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Unreasonable Price, Responsibility Determination, 8a Contractor

By Kennedy How on Friday, May 12, 2000 - 01:06 pm:


Your citation of the Cromartie case situation is a near duplicate of a situation my activity had in the early '80s. Sealed Bid, under the DAR. Low bidder was "out of line" with the others. Bidder provided verification numerous times in writing that his bid was correct. (Since it wasn't my buy action, I don't recall if he also submitted paperwork to back it up.) Contract was awarded to low bidder. Yup, you guessed it. Down the road, he alleges mistake in bid, wants out. PCO says no, you confirmed your bid in writing numerous times, and proceeded to T4D. Contractor appealed the PCO Final Decision to ASBCA, citing "PCO SHOULD HAVE KNOWN my bid was a mistake, no matter what I said in writing, or how many times I said it."

Unfortunately, I was not able to follow the case very closely, but my guess was that it turned into a T4C. This kind of conversion was common for us back then, we lost a lot of T4D decisions. The reason why I remember this was because we discussed this amongst ourselves, and that the PCO was in a "no win" situation, it would have been either protested if we threw out the low, or we'd have to Terminate because our feeling was that the bidder wasn't totally correct in his price.

Finally, if the PCO does pursue a responsibility determination, and SBA does grant a CoC, and the bidder then refuses to perform, things get even stickier.


By Vern Edwards on Thursday, May 11, 2000 - 08:19 pm:

Eric, et al.:

Historically, bid verification literally meant asking the low bidder to confirm that the bid it submitted was the bid it had intended to submit. I started out in procurement doing sealed bidding (then called "formal advertising"). We used to call the low bidder and ask it to confirm or "verify" its bid. The bidder either did confirm or verify, in which case we made an award without further inquiry or checked its finances, or it asserted a mistake, in which case we went through the mistake procedure.

I'll be honest--that's what I meant. I never contemplated a request for documentation in support of the bid actually intended when the bidder confirmed (verified) its bid. In the old days, if the bidder confirmed (verified) a low bid it was fine with us, as long as he had enough money to do the job. If he was willing to live with a mistake it was no skin off our nose as long as he could absorb the loss.

In Cromartie and Breakfield the GAO cited FAR 14.407-3(g)(5) as authority to reject a bid when, despite the bidder's confirmation (verification), the CO thinks the bid was submitted in error. The rule seems to apply only when (1) the bidder refuses to provide proof that the bid was not in error and (2) the evidence of error is "so clear" as to make acceptance of the bid "unfair" to the bidder or other bidders. It appears that this requires the CO to require proof, not mere confirmation (verification), when a bid appears to be seriously in error. I admit that I had not contemplated this.

I cannot recall whether the rule now in FAR 14.407-3(g)(5) was part of the old ASPR/DAR or FPR or not, or whether it was in the first edition of the FAR or added later. (You cannot tell by looking at the archived on-line FAR.)

In any event, the GAO's long-standing position has been that a CO cannot reject a sealed bid or fixed-price proposal just because he or she thinks it's too low. The GAO has long held that a below-cost fixed-price bid or proposal is a matter of financial responsibility, which means that if the bidder is a small business a COC-referral will be required if the CO determines the bidder or offeror to be nonresponsible. That is the basis for my criticism of the answer provided by Ask A Professor. The rule in FAR 14.407-3(g)(5) appears to be a limited exception to the GAO's long-standing rule. It allows a CO under certain conditions to reject a suspected mistakenly low bid, as opposed to an intentionally below-cost bid, without making a determination of nonresponsibility.

By Eric Ottinger on Thursday, May 11, 2000 - 07:01 pm:


It should be noted that there are two different Cromartie cases with different outcomes. It is suggestive and interesting that the Navy refused to return Cromartie’s phone calls.

For a moment it looked like Vern might be a fallible Professor, one of those who sometimes gives misleading answers, like some other professors.

I hauled out my handy-dandy dictionary and discovered that the word “verify” has two related but distinctly different meanings. Verify can mean attest (i.e. “to confirm or substantiate in law by oath”) or verify can mean validate (i.e. “to establish the truth, accuracy, or reality of”).

Now I know that Vern always prefers the most exacting, legal use of a term, but in this case, I assume that he correctly opted for the vulgar and common usage. In any case, it is clear from the case law that the verification should be supported by some credible details and analysis. It won’t do for the offeror to merely reply, “Yes, I really did intend to bid that ridiculous lowball price.”

The discussion in Cibinic and Nash is in many ways excellent, but it doesn’t really indicate what kind of verification is expected. I fear some of our 1102 colleagues will merely ask the offeror to attest that he really meant to bid the extremely low price. After the offeror “verifies” that he really did intend to bid low, my 1102 colleague may think there is nothing to do but pursue a responsibility determination.

