Bust These 10 Pricing Myths During Government Contract Negotiations

Negotiating a final contract price isn’t always an endless back-and-forth. Nor is a 10% limit on the profit you can earn. Of course, you’ll usually have to navigate some obstacles to pricing success during a contract. But these shouldn’t include the pricing myths that are still pervasive in the proposal process.

In government contracting, a myth is often based on an old status quo that has since been debunked but remains a perceived, inconvenient truth for a few years—or even a few decades.

Learn about 10 of the most prevalent pricing myths below.

#1

Myth: The low bidder always wins.

Fact: The best-value contractor often wins.

Some federal contract awards do consistently land with their respective low-price bidders. For instance, a low-bid award is the nature of Lowest Price Technically Acceptable (LPTA) contracts. But with LPTAs, you know from the outset that the most economical price will win the contract, with all other technical competencies being equal among the bid candidates.

However, federal and state agencies usually have the prerogative to award contracts to firms that offer the best value. Over the past two decades, the government has been quicker to realize that a minimal price point on a contract doesn’t always equal a low cost, especially if there are quality issues with deliverables, ancillary fees for changes, rate hikes due to proposal amendments and similar mishaps.

In reality, awarding to the lowest bidder is now more of an exception than a regular occurrence. Agencies are finally following industry’s lead on this practice.

#2

Myth: You assume all the risk in firm-fixed-price contracts.

Fact: The government shoulders equal weight. 

As a contractor, you may be held to a certain standard of work for a set fee during firm-fixed-price (FFP) federal contract awards. However, if you’re frugal in your costs and careful in your execution, you can still earn a handsome profit at the end of your contract day.

Meanwhile, the government has to monitor for quite a few potential slips on its end. An agency may have to liquidate a project for damages if a contract goes sideways or terminate an agreement for default if your performance is consistently inadequate. It loses money in both scenarios.

If an agency has been vague about specifications in the Statement of Work (SOW) section of an RFP, you can deliver the finest product imaginable, yet the government can still come up empty-handed. Through no fault of yours, the agency involved doesn’t have what it wants. But you still get paid as you’ve delivered to requirements. In these cases, the agency’s lack of clarity can cost it—substantially.

#3

Myth: Government-furnished property lowers your costs.

Fact: GFP can increase your costs.

Be careful when an agency offers you government-furnished property (GFP) to fulfill the terms of a contract you’ve won. You might think the provided materials will always decrease your hard costs, giving you more room for margin. In many cases, you can be wrong.

Statistics show that GFP is often defective, damaged, delivered late or a combination of these factors. Add to this the rules you’ll have to follow in dealing with GFP as specified in FAR Part 45, and you could incur significant expenses as you identify and mark the property’s issues, ship the property, track the GFP’s progress back to the agency…and document every step you take. 

If you decide to keep and use sub-par GFP? You’re responsible for maintenance costs yourself, further reducing your profit potential.

#4

Myth: Agencies don’t share proposal pricing data.

Fact: Agencies share with other agencies. 

True, agencies are under a code of silence when it comes to disclosing proprietary information to the general public. But the misnomer that they can’t share your cost and pricing data with other agencies is just that—a misnomer.

In fact, the government encourages agencies to exchange pricing information on federal contract awards. It’s one way agencies serve as a check and balance on one another, ensuring that awards fall within a generally accepted range and that taxpayer dollars are wisely spent.

Contractors benefit, too. If an agency awards a contract at a meager price, their colleagues may call them on it after sharing data. There’s a realization that quality work can’t happen for the awarded amount. Bids are known to level up in price when an agency isn’t afraid to confront another.

#5

Myth: A bid protest is something to avoid at all costs.

Fact: A bid protest can benefit both contractor and agency. 

Maybe you, as a contractor, question an agency’s rationale for its latest pre-award. Or you think there’s a lack of cost realism in an RFP’s Statement of Work (SOW). Or you misunderstand ambiguous asks in an RFP—causing you to feel less than confident about your proposal. 

In these cases, you should challenge the procurement by voicing your concerns through a bid protest. Especially if the contract is worth millions or billions of dollars. 

Will a bid protest put you at risk of retaliation? Contrary to popular belief, the answer is “no.” Your potential partner agency deserves helpful feedback. And you deserve to negotiate your best deliverable, cost set and price. 

Contracting officers (COs) are committed to executing an excellent procurement through a contract, and agency conversations with contractors help you improve your deliverables and produce the best value for both parties. 

