Red River Service Corporation, B-282634; B-282634.2, July 15, 1999

Red River Service Corporation, B-282634; B-282634.2, July 15, 1999 TITLE: Red River Service Corporation, B-282634; B-282634.2, July 15, 1999 BNUMBER: B-282634; B-282634.2 DATE: July 15, 1999 ********************************************************************** Red River Service Corporation, B-282634; B-282634.2, July 15, 1999 Decision Matter of: Red River Service Corporation File: B-282634; B-282634.2 Date: July 15, 1999 Johnathan M. Bailey, Esq., Law Office of Theodore M. Bailey, for the protester. Ross L. Crown, Esq., Eastham Johnson Monnheimer & Jontz, for Phillips National, Inc., an intervenor. Richard Welsh, Esq., Naval Facilities Engineering Command, for the agency. Mary G. Curcio, Esq., and John M. Melody, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision. DIGEST Award based on proposal that included unbalanced pricing was proper where agency specifically and reasonably determined that the unbalancing did not pose an unacceptable risk to the government and would not result in the government's paying unreasonably high prices. DECISION Red River Service Corporation protests the award of a contract to Phillips National, Inc., under request for proposals (RFP) No. N62467-98-R-1037, issued by the Department of the Navy for multi-family housing maintenance services in Millington, Tennessee. Red River argues that the proposal submitted by Phillips should have been rejected because it contains unbalanced pricing. We deny the protest. The solicitation, for a base period with four 1-year options, provided that a contract would be awarded on the basis of the best value to the government, with the combined technical evaluation factors (past performance, experience, methods and understanding, and resources), being approximately equal in weight to price. RFP sect. M.2. The solicitation consisted of definite- and indefinite-quantity line items, for both of which offerors were to propose fixed unit prices. RFP sect. B. The Navy received seven proposals. A technical evaluation board (TEB) rated the technical proposals as highly satisfactory, acceptable, marginal or unacceptable under each factor. Agency Report Legal Statement (ARLS) at 2-3. A price evaluation board (PEB) evaluated the price proposals. Following two rounds of discussions, Phillips's and Red River's proposals were the highest-rated (ranked first and second, respectively), ARLS at 4-6, and Phillips's final proposed price, $[deleted], was substantially lower than Red River's, $[deleted]. The source selection board (SSB) concluded that Phillips's proposal represented the best value to the government. SSB Memorandum, Apr. 13, 1999, at 3. The source selection authority (SSA) concurred with this determination and award was made to Phillips. Id. Red River protests that Phillips's proposal contained substantially overstated prices for some items--especially many of the definite quantity line items--and substantially understated prices for others--especially the indefinite quantity line items, and also that many line items were front-loaded, with higher prices in the base year than in the option years. Red River concludes that Phillips's offer should have been rejected as unbalanced. [1] Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated or understated. Federal Acquisition Regulation (FAR) sect. 15.404-1(g)(1). While unbalanced pricing may increase risk to the government, agencies are not required to reject an offer solely because it is unbalanced. Id. Rather, where the contracting agency receives an unbalanced offer, the contracting officer is required to consider the risks to the government associated with the unbalanced pricing in making the source selection decision, and whether a contract will result in unreasonably high prices for contract performance. FAR sect. 15.404-1(g)(2). Reflecting these regulatory provisions, the solicitation here specifically provided that a proposal could be rejected if the agency determined that, due to unbalanced pricing, the proposal posed an unacceptable risk to the government. RFP sect. L.5(f)(8). The Navy does not dispute that Phillips's offer contained unbalanced pricing. In this regard, the Navy reports that, during its initial review, the PEB was concerned with various aspects of Phillips's price proposal, including its overall low price, low prices for the indefinite-quantity work, and high prices for some items and low prices for others. ARLS at 7. The PEB also noted that Phillips based its pricing on its own risk assessment, but did not explain in the proposal what that risk assessment was. Pre-Negotiation Business Clearance Memorandum at 7; Price Evaluation Team Memorandum, Dec. 4, 1998, at 4-5.