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Avoiding the Low Price, Technically Acceptable Contract Performance Death Spiral

Potential Improvements To Technical Evaluation Methods For Reduced Performance Risk and Increased Introduction of Innovation to Service Delivery

The Percell Group LLC

Innovation Taken To The Bottom Line

January 11, 2013

January 11, 2013

I.

[AVOIDING AN LPTA PERFORMANCE DEATH SPIRAL]

LPTA Drivers and Dimensions

Because they appear to be cheaper, low price, technically acceptable (LPTA) procurements are on the rise, but these kinds of contracts pose a danger to the government over the long haul. To the sponsoring government activity results matter and costs matter. In a constrained budget, this is all about continued effectiveness using fewer resources. The mission did not contract, just the resources to perform that mission. Logically, LPTA offers the opportunity to reduce the cost of support (LP) while obtaining effective support (TA). There is no room to pay for more than the minimum. But price is not a reflection of results. Many times low price is counter-indicative of desired results. This can be particularly acute when viewed in the long run. Low price technically acceptable deals are usually made for commercially commoditized services - facility maintenance services, laundry services and custodial services, to name a few for three reasons: 1) There is little difference between competitors; no one competitor is going to be significantly more qualified than another. 2) The stakes are low so if there is a failure the resulting damage is not extensive. 3) Commodity services are simple enough that their requirements can be clearly defined and performance and results easily captured (clean office, neat grass). Critical professional services are the exact opposite, primarily because none of the above LTPA indicators are present: 1) There are significant differences in how qualified companies are for the mission. 2) The stakes are very high; a failed mission could result in a national security risk – and these risks may be realized very quickly with little option to go back. 3) Ineffective performance can drive up cost of other elements of the mission. 4) Professional services for critical missions are often very specialized, and so it is difficult to clearly define their requirements and the results are not obvious – is the design solid? – is the documentation accurate? And how much input does a given output even require – thus “level-ofeffort think” dominates requirements. II. LPTA Unintended Consequences What makes the lowest price technically acceptable approach the current “go to” strategy is that it seems to be a cheaper option to conduct business in today’s government market where budgets are so tight. But using the lowest-price technically acceptable approach for non-commodity services can result in unintended program and mission consequences. Often LPTA awards create unanticipated program and systemic risks, or more tangible increases in cost later, primarily

The Percell Group LLC

“Innovation Taken To The Bottom Line”

1

January 11, 2013

[AVOIDING AN LPTA PERFORMANCE DEATH SPIRAL]

because we can only define delivery of effort and usually don’t have the vision of outputs and quantity required – other than historical “butts in seats” for past performance. Program risks can include a significantly underbid work effort and an increased risk of failure when employees are hired at lower salary rates to “make it work”. Few of the best qualified staff who were essential to the program thru knowledge, historical perspective, experience and networking will persist in the staff. Plus, any shortcomings on a project require money to first detect, mitigate consequences, then fix, making the effort more expensive overall than would be a classic approach. Few programs using LPTA due to budget pressures are investing in problem detection and problems become very large before detection is inescapable. Systemic risks are more detrimental on a fundamental level. Innovation and development of more efficient methods is likely one of the first areas to be cut in this scenario – when pricing to the bone why invest in an innovative approach which won’t be evaluated in LPTA, putting the government at risk of losing access to future technology innovation and consequently the cost savings associated with technical advance. The presumption that low cost evaluations will encourage investment in technology to cut labor or other capital cost by providers may work in services like lawn mowing, but the reverse is true in complex services. In fact the tendency in evaluation to equate “technically acceptable” to getting the head count right makes innovation that is untested impossible to propose. III.

LPTA Induced Death Spiral

Another area that quickly will suffer from cost cutting to meet low price expectations in LPTA is corporate and employee learning and development; however, this is the area that helps, among other things, transfer knowledge from more experienced (and more expensive) engineers to less experienced (and less expensive) engineers. With LPTA you get the less experienced, less productive, less expensive. But you lose the wisdom and knowledge. This is particularly acute when new companies replace past companies and try to “reemploy” the incumbent staff at lower wages. Who likely stays? Those who cannot get another job – the least productive, least knowledgeable, with little choice but to stay and carry on…. Ask most any Program Manager who has seen his provider change during a shift from CPFF or T&M to LPTA – just asking the question usually tells the story through the look of pain in their eyes! What then will be the result of a second LPTA competition for a body of work? Unless the evaluation process is significantly improved and focused on insuring mission outcomes, results, or products are producible, the term is Death Spiral! Successive cost cutting will produce successive results cutting through the dynamics driven by current methods. IV.

