price realism

GAO: Obvious Price Realism Concerns Not Addressed in Analysis

In a recent bid protest decision, the Government Accountability Office (GAO) found that an agency’s price realism review was deficient when the agency failed to evaluate the awardee’s fixed-price solicitation to use incumbent staff at reduced rates. For this reason, when an agency elects to perform a price realism analysis, it must actually perform the analysis. Chiefly, the awardee proposed to lower the salaries of incumbent employees, therefore, was unreasonable for the agency not to consider this as an obvious concern in the evaluation process.

In this case, Valor Healthcare, Inc., B-412960 et al. (July 15, 2016), a VA solicitation was made to perform outpatient services to veterans in Beaver County, Pennsylvania. The proposal included a fixed-price for indefinite-delivery/indefinite-quantity for a base period of one year and four option years. Included in the solicitation was a “best value” tradeoff to consider non-price and price factors. As a result, the solicitation required the VA to conduct a price realism analysis to determine if the offerer understood the scope of the work in respect to the unrealistically low price.

After review of the two bidding companies, Valor Healthcare, Inc. (the incumbent contractor) and Sterling Medical Associates, the VA determined that Sterling’s proposal was higher-rated but lower priced and the VA awarded the contract to Sterling. Valor filed a protest with the GAO challenging the award to Sterling, claiming the price was too low and the agency did not perform an appropriate price realism analysis.

GAO explained, as in this case, “There is no requirement that an agency must conduct a price realism analysis.” By the same token, an agency may provide the use of a price realism analysis to assess the risk within a proposal. In this case, the GAO found that the coinciding record did not include documentation that the agency had evaluated Sterling’s price for realism. In the absence supporting documentation, the GAO determined that the VA had not conducted the required analysis as set forth in the guidelines. The GAO concluded, the proposed pay cuts in the Sterling proposal were of obvious concern and should have been addressed in the agency’s evaluation.

As a result of this case, the GAO wrote that Sterling’s proposed pay cuts were an “obvious price realism concern” that should have been addressed in the agency’s evaluation. The GAO supported this aspect of Valor’s protest.

To learn more about price realism analysis, contact us at KDuncan and Company.


KDuncan & Company is dedicated to providing knowledge and support for small government contractors about concerns regarding government contracting. For questions on areas such as as cost proposals, accounting systems, DCAA compliance, and incurred cost audits, reach out to KDuncan & Company.

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