For CPSR purposes, do you need to have 2 or more valid bids? What about competing between distributors? We will discuss the definition of “adequate competition” and how it applies to you as a federal contractors or subcontractor. Note: Due to issues related to streaming, the original video has been edited. There are a few spots where the video freezes, but it’s temporary and the audio continues.
Hi, my name is Patrick Mathern. I’m the president of SpendLogic. And today, we’re going to talk a little bit about adequate competition. So if you’re not familiar with us, SpendLogic is an online tool that provides price analysis, source justification, and commercial item determination help to federal contractors.
Let’s get started here. So here are some of the things that we’re going to talk about today. From a contractor standpoint, we’re going to talk about adequate competition, what it is, when it applies, why you should care, and how to comply. So, again, this is from a purchasing standpoint. For those of you that are selling, you’ll just have to look at the other side of the coin.
It’s the same information, but today, we’re going to be focusing on the purchaser’s perspective. All right. To start out with what is adequate competition, okay? So we’re going to talk about it from a FAR perspective. And you can see on the screen some of the requirements for adequate competition.
And there are some different requirements whether you’re talking about price analysis or you’re talking about source justification. I’m going to assume that you’re talking about price analysis to begin with. If you’re part of, or a prime, or a sub on DOD, NASA, or Coast Guard, then as of last year, you have some additional requirements, all right?
Back in the good old days, we were able to use one bid received, right? You sent it out to multiple, you expected multiple offers, but you only got one. And we had these magic words that used to be used that said, okay, the price is still reasonable because competition was anticipated. That no longer holds true for, again, DOD, NASA, and Coast Guard.
If you’re part of, or subbing, or a prime on any other contract for any other agency, then you can still make it work. And the details are on the screen there for you on how to do that. But again, the myth of one bid received no longer holds true if you’re DOD, NASA, or Coast Guard, or a prime or a sub on one of those.
So, some special cases are confusing…particularly confusing cases when it comes to adequate competition. Again, we just talked about the biggest one, which is one bid received, but another one is competition attempted. So in the work that we’ve done with clients that are preparing for CPSRs, we see this from 10 different people, you’ll probably get 10 different versions of the same story.
So, again, OEM versus distributor, if you ask 10 different people, you’re going to get 10 different versions of the story and what to expect. Now, the basic idea goes something like this. The folks that say that you can’t use OEM versus distributor, they say, well, it’s actually from one source. You can only buy from the OEM. Therefore, the distributors don’t have true competition in the marketplace.
They’re not operating independently, and therefore, competition doesn’t count. Couple of things, all right? First of all, always check your policies and procedures. So if you have a policy and procedure that covers OEM versus distributor competition, then go ahead and follow that because that’s going to be what your CPSR team looks at first, right? So, first and foremost, always follow your policies and procedures.
Next, take a look at it and see if you can make sense of it. You know, does it actually make good business sense for your company and for the taxpayers? If you can make a case that it does make sense, then go ahead, do it. Here’s the idea. Sometimes OEMs only sell at MSRP, but they allow their distributors to sell at something less than that.
And the way they do that is distributors, if they buy in bulk, then they’re able to get volume discounts. If they have volume discounts, they can maintain margins by charging a lower price if they choose to. Okay. That is competition. That is a market force on price. So, you can’t just say that OEM versus distributor doesn’t work, right, or that it’s not allowed. Check your policies and procedures, and then after you check your policies and procedures, see if you can make that business case and if you can, great, go for it.
If you can’t or you struggle, then maybe it’s not competition. Maybe you need to look at something else. Competition at the prime. This is another one. This is a little different than what we’ve been talking about here. But if your prime contract is competed, are you still held to the requirements of TINA, right? Do you have to get certified cost or pricing data over $2 million?
You know, do you need to compete in order to get out of that? You know, this, that, and the other. The answer here is that when you’re looking at competition at your prime, if you’re subject to CPSR, then CPSRs exclude firm fixed price contracts that are awarded based on competition. So if you have a prime contract that’s awarded based on competitions, firm fixed price or it’s fixed price with economic price adjustment, then it’s not going to be included in your universe.
