Jump to content
The Wifcon Forums and Blogs
brent

Determining Fair and Reasonable LPTA

Recommended Posts

54 minutes ago, Don Mansfield said:
1 hour ago, PepeTheFrog said:

Yes, under the FAR 15.403-1(c) definition of "adequate price competition." There are three options and the contracting officer should be able to apply one of the three.

Ok, which one?

(i) If you evaluated the +1 offer that was the second lowest price and technically acceptable

(ii) If you use the "first LPTA discovered" method

(iii) If you compare it with current or recent prices

 

Share this post


Link to post
Share on other sites
14 minutes ago, Vern Edwards said:

And I'm telling you, again, that adequate price competition is irrelevant. See FAR 15.404-1(b)(2)(I):

Two sentences in (i). The first provides an example of a pricing techniques. The second makes an assertion: "NORMALLY, adequate price competition establishes a fair and reasonable price." The two together do not say that you can establish fairness and reasonableness through comparison of proposed prices ONLY IF you got adequate price competition.

Amen!

Adequate price competition is a standard for determining if certified cost or pricing data is required.  That's all.  It is irrelevant for our discussion.

FAR 15.404-1(b)(2)(i) says comparison of prices received in response to the solicitation is a valid method of price analysis.  It doesn't say comparison of "technically acceptable" prices received in response to the solicitation.  

 

Share this post


Link to post
Share on other sites
14 minutes ago, ji20874 said:

FAR 15.404-1(b)(2)(i) says comparison of prices received in response to the solicitation is a valid method of price analysis.  It doesn't say comparison of "technically acceptable" prices received in response to the solicitation.  

Moreover the list isn't exhaustive nor does the FAR contain a restriction to only use the listed techniques.

What does FAR 1.102-4(e) say again about sound business judgment?

Share this post


Link to post
Share on other sites
1 hour ago, ji20874 said:

Amen!

Adequate price competition is a standard for determining if certified cost or pricing data is required.  That's all.  It is irrelevant for our discussion.

FAR 15.404-1(b)(2)(i) says comparison of prices received in response to the solicitation is a valid method of price analysis.  It doesn't say comparison of "technically acceptable" prices received in response to the solicitation.  

 

It's not "irrelevant for our discussion". Vern seemed to be hanging his hat on FAR 15.404-1(b)(2)(i) in his scenario and I wanted to know if it was because he thought he had adequate price competition or because of some other reason.

1 hour ago, ji20874 said:

FAR 15.404-1(b)(2)(i) says comparison of prices received in response to the solicitation is a valid method of price analysis.  It doesn't say comparison of "technically acceptable" prices received in response to the solicitation.

No, FAR 15.404-1(b)(2)(i) doesn't say anything about the validity of any method. It just lists examples of methods that can be used to conduct price analysis. 

Back to your method of comparing the proposed price for a technically acceptable product/service to proposed prices for products/services that you haven't technically evaluated, is there any consideration of the comparability of the products/services that you haven't technically evaluated? Or do you assume that they are comparable? 

Share this post


Link to post
Share on other sites
Guest Vern Edwards
7 minutes ago, Don Mansfield said:

Vern seemed to be hanging his hat on FAR 15.404-1(b)(2)(i) in his scenario and I wanted to know if it was because he thought he had adequate price competition or because of some other reason.

This thread has gotten so long that I don't remember when and where I quoted FAR 15.404-1(b)(2)(i), but I do remember quoting it.

There are two sentences in the subparagraph, I was thinking of the first, even though I quoted both. Apples are a commercial item. I would not look to see if I had adequate price competition because that concept and that rule do not apply to commercial items, so I would not know or care whether I'd had it. I do not see the second sentence as being inextricably linked to the first. I see the second sentence as saying nothing more than that if you have adequate price competition you can ordinarily rely on its existence to establish fairness and reasonableness of price. I don't read it to indicate in any way that the absence of adequate price competition means that competition was not effective in producing fair and reasonable prices.

The mere fact that something is mentioned in a regulation does mean it is pertinent to the issue at hand.

Share this post


Link to post
Share on other sites
11 hours ago, Vern Edwards said:

@Jamaal Valentine

Why "concerned"? Agencies have done that for decades when using sealed bidding, in which there is no nonprice technical evaluation at all.

As I stated previously, I am more concerned (as a matter of interest) about comparing prices to proposals that have not been evaluated for suitability for comparison. I don't think a prudent CO would agree to such an action without knowing the basis for suitability.

