Introduction
Pricing for government contracts is different. You always aim to submit a proposal that’s accurate and complete, but when there are strict financial and even legal consequences for getting it wrong, you have to get it right. Many phases of a government contract lifecycle come with Compliance requirements, and planning to meet those requirements has to be part of the process from beginning to end. But the required accuracy and completeness can’t slow you down much either, because you have to meet those government deadlines.
So how do you achieve cost estimating and proposal pricing that are both accurate and complete, and do it all at speed? You need the right software. How do you pick the right software? It has to support the fundamental components of proposal pricing while offering the functionality you need to get accurate, complete bids out the door on time.
For example, your proposal pricing software should let you estimate using whatever method is the best fit for the type of government contract you want to bid on. It should support you through the whole bidding process. And it should let you define hard and soft assets once, then use them where needed – and the same with your formulas. Every time an estimator has to enter the same data in multiple places, you waste time and risk errors.
So let’s review those fundamental components, then dig into the functionality you need.
Table of Contents
Government Pricing Fundamentals
In this section, we’ll cover key components of government contract bidding, types of government contracts and cost estimation methods, as well as types of compliance and other regulatory mechanisms you may encounter.
Since our previous post Government Contract Bidding Fundamentals covers this topic in detail, we’ll just summarize here.
Key components
Whether you’re bidding on contracts at the local, county, state, or federal level, there are some elements you’ll likely encounter:
- A specification or work package: Thorough and clear description of what they need, so you know what your pricing proposal has to cover. This may be a formal Work Breakdown Structure.
- A strong Basis of Estimate with explanation: A Basis of Estimate (BOE). A BOE explains how you arrived at each pricing item, including any assumptions you made.
- Justification for subcontractor pricing: Prime contractors usually have to get at least three price quotes from subcontractors before choosing one. Subcontractors need to explain the prices they charge their prime contractor.
- Capability statement: This is like a resume – a one-pager whose job is to capture enough of the reader’s interest that they want to learn more about you and what you can do for them.
- Uniform contract format (UCF): For many (but not all) federal solicitations and contracts, FAR defines a standard format that must be used.
Types of solicitations and contracts
When it comes to pricing government contracts, the array of contract types can be overwhelming – it’s a world unto itself. Between all the different levels of government and the many agencies, there are a lot of potential factors that a contract might need to account for. In fact, there are entire books about government contracts.
Types of solicitations
Whether at the local, county, state, or federal level, agencies mostly use one of these common types: Request for Information (RFI), Invitation for Bid (IFB), Request for Proposal (RFP), and Request for Quote (RFQ).
RFIs
- Why use one? A buyer uses a Request for Information when they need to educate themselves about something before, for example, issuing a more involved, concrete type of solicitation (see below).
- What to expect: RFIs are often managed using a third-party platform, and are usually open to the public, but may be open only to specific vendors the buyer chooses. The RFI’s contents should include the buyer, the project, the timeline, the deliverables and their details, the evaluation criteria, and instructions for responding.
- Your goal: To submit a complete, helpful response that follows all the submission requirements, shows you understand the buyer’s need, and highlights your organization’s value in filling that need.
IFBs
- Why use one? A buyer uses an Invitation to Bid when they are confident up front about exactly what goods and/or services they need, how the work will be done, and what the contract will contain. Price is key.
- What to expect: IFBs typically use sealed bids on a short timeline, and award firm fixed-price contracts.
- Your goal: To submit the lowest bid, accounting for any price-related factors spelled out in the Invitation.
RFQs
- Why use one? A buyer uses a Request for Quote when, like with IFBs, they know what they want and price is what really matters – but they want competitive bidding and some additional information from bidders, and are willing to wait longer for the result.
- What to expect: RFQs are usually longer and more detailed than RFIs or IFBs. Usually the winning bid for an RFQ is based primarily on price. Other factors, like quality of goods or services and timeliness for delivery, may be considered.
- Your goal: To submit the lowest bid, being sure you also provide all the cost, delivery, and other information specified in the RFQ.
RFPs
- Why use one? A buyer uses a Request for Proposal when they know what end result they want, but they know it can be achieved multiple ways, and want bidders to explain how they would achieve that result, and for what price. Usually for more complex, expensive projects.
- What to expect: RFPs ask more of you than the other types. These solicitations contain more detail and require more elements in your proposal. See our list of common elements.
- Your goal: To convince the agency that you can provide the best value-for-money solution, while showing creativity and establish your quality, service, and reputation.
Types of federal contracts
Most federal contracts with the Executive branch are governed by Federal Acquisition Regulation (FAR), which defines seven types with subtypes and variations. We’ve covered FAR in more detail before.
