Pricing to Win and Deliversdric.sdsu.edu/docs/Pricing to Win and Deliver.pdf · 2015-11-24 · Network for Enabling Small Business Teaming (NEST) Workshop 2 WINNING THE OPPORTUNITY

Network for Enabling Small Business Teaming (NEST) Workshop 2

WINNING THE OPPORTUNITY

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Pricing to Win and DeliverJune 19, 2012

Susan Pernia, MBA/PMP

Consultant, Foundation for Enterprise Development

[email protected]

The information provided in these training materials is not all inclusive

and companies should consult with their legal, contracts and financial staff regarding all teaming decisions

NEST WORKSHOP 2 (c) 2011 The Foundation for Enterprise Development June 19, 2012

Price to Win – Introduction

� What: A strategic approach to determining what bid price would provide the

highest probability of winning the contract

� Why: Increase the competitiveness of your proposal

� How: A structured process integrating top-down and bottoms-up technical and

management analysis of the opportunity

� Who: Any combination of members of the Capture/Business

Development/Proposal Teams – usually cross-disciplinary

NEST WORKSHOP 2 (c) 2011 The Foundation for Enterprise DevelopmentJune 19, 2012

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Development/Proposal Teams – usually cross-disciplinary

� When: Beginning BEFORE the final solicitation and THROUGH the proposal

development process end of contract period of performance

Then it’s time to deliver what you priced

RFI

Federal Procurement Life Cycle

RFP Contract Start EndProposal

Price to Win Price to Deliver

Price to Win Can BeA Key Factor In Winning Proposals

Proposals Which Are Priced To Win Must Be Both Compliant and Competitive

� Compliant – fully addresses RFP Requirements

� Coherent – enables easy understanding by the government for allocating high bid evaluations


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allocating high bid evaluations

� Credible – presents technical and management approaches based on realistic solution, current capabilities, and past performance

� Compelling – defines unique and best-in-class solutions and services with strong value propositions

� Competitive – meets or exceeds procurement requirements with lowest price and/or “best value”

Price to Win ActivitiesThroughout the Procurement Process

�Gather

Internal Cost

Performance

RFI

Federal Procurement Life Cycle

RFPContract StartProposal

• Perform

Competitive

Analysis

Contract End

• Negotiate Final

Procurement

Requirements and

• Track actual costs

against bid price

• Perform cost variance


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Performance

Data

�Assess

Potential

Competitors

�Determine

Govt Funding

Analysis

• Develop Bottoms

Up Cost Model

with Risk

Analysis

• Determine Top-

down PTW

Range And

Tradeoffs

• Decide PTW

Requirements and

Final Price

• Update Risk

Assessment and

Program Plan per

negotiated

Contract

• Perform cost variance

analysis and initiate

corrective actions

• Deliver compliant

performance in budget

• Gather historical cost

performance data for

future bids

Leveraging Diverse and Complex Information in Developing Price to Win

Historical Contract/

Funding Data

Competitor Capability/ Cost Data

Anticipated

Pricing Target

Competitive

Analysis


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Procurement Terms

and Conditions

Cost Data

RFP Pricing Terms

Bottoms Up Cost

Estimates

Analysis

Compliance

Matrix

Cost Model for

Sensitivity

Analysis

Price to Win

Price to WinAssess Knowledge of Customer

Sources of Customer

Information

Types of Customer

Information

Importance for Price to Win

• Individual

Government

• Government Roles and

Responsibilities

• Customer expectations regarding price

(c) 2011 The Foundation for Enterprise Development June 19, 2012

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Representatives

• Agency

Websites

• Historical

Federal

Contracts

• Etc.

• Documented

Requirements in

Previous Contracts

• Undocumented

Requirements and “Hot

Buttons”

• Contract Performance

regarding price

• Financial Risk Concerns

• Etc.

