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First Quarter 2015
Industry Trends
(Defense and Gov. Services)
In a memo authored by Under Secretary of Defense for Acquisition, Technology and Logistics, Frank Kendall, the DoD is taking a public stance
and providing guidance to its contracting officers on a contracting initiative that Industry has long opposed; Lowest Price, Technically Acceptable
(LPTA) source selections. In his March 4 memo titled
Appropriate Use of Lowest Priced, Technically Acceptable Source Selection Process and
Contract Type
, Mr. Kendall states that LPTA is the appropriate source selection process only when 1) the requirements are well defined; 2) the
risk of unsuccessful contract performance is minimal; 3) price is a significant factor in the source selection, and 4) there is neither value, need, nor
willingness to pay for higher performance. Industry has long held the belief that technical service and solution bids do not fit these guidelines, and
LPTA does not align with the mission at large. When the Government overemphasizes cost in its procurements, contractors can have the
tendency to downplay their true costs in an attempt to be the lowest priced bidder. In the long term, this has the opposite of LPTA’s intended
effect: cost savings are reduced and sometimes eliminated by cost overruns, contract modifications, and in some cases poor performance can
lead to contract terminations. With higher budgets for DoD and the Federal Government being proposed by the President and both the House and
the Senate, there is the possibility that LPTA procurements will be used less frequently, primarily for commodity and non-technical acquisitions,
and that DoD’s mentality will revert to identifying contractors that provide the best solutions, not the cheapest.
Sources: President’s 2016 Budget Request, Appropriate Use of Lowest Priced, Technically Acceptable Source Selection Process and Contract Type; Associated Press; Industry Newswires
On April 30, the House Armed Services Committee (HASC) passed the National
Defense Authorization Act (NDAA) policy bill which authorizes $585.1 billion in
defense spending for 2016. The NDAA allows for $495.9 billion in discretionary
funding and $89.2 billion in the overseas contingency operations (OCO) account.
In February the President released a budget proposal for $534.4 billion in
discretionary spending and $50.9 billion in OCO funding, for a total of $585.3
billion. Notably, the House Committee’s version does not lift the sequestration
caps for this year, a request the President had made in his version, and far
exceeds the congressionally mandated budget cap of $499 billion for 2016.
Additionally, the president has previously threatened to veto budget bills that
keep the sequestration caps in place, setting the stage for potential further
budget negotiations when the bill is brought to the House floor this month. The
fact that any budget conversations are taking place is a good thing, and that we
are not headed for another continuing resolution should bring comfort to
investors. M&A activity potentially will be impacted by sectors that are seeing an
uptick in requested spending, and specific programs that are identified in the
budget, such as cybersecurity initiatives.
DoD Budget Update
Procurement News - LPTA
$496.2
$534.4
$495.9
$64.2
$50.9
$89.2
$560.4
$585.3
$585.1
$0 B
$100 B
$200 B
$300 B
$400 B
$500 B
$600 B
$700 B
FY15 - Enacted
FY16 Proposed -
President
FY16 Proposed - HASC
Base OCO
Sequestration caps
Enacted and Proposed DoD Budgets