One of the trickiest aspects of bidding on government contracts is setting your price. A low price may win you the contract but cost your company money in the long run. Too high a price will lose you the contract.
To set the "right" price, consider these three factors:
Cost-Analysis Format Specified By Government Agencies
Government agencies use a variety of contract formats, including fixed-price, cost-plus, and cost-reimbursement agreements. Most agencies will specify a cost-analysis format in their solicitations. Which contract the agency uses will determine how you estimate your price and expenses; it will also affect the way you present this information to contracting officials.
For example, if you're competing for a basic fixed-price contract, your quoted price should be final, including all expenses. With a cost-reimbursement contract, however, government agencies will reimburse you for certain expenses as you incur them, meaning you won't include them in your initial pricing. This type of contract is often used when the market price for certain items fluctuates.
Agencies also typically provide specific instructions for the pricing proposal — some will include a template. Read these instructions carefully and be sure to provide every detail of information the IFB, RFP or RFQ asks for, in the format specified.
Estimating the Costs to Fulfill Contracts For Government Agencies
You can start by researching the prices used in recent similar contracts and try to project those into the future. Or try an itemized approach: Identify every cost element you'll encounter in the project — direct labor, fringe benefits, materials and services, overhead, royalties, travel, etc. — and estimate what each element will cost.
In some proposals, you won't tackle the cost estimate until a detailed description has already been prepared, explaining what your company will provide and how it will fulfill the contract. However, cost considerations sometimes end up influencing the technical proposal, so ideally everyone working on the proposal will be in close contact with each other.
Government Project Costing Strategies
Your company's pricing/costing strategy for the project should be based on business intelligence about the government agencies and your competition, as well as on your company's unique needs and goals. Before you start pursuing contracts with government agencies, you should establish relationships with the appropriate purchasing staff and learn how to acquire information about their agency's activities. This should enable you to find out what the agency's budget and target price are for the project before the solicitation even comes out.
If there's an existing contract, you should also be able to learn how the incumbent's contract has been priced. Knowing your competitors and what they're likely to propose or bid will help you figure out what your price should be. A business intelligence provider can help you find details on your competitors' recent contract awards.
Last but not least, you must know your company's management-established goals for the particular project. There are many reasons for a company to accept a relatively low profit margin — for example, to build contracting experience or to make use of staff and facilities during slack times. In other circumstances, management might decide the project wouldn't be worth the company's efforts unless it brought in a relatively high profit margin.
When finalizing your cost proposal, check and recheck your formulas and figures. Your company wouldn't want to win a government contract and end up taking a substantial loss because you made a mathematical error! Nor would you want to lose a contract because an error made your bid too high. You should also make sure that your budget analysis is clear and your budget figures are easily understandable. Don't make evaluators struggle to get through the material you've submitted — you'll be much less likely to win the contract.