April 29, 2016
letter to Defense Under Secretary Frank Kendall about a seemingly innocuous contracting matter. The two trade associations criticized the decision back in March by the Defense Information Systems Agency (DISA) to award its ENCORE III contract on a Lowest-Price, Technically Acceptable (LPTA) basis. Indeed, the PSC and the ITAPS have been complaining about this since the draft request for proposals was released almost a year ago. Former president of the PSC Stan Soloway even wrote an article in Government Executive last October assailing the choice. Their standing outrage is understandable. Taking lowest-price bids for complex, long-term contracts is not exactly the school solution in procurement.
Not the School Solution. Not Even Close.
Using the LPTA criterion for the ENCORE III award is very bad idea.
By James Hasik
ENCORE III is to be a roughly $17.5 billion deal over ten years for a variety of IT services across the Defense Department. As DISA’s website notes, like ENCORE II, which expires in 2018, “ENCORE III will be a multiple award/IDIQ contract—a base contract, with task orders defining specific performance requirements.” That means that multiple companies may be awarded chunks of the business, over a potentially indefinite delivery (ID) period, and for an indefinite quantity (IQ) of things. For the companies that win up front, an IDIQ award is just an open-ended hunting license to keep competing for new business. For the government, multiple-award/IDIQ contracts neck down open markets into more manageable walled gardens.
That’s not the much-ballyhooed full-and-open competition about which pundits and politicians sometimes rail, but this self-restriction is actually better for the buyer. Asking the acquisition workforce to wade through potentially hundreds of responses to necessarily lengthy requests every time the government needs something new is unmanageable. Once enough winners have been prequalified, the source-selection problem becomes tractable, and serious attention can be paid to the bids that are really serious. This kind of prequalification does not, however, unduly ease the later work of the first-round winners. Knowing that your periodic task-order bids will be judged against top-shelf IT companies keeps your pencil sharp.
All good so far. What’s not good is combining this contracting vehicle with the LPTA criterion. DISA intends to admit into its prequalified club companies with “technically acceptable” bids, as long as they’re at the bottom of the pricing ladder. That may sound appealing, but the business judgment is quite questionable. For ten years or so, DISA could be restricting itself to working with the barely-qualified-but-cheap. Thus the PSC and the ITAPS could note that using LPTA for this contract actually violates the Defense Department’s own guidelines, which Kendall himself signed last March, just about the time that DISA was releasing its draft RFP. Kendall's memo stated with the first sentence that
LPTA is an appropriate source selection process to apply only when there are well-defined requirements, the risk of unsuccessful performance is minimal, price is a significant factor in the source selection, and there is neither value, need, nor willingness to pay for higher performance.
Price and willingness-to-pay may be very important, but that's why Kendall’s language is conjunctive, not disjunctive. (He wrote and, not or, though some semicolons would have been helpful here.) Just wanting the ways of IT to be different won’t make them so. This is because no ten-year IT contract has well-defined requirements. The world changes, and your contractor must respond. No ten-year contract for IT services has a minimal risk of underperformance. Information technology will advance, and your contractor must be capable of advancing too. Along the way, your contracting team must flex to incorporate the new capabilities your agency will decide that it needs.
But don’t take simple violation of policy as necessarily dispositive; there are plenty of silly policies throughout the federal government. This one made sense to promulgate, however, as a response to the over-application of LPTA in the enthusiastic aftermath of then-Under Secretary Ash Carter’s promulgation of his original Better Buying Power initiative in 2010. Carter wanted lower prices badly, and he got a slew of badly written contracts.
More broadly, the Defense Department needn’t rely purely on its own policies and experience, as much as it lamentably doe). Big businesses all over the world use approaches akin to IDIQ contracting it their own complex services deals. They just don’t award long-term, complex contracts on an LPTA basis. The importance of nuanced selection and management criteria is taught around the world in business schools which offer coursework in procurement and supply chain management. At the upper-division undergraduate or the graduate level, it’s pretty much the school solution to the problem. The people at DISA who wrote the ENCORE III RFP might review a textbook or two.
James Hasík is a senior fellow at the Brent Scowcroft Center on International Security.