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Best Value Trade-off and Fair and Reasonable Price


KMY

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The DoD Source Selection Procedures includes the following Statement in Section 3.1.1.

"In all source selections, the analysis must include a determination, by the PCO, of whether the proposed cost or price is fair and reasonable. In addition to determining reasonableness of the proposed cost or price, the PCO must also conduct a cost realism analysis if contracting on a cost reimbursement basis."

For award of a compettitive single award cost reimbursement type contract (CPFF for example) using best value trade off procedures, multiple offers are received, cost realism analyses are performed, and probable costs are developed for each offeror, which are then used in a trade-off to determine the best value. Does the trade-off determination meet the threshold for being able to determine that the price of the successful offeror is fair and reasonable based on competition? Does there have to be a separate and distinct price analysis performed or does the best value trade-off serve as determination of reasonableness of price?

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The original post requires some time other than on a weekend to reply to. However, I noticed general correspondence's answer last night and must ask - why do you think that the government must "quantify each tradeoff" and what do you mean by "each trade off"? Do you mean that the government must quantify "each non-price comparison" between proposals? Please clarify what you mean and explain why the government must " quantify " each non-price advantage, disadvantage or other non-price comparison?

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Does the trade-off determination meet the threshold for being able to determine that the price of the successful offeror is fair and reasonable based on competition?

No. Source selection decisions and price reasonableness determinations are 2 different steps. See FAR FAR 15.308 and 15.305(a)(1).

Does there have to be a separate and distinct price analysis performed or does the best value trade-off serve as determination of reasonableness of price?

You document 2 different steps.

... probable costs were developed - so the elements of the non selected proposals that can be used to determine price reasonableness are good for you but you would probably need to quantify each trade off and still do a price analysis.

You need not "dollarize" tradeoffs. See Kay and Associates, Inc. File: B-258243.7 Date: September 7, 1995:

Kay argues that Customs did not conduct a meaningful cost/technical tradeoff. According to Kay, the agency did not adequately take into account the fact that the evaluated cost of Kay's proposal at the conclusion of the reopened negotiations was approximately $12.2 million lower than Beech's; the protester argues that the agency should have quantified the additional value offered by Beech's technical advantages. Kay maintains that its proposal, not Beech's, would have been rated the best value had Customs done so since, notwithstanding the fact that Beech's was rated outstanding and Kay's was rated good, Kay believes the proposals were close technically. (Kay expressly states that it does not challenge the results of the technical evaluation.)

In a negotiated procurement, there is no requirement that award be made on the basis of lowest cost unless the RFP so specifies. Henry H. Hackett & Sons, B-237181, Feb. 1, 1990, 90-1 CPD para. 136. Cost/technical tradeoffs may be made in deciding between competing proposals; the propriety of such a tradeoff turns not on the difference in technical scores or ratings per se, but on whether the agency's judgment concerning the significance of that difference was reasonable and adequately justified in light of the RFP evaluation scheme. Brunswick Defense, B-255764, Mar. 30, 1994, 94-1 CPD para. 225. Federal Acquisition Regulation Sec. 15.612(d)(2) requires that documentation supporting the selection decision show the relative differences among proposals as well as their strengths, weaknesses and risks along with the basis and reasons for the decision. There is no requirement, however, that selection of a higher- cost proposal be justified through an exact quantification of the dollar value to the agency of the proposal's technical superiority. Picker Int'l, Inc., B-249699.3, Mar. 30, 1993, 93-1 CPD para. 275. Further, even where a selection official does not specifically discuss the cost/technical tradeoff in the selection decision document, we will not object to the tradeoff if it is clearly supported by the record. Maytag Aircraft Corp., B-237068.3, Apr. 26, 1990, 90-1 CPD para. 430.

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Joel

KMY wanted to know if the trade-off determination meets the threshold to determine price of the successful offeror is fair and reasonable based on competition?

The answer is NO, with respect to price reasonableness. KMY was mixing apples/oranges,

Napolik made the assist on the case law on not dollarizing tradeoffs, which is again, mixing things up a little because "selection justification" is not the same thing as making a determination on price reasonableness.

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The DoD Source Selection Procedures includes the following Statement in Section 3.1.1.

"In all source selections, the analysis must include a determination, by the PCO, of whether the proposed cost or price is fair and reasonable. In addition to determining reasonableness of the proposed cost or price, the PCO must also conduct a cost realism analysis if contracting on a cost reimbursement basis."

For award of a compettitive single award cost reimbursement type contract (CPFF for example) using best value trade off procedures, multiple offers are received, cost realism analyses are performed, and probable costs are developed for each offeror, which are then used in a trade-off to determine the best value. Does the trade-off determination meet the threshold for being able to determine that the price of the successful offeror is fair and reasonable based on competition? Does there have to be a separate and distinct price analysis performed or does the best value trade-off serve as determination of reasonableness of price?

