According to FAR 15.404-1(g), unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques.
When evaluating offers with separately priced line items, FAR requires the Government to analyze each and every offer to determine whether prices are unbalanced. If cost or pricing analysis techniques indicate that an offer is unbalanced, the contracting officer shall:
- Consider the risks to the Government associated with the unbalanced pricing in determining the competitive range and in making the source selection decision, and
- Consider whether award of the contract will result in paying unreasonably high prices for contract performance.
An offer may be rejected if the contracting officer determines that the lack of balance posses an unacceptable risk to the Government (see FAR 15.404-1(g)(3)).
A recent Comptroller General's decision illustrates the application of this requirement. WW Contractors challenged GSA's determination that its price proposal was unbalanced and unrealistic.The solicitation stated that an offer might be rejected as non-responsive if it was materially unbalanced as to prices for the initial and option periods explaining that an offer is unbalances when it is based on prices which are significantly less than cost for some work, and prices which are significantly overstated for other work. Thus, under the terms of the solicitation, the contracting officer would have had to find both an understatement of price in some respect and an overstatement of price in another. Note here, the difference in the definition between FAR and the solicitation. In FAR, unbalanced pricing exists when there is a significant over or understatement of costs. In the solicitation, unbalanced pricing exists when there is offsetting over and understatements.
The Comptroller General stated that the record did not support a finding that WW Contractors' offer was unbalanced per the terms of the solicitation because there were no offsetting over and understatements within the bid. The first line item was reasonable and the succeeding line items were understated. There was no evident overstatement to offset the understatement.
WW Contractors' appeal was denied based on other factors. GSA found the option years to be unrealistically low compared to its own cost and price analysis, compared to historical prices, and compared to other offers. The Government was justifiably concerned that WW Contractors lacked understanding of the scope of work. The Comptroller General found no basis to question the contracting officer's concern that there was significant risk to the Government of non-performance or poor performance. Thus, while the offer could not be rejected based on unbalanced pricing, it could be rejected based on unreasonable pricing.