How Do I Calculate Price-to-Win for Federal Contracts?

Want to sharpen your competitive edge during federal proposals? Price-to-Win for government contracts is central to your goal. Let’s unpack what’s needed to understand and successfully apply Price-to-Win, a pricing strategy that ensures your agency bids are as competitive as they are compelling.

What is Price-to-Win for federal contracts?

The nature of federal Price-to-Win analysis is a paradoxical blend of dynamism and methodical precision. It involves immersion in your firm’s competitive landscape, a thorough study of your rivals’ cost and pricing tactics, as well as close scrutiny of your agency customer’s RFP demands.

For example, take a government IT modernization project where, as usual, multiple firms vie for the contract. Your Price-to-Win analysis might reveal that leveraging predictive-analytic security solutions, a domain where your firm excels, could be the differentiator in your bid.

By assessing the competition—who may not offer the same level of expertise in network security—and understanding the government's emphasis on safeguarding IT infrastructure, your firm can present the most advantageous pricing strategy. This balance ensures not just a competitive bid but one that promises profitability.

What does the Price-to-Win model look like for federal contracts?

Typically, a Price-to-Win model involves a detailed analysis of cost elements to ensure a competitive bid, with these elements naturally derived from one of three primary sources: the historical data on durations and labor rates from similar projects undertaken by your firm, expert estimates of time and materials (T&M), and quotes from potential subcontractors.

What differentiates this model? When you compare your firm’s capabilities with those of your rivals. A pivotal example is when a competitor has engaged in directly relevant Research and Development (R&D) efforts.

These prior investments can significantly influence a competitor's pricing strategy, mainly if they have already absorbed the associated R&D costs in previous fiscal periods—and during other proposals. For instance, if a competitor has developed a proprietary technology through R&D that is directly applicable to the contract's requirements, they can afford to price their bid more competitively, leveraging the sunk costs of their R&D as an advantage. 

This dynamic underscores the importance of considering your own cost structure to inform the Price-to-Win model. How can you leverage past expenses to make your current bid both competitive and realistic in terms of profit? 

What is the Price-to-Win assessment?

A Price-to-Win assessment is a deep dive into the competitive dynamics of federal contracting. You develop an understanding of where your proposal needs to land—not just in terms of final numbers but also in positioning against your competitors’ capabilities and pricing models.

Your pricing team or designated Price-to-Win analyst thoroughly examines the range of solutions your competitors are prepared to offer a federal agency client, recognizing that the depth and breadth of these capabilities directly influence their cost structures and, by extension, their pricing strategies. It’s important to remember that while costs reflect what a contractor spends to deliver a service or product, the price is what the government is prepared to pay—essentially, your costs plus margin.

Competitive Research in Price-to-Win

When taking on competitive research during a Price-to-Win assessment, critical steps include:

1. Detailed analysis of competitors’ strengths and weaknesses. Identify areas where they may be vulnerable and, conversely, where they may have competitive advantages.
2. Investigation of competitors’ pricing strategies. Understand how they position themselves in the market and the implications for your bid.
3. Review of historical pricing information. Discern trends and patterns that could influence future pricing decisions.
4. Examination of the evaluation criteria used by target government agencies. Compare these against competitors’ cost and pricing structures to identify potential opportunities.

By assessing these elements, you can gain a nuanced understanding of the competitive landscape, helping you position your federal proposal as both captivating and competitive.

How do you calculate Price-to-Win for federal?

Calculating federal Price-to-Win involves careful financial planning combined with strategic foresight. At the heart of this process is your understanding of wrap rate, a composite measure encompassing the cost of employee benefits, overhead, and corporate General & Administrative (G&A) expenses added to direct labor rates. 

Knowing your own wrap rate is just the start; discerning how your competitors might adjust their rates based on factors like employee benefits negotiation that influences overhead can reveal metrics you can leverage.

Labor categories are also catalysts—they have to sync with government preferences. How you classify your employees, the career development plans you create for each, and the longevity of personnel in their specific roles all play a part in matching your firm’s Price-to-Win approach with federal contract requirements. As with wrap rate, your competitors’ approaches to the same employee categories will give you a basis for competitive comparison.

A contract project's size, scale, and scope demand a thorough analysis of the participating entities' capabilities and expectations. For instance, if you’re a smaller firm, the balance between satisfying major workshare requirements and leveraging the strengths of larger partners can be delicate, often necessitating innovative solutions like mentor-protégé arrangements or sharing of unique R&D insights. Having a finger on the pulse of your top competitors and how they negotiate these dimensions can be one of the keys to your success. 

Compliance and continuity are non-negotiable; aligning with the government agency's operational standards from Day One is essential. This alignment includes pricing strategies that consider the presence of incumbents, the competitive landscape, and the government's focus on cost reasonableness without compromising service quality and sustainability.

Ultimately, the goal is not just to win a contract but to do so in a manner that ensures long-term growth. Educating your agency customer on the risks of low bids and demonstrating the sustainability of your pricing model becomes part of the federal Price-to-Win negotiation. You have to stand out as much for your predictive insights as for your financial forecasts. 

What is a Price-to-Win example for federal contracting?

A standout example of federal Price-to-Win in action is the recent Department of Defense (DoD) procurement of cloud services. The highly publicized Joint Enterprise Defense Infrastructure (JEDI) contract showcases involved competitors like Microsoft and Amazon Web Services.

Each scrupulously analyzed not only their own costs and capabilities but also those of their rivals and the specific needs of the DoD. Ultimately securing the contract, Microsoft put forth a Price-to-Win strategy that balanced innovative cloud solutions with a pricing model that met the DoD's budgetary constraints and operational requirements—and that outgunned Amazon’s efforts.

What are useful Price-to-Win tools?

Leveraging the right Price-to-Win tools can make all the difference between a federal contract “yes” or a “sorry.”  First, let’s look at Deltek's Costpoint. This comprehensive Enterprise Resource Planning (ERP) solution gives your firm an advantage by providing deep insights into cost and pricing strategies, enabling you to forecast competitive bids accurately. 

Costpoint facilitates a detailed analysis of direct and indirect costs, integrates with labor and material requirements, and incorporates regulatory compliance features. By offering a holistic view of the financial aspects of bid preparation, Costpoint empowers you to fine-tune your Price-to-Win strategies, making your bids masterful yet with room for margin.

Deltek’s ProPricer Contractor Edition, is another powerful tool in federal Price-to-Win calculation.  This specialized software empowers you by streamlining the proposal cost and pricing iteration process, speeding your way to contract and market. With Deltke+ProPricer, you quickly adjust pricing tables and narratives and present multiple what-if scenarios during every bid revision. Its capacity to handle complex government contracts and directly integrate with government formats gives you a significant advantage.

By providing real-time insights and enhancing collaboration among proposal teams, Deltek+ProPricer is indispensable in crafting bids that not only meet but exceed federal customers' expectations. Plus, it’s the pricing platform government agencies use the most themselves.