Pricing Your Bid to Win Without Leaving Money Behind

The Balancing Act of RFP Pricing

Pricing a government contract is one of the most critical aspects of proposal development. Underbid, and you win a contract that drains your cash flow and puts your business at risk. Overbid, and you score zero points on the price evaluation, handing the win to a competitor.

Understand the Contract Type

The RFP will specify how you must submit your pricing. The most common structures are:

• Firm Fixed Price (FFP): You agree to deliver the project for a set fee. If costs run over, you absorb the loss. If you finish early, you keep the extra margin. This rewards efficiency but carries the highest risk.
• Time and Materials (T&M): You are paid set hourly rates for labor plus the actual cost of materials. Less risky, but requires meticulous timekeeping and auditing.
• Cost-Plus: The government reimburses your actual costs plus a pre-determined fee (profit). Common in large federal defense and research contracts.

Calculate Your Fully Burdened Costs

Never submit a price based on raw wages. You must use a "fully burdened" rate, which includes:

• Direct Labor: The hourly wage paid to the employee.
• Fringe Benefits: Health insurance, payroll taxes, retirement matches, and paid time off.
• Overhead: Rent, software licenses, equipment, and administrative staff who don't bill directly to the project.
• Profit Margin: The reasonable markup to ensure your company grows.

Research the Agency's Historic Spending

Most government contracts are public record. If this is a re-compete of an existing contract, you can file a public records request (FOIA or state equivalent) to see what the current vendor is charging. This gives you an exact baseline for what the agency is comfortable spending.

By combining rigorous internal cost calculations with external market intelligence, you can craft a price proposal that stands out to evaluators while protecting your company's bottom line.