Government Contracts Monitor

Offerors Deemed Responsible by Agency Can Bid at Below Cost on Fixed-Price Contracts

April 22, 2014

By: Eric Whytsell

You might think that below-cost bids would provide a clear basis for challenging an award. If you did, you’d be wrong. As the Government Accountability Office (GAO) makes clear in JCMCS, B-409407 (Comp. Gen. April 8, 2014), the question of whether a bidder can perform at its bid price implicates the agency’s determination of the offeror’s responsibility, which the GAO will not review except in certain limited circumstances.

JCMCS involved an 8(a) set-aside for fixed-price bids for concrete work for a base year and four option years. Award was to be made to the lowest price responsible bidder submitting a responsive bid. When the agency opened the sealed bids, it found that M&F Concrete had submitted the lowest bid ($20,514,321.50), which was significantly lower than the next lowest bid ($36,374,996), submitted by JCMCS. Nevertheless, the contracting officer determined the bid was responsive and awarded the contract to M&F.

JCMCS protested the award, arguing that M&F’s bid price was so low that the agency should not have concluded M&F was a responsible bidder. GAO rejected this core contention of the protest, noting that “below-cost prices on fixed-price contracts are not prohibited” and explaining that the question of whether a bidder can perform such a contract constitutes a matter of bidder responsibility, agency determinations of which are not reviewable by GAO absent circumstances not present in this case (e.g., allegations that definitive responsibility criteria in solicitation were not met; claims asserting that the contracting officer “unreasonably failed to consider available relevant information or otherwise violated statute or regulation”). See 4 C.F.R. § 21.5(c).

GAO went on to reject the several additional arguments based on the awardee’s low bid price. In response to M&F’s contention that the agency had failed to use any of the price analysis techniques set forth in FAR Part 15, the GAO observed that FAR Part 15 requirements generally do not apply to FAR Part 14 procurements like this one and noted that FAR 14.408-2(a) provides only that the Part 15 price analysis techniques may be used as guidelines. GAO also rejected the argument that M&F’s bid was so low that it must be unbalanced, essentially because JCMCS identified only one example of purported overcharging (out of several hundred line items) and failed to show how that single $60,000 item could have resulted in any risk to the government given M&F’s $15.8 million price advantage.

Perhaps the most telling aspect of the decision is the GAO’s response to the protester’s contention that M&F’s bid is so low that the awardee cannot possibly meet the solicitation requirement to pay labor rates compliant with the Davis Bacon Act. In a stark illustration of the practical implications of the general rule concerning below-costs bids, the GAO explained, “A bidder may remain eligible for award even if lower wage rates than those required by a prevailing wage rate determination are offered by the firm, where the firm accepts (and is therefore obliged to meet) a requirement to compensate employees at prevailing rates, and the firm is otherwise determined to be responsible.”

In other words, as long as a bidder is deemed by the agency to be responsible and agrees (by submitting the bid) to comply with a contract’s prevailing wage requirements, that bidder is even free to bid a price lower than that required to allow it to keep that promise with contract revenue. Presumably, a responsible bidder can be trusted to find the funds necessary to pay prevailing wage from other sources.

Regardless of whether you agree with this sentiment, there can be no doubt that protesting below cost bids on fixed-price contracts is a complete non-starter at GAO.

J. Eric Whytsell is the attorney responsible for the content of this article

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