Price Realism Evaluation

Next, AbacusSecure protests that the agency failed to perform an appropriate price realism analysis as part of its source selection process. Among other things, AbacusSecure asserts that the agency was required to assess the realism of the awardee’s labor rates, arguing that they were “too low to recruit the incumbent workforce.” Supp. Protest, Sept. 1, 2017, at 24.

The agency responds that its price evaluation was consistent with the terms of the solicitation. Specifically, the agency points out that the solicitation expressly put offerors on notice that price would be evaluated without evaluating separate cost elements, see FAR § 15.404-1(b), and further, that the solicitation did not require submission of labor rates for the contract line item numbers (CLINs) that constituted over 90 percent of both offerors’ total evaluated prices. RFP at 1,912-33; Memorandum of Law, Oct. 16, 2017, at 17. The agency further states that it considered the offerors’ total proposed prices as compared to one another, found that there was an 8.6 percent price difference between the two offerors’ prices, and concluded on the basis of this comparison that AFDS’s price was not unrealistically low. AR, Tab 44, Price Analysis Memorandum, at 18,489‑91.

In general, there is no requirement that a price realism analysis be performed when award of a fixed-price contract is contemplated; this is because a fixed-price contract places the risk and responsibility for contract costs and ensuing profit or loss on the contractor. Star Contract Servs., LLC, B-409424, Apr. 23, 2014, 2014 CPD ¶ 133; Phoebe Putney Mem’l Hosp., B‑311385, June 19, 2008, 2008 CPD ¶ 128 at 2. Nonetheless, a solicitation for a fixed‑price contract may, as here, provide for a price realism analysis to assess the offerors’ understanding of the solicitation requirements and potential risks. PHP Healthcare Corp., B‑251933, May 13, 1993, 93-1 CPD ¶ 381 at 5. The FAR provides a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, specifically including a comparison of proposed prices. FAR § 15.404-1(b)(2); see also General Dynamics--Ordnance & Tactical Systems, B‑401658, B‑401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 3; Burns and Roe Servs. Corp., B‑296355, July 27, 2005, 2005 CPD ¶ 150 at 7. Finally, the nature and extent of a price realism analysis ultimately are matters within the exercise of the agency’s discretion, and our review of such an evaluation is limited to determining whether it was reasonable and consistent with the terms of the solicitation. Northrop Grumman Info. Tech., Inc., et al., B‑295526 et al., Mar. 16, 2005, 2005 CPD ¶ 45 at 19.

Here, as discussed above, the solicitation specifically stated that the agency would perform a price analysis “in accordance with FAR § 15.404-1(b)”--which provides for evaluation of price “without evaluating its separate cost elements.” RFP at 1,907; FAR § 15.404-1(b). Accordingly, AbacusSecure’s assertion that the agency was obligated to evaluate the realism of individual cost elements, including labor rates, is contrary to the express terms of the solicitation. As also discussed above, the record further establishes that the agency recognized that the offerors’ prices were lower than the government’s estimate, but noted that there was only an 8.6 percent price difference between them and concluded, based on the existence of adequate price competition, that neither offeror’s price was unreasonably low. On this record, we find no basis to question the reasonableness of the agency’s price realism analysis, and AbacusSecure’s protest challenging that aspect of the procurement is denied.  (AbacusSecure, LLC B-415175, B-415175.2, B-415175.3, B-415175.4: Dec 6, 2017)

Price Evaluation

CPS contends that the agency’s price evaluation failed to consider the risk associated with CTPI’s low and unbalanced pricing. Specifically, CPS notes, based on its independent analysis of pricing, that for a significant number of items, CTPI’s pricing was dramatically lower than CPS’s, and was lower than the other two offerors’ prices. CPS also notes that, for a smaller number of items, CTPI’s prices were dramatically higher than those of CPS and the other two offerors. Protester’s Comments on the Agency Report at 1-2. According to CPS, this demonstrates that CTPI’s pricing was unbalanced because it contained both significantly understated and overstated pricing, and that the agency failed to reasonably assess the risk to the government posed by CTPI’s unbalanced pricing. Id. at 3. In response, the agency notes that, consistent with the terms of the solicitation, it assessed CTPI’s proposal for unbalanced pricing based on random sampling. The agency explains that, when it analyzed the random samples, it found that the vast majority of CTPI’s sampled prices were reasonable based on comparisons to other offerors or market prices. Agency Report at 5.

In reviewing protests of an agency’s evaluation and source selection decision, our Office will not reevaluate proposals; rather, we review the record to determine whether the evaluation and source selection decision are reasonable and consistent with the solicitation’s evaluation criteria, and applicable procurement laws and regulations. M&S Farms, Inc., B-290599, Sept. 5, 2002, 2002 CPD ¶ 174 at 6. In this case, we find CPS’s contention that the agency’s price evaluation and risk assessment were unreasonable to be without merit.

As an initial matter, to the extent CPS’s argument can be understood to suggest that the agency should have assessed the risk that CTPI’s low prices posed to the agency, CPS is describing a price realism analysis, which was not contemplated by the solicitation, and is therefore without merit. A price realism evaluation, which involves an assessment of whether a price is too low, is conducted for the purpose of assessing a vendor’s understanding of the contract requirements or to assess the risk inherent in a vendor’s proposal or quote. Ball Aerospace & Techs. Corp., B‑402148, Jan. 25, 2010, 2010 CPD ¶ 37 at 8. In order to conduct a price realism analysis, an agency must provide for such an analysis in the solicitation, and in this case the RFP did not provide for such an assessment. See Ball Aerospace & Techs. Corp., supra, at 8. Therefore, had the agency performed a price realism analysis, it would have been improper.

Alternatively, to the extent CPS’s argument can also be understood as suggesting that the agency’s unbalanced pricing analysis was unreasonable, that argument is also without merit, because the agency’s analysis is well-supported by the record and consistent with the terms of the solicitation. Instead, CPS relies on its own reevaluation of CTPI’s pricing using a methodology that is inconsistent with the methodology established by the terms of the solicitation.

With respect to unbalanced pricing generally, the Federal Acquisition Regulation (FAR) requires that contracting officers analyze offers with separately-priced line items or subline items, to detect unbalancing. FAR § 15.404-1(g)(2). Where unbalancing is detected, the contracting officer must then consider the risk posed, including the risk of paying an unreasonable price, and must consider whether to reject the offer if the risk is unreasonable. See FAR § 15.404-1(g)(2)-(3). While both understated and overstated prices are relevant to the question of whether unbalanced pricing exists, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices because low prices (even below-cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. See AIS Engineering, Inc., B-410246, B‑410246.2, Nov. 21, 2014, 2015 CPD ¶ 5 at 3.

Here, the RFP provided that unbalanced pricing would be assessed based on random sampling, not a direct analysis of all prices. RFP at 37. In this regard, the agency’s application of random sampling and the conclusions drawn from that sampling appear both reasonable and consistent with the methodology set forth in the solicitation. The agency provided a detailed description of its methods and results as well as significant underlying documentation, which support the reasonableness of the evaluation. See Business Clearance Memorandum at 17-22 and Price Analysis at 73-167.

As described above, the record reflects that with respect to both potentially overstated and understated prices, the agency found, with a high level of confidence, that a majority of CTPI’s quoted prices were likely to be reasonable. Agency Report at 5. The agency estimated that between 0.6% and 1.4% of the 1,441 ELIN prices that CTPI quoted were overstated. Id. at 5-6. Similarly, the agency estimated that between 5.9% and 20.4% of the 1,441 ELIN prices that CTPI quoted were understated. Id. While the agency’s estimates show that a significant minority of CTPI’s prices may, in fact, be understated, as noted above, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices. In this case, the agency estimated that only a very small percentage of CTPI’s prices were likely to be overstated. As a result, the agency reasonably concluded that the risk posed by potential unbalanced pricing was not significant, and that awarding to CTPI would not result in the agency paying unreasonably high prices. See Id. at 7, and Business Clearance Memorandum at 17-19.

CPS argues that the agency’s unbalanced pricing evaluation was flawed because it failed to take into account the magnitude of the price differences for various categories of items identified by CPS. Protester’s Comments on the Agency Report at 1-3. We are unpersuaded by CPS’s argument, because it focuses on prices other than those identified by the agency as part of its random sampling, and is, in effect, a request that our Office reevaluate the awardee’s proposal on a basis other than that described in the RFP. We decline to do so, and deny this protest ground.

Supply Chain Risk Management Factor

CPS argues that, in light of several original equipment manufacturer (OEM) letters expressing concern about CTPI’s pricing and status as an authorized reseller, the agency’s assessment of CTPI’s technical proposal was unreasonable with respect to the supply chain risk management factor. Supplemental Protest at 5. According to CPS, the OEM letters demonstrate that CTPI will not be capable of obtaining goods through authorized channels and that the Navy did not reasonably assess the risk posed by CTPI’s proposal of introducing gray market or counterfeit goods into the Navy’s supply chain. Id. at 5-6. This protest ground is untimely.

On October 14, Brocade, an original equipment manufacturer (OEM) of certain items to be supplied under the contract, contacted CPS and, according to CPS, expressed concern about CTPI’s pricing and status as an authorized reseller of its products. Affadavit of CPS President at 2. Approximately 10 days later, on October 24, CPS began contacting other OEMs to determine if they had similar concerns about CTPI. Id. at 1. On October 26, CPS states that it received e-mails from three other OEMs expressing concern either about CTPI’s pricing or CTPI’s status as an authorized reseller of their products. Affadavit of CPS President at 2-3.