Price to WinAssess Knowledge of Competitors

Sources of Competitor Information

Types of Competitor Information

Importance for Price to Win

• Prior Contract

Information (In

• Corporate Capabilities • Comparison of past financial and technical


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public domain)

• Customer

Websites

• Customer

Brochures/

Tradeshow

Presentations

• Etc.

• Key Personnel

• Descriptions of

Services

• Specifications of

Products

• Price Schedules/Labor

Rates/Indirect Rates

and technical performance

• Comparison of potential bids for solicitation

• Input for Bid/No Bid and Final Price

Potential Ethical IssuesRelated to Customer/Competitor Information

Issue Negative Impact Mitigation

Acquiring proprietary Government Information

Unfair advantage that could lead to protest or exclusion from bidding

Company leadershipand corporate policies prohibiting this

Acquiring proprietary Competitor Information

• Prior employees

Unfair advantage that could lead to protest or exclusion from bidding

Company leadershipand corporate policies


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• Prior employees• Prior contracts• Prior NDAs and

Teaming Agreements• Prior Subcontractors

from bidding

Ruined reputation for future bids and for future teaming opportunities

and corporate policies prohibiting unethical behavior

• Proposing Prices/Costs that are not accurate

Financial loss for company

Government record of poor financial performance

Rigorous financial reviews by senior management

Examples of When Price to Win May be Appropriate or Not

Factors When Price to Win Is Likely a Viable Bid Strategy

Gray Area

Factors When Price to Win May Not Be a Viable Bid Strategy

Adequate lead time to gather and

assess information on competitors

and customer

No lead time – barely enough time

to develop minimally compliant bid

using bottoms up estimation

There are available resources who Qualified resources not available


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There are available resources who

know how to collect required data,

evaluate it, and apply it to PTW

decision-making

Qualified resources not available

or accessible, and other resources

may not be able to provide useful

PTW recommendations

There are known competitors who

have consistently out-bid you

through Best Value or Lowest Cost

There are known competitors who

you have consistently out-bid to

win work for specific solutions

Key Terms and Conditions Related to Price To Win and Deliver

Term Definition *FAR source

Pricing Establishing a reasonable amount or amounts to be paid for supplies or

services.

Best Value Expected outcome of an acquisition that, in the Government’s estimation,

provides the greatest overall benefit in response to the requirement *

Tradeoff process

When it may be in the best interest of the Government to consider award

to other than the lowest priced offeror or other than the highest technically


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process to other than the lowest priced offeror or other than the highest technically

rated offeror.

Design to Cost A concept that establishes cost elements as management goals to achieve

best balance between life-cycle cost, acceptable performance, schedule*

Lowest PriceTechnically Acceptable

A source selection process which is appropriate when best value is

expected to result from selection of the technically acceptable proposal

with the lowest evaluated price.

Cost Realism Process of independently reviewing elements of proposed cost estimate to

determine if these are realistic for work to be performed; reflect a clear

understanding of requirements; and consistent with unique methods of

performance and materials in technical proposal

Key Terms and Conditions Related to Price To Win and Deliver

Term Definition *FAR

Direct Cost Any cost identified specifically with a particular final cost objective; not

limited to items incorporated in the end product as material or labor. *

Indirect Cost Any cost not directly identified with a single final cost objective, but

identified with 2+ final cost objectives or 1 intermediate cost objective.

General and Any management, financial, and other expense which is incurred by


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Administrative Expense (G&A)

or allocated to a business unit for the general management and

administration of the business unit as a whole.

