LPTA forces focus on price analysis
- By Mike Lisagor
- Jul 18, 2013
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:
- The customer’s available funding for the opportunity.
- The customer’s should-cost analysis for the opportunity.
- The customer’s award history and tendencies.
- Your estimation of the project scope and cost.
- Your company’s overall and opportunity specific price competiveness.
Mike Lisagor (Mike.Lisagor@govprop.com) is a GOVPROP.com co-founder and chief knowledge officer.