Dangers of Lowest-Price, Technically Acceptable

Dangers of Lowest-Cost, Technically Acceptable

The government is eliminating purchasing exceptions with its new standard. Such notions may seem economical but run the risk of driving out innovation and true value. It’s a dangerous standard for everyone who may consider it.

By Larry Walsh

It’s often difficult to think of the U.S. government as being frugal, but Uncle Sam is at least attempting to find its inner penny-pincher when it comes to systems acquisitions. The federal government has always operated on the “lowest bid” concept, with contractors that offer their services at the lowest cost usually getting the business. The government, however, is changing the way it determines what is “lowest,” and it’s a dangerous standard for everyone.

In 2013, the U.S. government – the world’s largest consumer of IT goods and services – adopted the standard of “Lowest-Price, Technically Acceptable” (LPTA) for evaluating bids. Under this standard, purchasing contracts no longer go to the lowest qualified bid, but rather to the lowest technically acceptable proposal. As long as the equipment or software meets the minimum standards, the seller will get the business regardless of quality, reliability, and sustainability.

This standard represents a big departure from the way government has worked for much of its history. The “lowest qualified bid” standard was typically a way of weeding out inferior proposals and projects, as it gave the government the ability to discern between inexpensive and low-quality. An acquiring government agency could bypass a low bidder if a higher-priced proposal offered better benefits and value.

Everyone can joke about government spending and the low quality of its systems, but, in reality, the government has produced some of the most innovative, cutting-edge technology solutions based on standard equipment. It’s also driven new technology and performance capabilities into the commercial market, such as highly effective encryption and tamper-resistant components as defined under the Federal Information Security Management Act.

By switching to the default position of LPTA, the government is – in most cases – saying it no longer cares about value and quality, as long as it gets the lowest price, period. This standard doesn’t mean the government will always get an inferior product, but it does increase the probability of lost opportunities and long-term waste.

The private sector has a similar standard, administered by purchasing managers. These are the people who come into a deal at the eleventh hour with all kinds of questions and complaints. And they’re almost always focused on price over value and performance. That’s not to say that the quality of a product or service is not a consideration to them, but only in the context of price. Their job, ultimately, is to wring out as many dollars from the final purchase as possible.

While private-sector purchasing managers aren’t nearly as rigid as the government’s LPTA standard, they often obstruct the acquisition of goods and services whose need has been defined by the users themselves (often technical experts). In some cases, the people who need the technology get something that’s inferior and don’t fully realize the value-producing outcome for which they were aiming.

Government policies and standards come and go, particularly when it comes to purchasing. When the new administration comes to Washington in 2016, it will likely bring with it a new set of standards. The same holds true with corporate purchasing managers, who come and go, each bringing new processes and expectations for their suppliers. The common denominator is either cutting spending or lowering the rate of spending increases.

As technology purveyors, we must continue to emphasize the value of products and services, educate buyers on outcome-based evaluation of technology and systems rather than the root costs, and redefine ROI to mean value creation – increasing productivity and generating more returns – and not simply cost savings. Those who control budgets will always be under pressure to cut costs; it’s up to vendors and solution providers to help purchasers understand that a singular focus on dollars and cents doesn’t always make sense.

 


Larry Walsh, The 2112 GroupLarry Walsh is the founder, CEO and chief analyst of The 2112 Group. You can reach him by email: [email protected]; or follow him on social media channels: Twitter, Facebook, LinkedIn.