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.