Government Contracts Potential for Overpayment Justified Cancellation of Solicitation
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Friday, August 16, 2019

Potential for Overpayment Justified Cancellation of Solicitation

By Government Contracts Editorial Staff

The government’s decision to cancel a commercial item solicitation for a drug was reasonable because, even though its price analysis was flawed, the government reasonably determined canceling and resoliciting the requirement could enhance competition and result in a better price. The request for proposals explained that the contract’s purpose was “to ensure [the] availability and consistency of product for nationwide usage and to obtain volume-based, committed use pricing.” The RFP provided for award to the lowest-priced, technically acceptable offeror and, in accordance with FAR Part 25, Foreign Acquisition, expressed a preference for U.S.-made or designated country end products. It also required offerors that were not the drug’s manufacturer to submit a commitment letter from the manufacturer assuring an uninterrupted source of supply sufficient to satisfy the government’s requirements for the contract period. After the government eliminated the other offeror in the competitive range of two because it failed to submit a commitment letter, the protester was the only offeror with a technically acceptable proposal. But after comparing the protester’s proposed price of $182 million to the government estimate of $86 million and the other offeror’s proposed price of $55 million, the government determined the protester had not proposed a fair and reasonable price. The government decided to cancel the solicitation and resolicit “in hopes of having [the other offeror] or another similarly priced compliant supplier participate in a future solicitation.”

Invalid Benchmarks. The Comptroller General found the government’s analysis of the protester’s price relied exclusively on comparisons to two invalid benchmark prices. The government estimate used open-market prices obtained from a pharmaceutical database, but the database included prices of products manufactured by non-designated countries, which was contrary to the RFP’s prohibition on offers comprised of such products. The other offeror’s price was for a proposal that was found technically unacceptable for failure to obtain a manufacturer’s letter of commitment. However, the prospect of increased competition, and the potential for lower prices, generally provides a reasonable basis to cancel an RFP. Here, the government provided a reasonable explanation why it would be prejudiced if it made an award to the protester—namely, that it might pay substantially more than necessary for the requirement, particularly in light of the goal of obtaining volume-based pricing from the efficiencies of a national requirements contract. The record supported the government’s expectation of potential savings. The other offeror indicated it might be able to provide a commitment letter in a subsequent procurement, and the government’s market research identified additional offerors that could comply with the terms of the RFP. The Comptroller General denied the protester’s challenge to the cancellation. (AvKARE, Inc., 34 CGEN ¶116,463)

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