Government Contracts Front-Loaded Option Pricing Reflected Depreciation Schedule
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Friday, October 4, 2019

Front-Loaded Option Pricing Reflected Depreciation Schedule

By Government Contracts Editorial Staff

Allegations of unbalanced pricing lacked merit because the protester failed to show the government conducted an unreasonable price evaluation of the awardee’s proposal. The request for proposals sought operations and maintenance services for Eareckson Air Station and King Salmon Airport in Alaska, and Wake Island Airfield. The resulting contract was to include a one-year, fixed-price phase-in period, ten fixed-price option years with various fixed-price contract line item numbers, and an optional one-year phase-out period. The source selection authority chose the awardee’s $635 million proposal over the protester’s $582 million proposal based in part on the awardee’s superior past performance record. According to the protester, the awardee improperly “front-load[ed]” pricing into the early option years, which “reflect[ed] an improper and risky scheme to maximize profits during the early years of performance [and a bet] that the [government] would not exercise [later] option years.” The government responded that it analyzed the awardee’s proposal for potential unbalanced pricing in multiple areas and found no unacceptable risks. In particular, the government noted that the annual price reductions for the “out year” options were the same amount as annual vehicle depreciation and consistent with the awardee’s corporate policy.

Detailed Analysis. The Comptroller General found no basis to question this aspect of the price evaluation. Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated. FAR 15.404-1(g)(2) requires contracting officers to analyze offers with separately-priced line items or subline items, and the RFP cautioned offerors against submitting an unbalanced offer. The source selection decision document stated “the [g]overnment analyzed the phase-in, phase-out, and how the proposal applied the amortization of vehicle costs. The [g]overnment concluded that the price differential at the CLIN level and between the [o]ption [y]ears does not pose an unacceptable risk to the [g]overnment and, therefore, [the awardee’s proposal] should not be rejected as unbalanced.” Thus, the record showed the government conducted a detailed analysis for unbalanced pricing, as required by the RFP and FAR 15.404-1(g)(2), and the SSA considered this analysis and determined the awardee’s pricing did not pose an unacceptable risk to the government. The protester’s challenge to the tradeoff decision was also rejected. (Defense Base Services, Inc., 34 CGEN ¶116,524)

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