[00:00:00] Speaker 02:
The logic worldwide versus United States.

[00:00:49] Speaker 02:
Please proceed, Mr. Claybrook.

[00:01:00] Speaker 00:
Thank you, Your Honor.

[00:01:03] Speaker 00:
One matter of housekeeping before I begin, if I may.

[00:01:07] Speaker 00:
I think the Court is aware that this proceeding is under a protective order.

[00:01:12] Speaker 00:
And I think it's not unlikely that some protected information might be disclosed during the arguments this morning.

[00:01:21] Speaker 00:
So I ask that the courtroom be cleared of all.

[00:01:26] Speaker 02:
No, we're not going to clear the courtroom.

[00:01:27] Speaker 02:
You avoid saying whatever numbers.

[00:01:29] Speaker 02:
You can tell us what page to look in and the confidential material.

[00:01:32] Speaker 02:
We'll avoid it.

[00:01:33] Speaker 02:
If we say it by mistake, raise it, and we can do something with the oral argument.

[00:01:37] Speaker 02:
It won't be posted.

[00:01:38] Speaker 02:
First off, there's four people in the audience.

[00:01:41] Speaker 02:
We're not going to clear them.

[00:01:42] Speaker 02:
But it will not be posted if you tell me before the end of the argument today that someone has revealed something confidential that they should not have.

[00:01:51] Speaker 02:
We will go through and extract that portion of the argument from the public version.

[00:01:56] Speaker 00:
All right.

[00:01:57] Speaker 00:
Thank you, Your Honor.

[00:01:58] Speaker 02:
But the onus is on both counsel to ensure that they don't say something.

[00:02:04] Speaker 00:
Yes.

[00:02:04] Speaker 00:
And we've talked about that.

[00:02:06] Speaker 00:
All right.

[00:02:08] Speaker 00:
This first appeal, Your Honor, deals with

[00:02:10] Speaker 00:
two mistakes that the agency made during the round two evaluation in this procurement.

[00:02:16] Speaker 00:
Both of these mistakes are highlighted by this uncontested fact.

[00:02:21] Speaker 00:
The total evaluated prices, or the TEPs, for both Crowley and for XPO are over seven billion dollars, but the internal government cost estimate, or what the actual cost of this procurement is going to be, is two point

[00:02:40] Speaker 00:
$65 billion.

[00:02:43] Speaker 00:
Now, why is there such a big difference between the TEPs and the actual expected price?

[00:02:50] Speaker 00:
It's because the agency in this solicitation has a multitude of line items in this IDIQ buy that it never expects to use but still included plug number quantities for them to get firm fixed prices in case they did need to use them.

[00:03:07] Speaker 00:
The agency wanted every potential origin and destination pair or lane, it's called sometimes, that it could think of covered in the RFP, including by multiple transportation modes and by various time delivery requirements.

[00:03:23] Speaker 00:
Which brings us to the first mistake.

[00:03:25] Speaker 00:
The agency's failure to do a complete unbalanced pricing analysis, which is mandatory in IDIQ buys because they are one of the most susceptible to unbalanced pricing.

[00:03:38] Speaker 00:
Unbalanced pricing occurs when a bidder's pricing for some line items is significantly understated and other prices it bid are higher than those of other offerors.

[00:03:49] Speaker 00:
That's the unbalanced part of this.

[00:03:52] Speaker 00:
The agency's own analysis showed that Crowley significantly underpriced items not expected to have as much traffic and it bid higher than XPO on the traffic more likely to be used.

[00:04:06] Speaker 00:
But the agency, after determining this, never did an unbalanced pricing analysis to determine the key issue.

[00:04:16] Speaker 00:
The key issue being whether there's a reasonable possibility that Crowley's bid would not actually give the government the lower ultimate cost, considering both its higher and its lower pricing.

[00:04:32] Speaker 00:
Now, XBO in its briefs shows what is obvious from looking at the basic numbers.

[00:04:37] Speaker 00:
Crowley's bid leaves a reasonable possibility that it will not give the government the lowest ultimate actual cost.

[00:04:47] Speaker 00:
Neither the government nor Crowley try to refute this with mathematical analyses of their own.

[00:04:53] Speaker 00:
In this circumstance, the law is clear.

[00:04:57] Speaker 00:
Crowley's offer must be rejected as a matter of law.

[00:05:02] Speaker 00:
I'm sure the judges have noticed.

[00:05:05] Speaker 00:
Although the regulation says that the agency may reject, the case law, although not decided yet by this court, is uniform throughout the 11th, the 3rd, the DC Circuit, and in GAO, that if materially unbalanced pricing exists, it would be arbitrary and capricious for the bid not to be rejected.

[00:05:26] Speaker 00:
That's the situation we're in here.

