CONTRACTING

The dangers of low-price contracting

Report warns the approach raises the risk of failure

Because they appear to be cheaper, low price, technically acceptable procurements are on the rise, but TASC Inc. is making an argument that these kinds of contracts pose a danger to the government over the long haul.

In a recent report, the company spells out when these deals should be used and when they should not.

Low price technically acceptable deals are usually made for commodities—facility maintenance services, laundry services and custodial services, to name a few—for three reasons:

  • There is little difference between competitors; no one competitor is going to be significantly more qualified than another.
  • The stakes are low so if there is a failure the resulting damage is not extensive.
  • Commodity services are simple enough that their requirements can be clearly defined.

Critical professional services are the exact opposite, according to the report:

  • There are significant differences in how qualified companies are for the mission.
  • The stakes are very high; a failed mission could result in a national security risk.
  • Professional services for critical missions are often very specialized, and so it is difficult to clearly define their requirements.

What makes the lowest price technically acceptable approach favorable is that it seems to be a cheaper option to conduct business in today’s government market where budgets are so tight.

But using the lowest-price technically acceptable approach for non-commodity services can result in program and systemic risks, TASC said in its report.

Program risks can include a “significantly underbid work effort and an increased risk of failure,” TASC said. Plus, any shortcomings on a project require money to fix, making the effort more expensive overall than would be a classic approach.

Systemic risks are more detrimental on a fundamental level. Independent research and development is likely one of the first areas to be cut in this scenario, putting “the government at risk of losing access to future technology innovation and consequently the cost savings associated with technical advance,” the company said.

Another area that might suffer from cost cutting is learning and development; however, this is the area that helps, among other things, “transfer knowledge from more experienced (and more expensive) engineers to less experienced (and less expensive engineers,” TASC said.

But if lowest price technically acceptable deals continue to rise, TASC did suggest ways to make them less risky.

First, the qualifications for “acceptable” must be made much more rigorous, to the point where “some offerors are found unacceptable or only one offeror is technically acceptable,” TASC said.

Qualifications for this could include scenario-based evaluations that have teams illustrate their breadth of expertise, even going so far as to “provide solutions to specific problems that may arise during the period of performance,” TASC said.

This would give a team an opportunity to “demonstrate that it understands the work sufficiently to solve problems and exhibits the flexibility and adaptability to address changing priorities and circumstances, which is not always brought out in [lowest price, technically acceptable] awards,” the company added.

Another fact to weigh is past performance. It would speak greatly of a team’s abilities if they already have projects similar in “size, scope, and, especially, complexity,” TASC said.

At the end of the report, TASC made two recommendations:

Either issue “solicitations for complex and/or mission critical services [that] adopt a classic cost-technical tradeoff approach for achieving best value,” or make technical and past performance requirements “rigorously and precisely defined to ensure the government receives something that is truly and rigorously technically acceptable.”

In other words: Quality or bust.

About the Author

Mark Hoover is a senior staff writer with Washington Technology. You can contact him at mhoover@washingtontechnology.com, or connect with him on Twitter at @mhooverWT.

Reader Comments

Tue, Jan 1, 2013 Living with the Result

Acquiring services from a low bidder overselling their capabilities can also affect those at "home" causing them to pick up the slack of the service provider when they either can't or won't meet the challenge. Perhaps TASC management should practice what they preach and peruse their own house....but then again, that's kinda hard to do since a branch of management is part of the problem.

Fri, Nov 30, 2012

The sentiments expressed in this article echoed my own. I wanted to forward this article to my upper management; however, the "stream-of-consciousness" style in which this article was written detracted enough from its readability to compel me to write this instead.

Fri, Nov 30, 2012 Jack O'Fall

TASC has a real interest in making contracts harder on the little/new guy, so this is not surprising. Any hurdles they can get the Government to put up will benefit them. In almost every economic scenario, barriers to entry benefit the larger established companies as the expense of the smaller more nimble companies.

Thu, Nov 29, 2012 bandit

Good, Fast, Cheap. Choose any two. Some combinations work better than others.

Thu, Nov 29, 2012 Neal Grunstra, PhD Reston, VA

WOW - someone finally "gets it"! And thanks to Washington Tech for publishing this.. Lowest cost is highest risk! When I was a CIO, I found that the high quality talent got things done within budget, and on-time. Lower quality talent usually cost more in over-runs. Translate that into critical government systems, and the risk is enormous.

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