But It Hasn’t Been Designed Yet!

Issue 3 of 2014

Lowest Price Technically Acceptable — The Antithesis of Best Value.

By Craig Unger
Craig Unger is a consultant in the federal law enforcement community and the design-build environment. He is a former senior executive with the U.S. Department of Justice and past president of DBIA.

At Issue: Lowest Price Technically Acceptable (LPTA)
LPTA is a procurement process wherein an agency/owner selects the lowest bid provided the bidder meets minimum standards. In today’s budget-constrained environment, LPTA is becoming a more widely used technique for source selection by a few federal government agencies. While some industry leaders argue that LPTA can work to achieve cost savings if the project requirements and criteria are clearly defined in detail, critics assert LPTA stifles innovation, leads to change orders, cost overruns and other unknowns which virtually never provide best value.

Let’s go through the sequence again: (1) design, then (2) price, then (3) construct. Yes, that was the traditional linear design-bid-build project delivery model that drove federal design and construction procurement for decades and decades. Didn’t really provide true value engineering, the best life cycle cost or “best value” to the government, however, it did accommodate the lowest initial cost (but rarely the actual final cost) and provided a level playing field for offerors to price the project (and the appearance of being fraud proof). Of course, the design documents were 100 percent complete and therefore reviewed by the government for mission need acceptability, and the Designer-of-Record was a direct agent of the agency.

Most agencies were not satisfied with the results of design-bid-build (e.g., defective quality, cost overruns, schedule busts, etc.) and/or the laborious administrative burden of managing the post-award construction process with thousands of Requests for Information (RFIs), numerous change orders, disputes, claims, litigation, etc. After-Action Reviews typically disclosed the low bid (price at Notice-to-Proceed) was not the true cost at Substantial Completion. Allegations that the construction documents contained errors, omissions and ambiguities were common. Moreover, the best contractor, with the best team and the best solution RARELY, if ever, won the competition — just the guy who met the minimum requirements and was “cheap!”

It took a long, long time, but Congress finally granted relief in 1996 with passage of the Clinger-Cohen Act enabling Contracting Officers to procure design and construction services in a much different manner. Part 36 of the Federal Acquisition Regulation (FAR Part 36.3) was amended providing for all federal agencies the option to use integrated design-build project delivery with a two-phase negotiated acquisition process. Agencies could now shortlist the most highly qualified design-build teams in Phase I of the source selection process and select the best design-build team with the best solution in Phase II. Price was (and is) important — however, not the most important evaluation factor.

Regrettably, Lowest Price Technically Acceptable (LPTA) takes us a giant step backwards. The recent prevalent use of LPTA for design-build procurements reveals a genuine lack of understanding of the significant difference between design-build and other project delivery methodologies, e.g., design-bid-build; construction manager at risk; multiprime; etc. Of course, in design-build, the Designer-of-Record is on the design-build team — a significant shift in risk from the other project delivery approaches. However, LPTA rewards “low bid” — not innovation, not energy efficiency, not sustainability, not security, etc., not anything other than the cheapest price.

In using LPTA, trade-offs are not permitted, it is acceptable not to evaluate past performance, and proposals are evaluated for “acceptability” but not ranked using non-cost/price factors (see FAR 15.101-2). Exchanges may occur — however, since it’s a pass/fail process, what is left to negotiate other than yet another round of lower prices?

Like most experiences in life, until you stand in the shoes of the person actually performing the work/services — you don’t really know and fully understand the risk and consequences of the work/services being provided. Confession: During my many years with the federal government, I thought I had a reasonable understanding of the design-builders’ perspective and associated risks in performing government contracts. In hindsight, I’m not sure I fully comprehended the pressure to win that is placed upon competing contractors. FAR Part 36.3 allows agencies to clearly convey to competitors that the winning proposal must be the best team with the best solution within budget. Conversely, LPTA sends a loud message to contractors that they must once again — be cheap to win.

I can still recall a quote from an unsuccessful contractor after a debrief: “I have 17 employees to support and five children to feed — in the future, when I need to be ’low,’ I’ll be ’low’ and you’ll be stuck with me!”

As a former procurement executive of a federal agency, I find it hard to imagine LPTA being a good fit for any type of service contract. Not unlike reverse auctioning, LPTA may (and I emphasize the word “may”) at times be appropriate for widgets — however, I cannot fathom a solid argument for LPTA ever being a good fit for design-build project delivery, under any circumstances. Exactly what is “technically acceptable” based on? If the government is so concerned with low price, have they invested the resources to adequately and unambiguously define how technically acceptable will be evaluated during source selection, and then interpreted during the design effort? My experience is that we often think we have defined requirements unambiguously (and we all know that the burden of being unambiguous is on the drafter of the language), until we are challenged with a reasonable alternative interpretation we had not thought of. Again, LPTA is asking contractors to price a yet-to-be-designed project with award going to the lowest bid. Even under the best of circumstances in which the RFP has a clearly defined design criteria package (e.g., bridging documents), there remains so much to be designed after contract award. Under design-bid-build at least the design solution was fully known and accepted by the government before entering the contentious low bid environment. LPTA invites contractors to find the cheapest solution, cut corners, minimize risk, etc., sacrificing quality, schedule and performance for “low bid” and in doing so places additional risk burden on the design partner. The designer is tasked with identifying the cheapest design solution in order to be the low bidder, and then during full design development further sharpen their design pencil to cut additional design and construction costs so that profit can be achieved after buying into the contract (i.e. the temptation is to low ball their price to win and then try to recoup during performance).

