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faroutgeek

Set-aside - determine fair and reasonable with IGE

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Hello,

I have a small business set-aside under FAR 19. Received approval from SBA and the proposal came in significantly higher than IGCE. Considering that IGCE is significantly lower than proposal, what type of data/justification is needed to explain differential between IGCE and proposal? T&M type contract

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You're in a competitive situation, right?  You must be, as all set-asides are competitive.

But, your set-aside competition did not produce an awardable result?

The contracting officer has at least five choices:

  1. Ignore the IGCE and issue a solicitation amendment and invite updated proposals from those who already proposed.
  2. Ignore the IGCE and accept the best proposal as fair and reasonable based on adequate price competition.
  3. Form a competitive range and open negotiations focused on lowering offeror prices to the IGCE -- you may even reveal the IGCE if you want to.
  4. Based on FAR 19.507, declare the set-aside to be automatically dissolved and issue a new solicitation as unrestricted and invite new proposals including from large businesses.
  5. Cancel everything and give up, saying that we can't afford it.

No data or justification is required for any of these choices.  Just do it.

Is your IGCE just an estimate, or is it masquerading as a funding ceiling for your procurement?

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farout, there are other options in addition to what ji said.  First, do not assume that the IGE is accurate.  Nobody knows what it takes to perform a task than the contractor that will be performing that task.  The government simply does not know the contractor's business like the contractor does. 

Second, have you reviewed the solicitation to ensure that it is clear and accurately reflects the government's needs?  If all offerors submitted proposals that significantly exceeded the IGE, and the IGE is reasonably accurate, it is quite possible that the RFP was not clear in some regard so that offerors interpreted it as asking for more than what the government wanted.

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This is a sole source set-aside...not competitive. What do I need to document difference between IGCE and proposal? Let's say 1) proposal is reasonable and 2) proposal is not reasonable

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If it is sole-source, then it is not a set-aside.

So, now that we know it is sole-source (and not a set-aside), please tell us if it is a sole-source 8(a) award under FAR 19.808-1, a sole-source HUBZone award under FAR 19.1306 (note that 19.1305 is for set-asides, and 19.1306 is for some-source awards, as these are different), a sole-source SDVOSB award under FAR 19.1406 (same parenthetical note re: 19.1405 and 19.1406), a sole-source WOSB or EDWOSB award under FAR 19.1506 (same parenthetical note re: 19.1505 and 19.1506), or some other type of sole-source award.  Sometimes, this makes a difference.

We don’t know your agency, so we don’t know your agency regulations.  From FAR-level regulations, I am not aware of any reason to worry about the IGCE — all you have to do is negotiate a price with the offeror, and determine that the price is fair and reasonable.  While you are negotiating price, you should also negotiate any additional or different clauses driven by the difference in dollar values.

If your government estimate was below a threshold in FAR part 19 (such as the threshold for competitive 8(a)), but your offer or negotiated result is above that threshold, then you will have to talk to your management and maybe the SBA.

If you think the IGCE is bad, then don’t rely on it in your negotiations.  If you think the IGCE is solid, then you may rely on it in your negotiations.  You may (if you want to) share all or part of the IGCE with the offeror, but you should not do thus unless you are a well-seasoned contracting officer and negotiator.

If your agency regulations require you to address a difference between the IGCE and the awarded amount, then you have to follow your agency regulations.

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Aren’t  you required to negotiate sole source contracts?

Can you determine the reason for the difference between the govt estimate and the sole source proposal for a time and material contract?

Do you know the basis for markups on straight labor costs?

Do you think that the straight labor rates are reasonable?

Do you know what the proposed overhead and profit rates are?  If this is contract is for a significant amount, can you review the elements comprising the basis for the OH rated?

Do you have any market analysis of typical labor costs or loaded, T&M rates for this type of work?

Govt estimates can be useful or useless for comparisons; depends upon how it was developed.

As the others have said, this is a negotiated, sole source, acquisition, not a “set-aside”. I didn’t know that distinction about the term “set-aside” being competitive for many years, either 😁.

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Don’t know the size of the acquisition but you would likely at least have to perform a price analysis of the proposal

Based upon the way you asked the initial question, it doesn’t look like you have enough information to do that.

Do you know why there is a difference between the IGE and the proposal or know the basis of the estimate or the IGE or what this type of work is worth on the market? 

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17 hours ago, faroutgeek said:

...just document why there is a difference? 

The FAR doesn't require you to document the difference. Are you going to rely on the IGCE as the basis for your price reasonableness determination?  There are many ways to determine price reasonableness; comparison to the government cost estimate is just one of the ways.

Do you want to negotiate to arrive at a fair and reasonable price?  Or do you want to award without negotiations?

Ditto to Joel's inputs.

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“15.000   Scope of part.This part prescribes policies and procedures governing competitive and noncompetitive negotiated acquisitions. A contract awarded using other than sealed bidding procedures is a negotiated contract (see 14.101).“

“15.400   Scope of subpart.

