Depending upon your viewpoint, lowest priced, technically acceptable (LPTA) contracts are either the scourge of defense contractors or the saving grace for a budget-constrained Pentagon. Either way, they’re here to stay.
Already, the Defense Department makes more use of LPTA contracts than any other branch of the federal government. Between the Navy, Army, Air Force and Transportation Command, approximately $18.5 billion in LPTA contracts have been awarded in the last couple of years, according to the Market Connections research firm. That number is still dwarfed by so-called “best value” contracts, where lowest price isn’t the defining factor because performance is key and risk is high. But the scales are clearly shifting.
I recently asked Byron Young, executive director of the Army Contracting Command, about his thinking on LPTA contracts:
“[With] products where they are likely to be performance characteristics that differentiate those products, then an LPTA is really not the approach to go, and best value is. And if there is some definable characteristic or set of characteristics that are likely to emerge, then we should use best value. But those probably ought to be a limited number of characteristics, not 25 different things that we’re willing to trade off for, and we’re not really sure at what level. So that’s my view.
“I think the other benefit of LPTA is that, for better or for worse, we cannot sustain the costs associated with our current portfolio of service contracts. We have to have meaningful price competition. We have to reduce the amount of costs to do that. And one way to do it is just spend a whole lot less money and don’t do things. And I’d like to think that we’re able to do a more efficient way of obtaining services that allows us to appropriately consider cost as part of that service delivery.”
That said, industry is concerned it is going to be harder to include their most-experienced, best-connected, highest-salaried (for a reason) employees when bidding new business.
“Being an incumbent is no longer the advantage it used to be,” said Ray Whitehead, vice president of strategic planning at General Dynamics Information Technology, at a Market Connection seminar, adding that because of greater reliance on LPTA contracts, incumbent employees will see their salaries cut when the company bids on a re-compete.