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Todd Davis

A-E Selection: Termination of Negotiations

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I have a scenario where in an A-E source selection a CO is unable to negotiate a mutually satisfactory contract with the most highly qualified firm because the offered price is not considered fair and reasonable. This is based upon an analysis between the government cost estimate and the contractor’s proposed price. Engineering stands by their estimate. Discussions with the most qualified firm are terminated in accordance with FAR 36.606(f). Upon requesting a proposal and conducting discussions with the next highest qualified firm the overall price is only ever so slightly better. This additional price proposal being so close to the first seems to indicate the government cost estimate is not in line with market pricing for the service. Based on the price of the second firm there is now a basis to question the accuracy of the government cost estimate and the CO now has information to support a determination of price fair and reasonable that was not available during discussions with the highest rated firm. Is it appropriate to go back to the highest rated firm since their price could now be considered fair and reasonable?

I did some research on Westlaw and could not find any such cases so far that discuss this scenario. I do not think going back to the highest rated firm would be appropriate since those discussions were terminated on a reasonable basis (comparison to the government estimate). Only through obtaining a proposal from the next highest rated firm did it become apparent the government estimate did not accurately reflect the market price. Now the CO has a reasonable basis to conclude the price of the second firm (albeit just slightly better than the highest rated firm) is fair and reasonable.

Even if the price of the second firm were slightly higher, I don’t think it would be appropriate to conduct additional discussions with the highest rated firm. I did find policy from another Federal agency that stated negotiations could not be conducted a firm that negotiations have been terminated with, even if the second highest rated firms pricing is higher. However, that policy did not cite any reference for that position.

I’m interested if others agree that this is appropriate course of action or not.

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Did you actually conduct discussions with the highest rated firm? Or was the decision to "terminate" discussions based solely upon "analysis between the government cost estimate and the 'contractor's' proposed price"?

If the answer is "yes, we actually conducted discussions", did you discuss the actual basis of the firm's pricing and compare it with the basis of the government cost estimate? If the answer to that question is "yes", are you saying that Engineering's position is that the effort and/or price for that effort is still unreasonably high? Would the original firm not budge?

From the way you described the scenario, I'm wondering what was actually analyzed in both proposals and if and how discussions were conducted with either firm. What is the information now available to the CO based upon? Comparing prices? Comparing the basis of the proposed prices and the basis of the IGE?

It is possible that the decision to terminate discussions with the original firm was unreasonable. Depending upon the scenario, either firm might have possible grounds to at least seek reimbursement of their proposal costs.

If I don't get back to you today, it is because I will be in the woods, away from the Internet.

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Merely comparing a government estimate with an un-negotiated sole source proposal does not justify "terminating negotiations", if you haven't conducted meaningful negotiations. Merely using a second, non-negotiated proposal to compare with the original proposal wouldn't necessarily provide information to determine that the first proposal was reasonable either. Maybe both proposals are high. I may be wrong but that is the sense of what I read in the OP.

I would expect both firms that submitted proposals under sole source circumstances to leave themselves some room in their initial proposals to negotiate. I've generally found that to be the case in my experience. In fact, I learned early on to offer a lower settlement price than my objective or at least one on the bottom end of my range.

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Guest Vern Edwards

Did the negotiators reveal the details of their respective estimates, identify the points and sources of differences, and try to understand and resolve them?

Joel, did you get the books yet?

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Vern , they came yesterday - 3 boxes full. I'm very greatfull to you. I had the two primary books and some of the supplements. However, I left them for my successor 7 years ago because the government paid for and owned them. I hope they were able to made some good use of them.

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Joel and Vern, thank you both for taking the time to reply. This was related to an issue that I was not involved with, but asked for my thoughts after events took place. This made me question whether or not it is ever appropriate to re-initiate negotiations with a firm after negotiations were terminated because a mutually satisfactory contract could not be negotiated.

In gathering information to reply to you I found that my understanding of the issue wasn't entirely correct. I should also add that this was related to a task order being negotiated against an IDIQ contract where the rates have already been determined fair and reasonable. Consequently, the overall price is what was being negotiated based on the effort required by the task order SOW. Because the price initially offered by the first firm was significantly higher than the government estimate, discussions were conducted regarding the SOW requirements. This brought to light differences in interpretation which led to a higher price. This also led to the first firm offering a much lower price under a revised proposal, and while still higher than the government estimate it could have been determined to be fair and reasonable. However, it was still beyond available funding. This is what led to terminating discussions and moving to the second highest rated firm to see if a lower price would be offered or could be negotiated. Similar discussions regarding the SOW were conducted up front with the second firm to make sure they understood the SOW. The second firm offered a price that was only slightly lower. Rather than conduct discussions with a third firm, program staff decided to seek additional funds, otherwise an award could not be made to either firm. Funds were received an award was made to the second firm.

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Todd, I think that the actual scenario was handled appropriately.

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