On November 4, a representative of Brocade sent an e-mail to the Navy expressing concern about CTPI’s pricing and forwarded a copy to CPS, and CPS shared this e‑mail with several other OEM representatives who had privately expressed concerns to CPS. CPS Response to GAO Request for Answers of December 12, 2016. Representatives from three other OEMs also sent e-mails of concern to the Navy on November 4, 6, and 8, respectively, expressing concerns about CTPI’s pricing, and in some cases suggesting that CTPI was not an authorized reseller of their products. Affadavit of CPS President at 2-3. On November 14, CPS filed a supplemental protest alleging that the agency’s assessment of CTPI’s proposal under the supply chain risk management technical evaluation factor was unreasonable in light of the OEM letters. Supplemental Protest at 5.

With respect to timeliness, CPS alleges that its supplemental protest is timely because it only definitively learned of the OEMs’ concerns when they sent their letters of concern to the Navy on November 4, 6, and 8. Supplemental Protest at 1. CPS suggests that the e-mail it received from Brocade on October 14 was not sufficient notice of the issue, as Brocade products, alone, only represent a small portion of the total cost of the contract. Protester’s Response to Request for Dismissal at 2-3. CPS suggests that a protest founded on that basis alone would have been dismissed as speculative or legally insufficient. Id. CPS, notes, however that the products from all 5 OEMs discussed in its supplemental protest taken together represented approximately 60% of the value of the contract, which provided a firmer basis for protest. Id.

Our Bid Protest Regulations require a detailed statement of the legal and factual grounds of a protest, and CPS is correct that we will not generally entertain protests grounded on speculation or rumor. See Ervin and Associates, Inc., B-278850, Mar. 23, 1998, 98-1 CPD ¶ 89 at 5. However, where a protester files supplemental protest grounds, each new ground must independently satisfy the timeliness requirements of our Bid Protest Regulations, which do not contemplate the piecemeal presentation or development of protest issues. FR Countermeasures, Inc., B-295375, Feb. 10, 2005, 2005 CPD ¶ 52 at 9. In general, protests other than protests of defects in a solicitation, must be filed within 10 days of when the protester knew or should have known the basis for protest. Additionally, a protester has an affirmative obligation to diligently pursue information providing the basis for the protest, Automated Med. Prods. Corp., B-275835, Feb. 3, 1997, 97-1 CPD ¶ 52 at 2-3, and a protester’s failure to utilize the most expeditious information-gathering approach may constitute a failure to meet its obligation in this regard. See, e.g., United International Investigative Services, Inc., B-286327, Oct. 25, 2000, 2000 CPD ¶ 173 at 3. CPS’s supplemental protest does not meet this standard.

CPS concedes that it received several additional contacts from other OEMs expressing concerns prior to November 4. Specifically, in addition to the e-mail from Brocade on October 14, CPS indicates it received e-mails from three different OEMs on October 26 expressing concerns, either about CTPI’s pricing or CTPI’s status as an authorized reseller. Affadavit of CPS President at 2-3. While several of these OEMs ultimately did not contact the Navy with their concerns, the fact that four separate OEMs expressed concern to CPS should have alerted CPS to the factual basis of this protest ground by October 26, at the latest. Therefore we conclude that CPS knew or should have known this basis of protest by October 26, and the protest ground was untimely because it was filed 19 days later on November 14.

Additionally, we note that CPS failed to diligently pursue this basis of protest prior to October 26. The protester learned of the award to CTPI on September 21, and received a debriefing on October 3. At that point, CPS knew the identity of the awardee and that its price was (in the aggregate) much lower than its own pricing. CPS filed its protest with our Office on October 7. On October 14, a Brocade representative contacted CPS to alert CPS to the precise issues that form the basis of CPS’s supplemental protest, albeit only with respect to a small portion of the total contract value. Affadavit of CPS President at 2. However, according to CPS’s own account, it made no further inquiries with any other OEMs until after October 24, over a month after award and several weeks after CPS’s initial protest with our office was filed. Id. With respect to establishing key facts supporting this basis of its protest, reaching out to the OEMs immediately following award, or, at the latest, immediately after Brocade contacted CPS expressing concern, would clearly have been the most expeditious avenue of inquiry. On these facts, we find that this protest ground was not diligently pursued and is untimely. As a result, we dismiss it. See, e.g., Thomas May Constr. Co., B-255683, Mar. 23, 1994, 94-1 CPD ¶ 210 (delay in pursuing available information about awardee until three weeks after bid opening not diligent pursuit); Bannum, Inc., B-408838, Dec. 11, 2013, 2013 CPD ¶ 288 at 5; MILVETS Systems Tech., Inc., B-411721.2, B-411721.3, Jan. 14, 2016, 2016 CPD ¶ 42 at 8 (protester challenging an award on one ground should diligently pursue information which may reveal additional grounds of protest).  (Crown Point Systems B-413940,B-413940.2: Jan 11, 2017)

MTCE poses two challenges to the agency’s price evaluation of Portus Services, first arguing that the price for the container stuffing commodity rate was “significantly underbid,” and that the agency failed to evaluate whether the price quoted for the stuffing commodity rate was reasonable or might have contributed to unbalanced pricing. Comments at 18. The agency argues that it properly determined that Portus Services’ pricing was fair, reasonable, and balanced. COSF at 63-64.

The RFP stated that the agency will review the prices proposed to determine if unbalanced pricing exists pursuant to FAR § 15.404-1(g) and whether the price is fair and reasonable pursuant to FAR § 15.404-1(b)(2). RFP, Amend. 0001, at 8, 11. Price reasonableness is an assessment of whether a price is unreasonably high, while price realism is an assessment of whether a price is too low. See, e.g., The Matthews Group, Inc. t/a TMG Constr. Corp., B-408003.3, B‑408004.3, Mar. 21, 2014, 2014 CPD ¶ 104 at 8. The RFP did not provide for a review of price realism. Here, the awardee is the lowest-priced offeror, and the protester’s allegation that the awardee’s price is too low provides no basis on which to find error in the agency’s price reasonableness analysis.

Unbalanced pricing exists where the prices of one or more line items are significantly overstated or understated, despite an acceptable total evaluated price (typically achieved through underpricing of one or more other line items). General Dynamics--Ordnance & Tactical Sys., B‑401658, B-401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 5. To prevail on an allegation of unbalanced pricing, a protester must show that one or more prices in the allegedly unbalanced proposal are overstated; that is, it is insufficient for a protester to show simply that some line item prices in the proposal are understated. See Academy Facilities Mgmt.--Advisory Opinion, B‑401094.3, May 21, 2009, 2009 CPD ¶ 139 at 15. This is so because low prices (even below-cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. Id. Here, the protester only argues that the awardee “significantly underbid its stuffing commodity rate” since the rate proposed was lower than the protester’s proposed rate. Comments at 18. There is thus no merit to the protester’s claim that the awardee’s price may be unbalanced, where the support for that assertion is that one price out of many has been understated, but there is no allegation or showing that one or more prices are overstated.  (Marine Terminals Corporation-East, Inc. B-410698.9: Aug 4, 2016)

Al-Tahouna and Wadi Al-Sajaa argue that the contracting officer erred in finding their bids to be unbalanced. Wadi Al-Sajaa contends that the solicitation did not provide for bids to be rejected for unbalanced pricing. Wadi Al-Sajaa Protest at 2. Al-Tahouna argues that its bid continues to provide the highest value to the government based on scenarios in which the government sells 25, 50, 75, and 100 percent of the maximum quantity. Al-Tahouna Protest at 4. Al-Tahouna also asserts that it could provide a bank guarantee for the price of purchasing the maximum quantity indicated by the solicitation. Id. at 4-5.

Neither the Competition in Contracting Act of 1984 (CICA) nor the Federal Acquisition Regulation (FAR) apply to sales of government property. Where, as here, CICA and the FAR do not apply to procurements that are otherwise within our jurisdiction, we review the record to determine if the agency’s actions were reasonable and consistent with any statutes or regulations that do apply. See, e.g., Open Spirit, LLC, B-410428, B-410428.2, Dec. 15, 2014, 2014 CPD ¶ 373 at 6; Great S. Bay Marina, Inc., B-293649, May 3, 2004, 2004 CPD ¶ 108 at 2-3. Moreover, although the FAR is not applicable to sales contracts, our Office, where appropriate, will refer to it for guidance in reviewing protests involving sales contracts. See Alamo Aircraft Supply, Inc.; Merchants World Surplus Enters., Inc.; Associated Aircraft Mfg. & Sales, Inc.; Blazer Surplus; Dixie Air Parts Supply, Inc., B-278215.4, Mar. 11, 1998, 98-1 CPD ¶ 76 at 5 n.5.

DLA contends that rejecting unbalanced bids is encompassed within the broad authority to reject bids granted under the terms of the IFB. DLA states that the IFB advised bidders that the contracting officer had the discretion to reject any and all bids, including bids under which a bidder would take unfair advantage of the government or other bidders. AR Legal Memorandum at 6-7.

