Price realism challenges stand out as a common basis for bid protests in federal procurements.
A competitor’s unrealistically low pricing may signal a lack of understanding or commitment to contract performance. Price realism protests often challenge an agency’s failure to adequately assess whether proposed prices are too low to support successful execution of the work.
A recent bid protest narrowly focused on the evaluation of one aspect of proposal pricing – compensation plans for professional employees.
In sustaining the protest, GAO held that agencies may be required to conduct a price realism evaluation regarding an offeror’s proposed professional compensation plan under FAR 52.222-46 (Evaluation of Compensation for Professional Employees). Notably, the holding applied even where the solicitation otherwise indicated that the agency would limit its evaluation to price reasonableness.
Based on this holding, contractors should carefully consider proposals including compensation plans for professional employees. An unrealistic basis could torpedo your company’s award – or form the basis for a winning bid protest strategy against your competition.
Professional Employees’ Compensation Overview
Professional employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime requirements. They are employees whose work requires advanced knowledge of a field and have usually accomplished a long course of specialized instruction. Common examples of professional employees include engineers, physicians, accountants, and attorneys.
Contracts over $750,000 that will involve “meaningful numbers of professional employees” require the contracting officer to include FAR 52.222-46. The clause is intended to help agencies evaluate whether an offeror:
- Has an adequate number of professional employees for successful contract performance; and
- Understands the contract requirements.
In analyzing offerors’ proposed professional employee compensation plans, agencies are required to consider “its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation.” This realism analysis was the key issue in the subject protest.
The Price Realism Protest
The procurement at issue in the protest was for the management, operation, and maintenance of the Navy’s emergency ship salvage material system and support to the Navy’s response program for oil and hazardous substance spills.
The RFP noted that the agency would evaluate offerors’ total cost and price based on scheduled labor rates, indirect rates, and award fee/fixed fees. As part of this evaluation, the agency also required offerors to submit a cost worksheet with rates for labor, fringe benefits, and overhead. The RFP included FAR 52.222-46, which described the procedures for assessing an organization’s professional employees.
The protester argued that Navy misevaluated the awardee’s proposal before making an unreasonable source selection decision. Specifically, the protester alleged that the Navy failed to assess the realism of offerors’ professional compensation, as required by the solicitation (and, specifically, the inclusion of FAR 52.222-46 in the RFP).
The GAO sustained the protest, finding that the Navy failed to perform the realism analysis for the offerors’ professional compensation as required by the RFP – despite the agency and awardee’s counter arguments that the RFP’s instructions did not contain an express requirement to perform a price realism analysis (only price reasonableness):
The RFP statement limiting the evaluation of the scheduled labor rates (to an assessment of reasonableness and material balance) is not contradicted–directly or implicitly–by FAR provision 52.222-46 since the evaluations consider different information.
Contractor Takeaways
Contractors should carefully consider contractual requirements for professional compensation plans when drafting proposals. The plan should be sufficiently detailed, demonstrate the contractor’s understanding of the work, and include justification for the proposed compensation levels.
Even if the RFP does not specifically call for a price realism evaluation, the inclusion of FAR 52.222-46 controls.
Submitting a realistic plan could be the difference between a successful award, a protest, or the outright rejection of the proposal.
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