The pendulum is swinging back toward Lowest Price Technically Acceptable (LPTA) as the evaluation standard used in RFPs. LPTA is a government procurement term, but it has broader applicability. It refers to procurements where the customer will make the award to the lowest priced bid that meets their minimum requirements.
In recent years, most RFPs were based on “best value.” In a “best value” procurement, the customer might make the award to a bid that was not the lowest price, if they thought it delivered the best value. For example, they might pay more for quality because it would cost less to maintain over time. However, in today’s procurement environment, it is not politically sound to pay more for anything. So LPTA is back in fashion.
When the standard is LPTA, you have no incentive to exceed the requirements if it is going to cost more. In fact, the incentive is to keep your costs as low as possible, even if it means barely scraping by when it comes to meeting the specifications. LPTA also changes your bid strategies in other ways. You won’t get extra points by going beyond. You get the most points by being credible.
When everyone is lowballing the price, the customer has to really believe that you are going to deliver. So everything you do during the bid pursuit, from your relationship with the customer, to how you describe what you do in writing, should be done to maximize credibility. When is a price too low to believe? Because different people will answer that question differently, it’s not just a question of “what” to believe, but also one of “who” to believe. Your credibility determines whether you are believable.
You can also try to influence how they define price realism. If the winning price is not realistic, then the winner will not deliver as promised. The customer should be on guard for this. But you can help them. For example, you can identify what items must be accounted for in the pricing so that the project does not fail. If anything on the list is not present or accounted for, then the pricing is questionable. You may also be able to cite examples of minimum costs for some items.
You should try to identify things that you would like to include and that your competitors would not like to include. You should also try to identify things will raise the bar for lower priced competitors. Defining price realism works best when you can make your suggestions to the customer early enough to get them written into the RFP.
You can also try to influence what is technically acceptable. If your approach exceeds the requirements, then you want that to become the requirement so that you can get the points, make life more difficult for your competitors, and keep them from undercutting your pricing with a lesser solution.
LPTA means you have to challenge whether a low price is really low, and whether a solution is really technically acceptable. It does no good to complain about losing on price with a superior solution. You have to anticipate the issues early and change the definition of LPTA to match your superior solution. If you have not influenced the solicitation, then all you can do is provide your rationale with your pricing and technical proposal and hope they consider it. Or you can get lean and mean and compete on price.
Which brings us back to the issue of credibility. Contractors will be bidding lower prices and their performance will be impacted. Expect customers to pay more attention to past performance and references. Taking care of your performance track record will be an important part of establishing your credibility when it comes to having a LPTA solution.
As the pendulum swings, don't be surprised if LPTA brings back super LONG RFPs that try to specify every little thing. Remember, the incentive for the bidder is to be minimally and literally compliant. People will be sticking more closely to the letter of the contract and not doing any extras. So the RFPs will have to specify it all. It’s just a matter of time before people realize that this isn’t actually saving any money, that rational people don’t buy things for themselves this way, and then the pendulum will swing the other way and bring back “best value.”
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