An agency is required to evaluate proposals in accordance with the terms of the solicitation. See Systems Research & Applications Corp., B-407224.3, Dec. 17, 2012, 2012 CPD ¶ 352 at 7. In evaluating offerors’ proposals, an agency may properly consider specific, albeit not expressly identified, matters that are logically encompassed by or related to the stated evaluation factors. ITT Electronic Sys. Radar, Reconnaissance & Acoustic Sys., B-405608, Dec. 5, 2011, 2012 CPD ¶ 7 at 10.

The IFB here stated that “The Government reserves the right to reject any or all bids, including bids under which a Bidder would take unfair advantage of the Government or other Bidders . . . when in the best interest of the Government.” AR, Tab 4, Sale by Reference, at 4. As discussed below, 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., infra at 3. In our view, the risk to the government posed by an unbalanced bid, where the risk is unacceptably high, is reasonably related to the concept of fairness and the best interests of the government. Therefore, we conclude that the IFB’s language encompasses the rejection of unbalanced bids where the bid poses an unacceptable risk to the government.

DLA explains that it concluded that Al-Tahouna’s and Wadi Al-Sajaa’s bids were unbalanced based on a comparison with the five highest bids and historical information. DLA states that both firms bid significantly higher than the average bids of their five nearest competitors for the plastics and rubber residue in line item 2, and significantly lower on the other five line items. For example, the protesters bid $11.00 and $10.55 per pound for item 2, respectively, compared with an average of $0.70 per pound for the remaining top five bidders--amounting to more than 15 times higher. Al-Tahouna and Wadi Al-Sajaa bid $0.001 and $0.002 per pound for scrap tires in item 1, compared to an average bid $0.42 per pound by the top five bidders--or 420 and 210 times lower. AR Legal Memorandum at 8. DLA also states that, with respect to item 2, historical data from the sale of plastics and rubber residue in Kuwait showed that bids ranged from $0.010 to $0.317 per pound, compared to the protesters’ bids of $11.00 and $10.55 per pound.[3] See id. at 8 n.6.

DLA states that the unbalanced bids of Al-Tahouna and Wadi Al-Sajaa put the government at risk in two ways. First, there is a risk that a contractor who receives award based on an unbalanced bid would terminate the contract because it was unable to continue paying the high prices for item 2. As a result, the government would likely permit the contractor to continue to buy and remove the lower-priced scrap materials until another contractor could perform. Id. at 10-12. Second, DLA states that the government would be at risk of not receiving the overall highest price from the protesters’ unbalanced bids if the percentages allocated to each line item varied by even 10 percentage points from the percentages that formed the basis for the evaluated price. Id. at 9-10, 12. DLA explains that it has a limited history of selling scrap materials in Qatar, and therefore based its estimates on its experience with scrap sales in Kuwait.

Section 14.404-2(g) of the FAR provides that “[a]ny 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). Section § 15.404-1(g)(1) of the FAR 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. 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, with respect to item 2, plastics and rubber residue, the protesters’ bids were more than 15 times higher than the average bids of the next five highest bidders. With respect to the remaining line items, the protesters’ bids were significantly lower than average bids of the next five highest bidders, and either equal to or lower than the lowest bids from other bidders. See AR, Tab 3, Bid Abstract. As noted above, unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated. FAR § 15.404-1(g)(1). Given the disparity between the two firms’ bids and the average of the nearest five bids, DLA reasonably concluded that Al-Tahouna’s and Wadi Al-Sajaa’s bids for line item 2 were significantly overstated in comparison to competitors’ bid and therefore unbalanced.  (Al-Tahouna Al-Ahliah General Trading & Contracting Company, WLL; Wadi Al-Sajaa Scrap & Metal Waste Trading Company, LLC; Royal Bridge International General Trading & Contracting Company, WLL B-412769, B-412769.2, B-412769.3: May 9, 2016)  (pdf)
 

Ultimate Concrete challenges the Army’s determination that Fortis’ original bid was not materially unbalanced. The Army found that Fortis’ original bid was not materially unbalanced and did not warrant rejection as non-responsive because, although it was mathematically unbalanced with the optional access road line item (CLIN 0007) being disproportionately high, it was likely that the NTP for CLIN 0007 would be delayed--or potentially never issued--due to ongoing condemnation proceedings, thus reducing the likelihood of any risk of an advance payment to Fortis. See AR, Tab 16, Contracting Officer’s Memo. to the PARC (Sept. 17, 2015), at 1; Tab 23, Contracting Officer’s Letter (Sept. 28, 2015), at 1. We conclude that the agency reasonably found that Fortis’ bid was not materially unbalanced; for this reason, we find no basis to conclude that award to Fortis was improper.

As addressed above, “[t]he Government may reject a bid as nonresponsive if the prices bid are materially unbalanced between line items or subline items.” FAR clause 52.214-19(d). A bid is materially unbalanced if 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. Id.; RonsonsSDVOSB P&L JV-1, B‑410605, Jan. 6, 2015, 2015 CPD ¶ 1 at 4. While unbalanced pricing may increase risk to the government, agencies are not required to reject a bid solely because it is mathematically unbalanced. InfoZen, Inc., B-411530, B-411530.2, Aug. 12, 2015, 2015 CPD ¶ 270 at 7. Rather, where the contracting officer receives an unbalanced bid, 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. Id.; EncoDredging, B-284107, Feb. 22, 2000, 2000 CPD ¶ 44 at 5. Our Office will review for reasonableness both the agency’s determination as to whether a bidder’s prices are unbalanced, and an agency’s determination as to whether a bidder’s unbalanced prices pose an unacceptable risk to the government. Ronsons SDVOSB P&L JV-1, supra.

Based on the above standards, we find no basis to sustain the protest. First, Ultimate Concrete argues that the awardee’s bid was so mathematically unbalanced that it should have been rejected as non-responsive on that basis alone. Protester’s Comments (Nov. 23, 2015) at 27-29. As set forth above, however, an agency is not required to reject a bid merely because it is mathematically unbalanced. Rather, the agency must reasonably consider any attendant risks associated with the unbalanced pricing. InfoZen, Inc., supra. Thus, the protester’s contention that the mathematical imbalance of Fortis’ original bid, standing alone, was sufficient to warrant rejection of the bid is without merit.

Next, Ultimate Concrete argues that the awardee improperly front-loaded its bid, creating an unreasonable risk of advance payment, where it overbid the price for the optional access road line item (CLIN 0007), which the protester argues will logically be completed first. Protester’s Comments (Nov. 23, 2015) at 32‑33, 36‑38. As an initial matter, we note that FAR § 14.404-2(g) states that “any bid may be rejected if the prices for any line items or subline items are materially unbalanced (see 15.404‑1(g)).” The current version of FAR § 15.404-1(g), postdating the 1997 FAR part 15 rewrite, no longer provides for rejection of unbalanced bids where acceptance would be tantamount to an advance payment, and instead requires the agency to perform a risk analysis. See FAR; Part 15 Rewrite; Contracting by Negotiation & Competitive Range Determination, 62 Fed. Reg. 51224, 51225 (Sept. 30, 1997); Gulf Master Gen. Trading, LLC, B-407941.2, July 15, 2013, 2013 CPD ¶ 210 at 6 n.2; JND Thomas Co., Inc., B-402240, Jan. 28, 2010, 2010 CPD ¶ 40 at 3 n.2. Thus, a bid may not automatically be rejected merely because it presents some risk of an advance payment; rather, the government must conduct a reasonable assessment of the potential risks.

In any event, the Army here reasonably determined that the risk of an advance payment to Fortis was minimal. Ultimate Concrete’s advance payment theory is predicated on its belief that the optional access road work covered by CLIN 0007 will need to be performed prior to the base or optional fence replacement work. See Protest (Oct. 5, 2015) at 11-13. The agency, however, reasonably concluded that this scenario was unlikely. The IFB and associated pre-bid questions and answers indicate that, although the Army contemplated awarding the base and optional fence replacement line items (CLINs 0001 and 0004) and optional access road line item (CLIN 0007) simultaneously, each CLIN would be subject to different NTPs, which might not be issued simultaneously. IFB at 4; id., amend. No. 0004, at 2; AR, Tab 6, Pre-Bid Inquiry Contractor Report, at 1.

Furthermore, the Army, both prior to award and in response to the protest, articulated that the NTP for CLIN 0007 may be delayed--or never even issued--due to ongoing condemnation proceedings. AR, Tab 15A, Email from Contracting Specialist (Sept. 15, 2015), at 1; COSF (Nov. 9, 2015) at 9 n.1. Based on these facts, the Army determined that the risk that the government would be subject to making an unreasonable advance payment to Fortis based on the award and completion of the optional access road CLIN prior to the base work was doubtful. See AR, Tab 16, Contracting Officer’s Memo. to the PARC (Sept. 17, 2015), at 1; Tab 23, Contracting Officer’s Letter (Sept. 28, 2015), at 1. On this record, we find that the Army reasonably evaluated the potential risk of advance payment as part of its unbalanced pricing analysis.

