OPINION

LPTA forces focus on price analysis

About 20 years ago, a large government contractor, who will go nameless -- you know who you are -- got the brilliant idea to setup a separate professional services organization with its own cost center.

With an overhead structure that included reduced employee benefits, the contractor was able to submit more cost-competitive bids. Interestingly, this allowed the contractor to bid a 45-hour or more workweek on programs where any hours over 40 were deemed as uncompensated overtime.

So, the effective hourly rate was lowered thereby making the contractor’s bid appear much more cost-competitive. Soon, many other contractors were forced to adopt the same approach in order to stay in the game. It was a painful time to be a contractor employee.

Eventually, the government realized that it was experiencing degradation in the quality of support which it was receiving from contractors. Accordingly, the government began to prohibit uncompensated 40+ hour workweeks and, in some cases, even evaluated a company’s benefit structure. It seemed as if the government had learned its lesson.

Now we jump ahead to the present… This time it is the government who has done itself in through the evermore popular lowest price technically acceptable procurements.

The government now seems to award contracts to not necessarily the best contractor, but instead the one with the cheapest bid. As we all know, you pay for what you get. So, this begs the question: Does LPTA really ensure high-quality performance and support from contractors?

As many would suspect, it doesn't.

Therefore, we can only hope that it won’t take long for the negative impact of LPTA to set in so that the government can make accommodations to reverse this trend.

Meanwhile, contractors will need to fasten their seat belts and prioritize spending to emphasize business development activities in agencies that stand to retain funding within the company’s core service areas and that have award tendencies that match the company's bid strategy.

They should have a clear value proposition, emphasize the unequivocal delivery of outstanding mission support and make improvements to their business development and proposal process.

In addition, the following five types of competitive pricing analyses should inform their pricing strategy:

  1. The customer’s available funding for the opportunity.
  2. The customer’s should-cost analysis for the opportunity.
  3. The customer’s award history and tendencies.
  4. Your estimation of the project scope and cost.
  5. Your company’s overall and opportunity specific price competiveness.

About the Author

Mike Lisagor is the business development subject matter expert for Deltek and Celerity Works. He can reached at mike@celerityworks.com.

Reader Comments

Mon, Aug 5, 2013

In the current budgeting environment of our government procurement services, I highly doubt that obtaining avilable funding amounts is a realistic option.

Fri, Jul 19, 2013

No. 1 shouold be what did they pay for the opportunity last time (or most recently) or, if there's no predecessor or current effort, what have they most recently paid for similar opportunities and how much is my competition likely to discount from those numbers?

Fri, Jul 19, 2013 Carol Lowman

I recommend that the government adopt the use of cost as an independent variable (CAIV) in the services arena. By providing the amount of available funding to potential offerors in an LPTA environment, especially in light of incomplete workload data and poor quality Performance Work Statements, offerors should have a clear idea of the scope of the effort that the Government expects, and should construct their technical approach accordingly. In addition, government evaluators would have a measuring stick for an offeror's understanding of the requirement. When all offerors know exactly how much funding the Government has allotted to a requirement, bids that deviate from that amount by any substantial percentage should alert the Government to perform sufficient analysis to understand the basis of the price differential in order to support a judgment about technical acceptability.

Fri, Jul 19, 2013

Lot more involved than that if you want to win these days - look into price to win a bit and you will see your list of 5 expand greatly...

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