2018 NDAA Analysis: The Noose Further Tightens on LPTA

This is the third blog post in a series of blogs analyzing the 2018 National Defense Authorization Act (NDAA), which has been passed by both houses of Congress and is awaiting the President’s signature. Stay tuned for new posts covering additional NDAA provisions from Holland & Knight’s Government Contracts Team.

Recent budget constraints resulted in lowest price technically acceptable (LPTA) coming into vogue as a source selection technique. It forced the Government to choose the lowest priced proposal that met the technical specifications no matter the benefits offered by other proposals; even if they were just one cent more expensive. See FAR 15.101-2. The severe limitations imposed by LPTA coupled with the race to the bottom mentality it encourages has caused the Government to take a second look at its usefulness. DoD’s 2016 Source Selection Procedures (the 2016 Procedures), the 2017 NDAA, and now the 2018 NDAA, have all sought to limit LPTA’s availability to specific situations.

FAR 15.101-2 provides that LPTA is appropriate when “best value is expected to result from selection of the technically acceptable proposal with the lowest evaluated price.” DoD recommended narrowing the scope further in the 2016 Procedures. It required that:

LPTAs may be used in situations where the Government would not place any value on a product or service exceeding the Government’s threshold technical or performance requirements and these requirements can be objectively defined in measurable terms. Such situations include acquisitions of commercial or non-complex services or supplies which are clearly and objectively defined.

See Appendix C, § C.1.

The 2016 Procedures also provided that LPTA is not appropriate when:

• The agency will need to judge the desirability of one proposal versus another;
• There are not well-defined standards of performance or quality

• The source selection authority desires to conduct a tradeoff analysis among price and nonprice factors.

Dramatic limitations on the use of LPTA were written into the 2017 NDAA. That Act restricted DoD (to the “maximum extent possible”) from using LPTA when purchasing “(1) information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, audit or audit readiness services, or other knowledge-based professional services; (2) personal protective equipment; or (3) knowledge-based training or logistics services in contingency operations or other operations outside the United States, including in Afghanistan or Iraq.” See Sec. 813(c).

Perhaps more important, the 2017 NDAA directed DoD to draft regulations reflecting the above restrictions and that allowed the use of LPTA only when:

1. DoD can plainly describe the minimum requirements;
2. There would be no value in exceeding the minimum requirements;
3. The desirability of an offeror’s proposal requires minimal subjective judgment;
4. Higher priced offerors would offer no additional benefit to the Government
5. A justification is written in the contract file; and
6. The LPTA approach still provides the lowest price when considering “full life-cycle costs.”

See Sec. 813(b).

The legislation also tasked GAO with reporting annually on LPTA procurements valued in excess of $10 million. Even though the regulations were required to be written 120 days after the enactment of the 2017 NDAA (which was on December 23, 2016), draft regulations have yet to be released. Part of the delay may be attributable to a change in administrations as new regulatory action has been virtually nonexistent since the Trump administration came into power (although the regulations were already overdue by the time the new administration took over).

The 2018 NDAA has now edited the 2017 NDAA to place more limitations on the use of LPTA. It authorizes LPTA only when (1) DoD would realize minimal innovation if LPTA was not used and (2) when goods are purchased, “the goods are predominantly expendable in nature, nontechnical, or have a short life expectancy or short shelf life.” See 2018 NDAA Sec. 822. This section also lowered the reporting threshold (after the first year) to $5 million.

In addition, Sec. 832 of the 2018 NDAA will prohibit the use of LPTA in engineering and manufacturing contracts for major defense acquisition programs. Major defense acquisition programs are either designated as such by the Secretary of Defense or are by virtue of dollars spent: $300 million in research and development or evaluation, or $1.8 billion in total expenditures.

Congress and DoD recognize the LPTA’s limitations and have continued to narrow the conditions under which it may be used. How the regulations implementing the 2017 and 2018 NDAA are written will dictate the future of this oft-maligned source selection procedure.

Stay tuned for further 2018 NDAA analysis from Holland & Knight’s Government Contracts team.