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Protest challenging the terms of a solicitation is sustained. The solicitation sought to establish a blanket purchase agreement (BPA) using a highest-rated reasonably priced methodology. GAO, however, reasoned that in establishing a BPA under an FSS contract, agencies are obligated by statute and regulations to consider the “lowest overall cost alternative,” which requires the agency to compare vendors’ prices. Simply evaluating prices for reasonableness violates this statutory obligation. GAO also sustained the protest due to the solicitation’s erroneous pricing structure. The solicitation required offerors to include prices for ancillary services as part of their prices for products. But GAO found this pricing scheme was inconsistent with the underlying FSS contract, which required that services be priced separately from products.

The General Services Administration issued a solicitation to establish blanket purchase agreements for hardware store supplies and ancillary services to vendors holding FSS 51V Hardware Superstore. The solicitation contemplated four BPAs—one each for the Army, Navy, Air Force, and Marines—in which the contractor would supply hardware store supplies and related services to several government operated hardware. Eschewing the traditional best value tradeoff and lowest-price technically-acceptable source selection methodologies, the solicitation planned make award to the vendor that proposed the highest technically rated quote with a fair and reasonable price.

Noble Supply & Logistics, Inc. filed a protest challenging the terms of the solicitation. Noble contended that the solicitation’s highest-rated reasonably-priced methodology violated statutes and regulations that require agencies to consider the “lowest overall cost alternative.” Additionally, Noble argued the solicitation’s pricing structure was inconsistent with the terms of the underlying Federal Supply Schedule.

GAO noted that the statutes and FAR provisions—e.g., 41 U.S.C. § 152(3)(B) and FAR part 8— governing the streamlined acquisition procedures of the FSS program require agencies to establish BPAs with schedule contractor that can provide the best value and “lowest overall cost alternative .” GAO reasoned that it was evident from this statutory and regulatory framework that consideration of lowest cost is imperative when using the FSS procedures. This requires, at a minimum, a comparative consideration of price. Indeed, GAO has consistently held that any best value determination under the FSS program must weigh the value of vendor’s approach against its cost.

Here, GSA planned to evaluate prices by plugging vendors’ catalog prices into the agency’s market research tool. The tool would then determine whether each item fell within certain market thresholds. The vendor would then need to justify any price that was too high.

But GAO found that this evaluation of price reasonableness only assessed whether prices are too high. By its nature, a price reasonableness evaluation does not provide a basis to assess whether one vendor’s pricing will result in the “lowest overall cost alternative”  as required in an FSS procurement. Without any comparative assessment of prices, GSA could not weigh the value of a vendor’s approach against the costs to the government. The source selection methodology, therefore, violated the law.

Indeed, GAO noted, GSA’s planned price reasonableness evaluation was arguably superfluous. The prices GSA would be evaluating were the vendors’ schedule prices. But GSA had already determined that those prices were reasonable when it awarded the schedule contracts.

GSA argued that GAO had approved a similar pricing methodology in another case, Sevatec, Inc.B-413559.3 et al., Jan. 11, 2017, 2017 CPD ¶ 3. GAO, however, found that case inapposite. Sevatec involved FAR part 15’s negotiated procurement procedures, which, unlike FAR part 8, do not mandate consideration of lowest overall cost. Additionally, the procurement in Sevatec sought to establish an IDIQ contract. The agency in that case still planned to conduct a price competition at the task order level for awards under the IDIQ.

Aside from the source selection methodology. Noble also argued that the solicitation was flawed due to an inconsistency between the solicitation and the underlying FSS contract. The underlying FSS contract required pricing under three separate special item numbers (SINs), two for products and a third for services. The solicitation, however, instructed offerors to include their pricing for services under the two SINs for products.

GSA contended that the pricing structure was fine because the services to be provided under the contract—shipping/receiving, shelf stocking, inventory management—were incidental to the products offered under the product SINs. Separate pricing for these services would only be required, GSA argued, if the solicitation contemplated a contractor-operated, rather than government-operated, hardware store.

GAO, however, found that the underlying FSS contract clearly indicated that hardware store services are distinct from hardware products. While these services may be ancillary to the products provided, there was nothing in the record to indicate that the services were within the scope of the product SINs or that they were priced at the time the product SINs are awarded. Indeed, GAO noted, the FAR defines a SIN as a “group of generically similar (but not identical) supplies or services.” The fact that the FSS contract grouped services in a separate SIN from products indicates that services are distinct and must be priced separately from products. In fact, GSA’s own guidance noted that SINs for ancillary supplies can be priced up front and are not included within the scope of the any other SIN.

GAO concluded that because the service SIN was distinct from the product SINs, the service SIN had to be priced separately. GSA could not simply collapse pricing for the service SIN into the product SINs.

Noble is represented by Gary J. Campbell, Matthew Koehl, and Nathanial J. Greeson of Womble Bond Dickinson-US, LLP. The agency is represented by Nathan C. Guerrero and Ginger Marshall of the General Services Administration. GAO attorneys Heather Self and Edward Goldstein participated in the preparation of the decision.