Alternatively, Ultimate Concrete argues that, if the optional access road contract line item is not performed first, the Army unreasonably failed to consider the performance risks associated with Fortis’ underbidding of the base and optional fence replacement line items (CLINs 0001 and 0004). Protester’s Comments (Nov. 23, 2015) at 33-34. We find, however, that the protester’s arguments that the agency failed to reasonably evaluate the potential risk associated with Fortis’ underbidding of the base and optional fence replacement line items (CLINs 0001 and 0004) in the event that the optional access road line item (CLIN 0007) is not performed are irrelevant to the Army’s unbalanced pricing analysis. The concern with unbalanced pricing is that the government will ultimately pay unreasonably high prices. FAR §§ 14.408-2, 15.404-1(g); Burney & Burney Constr. Co., Inc., B‑292458.2, Mar. 19, 2004, 2004 CPD ¶ 49 at 2 n.1; HSG Philipp Holzmann Technischer Serv. GmbH, B-289607, Mar. 22, 2002, 2002 CPD ¶ 67 at 6. Vendors are not prohibited from submitting below-cost quotes on fixed-price contracts, and the ability of a vendor to perform at the price offered is an issue of contractor responsibility, not unbalanced pricing. JCMCS, B-409407, Apr. 8, 2014, 2014 CPD ¶ 125 at 2; Semont Travel, Inc., B‑291179, Nov. 20, 2002, 2002 CPD ¶ 200 at 5; Atlantic Maint., Inc., B-239621.2, June 1, 1990, 90-1 CPD ¶ 523 at 1-2. Therefore, we find no basis to sustain Ultimate Concrete’s objection that the Army failed to consider the risk associated with Fortis bidding a price too low to perform the base and optional fence replacement CLINs as part of its unbalanced pricing analysis.  (Ultimate Concrete, L.L.C. B-412255, B-412255.2: Jan 13, 2016)  (pdf)
 

Although competition for a task order under a multiple-award contract is generally governed by Part 16 of the Federal Acquisition Regulation (FAR), the concept of unbalanced pricing used by the RFP here is defined in FAR Part 15, which we therefore apply by analogy. See AIS Eng’g, Inc., B‑410246, B-410246.2, Nov. 21, 2014, 2015 CPD ¶ 5 at 3 (unbalancing analysis applied to task order evaluation); Triumvirate Envtl., Inc., B-406809, Sept. 5, 2012, 2012 CPD ¶ 244 at 5 n.3 (unbalancing analysis applied by analogy to competition for blanket purchase agreement under FAR subpart 8.4). Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques. FAR § 15.404‑1(g)(1). The areas where the risk of unbalanced pricing is greatest include pricing where base quantities and option quantities are separate line items, or where the evaluated price is the aggregate of estimated quantities to be ordered under separate line items of an indefinite-delivery contract. FAR § 15.404‑1(g)(1)(ii)-(iii). Therefore, a contracting officer “shall analyze” offers with separately-priced line items or subline items, to detect unbalancing. FAR § 15.404-1(g)(2). Where unbalancing is detected, the contracting officer must then consider the risk posed, including the risk of paying an unreasonable price, and must consider whether to reject the offer if the risk is unreasonable. FAR § 15.404‑1(g)(2)-(3).

To prevail on an allegation of unbalanced pricing, a protester must first show that one or more prices are overstated. AIS Eng’g, Inc., supra, at 3. Even then, while unbalanced pricing may increase risk to the government, an agency is not required to reject an offer solely because it is unbalanced. Ronsons SDVOSB P&L JV-1, B‑410605, Jan. 6, 2015, 2015 CPD ¶ 1 at 4. Rather, 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. Id. Our Office will review for reasonableness both the 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. Id.

Even then, our Office will not sustain a protest unless the protester demonstrates a reasonable possibility that it was prejudiced by the agency’s actions, that is, unless the protester demonstrates that, but for the agency’s actions, it would have had a substantial chance of receiving the award. McDonald Bradley, B-270126, Feb. 8, 1996, 96-1 CPD ¶ 54 at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 1581 (Fed. Cir. 1996). Where an agency overlooks unbalanced pricing, and thus fails to consider the risk it poses, we will not sustain the protest if no material risk to the government from this unbalancing is apparent from the record, because the agency’s error has not prejudiced the protester. Citywide Managing Servs. of Port Washington, Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 8. Moreover, if the risk posed by unbalanced pricing is that the agency will not obtain the lower pricing--for example, due to the potential that the agency’s requirement may change, or requirements may be deleted--but the record provides no basis to conclude that such changes are likely, the risk is merely speculative and does not provide a basis to sustain the protest. Id. at 9.

In its protest, while InfoZen argues extensively that the awardee’s price is unbalanced, it has not shown that the VA faces a significant risk of failing to obtain the benefit of Smartronix’s lower pricing offered in the later years of the contract. Rather, InfoZen only speculates that it is possible that the VA will not exercise options for the later contract years. Protester’s Supplemental Comments at 3. Other than this brief speculation, however, InfoZen provides no facts to show that it is likely that the VA’s needs will change such that the agency will not need these services for much or all of the term of the contract. Absent such evidence that the risk of Smartronix’s unbalanced pricing was significant, we cannot find that InfoZen has been prejudiced. Accordingly, we deny this ground of protest.  (InfoZen, Inc. B-411530, B-411530.2: Aug 12, 2015)  (pdf)

WW Contractors challenges the agency’s determination that its price proposal was unbalanced and unrealistic. The firm argues that, even if there was an error in its price proposal, based on the total contract price, including overhead and profit, its proposal “was very viable.” Comments at 7.

(sentences deleted)

As noted above, the RFP stated that an offer might be rejected as non-responsive if it was materially unbalanced as to prices for the initial and option periods, explaining that "an offer is unbalanced when it is based on prices which are significantly less than cost for some work, and prices which are significantly overstated for other work." RFP at 13. Thus, under the RFP’s terms, to find a price unbalanced, the agency had to find both an understatement of price in some respect and an overstatement of price in another. The record does not support a finding that the protester’s price is unbalanced. See Ronsons SDVOSB P&L JV-1, B-410605, Jan. 6, 2015, 2015 CPD ¶ 1 at 4.

The agency explains its decision to reject WW Contractor’s proposal as follows:

The Contracting Officer was concerned about WW’s pricing because even though WW’s overall price was not unreasonable, WW’s option years prices for the [CLIN] work as compared to its base price for the [CLIN] work and the option year prices for the [CLIN] work from all of the other offerors were significantly understated. She was concerned that there were significant risks to the Government of WW’s nonperformance or poor performance due to WW’s unbalanced pricing if it were to be awarded the Contract, and she determined that these risks were unacceptable.

Agency Legal Memorandum and Contracting Officer’s Statement (Agency Memorandum) at 7.

While the [Source Selection Decision Document] SSDD bears out the concern that WW Contractors’ price for this one particular CLIN for each of the option years was significantly understated, it does not show a concern on the part of the agency that the protester’s low price for this one CLIN was accompanied by a commensurately high price in another portion of the firm’s price proposal. Moreover, it is not apparent from WW Contractor’s price proposal that the significantly understated price for this one CLIN was accompanied by significant overstatement of prices elsewhere in the firm’s proposal. See generally AR, exh. 2, WW Contractor’s Proposal. Thus, the record does not evidence that the protester’s price proposal was unbalanced.

However, the [source selection authority] SSA also articulated a concern that the protester’s price was unrealistically low with respect to this particular CLIN, and that there was risk of nonperformance or poor performance owing to the protester’s low price. See AR, exh. 6, SSDD, at 48. Where a solicitation contemplates the award of a fixed-price contract, an agency may provide in the solicitation for the use of a price realism analysis for the purpose of measuring an offeror’s understanding of the requirements. IBM Corp., B-299504, B-299504.2, June 4, 2007, 2008 CPD ¶ 64 at 10-11. Price realism may also be used by the agency to evaluate whether an offeror can realistically perform its technical solution at the fixed price proposed in order to assess the risk inherent in an offeror’s proposed approach. DynCorp Int’l LLC, B-407762.3, June 7, 2013, 2013 CPD ¶ 160 at 8-9; Triad Int’l Maint. Corp., B‑408374, Sept. 5, 2013, 2013 CPD ¶ 208 at 8. The RFP here provided for such an analysis. RFP at 447.

As noted above, GSA’s analysis of WW Contractor’s price proposal showed that the relevant CLIN accounted for approximately three percent of the firm’s monthly cost of performance during the option years. AR, exh. 6, SSDD at 48. The agency found this amount unrealistically low in comparison to the median cost of 12.9 percent for each of the other offerors. Id. The unredacted report provided to our Office for review confirms the agency’s analysis in this regard. Further, a review of the prices submitted by other offerors, as well as historical price data considered by the agency, shows that the CLIN represented a substantial portion of the total scope of work, and that the protester significantly understated, by an order of magnitude, the relevant CLIN price for the option years.

While the protester argues that there was little risk to the government even if it mistakenly submitted a low price for the relevant CLIN because the overall contract would have remained profitable, such an assertion is not apparent from the firm’s proposal. Protester’s Supp. Comments at 4; see generally AR, exh. 2, WW Contractor’s Proposal. Moreover, this argument does not address the risk that WW Contractors lacked understanding of the scope of work contemplated by this CLIN; a valid concern when conducting a price realism analysis. See IBM Corp., supra, at 10-11. Based on the record, we have no basis to question the SSA’s concern that there were significant risks to the agency of nonperformance or poor performance by WW Contractors due to the firm’s price proposal, or to find the rejection of the proposal on this basis unreasonable.  (WW Contractors, Inc. B-410825: Feb 26, 2015)  (pdf)

Under FAR clause 52.214-19(d), “[t]he 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 if 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. Id.; MCI Constructors, Inc., B-274347, B‑274347.2, Dec. 3, 1996, 96-2 CPD ¶ 210 at 5. While unbalanced pricing may increase risk to the government, agencies are not required to reject an offer solely because it is unbalanced. W.B. Constr. & Sons, Inc., B-405818, B-405818.2, Jan. 4, 2012, 2012 CPD ¶ 17 at 6. 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. Id.; Enco Dredging, B-284107, Feb. 22, 2000, 2000 CPD ¶ 44 at 5. Our Office will review for reasonableness both the 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. W.B. Constr. & Sons, Inc., supra, at 6; Enco Dredging, supra, at 6.

