Lowest Price, Technically Acceptable (LPTA)

Competing successfully in lowest price technically acceptable (LPTA) procurements takes more than offering the lowest bid. In this article, SMA Associate Kyle Green explores how government contractors can assess which opportunities to pursue, build sustainable cost structures, develop realistic pricing and technical approaches that reduce reliance on post-award equitable adjustments, and maintain a balanced business development pipeline. This article offers practical strategies for winning and executing LPTA contracts while protecting profitability, performance, and long-term growth.

1. Get Out of Your Own Way!

As budgets continue to shrink, federal agencies are using LPTA procurements more frequently.

Some argue that LPTA helps simplify award criteria, control costs, and reduce protests. Others counter that LPTA undermines bid integrity, lowers performance standards, and eliminates improvement and innovation incentives. No matter what you think of LPTA procurements, one thing is clear: they are here to stay. This part will explore LPTA assessment, keys to competing, and knowing when to walk away.

This series is not focused on the merits of LPTA procurements or why one procurement method should be selected over another. Instead, my focus is on increasing bidder competitiveness by enhancing awareness of the strategies available to compete for, win, and execute LPTA contracts.

Stop Contemplating

Many companies have made the strategic decision to no-bid all opportunities that are released under an LPTA acquisition strategy. This is quickly becoming a strategy for business collapse. At some point in time most companies will be required to commit to the occasional LPTA procurement, e.g. a recompete that has been slated for LPTA competition, or a task order on an indefinite delivery indefinite quantity (IDIQ) contract. You must choose your LPTA pursuits carefully and with an eye towards the company’s strategy goals.

Of course, the opposite business development strategy, chasing only LPTA opportunities, can be a pipeline and bottom-line killer as well. Many LPTA opportunities are a waste of business development dollars and effort; they can dilute a company’s reputation through poor delivery and take focus off your more critical pursuits.

Capturing LPTA opportunities requires discipline to identify appropriate prospects, then evaluate the key metrics needed to price such an effort, e.g. independent government cost estimate (IGCE) value, incumbent contract value, number of full time equivalents (FTEs) on an existing program, and average fully burdened rate. Few LPTA opportunities offer the ability to innovate, propose life-cycle cost reductions, or utilize alternative staffing strategies without adding what the government sees “unnecessary” risk to mission success.

While the most significant aspect of an LPTA competition is the price, too many companies blindly bid these opportunities while attempting a seat-of-their-pants determination of how low is low enough. Most start with a dramatic decrease to direct labor rates, which hurts their ability to execute upon award. Then they cut indirect cost pools, which hurt their ability to attract and retain top talent. Finally, they reduce their fee, which stifles cash flow and punishes your bottom line. Without an understanding of direct compensation thresholds and flexibility through diverse indirect cost pools, you may want to consider no bidding that LPTA opportunity you are considering.

But…there are plenty of ways to compete…

Start Competing

In most cases, once the Government has selected an LPTA acquisition strategy, you either need to get off the tracks or take control of the train. To achieve your maximum competitive advantage, you should consider the following strategies:

• Establish a pipeline of personnel that meet the types of contracts you are seeking. If you have developed a pipeline of opportunities, focus your efforts on identifying incumbents and capturing them.
• If you are the incumbent, tighten your belt and consider whether your current staffing mix may price you out of the competitive range.
• Focus on developing a diverse set of indirect cost pools; recognize winning bid wrap rates can be very low. (I have seen LPTA contract wrap rates as low as 1.25.)
• It is imperative to collect and analyze the same information you would on any other capture. Understand who the source selection authority/team is and how they have evaluated previous proposals.
• Effective teaming has the potential to assist you in achieving competitive pricing at an acceptable margin; however, understand where price points are while negotiating your teaming agreement, not after the agreement is in place.

One of the strategies above will not get you all the way to the lowest price bid. It takes a combination of strategies, each benefiting the others, to achieve your desired results: the WIN!

Get out of Your Own Way

After considering all of the above, you plan on executing an LPTA-focused strategy. Excellent! Now get out of your own way. You are not going to win every opportunity, so take the time to ensure strategic alignment of each LPTA opportunity. Some items to consider:

• Does the opportunity open up a new employee base that will assist in putting downward pressures on your indirect rate structures?
• Does the opportunity strategically place or advance you within a high-growth customer?
• Does the opportunity allow you to introduce yourself to a new customer?
• Does the opportunity provide you the chance to bring new products or services to an existing customer?

