I Keep Losing on Price! (Or Am I?)

Many government contractors find themselves submitting credible technical proposals but losing anyway—and the debriefs point to price as the reason for the loss. But price alone is often not the culprit; there are many factors related to price and its connection to the technical solution that need your attention.

The price you bid may end up as one number (“total evaluated price”), but it derives from the basis of estimate, the elements of cost, and the elements of price. The basis of estimate is your rationale for the hours you bid by labor category and all items on your bill of materials. The elements of cost include direct labor, fringe benefits, overhead, G&A, travel, materials, equipment, subcontractors, and so on. The elements of price include those elements of cost, plus management decisions on profit, fee, and risk.

Price-related Tactics to Refine Your Proposed Solution

Contractors sometimes focus on shaving pennies off labor rates or trimming their fee without examining all the factors that lead to a winning price. Before you lower your price even more, in pursuit of the elusive contract win, consider several price-related tactics to refine your proposed solution:

• Thoroughly review the solicitation (or draft) to understand the pricing instructions, the technical requirements, and customer-provided plug numbers
• Analyze how the customer will evaluate price as part of its overall proposal evaluation; for example, will the customer be looking at cost realism, price realism, price reasonableness, balance, or a combination of these factors?
• Develop a comprehensive price strategy by assessing the price levers you can pull to alter your bid price, and by gathering intel on your customer’s buying habits related to price
• Scrub your solution against the requirements, including the labor mix and total hours bid, to make sure you’re not bidding more than what was asked for
• Determine whether the past performance contracts you’re citing in the proposal help justify the price strategy you’re proposing; and if not, consider other past performance contracts
• Assess and refine the impact of teaming on your overall proposed price
• Write the cost narrative to explain clearly the value of your proposed solution

Taking Advantage of the Price Narrative

Let’s talk a bit about the price narrative. It’s almost always the case that the price volume has no page limit, which means you’re not constrained in how you can describe your approach to your bid price. The customer uses the price narrative to assess if your proposed price is realistic (not too low) and reasonable (not too high), and if it is balanced among the line items. You should be using the price narrative not only to explain your rationale for your labor mix, your rates, and your non-labor costs, but also to make the case for why your price is justified and appropriate.

Remember that you can use a key graphic and/or explanation from your technical volume to explain how your solution works and will be cost-efficient for the customer. While you can’t include price in the technical volume, you can include technical content in the price volume—if it helps explain your price strategy.

Final Thoughts on Price

The bottom line is that there are many price-related factors to consider when you put together a bid, and if you focus carefully on the tactics described above, you’ll give yourself the best chance to win. Also, take best advantage of the price narrative as your opportunity to explain why the customer should award the contract to you even if your price is not the lowest.