Defense procurement

Analysts: Procurement Reforms Strengthen Prime Contractors, Weaken Mid-Tier Efforts by the Defense Department to lower the cost of contractor services have led to unintended consequences, including a realignment of the industry in ways that could squeeze the government’s purchasing power. A trend in defense contracting to select the lowest price, technically acceptable bids, known as LPTA, has been a powerful catalyst for change, although not necessarily the change the Pentagon envisioned, concludes a new study by the analytics firm Govini. By favoring LPTA contracting, the Defense Department and other agencies have commoditized many products and services, sparking a wave of corporate consolidations and spinoffs as some defense contractors have moved to unload their less-profitable service businesses. Meanwhile some IT and professional services providers have acquired competitors to achieve economies of scale and become more viable in the cutthroat LPTA environment. Manufacturers of major weapon systems that own the technical data, however, can still command premium prices, which creates incentives for companies to acquire other prime contractors and further reduce competition in the market.