Actually, if the bid is extremely low and the offeror is clearly clueless, the correct thing to do is to award to another offeror. Do not pass Go. Do not waste time on a responsibility determination. (Read the cases. No responsibility determination was mentioned or expected for the truly clueless.) That is only for the offeror who has a clue and chooses to bid at a loss.


By Vern Edwards on Tuesday, April 25, 2000 - 06:57 pm:


Thank you for pointing out Cromartie and Breakfield, which is a simplified acquisition case in which the CO followed sealed bidding guidance about mistakes in bids. My answer addressed intendedly below-cost bids, but I should also have mentioned the mistake rule in FAR 14.407-3(g)(5).

In the Cromartie and Breakfield case the low quote, which was from the protester, was $7,673; the next low quote was $23,500, and the government estimate was $23,973.50. The CO notified the protester of the possibility of a mistake and asked for verification of the quote, a price breakdown, and some other information. The protester verified the quote, but refused to provide the breakdown.

The CO thought that the quote was obviously in error and rejected it based on FAR 14.407-3(g)(5), which allows a CO to reject a bid as too low when: (1) the bidder "fails or refuses to furnish evidence in support of a suspected or alleged mistake," and (2) it is "far out of line" with the other bids or the government estimate, or (3) there are other "clear" indications of error.

The holding in Cromartie and Breakfield is that a CO cannot accept an obviously erroneous bid, even when the bidder denies a mistake or waives the mistake: "Where it is clear that a mistake has been made, the bid cannot be accepted, even if the bidder verifies the bid, denies the existence of a mistake, or seeks to waive an admitted mistake, unless it is clear that the bid as submitted and intended would remain low."

Underlining added.

If the bidder says, "Yeah, that's my bid and I know its low. Here are my workpapers to show that I considered all the elements of the work and then decided to bid below-cost in order to win a new customer," then the CO cannot use the mistake rule in FAR 14.407-3(g)(5) to reject the bid just because he or she thinks the bid is too low. The rule in FAR 14.407-3(g)(5) applies only "Where the bidder fails or refuses to furnish evidence in support of a suspected or alleged mistake... ." Note, too, that FAR 14.407-3(g)(5) requires the CO to document attempts to get information from the bidder to support the bid.

FAR 14.407-3(g)(5) does not allow a CO to reject a bid merely because it is too low or below-cost. Cromartie and Breakfield does does not nullify the long-standing rule reiterated in Bollinger, that a CO cannot reject an intendedly below-cost bid merely because he or she thinks it is too low. If the CO does not suspect a mistake, then rejection of a below-cost bid must be based on a determination of nonresponsibility, and if the low bidder is a small business, then the COC procedure applies.

By joel hoffman on Tuesday, April 25, 2000 - 05:32 pm:

Well, part of my answer didn't stink. The part referring to clearly determined mistakes in bid being proper grounds for rejection of the bid, without respect to question of "responsibility" of the bidder. Thanks, Eric.

By Eric Ottinger on Tuesday, April 25, 2000 - 05:25 pm:


Bollinger is an unbalance bid case.

For an unreasonable low price case see Cromartie.

Cromartie and Breakfield, Comptroller General Decision No. B-279859., July 27, 1998

Where the bidder fails or refuses to furnish evidence in support of a suspected or alleged mistake, the contracting officer shall consider the bid as submitted unless (i) the amount of the bid is so far out of line with the amounts of other bids received, or with the amount estimated by the agency or determined by the contracting officer to be reasonable, or (ii) there are other indications of error so clear, as to reasonably justify the conclusion that acceptance of the bid would be unfair to the bidder or to other bona fide bidders.

A contracting officer’s decision to reject an apparently mistaken bid under the authority of the above-quoted FAR provision is subject to question only where it is unreasonable. Pamfilis Painting, Inc., B-237968, Apr. 3, 1990, 90-1 CPD 355 at 3. Whether a bidder admits that it has made a mistake is not dispositive as to whether a bid may be rejected as mistaken. TLC Fin. Group, B-237384, Jan. 26, 1990, 90-1 CPD 116 at 3. WHERE IT IS CLEAR THAT A MISTAKE HAS BEEN MADE, THE BID CANNOT BE ACCEPTED, EVEN IF THE BIDDER VERIFIES THE BID, denies the existence of a mistake, or seeks to waive an admitted mistake, unless it is clear that the bid as submitted and intended would remain low. Trataros Constr., Inc., B-254600, Jan. 4, 1994, 94-1 CPD 1 at 3; Atlantic Servs., Inc., B-245763, Jan. 30, 1992, 92-1 CPD 125 at 3.

