New study from Market Connections, Inc. and Centurion Research Solutions reveals how LPTA contracts are stifling innovation, driving down prices and sacrificing long-term value for short-term cost savings
Today, more than 200 members of the government contracting community gathered at the Gannett Conference Center in McLean, Va., to gain key insights into the impact of Lowest Price Technically Acceptable (LPTA) procurements on both government and contractors.
A new study from Market Connections, Inc. and Centurion Research Solutions revealed that contractors and government believe LPTA contracts may be awarded to less qualified companies, may sacrifice long-term value for short-term cost savings and could act to lower government contractors’ standards of performance.
“Although many contractors believe that LPTA contracts are stifling innovation, driving down prices and at times being used for the wrong types of federal procurements, LPTA contracts are not going away anytime soon,” said Lisa Dezzutti, President and CEO of Market Connections, Inc. “Contractors will continue to face the challenge of having to offer lower-cost solutions and will need to adjust their operational and pursuit strategies accordingly.”
An online survey of 375 government contractors involved with business development or program management activities in their companies, and 360 federal government decision-makers involved in the selection of contractors and vendors, found that:
- LPTA sacrifices long-term value: 65% of contractors and 43% of government employees believe that LPTA procurements sacrifice long-term value for short-term cost savings.
- Less qualified contractors win LPTA contracts: Both audiences (71% contractors and 59% government) see the same two main drawbacks of LPTA for the federal government: the potential for contracts to be awarded to less qualified companies and sacrificing long-term value for short-term cost savings.
- LPTA procurements will increase in the next three years: Both audiences believe that LPTA procurements will increase in the next three years (59% contractors vs. 42% government), overwhelmingly driven by federal budget restrictions.
- Government employees are less familiar with LPTA: Nearly all contractors indicated they are either very familiar (77 percent) or somewhat familiar (19 percent) with LPTA. About two-thirds of government employee respondents are either very familiar (32 percent) or somewhat familiar (33 percent) with LPTA.
- Contractors equate best value with LPTA procurements: Two-thirds of contractors (63%) are likely to equate an RFP specified as ”Best Value” as an LPTA RFP.
Centurion Research Solutions identified $27.7 billion in actionable LPTA opportunities using its Business Intelligence NOW™ opportunity tracking tool, with an average annual value of $18 million. If indeed best value equates with LPTA, the total value of opportunities expands to $744.5 billion and the average annual value doubles to $38.8 million. Centurion identified Department of Defense as the top user of LPTA procurements, and the Department of Veterans Affairs and Department of Homeland Security as holding the most LPTA opportunities among civilian agencies.
“If indeed LPTA equates with best value, the scope of impact increases dramatically,” said Fritzi Serafin, Vice President of Research Services at Centurion Research Solutions. “The total dollar value of actionable opportunities increases more than 25-fold with the dollar value range expanding significantly, and the average annual value more than doubling.”
The event also included the following panelists:
- Deb Alderson – President & CEO, Sotera Defense Solutions
- Michael Fischetti – Executive Director, National Contract Management Association (NCMA)
- George Obertubbesing – Vice President, Business Development, Harris IT Services
- Ray Whitehead – Vice President, Business Development and Strategic Planning, General Dynamics Information Technology
“I am not surprised by the shift towards LPTA contracts and we have seen many government customers not happy about it,” said Alderson during the panel when asked about her overall perceptions of LPTA procurements.
“It [LPTA] is exactly as it is described in the survey and this is the state of our market right now,” said Whitehead. “The use of LPTA needs to be called into question and given more scrutiny, and the question is, is it good for the taxpayer? In addition, IT and professional services are mission-critical and do we want the government buying these solutions using LPTA?”
Stay tuned for more coverage from this event. In the meantime, an overview of the study results is available for download at www.marketconnectionsinc.com/LPTA. The full report will be available for purchase in November.