How to Win Contracts When Lowest Price Is the Highest Measure May 24, 2013 By Bev Cooper

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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?

LPTA

Seven facts you need to know about LPTA

• By Mark Hoover• Oct 24, 2013

Let’s face it: lowest price, technically acceptable contracting is here to stay. It isn’t going anywhere—not anytime soon, at least—so it’s important to learn the facts so that you can remain competitive in the LPTA era.

Fact one: There are $27.7 billion in LPTA contract opportunities, according to an analysis by Centurion Research Solutions, who along with Market Connections produced an LPTA conference on Thursday. The opportunities range from meager -- $40,000 -- to huge -- $6 billion. The average is a healthy $70 million with an average timespan of 3.6 years, and an average annual value of $18 million.

In term of agencies who most utilize LPTA procurement, the Defense Department leads with $6.5 billion. Following the Defense Department is the Navy with $5.6 billion, the Army with $4.3 billion, the Veterans Affairs Department with $4.2 billion and the Air Force with $2.1 billion.

Fact two: A survey of 375 government contractors and 360 federal government decision makers by Market Connections found that 31 percent of federal employees said they were very likely to issue an LPTA RFP, with 33 percent answering that they were somewhat likely; that’s 64 percent all together.

Only a combined 14 percent said they were unlikely to issue an LPTA RFP.

Forty-six percent of federal employees said the biggest reason they are using LPTA is because of limited budgets and efforts to save money.

“Sequestration means less money all around, so we have to make the most out of the remaining money,” one federal employee was quoted as saying.

Other reasons why LPTA RFPs are issued are because it is a standard practice (17 percent), to get supplies/commodities/reoccurring purchases (10 percent), if requirements are well-defined (8 percent), because it is fast (4 percent) and because it simplifies the contracting process (3 percent).

Fact three: From a government perspective, there is a variety of benefits from LPTA contracting. Forty-five percent of federal employees answered that it controls costs. In close second, 43 percent answered that it is economical for

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product/commodity procurements. Thirty-nine percent said that it has simple criteria to follow for award.

But the government sees a darker side as well, with 59 percent of federal employees saying that the main drawback to LPTA is that contracts may be awarded to less qualified companies, showing that the government is at least aware of LPTA’s danger in some cases.

he number two drawback, for 43 percent of federal employees, was that LPTA procurement sacrifices long-term value for short-term cost savings. Thirty-eight percent said that past performance not being taken into account is a drawback, and 31 percent said that LPTA acts to lower the contractor’s standard of performance.

Fact four: Contractors are facing pressures and have little choice but bid on LPTA contracts. The top reason cited in the survey for contractors pursing LPTA RFPs is the shrinking number of opportunities (61 percent). Other reasons included having in-depth knowledge of customer requirements (50 percent), to maintain current relationship (48 percent), an opportunity to get a foot in the door (46 percent) and because of a highly competitive marketplace (44 percent). Contractors also answered that a good sense of the competitive landscape will get them to respond to an LPTA RFP (34 percent).

Contractors have their reasons for not responding to LPTA RFPs, also. Seventy-nine percent of the contractors answered that the number one reason they won’t respond to an LPTA RFP is because there is no opportunity for value added solutions. Other reasons included that they cannot be competitive on price (56 percent), that they lack knowledge of the competitor landscape (26 percent), they lack knowledge of customer (21 percent), and that there is a lack of long-term opportunities (19 percent).

When LPTA procurements are going down, though, there are a number of challenges that contractors face. The number one challenge, according to 57 percent of contractors, is that decisions are being based on price, regardless of potential quality of work or ability to perform. The second biggest challenge was a tie, with 49 percent of contractors feeling compelled to offer a lower price solution that may not be in the best interest of the government, and being unable to differentiate against competition.

Fact five: Unfortunately, this is the procurement landscape of today, and contractors have been affected already. Most reported that the LPTA landscape has made for less innovative solutions on their part (63 percent), while others said that they have been reducing indirect rates (53 percent), relying more heavily on junior staff (47 percent), reducing staff (39 percent) or freezing salaries (33 percent).

Fact six: Contractors need to be proactive and make strategic moves to succeed and many have already been employing certain strategies in order to remain competitive.

Organizational strategies include creating new divisions or cost centers, reducing benefits of current employees, and recruiting a low-cost workforce.

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Market strategies include pursuing non-government markets and modifying service and product offerings.

Partner strategies include pursuing new partnerships, and employing low-cost subcontractors.

Bid and capture strategies include being more selective in pursuits of contracts, building relationships to influence what qualifies as technically acceptable, and reducing B&P budgets.