Here, the contracting officer appropriately exercised his discretion in applying the procedures outlined under FAR §14.407-3(g)(5), and reasonably determined to reject Cromartie’s quote as mistaken.

THE REJECTION OF A LOW BID AS OBVIOUSLY ERRONEOUS IS NOT A MATTER OF BIDDER RESPONSIBILITY AS CONTENDED BY CROMARTIE. REJECTION OF A BID BECAUSE IT IS TOO LOW OR BELOW COST CONCERNS BIDDER RESPONSIBILITY ONLY WHERE THERE IS NO EVIDENCE OF A MISTAKE. Omni Elevator Co., B-241678, Feb. 25, 1991, 91-1 CPD 207 at 4-5; Zimmerman Plumbing and Heating Co., B-211879, June 24, 1983, 83-2 CPD 16 at 2. However, where, as here, a quote is obviously erroneous, FAR §14.407-3(g)(5) authorizes the agency to reject it without any consideration as to whether the quoter is responsible. Accordingly, Cromartie’s quote was properly rejected as mistaken without any requirement that the matter be referred to the SBA for COC consideration.

I know even less about Part 14 than I do about construction, but I think the Comp. Gen. has made itself clear.


By joel on Tuesday, April 25, 2000 - 05:21 pm:

I Agree with you and admit my answer stinks, too.
Happy Sails!

By Vern Edwards on Tuesday, April 25, 2000 - 05:08 pm:


Just to be clear: My answer is not based on Cromartie, but on sealed bidding cases that precede it by many years.

However, I do think that the holding quoted by Linda from Cromartie is applicable to sealed bid procurements, since it applies to "an offered price for a fixed-price contract," and since that is a perfect description of a sealed bid. Moreover, the holding in Cromartie is, in fact, consistent with GAO holdings in sealed bid decisions that go back to at least the mid-1980s.

We don't have to agree on that, however. What should be clear is that the "professors" are often dishing out very bad advice.

By joel hoffman on Tuesday, April 25, 2000 - 04:51 pm:

Well, of course you are right, Vern. I had assumed that the KO had determined there was a verified mistaken bid or other verified problem or misunderstanding of the requirements by the low bidder. In that case, again overgeneralizing, there is a good liklihood that 14.404-2 is the correct approach.

Obviously, if his bid was too high, the next higher bid must also be unreasonable.

I should have discussed all the steps to get there, I suppose.

I will disagree with both of you that "Cromartie" is applicable to an IFB. I believe there was a case of misunderstanding of the requirements in that case or at least it was one the bases of the GAO opinion. A bid based on a misunderstanding of the scope of work doesn't reflect a meeting of the minds concerning the correct scope of work and should be rejected. There is no provision for adjusting such a bid after public bid opening to accomodate an enlightened understanding of the scope - without rejecting all bids and converting to an RFP. Happy Sails!

By Vern Edwards on Tuesday, April 25, 2000 - 04:33 pm:


Bingo! The "professor" should have asked the questioner what she meant by "their price is unreasonable." There are two possibilities--unreasonably high or unreasonably low.

The questioner spoke of "a bid under an IFB," so she was asking about a problem in sealed bidding; the price must have been a fixed-price, and she must have been talking about the low bidder. (In sealed bidding, why talk about anybody else?)

In sealed bidding, if a CO decides that the low bidder's price is unreasonably high, then the CO should reject all bids, cancel the IFB, and look into resoliciting. See FAR 14.404-1(c)(6). When the low bidder's price is too high, it doesn't make sense to "proceed with an award to the next low bidder," which is what the "professor" advised.

A CO cannot reject a bid merely because he or she thinks that the price is too low, i.e., "below cost." See: Bollinger Machine Shop & Shipyard, B-261135.2, September 1, 1995, in which the GAO said, "[T]he submission of a below-cost bid is not illegal, and the mere fact that a bid includes understated prices does not justify rejection of the bid."

If the CO thinks that the low bidder's price is unreasonably low, then the CO should ask that bidder to verify that it has not made a mistake. FAR 14.407-1. If the bidder claims to have made a mistake, then the CO should investigate in accordance with FAR 14.407-3.

If the low bidder verifies that it has not made a mistake, then the question is whether or not the bidder can complete the job satisfactorily at the bid price. That is a question of the bidder's responsibility.

If the CO decides that the low bidder is nonresponsible and if the low bidder is a large business, then the CO may proceed to consideration of the next low bidder.

But if the CO decides that the low bidder is nonresponsible and if the low bidder is a small business, then the CO must refer the matter to the SBA for COC consideration. In that event the CO cannot proceed to award to the next low bidder unless and until the SBA denies the bidder a COC or fails to decide the matter within 15 days or the time otherwise agreed to by the SBA and the contracting officer in accordance with FAR 19.602-1(e).

