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FAR 14.404-2 (g):  Materially unbalanced bid

Comptroller General - Key Excerpts

The agency received sealed bids from ten firms, including JCMCS and M&F. Abstract of Offers. M&F had the lowest bid price of $20,514,321.50, significantly lower than JCMCS’s bid, which was the second lowest ($36,374,996). Id. The contracting officer determined that M&F’s bid was responsive to the IFB and award was made to M&F. Contracting Officer’s Statement of Facts at 3. This protest followed.

(sections deleted)

JCMCS next argues that M&F’s bid is so low that the bid must be unbalanced. This argument, by itself, fails to state a basis for protest. Unbalanced pricing exists where the prices of one or more items are significantly overstated, despite an acceptable total evaluated price (typically achieved through underpricing one or more of the other line items). ABSG Consulting, Inc., B-404863.7, June 26, 2013, 2013 CPD ¶ 185 at 6; General Dynamics--Ordnance & Tactical Sys., B‑401658, B‑401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 5. Low prices, by themselves, are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. Id.

Despite failing initially to state a valid basis for arguing that the bid is unbalanced, in an attachment to its comments on the agency report, JCMCS identifies one line item (out of several hundred total line items) which it believes M&F overbid‑‑contract line item 0036AA, for surveying, engineering, and permitting. JCMCS Comments, Tab 6, Response to M&F’s Unit Price Schedule at 6. JCMCS bid the item at $1,000. The protester asserts that M&F’s unit price of $10,000, or $60,000 total at the solicitation’s estimated quantity of 6, was “way high.” Id.; compare JCMCS Proposal at 62 with M&F’s Proposal at 62.

We disagree that this information establishes that the bid is unbalanced. The prior contract for the agency’s concrete requirement included a unit price of $11,750 for this item, while the independent government cost estimate (IGCE) was $23,397.17, both substantially more than M&F’s unit price. Agency Report, Tab 10, M&F Bid Comparison at 5. Furthermore, while the protester relies on the typical cost of a survey crew to arrive at its estimate of a reasonable bid price, the item is actually for surveying, engineering, and permitting, and thus encompasses more work, which could account for the discrepancy between the protester’s calculations and the prior contract price and the government estimate for the work. In any case, the value of this one line item is de minimis, and JCMCS has made no showing that, in view of M&F’s overall $15,860,675 price advantage, there would be any risk to the government associated with M&F’s allegedly unbalanced bid, including the allegedly inflated bid of $10,000 for each of six estimated projects. See Serco, Inc., B‑406683, B-406683.2, Aug. 3, 2012, 2012 CPD ¶ 216 at 10 (noting that, where an unbalanced offer is received, agencies are not required to reject it, but should consider the risk to the government of unreasonably high prices for contract performance).  (JCMCS, B-409407: Apr 8, 2014)  (pdf)


The agency also concluded that 33 line items in W.B.'s bid were 50 percent over the revised IGE, 59 items were 30 percent over the revised IGE, and 54 items were more than 50 percent under the revised IGE. AR, Tab 3B Price Comparison, at 1-28. The contracting officer determined that this analysis provided sufficient evidence to indicate the presence of unbalanced pricing in W.B.'s bid and that the bid should be rejected as nonresponsive. AR, Tab 15, Award Memorandum, at 2. W.B. argues that the rejection of its bid on this basis did not comply with FAR § 15.404-1(g).

The IFB included the clause at FAR § 52.214-19(d), which provides in pertinent part:

The Government may reject a bid as nonresponsive if the prices bid are materially unbalanced between line items or subline items. A bid is materially unbalanced when it is based on prices significantly less than cost for some work and prices which are significantly overstated in relation to cost for other work, and if there is a reasonable doubt that the bid will result in the lowest overall cost to the Government even though it may be the low evaluated bid, or if it is so unbalanced as to be tantamount to allowing an advance payment.

FAR § 14.404-2(g) provides that "any bid may be rejected if the prices for any line items or subline items are materially unbalanced (see 15.404-1(g))." FAR § 14.404-2(g). FAR § 15.404-1(g)(1) provides that unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated, as indicated by the application of cost or price analysis techniques. While unbalanced pricing may increase risk to the government, agencies are not required to reject an offer solely because it is unbalanced. L. W. Matteson, Inc., B-290224, May 28, 2002, 2002 CPD ¶ 89 at 3. Rather, where the contracting officer receives an unbalanced bid or offer, the contracting officer is required to consider the risks to the government associated with the unbalanced pricing in making the award decision, and whether a contract will result in unreasonably high prices for contract performance. FAR § 15.404-1(g)(2). An offer properly may be rejected if the contracting officer determines that the lack of balance in the bid or offer poses an unacceptable risk to the government. FAR § 15.404-1(g)(3); L. W. Matteson, Inc., supra at 3. Our Office will review for reasonableness both an agency's determination as to whether an offeror's prices are unbalanced, and an agency's determination as to whether an offeror's unbalanced prices pose an unacceptable risk to the government. Semont Travel, Inc., B-291179, Nov. 20, 2002, 2002 CPD ¶ 200 at 3; L. W. Matteson, Inc., supra, at 4; Enco Dredging, B-284107, Feb. 22, 2000, 2000 CPD ¶ 44 at 6.

