United States: Five Cost/Price Evaluation Lessons From Recent Bid Protest Decisions

Last Updated: January 20 2014
Article by Michael R. Golden and Craig A. Schwartz


In this era of sequestration and decreased defense spending, paying close attention to cost and price issues is of paramount importance to contractors submitting proposals to the federal government. Nine recent bid protest decisions from the U.S. Government Accountability Office (GAO) and U.S Court of Federal Claims (COFC) provide important guidance for contractors with respect to the nuanced rules governing an agency's evaluation of cost/price factors.1 The purpose of this article is to highlight five key legal principles derived from those decisions, and to provide brief commentary concerning best practices for contractors to use these principles to their advantage.

The Five Principles

1. Remember That the Agency Must Give Cost/Price at Least Some Consideration and That, If Using Notional Scenarios, the Agency Must Normalize Proposal Costs to Provide a Consistent Basis for Evaluation.

In a best-value procurement, even where the solicitation states that price is of less importance than other, non-price, factors, the agency still "must meaningfully consider cost or price to the government in making its selection decision." Glotech, B-406761 et al., at 7 (citation omitted). This is because, to be meaningful, a best-value determination requires a cost-benefit analysis. Id. (citation omitted). "Thus, before an agency can select a higher-priced proposal that has been rated technically superior to a lower-priced but acceptable one, the decision must be supported by a rational explanation of why the higher-rated proposal is, in fact, superior, and explaining why its technical superiority warrants paying a price premium." Id. (citation omitted).

An agency may make use of notional scenarios in its solicitation, as long as the "agency's chosen method of evaluation" for those scenarios "include[s] some reasonable, common basis for evaluating or comparing ... relative costs." IBM, B-407073.3 et al., at 8 (citation omitted). This normalization of proposal costs ordinarily "involves the measurement of [competing] offerors' costs against the same baseline" to facilitate "the establishment of common estimates by the agency." Id. (citation omitted).

The lesson here is that a superior technical evaluation alone will not win a procurement, even in the best-value context. In this era of sequestration, with the looming specter of disappointed low-priced bidders protesting unsuccessful procurements, contracting officers may find technically acceptable but lower-priced proposals preferable to their technically optimal but premium-priced competitors. A prospective offeror should keep this dynamic in mind when formulating its bidding strategy because the GAO may not be receptive to pure technical superiority arguments in a subsequent protest. That said, a prospective low-priced offeror should be mindful that the agency might be obliged to adjust the offeror's proposed costs upward as part of its normalization of proposal costs, in the event that the agency made use of notional scenarios and such adjustment is necessary to provide for a common evaluative baseline.

2. Understand the Distinction Between Cost-Reimbursement and Fixed-Price Contracts Regarding an Agency's Use of Realism Analysis, As Well As the Nuances Governing Such Analyses in the Fixed-Price Context.2

In the context of a cost-reimbursement contract, the agency may adjust the offeror's proposed costs pursuant to a cost realism analysis because, irrespective of the offeror's proposal, the government must reimburse all allowable costs that the contractor actually incurs. PAE, B-407818, at 4 (citing, inter alia, Federal Acquisition Regulation (FAR) Sections 15.305(a)(1), 15.404-1(d)). Thus, a cost realism analysis is required to determine whether an upward cost adjustment is appropriate. See id. (citing FAR Section 15.404-1(d)(1)).

By contrast, in the context of a fixed-price contract, a realism analysis is not required because the government's cost liability is fixed regardless. Id. (citation omitted). It is the fixed-price contractor who "bears the risk of any cost escalation" and, therefore, no cost adjustment could be appropriate. See id. (citation omitted). That said, the agency may undertake a discretionary price realism analysis, but only within a narrowly circumscribed set of circumstances. Namely, the agency must provide "reasonable notice," through a written solicitation provision, which specifically states that low pricing will be considered as reflecting on the offeror's technical capability to perform and may be grounds for elimination from the competition. Id. at 6 (citing, inter alia, FAR Section 15.404-1(d)(3)); see also Triad Int'l, B-408374, at 11 (citations omitted) (concluding "that the agency improperly applied an unstated evaluation factor in determining that the protester's proposed pricing was so low as to call into question its understanding of the solicitation requirements and its ability to perform").

