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Total Evaluated Price (TEP) v. Performance: What’s the Difference?

Let me start by acknowledging that when people say the federal contracting arena is complicated, it’s because of concepts like Total Evaluated Price (TEP).  After 30 years in the telecommunications and Federal industries, I’ve figured it out—and our team’s understanding of this and other federal-specific words and phrases has helped our clients win more than $30 billion worth of business. So let’s give it a try…

Because it’s important to have the big picture, an explanation of TEP has to start with a brief summary of the Federal Acquisition Regulations (FAR), for those who may not already be familiar. FAR is a set of principles that guide the government procurement process, including the purchase of goods and services. Codified in Title 48 of the U.S. Code of Federal Regulations, FAR is prepared, issued, and maintained jointly by the Secretary of Defense, the Administrator of General Services, and the Administrator of the National Aeronautics and Space Administration subject to the approval of the Administrator of Federal Procurement Policy. Except for a few noteworthy agencies, including the USPS and the Federal Aviation Administration (FAA), all government agencies are required to comply with FAR. 

When doing an acquisition, United States government agencies must comply with a requirement defined within FAR for doing an evaluation of cost or price. There are different approaches for doing this, but at some point, all of them must arrive at a total price upon which the award decision will be made. 

Here’s the challenge: TEP is a purely artificial construct. It does not have to reflect reality.

Let me give you a few examples:

A few years ago, a government agency released a solicitation for an Indefinite Delivery, Indefinite Quantity (IDIQ) contract, the vehicle typically used to acquire service contracts, or architect/engineering services. IDIQ awards are usually for base and option years during which the government places delivery orders for supplies, or task orders for services against a basic contract for individual requirements.

For this particular $100 million IDIQ contract, the agency wanted to include as many awardees as possible. The overall solicitation included 150 labor categories to be priced over a 10-year period. The government was able to achieve its goal and remain within FAR requirements by stating that it would award based on the submitted hourly rate of one junior level programmer/analyst during, thereby keeping the door open to anyone who wanted to bid.

Another example involves the Department of Defense’s (DOD) Mine-Resistant Ambush-Protected (MRAP) vehicles, the light tactical vehicles designed to withstand damage from Improvised Explosive Devices (IEDs). Designed and fielded through an accelerated acquisition process that employed concurrent production, testing and fielding in order to meet the urgent requirements of Operation Iraqi Freedom and Operation Enduring Freedom, the MRAP vehicles were eventually found to have a significant issue while in use. When the MRAPs were hit with an IED, the Marines inside survived, but they couldn’t get the doors open. Designed to be opened only in an upright position, the heavy doors were unworkable when an explosion caused the MRAP to overturn or land on its side.

The DOD needed to release an RFP for the design, fabrication, installation, testing, and fielding of assistance-devices for the doors so that they could be opened at any angle. Because the budgeting and allocation process could take up to five years, and the year in which the actual award would be made was unknown, the DOD wanted to guard against prospective contractors who might be able to glean inside information to game the system and inflate the price. The DOD was concerned that a bidder who had inside information might be able to game the system by inflating the price during the actual award year, and provide an artificially low price in the other years. By requesting TEP over a multi-year contract, the agency was able to better ensure that the pricing was on the straight and narrow. 

Remember that the TEP is an artificial construct, and the performance price is what the customer is actually going to pay. Next month we’ll talk about the strategies you can employ during the capture process to increase the probability of a win, profitability, or revenue.