OFPP lets DOD deal with pricing complexities first

The Defense Department has many roles in government, but it's not often considered a guinea pig. But that is what's happening as the Office of Federal Procurement Policy looks to DOD's experience for guidance on the balance of price against value in contract awards.

"We’re talking with the Defense Procurement Acquisition Policy officials to figure out what they are seeing, how they’re going to do this, why, and all of that kind of stuff,” Joe Jordan, OFPP administrator, at a recent breakfast hosted by the Coalition for Government Procurement.

Policy officials are hard pressed to set policy beyond the case-by-case decision. Jordan’s recommendation during his speech: if it fits, use it. More broadly, agency officials have to make a judgment call on whether to take the lower price now and potentially pay more later on if problems should arise from minimal quality work.

“The bottom line is it’s just a tough area, because you’ve got tricky incentives,” Jordan said, during the speech on Sept. 11. (See our coverage of another aspect of his presentation here.)

Generally speaking, he said industry likes best-value procurements. They allow companies to propose higher prices, since officials will consider other evaluation criteria beyond price. On the other hand, the government is pushing low price and not always fully analyzing the entire lifecycle of a project, Jordan said. Both sides have good arguments, so the contracting officer's judgment is the final arbiter.

“It’s always a challenge with the overburdened acquisition workforce, but I think we’re at a place where we need to do some more analysis, having some more conversations with industry and agencies, especially the Department of Defense, to figure out exactly where equilibrium lies,” Jordan said.

Larry Allen, president of Allen Federal Business Partners, said the contracting community can expect agencies to keep the low price technically acceptable perspective on their procurements.

He said OFPP doesn’t want to take sides right now on the issue for two reasons. For one, it’s part of the Office of Management and Budget’s drive to reduce spending on support service contracts. Secondly, he said Richard Ginman, director of defense procurement acquisition policy at DOD, has pushed for the lowest price option.

“They seem happy with the drive to low price and uninterested in whether it may be misapplied in some circumstances,” Allen said. Moreover, “I don’t know that anyone in government acquisition would boldly take a different path” than DOD.

Industry experts have been increasingly concerned that federal officials have developed a lowest price technically acceptable attitude for their procurements. In other words, they will pick the bids that meet the minimal requirements and go for the cheapest price to demonstrate to the higher-ups that they are good stewards of the government’s money.

As is well known, agencies are in tight budget times already, with the potential of sequestration squeezing even tighter soon. Officials are looking to cut costs and that’s led to a greater emphasis on low-price bids.

Those concerns may only be exacerbated by a 400-page report the Obama administration released Sept. 14 on the potential effects of sequestration. The congressionally mandated report outlined plans for cutting federal spending by $1.2 trillion. Per the report, sequestration is estimated to result in a 9.4 percent cut in non-exempt defense discretionary funding, and 8.2 percent in non-defense, non-exempt discretionary funding. Administration officials stressed that the figures in the report are estimates based on assumptions and on 2012 spending levels.

In his speech, Jordan said both the lowest price technically acceptable and the best value procurements have their place. He emphasized that he isn’t choosing one over the other.

“Do both, but do them at the right time,” he said.

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Reader comments

Thu, Sep 20, 2012 Timothy Coffin

Interesting article – in the current environment, it certainly is essential to cut costs where possible, but balancing the need for quality products and services is critical, especially in support of DoD’s mission. A different approach that could save the government money and incentivize contractors to provide more for less, is an approach that we’ve embraced at iGATE: our customers pay for outputs – measurable outcomes; rather than inputs – activities to get to a deliverable. This delivery model, more relevant now than ever in the current budget climate, reduces the risk for government and reduces costs, while improving results.

Timothy Coffin, President, iGATE Government Solutions

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