This discretionary price realism analysis must be limited only to the agency's technical evaluation of the proposal, and may not encompass an adjustment to the offeror's proposed costs. See PAE, B-407818, at 4, 6. Without a written notice provision in the solicitation, a realism analysis in the fixed-price context is outright prohibited. Id. at 6 (citations omitted). The GAO will not infer a notice provision from generalized solicitation language requiring the offeror to assure the agency it can meet the solicitation's technical requirements. See id. at 6-7.

Once the agency elects to undertake a discretionary price realism analysis, it maintains broad discretion concerning the full nature and extent of that analysis. Cohen Fin., No. 13-37, at *42-43 (citations omitted); ABSG, B-404863.7, at 5 (citation omitted). The upshot of this is that, upon completion of its analysis, the agency may choose to select a proposal offered at below-cost prices, perhaps submitted by an offeror seeking to gain a foothold in a new market. See Cohen Fin., No. 13-37, at *40-41 (citations omitted) ("A low price ... is not necessarily an unrealistic one."); Triad Int'l, B-408374, at 11 (citations omitted) ("[B]elow-cost prices are not inherently improper when offerors are competing for award of a fixed price contract. ...").

The lesson here is that a disappointed fixed-price offeror cannot attack the price realism of the awardee's proposal, or the agency's failure to analyze it as part of the awardee's technical evaluation, unless a written solicitation provision specifically stated that unrealistically low pricing would reflect on the offeror's technical capability and could be grounds for elimination. Even then, a reviewing tribunal likely would defer to the agency's discretion regarding the awardee's sufficient technical capability. As the cases recognize, there is nothing inherently wrong with a low-priced or even below-cost offer. See Cohen Fin., No. 13-37, at *40-41 (citations omitted); Triad Int'l, B-408374, at 11 (citations omitted).

In no circumstance could the disappointed fixed-price offeror attack the agency's failure to adjust the awardee's proposed costs upward. In the cost-reimbursement context, however, a disappointed offeror might succeed in attacking the agency's failure to adjust the awardee's unrealistically low costs.

3. Remember That the Agency May Have a Contractual Duty to Conduct a Cost Realism Analysis Even When It Does Not Have a Regulatory Duty to Conduct One Under the FAR.

Where a solicitation provision puts an offeror on notice that the agency will not conduct a cost realism analysis, the agency is not bound by a post-submission regulatory duty to conduct one. See Nuclear Prod. Partners, B-407948 et al., at 12-13 (citing, as examples, FAR Sections 15.305(a)(1), 15.404(d)(2)). Instead, the offeror may challenge such a provision pre-submission as a solicitation impropriety. See id. at 13 (citing 4 C.F.R. Section 21.2(a)(2)). Nevertheless, this same principle of adherence to a solicitation's terms imposes a post-submission contractual duty on the agency to analyze the various offerors' proposed costs consistent with any stated evaluation criteria from the solicitation. See id. at 14 (citations omitted). Depending on the evaluation criteria, this duty may amount to a cost realism analysis in all but name.

When an agency fails to comply with a duty to conduct a cost realism analysis—whether regulatory or contractual—and this failure extends to its evaluation of all offerors' proposals, the argument that a given protestor was not prejudiced because all protestors were treated equally will not avail. See id. at 17. This is because, without the requisite cost analysis, prejudice cannot be determined and therefore must be presumed. See id.

Here, a prospective offeror should draw three lessons. First, the offeror should take care not to forfeit any good-faith pre-submission challenge to a solicitation provision that disclaims the agency's regulatory duties to perform a cost realism analysis. Second, whether in lieu of a regulatory challenge or in addition to one, the offeror should scrutinize the solicitation's evaluation criteria for additional protest grounds that may affect its ability to win the contract. If the offeror believes the evaluation criteria competitively prejudice it, the offeror has the option of protesting the solicitation before the closing date. Finally, the offeror should not be daunted by an agency's common failure to conduct a cost realism analysis that extended to all offerors. This alone will not adversely impact the standard prejudice inquiry; indeed, it will create a presumption of prejudice.

4. Provide a Sufficient, Documented Basis for Proposed Cost Savings from Innovations That Improve Labor Productivity.

When an offeror proposes cost savings through innovative processes that improve labor productivity, but the proposal does not include historical data documenting past—pre-innovation—productivity rates as a baseline for comparative purposes, the agency has a reasonable basis for adjusting the offeror's proposed costs upward to conform to the agency's own estimated productivity rates. See Palmetto, B-407668 et al., at 26-27.

