Most small firms lose government bids on price in one of two ways. They guess high because they're nervous about hidden costs, or they cut to the bone to win and then lose money for three years. Both come from the same problem: no disciplined cost build-up before anyone picks a number.
This is how I'd walk a new estimator through pricing a public-sector bid. The specifics vary by agency and contract type, so adapt the steps to the bid in front of you.
Read the price schedule before you build anything
The pricing form tells you how the buyer will compare offers. Look for:
- Line items (CLINs in federal contracts) and units of measure
- Whether quantities are firm or estimated
- Base period and option periods
- Whether shipping, installation or training are separate lines or must be included
- How the "total evaluated price" is calculated
Then check the evaluation section for the award method. Pricing an IFB that goes to the lowest responsive bidder is a different exercise from pricing a best-value RFP where price is one factor of four. If you're unclear on the difference, read RFP vs RFQ vs IFB vs RFI first.
Build the cost from the bottom up
Start with what it actually costs you to deliver, line by line.
Direct costs
- Product cost from your distributor or manufacturer, using a quote for this deal, not last month's price list
- Freight, including liftgate, inside delivery or remote-site charges
- Direct labor: hours by role multiplied by loaded hourly cost (wage plus payroll taxes and benefits)
- Subcontractor quotes
- Travel, per diem, equipment rental, permits
- Licenses, warranties, extended support contracts
Costs people forget
- Payment and card processing fees if the agency pays by purchase card
- Cost of carrying inventory or receivables; public payers commonly pay net 30 to net 60, and some take longer
- Bond premiums and extra insurance required by the contract
- Cooperative contract or program admin fees, if you're selling through one
- Reporting requirements (monthly usage reports, small business reporting) that take staff time
- Returns, restocking fees, and dead-on-arrival replacements
- Wage determinations: federal service and construction contracts may require Service Contract Act or Davis-Bacon wage rates, and many states have prevailing wage laws
Indirect costs
Overhead (rent, management, tools) and general and administrative expense need to be recovered somewhere. Small firms often don't have formal indirect rates, which is fine for most commercial-item and state/local work, but you still need a realistic percentage based on last year's books so every bid carries its share.
Add margin deliberately
Decide on margin on purpose instead of taking whatever is left over. Consider how competitive the category is, how much risk you carry and what the contract is worth to you beyond this order. A commodity hardware IFB with eight bidders will usually be won on thin margin. A specialized service with a tight scope and few qualified vendors can carry more.
Set a floor before you look at competitive intelligence. It's too easy to talk yourself below cost when you learn the incumbent's price.
Use public pricing data
Government pricing is often public, which gives you a real advantage if you look:
- Past award notices and bid tabulations. Many state and local agencies post bid tabs showing every bidder's price after opening.
- Federal award data on USAspending.gov and FPDS, which show award values (though not always unit prices).
- GSA Advantage, which shows schedule contract prices for many products.
- Public records requests for the prior contract, where state law allows. Rules on what's releasable differ by state.
If a county bought the same printers two years ago, the bid tab tells you roughly where the winning number landed.
Understand price realism and "too low"
A very low price carries its own risk. In federal best-value procurements, an agency may evaluate whether your price is realistic for the work described, to judge whether you understand the requirement and can perform. Under FAR 15.404-1, a realism analysis on a fixed-price contract can be used to assess risk, but the agency does not adjust your offered price as a result. It can still count against you in the evaluation if the solicitation says so.
For labor-heavy services, a price that implies paying technicians well below market is a red flag to evaluators. For state and local bids, buyers may ask a low bidder to confirm its price or explain a mistake. If you made a real error, most procurement codes have a process for bid mistakes, but relief is not guaranteed and rules differ.
Option years and escalation
Multi-year contracts often include a base year plus option years, and the evaluated price commonly includes the options. That means your option-year pricing affects whether you win, not only what you earn later.
Ask yourself:
- Does the contract allow price adjustments? Some have an economic price adjustment clause tied to an index; many fixed-price contracts don't.
- If not, what escalation will you build in? Labor costs rarely stay flat for five years. Build in a modest annual increase you can defend rather than holding year-one prices flat.
- Are hardware prices fixed for the whole term? Technology products can go up or end-of-life. Check whether the contract allows substitution of equivalent or newer models.
A quick example
A state agency issues an RFQ for 200 monitors with delivery to 14 offices, and the pricing form wants a single delivered unit price. Your distributor cost is $142 per unit. Freight to 14 sites quotes at $1,180 total, about $5.90 per unit. Card processing, since they'll pay by P-card, runs you roughly 2.5%. You add your overhead percentage and a margin that fits a crowded category, check the last bid tab (the previous winner landed around $168), and decide whether you can be there profitably. If your floor comes out at $171, that's a real answer: pass, or find a better source.
Common pricing mistakes
- Pricing to the wrong quantity (estimated vs guaranteed) or the wrong period.
- Leaving freight, installation or disposal out when the form says "delivered and installed."
- Arithmetic errors: extended prices that don't match unit price times quantity. Many agencies use the unit price when they conflict, which can change your total.
- Ignoring wage determinations on service or construction work.
- Adding conditions ("prices subject to change") that can make a sealed bid nonresponsive.
- Pricing option years at a loss and hoping they won't be exercised.
- Using a vendor quote that expires before the award date.
Before you submit
Have someone who didn't build the price check it against the pricing form, the scope and the evaluated-price formula. Keep your cost worksheet with the bid file; if you win, it's your baseline for tracking actual margin, and if you lose, it's how you learn from the bid tab.
Good pricing starts with good fit. Filter for work in your category, such as IT bids or open RFQs, so your estimating time goes to bids you can win at a real margin.
Frequently asked questions
Do option years count toward the evaluated price?
Often, yes. Many solicitations add option-year prices into the total evaluated price, so option pricing can decide whether you win. Check the evaluation section.
What is price realism?
It is an evaluation of whether a price is realistic for the work, used to judge whether an offeror understands the requirement. On federal fixed-price contracts the agency does not adjust your price, but it can treat an unrealistically low price as a risk if the solicitation says so.
Where can I find what the government paid before?
Look at bid tabulations and award notices from state and local agencies, federal award data on USAspending.gov and FPDS, GSA Advantage for schedule pricing, and public records requests where state law allows.
Sources: www.acquisition.gov www.usaspending.gov www.gsaadvantage.gov www.acquisition.gov