Therefore, TINA and the requirement for certified cost or pricing data no longer applies. So, you don’t have to worry as much about competition. Now, competition makes things a whole lot easier. It makes sure that your company’s getting the best deal possible. It’s always a good idea to get competition, but you’re not going to be held to the requirements of certified cost or pricing data.
So there’s one for you. Last but not least, somewhere that companies often get hung up is best value. Best value, oh my gosh. So, if we’re looking at a CPSR team that comes in and they look at a particular client’s competitions and 9 out of 10 are best value, typically what we see is that the reason they’re using best value is because they want to award to other than low price bidder, right?
And oftentimes that means awarding to the incumbent, right? So if you’re using best value to simply award to your incumbent, chances are you are not doing best value correctly, okay?
You really got to be careful. This is one where companies get tripped up, and I’ve seen clients that when I come in, they say, “Oh, we have a policy in place that we don’t allow best value.” Well, that’s going too far. I understand where that came from. It means that they got a CPSR finding that was so big and hairy that they end it altogether. There’s ways to do best value right.
And we’re going to talk about that in a minute. The easiest way to do best value right, by the way, is to use SpendLogic. We have an automated scoring methodology that we use there, but we’ll talk about how to do it manually here in a second. So, when does adequate competition apply? When does this requirement come up, especially for purchasing?
Now, as I’ve kind of alluded to, this really comes up with CPSRs. If you have an approved procurement system, then you’re going to need to pay special attention to competition and adequate competition. Now, as I kind of alluded to early on here, there’s two areas where competition actually raises its head. Number one is source justification.
So if you have to…and another term for source justification is non-competitive source justification. So what that is, is you have to explain why you didn’t compete something. So, if you have a sole source procurement, then you need to go back and, you know, make the case for why you didn’t actually compete that. If you attempted competition, thanks
[inaudible] I attempted competition, I only got one offer, all right. The people that I sent it out to, the bidders I sent it out to, I had every confidence that they could actually respond with a valid bid but they didn’t. I only got one. Okay. So, if you’re trying to explain why you didn’t compete, actually you did. That’s why competition attempted is valid for source justification.
You did everything you should. There’s no justification for why you didn’t, other than the fact that your bidders didn’t respond. The other area, and this is where the hangups occur, the other area that competition comes up is price analysis and price justification. I shouldn’t say justification, price reasonableness determination. Okay. Competition attempted is not valid.
If you attempt competition, and again, this goes back to one bidder, if you attempted competition, but you only received one bid and you’re part of DOD, NASA, or Coast Guard, then you have to go back and do a price analysis using one of the other methods, okay? Competition attempted does not count in price analysis and price determination, price reasonableness determination for DOD, NASA, and Coast Guard.
So why should you care, right? Why does this affect me? Well, if you have a CPSR…if you have an approved procurement system and you go through a CPSR every three or so years, then you probably already know why this matters, right? This is one of the areas that they’re going to be looking at.
And the reason this is such an important area is because of this TINA, this certified cost or pricing data requirement or exclusion that if you compete, you don’t have to obtain or provide certified cost or pricing data. So the way this works, right, and this goes back to why best value kind of gets people in trouble sometimes, if you attempted a competition, right, or you held a competition and it was best value but it’s not an adequate competition, it doesn’t meet the requirements, they’re not independent, you didn’t really expect everybody to bid, or, you know, your best value methodology is just straight flawed, then it means that you didn’t obtain certified cost or pricing data when possibly you should have.
And that’s a much bigger fining. So if you’re using competition to get out of TINA, but you’re not doing it right, then you’ve got bigger problems on your hands. So that’s the biggest reason really to be worrying about this. We all know that competitions are a get-out-of-jail-free card, right? Everything that you know you do and that you document in a competition helps you in some way, whether it’s terms and conditions, or it’s, you know, price reasonableness, or whatever it is, source justification, it gets you out of a lot of work.