To be clear, I can envision many cases where it might make sense, but even then the comparability is presumed. For example, maybe the offers are close to the government estimate and the administrative cost of verifying the comparability may more than offset potential savings from detecting instances of overpricing. Heck, I have done it and have advocated for its use.

Nonetheless, if they wanted sealed bidding, then conduct sealed bidding. In the hypo here - there are non-price evaluation factors (technical) in the offerors' proposals. Futhermore, we both know there are preferential and procedural differences between sealed bidding and competitive proposals. With sealed bidding the government presumes the bidders accede to the solicitation as the model contract … that is not necessarily the case when accepting proposals that include technical offers.

11 hours ago, Vern Edwards said:

If someone wants to charge me less for something that I consider acceptable than for something that I haven't considered at all, and if acceptable is all I want, then why shouldn't I consider that to be a fair and reasonable price?

I don't take exception to that. I am asking what your price reasonableness determination is based on in that scenario. You say you are being charged less, but compared to what? Something you haven't considered? Is less synonymous with fair and reasonable?

Share this post


Link to post
Share on other sites
3 hours ago, Don Mansfield said:

Not sure if you consider me a "naysayer", but as a selection method I don't see a problem with "first LPTA discovered". But that's not the issue we're discussing. The issue is whether the other proposed prices should be used as a basis of comparison in determining a fair and reasonable price.

This

Share this post


Link to post
Share on other sites
3 hours ago, Matthew Fleharty said:

Let's not forget that the FAR is not a "how to" guide and it isn't definitive or exhaustive on how one determines prices fair and reasonable (emphasis added):

Is it possible to make a reasonable argument that a LPTA proposal's price is fair and reasonable without knowing whether the other proposals are technically acceptable?  I think so, despite what the FAR may or may not say.

Sure it's possible. I don't think anyone here disagrees. Disagreeing would be silly: FAR even provides several techniques.

What is your reasonable argument? Does it involve or rely on comparison of proposed prices?

Share this post


Link to post
Share on other sites
7 hours ago, ji20874 said:

FAR 15.404-1(b)(2)(i) says comparison of prices received in response to the solicitation is a valid method of price analysis.  It doesn't say comparison of "technically acceptable" prices received in response to the solicitation.  

FAR instructs us to use sound business judgment. The Contract Pricing Reference Guide, referenced in FAR Subpart 15.4, states not to use unacceptable offers in comparisons and GAO doesn't appear to support comparing pricing to unacceptable offers (Lifecycle Construction Services, LLC, B-406907, September 27, 2012).

So, if one chooses to rely on a comparison of proposed prices of unknown acceptability, esp. those including non-priced factors, sound business judgment still applies and should be documented pursuant to FAR 4.801( b )

The documentation in the files shall be sufficient to constitute a complete history of the transaction for the purpose of --

(1) Providing a complete background as a basis for informed decisions at each step in the acquisition process;

(2) Supporting actions taken;

(3) Providing information for reviews and investigations; and

(4) Furnishing essential facts in the event of litigation or congressional inquiries.

 

Share this post


Link to post
Share on other sites

Brent,

I wonder if you have found the insight you sought when you started this thread?  As you can see, there is a difference of opinion here.  Need we continue, or do you have enough information to make up your own mind and inform your own practice?

Share this post


Link to post
Share on other sites
Guest Vern Edwards
5 hours ago, Jamaal Valentine said:

FAR instructs us to use sound business judgment. The Contract Pricing Reference Guide, referenced in FAR Subpart 15.4, states not to use unacceptable offers in comparisons and GAO doesn't appear to support comparing pricing to unacceptable offers (Lifecycle Construction Services, LLC, B-406907, September 27, 2012).

@Jamaal Valentine Jamaal, you have misread the Lifecycle Construction Services decision. In that case the government determined that the protester's pricing coefficient was unrealistically low based on a comparison to the median proposed coefficient, which was determined on the basis of proposed coefficients that were too high. Lifecycle was a case of faulty price realism analysis, not faulty reasonableness analysis.

Quote

Rather than relying on the government’s estimate, the contracting specialist calculated the median of all 15 offerors’ coefficients for the Fort Bragg location, asserting that the median price was a better representation of “the cost the government can expect to pay for construction services.” Id. at 3 The median coefficient for Fort Bragg was materially higher than the government estimate, and resulted in Lifecycle’s Fort Bragg coefficient (which was [Deleted], as shown above) being evaluated as [Deleted] lower than the median. Id. Since Lifecycle and one other offeror submitted a coefficient for Fort Bragg that was more than 15 percent below the median, the contracting specialist concluded that those firms’ prices were “excessively low and may indicate a lack of understanding of the requirements.” Id. Four other offerors' coefficients were deemed excessively high. The analyst therefore concluded that only nine firms (not including Lifecycle) had submitted reasonable and realistic prices. Id. at 4.

