How to Win Contracts When Lowest Price Is the Highest Measure
The lowest price technically acceptable (LPTA) acquisition strategy, which focuses on price over value, has become the dominant approach that agencies are applying to federal contracting. The accelerated transition to this strategy has been fueled by sequestration and the growing need for government to do business at a reduced cost. Contractors are still learning how to operate in this new environment, but many fear that the emphasis on lower cost labor will reduce the expertise of the work force and result in lower levels of effort.
The LPTA strategy is a step down from best value, admits Tony Constable, president, CAI/SISCo, a company that provides business development support services to industry. In a best value contract, the winning proposal is chosen based on an aggregate view about the perceived value, and that value is tempered somewhat by price. Even if the underlying contract switches from one contractor to another one, the new company could still retain much of the trained labor force. In an LPTA contract, the price—not the solution—is the primary decision criterion, and this affects labor pricing much more so than it does product pricing.
Being an incumbent contractor is the worst place to be on an LPTA bid, because the needed flexibility in labor prices requires huge salary and benefit cuts. Constable calls it the race to the bottom as it relates to labor, but he also acknowledges that the LPTA strategy is reasonable to a point depending on the work.
One positive aspect is that price is now at the foundation of contracts. In addition, contractors are volunteering more innovation in their bids, according to Constable. LTPA also creates opportunities for newer federal marketplace entrants, both companies and younger employees. Contractors are learning how to use information more effectively, and they are pricing to win and managing to price.
Unfortunately, the technically acceptable concept is still a painfully loose standard, and a lot of moving parts are involved that make this hard for industry to respond to efficiently. In addition, no one knows what happens when you do not have an incumbent staff, he adds.
To win an LPTA bid, Constable recommends that a contractor focus on the companies that it is competing against as a first priority. This requires good situational awareness to figure out what the competitors can do and then to develop a price to beat that measurement. “Once you know the price to beat, you can get there through strategy,” he says. That means, you must determine the lowest bid that will allow you to still be profitable, he explains.
J.J. Anderson, senior director, business development operations, Centuria Corporation, says, “Set the price up front, and work the proposal to fit that price,” describing what he calls the inverted proposal process. It isn’t that hard to find the contract ceiling and to determine who is the competition.
Federal agencies and contractors both have to adapt to the new LPTA reality, Constable states, adding that the acquisition people are already declaring victory. It is a new paradigm for federal contracting, but these come and go, and we must roll with them, he relates. “It is a pain, but it is change, and we hate change,” he allows.
“What is interesting is that government may become successful in using LTPA to obtain adequate support at reduced prices,” says Constable. “We are at the beginning of a journey to try to understand where this is going.”
What are your experiences with LPTA contracts, and do you agree that there are positive aspects in the strategy?