The following article was prepared by Mike Taylor, C.P.M., for distribution to ISM affiliate newsletters


Responsible Suppliers & Price Realism

July 2012

Update January 2013

Responsibility Checklist

Contractor responsibility Presentation

Responsibility case handout

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.

Bottom line: 

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.

…the Buyer advised EMR of areas of its proposal that needed to be explained or altered to enhance the proposal’s potential for award. We will not find coercion in discussions where, as here, the Buyer in good faith provides accurate information to an offeror, even where the offeror uses that information to its ultimate competitive detriment.

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

… In this regard, with respect to the price realism analysis, the RFP provided that the Buyer could: [reject any proposal, at any time during the evaluation, which is unrealistic in terms of performance commitments or based on unrealistically high or low price. Such proposals may be deemed to reflect a lack of technical competence, a lack of understanding of the requirements, an inability to perceive the complexity of the requirement, or a lack of sound business judgment.

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.

… The RFP at some points appears to conflate price reasonableness and price realism. Before awarding a fixed-price contract, a Buyer is required to determine that the price offered is fair and reasonable. Federal Acquisition Regulation (FAR) § 15.402(a). A Buyer's concern in making a price reasonableness determination focuses primarily on whether the offered prices are higher than warranted… Although not required, a Buyer may also provide in the solicitation for a price realism analysis in a solicitation for the award of a fixed-price contract for the purpose of assessing whether an offeror's price reflects an understanding of the contract requirements or the risk inherent in an offeror's approach.

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.

... Further, the Evaluation Notice did not require EMR to raise its labor rates, but instead simply directed that “[t]he offeror shall verify that the prices are what it intended to propose or make adjustments as necessary and provide the revised prices in response to the Evaluation Notice.” Id. The fundamental purpose of discussions is to afford offerors the opportunity to improve their proposals "to maximize the Government's ability to obtain best value, based on the requirement and the evaluation factors set forth in the solicitation." FAR § 5.306(d); see Gulf Copper Ship Repair, Inc.

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

... In discussions, a Buyer is required to discuss with each offeror still being considered for award, deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond. In addition, the contracting officer also is encouraged to discuss other aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award. FAR § 15.306(d)(3).

Conclusions:

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. Negotiation Opportunities.    More contract negotiation articles here.
 

 Here is a Google search for other related articles on my web site.

Mike Taylor

 

Return to the BuyTrain Archive


MLTWEB is owned by Michael L. Taylor, C.P.M.  Mail:  
Materials prepared by Mike may be shared for supply chain education, provided that this source is credited and no fee is charged. The rights for any other use are withheld.
Copyright;  Michael L. Taylor, C.P.M.
1996-2017