Understanding the basics of cost realism can help offerors submit more competitive proposals and withstand cost realism challenges to award. The Government Accountability Office (“GAO”) cites cost realism as one of its “most prevalent reasons for sustaining protests” in its Fiscal Year 2021 Bid Protest Report.
What is a cost realism analysis?
A cost realism analysis is a FAR 15.404-1(d)(1)-prescribed proposal analysis technique where the agency determines if the proposed costs are realistic for the work to be performed. In a cost reimbursement contract, an offeror’s proposed costs are not controlling because agencies are responsible for all actual and allowable costs. A cost realism analysis determines if an offeror is proposing unrealistically low costs to secure award. An agency cost realism analysis evaluates each offeror’s proposed cost elements (e.g., direct costs, overhead, G&A, material and subcontracting, etc.) for the unique technical approach proposed to determine the expected cost of performance. If the agency determines a proposed cost element is unrealistic, the agency can adjust the offeror’s evaluated cost, typically upward. The agency uses each offeror’s evaluated cost to select the best value awardee. However, the contract award reflects the awardee’s proposed total cost.
For years, the Government Accountability Office (“GAO”) has been moving towards an increasingly draconian position on offerors’ obligations to notify agencies when the availability of proposed personnel changes after proposal submission. A recent decision by the Court of Federal Claims (“COFC”) in Golden IT, LLC v. United States expressly addressing and departing from the GAO precedent may give hope to offerors struggling with GAO’s requirement.
Golden IT, LLC (“Golden”) protested the Department of Commerce’s award of a single blanket purchase agreement to Spatial Front, Inc. (“SFI”). Among its many protest grounds, Golden claimed that SFI’s quote contained a material misrepresentation regarding key personnel because it proposed an employee who had allegedly left SFI after it submitted its bid and before receiving award. Golden claimed that SFI was obligated to notify the agency of the individual’s unavailability after submitting its proposal.
Last week, the Government Accountability Office (“GAO”) issued a report on Department of Energy (“DOE”) contracting, Improvements Needed to Ensure DOE Assesses Its Full Range of Contracting Fraud Risks. The thrust of the report is that DOE should do more to prevent and detect fraud, particularly in less-examined areas such as bid-rigging, misrepresentation of eligibility, kickbacks and gratuities, and conflicts of interest.
DOE relies on contractors to carry out its missions at laboratories and other facilities, spending approximately 80 percent of its $41 billion in total obligations on contracts. In March 2017, GAO reviewed DOE’s approach to managing its risk of fraud and found DOE did not use leading practices, resulting in missed opportunities to mitigate the likelihood and impact of fraud.
The Government Accountability Office (“GAO”) has released its Annual Report to Congress summarizing bid protest activity for Fiscal Year 2020 (GAO-21-281SP). The report shows that, in a unique year where COVID-19 altered procurement practices and priorities, protest activity at GAO was remarkably stable. Of note, GAO’s “effectiveness rate” this year topped 50 percent, meaning most protests resulted in some form of relief. The number of task order protests continues to increase, despite a modest dip in overall protests. Unsurprisingly, again there were very few hearings.
The chart below summarizes the GAO protest statistics from FY 2015 to FY 2020.
Here are four key takeaways from the latest report.
About a third of U.S. Government Accountability Office (“GAO”) protests end because an agency decides to take voluntary corrective action. (This is evidenced by the ~30 percent difference between GAO’s “Sustain” rate and “Effectiveness” rate.) While it is considered a “win,” voluntary corrective action can be frustrating for protesters who may have no assurance their concerns will truly be addressed. Agencies often say little about what the corrective action will entail. When they do discuss specific steps to be taken, agencies often list various actions they may or may not take, depending on further assessment as the corrective action unfolds. Historically, GAO has largely brushed aside complaints about these uncertainties. When an agency announces its intent to take corrective action, the perfunctory next step has been a quick dismissal of the protest.
The Government Accountability Office (“GAO”) has released its Annual Report to Congress summarizing bid protest activity for Fiscal Year 2019 (B-158766). The report shows that the number of protests has fallen, the effectiveness rate has remained high and remarkably stable, and hearings have made a bit of a comeback.
