Government Contracts Monitor

There’s More to Winning an Unbalanced Pricing Protest than Meets the Eye

September 21, 2015

By: Eric Whytsell

It’s relatively easy for disappointed offerors to latch onto perceived unbalanced pricing as the basis to protest an award. As soon as they see pricing they consider out of balance, they are off to the races. It can be much harder, however, to win such a protest, even where unbalanced pricing has been demonstrated and the agency has failed to consider the risks posed by such pricing as required by law. The protester learned this lesson the hard way in the recent decision of the Government Accountability Office (GAO) in InfoZen, Inc., B-411530, B-411530.2 (August 12, 2015).

InfoZen involved the issuance of a task order by the Department of Veterans Affairs (VA) under the General Services Administration’s Alliant multiple-award indefinite delivery / indefinite quantity (IDIQ) contract program. The RFP provided for a best value award based on four evaluation factors: technical, past performance, price, and veterans involvement. Venders were to submit line item pricing information for both required and optional tasks using electronic spreadsheets provided by VA. The total of all a vendor’s line item prices was to be used for the purposes of price evaluation. The solicitation also made clear that VA “may evaluate whether the Offeror has submitted unbalanced pricing.”

VA received task order proposals from seven vendors, including InfoZen and the awardee, Smartronix, Inc. After ranking Smartronix “Outstanding” on the technical evaluation, the agency’s price evaluation revealed that the firm’s prices were more than double (146%) the VA’s Independent Government Cost Estimate (IGCE) in the base year but dropped to less than half (46%) of the IGCE for the option years. However, when Smartronix’s prices for all years were combined, the total figure was near (3% below) the IGCE. VA also determined that Smartronix’s prices for each line item varied significantly from year to year, in a nonlinear fashion. Despite this, the agency did not identify any risk that it might pose to the agency. Instead, the evaluation simply noted that Smartronix has not taken exception to the pricing and “[did] not appear to have submitted a materially unbalanced bid.”

In its best value analysis, VA decided that the $110.7 million price tag of Smartronix’s Outstanding proposal offered a better value than InfoZen’s $74.7 million offer that the agency rated merely “Acceptable”.

After the award to Smartronix, InfoZen sought and received a debriefing, then filed this protest. Among other things, InfoZen argued that: (i) Smartronix’s base year prices far exceeded both the IGCE and the firm’s own prices for later years despite the steady staffing level expected by VA; and (ii) the agency failed to consider that Smartronix’s line item prices significantly exceeded the IGCE for the base year but decreased significantly for the out years. According to InfoZen, these two circumstances indicate that Smartronix priced its proposal so that it would receive overpayments in the initial contract years, which puts the agency at risk if it does not exercise the much lower-priced option years.

These arguments were not sufficient to win the protest.

After reviewing relevant portions of FAR 15.404-1(g) relating to unbalanced pricing and the analysis of risk required where such pricing is found, GAO explained the elements that must be proven to prevail on an unbalanced pricing protest. First, a protester must show that one or more prices are overstated. But an agency need not reject an offer merely because it is unbalanced. Instead, the contracting officer is simply required to consider the risks to the government associated with the unbalanced pricing when making the contract award decision. For this reason, the protester must also show that the agency’s assessment of risk was unreasonable.

GAO reviews for reasonableness the agency’s determination both as to whether an offeror’s prices are unbalanced, and whether an offeror’s unbalanced prices pose an unacceptable risk to the government. However, even if GAO sides with the protester on these points, the protest will fail if there is no showing of prejudice. In order to establish the requisite prejudice, a protester must demonstrate that a material risk to the government is apparent from the record. Where, as here, the risk posed by the unbalanced pricing is that the government will not obtain the lower price because its requirements change or are deleted in the future, the risk remains merely speculative and does not provide a basis to sustain the protest unless the record contains some reason to conclude that such changes are likely to occur.

Here, GAO did not need to answer all these questions because InfoZen failed to establish prejudice. According to GAO, while InfoZen argued extensively that Smartronix’s prices were unbalanced, and explained how the agency might miss out on the benefit of the lower-priced option years, InfoZen could point to nothing relevant in the record and was only speculating about whether or not VA would exercise the option years. Without a showing of facts making that outcome reasonably likely, there was no prejudice and, therefore, no valid protest ground.

No matter how strong your case for unbalanced pricing or the agency’s failure to consider the resulting risk may be, make sure that you show that the risk to the government is significant or your protest may not go very far.

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