When a solicitation anticipates award of a fixed price contract, the Federal Acquisition Regulation typically doesn’t require the agency to conduct a price realism analysis. But, to assess the risk inherent in an offeror’s proposal for a fixed-price contract, the agency may, at its discretion, say in the solicitation that it will perform a price realism analysis. And, if the solicitation says that a price realism analysis will be performed, the agency had better perform it and document it. Where an agency fails to document its price realism evaluation, it bears the risk that there may not be an adequate supporting rationale in the record for the Government Accountability Office (GAO) to conclude that the agency had a reasonable basis for its source selection decision.

That was the case in a bid protest that GAO sustained earlier this summer. There, the awardee (Sterling) had bid the staff of the incumbent contractor (Valor), but at substantially lower rates than Valor was paying. When Sterling won the contract, Valor protested that the agency had failed to determine that Sterling’s price as realistic, as required by the solicitation.

It is not impossible that Sterling’s plan to incur lower labor costs than Valor for the same staff was realistic. But, GAO sustained Valor’s protest because there was no evidence that the agency had even asked itself or Sterling the question.

The takeaways? For agencies, if the solicitation calls for a price realism analysis, make sure you perform, and document, that analysis. For offerors, make sure your proposal includes the information the agency will need to find that your price is realistic, especially if our price includes significant savings off the incumbent’s price.

The case is Valor Healthcare, Inc., B-412960 (July 15, 2016), available at http://www.gao.gov/assets/680/678875.pdf.