Pricing is where government contracts are won and lost. Price too high, and you lose to competitors. Price too low, and you erode margins—or worse, get rejected for being unrealistically low. This guide shows you how to find the sweet spot that wins contracts while keeping your business profitable.

Understanding Government Pricing

Government pricing differs from commercial sales in several key ways:

  • Transparency: Your pricing may become public information
  • Cost analysis: Agencies analyze whether prices are "fair and reasonable"
  • Fixed budgets: Funding is often predetermined
  • Competition: Most awards go to lowest responsive, responsible bidders

Research Before You Price

Never bid blind. Use these resources to understand the market:

USAspending.gov

The gold standard for pricing research:

  • Search by NAICS code or product/service
  • See actual award amounts
  • Identify who wins and at what price
  • Track pricing trends over time

GSA Advantage

For products, check GSA Schedule pricing:

  • Shows government pricing for commercial items
  • Helps establish fair market value
  • Reveals competitor pricing strategies

DIBBS for DLA

If bidding on DLA contracts:

  • View "Award History" for any NSN
  • See recent award prices and quantities
  • Understand seasonal pricing patterns

Cost-Plus vs. Fixed Price

Understand which pricing model applies:

Fixed Price

You agree to deliver for a set amount. Best for:

  • Well-defined requirements
  • Products with known costs
  • Competitive bidding situations

Cost-Plus

You're reimbursed for costs plus a fee. Used for:

  • Research and development
  • Complex services with uncertain scope
  • Contracts requiring detailed cost tracking

Building Your Price

A winning price includes:

1. Direct Costs

Costs directly attributable to the contract:

  • Materials and products
  • Labor (hours × rates)
  • Subcontractor costs
  • Travel and shipping

2. Indirect Costs (Overhead)

Business costs allocated across contracts:

  • Facility costs
  • Administrative salaries
  • Insurance and utilities
  • General supplies

3. Profit

Your return on the contract:

  • Commercial: typically 10-20%
  • Government: often 5-15%
  • DLA parts: frequently 10-30%

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Competitive Pricing Strategies

1. Market-Based Pricing

Price based on what the market will bear:

  • Research recent awards for similar items
  • Price within the historical range
  • Adjust for quantity and delivery requirements

2. Cost-Plus Pricing

Calculate your costs, then add profit:

  • Accurate cost tracking is essential
  • Document your cost basis
  • Justify your profit percentage

3. Value-Based Pricing

Price based on the value you deliver:

  • Faster delivery than required
  • Superior technical approach
  • Unique capabilities or certifications

DLA-Specific Pricing Tips

For DIBBS opportunities:

  • Check award history: DIBBS shows what DLA recently paid
  • Factor in shipping: DLA often requires FOB destination
  • Consider packaging: Military packaging requirements add cost
  • Watch quantity: Large quantities may justify lower per-unit prices
  • Monitor competition: Some FSCs are more competitive than others

When to Walk Away

Not every opportunity is worth bidding:

  • Price would be below your cost
  • Competitors consistently undercut you
  • Requirements are unclear or risky
  • Customer has poor payment history

Price Adjustments

After winning, you may need to adjust pricing:

  • Economic price adjustments: Built into some contracts for inflation
  • Modifications: Scope changes may justify price changes
  • Options: Pre-negotiated prices for follow-on work

Common Pricing Mistakes

  • Ignoring hidden costs: Shipping, packaging, overhead
  • Underpricing to win: Creates unsustainable business
  • Overpricing: Loses to competition
  • Not documenting basis: Makes price realism questions hard to answer
  • Missing escalation: Multi-year contracts need inflation adjustments

Final Thoughts

Pricing is both science and art. Use data to inform your decisions, but remember that every situation is unique. Build a pricing process that:

  • Covers all your costs
  • Generates sustainable profit
  • Remains competitive in your market
  • Can be justified to customers

The contractors who win consistently are those who understand their costs, know their market, and price strategically—not just low.

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