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.