When executing a long-term LPTA capture strategy, stay the course. Robust, objective-based capture strategies can take more than 12 months to produce lasting results.

2. Leaving Money on the Table

This part looks at strategies to compete in LPTA procurements.

This series is not focused on the merits of LPTA procurements or why one procurement method should be selected over another. Instead, my focus is on increasing bidder competitiveness by enhancing awareness of the strategies available to compete for, win, and execute LPTA contracts.

Difficult as it may be to imagine, you can leave money on the table in LPTA competitions. Being deliberate and smart with your indirect cost structures is critical to developing a winning price for LPTA procurements. We have all seen the procurements that probably should not be an LPTA competition. Merits of those decisions aside, competing is not the objective, winning is what keeps your company solvent.

Too many companies see LPTA and simply race to the bottom by making the terrible decision to bid unrealistically low prices to get a “foot in the door.” This short-sighted decision is still recommended by many business development organizations, but in most cases, leads to poor contract execution, negative mission impact, and degraded corporate reputation. Every company considering an LPTA capture strategy should have an absolute floor you are not willing to go beneath to sustain your business and support ongoing operations. Robbing one contract to pay for another is your first step to insolvency.

A tool I have found helpful in creating winning LPTA bids is to continually monitor, and refine when necessary, your corporate indirect cost structures. This creates a foundation for an effective low-price capture strategy on the front end of the pricing process, instead of risking damage to your corporate culture through unnecessary “discounts” in the cost proposal. Too many companies think they are being efficient when they really are being cheap. Efficiency means you maximize effort with your business, i.e. streamlining processes, investing in people and products only where they have measurable value, etc. Here are some best practices to ensure you are maximizing your margin when executing an LPTA procurement strategy.

• Plan your annual budget and growth estimates around cost centers. This will allow you to view your company pools at an aggregate level and see where your pipeline lines up with the respective cost centers. This is not just a big company practice; small businesses should be using these solutions as they grow.
• Don’t take it out on your employees. Unless your employee welfare programs are “platinum-plated,” stripping employee benefits to lower your rates is short-sighted—it damages morale, productivity, work quality, employee retention, and creativity. Focus your efforts on identifying complex bureaucratic processes and finding ways to cut out some steps. Effective, efficient, and innovative companies look for ways to positively affect indirect and direct services, thereby enhancing their bottom line.
• Exercise sound recruiting practices. Whether you expend resources on an internal corporate recruiting capability, or you use an external contracted resource, ensure you have a broad-based pool of candidates from which to choose. The quickest way to drive down cost is to identify a base of personnel who are willing to work at or below the going market rate. Remember, LPTA procurements are judged on meeting, not exceeding, the requirements.

Long-term success with LPTA procurements must include a plan to create a sustainable cost basis through the bidding and execution process. Continually revisiting your indirect cost structures is a good first step toward that sustainable cost basis.

3. Capturing without Equitable Adjustments

Current federal budget pressures have forced a significant shift in government procurements to LPTA acquisition strategies.

Government contractors who feel they must continue doing business with their federal customers are required to develop a LPTA-inclusive bidding pipeline. Instead of developing a market-adjusted price-to-win strategy, many companies risk their reputation and survivability by submitting cost volumes below actual cost in hopes of being made whole through post-award equitable adjustments. Some federal agencies have begun to crack down on this practice, which has led to contract terminations and early recompetes. There are numerous methods to capture LPTA awards that reduce the risk of requesting post-award equitable adjustments.

Price to the Market

For LPTA solicitations, price is king. However, too many companies offer a price well below the competitive range (buying the contract). This should raise questions in the customer’s evaluation about your ability to effectively execute the technical requirements. Unfortunately, in some cases the Government is sold a bill of goods that is not sustainable. For example, the FAR dictates that agencies should be focused on applying price and cost realism techniques intended to evaluate whether proposed prices match the technical solution. It does not establish reasonableness which determines if the price given is what a prudent person would expect to pay for the goods or services. This factor is often overlooked in LPTA price evaluations. Additionally, having a sound understanding of who is competing in this market and their history in bidding and winning other requirements will drive the low price in this market.

