How to Price a Government Proposal
Develop competitive, realistic pricing strategies for fixed-price and cost-reimbursement contracts.
Pricing Strategy Fundamentals
Government proposal pricing is fundamentally different from commercial pricing. Your prices must be reasonable (not too high), realistic (sufficient to perform the work), and complete (covering all costs). The government may perform cost realism analysis to verify your pricing — unrealistically low prices can be scored negatively.
Your pricing strategy depends on the contract type. Fixed-price contracts require you to bear all cost risk, so you need accurate estimates and appropriate risk reserves. Cost-reimbursement contracts shift more risk to the government but require a compliant accounting system and detailed cost justification.
Understand whether the procurement is best value or LPTA (Lowest Price Technically Acceptable). In best value, a higher price can win if the technical approach justifies it. In LPTA, once you're technically acceptable, only price matters.
Building Your Cost Model
Start with a work breakdown structure (WBS) that decomposes the SOW into tasks and subtasks. For each task, estimate the labor hours by category, materials and supplies, travel, equipment, subcontractor costs, and other direct costs.
Develop labor rates using a bottom-up approach: base salary + fringe benefits + overhead + G&A + fee = fully burdened rate. If you don't have audited indirect rates, develop provisional rates based on your actual cost experience. New companies can use published industry surveys as a starting point.
Build in risk reserves proportional to the uncertainty of each cost element. Well-understood work needs less reserve than novel or complex tasks. Document your basis of estimate for every line item — the government may request it during negotiations.
Competitive Pricing Analysis
Research the competitive landscape before finalizing your price. Review award data on USASpending.gov and FPDS for comparable contracts. Check GSA Schedule pricing for similar services. Analyze incumbent contract values if the opportunity is a recompete.
Price-to-win analysis estimates the price range likely to be competitive. This doesn't mean undercutting everyone — it means understanding the market and positioning your price strategically. If your technical solution genuinely offers superior value, you can price above the median and win on best value tradeoffs.
Document your competitive analysis and pricing rationale. If your price is significantly higher or lower than the government estimate, be prepared to explain why during discussions or negotiations.