Fact seven: The survey results showed that LPTA's use is expected to increase in the next few years. Seventy-three percent of contractors and 65 percent of federal workers point to fiscal restraints/budget cuts as being the top reasons. Much smaller percentages pointed to a shrinking workforce, federal mandates to use LPTA, and the fact that LPTA is faster and easier as being reasons for the increase.

Click here for more information on this report.

About the Author

Mark Hoover is a staff writer with Washington Technology. You can contact him at mhoover@washingtontechnology.com, or connect with him on Twitter at @mhooverWT.

1105 Media, Inc. 8609 Westwood Center Drive, Suite 500 Vienna, VA 22182-2215 703-876-5100Insider Customer Service 800-353-9118 or email

© 2013 1105 Media, Inc.

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Published on FierceGovernment (http://www.fiercegovernment.com)

LPTA contracts gaining favor among agencies, but give vendors less incentive to innovate, study saysOctober 28, 2013 | By Ryan McDermott

Lowest price technically acceptable procurements have been gaining favor among agencies, but that gives vendors less incentive to be innovative if the approach costs more, an Oct. 24 Market Connections and Centurion Research study says.

Under LPTA, agencies focus more on price than on past performance as long as the vendor meets minimal job requirements. So if a vendor comes to an

agency with a unique solution that costs more than a competitor who comes with a more basic solution, the agency is more likely to choose the cheaper solution as long as it meets the minimum requirements.

The practice has been utilized by the Defense Department through its Better Buying Initiative, the study says, but has proliferated through other agencies as well.

The study showed that of the $27 billion in procurements it analyzed, the Veterans Affairs Department was the biggest user of LPTA outside of the DoD.

The study found 56 percent of LPTA contracts were for construction, facilities and operations. About 22 percent were for IT and professional services.

And though vendors aren't happy about LPTA contracts, they are adjusting to the trend.

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About 82 percent of contractors said they'd respond to an LPTA request for proposals, but of those contractors, 61 percent said they'd respond only because there are fewer opportunities and fewer contracting dollars available to win, the study says.

For more: - go to the Market Solutions and Centurian Research study

Related Articles: Contractor costs in whistle-blower cases no longer reimbursable SSA whistle-blowers in attorney-judge scheme testify about harassment Army contracting personnel weren't aware of contracting rule

Source URL: http://www.fiercegovernment.com/story/lpta-contracts-gaining-favor-among-agencies-give-vendors-less-incentive-inn/2013-10-28

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Friday - 10/25/2013, 11:02am ET

Jason Miller @jmillerWFED More Reports

Vendors see writing on the wall when it comes to low price acquisitions

Vendors are on edge and growing more nervous about the state of the federal acquisition environment. Blame sequestration. Blame the government shutdown. But the real culprit is LPTA — lowest price, technically acceptable — an approach to evaluating procurements that is changing the federal acquisition landscape.

And all signs point to agencies continuing to use this approach in the coming years to buy goods and services, thus forcing federal contractors

to have no choice but to adjust.

"We have to accept lowest price may just be best value for the government customer," said Lisa Dezzutti, president and CEO of Market Connections, during a briefing to industry on new research and a new survey of how LPTA is impacting the government market. "We have to pursue new and lower cost business models."

Lowest price technically acceptable is not really a new concept when it comes to acquisition evaluations, but it has been gaining favor among agencies, specifically the Defense Department over the last few years. Through its Better Buying initiative, DoD has offered LPTA as one of several approaches to improve how they buy goods and services.

Now it seems civilian agencies are following suit. Centurion Research Solutions analyzed more than $27 billion in procurements and found the Veterans Affairs Department is the biggest user of LPTA among non-DoD agencies.

Within DoD, the Army, Air Force and Navy use this concept the most.

Price is most important

Under LPTA, agencies focus on price more than anything else as long as the vendor meets the minimal requirements for the job.

This means that if a vendor comes in with an innovative approach to a problem, but it costs three times more than their competitor who comes in with a basic solution that is likely to be just as successful and costs much less, the government is likely to choose the cheaper solution.

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For the last two decades, agencies have strived to use best value instead of low cost, where the idea is if the vendor is providing more and better services than required and it costs more, that's acceptable.

But Centurion and Market Connections say the data shows the pendulum has swung toward lowest price, technically acceptable.

Ray Whitehead, the vice president of business develop and strategic planning for General Dynamics IT, said LPTA has traditionally been used by the government for a specific set of products or services.

"My understanding of the intent of LPTA is to be used when you can absolutely define what's being required…and the risk of contract performance failure is low," he said. "Sometimes when you start getting into mission critical services, if that network goes down, that's mission failure and that's high risk. Should we really be procuring that service using an LPTA method?"