Fixed-price contracts
Fixed-price contracts either provide for an exact, firm price, or for a price that is fixed but with a provision for adjustment under defined conditions. Fixed-price contracts are common for commercial products and services.
Cost-reimbursement contracts
Typically used for R&D, cost-reimbursement contracts provide a mechanism for letting the contractor do however much work it takes – subject to defined limitations, and typically up to a cap – to explore a possibility.
Incentive contracts
Incentives and awards, which can be applied to cost, performance, delivery, or a combination of those, may be desirable in some situations both to motivate contractor efforts and to discourage contractor inefficiency/waste. Frequently used in combination with the previous two types.
Indefinite-Delivery contracts, aka IDIQ contracts
Indefinite-Delivery contracts let agencies meet an ongoing need for supplies or services at whatever level is required in the moment – often with multiple contractors – and they also can provide a vehicle for having supplies shipped directly to the end users. Despite the name, these contracts aren’t inherently about indefinite deliveries (though one subtype is).
Time-and-Materials, Labor-Hour, and Letter contracts
This is a trio of contract types that are intended to cover other sorts of uncertainties that IDIQ contracts aren’t a fit for.
- Time-and-Materials contracts let an agency acquire supplies or services with fixed hourly labor rates, plus reimbursing for actual material costs. Typically these come with substantial government monitoring to ensure that efficient methods and cost controls are used.
- Labor-Hour is a variety of Time-and-Materials that does not reimburse for materials.
- Letter Contracts are preliminary, authorizing the contractor to begin right away and continue while a full contract is worked out. Due to the time limitation, full details are often not available when the work starts.
Agreements
Agreements are not contracts. Often used by smaller governmental organizations, they are legal “instruments of understanding” that may lay out terms, clauses, and other information pertaining to future contracts between the agency and a contractor. FAR defines three: Basic Agreement, Basic Ordering Agreement, and Blanket Purchase Agreement.
Other contract types and vehicles
The General Services Administration (GSA) provides an array of programs and contract vehicles, like the Multiple Award Schedule (MAS), Multi-Agency Contracts (MACs), and Governmentwide Acquisition Contracts (GWACs), that provide a single contract for multiple agencies to purchase goods or services with better economies of scale, and lower lead time and overhead.
Contracts with the other federal branches
The Judicial branch uses a subset of FAR’s contract types. Each branch of the US Congress manages their own procurement, led by the Sergeant at Arms in the Senate and the Chief Administrative Officer in the House.
Types of estimation
All of the widely-recognized approaches to estimating your costs – Three-Point, Bottom-Up, Analogous, and Parametric – are tools you can combine over the phases in the proposal process to produce a complete, accurate cost estimate.
Bottom-Up
Bottom-up starts the estimating process by assigning costs to every individual item, then rolling those values up to each level of the estimate – providing, at the top level, the key total estimate value that keeps you competitive. The level of detail required can make this type a bad fit for early stages of some projects, as well as for contract types designed for situations with uncertainty or tight timelines.
Analogous
Analogous estimating pulls data from previous similar projects, and makes high-level adjustments for obvious differences like size, inflation, and complexity to produce a usable approximation. Unlike bottom-up, analogous works at every level in the estimate, which is one of the reasons it remains useful throughout the estimating process.
Three-point estimating is a common variant of Analogous. In addition to producing the most likely estimate, it adds a pessimistic and an optimistic estimate to provide a sense for the overall financial risk.
Parametric
Parametric estimating is a quantitative, calculation-driven approach based on the fact that many costs, durations, etc., are predictable. For example, security fencing on level ground might reliably cost so much per 10′ and take so long to install, which means you really only need to know the total length needed in order to estimate the cost. This type can produce a false sense of accuracy – if the source data is unreliable, there are parameters you can’t quantify, you fail to account for unique project factors, and so on. It requires time, preparation, consistency, and attention to detail, as well as honesty and transparency about any points of weakness in the source data and formulas.
Compliance and audits
In this last section about the fundamentals of pricing for government contracts, we’ll cover what truly sets it apart from pricing for commercial and other contracts – all the extra legally-required scrutiny throughout a federal contract’s life. This will be a summary because we’ve written in more detail about it before in our Modern Guide to Government Contract Compliance.
Compliance with the regulations that govern bidding on and working on contracts tends to get most of the attention in discussions of government contract pricing, but you also have to comply with applicable data storage and transmission regulations. And your work may be subject to audits and other forms of attention (sometimes called “surveillance”).
As with some previous sections – and for the same reasons – we’ll just look at the Executive branch.
