We’re weathering the storm, but this one’s not about to let up – the LPTA (Low Price, Technically Acceptable) storm, that is.
The fact is, by most estimates, extensive use of LPTA procurements is here to stay – at least for the next few years. While LPTA is actually a valid and valuable acquisition model for certain types of commodity purchases, what the industry is really struggling with is the overuse and mis-application of LPTA to procurements that do not lend themselves to minimally-compliant cost shootouts. But it’s the quick fix many government customers have chosen to address budget shortfalls and understaffed contracting offices.
The real problem is not just the impact on the contracting community to include reduced revenue and profits. The real problem is that misuse of LPTA hurts the industry’s ability to best serve our customers. The downstream effect on government success is significant – missed deadlines, poor quality by unqualified contractors, restarts and clean-ups. Why? Because for all but the most commoditized and easy to specify products or services, the LPTA model specifically prevents the government from considering qualitative and often attractive factors that could significantly improve the likelihood of a successful contract.
To illustrate, consider the following scenario: Five bidders compete for an agency contract for business analyst services. The government has done a good job describing the work requirements, but it’s an LPTA procurement, so in the end, minimally compliant offerors will be evaluated solely by price. One bidder is rejected for non-compliance, and the other four complaint bidders are chosen among by price alone. All four bidders are within 0.5 percent of one another (very close in price). The government has no option but to award to the lowest of the four bidders, even if there are substantial qualitative differences in approach, experience, risk management, quality, innovation, customer knowledge, etc., that would directly impact the likely success of the contract. The government loses its ability to even consider these factors in its award, and as a result, is forced to choose an offeror that may in fact not be truly qualified to do the work – all to hopefully save the government a negligible amount of money. “Hopefully,” because in an overwhelming number of awards, the resultant contract does not meet the government’s expectations, often resulting in cost overruns, missed schedules, low quality output, and in some cases, contract stop work orders and new procurements. The fact is, LPTA is often a false economy.
So, what to do?
The worst decision for a contractor to make is to choose to do nothing – to keep doing what you’ve always done. Notwithstanding the possibility of getting lucky occasionally (the “blind squirrel” approach to finding business), a “status quo” approach is a waste of valuable bid and proposal dollars and will eventually lead to the demise of even more businesses.
The second worst decision a contractor can make is to heed the advice of so many business development consultants and bid unrealistically low prices “to get your foot in the door.” This is a short-sighted approach and it nearly ALWAYS leads to poor contract execution, negative customer mission impact and negative impact to your company’s reputation – or worse.
Here are five rational actions your organization can take to weather the storm – the first two actions focus on helping the government avoid the LPTA shortfalls, and the last three actions focus on how to better compete when price is critical (including LPTA acquisitions):
1. Cast your vote – Get actively involved in the dialogue between government and industry about the use of LPTA – make certain that the voice of industry is loud and clear. It is also critical that, as part of an interdependent “eco-system” with the government, industry leaders focus on what is in the government’s own best interest, and not just on what helps contractors. Misuse of LPTA negatively impacts government budgets and mission success as described in the scenario above. Consider joining one of the industry advocacy groups like the Professional Services Council (PSC) and help the industry articulate the potential pitfalls of LPTA government-wide.
2. Connect with your clients – When you’re aware of an upcoming “non-commodity” acquisition and you’re afraid it’s going LPTA, get with your customer and their contracting office. Make the case for the benefits of a true “best value” procurement model and the false economy of an LPTA shortcut. Remember, in this discussion, you’re there to help them be successful – save the more self-serving marketing pitch for another time.
3. Make careful bid/no-bid decisions – Given that you’ll still likely have to commit to the occasional LTPA procurement, choose your pursuits carefully. Avoid the temptation to try to chase all opportunities, hoping for wins against lottery-like odds. It’s not only a waste of business development dollars and effort – it also dilutes your company’s reputation and your focus on more critical pursuits. Instead, do the homework to find opportunities where you can offer real innovation and life-cycle cost reductions to your customer without risking their mission success. To be sure, this is not easy to do. It requires discipline and intense brainstorming to look for non-obvious ways to solve their toughest challenges. But, it can lead to highly competitive pricing for a solution that actually has a chance of working as offered.
4. Be realistic – Never offer a price that you know is unrealistic in the hopes that you can “get well” during execution. This strategy almost always fails and can hurt your customers and damage your reputation. Worse, it can lead to contractual and legal issues that will cost you a lot more in the long run.
5. Be relentlessly efficient – Always continue to hone your corporate costs and overhead so that your prices are as low as feasible, but do so without damaging your corporate culture. There’s a critical difference between being efficient and being cheap. Efficiency implies no wasted effort – streamlined processes, an intense focus on what matters and investments only where they add value. Unless your benefits are truly “gold plated,” gutting employee benefits to lower your rates is short-sighted – it hurts morale, productivity, work quality, employee retention, creativity and more. Simplifying complex bureaucratic processes is much more effective at building an efficient and innovative corporate culture that directly and positively affects your service to the customer and thereby, your bottom line.
LPTA makes for hard times for the industry, and hard times require hard work. Be patient, communicate with your customers and avoid tempting shortcuts that you’ll regret later. Take care of your workforce that is your “engine,” and stay focused on the real value you can bring to the market.
About the Author: Steve Tolbert is a business leader and growth strategist in the federal management and information technology services industry and formerly was senior vice president of the Health and Civil Sector at SRA International. He can be reached at: firstname.lastname@example.org.