The lesson here is simple but critical. A prospective offeror proposing cost savings through innovations that improve labor productivity should make sure to include historical productivity data in its proposal. Without such a baseline, the proposal is vulnerable to upward adjustment by the agency, as well as subsequent protests by disappointed competitors challenging the cost realism of the proposal's labor-productivity rates.

5. Clearly Delineate Between Previously Implemented Cost Savings from Innovations and Additional Incremental Cost Savings in a Proposal.

Where proposed innovations have been partially implemented in past performances, the burden is on the offeror to demonstrate, through "an adequately written proposal," additional incremental cost savings not already reflected in the proposal's historical costs. See Noridian, B-401068.13, at 5 (citations omitted). If the proposal does not clearly delineate between historical cost savings and future incremental cost savings, and the agency provided the offeror with an opportunity to clarify its proposed savings during discussions, the agency has a reasonable basis for adjusting the offeror's proposed costs upward. See id. at 5-6.

Here, the prospective offeror should again draw three lessons. First, the offeror should take care to delineate clearly between historical cost savings and future incremental savings from proposed innovations. The burden is on the offeror to provide an adequate delineation in its written proposal. Second, if the agency engages the offeror in discussions, the offeror should make sure to provide any remaining clarifications necessary to isolate the additional cost savings from innovations included in its proposal. If the agency fails to engage the offeror in discussions concerning inadequate delineation, that failure may become a basis for protest in the event that the agency subsequently adjusts proposal costs upward. Finally, the offeror must document and justify any cost approach or strategy that results in cost savings or lower labor rates. Absent such documentation, the agency may adjust the offeror's costs upward.


To reiterate, the nine recent decisions discussed in this article provide the following five lessons for prospective offerors:

(1) Remember that the agency must give cost/price at least some consideration and that, if using notional scenarios, the agency must normalize proposal costs to provide a consistent basis for evaluation.

(2) Understand the distinction between cost-reimbursement and fixed-price contracts regarding an agency's use of realism analysis, as well as the nuances governing such analyses in the fixed-price context.

(3) Remember that the agency may have a contractual duty to conduct a cost realism analysis even when it does not have a regulatory duty to conduct one under the FAR.

(4) Provide a sufficient, documented basis for proposed cost savings from innovations that improve labor productivity.

(5) Clearly delineate between previously implemented cost savings from innovations and additional incremental cost savings in a proposal.


1. The nine decisions, in order of discussion, are:

(1) Glotech, Inc., B-406761 et al., 2012 CPD ¶ 248 (Comp. Gen. Aug. 21, 2012) (protest sustained)

(2) IBM-U.S. Federal, B-407073.3 et al., 2013 CPD ¶ 142 (Comp. Gen. June 6, 2013) (protest sustained)

(3) ABSG Consulting, Inc., B-404863.7, 2013 CPD ¶ ___ (Comp. Gen. June 26, 2013) (protest denied)

(4) PAE Government Services, Inc., B-407818, 2013 CPD ¶ 91 (Comp. Gen. Mar. 5, 2013) (protest denied)

(5) Triad International Maintenance Corp., B-408374, 2013 CPD ¶ ___ (Comp. Gen. Sep. 5, 2013) (protest sustained)

(6) Cohen Financial Services, Inc., No. 13-37, ___ Fed. Cl. ___, 2013 U.S. Claims LEXIS 1068 (Aug. 12, 2013) (judgment on administrative record granted to government and intervenor)

(7) Nuclear Production Partners LLC, B-407948 et al., 2013 CPD ¶ 112 (Comp. Gen. Apr. 29, 2013) (protest sustained in part and denied in part)

(8) Palmetto GBA, LLC, B-407668 et al., 2013 CPD ¶ 53 (Comp. Gen. Jan. 18, 2013) (protests denied), and

(9) Noridian Administrative Services, LLC, B-401068.13, 2013 CPD ¶ 52 (Comp. Gen. Jan. 16, 2013) (protest denied).

2. In order to distinguish clearly between the cost-reimbursement and fixed-price contexts, this section of the article adopts the GAO's convention of using the term "cost realism" to refer to the evaluation of cost-reimbursement contracts, and the term "price realism" to refer to the evaluation of fixed-price contracts. See ABSG, B-404863.7, at 3 n.3 (citation omitted). Interestingly enough, as the GAO observed in ABSG, only the term "cost realism" is actually defined in the Federal Acquisition Regulation. See id. (citation omitted).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Michael R. Golden
Craig A. Schwartz
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions