Vendors see writing on the wall when it comes to low price acquisitions

Friday - 10/25/2013, 4:13am EDT

Vendors are on edge and growing more nervous about the state of the federal acquisition environment. Blame sequestration. Blame the government shutdown. But the real culprit is LPTA — lowest price, technically acceptable — an approach to evaluating procurements that is changing the federal acquisition landscape.

And all signs point to agencies continuing to use this approach in the coming years to buy goods and services, thus forcing federal contractors to have no choice but to adjust.

"We have to accept lowest price may just be best value for the government customer," said Lisa Dezzutti, president and CEO of Market Connections, during a briefing to industry on new research and a new survey of how LPTA is impacting the government market. "We have to pursue new and lower cost business models."

Lowest price technically acceptable is not really a new concept when it comes to acquisition evaluations, but it has been gaining favor among agencies, specifically the Defense Department over the last few years. Through its Better Buying initiative, DoD has offered LPTA as one of several approaches to improve how they buy goods and services.

Now it seems civilian agencies are following suit. Centurion Research Solutions analyzed more than $27 billion in procurements and found the Veterans Affairs Department is the biggest user of LPTA among non-DoD agencies.

Within DoD, the Army, Air Force and Navy use this concept the most.

Price is most important

Under LPTA, agencies focus on price more than anything else as long as the vendor meets the minimal requirements for the job.

This means that if a vendor comes in with an innovative approach to a problem, but it costs three times more than their competitor who comes in with a basic solution that is likely to be just as successful and costs much less, the government is likely to choose the cheaper solution.

For the last two decades, agencies have strived to use best value instead of low cost, where the idea is if the vendor is providing more and better services than required and it costs more, that's acceptable.

But Centurion and Market Connections say the data shows the pendulum has swung toward lowest price, technically acceptable.

Ray Whitehead, the vice president of business develop and strategic planning for General Dynamics IT, said LPTA has traditionally been used by the government for a specific set of products or services.

"My understanding of the intent of LPTA is to be used when you can absolutely define what's being required…and the risk of contract performance failure is low," he said. "Sometimes when you start getting into mission critical services, if that network goes down, that's mission failure and that's high risk. Should we really be procuring that service using an LPTA method?"

Market Connections and Centurion show that agencies are indeed expanding the types of products and services bought through this approach.

Best value not forgotten

Centurion found 56 percent of the contracts it reviewed calling for LPTA were for construction, facilities, operations and maintenance and housekeeping services, while 22 percent were for professional or IT services.

"We looked at the NAICS codes and the top three NAICs are transportation and warehousing, manufacturing and wholesale trade," said Fritzi Serafin, Centurion's vice president for research services. "The fourth ranking was professional, scientific and technical services, which does include IT services, and there were many opportunities but the values were not that high."

Centurion also researched how often agencies are calling for best value in procurements. It found overwhelmingly, agencies still are using this term to describe how they want to buy products and services. Centurion found agencies used the term best value in $744.5 billion in acquisition actions.

Market Connections also conducted a survey of 375 industry executives and 360 federal acquisition professionals about LPTA. It found industry isn't happy, but is dealing with the move to LPTA.

For example, 82 percent of the vendor respondents say they would bid on a contract that called for LPTA. And of those 82 percent, 61 percent say they would respond because there are fewer opportunities and fewer dollars available to win and therefore felt like they had to.

Another reason contractors are willing to bid on LPTA procurements is because incumbents are under more pressure to lower their costs than previously and there are more opportunities to win work from them.

Deb Alderson, president and CEO of Sotera Defense Solutions, said being an incumbent contractor today is more of a risk than before.