One of the bidders, B&V, submitted a bid that was $2 million under that of the higher bidder. The Government looked at that from a cost realism point of view and bumped B&V's cost by about $1.1 million representing what it believed would be B&V's "probable cost". More to the point however, is that in doing so, the Government also determined that B&V didn't really understand the requirements and knocked their rating down on technical merits.
B&V appealed the source selection on the basis that the solicitation did not advise vendors that the results of the cost realism evaluation could be used in this fashion. The GAO disagreed. The GAO ruled that the agency could use the cost realism analysis to assess the firm's understanding of the requirements - "Such a consideration ... is reasonably encompassed by the evaluation criteria that provided ... for assessing the vendors' understanding and cost realism."
GAO noted that FAR defines cost realism as a process of independently reviewing and evaluating specific elements of each offeror's cost estimate to determine
- whether the estimated proposed cost elements are realistic for the work to be performed,
- reflect a clear understanding of the requirements, and
- are consistent with the unique methods of performance and materials described in the offeror's proposal.
In this regard, the agency's assessment was well within the bounds of a cost-realism review.
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