Company X, a small business, is eager to win an award on a T&M ID/IQ contract with an element of the Navy. Using industry-accepted salary survey data and their actual burden rates for fringe, overhead, and G&A, Company X develops their labor category rates for this bid. On review, they discover that when compared to other T&M contracts that this element of the Navy has let, Company X?s rates are 20% higher. In a desire to be competitive and win the single-award contract, Company X simply reduces their rates by 20% across the board. They do not have any "backup" that would show how they developed the submitted rates. Company X submits their proposal without any explanation of how they developed their rates, and wins the award.
Question 1. Has Company X done anything wrong?
Question 2. If Company X has done something wrong, what exactly have they done wrong?
Question 3. How will the Government come to learn that Company X has done something wrong?
Question 4. Following submission of proposals, and prior to award, is the Government allowed to require Company X to explain how they derived their rates? Is the Government allowed to do so following award?
Question 5. Suppose Company X has done nothing wrong. They have a great deal of success on the new contract, and a year later their revenue is now split ? 50% comes from cost-type contracts with the Army and 50% comes from this T&M ID/IQ with an element of the Navy. Since their bid rates on the T&M contract do not cover their actual costs for fringe, overhead, and G&A, Company X substantially raises their burden rates the following year. Moving forward, Company X?s Army contracts are now subsidizing Company X?s Navy contract. Is this a valid conclusion? Is this fair?