The DoD’s Use of Lowest Price Technically Acceptable (LPTA) Price Selection
By: Jacques Gansler, Lisa H. Harrington, William Lucyshyn
Budgetary constraints, the resulting increase in the number of bid protests, and an insufficient acquisition workforce have seemingly conspired to propel the use of lowest price technically acceptable (LPTA) evaluation criteria by the Department of Defense (DoD). Under LPTA, the government agency awards the contract to the offeror submitting the lowest price proposal that meets the technical requirements. Its expanded use has been met with opposition from segments of the contractor community, particularly those that provide high-end, complex services for which a thorough examination of “trade-offs” between cost and non-cost factors is often more suitable. These contractors assert, and rightly so, that they are offering better value to the government—which may come at a higher price.
The use of LPTA can be inappropriate at times, especially when the technology in question is complex or unprecedented, or when lives are at stake. However, LPTA has also been recently subjected to undue criticism. LPTA has been used successfully in the past, under the right circumstances—that is, when the requirement is clearly definable and when the risk of unsuccessful contract performance is minimal. For instance, LPTA is often used to acquire interchangeable commodities. In addition, LPTA is used when higher performance would add little value and is believed to be unnecessary, often resulting in little added value. LPTA and the trade-off source selection process are both used to leverage competition among firms and to select the best-value provider. The trade-off process provides agencies the capacity to choose a contractor by comparing the competing offerors’ different combinations of quality and price (Edwards, 2006). Under LPTA, however, trade-offs are explicitly impermissible. Once all proposals have been evaluated to ensure that they meet the identified technical requirements, the agency is required to choose the vendor solely on the basis of price competition. LPTA is defined by the Federal Acquisition Regulation (FAR, 2013) as an appropriate approach when the acquisition requirements are “clearly definable,” and the “risk of unsuccessful contract performance is minimal.” There are four distinct benefits associated with LPTA, including the v potential for lower costs, its use of simpler and more objective evaluation criteria, the lower likelihood of a bid protest, and the clarity of decision justifications. However, there is a growing concern, often voiced by industry, that the pressures of price minimization will result in the reduction of quality delivered to government. Industry reports have emphasized that over-reliance on an LPTA approach can compromise success, especially for complex mission services. The National Defense Industrial Association (2012) named improper use of LPTA sourcing as one of its “top issues” of 2012, while the Professional Services Council (PSC)) called monitoring the frequency and misuse of LPTA a “2013 Policy Priority” (PSC & Grant Thornton, 2012). Perhaps unsurprisingly, government acquisition executives have a different point of view; according to a recent PSC survey, the majority tend to believe that the technical requirements of most LPTA solicitations are set high enough to ensure that the best performers are all viable competitors (i.e., the poor performers cannot meet the threshold requirements; PSC & Grant Thornton, 2012).
Some believe that the problem is overstated or that attention is being diverted from the underlying issues. It has been suggested that heightened competition is the greater concern (i.e., more contractors competing for fewer contracts) or that the real blame lies not with the LPTA mechanism itself, but with the government’s ability to follow procedures correctly. There is no doubt, however, that LPTA has been used to successfully acquire products and services, though these are typically commoditized, commercial, and/or non-complex goods and services; examples include dining services, janitorial services, and snow removal. However, given the current budgetary environment, and prevailing incentives, there is more concern than ever that the government is awarding contracts to the lowest bidder, even if that bidder is unable to deliver an acceptable product or service—let alone the best value. This is especially worrisome now that LPTA source selection has been expanded to the procurement of complex hardware and high-knowledge-content professional services. vi Recently, LPTA was used to acquire the Air Force’s new refueling tanker, resulting in a more objective and simpler evaluation, at least compared to the prior competition (which was canceled after the GAO sustained a bid protest by one of the offerors). It is true that the use of LPTA is simpler. Indeed, many described the initial solicitation as unwieldy. But it remains to be seen whether or not reliance on LPTA will result in best value. There are reasons to believe that the best value was not achieved. For instance, the Air Force determined that the aircraft proposed by the losing party would perform more effectively during wartime. However, the winning party’s aggressive bid was low enough to overcome this advantage. In another example, the Navy sought to create a single, functionally secure, enterprise-wide network (NGen) in order to support connectivity between onshore activities and at-sea operations (Slabodkin, 2012). Despite the technical complexity and size of the project, LPTA was used for the source selection. The challenges associated with the project were widespread, from project delays, to customer dissatisfaction with the product, to questions about long-term performance. Recently, the Navy announced it would delay the previously scheduled contract award from February to May, due to the complexities of the NGen requirements, leading one to question the wisdom of using LPTA. The use of LPTA for contracts related to embassy security has also come under fire as of late. In 2007, the U.S. Department of State awarded a private security contract, on an LPTA basis, to Armor Group North America (ANGA), to protect the U.S. Embassy in Kabul, Afghanistan. The five-year contract was valued at $189 million (Schulman, 2009). The runner-up, Wackenhut Corp of Arlington, VA, presented a bid that was $80 million more expensive. Over