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Lowest price contracts have their place

Oct. 28, 2013 - 01:03PM   |  
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Among the biggest hot-button issues that contractors talk about these days is the prevalence of lowest price, technically acceptable (LPTA) contracts.

Federal agencies — particularly the Navy and other Defense Department components — are using LPTA criteria to award more contracts, which means that price is increasingly becoming the single biggest factor in deciding who wins contracts.

The angst this causes among contractors runs deep: Many companies have spent huge sums and toiled for years to build reputations prizing their expertise, cultures of innovation, ability to deliver beyond expectations, and strong customer relationships.

When lowest price becomes king, all that goes out the window.

Contractors’ concerns over LPTA go beyond that. Profit margins are squeezed to their barest minimums. Incumbent contractors are suddenly more vulnerable to being toppled by other competitors. And as prices for goods and services are driven downward, contractor employee salaries and benefits are also squeezed, which adds more volatility to each company’s talent pool.

Like it or not, these implications of LPTA contracting are becoming the new normal for the foreseeable future.

The question is: How far will federal agencies take their use of LPTA contracting?

Many in the contracting community fear that intense cost-cutting pressures will drive agencies to abuse LPTA by inappropriately applying the requirements, such as when those requirements are not well defined and risks of failure are considerable.

This will be an important area for agency leaders and the oversight community to monitor.

LPTA contracts and other approaches to more economical contracting — such as strategic sourcing and reverse auctions — are vital tools for the government, especially in times like these. But they can cause big problems if misapplied or abused, and federal acquisition executives, auditors and lawmakers must keep watch to ensure that does not happen.

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