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By Nick Wakeman

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Nick Wakeman

Is anyone immune to the pain of low-price contracting?

Among the slew of hot topics dominating conversations these days, one stands out above the rest.

Try mentioning low-price, technically acceptable to a government contractor and not get a moan.

Last week, I gave a talk to a group of executives at the CM Equity Partners annual federal services dinner. There were probably 50 executives, mostly from companies with $100 million and below in annual revenue. But, there were some from larger companies.

My talk, which I referred to in an earlier blog, focused on some of the hot topics of the day – sequestration, small business, the lame duck session and mergers and acquisitions. Everyone nodded politely as I talked.

But then I uttered the words "low-price contracting," and the reaction was audible. It happens every time. You can’t mention the topic without a grimace or some other outward sign of pain and frustration.

During the Q&A portion of my talk, I had several questions about low-price contracting, ranging from the practical – how long will it be in vogue? -- to the plaintiff – why are agencies doing this?

My prediction on how long it will be in vogue is two to three years. The economy needs to improve, and budgets and tax revenues need to stabilize.

I can’t help but think that low-price contracting is going to come back to bite contractors and agencies alike.

I can only imagine the Government Accountability Office reports that will come out in 2014 and 2015, blasting agencies and contractors for failed projects. While the reports might not tie the issue directly to low price, I’m sure that will be a driver.

Of course, there are many executives who are embracing low-price, and who see it as an opportunity to bring low-cost, innovative solutions to the government. See a recent guest column by Optimos CEO Lisa Mascolo, who’s advocating for low-price, technically exceptional.

She makes a great argument in favor of that that approach.

Regular columnist, Stan Soloway, president of the Professional Services Council, also argues about the dangers of forcing companies to bid ever lower prices on procurements.

The big challenge lies with your customer. What is their motivation? How will they determine what is “technically acceptable?”

If they want “just good enough” technology, then you are in for a price shoot-out. Of course, they aren't going to say they want "just good enough," so you have to interpret what they say.

The key that business development experts are stressing to me is that you have to get close to your customer, talk to them a lot and understand what they need to accomplish long before a solicitation comes out.

Yes, that’s contracting 101, but the basics have never been more important than they are now.

 

Posted by Nick Wakeman on Oct 15, 2012 at 7:23 PM


Reader Comments

Thu, Oct 18, 2012

AF ACCESS contract in Dayton is buying $1b worth of manpower LPTA. Think about it. Contractors are cutting offers 40-50% and offering NO benefits. Postions are unfilled because people are just quiting and the AF isnt holding contractors feet to the fire. It is just a race to the bottom. LPTA to buy human resources and the TA part is minimal. Penny wise and pound foolish. Wait to GAO looks at this.

Wed, Oct 17, 2012 Ronald Sherwin Fairfax

Let me start by saying that the government always pays for risk! Government acquisition is a balancing act between agencies and contractors. In some ways it can also be viewed as a comic opera . How risk is managed by government and industry determines whether the endings are happy or tragic. In Acquisition 101, contract personnel on either side are taught that there are 3 basic forms of negotiated procurements (with many perturbations/versions of these): a) Cost plus fixed fee (CPFF), b) Time and materials (T&M), and c) Fixed price (FP). Choice between these is supposed to be dependent upon the degree of risk in the acquisition; and the ability of government technical personnel in identifying risks and mitigations as part of the statement of work (SOW) or performance work statement (PWS). Appropriate metrics or service-level-agreements (SLAs) are used as a measure of success. Choice between these three basic approaches is supposed to be based upon assessment of risk. Over the years many acquisition have failed; not through the choice of contract type; but through preparation of poor RFPs. The latest political mantra has been “fixed price”, naively believing that transferring the risk to the contractor avoids additionally cost as well as avoiding the need for a better RFP. The latest strategem to reduce the workload on acquisition personnel is low-price-technically-acceptable (LPTA). Again, highly dependent upon the ability of the government to clearly define and measure what is “Technically Acceptable”. In what way does this achieve the objectives of the agency in the most efficient manner? There is no mechanism for rewarding any single bidder for proposed a better product at the same cost. Best value (in a negotiated contract) in reduced to something that cannot be differentiated from a (non-negotiated) invitation-to-bid (IFB). The government always pays for risk. FP and LPTA are not a substitute for better RFPs. Nor do they result in the government (and the taxpayer) getting the most for their dollar.

Tue, Oct 16, 2012 SPMayor Summit Point, WV

LPTA has its place - it is at the end of the best value spectrum for a reason. The mindless or even well-intentioned use of LPTA institutionalizes mediocrity. Audit reports in future years that fail to recognize this contributing factor will themselves be mediocre products.

Tue, Oct 16, 2012 Vanla Alexandria, VA

It isn't always possible to "get close to your customer." If you are new to the environment and the RFP is already out, you cannot get in to brief. The customer could miss out on a good contractor because they are not open to meeting vendors and listening to capability briefings. Basic problem is lack of acquisition staff and program staff who don't understand acquisition process. Some things never change.

Tue, Oct 16, 2012 Fairfax, VA

You know when things have gone over the edge when a Department of State RFI states the following expected savings on FBO request: "The Department of State and CSO expect offerors to be flexible in discounting previously negotiated rates, or building new forward pricing rates to reflect the current situation in which CSO performs the tasks associated with Personnel, Human Resources (HR), IT support, travel, security, office space, and virtually every aspect of engaging its manpower. CSO is seeking deep discounts in composite rates due to the burden it carries for identifying and fielding contractor personnel. Bidders should be prepared to waive or discount virtually all fees, general and administrative costs, and contribution to overhead normally associated with federal contracting." Really!

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