Source Selection Process Value Adjusted Total Evaluated Price (VATEP) 09.06.2018 Presented by: Carole Green Professor of Contract Management Defense Acquisition University - South

Source selection process DoD Source Selection Procedures (31 March 2016) Best Value Continuum Subjective Trade-off Lowest Priced Technically Acceptable (LPTA) Value Adjusted Total Evaluated Price (VATEP)

What is source selection? Subjective Trade-off What is source selection? Obtaining the best value for the Government in negotiated acquisitions, depending on the relative importance of cost or price and the level of performance risk. Subjective Trade-off – Subjective evaluation when the requirement is less defined and the performance risk is moderate to high

Lowest price technically acceptable (LPTA) Lowest Price Technically Acceptable (LPTA) – Objective evaluation when the requirement is clearly defined and the risk of unsuccessful performance is minimal

Value adjusted total evaluated price (vatep) VATEP Trade-off – A structured technique that objectivizes how some of the requirements would be treated in the tradeoff process

What is vatep? 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. How is the value of better performance determined? What are the components of VATEP? How is the VATEP process identified in the solicitation?

How is the value of better performance determined? The requirements owner (e.g. program management office) determines which above threshold (minimum) capability requirements are truly of substantial benefit and how they are valued relative to each other and in absolute terms.

What are the vatep components? Threshold – Minimum acceptable value of an attribute that is considered achievable with the available cost, schedule and technology at low-to-moderate risk. Objective – The desired operational value of an attribute that is achievable but may be at a higher risk in cost, schedule, and technology. Value – Absolute (monetary) worth of achieving more than the threshold (minimum) performance capability Affordability Cap – The approved cost constraints for major system acquisitions or approved funding allocated for a given acquisition.

Vatep Example The offeror’s total evaluated price for CLIN X001AA will be adjusted, for evaluation purposes only, in accordance with the chart below where above-threshold performance has been achieved for any of the three objectives identified. VATEP Objectives Performance Work Statement (PWS) Paragraph Maximum VATEP (% Reduction in proposed CLIN price) Calculation* Payload 6.2.7 3% (Offerors proposed payload less the threshold of 2,100)/600*3% Self-Deployment 6.2.9 2% Objective is binary. The proposal will either meet or fail to meet the objective. Airspeed 6.2.15 1% (Offerors proposed airspeed less the threshold of 250)/150*1% *Payload: 2,100 is the threshold and 600 is the delta between threshold & objective Airspeed: 250 is the threshold and 150 is the delta between threshold & objective

Vatep Example - Payload Offeror A Offeror B Offeror C Payload (3%) 2,250 2,180 2,200 Price $14,000,000 $12,500,000 $13,750,000 VATEP Calculation (2,250-2,100)/ 600)*420,000 = (2,180-2,100)/ 600*375,000 = (2,200-2,100)/ 600*412,500= VATEP Adjustment $105,000 $50,000 $68,750 *Payload: 2,100 is the threshold and 600 is the delta between threshold & objective

Vatep Example – Self-Deploy Offeror A Offeror B Offeror C Self-deployment (2%) YES Price $14,000,000 $12,500,000 $13,750,000 VATEP Adjustment $280,000 $250,000 $275,000

Vatep Example - airspeed Offeror A Offeror B Offeror C Airspeed (1%) 275 260 300 Price $14,000,000 $12,500,000 $13,750,000 VATEP Calculation (275-250)/150)* 140,000 = (260-250)/ 150*125,000 = (300-250)/150* 137,500 = VATEP Adjustment $28,333 $8,333 $45,833 * Airspeed: 250 is the threshold and 150 is the delta between threshold & objective

VATEP Trade-off Example cont’d Offeror A Offeror B Offeror C Payload $105,000 $50,000 $68,750 Self-Deployment $280,000 $250,000 $275,000 Airspeed $28,333 $8,333 $45,833 Proposed Price $14,000,000 $12,500,000 $13,750,000 VATEP Adjustment $413,333 $308,333 $389,583 VATEP $13,586,678 $12,191,667 $13,360,417 And the winner is: ??? The Award Price is: ???