Contracting regulations
The Executive branch is, of course, vast. Acquisitions.gov has regulations for 30+ agencies! And the GSA has its own policies and regulations. Thankfully, the bulk of all that is based on the Federal Acquisition Regulation (FAR), which we met while reviewing contract types. All contracts with the Executive branch must comply with FAR.
FAR: The GSA (General Services Administration) defines FAR as “the primary regulation for use by all executive agencies in their acquisition of supplies and services with appropriated funds.” It is issued jointly by the GSA, DoD, and NASA, and includes standard elements of bid solicitations and contracts, as well as a number of FAR supplements for individual agencies. The most notable of these Supplements is DFARS, the Defense Federal Acquisition Regulation Supplement, which covers the DoD’s requirements. FAR explains in detail (53 parts), for both agencies and contractors, how the federal acquisition/procurement process works from pre-solicitation to sustainment. It also provides the exact legal clause language that is added to applicable contracts, so you can prepare even if you’ve never see such a contract.
CAS: the Cost Accounting Standards. The larger the award amount for a negotiated contract, the greater the chance for errors and fraud, so contracts with awards above certain amounts come with special accounting standards. CAS was created, as the name indicated, to enforce consistency in cost accounting practices. There are 19 standards, covering everything from home office expenses to tangible assets to compensated personal absences to pension costs, and much more. CAS tells you not only what cost accounting practices are required, but how to achieve them in a satisfactory way.
TINA: Truth in Negotiations Act, originally passed in 1962. That Act has been renamed “Truthful Cost or Pricing Data,” but it’s still often referred to as TINA (easier to say than TCPD). TINA helps prevent fraud and shoddy bidding by verifying that the proposed costs and prices used for a bid are consistent with the actual costs and prices – so that, for instance, if your subcontractor costs or labor expenses change substantially, the contract is properly amended. The goal is to ensure fair and reasonable contract pricing. An agency must evaluate all initial contracts within a certain award range, and all cost/price changes to existing contracts, against TINA’s criteria. These criteria determine whether or not you’ll be required to submit a signed certificate stating that the cost or pricing data you’re providing are accurate, complete, and current.
Protected data categories
As we noted above, when working with the federal government, you have to comply with regulations designed to protect the storage and transmission of information. Your contract should make clear what regulations apply, but as always, having your own understanding what the law requires of you is the best policy.
The key factors that dictate how government information must be managed are: whether or not it’s classified, and what sort of controls must be maintained on its storage and dissemination. Classified means you need special clearance (Confidential, Secret, Top Secret) just to see it; Unclassified means you don’t. Unclassified material is often subject to controls, whether it’s to limit what people are allowed access, where it can be stored or transmitted, how secure it has to be while being stored or transmitted, whether (or where) it can be exported, and so on.
There are subcategories of Classified, but the world of Unclassified-yet-protected categories is much broader and varied, so let’s look at the categories you’re most likely to encounter.
CUI: Controlled Unclassified Information. It is a broad designation that was created to consolidate what was once an array of designations for unclassified information, like SBU and FOUO. The CUI program was established by Executive Order, and is laid out in the Code of Federal Regulations (CFR), Title 32, Part 2002. Since Congress has never passed a standard version of it, each agency has been responsible for implementing it.
The official definition is, “All unclassified information throughout the executive branch that requires any safeguarding or dissemination control is CUI.” CUI includes an array of subcategories, and is defined somewhat differently by different agencies, but they all include rules for safeguarding, accessing, disseminating, decontrolling, and marking CUI material. A CUI designation also triggers special protections defined in CMMC and NIST SP 800, which we’ll cover later. There are also agency-specific variants of CUI, like the DoD’s CDI (Covered Defense Information), which is defined in DFARS.
Legacy designations replaced by CUI: Since the CUI program has to be implemented by each agency – and since even after an agency does so, it has all its previously-categorized Unclassified material – you may still encounter legacy designations. Two common ones are SBU (Sensitive But Unclassified) and FOUO (For Official Use Only). Like CUI, they don’t contain national security information, so they can’t be Classified, but still need protection against inappropriate access and disclosure for other reasons.
FCI: Federal Contract Information. FCI is all the information generated over the lifecycle of a federal contract. FCI provides basic security controls for a wider array of less sensitive information than CUI. Note that any system with CUI-compliant security controls adequately protects FCI.
General data protection laws and regulations
With that understanding of the categories of protected Unclassified material you’re most likely to encounter, we can turn to the major laws and regulations in place to protect that material.
FISMA: Federal Information Security Management Act. It aims to “provide a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support Federal operations and assets … provide for development and maintenance of minimum controls required to protect Federal information and information systems; provide a mechanism for improved oversight of Federal agency information security programs.”