The record here shows that, even if the awardee’s bid for CLIN 0005 was materially understated, Glen/Mar’s proposed pricing for the base scope of work was not materially overstated. The eight bids received by the agency for the base scope of work ranged from the protester’s low bid of $1,287,500 to a high bid of $2,065,000; the awardee’s bid for the base scope of work, $1,544,779, was the second lowest. See, AR, Tab 10, Abstract of Bids, ¶ 9. Therefore, the agency reasonably determined that Glen/Mar’s bid for the base scope of work was not materially overstated based on the competitive bids received. See, e.g., AR, Tab 11, CO’s Determination of Responsibility and Price Reasonableness, at 6; FAR clause 52.214‑19(d) (providing that unbalanced pricing exists only when there are both significantly below cost and overstated line items).

In any event, even if we found Glen/Mar’s bid to be materially unbalanced, the Corps reasonably concluded that acceptance of the bid did not create an unacceptable risk to the government. Here, the optional requirements are reasonably certain to exist and there is a reasonable expectation that funds will be available to permit exercise of the options. Prior to issuing the IFB, the CO determined that it was in the best interest of the government to include option CLINs in the evaluation for award because, although the full requirement could not be funded at the time of the IFB’s issuance, the need for the optional work was verified and had been budgeted for in the future. AR, Tab 5, CO’s Determination to Include Options, ¶ 1.a. In light of the verified need and budgeting for the work, the agency concluded that there was a “reasonable likelihood that the option CLINs will be exercised.” Id. ¶ 1.d. In the time since the award of the base work, the agency represented that it has obtained the funds necessary to award optional CLINs 0005 and 0007. See CO’s Statement at 9. Thus, the record does not demonstrate a reasonable basis to doubt that the acceptance of Glen/Mar’s bid will result in the lowest overall cost to the government.  (Ronsons SDVOSB P&L JV-1, B-410605: Jan 6, 2015  (pdf)
 

Gulf Master argues that the agency unreasonably rejected its proposal as unbalanced where its pricing reflects its underlying cost structure, which differs from that of the incumbent, ASCS. Id. As discussed below, the protester’s arguments are misplaced and without merit.

As a general matter, unbalanced pricing may increase risk to the government and can result in payment of unreasonably high prices. FAR § 15.404-1(g); Semont Travel, Inc., B-291179, Nov. 20, 2002, 2002 CPD ¶ 200 at 3. Unbalanced pricing exists where, despite a proposal’s low overall price, individual line item prices are either understated or overstated, as indicated by the application of cost or price analysis techniques. FAR § 15.404-1(g); Semont Travel, Inc., supra. The risks of unbalanced pricing can occur in several contexts, to include instances where a solicitation establishes base quantities and option quantities as separate line items, as in this case. FAR § 15.404-1(g)(1). Where the level of service for each period is essentially the same, a large price differential between the base and option periods, or between one option period and another, is prima facie evidence of unbalancing. See, e.g., Technology Services International, Inc., B-278050, Nov. 25, 1997, 97-2 CPD ¶ 152 at 2.

Agencies are not, however, required to reject an offer solely because it is unbalanced. FAR § 15.404-1(g)(3). 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 § 15.404-1(g)(2). An offer may be properly rejected if the contracting officer determines that the lack of balanced pricing poses an unacceptable risk to the government. Id.; L. W. Matteson, Inc., B-290224, May 28, 2002, 2002 CPD ¶ 89 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. See L. W. Matteson, Inc., supra, at 4; Gemmo Impianti SpA, B-290427, Aug. 9, 2002, 2002 CPD ¶ 146 at 2 n.1.

As noted above, Gulf Master contends that its pricing is not in fact unbalanced since it reasonably reflects its actual costs. In this regard, the protester explains that its relatively high base year prices are a result of start-up costs not incurred by the incumbent--ASCS. Protester’s Comments at 4-9. Likewise, Gulf Master explains that it uses the proceeds from the sale of vehicles after the second option year of the contract to reduce the prices it charges the government in the final two years of the contract. Id. at 9. Although ASCS disputes the rationale underlying Gulf Master’s claims regarding its costs, we need not resolve these issues. As discussed below, the Agency was not required to consider the protester’s actual costs in conducting its unbalanced pricing analysis.

Unbalanced pricing is determined “by the application of cost or price analysis techniques.” FAR § 15.404-1(g)(1) (emphasis added). Accordingly, the type of analysis used--cost or price--is within the agency’s discretion. In this instance, the Air Force used several price analysis techniques identified in the FAR to assess Gulf Master’s prices for balance. Specifically, the agency compared the protester’s proposed pricing to the prices of other vendors and the IGE, and considered the year-to-year pricing change of CLINs within the protester’s proposal for essentially the same services. See FAR § 15.404-1(b); cf. HMR Tech, LLC, B-295968, B-295968.2, May 19, 2005, 2005 CPD ¶ 101 (explaining that “The [FAR] provides a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, including comparison of the prices received with each other; comparison of previously proposed prices for the same or similar items; comparison with the independent government estimate; and analysis of pricing information provided by the offeror.”). Because a price analysis, by its nature, does not involve a consideration of the separate cost elements and proposed profit underlying a proposed price, see FAR § 15.404-1(b), information about the protester’s actual costs were not relevant considerations.

The protester’s contention that prices should not be found unbalanced if an offeror has legitimate cost-based reasons to justify higher prices earlier in contract performance appears to be based on older decisions by this Office, issued when the FAR’s guidance regarding unbalanced pricing was materially different. For example, in its comments on the agency’s report, the protester cites our decision in Eastex Maritime, Inc., B-256164, May 19, 1994, 94-1 CPD ¶ 340, which indicated that the “determinative question in assessing mathematical unbalancing is whether the pricing structure is reasonably related to the actual costs to be incurred in each year of the contract.” Protester’s Comments at 4. This decision, however, was issued at a time when the FAR suggested a cost-based unbalancing analysis. In relevant part, the FAR indicated a price “is mathematically unbalanced if it is based on prices which are significantly less than cost for some contract line items and significantly overstated in relation to cost for others.” FAR § 15.814(b) (FAC 90-44) Dec. 31, 1996 (emphasis added). This language, however, was removed from the FAR’s section on unbalanced pricing in 1997. See Part 15 Rewrite, 62 FR 51224, 51243 (Sept. 30, 1997).

Further, we have no basis to question the reasonableness of the agency’s conclusion that Gulf Master’s pricing was unbalanced. The FAR provides that prices are unbalanced if they are “significantly over or understated.” FAR § 15.404-1(g)(1). In order for prices to be considered over or understated, they must necessarily be compared to some relevant baseline. As discussed above, the Air Force found that Gulf Master’s base year prices were significantly overstated when compared to the prices of the other offerors and the IGE. AR, Exh. 17, Unbalanced Pricing Report, at 1-5. Likewise, Gulf Master’s prices for each of the 20 vehicle types were significantly higher in the base year than its prices for the same types of vehicles in the last two years of the contract. Id. at 10-11. As previously indicated, where the level of service for each period is essentially the same, as was the case under this solicitation, a large price differential between the base and option periods, or between one option period and another, is prima facie evidence of unbalancing.

We also have no basis to question the reasonableness of the Air Force’s conclusion that the protester’s unbalanced pricing posed an unacceptable risk to the government. The Air Force found that the next-lowest-priced offeror, which offered [deleted], had a lower price than Gulf Master through the second to last month of the final option year. AR, Exh. 21, Risk Analysis Report, at 2. Thus, the Air Force reasonably found that Gulf Master’s proposal might not actually result in the lowest cost if any of the option years were not exercised, or if the contract was terminated before the end of the final option year. Id. Further, the agency found that the difference in prices between ASCS and Gulf Master was such that if the contract did not continue beyond the second option year, it would pay substantially more under Gulf Master’s pricing than under ASCS’s pricing. Id. at 1-2. This substantial price disparity supports the reasonableness of the Air Force’s conclusion that Gulf Master’s unbalanced pricing posed an unacceptable risk that it would pay unreasonably high prices for contract performance if some of the options were not exercised. Id.; see DGS Contract Services, Inc., B-250306, Jan. 15, 1993, 93-1 CPD ¶ 49 at 3 (denying protest that agency improperly rejected bid under unbalanced pricing analysis when it did not become low until the eleventh month of the last option year).

Finally, Gulf Master argues that the Agency’s preference for a [deleted] structure, which the protester contends only the incumbent can propose, is unreasonable and constitutes an irrational preference for one business model over another. Protester’s Comments to Intervenor’s Response, at 8. To the contrary, it was entirely rational for the agency to avoid an unacceptable level of risk that it will pay more than the market value of the services it receives. As discussed above, FAR 15.404-1(g) provides the mechanism by which an agency can avoid such risks.

