Best Value Continuum

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Per statute, every source selection must include evaluation factors that address: (i) cost or price; and (ii) quality of product or service (Federal Acquisition Regulation (FAR) 15.304(c)(1)&(2)).  The Department of Defense Source Selection Procedures describes evaluation of cost or price in section 3.1.1, and evaluation of quality of product or service in section 3.1.2.

Per FAR 15.304(c)(1)(ii), the Department of Defense (DoD), National Aeronautics and Space Administration (NASA), and the Coast Guard have a statutory exception for allowing its contracting officer to not cost or price as an evaluation factor in source selection (FAR subpart 15.3) when a solicitation --

                          (1) has an estimated value above the simplified acquisition threshold;

                          (2) will result in multiple-award contracts (see FAR 16.504(c)) that are for the same or similar services; and

                          (3) states that the Government intends to make an award to each and all qualifying offerors;

 provided the contracting officer shall consider price or cost as one of the factors in the selection decision for each order placed under the contract (see FAR 16.505(b), Orders under multiple-award contracts).

Lowest Price Technically Acceptable (LPTA): At one end of the continuum, the Government uses the LPTA source selection process, where all factors other than cost or price (i.e. addressing quality of product or service) are evaluated on an “acceptable vs. unacceptable” basis. No evaluation credit is given or may be considered for exceeding the acceptability standards of the solicitation. For all offers which are rated “acceptable” for all factors other than cost or price, the Government then selects the offer with the lowest evaluated price. (FAR 15.101-2(b)(1))

The Government must state in the solicitation if it is using the LPTA process (FAR 15.101-2(b)(1)). In effect, the Government has determined in advance that the Best Value will be the offer with the lowest evaluated price among those offers rated “acceptable”. One may view the LPTA as the endpoint of the continuum where price being the only (or most heavily weighted) evaluation factor while all other factors are not weighted at all (i.e. simply treated as “acceptable vs. unacceptable" factors).

Tradeoff: The Government uses the tradeoff source selection process across the whole remainder, not just the opposite end, of the Best Value continuum. This process permits tradeoffs among cost or price and non-cost factors, which allows the Government to award to other than the lowest priced offeror or other than the highest technically rated offeror (FAR 15.101-1(a)). Unlike the LPTA process, the Government cannot determine in advance which offer will represent the Best Value when using the tradeoff process.  Only after the evaluation and comparative analysis of the proposals may the Source Selection Authority (SSA) exercise his or her independent judgment to select the proposal that represents the Best Value. For example, if two proposals were received, the winning proposal could be the offer with:

1. both the higher overall rating for non-price factors and the lower evaluated price; or
2. both higher overall rating for non-price factors and the higher evaluated price if the SSA determines the benefits offered are worth paying a price that is higher than the offer with a lower evaluated price and lower technical rating; or
3. both the lower overall rating for non-price factors and the lower evaluated price if the SSA determines the benefits offered by the higher rated proposal are not worth paying the additional amount in price; or
4. the lower evaluated price when the non-price factor ratings of the two proposals are indistinguishable; or
5. the higher overall rating for non-price factors when the evaluated prices of the two proposals are indistinguishable.

As long as there is at least one non-price evaluation factor that is not rated on an "acceptable vs. unacceptable" basis, the tradeoff process applies.  However, if an offer is rated "unacceptable" on any non-price factor rated on an "acceptable vs. unacceptable" basis, that offer is not subject to the tradeoff process as it has been deemed unacceptable for award.  In addition, only those non-price factors not rated on an "acceptable vs. unacceptable" basis can be used in the tradeoff process.

The other end of the continuum: With LPTA at the left endpoint of the continuum, view the opposite endpoint as a source selection where cost or price has the least possible weighting.  Unlike LPTA at the other end of the continuum, there is no regulatory defined process that applied at this endpoint.  In practice, there are three approaches that have been applied at this endpoint:  (1) the cost or price is a fixed dollar amount set by the Government, (2) the proposed cost or price need only be fair and reasonable, or (3) in very limited circumstances --per FAR 15.304(c)(ii)—cost or price does not have to be an evaluation factor.  Thus, it is important that the solicitation clearly state how the Government is evaluating proposals when at this endpoint of the continuum.

In the first approach, an example is the Government stating in the solicitation it will award a firm-fixed-price contract at a predetermined dollar amount (for example, $40M) to the offeror whose proposal provides the most value to the Government for that amount ($40 million). In this situation, the non-price factors combined have the most heavily possible weighting in determining the best value. All offers have the same price and are evaluated only on the basis of non-price proposals. The Government is still awarding to the lowest evaluated price. Thus, the highest evaluated offer for the non-price factors becomes the winning proposal.  While there is no tradeoff involving price, the SSA could conceivably conduct a tradeoff among the non-price factors.

