Lowest price becoming primary factor in IT, services acquisitions

Vendors say a new trend in how agencies buy technologies and services is sacrificing the long terms benefits for short term savings.

Agencies are increasingly using the concept of lowest-price, technically acceptable (LPTA) to buy complex products and services.

The concept of using lowest-price, technically acceptable to buy products and services isn’t new. It’s right there in Federal Acquisition Regulations under Part 15.1.

But increasingly, vendors say agencies are using LPTA the wrong way.

“If you went out amongst the hundreds of companies that we represent and asked them what their number one concern about how the government is buying today, they’d say it’s the misapplication of LPTA acquisitions,” said Stan Soloway, a former Defense Department acquisition official and now president of the Professional Services Council, an industry association. “That’s not to say you don’t ever use it. Clearly in the commodity environment where most of the different options are the same, price becomes the principle determinant so it makes a lot of sense. But we’ve seen it spread much broader than that to the point where we’ve seen contracts for audit preparation, which is for complex financial systems work to help agencies get ready for a federal audit — everyone knows our federal financial systems are not very good and this is complicated stuff- coming out lowest price, technically acceptable. And by the way, in some cases no accounting experience required. We see it across the board in every kind of category.”

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Agencies are increasingly using LPTA to buy technology and professional services that aren’t considered commodities. And that new trend is causing vendors to question whether the pendulum to use LPTA has swung too far and the government will see the consequences for years to come.

As part of our special report, A New Era in Technology, Federal News Radio explores why agencies are moving to LPTA and how it’s impacting the way they buy technology and services.

Five-year growth

And it’s not just anecdotal evidence from companies upset about tighter budgets and a more stringent focus on cost.

Govini, a government market research firm, found in exclusive research for Federal News Radio the number of solicitations and awards calling for LPTA have skyrocketed since 2009.

Govini examined solicitations and awards that specifically call out lowest price, technically acceptable. In 2009, for instance, agencies issued 3,165 solicitations and made 1,014 awards.

By 2013, agencies’ use of LPTA shot up. Agencies issued 4,230 solicitations and made 2,166 awards that call for the use of lowest-price, technically acceptable. And not all of fiscal 2013 data is in, so both those figures are expected to rise.

Centurion Research Solutions and Market Connections also analyzed federal procurement stats and found agencies were applying LPTA to IT and telecommunications services at a higher rate per opportunity than any other product or service.

“IT and telecommunications had a multitude of opportunities, so the ratio was high at 6:1 because the value was lower and spread across all products and services,” said Fritzi Serafin, vice president for research services for Centurion Research, during a recent briefing on the research.

Centurion and Market Connections also found DoD is the biggest user of LPTA with the Transportation Command, the Navy and the Army leading the way.

Vendors say part of the reason for this push to use LPTA is the budget pressures under sequestration. They also say agencies believe using lowest price technically acceptable is easier to defend in the case of a bid protest.

PV Puvvada, group vice president for civilian agencies at Unisys, said it’s not just DoD using LPTA, but there are plenty of examples of civilian agencies putting out solicitations focused solely on price.

“Some of the contracting officers are taking the easy way out of the competitions and just lowering the bar for the requirements so many people can meet the technical requirements and then kind of decide on the price alone. That has been the trend,” Puvvada said. “The pendulum has swung too far. Over time, you’ll see the pendulum swing the other way because over time they will realize they are not getting what they really intended to get through this.”

He added contracting officers will realize LPTA is having a negative impact on their mission, and that will force them to rethink the use of this price centric approach for complex services.

LPTA by another name

Alison Kidd, the executive vice president of sales for Foreground Security, said agencies are using LPTA for cyber services, which is by no means a commodity.

“We’ve actually had things that come out that will specify in them that we are looking for the lowest-price, technically acceptable solution,” she said. “In those instances, we have to carefully evaluate whether or not we want to pursue going after that business. If really what the government is looking for is just something to meet the status quo, is that where we want to be as a company over a period of time?”

Kidd said agencies also have released RFPs that don’t call for LPTA, but you can see they are focused on price, based on the evaluation factors or the line of questioning that price is the biggest factor.

“It’s really going to depend overall on your price and your labor categories and not really what you are bringing to the table in terms of innovation,” she said.

Despite this evidence, both real and anecdotal, federal officials say contracting officers are not being instructed to use LPTA, nor is it a part of a large percentage of procurements.

Shay Assad, the director of Defense pricing, told Federal Drive anchor Tom Temin Monday that he’s never recommended the use of LPTA to Defense Department contracting officers.