the next two years, the project was plagued with cost-overruns, mismanagement, and security failures (Weckstein & Delgado, 2012). Findings The DoD can anticipate declining budgets for the next several years. Accordingly, there is everincreasing pressure to find cost savings, with the potential that acquisition officials will continue vii to rely on LPTA in order to save money. It is therefore imperative that officials learn to leverage LPTA effectively and only when it is appropriate. In the following list, we provide some guiding rationales that government acquisition officials should consider in deciding upon a source selection process. • LPTA can be overused. The overuse of LPTA by the government carries its own set of unique risks. If the trend toward greater reliance on LPTA continues, then there is a worry that industry will react by more closely adhering to the letter of each and every contract. As a result, government acquisition officials will have to spell out all requirements, including the smallest details— details that may have gone unspecified in the past—in order to ensure that the needed requirements, as envisioned by the government, are fully met. • LPTA reduces the incentive to innovate. Increased reliance on LPTA may deprive the government of the innovative services and products to which agencies are accustomed and upon which their missions rely. Reducing the demand for new innovation could potentially weaken America’s economy and national security posture. • Aggressive cost cutting can impact quality and value. The expansion of LPTA to higher risk acquisitions not only creates controversy, but may deprive the government of quality and value, and, in the end, may cost more. In a number of instances, government contract administrators have been required to choose the lowest priced option over one that they believed would provide the best value to the government. • LPTA can lower investments in human capital. The constrained budgetary environment and the increased usage of LPTA may lead (and has already led some) incumbent firms to cut the salaries of their workforce in order to retain their vendor position against lower bids. Those costs can cut incumbent workforce salaries by 15–20% or result in staff layoffs. This can result in “a race to the bottom.” viii Recommendations The LPTA approach often reduces the cost of acquisitions, but the savings typically only provide short-term relief, which often comes at the expense of long-term risk mitigation, better quality, and greater innovation. Some changes could provide improved usage of LPTA, without stifling innovation and risking project completion. We provide the following recommendations. • Use LPTA only when “technically acceptable” can be fully defined and the risk is low. Consensus from industry leaders in the contracting space is that when the government asks for goods and services that are “technically acceptable,” it receives just that: a product that is minimally acceptable, but in no way superior. This is a result of a perception that delivery above “acceptable” must inherently mean more costly, or “gold plated,” but this is not necessarily true. Even when lower risk, higher performance, and greater reliability come at a higher cost, the added value is often worth it. • Incorporate past performance. Past performance should be used as an evaluation factor in the LPTA process, especially when acquiring complex mission support services. There is no reason that past performance cannot be assessed on a graduated scale. Government agencies could still award contracts to the lowest price, technically acceptable offeror, provided that the offeror earns a past performance confidence assessment rating of “substantial confidence.” • Reduce potentially inappropriate use of LPTA. The FAR states that LPTA usage is limited to incidents where service requirements are “clearly definable” and “the risk of unsuccessful contract performance” is not “minimal.” Complex and professional services are rarely “clearly definable” and the government deserves something better than minimally acceptable in what it delivers to the warfighters and the taxpayers. There is value in providing solutions above what is prescribed by ix contracting officers, including industry-based innovation, improved accuracy in schedule and delivery, and most importantly, long-term cost reductions. • Improve government–vendor communications. Communication is a tool that benefits the government’s acquisition teams and program managers, and it should not be impaired by fear of protest. Perhaps this is understandable in light of recent high-profile cases (for example, the GAO upheld Boeing’s tanker protest, in part, because the Air Force engaged in “unequal discussions”; GAO, 2008). In order to reduce bid protests based on unequal communication, a greater effort must be made to improve communication between acquisition personnel and government contractors. Restricting communication out of fear of protest will, in all likelihood, lead to a greater number of “unequal discussions” and, worse still, misunderstandings of the government’s needs. • Invest in the government acquisition workforce. In order to effectively develop the required human capital for the modern acquisition environment, the DoD must enhance its recruitment processes, improve the hiring process, strive for quality not quantity, provide competitive wages, incentivize employees for improved performance, and provide continuing training and education. Only a highly trained workforce can determine if the LPTA is appropriate in the first place. Moreover, in instances when LPTA use has been criticized, it is sometimes unclear whether the LPTA mechanism itself is to blame, or if the problem lies with the government’s inability to adequately identify and articulate the required minimum requirements. In order to maximize the effectiveness of source selection processes, LPTA or otherwise, we must invest more in the acquisition workforce. The inappropriate use of lowest price technically acceptable source selection is on the rise, particularly in areas of professional services, complex services, and IT. However, consideration must be given to non-cost factors when appropriate, and awards should not be shoehorned into an LPTA source selection as a means of avoiding potential protest or expediting the award. LPTA source selection can support the DoD, but only if it is used judiciously.