When an agency evaluates a proposal for the award of a cost-reimbursement contract or order, an offeror's proposed costs are not dispositive. Regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. The Federal Acquisition Regulation therefore requires agencies to perform a cost realism evaluation to determine the extent to which each offeror’s proposed costs represent what the contract costs are likely to be. FAR §15.404–1(d). When an offeror intends to use incumbent personnel, its ability to recruit and retain such personnel with the labor rates proposed becomes a key factor of the cost realism evaluation. A number of decisions over the past two years have reiterated this concept.

Originally published in Law360 - May 22nd, 2017.