So compete, make sure it’s adequate, but compete as much as you can because it makes your life heck of a lot easier. So, how do you comply, right? What are some tips and tricks on complying? And these are things that we’ve compiled over the years helping our clients in CPSRs. Sometimes it’s when we’ve been doing service projects with them providing cost analysis or price analysis services to our clients.
First and foremost, state in the RFP that it’s a competition. A stupid simple way to get hung up here is to not state it’s a competition, and now all of a sudden you are violating adequate competition because competition wasn’t expected by your bidders. So they’re not giving their most competitive price.
I haven’t seen this finding in a CSPR in a while, but I have seen it and it comes up every once in a while. Number two, include your award criteria in your RFP. And really this applies to best value, right? Actually, it applies to low price as well. If you’re going to be awarding based on price, then you need to state it. If you’re going to be awarding based on factors other than price, then you need to state that too.
You want to make sure that you get the best offer possible out of your bidders. You don’t have to state the weights. So if it’s 50% technical and 50% price, you don’t need to state that. But you do need to make sure that price is a substantial factor. Substantial, what does that mean?
We use 20%, and we’ve never had a problem with CPSR teams. If you go below 20%, you start having a little bit of trouble making the case that this is actually a substantial factor in award considerations. Number three, set objective scoring criteria in best value. So the way that best value gets gained on a daily basis is somebody will set…say that we’re going to award on best value and they’ll set these unreasonably large value spectrums, right?
So let’s say that they’re going to score on technical. Well, they’ll their technical score from 0 to 100, and they’ll give one bidder 79 points, and they’ll give another bidder, you know, 52. And it just so happens that the incumbent was the one that got 79, and they just barely won the competition based on best value scoring.
Okay. The reason is that…you know, and you can ask the buyer, why did you give them 79? Why didn’t you give them 76, or why didn’t you give them, you know, 23? They don’t have objective criteria for the score that they’re applying there. Our approach that we always use is use a 0 to 10 scale and assign criteria for each of those steps, okay? Five being it meets requirements, 0 means it grossly misses everything, and 10 means that it did exceptionally well on every single item.
So if you… And that’s not the only way to do it, right? You can have lots of different ways, but make sure that you can explain why you gave each bidder the score that you did for each criteria. Taking that one step further, include that rationale in your documentation. So, if you gave somebody a six, let’s say, why did you choose six?
Why didn’t you choose seven? Explain why you chose six. What was it about their proposal that led you to give them a six in that particular scoring criteria? Next, heed the one bid rule. Don’t forget that. This is the third time that I’ve brought this up. One bid received if you’re DOD, NASA, or Coast Guard no longer holds water, so don’t rely on that any longer.
Used to, doesn’t anymore. And last, have required RFP and bid dates that apply to all. This goes back to that idea that you received a bid today and then you compared it to something you received last year. If you go ahead and in your RFP or RFQ state the date that you are going to release the RFP or state the date it was released and then provide the date when all bids need to be received, all of a sudden now you’ve got a tight package within which you can compare all the bids that are received.
So, avoid comparing something that you got today to something that you got another time. Just compare everything that was received under one RFP within a given timeframe and you’ll stay out of trouble on that one. We have additional training and resources on spendlogic.com.
You can check it out. Always reach out to us at [email protected] if you have questions. We also have the chat box up here. If you have any questions right now, you can go ahead and send those to me and I’ll take those now. If you are not familiar with WIFCON or NCMA Collaborate, those are great resources, basically free consulting.
You know, no other way to say it. You got a lot of smart people answering a lot of questions. So, go ahead and join both of those and check them out. If you have any questions, I’ll take them. If not, we’ll go ahead and end this session. We’re going to try to do this every Friday, and we’re going to keep this same time slot, 10:00 a.m. Pacific, 1:00 p.m.
Eastern time, and we’ll do the same thing. Now, in the future, it will not freeze as much, all right? Thanks for your patience, everybody. I see that everybody’s still in line and you stuck with me through that. We’ll all figuring this thing out. We’re in this together as much as we’re actually in this completely separate. I don’t know how that works.
But I hope all of you are doing well. Thanks again for your time and I look forward to seeing you in a…