KMY, let me ask you this. If you have done a cost realism analysis and determined probable cost for each offerer, would you conduct discussions with the offerors or just accept their proposed prices? I don't understand but it may just be me - if you go to that effort, why just make a trade-off and accept a price that isn't realistic for the effort and may result in overruns, if unrealistically low oir that is based upon a flawed understanding of the requirements? What if some prices are considered to be too high during the trade-off comparison? As a minimum, it would seem that the fee basis (fee based upon unreasonably high cost) might then be unreasonable, too.

In order to do a cost realism analysis and to determine probable cost, it would seem that the government would have some idea of what would be a reasonable cost or range of costs and understand the technical approach basis for that position, wouldn't it?

It would seem to me that you are jumping ahead and skipping the step related to the reason that you performed the price realism and probable cost analyses. Plus you are only performing half of the price evaluation. Then you aren't taking advantage of all the benefits of competitive NEGOTIATED acquisition . That is, TALKING TO and bargaining with the firms for better performance or for realistic and fair and reasonable pricing.

Now, you CAN compare prices and technical approaches as part of the price evaluation to determine what you think would be a fair and reasonable price. I think that I would certainly want to also compare "probable costs" that are developed based upon the various technical approaches and the price realism analysis in making that determination.

What if the price realism analysis reveals flaws in their proposed technical approach or understanding of the requirements?

I wouldn't jump to a price-technical trade-off decision on a cost reimbursible contract - in particular, a CPFF type - unless I was really satisfied that I have an offer that fully meets the requirements, is realistic and fair and reasonable and that I don't think could be significantly improved through discussions and revised proposals.

Bottom line, if you can't determine and award a FFP contract, there would likely be higher $$ and schedule risk to the taxpayers that would warrant a careful price evaluation and bargaining where possible.

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Guest Vern Edwards
Does there have to be a separate and distinct price analysis performed or does the best value trade-off serve as determination of reasonableness of price?

There should be a separate and distinct analysis.

Below is a tradeoff analysis table.

  • Cost-reimbursement contract.
  • Technical is significantly more important than most probable cost.
  • Agency is going to award without discussions.

In order to keep this simple, assume that all offerors satisfy all requirements and have no weaknesses, but that they have different strengths.

Offeror

Technical Rating (100 max.)

Proposed Cost

Most Probable Cost (MPC)

Offeror A

91

$2,950,000

$3,000,000

Offeror B

80

$3,200,000

$3,600,000

Offeror C

82

$2,900,000

$2,900,000

Offeror D

90

$2,800,000

$2,800,000

The independent government estimate is $3,100,000.

Assume that a cost realism analysis has been performed and that the agency has determined the most probable cost (MPC) of each, which appears in the table under the proposed cost. (We'll leave fee out of this for the sake of simplicity. Just assume that each has proposed a 6 percent fixed fee.)

Now, consider each offeror and, using price analysis, determine whether any's MPC is unfair or unreasonable in light of what it has proposed. You do that at the bottom line, using any market data that you have and comparing each offeror to your government cost estimate and the other offerors. The question is: Would it be fair and reasonable to pay that much for what you would get? Eliminate from further consideration any offeror whose price you have determined to be unfair or unreasonable. Why would you include that offeror in your tradeoff analysis?

Assume all offerors have fair and reasonable MPCs except Offeror B. B has offered much less technical value than anyone else, its MPC exceeds the government's estimate and the other offerors' MPCs by a significant amount, and market data simply do not support paying $3,600,000 for what it's offering. So you eliminate B from further consideration. You will not include it your tradeoff analysis.

That's that for price reasonableness.

Now, conduct a tradeoff analysis. Review each offeror's strengths. Compare A to C. Determine the differences in their strengths and determine which is better technically. (Don't rely on the rating.) Assume that A is technically better. Now, determine whether A's technical advantages are worth the difference in MPC between it and C. A is considered the better value because its technical advantages are valuable to the government and worth the extra $100,000.

Now compare A to D. Assume that D is found to be a better value than A, because even though its technical strengths are not quite as good, A's technical advantage is considered slight and not worth the extra $200,000 in MPC.

Since D is technically better than C and has a lower MPC, D is the best overall value.

Note the difference between the analysis done to determine fairness and reasonableness and the analysis done to make tradeoffs. Both involve comparisons, but price analysis is based on the top level and the bottom line, while tradeoff analysis is based on marginal differences. What you "trade off" are differences. You give up some of one thing to get more of another thing. You use tradeoff analysis when you have to rank alternatives on the basis of what are believe to be conflicting criteria (quality/cost).

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  • 2 months later...

The example indicates "Assume all offerors have fair and reasonable MPCs except Offeror B." Curious as to why you are assessing the fair and reasonableness of the MPC vs. the proposed amount. Since the example indicated the intent to award without discussions, our COs would award at the proposed amount vs.the MPC, so they are indicating that the price analysis should be performed on the proposed amount vs. the MPC. Also, DoD Source Selection procedures address determining the reasonableness of the proposed amount vs. MPC.

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