When pricing a government solicitation, the first thing to understand is how your proposal will be evaluated.
On a lowest price technically acceptable, or LPTA, pursuit, the goal is to meet the stated acceptability standards at the lowest evaluated price. Exceeding those standards doesn’t earn additional technical credit in the selection. FAR 15.101-2.
In a tradeoff evaluation, the government may pay more for an approach that offers enough additional value. The solicitation explains the relative importance of price and the other evaluation factors. FAR 15.101-1.
That difference should shape how you build and price your proposal. A more expensive approach needs to offer something the government values under the evaluation criteria.
From there, I’d work through a few things.
1. Understand what delivery actually costs.
What roles do you need, what do they cost, and how many hours will they work? Are there other costs, like technology, equipment, or subcontractors?
For labor-heavy work, start by translating the requirements into a staffing plan. You’ll often see roles described as labor categories, or LCATs. Each category may specify qualifications or experience that affect what it will cost to hire someone.
A job title alone isn’t enough to estimate that cost. Location, availability, and the experience required all matter. Then work out how many hours each role needs to support the contract.
Account for benefits, payroll taxes, overhead, and the other costs of supporting that work. Include the software, equipment, travel, subcontractors, and transition expenses your approach requires.
Be consistent about how you build the estimate. If a loaded labor rate already includes benefits and overhead, don’t add those costs a second time.
You need to understand your own costs regardless of how much weight price carries in the evaluation. The price also needs to support what you promise in the technical proposal. If the approach depends on senior staff or a particular tool, account for it.
2. Put competitor pricing in context.
Incumbent pricing and previous awards can help you understand what the government has paid for similar work. But check what’s changed before treating an old award as a target price.
Does it cover the same scope? Are the staffing requirements similar? Does it include the same number of locations and the same performance period?
Historical prices need to be assessed against changes in quantities, terms, and market conditions. The government’s own price-analysis guidance makes this distinction. FAR 15.404-1.
For example, an award for a small team supporting one location may be a poor comparison for a contract requiring a larger team across several sites. Even similar work can cost more to deliver if hiring or equipment costs have changed.
Use that information to challenge your assumptions and understand where your price sits. If your estimate is significantly higher, what explains the difference? If it’s significantly lower, have you found a more efficient approach, or have you missed a cost?
An award amount also doesn’t tell you a competitor’s profit margin. Treat it as a reference point that needs context.
3. Decide how low you’re willing to go.
A competitive price still needs to make sense for your business. Especially on an LPTA pursuit, it’s easy to keep reducing your margin to make the bid look stronger.
Is it worth winning a contract if you’re just going to break even?
There may be a strategic reason to accept a lower margin, such as building experience with a new customer. But that should be a deliberate choice, with an understanding of what the company can afford.
Compare a few pricing scenarios before making that decision. See what happens to expected profit when you lower the bid, then consider how much room remains if delivery costs increase.
For example, if a key hire costs more than expected or transition takes longer, does the work still make financial sense? If a lower price depends on fewer hours or a different staffing mix, make sure the revised approach can still meet the requirements.
The point is to understand what you’re committing to before the proposal goes in. Your margin should only go as low as you’re comfortable delivering at.
How we approach pricing at Capto
That’s what we’re building into Capto’s pricing workflow. We help contractors compare scenarios, review available incumbent and historical pricing, and understand the assumptions behind their bid.
You should be able to see what delivery is expected to cost, how your price compares with relevant work, and what happens to your margin as those assumptions change.
The goal is to make the tradeoffs clear enough that you can choose a price you’re comfortable delivering on.