Procurement

Industry resists government's push for low prices

Industry is pushing back against defense officials’ most recent initiative to get the biggest bang for their buck – and suggesting changes to stress value over price.

The Better Buying Power Initiative was instituted in 2010 as a mandate for restoring affordability and productivity in defense spending. However, industry experts say the Defense Department has hindered private-sector attempts to create good competition and provide DOD with best value. Instead, critics say, officials left little room for flexibility to match the necessities of individual instances.

The core complaint is that DOD is adhering too closely to the initiative’s rules of three-year contract term limits and making the lowest price technically acceptable (LPTA) the main factor in a purchase. Buying smarter is not always about choosing the cheapest offer, said Larry Allen, president of Allen Federal Business Partners.

“It’s nice to sit in a senior policy office and talk about LPTA when in the field it’s been LP,” he said.

In September, the Professional Services Council offered ideas for modifications to the original Better Buying Power Initiative. In a letter on behalf of more than 350 member companies, PSC suggested Frank Kendall, undersecretary of defense for acquisition, technology and logistics, reconsider the contract term limits and the LPTA source-selection method.

PSC recommended the next round of the Better Buying Power Initiative instead take a balanced approach to regulating contract length, maximizing the appropriate use of “best value” procurement strategies, and even recognizing the importance of company profits by tying the profit margin to the nature of the work and its risk.

“How the government deploys its increasingly limited resources is more essential today than ever before,” Stan Soloway, PSC president and CEO, wrote. “Driving and rewarding high performance, innovation, and continuous improvement must remain at the core of the government’s acquisition objectives.”

Defense officials said they received the letter and welcome the input from industry.

“We will give industry a chance to comment on BBP 2.0 before making it final,” said a DOD spokeswoman Oct. 3, adding that it’s “a bit premature to comment yet on specific issues in BBP 2.0.”

In its letter, PSC recommended guidance reminding acquisition officials to tie contract length to the nature of the work. The main point of better buying is not the number of competitions DOD holds, PSC argued, but rather the quality of the requirements described in the request for proposals.

“The real goal of the department is quality and robust competition, rather than competition for its own sake,” wrote Soloway, who served nearly three years as the deputy undersecretary of defense for acquisition reform and, at the same time, as director of Defense Secretary William Cohen’s Defense Reform Initiative. “The key to driving quality competitions lies in the quality of the requirements, far more so than the frequency with which competitions are held.”

PSC also noted two LPTA trends that Soloway argued are troublesome for industry and government alike.

First, buyers are not applying the right LPTA procedures. Agencies, for example, are failing to open the technical proposals of companies that are not the lowest bidders. By closing that door, Soloway warned, the government will not learn about technical solutions that may better match the mission’s requirements.

“Focusing on the appropriate quality and technical requirements is essential, if often overlooked,” he wrote.

Second, DOD’s buyers are routinely using LPTA in circumstances where they should consider trading off cost for technical quality, especially in complex procurements.

“There is a strong consensus that LPTA source selection strategies have essentially become the default…approach, almost regardless of the nature of the requirements involved,” Soloway wrote.   He cited the department’s purchase of audit readiness and preparation services as an example. Officials made awards on an LPTA basis, even though much of the accounting work is specialized and sophisticated.

While cost is of growing importance, Soloway acknowledged, he argued that industry experts believe defense officials are putting far too little effort into evaluating complex technical requirements, such as existing capabilities, a company’s past performance, and ongoing technology refresh. As a result, “the acquisition outcome is rarely beneficial to either the government or industry.”

Allen summed it up.

“I can sell you a 10-year-old Chevy for less money than a new one,” he said. But you’ll have to buy a new 10-year-old Chevy every other year.”

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Mon, Oct 8, 2012 SPMayor Summit Point, WV

Like any good tool LPTA has to be used when it makes sense and fits the purpose. The problem isn't with the tool but the mechanics/shop foremen who pre-decide what tools are to be used without consideration of the vehicle or need. Gerry-rigging the use of LPTA is like using duct tape on an engine - it looks gray, seems to hold things together and passes the initial inspection only to fail miserably, cost more money to repair the original problem and the new problems associated with the duct tape and leave the customer disappointed and the mechanic looking foolish.

Fri, Oct 5, 2012 Peter G. Tuttle, CPCM

RaW hit the nail on the head...you get what you pay for. Jumping at the cheapest price may not lead to the best value in the long run. Everybody, and I mean everybody, in industry knows that up-selling once you have an account is a key business strategy. If you award to an (unreasonably) low offeror, you better expect to get eaten alive by change orders. Please do the cost or price realism homework as part of any evaluation and hopefully you'll avoid later problems. Feds need to be aware that unsuccessful offerors are watching and may find a way to take them to task if what they are spending rises above the original award amount. With the new transparency in government purchasing, it is easy to follow the spend of an acquisition. Cheers and Happy Friday.

Fri, Oct 5, 2012 OccupyIT

“It’s nice to sit in a senior policy office and talk about LPTA when in the field it’s been LP" - great comment. To take it further, I am seeing Lowest Price Most Barely Acceptable as the reality. Seriously, evaluators are trying to figure out if a bidder can POSSIBLY be acceptable after award not if the ACTUALLY ARE. Implicit waivers are being given with the assumption any defficiencies can be addressed after award. We are setting ourselves up for an angry few years with the USG assuming they bought one thing (that's what we hoped you bid) and the contractor showing them that they didn't (that's not what we bid). It is so self fullfilling its like watching a train wreck in slow motion.

Fri, Oct 5, 2012 RayW

After over 40 years of dealing with the lowest bidder syndrome, including the Navy, Air Force, General Gov, and Real Life, I can say that the lowest bidder often ends up costing you more in the long run. A project I am helping on went lowest bidder, and now we are finding that the documentation (as an example) was not included ($$$ to get now), despite what all the acquisition training says is suppose to be there.

You get what you pay for, and the person undercutting everyone else usually has cuts of his own to get there - that the customer pays for. And the Gov usually has no recourse on garbage since the effort to get redress is more than the Gov can do, unlike the contractors suing the Gov for forgetting a period in the contract.

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