By providing directives – to federal agency heads, NIST (see below), and the Office of Management and Budget (OMB) – to strengthen information security systems, FISMA laid the groundwork for much of the regulation discussed in sections below. It takes a risk-centric approach.
FIPS: Federal Information Processing Standard. NIST’s Information Technology Laboratory (see below) develops FIPS publications for federal agencies, but they are often developed from standards established by technical communities in the private sector, like ANSI, IEEE, and ISO.
- FIPS 199 defines standard Security Objectives and Impact Levels that agencies must use to categorize their information and information systems; these are also referred to in other data protection regulations. It illustrates how to map Security Objectives and Impact Levels onto information systems and types of information.
- FIPS 200 builds on 199 by specifying minimum security requirements for seventeen categories of information and information systems. These requirements must be met by selecting the appropriate security controls and assurance requirements for the those categories as described in NIST SP 800-53.
NIST SP 800: NIST is the National Institute of Standards and Technology, an agency within the Dept. of Commerce best known for the specifications and measurement standards it defines for a wide range of industry, academia, government, and other users. SP stands for Special Publication, which NIST has issued to develop information security standards and guidelines. The 800 series has been developed to address and support the security and privacy needs of federal information and information systems. There are two publications in SP 800 that are vital for government contracts.
- SP 800-53, titled “Security and Privacy Controls for Information Systems and Organizations.” It describes itself as “a catalog of security and privacy controls for information systems and organizations to protect organizational operations and assets, individuals, other organizations, and the Nation from a diverse set of threats and risks, including hostile attacks, human errors, natural disasters, structural failures, foreign intelligence entities, and privacy risks.” Applies to all federal systems and those who interact with them – including contractors.
- SP 800-171, titled “Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations.” It supplements requirements specified in the CUI Registry, and applies to components of nonfederal systems that process, store, or transmit CUI, or that provide protection for those components. Applies to any contract that involves CUI material.
Cloud data protection laws and regulations
Cloud data and systems are much more exposed than on-prem data and systems, and require more effort to protect. Here are the major regulations and programs that govern that protection.
CMMC: Cybersecurity Maturity Model Certification. A framework developed by the DoD to protect the defense industrial base from “increasingly frequent and complex cyber attacks” by enforcing protections on CUI and FCI material in contractors’ systems. It features three levels of increasing protection for increasingly sensitive information, with certification for CUI being handled by a third party.
- CMMC is new enough that its implementation is only now beginning (Fall 2025). CMMC assessment requirements will be implemented using a four-phase plan over three years, with self-assessments being required from the start, and certifications being added in subsequent years. So it’s vital to understand what phase you’re in.
FedRAMP: Federal Risk and Authorization Management Program. As part of the larger effort to protect information per SP 800-53, FedRAMP standardizes security assessment methodology, authorization, and continuous monitoring for cloud products and services. Cloud offerings require extra consideration and protection because they present extra risk. By officially authorizing a set of cloud providers, FedRAMP gives agencies confidence that the provider they choose meets high security standards and complies with federal regulations.
- Any cloud products or services (PaaS, Iaas, Saas, etc.) the federal government uses that create, collect, process, store, or maintain federal information on behalf of federal agencies must be FedRAMP authorized. The one exception is private cloud deployments intended for single organizations and implemented fully within federal facilities; see NIST SP 800-145 for applicable definitions of cloud deployment models.
GovRAMP (StateRAMP): A domestic nonprofit organization launched in January, 2021, to provide SLED (State, Local, and Education) organizations and contractors a simple standardized approach to cybersecurity verification and validation, based on FedRAMP. The program was called StateRAMP until February, 2025, when it rebranded. Built on NIST SP 800-53, GovRAMP recognizes that the Federal government isn’t the only organization that needs cybersecurity standards and verified solutions, and that it’s in everyone’s best interest to use FedRAMP as a base. Applies to IaaS, PaaS, or SaaS solutions for SLED organizations that may process, transmit, and/or store data – including PII, PCI, and PHI.
DoD CC SRG: Defense Department’s Cloud Computing Security Requirements Guide lays out the necessary security controls and requirements for authorizing cloud-based solutions, whether the DoD is providing the solution themselves or using someone else’s. Like GovRAMP, the authorization process builds on FedRAMP and NIST SP 800-53, and flows from the requirements of FISMA.
- Applies to commercial and non-DoD federal cloud providers, as well as DoD entities using, or considering the use of, commercial/non-DoD and DoD cloud computing services.
- There are two kinds of authorization, ATO (Authorization to Operate) issued to a specific DoD entity for a cloud offering, and PA (Provisional Authorization) enabling entities across the DoD to use the cloud offering.
