OVERVIEW OF PRICING
Official government pricing and accounting is a soul crushing art, and as a new contractor you simply don’t have the time to master it. So, everything that is in our classes on top down and bottom up pricing are here to help you with what I call Operational Pricing rather than Official Pricing
This is pricing and budgeting that will help you:
-Refine your operational model: By thinking about, and analyzing, our costs a bit we are going to identify the major costs drivers for our proposal and the spark creative thinking about how to bring prices down
-Prepare for Official Pricing: Some light cost organizing now it will help our accountant build our Official Pricing later
- Figure out how to get a winning bid price: If we build a rigorous budget and compare it to what we learn about the incumbent bidder’s price we can get some insight into how they are likely to approach the proposal
-e.g. if your labor costs alone are higher than the incumbents total price then it is a good sign that the incumbent is approaching the problem in a very different way
-Ensure that we don’t lose money on a contract: Exactly what it sounds like
Official pricing: Government pricing is a rigorous and highly regulated version of Operational Pricing and your accountant (or your prime’s accountant) is going to spend hours moving numbers into different buckets and applying various multipliers to them to get to your Provisional and Final rates. We are going to have classes later that go into more detail here but for now lets focus on Operational Pricing
Naming conventions: When we use Official Pricing terms and definitions we use them in the same way that the government does
Are you rates Public: Yes, sort of.
-Sharing rates with your prime: The government market is constantly shifting and todays team mate is tomorrow’s competitor. So DO NOT “share your math” on how you built up your rates. You will have to disclose your final rates of course but don’t share the elements that go into that.
-What rates with the government: The government may ask your prime for the details of your rates and if they do put your rate information into a secure package, mark it “government use only” and send that.
-Who can see my final rates: Anyone, they will become public information.
How public sector and private sector rates affect one another: Be aware that as you start doing more sophisticated contracting (especially once you are on the GSA schedule) your commercial rates will affect what you can bid on your government work so think hard about starting a second business to keep your public and private sector business separate (and information on your pricing more secure)
Pricing set-aside contracts v. full and open contracts: While it may be tempting to price set-aside contracts higher because there is less competition but be aware that your rate history will be reviewed by primes and the government and if they see your rates fluctuate it may hurt your reputation
BOTTOM UP V. TOP DOWN
I recomend doing a Bottom-up AND a Top-down pricing analysis to help you establish a price that is low enough that you are competitive, while not being so low that you lose money
Top-down: Top-down pricing involves reviewing other similar bids to get a sense for what the government expects to pay, and what other bidders are likely to pay
Bottom-up: Bottom-up pricing involves identifying all your expenses so that you can total them and get a sense for how much it will cost you to perform on a contract so that you don't bid a price that will cause you to lose money