DoD is better defining what lowest price means in contracts

The Defense Department is implementing a major change to the way it awards contracts to companies.

An April 1 memo  from Claire Grady,  DoD’s director of defense procurement and acquisition policy lessens the onus on source selection officials to justify paying more for their requirements than just lowest cost technically acceptable (LPTA). It also adds some transparency to how the department prices its requirements.

The policy change is part of the Better Buying Power acquisition reforms, which stated the LPTA requirements sometimes ended up costing DoD more money in the long run. A 2013 Market Connections and Centurion Research Solutions study found 65 percent of contractors and 43 percent of government workers thought LPTA hurt long term value for short term savings. Some critics said DoD places too much emphasis on LPTA contracts.

DoD now will try to make clearer the worth of delivering a capability above “technically acceptable” or the minimum requirement when awarding contracts.

“What that would allow the source selector to do is then say, ‘Because the other offer came in that’s more expensive than the lowest price one, but it has this additional capability, I can put a price on that and quantify the value to the government of that additional capability,’” said Bryan Clark, senior fellow at the Center for Strategic and Budgetary Assessments in an interview with Federal News Radio. “This opens up a better way of doing best value selection that’s more defendable when it comes to protests.”

Over the past few years, LPTA has become more widely used, whether or not it was specifically called out in the contract requirements.

That caused some problems for DoD. Industry has long complained that “technically acceptable” is not well defined.  Some companies would lowball their bids to win contracts and then could not follow through on their promises. The government would then have to go through the contracting process again.

Also, as DoD bought some systems on the cheap, they would end up costing more money to sustain than if the government had invested more money into the original contract.

If the source selector wanted to go with a vendor that cost more during a LPTA competition, the contracting officer would then have to go through a process to justify spending the extra money.

Clark said that process was “very subjective.”

Now with the issuance of the memo, DoD will outline in its request for proposals how much it is willing to pay extra for something better than minimally required.

“You could say I need this thing to go this fast, but if it can go faster we would be willing to pay X number of dollars per additional mile per hour of speed,” Clark said.

The memo asks source selectors to prioritize the most important capabilities that DoD should pay extra for.

Roger Waldron, president of The Coalition for Government Procurement, said the change is beneficial for industry.

Waldron said the policy will provide a clearer statement to potential competitors as to how DoD values certain capabilities so it can get its pricing right and avoid the lowball scenarios.

Waldron said as a competitor it’s hard to get a sense of what the government values in certain items. When the government explains how much it is willing to pay for something it will help industry in how they price their contracts. Industry also can decide what risks it is willing to take investing in certain technologies.

DoD hinted it was looking into the methodology of its LPTA source selection back in late 2014.

The department made it clear that it was not embarking on a full review of LPTA.

“It’s just not something that we see as a problem. We’re not going to apologize for making price important, but we think there’s enough evidence to dispel the myth that we’re demanding that our people use LPTA techniques when they shouldn’t be. The data just doesn’t say we’re doing what some people say we’re doing,” Shay Assad, the director of defense pricing said last year.

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