Imagine you are at the grocery store standing in front of the butter. In front of you is are selections of brand name butter and the generic store brand. The brand name is $3 and the store brand is $2.70. Because of all the ‘brand power’ ads, you believe the branded butter has higher quality and thus the higher price is worth the 30 cent premium. But what if the brand name is $2, or even $1.50? Is that higher quality still worth double the price? What if their is a super premium butter option for $4.50?Standing there in the grocery store you are faced with a similar analysis (albeit simplified) to what the Government Source Selection Authority (SSA) (FAR 15.3) does each time they evaluate a proposal and declare a winner.
Let us explore what the components and visuals are of the Price to Win (PTW) window which help us arrive at a PTW recommendation and decision.
The Canvas
The PTW window takes place on a graph, specifically the top right quadrant of a graph where all values are positive. The X axis is score, increasing to the right, while the Y axis is price, increasing as you move up. In terms of scale of the axis:
- Y (Price) usually runs from 0 to whatever is appropriate for the opportunity, but usually around the client’s budget.
- X (Capability) always starts at 0 but ends at a number based on how the RFP Section M (Evaluation Criteria) is written. That number could be 5, 10, 100, 1,000 points or other.
Let us visualize the PTW Canvas:
Capability (Score)
Capability consists of 4 distinct lines. For purposes of our discussion let us assume the Government is using a 5 point adjectival rating schema from worst to best: Unacceptable, Marginal, Acceptable, Good, Outstanding. We may determine that the quantitative point equivalent is 20, 40, 60, 80, 100 respectively.
- Minimum Acceptable Capability – Usually the lowest score anyone can get is 0, or whatever the score is associated with all ratings of Unacceptable
- Minimum Acceptable Customer Capability – Something greater than 0 which the customer is known or likely to desire as a floor, for example Marginal may be possible score but the client is unlikely to move forward with anything below Acceptable whereby anything below that is thrown out
- Maximum Capability – Whatever the maximum of your quantitative scale is, for example 100, or 1,000
- Maximum Justifiable Capability – Anything above this line commands a higher price but the client is unable or unwilling to pay for that capability. The default is to set this to be same as the Maximum Capability unless you have knowledge of where this should be set. It is a hard idea to conceptualize so let us go back to the butter example. What if there is a goat butter option that provides even greater quality resulting in an Outstanding rating for the non-price factor of Quality. If we know the client is making cookies with the butter and that something like goat butter is unlikely to warrant the additional expense then we may set the Maximum Justifiable Capability for Quality to Good..
Visualization of the vertical lines:
Price
There are 3 horizontal price lines:
- Budget – How much does the Government have to spend? In our butter example maybe they have a budget of $3. In your case maybe the Government telegraphed that by saying the contract cannot exceed some number, or maybe it is a recompete and you know how much the prior contract was. In any event, you must do every ethical thing you can to find out this number. It does zero good to propose a Learjet solution if the Government client can only afford a Cessna turboprop.
- Independent Cost Estimate (ICE) – In all reality this is called the Independent Government Cost Estimate (IGCE), but since procurement regulations dictate the IGCE be an internal Government document you should not label anything IGCE. Instead, you would conduct a non-biased estimation of the Government’s IGCE and then label it your ICE. One example we have seen is the mean/median labor rate of a list of pre-negotiated rates, say from the Federal Supply Schedules (FSS) (see GSA CALC).
- Lowest Credible Price – This is probably the hardest line to estimate. Below what price point would the Government not consider the bid credible? Is there a salary percentile below which a price is not realistic and thus not acceptable? Maybe your client indicated their expectation for salary based on statistical percentiles and that the 10th would be unrealistic.
Visualization of the horizontal lines:
FAR 15-101 Best Value Continuum
Before we finalize the PTW window let us look at the Federal Acquisition Regulation (FAR)’s definition of the Best Value Continuum. You should read about it in FAR 15-101 but a visualization of that is below.
Basically the Government either:
- conducts a customizable weighting between, and among, non-price and price factors – this is Best Value Tradeoff (BVT) FAR 15.101-1
- or cares about a minimum threshold of capability, then wants the lowest price – this is Lowest Price Technically Acceptable (LPTA) FAR 15.101-2
There are two different PTW windows depending on which evaluation technique the Government chooses from the two above.
- 15-101-1 BVT – There is additional value and thus willingness to pay more for greater perceived capability. This is the type of competition you should want because your value statement can set you apart from the competition and make it less about a simple price shootout. It looks like the chart below. To the extent you are in the bottom right (low price/high capability) your probability of Win (pWin) will increase. But along with that higher pWin comes the chance you left money on the table. The GovPTW GAO protest informed product allows you to quantitatively understand the pWin/price/score tradeoff relationship. Read more about that product in the 8th article in our series.
- 15-101-2 – LPTA – The Government wants an exact capability, anything less and you lose regardless of price. Anything more at greater price then an acceptable competitor and you also lose. This provides for zero price differentiation on capability and thus is a PTW window you should avoid. This window is displayed below but is no longer concentrated on in our series.
- Take special note that the Government is restricted from using LPTA pursuant to FAR 15.101-2.d.1 as shown below. Point to this with the client if their requirement falls into this restriction.
Except for DoD, in accordance with section 880 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232, 41 U.S.C. 3701 Note), contracting officers shall avoid, to the maximum extent practicable, using the lowest price technically acceptable source selection process in the case of a procurement that is predominantly for the acquisition of—
(1) Information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, audit or audit readiness services, health care services and records, telecommunications devices and 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.
How Do You Do This Though, Really??
If you have already read articles on PTW chances are you have the high level idea but are really after a more in-depth how to. You are in the right place as after we cover a few more topics we will show you in the final part (#9).