The record shows that the contracting officer's determination that W.B.'s bid was unbalanced was reasonable, given the numerous line items where W.B.'s prices were significantly higher or lower than the IGE. However, a bid or offer may not be rejected merely because it is unbalanced. See Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 7-8. Instead, FAR § 15.404-1(g)(2), (3) requires that the contracting officer consider the risks associated with the unbalanced pricing and only reject an unbalanced bid or offer where it is determined that the lack of balance posed an unacceptable risk. Id.; see Burney & Burney Constr. Co., Inc., B-292458.2, Mar. 19, 2004, 2004 CPD ¶ 49 at 2-3 (rejecting unbalanced quotation based upon risk analysis); Semont Travel, Inc., supra at 3-5 (accepting unbalanced bid based upon risk analysis); L. W. Matteson, Inc., supra at 4-5 (rejecting unbalanced bid based upon risk analysis).

Here, there is no contemporaneous documentation indicating that the contracting officer determined that W.B.'s bid was materially unbalanced in accordance with FAR § 52.214-19(d),[4] or that this lack of balance posed an unacceptable risk in accordance with FAR § 15.404-1(g). The only further explanation of the contracting officer's determination here is provided in an affidavit provided in response to this protest, where the contracting officer simply stated that "[t]he number of such items and the reasonable potential for greater cost of ordering significantly higher cost items caused me to reasonably doubt that the Protester's bid would result in the lowest overall cost to the Government, even though it may have been the lower evaluated bid." AR, Tab 13, Contracting Officer Affidavit, at 2. Thus, the record is devoid of any evidence to show that the contracting officer conducted any type of analysis of the unbalanced line items to consider the risks to the government associated with the unbalanced pricing in making the award decision.

Accordingly, we find unreasonable the agency's rejection of W.B.'s bid as materially unbalanced because the contracting officer failed to perform the risk analysis required by FAR § 15.404-1(g).

We sustain the protest. 
(W.B. Construction and Sons, Inc., B-405818; B-405818.2, January 4, 2012)  (pdf)


The contracting officer here explains that, while the agency prepared the estimates for each line item based on historical data and made a good faith effort to make them accurate, the work under the IFB is subject to many variables, so the work actually ordered under any line item could deviate substantially from the estimates. In this regard, the agency explains, painting is not directly funded but, rather, is funded under the maintenance budget, and is given low priority because many other maintenance projects, such as mechanical repairs, cannot be delayed. Thus, if a large quantity of priority work arises, less painting than estimated may be ordered, while, if less priority work is required, more painting may be ordered. Due to the uncertainty resulting from these variables, the contracting officer was concerned that Burney’s bid, with its overstated prices for some line items, could result in other than the lowest total cost to the government if the actual quantities for those items exceeded the estimates. In order to verify her position, the contracting officer calculated the effect if the ordered quantities under the current contract ultimately were the same as the quantities actually ordered under the fiscal year 2003 contract. She determined that, for several line items, including those overpriced in Burney’s bid, the amount of work ordered by the Army was significantly higher than the amount of work estimated, and that the total cost to the government would be greater than the next low bid if the same quantities were ordered at Burney’s bid prices for those items. It was on this basis that the contracting officer concluded that Burney’s bid should be rejected. The agency’s actions were unobjectionable. Viewing just two of the overpriced items in Burney’s bid against the actual fiscal year 2003 requirements, Burney’s total bid increases such that it is no longer low. Specifically, for line item No. 6 (coverage of wood trim), Burney’s bid was $7.25, while the government estimate was $1.91 and the average price of the other bids was $4.19; multiplying Burney’s item price by the solicitation estimate of 20,000 square yards yielded an extended price of $145,000. In fiscal year 2003, the agency actually ordered 39,815 square yards; if the agency ultimately ordered the same quantity under the current contract, at Burney’s $7.25 bid price the government’s cost for the line item would increase by $143,658.75, to $288,658.75. For line item No. 10 (coverage of metal surfaces), Burney bid $7.25, compared to the government estimate of $1.59 and the average bid price of $4.70. The IFB estimate was 3,500 square yards, which yielded an extended bid price of $25,375 for Burney. However, in fiscal year 2003 the agency ordered 70,307 square yards of work under line item No. 10; if the same quantity were ordered from Burney under the current contract, the cost to the government would increase by $484,350.75, to $509,725.75. Thus, based on the fiscal year 2003 actual requirements for just these two items, Burney’s bid would increase by $628,009.50, far in excess of Burney’s evaluated price advantage--$59,778.50--over the second low bidder. The risk that this would occur provided a reasonable basis for the agency to reject Burney’s bid. (Burney & Burney Construction Company, Inc., B-292458.2, March 19, 2004) (pdf)
 


