Government contracting is fiercely competitive today. Often, what drives your chance of capturing a win includes having a competitively-priced, unique or timely offering, or being small-business certified. One important factor in any win is whether your company is the contract incumbent, having already done business with the agency. Traditionally, being the incumbent gives you a competitive edge though the market is changing.
New research on winners and losers
Grant Thornton’s (GT) 2016 Government Contractor Survey collected and analyzed data from companies who primarily do business with the federal government during Fiscal Year 2016. For six years, this survey has shed light on how companies compete for contracts.
According to the survey, the incumbent win rate dropped 21% from 2015 to 2016. Now, just over half of incumbents are winning contracts with agencies with whom they have previously done business. Also, win rates for companies bidding on new contracts declined to 26%, the lowest rate in six years. So, not only have incumbents suffered, but new proposal wins have decreased.
Why the sudden decrease?
Government policy changes
Government initiatives to increase efficiency, reduce waste or strengthen federal procurement affect the marketplace. For example, competitive bidding has always been a requirement in the procurement system, but became a much bigger priority during Obama’s presidency. According to GT’s survey, the win rate decline for new proposals and incumbents means “that competition is increasing and possibly driving down pricing and profit percentages on federal contracts.” To counter increased competition, many contractors are lowering prices.
Lowest Price Technically Acceptable (LPTA)
Government agencies are continually on the hunt for low-priced, high-quality offerings. Contractors with lower pricing are often more competitive regardless of product or service quality. More and more, agencies are awarding contracts not based on value, but price -- the Lowest-Price Technically Acceptable (LPTA). For more details on LPTA, check out the Federal Acquisition Regulations (FAR).
Pricing is one factor drving a decline in incumbent wins. To be more competitive, non-incumbents can offer the same products or services at a lower cost. Agencies looking to spend less now often value cost savings over an incumbent’s past performance. Thus, incumbents can lose contracts simply due to price pressures.
Be more competitive
One constant in the federal marketplace is change! Being an incumbent today no longer means automatic new wins. Contractors must innovate to compete and according to GT, “look at their current pricing techniques to determine if adjustments are necessary to win greater percentages of proposals.” In addition to pricing, both the proposal and solution must be unique and timely. Given the current climate, pricing must be competitive until agencies start to diverge from awards based on LPTA. Reach out to the Winvale team now for more insights and top tips for GSA contracts.
