Acquisition 101: When a Bargain Isn’t a Bargain
The recurring pitfalls of chasing the lowest price in federal procurements.
When my wife and I purchased our first vacuum cleaner, we selected a cheap model. It met all the specs of what we needed, did a minimally acceptable job and lasted little more than a year before it died. Not learning the lesson that buying the first vacuum should have taught us, we immediately bought another cheap vacuum to replace the first one, and it died an early death about 18 months later. We finally did learn our lesson with the third vacuum and paid slightly more for a better vacuum that has lasted six years (and counting).
Much like our predicament with the rotating vacuums, federal contracting professionals are facing increasing pressure to purchase goods and services as cheaply as possible using a method commonly referred to as “lowest price/technically acceptable” (LPTA)—even if it means minimal acceptability. This push is laudable in theory, but the reality is often higher prices and a smaller pool of quality contractors, while robbing contracting officers of any discretion to choose a solution or product that is more cost-effective in the long term.
LPTA certainly has its admirers, but even the most ardent supporters in the contracting community recognize its severe limitations. Nevertheless, J. David Cox, national president of the American Federation of Government Employees, offered a full-throated endorsement of LPTA in a recent column in Government Executive. Mr. Cox stated the reasons why LPTA is preferred to the “best-value premium” approach to acquisition.
Here are several reasons he is wrong:
- “Best-value premium” is a misnomer because these procurements still allow agencies to choose the lowest cost option. With any best-value procurement, the agency always has the discretion to choose the lowest bid unless something compelling exists that is worth a premium. This approach allows agencies the flexibility to pick the option that best suits their needs.
- LPTA is often used where it should not be used. “Lowest price/technically acceptable” can be an appropriate mechanism in highly regulated or commoditized industries, where there is little differentiation between minimally acceptable products. The approach, however, is popping up in situations where marginal product quality is a differentiator (such as medical products used to care for soldiers) and in the outcome-based services industry. A long dissertation is not necessary to explain why that approach is highly problematic. Would you like it if your children’s school hired its teachers on an LPTA basis?
- LPTA often ends up costing more. This contracting method frequently attracts contractors who are unable to fulfill the requirements or complete the work without great assistance from the government customer. (This can be the case especially when past performance is not evaluated.) Eventually, this drives up costs. It has held true through time with products that are minimally acceptable—the example of the vacuum cleaner is illustrative. In addition, this contracting method is driving responsible contractors away from doing business with the federal government, resulting in less competition. In fact, the number of small businesses participating in the federal marketplace has declined over the past few years.
There are also social reasons to shy away from using LPTA, such as lower wages and benefits for contractor employees and the exclusion of small businesses from government contracting, all of which drives down the overall economy. This, of course, is counter to the Obama administration’s efforts to raise wages among contractor employees.
LPTA advocates, including Mr. Cox, repeatedly point to bloated contractor profits. The number of contractors conducting layoffs and slashing salaries paint a different picture. As a result, a lot of talented individuals are moving away from public sector contractors in favor of commercial work. Do we really want the federal marketplace to become a bastion of firms that cannot cut it anywhere else? Indeed, prior to the 1984 Competition in Contracting Act, which jumped-started best-value contracting in the federal marketplace, a common refrain heard in the federal market was “good enough for the government.” In other words, the government was content to settle for mediocrity—or worse.
LPTA is simply a road leading to mediocrity.
Another common misperception is that best-value procurements always result in agencies buying features or services they do not need or want. Using a best-value procurement, however, an agency always has the discretion to choose the lowest bid.
The Government Accountability Office has consistently backed agencies that made that choice: “It is well-settled that an agency in a procurement based upon best value may properly select a lower-rated, lower-priced proposal, even where price is a less important evaluation factor than technical merit, where the agency reasonably concludes that the cost premium involved in selecting the higher-rated proposal is not justified in light of the acceptable level of technical competence available at a lower cost.”
The government buyer is merely required to conduct a “trade-off” analysis when selecting an offer other than the lowest bid. The actual value and corresponding benefits of competing products or services is integral to the final source selection decisions. Surely Mr. Cox is not suggesting that the federal workforce is incapable of such an analysis.
Advocates also argue that protests are less likely when LPTA is used. The numbers, however, tell a different story. GAO statistics demonstrate that protest numbers are still rising (albeit at a slower pace) despite the falling number of federal dollars being spent. Part of the reason is that in a best-value environment vendors are much more likely to be conscious of the possibility that a decision to protest something today will affect the customer’s impression of them tomorrow, which could dim future business prospects. But in a “price only” environment where loyalty and team play are given no consideration by the customer, filing a protest presents no negative implications for the vendor. So, in a LPTA environment a vendor is much more apt to see “nothing to lose” in filing a bid protest. Another reason is that technical acceptability can still involve judgment calls when determining the technical acceptability of the various bids.
While LPTA certainly has its place in federal contracting, that place is a small defined box with highly commoditized requirements. Anything larger robs agencies of much needed discretion, drives valuable contractors away from the federal marketplace, and enriches lawyers like me with more potential clients seeking assistance in filing bid protests.
Eric Crusius, a partner with Fed Nexus Law, focuses on government contracts, cybersecurity, employment law and complex litigation. Mitchell Bashur, an associate at Fed Nexus Law, also contributed to this column.