While Gulf Master contends its pricing structure is a “sound and logical way” for it to offer lower prices to the government, the company’s pricing structure also posed risks to the government that the Air Force reasonably concluded were unacceptable.  (Gulf Master General Trading, LLC, B-407941.2, Jul 15, 2013)  (pdf)
 

The protester also argues that the agency’s price evaluation was flawed because it failed to recognize that some of the awardees’ proposed labor rates were unbalanced. In this regard, ABSG argues that “[s]ome of the offerors used reasonable/projected rates for key [labor categories] . . . while significantly understating rates for other [labor categories].” Protester’s Comments at 7. In support of its unbalanced pricing argument, ABSG claims that one offeror proposed “reasonable” rates for labor categories with “low hour estimates” and “unreasonably low” rates for labor categories with “high hour estimates.” Id.

There is no merit to this aspect of the protest. First, unbalanced pricing exists where the prices of one or more items are significantly overstated, despite an acceptable total evaluated price (typically achieved through under pricing one or more of the other line items). General Dynamics--Ordnance & Tactical Sys., B-401658, B-401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 5. ABSG has not alleged that any of the awardees’ labor rates were “significantly overstated.” Rather, the protester merely asserts that the rates were either “understated” or “reasonable.” Low prices are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. Id.

Second, the record does not support ABSG’s assertion that one awardee proposed unbalanced labor rates depending on whether the labor hour estimates for a particular labor category were high or low. The example cited by ABSG concerns labor rates for the program manager and project manager labor categories, both of which had the same number of estimated hours (19,200). To the extent the protester is actually arguing that the labor hour estimates for these categories were inaccurate--that the hours themselves were over or understated as compared to the hours the agency would actually order under the contract--ABSG did not challenge the solicitation’s estimated hours. Where a solicitation for the award of an ID/IQ contract provides estimated quantities (in this case hours) for individual items to be used in calculating a total price, and the estimated quantities used go unchallenged, there is no basis for our office to find a risk that the agency will pay unreasonably high prices, a necessary aspect of an unbalanced pricing argument. See Cherokee Painting LLC, B-311020.3, Jan. 14, 2009, 2009 CPD ¶ 18 at 3.  (ABSG Consulting, Inc., B-404863.7, Jun 26, 2013)  (pdf)

Triumvirate first asserts that the agency’s price analysis was unreasonable and incorrect as a matter of law. In this regard, the agency concluded that certain of Triumvirate’s line item prices were “impossibly low” and showed that Triumvirate “appeared to using their historical usage knowledge to give unbalanced pricing.” SSDD at 7.

As a general matter, unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated. See, e.g., FAR § 15.404-1(g)(1); Citywide Managing Servs. of Port Washington,Inc., B-281287.12, B-281287.13, Nov. 15, 2000, 2001 CPD ¶ 6 at 7. Unbalanced pricing may increase risk to the government, but agencies cannot reject an offer solely because it is unbalanced. In this regard, low prices (even below-cost prices), are not improper and do not establish (or create the risk inherent in) unbalanced pricing. General Dynamics--Ordnance & Tactical Systems, B-401658, B-401658.2, Oct. 26, 2009, 2009 CPD ¶ 217 at 5; Diversified Capital, Inc., B-293105.4, B-293105.8, Nov. 12, 2004, 2004 CPD ¶ 242 at 2 n.1; Islandwide Landscaping, Inc., B-293018, Dec. 24, 2003, 2004 CPD ¶ 9 at 3. Thus, where an unbalanced offer is received, the agency 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 § 15.404-1(g)(2); Cherokee Painting LLC, B-311020.3, Jan. 14, 2009, 2009 CPD ¶ 18 at 3. Our Office will review for reasonableness both an agency’s determination whether a firm’s prices are unbalanced, and an agency’s determination as to whether a firm’s unbalanced prices pose an unacceptable risk. Semont Travel, Inc., B-291179, Nov. 20, 2002, 2002 CPD ¶ 200 at 3.

According to the agency, in the evaluation of Triumvirate’s price quotation, the VA evaluators found numerous line items priced at $5, which they believed were understated and indicated that Triumvirate was “engaging in unbalanced pricing as they understood what line items could be priced lower based on historical usage.” CO Statement at 2. However, in this case, the RFQ set forth estimated quantities on which vendors based their prices, and the agency has not indicated that these estimates are incorrect. Thus, there is no basis to conclude that any unbalanced pricing, to the extent it exists, will result in the government actually paying higher prices. See Accumark, Inc., B-310814, Feb. 13, 2008, 2008 CPD ¶ 68 at 4 (explaining that if estimates for task order contract are reasonably accurate, then evidence of mathematical unbalancing generally does not present a risk that the government will pay higher prices).

Further, in explaining to our Office his determination that there was unbalanced pricing, the CO engaged in a post hoc review of Triumvirate’s rates, procedures, and performance under prior task orders for hazardous waste removal as the incumbent contractor to justify the agency’s concerns regarding Triumvirate’s pricing. For example, in response to the protest, the CO alleged that invoices from prior task orders indicated that Triumvirate “will send two chemists when a chemist and technician will suffice,” “will charge for travel time to and from the site,” and will “spend an extraordinary amount of time on each site.” CO Statement at 3. Based on these considerations, the CO concluded that Clean Harbors’ quotation will save significant amounts of money (despite its higher evaluated price), and that Triumvirate may utilize “higher priced labor categories and travel time to offset reduced line item pricing.” Id.

In his explanation, the CO does not provide any documentation suggesting that Triumvirate’s prices for particular line items, such as the rates for chemists, were overstated. In this regard, it is not apparent how the agency could conclude that any particular line item prices were overstated, where the record reflects that the agency conducted its price reasonableness evaluation on a line item basis, and found Triumvirate’s pricing to be “reasonable, as their line item pricing was less than that of their GSA schedule pricing.” SSDD at 7. Rather, the CO’s post hoc analysis here is apparently premised on the presumption that Triumvirate may perform inefficiently, thereby resulting in higher pricing. This presumption, which is not suggested in the contemporaneous record, has no basis in Triumvirate’s pricing per se. Instead, the presumption is based on past performance concerns that are not contained in the contemporaneous evaluation record, and which appear to be inconsistent with Triumvirate’s rating of “low” risk under the past performance factor.

Moreover, the agency’s post hoc concerns do not reasonably support a finding that Triumvirate’s pricing presented an unreasonable risk to the government. In this regard, there is no basis to conclude that estimates contained in the solicitation are inaccurate or that the BPA is subject to the type of manipulation presumed by the agency. As acknowledged by the CO, because the BPA merely establishes the unit prices for the schedule items to be ordered on a task basis, when the government requests quotes for future BPA orders, the agency will be in a position to specifically consider, before placing any order, whether the selected BPA holder will be using an appropriate level of effort and labor mix to perform the required work. CO Statement at 4.

In sum, we find that the CO failed to reasonably identify any risk to the government inherent in Triumvirate's quotation of multiple $5 line items. It is also apparent that Triumvirate was prejudiced, where the SSDD in this procurement included a negative inference against Triumvirate’s price quotation, noting that Triumvirate’s pricing was “unbalanced.” Accordingly, we conclude that the agency’s price analysis was unreasonable, and sustain the protest on that basis.  (Triumvirate Environmental, Inc., B-406809, Sep 5, 2012)  (pdf)

Unbalanced pricing exists where the prices of one or more line items are significantly overstated, despite an acceptable total evaluated price (typically achieved through underpricing of one or more other line items). See Federal Acquisition Regulation (FAR) sect. 15.404‑1(g)(1); Legacy Mgmt. Solutions, LLC, B‑299981.2, B-299981.4, Oct. 10, 2007, 2007 CPD para. 197 at 5; Triple H Servs., B-298248, B-298248.2, Aug. 1, 2006, 2006 CPD para. 115 at 2.

Here, JND has produced no definitive evidence that CJW's prices are significantly overstated. While higher than the IGE and JND's prices, CJW's price for line item No. 3 is lower than that of bidder Furby Construction Co., Inc. and its line item No. 9 price is lower than that of bidder Cutting Edge Concrete Services, Inc. See Reece Contracting, Inc., B‑285666, Aug. 21, 2000, 2000 CPD para. 135 at 4 (prices not overstated where they fall within range of government estimate and other bids). Similarly, JND has not shown that CJW's $.01 prices for line item Nos. 4 and 10 are understated. In this regard, the agency accepted CJW's explanation that its lower prices were based on its intent to cover its costs through sale of salvaged material. Agency Report (AR) at 5. Below-cost prices on fixed-price contracts are not prohibited, see Reece Contracting, Inc., supra, at 2 n.1, and whether a bidder can perform at its bid price is a matter of bidder responsibility, which is not reviewable by our Office absent circumstances not present here. See Bid Protest Regulations 4 C.F.R. sect. 21.5(c) (2009); Ventura Petroleum Servs., Inc., B‑281278, Jan. 21, 1999, 99-1 CPD para. 15 at 6.

In any case, even where a firm's pricing is found to be unbalanced, an agency need not reject the bid if, after conducting a risk analysis, it determines that award will not result in the government's paying an unreasonably high price for contract performance or otherwise present an unacceptable level of risk to the government. See FAR sect.15.404-1(g)(2), (3).

