This is the second installment of my four-part series looking at strategies to compete in “lowest price technically acceptable” (LPTA) procurements.
By Kyle Green
Other topics in this series include:
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.
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