Market Connections and Centurion show that agencies are indeed expanding the types of products and services bought through this approach.

Best value not forgotten

Centurion found 56 percent of the contracts it reviewed calling for LPTA were for construction, facilities, operations and maintenance and housekeeping services, while 22 percent were for professional or IT services.

"We looked at the NAICS codes and the top three NAICs are transportation and warehousing, manufacturing and wholesale trade," said Fritzi Serafin, Centurion's vice president for research services. "The fourth ranking was professional, scientific and technical services, which does include IT services, and there were many opportunities but the values were not that high."

Centurion also researched how often agencies are calling for best value in procurements. It found overwhelmingly, agencies still are using this term to describe how they want to buy products and services. Centurion found agencies used the term best value in $744.5 billion in acquisition actions.

Market Connections also conducted a survey of 375 industry executives and 360 federal acquisition professionals about LPTA. It found industry isn't happy, but is dealing with the move to LPTA.

For example, 82 percent of the vendor respondents say they would bid on a contract that called for LPTA. And of those 82 percent, 61 percent say they would respond because there are fewer opportunities and fewer dollars available to win and therefore felt like they had to.

Another reason contractors are willing to bid on LPTA procurements is because incumbents are under more pressure to lower their costs than previously and there are more opportunities to win work from them.

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Deb Alderson, president and CEO of Sotera Defense Solutions, said being an incumbent contractor today is more of a risk than before.

RFPs more competitive

Alderson said LPTA opens the door for more competition.

"I'm spending a lot of time, and I'm seeing a lot of what's being done in industry, focusing on the basis of estimates. So it's not just living off the backs of the people, which are important because this is a people industry," she said. "You've gotta make sure you have competitive RAC rates and salaries, but really have to take a hard look at how many people does it really take to do this job."

Alderson said she was part of recent acquisition that shows the pressure and challenges incumbents face.

"I was working with an organization, and it had a recompete coming up that had a run rate of $20 million. The customer loved the company. They bid it at $10 [million], which I think was pretty aggressive, and it was won at $5 [million by another company]. You are like 'wow.' I would never have anticipated that. It was all done with a basis of estimate. They felt they could do the job with fewer people, which I'm not sure and I would question that."

The basis of estimate is a concept used by project managers, estimators and cost analysts to calculate the total cost of a project.

The survey also found 57 percent of the contractors who responded are worried that agencies are making decisions that are only based on price regardless of quality or ability to perform, and 32 percent say they are unable or have less of an opportunity to provide value-added solutions.

Low-price to remain popular

General Dynamics' Whitehead said these challenges are especially true when LPTA is applied to professional services and IT services contracts.

"What we are seeing in a lot of RFPs we come across today — the IT and professional services that are being procured are really critical to the agency's mission. Do you want to be buying those using an LPTA method that sacrifices or abandons any sort of shared cost savings, innovations or technology refresh over the cost of the contract?" Whitehead said. "If you look at some of these procurements, for example, cybersecurity, network modernization or business process operations, these are mission critical services, and agencies using an LPTA approach I think may be sacrificing a short term savings for exactly that long term delivery that really the agency is going to depend on to perform its mission. I think we have to be very careful."

Despite those concerns from industry, many of which have been very vocal in expressing them to the government, 42 percent of the agency respondents say they will be using more LPTA in the next three years. Additionally, 79 percent of the federal respondents say they are very satisfied or somewhat satisfied with vendor performance under LPTA

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contracts, meaning they aren't seeing the impact vendors believe will happen or is happening.

To deal with the expected use of LPTA, vendors say they will offer less innovative technologies, reduce their indirect rates and will have a greater reliance on junior-cheaper-staff.

Whitehead, Alderson and others also offered some recommendations for vendors to survive in this acquisition environment, including staying close to your customer and managing that relationship more aggressively and in different ways.

The experts also say vendors should consider removing the project manager and project team from the recompete bid in order to get a fresh set of eyes on the program in order to cut costs. They say contractors also should communicate with all parts of the company and agency to understand their needs and define what is technically acceptable.

RELATED STORIES:

DoD acquisition managers told to think for themselves

Panel: Contractors adapting to post sequestration environment

Vendors confronted with a new type of waiting game

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LPTA Puts the Screws to Subcontractors From Washington Technology | October 24, 3013

By Nick Wakeman, Editor-in-Chief

The prevalence of lowest price, technically acceptable contracting is hard enough on incumbents and prime contractors, but it is worse for subcontractors.

