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How to price a government bid so you win and still make money.
Price has two jobs in a government bid: score well and pay you. Here is how price is evaluated, and where bid pricing usually goes wrong.
A bid price has two jobs
The first is to score. Most government evaluations treat price in a defined way: lowest compliant price wins, or price is worth a set share of the points, or it is checked for realism against the technical offer. The second is to pay. It has to cover what the work really costs you, and leave something over.
A price that does the first job and not the second is how companies win contracts that lose them money. A price that does the second and not the first is how companies lose bids they could have won. The craft is in doing both.
Start with how price is evaluated
- Lowest compliant price. If you meet every mandatory requirement, the cheapest bid wins. Margin is your only lever, so the decision to bid matters more than the price.
- Best value, with weighted price. Price is worth a share of the total points. A modest premium can be worth paying if it buys you a stronger technical score. Check the formula, because it shows exactly how far price moves your total.
- Fixed budget. The buyer states what they can spend and competes on what you deliver for it. The question becomes whether the work fits the money.
- Unit rates or a schedule of prices. Common in construction, trades and services. Your risk sits in the quantities and in what is not priced.
Three numbers to know before you submit
What the work will cost you to deliver, counted fully, not just the direct costs. The lowest price you would accept, below which winning stops being worth it. What the buyer is likely to pay, and what others are likely to bid.
How you arrive at each of these is where the craft is, and it is the part we do for clients. What matters on your side is that you know all three before you submit, because a price set without them is a guess.
Where bid pricing goes wrong
- A fixed markup on every bid. The same percentage on a safe, short job and a risky, long one. Risk is not the same size on both.
- Guessing at competitors. Pricing against a number you made up is pricing against nothing.
- Leaving out what is not in the estimate. The cost of bidding, the cost of carrying the work through slow payment, insurance and security requirements, rate increases over a fixed term.
- Winning the first year. Pricing low to get in, then finding that option years do not reprice, or that you cannot raise rates.
- Unbalanced pricing. Loading the price into some items and pricing others very low. Many buyers can reject bids they consider unbalanced.
- Errors on the price form. Totals that do not match, a unit missed, taxes included when they should be excluded. Check whether prices are evaluated with or without taxes. Some of these are disqualifying.
Pricing with limited information
You will rarely have perfect information. You do have more than you think. The buyer may state a budget or a value range. Past awards on the same or similar contracts are usually published. Most solicitations have a question period, and a well-aimed question can tell you what the buyer expects on volumes, terms and escalation.
Use these to build a range, not a single guess, and decide your floor before you see the final number. It is much harder to hold a floor you only set when the deadline is an hour away.
And when the price does not work
Sometimes the numbers say the bid cannot pay at any price you could win at. That is a no-bid, and it is a good outcome. See how to make the bid/no-bid decision, and what changes when you ask whether a bid is worth it before you start.
Questions
How do you price a government bid so you don’t lose money?
Start from what is scored, estimate what the buyer can pay and what competitors are likely to bid, then set your lowest viable price before you write a word.
What is price-to-win?
Price-to-win is an estimate of the price most likely to win a competitive bid. The term comes from US federal capture work, but the idea applies to any tender: know what the buyer can pay and what others will likely bid before you commit to a number.
What if I do not know what competitors will bid?
You rarely do. Public award notices, the buyer’s stated budget, past contract values and the evaluation formula all narrow the range. A range with a floor you will not go below is more useful than a guess at one number.
Should I always bid the lowest price?
No. Many government bids are not awarded on price alone, and a low price that does not cover your real cost turns a win into a loss. Read the evaluation section first to see how much price matters.
How much margin should I build in?
There is no single right number. It depends on the size of the contract, the risk, how long you are carrying the work and what else the contract brings you. Margin you have not tested against the real cost of the bid and the delivery is a hope, not a margin.
Can you price a bid for us?
Yes. A Bid Economics Assessment gives you a bid, bid-with-conditions or no-bid call on one opportunity, with the lowest price that still pays you.
Where to go next
- Bid Economics Assessment: the call and the lowest price that still pays, on one opportunity.
- The bid/no-bid guide: decide whether to bid before you price.
- Win/Loss Review: see which of your past bids paid.
- Bid Economics: the numbers behind the bid.
- The blog.
Not sure what to charge?
Send the opportunity over. You will get an honest first read and a clear next step.