This blog post was written by a guest author.
Nearly 40 years ago I got my first job in the Federal Contracting world working for an aerospace company. The acquisition environment back then was very different with win strategies centered around customer relationships and past successes. Protests were rare.
The pricing strategy was to be somewhere in the middle of the competitive range. If your price was too low it was suspect; too high and you lost on price. The focus was on developing a winning technical solution at a best case achievable price with a plan to get well with aggressive change control in execution to cover any cost risk. Managing the program within the boundaries of scope, schedule and cost led to the often-spoken “Make it Good, Deliver on Time, or Complete within Cost – pick any two.” Faced with compromising quality or schedule, cost was often the one to give.
One particular scientific satellite program was bid and won at $70M on a Cost Plus Incentive Award Fee (CPIAF) contract. The RFP specified a useful life of 3 years. Midway through the design phase, it became apparent that the customer had asked for a “Volkswagen” but they really wanted a “Cadillac.” We were on a path trying to satisfy the customer’s “wants” which was going to leave us with almost no fee. The contract was restructured, cost and schedule revised, and when the program was completed the final cost was over $150M. We earned all of the possible fee and the satellite was finally turned off after 10 years of outstanding operation to great acclaim by the scientific world. In today’s environment that would not be considered a successful program despite the achievement of more than 3 times the value for just over twice the price.
In recent years “Best Value” procurements have leaned heavily on low cost even when cost has been identified as the least important factor. Protests have become the rule rather than the exception. The strategy has changed to bidding low with a solution that meets the minimum technical requirements even when the evaluation criteria is not Lowest Price Technically Acceptable (LPTA). What is the result? Customers are finding that they are not getting what they really want anymore. Contractors are focused on cost-driven solutions not developing new capabilities and better products. The time lost and costs incurred in protests has hurt both the customer and the contractor. The price competition has caused many mergers as companies struggle to survive in a marketplace of declining profits resulting in fewer qualified bidders out there. Contractor employees have had their salaries and benefits reduced, disincentivizing excellence in performance and pushing the best performers into the commercial marketplace.
There are a few signs that the pendulum is starting to swing back as customers realize that low cost is not getting them what they really want and need. Cost may always be more important than it used to be but an acquisition process that allows contractors to deliver high quality products and services at a reasonable price with a reasonable return is a win-win for both customer and contractor. In the meantime, cost remains important in Best Value source selection evaluations even if it’s the least important of all the factors considered.