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Saturday, July 18, 2015

A case of unequal and misleading discussions?

This GAO decision involved an RFP for shipping/logistics services to GITMO. It was to be awarded based on a basis of Lowest Priced Technically Acceptable proposals (in a variant of the "multi-step bid" method of the ABA Model Procurement Code as adopted on Guam). For purposes of this post, technical acceptability was not an issue.   At the end of the first round, the protestor was low priced. But, the government agency, TRANSCOM, had issues with both bidders' prices, saying in most respects they were too high (unreasonable) and in some cases too low (unrealistic, resulting in the appearance of unbalanced pricing).

Discussions were had with each of the bidders in which TRANSCOM aired its concerns about pricing. Subsequently, the protestor raised its overall price and the awardee lowered its price, with the result the protestor was no longer low priced; it priced itself out of the contest.

Was it something the government said?

The usual caveats apply: read the case at the link. This rendition is not complete, is not accurate and may not be entirely a fair characterization, regardless of my intention. So, you are warned.

Matter of: TransAtlantic Lines, LLC, B-411242; B-411242.2, June 23, 2015
TransAtlantic Lines, LLC, protests the award of a contract for cargo transportation services. The RFP sought proposals for dedicated liner service for containerized and breakbulk cargo between Jacksonville/Blount Island, Florida and the U.S. Naval Station Guantanamo Bay, Cuba (GTMO). The RFP contemplated the award of a fixed-price requirements contract for a base year and two option years, with award to the lowest-priced, technically‑acceptable (LPTA) offeror. The RFP identified the following non-price technical evaluation factors, under which proposals would be rated as acceptable or unacceptable: technical capability, past performance, and information assurance and cyber security. If the proposal clearly met the minimum requirements of the solicitation, an acceptable rating would be assigned.  If a proposal was rated unacceptable under any subfactor, the proposal’s overall technical rating would be unacceptable.

With respect to technical capability, the RFP instructed offerors to submit written narratives demonstrating the offeror’s understanding of the Performance Work Statement (PWS) requirements and explaining how the offeror would meet the solicitation requirements. In addition, the RFP identified three technical capability subfactors: equipment, management of operations, and schedule. With respect to equipment, the RFP first instructed offerors to “identify the vessel(s) . . . to be utilized for this contract” and to “[d]escribe the quantity and type of equipment proposed to perform the requirements.” The RFP advised that offerors’ descriptions of the proposed vessel(s) and equipment had to be “sufficient to ascertain compliance” with several specific PWS sections, including those related to vessel cargo space, equipment, and GTMO’s port characteristics. With respect to the management of operations subfactor, the RFP required, among other things, that offerors describe their planned approach to meeting and managing several PWS requirements, such as port operations and transportation of hazardous cargo. With respect to the schedule subfactor, the RFP required that offerors propose a liner schedule that met the PWS’s departure, arrival, and transit requirements.

With respect to price, the RFP instructed offerors to complete a pricing schedule listing proposed individual rates for 105 line items under four categories: accessorial, ocean, single factor, and fuel. The RFP advised that TRANSCOM would evaluate individual rates, the proposed price for each period of performance, and the total proposed price to ensure fair and reasonable prices. The RFP further provided, “Unreasonably high prices may result in elimination of an offeror from further consideration.”

Two offerors, TransAtlantic and Schuyler, submitted proposals. A four-person technical evaluation team (TET) evaluated the two proposals and ultimately assigned both proposals acceptable ratings. However, with respect to price, the agency’s source selection evaluation board (SSEB) initially concluded that TransAtlantic’s total proposed price of $17,782,987.50 and Schuyler’s total proposed price of $19,692,588.50 were not fair and reasonable due to high rates for certain line items.

More specifically, the price analysis concluded that six of TransAtlantic’s individual rates were “significantly overstated.” In addition, the SSEB also noted “the presence of significantly overstated and significantly understated line items rates,” which raised the concern of unbalanced pricing. (As an illustrative example, the price evaluation team highlighted that TransAtlantic’s “extremely high container rates are being offset by the low container rates in an attempt to maintain a specific Total Evaluated Price.”) With respect to Schuyler’s proposed rates, the evaluators found that 12 line items in the accessorial and single factor categories were “unreasonably high,” and concluded that two individual mileage rates in the base year, as well as the firm’s [deleted] percent escalation in the option years, were also unreasonable.

