The Navy has taken notice of one of the pitfalls of excessive focus on overall price in contract award decisions: the frequent loss of good incumbent staff when bidders low-ball pricing and then fail to properly staff professional positions. Focusing on the “lowest price technically acceptable” (LPTA) over the ability to acquire and retain capable personnel is especially damaging on service contract recompetes. There may be some short-term savings for the Government, but at the expense of maintaining a staff that could provide long-term value. With this pitfall in mind, the Navy’s top Acquisition Executive released a pointed reminder to its contracting officers on the proper use of FAR Clause 52.222-46, Evaluation of Compensation for Professional Employees, in January 2016.
The memo reminds contracting officers to include this clause in solicitations for contracts over $700,000 that require “meaningful numbers of professional employees” to execute. It also mandates that the full text of this clause be included, to ensure that both offerors and Government evaluators see it, read it, and fully consider the ramifications of all pricing and associated professional employee compensation plans proposed. If you don’t see this clause during your review of a draft or final RFP when you know it should be there, ask a question or suggest that it be included. This is particularly important when you are not the incumbent.
Why does the Government care about this? Awarding contracts to offerors who propose unrealistically low pricing may perpetuate undesirable attributes and encourage unfavorable behaviors. For instance, those who propose overly-low prices may intentionally try to ‘buy’ a contract, lack an understanding of the requirement, expect employees to work for unfairly low compensation, lack “sound management judgment”, and/or jeopardize the contract performance.
Why should you care about this? Competing for and successfully executing Government contracts is challenging enough without the additional gauntlet of being judged on having pricing that is both competitive and sufficient to attract and retain competent staff. It’s important to find that balance, though, because excessive focus only on the overall price leads to an unhealthy race to the bottom. You will cut infrastructure, benefits, and compensation to stay in the game. Your best and brightest will move on. You will eventually look back wistfully on the time when your business was something other than a bargain-bin body shop. Plus, low prices could cost you valuable contracts if there’s any chance they could impact your ability to provide uninterrupted high-quality work.
What does this mean for your capture effort, proposed solution, and pricing? First off, make sure that your Government customer includes provisions for and appropriately evaluates professional compensation. Your solution should demonstrate a complete understanding of the requirement and what is needed to perform, including all elements of professional compensation. Your pricing, solution, and compensation plans need to marry up and make sense when evaluated together. Additionally, you have to use a mix of art and science to determine professional salaries and compensation plans that are appropriate for the region, job categories, time, and other relevant factors. Professional compensation and market dynamics are just that: Dynamic. Things constantly change in the hustle for talent.
When developing compensation plans, you can and should include many things—well beyond a spreadsheet with numbers for proposed salaries and fringe benefits. You may describe how you determine what compensation levels are appropriate; select and maintain benefits; incorporate employment engagement, education, and retention; factor in regional market conditions and security clearances; and so on. Comparisons can also be included—e.g. comparisons to incumbent pricing, as well as comparisons across compensation and company cost structures that make it clear “where the money goes.”
Compensation plans are not one-size-fits-all, nor do they fit into two sentences in your management plan. It may be worth asking that they remain outside of page limitations for core proposal sections. It is also worth engaging with your Government customer to assess how compensation plans are factored into the proposal requirements and how they will be evaluated.
If you want to get an “outstanding” evaluation for your compensation plans, you will have to focus on the contract requirements as well as hard data like national and regional compensation surveys, studies of professional, public, and private organizations, and the incumbent’s compensation plans, when applicable. Include and reference all supporting documentation to show that your professional compensation plans are fair and competitive. As the guiding FAR clause states, “The compensation levels proposed should reflect a clear understanding of work to be performed and should indicate the capability of the proposed compensation structure to obtain and keep suitably qualified personnel to meet mission objectives…taking into account difference in skills, the complexity of various disciplines and professional job difficulty.” In short, your compensation plans should show how you will ensure zero interruption of work.
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