Seven facts you need to know about LPTA
Lowest price, technically acceptable procurements aren't going anywhere anytime soon. If you want to succeed, you better arm yourself with the facts. New research from Market Connections and Centurion Research Solutions helps point the way.
Let’s face it: lowest price, technically acceptable contracting is here to stay. It isn’t going anywhere—not anytime soon, at least—so it’s important to learn the facts so that you can remain competitive in the LPTA era.
Fact one: There are $27.7 billion in LPTA contract opportunities, according to an analysis by Centurion Research Solutions, who along with Market Connections produced an LPTA conference on Thursday. The opportunities range from meager -- $40,000 -- to huge -- $6 billion. The average is a healthy $70 million with an average timespan of 3.6 years, and an average annual value of $18 million.
In term of agencies who most utilize LPTA procurement, the Defense Department leads with $6.5 billion. Following the Defense Department is the Navy with $5.6 billion, the Army with $4.3 billion, the Veterans Affairs Department with $4.2 billion and the Air Force with $2.1 billion.
Fact two: A survey of 375 government contractors and 360 federal government decision makers by Market Connections found that 31 percent of federal employees said they were very likely to issue an LPTA RFP, with 33 percent answering that they were somewhat likely; that’s 64 percent all together.
Only a combined 14 percent said they were unlikely to issue an LPTA RFP.
Forty-six percent of federal employees said the biggest reason they are using LPTA is because of limited budgets and efforts to save money.
“Sequestration means less money all around, so we have to make the most out of the remaining money,” one federal employee was quoted as saying.
Other reasons why LPTA RFPs are issued are because it is a standard practice (17 percent), to get supplies/commodities/reoccurring purchases (10 percent), if requirements are well-defined (8 percent), because it is fast (4 percent) and because it simplifies the contracting process (3 percent).
Fact three: From a government perspective, there is a variety of benefits from LPTA contracting. Forty-five percent of federal employees answered that it controls costs. In close second, 43 percent answered that it is economical for product/commodity procurements. Thirty-nine percent said that it has simple criteria to follow for award.
But the government sees a darker side as well, with 59 percent of federal employees saying that the main drawback to LPTA is that contracts may be awarded to less qualified companies, showing that the government is at least aware of LPTA’s danger in some cases.
he number two drawback, for 43 percent of federal employees, was that LPTA procurement sacrifices long-term value for short-term cost savings. Thirty-eight percent said that past performance not being taken into account is a drawback, and 31 percent said that LPTA acts to lower the contractor’s standard of performance.
Fact four: Contractors are facing pressures and have little choice but bid on LPTA contracts. The top reason cited in the survey for contractors pursing LPTA RFPs is the shrinking number of opportunities (61 percent). Other reasons included having in-depth knowledge of customer requirements (50 percent), to maintain current relationship (48 percent), an opportunity to get a foot in the door (46 percent) and because of a highly competitive marketplace (44 percent). Contractors also answered that a good sense of the competitive landscape will get them to respond to an LPTA RFP (34 percent).
Contractors have their reasons for not responding to LPTA RFPs, also. Seventy-nine percent of the contractors answered that the number one reason they won’t respond to an LPTA RFP is because there is no opportunity for value added solutions. Other reasons included that they cannot be competitive on price (56 percent), that they lack knowledge of the competitor landscape (26 percent), they lack knowledge of customer (21 percent), and that there is a lack of long-term opportunities (19 percent).
When LPTA procurements are going down, though, there are a number of challenges that contractors face. The number one challenge, according to 57 percent of contractors, is that decisions are being based on price, regardless of potential quality of work or ability to perform. The second biggest challenge was a tie, with 49 percent of contractors feeling compelled to offer a lower price solution that may not be in the best interest of the government, and being unable to differentiate against competition.
Fact five: Unfortunately, this is the procurement landscape of today, and contractors have been affected already. Most reported that the LPTA landscape has made for less innovative solutions on their part (63 percent), while others said that they have been reducing indirect rates (53 percent), relying more heavily on junior staff (47 percent), reducing staff (39 percent) or freezing salaries (33 percent).
Fact six: Contractors need to be proactive and make strategic moves to succeed and many have already been employing certain strategies in order to remain competitive.
Organizational strategies include creating new divisions or cost centers, reducing benefits of current employees, and recruiting a low-cost workforce.
Market strategies include pursuing non-government markets and modifying service and product offerings.
Partner strategies include pursuing new partnerships, and employing low-cost subcontractors.
Bid and capture strategies include being more selective in pursuits of contracts, building relationships to influence what qualifies as technically acceptable, and reducing B&P budgets.
Fact seven: The survey results showed that LPTA's use is expected to increase in the next few years. Seventy-three percent of contractors and 65 percent of federal workers point to fiscal restraints/budget cuts as being the top reasons. Much smaller percentages pointed to a shrinking workforce, federal mandates to use LPTA, and the fact that LPTA is faster and easier as being reasons for the increase.