[00:05:30] Speaker 00:
Now, the government argues

[00:05:32] Speaker 00:
that XBO's protest on this ground was not timely.

[00:05:36] Speaker 00:
The court of federal claims disagreed and it was correct.

[00:05:47] Speaker 00:
The basic question is how could XBO know the agency wouldn't do a full unbalanced pricing analysis?

[00:05:55] Speaker 04:
Can you step back and explain to me in a little bit of concrete detail what you think

[00:06:03] Speaker 04:
the agency had to do to carry out a sufficient unbalanced pricing analysis, holding as fixed the thing that I think you probably clearly did have to complain about earlier, which is the inclusion of all the line items that make up the TEP.

[00:06:25] Speaker 00:
Well, there's no need to complain about that.

[00:06:27] Speaker 00:
They use historical pricing.

[00:06:30] Speaker 00:
or excuse me, quantities when they have them.

[00:06:32] Speaker 04:
So hold that as fixed.

[00:06:33] Speaker 04:
Now explain what the agency should have done to figure out whether the one or the other was going to give the government a better deal.

[00:06:48] Speaker 00:
Right.

[00:06:49] Speaker 00:
When you find that you have unbalanced pricing like there was here, then you have to determine what's the probability that I'm going to get the benefit of that really good low pricing.

[00:06:58] Speaker 00:
versus what's the probability I'm going to have to pay higher prices selecting these people.

[00:07:05] Speaker 00:
So in that case, in this particular situation, even though you didn't have historical pricing for the majority of the line items or lanes as they set them out, of the 440,000 of them, you had to take a look at, all right, we do have

[00:07:23] Speaker 00:
historical practice on the incumbent contract, which covers about 95% of this job.

[00:07:29] Speaker 00:
And so what is the breakout there?

[00:07:31] Speaker 00:
And that's what we've been talking about in our briefs.

[00:07:33] Speaker 00:
So that breakout was about $85.15.

[00:07:36] Speaker 00:
So once you get this TEP, what you know by definition is giving you exaggerated numbers.

[00:07:46] Speaker 00:
It's not right.

[00:07:46] Speaker 00:
It's not fitting up to the actual cost.

[00:07:49] Speaker 00:
And you see there's unbalanced pricing.

[00:07:52] Speaker 00:
You say, OK.

[00:07:53] Speaker 00:
Is that in the area that I'm most likely, we got really low pricing, as we have here, is that in the area we're most likely to be able to utilize or not?

[00:08:04] Speaker 00:
And in this situation, it's not.

[00:08:05] Speaker 00:
So you just, there are different ways you can do it.

[00:08:08] Speaker 00:
We outlined some of those in the briefs, but they all end up with the same conclusion that the government has a reasonable possibility of not getting the best price here, the lowest total price.

[00:08:21] Speaker 05:
Mr. Clearbook, your response to

[00:08:23] Speaker 05:
Judge Toronto's question seems to assume that unbalanced pricing, in fact, occurred here in Expo's bid, or is it Crawley's bid?

[00:08:35] Speaker 05:
Crawley, yes, Your Honor.

[00:08:36] Speaker 05:
Sorry.

[00:08:36] Speaker 05:
And I guess what I'm wondering is, the agency concluded there remains no indication of unbalanced pricing.

[00:08:44] Speaker 05:
So the first question is, what is it that the agency needed to do, in your view, that it did not do when

[00:08:54] Speaker 05:
It went through every lane line item indicating who's high, who's low, and then drew a conclusion at the end that there remains no indication of unbalanced pricing.

[00:09:06] Speaker 05:
What actually did they need to do more, in your view, that they did not do?

[00:09:11] Speaker 00:
They started out correctly, as you pointed out, Your Honor.

[00:09:15] Speaker 00:
They went through, they did a detailed analysis, and then they determined.

[00:09:19] Speaker 05:
They did a very lengthy detailed analysis.

[00:09:22] Speaker 00:
Right, and then they determined that

[00:09:24] Speaker 00:
for particular SLINs, subcontract line items, the way they grouped them then, that Crowley's prices for, we pointed out three in particular, were way below the baseline they established.

[00:09:43] Speaker 00:
Now at that point, they were meant to do the analysis that I just talked about.

[00:09:46] Speaker 00:
They did not do that.

[00:09:48] Speaker 00:
As their own internal documentation shows, at that point they only looked at

[00:09:53] Speaker 00:
what they called unreasonably high pricing and ask questions about that.

[00:09:58] Speaker 00:
That's a price reasonableness analysis.

[00:10:03] Speaker 00:
Am I going to have to pay an unreasonably high price?

[00:10:05] Speaker 05:
I guess what's confusing me in trying to think about this is knowing what is going to trigger a concern about potential unbalanced pricing.