Export control regulations
One of the key protections required for sensitive material is keeping it in the right hands (or eyes). At a high level, the goal of export control regulations is to strictly manage movement of restricted items from US to another country, and from the control of US Persons to Foreign Persons wherever either is. Using compliant systems ensures that Foreign Persons won’t accidentally gain access to your data without the federal government’s authorization – as can happen, for instance, if a data center or customer service center is OCONUS.
- “Items” include physical and digital products and services, as well as data about them.
- “Movement” includes shipping, transmitting, transferring, and releasing (allowing visual, oral, or written access).
- These regulations use “US Persons” and “Foreign Persons” to designate who export activity is and is not allowed to.
ITAR: International Traffic in Arms Regulations. Part of the Arms Export Control Act of 1976, ITAR regulates the export of items (including technical data) produced for defense and military use. The word “export” in this context includes sharing information and material pertaining to technologies built for defense and military use – which is why you need to be familiar with it even if you’re not producing a physical product. ITAR applies to items, services, and data produced for defense use.
- The US Munitions List (USML) describes 21 categories of items subject to ITAR, such as various military vessels and weapons, along with their components (technical data is one). So any contract pertaining to the listed items will generate material that is also subject to ITAR.
EAR: Export Administration Regulations. It regulates the export of US items that are not covered by the regulations of other federal agencies. Applies to items, services, and data produced commercially that have defense or military uses. This is, of course, a much larger set of items. For example, radar systems have broad use in commercial enterprises, but because they can also be a component in missiles (included in ITAR), their export is regulated by EAR. EAR applies to all items currently in the US, all items originating in the US (no matter where they are now), all items made in foreign countries using US-origin components, and more.
- Items subject to EAR fall into two categories: those listed in the Commerce Control List (CCL), and those not listed – which are referred to as EAR99. The CCL organizes every item into one of ten categories (like Materials Processing or Electronics), then one of five groups (like Software or Equipment and Components), and lastly one of nine Reasons for Control (like National Security or Missile Technology).
- EAR contains a list of ten General Prohibitions, each of which describes export activity that require either a license or a license exemption. BIS issues both licenses and exceptions. EAR99 items do not require a license if General Prohibitions 4-10 don’t apply.
Auditing and other monitoring
The factors that dictate strict oversight for the government contract pricing, bidding, and award process don’t just disappear once you have the contract. The greater the award amount, and the more sensitive the project, the more continual monitoring is required as you work to fulfill the contract. This ensures that taxpayer money is spent effectively and the agency gets what they pay for.
Auditing for government contracts is much more rigorous and serious than it is for commercial contracts. Audits can take place at any time, and at multiple times, during the contract’s life cycle. Auditors may be suspicious of any irregularity or apparent case of noncompliance.
Agencies: There are entire agencies within federal departments that review, audit, and otherwise provide oversight on federal contracts. The General Services Administration, for instance, has the Office of Audits. The Interior Department has the Acquisition Audit Services Branch. The DoD, of course, has its own audit agency, the Defense Contract Audit Agency (DCAA). Defense contracts also come with oversight by the Defense Contract Management Agency (DCMA), which provides start-to-finish contract administration services for more than 300,000 contracts. Whichever federal department your contract is with, be sure you’re clear on its auditing requirements.
Other federal entities: Departments and agencies at all levels of government may have an Office of the Inspector General, which conducts audits of programs and operations performed by contractors. The GAO also has a special team, the Forensic Audits and Investigative Service.
Pricing Methodology + Best Practices
It’s not enough, of course, just to know what the fundamentals are – you have to know what to do with them. You need a government contract pricing methodology and best practices.
Methodology
Crafting and following a structured procedure for pricing will help you in a variety of areas, including: improving bidding efficiency, achieving more consistent results, accumulating better data for future bidding, and realizing more reliable profit margins.
Precision is a key under-recognized component to pricing proposals. You have to control the relationship between cost estimation and pricing, because if the gap is too narrow, then you’ll struggle to maintain adequate profit margin; if the gap is too large, then your proposed price may come out too high to be competitive.
OAE recommends a five phase methodology to achieve that precision: Assess, Design, Construct, Review, Adjust. Here’s an overview.
Assess
This is the foundation for the whole thing. Like all foundations, you have to make sure it’s solid and matches the structure you plan to build.
The cornerstone of the foundation is analyzing the project requirements as provided by the agency. This includes understanding the schedules, attachments, contract type, objectives, deliverables, and more. Then once you’ve broken down the project requirements, you have to determine what they mean for you, and identify things like risks, reusable data, and Compliance requirements.
Design
Once you’re confident you’ve thoroughly analyzed the project requirements, it’s time to prepare your proposal’s design.
A lot of this will flow naturally from the previous phase – tracking the deadline, downloading templates, research and data-gathering, etc. Compliance deserves extra attention here. Not only do you, of course, have to be clear on all applicable legal requirements, you may have to modify your systems and/or processes to meet them. And you need your proposal narrative thoroughly worked out, otherwise you may discover later that you can’t actually support some elements of the narrative in convincing detail.
Construct
With a solid, thorough design, you’re ready to construct your pricing proposal.
Attention to detail is vital for every phase, but none more so than this one – because the proposal is what the agency will judge you on. The proposal must contain all required elements (including evaluation components), thoroughly document assumptions, sources, and constraints, make a compelling case for choosing you, and do all of that and more without errors.
The heart of the proposal is the cost estimation. The previous phases provided you with a cost estimation strategy and all the inputs it needs, as well as the data that determine your margins. All of that information should consistently support one thing: a compelling narrative that makes an outstanding case for your firm as the best choice to meet the agency’s need.
Review
It’s not enough that your proposal completely satisfies the solicitation parameters. It has to have all stakeholders and involved teams on board – including the project manager who would handle this job – because even if the agency loves your proposal and awards you the contract, there’s a lot that can go wrong later. Even with everyone doing their own work diligently, if the right information doesn’t flow, you can end up with errors.
Every error risks financial penalties and loss of reputation with government agencies. So before you actually submit the proposal, you need a review meeting. Ideally this meeting features real-time editing, because if someone has to take notes and make updates later, you introduce the risk of error. By the end of this meeting, every stakeholder and team member should have a chance to speak up if they see something amiss, whether with the rate cards, assemblies, formulas, costs, sources and explanations, margins, or any other detail.
Adjust
If the solicitation and contract types allow for adjustment between submission and award, you need to plan for that. What that looks like depends on whether or not bidding is sealed.
FAR makes a fundamental distinction between sealed bid contracts and negotiated contracts. It’s a simple binary: any contract “awarded using other than sealed bidding procedures is a negotiated contract” (FAR 15.000).
Adjusting sealed bids
By nature, of course, sealed bids are evaluated without any input; negotiation is limited to post-award “economic price adjustments.” However, adjustments during the bidding process may still be needed. There may be procedural issues with your bid, a defect, or a variation from the exact requirements of the solicitation that doesn’t materially affect the content of your proposal.
And, of course, there may be mistakes in your proposal. If your Contract Officer notices what they believe is a mistake, they will notify you, and if you agree it’s a mistake, you can provide the correction. You can also report mistakes to your CO, which triggers an evaluation process. You provide evidence to establish what the correction should be, and the agency will determine whether the bid can be corrected, must be withdrawn, or will stand as submitted.
Adjusting negotiated contract bids
There are three stages in negotiated contract bidding during which adjustments may be possible: before the solicitation closes, before the competitive range is established, and before the contract is awarded. Despite the name, negotiated contracts don’t always allow for negotiation – some solicitations make clear that the agency will be evaluating proposals and awarding the contract without discussion (though limited exchanges may occur).
Whatever communication you need to do with the agency, it’s vital to maintain trust. Err on the side of communicating more rather than less. Be honest and reasonable. Assume the agency is acting in good faith. Understand and respect the agency’s position and needs. The government wants you to succeed, because the more successful contractors they have to choose between, the better value they can get.
For the details on the above methodology, see our detailed version of it.
Key best practices
The methodology gives you a structured procedure to follow when pricing government contracts. Here are key best practices to optimize every phase of the process.
Stop repeating work
Cost estimation and pricing for government contracts – and other contracts – necessarily involves copious details. And many of those details are repetitive both within a project and across projects.
Every time a piece of information is entered into an estimate more than once, you waste time and risk errors. Every time information in a previous estimate is reused by manual entry into a new estimate, you waste time and risk errors. So your estimation system has to do its utmost to prevent that repetition.
The goal has to be to repeat work as little as possible.
Collaborate at speed
In today’s distributed workplaces, pricing proposals are often assembled by teams whose members each specialize in one area, and they may not work in the same office. Whatever the source material is – engineering specs, drawings, research, historical data, etc. – pricing teams need to be able to collaborate efficiently on an estimate. And as we noted in the Review phase of the methodology, real-time editing is key. You can’t afford to deal with delays, disorganization, confusion, and so on.
You need quality, accurate, consistent collaboration that doesn’t slow you down.
