When Offering a Low Cost Is Detrimental, and a Different Way to Show Technical Acceptability

It sounds simple. In Lowest Price Technically Acceptable (LPTA) procurements, the agency determines the best value proposal by identifying those that are technically acceptable and then selecting the one with the lowest price. But there’s a wrinkle when this technique is used for a cost-reimbursement contract. Smartronix’s recent protest at GAO illustrates that proposing the lowest cost doesn’t always win you the contract, even when you’re technically acceptable. Specifically, contractors if the proposed cost is too low, the Government can adjust it upwards. Read on to learn more about this problem and how to avoid it.

Low Price, Low Cost What’s the Difference?

One established acquisition method is called Low Price, Technically Acceptable or LPTA. It is exactly what it sounds like. The winner is the lowest-price proposal that meets the minimum technical requirements. While an agency can adjust costs in the cost reimbursement environment, this is not the case in the fixed-price arena. The Government does not have to pay a higher price if an offeror’s anticipated price doesn’t cover its costs, unless there is a valid claim. The general principle here is that a contractor can bid a loss contract in a fixed price environment, as long as it has the financial resources to survive and perform. That being said, an agency can write into the solicitation that it will evaluate price to determine whether an offeror’s price reflects an understanding of the requirements to perform the contract.

 

The Trouble with Underestimating Costs in Cost Reimbursement

As is the case with all cost reimbursement contracts, an offeror’s proposed costs aren’t necessarily determinative in the evaluation. If that were so, there would be an incentive for vendors to underestimate proposed costs to make their offers look more attractive. In order to prevent this from happening, the Government can adjust the proposed costs upwards to reflect realistic costs.

This occurred the case of Smartronix, an offeror who protested when their offer was adjusted by the Air Force to the tune of $600,000 over the proposed cost, raising it to about $20 million. After the adjustment, Smartronix was no longer lowest. Instead, the Air Force made the award to Atlantic CommTech, one of Smartronix’s competitors, whose offer became the lowest among the technically acceptable proposals.

Smartronix protested to GAO, but lost. The agency had the ability to adjust cost upward to reflect what is realistic under the circumstances. Thus, as long as an agency can prove the adjustments it made to proposed cost are reasonable and related to the vendor’s technical approach, GAO will uphold the award.

 

A Different Way of Showing Technical Acceptability

The complications inherent in LPTA procurements raise questions about how agencies craft solicitations, and the strategy behind how contractors write proposals. Professor Ralph Nash, retired Professor Emeritus at GW Law, has often criticized traditional negotiated procurements as “essay-writing contests.” As opposed to determining a winner based on who has written the most compelling and convincing proposal, Nash argues in favor of other methods such as assessing offerors by their past performance and experience.

The procurement rules can be quite flexible, as shown in a competition upheld by both GAO and later the COFC. In that case, Veterans Electric protested a Veterans Affairs acquistion. The solicitation had allowed offerors to demonstrate technical capability by either providing a traditional technical proposal or by showing they had performed the type of work that the solicitation called for. Since the awardee had adequate and relevant past performance, deficiencies in its technical proposal didn’t matter.

 

Conclusions for Offerors About LTPA Procurements

LPTA procurements are often unpopular with contractors, who contend that they leave the Government vulnerable to poor-performing price-cutters. But there are some situations where paying more isn’t worthwhile. These case show that there are some interesting wrinkles in the LPTA model. Of course, agencies must declare in the solicitation how they will determine the award, so that prospective contractors know what is – and isn’t – important.

 

Smartronix, Inc, B-413721.2, et al, Feb. 22, 2017 

Veterans Electric, LLC, B-413198, et al, Aug. 26, 2016

Veterans Electric, LLC v. United States, No. 1:2016cv01113 (Fed. Cl. 2016)

To learn more about LPTA procurements, listen to my conversation with Tom Temin on Federal News Radio’s “Federal Drive”.

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