[00:10:16] Speaker 05:
What number, what measurable

[00:10:21] Speaker 05:
item is there where now we have to be genuinely concerned about that.

[00:10:26] Speaker 05:
I have no real way of thinking about that.

[00:10:29] Speaker 05:
I know you feel like the numbers in here should have been enough to trigger it, and I just can't be sure why that is necessarily so.

[00:10:42] Speaker 00:
And it is true, Your Honor, that the Federal Circuit has never had to look at this precise question.

[00:10:47] Speaker 00:
However, both GAO and the Court of Federal Claims

[00:10:51] Speaker 00:
And generally, it's about the 10% level, where the agencies have been consistently affirmed that that represents unbalanced pricing.

[00:11:01] Speaker 04:
I'm sorry, 10%?

[00:11:02] Speaker 04:
10% of what of what?

[00:11:05] Speaker 00:
Of a baseline that they analyze as saying, here's what the price should be.

[00:11:12] Speaker 04:
I'm sorry.

[00:11:13] Speaker 04:
And is the baseline, as you call it, is that an average of the bidder's offerings?

[00:11:18] Speaker 04:
Or do they go out in the marketplace and say,

[00:11:21] Speaker 04:
You know, this is going to be ridiculous.

[00:11:23] Speaker 04:
Home Depot sells it for this and Staples sells it for that or something.

[00:11:27] Speaker 00:
They can do it either way, Your Honor, as long as it's reasonable.

[00:11:30] Speaker 00:
In this case, they took an average of the three bidders and said, okay, that's going to be the baseline against we compare and see whether they're unreasonably high and low pricing or if it swings back and forth.

[00:11:43] Speaker 00:
You know, it's a situation of, of course, if all of a particular offeror's

[00:11:51] Speaker 00:
pricing, across the board was low, there's no unbalance.

[00:11:55] Speaker 00:
So you get a baseline, they did it here by averaging everything, and then they say, okay, if it's just teensy-weensy around it, that's not going to be a problem either.

[00:12:03] Speaker 05:
But when you've got it... As I understand it, there were only three bidders here, right?

[00:12:07] Speaker 00:
Correct.

[00:12:07] Speaker 05:
It's not like there were 20 bidders, and now we can see some very significant outlier deviating from the other 19.

[00:12:17] Speaker 05:
Here, there were only three, and so it does make it

[00:12:21] Speaker 05:
a little less clear why one side might be off base, especially when there's some evidence that maybe your bid for a couple lanes was a little bit on the high side.

[00:12:38] Speaker 00:
You're confusing again, like the agency did, excuse me if I may put it that way.

[00:12:43] Speaker 00:
Unreasonableness versus unbalanced.

[00:12:48] Speaker 00:
And it doesn't really matter that much for unbalanced pricing analysis.

[00:12:52] Speaker 00:
What you said is your baseline, because you're just trying to figure out how do the prices between the offerors compare.

[00:13:00] Speaker 00:
And if one is way lower, so definitely lower than what others are bidding, then you have to check it out.

[00:13:07] Speaker 00:
Because you've got an IDIQ situation, if you don't know exactly what you're going to bid, you have to give that more stringent analysis.

[00:13:15] Speaker 00:
And you do that by taking, in this case, by taking the historical usage and saying, OK, what's the likelihood I'm going to get the advantage of this low pricing or not?

[00:13:28] Speaker 00:
If I may move to the second.

[00:13:29] Speaker 02:
You're into your rebuttal time, so you're using it up now.

[00:13:32] Speaker 02:
If you'd rather wait, you can.

[00:13:35] Speaker 00:
All right.

[00:13:36] Speaker 00:
Thank you, Your Honor.

[00:13:39] Speaker 00:
The second issue, the same problem, doesn't deal with the unbalanced pricing, but when it came to,

[00:13:45] Speaker 00:
uh... looking at the uh... trade-off uh... our superior performance ex-biosphere performance against the price the government only looked at the t e p difference arithmetically you know that's wrong because it's three times what the expected actual cost is going to be for the same reason i've just been talking about so instead of a over six hundred million dollar difference

[00:14:15] Speaker 00:
That should have been one way to do it divided by three.

[00:14:18] Speaker 00:
You're only talking about a $200 million difference that should have been traded off.

[00:14:23] Speaker 00:
It was error not to do that.

[00:14:25] Speaker 01:
Thank you, Your Honor.

[00:14:32] Speaker 01:
Mr. Harlow?

[00:14:32] Speaker 01:
Good morning.

[00:14:32] Speaker 01:
May it please the court?

[00:14:34] Speaker 01:
You heard Mr. Claybrook use the word expectation when he was talking about their unbalanced pricing argument.

[00:14:39] Speaker 01:
And that's really where a lot of this argument falls apart.