Learn from the past
Pricing for government contracts is a lot of work, requires a lot of knowledge, and involves copious data. It’s worth investing in a cost library, a centralized repository of historical cost data that can transform how an organization approaches project cost management. By systematically capturing and organizing cost information from past projects, these databases enable faster and more accurate estimation, better budget control, and improved decision-making throughout the project lifecycle.
Centralizing your cost and pricing knowledge improves your consistency and accuracy, and saves time, but it does a lot more than that. The data captured in proposals by senior estimators represents their expertise, and the work of your estimators is part of your intellectual capital. Preserving and mining it for lessons that improve future estimation leads to stronger margin performance, as well as better production and execution overall.
What Modern Pricing Software Needs to Do for You
So that covers the fundamentals and what to do with them. The software tool you use for cost estimation and proposal pricing is how you actually achieve those fundamentals – and it should do that accurately and completely, at speed. Now let’s look at the functionality that the software you use for pricing government contracts needs to provide.
Enable key components
Obviously, the BOE is all about estimation. But if it doesn’t clearly explain, for every item at every level, why the value is reasonable, then it’s not doing its job – that’s the “Basis” part of BOE. So pricing software needs the ability to store notes for every item. It must also track every change and who made it, for auditing purposes.
Since prime contractors who want to work with subcontractors have to collect multiple quotes and then pick one, they need to know how each of those quotes would affect their margins and the rest of the estimate. You don’t want to have to resort to multiple copies of the entire estimate just to make that comparison. Pricing software needs to provide a mechanism for storing alternate subcontractor costs in an estimate, and for seeing the relative effects of each on the whole estimate.
Support different contract types
The most efficient pricing approach for fixed-price contracts is to work backward, as much as possible, from that fixed price. You can waste a lot of time tweaking costs and margins to try to arrive at that price. Your pricing software should provide you with tools that make it easy to set the total price, then see what cost/pricing values and margin you need. The same applies to incentive contracts that offer an award for meeting a cost target.
Since Time-and-Materials and Labor-Hour contracts involve close monitoring to ensure efficient methods and cost controls are used, the stakes for getting your estimate right are even higher. You have to submit a proposal that’s as accurate as possible. And the best way to arrive at an accurate proposal is to use software that gives you a whole toolbox of ways to ensure accuracy.
Generally, the more flexible the software is, the broader an array of contract types it supports estimation for.
Support different estimation methods
Whether you’re estimating for a simpler project with no hierarchy to the items, or for a complex project with a hierarchical estimation structure and multiple periods, the software should provide a way, at each level, to see relevant estimate totals. There’s no substitute for the level of completeness and accuracy this enables.
The software should store previous proposals and make it easy to copy them, both to create new proposals and to create the high and low estimates required for three-point estimation. Static values, formulas, assemblies, etc., should be stored in one place, making them easy to adjust to fit the new proposal – and you should be able to override those defaults where necessary, at each level in the estimate.
For parametric estimation, the software needs to offer variety of math-based elements to determine costs, supporting both default and custom elements at the system, project, and work item levels. It also needs allow setting project variables, like the cost of gas, that are relevant to many projects but vary over time and by location.
Help you follow your pricing methodology
To maximize consistency and minimize repetitive cost/price justification, the software should let you define the formulas and calculations, assemblies, equipment types, and other reusable data elements that the estimate will need.
The software should make it easy to identify any similar past proposals you can reuse data from, like by running comparison reports. You can’t afford the time or risk of errors involved in having to open several projects in separate windows or tabs, then visually comparing them.
Similarly, if you do reuse project data, the software should expedite adjustments for materials, labor, equipment costs, subcontractors, margins, administrative costs, and other indirect costs – for instance, through reusable data elements that can be easily modified for the new project.
To prepare you for auditing scrutiny, the software needs the ability to store notes for every item. It must also track every change and who made it.
As we noted earlier, the key to keeping your profit margin in the sweet spot is precision in controlling the relationship between cost estimation and pricing. The software should let you adjust margins in multiple ways at every level in the estimate, using formulas where possible for consistency and accuracy.
In addition to – as we noted under estimation methods – facilitating comparison of previous projects, the software should support other ways of exploring alternate pricing, like applying inflation or other cost/price escalation factors as needed.
The software should offer real-time editing so review meetings can easily go over current data and adjust on the spot, no matter where the attendees are.
Support key best practices
You can painstakingly establish your best practices for pricing government contracts, but if your pricing software doesn’t support those practices, you’ll struggle to implement them properly.
Stop repeating work
The software should support all of the following:
- Copying work items, schedules, labor breakdowns, steps, and more.
- Defining and reusing calculators and formulas.
- Creating system-wide, default Assemblies (reusable standard estimating components that have consistent parameters) and customizing them for new projects.