These rules are long-standing. See Cibinic and Nash, Formation of Government Contracts, 3rd ed., pp. 634-636.

The "professor" gave the questioner recklessly bad advice.

By joel on Tuesday, April 25, 2000 - 04:21 pm:

Hold on a doggone minute - Cromartie was not an IFB acquisition under Part 14. It was an RFQ under simplified procedures. I started wondering - how could they award a bid contract just because GAO says the offeror might not have understood the requirements? Something has to give! Big difference between an "offer" or "quote" and a "bid" price where no opportunity to adjust a bid price due to misunderstanding of the requirements. Happy Sails!

By joel on Tuesday, April 25, 2000 - 04:12 pm:

I learn something new here, every day. Back to being a student, I guess! Happy Sails!

By Linda Koone on Tuesday, April 25, 2000 - 03:39 pm:


I agree that the answer is incomplete and depending on the circumstance, may be incorrect based on previous Comp Gen decisions.

Look at Cromartie Construction Company, B-271788, July 30, 1996:

'A determination that an offered price for a fixed-price contract is too low generally concerns the offeror's responsibility, that is, the
offeror's ability and capacity to successfully perform the contract at its offered price. See Envirosol, Inc., B-254223, Dec. 2, 1993, 93-2
CPD para. 295; Monopole S.A., Inc., B-254137, Nov. 4, 1993, 93-2 CPD para. 268; Ball Tech. Prods. Group, B-224394, Oct . 17, 1986, 86-2 CPD para. 465. Where the solicitation for a negotiated procurement includes evaluation criteria which pertain to an offeror's understanding of the work required, an offeror's unrealistically low price may be evaluated
as indicating a lack of technical understanding. However, here, the RFQ did not identify any technical evaluation criteria. Accordingly,
the agency's concern regarding the reasonableness of CCC's price could only be considered as a matter of responsibility. See Envirosol,
Inc., supra; Ball Tech. Prods. Group, supra.'

By joel hoffman on Tuesday, April 25, 2000 - 03:14 pm:

The Prof's answer is incomplete. I would refer the reader to FAR 14.404-2 "Rejection of Individual Bids"

FAR 14.404-2(f) seems to apply to the scenario presented in the question. "Any bid may be rejected if the contracting officer determines in writing that is unreasonable as to price. Unreasonableness of price includes not only the total price of the bid, but the prices for individual line items as well."

Although not specifically mentioned as the problem, any bid which is is materially unbalanced
may also be rejected (see FAR 14.404-2 (g)).

How did I do, Prof?
Happy Sails!

By Vern Edwards on Tuesday, April 25, 2000 - 02:32 pm:

The following Q&A appears at Ask A Professor:

"Certificate of Competency and Price Reasonableness

Posted to Pre-Award Procurement and Contracting on 3/16/00 by Barbara Czinder

The Scenario:
FAR Part 14
FAR Part 19
FAR Part 15

The Question:
When you have a contractor that submits a bid under an IFB and the contracting officer finds that their price is unreasonable after performing a price analysis. Does the Contracting Officer have to request a COC or can they award to the next low bidder?

The Answer:
The contracting officer does not have to request a Certificate of Competency (COC), since the issue here isn't a responsibility determination of the prospective contractor. A Certificate of Competency would only be considered if you were dealing with an apparently successful small business offeror, and the contracting officer has concerns about certain elements of their responsibility. A responsible prospective contractor as defined in FAR 9.101, is a contractor that meets the standards listed in FAR 9.104.

Rationale: FAR 19.601 (a) states that 'a Certificate of Competency (COC) is the certificate issued by the Small Business Administration (SBA) stating that a holder is responsible for the purposes of receiving and performing a specific Government contract.' FAR 19.601 (b) states that 'the COC program empowers the SBA to certify to Government contracting officers as to all elements of responsibility of any small business concern to receive and perform a specific Government contract.' FAR 19.601 (c) states 'a contracting officer shall, upon determining an apparent successful small business offeror to be non-responsible, refer that small business to the SBA for a possible COC.'

Since the scenario does not deal with the issue of a prospective small business contractor’s responsibility, then a review of the limitations to sealed bidding is in order. FAR 14.103-2 (d) states that no awards shall be made as result of sealed bidding unless "an award is made to the responsible bidder whose bid is responsive to the terms of the invitation to bid and is most advantageous to the Government considering only price and the price related factors included in the invitation." The contracting officer can proceed with an award to the next lowest bidder."

What do you think? Did the "professor" provide a good answer?