[00:14:42] Speaker 01:
Because what XBO has done is

[00:14:44] Speaker 01:
They've taken a ratio between what they've called air shipments and ground shipments, and they've superimposed what they believe the ratio for these two types of shipments should be over the ratio that's already built into the solicitation.

[00:14:58] Speaker 01:
There's a number of flaws with this argument that have been identified by the GAO and the trial court.

[00:15:03] Speaker 01:
What I'd like to focus on is sort of what Judge Chen illuminated with the evaluation that the agency actually did here.

[00:15:11] Speaker 01:
And what they did is they went line item by line item, using all three prices, both the Crowley's prices, Expo's prices, and the previous awardees' prices, to determine an average, a coefficient of variation, a standard deviation.

[00:15:23] Speaker 01:
And then they went through and identified each line item price as either high or low.

[00:15:28] Speaker 02:
How can you identify a standard deviation with three data points?

[00:15:32] Speaker 01:
Ma'am, as far as the math behind that, I mean, I know they did that as far as the formula that leads to standard deviation.

[00:15:39] Speaker 01:
I'm going to have to defer to the agency on that one.

[00:15:43] Speaker 01:
But what they did is they compared each line item price to the average of those three and then determined whether or not each one was either high or low.

[00:15:52] Speaker 01:
What they also did was identify the percentage that that particular price occupied within

[00:15:57] Speaker 01:
an offeror's proposal.

[00:15:58] Speaker 01:
So if a certain lane or a certain line item was 3% of an offeror's proposal, they identified that in their evaluations.

[00:16:05] Speaker 01:
What they did with all that data that they accumulated was, as Judge Chen said, they determined that there was not unbalanced pricing as illustrated by these prices.

[00:16:15] Speaker 01:
And they also determined that for Crowley, they demonstrated a clear understanding of the requirements of this solicitation.

[00:16:22] Speaker 01:
And that stemmed from their ability to identify the specific percentages for each price

[00:16:27] Speaker 01:
And the offer was overall a proposal.

[00:16:30] Speaker 04:
And so how does this, how does this work?

[00:16:33] Speaker 04:
Does the individual bidder say, um, on this line, you're going to have to correct everything that's wrong.

[00:16:41] Speaker 04:
On this line item, um, we're going to assume one unit at $2 million, but we get to say one unit.

[00:16:50] Speaker 04:
and the other bidder can say 17 units.

[00:16:53] Speaker 01:
No, Your Honor, the units were set by the agency for all of them and there were 80 line items to start with and then each of those 80 line items spawned, as Mr. Claybrook indicated, 440,000 different prices.

[00:17:05] Speaker 01:
Now with those 440,000 prices,

[00:17:08] Speaker 01:
the agency used historical information when it was available for those particular routes.

[00:17:12] Speaker 01:
And when it wasn't available, what they did is they assumed that each shipment would be the lowest possible weight within that band.

[00:17:18] Speaker 01:
So if it was a 5,001-pound shipment going from Little Rock to Albuquerque, they assumed that it would be a 5,001-pound shipment.

[00:17:26] Speaker 01:
And then so from those 440,000

[00:17:29] Speaker 01:
prices, it spawned about 800,000 different contemplated shipments.

[00:17:35] Speaker 01:
Not necessarily projected, but shipments that would be priced for the solicitation.

[00:17:38] Speaker 01:
Now, if you do the math behind all of that, you realize that it's about an 80-20 split between what XPO is called ground and air, which is not any different than what the agency argued before the GAO, or in fact, really what XPO suggested here.

[00:17:52] Speaker 01:
There just isn't any disagreement on what these shipments would look like.

[00:17:56] Speaker 01:
Where XBO is aired is they've taken that same ratio and then they've doubled it by layering it on top of numbers that were already included in the solicitation.

[00:18:07] Speaker 01:
That, as both the GAO and the trial court knows, those spawn a lot of different problems with this argument.

[00:18:12] Speaker 01:
But ultimately, we end up in the same spot where the agency performed the unbalanced price analysis that has been recommended by the Court of Federal Claims.

[00:18:19] Speaker 01:
If you look at the rationale that the agency gave for choosing that method, it tracks some of the language that the Court of Federal Claims has used.

[00:18:26] Speaker 01:
with respect to an IDIQ and going line item by line item and identifying high and low prices.

[00:18:31] Speaker 01:
That's what they did in this case.

[00:18:33] Speaker 01:
That was their intent.

[00:18:34] Speaker 01:
If they were following decisions of the court of federal claims that... Stupid question.

[00:18:38] Speaker 02:
They don't do that in every case.

[00:18:39] Speaker 02:
Go line item by line item through 400,000 different line items.

[00:18:43] Speaker 02:
They only did it here because of a disparity between the overall offers.

