How Much Longer Will Low-Price Contracting Be In Vogue?

This Type Of Procurement Strategy Presents Long-Term Challenges

Utter the phrase “low-price contracting” these days to any government contractor, and you're bound to get a painful response.

Yes, the economy needs to improve – while budgets and tax revenues also need to stabilize – in order for this to become less of a liability in the bidding marketplace.  But the fact of the matter is that low-price contracting is going to be around “for at least another 2-3 years,” predicted Stuart Nottingham, Director of Technical Services of Management Applications Inc., of Raleigh, N.C., which has been providing government agencies and companies in all industries with accounting software, ERP solutions and other consultative network and business services for more than 20 years.

Why?

“It's the nature of the beast, but low-price contracting can potentially lead to failed projects, which heightens the awareness of the pricing, even if read between the lines,” added Nottingham.  “It's no secret that as price is pushed downward, performance risk goes up.  Eventually this is going to come full circle and likely be viewed as a detriment.”

Yes, many government executives are embracing low-price contracting, and in fact view it as an opportunity to bring low-cost, innovative solutions to the government.  This procurement strategy shift for technical and professional services bids is using lowest price, technically acceptable (LPTA) evaluation criteria rather than the more traditional best-value tradeoff criteria.

Now while there is always rooms for low-price strategy in federal procurements, it 's really not suitable for procurements with complex services or uncertain performance risk.   When a government agency applies such a strategy to unsuitable procurements, both the government and the bidders lose.

Here's some actions to keep in mind when presenting with this:

The LPTA Evaluation Criteria – When Is It Best To Use?

This is really a best value.  In traditional best value procurements, the government allows tradeoffs among non-cost factors such as technical approach, management plan, past performance, etc. and cost when determining best value to the government.  These tradeoffs give the government the latitude to award a contract to other than the lowest priced offeror when the tradeoffs show there is additional value to the government in these factors.

When selecting the LPTA criteria for procurements, the government determines before the release of the request for proposals (RFP) that there is no additional value in trading off the non-cost factors versus cost.  Also, LPTA evaluations specifically prohibit evaluators from making these tradeoffs and restrict evaluators to only scoring proposal factors and subfactors as either acceptable or unacceptable.

The end result?  There's simply no value in the bidder exceeding any requirement in the RFP.

Establishing Minimum Technical & Performance Requirements

Procurements run into trouble when LPTA criteria is applied to technical and professional services bids because the work is complex, minimum acceptable technical and performance requirements are difficult to describe, and the consequences from failure can be considerable.

In LPTA procurements, setting higher standards for acceptability becomes important because each bidder who meets the minimum acceptable standards has an equal opportunity to be selected for contract award.  If standards are too low, every bidder will get through the acceptable hurdle, leaving only cost as the evaluation factor.

A Higher Standard Of Acceptability

To raise standards of acceptability, for example, an RFP might prescribe that the bidder have CMMI or ISO certifications or require proposed key or technical staff to have specific undergraduate degrees, advanced degrees, and/or professional certifications.  Past performance might require evidence of several completed contracts of a minimum size or completed within the past 12 months.  If the bidder doesn’t meet these requirements, they must be evaluated as unacceptable.

As a result, each higher requirement raises the bar of acceptability, but because the evaluation is LPTA, the government can't give additional consideration to companies exceeding a requirement by considerable margin over those who barely meet the requirements

The Win Goes To The Lowest Price

When an offeror’s proposal has been found acceptable, all that stands between the offeror and victory is having the lowest evaluated price.

Bidders use many tactics to lower their evaluated price. With the application of these tactics, each bidder takes on more risk in contract performance. Generally, as price is pushed downward, performance risk goes up, and the satisfaction of having awarded to the lowest price offeror can soon be overshadowed by the burden of poor contractor performance. 

“All parties lose when all is said and done,” noted Nottingham.  “The best approach is to educate procurement officials, and particularly about using LPTA as a strategy.”