February 2, 2010
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The U.S. Court of Federal Claims provides a clear exposition of the differences between Price Reasonableness and Price Realism and a few lessons about the scope of Protest review in DMS All-Star Joint Venture v. United States, Fed. Cl. No. 09-737C, January 26, 2010.
At issue in DMS All-Star was a proposed indefinite delivery, indefinite quantity task order Contract for maintenance, repair, and minor construction work on real property located at Fort Sill, Oklahoma. Firm fixed-price task orders were to be issued to the successful Contractor, and these would be priced based on agreed-upon mark-ups against published RSMeans Construction Cost prices. Offerors competed based on these mark-ups.
The Solicitation promised that Price Proposals would be evaluated for Price Reasonableness and for Price Realism.
Price Reasonableness looks at the Price to be paid (is the Government paying too much?), and Price Realism looks at the risk of a low-priced Proposal and whether or not an Offeror’s Price is overly optimistic or impractically low (is the Offeror asking too little?).
The question whether or not a Price is realistic concerns only an Offeror’s understanding of Solicitation requirements, because if an Offeror can demonstrate that it understands the requirement, that Offeror can nonetheless choose to offer a buy-in just to win the Competition for a firm, fixed-price Contract.
Price Realism was before the U.S. Court of Appeals for the Federal Circuit in Alabama Aircraft Industries, Inc. v. United States, Fed. Cir. Nos. 2009-5021, -5022, and -5023, November 17, 2009. The Alabama Aircraft Court reversed the U.S. Court of Federal Claims, holding that the Court below had overstepped its bounds when it rejected an Agency’s Price Realism analysis, not because this Price Realism analysis was inconsistent with Solicitation requirements, but instead because the Court below thought that the Agency did not expressly consider, as it should have, the impact of the aging KC-135 fleet in its Price Realism analysis.
The Alabama Aircraft Court held that this was an impermissible substitution of the Court’s judgment for the Agency’s, a substitution not allowed under the narrow “arbitrary and capricious” standard of review which is applied to Protests.
It is no surprise, then, that DMS All-Star pays careful attention to the limits of Protest review as it applies to Price Realism analysis.
If a Solicitation does not set out a particular methodology for the Price Realism analysis, then on a Protest review the only limitation is that the Agency’s Price Realism analysis must be demonstrated not to contain any critical miscalculations, and must not make any irrational assumptions. In these Solicitations, the Agency’s Price Realism analysis has little vulnerability to a challenge on “adequacy” grounds. The Agency has broad discretion.
If a Solicitation sets out a methodology for the Price Realism analysis, then the Agency must demonstrate that it has followed the announced evaluation criteria, this in addition to demonstrating that the Price Realism analysis does not contain any critical miscalculations, and does not make any irrational assumptions.
The message in DMS All-Star is a simple one—if an Offeror believes that the announced Price Realism analysis is incomplete or unspecific, then the time to challenge these announced evaluation criteria is before the date set for receipt of initial Competitive Proposals, not later.