[00:18:47] Speaker 02:
Is that right?

[00:18:49] Speaker 01:
Your Honor, I'm not sure what you mean by disparity.

[00:18:51] Speaker 02:
Well, because I guess one of the

[00:18:54] Speaker 02:
net price was quite a bit different than another net price.

[00:18:59] Speaker 01:
Between the offerors?

[00:19:02] Speaker 02:
I'm trying to not say any numbers.

[00:19:04] Speaker 02:
So yes.

[00:19:06] Speaker 02:
Why did they do this unbalanced pricing analysis in this case?

[00:19:10] Speaker 02:
They don't do it in every case, right?

[00:19:12] Speaker 01:
No, no.

[00:19:13] Speaker 01:
They noticed that there was a number of line items involved in this.

[00:19:16] Speaker 01:
So they knew that any procurement with a number of line items like this, they needed to accomplish that.

[00:19:21] Speaker 01:
And that's what they set out

[00:19:22] Speaker 02:
But XBO's argument is you really only evaluated the line items that looked to be too high and didn't look at the line items that looked to be too low.

[00:19:30] Speaker 01:
That's what the trial court pointed out too is that the ultimate end of unbalanced pricing is whether or not there's a risk of the government paying higher prices in the end.

[00:19:39] Speaker 01:
That's what they focused on and they ruled that out.

[00:19:42] Speaker 01:
The agency ruled that out and said there isn't a risk of higher prices here.

[00:19:46] Speaker 01:
And therefore, there's not unbalanced pricing.

[00:19:48] Speaker 01:
And that's where the trial court notes, as Judge Chen did, if that outcome doesn't exist there, then there just is not unbalanced pricing.

[00:19:56] Speaker 01:
The reason there were so many of these line items and shipments is because this is a contract of a scope and magnitude that is almost unprecedented within the government.

[00:20:04] Speaker 01:
And it encapsulates work that not only XBO has done in the past, but many other agency, many other routes that are not currently serviced.

[00:20:11] Speaker 01:
That's why you have this 440,000 prices, which is obviously a gigantic number.

[00:20:16] Speaker 01:
incorporates essentially all DOD shipping and a variety of other agencies.

[00:20:20] Speaker 02:
How many people had to do all that line item comparison?

[00:20:25] Speaker 02:
How many man hours were devoted to that?

[00:20:27] Speaker 02:
Holy cow.

[00:20:28] Speaker 01:
I think it was about a half dozen people working on it.

[00:20:30] Speaker 01:
There are specific man hours.

[00:20:31] Speaker 01:
I don't know.

[00:20:32] Speaker 01:
I devoted a number of my own man hours to replicating the work that they had done to just double check it and make myself comfortable with it.

[00:20:39] Speaker 01:
There was a lot of man hours on my end, but for the agency I can't speak to that.

[00:20:43] Speaker 02:
Anything further?

[00:20:44] Speaker 01:
Just that last argument with respect to price evaluation.

[00:20:50] Speaker 01:
What XPO's argument really is, is that the solicitation contemplated two different types of price evaluations.

[00:20:55] Speaker 01:
One, the total evaluated price that's identified in the solicitation, and something that XPO has called likely actual cost.

[00:21:01] Speaker 01:
The trial court rejected this argument on two grounds.

[00:21:04] Speaker 01:
The first was that even if XPO's argument is given any credence, all they've really done is identified an ambiguity in the solicitation.

[00:21:11] Speaker 01:
that should have been raised in 2015.

[00:21:13] Speaker 01:
So the trial court ruled that under Blumgold, this argument has waived if there's really any merit to it at all.

[00:21:19] Speaker 01:
The trial court went beyond that and found that the argument itself is substantively mirrorless because the text itself doesn't support XBO's interpretation that there's a second price evaluation metric within the solicitation.

[00:21:33] Speaker 01:
And I think it's important to remember what the ultimate goal of this evaluation was, which was to have a comparative basis for the offeror's prices.

[00:21:41] Speaker 01:
Transcom's evaluation revealed that XBO's price was 8.4% higher.

[00:21:45] Speaker 01:
I know XBO likes to point out the difference in the TEP, but the agency pointed out their price is 8.4% higher.

[00:21:51] Speaker 01:
Now in the trial court, XBO tried a number of different calculations for price to try to demonstrate that its price was somehow different than what the agency had found.

[00:22:00] Speaker 01:
And what you always found, under every circumstance, that their price was always 8.4% higher.

[00:22:05] Speaker 01:
There's simply no way to calculate price under this solicitation

[00:22:09] Speaker 01:
where XPO's price is not 8.4% higher than Crowley's, and ultimately the agency determined that whatever technical advantage XPO may have had, it was not worth an 8.4% price premium.

