AWARD DECISIONS: FFP all bids over GE
Posted 27 June 2011 - 10:31 AM
Posted 27 June 2011 - 10:54 AM
Posted 28 July 2011 - 02:05 PM
Posted 28 July 2011 - 10:29 PM
Using an IGE is only one way of establishing price reasonableness, and a very low ranking one at that. Many Government estimates aren't worth the paper they are written on. Adequate price competition is the best and primary way to establish price reasonableness. If you have two responsible offers, then you are good to go no matter what the IGE says. Vern's recommendation to attempt to figure out the disparity is solid because either the contractors misunderstood something in the solicitation that you could amend OR the requirements office goofed up the estimate (which you need to figure out as it might affect FUTURE estimates), but to directly answer your question... technically speaking, you already have sufficient information to make a price reasonableness determination assuming there are no errors in the solicitation.
I will respectfully disagree with your statements that "[a]dequate price competition is the best and primary way to establish price reasonableness. If you have two responsible offers, then you are good to go no matter what the IGE says", when applying that philosophy to construction solicitations.
In fact, that is sometimes (often?) overly simplistic - crock - reasoning. I'm sorry for the length of the following but those statements hit my "irked me" button. To start with, I agree with Vern above. However, I feel that I need to expand on his (clear and succinct) post that said "...you ought to try to determine the reason for the disparity between the bids and the government estimate before making an award. It is likely that there has been some misunderstanding about the specification or drawings. If I were your boss I wouldn't let you make an award until you figure it out.".
Acquiring construction is much different than purchasing well defined commercial supplies or equipment and it is different than buying standardized or well established services. If Contracting types insist that they should be treated and respected as "professionals", "professional business advisors", etc. , then they must understand these differences and take the time and trouble to examine the reasons for wide differences between what the Government thinks a project "should cost" versus what the industry is willing to bid or propose to accept the contract in such cases. You must understand that construction is generally a very risky business. When contractors see unclear plans and specifications or solicitations with terms and conditions that involve, impose, or transfer risks and unknowns, prices go way up. Just because prices are close to each other doesn't automatically mean that they are fair or that they are reasonable. There are many reasons for price differences.
I have had some very good experience in uncovering why such differences existed. In many cases, I or others and I were able to significantly reduce awarded prices by correcting defective plans and specs, reducing risks placed upon contractors or even in finding alternative material and equipment sources when it was discovered that our plans and specs were written around a product from a supplier who thought they had a lock on supplying the items.
FAR 14.404 covers situations where it appears that all prices are unreasonably high or that industry might not understand the scope pf work, etc. I have includes some relevant excerpts from 14.404-1 below, which allows the KO to convert the IFB to an RFP under the same solicitation and seek proposals from those firms who submitted bids. I remember at least two situations where we did this and we discovered from the firms that the Government's approach or design was inappropriate for the market conditions and material and labor availability. In one case, the lowest bidder, who was also the lowest offeror after the conversion offered to drop his price by 1.5 million dollars if we would allow him to select, design and construct a more economical structural framing method. He offered to guarantee matching the Government's architectural facing and looks. The problem turned out to be that the government designed structure required extensive use of structural masonry following 2 recent, massive hurricanes, which swallowed up the entire availability of masons and masonry subcontractors for a four state area. Plus the frame was uneconomical to begin with, requiring three separate mobilizations and demobs of a masonry sub brought in from North Carolina. The project was in Florida. Obviously, just because there were 7 bids higher than the Government estimate, did not result in price reasonableness in that case. The proposing construction company's president and I found a way to save the taxpayers $1.5 million dollars.
This is but one example of many in which it paid to examine large price differences rather than simply rely upon simplistic beliefs that ""[a]dequate price competition is the best and primary way to establish price reasonableness" and "If you have two responsible offers, then you are good to go no matter what the IGE says" when contracting for construction. Don't just search for words or the easiest way in the FAR to allow you to declare prices fair and reasonable. Successful business professionals become savvy and they learn how to maximize opportunities to save or make money. In our case in the federal government acquisition and contracting arena, everyone needs to learn how to look out for the interest of the taxpayers and how to reduce the massive deficit!
Here are the relevant excerpts from FAR 14 that we followed when we had to convert an IFB to an RFP:
14.404 -- Rejection of Bids.
14.404-1 -- Cancellation of Invitations After Opening.
(1) Preservation of the integrity of the competitive bid system dictates that, after bids have been opened, award must be made to that responsible bidder who submitted the lowest responsive bid, unless there is a compelling reason to reject all bids and cancel the invitation.
