Was the Agency's Price Reasonableness Determination Reasonable?

Agencies are required to ensure that the award of any contract is made at a fair and reasonable price. Federal Acquisition Regulation (“FAR”) 15.404-1. This same FAR section goes on to discuss various analytical techniques (price analysis, cost analysis, cost realism analysis, etc.). Can an agency’s Independent Government Cost Estimate (“IGCE”) be based on the agency’s historical costs for the requirement and a reasonable estimate regarding increase future usage? The purpose of conducting a price reasonableness determination in a fixed price contract is to determine whether prices are too high. MCI Diagnostic Center, LLC, B-422777, October 21, 2024, demonstrates how the Governmental Accountability Office (“GAO”) views IGCEs.

The Department of Veterans Affairs (“VA”) issued a solicitation for fixed price laboratory testing services. In evaluating price, the VA compared overall and annual prices in the IGCE, and found that MCI’s price for each year as well as its overall price, were 30.49 percent above the IGCE price. The VA found that it could not determine MCI’s price to be fair and reasonable. MCI protested that the agency relied on a flawed IGCE to determine that MCI’s price was not fair and reasonable and not eligible for award. (Other offerors were deemed not acceptable to the VA for unstated reasons in the decision).

The solicitation informed offerors that their price proposals would be evaluated for fairness and reasonableness using any of the techniques in FAR 15.404-1(b)(2). The agency reviewed the most recent 12 months of payment history on the current contract, and then added a good faith, reasonable estimate for the costs of the new contract. Basically, MCI challenged the use of the incumbent’s price and alleged that it failed to consider differences in the scope of that contract and therefore failed to provide an apples-to-apples comparison.

The GAO found that the VA had reasonably found MCI’s price to be unreasonably high, and therefore unawardable. The IGCE methodology used by the VA was deemed as acceptable pursuant to FAR 15.404-1(b)(2)(i). GAO noted that a price reasonableness determination is a matter of agency discretion involving use of business judgment, and the VA’s price evaluation was reasonable. The GAO denied MCI’s protest.

Takeaway: Normally, a bidder can obtain payment amounts under a contract through the Freedom of Information Act (“FOIA”). However, this must be done several months in advance of any new contract bidding. This might have tipped off these bidders as to what pricing might be deemed reasonable.

For other helpful suggestions on government contracting, visit:

Richard D. Lieberman’s FAR Consulting & Training at https://www.richarddlieberman.com/, and Mistakes in Government Contracting at https://richarddlieberman.wixsite.com/mistakes.