CHAPTER 5 BASIC ISSUES IN SOURCE SELECTION

Historically, the government obtained best value—sometimes called greatest value—using what is now known as the tradeoff process. The acquisition regulations that preceded the FAR indicated that, while awarding to the contractor proposing the lowest price was the norm, factors other than price could also be considered for some specific types of procurement actions. The acquisition regulations gave as examples cost-reimbursement contracts and research and development (R&D) contracts.

During this time, the great majority of tradeoff selections, though not all, were for R&D efforts. This was an obvious use of the process since the government was looking for contractors with the best ideas and the talented personnel needed to bring those ideas to fruition. Tradeoff allowed the government to emphasize these qualitative non-cost issues over price or cost.

THE IMPACT OF TOTAL QUALITY MANAGEMENT

In the 1980s and in the early 1990s, U.S. businesses and the U.S. government began embracing the principles of total quality management (TQM) as championed by a number of management gurus. While experts’ opinions may have differed on some issues related to TQM, there was near unanimity on one principle: Managers should discontinue the practice of awarding to the low bidder and should instead consider quality issues as well as cost when making an award decision.

As businesses and government began to implement TQM, many government procurements that had been awarded on a low-bid basis in the past were now being conducted as best value (tradeoff) procurements, especially contracts for services. It was reasoned that awarding an engineering service contract (or even a janitorial service contract) to a contractor that could just barely meet the requirements of being a responsible contractor might be false economy. Using a tradeoff method would permit award to an exceptional contractor that could be expected to furnish better service to the customer and perhaps require less oversight.

This new emphasis on tradeoff is reflected in Office of Federal Procurement Policy Letter 93-1, which states that “agencies should ensure that their acquisition strategy will result in the acquisition of services from a quality vendor that constitute the best value considering cost and other relevant factors, and yield the greatest benefit to the government.”

Shortly thereafter, in October 1994, President Bill Clinton issued Executive Order 12931, which directed agencies to place more emphasis on past performance and promote best value, rather than simply low cost, in selecting sources for both supplies and services.

In addition to these regulatory changes, the FAR was changed to require consideration of quality as well as cost in making best value awards.

BACKLASH AND CHANGE

There was some backlash against these government TQM efforts. Some agency officials did not want to use tradeoff exclusively to obtain the “best value” that was being required or encouraged by regulation. They believed that LPTA was often a better fit. Others complained that the government appeared to be spending inordinate amounts of money for marginal increases in quality. Still others pointed to the growth in procurement administrative lead time (PALT)—the time it takes to conduct a procurement—and attributed at least part of this growth to the increase in the use of the tradeoff process. And it became obvious to everyone that tradeoff acquisitions were more labor-intensive for the government, at a time when agency contracting personnel were being asked to accomplish more with fewer resources.

In 1997, the FAR was changed to define best value as an outcome rather than a process and to specifically identify both LPTA and tradeoff as source selection processes that could lead to the acquisition of best value. This change was not universally applauded. Some pointed out well-known and oft-quoted warnings against making source selections based on the lowest price. For example, John Ruskin, the British essayist, once said, “The common law of business prohibits paying a little and getting a lot—it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.” About a century later, quality management advocate W. Edwards Deming reportedly opined, “He that has a rule to give his business to the lowest bidder deserves to get rooked.”

Notwithstanding the aversion to a low bid philosophy by TQM proponents, there are, as noted earlier, distinct advantages to using LPTA when conditions indicate an acceptable level of risk in using this more direct and more objective approach.

On the other hand, the government should be permitted—and perhaps even encouraged—to trade off merit factors and price to get the best deal whenever the importance of the requirement, the risk of successful contractor performance, or both warrant the associated additional time and expense. This is, of course, a business judgment that can be subjected to second-guessing and Monday-morning quarterbacking, especially if the procurement is not entirely successful.

THE USE OF GOOD BUSINESS JUDGMENT

Regardless of the source selection process chosen, good business judgment must be exercised in selecting a contractor, and cost must always be an important factor in the source selection authority’s decision. Overspending is damaging to the image of government acquisition personnel in the eyes of the public and of Congress and can only lead to further restrictions on the amount of discretion government officials are allowed.

It is also clear that any streamlining techniques that would reduce the lead time and process costs inherent in tradeoff procurement should be encouraged. A number of streamlining techniques are described in Part VIII.

Finally, it should be recognized that knowledgeable, well-trained people are essential to making these source selection processes work. To achieve the best results, acquisition personnel must truly understand the processes and the issues involved, rather than being trained merely to follow directions. The acquisition officials who reportedly paid $300 for a hammer may have done so in accordance with regulatory guidance—but they may not have used good business judgment.

Not only can good business judgment applied by well-trained personnel save money, it can also reduce the likelihood of a successful protest and the consequent adverse impact on the government—including delays in contract performance and the incurrence of significant additional expense.