Government Contracts Monitor

If the Agency Gives You a Chance to Explain Your Proposed Costs, Take It

December 7, 2015

By: Eric Whytsell

Agency comments during discussions often articulate a weakness or deficiency. Sometimes, however, the Government is also simply asking questions – identifying specific issues that should be addressed – and affording an offeror the opportunity to explain its proposal. When that happens, contractors need to be ready to capitalize on that opportunity to explain, but not always necessarily to change, their proposals. Failure to do so is what sunk a protester in the decision in P3I, Inc.; Quantech Services, Inc., B-405563.4; B-405563.5; B-405563.6; B-405563.7 (August 6, 2015).

The case involved two protests of the Air Force’s decision to award a task order for engineering and technology acquisition support services. One of the two protesters, Quantech Services, Inc., asserted that the Air Force conducted prejudicial and misleading discussions by causing it to significantly increase its cost/price.

The request for proposals (RFP) required, among other things, that the cost/price proposal clearly demonstrate an effective approach for accomplishing the stated requirements and stated that cost/price would be evaluated using one or more techniques in Federal Acquisition Regulation (FAR) to determine if the proposed costs were reasonable and realistic. In addition, the evaluation for realism was to consider the extent to which the offeror’s proposed costs indicated a clear understanding of the requirements, whether the proposal reflected a sound approach to satisfying the requirements, and whether the proposed labor escalation and indirect factors were reasonable. The RFP also explained that a government estimate of most probable cost (GEMPC) of the offeror’s proposed cost would be used to evaluate realism and stated that a significant difference between the offeror’s proposed cost and the GEMPC would be considered an indicator that the offeror does not understand the requirement. Best value was to be determined using the GEMPC rather than the offeror’s proposed costs.

Quantech learned during discussions that the Air Force considered its initial proposed cost/price of $53,796,895 to be unrealistic and made changes to its Full Time Equivalent labor levels (FTEs) and labor skill mix that resulted in a total evaluated price of $73.5M. Quantech’s estimated resourcing levels were below the Government’s expected minimally acceptable levels and Quantech had failed to adequately justify the claimed efficiencies to substantiate the lower resource levels.

The relevant Evaluation Notice (EN) required Quantech to acknowledge that it’s Final Proposal Revision (FPR) included the appropriate FTE levels; labor skill mix; and/or rationale as to the viability of its proposed resources to meet the performance requirements. The FPR request stated that the Air Force anticipated Quantech would “either adjust [its] proposed resources or provide additional explanation of how [it] will accomplish the tasks with the resources proposed, or both.” In response, Quantech increased its staffing and cost/price by $19.7 million (to $73.5 million) in hopes that its proposal would be considered realistic.

When the Air Force awarded the task order to another offeror for a price lower than $73.5 million, Quantech protested, claiming that the Air Force had instructed it to increase its proposed staffing and cost/price by an amount that made its cost/price too high. The Government Accountability Office (GAO) rejected the notion that Quantech was misled, noting that both the EN and the agency’s request for FPRs specifically advised Quantech that it could elect to provide additional information to explain how it could accomplish the tasks with the resources it proposed, adjust its resources, or both. Quantech’s decision to raise its resource levels was thus an exercise of its business judgment rather than the result of misleading discussions. As the GAO pointed out, “If Quantech believed that its initial proposed resources (FTEs and skill mix) were reasonable, then the protester had the opportunity to explain its position to the agency.”

Unfortunately, Quantech instead choose to abandon its original proposal and simply make the changes the Air Force had suggested. The lesson? If a contractor believes that its original, low proposal is realistic and the agency offers to consider additional explanation of that proposal, a contractor should always take the opportunity to better educate the Government on why the proposed price is realistic as well as low.

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