The following article was prepared by Mike Taylor, C.P.M., for distribution to ISM affiliate newsletters
Responsible Suppliers & Price Realism
Those of us working in the world of Federal Acquisition Regulations are essentially doing the same job as Supply Chain Managers in the commercial world. We are both trying to maximize the value of our supply chains by finding the right suppliers and creating successful contracts. The major difference is that government procurement regulations require a rather complex and well-documented process. One annoyance is that supplier protests [complaints] about the process have to be litigated to ensure all suppliers are given an equal and fair chance.
Although often decided based on arcane Federal Acquisition Regulations, some of the analysis provided by counsel, can be insightful and compelling. Even for folks who work in a strictly commercial acquisition environment, the principles described can be worthy goals in our quest to add value to Supply Chain processes.
Here is one example:
Government Accountability Office (GAO) case B-406625.
In this case, one of the offerors protested that the discussions held by the Buyer prior to award were unfair and ultimately responsible for the offeror not receiving an award.
The agency [I’ve replaced throughout with Buyer] conducted price realism analysis of the offers and sent evaluation notices (EN) that described the weaknesses and allowed the offerors to revise their proposals. This seller revised his proposal and did not receive an award. Seller claimed the Buyer’s EN compelled him to raise prices – thus he should have gotten the award. Seller lost…Buyer won
Here are some excerpts from the case decision [in italics] along with my comments relative to supply chain processes.
After the first round of proposals were received, the Buyer conducted discussions (negotiations) with all offerors.
What is a negotiation? It’s an honest discussion of the facts intended to result in the best contract possible. If one side is dishonest or there is a great deal of mistrust, the negotiation may fail or even worse, result in a tenuous or contentious contract.
In analyzing the proposed prices
I like “lack of sound business judgment” as one of the possible conclusions. Just because an offeror submits a good price – it doesn’t mean the offeror is responsive, responsible and reliable. Even government regulations, which appear to focus on low price, recognize that principle.
Comment from Counsel about the difference between price reasonableness and price realism.
A good description of a price realism analysis – not the same as establishing the price to be reasonable. When examined closely, a reasonable selling price might be very unrealistic for circumstances. Consider the offeror who submits a reasonable price for an electric motor but plans to make it by hand, in a shop with no electricity, in rural Antarctica.
Providing offerors an opportunity to review their proposals and ensure they are complete, correct and addressed all aspects of the solicitation.
We get the best value from the competitive solicitation process by providing offerors every opportunity to submit their best proposal. Important – getting the best proposal could mean a more complete and accurate proposal – not just a lower-priced proposal.
Good description about the purpose of discussions
To add value to the supply chain, we have to do more than just elicit low-priced proposals. We have to select sellers who are reliable, responsive, and responsible. It is important to have open and honest discussions with the offerors to ensure they understand the requirements and can reasonably be expected to be successful.
An added benefit of
discussions is the opportunity to improve the value of resulting contracts by
clarifying potential ambiguities and including performance elements,
expectations and enhancements which might have otherwise been missed in the
original specification or Statement of Work. Here is a short list of topics
which both Buyers and sellers can consider negotiating in to their contracts in
order to make the contracts more complete and more valuable to the supply chain.
More contract negotiation articles here.
Here is a Google search for other related articles on my web site.