[00:22:20] Speaker 02:
Thank you very much.

[00:22:21] Speaker 02:
Thank you.

[00:22:22] Speaker 02:
Let's hear from co-counsel.

[00:22:28] Speaker 03:
Thank you, your honor.

[00:22:29] Speaker 03:
May it please the court?

[00:22:30] Speaker 03:
I wanted to start by responding to Judge Chen's question about

[00:22:35] Speaker 03:
what would trigger a concern here of unbalanced pricing.

[00:22:39] Speaker 03:
And really when you think about unbalanced pricing, one way to think about it, it's an extension of the price analysis that had to be done for a fixed price contract.

[00:22:48] Speaker 03:
Again, this is a fixed price contract such that any low prices, any underpricing of the contract is at the risk of the contractor and not at the government.

[00:22:58] Speaker 03:
And so the solicitation stated and the agency conducted

[00:23:01] Speaker 03:
a price analysis, which is the exercise of determining if any prices are too high, unreasonably high.

[00:23:09] Speaker 03:
The unbalanced pricing argument takes that analysis and applies it to the various different line items.

[00:23:15] Speaker 03:
So Judge Moore, in response to your question, they did an unbalanced pricing analysis because the FAR says when there are line items to do that.

[00:23:24] Speaker 05:
The idea behind unbalanced pricing is to police

[00:23:28] Speaker 05:
against the possibility of certain line items being really lowballed by a bidder in such a way that they couldn't actually reasonably possibly fulfill expected requirements for that given line item at that given price.

[00:23:44] Speaker 05:
And so now there's a risk for the government that this particular bidder, if awarded the contract, would actually be able to perform that particular line item adequately.

[00:23:53] Speaker 05:
Isn't that the idea behind a balance pricing?

[00:23:57] Speaker 03:
Yes, your honor, respectfully.

[00:24:00] Speaker 03:
Here, again, this is a fixed price contract, so really the only risk to the government is the risk of unreasonably high prices.

[00:24:07] Speaker 03:
There is no, if the government wanted to know the risk of low prices, a risk of performance and an ability to perform, do what you say you're going to do.

[00:24:16] Speaker 03:
It could have added, and this is the exception, not the rule in a fixed price contract, it could have added a realism analysis to this.

[00:24:25] Speaker 03:
It could have said, we're not only going to look at price for reasonableness, we're also going to look at it for realism.

[00:24:32] Speaker 03:
Is your price realistic?

[00:24:33] Speaker 03:
It did not do that.

[00:24:35] Speaker 03:
And in fact, now that XPO is arguing for, is essentially arguing, you must do a realism analysis.

[00:24:42] Speaker 03:
You must look at those low prices.

[00:24:44] Speaker 03:
It knew that that analysis was never in the solicitation.

[00:24:49] Speaker 03:
It, in fact, asked the United States to include that type of analysis in the solicitation.

[00:24:55] Speaker 03:
and Transcom did not revise the solicitation to do so.

[00:24:59] Speaker 03:
So really, how does this concern ever get triggered?

[00:25:03] Speaker 03:
It doesn't, because as Mr. Harlow explained, the government did its job of looking at all the high prices.

[00:25:10] Speaker 02:
So if there are no unreasonable... I'm sorry, I thought 48 CFR 15.401-1G says all offers with separately priced line items or sub-line items shall be analyzed

[00:25:23] Speaker 02:
and included for unbalanced pricing, which includes significantly understating, quote, the price of one or more line items.

[00:25:30] Speaker 02:
So I don't understand your argument that it's only, I thought the CFR required them to look at every line item, including a concern about understating prices of line items.

[00:25:41] Speaker 05:
Does it, quote, unquote, increases performance risk?

[00:25:44] Speaker 02:
Am I misunderstanding what the CFR requires?

[00:25:48] Speaker 05:
Tell me again why I'm off base.

[00:25:50] Speaker 03:
Well, this unbalanced pricing provision is included within the entire scope of the price provisions of the FAR.

[00:25:59] Speaker 03:
It covers both cases where there is a cost reimbursable contract where you have to look at low prices.

[00:26:05] Speaker 03:
It covers a case where there might be a price realism where you're looking at an understanding

[00:26:11] Speaker 03:
like I said before, the exception in a fixed price contract where you're looking to see if prices are realistic.

[00:26:17] Speaker 03:
And it also applies in this situation where there is a fixed price contract and no realism analysis whatsoever.

[00:26:26] Speaker 03:
When there is only an, and the provision in G2 actually says this, you use cost analysis or price analysis to determine whether or not prices are in balance.

[00:26:38] Speaker 03:
Here in this solicitation,

[00:26:41] Speaker 03:
the agency only provided for price analysis.

[00:26:45] Speaker 03:
So, price analysis is the exercise of seeing if there are unreasonably high prices.