Consequently, TRANSCOM entered into discussions with the two offerors in an effort to remedy the pricing concerns. The agency conducted multiple rounds of discussions with both offerors. Ultimately, the firms reduced their rates for the line items at issue and provided sufficient substantiation for their prices such that the price evaluators were able to deem the proposed prices fair and reasonable.

Notably, in addition to reducing its rates for certain line items, TransAtlantic also increased rates for other line items. In its final proposal revision (FPR), TransAtlantic’s total proposed price increased to $20,841,427.50, whereas Schuyler’s total proposed price decreased to $16,812,960.50.

TransAtlantic complains that TRANSCOM engaged in unequal and misleading discussions with the offerors. As noted above, the SSEB initially deemed both offerors’ prices as not fair. The EN required TransAtlantic to “substantiate the rates” or submit a revised pricing schedule for evaluation. In addition, the EN identified 21 other rates that, in conjunction with the unreasonably high prices, suggested unbalanced pricing.

In response to the EN, TransAtlantic reduced its proposed rates for the six line items identified as unreasonably high, as well as for another line item already deemed fair and reasonable (and not singled out in the EN). The firm also raised its rates for five other line items, including three of the 21 line items called out in the EN. In response to the agency’s concerns of unbalanced pricing, TransAtlantic explained that it already owns some of the equipment and other equipment is being provided by subcontractors. The firm also submitted a more general discussion to explain its low-priced items, referring to historical prices and changes in the PWS (as compared with previous contracts for similar liner service) as justification.

The price evaluation team reviewed TransAtlantic’s response and determined that only one of the six unreasonably high rates was reduced enough to be deemed reasonable and that TransAtlantic’s written explanation “did very little to substantiate” the high rates. In addition, the price evaluators found that one of the other rates that TransAtlantic increased resulted in that rate no longer being reasonable. Finally, the price evaluators noted that the firm’s “atypical prices still suggest unbalanced pricing.” For instance, the evaluators expressed concern that TransAtlantic had priced certain line items into others.

The price evaluation team also found that Schuyler had not reduced all of its prices enough or sufficiently substantiated its rates to deem them fair and reasonable, so the contract officer began a round of oral discussions with each, during which he provided each firm TRANSCOM “target rates” for the offerors’ line items still priced unreasonably high. Specifically, the contracting officer provided TransAtlantic target rates for six line items and provided Schuyler target rates for four other line items. The contracting officer requested from both offerors further substantiation to support the high prices or reductions in the high rates.

In response to oral discussions, TransAtlantic reduced its rates for five of the six line items the agency had identified as unreasonably high; the firm’s total proposed price decreased by $10,450. The firm also provided additional explanation justifying its rates. A seventh line item was also increased to a rate such that it was no longer considered reasonable. The price evaluators noted that many of TransAtlantic’s rates appeared “illogical and inconsistent with customary commercial practice,” and that the firm’s pricing strategy -- trying to stay within a certain total price--still suggested unbalanced pricing. Schuyler, on the other hand, provided additional price substantiation such that the price evaluation team was able to determine that all of its proposed rates were fair and reasonable.

By letter of January 28, 2015, the agency provided TransAtlantic with a last opportunity to “further explain and support the rates in question.” The letter explained that TransAtlantic “risks removal from further award consideration” if its prices could not be deemed fair and reasonable or were unbalanced.[15] Id. In response, TransAtlantic further reduced its rates for the line items at issue. The firm also increased rates for four line items that the price evaluators previously deemed reasonable. Notably, an increase in the rate for one line item in particular that had not been questioned by the agency had a $900,000 impact in the base year and option year 1. Based on the firm’s rate decreases and additional rate substantiation, the price evaluation team deemed TransAtlantic’s proposed prices fair and reasonable. The price evaluators also assessed the risks associated with any unbalanced pricing and determined that because line item rates were no longer overstated.

But ultimately, TransAtlantic’s rate decreases, coupled with the firm’s rate increases for several line items, resulted in a net increase of $4,176,360 in the firm’s total proposed price. Consequently, after the third round of discussions, Schuyler’s proposal was now the lowest-priced. TransAtlantic further reduced its prices in its FPR, as did Schuyler, but Schuyler remained the lowest‑priced, technically‑acceptable offeror by more than $4 million.

TransAtlantic first complains that it was misled into increasing its price during discussions because the agency’s concerns regarding unbalanced pricing were erroneous. The protester also argues that the agency engaged in unequal discussions when it disclosed to the offerors target prices for different line items.

