Cost Realism Analysis Could Increase Your Proposed Costs

Don't try to "buy in" on a Government cost-reimbursement contract and then complain that the Government increased your proposed costs. It might work sometimes (e.g. there is only one bidder) but the Government has resources to determine the propriety of proposed costs. Its a very simple task to line up the cost detail of the bidders and look for cost elements that are significantly higher or lower than others.

Here are some key facts to remember when you feel that the Government has not adequately assessed your cost proposal (i.e. has increased your proposed costs).

1. When the Government evaluates a proposal for the award of a cost-reimbursement contract, an offeror's proposed costs are not dispositive because, regardless of the costs proposed, the Government is bound to pay the contractor its actual and allowable costs (FAR 15.305(a) and FAR 15.404-1(d).
2. Consequently, the Government must perform a cost realism analysis to determine the extent to which an offeror's proposed costs are realistic for the work to be performed (FAR 15.404-1(d)(1).
3. The Government is not required to conduct an in-depth cost analysis, or to verify each and every item is assessing cost realism; rather, the evaluation requires the exercise of informed judgment by the contracting agency (FAR 15.404-1(c).
4. If an offeror protests the adequacy and sufficiency of the Government's cost-realism analysis, the GAO's (Government Accountability Office) review is limited to determining whether the cost analysis is reasonable. A protester's disagreement with a contracting agency's judgment, without more, does not provide a basis to sustain the protest.

In one recent case, an offeror low-balled its fringe benefit rate by excluding employer 401(k) matching contributions and bonuses. The Army, noting that whichever offeror won the contract was required by solicitation to hire incumbent employees and that those incumbent employees were already receiving 401(k) matches and bonuses, were concerned about the continuity of the existing workforce. The Army concluded that the offeror's proposed approach to these fringe benefit components was unrealistic because it would be unlikely for the offeror to obtain and retain qualified personnel.

In evaluating the offeror's proposal, the Army adjusted the fringe benefit package to match the incumbent's projected rate with the 401(k) and the bonus pool. This adjustment increased the offeror's estimated cost by more than $5 million and concomitantly, increased its estimated costs so that it was no longer the low bidder. Ultimately, the award went to another company.

A protest ensued but the GAO found no basis to disagree with the Army's evaluation citing the above listed factors. One of the offeror's contention was that the Government should have told them specifically what its concerns were with respect to the fringe rate. The GAO stated however that "The Government is not required to "spoon-feed" an offeror during discussions by identifying every possible area where a proposal might be improved or suggesting alternative approaches, agencies need only lead offerors into the areas of their proposals that require amplification or revision consistent with the requirements of the FAR".