Noting that Wind River submitted significantly higher prices (than Cherokee’s) on 4 CLINs and significantly lower prices on 18, Cherokee asserts that Wind River’s proposed CLIN pricing is unbalanced, Protest at 3-8, and poses “a risk to Tinker Air Force Base which could cost the government additional funds during the life of this contract.” Protester’s Comments at 2. Cherokee concludes that Wind River’s proposal should have been rejected.

Unbalanced pricing exists where, despite a proposal’s low overall price, individual line item prices are either understated or overstated. Federal Acquisition Regulation (FAR) sect. 15.404-1(g); Semont Travel, Inc., B-291179, Nov. 20, 2002, 2002 CPD para. 200 at 3. While unbalanced pricing may increase risk to the government, agencies are not required to reject an offer solely because it is unbalanced. FAR sect. 15.404-1(g)(1). Rather, where an unbalanced offer is received, the contracting officer is required to consider the risks to the government associated with the unbalanced pricing in making the award decision, including the risk that the unbalancing will result in unreasonably high prices for contract performance. FAR sect. 15.404-1(g)(2). In the context of an ID/IQ contract, as here, a key consideration is the accuracy of the government’s quantity estimates; if the estimates are reasonably accurate, then evidence of mathematical unbalancing generally does not present a risk that the government will pay unreasonably high prices for contract performance. Accumark, Inc., B-310814, Feb. 13, 2008, 2008 CPD para. 68, at 4.

Cherokee does not challenge the accuracy of the agency’s estimated quantities. Moreover, we find nothing in the record to suggest that the agency was concerned about the accuracy of its estimated quantities. Where a protester does not challenge the estimated quantities used in the calculation of total item prices, there is no basis in the record for us to find a risk that the agency will pay unreasonably high prices for the items; it follows that, in such cases, there is no basis for us to object to mathematically unbalanced pricing. See Accumark, Inc., supra, at 4.

In any event, even if the estimates were in question, as noted above, the agency conducted a risk assessment and determined that the risk associated with Wind River’s pricing strategy was acceptable. In this regard, the CO analyzed the risk in two ways: by cost comparisons with recent delivery orders and by total maximum cost. AR, Tab 1, Memorandum of Law, at 8. Specifically, the CO compared each CLIN price with the corresponding IGE price and then conducted an analysis of five recent delivery orders under the current contract, which showed that Wind River’s prices would result in a lower cost than the IGE on four of the five. AR, Tab 12, Final Price Competition Memorandum, at 15 (not released to the protester). The CO also assessed the maximum possible liability to the Air Force by comparing the maximum cost under each IGE price with the maximum cost under each of Wind River’s CLIN prices. AR, Tab 1, Memorandum of Law, at 8. Other than asserting generally that Wind River’s pricing may pose a risk to the agency, Cherokee does not challenge this risk assessment, and we find no basis for questioning it. Thus, to the extent that Wind River’s pricing may be viewed as unbalanced, the agency has satisfied the FAR requirement by reasonably determining that the risks of any unbalancing were not significant enough to render its offer unacceptable. (Cherokee Painting LLC, B-311020.3, January 14, 2009) (pdf)

PEMCO's prices were not unbalanced, since any overstatement of its CLIN 0001 price was not significant. PEMCO's CLIN 0001 price was only 23 percent higher than the government's estimate; this is not an amount significant enough to require that the offer be considered unbalanced. Cf. Baxter Healthcare Corp.; Abbott Labs.--Recon. , B253455.3, B253455.4, May 10, 1994, 941 CPD 301 at 4, n.2 (base year price 44 percent above option year prices did not constitute impermissible frontloading). In any case, the agency fully discussed the CLIN 0001 pricing with PEMCO, and ultimately determined that it was reasonable; this satisfied the agency's obligation to ensure that the pricing did not pose an unacceptable risk. See PharmChem, Inc. , B-291725.3 et al., July 22, 2003, 2003 CPD 148 at 8. (Diversified Capital, Inc., B-293105.4; B-293105.8, November 12, 2004) (pdf)