COs also realize that a bid protest usually signals that meaningful information has been left out of an RFP—a narrative addition the agency likely should have considered before releasing the bid.

#6

Myth: Past performance is the most critical factor in winning.

Fact: Past performance is just one piece of the puzzle. 

You’ve heard it repeatedly: “Past performance is king in government contracting.” While your track record matters, it’s not a silver bullet to winning contracts. Agencies are increasingly looking for a holistic picture of what you can bring to a bid.

Three examples: Your innovative thinking, technical prowess and ability to flexibly adapt to shifting requirements can often outweigh the impact of a stellar past performance record. For instance, a new market entrant who boasts leading-edge technology might win over an established player with a long history of success but outdated methods. 

Remember when cloud computing was just taking off? Many agencies were willing to take a chance on newer firms with cloud expertise, even if they lacked government experience. The lesson? Bid on contracts where you know you can deliver value; don’t let a lack of past performance hold you back.

#7

Myth: You must be a huge brand to win significant contracts.

Fact: Small businesses often have unique advantages. 

It’s easy to feel dwarfed by the big players in government contracting. But here’s the truth: Being small can be your superpower.

The government has specific set-aside programs designed to level the playing field for small contractors. These programs include contracts exclusively for micro-small businesses, women-owned small businesses, service-disabled veteran-owned small businesses and businesses in HUBZones (marginalized areas, usually urban).

Also, your agility as a small business can be a powerful weapon. You can often respond more quickly to changes, deliver more personalized service and suggest more unconventional solutions than larger, bureaucratic contracting firms could ever hope to offer.

Take the case of a small cybersecurity firm that won a significant contract with the Department of Defense (DoD). Its lean team structure allowed the firm to pivot on a dime when new threats emerged, delivering real-time solutions that its larger competitors couldn’t match. In contracting, size isn’t everything. Your differentiator can be the fast value you bring.

#8

Myth: Once you win a contract, you have steady work. 

Fact: Contract terms can change; stay adaptable.

Winning a government contract can make you feel like you’ve crossed a finish line. In reality, it’s just your starting point. Multi-year contracts can give you a sense of security, but it’s a myth that they guarantee steady work throughout their duration.

Policy fluctuations can cause agency needs to change rapidly, as can budget shifts and unforeseen circumstances, such as scope modifications. In some cases, your contract might terminate simply for the sake of agency convenience.

For example, consider a five-year IT support contract you’ve just won from a federal agency. Six months in, a major breach occurs, and suddenly, your agency client needs to pivot its entire IT strategy. Your contract could significantly modify or even abruptly end. 

The key to dealing with this is to stay flexible and always maintain open lines of communication with your CO. Adapt your services as needed, and you may not only retain this contract but also position your firm for future opportunities.

#9

Myth: Pricing negotiations end once you’ve won a contract. 

Fact: Pricing negotiations can continue throughout a contract lifecycle.

Various factors can trigger “pricing renegotiations.” Anything from contract wording changes to market condition shifts can lead to new pricing discussions. Your CO might request pricing reductions if they feel the marketplace has changed in the agency’s favor—in other words, those who offer your product or service have saturated the marketplace. Conversely, you might need to request a price adjustment if unforeseen circumstances, such as supply chain slogs, increase your costs. 

For instance, imagine you’ve won a contract to supply specialized equipment to a government agency. Once you enter the contract, a global shortage of a fundamental component will markedly drive up your production fees. In this case, you’re within your rights to approach the CO about considering a higher total project price. Keep detailed cost records and be prepared to justify any requests for price changes. Keep an eye on marketplace trends. Above all, be proactive in communicating with your CO.

Remember, your end goal is to always maintain a win-win relationship with any agency you do business with. 

#10

Myth: Your pricing proposal’s format makes no substantial difference.

Fact: Your pricing proposal’s format can increase your wins.

If you’re like many contractors, you’ve been creating proposals in Microsoft® Excel® for years with limited success in controlling formatting consistency, avoiding graphic aberrations and protecting against data disappearances. 

Being on the same proposal software platform as your agency client can significantly impact your contract success. 

Many agencies today use tools like Deltek ProPricer, which eliminates the modeling process a CO has to go through each time you submit a proposal iteration. Platforms like these easily import your file and create an instantly organized view of your pricing data—with your fully functional cost model intact and ready for inspection and negotiation. 

Platforms like ProPricer are also a massive time-saver for your contracting firm—they iterate up to five times faster than Excel or similar software. With a few clicks, you can improve bid accuracy, access real-time pricing and stay compliant and secure.