In negotiated procurements, whenever discussions are conducted by an agency, they are required to be meaningful, equitable, and not misleading. In conducting discussions with offerors, an agency may not consciously mislead or coerce an offeror into raising its price. However, we will not find discussions to be improper where the agency in good faith provides accurate information to an offeror, even where the offeror uses that information to its ultimate competitive detriment. Agencies have broad discretion to determine the content and extent of discussions, and we limit our review of the agency’s judgments in this area to a determination of whether they are reasonable.

Here, the record reflects that the price evaluators had legitimate concerns regarding unbalanced pricing and properly raised those concerns during discussions. The record further demonstrates that TransAtlantic ultimately increased several rates -- resulting in an increase in its total proposed price by more than $4 million -- based on the firm’s business judgment and not misleading discussions.

The record here supports the price evaluators’ concerns regarding unbalanced pricing. Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated, while others are understated. FAR § 15.404-1(g)(1). As a general matter, unbalanced pricing may increase risk to the government and can result in payment of unreasonably high prices. Moreover, as noted above, the firm deliberately built the price for certain line items into the price for others, even though the agency may not require both line items at the same time, thereby exposing the agency to paying for services not performed.

Because the evaluators’ concerns regarding unbalanced pricing were reasonable, we find nothing misleading about the agency raising the issue with TransAtlantic during discussions.

In any event, notwithstanding the reasonableness of the discussion inquiry, the record reflects that TransAtlantic’s rate increases were not connected entirely to the agency’s unbalanced pricing concerns. In this regard, of the 21 line items identified in the initial EN as suggestive of unbalanced pricing (when coupled with the unreasonably high rates), the record shows that TransAtlantic ultimately increased its rates for only four of those line items. Accordingly, the record does not support TransAtlantic’s assertion that TRANSCOM misled it into increasing its price due to an unreasonable discussion of unbalanced pricing. Ultimately, TransAtlantic’s decision to revise certain prices upward reflected the exercise of the firm’s own business judgment and not improper conduct by the agency.

Next, TransAtlantic contends that discussions were unequal because the agency provided target prices for different line items to the offerors.

In connection with the requirement that discussions be meaningful, offerors may not be treated unequally; that is, offerors must be afforded equal opportunities to address the portions of their proposals that require revision, explanation, or amplification. However, the requirement for equal treatment does not mean that discussions with offerors must, or should, be identical. To the contrary, discussions must be tailored to each offeror’s own proposal.

We find nothing improper about the conduct of discussions here. As discussed above, after the submission of responses to the ENs, TransAtlantic’s proposal still included six rates deemed unreasonable and Schuyler proposed four rates (for different line items) that the evaluators considered unreasonable. As a result, the contracting officer provided TransAtlantic with government target prices for the six line items at issue in its proposal and provided Schuyler target prices for four different line items.

Here, because the rates deemed unreasonable were different for the two offerors, we find nothing improper with the agency only having disclosed target prices to the offerors for the rates at issue in their respective proposals. In this regard, the record reflects that the price discussions, including the provision of target prices, were properly tailored to address the concerns associated with each firm’s proposal. TransAtlantic had already proposed reasonable rates for the four line items that Schuyler was provided target prices for, so the agency was under no obligation to provide this information to TransAtlantic. (agency had no obligation to raise during discussions the issue of pricing with the protester where the protester’s pricing was not unreasonable; discussions unobjectionable where agency advised one offeror that two line item prices exceeded a government budget ceiling but did not provide protester with same information where protester’s prices did not exceed budget ceilings).

In any event, the record confirms that TransAtlantic was not prejudiced by the agency’s selective disclosure of target prices. In this respect, competitive prejudice is an essential element of a viable protest; where the protester fails to demonstrate that, but for the agency’s actions, it would have had a substantial chance of receiving the award, there is no basis for finding prejudice, and our Office will not sustain the protest.

Here, the four target prices that TRANSCOM provided to Schuyler amounted to $10,500 (based on the estimated volume) over the course of the contract’s entire period of performance. Moreover, the record reflects that TransAtlantic already had proposed rates that were equal to or below the government’s targets for the four line items at issue. Thus, given the LPTA nature of this procurement and the fact that the awardee was lower‑priced by more than $4 million, we fail to see how TransAtlantic was prejudiced by the agency’s decision not to provide TransAtlantic with the target prices for the four line items that TRANSCOM discussed with Schuyler.

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