That was one of the main takeaways I pulled from a panel discussion at an event on LPTA put on by Market Connections and Centurion Research Solutions.

The two companies worked together on a research project and survey looking at the impact of LPTA from both the contractor and government perspective. The survey results drove home the point that lowest price contracting is here to stay.

"It's the world we live in," said Lisa Dezzutti, president and CEO, of Market Connections.

The panel consisted of Deb Alderson, CEO of Sotera Defense Solutions, Michael Fischetti, executive director of the National Contract Management Association, George Obertubbesing, vice president of business development for Harris IT Services, and Ray Whitehead, vice president of business development and strategic planning, General Dynamics IT.

They voiced some familiar complaints about LPTA and government contracting in general, namely that the government is horrible at writing requirements. And without good requirements, LPTA is a risky proposition.

As the primes adjust to LPTA bidding, most are looking for ways to move more of the work in-house instead of relying on subcontracts.

Even if you are a subcontractor on a team, the pressure continues after the award.

Alderson related the story of how Sotera was a sub on a winning team, and "then the prime decided to compete all the billets," she said. So, for each task order that went out, Sotera and three other subcontractors would have to propose how they could support the task. The prime said that if they can't respond in two days, they would do it themselves, she said.

"As a subcontractor you need to be more aggressive on the teaming and subcontracting agreements," she said.

"There is definitely more pressure on subs," Harris' Obertubbesing said. "The primes have to keep their growth engines funded."

GD's Whitehead said he is always trying to strike a balance between what to keep in-house and when to use subcontractors. The key, he said, is working with trusted subcontractors. Whitehead talked about GD's recent small business awards ceremony. A common thread that ran through the award winners was their ability to deliver great services at low prices.

"You need great talent, but you need to figure out how to deliver that at competitive prices," he said.

Alderson said that's she's always look for subcontractors with strong technical skills and strong relationships with the target customer.

"You need to become that must-have sub," she said.

Those comments really popped like a bright light for me because, here at Washington Technology, we are in the home stretch of finishing our second Insider Report exploring the prime-subcontractor relationship. It should be out next week. The panelists' comments echoed precisely what our research found. In part of the study, we asked prime contractors to rank the importance of attributes such as technical expertise, teamwork, customer knowledge, industry perception and process.

We also asked them to rank the performance of the overall group of subcontractors and to rank their single best subcontractor. The performance of the overall group consistently ranked below the value the primes placed on those attributes. But the single best subcontractor performed better than the value the primes placed on the attributes.

To me, that reinforces the point the panelists were trying to make, and points toward an opportunity for subcontractors. If you want to survive in the current market, you can be a preferred partner if you focus on those key attributes, particularly technical expertise, teamwork and customer knowledge.

It doesn't mean that the market will be easier; it's a tough market and will continue to be.

As Harris' Obertubbesing said, "This market is a little mindboggling."

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Breaking Government

MANAGEMENT

Federal LPTA Contracts: Acceptable Is The Antithesis Of Innovative By MONICA MAYK PARHAMon November 06, 2012 at 12:30 PM

During this time of budget constraints, the federal government is seeking low-priced,

technically acceptable (LPTA) solutions to keep projects and innovation alive. In other words,

agencies need to find ways to keep technological innovation moving forward, albeit with

tighter purse strings.

As Lisa Mascolo, CEO of Optimos Inc., pointed out in her recent Washington Technology Op-

Ed article on the topic of LPTA contracts, “When I hear ‘acceptable,’ I think adequate, good

enough, not great but okay.”

She raises some good points: Do these LPTA projects come at a cost? Is acceptable really

the antithesis of innovative, as she questions in her column?

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This doesn’t have to be the case. In Market Connections’ 2012 Government Contractor

Study, which highlighted the best business development and marketing practices from a

national survey of government contractors, the report looked at ways those working in the

federal sector can achieve optimal results, even with the threat of sequestration and

increased use of LPTA guidelines for procurement of services.

The study pointed out that the rise of LPTA shows increases in the need for experienced

contracting officers to write adequate RFPs. Less-seasoned contracting officers may lack

skills and experience necessary to adequately write RFPs and evaluate responses.

We’ve taken several approaches [to LPTA] and a lot of it depends on the customer,” said

one government contractor we spoke with. “With some, we’ve provided a compliant

proposal … and then we have also provided unsolicited material that says, ‘but if you

want a more innovative approach, we have an alternative here.’ Generally, we try to do

that before the RFP comes out. It’s the nature of our business to have a good,

meaningful dialogue with the procuring agency/customer set, before the RFP’s ever

released, so we can demonstrate some of our innovative ideas, approaches or solutions

in hopes of having them written in as a requirement in the RFP. Sometimes we’re

successful, sometimes less so.”

