The National Defense Authorization Act for Fiscal Year 2017 (FY17 NDAA), signed into law by President Obama on December 23, includes limitations on a low price evaluation methodology and a preference for fixed price contracts that could have a significant impact on the way the Department of Defense (DoD) procures goods and services in the coming years. The FY17 NDAA also featured changes to the task order protest jurisdiction, which we outlined in this blog post.

The DoD’s use of Lowest Price Technically Acceptable (LPTA) evaluation methodology, which requires award to the lowest-price offeror that meets the minimum requirements, has historically been a source of criticism from industry and government alike, particularly when used for the procurement of complex goods and services. Simply put, the lowest price does not necessarily translate to quality and innovation, and can result in sub-optimal procurement decisions. DoD noted the need for restrictions on the use of LPTA in a memorandum issued in 2015 and the rescission and reissue of the DoD Source Selection Procedures in April 2016. Although DoD policy has been moving towards more limited use of the LPTA evaluation methodology, Sec. 813 of the NDAA now requires a limitation on the use of LPTA be included in the Defense Federal Acquisition Regulation Supplement (DFARS).

The legislation requires that contracting officers justify the use of LPTA, and “to the maximum extent practicable,” provides that LPTA should not be used to procure IT services, cybersecurity services, systems engineering and technical assistance (SETA) services, advanced electronic testing, audit or audit readiness services, or other knowledge-based professional services, personal protective equipment, or knowledge-based training or logistics services in contingency operations or other operations outside the U.S.

Sec. 813 also mandates that the following conditions be met prior to moving forward with an LPTA procurement:

• DoD must comprehensively and clearly describe the minimum requirements (i.e., performance objectives, measures, and standards) that will be used to determine acceptability of offers;
• DoD would realize no, or minimal, value from a proposal exceeding the minimum requirements set forth in the RFP;
• The proposed technical approaches would require no, or minimal, subjective judgment by the source selection authority (SSA) as to the desirability of one offeror’s proposal versus another;
• The SSA has a high degree of confidence that a review of the technical proposals of those other than the lowest bidder would not result in the identification of factors that could provide value or benefit to the DoD;
• The contracting officer has included a justification for the use of an LPTA in the contract file; and
• DoD has determined that the lowest price reflects full life-cycle costs, including for operations and support.

Congress will monitor DoD’s use of the LPTA evaluation methodology, requiring a report by December 1, 2017, and annually thereafter for three years, on the number of instances in which LPTA was used for a contract exceeding $10,000,000, including an explanation of how the criteria above were considered in determining LPTA was an appropriate source selection method.

While FY17 NDAA restricts the use of LPTA, it encourages the use of fixed price contracts. Sec. 829 requires that the DFARS be amended to indicate a preference for fixed price contracts, requiring approval by the service acquisition executive of the military department concerned, the head of the Defense Agency concerned, the commander of the combatant command concerned, or the Under Secretary of Defense for Acquisition, Technology, and Logistics (as applicable) for any cost-type contracts in excess of $50,000,000 from October 1, 2018 to October 1, 2019. Beginning on October 1, 2019, all cost-type contracts in excess of $25,000,000 will require that level of approval.

In addition, Sec. 830 mandates the use of fixed price contracts for foreign military sales (FMS). The legislation provides two exceptions if the foreign country that is the counterparty to the FMS (1) establishes in writing a preference for a different contract type; or (2) requests in writing that a different contract type be used for a specific FMS.