Optimizing Your Pricing Strategy for Government Contracts
Pricing isn’t just about being the lowest bidder. Learn how to tailor your pricing strategy for federal contracts vs. state and local government bids.
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:
7 Proposal Mistakes That Cost Small Businesses State & Local Contracts
Small businesses often lose state and local contracts over simple mistakes. From weak summaries to missing forms, here are 7 errors to avoid in your next proposal.
7 Proposal Mistakes That Cost Small Businesses State & Local Contracts
Winning government contracts isn’t just about being the lowest bidder — it’s about submitting a clear, compliant, and persuasive proposal. Yet too many small businesses lose opportunities because of avoidable errors.
Here are seven common mistakes that can sink your state and local proposals — and how to avoid them.
1. Ignoring Formatting Instructions
Every RFP spells out submission requirements, which can often even include font size, page limits, file naming, and number of copies. Missing even one detail can disqualify you.
Fix: Create a compliance checklist before you start writing.
2. Weak Executive Summary
Agencies want to see why your solution matters quickly. Many small businesses jump straight into technical detail without explaining the benefits. I’ve watched many writers “start” with th Executive Summary because it is the first section in the proposal. What can they possibly summarize? Write the Executive Summary -last- and capture the key points about your company, the approach, your solution, and possibly the price if it is already included elsewhere in the same document. Don’t include the price if the instructions require submitting that in a separate document.
Pro Tip: Lead with outcomes — cost savings, efficiency, or community impact.
3. Overlooking Required Forms
From affidavits to subcontractor lists, local RFPs often come with multiple attachments. Missing one form can invalidate the entire proposal.
Pro Tip: For new proposal teams, assign someone to handle compliance forms separately from the narrative. Fill these early on and line them up for signatures well ahead of the due date. Be on the alert for requirements for a notarized signature - these are common in state & local solicitations, and can add some timeline.
4. Focusing Only on Price
Price matters, but state and local agencies rarely award to the cheapest bidder. They want a partner who is reliable, compliant, and trustworthy. If there is an evaluation scorecard in the RFP, review and critically analyze your competitiveness. Price is usually worth 20-35% of the scoring for a state or local contract.
Pro Tip: Show value — not just cost savings. You want to be “Better, Cheaper, and Faster” - not just “Cheaper.”
5. Generic Responses
Some businesses recycle the same boilerplate text across bids. Evaluators spot it instantly — and it signals that you don’t understand their agency’s needs.
Pro Tip: Never use a “template.” Tailor each proposal. Show you’ve read the RFP closely and understand their goals, and align the proposal to either exactly match the verbatim specifications in the RFP, or follow the RFP’s order of requirements, if not specified. AI is a powerful tool for quickly customizing commonly used blocks of content, without making the mistake of leaving some other agency’s name embedded in the text. Oops!
6. Ignoring Local Preferences
Many states and municipalities offer evaluation incentives. For example, California agencies apply bid incentives for DVBE-certified firms. Missing these opportunities leaves points on the table.
Pro Tip: Research incentive programs and thoroughly review the RFP for the same before writing.
7. Not Proofreading
Typos, inconsistent formatting, or sloppy graphics suggest a lack of professionalism. Evaluators may assume your performance will be equally careless.
Pro Tip: Always build in time for a final review. I typically conduct three full revisions of the proposal: an outline, a first draft (which includes a rough approach and answers), a second draft (with narrative content), and a final draft that focuses solely on completing formatting, pagination, and paragraph numbering.
Final Thoughts
Avoiding these mistakes doesn’t guarantee a win, but it does keep you competitive. Small businesses that submit clean, compliant, and tailored proposals often outperform larger firms. If you need assistance, editorial help, or guidance getting started, connect with us today.
For a full step-by-step guide to building winning proposals, check out my book:
How to Write Winning State and Local Government Proposals
Writing proposals for state and local government contracts isn’t the same as writing for federal agencies. Federal RFPs demand strict compliance and rigid formatting, while state and local bids often leave room for flexibility, relationships, and community-focused storytelling. In this post, we break down the key differences in formatting, evaluation, relationships, and scoring — and show how small businesses can adapt to win more contracts.
How to Write Winning State and Local Government Proposals (and How It Differs from Federal)
For small and mid-sized businesses, government contracting can open the door to steady growth. But here’s the catch: writing proposals for state and local agencies is not the same as writing for the federal government. Each level has its own rules, evaluation style, and even unspoken expectations.
Understanding these differences can be the deciding factor between winning and losing your next contract.
1. Formatting: Federal Rigid, State/Local Flexible
Federal Proposals
Federal solicitations usually follow the Federal Acquisition Regulation (FAR). They come with strict templates, section requirements, and formatting rules. Something as small as exceeding a page limit or mislabeling an appendix can disqualify your bid.
State & Local Proposals
State and municipal agencies vary widely. One RFP may want a simple 10-page narrative; another might require dozens of forms, affidavits, and certifications. They tend to be less rigid than federal proposals but often more inconsistent.
Pro Tip: Never assume you can recycle the same template. Federal proposals demand exact compliance; state and local proposals reward flexibility while still punishing missed details. In practice, I use a lot of common content from one proposal to the next, but think of this as more of a “code block” - not a “template.” AI is a great tool for making quick customizations to the pre-written paragraphs
2. Evaluation: Technical Scoring vs. Practical Fit
Federal
Federal agencies evaluate proposals against a published scoring system. Every requirement is graded, and “best value” often means balancing technical quality with price. Past performance is heavily weighted, and reviewers usually have deep procurement experience.
State & Local
Evaluations can be less formal. City councils, county boards, or local procurement teams may place a stronger emphasis on clarity, practicality, and alignment with community goals. Subjective impressions — such as trustworthiness or ease of working with you — often matter as much as technical scoring.
Answering the requirements by parroting back that the bidder will comply with the requirement is easy to do - but ensure the opportunity is truly a fit for the company.
Pro Tip: For local proposals, write in plain, clear language. Show how your solution directly benefits the agency and its community — not just that you can deliver the scope.
3. Relationships: National Past Performance vs. Local Visibility
Federal
At the federal level, proposals live and die by documented past performance (CPARS, references, and subcontract history). Relationships play less of a role in evaluation.
State & Local
Relationships matter more. Pre-bid conferences, vendor outreach events, and even informal connections with procurement officers can influence the evaluator’s confidence in your business.
Pro Tip: Invest time in local networking. Many state and city agencies prefer to award contracts to businesses they know and trust.
4. Scoring Incentives: Federal Set-Asides vs. Local Preferences
Federal
Programs like SDVOSB, 8(a), HUBZone, and WOSB offer dedicated set-asides and evaluation advantages.
State & Local
Incentives vary by jurisdiction. For example, California’s Disabled Veteran Business Enterprise (DVBE) Program awards bid incentives and requires prime contractors to meet DVBE subcontracting goals. Many counties and cities also apply local vendor or minority-owned business preferences that can tip the scales in close competitions.
Pro Tip: Always research the specific preferences in your target market. A two- or five-percent scoring boost can be the edge that wins the award.
Key Takeaways
Winning government contracts requires adapting your strategy. Federal proposals reward strict compliance and technical depth. State and local proposals reward clarity, relationships, and alignment with community values.
If you want a deeper step-by-step guide to mastering proposal writing, check out my book: