Value Adjusted Total Evaluated Price (VATEP)
DAU GLOSSARY DEFINITION
A tradeoff source selection process where the offeror's total proposed price may be adjusted based on the “value” placed on better performance as identified in the solicitation. The Source Selection Authority must determine if a higher rated technical offer is “worth” the additional cost. The technique monetizes different levels of performance corresponding to the traditional requirements process of defining both threshold and objective performance/capabilities. The Request for Proposal identifies the percentage price increase (or dollar amount) the Government is willing to pay for measureable levels of performance between threshold and objective criteria. This amount is based on the value to the Government for above-minimum performance or capabilities. A benefit is that offerors may propose innovative solutions that provide higher performance/capability if it is clear what value is placed on exceeding threshold performance/capability and how that influences evaluated cost/price.
Value Adjusted Total Evaluated Price (VATEP) is a tradeoff source selection evaluation methodology where the offeror’s total proposed price may be adjusted based on the “value” placed on better performance as identified in the solicitation. [Source: Department of Defense (DoD) Source Selection Procedures (SSP), 20220820]
VATEP evaluation terms:
Affordability Caps - Approved cost constraints for major systems acquisitions determined by the resources a DoD component can allocate, which provide a threshold for procurement & sustainment costs that cannot be exceeded. For other procurements, this is the approved funding for a given acquisition.
Excesses - elements of the proposal that have exceeded mandatory minimums (in ways that are not integral to the design) whose removal and corresponding price decrease may make an offeror's proposal more competitive. See FAR 15.306(d).
Objective - (or objective (maximum) as used in DoD SSP) the value of an attribute that is applicable when a higher level of performance delivers significant increased operational effect, or decreased operational risk, if it can be delivered below the affordability cap. The objective value is the desired operational goal that is achievable but may be at a higher risk in cost, schedule, and technology.
Threshold - (or Threshold (minimum) as used in DoD SSP) the minimum acceptable value of an attribute that is considered achievable within the available cost, schedule, and technology at low-to-moderate risk. Performance below the threshold value is not operationally effective or suitable or may not provide an improvement over current capabilities. See also “mandatory minimums” in FAR 15.306(d)(4).
In a tradeoff source selection, the relative importance of cost or price may vary in relation to other evaluation factors as communicated by the Government to potential offerors in the solicitation per FAR 15.304(d) and (e). However, offerors still do not know the boundaries of how much more the Government may be willing to pay if an offeror exceeds a mandatory minimum requirement. Appendix B of the DoD Source Selection Procedures describes two methodologies, namely Subjective Tradeoff and Value Adjusted Total Evaluated Price (VATEP) techniques. These tradeoff processes are distinguished from Lowest Price Technically Acceptable source selections by permitting the SSA to consider award to other than the lowest evaluated priced offeror or other than the highest technically rated offer. Tradeoffs are improved by identifying in advance and stating in the solicitation the government’s “value” placed on above-threshold performance or capabilities.
For Subjective Tradeoff, the RFP identifies all evaluation factors and significant subfactors that will affect contract award by clearly stating their relative importance in the solicitation (FAR 15.204-5(c)). The general approach for evaluating past performance information shall be described where the solicitation states, at a minimum, whether all evaluation factors other than cost or price, when combined, are significantly more important than cost or price; approximately equal in importance to cost or price; or significantly less important than cost or price.
The VATEP technique monetizes different levels of performance that may correspond to the traditional requirements process of defining both threshold (minimum) and objective (maximum) performance and capabilities. It identifies in the RFP the percentage price increase (or dollar amount) the Government is willing to pay for measurable levels of performance between threshold (minimum) and objective (maximum) criteria (e.g., Probability of Hit, specific operational ranges, weight, etc.). This amount is based on the value to the Government for above minimum performance or capabilities. Value and cost are completely separate concepts that VATEP links in the RFP to inform industry decisions on what to offer to gain a competitive advantage. VATEP is merely a structured technique for objectivizing how some (or all) of the requirements would be treated in the tradeoff process and then communicating that to offerors via the RFP. VATEP may be appropriate when the Requirements Owner (RO) wishes to optimally balance price and performance/capability above threshold (minimum) requirements to maximize the achievement of program objectives. One of the benefits of this process is that offerors may be more likely to propose innovative solutions which provide higher performance/capability if it is clear to Industry what value the end user places on exceeding the threshold (minimum) performance/capability and how that will influence the evaluated cost/price.
The DoD SSP describes VATEP procedures in Appendix B with an example. See also the VATEP overview video (link provided below, under videos).