Forest bid isn't clear cut

In recent columns I addressed a New Jersey case involving a claim for additional compensation with an alleged unbalanced bid. In this column I will examine a bid protest case based on an assertion of unbalanced bidding of a contract proposal with an option. In the matter of Ken Leahy Construction Inc. Comp. Gen. B-290186 (June 10, 2002) the Federal Highway Administration (FHWA) issued an invitation for bids (IFB) for construction of a road in the Siuslaw National Forest in Oregon. The base portion of the IFB included construction of 5.3 miles of roadway. The FHWA included 2.3 miles of road as an option because it had not secured all of the rights-of-way for that portion. The bidders were asked to provide fixed unit prices for various line items to perform the base and option portions of the project. Elte Inc. and Ken Leahy Construction Inc. submitted the following bids:

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Elte Leahy

Base bid $7,514,975 $7,046,847

Option $1,697,270 $2,667,241

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Total $9,212,245 $9,714,088

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As required by the IFB, FHWA evaluated the bids by adding together the base and option prices, resulting in an award to Elte. Leahy protested the award to Elte principally because of an alleged unbalanced bid. Leahy argued before the comptroller general of the U.S. that Elte's bid was unbalanced because its mobilization costs for the option were included in the mobilization line item for the base contract. This was a straightforward argument because Elte's bid included $1,189,290 for mobilization in the base requirement and only $1 for the option requirement.

General, Elte on same level

The Federal Acquisition Regulation provides the appropriate definition of unbalanced pricing, which exists where the price of one or more contract line items is significantly overstated. This can occur despite an acceptable overall price. Confronted with an unbalanced bid, an agency must conduct a risk analysis to evaluate whether the award will result in the government paying an unreasonably high price for contract performance.

After analysis, the comptroller general concluded that Elte's bid was not unbalanced. As readers likely understood, Elte would not incur mobilization costs in performing the option requirement because its equipment and personnel would already be on site. On that basis, therefore, the comptroller general determined that the factual predicate necessary for unbalanced pricing (actual costs associated with performance of the option line item) was not present in this case.

Next, the comptroller general addressed the potential "front-end loading" question that could be raised as a result of making the same payment mobilization for the contract both with and without the option requirement. There was no risk that Elte could receive a disproportionate amount of the contract payment early in the performance period because the contract was governed by FP-96, Standard Specification for Construction of Roads and Bridges on Federal Highway Projects. Section 151.03 expressly limits the payment to 10% of the overall value of the contract. The remainder, if any, of a firm's mobilization cost will be paid after final acceptance of the work.

Finally, the comptroller general dealt with Leahy's argument that the contracting officer improperly exercised the option because the FHWA had not secured all of the rights-of-way necessary to build the entire project. The comptroller general rejected this argument for two reasons. First, there was no requirement in the IFB that FHWA secure the rights-of-way before awarding the option. Second, Leahy ignored the express terms of the IFB, which stated that the bids would be evaluated on the basis of adding together the base and option prices. Based on the express evaluation criteria, Elte was the low bidder, whether or not the FHWA exercised the option. The comptroller general did acknowledge it would be improper for an agency to include an option price in determining the apparent low bidder if reasonable certainty existed that the agency would not exercise one or more options.