Beware the Toxicity of Lowest Price, Technically Acceptable Purchasing

by Chris Arlen on February 15, 2017

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LPTA Toxic Leak Cooling Tower

Lowest Price, Technically Acceptable (LPTA)” is a US government purchasing strategy that has leaked its way into where it doesn’t belong; buying complex services and/or products in the private sector. And like toxic waste, it’s difficult to avoid contamination once it spreads.

First, LPTA has its place: It’s meant to get the US government best value for its buys. In a bid process buyers set out minimum hurdles for technical requirements, and once bidders clear them, their offers are ranked solely on price; and lowest price wins.

LPTA Toxic Swamp

Beware of Stepping in a Swamp

LPTA is intended for a narrow use only, where “the risk of unsuccessful contract performance is minimal.” And this is where LPTA’s toxicity comes in; when buyers use it to purchase critical, complex services/products, like contract security services for example.

Imagine if a lowest-price security contractor failed to keep terrorists out of a secure government facility, or allowed criminals to walk off with government weapons. There’d be little comfort realizing that contractor had met the minimum requirements for technically acceptable.

So, using the wrong purchasing strategy (LPTA or another) is a swamp unto itself. The US Department of Defense (DOD) is seeking to drain that swamp with its Better Buying Power initiatives, now up to 3.0 guidance.

And, as toxic as LPTA may be in government purchasing, it’s the leakage into private sector buying that pollutes the larger procurement environment.

When, private sector firms (often prime contractors to the US government) use LPTA to buy critical, complex services/products, they too become contaminated. Those purchases can miss an entire range of value from their suppliers, value their shareholders expect procurement to realize, such as;

  • Innovation – investment & advancements from contractors who invest above LPTA opportunities
  • Technology – enterprise-wide deployment of technologies for productivity & efficiency in addition to launching innovative new ones
  • Experiential Insights – gained from working with industry-leading customers rather than ones using LPTA as a purchasing strategy
  • Reliability & Redundancy – investments & expertise highly valued in critical business situations

LPTA Toxic Doritos flavoring

The Doritos of the Procurement World

Don’t be surprised by private sector procurement being drawn to LPTA’s use.

LPTA, like flavor chemicals in snack foods, has an alluring, almost compulsive attraction. Think about it:

  • LPTA is used by the US government – so it must be legitimate
  • LPTA sets minimum thresholds for technical requirements – so it’s relatively easy to write RFx & evaluate bidders’ technical responses
  • LPTA uses price as the sole determinant of the winner among technically “qualified” bidders – no doubt about the numbers, no award protests, no blame to buyers

LPTA Toxic Purchasing

Cleaning Up LPTA’s misuse in Private Sector Purchasing

As with any toxic cleanup, getting LPTA out of its private sector misuse may not be simple or easy. Here are three possible approaches.

Close the Stable Door AFTER the Horse has Bolted

If you must use LPTA to bid a service – do so with eyes skeptically open, which means:

  • MAKE “TECHNICALLY ACCEPTABLE” an extremely well defined level – go overboard in detail -AND- set the “minimum” level at a higher than required level, which will take nuance & expertise on your part but will protect you from contractors just scraping in at a lower level.
  • REQUIRE A DETAILED UNDERSTANDING OF COSTING & PRICING: this already may be part of your RFP but ensure it goes all the way down to hidden profit buckets, where percentages are used for insurance, recruiting, training, etc. where assumptions are used and conservative ones end up as slim slivers of extra profit.
  • THROW ‘EM A SNOWBALL IN JULY by requesting additional, different pricing models or creative payment programs that lowers your Total Cost of Ownership (TCO).

Close the Stable Door BEFORE the Horse Bolts

If Procurement presents you a chance to use, or not use LPTA purchasing- don’t use it. You’ll have far more ability to customize contractors’ delivery solutions using “best value” purchasing.

Vested Approach

If you want to push the envelope consider trying a Vested approach, one that seeks to create highly collaborative business relationships for win-win relationships in which both parties are equally committed to each other’s success. Connect with Kate Vitasek for all things Vested.

Scenario-based RFPs

For a lesser evolutionary approach, consider “Scenario-based RFPs.” This adds RFP questions to better understand the bidders’ thought processes in how they designed your solution, or if they didn’t think at all. This approach still gives Procurement a traditional oar in the water for running the RFx.

Getting the Horse Not to Bolt

If your Procurement department is open to better category management, they may be open to you helping educate and raise their awareness regarding your contract service area.

Yes, this is a potentially more sensitive approach, and would best work with a long-term view. But since the contract service you oversee is critical and complex, why wouldn’t you work towards it over the long-term?

Here are some ideas to help broach the learning opportunity with Procurement:

  1. Meet one-on-one with your Procurement representative, hopefully long before source selection. Seek to discuss their approach to selecting contract type and purchasing strategy. However, it’s unlikely they’ll see you if that’s your stated reason for the meeting. You may have more luck saying you want to discuss vendor pre-qualification, compliance, and performance value assessment. Those are legitimate reasons procurement professionals may give you a meeting.
  2. Find and take your Procurement representative to any Lunch and Learn seminars where guest speakers address LPTA failures, nuances, and success stories. Specifically, look for talks from speakers with the DOD acquisition workforce that are well versed in, and proponents of BPP 3.0.
  3. Participate in LinkedIn discussion groups for procurement and your managed service area. When you come across articles about your contracted services or LPTA, forward them to your Procurement representative – then follow up LIVE in person or by phone to get their opinion, or point out nuances for your firm. Do this LIVE rather than by email or text, it’ll build your relationship and their knowledge and trust.
  4. Educate yourself about the selection of the appropriate contract type, which determines the purchasing strategy to determine which one you feel is best for your managed service.

LPTA Hope

Hope for the Future

Awareness and education are the hope for the right purchasing strategy being used. You instinctively know when the wrong strategy is being used as you’ll have to live with a suboptimal outcome once Procurement is through with the process. It will take time and effort from both your part and Procurement to clean up the toxic LPTA swamp, but well worth your peace of mind, contracted results, and ultimately value to your organization.

This article has been revised by the author for Service Performance and was first published for contractors on Revenue-IQ and LinkedIn.

IMAGES: Implosion of SRS K Cooling Tower by Savannah River Site, Swamp by Maciej Kraus Follow, Doritos by Mike Mozart, Major toxic waste dump by HM Revenue & Customs, Hummingbird by tdlucas5000

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