Competition does not always assure fair and reasonable price

In going through my woodpile, I came across this old Comptroller General opinion that I hope you find as instructive as I do.

The protest concerned an award to provide paint and was made by an incumbent. The award was made when three bids were submitted, but the incumbent was not advised to bid (the protest timing issue is interesting, but not the point of this post; read the Decision if you're interested in that aspect).

Excerpts follow.

Matter of: Crawford Laboratories File: B-277069 Date: August 29, 1997

We sustain the protest because the agency has provided no rational basis for its price reasonableness determination.

Prior to the awards, the contracting officer determined that Hanley's and Durant's
prices were reasonable. The contracting officer's price analysis recognized that the
prices bid on the two subitems of item 3 were "substantially higher" than the prices
that the agency had paid for those items on the prior contract. In fact, the bids
were more than double the prices that the agency had paid previously. The record
shows that the award prices for item 2 and item 4 also were more than double the
prices for those items on the prior contract.

To support the determination of price reasonableness, the contracting officer noted that there had been competition, with three bids "within a competitive range of each other" and that the Price Producers Index (PPI) for 1994-1997 showed the cost of the ingredients used to manufacture the primers had increased by 13.5 percent during that period.

While comparison of prices obtained competitively ordinarily may provide a basis for determining the reasonableness of prices, here, where all prices are significantly higher (at least double) than the prior contract prices, we think without some analysis or explanation for the higher current prices, the comparison of the bids alone is insufficient to support the determination.

For example, FAR § 15.805-2 identifies a number of price analysis techniques--such as comparison of the prices received with the published price lists or market prices, an independent government estimate, or prices obtained through market research--which a contracting officer may use to ensure a fair and reasonable price.

In spite of the agency's after-the-fact explanation, other than the comparison of prices received under the current solicitation, the contracting officer apparently did not use any of the other price analysis techniques identified under FAR § 15.805-2. In short, the record lacks any meaningful support for the price reasonableness decision, and we conclude that the contracting officer failed to satisfy her obligation under FAR § 14.408-2 to determine that the award prices were reasonable.

Unless the contracting officer can adequately justify the reasonableness of those prices in accordance with FAR §§ 14.408-2 and 15.805-2, we recommend that the contracts on items 2 through 4 be terminated for the convenience of the government and be recompeted. Further, we recommend that Crawford be reimbursed its costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. § 21.8(d)(1).