Lowest Price Technically Acceptable (LPTA) contracts are often offered by the government for professional services contacts despite restrictive language in the Fiscal Year 2019 National Defense Authorization Act (NDAA) intended to limit LPTA use. This can be a tough decision for small businesses when it comes to your bid/no bid decision. The opportunity may look good in terms of your core competencies and what you’d like to achieve as a government contractor, but there are some serious downside risks to taking on an LPTA bid.
Foremost, the likelihood is that the government will not even read your proposal. The government will read the lowest price proposal and, if technically acceptable, they are done. And technically acceptable is often more subjective than measurably objective, so look carefully at the evaluation criteria. Then ask yourself, do you have the time and resources to devote to a proposal effort that will probably not even get a competitive reading? If you think bidding and not winning will at least get you known by the contracting office, remember, only two kinds of bids get read in an LPTA competition – those deemed to be inadequate and the winner. Submitting a responsible and high-quality proposal that does not even get read isn’t the best road to becoming known.
And what if you win? When developing a price for an LPTA bid, you have to consider carefully the three variables always present in pricing a professional services proposal. First, you must consider how low you are compelled to price your proposal in order to optimize your chance of getting it read and considered for technical acceptability. This means you must be the lowest priced bid or the lowest priced bid which is technically acceptable if there are other bids with lower prices than yours. Your technical and managerial solutions must be feasible and sufficiently supported by the price. In short, you must be correct in your calculations regarding price to win.
Second, you must bid a price that will keep your business financially healthy. Most small businesses are unwise to bid for LPTA contracts for which their costs are poorly covered. A contact that loses money is not readily manageable by a small business with limited resources no matter how attractive gaining entry to the agency or market may be. You must realize a profit and your costs and risks accounted for in your pricing calculations. Risk is the killer. Unforeseen challenges will arise and without an adequate buffer for risk, you may find yourself in trouble during execution.
Third, you must consider the quality of life of your employees. Today we are in a tight labor market. Employees will have expectations regarding wages/salaries and benefits necessary to maintain their quality of life. When you bid labor rates that are one or two standard deviations below the mean for your labor categories and place of performance, you place enormous stress on your ability to hire quality personnel who will stay with you. Under an LPTA professional services contract, if you are paying your employees wages representing the lowest 10-30% compensation rates you are likely to get three kinds of personnel. Some will be new and inexperienced in the profession. They may not even be aware they are being poorly compensated – for a while. Others will be those who have recently lost a position and need to quickly find a new one. They can’t accommodate a loss of income for very long. And lastly, you will encounter those who are marginal performers and who find employment in their specialty tough to find and keep. All three kinds of likely employees have one thing in common – they are looking for something better. This means your labor force will probably be volatile, forcing you to continuously find and recruit new hires. This is expensive, time-consuming, and places your contract performance at risk. The result will be continuous staffing headaches, possibly poor CPARS ratings by your government customer with consequent bad effects on your business reputation and past performance, and even the possibility of contract default.
Here’s the bottom line – when considering an LPTA bid for a professional services contract, carefully consider the risks associated with excessively low prices. By and large, neither you nor the government is going to benefit from a contract you win but can’t really afford.