Proposal Pricing: 5 Best Practices, 3 Bad Mistakes

You already know that pricing makes the difference between profit and loss of a government contract. Consider that it can also determine how well agencies understand the value of your offer.

Yes, agencies are on the look-out for the best overall value. If all things are equal among the top proposals, however, the agency is likely to go with the lowest price. It pays to calculate the pricing that works for you and your potential customer.

Here are some frequently asked questions to help you calculate proposal pricing for a winning bid:

Why do I need a Pricing Schedule?

A pricing schedule allows you to respond quickly and efficiently to RFPs, making it more cost-effective to bid smaller procurements and meet quick proposal response deadlines.

It also presents all the goods and/or services you intend to deliver as related to the total price of the proposal. If you win the contract award, the agency will hold you responsible for adhering to your cost/price volume.

A carefully calculated pricing schedule is a tool to help ensure that your assumptions and calculations are accurate when you bid a firm fixed price. If you’ve negotiated a cost-reimbursement contract, the pricing schedule can help you avoid haggling with the agency over allowable reimbursements.

Government customers will scrutinize your document to check that prices are a realistic reflection of the work to be done and meet the terms in the request for proposal (RFP). That means the cost/price must directly relate to the work described in technical and management volumes. Your pricing schedule can keep you on track to ensure that all of the RFP’s factors are consistent.

What do I need to do to Prepare the Pricing Volume?

Here is a pricing prep, best practices checklist:

  1. Carefully review Section L for all volumes.
    The Federal Acquisition Regulation (FAR) lays out the format for most government RFPs. Section L instructs how to format, organize, and submit your proposal.
  2. Prepare a compliance matrix for the cost volume.
    A compliance matrix (in the form of a cross-reference table) shows proposal evaluators where you have responded to specific RFP requirements and makes it easier to confirm that you have included all necessary information.
  3. Prepare a Basis of Estimates (BOE)
    A BOE is a detailed analysis of an RFP’s Performance of Work statement to determine the total price for the required effort. Many cost volumes require a complete BOE to be written and tied to price tables. The effort pays off—sloppy or incomplete technical estimates make for a lousy pricing model.
  4. Factor in subcontractor rates and sealed bids.
    Before you include a subcontractor in your RFP, make sure that the firm has backed up its pricing-versus-costs data to withstand agency scrutiny and has the capabilities to perform its portion of the RFP’s Statement of Work. Your RFP is only as strong as its weakest link.

    As far as sealed bids, one could argue that price plays an even greater upfront role in RFPs. The agency posts project requirements and specifications and invite contractors to submit bids with their offered price. The agency typically chooses the bid with the lowest price even though it also considers the responsiveness and responsibility of the contractor. Because no pre-bid negotiations occur between contractor and agency, your pricing calculations become key to a profitable project.

  5. Allow time for a management review of the draft RFP.
    As crackerjack as your proposal team may be, make sure management reviews the information and assumptions that will go into the RFP. Out-of-date or inaccurate technical and rate information can have a cascading effect on the pricing volume.

What are Three of the Most Common Pricing Mistakes?

  1. Miscalculation of incumbent bias.
    Yes, some agencies harbor incumbent bias for existing contractors. If you are the incumbent, do not assume you are a shoo-in, get sloppy, and bid based on your current employee pay rates. A lot can change over a five-year contract. Show the agency you are a forward-thinking firm and account for these shifts, including those in salary levels.

    If you are competing against the incumbent, do not assume you can hire incumbent employees at a lower rate in an attempt to underbid the current contractor. If this is an unrealistic plan, you may set yourself up for a bid protest that will be tough to argue against.

  2. Leaving insufficient time for a quality check.
    RFP prep is an expensive undertaking with an uncertain outcome. Don’t jettison your efforts with a math mistake that snowballs into major inaccuracies. Use reliable software and make sure your pricing calculations are in sync with your accounting policies and procedures.
  3. Failing to include direct labor and fringe in your overhead base.
    If these are the realities of your business operations, bid that way!

Well-run firms with talent and skills can still lose a lucrative government contract by slipping up on complex RFP pricing procedures. If you want agencies to see what you can offer, call on the government accounting experts at CAVU to help you accurately price your next bid.