Seven Key Formula for Winning Cost Proposals

In a highly-competitive environment with tight budget constraints, your cost proposal solution must not only be compliant but also responsive, competitive and convincing.

From the cost side, it is nearly impossible to have an impact on the technical proposal. But you can follow seven key basics that will go a long way to making your next proposal a winning cost proposal as well.

1. Have available and make use of current customer information – know the market factors driving price.

Knowing what your customer is all about is the first step. You are merely guessing about the customer without knowledge of their prior buying history, their budget pressures, authorized program funding, deductions for program support, customer staff, and reserves as well as their independent cost estimate and whether they are price oriented or performance oriented. You must obtain your intelligence ethically.

2. Know what it costs your company to do business.

We’ve often heard from many companies that they can’t find out what it costs to do the work until the final RFP comes out. That’s hogwash. With a draft RFP you can do an early estimate of what it costs you to do the work. Without a draft RFP you ought to have enough intelligence about the procurement to estimate what it will cost you – even if it is a wide ranging estimate. Remember this is not an exact science and you will get more accurate as you get closer to the real RFP. Knowing the costs early will help you get creative in the last step. If you wait until the final RFP comes out, you are too late to make a creative difference in your pricing (different from cost) because you are too busy guessing about what the real costs are. With knowledge about your costs early, you can make many creative choices to win.

3. Know what your competitors’ costs are to do the same business.

Without competitive information, you are just guessing about what it takes to win. This information is readily available through GSA Advantage, Internet searches, FOIA requests, and subscribed search services such as EZGovOpps and GovWin. Find out who your competitor teammates are and how they will bid by looking at past wins by your competition and their teammates. Gather intelligence about what corporate investments they are likely to make in the project and what their probable approaches are to bidding. Find out the little tricks your competitors use to get lower pricing such as changing work locations to get to lower base, infusing productivity enhanced tools, staff greening. Companies tend to do the same things over time. You also need to consider whether your competitors are incumbents. Incumbents tend to take fewer risks and think less ‘outside the box’.

4. Provide a well-designed work breakdown structure (WBS) that ties to the performance work statement and is supported by basis of estimates.

We believe that without a WBS for estimating the work outlined in the performance work statement or the statement of work, you can’t adequately think through all of the elements related to performing. You are likely to leave out some elements or potentially double up on your estimates. We often find that a three level WBS is adequate to estimate the work. Further, we see that contractors frequently estimate at all levels of the WBS rather than only at the third level, causing confusion and estimating incorrectly. When you develop this level of detail, it is easier to detect where you can make corrections, cuts or additions to your costing.

5. Actively determine your company investments in the project you are bidding.

Company investments are those items that your corporation makes to enhance the performance or efficiencies of the project (training, recruiting, transitions), investments in property, plant and equipment, and project-specific reductions taken by the corporation in indirect rates. All of these types of investments are those which are shouldered by the corporation and are not reimbursement items by the Government.

6. Be the company that is easy to do business with.

Give them what they ask for and more. The company that wins is the company that makes the evaluation easy, presents the data (technical and cost) in an organized trackable fashion, and presents the data in both written and electronic formats. Even if the RFP doesn’t ask for electronic format, give it to the Government that way anyway. Retain all formulas so that the evaluator can easily follow your thought processes. Remember, the firm that gives them the written and electronic version they can trail through, will likely make unscored points with the evaluators.

7. Be cost competitive and get creative about it.

This step is the easiest (really) if you have satisfied all the remaining steps before this one. This means you sharpen your pencil and your mind about labor rates, staff greening, de-escalation, competitive fee structures, competitive and new indirect rates, bidding direct whenever possible, and company investments.

All those details aside, there needs to exist a visible unity of purpose and thought among all of the elements of the proposal. Simply put, you can’t describe something in the technical or management proposal that isn’t identified in cost. Many (maybe most) proposals are very hard to trace from one volume to another. Brash as it might sound, there should always be an identifiable link between the elements, even if you have to create it for yourself.

Most projects or products, either implicit or explicitly have a work breakdown structure. For projects it’s usually something like the structure of the statement of work. For products it might look a lot like the specification. However it happens and as difficult as it might be to get agreement on it’s specifics, such a breakdown exists. It’s this breakdown that is the most viable contender for linking the various volumes.

Absent specific direction in the solicitation, this breakdown would make a sensible, easy to explain and important link between the technical and cost proposals. “But the customer didn’t ask us to do that.”, you say. Yeah, you might be right, but you do want to win don’t you. Customers want to buy from companies that are easy to do business with. A great way to start to cement that impression might just be by making your proposal easier to understand than the competition’s. “But it’s too much work to do the pricing that way.”, you might say. You do want to win?