How to avoid a deadly case of incumbent-itis

Incumbents still win 60 percent of their recompetes, but that means there's a 40 percent chance of losing. Here's how to avoid adding to that statistic.

“We can’t bid that one.  There’s an incumbent and he’s the sure winner.”

It’s a fact; being the incumbent is an advantage. The incumbent knows the customer, has the people on staff already, knows the technology and represents minimal transition risk.

Depending on how you crunch the numbers (in this day of multiple-award contracts, task order bids after you win the basic contract, schedule contracts, set asides and sole source contracts, calculating a win ratio might not be as straightforward as it once was), the incumbent wins 60 percent of the time.

But that also means that the incumbent loses 40 percent of the time.  Why is that?

Any company, on any given day, can come down with a chronic case of incumbentitis.

Sometimes it happens long before the contract is up for recompete. The incumbent gets careless and neglects the customer. Doesn’t go to visit him, doesn’t take the temperature often enough to see how things are going, doesn’t keep up with personnel changes in the customer’s organization.

The end users have turned over, and they’re a completely (or mostly) new set since the last award; a set who don’t know why they selected the incumbent in the first place.

Potential new bidders are always sniffing around the customer’s turf.  Sometimes one of them makes a connection, either personal or professional. It’s not the same as being the incumbent but it can decrease the value of incumbency.

Many re-competes are basically cut-and-paste versions of the previous solicitation, but not always.  Sometimes the customer’s needs actually do change, and sometimes (although not quite as often), the changed needs actually make it into the solicitation.

The customer continues to exercise contract options, because, well it’s a real pain in the neck to decline to exercise an option.  That means he has to get the recompete geared up a year or two early.  His contractor isn’t really doing anything horribly wrong; he’s just not exceeding expectations.

But a relationship like this isn’t good for winning the recompete.

Another risk for the incumbent is innovation. If the customer wants (or at least says he wants) innovation, that’s a difficult subject for the incumbent to address.  If he isn’t so blinded by the way he does business on a day-to-day basis and can actually see and write about an innovative path, he runs the risk of the customer saying, “You’re already under contract; why aren’t you giving me the benefit of this innovation already? Why do I have to award a follow-on contract to you to get you to follow the innovative approach?”

Any company, on any given day, can write a bad proposal.

  • The company starts believing its own press releases. “The customer loves me so much that he’s going to give me the award regardless of what I put in my proposal. I don’t have to worry about submitting the best proposal. This is such a lock that I can put my second team on it.”
  • A variation on this theme is, “They know how much better I am than anybody else can possibly be. I can afford to make my prices higher; they’ll pay more to get me because I’m so much better.”
  • The incumbent thinks he knows more about the requirement than whoever wrote the solicitation. “I know they asked for that type of solution, but that’s not what they need. I’m going to ignore what they asked for and propose what they need.”
  • Sometimes the incumbent loses track of why the customer selected him last time. Every bidder, winner or loser, should ask for a debriefing. Of course it’s useful if you lost to have the customer tell you what your weaknesses were, but if you won, it’s useful to know what the customer thought your strengths were—and to consider whether they still apply.

Incumbent-itis can have an effect on a price proposal too:

  • If an incumbent has good people, over four years or so, on a profitable contract, and retains those people in part by recognizing their performance with raises greater than the escalation factor in the original, when re-compete time rolls around, he has good people working at over-market rates.  He has two choices—he can do his price proposal for the re-compete based on higher salaries than the competition, ending up with a higher price, or he can entice those good people to continue by cutting their salaries.  Neither of these is good for his win probability.
  • He really does know what the customer expects, including the additional services that the customer didn’t or couldn’t include in the Statement of Work.  He can price to provide these services, but the competitors who don’t know that the things that aren’t in the document should be priced in, won’t include pricing to cover them.  Or, the incumbent can omit them potentially depriving his benefactor of the services that were the basis of his favoritism.

Actually, the Source Selection Authority probably won’t even read your proposal. The Source Selection Authority is usually a fairly senior official in the customer’s power structure. 

Source selection recommendations are made to the Source Selection Authority by a committee of four or five folks who have done detailed reading of all of the non-price proposals submitted. The government official who is responsible for the current contract will probably (but not certainly) be one of them.  The rest of the committee will probably be officials with some technical knowledge of the relevant field, but a more important criterion is, they’re available for the period of time necessary to do detailed and thorough evaluation of multiple proposals.

If somebody “wants” a particular company to have the most highly rated proposal, and that proposal happens to be the best one submitted, it’s easy.  There’s a lot of subjectivity to the process, and it’s probably not clear cut at the onset.  If it’s close, and the individual who “wants” a particular company to win is a respected official, and he lobbies for his choice, the rest of the panel will probably give him the benefit of the doubt.

A key concept here is that the proposal must be good enough to justify what he wants to do.  If it’s clearly inferior, he may not want to risk his professional reputation, particularly among his peers, to lobby for it.  If it’s a clearly inferior proposal, even if he does, his peers may not want to risk their professional reputations to vote with him. 

So the source selection panel will score the non-price proposals.  What about price?

What often happens in fact is that the non-price proposals are scored fairly nearly equally. In spite of what the solicitation said about price being less important, it does become more important when the non-price proposals are pretty much equally.

Think about it this way: if you have three non-price proposals scored 85, 90 and 95, and the 95 is the lowest price, it’s easy.  If you have the same three proposals, but the 95 is $1.98 more expensive, should the government pay that much more to get the bidder with the better proposal?  At $1.98, it’s still an easy decision. At $1,000,000, it’s harder; (depending of course on the percentage of the total procurement) if the highest rated non-price proposal is $10,000,000, it might not be so difficult to pass on the highest rated non-price proposal.

So sure, there’s an incumbent and it isn’t you for the opportunity you’re thinking about.  But don’t make the mistake of passing up the opportunity to bid on it just because there’s an incumbent.  Being the incumbent is an advantage, but it’s often not an overwhelming advantage.  If you do it smartly, you can take advantage of incumbent complacency, at least part of the time.

If that weren’t true, once a company got an award, they would hold the contract forever.

And you know that doesn’t happen.