The chart below summarizes the GAO protest statistics from FY 2014 to FY 2019.
We discussed in a previous blog post how the current state of the law at the U.S Government Accountability Office (“GAO”) and within the Federal Circuit limits offerors’ ability to effectively challenge agency corrective action. See Is There No Balm in Gilead? The Federal Circuit’s Decision in Dell Federal Systems L.P. v. United States Reinforces Contractors’ Dwindling Options to Effectively Challenge Agency Corrective Action. Specifically, we demonstrated that GAO has adopted a highly deferential, “hands off” position with regard to agency corrective action, holding that “the details of a corrective action are within the sound discretion and judgment of the contracting agency.” Northrop Grumman Tech. Servs., Inc., B-404636.11, June 15, 2011, 2011 CPD ¶ 121 at 3. Under governing GAO case law, agencies have discretion to decide the scope of corrective action, including whether discussions will be held, the breadth of such discussions, which offerors shall be included in the corrective action, and the scope of permitted revisions to proposals. Deloitte Consulting, LLP, B-412125.6, Nov. 28, 2016, 2016 U.S. Comp. Gen. LEXIS 348 at *1, *11 (citing Computer Assocs. Int’l., B-292077.2, Sept. 4, 2003, 2003 CPD ¶ 157 at 5). Indeed, GAO will not disturb an agency’s proposed corrective action so long as the corrective action is deemed reasonable—that is, so long as the corrective action is “appropriate to remedy the flaw which the agency believes exists in its procurement process.” Onésimus Def., LLC, B-41123.3, B-41123.4, July 24, 2015, 2015 CPD ¶ 224 at 5. Continue reading “Evaluations That Prompt Corrective Action Must Be Documented”
In May 2018, the Government Accountability Office (“GAO”) implemented a $350 filing fee for bid protests. There are differences of opinion regarding why GAO implemented the fee. GAO publicly states that the fee was implemented to cover the costs of its new Electronic Protest Docket System (“EPDS”). Many, however, believe the fee was implemented to deter the filing of frivolous protests. Regardless, there “may” be an unintended consequence of the protest filing fee—an increase in agency-level protests. Recently, several agency contracting officers have stated that they are handling more agency protests, and, in their opinion, it is a direct result of GAO’s protest filing fee. As a result, contractors should understand and be prepared to mitigate the risk of agency protests to protect their contracts and position themselves for new ones.
According to a recent U.S. Government Accountability Office (“GAO”) report, the Defense Contract Audit Agency (“DCAA”) and the Defense Contract Management Agency (“DCMA”) have taken certain steps to improve the contractor business system (“CBS”) review process and are forecasting that CBS reviews will increase significantly over the next four years. Contractor business systems include a contractor’s accounting, earned value management, estimating, purchasing, material management, and property management systems. These systems require contractors to maintain internal controls that, as GAO noted, “act as the first line of defense against fraud, waste and abuse of federal funding.” Given their importance, the renewed focus on ensuring CBS reviews are conducted in a timely and consistent manner is not surprising, and contractors should prepare for a new wave of audit activity. Continue reading “Renewed Focus on Contractor Business System Reviews”
The Government Accountability Office (“GAO”) has released its Annual Report to Congress detailing the bid protest statistics for Fiscal Year 2018 (B-158766). The report shows a continuation of recent trends: the sustain rate is low; overall success is nevertheless quite strong; and hearings have become nearly extinct.
The GAO issued a decision on the merits for 622 protests in FY 2018. That represents only a fraction of the 2,607 total protests received, but is the most decisions GAO has issued in at least 10 years. As is typically the case, less than 20 percent of those protests resulted in “sustain” decisions finding in favor of the protester—just 92 protests, or 15 percent of those decided in FY 2018. Despite that seemingly grim rate of success in merits decisions, protesters’ overall rate of success, what GAO terms the “effectiveness” rate, continues to hover around 45 percent. As before, protesters are obtaining desired relief in nearly half of all protests filed—but their “win” typically comes well before a final merits decision with the agency taking voluntary corrective action, usually within the first 30 days of the protest, before the agency report has been filed. Continue reading “FY 2018 GAO Protest Statistics Show Continued Success through Corrective Action”