Overhead Cost Expense incurred for, or that only benefits, an identifiable unit or

activity of the contractor internal organization

Unallowable cost

Any cost under provisions of any pertinent law, regulation, or contract,

cannot be included in prices, cost-reimbursements, or settlements

Allowable Costs

Recorded costs that, at the time of the request for reimbursement, the

Contractor has paid by cash, check, or other form of actual payment

for items or services purchased directly for the contract

Elements of CostAnd Pricing Factors

COST ELEMENT PRICING FACTORS PRICING FLEXIBILITY

Prime Contractor Direct Labor Cost

(Hours x Rates)

Labor categories

map to SOW and

address skill

requirements

Rates may be adjustable per

staff/ salary mix for each

labor category and lower

hours for more senior staff

Subcontract Total Direct Labor Cost

(Hours x Rates)

Prime Overhead Cost (Per Rates) Rates are set for the

year and must be

Rates hard to adjust in short

term; changes require long Prime Service Center Cost


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year and must be

auditable

term; changes require long

term financial and

accounting planning

Prime Service Center Cost

(Per Rates)

Prime Total G&A Cost (Per Rates)

Prime Non-Labor Costs

(Equipment, Training, Travel, etc)

GFE vs CFE

Travel often set

Adjustability specific to each

procurement

Subcontractor Non-Labor Costs/Fee Specified by Prime Negotiated by Prime/Subs

Prime Facilities Capital Costs As Required If required, corporate sets

Prime Fee (Per Rates) Per Contract Type Ranges from Low to High

Total Bid Price

Pricing Strategies Need to Align with Procurement Requirements

Range of Procurement Requirements

Precise and Unambiguous Requirements

General and Broad

Requirements


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Narrow Set of Solutions

Are Proven, Low Risk and Available

PRICE IS LIKELY A MAJOR VARIABLE

Broad Set of Solutions Are

Possible, Higher Risk, and Under

Development

PRICE MAY NOT BE THE

MAJOR VARIABLE

Pricing When the Government Procurement Presents Definitive Requirements

Range of Procurement Requirements – High Definition

Precise and Unambiguous Requirements

EXAMPLES OF ALTERNATIVE BIDDING STRATEGIES


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Narrow Set of SolutionsAre Proven, Low Risk and Widely Available

PRICE IS LIKELY A MAJOR VARIABLE

• Undercut price intentionally to gain new contract

• Offer price reductions under specific proposed terms, e.g. lower unit cost with higher volume of product/service

• Emphasize lower risk and/or higher reliability of product/service

• Offer fee reduction to demonstrate form of “cost sharing” partnership

Pricing When the Government Procurement Presents Broad/High Level Requirements

Less Definition - Range of Procurement Requirements

EXAMPLES OF ALTERNATIVE BIDDING STRATEGIES

Imprecise and Ambiguous

Requirements


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1. Bid lowest price for minimally compliant solution – if cost critical

2. Bid lowest risk compliant solution –if risk most critical

3. Develop highest functionality and performance compliant solution – if level of capability most important

4. Present trade-offs of cost, risk and performance to enable Government to adjust chosen solution

Broad Set of SolutionsPossible, Higher Risk,

and Under Development

PRICE IS NOT THE MAJOR VARIABLE

Price to Win DiscussionExample – NASA Procurement for IT Support

EXAMPLE OF A RECENT SMALL BUSINESS PROCUREMENT

NASA- NNJ12364358R: An 8A set-aside for IT services/Cost Plus Fixed Fee & FFP

� Section A - Solicitation/Contract Form

� Section B – Supplies Or Services And Prices/Costs

� Section C – Description/ Specification/ Work Statement

� Section D – Packaging And Marking


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� Section D – Packaging And Marking

� Section E – Inspection And Acceptance

� Section G – Contract Administration Data

� Section H – Special Contract Requirements

� Section I – Contract Clauses

� Section J – List Of Attachments

� Section K - Representations, Certifications, And Other Statements

� Section L – Instructions, Conditions And Notices To Offerors

� Section M – Evaluation Factors For Award

NASA Solicitation Example:The Work to be Priced and Delivered

Statement of Work

Managerial, administrative, and technical work needed to provide the functions, products, and services in support of NASA’s human spaceflight programs.


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The objectives of this contract are to acquire skilled support involving:

� Requirements specification and analysis

� Data and configuration management

� Evaluations, simulations and testing and verification of computer software

applications and databases

� Information Technology (IT) resource management and planning

� Facility management.

