Is Lowest Price Technically Acceptable (LPTA) Always The Best Deal?

By Cindy Wilkins, Sr. Program Analyst

In the current fiscal environment, there is an even stronger focus on being a good steward of taxpayer dollars. That is certainly commendable and definitely what is expected by John Q. Public. The recent trend to uphold that trust placed in the Government has been toward awarding contracts on a lowest price technically acceptable (LPTA) basis. On the surface it seems reasonable. Why would or should the Government pay more than necessary for what the contract requires?

The obvious answer is that it shouldn’t. Doing so would be a waste of taxpayer money and potentially land the agency on the front page of the papers with another story about a golden hammer. If we examine the situation a little deeper though, we may find that the obvious answer is not always the correct answer.

Complexity of the Work

The correct answer to the question really depends on the contract’s scope of work. For example, if the contract were to procure commercially off-the-shelf (COTS) products that have been specifically outlined in the requirements, the product delivered to the Government would be equal among providers and the best price would win. What if the product or service is very elaborate and complicated? Is the answer still the same? Let’s take the scenario of having open heart surgery as an example. Would any surgeon who has performed the specified operation be considered as technically acceptable as a world renowned surgeon who has performed the operation thousands of times?

For the Government, the expectation is that they will receive the same high-quality expertise, no matter the vendor. If the Government does not have a realistic budget in line with its expectations, it might be disappointed or worse be disappointed AND not get the expertise required to properly develop the product or provide the service it desires. In the above example, the fee for the two surgeons would most likely differ considerably. Do you still want the cheapest one? Given the importance and complexity of the task, one could justify paying more for the higher level of expertise.

Impact on Government and Contractors

According to a 2013 survey conducted by Market Connections, 43% of Government decision makers and 65% of contractors believed that LPTA sacrifices long-term value for short-term cost savings. Some contractors have responded to the LPTA environment with the long view in mind. To get a foothold in an area of work or with a specific agency, a company might be willing to provide the same high level of expertise touted in the past performance volume in order to make a great impression with the Government agency.

Although the contractor might provide senior and very experienced personnel at a bargain basement price, it would do so with the expectation that the tradeoff in credentials for this type of work in general and/or with this specific Government agency would in the long run make a short-term loss acceptable because of the long-term return on investment. However, the contractor runs the risk of a disillusioned Government customer. The contractor has set the expectation for the Government that it is reasonable to get such a high level of expertise at such a low dollar threshold. A subsequent proposal with the contractor proposing labor rates it typically proposes for that scope of work could be perceived as a bait and switch in relation to what was originally proposed.

If a contractor initially provides higher level of expertise than required followed by less expensive and less experienced personnel after the program is underway and a relationship has been developed with the Government agency, the Government still only gets short-term use of the personnel that it desires. The contractor also runs the risk of damage to its reputation if the less experienced personnel do not perform to the required standard or if they do not manage the Government agency’s expectations that the senior level personnel are only required to set the framework.

The Best Value

Setting realistic technical and cost expectations can result in Government being better stewards of taxpayer dollars. If the statement of work is relatively straightforward and does not require specialized expertise, it very well could be that lowest price technically acceptable criteria are the appropriate basis on which to award the contract. Recently, however, Government officials such as Ashton Carter, Deputy Defense Secretary, and Frank Kendall, Undersecretary of Defense for Acquisition, Technology and Logistics, have publicly recognized that LPTA is not the right vehicle in all situations, noting that if the statement of work is something complex and sophisticated, the Government should consider awarding based on “Best Value”.

According to acquisition.gov’s Seven Steps to Performance-Based Acquisition, “Best Value is a process used to select the most advantageous offer by evaluating and comparing factors in addition to cost or price. It allows flexibility in selection through tradeoffs which the agency makes between the cost and non-cost evaluation factors with the intent of awarding to the contractor that will give the government the greatest or best value for its money.” Best Value does not preclude LPTA award – all non-cost/price factors being equal, the award would go to the lowest cost/price bidder. What a true Best Value approach does (in contrast with an LPTA approach masquerading as Best Value) is allow for varying degrees of technical acceptance to be recognized and rewarded in the process.

The Bottom Line

In either of the scenarios above, the contractor is limited in its ability to provide the highest level of expertise or service for a critical and highly specialized task because of the LPTA criteria. When Best Value is the basis for evaluation and selection, the contractors are able to provide a larger variety of personnel and solutions because price is not the only factor. That could be a win-win scenario for the Government and the Contractor. At the end of the day the price of the contract, while important in all cases, should not be the only consideration in many cases.

Original post from the Integrity Matters – Perspectives on Acquisition and Program Management blog.