A Common Mistake New Contractors Make On LPTA Bids

April 19, 2023 | Business Development, Government

Let’s imagine that you’ve registered with SAM and been awarded a socioeconomic certification like SDVOSB, 8(a), Woman Owned or HUBZone. You see a bid for widgets. It’s LPTA (Low Price Technically Acceptable) and includes the “Brand Name or Equal” clause. You don’t sell widgets as part of your core offerings, and don’t really want to start, but it is set-aside–and you have an SDVOSB certification. You may think, “I could get a quote for this from the specified manufacturer and–if I’m smart–win my first bid.” 

There are several reasons why you shouldn’t take a grasp-at-straws approach like this, but I will save those thoughts for next week. In this post, I’m going to focus on a mistake I’ve seen (and made) when going after LPTA bids: attempting to get a quote from the specified manufacturer before establishing a business relationship. 

Why is this inadvisable? Here are a few common challenges–all of which can present major barriers to winning and executing the contract:

  • Pricing. If you haven’t established a relationship with the specified manufacturer, you’re just another distributor account, along with potentially hundreds of others. You have not negotiated pricing. You haven’t proven your value. You’re just showing up in the fourth quarter with one second left in the game and asking for the ball. Manufacturers often have established relationships with preferred distributors and, more often than not, better pricing. This makes it nearly impossible for other distributor accounts to win awards. 
  • Razor-thin margins. Some manufacturers will give anyone a quote as long as they are willing to propose their product. This is great, right–because it means they don’t have a relationship with a specific distributor or group of distributors and, accordingly, no tier pricing structures? Wrong! If they’re willing to give you a quote, they’re willing to give other companies the same quote. So, what do you need to do to win? Deal with razor-thin margins–sometimes as low as one percent. Some people are ok with this, but it’s not a sustainable approach for long term growth or to provide value to your customer. Remember, your socioeconomic status is not your value. In this case, it’s only worth a one percent margin. 
  • Extending credit So you ran the gauntlet, got super aggressive, and won the contract. But what you weren’t told in the quoting process is you need to pass a credit check. You pass but the amount of credit they are willing to extend to you is not enough to cover the cost of the materials needed for the order. How do you solve this problem? Not by asking the government for a deposit. They don’t pay until the products or services are delivered. Ultimately you are going to have to front the cash to make a deposit on the order, and if you’re a startup, that might be next to impossible. You might have a line of credit that you can use, but the interest rate might be high. Remember, you are probably looking at a minimum of 60-120 days before you can pay it back, including a 30-60 day lead time for the manufacturer–and they won’t start until they receive your deposit. Then, the government may take as much as 30-60 days to pay your invoice after the product is delivered. All of this means the interest you end up paying could eat away any margin you thought you had. You may end up asking yourself, “Is this what you call a win?”

There is an alternative that may be more advantageous than just trying to make it on razor thin margins: leveraging the “Brand Name or Equal” clause. Watch for that post next week. 

Thanks for reading, and please reach out with any questions on LinkedIn or at [email protected]. We’ll help you learn how to stay competitive and retain the healthy margins you need to succeed. 

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MYTH: Government agencies always award contracts based on price alone. Lowest price always wins.

FACT: While some contracts are awarded to the lowest bidder, government agencies also make awards based on the best value which includes trade-offs between the ability to perform the work, quality, past performance, and price.