By including its disposal site preparation costs in its CLIN 0003 price rather than under CLIN 0001, LWM's pricing approach created the potential that LWM could recover a disproportionate share of the overall contract price early in the performance period.  Although LWM has expressed its intention to incur the disposal site preparation costs at the beginning of the project (asserting that development of the disposal site is a necessary prerequisite to beginning dredging), neither the IFB nor its bid obligated it to do so.  As a result, the agency concluded, in the event of early termination of LWM's contract, the agency would have expended a substantial sum for CLIN 0003 work that had not been performed.  Indus. Builders, Inc., supra, at 7-8.  We think the agency reasonably found that this was an unacceptable risk to the government; this risk warranted rejecting LWM's bid as unbalanced.  (L. W. Matteson, Inc., B-290224, May 28, 2002)


In this regard, we have found prices to be impermissibly front-loaded only in limited situations where the front-loaded item prices were many multiples higher than the value of the work to be performed or the remaining contract prices. See ACC Constr. Co., Inc., B-250688, Feb. 16, 1993, 93-1 CPD para. 142 (line item price of $4.7 million versus government estimate of $1.8 million); Islip Transformer & Metal Co., Inc. B-225257, Mar. 23, 1987, 87-1 CPD para. 327 (first article unit prices were $15,000 and the production unit prices were $408.90); Edgewater Mach. & Fabricators, Inc., B-219828, Dec. 5, 1985, 85-2 CPD para. 630 (first article prices were $125,000 and the production unit prices were $301). In each of these cases, the grossly overpriced items would have resulted in substantial funds--which significantly exceeded the value received by the government--being paid to the contractor early in contract performance. Here, Campbell's bid cannot result in such an advance payment.  (Beldon Roofing Company, B-283970, January 28, 2000)


Under invitation for bids (IFB) for construction of water control structure, agency reasonably rejected bid as unbalanced where bidder failed to allocate the cost of a cofferdam (a dewatering measure) among related work items requiring dewatering measures, as provided in the IFB, and instead included the cost of a cofferdam in its lump-sum line item price for a relatively minor work requirement for clearing, grubbing, and snagging of debris on the site, rendering the bidder's price for that line item many multiples higher than the government's estimate for the item and the other bids received; rejection of the bid was proper based upon agency's reasonable determination that the unbalancing posed an unacceptable risk that the government would make a substantial payment to the bidder upon completion of the required clearing, grubbing, and snagging work, without any assurance that the bidder would have constructed the cofferdam which was included in its price for that line item.  (Industrial Builders, Inc., B-283749, December 29, 1999)

Comptroller General - Listing of Decisions

For the Government For the Protester
JCMCS, B-409407: Apr 8, 2014  (pdf) W.B. Construction and Sons, Inc., B-405818; B-405818.2, January 4, 2012  (pdf)
Burney & Burney Construction Company, Inc., B-292458.2, March 19, 2004 (pdf)  
Ken Leahy Construction, Inc., B-290186, June 10, 2002 (pdf)  
L. W. Matteson, Inc., B-290224, May 28, 2002  
South Atlantic Construction Company, LLC, B-286592.2, April 13, 2001  
Reece Contracting, Inc., B- 285666 Date: August 21, 2000  
Enco Dredging, B-284107, February 22, 2000  
Beldon Roofing Company, B-283970, January 28, 2000  
Industrial Builders, Inc., B-283749, December 29, 1999  

U. S. Court of Federal Claims - Key Excerpts

A materially unbalanced bid is one "based on prices significantly less than cost for some work and prices which are significantly overstated in relation to cost for other work, and . . . there is a reasonable doubt that the bid will result in the lowest overall cost." Id. In requirements contract solicitations, a mathematically unbalanced bid contains high prices for some line items and low prices for others. However, the unbalancing is not material unless the solicitation's estimates are inaccurate, "since the unbalanced bid will only become less advantageous than it appears if the Government ultimately requires a greater quantity of the overpriced items and/or a lesser quantity of the underpriced items." Duramed Homecare, B-245766, Jan. 30, 1992, 92-1 CPD ¶ 193, 196.  (Anderson Columbia Environmental, Inc. v. U.S., No. 98-759C, April 15, 1999)
U. S. Court of Federal Claims - Listing of Decisions
For the Government For the Protester
Anderson Columbia Environmental, Inc. v. U.S., No. 98-759C, April 15, 1999  
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