The record shows that the agency conducted a risk assessment, considering information from CJW, its prior experience with the bidder, and the anticipated order of work. For example, in response to the agency's inquiries, CJW confirmed its bid and its intent to perform all work in accordance with the IFB's specifications. Engineer's Memorandum para. 4. In connection with its $.01 prices for line item Nos. 4 and 10, CJW explained that it had a buyer for at least 177,000 CY of material (the amount identified in the IFB as salvageable and a cost benefit to bidders); that profit from the sale would cover its cost of re-handling the material; and that, even if it failed to sell all of the material, CJW expected that sale of a certain percentage would produce profits sufficient to cover re-handling of the remaining material. Id. As to other work, CJW had a history of good performance on a number of projects with another Corps district office, including a 2005 dredging job where CJW demonstrated its knowledge of the sediment market by successfully marketing all of the excavated sand. Id. para. 7. While the IFB did not specify the order of work, the agency's analysis showed that the contractor would have to excavate pond Nos. 4-7 (line item No. 3) in order to provide the necessary capacity to "store" the dredge material to be pumped from the lake (line item No. 9), and thus would have to re‑handle virtually all of the dry excavated material (line item No. 4) prior to dredging. AR at 7. Further, payment for dredging (line item No. 9) would not be made in a lump sum but, rather, would be based on the percentage of dredging completed, and the agency anticipated that a portion of the dredged material would have to be re-handled (line item 10) prior to completion of the dredging process. Engineer Declaration paras. 4, 6. At the time dredging is complete, the agency estimates that various aspects of the work--worth more than $1 million--will remain to be completed and paid for, including final excavation of pond Nos. 4-7, final levee construction, and riprap/crushed rock placement. Id. para. 7.

Based on its consideration of the above information, the agency concluded that CJW's bid did not pose a significant risk of non-performance or the payment of unreasonably high prices. Contracting Officer's Statement paras. 17-18; AR at 8. In our view, the agency's conclusion was reasonable, since CJW's plan to offset the cost of re-handling excavated and dredged material represented a plausible explanation for its low prices; its conclusion was based on prior experience with CJW in which the firm had successfully performed contracts involving the sale of salvage material; and the expected order of work will effectively prevent payment for all of the allegedly overstated line items prior to performance of much of the understated items and will include other contract line items providing incentive to continue performance.  (JND Thomas Company, Inc., B-402240, January 28, 2010) (pdf)

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)

B. Unbalanced Pricing Analysis

Munilla’s second challenge to the Navy’s price evaluation is predicated on an argument that the Navy failed to comply with the RFP provisions requiring the Navy to evaluate the price proposals for lack of balance. The RFP stated that unbalanced pricing “exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques.” Id. Tab 25 at 491; see also FAR 15.404-1(g)(1). It further provided that, “[i]n accordance with FAR 15.404- 1(g)(2)[,] a price analysis will be conducted on the individual CLINs to determine whether unbalanced pricing occurred.” AR Tab 25 at 491. According to Munilla, the Navy failed to conduct such a price analysis on the individual CLINs, but only analyzed whether the offerors’ proposals were unbalanced on a total price basis. Pl.’s Mem. at 22. For the reasons set forth below, Munilla’s arguments are unpersuasive.

1. The Risks of Unbalanced Pricing

As one procurement law expert has explained, “[u]nbalancing in bids generally is associated with uncertainty about the amount of work that the Government will actually call upon the contractor to perform.” Daniel I. Gordon, Unbalanced Bids, 24 Pub. Cont. L.J. 1, 2 (1994). Thus:

Unbalanced bids arise in two quite different contexts: in solicitations covering a base period and option periods and in solicitations for multiple-line-item requirements contracts. In option-period solicitations, the unbalanced bid offers relatively high prices for the base period and relatively low prices for the later option periods. In requirements-contract solicitations, the unbalanced bid includes high prices for some items and low prices for others. Id. at 2–3 (footnotes omitted).

With respect to option-period solicitations, like the present one, “the solicitation typically states that the Government will evaluate bids on the basis of the prices for the base period and all options; thus, the Government assumes, in calculating the total amount of each bid, that it will actually exercise all options.” Id. at 3. “Determining which bid is low is thus predicated . . . on a prediction about future Government purchases under the contract.” Id. An unbalanced offer in this context is one that proposes relatively high prices for the base period but relatively low prices for the later option periods, with the risk that the overall price paid will be too high and the contractor will receive a windfall if all of the option years are not exercised. See id. at 3–5; see also Ralph C. Nash & John Cibinic, Unbalanced Bids and Proposals: Trying to Beat the System, 5 No. 4 Nash & Cibinic Rep. ¶ 21 (1991) (commenting on use of a “front-end loading ploy” in which money from the earlier billings “will more than make up for the underpricing” in the later years; such a “ploy” is used in the hope that the base year will finance later option-year work or that the options will not be exercised).9 In addition, an overpriced base year is of concern because it may result in the provision of an impermissible advanced payment to the contractor. See Ultimate Concrete, LLC v. United States, 127 Fed. Cl. 77, 83–85 (2016).

2. The Navy’s Evaluation

In this case, the record reflects that the Navy conducted a pricing analysis to detect unbalanced pricing consistent with the principles set forth above and with the RFP’s requirements. Specifically—and contrary to Munilla’s assertions—the record confirms that the Navy did conduct a “price analysis . . . on the individual CLINs to determine whether unbalanced pricing occurred.” See AR Tab 25 at 491. Indeed, the record is replete with evidence of the Navy’s consideration of individual CLINs in its discussion of whether the offerors’ prices were unbalanced as between each of the performance periods set forth in the contract.

 First, as described above, the Navy created the six-page detailed abstract of proposals, which consisted of a table listing side-by-side each offeror’s prices for each CLIN for the base year and each potential option year. Id. Tab 122 at 3604–08. This table, in turn, was designated as Attachment 5 and referenced in the Approved Business Clearance memorandum. Id. Tab 123 at 3683. It serves as a useful reference to the Navy’s narrative discussion of individual CLINs in its evaluation of whether the offerors’ pricing proposals were unbalanced. See id.

Second, the Approved Business Clearance memorandum represents that the “Contracting Officer evaluated the Contractors’ proposed prices for Base Year and Option[] I through Option IV to determine whether unbalanced pricing occurred.” Id. at 3684. Further, after each chart and analysis regarding the year-to-year prices contained in each offer, the contracting officer concluded that “no unbalanced pricing exist[ed]” with respect to each pair of performance periods. Id. at 3685–86. As described above, unbalanced pricing exists when “the price of one or more contract line items is significantly over or understated.” Id. Tab 25 at 491. In representing that the contracting officer evaluated the “proposed prices . . . to determine whether unbalanced pricing occurred,” and that “no unbalanced pricing exist[ed],” the Navy was necessarily representing that the contracting officer evaluated the individual CLINs and determined that they were not significantly overstated or understated. See id. Tab 123 at 3684–86.

Further, the narrative evaluation of the price proposals contains references to those individual CLINs that the Navy apparently considered most relevant to the balanced pricing analysis. For instance, in assessing the reasons for the slight decline in price for all offerors between the first and second option years, the Navy took note of the fact that the contractor would only be “required to perform one (1) DROH [docking regular overhaul] off-island during the second Option Year,” whereas two “DROHs (one-off island and one on-island) will be performed during the first Option Year.” Id. at 3685. It also compared the CLIN prices for the DROH work in those two option years, and observed that “[a] review of each Offeror’s Price Proposal indicates that their proposed price for the DROH off-island for Option II is in line with their proposed price for the DROH off-island for Option I.” Id.

The memorandum includes a similar discussion with respect to option years II and III, in which it also explicitly references Attachment 5, the detailed abstract breaking down the offerors’ proposals on a CLIN by CLIN basis. It noted that a difference in DROH requirements explained the price decreases except for Metson, with respect to which the contracting officer stated that “[a]s illustrated in the detailed abstract of proposals, Metson’s proposed price for the DROH on-island is significantly higher than the other three Offeror[]s[’] proposed prices.” Id. at 3685–86 (emphasis added). And again, when evaluating option years III and IV, the contracting officer noted that a “review of each Offeror’s Price Proposal indicates that their proposed price for the DROH on-island for Option IV is in line with their proposed price for the DROH onisland for Option III.” Id. at 3686.

3. Munilla’s Arguments

Notwithstanding the foregoing, Munilla contends that the Navy did not perform an adequate analysis of the individual CLINs as evidenced by its failure to specifically discuss certain other CLINs for which it claims there were disparities between Seaward’s prices and those of Munilla. According to Munilla, these disparities show that Seaward’s pricing was overstated with respect to certain CLINs, and understated with respect to others. See Pl.’s Mem. at 26–28. But a protester cannot demonstrate unbalanced pricing “merely by showing that [the awardee’s prices] were lower than [its] prices.” Avtel Servs., Inc. v. United States, 70 Fed. Cl. 173, 225 (2005). Further, neither the Solicitation nor the FAR requires the Navy to discuss each individual CLIN and explain why it concluded that any particular price differentials between offerors’ proposals as to that CLIN did not evince material unbalancing. See, e.g., AR Tab 25.