- Distributing values proportionately across items, in a variety of configurable ways.
- Defining and reusing Custom Properties at every level of the estimate.
- Creating system-wide project Taxonomies, for grouping and classifying projects based on things like customer, asset, or project type.
Collaborate globally at speed
Don’t let your pricing software slow you down. No one should have to wait to see the latest data, whether they’re a manager who needs to provide an update, a supervisor who needs to monitor their team’s work – or whoever it is.
The software should offer live data for every user (where possible, without requiring users to remember to save changes) no matter where they’re located. Team members should be able to enter and update items without worrying about editing conflicts. Distributed, mobile teams should be able to estimate from anywhere.
Learn from the past
Pricing software should help you retain historical data, capture senior estimator knowledge, and build libraries of best practice bids. Accurate estimation requires years of industry knowledge to get it right – you need to preserve it, centralize it, and make the most of it.
Additional key functionalities pricing software should offer
Since software for pricing government contracts needs to do more than support fundamentals and best practices, let’s review some of the key functionalities you need.
Meet Compliance requirements
As we’ve written about before, there is a vast array of government regulations you may need to comply with in order to contract with a governmental entity. Your software should do everything it can to help you achieve Compliance throughout the lifecycle of a project.
For example, the software needs to:
- Provide flexible deployment options, so you can meet networking, location, infrastructure, data storage, transmission, and backup requirements (like those for CMMC and ITAR).
- Log system activity, so you know who’s doing what, and can detect and analyze unlawful, unauthorized, or inappropriate activity.
- Enable granular user permissions for basic access as well as different levels of controlled material, so you can control who has access to data and who can do what with it (including sharing it).
- Support standardized, detailed estimation templates, so every cost element (e.g., labor, materials, overhead) is accounted for in a uniform way.
- Offer a host of features that minimize the risk of both errors and omissions.
- Provide plenty of space and locations throughout all levels of the estimate to document and justify the cost and pricing values.
Compare margins
Even if you can easily compare a new project to historical data, you still need to be confident that you’re setting the right margins for the new project. The software should let you try alternate rate cards, structures, etc., to identify the optimal margin configuration.
Manage multi-year projects
Scaling your work with government agencies means at some point you need to land large, complex contracts for projects that will take years to complete. To land those contracts, your pricing software must support and facilitate creating periods of performance for projects. It should also enable assigning work items, rate cards, and reporting either to a period or to the entire project.
Store attachments
Between specs, diagrams, revisions, requests, and so on, you can accumulate a lot of files that support values or otherwise pertain to estimating a project. These files can be key to justifying your estimation values, and can contain sensitive or controlled data. You don’t want them getting emailed back and forth, shared over cloud sites, or buried in file servers. The software needs to store project files in the project.
Allow subcontractors direct entry
As we’ve noted repeatedly, one key to minimizing errors and wasted time is eliminating duplicate data entry. If you’re working with subcontractors, you need to get their estimation data into your system. The last thing you want is anyone re-entering that data, or even using a clunky import. Your software should allow subcontractors to enter their own data while controlling what other data they have access to.
Assign owners and reviewers
Managing the workflow of your estimation within your software isn’t just a convenience feature. Tracking – in the same system as the work – who owns work and who reviews it, is key for auditing purposes. The software should let you assign owners and reviewers to estimation items.
Import and export data
Importing and exporting data is a basic feature of software. There are plenty of legitimate reasons users and workflows might need to do either one. Importing, of course, is required if you’re switching to new software. And while having reporting functionality built into your pricing software is useful (as we noted earlier), you may want to run more advanced reports in specialized software, and exporting is an easy way to do that. Plus, sometimes you just need to share estimation data offline. The software should let you filter the data before exporting, using elements like period of performance, rate card, users, etc.
Good data prevents AI hallucination
Garbage in, garbage out. Any AI tool or feature that assists with estimation, pricing, or proposal creation can only be as useful as the data it has to work with. Modern software for pricing government contracts should be built to position strong data, from estimates to actuals, from methods to tools to parameters to assets, that enable a common platform and data profile.
When your data is incomplete, lacks context, or contains inaccuracies or ambiguity, LLM-based AI models can put your organization at risk with inaccurate results. Today’s models are great at identifying patterns, but they have a long way to go in understanding what they see. Data with context will be key as that understanding ability develops. You need modern pricing software that provides a common platform for reliable data – or you’ll find yourself at a competitive disadvantage as future AI models improve.
OAE Is Built for Pricing Government Contracts
We’ve covered a lot of ground, and it may seem like a lot to ask from pricing software, but OAE is built for all of it.
