Reasonable Pricing Isn't Enough (Part II)

Editor’s note: This is the second of two posts on a recent GAO decision.

Yesterday, we discussed the recent use of HTRRP for source selection. Today, we will explore the legal and practical limits — good and bad — of HTRRP.

The Noble decision

Perhaps emboldened by the GAO decision in Sevatec and because Congress had blessed the use of HTRRP, GSA decided to press even further.

GSA issued a request for quotations to establish a bundle of single-award blanket purchase agreements (BPAs) under the federal supply schedule (FSS) for hardware store supplies. In their quotes, the contractors were required to “include their current FSS pricing for their entire catalog of [products on two special item numbers], any flat discounted rates from the catalogs, and four tiers of volume discounts.” And, significantly, the solicitation provided that “the agency will evaluate price quotations ’to ensure that offered pricing, to include offered flat rate and tiered volume discounts, is fair and reasonable,’” but otherwise would make an award to the highest technically rated quotations. In January 2020, the awards were protested and, in a case called Noble Supply & Logistics, Inc., the GAO found this particular arrangement to violate CICA and sustained the protest.

Now, a careful reader might wonder whether GSA or GAO relied on — or otherwise discussed the effect of the NDAA — on the creation of these BPAs. The short answer is no, though I will come back to this later in the post, because the omission leaves open an interesting legal gray area.

Instead, GAO looked at the arrangement and found that “the procurement here is being conducted using the FSS ordering procedures authorized by 41 U.S.C. § 152 and set forth under FAR part 8, both of which expressly require agencies to consider the lowest overall cost to the government when using the FSS procedures.” In other words, GAO basically said: because you can only use the FSS program to achieve the “lowest overall cost to the government” according to the FSS statute, and because HTRRP doesn’t explicitly consider whether a quote is the lowest overall cost to government, the use of HTRRP is inherently incompatible with FSS program.

But GAO went a bit further and made an additional observation: “the procurement here seeks to establish single-award BPAs, which will not have price competition or analysis at the order level.” Unlike Sevatec, which established a multiple-award IDIQ, the sin in Noble appears to be that GSA effectively avoids order-level competition by creating single-award BPAs.

Accordingly, for those two reasons – the legal requirement under the FSS for consideration of “lowest overall cost” and the lack of order-level price competition or analysis – the GAO overturned the GSA awards.

But questions remain

A careful reading of Noble leaves two really challenging legal issues unresolved. First, Noble says absolutely nothing about the impact of the NDAA. There are a couple of reasons that might be the case. It could be that the parties never addressed the impact of the NDAA.

But it could also have been that everyone agreed that the NDAA simply didn’t apply. Why wouldn’t it apply, you ask? Well, the NDAA’s provision only applied to “solicitation for one or more contracts for services to be acquired on an hourly rate basis,” and the Noble case involved contracts for hardware-store supplies.

And yet, this presents a serious question of statutory interpretation. Does the inclusion of hourly-rate services contracts mean the exclusion of the supply contracts? Or does the NDAA’s rules around order-level competition only kick in with respect to hourly-rate services contracts and general Part 15/16 rules apply for everything else? Does the NDAA simply codify Sevatec, or does it do more? Unfortunately, the text is ambiguous, there are competing canons of statutory interpretation, and there’s almost no formal legislative history. This is really a tough call, folks.

The reason that’s particularly interesting is that the NDAA provision explicitly allowed for HTRRP under the FSS program. If you look at section 876 of the NDAA, it provides that – under certain conditions – a CO “need not consider price as an evaluation factor for contract award,” including for “contracts for services to be acquired on an hourly rate basis under the authority of…section 152(3) of this title.” Section 152(3) is the statute that GAO cited in Noble as being contrary to HTRRP. Congress obviously intends for HTRRP as allowable for some FSS contracts, but GAO doesn’t attempt to reconcile the provisions. Again, though, tough call.

Then, there’s the question about whether Noble would have come out differently if GSA had actually attempted any price evaluation whatsoever. GSA basically didn’t even bother with evaluation of price, relying instead on the schedule-level price-reasonableness determination. GAO found that problematic. But suppose GSA had done some – hell, any – additional price-reasonableness finding to comply with the “lowest overall cost” statutory mandate. It’s hard to say what GAO would have done, but it does seem that the total lack of review played a factor in the GAO decision.

Finally, and critically, though, there’s the question about order-level competition. The GAO decision is crystal clear that the contracts in Sevatec were fine because GSA “was shifting price competition to the task order level for awards under the IDIQ contracts.” So, suppose GSA had actually included some order-level price evaluation. GAO leaves that door open by referring to “price competition or analysis at the order level” (emphasis added).

So what now?

After Sevatec, NDAA, and Noble, it is clear that HTRRP is still a valid way to create multiple-award IDIQs for services contracts. And we also know that won’t work for establishment of a single-award BPA without any consideration of price and that HTRRP probably won’t fly at the order-level award under the FSS. But, there are some gray areas around Noble’s limits and the interplay between Noble and the NDAA. My sense is that Noble is the outlier, and not the other way around. But absent some guidance, I suspect that there will be some unintended chilling effects from the post-Sevatec developments because of these legal ambiguities.

In my dream world, Congress clarifies some of these gray areas because, on balance, HTRRP seems like a good innovation for federal procurement. It places a significant focus on the technical requirements and avoids some of the pain associated with documenting price tradeoffs. And, by emphasizing order-level competition, agencies and contractors will still need pay attention to price before any dollars are obligated.