Doing the low-price limbo?
- By Stan Soloway
- Oct 01, 2012
Given the fiscal chaos with which they must contend, it’s really no surprise that federal agencies are looking for any opportunity to save money. And it’s certainly not unique to government. The history of American commerce is full of stories of companies facing tough market pressures using every tool to squeeze cost savings out of their suppliers.
But that history is also full of stories in which price squeezing went much too far; in which the quest for immediate cost savings made it nearly impossible for suppliers to deliver excellence, let alone long term efficiencies or innovation. Simply put, the well-established lesson of history is that an excessive focus on cost savings, at the expense of more strategic trade-offs, is incompatible with a customer’s long term best interests.
As I’ve suggested in this space before, we are seeing troubling signs that the government customer has not learned those lessons. Increasingly, source selections are being governed by the immortal words of the song “Limbo Rock”: How low can you go?
This is perhaps best seen in the over-reliance by the government on lowest price technically acceptable procurement strategies, in which awards must be made to the lowest bidder with minimal technical qualifications. But the problem is manifest in more than the questionable use of these strategies. One new scheme of which we have recently become aware is something one might call “BPA Squared.”
Typically, companies that win a place on a blanket purchase agreement, or BPA, compete for the actual work on a task order basis, much as they would with any other multiple-award contract. However, under the unique BPA Squared approach, they now face a second level of overarching competition to win a place on a “sub BPA” against which the task orders will now ultimately be awarded.
In other words, although the process that established the initial BPA as a precursor to task order competitions enabled the government to select firms with both the right qualifications and fair and reasonable prices (often reflected in substantial discounts off published pricing), additional rounds of competitions are being conducted with the express and sole intent of driving prices ever lower. In so doing the government is sending the clear message that it now expects pricing below what is fair and reasonable. BPA Squared approaches are even more troubling because they also ignore the very real costs to the bidders and the government of unnecessary layers of competition. Companies expend substantial, precious resources every time they bid on a government requirement and the government has to expend equally precious resources evaluating more proposals.
To be fair, federal agencies face very unenviable pressures associated with the need to find instant savings rather than focus on long term performance and efficiency. Indeed, under current conditions, strategic planning in government is more difficult than ever. One could also argue that if the bar is too low, industry just shouldn’t bid and should simply opt out. If these pressures were the exception, more might do just that; and companies with significant non-government work may still do so. However, with “Limbo Rock” procurements becoming the rule rather than the exception, opting out simply isn’t a viable route for companies seeking to survive a constrained market.
As taxpayers, we have every right to expect that the government will not overpay for the goods and services it needs. But we also understand that the old adage that “you get what you pay for” is an old adage for a reason. “How low can you go?” is but one of several critical questions that need to be addressed in the source selection process; but today it has taken on an overwhelmingly dominant role. “Limbo Rock” is a great song, but as a default acquisition objective it strikes the sourest of notes.
Stan Soloway is a former deputy undersecretary of Defense and former president and chief executive officer of the Professional Services Council. He is now the CEO of Celero Strategies.