A race to the bottom: How lowest price, technically acceptable is shortchanging agencies

Commentary by Moe Jafari
Founder, president and CEO of HumanTouch

More than a decade ago, I employed an experienced and talented team of Java/Java Bean engineers. Frankly, they “got hot” in demand for contract jobs because they were so darn good. But, one day, I got a foreboding call from a very big client, one I’ll simply refer to as “Mr. Telco.”

Moe Jafari
Here’s how it went:

Mr. Telco: “Moe, I can’t keep using your team unless you can get me a $50-per-hour rate.”

Me: “I’m sorry, but I cannot do that. You’re paying us $125 an hour now. I can’t give away our services.”

Mr. Telco: “I’m sorry too. But we need to go with a cheaper option, and we can do that by sending the project to India. Thanks for all the great support though.”

So we closed the account. But it turned out to be fine because we kept getting lots of work — demand for the team continued to surge as its reputation grew. But, only six months later, I saw that Mr. Telco’s company was acquired. I sent him an email to offer my congratulations, and I was surprised by his response:

Mr. Telco: “Thanks. By the way, do you still happen to have that team available?”

Me: “Yes, I do. Why?”

Mr. Telco: “Because I’d like to hire you again.”

Apparently, the offshoring plan didn’t work for Mr. Telco, as the team from India failed to accomplish much within the six-month stretch. Due to circumstances unrelated to my team, we never really did “get the band back together” with regard to working for Mr. Telco’s newly-merged company.

But the point was clear: You get what you pay for. I asked Mr. Telco what he thought of his low-cost strategy after he saw the results. He just laughed and said bringing operating expenses down were “a matter of perception” as he positioned for the acquisition. So it goes …

Unfortunately, the federal government is heading down a very similar path, with respect to the constant push for lowest-price, technically-acceptable (LPTA) contracting.

The policy essentially forces agency purchase decision-makers to get the best price possible, assuming that the hired company is capable of at least meeting the minimum requirements of a project.

I’ve spoken to many program managers about this, and they feel like they’re in a boat without an oar, especially because their leadership wants to keep pushing LPTA to new levels.

Those managers have seen enough to recognize that LPTA is a race to the bottom, as quality and functionality rarely meet at the absolute lowest rung of pricing.

When LPTA is the sole evaluation, the government loses. Programs face unforeseen hits because the managers are left to deal with the ensuing mess created by a contracting business that doesn’t understand the mission and/or lacks the vision to get the job done.

Over the period of a five-year agreement, the LPTA-awardee (cheapee) staff will work to fulfill the most minimum of specifications — and fail to reach even that lowest standard of expectations.

Forget about thought leadership and innovation here. With LPTA, you’re lucky if you end up with a team that simply has basic communications and tech skills.

Is that really what you want?

As for an example, consider the scenario of staffing your standard IT help desk.

Sure, you can find candidates that come at the lowest price while providing “technically acceptable” credentialing — on paper. But in reality, you end up with a help desk that can’t deliver. All this does is drive up call volume, while dramatically increasing the man hours devoted to fixing tech problems.

Thus, the LPTA contracting business (cheapee) can now ask for more money, because its shortcomings are boosting demand. Meaning the agency pays more while getting less. Meanwhile, employees are perpetually frustrated due to the lack of service competence.

Think about it this way: Would you run your own personal, at-home projects like this? What can you honestly expect from contractors whom you’ve hired based strictly upon basement-level pricing?

I made this mistake — once. I hired a guy to build a two-car garage. His bid was 25 percent below the next lowest one. Suffice to say, we encountered, ahem, “issues” shortly after he went to work. Within a year, I had to bring on another contractor to take over if I had any chance of meeting local legal requirements so I could actually use my own garage.

In the process, I spent countless hours chasing the contractor down from wherever he disappeared to, fighting with him over deliverables and getting an evil eye from my wife. Oh, and I ended up spending more than I would have from the highest bid submitted.

I still walk into that garage and get mad at myself.

Hopefully, government purchase decision-makers will see through the pitfalls of LPTA — without going through a garage-type experience. After all, agency employee users — and the citizens they serve — deserve better.

Moe Jafari is the founder, president and CEO of HumanTouch, LLC in McLean, Virginia. HumanTouch, LLC is a certified, Section 8(a) Small and Disadvantaged Business providing professional and information technology services to the federal government.