On February 24, the source selection official prepared a source selection decision document, which reflected a price analysis similar to that discussed above. After comparing Lifecycle’s proposed coefficients to the government estimates, the source selection official concluded that “fair market pricing” would be established by comparison to the median of the 15 coefficients proposed for the combined Fort Bragg/Pope Air Force Base locations; that coefficient was [Deleted]. AR, Tab G, Source Selection Decision, at 3-4. In this regard, the source selection official noted that a “specialty” contract had recently been awarded to a firm that proposed a coefficient of [Deleted], and that the firm had failed to successfully perform that contract. Id. He also stated that he was aware that two successful contractors at Fort Bragg had coefficients of [Deleted] and [Deleted]. Id. Based on those considerations, the source selection official concluded that the coefficients proposed by Lifecycle and a second firm reflected a lack of understanding of the work, which meant that the firms “would not be able to execute task orders at the prices proposed.” Accordingly, Lifecycle’s proposal was not further considered for award. Id.

The source selection official determined that three of those eight (shown above as Offerors B, C, and D) had proposed coefficients that were more than 15 percent higher than the median coefficient, and concluded that they reflected “unreasonable pricing.” Id. at 6. He then selected the five remaining proposals for award. Id. at 6-7.

*     *     *

In reviewing protests challenging price realism evaluations, our focus is on whether the agency acted reasonably and in a manner consistent with the terms of the solicitation. Nova Techs., B-405982.2, May 16, 2012, 2012 CPD ¶ 172 at 9.

Based on our review of the record here, we conclude that the Corps unreasonably rejected Lifecycle’s proposal. We reach this conclusion, first, because the median was materially higher than the government estimate due to the inclusion of proposed prices that the agency, itself, determined were unacceptable, ineligible for award, and/or unreasonably high. That is, while the contracting officer and the source selection official assert that the median represented the “fair market pricing,” they also acknowledge that three of the price coefficients used to establish that benchmark were, themselves, unreasonably high, and several others were proposed by offerors/proposals that were determined to be unacceptable or ineligible for award. Accordingly, in our view, the median could not reasonably be relied upon as a valid benchmark for comparison. Further, even if the agency’s calculation of the median had been rational, the agency comparison to that benchmark did not consider the coefficients proposed for 12 of the 14 locations identified in the RFP. Nothing in the RFP advised offerors that the prices proposed for the locations other than the Fort Bragg/Pope Air Force Base area would not be meaningfully considered.

Footnotes omitted.

Price realism and price reasonableness are very different determinations. I do not interpret Lifecycle to stand for the simple proposition that you cannot determine price reasonableness by comparing a propose price to the prices of unacceptable proposals, and as far as I can see no commentator has interpreted the decision in that way. I know that in a couple of sentences the GAO seems to say that, but you have reading that decision too broadly.

It is true that the CPRG, Vol. 1, says that a CO should not use the prices of unacceptable proposals as a basis for comparison, but that guidance is not regulatory and is much too simplistic to be applied as you demand. It is true that you have to use sound business judgment, but as I have explained, sound judgment requires that you think more deeply.

Share this post


Link to post
Share on other sites

Vern:

I understood the Lifecycle Construction Services decision was a protest about price realism, but I felt the concepts and references to reasonableness were illuminating. I agree with your previous post and don't accept the narrow CPRG guidance as a general proposition. However, when read as a whole, CPRG provides a more complete principle of adjusting prices to restore comparability. CPRG states that one should normally place less reliance on comparisons with other proposed prices when Government requirements permit offerors to propose different technical approaches to contract performance and gives this example:

Quote

[A] ceramic mug and a paper cup may both meet a requirement to hold 8 ounces of coffee, but that does not mean that $1.00 price for a paper cup is reasonable because it is less than a $5 price for a ceramic mug. Even if no other offeror is proposing to provide a paper cup, the key element of your price analysis should be to compare the paper cup offer with prices paid for similar paper cups.

CPRG is simply guiding readers to a reasoned analysis.