[00:26:51] Speaker 03:
So, that's what the agency did.

[00:26:53] Speaker 03:
It did exactly what the G2 says.

[00:26:57] Speaker 03:
It did exactly what the solicitation said.

[00:27:00] Speaker 03:
Now, to get to your concern, would there ever be a risk that the government would face the performance risk, which in a fixed price contract is unreasonably high prices,

[00:27:10] Speaker 03:
It only arises if you change the quantities in the solicitation.

[00:27:14] Speaker 03:
As a mathematical, it's mathematically impossible for Crowley's price to ever be higher than XBO's price given the ground rules of the solicitation and all of the quantities.

[00:27:26] Speaker 03:
We will always be 8.4% lower because the quantities in the solicitation.

[00:27:31] Speaker 03:
And that's why GAO held, well this... I thought this was an IDIQ contract.

[00:27:35] Speaker 03:
What am I missing?

[00:27:36] Speaker 03:
It is an IDIQ contract, Your Honor, but the quantities were all specified.

[00:27:41] Speaker 03:
Every single quantity was specified in the pricing sheets of the solicitation.

[00:27:45] Speaker 04:
And so... Well, let me just correct me.

[00:27:49] Speaker 04:
This is my understanding of what Mr. Claybrook was saying.

[00:27:55] Speaker 04:
If you take the specified quantities for the calculation of the total evaluation price as a given, then you end up with numbers.

[00:28:05] Speaker 04:
And you're making a decision based on a significant part on which number is higher.

[00:28:11] Speaker 04:
That might not actually lead to the government in the end, during the term of the contract, paying a lower price.

[00:28:20] Speaker 04:
Because realistically, it may turn out that the estimated quantities in the TEP calculation are way off that

[00:28:33] Speaker 04:
Therefore, when you say 18 of these units, realistically, it's only going to be two of these units.

[00:28:40] Speaker 04:
And if you have a really, really low number for that line, it's going to, and multiply that disparity between that low number by 18, it's going to create a really significant, helpful contribution to being lower on the TEP.

[00:28:58] Speaker 04:
When in fact, realistically, you're only going to do two of

[00:29:02] Speaker 04:
And if you do that enough times, the government's going to end up paying more, even though it shows the significantly lower TEP.

[00:29:11] Speaker 04:
Now that's what I understand Mr. Claybrook to be saying, and that you had to do more than you did, not you, but they had to do more than you.

[00:29:19] Speaker 03:
I understand.

[00:29:20] Speaker 03:
Well, Your Honor, what that is, is a challenge to the estimated quantities in the solicitation.

[00:29:25] Speaker 04:
And as Mr. Harlow- Well, again, I think what he's saying is no, they're allowed to do the calculation.

[00:29:31] Speaker 04:
on fixed quantities, but it can't stop there.

[00:29:35] Speaker 04:
They also need to figure out if there are sufficient disparities within some categories, whether those disparities realistically will propagate through into what the government will end up paying or not.

[00:29:52] Speaker 03:
Well, Your Honor, again, it is protected by the quantities, frankly, and here the quantities

[00:30:00] Speaker 03:
even as XBO has tried to challenge them and say, well, they might be different, we think they should be an 85-15 split.

[00:30:08] Speaker 03:
There's no evidence that anything in the solicitation or any, that there's anything other than an 85-15 split.

[00:30:15] Speaker 03:
The solicitation already reflects the historical expected quantities.

[00:30:19] Speaker 03:
There's no other analysis presented.

[00:30:23] Speaker 03:
Evidence of a disagreement.

[00:30:25] Speaker 03:
There's no other evidence of a disparity.

[00:30:28] Speaker 04:
Sorry.

[00:30:29] Speaker 04:
So is your position that the government really did not even need to look at whether 85, 15 or something is realistic or that here they did need to look at it, but here there's no evidence of the sort that would actually support a claim.

[00:30:50] Speaker 04:
that realistically the government's going to end up having to pay more than what the disparity in the TEP prices indicate?

[00:31:01] Speaker 03:
If I'm understanding your question, certainly if there were questions about whether or not the solicitation reflected anticipated quantities, that was something that XBO has been complaining about from the moment the solicitation was issued.

[00:31:15] Speaker 03:
Had they wanted Transcom to correct that and reflect a different

[00:31:20] Speaker 03:
breakdown, that had to be done prior to proposals going in.

[00:31:23] Speaker 03:
As part of their analysis, though, the agency did exactly what it needed to do.

[00:31:28] Speaker 03:
It went through every single line item and looked at where there might be unreasonably high prices.

[00:31:34] Speaker 03:
That's what it's protecting itself against.

[00:31:36] Speaker 03:
It asked offerors about all of those prices, in many cases got adjustments where the prices came down.