… ( c) Invitations may be cancelled and all bids rejected before award but after opening when, consistent with subparagraph (a)(1) of this section, the agency head determines in writing that --
… (6)All otherwise acceptable bids received are at unreasonable prices, or only one bid is received and the contracting officer cannot determine the reasonableness of the bid price;
(7) The bids were not independently arrived at in open competition, were collusive, or were submitted in bad faith (see Subpart 3.3 for reports to be made to the Department of Justice);
(8) No responsive bid has been received from a responsible bidder…
… (e) Under some circumstances, completion of the acquisition after cancellation of the invitation for bids may be appropriate.
(1) If the invitation for bids has been cancelled for the reasons specified in subparagraphs ?(6), (7), or (8) of this subsection, and the agency head has authorized, in the determination in paragraph ? of this subsection, the completion of the acquisition through negotiation, the contracting officer shall proceed in accordance with paragraph (f) of this subsection…
(f) When the agency head has determined, in accordance with paragraph (e)(1) of this subsection, that an invitation for bids should be canceled and that use of negotiation is in the Government’s interest, the contracting officer may negotiate (in accordance with part 15, as appropriate) and make award without issuing a new solicitation provided --
(1) Each responsible bidder in the sealed bid acquisition has been given notice that negotiations will be conducted and has been given an opportunity to participate in negotiations; and
(2) The award is made to the responsible bidder offering the lowest negotiated price.
Posted 29 July 2011 - 10:30 AM
Contracting officers in ANY area should be using their professional judgement and experience in ALL of their decisions... and they shouldn't have warrants if they don't have the judgement or the experience. Cancelling bids should not be done lightly. If there isn't a legitimate reason for doing it, then it is wasteful and unfair treatment to the contractors who have invested their resources in preparing a responsible bid.
In accordance with FAR 14.408-2 Responsible bidder?reasonableness of price.
(a) The contracting officer shall determine that a prospective contractor is responsible (see Subpart 9.1) and that the prices offered are reasonable before awarding the contract. The price analysis techniques in 15.404-1(b) may be used as guidelines.
And here is FAR 15.404-1(b)(2)(i) regarding proposal price analysis... the very first one listed:
"Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition establishes a fair and reasonable price (see 15.403-1©(1))."
We definitely have very different connotations of the word "crock"... You are not the only person in this forum with experience. But that's the beauty of this profession... you can have your opinion, I can have mine, and they can be different without either being wrong.
Regardless, my response to the question IS accurate.
Posted 29 July 2011 - 11:16 AM
Unless you try to examine why there is a large discrepancy between the bids and the Government's estimate for a construction contract, your statement that you can simply rely on adequate price competition to determine reasonableness is senseless to me. Those who cling to statements in the FAR for support in making business decisions, without knowing anything about the business or the basis of the pricing are poor business persons. I read your post as essentially saying not to worry about discrepancies between the estimate and the proposals or bids - If you have two responsible offers, then you are good to go no matter what the IGE says. I thought that was rash and poor advice.
Posted 29 July 2011 - 11:56 AM
Please read what is typed.
My point was that if you have analyzed everything else and there is no problem with the solicitation, that the poster technically had sufficient information to proceed with a reasonableness determination. I don't recommend blindly doing anything, including assuming the accuracy of a Government estimate. This is ESPECIALLY true in construction where the Government estimators commonly do not account for some site condition that is driving price. In my opinion, those who dogmatically cling to the accuracy of a Government estimate are fools.
The original post could be read from the context of what "can" I do OR from the context of what "should" I do... I attempted to answer both. The poster "can" make a price reasonableness determination based upon adequate price competition if everything else is ok. I also recommended that the poster follow Vern's advice to figure out the disparity.
You don't know the poster's situation and neither do I... We don't know if the discrepancy is $50K or $5M. To claim advice was rash and/or poor for a situation you are unfamiliar with is maliciously ignorant. You have made some incorrect assumptions and interpretations of my responses. You must be unfamiliar with negotiated source selection... how about asking clarification questions prior to making evaluations...
Posted 29 July 2011 - 02:05 PM
You must be unfamiliar with negotiated source selection... how about asking clarification questions prior to making evaluations...
By the way, the original question concerned evaluation of reasonableness in an IFB situation, not source selection. Conversion of an IFB to negotiation isn't "source selection".
However, I can assure you that I'm very familiar with source selection procedures for construction contracts.
Posted 01 August 2011 - 04:37 PM
Many things can affect pricing? Really??? How shocking...
Seen some COs do some stupid stuff? Join the club.
Conducted a lot of procurements? Join the club.
Saved a lot of money for the Government? Join the club.
Level 3 Certified? Join the club.
Over 20 years in the business? Join the club.
As far as what you recommend, that's up to you... I really don't care so long as you don't attack me. I'm an operational CO, not a policy person. I read the original question under the assumption the CO had done all their due diligence and analysis and was primarily asking if the issue of the IGE being off would hold up a reasonableness determination by itself. If you don't like my response, that's your opinion. You made different assumptions than I did about the facts surrounding the question. Like assuming the poster was new to construction. You don't know the details and neither do I. Period. Over and out...
