In October, 2013, Market Connections, in collaboration with Deltek and Centurion research solutions, released a study on the impact of LPTA procurements on government contracts and solutions. The study findings continue to be among the most-read content on the FedPulse blog.
Given contractor interest in pricing, we reached out to Dave Doherty, Managing Director with Strategy to Win Consulting Group (S2W) and an expert in creating pricing to win strategies and gathering competitive intelligence, to share his thoughts on how contractors can price-to-win in 2015.
For 17 years, Dave has helped many of the largest contractors inside the Beltway successfully bid on, and win, competitive and strategic contracts.
FedPulse: What trends have you observed, and has anything changed since 2013?
Doherty: The major trend that everyone is talking about is the fact that lowest price/technically acceptable is NOT going away. In fact, we are seeing more LPTA RFPs for mission critical contracts, which until recently would have been evaluated using best value tradeoff source selection proceedures. The government is continuing to move toward fixed-price contracts, which of course are more risky for the contractor.
What the LPTA study found a year and half ago is holding true. For example, it is very difficult for contractors to differentiate on non-cost factors. So even in best value tradeoff evaluations, cost is, and will continue to be, the deciding factor. And, the reality is it’s more difficult to protest a bid when the government awards the contract to the lowest price bidder. When a contract is awarded to other than the lowest bidder using best-value tradeoff criteria, you can bet the lowest bidder will protest. Some of our clients have seen their wins protested two or three times. The government must be tired of the constant protests. And contractors too—protests are costly.
FedPulse: What do you think are the biggest bid mistakes contractors are making?
Doherty: The first mistake is underestimating competitors. You can’t assume competitors won’t submit their most aggressive bid. I can’t tell you how many times I’ve heard: “I’m surprised by the risk our competitor took to win.” I cannot underscore enough how important it is to do a competitive analysis for every single bid.
The second biggest mistake is not conducting a well-thought out price-to-win analysis—one that is professionally done (either by internal or external experts). I’ve seen contractors require one for a major bid, but only because they wanted to check the box rather than to use it as a real tool. A price-to-win strategy is a critical part of the capture process, and provides valuable insights that help contractors make informed decisions. On major opportunities many of our clients do both an internal and an independent external price-to-win.
FedPulse: If competitive analysis and price-to-win strategies are so critical, why aren’t all contractors doing them?
Doherty: I think there are two reasons for this. The first is that there are some common misconceptions about how it is done and the value. I’ve had people say that all we do is look at the current contract and cut costs by 10%. That is absolutely not how it is done. Both the competitive analysis and price-to-win strategy are tied to the RFP, the evaluation criteria, and a model of what competitors are expected to do to win. It is a long process that we start before the draft RFP is issued. We revise it when the draft comes out, then revise again with the final RFP comes out. It is based on solid data and intelligence.
The second reason—cost—is not a surprise. And it is true, they are expensive. However, I think when you look at the return, the price is worth it. We are working with two RFPs at the moment where the government has said the first thing they are going to do in the evaluation is stack the proposals from lowest to highest by price. If the lowest priced proposal is technically acceptable and the past performance is acceptable, the government indicated they may award without discussions. So the bidders are facing a reality where they may spend $500,000 or more to develop a proposal and it will never be read because the price was too high.
FedPulse: What are the top things contractors can do in order to price to win?
Doherty: First, start working on the competitive analysis and price-to-win strategy early in the capture process. Many companies understand they need a price-to-win strategy, but by the time they engage the professionals, it’s really too late. The old model of pricing—where the pricing team comes in a week before the bid is due—doesn’t work. In today’s market, you need that information several weeks in advance because there is no room to make adjustments a week before the due date. At a minimum, the process needs to start when the RFP is issued, but ideally it starts way before that. By starting early, the company has time to make informed decisions and integrate the pricing and technical solution. In many cases when a company prices too high, it’s because they missed the technical solution, not because they charged an extra point or two on fee.
In fact, we recently had a client make a no-bid decision because after they saw the competitive analysis, they realized they could never get to the price. Best to cut the losses and not spend $1 million putting together the response. This is a new paradigm, but a smart one. When it costs so much to put a proposal together, it simply doesn’t make sense if you know you can’t get to the price.
FedPulse: Any other advice?
Doherty: Contractors need to develop the bid based on the evaluation criteria. I am always surprised when a contractor’s win strategy is to overcome a low price by counting on best value tradeoffs. That simply is not a winning strategy in the current climate. In a LPTA evaluation you don’t get bonus points for a strong technical solution and past performance—even if you are the incumbent. The bottom line is you have to get to the lowest price to win. Even in a trade-off evaluation it is very difficult to overcome the lowest price technically acceptable bid. This is especially hard for incumbents to hear because they are often in a position where they have to convince the government they can maintain an acceptable level of quality at a 20% or more cost reduction. This is why a professional price to win strategy is so important.
We would like to thank Dave for taking the time to speak with FedPulse. Learn more about the LPTA study.