIN analysis to the IGCE or a CLIN-by-CLIN comparison among the offered prices. To the extent that [the protester] believes that [the awardee] cannot perform the contract at its proposed price, [the protester’s] disagreement with the agency’s judgment provides no basis to sustain the protest.

Vizada, Inc., B-405251, B-405251.2, B-405251.3, Oct. 5, 2011.

When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated cost of contract performance is not considered controlling since, regardless of the costs proposed by the offeror, the government is bound to pay the contractor its actual and allowable costs. Consequently, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach, assuming reasonable economy and efficiency. Federal Acquisition Regulation (FAR) §§ 15.305(a)(1), 15.404-1(d)(1), (2).

A cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal. FAR § 15.404-1(d)(1); An offeror’s proposed costs should be adjusted when appropriate based on the results of the cost realism analysis. FAR § 15.404-1(d)(2)(ii). Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary.

…

…the purpose of a cost realism analysis is to determine the extent to which an offeror’s proposed costs represent what the contract costs are likely to be under the offeror’s technical approach. The end product of an agency’s cost realism analysis should be a total evaluated cost of what the government realistically expects to pay for the offeror’s proposal effort, as it is the agency’s evaluated cost and not the offeror’s proposed cost that must be the basis of the source selection determination. FAR § 15.404-1(d)(2)(i).

Systems Technologies, Inc., B-404985, B-405985.2, Jul. 20, 2011.

While a realism analysis need not achieve scientific certainty, the methodology employed must provide some measure of confidence that the agency’s conclusions about the most probable costs under an offeror’s proposal are reasonable and realistic.

MPRI, Division of L-3 Services, Inc., LINC Government Services, B-402548 et al., June 4, 2010.

Before awarding a fixed-price contract, an agency is required to determine whether the price offered is fair and reasonable. Federal Acquisition Regulation (FAR) § 15.402(a). An agency’s concern in making this determination in a fixed-price environment is primarily whether the offered prices are too high, as opposed to too low, because it is the contractor and not the government that bears the risk that an offeror’s low price will not be adequate to meet the costs of performance. An agency may, in its discretion, provide for a price realism analysis for the purpose of assessing whether an offeror’s price is so low as to evince a lack of understanding of the contract requirements or for assessing risk inherent in an offeror’s approach. However, offerors competing for award of a fixed-price contract must be given reasonable notice that a business decision to submit a low-priced proposal will be considered as reflecting on their understanding or risk associated with their proposal. Where a solicitation for a fixed-price contract omits a provision for realism but requests detailed cost or pricing information, we have found that an agency may properly consider whether an unreasonably low price poses proposal risk if the solicitation, in either the technical or price factors, provides for the evaluation of an offeror’s understanding of the requirements. Conversely, where the solicitation lacks either a technical or price evaluation factor that provides for the offerors’ understanding of the requirements, and the solicitation also does not require detailed cost or pricing information, then the agency may not consider whether unreasonably low prices pose proposal risk.

Analytic Strategies, B-404840, May 5, 2011.