Law360, New York (June 27, 2016, 5:30 PM ET) -- May 2016 release of the revised US Department of Defense source selection procedures ushered in a new type of DOD procurement, known as the Value Adjusted Total Evaluated Price. VATEP falls somewhere between "lowest price technically acceptable" and traditional "best value" procurements in the source selection continuum. The revised DOD procedures describe VATEP as “a tradeoff source selection process where the offeror’s total proposed price may be adjusted based on the ‘value’ placed on better performance as identified in the solicitation.” The key feature of the VATEP process is that offerors know the exact value the government will place on higher rated performance because the value of the trade-off is identified in advance and contained in the solicitation. The procedures suggest that more precisely defining the value that agencies place on performance enhancements will make the source selection process more “objective.”

As this article cautions, companies should be alert for irregularities in the new procedures and raise these prior to the date for submission of proposals; offerors that fail to protest objectionable ground rules of the competition prior to proposal submission risk losing the ability to challenge them after award.

How Will the VATEP Process Work?

The VATEP process is described in detail in a new eight-page appendix to the DOD source selection procedures. The procedures describe a process where the agency defines the upper and lower criteria for reducing the offeror’s cost/price for purposes of evaluation only — a process the procedures characterize as “objectivizing” how requirements will be treated in the trade-off process. A goal of VATEP’s “objectivizing” is to encourage offerors to propose enhancements because they will know what enhancements are of value to the agency and exactly how much value the agency will place on them. The responsibility for defining the value of higher performance or capability is vested with a “requirements owner,” whose job it is to identify the enhancements to be considered in the evaluation and to assign a value to that higher performance for purposes of evaluation.

In addition to providing industry with greater certainty regarding proposed enhancements, VATEP is intended to take the subjectivity out of the best value and tradeoff process by creating an objective value for offered enhancements that is deducted from the offeror’s total proposed price for purposes of evaluation. VATEP provides for a two-step process to reach the best value/trade-off decision. Step one establishes the competitive range by determining if the offeror meets the minimum requirements in the solicitation. If the offeror does not, the offeror is eliminated from the competition. Step two determines if the offeror’s proposal contains enhancements that meet “above threshold criteria,” also referred to as “valued requirements.” If the proposal contains one of these valued requirements, the agency will adjust the offeror’s total proposed price (TPP) by an amount set forth in the solicitation to determine the offeror’s total evaluated price (TEP). In cost-reimbursement contracts, the adjustment is made to the offeror’s most-probable cost as contemplated in Federal Acquisition Regulation 15.404-1.

No matter how highly rated an offeror’s proposed enhancements may be, however, an offeror in a VATEP procurement may be ineligible for award if the offeror’s TEP exceeds an “affordability cap” that can be established in the solicitation. The cap is defined in the procedures as the maximum approved funding allocated for the acquisition. Thus, if the solicitation establishes a cap, an offeror may not be eligible for award even if its proposal contains enhancements that exceed the “valued requirements” if the reduction in the offeror’s TEP still exceeds the affordability cap.

Once the step two adjustments are made to the offerors’ TPPs, and at least one offeror has a TEP below any solicitation imposed cap, the agency awards the contract to the acceptable offeror with the lowest TEP.

Potential Solicitation Challenges to VATEP Procurements

As DOD agencies begin to employ the VATEP process, potential offerors need to thoroughly consider the impacts of these new procedures on their proposal strategies, and consider all possible bases for pre-award protests challenging the ground rules of the competition. Potential solicitation challenges might include protests that:

  • The agency’s identification of enhancements is not well researched and fails to include meaningful value added items or services;
  • The agency’s value assessments of various enhancements is not reasonably supported by data or analysis;
  • The objective monetized value of the enhancement bears little relation to actual costs or savings; or,
  • Certain enhancements should be given more or less credit under the solicitation.

While an agency might argue that its identification of what constitute enhancements and the values it assigns to them are entitled to deference, a protest could be successful if the solicitation’s stated enhancements or related value judgments are not adequately supported or rationally based. However, challenges such as these should be raised prior to submission of proposals, as challenges to the ground rules filed after proposal submission or after an award risk being found untimely.

Potential Evaluation Challenges to VATEP Procurements

While VATEP procurements may give rise to pre-award solicitation challenges, proposal evaluations in these procurements will not be immune to pre-award competitive range protests or post-award evaluation challenges. For example, a protester could challenge its exclusion from the competitive range as a result of an agency’s determination that its offer did not meet minimum requirements in step one of the VATEP evaluation process. In the post-award context, a protester could challenge an agency’s determination that a proposed enhancement met (or did not meet) the criteria for receiving a TEP credit in step two of the evaluation, or could contend that the agency’s conclusions were not properly documented. A protester might also contend that the agency failed to evaluate offerors equally in determining whether proposed enhancements met the criteria for receiving TEP credit. As with all post-award evaluation challenges, the more objective the flaw, the more likely it will be that the protester may prevail.

Next Steps for VATEP Procurements

Because the VATEP process is so new, there are no reported bid protest decisions that directly address the reasonableness of the process. Industry and DOD agencies would be well advised to work together to define procurements that are appropriate for VATEP source selections and to establish processes that ensure that all offerors are competing and submitting proposals on a fair and equal basis. As noted above, potential offerors should carefully review VATEP solicitations to ensure that they understand the agency’s requirements and evaluation scheme and, if they are offering enhancements, that they understand the impact of those enhancements on their TEP within their overall competitive strategy. Furthermore, the debriefing process provides an opportunity for an offeror to obtain valuable insights into the practical operation of the VATEP process and how to tailor future proposals to better compete in the VATEP environment.