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Wednesday, August 6, 2014

The pendulum swings along the price to quality spectrum

When it comes to objectively observable source selection criteria, price is somewhat certain; quality is less so. The less objectively certain a factor is, the more discretion comes into play, and the greater the wriggle room to wrangle an angle that masks favoritism. Couple that with the mood swings in the public and holders of the public purse as economies swell and shrink, and attitudes shift. And so, the meme du jour in procurement shifts to getter more "value" for money to getting more cost savings. 

All that said for context to the next article below from blogger and editor John Keller, an easy and instructive review of the procurement pendulum swing.

Pentagon's lowest price technically acceptable (LPTA) guideline is latest attempt to attack costs
The U.S. Department of Defense has a long history of trying to balance the quality and price of the nation's weapon systems. With tight budgets the rule these days -- and the threat of another round of sequestration as early as 2016 -- the scales may be tipping in favor of price over quality.

There was a day many of us remember thirty-some years ago when the goal of military program managers was to procure only the best; money was no object under most circumstances. While this approach secured for the United States the world's mightiest military force, it also bought for us thousand-dollar toilet seats, hundred-dollar hammers, and fifty-dollar electronic diodes.

Among the roots of the problem then was the custom-design nature of military systems. Buying the best required technologies and components tailored specifically for each application; rarely was the economy of scale of the commercial market brought to bear on military procurement challenges.

There also was a bias in those days of buying from the commercial market. There was a belief that buying commodity items at discount-store prices would result in poor quality unacceptable to critical military missions. Better to pay too much than compromise military capability was the prevailing attitude.

Then the Berlin Wall came down, and with it the end of the Cold War -- at least that particular iteration of the Cold War -- that lasted from about the end of World War II until 1990. With a perceived end of the Soviet threat, military planners during the Clinton Administration decided it was time to reap a "peace dividend," and reduce military spending.

One of the first results of the so-called peace dividend was the notion of COTS -- short for commercial off-the-shelf -- brought to us in 1993 by Bill Clinton's secretary of defense, William Perry.

COTS, often incorrectly criticized at the time as a conduit for bringing substandard equipment into the military, was a solid concept, especially as it remains today more than two decades later. COTS wasn't an attack on quality, but instead was an acknowledgement that the military could buy standard off-the-shelf components economically and without compromising quality.

With little doubt, COTS has saved the military millions of dollars -- perhaps a lot more -- and rather than compromising quality actually has enhanced quality in many cases by implementing industry standards and best practices, rather than custom-designing ordinary components. Continuing downward pressure on the Pentagon budget, however, is calling for additional new measures in military procurement.

One of the latest is "lowest price technically acceptable," which the military shortens to LPTA. Like COTS, LPTA is intended to prevent the Pentagon from paying too much for what it buys -- commendable in this day and age -- but also like COTS, the new term LPTA often comes under scrutiny for its perceived threat of compromising quality.

Essentially, LPTA calls on the Pentagon's procurement officers to determine a level of quality that is good enough for the job at hand. Any contractor bid that falls within this "good-enough" guideline becomes a competition finalist, and the one submitting the lowest bid wins the contract.

In theory, LPTA does not leave military buyers with the leeway to pay a little extra for superior quality; it's all about what's good enough at the lowest price. While this emphasis on price over quality does have the potential to compromise quality, there also may be some benefits.

It's not the way all procurements should be run, granted, but for a growing number of components ranging from single-board computers, backplanes, and enclosures, LPTA should do the job for which it's intended.

There may be additional benefits to LPTA -- provided this procurement method is applied to the right kind of purchases -- and that is enhanced industry competition. LPTA, with its emphasis on price, has the potential to bring more companies into the military's supply chain.

The kind of procurement approach that LPTA outlines offers the advantage of a growing number of companies competing for military work on the basis of price as well as quality. If this works out, the military could have a broad selection of technologies and components to find the right hardware for the job, even when budgets are tight.
I like the moral expressed in this story: "It's not the way all procurements should be run, granted, but ... LPTA should do the job for which it's intended."

It is important to remember that there are many methods of source selection. Why? Because they are a reflection that one size does not fit all, as I am always reminded when I go, on those rare occasions, clothes shopping. It is important, when choosing a method of source selection, that the most appropriate method be chosen for the desired outcome. You don't need to spend the money and time on a bespoke suit to wear every day to work. And you don't want to get married in that same suit.

What the US federal government calls LPTA, Guam, and ABA Model Procurement Code, calls a "multi-step bid" method of source selection. It's a variant on the generic competitive sealed bid procedure, where all proposed bids are evaluated for product acceptability and then lowest price is chosen.

Multi-step does not rank proposals, but does categorize proposals as technically "acceptable", "potentially acceptable" and "non-acceptable". Non-acceptable proposals are eliminated in the initial review. If a proposal has the potential to meet specifications with a little tweaking of either the bid specifications or the proposal or both, and that action is taken without prejudice to other technically acceptable proposals, the proposal gets added to the final pool of "technically acceptable" bids. At that point sealed price bids are opened for all technically acceptable bids, and low price wins. See 2 GAR § 3109(r) in Guam procurement regulations for more.

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