Is “Lowest Price, Technically Acceptable” really the best way?

The government has embraced the idea of “Lowest Price, Technically Acceptable” (LPTA) for procurement. The idea behind the phrase is simply this; when the government procures whatever it may need, they will look at the lowest price first and then continue to work their way up the price ladder until a technically acceptable option is achieved. Theoretically, this gives the government the lowest possible price for the best level of quality for products or services that they need.

According to Deltek, between fiscal year 2009-2014 the use of LPTA for purchasing grew 55% in civilian agencies and 24% within the DoD, so we know that the government is utilizing this option more and more. What kind of pressure does that put on vendors’ bottom line who are constantly competing for the government business? For example, if a service company is bidding on and wins a LPTA bid, the first cuts they typically make to meet their bidding price are salaries and benefits for those working on the project. With service companies’ margins getting tighter and tighter, some are deciding to exit the federal market altogether.

However, LPTA might potentially be on its way out as the main purchasing format due to the extra cost of restructuring contracts if services are not up to par at the low price that was accepted. Those kinds of changes cost the US government time and money, making it more frugal to start off with a slightly higher price in exchange for much better quality and technical acceptability.

It’s also important to note that total federal dollars spent on contracting is actually dropping. In 2008, total contracts awarded was at $541.3 billion, falling to $445.4 billion in fiscal 2014 and ending up (year to date FY 2015, which ends on October 1) at only $329 billion (USAspending.gov). Unfortunately, these figures don’t tell whether the government is really buying everything cheaper utilizing LPTA or just buying less.

In both products and services areas, contractors coming up against LPTA should focus on their technical acceptability and quality as factor number one of proposals. Your technical capabilities are what make your company unique and what really make you stand out. Once the government reaches the “Technically acceptable level, they will look for the highest return at that price point. Also, doing pricing research on your main government competitors and seeing where your pricing falls is quite important. Putting those two pieces of information together will put you on the path to conquering the LPTA proposal with success.