Further, when survey respondents were asked what their companies are doing to position

for success in the federal market over the next three to five years, contractors most often

mentioned building relationships, more keenly focusing procurement efforts and improving

capture strategy.

One of the study’s key takeaways was that more opportunities exist in areas that require

innovation, such as cybersecurity (45%), cloud computing (35%) and health IT (33%). With

cyber security being the new front line of our national security efforts, merely “acceptable”

solutions are clearly not up to a standard suitable to protect national intelligence, sensitive

data, infrastructure or borders.

For instance, in a recent New York Times article, Defense Secretary Leon E. Panetta stated

that, “the United States was facing the possibility of a ‘cyber-Pearl Harbor‘ and was

increasingly vulnerable to foreign computer hackers who could dismantle the nation’s power

grid, transportation system, financial networks and government. Clearly, cyber threats are

front and center on the minds of our nation’s military leaders.

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Furthermore, the promise of the cloud and the benefits of IT reinforce the need for

innovative solutions to increase efficiency, save tax dollars and aid in meeting mission-critical

objectives.

But let’s face reality for a moment. Is there no way of getting around the budget issue?

According to Mascolo, contractors should focus on “developing, implementing and

maintaining smaller, smarter, faster, cheaper services and solutions,” which will position

contractors to score well on price and high on innovation. The result is that government and

taxpayers both benefit from solutions that are low price and far beyond “technically

acceptable.”

In this new era of doing more with less, we all will be challenged with developing innovations

that meet government mission requirements within budget. The challenge for both

contractors and public servants: How can you apply innovation to overcome both technical

and operational challenges within a more austere government environment?

Monica Mayk Parham is director of marketing at Market Connections, Inc , a leading

government market research firm and authority on preferences, perceptions and trends

among government executives and the contractors who serve them. This article originally

appeared on the company’s FedConnects.com site and is reprinted by permission.

Topics: acquisition, best practices, cloud computing, contracting, cybersecurity, government contractors, health IT, Leon E. Panetta, Lisa Mascolo, LPTA, Market Connections, Monica Mayk Parham, Optimos Inc, sequestration

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Simple criteria to follow (lowest price) for award

Controls costs

Economical for product/commodity procurements

Reduces likelihood of a protest

Proposals easier/less complex

Shortens the procurement cycle

Contract is more straight-forward/simple to ful�ll

39%

46%45%

59%

38%43%

25%19%20%

14%

19%19%

12%24%

Contracts may be awarded to less quali�ed companies

Sacri�ces long-term value for short-term cost savings

Acts to lower the contractor's standard of performance

Lessens a contractor's ability to be innovative

Past performance is not taken into consideration

Not practical for contracts involving services

Not practical for product development contracts

Increases likelihood of a protest

Main Drawbacks of LPTA for Government

Main Bene�ts of LPTA for Government

59%71%

65%43%

20%19%

10%20%

43%31%

43%23%

22%38%

3%8%

Less innovative solutions

Reducing Indirect rates

Greater reliance on junior sta�

Sta� reduction

Salary caps/freezes

63%

53%

47%

39%

33%

©2013 MARKET CONNECTIONS, INC. | WWW.MARKETCONNECTIONSINC.COM

$744.5 BILLIONAVERAGE OPPORTUNITY

VALUE

$223.6 M

OPPORTUNITIES RANGE FROM

$20 K - $50 B

AVERAGE ANNUALVALUE

$38.8 M

AVERAGE CONTRACT

LENGTH

4.1 Years

$27.7 BILLION

ACTIONABLE OPPORTUNITIES

◂ LPTA ▸AVERAGE

OPPORTUNITYVALUE

$70 M

OPPORTUNITIES RANGE FROM

$40 K - $6 B

AVERAGE ANNUALVALUE

$18 M

AVERAGE CONTRACT

LENGTH

3.6 Years

◂ BEST VALUE ▸

LPTA vs. Best Value scope of impact

The New Reality: The Impact of LPTA Procurements on Government Contracts and Solutions

57%Decisions based on price regardless of potential quality of work/ability to perform

Unable to di�erentiate against competition except on price

49%

Compelled to o�er a lower price solution that may not be in the best interest of the government

32%

30%

27%

Di�cult to budget senior sta� (who have more

expertise) on to the project

Less/no opportunity or scope to provide value

added solutions

Generally less pro�table

Main Drawbacks and Challenges for Contractors Delivering under LPTA

49%

Contractors’ Top 5 Responses to the LPTA Environment