Quote

Comparing competitive offers is normally the easiest form of price analysis. It also tends to be the most valid, because you are comparing offers prepared for the same requirement under the same market conditions within the competitive market. However, the weight placed on this type of comparison depends on the circumstances of the acquisition. Place less weight on competitive prices (relative to other price comparisons) when:

Adequate price competition does not exist (regardless of the number of offers) - in which case the weight should be zero.

Having used a performance or functional specification, the apparent successful offeror's proposed approach is less comparable to other proposed approaches than (a) to work performed under prior contracts or (b) commercial contracts.

The deliverable in line for award is less comparable to other offered deliverables than to (a) those acquired under prior contracts or to (b) commercial contracts.

The apparent successful offer is significantly out of line with other offers.

The cost of the acquisition is substantial. The larger the dollar value of the contract, the more importance you should place on sizable differences in dollars between different types of comparisons (even if the differences are modest when expressed as percentages).

Matthew:

CPRG Vol. 1 goes as far as to say "[y]ou cannot make a determination of price reasonableness based on a price comparison with an offer that is technically unacceptable or an offer submitted by a firm that is not responsible." (Hopefully you aren't clairvoyant)

Share this post


Link to post
Share on other sites
Guest Vern Edwards

So, Jamaal, do you agree that a CO, when determining the fairness and reasonableness of the technically acceptable lowest price, can use comparisons with the prices in proposals that were not evaluated for technical acceptability, as long as the CO is open minded and judicious when making that determination and can explain the basis for his or her judgment, perhaps supplementing those comparisons with other price info when appropriate?

Yes or no.

Share this post


Link to post
Share on other sites
15 hours ago, Jamaal Valentine said:

What is your reasonable argument? Does it involve or rely on comparison of proposed prices?

Not one bit - it relies on an understanding of the competitive markets and the concept of fair and reasonable prices.  For one, the approach doesn't use technically unacceptable offers; that's important because you're presuming those offers are unacceptable...I believe, for these purposes, they're presumed "innocent until proven guilty."  After all, that's how the contractors approach the situation.  If they don't offer a solution that is technically acceptable and the lowest price they're going to lose business to someone who does.  If a determination of fair and reasonable pricing is concerned with too high of a price, I think, generally (because there are exceptions to every rule) it is perfectly reasonable and sound business judgment to consider the LPTA offeror of a competition as not too high (and, therefore, fair and reasonable) by virtue of having competed against the market for the contract.  The fact that you have X number of unevaluated proposals simply serves as evidence of the competitiveness of that market for the requirement.

 

As for all this talk about "adequate price competition normally establishing a fair and reasonable price," whether it is misplaced or not, compare the second standard  to the situation at hand:

  • Adequate price competition (15.403-(c)(1)(ii): an expectation that two or more responsible offerors, competing independently, would submit priced offers even though only one offer is received...
  • This situation: numerous offers are received, though only one offer is evaluated IAW the solicitation's procedures because it is the LPTA

If some are willing to hang their hat on "adequate price competition = a fair and reasonable price" why wouldn't they be equally okay doing so in a situation where one receives more than one offer, but only evaluates one?  I think the second situation is far more defensible than the first, regardless of how the FAR defines "adequate price competition" (frankly, it's too narrow...).

Share this post


Link to post
Share on other sites
On 9/17/2018 at 6:47 AM, Vern Edwards said:

For an interesting GAO protest decision involving this method of LPTA, see Environmental Restoration LLC, B-413781, 2017 CPD ¶ 15, Dec. 30, 2016.

This was in my office, so if anyone has any questions on this, please let me know and I am happy to help.

Share this post


Link to post
Share on other sites
Guest Vern Edwards
1 hour ago, Desparado said:

This was in my office, so if anyone has any questions on this, please let me know and I am happy to help.

I hope you know what you may have just done to yourself. 😁

Share this post


Link to post
Share on other sites
20 hours ago, PepeTheFrog said:

(i) If you evaluated the +1 offer that was the second lowest price and technically acceptable

(ii) If you use the "first LPTA discovered" method

(iii) If you compare it with current or recent prices

Assuming you are saying you can have adequate price competition using the "first LPTA discovered" method:

(i) Agree

(ii) Agree

(iii) Agree

Share this post


Link to post
Share on other sites
2 hours ago, Matthew Fleharty said:

Not one bit - it relies on an understanding of the competitive markets and the concept of fair and reasonable prices.  For one, the approach doesn't use technically unacceptable offers; that's important because you're presuming those offers are unacceptable...I believe, for these purposes, they're presumed "innocent until proven guilty."  After all, that's how the contractors approach the situation.  If they don't offer a solution that is technically acceptable and the lowest price they're going to lose business to someone who does.  If a determination of fair and reasonable pricing is concerned with too high of a price, I think, generally (because there are exceptions to every rule) it is perfectly reasonable and sound business judgment to consider the LPTA offeror of a competition as not too high (and, therefore, fair and reasonable) by virtue of having competed against the market for the contract.  The fact that you have X number of unevaluated proposals simply serves as evidence of the competitiveness of that market for the requirement.

Shouldn't you determine whether what you are comparing to the lowest priced offer is comparable? Or do you just assume that it is?

Share this post


Link to post
Share on other sites
47 minutes ago, Don Mansfield said:

Shouldn't you determine whether what you are comparing to the lowest priced offer is comparable? Or do you just assume that it is?

Does one have to perform complete technical evaluations in order to know whether or not other offers (or pieces of information) are comparable?

Share this post


Link to post
Share on other sites

I guess I'm just missing the complexity of the situation.  You have an IGE and a host of other offers received.  The lowest-priced offer is evaluated against the pass/fail technical acceptability criteria.  If it is technically acceptable, what do you really gain by reviewing the other 10 (or more in some cases) offers that come in?  This office used to do a fully tech eval on all the offers and when I took over I asked what value did they gain from this process.  The answer I received was, "None, but legal says we have to do it", so we developed language to support only reviewing until we have a technically acceptable offer and base the F&R determination on things like the other offers, the IGE, previous acquisitions for similar services and we cut down on our turn-around time dramatically.

Now, when we received several low offers that missed minor requirements and were therefore not technically acceptable, we established a competitive range based solely on price (with the number of offers received and the pricing, the cutoff point was evident).  This is when one protested and we defended and won.  I think sometimes we try to over-complicate something that can be simple.  

Share this post


Link to post
Share on other sites
8 minutes ago, Matthew Fleharty said:

Does one have to perform complete technical evaluations in order to know whether or not other offers (or pieces of information) are comparable?

Does it matter if they are comparable?  As long as the lowest price is technically acceptable and they can perform at that price, what do you gain by comparing to the other offers?

Share this post


Link to post
Share on other sites
39 minutes ago, Matthew Fleharty said:

Does one have to perform complete technical evaluations in order to know whether or not other offers (or pieces of information) are comparable?

No.

Share this post


Link to post
Share on other sites
7 hours ago, Matthew Fleharty said:

Not one bit - it relies on an understanding of the competitive markets and the concept of fair and reasonable prices.  For one, the approach doesn't use technically unacceptable offers; that's important because you're presuming those offers are unacceptable...I believe, for these purposes, they're presumed "innocent until proven guilty."  After all, that's how the contractors approach the situation.  If they don't offer a solution that is technically acceptable and the lowest price they're going to lose business to someone who does.  If a determination of fair and reasonable pricing is concerned with too high of a price, I think, generally (because there are exceptions to every rule) it is perfectly reasonable and sound business judgment to consider the LPTA offeror of a competition as not too high (and, therefore, fair and reasonable) by virtue of having competed against the market for the contract.  The fact that you have X number of unevaluated proposals simply serves as evidence of the competitiveness of that market for the requirement.

 

As for all this talk about "adequate price competition normally establishing a fair and reasonable price," whether it is misplaced or not, compare the second standard  to the situation at hand:

  • Adequate price competition (15.403-(c)(1)(ii): an expectation that two or more responsible offerors, competing independently, would submit priced offers even though only one offer is received...
  • This situation: numerous offers are received, though only one offer is evaluated IAW the solicitation's procedures because it is the LPTA

If some are willing to hang their hat on "adequate price competition = a fair and reasonable price" why wouldn't they be equally okay doing so in a situation where one receives more than one offer, but only evaluates one?  I think the second situation is far more defensible than the first, regardless of how the FAR defines "adequate price competition" (frankly, it's too narrow...).

For DoD, the first situation is not applicable per DFARs and PGI implementation of “Better Buying Power “policy. 

Share this post


Link to post
Share on other sites
10 hours ago, Vern Edwards said:

So, Jamaal, do you agree that a CO, when determining the fairness and reasonableness of the technically acceptable lowest price, can use comparisons with the prices in proposals that were not evaluated for technical acceptability, as long as the CO is open minded and judicious when making that determination and can explain the basis for his or her judgment, perhaps supplementing those comparisons with other price info when appropriate?

Yes or no.

Yes, of course. (I believe I said as much in my first post)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×