A contractor learns, if you’re going to price high, price really, really high

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In the sweepstakes for the latest iteration of a big Army logistics contract, two bid protests failed to gain a prize for one bidder. A big issue was pricing. Its prices were too high, but not too high enough. Sounds strange? Smith Pachter McWhorter procurement attorney Joseph Petrillo joined Federal Drive with Tom Temin to explain.

Interview transcript:

Tom Temin: And this is the big LOGCAP V deal that really matters to contractors because it’s the contract that basically allows the Army to operate.

Joseph Petrillo: Exactly. It’s a worldwide multiple award indefinite quantity contract for logistics and sustainment for the Department of Defense. It’s an enormous contract. It’s a group of seven contracts covering six commands and Afghanistan, it was a best value solicitation. And there were four evaluation factors, the most important of which was technical management. Also evaluated were past performance, small business participation, and which is important here, cost to price. There were both fixed price and cost plus elements in the contract. Therefore, there was an evaluation for both cost realism, is the cost or price too low, and price reasonableness, is the price too high? There were extensive discussions with all the offerors, and four of the competitors got contracts, some got more than one command, but all four of them got contracts. DynCorp was not one of them.

Tom Temin: And DynCorp was downgraded both on some of the technical aspects of the valuation and on pricing.

Joseph Petrillo: Yes, in the most important evaluation, the technical management factor, its proposal was not highly ranked, also had a fairly high price, higher than its competitors. In any event, it did protest to the court of federal claims. And during the protest, the army realized they had a vulnerability. And specifically, they had only evaluated price reasonableness for the awardees, but the solicitation said they would do that for all the offerors, so they felt they had to go back and fix that error. They asked the court to permit them to perform a corrective action, court said fine, go fix your problem. And even after that, DynCorp had not received a contract. It went back and protested again to the court of federal claims and lost there, and then had an appeal to the federal circuit, which just issued its decision last month.

Tom Temin: And it also turned down DynCorp.

Joseph Petrillo: Exactly. Here’s the issue. It’s kind of an interesting one. DynCorp was arguing that the price it gave the Army was so high as to be unreasonable. If the price had been found unreasonable, since that was something that happened during this corrective action, it was something that the Army would have had to have discussed with DynCorp. That would have meant a reopening of discussions, an opportunity to revise its proposal. And DynCorp, I guess, was hoping that with that reopening, it could improve its proposal sufficiently to get an award. So it was trying to get a second bite at the apple or third or fourth, we’re up to a few by now. The issue here though was you know, was its price on reasonable and did the Army perform an improper price reasonableness evaluation. The Court of Appeals did a very thorough analysis of the language of the regulation. DynCorp had said, look there are two preferred ways of doing this, and the Army didn’t use those two preferred ways, but it had to. And the Court of Appeals ultimately concluded that those methods were simply preferred not required. The agency had a lot of flexibility and discretion about how it would perform a cost reasonable evaluation.

Tom Temin: We’re speaking with Joseph Petrillo, he’s a procurement attorney with Smith Pachter McWhorter. So in other words, DynCorp pricing was high. And if it’s simply high, but reasonable, then too bad, you’re too high and you don’t get an award if that’s one of the criteria. What it was saying, though, that its own price was unreasonable. And I guess I’m questioning why would a contractor purposely submit an unreasonable price? Or did it only find out later after the awards that, gosh, we’re so high, we should have been found unreasonable?

Joseph Petrillo: Well, I think what happened was after the evaluation that took place as part of the corrective action, the only viable legal issue DynCorp had was this opportunity to try to reopen discussions and give it another chance at providing a better proposal that might have won. And the fact that matter is the argument it made about price reasonableness failed for the reason I mentioned, that those two methods weren’t required. And for the second reason, the Army actually did do a very thorough price reasonableness evaluation that the court of appeals and the court of federal claims both felt were adequate under the regulations.

Tom Temin: Often in these protest cases, the agency is kind of flat footed or found to be flat footed in application of its own criteria, or in some fine point of the Federal Acquisition Regulation, or in this case, the DFAR. But it sounds like in this case, the Army knew what the heck it was doing, because this is the fifth iteration of LOGCAP, and therefore, they know the ins and outs and we’re prepared.

Joseph Petrillo: That’s right. I think agencies get into trouble with protests for two generic reasons. One, there’s something they have to do or require to do, but don’t do it. Or two, they’re exercising some judgment or making some determinations or analyses. But they do it in such a strange way that it doesn’t appear to hold water. It’s not a reasonable rational evaluation. Here, the Army was in the second category. They did what they were supposed to, but they had an area of discretion and judgment. And their analysis was considered adequate by the court. It wasn’t so deficient that it merited overturning.

Tom Temin: Yeah. So that’s another important point that in matters of discretion that are permitted under the far or whatever procurement system you’re using, both GAO and the courts tend to respect to the government’s discretionary exercise.

Joseph Petrillo: That’s absolutely correct. This protest does illustrate a very strange situation where if you submit a proposal that’s unreasonably priced, at least under these circumstances, you would be in better shape than an offeror whos proposal wasn’t unreasonably priced.

Tom Temin: There’s no way of knowing that in advance. You can’t have a strategy of submitting an unreasonable price, knowing that you’ll get a chance to, as you put it, another bite at the apple. If the time they submitted the price, they’d likely thought it was a reasonable price.

Joseph Petrillo: Exactly. And the way you phrased it, it’s pretty clear that that’s for a lot of reasons not going to be a good strategy going in.

Tom Temin: Yeah, so stop me before I high price again. Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter. As always, thanks so much.

Joseph Petrillo: Thank you Tom.

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