HOUSE BUYING EXERCISE

LPTA Exercise: Buying a house Minimum Requirements: 4 bed/2 bath No more than 1-hour commute Schools must be at rated at least 3 for both middle and high schools (NOTE: One child is in 5th grade and one child is in 10th grade) Option 1 Option 2 Option 3 Bed/Bath 4/3.5 4/2.5 4/3 Commute 45 Minutes 1 Hour 30 Minutes School Rating Middle 4/High 3 Middle 3/High 4 Middle 3/High 3 Price $675,000 $610,000 $620,000 And the winner is: Option 2

Trade-off exercise – buying a house Factors: Technical Bed/Bath Commute School system Price Technical is significantly more important than price. All technical sub-factors are in descending order of importance.

Trade-off Exercise cont’d Minimum Requirements: 4 bed/2 bath No more than 1-hour commute Schools must be rated at least 3 for both middle and high schools Option 1 Option 2 Option 3 Bed/Bath 4/3.5 4/2.5 4/3 Commute 45 Minutes 1 Hour 30 Minutes Schools Middle 4/High 3 Middle 3/High 4 Middle 3/High 3 Price $675,000 $610,000 $620,000 And the winner is: ???

VATEP Trade-off exercise – buying a house If you meet the minimum requirements: 4 bed/2 bath No more than 1-hour commute Schools must be rated at least 3 for both middle and high schools A VATEP adjustment will be made when: Square footage of the house is between 2,500-3,000 SF House has a basement House has attic space for conversion

VATEP Trade-off Exercise cont’D VATEP Objective PWS Paragraph Maximum VATEP adjustment Calculation of VATEP* Sq Footage PWS 6.2.5 3% of Proposed Price (SF proposed less the threshold (minimum) of 2,500)/500*3% Basement PWS 6.2.8 $3,000 Objective is binary. Offeror will either meet or fail to meet the objective. Attic Space PWS 6.2.12 $2,000 *Square Footage: 2,500 is the threshold and 500 is the delta between threshold & objective

VATEP Trade-off Exercise – Square footage Option 1 Option 2 Option 3 Square Footage 2,900 2,700 2,500 Price $675,000 $610,000 $620,000 VATEP Calculation (2,900-2,500)/ 500*20,250= (2,700-2,500)/ 500*18,300= (2,500-2,500)/ 500*18,600= VATEP Adjustment $16,200 $7,320 $0 *Square Footage: 2,500 is the threshold and 500 is the delta between threshold & objective

VATEP Trade-off Exercise – basement Option 1 Option 2 Option 3 Basement NO YES Price $675,000 $610,000 $620,000 VATEP Adjustment $3,000 $0 $0

VATEP Trade-off Exercise – attic space Option 1 Option 2 Option 3 Attic Space NO YES Price $675,000 $610,000 $620,000 VATEP Adjustment $2,000 $0 $0

VATEP Trade-off Exercise cont’d Option 1 Option 2 Option 3 Square Footage $16,200 $7,320 $0 Basement $3,000 Attic Space $2,000 Proposed Price $675,000 $610,000 $620,000 VATEP Adjustments VATEP $16,200 $7,320 $5,000 $658,800 $602,680 $615,000 And the winner is: ??? The Award Price is: ??? The Affordability Cap is $610,000: Option 2

VATEP Solicitation Requirements How is VATEP incorporated into the solicitation? Performance Work Statement – Must identify the threshold and objective performance capabilities Section M – Evaluation Factors for Award Must state that VATEP will be used as part of the proposal evaluation Section L – Instructions, Conditions, and Notices to Offerors Must identify how VATEP will be used during the evaluation process. Must advise offerors that the contract will reflect all above-minimum performance capabilities for which evaluation credit was given in the source selection

VATEP overview Threshold Objective What are four things you must know before VATEP can be employed in an acquisition? Threshold Objective Value of added performance capability Affordability cap

QUESTIONS?