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Scenario: Competitive cost-type solcitation, two offerors received. We are performing cost realism analysis as required by FAR 15.404 and have evaluated some areas of the offerors proposal as low in comparison to what we feel is their probable cost. We will be entering discussions to hopefully cure these concerns with the offerors via evaluation notices ; however, there are some in our approval chain who believe that all concerns that effect evaluation criteria (realism in this case) should be classified as deficiencies. If after discussions these concerns are still not resolved to our satisfaction they maintain that we must eliminate the offerors based on the fact they haven’t cured an identified deficiency and are not realistic.

My point of view is that logically why even establish a probable cost as laid out in the FAR if we’re just going to eliminate offerors for deviation from that cost? (All of the GAO cases I’ve read seem to bear this out as well) Further I don’t think we need to classify all ENs that fall under the cost realism evaluation as deficiencies. I don’t see how they represent “a material failure to meet a Government requirement”

Those above me are also concerned that awarding a contract at the proposed cost as opposed to the probable cost represents some sort of fiscal law violation because we are admitting that we believe the contractor will overrun the effort based on their proposed cost and are conciously underfunding the effort based on that admission.

My point of view on that issue is I have no problem funding the contract at the probable cost (although I haven’t consulted with anyone whether that violates some sort of fiscal statute), but I would think the contract needs to be awarded on the offeror’s proposed price and any sort of fee calculation should be done on the proposed price as well.

The bottom line is I feel it just makes smart business sence to award to an otherwise acceptable offeror even if their proposed cost differs from our probable cost (assuming that their probable cost is still the lowest probable cost, all other things being equal).

This issues is still very much in flux, but I’m having a hard time convincing those above me, and I feel strongly that this is the right thing to do. What I would like is for the input of more experienced heads in this forum to tell me if I’m wrong, and why. If I’m right, then any sort of back-up rationale/citations I could use would be appreciated. Or I’m also open to the idea that I’m misunderstanding this somehow and I should be looking at this completely differently. Thanks in advance!

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FAR Part 15?

The term deficiency is defined in FAR 15.001.

Are you saying that your Government probable cost estimate is markedly higher than an offeror's proposed price?

Is the difference betwen probable cost and proposed price so marked that the offeror's proposed price could be seen as unrealistic? Or, does the difference perhaps indicate some risk of a possible future cost overrun? Or, does the difference indicate the offeror doesn't understand the requirement? You can address all of these concerns in discussions.

FAR 15.404-1( d )( 2 )( i ): The probable cost amount is only used for evaluation purposes -- and it is the only amount used for evaluation purposes.

FAR 15.404-1( d )( 3 ): Your award is made at the proposed price amount, not the probable cost amount. You obligate dollars to the proposed, not the probable. If the contractor overruns, well, you can deal with the overrun as a matter of contract administration. You can afford it, because you can afford the probable cost, so an overrun up to the probable cost is easily handled.

A cost realism analysis IS NOT a go/no-go or a pass/fail matter. A cost realism analysis's outcome is not only a probable cost amount. FAR 15.305( a )( 1 ): "When contracting on a cost-reimbursement basis, evaluations shall include a cost realism analysis to determine what the Government should realistically expect to pay for the proposed effort, [ii] the offeror's understanding of the work, and [iii] the offeror's ability to perform the contract."

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