This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated prime contracts (including subcontracts) and contract modifications, including modifications to contracts awarded by sealed bidding.“

See 15.406 as well as PGI 15.406 if you are with DoD. In addition to proposal analysis, the government prepares pre-negotiations objectives for a price negotiation and documents the negotiations.

I used to teach how to negotiate contracts and contract modifications, applicable to DoD.  I don’t have the time or inclination to go Into the level of detail to completely answer the original question, plus I don’t know the magnitude of the acquisition. I’m guessing that if there is a government estimate, then it probably larger than a simplified acquisition. 

EDIT: Pre-negotiation objectives establish the negotiators price objectives (and cost objectives when cost analysis is performed). You must have something to compare with elements of a prospective contractor’s price proposal. A government estimate is one tool but not necessarily the only basis for comparison with the details of the proposal.

 

 

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I would also echo others’s advice that you should comply with any applicable agency policy and procedures for negotiating contract prices, and especially with regard to use and comparisons with independent government estimates.

It is very likely that whoever prepared the government estimate is a stakeholder, who contributed a product  in the overall process. The IGE represents their opinion of what the action could cost or is worth.

It wouldn’t be very professional to simply dismiss the effort and product that was produced as someone’s job or assignment for the acquisition, without explaining why it wasn’t used, considered, applicable, etc.

The contracting officer (KO) and the negotiator (if not the KO) must be able to justify and document that the negotiated settlement is fair and reasonable (15.402).

If the pre-negotiation objectives (PNO) and/or settlement varies significantly from the government estimate, the reasons for such should be documented in the PNO or the price negotiation memorandum (PNM).

Ive had some good and bad estimates, useful, partially useful and useless. I explained, in my PNO how I developed each objective, with reference to the applicable tools, such as IGE, technical analysis, cost and/or price analysis, weighted Profit guidelines, market pricing, etc.

If negotiations result in reasons to revise my initial objectives or the government estimate I’d document that in my PNM.

This appears to be much simpler effort . However, you should document how you developed your pre-negotiation objectives and if and how you considered the IGE - even if your PNO is to accept the proposal.

Whether Simple or complex, your PNO generally serves as your plan, roadmap, notes and justification of approach for negotiations. Your PNM documents how the parties negotiated a fair and reasonable contract price.

Edited by joel hoffman

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To the Webmaster: Bob, I suggest that this thread should be moved to “Contract Award Process” or “Contract Pricing” area - not under “Contracting Workforce” THANKS!

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17 hours ago, ji20874 said:

Ditto to Joel's inputs.

No intention to discount the thoughts offered by @ji20874 and @Joel Hoffman just some added reference to add as an assist that are in my view more spot on with regard to a set aside for 8(a).

Consider FAR 19.202-6 and a full read of FAR 19.8 especially at 19.806 and 19.807 regarding efforts on determining fair market price that leads to a determination of fair and reasonable pricing.

And take a look here  as well.....http://www.wifcon.com/pd19_202.htm

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Good references. See also 19.808-1.  

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2 hours ago, C Culham said:

And take a look here  as well.....http://www.wifcon.com/pd19_202.htm

With respect to Camden Shipping, see this excerpt:

“We have recognized that, in view of the congressional policy favoring small businesses, contracts may be awarded under small business set-aside procedures to small business firms at premium prices, so long as those prices are not unreasonable. Hardcore DuPont Composites, L.L.C., B-278371, Jan. 20, 1998, 98-1 CPD ¶ 28 at 3. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case, Olsen Envtl. Servs., Inc., B-241475, Feb. 6, 1991, 91-1 CPD ¶ 126 at 2-3, and we have found cancellations proper where the protester’s price exceeded the government estimate by as little as 7.2 percent. See Building Maint. Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD ¶ 233 at 4.“

I think that Carl’s post and mine are compatible.

There is a need to evaluate a proposal, independently compare it with other available cost and/or pricing sources and negotiate a contract price.

EDIT:  I would likely consider the fact that a sole source proposal is not submitted under competitive business circumstances- However, I would also take note if the proposal looks unrealistically low, depending upon what reliable, independent pricing information available. Either way, I would want to ensure that there is a mutual understanding of the scope of the effort or product to be provided.

Horror of horrors - that generally entails some oral/and or written communications between the parties for all but simple acquisitions. 

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On ‎1‎/‎5‎/‎2020 at 1:24 PM, faroutgeek said:

This is a sole source set-aside...not competitive. What do I need to document difference between IGCE and proposal? Let's say 1) proposal is reasonable and 2) proposal is not reasonable

As a sole source are you obtaining certified cost or pricing data?  If not and the proposal is above the SAT, have you considered asking for data other than certified cost or pricing data to justify the reasonableness of the amount proposed?

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