There is no basis for concluding that STL’s pricing is unbalanced. PharmChem does not identify any specific prices that it believes are significantly overstated and the record does not indicate that any of STL’s prices are overstated. In this latter regard, for example, in the base year, STL’s line item prices exceed the government estimate under only 4 of 13 line items. Further, while STL’s proposal of $0.00 for [deleted] labor categories could be considered “understated,” such labor rate proposals alone do not establish that a bid is unbalanced. See SMC Info. Sys., B-224466, Oct. 31, 1986, 86-2 CPD ¶ 505 at 5. In any case, even if STL’s labor rate pricing evidenced unbalancing, it is clear that the agency considered the risk involved; it specifically inquired about STL’s $0.00 labor rate pricing, and had no concern that these rates would result in a higher contract price. Source Selection Decision at 6-7.  (PharmChem, Inc., B-291725.3; B-291725.4; B-291725.5, July 22, 2003)  (pdf)

While the agency here analyzed the unbalancing in terms of an "advance payment," that term does not appear in the discussion of unbalanced pricing in the revised Part 15 of the FAR, which applies to solicitations issued after January 1, 1998, such as the subject IFB. We believe, however, that the agency's analysis remains valid when couched in terms of the risk that IBI's pricing poses to the government.  (Industrial Builders, Inc., B-283749, December 29, 1999)

The Navy was satisfied, based on Phillips's response and Phillips's extensive experience performing housing maintenance contracts, that the rationale behind Phillips's pricing was sound, and that Phillips was aware of the risks involved in that strategy. The Navy also concluded from Phillips's explanation that its pricing was fair and reasonable. ARLS at 7. While Red River disagrees with the Navy's conclusions, in our view, the Navy could reasonably conclude that Phillips's pricing represented a legitimate business judgement that did not pose an unacceptable risk to the government, and that it would not pay an unreasonably high price for performance. Accordingly, the Navy was not required to reject Phillips's proposal.  (Red River Service Corporation, B-282634; B-282634.2, July 15, 1999)

The first query in this review is to determine if the bid was mathematically unbalanced; i.e., a bid based upon prices that are significantly less than cost for some work and prices that are significantly overstated in relation to cost for other work. Anderson Columbia Envtl., 43 Fed. Cl.at 700. This does not close the matter, however, because an agency may award a contract based upon a bid that is mathematically unbalanced if it does not lead to unacceptable risk to the government. Anderson Consulting v. United States, 959 F.2d 929, 933 (Fed. Cir. 1992); Gracon Corp. v. United States, 6 Cl. Ct. 497, 498 (1984).

The Federal Circuit has held that the determination of whether a bid is materially unbalanced is “something that is best known by the agency, for it is dependant on projected ordering patterns, and we therefore give broad discretion to contracting officers in deciding whether material imbalance is present or not in a proposal.” SMS Data Prod. Group, Inc. v. United States, 900 F.2d 1553, 1557 (Fed. Cir. 1990) (quoting SMS Data, 89-1 BCA ¶ 21,567, at 108,615).  (Southgulf, Inc. v. U.S., No. 00-352C, June 20, 2001)

J&D next argues that Ashe's bid required advance payments on indefinite quantity line items as a condition of acceptance. That is, that Ashe would receive advance payments for indefinite quantity items before such items were performed. Bids that truly require advance payments are to be rejected. 48 C.F.R. 32.405(b); Riverport Indus., Inc., 64 Comp. Gen. 441 (1985), 85-1 CPD ¶ 364, aff'd B-18656.2 (1985), 85-2 CPD ¶ 108; Barnard-Slurry Walls, 97-1 CPD ¶ 23 (Low bid properly rejected as materially unbalanced where lump sum price for preparatory work line item was many multiples higher than reasonable value of work, such that bid was grossly front-loaded, and unit price for work was significantly less than government estimate and other bid prices).

J&D reasons that Ashe structured its bid so it would receive advance payments. The Court does not find J&D's logic persuasive given the structure of Ashe's bid. Ashe will not be prepaid for any non-FFP work because all of the FFP costs are properly associated with the fixed quantities. BFPE International, B-248783, 92-2 CPD ¶ 206 (1992). Indeed, one of the reasons the Navy preferred Ashe's bid was a benefit [it provided], which "justifies the fixed price." AR 1466. The Navy accepted Ashe's pricing rationale. J&D has not shown the Navy's determination in this regard was inappropriate.  (J&D Maintenance and Services, v. U.S. and S. D. Ashe Landscaping and Services, Inc., No. 99-484C, December 28, 1999)