Defense IT Contract Rekindles Pricing Complaints

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What's not to like about the U.S. government offering information technology vendors $17.5 billion for products and services?

The opportunity is attractive, and many vendors have expressed interest in a U.S. Department of Defense contract that covers the acquisition of a broad range of IT capabilities. Offered through the Defense Information Systems Agency, or DISA, a request for proposals for the Encore III contract was issued in March. Bids were accepted through late April.

However, the contract generated angst about the terms DISA will use to select vendors. The complaints include a public letter to the department from business organizations representing IT companies.

In fact, DISA may have to suspend the RFP as a result of legal challenges. Booz Allen Hamilton and CACI separately have submitted protests to the General Accountability Office related to what they consider unacceptable provisions of DISA's proposal.

The terms of the RFP are "ambiguous, inconsistent with law, and unsuitable for the type of procurement," said Sharon Larkin, an attorney with Steptoe & Johnson, representing CACI.

What is the problem?

In a period of tight budgets and pressure to keep IT project costs as low as possible, DISA departed from past practices in the Encore III contract and decided to use a process for selecting vendors known as "Lowest Price Technically Acceptable." Vendors claim that use of LPTA will be counterproductive and could prevent the department from obtaining high-quality IT support.

DISA issued the RFP as a follow-up to the Encore contract series for obtaining IT capabilities. Encore III should be adopted in 2018 when the current vehicle expires. It is designed to provide DoD with comprehensive capabilities that essentially will move the department to the next level of IT evolution.

The RFP envisions a major upgrade to network-centric configurations; migration from older, inefficient legacy systems to integrated and interoperable deployments; and significant reductions in awkward and isolated stovepipe IT facilities in favor of department-wide enterprise systems.

Areas of emphasis include business process reengineering, custom application development, computer-telephony integration, Web services, and cloud technology and services. Lest these designations seem a bit cerebral, much of the effort will be designed to improve the effectiveness of battlefield engagement and direct military operations on a global scale, DISA noted.

The contract has a five-year initial term with a potential for five more years. DISA anticipated that as many as 20 vendors, largely major companies, will be selected from an unreserved group of applicants, while another 20 awards will be reserved for small businesses. Individual contracts will be awarded as task orders to selected vendors.

Under the LPTA method, the customer, such as the government, essentially sets a minimum level of technical competency for vendors to meet. Some vendors may be better than others, but that difference does not enter into the choice of contractor. All vendors that meet the minimum competency standard qualify for the work, and the contract selection is then based on the lowest-priced bid.

With LPTA, "the government does not give much extra consideration for superior technical proposals," said attorney Theodore Watson of Watson & Associates.

"Contractors have a more difficult time bidding for LPTA proposals because everyone is lumped into a pool of technically acceptable bidders. The only thing the agency then has to consider is the price," he said.

The Encore III contract lacks certain specificities making the technically acceptable standard almost impossible to gauge, the vendors claimed. To the degree that the elements of the contract can be determined through DISA's description of its goals, the agency is requiring sophisticated IT competencies that are well in excess of standard, run-of-the-mill, commodity or commercial resources. Thus LPTA is inappropriate and DISA should use another method that recognizes qualitative differences among vendor competencies and results in the best value to the government.

In fact, the DISA proposal contemplates a material amount of complex work that falls outside of standard commercial resources, Booz Allen Hamilton said in its submission to GAO.

The outcome of the GAO review of the Encore III contract terms could have a significant impact on not only that contract, but on future federal government use of the LPTA standard. However, the vendors submitting the GAO complaints limited their discussion of the issue to their public filings.

The government should be careful in applying LPTA. While the method may be useful in some applications, inappropriate use carries risks, according to Katell Thielemann, a research director at Gartner.

"The last few years have created many undesirable situations for agencies and vendors alike as budgets were under pressure and agencies turned to options such as LPTA contracts. While this form of contracting works well when purchasing commoditized products or solutions, it has increasingly been used to fulfill more complex IT requirements, including engineering services, and very large scopes of work such as the multibillion-dollar Navy NGEN contract," she told the E-Commerce Times.

"Under LPTA, agencies set a bar for what they are looking for -- usually pretty low or linked to requirements that do not allow for evaluation of any subjective factors from the agency program teams -- and automatically award to the vendor with the lowest price. It's a gamble for convenience against quality for an overworked acquisition workforce increasingly distanced from requirements and program outcomes," Thielemann added.

"Experience tells us that the risk for long-term issues is high when using LPTA as a source selection method for large IT service contracts, particularly one that will be used to support such a broad and complex modernization effort like the Joint Information Environment," said Deniece Peterson, director of federal industry analysis at Deltek.

The JIE is the current platform objective for upgrading the Defense Department's IT operations.

"The designation of LPTA as the evaluation criteria on Encore III at the contract level -- versus just the task-order level -- seems to reflect a high level of confidence on the part of DISA that the requirements are so well-defined and understood by industry that the risk is acceptable. In my experience, that's not typically true for even one of the performance areas under Encore III, let alone all of them," Peterson told the E-Commerce Times.

The DoD has appeared to acknowledge that lack of definition is a major issue related to Encore III.

"LPTA is appropriate where requirements are well defined; risk of unsuccessful contract performance is minimal; and there is no value, need or willingness to pay for higher performance," said Claire Grady, director of Defense Procurement and Acquisition Policy.

"There will be a considerable amount of scrutiny on Encore III as a test model," said Peterson. "If it works, it will likely serve as a model for others, and if it fails. other agencies will likely be gun shy about doing the same."

John K. Higgins is a career business writer, with broad experience for a major publisher in a wide range of topics including energy, finance, environment and government policy. In his current freelance role, he reports mainly on government information technology issues for ECT News Network.

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