DETERMINING PRICE IN AN IDIQ CONTRACT A New Twist

37 Nash & Cibinic Rep. NL ¶ 31

Nash & Cibinic Report | May 2023

The Nash & Cibinic Report

Competition & Award

Ralph C. Nash

¶ 31. DETERMINING “PRICE” IN AN IDIQ CONTRACT: A New Twist

A recent decision of the U.S. Court of Federal Claims, SLS Federal Service, LLC v. U.S., 163 Fed. Cl. 596 (2023), has given us a slightly different take on a longstanding rule of the Government Accountability Office. The issue is how to evaluate price (or cost to the Government) in a competition for indefinite-delivery, indefinite-quantity contracts when the agency has not yet determined what to order.

This problem is the result of the statutory requirement that price be evaluated in every source selection, 10 U.S.C.A. § 3206(c)(1)(B) and 41 U.S.C.A. § 3306(c)(1)(B). Federal Acquisition Regulation 15.304(c)(1)(ii) contains an exception for the Department of Defense, the National Aeronautics and Space Administration, and the Coast Guard as discussed in Awarding IDIQ Contracts Without Considering Price: It’s Here To Stay, 34 NCRNL ¶ 47. Another exception (not discussed in the FAR) is the use of the “highest technically rated with fair and reasonable price procedure discussed in Highest Technically Rated Offerors With Fair and Reasonable Pricing: A New Source Selection Technique, 30 NCRNL ¶ 23, and its Postscript at 31 NCRNL ¶ 13. But otherwise, an agency has to figure out how to have a “price” to evaluate.

The GAO Rule

A long time ago, the GAO ruled that an agency could not determine the price of an IDIQ proposal by comparing labor rates alone. Rather it had to come up with some scheme to create an artificial price number that the source selection official could use to conduct the necessary tradeoff analysis. SCIENTECH, Inc., Comp. Gen. Dec. B-277805.2, 98-1 CPD ¶ 33, 1998 WL 29236, 40 GC ¶ 210, is an example of the line of decisions enunciating this rule. There, the GAO granted a protest because the protester had been excluded from the competitive range in a competition for a cost-reimbursement contract when all that had been evaluated was the proposed capped labor rates and fees. The GAO explained:

The failure to consider cost in competitive range and award decisions is improper. Agencies must consider cost to the government in evaluating competing proposals. 41 U.S.C. § 253a(b)(1) (1994). Agencies have considerable discretion in determining the appropriate method for taking cost into account; they do not have discretion, however, not to consider cost at all, as happened here. Health Servs. Int’l, Inc.; Apex Envtl., Inc., B-247433, B-247433.2, June 5, 1992, 92-1 CPD ¶ 493 at 4.

The record shows that cost/rate proposals were evaluated for reasonableness, but no comparison of the offers’ costs was made as part of the competitive range determination. This was apparently because the [source evaluation panel] was unable to develop most probable cost estimates for the competing proposals, since, as the SEP noted, the [Request for Proposals] did not include what the SEP referred to as “artificial methods” such as sample tasks or estimates of the quantities of labor hours to be ordered under each labor category.

While we understand that it is somewhat artificial to use hypothetical sample tasks in a solicitation for an indefinite delivery, indefinite quantity contract, where the actual work will be competed through task orders, sample tasks permit the government to assess the probable cost of competing offerors in light of both the offerors’ differing technical approaches and their labor rates and fees. As an alternative, an agency may simply multiply offerors’ proposed labor rates by estimated quantities of labor hours for each labor category (such estimates may be based, for example, on the agency’s recent experience); that method, while simpler, does not take into account differences in offerors’ technical approaches.

The GAO has accepted a number of schemes to come up with the required artificial price. See CACI, Inc.—Federal, Comp. Gen. Dec. B-413028, 2016 CPD ¶ 238, 2016 WL 4582380, 58 GC ¶ 352, stating:

In the context of awarding an IDIQ contract, the evaluation of cost or price often is difficult because of uncertainty regarding what ultimately will be procured. See CW Gov’t Travel, [Inc., B-295530.2, 2005 CPD ¶ 139]. Agencies have developed a variety of methods or strategies to address this difficulty, including the use of estimates for the various quantities of labor categories or units to be purchased under the contract, see Creative Info. Tech., Inc., B-293073.10, Mar. 16, 2005, 2005 CPD ¶ 110 at 3; the use of sample tasks, FC Bus. Sys., Inc., B-278730, Mar. 6, 1998, 98-2 CPD ¶ 9 at 3–5; hypothetical or notional plans that are representative of what requirements are anticipated during contract performance, Aalco Forwarding, Inc., et al., B-277241.15, Mar. 11, 1998, 98-1 CPD ¶ 87 at 11; and hypothetical pricing scenarios reflecting various cost or price eventualities. PWC Logistics Servs., Inc., B-299820, B-299820.3, Aug. 14, 2007, 2007 CPD ¶ 162 at 11–15. Underlying each of these methods is the central objective of evaluating the relative total cost or price of competing proposals in order to provide the agency’s source selection authority a meaningful understanding of the cost or price implications of making award to one or another concern. It is axiomatic that the agency’s price evaluation method must produce results that are not misleading. Aalco Forwarding, Inc., supra.

