Appropriators Are Blowing Up Taxpayer Dollars – and National Security

Have you ever wondered how agencies like the Department of Defense (DOD) decide which private contractor gets to build American satellites and military technology? Do they throw a coin in the air and whoever guesses right wins?

With examples of billion-dollar rocket launches blowing up, cheap guns jamming, and old Humvees failing to protect the lives of American soldiers, a coin toss may seem like a credible answer. However, the process to negotiate and buy contracts is a complex ordeal mired by politics and shrinking budgets.

The story begins with a 2014 policy named the Federal Acquisition Regulation (FAR). FAR requires agencies to utilize “personal initiative and sound business judgment in providing the best value product or service to meet the customer’s needs.” Simply put, FAR sets a series of guidelines on how agencies buy the best product at the “best value.” From there, these federal acquisition teams, who rate and vet the best contract, determine this “best value” by choosing one of two selection processes: the first being the Tradeoff process and the second being the Lowest Price Technically Acceptable Process (LPTA).

Under Far 15.101-1, the Tradeoff Process states that in valuing the “best value” of a contract, “a tradeoff process is appropriate when it may be in the best interest of the government to consider the award to someone other than the lowest priced offeror, or other than the highest “technically rated offeror.” Through the Tradeoff Process, a contract is decided when non-monetary considerations are weighed equally or greater than the lowest price tag.

A good example of this is when the government purchased fighter jets like the F-16 Fighting Falcon and the F-22 Raptor. These contracts were decided upon by weighing risk over money and innovation over price – in other words, Lockheed Martin and General Dynamics’ record of success and few failures. The benefit of the tradeoff process is that innovation and a quality product are put as precedent over a cheap price tag.

Seeing the successes of the tradeoff process raises several questions for why the government continues to waste money on unsuccessful contracts, one after another. One flagrant example is the purchase of SpaceX rockets over United Launch Alliance rockets. In 2015, $110 million dollar NASA payloads burst into flames. In 2016, SpaceX destroyed a $200 million dollar Facebook satellite, flushing $62 million taxpayer dollars down the toilet forcing NASA to delay commercial flights to 2018. The company has also proven to be consistently tardy on its launch dates. The biggest question is why the government continues to purchase contracts from SpaceX when its competition has a nearly perfect record of over 100 successful launches.

The reason is keenly tied to the second selection process and a little political magic.

Lowest Price Technically Acceptable, under FAR 15.101-2, is a contract selection process that is “appropriate when best value is expected to result from selection of the technically acceptable proposal with the lowest evaluated price.” At first glance, LPTA seems like a quick way to perform purchases where “contractual expectations and technical requirements are not easy to misunderstand, and therefore it is easy to determine if a proposal is technically acceptable.” It’s true: LPTA is useful for buying commercial off-the-shelf products and services, like paper clips, reams of paper, and table lamps. In large part, LPTA expends fewer resources (time, money, and people) and inexperienced acquisition personnel can perform the evaluation.

But what happens when acquisition personnel, on a short timeline and budget, are asked to decide on several multi-billion dollar contracts? Well, the cause for the rocket failures of the past year and a half becomes illuminated.

It is not that the bureaucracy of these federal agencies want to produce bad results, but they are given an avenue to bring back failure. According Frank Kendall, the Undersecretary of Defense for Acquisition, Technology and Logistics, “the likely bias for an acquisition official making the source selection is to take the lowest-price offer; it’s much easier to defend than the subjective judgment that the higher-cost offeror was worth the difference in price.” Additionally, it is much more attractive to Congress to publish reports that not only pass “necessary guidelines,” but keep the department under budget and on time. Yet, LPTA proposal only “passes” technical guidelines being “acceptable,” rather than for innovative and exceptional work. Why should the taxpayer pay for anything less?

In the case of SpaceX, LPTA is now being used as a political tool. A new amendment was attached to the fiscal 2018 National Defense Authorization Act. Under this proposal, the Air Force would be required to solely use SpaceX rockets. The defense for the act is competing rockets are too expensive, despite their impressive track record and low-risk. In response, the Air Force is protesting the amendment, explaining that the amendment would not only cost $1.8 billion dollars to the taxpayer, but would also effectively reduce competition in an industry that needs the constant innovation.

This disastrous proposal has caused many unsatisfied representatives to work on modifying FAR. Senator Mark Rounds (R-SD) and Mark Warner (D-VA) have proposed the Promoting Value Based Defense Procurement Act, under which the DOD would be directed to avoid LPTA criteria whenever possible when procuring complex information technology, systems engineering, technical assistance services, and other knowledge-based professional services. Yet, even promising solutions like this don’t solve the fundamental issue of incentive. Unlike in business deals, government contracts are mired with a lack of time and disposition towards political dogma.

Although commendable, amending FAR will only continue the cycle –  this new legislation only muddles the use of LPTA. It doesn’t bar or promote the use of LPTA. What matters most is incentive and knowledge. These federal acquisition teams must exist in work environments where achievement is held rather than meeting budget restraints. At the same time, Representatives and Senators of Congress must understand their power of the purse and understand that they are also as responsible for distinguishing between price and quality. Because at the end of the day, LPTA and trade-off are just tools in a process selection handbag. By using these tools, legislators silently agree to use taxpayer dollars responsibly and understand that there is a huge difference between buying paper clips and rocket ships.

This article is largely credited to Kathleen Watson’s paper “LPTA versus Tradeoff: How Procurement Methods Can Impact Contract Performance,” an insightful read.

1 comment

Uodiyala December 16, 2023 at 2:28 pm

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