Apparently, the latest movement at some agencies towards LPTA is being driven by short sightedness and/or budget constraints — neither of which warrants support for LPTA for design-build. Sacrificing design quality for low initial costs typically does not save tax dollars in the long run. As the House of Representatives Committee Report (113-102) disclosed, the U.S. Department of Defense is to be applauded for cutting costs and saving taxpayer dollars,

“however the Committee is concerned that this well-intentioned effort by the Department to lower costs frequently results in the inappropriate awarding of contracts based on a lowest price, technically acceptable (LPTA) standard instead of a best-value tradeoff approach”.

“According to the FAR, the goal of the acquisition system is to ‘deliver on a timely basis the best value product or service to the customer, while maintaining the public’s trust and fulfilling public policy objectives’. In certain circumstances, pursuing the lowest cost in the short term can result in significant operational and financial costs in the long term…”

“The Committee believes that awarding contracts based on an LPTA basis should not become the default position of the Department.”

To try to select a contractor based on price, and only price related factors, for construction of a facility that has not been designed yet makes about as much sense as a doctor ordering surgery or prescribing medication for a patient that has not been examined and diagnosed! In my opinion, premier architects, engineers and contractors will not, in the long term, willingly participate in such a high-stakes gambling exercise and will quickly vacate an LPTA marketplace if any other work is available. What design-builder would proudly submit for a design excellence award because they were the low bidder providing the short-sighted minimally acceptable cheapest solution?

Keep in mind, for decades owners/agencies have designed their facility(ies) in great detail providing prescriptive construction documents and drawings (FAR Part 14 and 36.6 — traditional design-bid-build) to offerors inviting competitive price submissions. We all know just how difficult it is to price a 100 percent fully completed set of construction documents and drawings — and certainly much more risky (if not impossible) to provide a firm fixed price design-build project via LPTA (knowing upfront you must be the lowest price to win).

Perhaps the most damaging effect of LPTA is the neutralized effect on the most discriminating source selection evaluation factor of all time (past performance). LPTA reverts back to pass-fail for past performance in the final source selection process. Only in government contracting can a contractor perform “acceptable,” meet the “minimum” requirements, file claims, sue his client, etc., and be rewarded with future contract awards.

In summary, if the Contracting Officer stops and thinks for a minute … how does the contractor win an LPTA solicitation? Of course, be the low bidder — and how does a contractor get to the lowest possible price? It sure is not providing the best technical solution(s) or the most energy efficient design or the lowest life-cycle cost to the government or the most sustainable facility or anything that is even a smidgeon above the RFP minimum requirements in the statement of work. Moreover, the contractor cannot afford to propose their “A Team” or the best sub-consultants and best subcontractors (NOTE: There’s a good reason the Brooks Act was enacted back in 1972 — but that is an issue for another future article that further underscores the shortsightedness of LPTA for design-build).

LPTA is strikingly similar to how we traditionally played the game for decades under sealed bidding via design-bid-build project delivery. However, in design-build the project has not yet been designed! Exactly what is “technically acceptable” based upon? A preliminary set of bridging documents? If so, those bridging documents had better be iron tight with no margin for various interpretation (personally I’ve never seen such a document). In fact, most of us are keenly aware there is no such thing as a perfect set of construction documents with zero errors, zero omissions and absolutely no ambiguities. As the CEO of one of Engineering News Record’s top design-builders recently stated, “LPTA is design-bid-build masquerading as design-build to the detriment of industry and the public — trying to commoditize professional services.”

In closing, ask yourself if you have ever bought anything on a personal basis that was the absolute lowest price that provided you the best value? Now ask the same question when it comes to any service you have ever purchased. Did the lowest price provider ever meet or exceed your expectations? I am reminded of John Ruskin’s famous quote over a century ago:

“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper … and the people who consider price only are this man’s lawful prey.”

I would hesitate in getting a haircut on low bid (or have my house painted). I cannot even imagine going to the lowest price dentist for a root canal! It is my humble opinion that LPTA will lead us right back to the not-so-good-ole-days of low bid contract administration where the government, designer, and constructor will debate the definitions of technically acceptable and minimally acceptable both during design and during construction and therefore restart the RFI, change order, REA, disputes, claims, and litigation wars of yesteryear.

Thought leaders in both industry and government must take a firm stand against the use of LPTA in regard to design-build source selection.