DLA’s price reasonableness evaluation unreasonable, says GAO

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January 7, 2022 Jason Bakke 0 Comments

DLA drew a protest of its procurement to outsource purchasing, warehousing, and financing for more than 58,000 parts, including screws, nuts, bolts, and adhesives (Sci. Applications Int’l Corp., Comp. Gen. Dec. B-420005). The program is similar to the VA’s flat-lining Medical/Surgical Prime Vendor program (where a court once told the VA that while it was breaking the law, that was preferable to killing veterans) and GSA’s Fourth-Party Logistics, whereby the government outsources supply-chain management to a contractor, which then struggles to meet agency need while complying with federal regulations.

The subject procurement covers tens of thousands of products from manifold suppliers during a global supply-chain disruption, and DLA got lost in the complexity. It could have mitigated the protest at several points by taking a deliberate, phased approach to the proposal analysis techniques at FAR section 15.404-1.

DLA initially used the government’s preferred price analysis technique, competition, comparing its two offerors’ product-level pricing (SAIC and Noble). Unable to arrive at a reasonableness determination, for an unstated reason, DLA then requested additional price-supporting information from offerors.

In discussions, DLA notified SAIC that its prices for approximately 5,500 of 8,000 items were unreasonably high based on a comparison to Noble’s prices. Several times, DLA requested additional supporting documentation from both offerors, and while SAIC’s responses were complete, its pricing remained higher than Noble’s. While DLA requested the information, it failed to factor it into its analysis.

Whether governing regulation or not, the price analysis examples at 15.404-1(b) are helpful:

(i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price (see 15.403-1(c)(1)).

(ii) Comparison of the proposed prices to historical prices paid, whether by the Government or other than the Government, for the same or similar items. This method may be used for commercial products or commercial services including those “of a type” or when requiring minor modifications for commercial products.

(iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry.

(iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements.

(v) Comparison of proposed prices with independent Government cost estimates.

(vi) Comparison of proposed prices with prices obtained through market research for the same or similar items.

(vii) Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the offeror.

When (i), (ii), and (v) failed, DLA could have moved on to (iv) and (vi) in its reasonableness analysis. Inexplicably, it contemplated using (vii) by requesting additional data, but failed to analyze that data, thereby losing this protest.

Let us also remember that we are talking only about the price reasonableness determination here. Even had SAIC’s pricing been found reasonable, it is unlikely it would have been the awardee based on its much higher price. Perhaps DLA was concerned that Noble’s pricing was too low by comparison, but a price realism evaluation was not allowed by the RFP (see tangent).

DLA should have first assessed whether independent market research could complete its reasonableness analysis. With only two data points, a sampling of market pricing could illustrate the reasonableness of price adjustments during an unprecedented global pandemic. If a request for additional data was required, DLA should have designed the request with the sole binary question in mind–is this pricing reasonable?–and then answered it timely.

Bonus cost realism tangent

These are properly only used on cost-type contracts, with few exceptions. I occasionally see “price realism” mentioned in the evaluation factors for fixed-price and T&M contracts, where I think believe it’s misapplied. I believe the government is using “price realism” to evaluate an offeror’s understanding of scope and level of effort: that is, offeror A only bid 1,000 SME hours annually, but the IGCE lists 5,000. But that is properly part of the technical evaluation, where if critical, the government should request hours by labor category without pricing for the technical evaluators’ review. Level of effort speaks to understanding and technical approach, and so long as I demonstrate that, I can lose as much money as I want on the contract.

DLA’s price reasonableness evaluation unreasonable, says GAO was last modified: January 7th, 2022 by Jason Bakke

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