[00:31:44] Speaker 03:
In other instances, it got explanations for why the offer's prices were what they were and satisfied themselves at the risk.

[00:31:51] Speaker 03:
The only risk in a fixed price contract that the government needs to worry about from a pricing perspective is that the prices would not be unreasonably high.

[00:32:01] Speaker 03:
And without changing the quantity.

[00:32:03] Speaker 02:
Seated in time by several minutes, so we need to cut you off.

[00:32:06] Speaker 02:
Let's hear from Mr. Claybrook, and let's add two minutes to his rebuttal time so we even out the time between the two parties.

[00:32:13] Speaker 02:
Thank you, Your Honor.

[00:32:19] Speaker 00:
First of all, continuing with Judge Taranto's observations, we didn't double anything.

[00:32:28] Speaker 00:
When we did our analysis, what my esteemed colleagues want you to do is say, please just assume everything is accurate in

[00:32:38] Speaker 00:
when we put in these plug numbers and it all come out right.

[00:32:41] Speaker 00:
You know that's not correct.

[00:32:42] Speaker 02:
Yeah, but I agree with opposing counsel that if you wanted to change line item volumes, you had to do that before the proposals were in and you didn't.

[00:32:50] Speaker 00:
They make that argument, Your Honor.

[00:32:51] Speaker 02:
I agree with them that that's correct.

[00:32:53] Speaker 00:
Well, Your Honor, it's not correct in this situation because

[00:32:57] Speaker 00:
You can't really challenge an unbalanced pricing analysis not being done properly.

[00:33:01] Speaker 02:
No, you can challenge the volumes in the TEP for each requested line item being inaccurate.

[00:33:08] Speaker 00:
This is a situation, Your Honor, in which they use historicals for where they had it, but where they didn't, they put plug numbers in.

[00:33:14] Speaker 00:
That's what generated the large numbers.

[00:33:15] Speaker 02:
And if you doubted the propriety of those, you had to challenge them before proposals.

[00:33:19] Speaker 00:
That is not a protestable ground, Your Honor.

[00:33:22] Speaker 00:
Because the agency, just like they did here, can say,

[00:33:26] Speaker 00:
We still want to get fixed prices for every one of these potential lanes that might be used, and it was the salens in which they were unreasonably low, unbalanced low, that they trebled them by saying, okay, three different timing delivery times.

[00:33:47] Speaker 04:
Did they give you their quantities?

[00:33:52] Speaker 00:
The quantities are in the RFP.

[00:33:56] Speaker 04:
What's left of your argument?

[00:34:00] Speaker 00:
The point is they want to get a fixed price for every lane, even though, as they say, we don't expect to use all of these.

[00:34:09] Speaker 00:
There's nothing irrational about that.

[00:34:11] Speaker 00:
To do that, you must put a number in there.

[00:34:14] Speaker 00:
Otherwise, you put a zero.

[00:34:16] Speaker 00:
because that's what you expect, or at least for half of them, zeros, then you're not going to get a price for it.

[00:34:25] Speaker 00:
So there has to be some plug number put in.

[00:34:28] Speaker 00:
That is not something we can protest.

[00:34:32] Speaker 00:
But as GAO pointed out in the first decision they made, because you'd have to put zeros in.

[00:34:39] Speaker 04:
If that is what ends up creating the risk that you're worried about, namely that

[00:34:46] Speaker 04:
It's quasi-fictional what these TEP figures are compared to what realistically the government will end up writing checks for.

[00:34:57] Speaker 04:
Why is that not something that's part of the solicitation to which blue and gold applies?

[00:35:04] Speaker 00:
It is if you have historicals that you could use, but they don't have historicals here.

[00:35:10] Speaker 00:
Where they have them, they use them.

[00:35:12] Speaker 00:
So they're saying, yes, for once we don't, we have to put plug numbers in.

[00:35:15] Speaker 00:
And we multiply the lanes exponentially.

[00:35:19] Speaker 00:
And as GAO said in its first decision, OK.

[00:35:22] Speaker 00:
But we've got to be careful, because if this TEP thing is not letting you take a look at what the actual cost is, which is what it's all about, then maybe you need to change things.

[00:35:32] Speaker 00:
They came back and said, we don't need to change.

[00:35:35] Speaker 00:
Matter of fact, we took into account when we did our trade-off

[00:35:37] Speaker 00:
That TEP generated difference is not the actual cost difference.

[00:35:42] Speaker 00:
They said that we're going to do it exactly the same way, but they didn't do it, and that's the cause of our protest.

[00:35:48] Speaker 02:
Thank you, Your Honor.

[00:35:48] Speaker 02:
Okay.

[00:35:48] Speaker 02:
Why don't we move on to the next case?