A recurring trend I see among first-time bidders is the submission of a significantly higher price than the winning vendor. It is not uncommon to see bid tabulations that show the highest priced vendor at 10 or 15 times the awarded contract. More often than not the culprit is a first-time bidder.
Why does this happen?
Vendors often fall into the trap of thinking that government has a lot of money and they can get away with charging a higher price than they might ordinarily propose. Those who are less experienced at government bidding sometimes fail to do their homework on their competition and customer. They sense that in the scheme of things the contract they are bidding on is small given the overall annual spending of the agency and so the customer can afford a higher price – basically they get a bit greedy. But the reality is very different. Government often will get a better price than the market because they are disciplined buyers – seeking as much competition as possible and undertaking a rigorous procurement process.
You need to change your strategy when it comes to proposing a price that will win a government contract
First, don’t be greedy. It goes without saying that your proposal should be profitable though. It’s not worth bidding a price that will cost you more than you make as it will only end up catching up with you later.
Remember also that in the private commercial world, vendors often pitch a price that is higher than the one they will ultimately take on the basis that they expect some kind of negotiation to take place. Street smart business people know that buyers like to feel they are getting a good deal and so often propose prices that end up being higher than the amount they finally settle upon.
Government contracts that are awarded solely on price require a different strategy. There is rarely any negotiation – the lowest bidder wins and the government agency accepts the price that was bid. Moreover, 9 times out of 10 other experienced government bidders will also be submitting proposals. They will price competitively and so failing to analyze what your best price is may mean that you have wasted your time and energy responding to the bid.
Be smart when submitting a proposal on a government bid and be realistic with your pricing.
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Alternate explanation: experienced bidders more likely to have inside knowledge of actual budgets.
Dennis,
I agree knowledge is power. Experienced bidders know the questions to ask in order to gain that knowledge. They know that they can get hold of a copy of the budget either by looking on the website or asking. This isn’t “inside knowledge” as it is available to all – they just know how to get it. As I said in my post, first time bidders don’t do their homework.
Thanks for the comment.
Stuart
Hello Dennis,
I am newly in business, and have interest in doing business with the government, it would be helpful if you could please blog about how to write winning Proposals for government contracts. Maybe even provide some links for finding out more of a direction on where to start, what they require, and what their actually looking for.
And for people in my same situation (New Business Owners), when it come to bidding on government contracts, I am coming across most contracts which require at least two years of previous government contract work experience. How would I go about getting that experience, or could I work with what I have?
Merline,
Writing a good proposal is very important and I will absolutely make sure to blog on best practices. I know businesses also sometimes come up against the “experience” issue too and have some ideas on this. For one, you might try to team or partner as a sub-contractor with a bigger company. If you are newly in business, you will probably qualify as a small business and bigger contractors are often looking to partner with small businesses to make their proposals more attractive. I’ll write some more on this too. The main thing is you are looking into this important channel – essential for any small business to seek to work for government. I hope I can write some useful posts for you in the future.
What industry is your business in?
Stuart