Stop me if you’ve heard this one, but the answer is “When the government says so.” Ba dum bum!
A recent Comptroller General decision highlights this punchline. You see, if the government does not feel that you have done a good enough job in estimating your costs (aka – cost realism), they may choose to evaluate your costs at a different amount. In the decision (Noridian Administrative Services, LLC, 28 CGEN 113,996) a cost realism adjustment to a protester’s proposed cost/price was determined to be proper because the government reasonably concluded its historical prices already included the effect of “proposed innovations.” The protest arose from a RFP for Medicare administrative contractor services.
First, the government did an estimate. Then, while evaluating the proposals, they found the protester’s proposed costs were substantially lower than what they imagined. So, the government asked the protester to clearly delineate its cost assumptions. The protester responded by submitting various charts breaking down its historical costs and using those historical costs as a baseline from which proposed savings were projected. The protester also stated the cost savings were due to its proposed innovations. The government determined the proposed innovations had been implemented prior to the period the protester used as a basis for its proposed cost/price savings. The conclusion was the protester would not realistically experience additional cost/price savings over and above its historical costs. Accordingly, the government made an upward adjustment to the protester’s evaluated cost/price.
The protester and the awardee had identical technical ratings, but the protester’s evaluated cost/price was $9.8 million, or approximately 3 percent, higher than the awardee’s. The Comptroller General denied the protest, finding nothing in the protester’s discussions response indicated additional cost/price savings could be reasonably expected to flow from the protester’s already-implemented innovations.