Driving best value pricing – Let’s go for a ride
This blog will focus on requirements in the context of the federal government. Sound requirements drive best value pricing and performance for customer agencies…
There are many variables that drive best value pricing. Suppliers take into consideration many factors, including pricing to address excess inventory, pricing to meet sales goals or drive market penetration, and pricing in response to the buyer’s requirements. This blog will focus on requirements in the context of the federal government. Sound requirements drive best value pricing and performance for customer agencies and the American people. Here are some commonsense observations regarding the nexus between requirements, pricing, and performance.
- Volume commitments drive pricing. Agency volume commitments translate into increased competition and lower prices. Where firm commitments are not made, negotiating volume discounts is an effective tool in delivering savings for customer agencies and business for contractors.
- Single award Blanket Purchase Agreements (BPAs) under the Multiple Award Schedule (MAS) program leverage agency requirements to achieve lower pricing. Currently, just over 50% of the volume going through the MAS program are orders purchased under BPAs. However, this number, and the corresponding savings, could be higher. The current Federal Acquisition Regulation (FAR) Subpart 8.4 ordering procedures create a strong preference for multiple award BPAs rather than single award BPAs. Multiple award BPAs, by their very terms, do not leverage collective requirements. The preference for multiple award BPAs is a bureaucratic hurdle that disincentives BPA acquisition strategies that leverage requirements. It should be removed from FAR Subpart 8.4.
- Clear, concise, and actionable statements of work reduce risk resulting in lower prices and best value for customer agencies. “Requirements overreach” that pushes unreasonable outcomes while ignoring the art of the possible too often results in increased costs, delayed performance, and increased mission risk. Agencies should identify and communication the core performance requirements and avoid the window dressing.
- Outcome-based or performance-based contracting strategies drive innovation and cost savings. Rather than the government issuing a detailed specification or statement of work (SOW) mandating a particular approach/performance, outcome-based contracting empowers commercial firms to use their ingenuity to efficiently and effectively develop and deliver best value solutions to meet mission requirements.
- Incentive-based contracting and share-in-savings techniques will drive efficiency and incentivize innovation in meeting mission requirements. Share-in-savings can play a significant role in identifying opportunities for operational savings across the federal government.
- Data is foundational to developing sound requirements. Volume commitments, SOW requirements, share-in-savings and outcome-based contracting all rely on the government’s ability to manage and analyze data that is clean, complete, and accurate. Data is the life blood of the federal government. Information Technology (IT) modernization/transformation will be critical to effective data analytics that supports mission requirements.
- Federal procurement is a highly regulated market. Requirements are not just the SOW in a solicitation; requirements include all the clauses and regulations that apply to the transaction. Over regulation increases costs, creates barriers to entry, and delays procurement lead times. Ultimately, over regulation undermines best value mission support. The FAR and the numerous agency specific FAR supplements are part and parcel of the requirements that commercial firms must meet when competing for government work. These regulations include a host of requirements where the costs outweigh the benefits. What’s more, there are many regulatory requirements that are disconnected from the core mission of the procurement system, which is to acquire best value services, products, and solutions to meet agency mission requirements for the American people.
- It is time to simplify the FAR. The nation cannot afford the increased costs, administrative burdens, and delays caused by an overly complex, process driven framework. Reducing the FAR will reduce costs and price.
As followers of FAR & Beyond, The Coalition for Common Sense in Government Procurement is seeking your input for the Government Procurement Efficiency List (GPEL). Please share with us your recommendations regarding the requirements outlined above. What can be done to more efficiently and effectively identify, articulate, communicate, and contract for mission requirements? This initiative is ongoing so please feel free to send your suggestions at any time to Greg Waldron at [email protected].
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