Current federal budget pressures have forced a significant shift in government procurements to lowest price technically acceptable (LPTA) acquisition strategies.
By Kyle Green
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 proposal 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.
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