Mitigate Customer Risk

Once you have established your market-based, feasible price-to-win strategy, it is important to defend against the abusive low bidder. You should perform pricing analysis early, while you still have an opportunity to shape the opportunity through capture activities. Despite the LPTA nature of the solicitation, technical approach matters. Members of the source selection review board have the ability to reject proposals that pose significant non-compliance and/or cost overrun risks to the government. It is up to the individual company to convince the customer during capture and in the proposal that there are significant technical risks to awarding at an unrealistically low price. A theme in your technical volume should be identifying the critical nodes or paths that corner-cutting bidders will attempt to skip or shorten and providing the review board a justification for rejecting any proposal that does not include those critical elements. Providing robust descriptions of the technical approach gives the review board greater flexibility to accept your proposal, even if it is not the lowest price, because it can reject lower bidders as non-responsive or too risky. Remember, LPTA proposals are evaluated for acceptability not ranked using the non-cost/price factors. You must be able to shift the burden of technically qualifying factors to take advantage of this strategy.

When agencies review fixed-price contracts, they are only required to determine whether the offered prices are fair and reasonable. This evaluation usually translates into determining whether proposed prices are too high. Your price-to-win strategy must consider current costs, likely competitors, and customer award history. Finally, your cost volume should reflect the lowest price at which you can feasibly execute the contract without leaving money on the table.

4. Balancing your pipeline

Many companies miss the mark in developing a balanced pipeline, particularly when centering on a LPTA bid strategy.

One of the overall themes of this series has pointed to knowing and understanding the discrete customer needs. It is essential to identify and develop relationships with all the stakeholders in your target customer market. As you build these relationships, you will begin to uncover key information opportunities that can help you bring balance to your pipeline.

Here are six tips to execute a balanced pipeline approach:

1. Protect Your Core

When identifying new business opportunities pay close attention to your current work. Competitiveness on contracts, even recompetes, has taken away some of the “favored child” status for incumbents. Only those who execute well and perform capture on their current customers are assured the highest probability of win.

2. Strategically Position Yourself

It seems like every large opportunity today is a multiple award indefinite delivery indefinite quantity (IDIQ). Don’t overlook opportunities to build a team or be a subcontractor if the services you provide are being consolidated into large competitive procurements. If your incumbent work is being consolidated under an IDIQ, ensure your teaming agreements effectively protect your performance areas.

Use the “swim lane” strategy to effectively find new work. Identify those services that best match your capabilities and position yourself as a preferred subcontractor with a specific technical expertise. This will ensure you are not lost in the shuffle on very large IDIQ teams.

3. Expand Your Core

Once you have secured your current work (Step 1), look to other places in your customer organizations and operating locations to identify who is buying similar services. What else are your customers buying? If your capabilities are broad enough to meet the expanding needs, you may be able to leverage your existing customer relationship to expand your core offerings.

Ensure that your Program/Project Managers are being taught to pick up on key indicators they hear during regular interaction with their customers. Also populate your pipeline with opportunities based on current customers and use your current contracts to support your capture efforts.

4. Strategically Expand to New Customers

Identify “near-adjacent” opportunities to expand to new clients with your current offerings. Execute a strategy that reinforces the business lines you already have and seek opportunities in agencies that fit your strategy. For example, if your primary customer base is within a larger organization, such as nuclear nonproliferation within the Department of Defense, your strategy should focus on near adjacent customers (e.g. Department of Energy) and adjacent capabilities (e.g. counter-illicit trafficking).

5. Don’t Get Distracted

The dreaded “bluebird;” the opportunity that seems to align perfectly with your strategy but is not in your pipeline. In most cases these are too good to be true. If the first time you hear about or see an opportunity is when the RFP drops on SAM.gov, you are late to the game. Bluebirds can be won, especially when the acquisition strategy points to LPTA. However, every new opportunity you chase diverts resources away from already validated, higher probability of win programs.

6. Measure Effectiveness

It is an important practice to measure the effectiveness of your new business development, pipeline execution, and market research efforts. Take time each quarter to meet with your business development team and do a full assessment of the pipeline. Early identification of flaws in your process will allow you to adjust your strategy and ensure your bid & proposal (B&P) dollars are spent in the most efficient manner.

If you’re building a team and you have positions you can’t fill, you need to use SMA Talent On Demand (TOD®)! With TOD®, you can find experienced talent, such as Kyle, matched to your exact needs: