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

If you think about it, pricing a government contract is a lot like being a contestant on the Price is Right

  1. You see a product (contract).

  2. Think about how much it costs (how much the government will pay for the job).

  3. Try to figure out what other contestants (your competitors) will bid.

  4. Make the most educated guess to win the game (bid).

Winning doesn’t happen overnight

However, 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 have not) worked out for other contestants, and develop their own tactics based on all that research. So 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.

We’ve been in the pricing government contracts game for a while now, so we put together a list of pricing strategies we’ve seen work:

1. Bid or no-bid research

Before you even decide to respond to an RFP, ask the question, “Does it make sense for me to bid on this contract?” 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 agency’s funding expectations. The Federal Data Procurement System and FEDMINE are great places to start the research process. 

To help you piece together an educated guess at a project’s available funding, follow these suggestions: 

  • Read industry analyst articles on this exact topic.
  • Ask companies in the same industry about sharing pricing information (some are cagey about sharing with competitors, but it does not hurt to try).
  • Study comparable awards to get an idea of common expectations and pricing strategies that won.
  • Review the agency's budget data and priorities.

2. Know what it should cost

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

**SIDE NOTE: This number doesn’t necessarily align with the resulting contract award. Rather, the agency uses this number to get funding for the project. 

To help you evaluate what the agency is thinking cost-wise, follow these suggestions:

  • Define a preliminary work breakdown structure (WBS) to help you organize work activities and review project necessities.
  • Create a staffing plan so you have an idea of the skill mix and number of resources you'll need to complete the project.
  • Use pricing and estimating software like BOEMax to data-mine your own data. Quickly compare historical estimates and actuals, so you're confident in the numbers you present.

3. Determine who else won (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 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. 

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

4. Dive into your expense pools

We’re not telling you to adjust your direct labor rates, your fees, or your fringe rates here. What we’re suggesting is take a hard look at your indirect rates and look for ways to trim costs. Pay close attention to your overhead and general & administrative pools. Oftentimes, there are places in each where you can reduce costs. Here are some common expenses worth reviewing:

  • Hardware
  • Office supplies
  • Rent
  • Internet
  • Phone
  • Facility maintenance
  • etc.

5. Reverse-engineer the competition

Study similar awarded contracts with public financial information to gauge burdened labor rates, direct labor rates, average rate/hour, and total contract value. Do your homework on GSA and other respected sources for rate schedule, labor category, and burdened labor rates in your area. Put your findings up against salary surveys and calculate the burden to each labor category to help you figure out competitor wrap rates and bidding strategies.

Get the price right with BOEMax

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 BOEMax to streamline everything that goes into writing, winning, and executing on a government contract. Use the BOE library to data-mine your existing and historical data. Access it at a project, work breakdown structure (WBS), or task level (see below), and use it to create more exact, high-quality proposals quickly. Then, give yourself a pat on the back for a job well done.

You can use BOEMax to access data at a project, WBS, or task-level.

You can use BOEMax to access data at a project, WBS, or task-level.

Come on down!

Perhaps one day, you’ll find yourself on the Price is Right, or maybe you won’t. But when it comes to our industry’s pricing game, we hope you’ll remember our silly analogy, the 5 pricing strategies we shared, and how BOEMax can help make you a winner every time. 

Topics: basis of estimate, proposal cost estimate

Author: Tom Shanahan