Remember Your Customer When Developing Pricing Assumptions
When pricing a federal contract, it is common for a prime contractor to include assumptions as part of their Price Volume. Pricing assumptions allow offerors to explain the conventions and rules that set the foundation for their price estimate. Federal contractors generally view assumptions as a way to ensure that their offered price accurately aligns with the expected scope of work. However, a recent protest decision throws caution to offerors who provide assumptions so complex that they mislead the evaluation of their proposed price, or whose assumptions demonstrate a lack of customer intimacy.
Pricing Assumptions Gone Wrong
FedResults protested the Department of Interior’s (DOI) award of a Blanket Purchase Agreement (BPA) to Cybermedia Technologies (CTEC) for digital communication services such as email marketing and digital communications training. Offerors were asked to submit their GSA schedules and indicate which schedule items and prices would be used to complete the tasks identified in the statement of work. Additionally, offerors were asked to price three sample scenarios. For each, offerors were told that the sample scenario costs would be used in evaluating the total estimated BPA value. All offerors were encouraged to submit assumptions with the scenario pricing to show how the total quoted price was achieved.
FedResults’ total evaluated scenario price was $2,754,778, while CTEC’s was $123,835 and the total evaluated BPA cost was $939,379,298 for FedResults, nearly 20 times higher than CTEC’s price of $42,227,820.
FedResults protested the award to CTEC arguing that DOI ignored their assumptions when determining their total evaluated price, thus resulting in an incorrect BPA value. Further, they argue that DOI used an improper evaluation method to arrive at the total estimated BPA value.
In their assumptions, FedResults indicated that they used an assumed number of page visits as the multiplier to arrive at their anticipated total BPA value. DOI instead used metrics, such as the number of subscribers or number of emails sent, as the means to arrive at the total estimated BPA value and noted that the use of page visits did not accurately capture how this work would be performed. It should also be noted that FedResults was given the opportunity to clarify its assumptions and provide any documentation to support its calculations. FedResults directed DOI to a schedule attachment that was presumably submitted as part of their proposal response, but DOI was unable to locate the attachment in the price proposal.
Nevertheless, GAO found DOI’s approach to be reasonable and denied FedResults’ protest noting that their assumption neglected to consider a more relevant basis to build their price and thus failed to demonstrate an understanding of the scope of work.
FedResults pricing assumptions did not accurately track to the customer’s business model and did not demonstrate an understanding of the contract requirements. When companies develop their price estimates, it is imperative that they demonstrate a clear understanding of the customer’s business processes and contract requirements. Failure to do so may result in an estimated price that is not realistic to the work to be performed. And don’t forget to include all supporting price documentation as part of your proposal response!
