Proposing to Hire Incumbents at Lower Wages? - Be Prepared to Demonstrate Price Realism

A recent bid protest decision handed down by the Comptroller General sustained the incumbent contractors appeal that the Government did not evaluate the realism of the awardee's pricing. The awardee had proposed to hire incumbent employees at lower compensation levels than they were currently earning. The Government should have looked into the matter - especially since the solicitation stated that price realism would be considered.

The Department of Veterans Affairs issued a solicitation to provide out-patient services in Pennsylvania. There were four evaluation factors - the least important was "price". Evaluation criteria for "price"included price realism, explained as follows:

Realism is evaluated by assessing the compatibility of proposed costs with proposal scope and effort. For cost (price) to be realistic, it must reflect what it would cost the offeror to perform the effort if the offeror operates with reasonable economy and efficiency. Proposals unrealistically high or low in price, when compared to the Government estimate, and market conditions evidence by other competitive proposals received, may be indicative of an inherent lack of understanding of the solicitation requirements and may result in proposal rejection without discussion.

Valor Healthcare was the incumbent on the program. Award was made to Sterling Medical who's $17.5 million bid was almost nine percent lower than Valor's. Valor alleged that the VA failed to evaluate the realism of Sterling's pricing in accordance with the terms of the solicitation. And, Valor was correct. The Comptroller General agreed. There was nothing in the record to show that a price realism assessment occurred.

Valor maintained that if the VA had evaluated Sterling's pricing for realism, the firms pricing would have been found unrealistic and/or a risk would have been ascribed to the firm's technical approach. Since Sterling was proposing to utilize the incumbent employees at much lower cost, Valor contended that the VA should have considered the risk that Sterling would be unable to recruit the necessary talent and staff to perform at the required level.

The Comptroller General found that neither the contemporaneous record, nor the contracting officer’s post hoc assertions, provides a basis for it to conclude that the VA evaluated the realism of Sterling’s pricing in a way that was consistent with the terms of the solicitation. Moreover, the record shows that there is at least one area of Sterling's proposal that raises an obvious price realism concern. Specifically, the record shows that the VA understands the majority of Sterling's proposed staffing candidates to be serving under Valor's incumbent contract. Yet, Sterling's price show Sterling's labor costs to be significantly below Valor's.

The Comptroller General sustained Valor's appeal. You can read the entire decision here.