Indeed, in addressing the adequacy of the agency’s discussion it is important to keep in mind that the FAR does not require agencies to reject every price proposal that is unbalanced, but permits them to reject those that present an unacceptable risk to the government, as described above. Id. at 490–91; 48 C.F.R. § 15.404-1(g)(3); see also Al Ghanim Combined Grp. v. United States, 56 Fed. Cl. 502, 515 n.17 (2003) (observing that “[a] distinction exists between materially and mathematically unbalanced proposals” and that “[a] material imbalance occurs if an award fails to represent the lowest ultimate cost to the Government or the imbalance is such that it will adversely affect the integrity of the bidding system” (quotation omitted)). To the extent that the Navy did or did not discuss particular individual CLINs, its approach was consistent with the understanding that, in the context of a firm fixed-price contract, the risk to the government of unbalanced prices does not hinge upon whether specific line items are overpriced or underpriced within a single performance period. Instead, the risk depends upon whether there is “front loading”: unbalanced pricing between the initial years and subsequent option years. See Part IV.B.1, supra.

A discussion of the prices of individual CLINs for purposes of the Solicitation, therefore, was of most relevance in connection with a comparison between the prices charged for each performance period. And it is that context in which the Navy included a discussion of its evaluation of individual CLINs. See Survival Sys., USA, Inc. v. United States, 102 Fed. Cl. 255, 270 n.14, 272 (2011) (distinguishing detailed CLIN-by-CLIN analysis required in procurement for an IDIQ contract from unbalanced pricing analysis in procurement for fixed-price services contract).

In short, the record establishes that the Navy adhered to the RFP’s requirements both with respect to its evaluation of the reasonableness of the price proposals and of whether the proposals evinced unbalanced pricing. Accordingly, Munilla’s challenge to the Navy’s evaluation of Seaward’s price proposal lacks merit.  (Munilla Construction Management, LLC v. U. S. and Seaward Services, Inc., No. 16-1684C, February 15, 2017)

The following chart shows the breakdown of the major CLINs for both Fortis’ and Ultimate’s bid, along with the [Independent Government Estimate] IGE:

(sections deleted)

The court first turns to whether Fortis’ original bid was materially unbalanced. FAR § 14.404-2(g) provides that “[a]ny bid may be rejected if the prices for any line items or subline items are materially unbalanced.” (emphasis added). FAR § 52.214-19(d) further provides:

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.

The first thing to note about both ofthe aforementioned FAR provisions is that they contain permissive language - both sections state that materially unbalanced bids may be rejected. This is in contrast to other FAR provisions which contain mandatory language. E.g., FAR § 14.404-2(c) (“Any bid that fails to conform to the delivery schedule or permissible alternates stated in the invitation shall be rejected.”) (emphasis added). The second important point is that FAR § 52.214-19(d) highlights two factors a bid must meet in order to be materially unbalanced. First, prices must be significantly overstated or understated in relation to other costs; second, there must be a reasonable doubt that the bid will not result in the lowest overall cost to the government or it must appear that the bid is unbalanced to the point of being tantamount to an advance payment.

There can be no doubt that Fortis’ original bid is unbalanced. Going by the IGE, the work to be done under CLIN 0007 amounted to approximately 2% of the overall value for the contract. In Fortis’ bid, CLIN 0007 accounts for approximately 42.6% of the overall value for the contract. Indeed, the agency noted that Fortis’s original bid was “mathematically unbalanced.” AR 903- 905. Although plaintiff argues that “no further analysis should be necessary” in order for the bid to be rejected as nonresponsive, PMJAR at 19, the FAR clearly contemplates further analysis. To be materially unbalanced, plaintiff must show that there was a reasonable doubt that the bid would not result in the overall price or that acceptance of the bid would be tantamount to an advance payment.

Plaintiff raises three claims of agency error. Pl’s Resp. at 4. The first is that the agency permitted Fortis to modify its original bid. Id. The second is the agency’s failure to reject Fortis’ original bid as nonresponsive. Id. The third is that the agency did not (a) reject Fortis’ original bid as too far out of line or so clearly erroneous so as to make its acceptance unfair, or (b) the agency failed to consider Fortis’ original bid as submitted. Id. Plaintiff argues that if any of these prejudiced Ultimate, it must prevail.

Both sides agree that it was error for the agency to allow Fortis to modify its bid. Before considering whether that prejudiced plaintiff, the court will first examine whether the agency erred by not finding Fortis’ original bid to be nonresponsive. The court’s inquiry is whether the agency’s action is “arbitrary, capricious, an abuse of discretion, or otherwise contrary to law” or “without observance of standard procedure required by law.” 5 U.S.C. § 706(2). The Federal Circuit has described the standard of review as whether the procurement decision “lacked a rational basis” or “involved a violation of regulation or procedure.” Impresa Construzsioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332 (Fed. Cir. 2001); see also Med. Devel. Int’l., Inc. v. United States, 89 Fed. Cl. 691, 700 (2009). The scope of review is narrow: “[t]he Court will look to see if an agency ‘examine[d] the relevant data and articulate[d] a satisfactory explanation for its action.” Gulf Grp. Inc. v. United States, 61 Fed. Cl. 338, 351 (2004) (quoting Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). The protestor bears a “heavy burden” ofshowing that the award had no rational basis and the burden is even higher in a “best value” procurement. Id.

The core document illustrating the agency’s decision making process is a memorandum sent by the contracting officer to the PARC, dated September 17, 2015, and digitallysigned on September 19, 2015. AR. 903-905 It reflects that, prior to awarding the bid to Fortis, the agency considered many of the issues that plaintiff now brings before the court. The memorandumnotes that “[r]ejection of the Fortis bid was considered for line items being materially unbalanced in accordance with FAR 14.404-2(g)” but that “the Contracting Officer determined the bid, while unbalanced, is not materially unbalanced” because “since the base item is priced lower than appears to be correct, and an option item, which may not be awarded, is priced high, there is no risk that award of the contract will result in paying unreasonably high prices for contract performance.” Id. It is clear that the agency flagged the imbalance and considered whether such an imbalance should lead to rejection of the bid. Ultimately, the agency determined that there was no risk of overpayment. If all options on the project were exercised, the government would be getting the lowest price for all the work, and if it ultimately could not award CLIN 0007, the government would stand to benefit from a potential underpayment rather than an overpayment.

With respect to whether or not that created a risk of default, the Corps received a letter from Wells Fargo bank, indicating that Fortis maintained an “average deposits relationship in the low 7-figure range” and also had an active line of credit for $5,000,000, which was currently undrawn. This letter was received before the award of the contract, demonstrating that the Corps did its due diligence in ascertaining Fortis’ ability to perform the contract at its original, unbalanced price. It is simply too speculative to conclude that, absent the award of CLIN 0007, Fortis would have been financially unable to complete the project at its quoted price.

Plaintiff also argues that Fortis’ original unbalanced bid would be tantamount to allowing it to receive an advanced payment, which it argues is disallowed by both FAR § 52.214-19 and the Anti-Deficiency Act, 31 U.S.C. § 3324. Plaintiff contends that, if all NTPs were issued at the same time and all work was to commence simultaneously, Fortis would receive an advance payment because CLIN 0007 would be completed first and Fortis would be entitled to collect the full value from that CLIN, which would be disproportionate to the work actuallycompleted. Defendant, on the other hand, contends that this argument is flawed because the agency knew that, at the time of award, it was likely that CLIN 0007 would be awarded on a delayed NTP.

The record confirms that the agency considered this advanced payment risk when assessing the viability of Fortis’ unbalanced bid. Although throughout the entire process the Corps asserted that it intended on awarding CLIN 0007, it also knew that it might be delayed due to the need to obtain an easement, or that it might not be issued at all. See AR 99 (Internal acquisition plan noting that acquiring real estate for the project would be difficult and that the NTP might be delayed). Because the agency knew it was unlikely that performance for CLIN 0007 would commence simultaneously with the other CLINS, it concluded that there was no risk of advance payment because it was extremely unlikely that Fortis would be able to recover $4,301,682 within the first 45 days of performance commencement. This is not, as plaintiff contends, the agency “not disclosing its superior knowledge” to the detriment of plaintiff. PMJAR at 24. Fortis’ unbalanced bid certainly did not give it an advantage over any other bidder - if anything, it can be said that the imbalance created greater risk to the contractor. The agency merely took into account the likelihood that CLIN 0007 would be awarded on a delayed NTP (or not at all) and determined there was no risk of advance payment or overpayment by the government if it awarded the contract to Fortis under the unbalanced price schedule.

Accordingly, when considering Fortis’ bid, the contracting officer noted that there was no risk to the government because the high priced option item might not ultimately be awarded. AR 903. This was further confirmed by the contracting officer’s post-award letter to Ultimate, which responded to concerns of advance payment by noting that “the imbalance presents no risk of allowing an advance payment.” AR 1526. The agency was first notified on September 15, 2015, by Ultimate regarding a potential issue with advance payment. It is reasonable to conclude that the contracting officer considered these issues when explaining to the PARC why Fortis’ bid, while unbalanced, was not materially unbalanced. We are satisfied that the agency reasonably considered the risk of advance payment to Fortis.   (Ultimate Concrete, LLC  v U. S. and Fortis Networks, Inc.,  No. 16-152C , June 30, 2016)  (pdf)

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)