To: Senior Management
From: James McAleese
Date: August 12, 1996
Subject: Urgent Need for Contractors to Adapt Strategies under Proposed Competition Rules

Contractors have comfortably relied upon "full and open competition," "meaningful discussions," and "Best and Final Offers" ("BAFO") in award of negotiated procurements since passage of the Competition in Contracting Act in 1984 ("CICA"). Next week, dramatic proposed rules for all future negotiated procurements will be made public in proposed Federal Acquisition Regulation Part 15. The sweeping breadth of these rules will institutionalize (1) a newly constricted competitive range; (2) "technical leveling" to incorporate best product concepts into awardee’s solution; (3) offeror notification if price is "too high" relative to other offerors; (4) unilateral discussions with preferred offeror(s); (5) evaluation criteria that evolve during negotiations; and (6) elimination of BAFOs.

The proposed rules will be open to public comment for at least sixty days. If they become final, these rules will impact competitive procurements in ongoing acquisition programs, such as the JAST/JSF, MEADS, National Missile Defense, Arsenal Ship, C4ISR, and numerous Service Life Extension Programs ("SLEP"). It is undisputed that the proposed rules will reduce award time and cut "red tape." However, "technical discriminators" gleaned from private funding on existing development contracts are subject to "leveling" under the new rules, so long as: (1) individual technical solutions are not revealed; or (2) the awardee was not coached or prompted that it "must change its proposal to bring it up to the level of other proposals." This presents new opportunities and new hazards in the award of all negotiated procurements. Therefore, teams from Business Development, Programs, Contracts, Finance, and Legal must move swiftly to craft "win-win" strategies to ensure customer "best value," while curbing technical leveling and price auctions.

Only those initial proposals with "greatest likelihood of award" would be admitted into the constricted competitive range, to achieve "efficient" competition under the recently enacted Federal Acquisition Reform Act ("FARA"). Historically, contractors tendered their genuine offers as BAFOs following meaningful discussions, since all offers with "reasonable chance of award" were admitted into the competitive range under "full and open competition" mandate of CICA. If the proposed rules become final, offerors must effectively prepare their initial proposals as "First and Final Offers" ("FAFO") to ensure admission into the newly constricted competitive range. The contracting officer will then conduct discussions with each surviving offeror only once, after which he or she can pursue unilateral discussions with other more preferred offeror(s). The prospects for negotiating high value technical contracts are particularly chilling in view of the new authority to continue oral discussions with other preferred offeror(s) up to actual award. The proposed rules also encourage amending or evolving the evaluation criteria prior to award, creating strong potential that the winning solution will be a conglomeration of technical solutions from each offeror’s proposal. A contractor who offers the superior technical solution in its initial proposal may be eliminated from the competitive range under the original evaluation criteria, with the proposed solution later appearing in the winning offer after the evaluation criteria have "evolved." Obviously, adequate protective arrangements must be instituted to protect against this technical leveling process. "Work around" strategies were set forth in our mid-April briefing paper entitled "Exploiting Acquisition Reform for Profitable New Business Capture."

While the proposed rules of FAR Part 15 do not alter the statutory mandate for evaluation of past performance since July 1995, such evaluation on initial proposals is a prime determinant of which offerors shall be admitted into the constricted competitive range. This essentially pits initial proposals against each other, as only those with "greatest likelihood of award" will now survive for discussions. Unfortunately, those prior contracts with strongest past performance shall be closed out in a timely manner and not be considered for future competitions more than three years later. The irony is that stale fixed price development contracts, in which contractors "bought in" with customer consent, may linger on unless properly closed out. Therefore, contractors must "scrub" relationships with teaming partners, discreetly restructure disrupted programs prior to submission of initial proposals, and examine newly acquired contractors to ensure such do not become "impaired assets." Similarly, those contractors who acquire, or merge, with other contractors without careful program review, now risk erosion of shareholder value and becoming tainted by such "impaired assets" as a matter of law.

The importance of harnessing the positive aspects of proposed FAR Part 15, while compartmentalizing and remediating adverse impacts, on imminent procurements will be critical. Having anticipated many of these proposed changes months ago, we have already embedded the necessary protections into several high priority development procurements, where fierce follow-on competition is expected later in the program. We would be amenable to discussing these vetted strategies as they relate to your targeted programs. Please circulate and advise as appropriate.