In this decision, the GAO sustained the protest because the prospective IDIQ contract called for both fixed-price and cost-reimbursement task orders and the agency had only evaluated the price of the fixed-price orders (multiplying the fixed labor rates by estimated quantities). Apparently, the GAO was ruling that to evaluate the cost to the Government of the prospective cost-reimbursement task orders, the agency needed to consider the reasonableness and realism of the various cost elements for each competitor and it did not call for this information. This decision is also useful in determining that this same logic applies to contracts to be awarded on a low price technically acceptable basis.

SLS Federal Services

This case involved a procurement where the agency followed the opposite course of action from the agency in CACI, Inc. It was competing for IDIQ contracts where there would be both fixed-price and cost-reimbursement task orders but it only obtained cost data such as proposed labor rates and indirect costs. On the basis of this data, the agency determined that the awardees’ prices were reasonable but the court held that this determination was unreasonable because there had been no price analysis. The court’s reasoning was unique:

We begin with FAR 15.404-1. Under subsection (a)(2), an agency “shall” use price analysis “when certified cost or pricing data” is not required. FAR 15.404-1(a)(2). If we look to [FAR] 15.403-1(b), we see that this procurement falls within subsection (a)(2) as a case in which contractors need not provide certified data. That is because an agency “shall not require certified cost or pricing data” when it “determines that prices agreed upon are based on adequate price competition.” [FAR] 15.403-1(b)(1). And adequate price competition exists when, as here, an award “will be made to the offeror whose proposal represents the best value [and] where price is a substantial factor in source selection.” [FAR] 15.403-1(c)(1)(i)(B).

Because certified data was not required, we return to [FAR] 15.404-1. Subsection (a)(2) requires the agency to use price analysis, which the section defines as “the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit.” [FAR] 15.404-1(b)(1). Or put another way, subsection (b)(1) allows an agency to determine a price’s reasonableness without going line-by-line through the constituent cost elements. One acceptable method of doing that is to simply compare the prices received when adequate competition exists. Normally, that will “establish[] a fair and reasonable price.” [FAR] 15.404-1(b)(2)(i).

With these principles in view, the agency did not (and could not) analyze price reasonableness under FAR 15.404-1(b). Simply put, the regulation—which allows evaluation of price without separately considering cost—presupposes that agencies possess, at the very least, some pricing information. Here, the parties do not appear to dispute that the agency never requested, received, or evaluated any price data from the bidders. Instead, the agency requested cost information, such as hourly labor rates, which helped it determine a contractor’s reimbursable expenses but not its prices. As a result, the solicitation’s structure left the agency without the necessary information to perform a price analysis. That problem then survived the agency’s corrective action because the agency never attempted to fill that void. The agency could not evaluate price reasonableness without pricing information.

That sounds very different from the GAO decisions requiring an “artificial’ scheme to evaluate price or cost to the Government. However, a later explanation of the court puts it in the same ballpark:

To the government’s point that a price analysis would be impossible, we have found other procurements where agencies have evaluated price reasonableness in similar contexts. For instance, the Army Corps of Engineers found a way to evaluate contractors’ prices in a contract for debris management operations after “natural or man-made disasters.” In re CrowderGulf, LLC, B-418693.9 et al., 2022 CPD ¶ 90, at *1 (Comp. Gen. Mar. 25, 2022). The agency devised a scheme where the government would provide a “set of estimated quantities for a ‘likely emergency event’ to take place in that region” and would multiply that by “the rates proposed by each offeror” to “arrive at the total evaluated price for each region.” Id. at *3. In NEQ, LLC v. United States, the Environmental Protection Agency (EPA) contracted for “[e]nvironmental cleanup [in] response to natural disasters and terrorist activities.” 88 Fed. Cl. 38, 41 (2009). There, too, the EPA managed to evaluate price reasonableness.

The End Result

No matter what the reasoning, these decisions stand for a clear proposition. When an agency is competing for prospective IDIQ contracts that allow for both fixed-price and cost-reimbursement task or delivery orders, the agency has to conduct two distinct analyses. It has to analyze prices using one of the acceptable artificial methods and it has to analyze cost realism to determine a probable cost using cost data. To do this it has to obtain the required data from the offers. In most contracts calling for the issuance of such task orders, the easiest procedure will be to call for both fully loaded labor rates (for evaluating fixed prices) plus the constituent elements of those labor rates (for determining probable cost). And, of course, the fixed-price computation will need to include estimated labor hours to multiply the loaded labor rates to get a “price.” It’s so simple when you understand the rules that have been given us by the GAO and the court. RCN

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