Stan Soloway

OPINION

Doing the low-price limbo?

Given the fiscal chaos with which they must contend, it’s really no surprise that federal agencies are looking for any opportunity to save money. And it’s certainly not unique to government. The history of American commerce is full of stories of companies facing tough market pressures using every tool to squeeze cost savings out of their suppliers.

But that history is also full of stories in which price squeezing went much too far; in which the quest for immediate cost savings made it nearly impossible for suppliers to deliver excellence, let alone long term efficiencies or innovation. Simply put, the well-established lesson of history is that an excessive focus on cost savings, at the expense of more strategic trade-offs, is incompatible with a customer’s long term best interests.

As I’ve suggested in this space before, we are seeing troubling signs that the government customer has not learned those lessons. Increasingly, source selections are being governed by the immortal words of the song “Limbo Rock”: How low can you go?

This is perhaps best seen in the over-reliance by the government on lowest price technically acceptable procurement strategies, in which awards must be made to the lowest bidder with minimal technical qualifications. But the problem is manifest in more than the questionable use of these strategies. One new scheme of which we have recently become aware is something one might call “BPA Squared.”

Typically, companies that win a place on a blanket purchase agreement, or BPA, compete for the actual work on a task order basis, much as they would with any other multiple-award contract. However, under the unique BPA Squared approach, they now face a second level of overarching competition to win a place on a “sub BPA” against which the task orders will now ultimately be awarded.

In other words, although the process that established the initial BPA as a precursor to task order competitions enabled the government to select firms with both the right qualifications and fair and reasonable prices (often reflected in substantial discounts off published pricing), additional rounds of competitions are being conducted with the express and sole intent of driving prices ever lower. In so doing the government is sending the clear message that it now expects pricing below what is fair and reasonable. BPA Squared approaches are even more troubling because they also ignore the very real costs to the bidders and the government of unnecessary layers of competition. Companies expend substantial, precious resources every time they bid on a government requirement and the government has to expend equally precious resources evaluating more proposals.

To be fair, federal agencies face very unenviable pressures associated with the need to find instant savings rather than focus on long term performance and efficiency. Indeed, under current conditions, strategic planning in government is more difficult than ever. One could also argue that if the bar is too low, industry just shouldn’t bid and should simply opt out. If these pressures were the exception, more might do just that; and companies with significant non-government work may still do so. However, with “Limbo Rock” procurements becoming the rule rather than the exception, opting out simply isn’t a viable route for companies seeking to survive a constrained market.

As taxpayers, we have every right to expect that the government will not overpay for the goods and services it needs. But we also understand that the old adage that “you get what you pay for” is an old adage for a reason. “How low can you go?” is but one of several critical questions that need to be addressed in the source selection process; but today it has taken on an overwhelmingly dominant role. “Limbo Rock” is a great song, but as a default acquisition objective it strikes the sourest of notes.

 

Reader Comments

Mon, Oct 22, 2012 Huntsville

I don't think the government understands who gets hit the hardest. The way that we get low when bidding contracts is to lower salaries. We've already squeezed everything out of indirect costs and salaries are the only thing left. This leads to an unhappy, unproductive workforce that will not deliver a better service or product.

Tue, Oct 16, 2012 Jaime Gracia Washington, DC

What I find disturbing is how many in government and industry seem to mistakenly think that LPTA determinations are so much easier to evaluate in regards to what constitutes technically acceptability. With poorly written requirements, combined with improper or vague evaluation criteria in determining technical acceptability, we are seeing an increasingly larger number of protests in this area. Further, price reasonableness analysis are not being done done, or are being done poorly, which is a vital competent to have a level of confidence in the ability to perform at the demanded low prices at contract award. This environment is one where open and transparent industry and government communications are crucial to exchange ideas about realistic performance versus affordability. Alas, the opposite is true. If you think performance and waste is bad now, we can expect the situation to worsen through this LPTA storm.

Tue, Oct 2, 2012 Michael Celentano Springfield VA

There is another equation involved here that is a multiple of industry practice resulting in the LPTA reliance. That's the combination of the propensity for industry to protest all/any awards regardless of basis, and the inexperience of the acquisition workforce and the acquisition team. Best Value is the most protested acquisition strategy and it takes substantial documentation and practice to do it right. LPTA is simple, establish technical acceptability, determine the competitive range, and choose the lowest price offerror. This works fine for single award, but in an MA-IDIQ situation where the Limbo-Rock concept takes over, it is killing not only industry but is impacting employees, the vaunted Middle Class that must accept lowered salaries to meet the LPTA competition...

Tue, Oct 2, 2012

The biggest problem is accountability. As a contractor, if we screw up (bad performance or lose too many bids), we suffer the consequences and generally are held accountable -- both organizationally and personally. When the gov't screws up, there is usually a lack of accountability. Of course, the reverse favors the contractor side -- rewards for doing excellent work generally have greater benefit on the contractor side. That's why I am there but those rewards are shrinking with the LIMBO approach, so now what? What I see is we are losing good talent to the companies that don't do gov't business. Who loses? Our customer -- the US Government. Sequestration is the WRONG answer -- cuttng everything X%. Cut out programs that are less important, and emphasize great performance on the more important programs. It's called prioritizing. That's what senior mgt gets paid for -- to make those tough calls.

Tue, Oct 2, 2012

Obviously as companies run out of changes that can be made to OH & G&A to achive a competitive posture while maintianing sufficent infrastructure to meet government requirements, the next area to reduce is DL and Fringe. Our cost structure was within ranges that would scare most federal suppliers and what does the government do but turn around and hire our staff offering higher DL and Fringe benefits. We are getting tired of being the staffing agency for the federal government.

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