Honestly, this is old news but it bears repeating… when it comes to prices offered to the Government to perform a fixed-price contract, it’s okay for a contractor to propose service employee bill rates that are below the anticipated costs of performance. This has been GAO precedent for decades.

A recent bid protest decision issued by the Government Accountability Office (“GAO”) reinforced this long-standing principle. See Allegheny Sci. & Tech. Corp., B-421699, B-421699.2, 2023 U.S. Comp. Gen. LEXIS 246 (Sept. 1, 2023). In this case, the Department of Energy (“DOE”) decided to award a Blanket Purchase Agreement (BPA) to perform “scientific, engineering and technical support (SETS) services. . . .” A request for quotations was issued to women-owned small businesses that held federal supply schedule contracts for the performance of the relevant services. DOE awarded the BPA to Energy Technology Alliance, LLC (“ETA”).

Allegheny Science & Technology Corp. (“Allegheny”) protested that award. Allegheny asserted a number of grounds in its protest, but I want to zero in on one of those grounds. Allegheny alleged that ETA “would not comply with the requirements of the Service Contract Act [(“SCA”)] and associated wage determination because its price was allegedly too low.” DOE and ETA urged the dismissal of this contention on the basis that it is entirely proper for the Government to award a contract even though the offeror proposes prices that would be lower than their costs—including the cost of SCA-compliant wage rates and fringe benefits.

Allegheny countered that the Government simply cannot ignore low prices that, if properly evaluated, would compel a conclusion that “there was ‘no way’ that the firm would comply” with the SCA. This is a complaint that I hear every so often when I field a call from a contractor that lost a contract to a firm whose price was so low that there’s “no way” they’d pay adequate rates. GAO, however, simply declines to wade into this morass in the fixed price context because “a proposal may offer labor rates that are less than the Service Contract Act-specified rates and, unless it takes exception to the solicitation's provisions, it may simply constitute a permissible below-cost offer.” A low price, by itself, “does not constitute evidence that a responsible vendor intends to violate the [SCA].”

Essentially, GAO does not see its role to weigh in on something that essentially is a contract performance issue. If a contractor makes a low-ball offer knowing full well that it will take a loss (perhaps as a means for winning profitable contracts down the road), then hooray for the Government—it got a bargain. If the Government later learns that the contractor is violating the SCA, that’s a matter for the contracting agency and the Department of Labor.

Does that mean that a disappointed offeror always will lose such a protest? Absent some evidence that the contractor will violate the SCA, I see little hope for winning on that ground. But what if there is evidence? Perhaps you discover via public recruitment websites that a contractor is posting positions at subminimum wage rates. Is the contracting agency aware of this but ignores it? Perhaps the contracting agency stated that it would perform a price realism analysis and required offerors to include their direct labor rates and not just fully burdened rates. If the direct rates were substandard and the agency ignored them, that might be a path to a sustained protest.

But those would be unusual circumstances. So how low can you go? Usually—as much as you want.