Executive Slams ‘Lowest Price, Technically Acceptable’ Acquisition Regimes

By Stew Magnuson
The president of a major satellite services provider said the U.S. military’s “lowest price, technically acceptable” procurement strategy is stifling innovation and ultimately shortchanging war fighters.
Ed Spitler, president of Astrium Services Government Inc., a part of the Airbus Group, said Jan. 16 at a Washington Space Business Roundtable luncheon that the new regime in the military acquisition community is to go with the lowest possible bid on services as opposed to more traditional evaluations where a variety of factors are taken into account.
“Satcom isn’t a commodity. Nor is it one size fits all,” he said, although the military sees it that way. It is exchanging new applications and value added services for lower prices, he said. Sequestration and the budget crunch are forcing the Defense Department into a regime where “price seems to be the most important thing — not necessarily capability.”  
“In my opinion, I think the war fighter is getting a raw deal,” he added.
In what is a reversal from the norm — and some might say ironic — Spitler maintained that the large contractors are now being passed over for small businesses. Big organizations with large groups of experts and  deep assets are losing out. The lowest price bid gets its proposal evaluated to see if it meets the technical requirements. If it does, none of the others are considered or even read, Spitler maintained.
“You may have written the best proposal of your life … but it will never be read by the government because of that LPTA requirement,” he said. “It’s a shame because there is no room for innovation when you do that.”
While he acknowledged the need for the Defense Department to support small businesses, he has seen some large contracts go to companies with only two or three employees. Some of these contracts would be challenging for a large firm such as his to fulfill, he said.
He has asked procurement officials how they can give contracts to such small, inexperienced firms. Their attitude is: “If they fail or default in year one, we just recompete it,” he said.
There are many competitors who are now seeking to provide satellite bandwidth to the military. It would not be unusual for a procurement official to receive 40 or more responses to a request for proposals. Now, all the official has to do is look at one of them. Spitler said he believed that the other 39 or so responses aren’t even considered.
The official no longer has to look at such factors as past performance. “No matter how hard we are working out there, sometimes it is not being recognized by the government,” he added.
The U.S. military needs commercial satellite providers to fill gaps in its bandwidth requirements because the fleets of military spacecraft can’t provide all the capacity that is needed. The industry has long complained that the Defense Information Systems Agency leases capacity at one-year increments. The comsat providers are looking for more stability so they can plan ahead. Astrium, for example, has a 20-year contract with the United Kingdom’s Ministry of Defense to provide needed bandwidth.
The U.S. military could achieve the savings it seeks if longer contracts were awarded, Spitler said. That would result in innovation. But that is no longer a factor when bids win by simply being the least expensive, technically acceptable offer, he added.
He pointed to one study by the research firm Market Connections in October that said LPTA contracts may result in standards and performance being lowered, and less than optimal prices for product development.
There is also no clear definition for “technically acceptable,” he said. It means different things to different people, he added.
Congress has heard the industry’s call for change. The National Defense Authorization Act directs the Defense Department  to move toward multi-year leases and hosted payloads to acquire commercial satellite capacity and services. It requires the department to produce an analysis of financial or other benefits of doing multi-year acquisitions within 90 days of the bill’s passage.

Topics: Business Trends, Doing Business with the Government, Service Contracts, Space

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