Optimizing Your Pricing Strategy for Government Contracts
Optimizing Your Pricing Strategy for Government Contracts: Local vs. Federal
Pricing can make or break your proposal. Too high, and you risk being non-competitive. Too low, and evaluators may question your ability to deliver. For small businesses, the challenge is even greater: how do you balance competitiveness with profitability?
The key is understanding how pricing strategies differ between federal contracts and state/local opportunities — and how to tailor your approach to each.
1. Federal: Cost Realism and Compliance
What it means: Federal agencies scrutinize pricing for compliance with the Federal Acquisition Regulation (FAR). They don’t just look for the lowest cost — they evaluate whether your pricing is realistic and aligned with your technical proposal.
Common mistake: Underbidding labor categories in service contracts, only to be flagged as unrealistic.
Pro Tip: Align labor rates with federal benchmarks (e.g., GSA, Bureau of Labor Statistics) and back them up with clear assumptions.
2. State & Local: Budget Sensitivity and Responsiveness
What it means: State and local agencies are often bound by strict annual budgets. Price is a key factor, but evaluators also look at whether your proposal fits within their budget constraints.
Common mistake: Submitting a technically strong proposal that’s priced beyond what the city or county can afford.
Pro Tip: Research the agency’s prior awards or council budgets to understand likely funding levels before finalizing your price.
3. Balancing Price and Value
Federal: Value comes from compliance, past performance, and ability to scale.
State/Local: Value often means practical benefits — lower administrative burden, faster implementation, or local community impact.
Pro Tip: Emphasize value in terms that match the agency’s priorities. A federal evaluator may care about compliance with FAR Part 15, while a city procurement team may care more about jobs created locally.
4. Incentives and Preferences
Pricing strategy isn’t just about numbers — it’s about how incentives affect scoring.
Federal: SDVOSB, WOSB, and 8(a) set-asides limit competition.
State/Local: Programs like California’s DVBE Program offer bid incentives. Even if your price isn’t the lowest, incentives can narrow the gap and help you win.
5. Avoiding the “Race to the Bottom”
Small businesses often assume they must be the lowest bidder. That’s a myth. Most government RFPs use best value scoring, meaning cost is only one part of the evaluation.
Pro Tip: Price fairly, not desperately. A balanced pricing strategy — competitive but sustainable — builds credibility and sets you up for repeat awards.
Final Thoughts
Whether you’re competing for a federal IT services contract or a county facilities maintenance contract, pricing strategy is never one-size-fits-all. Federal buyers want cost realism and compliance. State and local buyers want budget alignment and community value. The best small business contractors master both.
For deeper strategies on proposal development, see my book:
