Pricing basics

Price is where many new bidders lose, either by pricing high without a reason or by pricing too low to survive. Build your price on purpose.

1. Read how price will be judged

Before any number, read the evaluation section.

• Lowest price technically acceptable: the buyer picks the lowest price among offers that meet the minimum. Extra quality earns nothing.
• Best value tradeoff: the buyer may pay more for a better offer. Price still matters.
• Price-based award: in sealed bidding, the responsible bidder whose bid meets every requirement at the lowest price wins.

Know which one you face. It changes how much effort goes into the technical part and how sharp the price must be.

2. Build cost from the work

Do not start from a total. Start from the tasks.

1. List each deliverable or task in the work statement.
2. Estimate the hours for each one, by role.
3. Multiply by a loaded rate for each role.
4. Add materials, equipment, travel, subcontractors and other direct costs.

A loaded rate starts with pay, then adds fringe benefits, overhead, and general and administrative costs. Profit comes on top.

3. Count every cost

New bidders often miss:

• Sales tax on what you buy to deliver the job.
• Software, licenses and supplier minimums.
• Insurance the contract requires.
• Shipping, travel and payment fees.
• The cost of carrying the job until you are paid.

4. Price every year

Many contracts have a base year and option years. Price each one. The buyer usually evaluates the total of the base and all the options. Any increase in later years must be built into your option prices; nobody adds it for you later.

Price each line item on its own merits. A line priced far too low or too high to make the total look better can make an offer unbalanced and risky for the buyer.

5. Look at what the government paid before

USAspending.gov shows past awards: who won, from which office, and how much money was committed. Use it as context:

• It shows money obligated, not unit prices or hourly rates.
• Compare scope, length, options and quantities before you compare dollars.
• The closest examples, from the same buyer for the same kind of work, matter most.
• Defense award data appears about 90 days late, so recent awards may be missing.

6. Do not lowball

A price far below what similar work cost can tell the buyer you misunderstood the job. If your price is much lower, explain why in your approach, such as a better method or a tool you already own.

7. Check the wage rules

Some service contracts include a Service Contract Act wage determination. It sets minimum pay and fringe benefits for covered jobs. Read it before you price labor.

8. Run a profit check

Before you submit, answer three questions:

• What will this job cost me in total?
• What will I keep, per month and per hour of my own time?
• What happens if the work takes 20% longer?

Losing a bid is fine. Winning a contract that loses money is not. Never price below your break-even point.

Payment terms

Default to Net 30, with no discount for quick payment. See Cash flow and capacity.