The Price is Right: 5 Pricing Strategies that Win Government Contracts

If you think about it, the steps of pricing to win a government contract is a lot like being a contestant on the game show The Price is Right, considering that you:

  1. See a product (government request for proposal)
  2. Think about how much it costs (how much the government will pay for the product or deliverable)
  3. Try to figure out what other contestants (your competitors) will bid
  4. Make the most educated guess to win the game (contract)

 

Winning Doesn’t Happen Overnight

The Price is Right contestants don’t wake up pricing geniuses. They watch the game — a lot. They know the rules inside and out, study the competition, familiarize themselves with bidding strategies that have (or haven’t) worked for other contestants, and develop their own tactics based on that research. They know exactly what to do when they hear those famous words, “Come on down!”

And that mindset is exactly what you need to win government contracts.

At ProjStream, we've been in the pricing government contracts game for a long time on account of our basis of estimate software and other tools. As a result, we know what it takes to put together a list of pricing strategies that work. Here are our top five tips to pricing a government contract.

1. Bid or no-bid research.

Before you even decide to respond to a request for proposal (RFP), ask the question, “Does it make sense to bid on this RFP?” You can spend a lot of money chasing work only to find out later your company’s capabilities and price points don’t match the government agency’s budget or should cost target for the project. The Federal Procurement Data System and FEDMINE are great places to start the research process. 

To help you piece together an educated guess at an agency’s cost target for the project, consider:

  • Reading industry analyst articles or subscribing to relevant industry publications so you can stay on top of current events and identify opportunities that align with your company’s capabilities.
  • Attending industry events that help you gain an understanding of agency needs and what’s important to them. Examples of industry associations that sponsor regular events or provide regular updates on government agency priorities include the National Defense Industrial Association and the Aerospace Industries Association.
  • Evaluating comparable awards to get an idea of expectations and pricing strategies that won the contract.
  • Reviewing the government agency's annual budget data to get an idea of their current priorities. Government agencies are required to follow a disciplined budgeting process for managing their portfolio of agency assets including acquiring new assets and maintaining existing ones.

2. Know what it should cost.

You’re not the only one playing the price-guessing game. As part of releasing an RFP, the government agency has also gone through a pricing exercise to decide how much the work should cost.

NOTE: The RFP cost target doesn’t necessarily align with the value of the resulting contract award. The agency uses the RFP number to get funding for the project. This is part of the annual budgeting process discussed earlier. Agencies often incorporate risk management and cost estimating techniques to improve the accuracy of their budget plans as well as to evaluate whether the contractor’s proposal cost estimate is realistic. 

To help you evaluate what the agency is thinking, consider:

  • Using the RFP statement of work (SOW) and work breakdown structure (WBS) to help you organize the likely tasks and sequence of work. Where possible, identify high risk tasks or areas where you don’t have enough information to adequately define the tasks. You will need to document your assumptions so you have a basis to put your cost estimate together and someone else can understand how you arrived at your numbers.
  • Creating a staffing plan so you have an idea of the skill mix and number of resources you'll need to complete the project. Do you have the necessary resources in-house, or will you need to bring in outside resources? Are there any risks with doing that? Do you regularly work with a select set of reliable outside suppliers? That can make a difference in your pricing strategy.
  • Using our integrated estimating and proposal software called BOEMax, you can search your own library of historical cost estimates and actual costs. The ability to produce a data driven cost estimate is essential to substantiating your basis of estimate and providing the necessary source data so the government customer can follow your thought process. That way the customer can verify for themselves that your cost estimate is realistic based on the assumptions in your proposal.

3. Identify companies that have won similar contracts and why.

Dig into previously awarded contracts. Look for how often quality won over price or vice versa, and pay attention to the pattern.

Some agencies consistently award contracts to contractors who have the best solution, even if the price tag is slightly higher than other bidders. Others tend to choose the contractor who has the lowest price technically acceptable (LPTA) proposal. Also be aware of any trends in agency procurement preferences, such as emphasizing firm fixed price contracts or using different procurement methods to get a product into the hands of personnel quickly.

Without taking some time to study award patterns, you run the risk of outbidding yourself or selling your services short, which can also affect your overall bidding reputation or profit margins.

4. Dive into your indirect cost details.

We’re not telling you to adjust your direct labor rates, fees, or fringe rates. What we’re suggesting is taking a hard look at your indirect rates and look for ways to trim costs. Pay close attention to your overhead as well as general and administrative costs. You can often find opportunities to reduce costs. Here are some common expenses worth reviewing:

  • Computer hardware and software services moving selected computing services to the cloud can reduce in-house costs and improve security, while using a basis of estimate software can increase your employees' efficiency.
  • Office supplies and related office equipment that is no longer necessary.
  • Facility maintenance and rent.

5. Reverse-engineer the competition.

Study similar awarded contracts with public financial information to gauge direct labor rates, average rate per hour, burdened labor rates, and total contract value. Do your homework on the U.S. General Services Administration (GSA) and other respected sources for rate schedules, labor categories, and burdened labor rates in your area. Compare your findings to salary surveys and calculate the burdens for different labor categories to help you figure out competitor wrap rates and bidding strategies.

Get the Price Right with BOEMax Proposal Software

All the above sounds like a lot of work — especially if you start from scratch every time you want to respond to a new RFP. We feel your pain.

That’s why we created a basis of estimate software like BOEMax to streamline everything that goes into creating a data driven cost estimate, so your proposal stands out from your competitors.

You can produce high-quality cost estimates in less time because you have reliable source data to start with. Among the key features in our BOEMax proposal writing software are:

  • A process library of common tasks along with related resource and material requirements you can copy into your proposal project along with any basis of estimate (BOE) details.
  • A master list of parts and components you can use to quickly build project specific hierarchical bills of material (BOMs).
  • A searchable database of historical cost estimates and actual costs for similar work tasks you can copy into your proposal project and apply complexity or other factors to align with the proposal requirements.
  • Built-in rich text capability for documenting the basis of estimate rationale, risk assessments, and assumptions all in one database. The customer can easily review and trace the basis of estimate details to verify your thought process and source data that went into developing the cost estimate.
  • Bi-directional integration with schedule tools so the proposal schedule activities and time phased cost estimate are telling the same story.
  • Built-in reporting functions to quickly produce standard BOE or cost summary reports compliant with government contracting standards with the central database in our BOEMax proposal software, your data are always fully traceable from the top down or bottom up.

Then, give yourself a pat on the back for a job well done.

Come on down!

Perhaps one day you’ll find yourself alongside Drew Carey on The Price is Right, or maybe you won’t. But when it comes to pricing your next proposal, we hope you’ll remember our silly analogy, these 5 pricing strategies we shared, and how BOEMax bidding software can help make you a winner every time. Call us today to schedule a demo of our basis of estimate software.

Topics: basis of estimate, proposal cost estimate, proposal software, BOEMax

Author: Tom Shanahan