Low price technically acceptable (LPTA) – the bane of most Government contractors business development efforts. All that successful past performance and capture management comes down to essentially commodity pricing.
There are many reasons the Government is using LPTA bids in greater frequency: budget pressure, limited acquisition staff to procure more complicated best value competitions, reduced likelihood of successful protests, etc. LPTA is also becoming increasingly common in higher level services and products, and the trend seems to be towards increased frequency of LPTA use.
Since LPTA probably isn’t going away anytime soon, Government contractors need to adjust both strategically and tactically. Of course you’ll want to work on preventing your incumbent contracts or bids you’ll be favored on from going LPTA in the first place, but the final decision on procurement is still the Government’s. No LPTA bid strategy is remotely a sure thing, however there are some things that can be done to improve the odds of winning for bidders:
- Only bid exactly what is in the RFP, and make sure your technical proposal aligns exactly with what you price out. If the bid is for labor positions, price them at the experience and capability level requested, not at the incumbent’s level; unless it’s SCA, union, or another requirement that requires incumbents be hired. Even if you know there are additional requirements to execute the Government’s mission that weren’t included in the RFP, don’t price them in. There may be reasons those requirements weren’t included that you aren’t aware of (omission, in-sourcing, etc.).
- Consider using a contribution method for pricing indirect expenses. This means that only the variable expenses that the contract directly incurs are charged to the contract, and other costs (e.g. backbone systems, executive management and staff, IT services, office space, etc.) come out of overall company profit. Only use this technique if you have other higher margin sales elsewhere to offset the unallocated indirect costs.
- If possible, set up a lower cost fringe pool to accommodate LPTA contracts. This pool should minimize fringe costs where possible, while still being attractive enough to staff for the contract. Alternatively this can be done via a lower cost subcontractor, however pass-through costs must be considered.
- Act like a start-up. Inexpensive technology and ways of doing business are your friends for frugally managing contracts and operations:
- Use cheaper software and systems – Google docs or OpenOffice instead of Microsoft Office for light users or low cost web conferencing vs Webex or GoToMeeting
- Implement flat management hierarchies with centralized operations to reduce management costs
- Outsource anything and everything that can be done cheaper. You don’t get points for extra quality with LPTA
- Get rid of office space and have off-site employees work from home offices
- Look at opportunities to team with HubZone or Small Disadvantaged Business (SDB) to use pricing evaluation preferences and adjustments reserved for these businesses in full and open competitions. HubZones receive 10% price adjustments in full and open competition, which is often the difference between winning and losing. However the HubZone or SDB will need to do at least 51% of the work and HubZones have residency requirements for employees that must be met as well, so do your due diligence when using this tactic.
As a final tip, don’t bid at a rate you can’t perform the contract at. Being party to a money losing contract is worse than not getting the contract in the first place; and leads to organizational problems beyond just the financial ones (e.g. turnover, demoralization to the workforce, shortcuts on safety and quality, etc.). The only exception to this rule is if the contract is critical to other business you have or to future growth of your company, i.e. it can work as a loss leader.
Remember, LPTA is what the Government customer wants and with the pressure on budgets and acquisition staff, is probably not going away. You aren’t going to win LPTA bids consistently and at best your Pwin is probably going to be under 50% (according to Army Contracting Command statistics, only 7% of incumbents won LPTA re-competes vs nearly 50% for non-LPTA). Take the time to develop the price to win tactics that will help you win LPTA bids, and make sure to take advantage of opportunities to win business away from competitors that you might not have won under best-value circumstances.
Originally published by Zack Sionakides on LinkedIn