Price rules the day in contract awards
Until recently, my advice to young entrepreneurs interested in winning government contracts has been consistent: do something that no one else is doing or do what others are doing, but better. Now, the latter piece of that advice has changed; do work as good as competitors, but cheaper.
Protesting contractor: Planned Systems International Inc., Columbia, Md.
Contracting agency: Department of the Air Force
Issue: Find a way to do it cheaper if you want to win
GAO decision, July 10, 2012: Denied.
Post-mortem: In a recent example, the Air Force issued a request for proposal for medical and advisory services, informing prospective bidders that evaluations would be based on past performance, technical capabilities and price. Of the 13 proposals submitted, the Air Forces awarded nine contracts to winners that would then be able to bid on task orders. PSI was not among them, having bid a price higher than those of the winning companies.
PSI protested on several issues. According to PSI the Air Force improperly rated its past performance, improperly evaluated its price and improperly awarded a contract to one of the nine awardees. PSI argued that the Air Force was required to look at historic data to determine the reasonableness of its proposed prices. But the GAO found, “based on the agency’s receipt of substantial competition,” that there was no reason to look any deeper than a comparison of proposed prices as the Air Force “had indicated in the RFP it would do.”
In a footnote the GAO also mentioned that PSI showed a lack of understanding between price reasonableness and price realism. This is common among protestors. Price reasonableness, which was the method used here by the Air Force, determines whether prices are too high while price realism determines whether prices are too low.
Government contractors are reminded every day that budgets are shrinking and dollars spent must go further than in the past. PSI may have proposed the lowest price it was capable of proposing, but 12 other companies found a way to bid at least 19 percent less.
This is the new reality: If companies cannot find a way to either do what no one else is doing, or do what others are doing at least as good but cheaper, it is unlikely they will be able to compete in the government market where agencies are simply not able to pay the premium they did just a year or two ago.