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Price Spread on Quotes and the Validity of Quotes


flitzer

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My office feels that when quotes have a significant spread that those quotes are not valid and cannot be used as a means of price reasonableness; additionally, my office considers the acquisition as a sole source procurement.  For example, consider a contract was solicited and the quotes that came in were:

$300,000.00

$425,000.00

$1,200,000.00 

If I were to attempt to justify the award on competition per FAR 13.106-3(a)(1) my CO would reject this proposition, and ask me to use another method.  I understand with that with such a large spread, I would have to compare the lowest price with past prices paid or ask the contractor for sales data, but I can't find a reason to justify considering this as a sole source procurement because the significant price spread.  Consider all of the quotes responsive in my example.   And consider this as a commercial item and LPTA is being used as the evaluation method. 

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Guest PepeTheFrog

You should adopt a medium-term goal of leaving behind your office to find another job. They sound like dunces. 

Sometimes a significant spread of price quotes can indicate:

(a) quoters do not understand the work

(b) government did a poor job of describing the work

(c) a little of column (a), a little of column (b)

If the quotes are technically acceptable, this is commercial, LPTA, and under simplified acquisitions, you are dealing with pants-on-head dunces. 

PepeTheFrog assumes your office did not give you any rationale or reason based on statute, regulation, policy, or court decision. They just told you how they "feel" and what others have said or done in the past. These are not people you want to shape your career, education, and training.

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2 hours ago, flitzer said:

My office feels that when quotes have a significant spread that those quotes are not valid and cannot be used as a means of price reasonableness

Yeah, that is a new one on me too.  If you learn anything about why this notion is in place (e.g. GAO decision, regulation, law) please share.  My hunch is that it is something an auditor invented, and is based on nothing but the feelz.  I'd be happy to be wrong, though.

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Pepe, I have had large spreads in the past for solicitations I have posted, but for this one, I though I really nailed it with regard to the PWS.  I had site visits and the contractors that visited asked questions, which I answered.  I guess I'll try harder next time. 

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Guest PepeTheFrog

flitzer, play dumb and ask your colleagues about this "policy."

Try to extract a law, written policy, regulation, court decision, GAO recommendation, etc. Say you want to share the reasoning with a colleague in a different agency who has the same problem, and is asking for the underlying, written, official reasoning. Or, say you're compiling it in your written notes of contracting wisdom. Use your judgment, but often people like this, who make stuff up, get very defense when you question anything about it. So, be careful. 

If your office colleagues cannot come up with anything, there is your answer. It's just how they like to do it. 

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5 hours ago, flitzer said:

My office feels that when quotes have a significant spread that those quotes are not valid and cannot be used as a means of price reasonableness; additionally, my office considers the acquisition as a sole source procurement.  For example, consider a contract was solicited and the quotes that came in were:

$300,000.00

$425,000.00

$1,200,000.00 

If I were to attempt to justify the award on competition per FAR 13.106-3(a)(1) my CO would reject this proposition, and ask me to use another method.  I understand with that with such a large spread, I would have to compare the lowest price with past prices paid or ask the contractor for sales data, but I can't find a reason to justify considering this as a sole source procurement because the significant price spread.  Consider all of the quotes responsive in my example.   And consider this as a commercial item and LPTA is being used as the evaluation method. 

While I don't think the acquisition would become sole source, I would be suspicious if I received a spread like that. Volume I of the Contract Pricing Reference Guides cautions:

 

Quote

 

6.1.1 Other Proposed Prices

[...]

You should normally place less reliance on comparisons with other proposed prices when:

  • [...]
  • The apparent successful offeror's price is significantly different (higher or lower) than the next rated offeror. This could indicate that there is a mistake in bid, a misunderstanding of the contract requirements, etc. In this situation, you should take steps to verify the offeror's bid and/or use another technique to analyze the price.

 

I would look for other data points to determine the price fair and reasonable.

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If it’s a Commercial “item”, aren’t there other ways to find out what a similar item is worth, sells for or has cost?  Can you compare the items being quoted? 

While you may not be able to determine the reasonableness of price due to lack of adequate price competition, this is certainly not an instance of sole-source procurement.  

If an item or items is determined to be classified as “commercial”, the government shouldn’t be clueless about what things could reasonably cost. 

 

 

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19 hours ago, PepeTheFrog said:

flitzer, play dumb and ask your colleagues about this "policy."

Pepe and flitzer, I find it useful to blink a lot with an blank, innocent expression on my face.  Actual example:

"I couldn't find the prohibition in our purchase card policy against buying that particular item, but I'm probably looking in the wrong place.  Can you point me in the right direction?" (blinks innocently)

If you try to hear church choir music in your head while doing this it really helps you carry It off.  Since I hit my 40s I feel I'm really coming into my own as a performer.

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I’m imagining church choir music as I write this...

If the low-price quote is the best-value quote, you can certainly (and easily) consider its price to be reasonable, based on the information in the original posting.  You have multiple quoters with independent pricing for the same requirement.  

Price reasonableness is concerned with whether the price is too high.  Assuming you have no other reason to think that $300K is too high, it is easy to find that $300K is the lowest price received based on a simple comparative analysis.  From the same data, it would be nigh impossible to find the $1.2 Million quote as reasonable based on competition. 

When there is a wide disparity in prices received, you could protect the Government’s interest by sending a letter to the apparent winner (the lowest-price quoter) saying that there is a wide disparity in prices, that there appears to be the possibility of a mistake, and that the quoter is invited to validate and confirm its price.  If the quoter confirms its price, you may proceed with a responsibility determination and (if favorable) award.  If the quoter claims a mistake, you either open discussions with some or all quoters, or allow the quoter to withdraw its quote.

But in no way are you in a sole-source situation.  

If you think the $300K price is too low, well, you are not talking price reasonableness anymore — you are talking price realism.  That is an entirely different discussion.  

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Guest PepeTheFrog
1 hour ago, apsofacto said:

"I couldn't find the prohibition in our purchase card policy against buying that particular item, but I'm probably looking in the wrong place.  Can you point me in the right direction?" (blinks innocently)

If you try to hear church choir music in your head while doing this it really helps you carry It off.

PepeTheFrog loves it

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Thanks for the feedback everyone.  I've only had one situation where a quote came in very low.  I asked the contractor to provide me with similar sales data to show me if had done the work for other people at his price.  He did, and I awarded the contract.. 

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2 hours ago, apsofacto said:

Pepe and flitzer, I find it useful to blink a lot with an blank, innocent expression on my face.  Actual example:

"I couldn't find the prohibition in our purchase card policy against buying that particular item, but I'm probably looking in the wrong place.  Can you point me in the right direction?" (blinks innocently)

If you try to hear church choir music in your head while doing this it really helps you carry It off.  Since I hit my 40s I feel I'm really coming into my own as a performer.

That's brilliant idea, but I would turn the last sentence into a no oriented question, like, "Is it crazy idea if you can point out where I can find this regulation?" The "point out" is a good unspecific colloquialism (it means nothing really), and who is going to call you crazy?

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