In my experience with helping companies respond to government opportunities there almost always seems to be a question about how to price government bids. Some common questions include:
- Can we find out what they paid last time?
- What price do you think my competitor will bid?
- How low of margins does it take to win a government tender?
- What is the project budget?
- Is there a price you would put on this?
- What should we price this bid at to win?
The answer to all of the above questions (and most cost questions) is – THE PRICE IS THE PRICE.
Whatever you need to charge the government organization to properly provide the desired product or service and still make money is the price you need to submit. If you do not know what that cost is then you need to know your business a bit better.
There are two “strategies” people use when pricing a tender. The first, and most common, is that you undercut the price to beat out the competition. This dooms the project from the start since a supplier that is not making money is usually not the best to deal with and is the least flexible. The second is when a supplier inflates their price because they know there is a lack of competition for the tender. Although the big number may look nice, this unethical practice will never help a company in the long run as the government program manager knows they are blowing the budget on the overpriced product. In the small world of government buying bad contract news travels fast. Here is a horrible example from the Canadian Federal Government.
You can avoid all problems and keep everyone happy if you just stick to the rule, “the price is the price”.
Here are some other quick tips on pricing a tender:
- If a bid form or pricing sheet is provided, use it
- When possible, breakdown costs to line items for easy analysis
- Be clear on what is included in your price and what is not
- List any expected disbursements and at cost charges
- Understand the organization’s expense policy and explicitly agree to adhere to it
- List any alternative or innovative pricing separately, so you do not inflate your evaluated price
- Check your math! I have seen million dollar bids where the unit pricing and extended costs have not added up
Next time you are completing a government bid refer to this post so you can breeze through the pricing stage.
Answer the tender call,
Now you know how to price government bids, do you want learn more about Selling to the Public Sector? Take the Win Government Contracts course. Follow this link to learn more about the online course.