In the second approach, the Government states in the solicitation it will award a contract to the offeror whose proposal is evaluated highest on the non-price factors and the price of that proposal simply needs to be fair and reasonable.  A common informal name for this approach is highest technically rated offer (HTRO) with a fair & reasonable price and no tradeoffs.  The Government first determines which proposal is evaluated highest on the non-price factors and then awards to that offeror provided the corresponding proposed price is fair & reasonable.

In the third approach, authorized per FAR 15.304(c)(ii) only for Dept. of Defense, National Aeronautics & Space Administration (NASA), and Coast Guard, the Government is not required to have a cost or price evaluation factor when a solicitation—
(1) Has an estimated value above the simplified acquisition threshold;
(2) Will result in multiple-award indefinite delivery indefinite quantity (IDIQ) contract for the same or similar services; and
(3) States that the Government intends to make an award to each and all qualifying offerors (see 2.101).
In addition and most importantly, the Govt. must consider cost or price as one of the factors in the selection of each order placed under the resulting IDIQ contracts.”

How Cost or Price Varies Along the Best Value Continuum: With the two ends of the Best Value continuum established, the distance between them reflects the variation of the cost or price weighting in relation to all other factors. How does the Government convey to potential offerors where along the Best Value continuum cost or price is weighted? The answer is through stating the importance of evaluation factors. Per statute, the solicitation shall state:

1. all evaluation factors and significant factors and their relative importance (FAR 15.304(c)(4)); and
2. all factors other than cost or price, when combined, are “significantly more important than cost or price”, “approximately equal to cost or price”, or “significantly less than cost or price” (FAR 15.304(c)(5)).

Example 1. If the solicitation stated:

1. there are four evaluation factors in descending order of importance – price, technical, past performance, and small business participation; and
2. all factors other than cost or price, when combined, are “significantly less than cost or price”; then cost or price would be weighted toward the left end of the continuum.

Example 2. If the solicitation stated:

1. there are four evaluation factors in descending order of importance – price, technical, past performance, and small business participation; and
2. all factors other than cost or price, when combined, are “approximately equal to cost or price”; then cost or price would be weighted approximately in the middle of the continuum.

Example 3. If the solicitation stated:

1. there are four evaluation factors which are approximately equal to each other – price, technical, past performance, and small business participation; and
2. all factors other than cost or price, when combined, are “significantly more important than cost or price”; then cost or price would be weighted approximately three-fourths towards the right end of the continuum.

Example 4. If the solicitation stated:

1. there are four evaluation factors in descending order of importance – technical, past performance, small business participation, and price; and
2. all factors other than cost or price, when combined, are “significantly more important than cost or price”; then cost or price would be weighted near the far right end of the continuum.

How the Location of Price Along the Best Value Continuum Influences Proposal Strategies:

LPTA: In order to have the winning proposal, potential offerors must submit their lowest prices by choosing the least expensive technical approaches, which may not be the best technical approaches, because no additional credit is given for exceeding acceptability standards.

Tradeoff When Government May Award to Other Than the Lowest Price: Potential offerors analyze the weighting of cost or price by reading the solicitation statements regarding the importance of evaluation factors in relation to each other and how all factors other than cost or price, when combined, weigh against cost or price. If cost or price is weighted near the far left of the continuum (see example 1 above), offerors may be more likely to propose less expensive though less beneficial technical solutions. If cost or price is weighted near the far right end of the continuum (see example 4 above), offerors may be more likely to propose more expensive yet more beneficial technical solutions. As long as the cost or price weighting is not located on either endpoint of the continuum, then regardless of where cost or price is weighted in between, potential offerors should carefully consider for each benefit provided in a proposed technical solution, what the corresponding associated cost is. Even if the Government finds the proposed benefits are noteworthy, the SSA may determine in his or her independent judgment that such benefits are not worth the increased costs of a higher priced proposal.

The DoD Source Selection Procedures addresses the following source selection approaches:

1.  Tradeoff Process

• Subject Tradeoff -- See Appendix B
• Value Adjusted Total Evaluated Price (VATEP)] Tradeoff -- See Appendix B
• Performance Price Tradeoff (PPT) -- See section D.8 of Appendix D

2.  Lowest Price Technically Acceptable (LPTA) -- See Appendix C

3.  Highest Technically Rated Offeror (HTRO) Approach -- See section D.8 of Appendix D

[General note: While the FAR describes the Best Value continuum in the context of the “source selection” competitive procedure, the application of this continuum can be applied to competitive procedures for simplified acquisitions, use of Federal Supply Schedules (e.g., GSA orders), fair opportunity, and broad agency announcements.]