The Lowest Price Bid is Not Always the Best Option in Defense Contracts

We all want to get the lowest prices when we buy products and services, so we fall for deals and sales and similar kinds of promotions from retailers and services providers. When our government spends our tax dollars to buy products and services, it’s no different. We put a lot of pressure on politicians to spend our money wisely and “get the most bang for our buck” as many like to say. An example of this is the “Lowest Price Technology Acceptable (LPTA) standard, which is designed to purchase the lowest cost technology that meets the needs for the products or services government needs to obtain. This sounds good, but in actual application, the results are often anything but optimum.

While LPTA might work well for simple products like paper clips or toilet seats, it may not always lead to the best choices in products where higher degrees of technology are involved, such as weapons systems purchased by the Department of Defense. This was quite well illustrated n the popular movie War Dogs, where two stoners bid to deliver AK-47 rifles to Iraq, and in the process undercut established arms dealers on price. The guns they delivered proved unreliable and caused major problems with their use on the battle field. It was clear the next lowest price option would have delivered more reliable guns to the soldiers in battle. As was true on the big screen, the same kinds of problems occur with products that win the bid via the LPTA process in real life.

The key challenge in LPTA pricing comes in defining what is the technology that is acceptable at the lowest price. At times, companies bidding on military contracts will low-ball their bids to the degree that they unable to follow through on making good on the deal at the price as bid. This often leads to the time and money being wasted not to mention the need of the government agency to conduct the bidding process all over again. This raises the cost substantially for having chosen what appeared to be the lowest cost option. Another problem with LPTA comes when a less than lowest price is clearly the best option, a complex process is required for the purchaser to justify not choosing the lowest cost bid.

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The LPTA standard clearly failed in the instance of the federal government purchasing cheaper rockets from SpaceX. Product quality and reliability should clearly be assessed along with price when a product like this is purchased. SpaceX, the space launch company founded by Elon Musk, the creator of Tesla luxury electric cars and the solar panel company SolarCity, has had a consistent record of failed launches and on a few occasions, its rockets have exploded on the launch pad. These past events have raised quite legitimate questions about the ability of SpaceX to deliver on their promises in the space launch business. And SpaceX is not the only qualified provider of rockets, there are other providers that have far better launch records.

SpaceX has friends in high places. One member of Congress, whose congressional district includes the facility where SpaceX rockets are produced, actually dared to attach a amendment to the 2018 National Defense Authorization Act that would have required the Air Force to use and purchase only SpaceX rockets. This is not sound idea economically, as restricting competition for any products or services leads to higher prices. The Air Force estimated that amendment would have cost taxpayers an additional $1.8 billion more than department’s current plan through fiscal year 2027.

SpaceX also has its critics in Congress as well. Two Senators, Mark Warner (D-VA) and Mike Rounds (R-SD) have strongly criticized the use of the LPTA standard for Defense Department procurement. Clearly, if the LPTA process leads to the outcome of purchasing SpaceX rockets, the LPTA process fails to lead to the best results.

Sens. Warner and Rounds have introduced reform legislation called the Promoting Value Based Defense Procurement Act, under which the Defense Department would be directed to avoid LPTA criteria whenever possible when procuring complex information technology, systems engineering, technical assistance services and other knowledge-based professional services.

The current LPTA focus on price makes sense when the Pentagon is purchasing belts, bolts and ballpoint pens, yet it provides no incentive for DOD to seek out the most innovative IT and engineering solutions, especially important as we are working to encourage more innovation in cybersecurity,” Sen. Warner said, “In many ways, LPTA discourages participation by companies investing in cutting-edge capabilities”

Our national defense is far too important to be “penny smart and dollar foolish” to save a few bucks and get inferior products that don’t get the job done. The senators are to be applauded for sponsoring key reforms in this process to ensure we get the best, and not necessarily the cheapest, products for our tax dollars spent by the Dept. of Defense. Surely LPTA doesn’t work, especially if it leads to buying cheap SpaceX rockets that won’t launch properly.

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