Many of the recent Defense contracts for training are awarded based on Lowest Price, Technically Acceptable (LPTA) criteria. LPTA is currently favored as Customers try to buy more with less. The benefit to the Government is that it reduces Government costs while still accomplishing the work. From a corporate perspective, it focuses the industry into innovation and developing operational efficiencies, thereby increasing productivity and value for the Government.

The movie Armageddon has a humorous clip that mentions LPTA prior to the shuttle take-off.

http://www.youtube.com/watch?v=CuAUE58MQt4 It illustrates the risk these types of contracts pose. While the example is clearly applicable for products, the thought process can also be applied to services.

Contractors bidding on service contracts under LPTA criteria have challenging choices to make. Winning low price bids means managing at least one of three key cost areas: 1) Employee Salaries, 2) Indirect Rates (Company efficiency), and 3) innovative staffing solutions (less people). The dilemma for a company that prides itself in delivering quality and exceeding Customer expectations is how low can you drive the three cost areas while maintaining quality? This is a narrow decision point each company needs to decide for itself. If a company uses simple cost cutting, going too far to win the work still puts its execution at risk for a multitude of possible reasons: inability to hire workers, high turnover, poor performance, unhappy workforce, HQ inability to properly perform all needed functions.

From the Government perspective, the risk is driven by how well the technical requirements are defined. Since LPTA award criteria do not give bonus points for going above the requirement, the Customer needs to understand the true requirements and define them very well in the solicitation.

While I cannot speak to active LPTA awarded contracts, TechWise has beaten previous LPTA winners in recompetes because the prior company’s austere cost saving programs caused inefficiencies which led to unhappy Customers, allowing us to win the recompete based on our management and quality approach to Customer needs.

As federal budgets shrink, everyone involved in the process has challenging decisions to make:

• Customers have to make a hard decision whether to stop performing certain functions to adequately fund others, or whether to continue with LPTA criteria.
• Once Customers choose LPTA award criteria, they need to really understand their program and what is important, so that companies can bid just those requirements. Companies bidding MORE than the minimum requirements will likely lose the work in a fair review of proposed prices.
• Companies need to continually focus on innovation and creativity in operations to reduce the cost structure.

I would love to see a Defense Industry comparison of Customer satisfaction with Best Value versus LPTA contracts. Does anyone know of such a study?