An agency must evaluate the risk of whether an offeror’s proposed professional compensation is too low to retain or attract a qualified professional workforce.
“Buying in” to a fixed-price contract can create a risk to retaining or attracting qualified professional workers that the agency must assess in its realism analysis.
Where a solicitation for a fixed-price service contract includes FAR 52.222-46, proposed compensation plans may be subject to a realism analysis that must consider both the technical solution and price.

On January 24, 2019, the Court issued its decision in Sparksoft Corporation v. United States, No. 18-1708C, holding that an agency is required to evaluate the realism of offerors’ proposed compensation plans under FAR 52.222-46, Evaluation of Compensation for Professional Employees, related to the entire contract, including the firm-fixed price (FFP). This case stems from a solicitation issued by the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), seeking proposals for information technology operations, maintenance, and ancillary support. The solicitation stated that the contract would consist of both FFP and time-and-materials components, and contained FAR 52.222-46.

After several earlier protests, CMS issued a request for revised proposals informing offerors that it did not intend to conduct a realism evaluation on the FFP portions of the quotes.

Sparksoft challenged CMS’ intent not to conduct a realism evaluation, arguing that the plain language of FAR 52.222-46 requires CMS to conduct a realism analysis of the proposed compensation plan without making any distinctions as to the type of contract the agency intends to award. In response, CMS argued that FAR 52.222-46 “relates to the compensation provided to professional employees—not the prices charged to the agency for those employees’ work.” CMS further argued that “[o]fferors are free to lose money on a fixed-price contract.” While GAO previously had addressed the question of whether the professional compensation clause requires a price realism evaluation in Scope Infotech, Inc., this question had not directly been addressed by the Court.

After an extensive analysis of FAR 52.222-46 and its purpose, the Court ruled in favor of the protester, deciding that “[l]abeling a contract as ‘FFP,’ […] does not magically excuse the government from performing a realism evaluation of the proposed professional compensation rates.” The Court further found that Sparksoft was harmed by CMS’ actions because, “CMS has improperly set the stage for the very wage-rate price war that FAR 52.222-46 is designed to prevent.” As a result, the Court ordered that “CMS shall evaluate the pending offers […] by conducting a realism analysis on the offerors’ proffered plans for professional compensation, as mandated by FAR 52.222-46, related to the entire contract, including the FFP portion.”

The Court’s decision in Sparksoft appears to resolve any doubt that FAR 52.222-46 requires a realism evaluation regarding an offeror’s proposed professional compensation that takes into consideration both the price and technical solution of the offeror. With this decision, GAO and the Court now appear to be in unison on the subject. Accordingly, when responding to solicitations containing FAR 52.222-46 for a FFP contract, offerors should anticipate that agencies will be required to evaluate the realism of proposed professional compensation plans in the context of the entire proposal, including price.