Thursday, June 20, 2013

Lowest price, technically unacceptable?

As a consumer, most of us prefer to buy things at a lower price than at a higher price - all other things being equal.

But what if all other things are not equal? Jim Pinto describes this scenario:

Products and equipment are "differentiated" by the FABS (features, advantages, and benefits) that competitors cannot offer. When a product becomes a commodity (no special FABS) the differentiation that remains is quality, delivery and price. And losers, or lazy salespeople, fall back all too quickly on price as the determining factor that wins a purchase order.

Pinto instead urges that salespeople emphasize another factor, such as quality. Those who can demonstrate higher quality can command a price premium.

If the evaluators are allowed to take that into consideration.

Some evaluators can't. One method used by Federal Governement agencies to evaluate bids is "lowest price, technically acceptable." (Of course, it has its own acronym - LPTA.) Technical acceptability could be evaluated as pass/fail criteria - or, a particular bid is either technically acceptable or technically unacceptable. There's no room to say that one bid is superior to another from a technical standpoint.

While this evaluation criteria can work in some situations, Bob Lohfeld describes a situation in which it clearly DIDN'T work:

Proposals were competed using LPTA as the evaluation criteria. As it turns out, the incumbent contractor’s performance had been pretty terrible with multiple cure letters having been issued over the preceding 2 years. Clearly the company was struggling to perform the work.

When the proposals for the recompete were received and evaluated, there was much discussion about how to evaluate the incumbent’s past performance and how to score it on a pass/fail basis. While some of the evaluators wanted to fail the incumbent contractor due to marginal performance on the previous contract, they conceded that since the company was doing the work currently, it would be illogical to conclude that the company couldn’t to do the work.

As a result, the company received a passing score for past performance, even though their performance had been less than desirable.

So the decision was going to be solely based upon price. And guess what?

The incumbent contractor, fearing that they would lose on price, took a dive on price and bid lower wages—probably making a bad situation worse.

As Lohfeld notes, people were surprised when "the contractor who had repeatedly delivered marginal performance had been selected again." Oh, and the contractor was going to do the work with lower-wage employees.

Granted that this is just a single data point, but if there are enough of these data points, Lohfeld (who is a proposal consultant who prefers to emphasize quality over price) will be able to make his case that LPTA should just go away.
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