Posted 01 August 2011 - 05:23 PM
Todzilla, I didn't mean to attack you, personally. I began with respectfully disagreeing with you then went off. Sorry.
But I don't know how you got the impression on an IFB for construction that the questioner had done due diligence in analyzing pricing. In fact in her first sentence in her first post, she specifically asked how to do a price reasonableness determination:
"How do we make a price reasonableness determination when all bids are over twice the GE? This is a FFP construction arena. The FAR makes mention of being able to question/revise the GE when bids are below the GE but not above. Is it enough to say that the two low bids are within 6% of each other and therefore reasonable? "
How would you analyze the basis of the bidders' pricing after opening bids? How would you compare what is in the government estimate to what the bids are based upon?
Posted 01 August 2011 - 08:17 PM
How do we make a price reasonableness determination when all bids are over twice the GE? This is a FFP construction arena. The FAR makes mention of being able to question/revise the GE when bids are below the GE but not above. Is it enough to say that the two low bids are within 6% of each other and therefore reasonable?
kristeno, have your questions been answered? In the case where construction bid prices exceed the available budget or where they are more than twice the government estimate, I don't think that it is safe to say, simply consider the bids reasonable because there was price competition and that two low bids are close to each other. There is a big disparity which needs to be cleared up, if possible - in my opinion. Vern Edwards also advised to try to determine the reason for the disparity between the bids and the government estimate before making an award.
Unless I can determine that the government's estimate is unreasonably low for the particular scope of work and/or the market conditions or grossly in error, I'm not sure that I could determine that the price I'm paying is fair and reasonable and in the best interest of the government (which includes the taxpayers). There may be some problem with the way the project is designed, the solicitation language may inadvertently place some unreasonable risk on the contractor, there may be interpretation problems, etc. Why waste the taxpayers' money that the USA doesn't have, if we can figure out a way to lower the price? EDITED 8/1/11. We shouldn't just award a contract because some paragraph in the the FAR says we can. The FAR doesn't cite the literal answer to every situation and we shouldn't need spoon feeding to make sound business decisions in the best interests of the Government and the Taxpayers.
I would definitely have the estimate reviewed by the estimator for possible mistakes and by an independent person or persons to look for obvious mistakes. If that doesn't resolve the differences to your satisfaction, it would seem that you could reject all bids and use the negotiation process that I described earlier.
I think that the procedures allowed within the Part 14 IFB process itself, for asking for more information from the contractors, are extremely limited. The process is mostly limited to asking the low bidder to verify their prices when the lowest price seems to be questionably low. Remember that the bid opening process is public, so the bidders should know what all the bids were. Bid prices are included on the Abstract of Bids, too.
The IFB process wasn't set up for discussing disparities and scope issues after bid opening. It's set up as a one time shot. The IFB process considers price, plus responsibility, plus balancing of the bid, not negotiating the scope or requirements. That's why the option is available to convert to a negotiated process with those specific bidders. So, our procedures were to reject bids when we were uncertain that they were fair and reasonable or if we couldn't afford the lowest bid.
We asked all firms who submitted sealed bids to submit a price proposal, as in an RFP. This might include a request for some type of price breakdown, preferably providing them a general format, so that the government could explore the areas of scope where price differences are. Or you could wait until the new prices come in before asking for the breakdown but I learned from experience that I was going to need the breakdown anyway. Then you would concentrate on looking for the underlying reasons for the disparity. You could do all that without it being called "price negotiations" and/or you could explore the details with the firms during one on one negotiations. I used to look for the areas of differences, then explore in as much depth as necessary with the firm during "negotiations". that's where we usually found the uncertainty, errors or some other reason why the prices were so high.
If we found found something in the solicitation that could be fixed, such as errors, unreasonable requirements, too much bidding risk, requirements written around one product, misinterpretation, etc., we'd amend the solicitation somehow to lower the cost, if possible. Contractors are often good at suggesting alternatives. Sometimes we just bargained for better pricing
Then we'd ask for final proposal revisions.
If we find a mistake in the government estimate, our internal procedures allow us to correct the estimate or at least document where the errors are for the hindsighters who will often question why we paid much more than what our estimate could support. I believe that was one of your concerns.
Posted 01 August 2011 - 11:05 PM
Posted 01 August 2011 - 11:33 PM
Wow. Just a few more words and we'll have War and Peace.
Noted. Thanks - you are correct. Sorry
Posted 06 August 2011 - 07:01 AM
Wow. Just a few more words and we'll have War and Peace.
Thanks Vern. You made me laugh.
Posted 07 January 2015 - 04:45 PM
Thanks Vern. You made me laugh.
3 1/2 years later and I stand by my advice, based upon continued observation of naïvety and ignorance on the part of many practiioners looking for easy, cookbook answers when evaluating prices on construction contract solicitations..
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