The Answer Is In The Evaluation Model

But if lowest price technically acceptable deals continue to rise, are there ways to avoid the death spiral and collateral cost of underperformance? Yes, and these ways can also make them less risky by allowing some room for innovation.

The Percell Group LLC

“Innovation Taken To The Bottom Line”

2

January 11, 2013

[AVOIDING AN LPTA PERFORMANCE DEATH SPIRAL]

First, the qualifications for “acceptable” must be made much more rigorous, to the point where some offerors are found unacceptable or only a few offerors are technically acceptable. This will require significant changes in the performance and requirements solicited. It is counter-cultural to government offices since they rely on support expertise to know the “how and what” details of a job. How do they acquire and document the specific quantification and outcomes. Historical “butts-in-seats” won’t cut it in this option. A. Management and Understanding Problem Solving So how then do we get to true “acceptable” criteria and evaluation factors? Perhaps indirectly at first through scenario-based evaluations (cases or sample tasks) that have teams illustrate their breadth of expertise, even going so far as to provide solutions to specific problems that may arise during the period of performance. This is a slight enhancement to the classic “sample task”. It makes for a complicated evaluation with wide variation in responses that are more difficult to compare. But it should insure the management and technical leadership of the offeror know how and what needs doing – and what the outputs are that logically will result from the task. But this would give a team an opportunity to demonstrate that it understands the work sufficiently to solve problems and exhibits the flexibility and adaptability to address changing priorities and circumstances, which is not always brought out in LPTA awards – it may even be discouraged by criteria in use today. And it clearly opens a path to introduce innovations and improved methods that are robust when problems are encountered – and to get credit for that robust response in the technical evaluation where others may fail and drop out before price becomes the only issue. B. Demonstrated Results From Prior Work Another fact to weigh is past performance. It would speak greatly of a team’s abilities if they already have projects similar in size, scope, and, especially, complexity. The current practice, particularly in small business set-aside of using FAR driven “no past performance is acceptable” does let new players with good ideas into the government domain – but how do you judge their ability to perform – I suggest its back to the sample task and problem solving scenario above to judge that ability on hard problems from the real requirement. Past performance should also be looked at differently, not with a focus on trade based best value, but on reaching a threshold of acceptability that requires real technical ability. This may call for more direct technical criteria in past performance questionnaires – again with a focus on problem solving, quality of deliverables, innovations, or surge capabilities. C. Presentations vs. Paper Only Technical Evaluation Increasing the use of Oral Presentations can provide more that the technical response to the requirement. An oral proposal presentation, in person, with the management and staff that are key or critical to the support actually present, can weed out the incapable and give innovation another chance to appear. It also forces a face to face approach to explaining how the staffing and competency levels required to perform the work were arrived at in the solution.

The Percell Group LLC

“Innovation Taken To The Bottom Line”

3

January 11, 2013

[AVOIDING AN LPTA PERFORMANCE DEATH SPIRAL]

A very effective strategy for oral presentation can be to request the sample task or case study be presented – and developed from requirement through delivery in front of the evaluation team. This will quickly bring out the “pretenders” if the evaluation criteria used to evaluate the sample work are drawn from realistic past experiences or similar work, not just a butts-in-seats data base.

There are really only two options to go forward to achieve lower cost without induction of death spiral to mission failure, and neither are easy: Either: 1) issue solicitations for complex and/or mission critical services which include a classic cost-technical tradeoff approach for achieving best value – which is the lowest cost for acceptable risk 2) or make technical and past performance requirements rigorously and precisely defined to ensure the government receives something that is truly and rigorously verifiable as technically acceptable. The above suggested evaluation process improvements are intended to start the trek to answer number 2. However they are really only interim measures, as the true measure of technically acceptable proposals can only come when the government offices have developed an understanding of and yardstick to measure results and outputs.

The Percell Group LLC

“Innovation Taken To The Bottom Line”

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