Government Contracts Monitor

Discussions Mean You’ll Hear If Your Price Is Unreasonable, But Not Necessarily That It’s Uncompetitive

February 23, 2015

By: Eric Whytsell

Contractors in the competitive range often enter into discussions with unwarranted expectations. The fact that discussions must be “meaningful” does not mean that an offeror will receive actionable information concerning its price. The recent decision in Theodor Wille Intertrade AG, B-409976.3 (January 22, 2015) reiterates what offerors can – and cannot – reasonably expect to learn about pricing from discussions with the procuring agency.

The case involved the protest of a Defense Logistics Agency (DLA) award of contracts for logistics support services. Theodor Wille Intertrade AG (TWI) argued that DLA failed to conduct meaningful discussions because it did not alert TWI that its overall pricing was significantly higher than that of its competitors. The Government Accountability Office (GAO) disagreed, finding nothing wrong with DLA’s handling of discussions.

Under the solicitation, the total evaluated price comprised the sum of the overall aggregate acquisition ceiling price of Price Evaluation List (PEL) line items, plus certain other items. Prices were evaluated for price reasonableness using accepted price analysis methods, including comparison of offers to each other, market research, and prior procurements. The PELs included the types of supplies that had historically been purchased under predecessor contracts. Offerors were required to submit prices for every item and their aggregate PEL price was "determined by multiplying their ceiling price for each item by its estimated annual quantity and adding the totals for all line items in the PEL for each applicable pricing period."

Based on the wide variety of prices received for individual PEL items, DLA determined that price negotiation was in the best interest of the Government. The resulting price negotiation consisted of the agency identifying unit prices for PEL items that exceeded its maximum objective, then advising each offeror that it should improve its price for that PEL item. Three rounds of price negotiation resulted in reductions in overall PEL pricing, but TWI ultimately had higher prices than the awardees. Upon learning it had not received an award, TWI protested.

Addressing TWI’s challenge to DLA’s discussions, GAO acknowledged that discussions “must be sufficiently detailed so as to lead an offeror into the areas of its proposal requiring amplification or revision in a manner to materially enhance the offeror’s potential for receiving award” and, therefore, “must, at a minimum, address significant weaknesses, deficiencies and adverse past performance information to which the offeror has not yet had an opportunity to respond,” citing FAR 15.306(d)(3). But GAO went on to point out its long-standing position that the decision to inform an offeror during discussions that its price is too high or too low is left to the agency’s discretion. Indeed, under GAO precedent, the agency only needs to discuss price if it finds an offeror’s price to be unreasonable. This is true even where the offeror’s price is significantly higher than the competition’s, as long as it is below the government’s reasonable price estimate.

Here, the GAO found no basis to question the discussions based on DLA’s price evaluation. The record revealed that TWI’s aggregate PEL price was lower than the agency’s relevant maximum objective and, as the result of discussions, was lower than DLA’s maximum objective prices for each of the PEL items. Thus, DLA did not find either TWI’s final prices for individual PEL items or its total PEL pricing to be unreasonable. From the GAO’s perspective, the agency could have, but was not required to, inform TWI that its price was still higher than that of its competitors. Under these circumstances, DLA’s decision not to share that information with TWI did not constitute error.

What’s the take-away? Don’t expect more from discussions concerning price than the agency is required to provide. Also, don’t read too much into the fact that the procuring agency has not told you to “sharpen your pencil” with respect to your pricing. Your price may be entirely reasonable but completely uncompetitive. And, if so, the agency doesn’t have to tell you a thing.

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