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    Government Contracting Database

    Cost Realism

    A cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal. FAR Section 15.404-1(d)(1); Matter of: Oasis Sys., LLC; Quantech Servs., Inc., B-408227.10 (Apr. 28, 2016). An offeror’s proposed costs should be adjusted when appropriate based on the results of the cost realism analysis. FAR Section 15.404-1(d)(2)(ii). Our review of an agency’s cost realism evaluation is limited to determining whether the cost analysis is reasonably based and not arbitrary. Matter of: Noblis, Inc., B-414055 (Feb. 1, 2017) (citing Jacobs COGEMA, LLC, B-290125.2, B-290125.3, Dec. 18, 2002, 2003 CPD paragraph 16 at 26). 

    When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror’s proposed estimated costs are not dispositive, because regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs. FAR § 15.305(a)(1). Consequently, a cost realism analysis must be performed by the agency to determine the extent to which an offeror’s proposed costs represent what the contract should cost, assuming reasonable economy and efficiency. CACI, Inc.–Fed., B-216516, Nov. 19, 1984, 84-2 CPD ¶ 542 at 5. Our review of any agency’s exercise of judgment in this area is limited to determining whether the agency’s cost evaluation was reasonably based and not arbitrary. Srs Techs., B-291618.2 (Feb. 24, 2003) (citing General Research Corp., B-241569, Feb. 19, 1991, 91-1 CPD ¶ 183 at 5, recon. denied, American Management Sys., Inc.). 

    Cost realism is not considered in the evaluation of proposals for the award of a fixed-price contract, because these contracts place the risk of loss upon the contractor. However, when awarding a fixed-price contract, an agency may provide for a price realism analysis for the purpose of measuring an offeror’s understanding of the solicitation requirements, or of assessing the risk inherent in an offeror’s proposal. Matter of: Star Contract Servs., LLC, B-409424 (Apr. 23, 2014) (citing Consolidated Eng’g Servs., Inc., B-279565.5, Mar. 19, 1999, 99-1CPD 76 at 10).

    Updated: June 7, 2018

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