“I don’t see where this is prevalent. Now, where we know that one particular service has been using a best value technique where they use LPTA techniques and combine it with past performance. What they are willing to say, ‘if you have better past performance than somebody else, I’ll pay you more. But if you don’t, we probably will go to the low guy,'” Assad said. “It makes sense in some cases, but in the overall context of what we buy and how buy it, it’s peanuts in terms of what the amount of money we spend and using that technique.”

Should cost, requirements drive usage

Assad said DoD is doing a better job of defining what the military is willing to pay for extra technical expertise. He said this is a big change for the DoD.

“Best value and buying what’s best for the warfighter and taxpayers — that’s where our head’s at. We are going to use the technique that makes the most sense,” he said. “In the vast majority of what we do, well over 95 percent to 98 percent of the things we buy are bought with techniques that just follow those tenets.”

Assad’s boss, Frank Kendall, the undersecretary of Defense for Acquisition, Technology and Logistics, said recently at a conference that for DoD it all comes back to the concept of should cost and the ability to better define their requirements.

Kendall said DoD needs to improve how it writes requirements, especially for services.

“There’s an art to writing good requirements. It needs to be clear. It needs to be something that gets translated on a contract that you can measure and understand performance associated with cost,” he said. “It’s not an easy thing to do. A big part of that is relating requirements to cost. And having the people who come to me and say ‘Here’s what I want, here’s my requirement,’ actually go through the exercise of figuring out what it costs at different levels of performance and what they can afford. That’s a hard thing to do. But we really have to get that down if we are going to have the right balance in terms of what we will require.”

Kendall said LPTA only should be used when the contracting officer can define what they are buying.

“For it to apply, you really need a couple of things. You need an objective measure of what technically acceptable is so you can define it,” he said. “It also needs to be related to cost and all that you want.”

Kendall said a common example is grass cutting services where the organization specifically can define its requirements.

“But I want to hire someone to give me the best possible advice on how to design a weapons systems, that’s a little different thing, and it’s much more subjective and much harder thing to measure,” he said. “If you are hiring someone to do that sort of work, then best value with some sort of subjective judgment is probably the better way to go.”

Focusing on appropriate use

While DoD has been out in front in using LPTA, civilian agencies are starting to catch up.

Centurion Research and Market Connections found the Veterans Affairs Department is the largest civilian agency user, spending more than $4 billion through LPTA last year.

Lesley Field, the deputy administrator in the Office of Federal Procurement Policy, said LPTA can be an efficient tool if used properly, but agencies should see it as a one-size fits all approach.

She says she’s heard a little from government and mostly from industry about concerns over lowest-price, technically acceptable.

OFPP has no plans to address it outside of its usual channels, but wants to make sure contracting officers understand when and how to use LPTA.

“We are also keeping our eyes open and ear to the ground with the Chief Acquisition Officer’s Council and the Frontline forum,” Field said. “Based on some of the concerns we’ve heard, we certainly will use those groups to make sure that the message is getting out there that they are being used appropriately and the contracting officers have the tools they need so it’s not a race to the bottom. We want to make sure it’s being used appropriately and can help us get the value and get the goods and services that we need.”

Field said agencies should talk to vendors early in the acquisition process to make sure the strategy to buy the goods or services is most appropriate.

But PSC’s Soloway says the lack of education by DoD and OFPP is part of the problem.

“The pendulum has swung pretty close to the far edge because you start hearing leadership more frequently recognizing they have a problem and needing to address it. That doesn’t mean it will come back suddenly either. This is not a three-month thing that all of a sudden ‘Let’s do this LPTA thing.’ It’s been building over time. I think we have a lot of work to do and it’s going to take a while to get things back on track,” he said. “It also has to do with how we develop the workforce, the skills and the empowerment given to the workforce to make good business judgments in concert with the customer or the entity of the user who will actually have to put into action whatever you are buying.”

Soloway added agencies and vendors will need to define what commodity IT really means. He said a few years ago a mobile app wasn’t considered a commodity, but now it is.

The fact that technology and services change quickly also should push agencies away from using LPTA in these markets. Soloway said agencies need to leave all their options open so they can keep up with the pace of change, and if they use LPTA, legally they limit their choices.

MORE FROM THE SPECIAL REPORT, A NEW ERA OF TECHNOLOGY:

Agencies struggle to stay ahead of the curve in new era of technology

DoD tasks its innovation experts with driving out cost of technology

Agency CIOs thinking smarter as IT spending declines