Striking a Balance: Fair and Reasonable Pricing for the Federal Government
In the realm of completing work for the Federal Government, Fair and Reasonable pricing plays a vital role in ensuring taxpayer dollars are used efficiently and effectively. The Federal Government, with its vast purchasing power, must navigate the complexities of pricing to secure value for money while maintaining fairness and integrity. This blog post delves into the various options to achieve Fair and Reasonable pricing as it relates to construction projects for the Government.
Understanding Fair and Reasonable Pricing
Fair and reasonable pricing refers to the ability of the Government to justify the pricing received from the Landlord (LL) which until recently mainly reflected competition in the actual pricing exercise. Since a few years before COVID and thereafter, justifiable conditions to meet fair and reasonable can also include schedule constraints, material procurement hurdles, local market dynamics, and increasing tenant agency security requirements. Generally, Fair and Reasonable determinations include a mixture of a few of the below pathways as each project presents unique challenges that the whole team needs to overcome to be successful.
Strategies for Achieving Fair and Reasonable Pricing
1. Competitive Bid at the General Contractor (GC) Level
a. The easiest way to meet the Fair and Reasonable pricing justification is to bid to multiple GC’s. While the Federal Acquisition Regulations (FAR) governing principle is that competition can be met with bidding by 2 GC’s, in reality bidding to at least 3 provides multiple advantages which include easier leveling of construction divisions, comparison of General Conditions & Fees, dismissal of excessively low or high bids, etc. One of the curious loopholes in the competitive bid clause of the FAR is that a contractor who submits a “no bid” counts as a bid. Obviously, this doesn’t help the LL justify the pricing structure and leaves them in a high-risk position for taking liability when submitting and certifying the pricing data as the FAR may require.
2. Competitive Bid at the Sub Vendor (Sub) Level
a. Another popular pricing option is to sole source the GC and guarantee that company the job. At this stage there is a two-part process.
i. GC needs to submit pricing for their General Conditions and Fees for good faith negotiations with the Landlord and Government. Typically, these negotiations are simple and precedent may be a helpful avenue. If the GC has competitively bid projects and been the successful bidder in the past, precedent can be applied to the General Conditions and Fee structures for fast track approval.
ii. GC would then need to bid each construction division to a minimum of 2 Subs, but like with GC competitive bidding, 3 is ideal to assist with bid leveling and identifying scope gaps.
3. While the two options above represent 90% of the project awards I complete for LL’s, there are a few other opportunities to justify Fair and Reasonable Pricing.
a. Designer or Contractor of Record – When there is a vendor with intimate knowledge of a specific building or space due to their prior involvement in completing work, there is an innate advantage the Government may recognize as providing a competitive advantage against any other vendors and can be justified to be sole sourced without any competition at the prime or sub level. These are typically good faith negotiated against the Internal Government Estimate (IGE) but not always.
b. Proprietary Vendor – Some projects, typically Security or HVAC related, may only have one vendor who can complete the work due to Proprietary Equipment, Contracts, Existing Warranties, etc. In these cases, the Government typically proceeds with the vendors pricing without much negotiation. Preferably, LL’s will avoid proprietary equipment within their buildings as while they may offer upfront savings the cost structures in the long run, along with the quality of service, typically results in poorer performance as compared to when competition can be introduced.
c. Other – There are other considerations which may allow the Government to justify Fair and Reasonable pricing. They can include specific implications to Schedule, Material Procurement, Contracting Constraints, Best Value, etc. These normally require very detailed analysis comparisons to alternatives and significant negative impact to the Government Mission at that particular building, but they do happen in rare circumstances.
Fair and Reasonable is an overarching concept within the Government, not just in construction pricing activities. While some individuals make it sound like a rigid concept meaning low bid, I have not found that to be the case. If a landlord takes their time to break down the particulars of a construction project and presents those complexities and their associated impacts to the Government, I’ve found that common ground can be found which maximizes the Governments desire to get the lowest bid possible while allowing the Landlord to present a pricing structure that delivers a top notch project in consideration of the hurdles that project may face.