NASA Solicitation Example:Required Structure of Proposal for Evaluation

� L.16.3 - Performance Price Tradeoff (PPT) Proposal Instructions.

� This procurement will be conducted using a combination of technically acceptable baseline requirements (Technically Acceptable/Technically Unacceptable), past performance, and cost/price. The Government seeks to select an offeror whose proposal represents the best value


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seeks to select an offeror whose proposal represents the best value after evaluation (See provision M.4.3, Performance Price Tradeoff (PPT) for evaluation procedures). The baseline requirements are considered as basic government needs in determining technical acceptability.

� Technical acceptability, past performance, and cost/price are discussed in detail below (in Section L.

NASA Solicitation Example:How Proposal Will be Evaluated

Compliance

Coherent

Credible

…will be evaluated for a demonstration of the Offeror’scompetence and capability to successfully complete the requirements specified in the Statement of Work.

Generally, the proposal shall:

� Demonstrate understanding of overall and specific

requirements

� Convey the company’s capabilities for transforming


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Compelling

Compliance

Competitive

understanding into accomplishment

� Provide in detail, the plans and methods for so doing; and

� Provide the cost/price associated with so doing.

� All unacceptable proposals will be eliminated from

further evaluation.

� The Government will award to the Offeror whose proposal offers the best overall value to the Government that meets all solicitation requirements…

� …..a combination of technical acceptability and a tradeoff between past performance and cost.

NASA Solicitation Example:What the Bid Price Must Include

Cost Proposal requires both a Cost Narrative in MS Word and “Templates” in

Excel format

Cost Element CY 1 CY 2

Direct Labor (DL):

Prime Total Hours (Straight-Time and Overtime

Major Subcontract Total Direct Labor Hours

Total Direct Labor Hours and Cost

Prime Overhead (OH) & Service Centers (SC):

1. Cost and Rate

Total OH & SC Cost


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Total OH & SC Cost

Major Subcontractor Total Cost (list)

Total Subcontractor Cost

Prime Non-Labor Resources (NLR):

Material, Equipment, HW, Training,, Travel, etc

Total Non-Labor Cost

Prime Total G&A Cost (Base and Rate)

Prime Facilities Capital Cost of Money

TOTAL ESTIMATED COST

Fee (Base and Rate) Cost

TOTAL ESTIMATED COST & FEE

Bidding Strategies/Pricing Decisions Based on Level of Procurement Certainty

Low Certainty/Minimally Definitive-- Range of Procurement Requirements --

High Certainty/ Fully Definitive


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Solicitation Content

Statement of WorkContract Clauses

Proposal InstructionsEvaluation Criteria for

Contract AwardEtc.

When Undefined and Uncertain

There is More Proposal Maneuvering Room but Harder to Determine Win Strategy

When Defined and Certain

There is Less Proposal

Maneuvering Room but Easier to

Determine Win Strategy

Bidding Strategies For Set Cost/Price and Broader Requirements

Low Specificity -- Range of Procurement Factors – High Specificity

Bidding Strategy: Design to Cost

• For a firmly set cost/budget:• Alternative designs that satisfy the

Less Definitive Requirements

Set Cost/Price


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solicitation requirements?• How do these alternative designs

compare in terms of, e.g.: • Functionality/Performance• Service Level/Risk/Quality

Definition of Design to Cost - A concept that

establishes cost elements as management

goals to achieve the best balance between

life-cycle cost, acceptable performance, and

schedule*

Bidding Strategies For Flexible Cost/Price and Broader Requirements

Broad Requirements -- Range of Procurement Factors

Bidding Strategy: Best Value

• Determine the optimal complement of solution and price across compliant range of bids

• Prove to government proposed solution not only is

Numerous Possible Solution

Flexible


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• Prove to government proposed solution not only is compliant, but provides optimal capabilities at most competitive price and with the most acceptable risk

• Substantiate the proposed bid reflects “reasonable cost” and can be credibly implemented upon award

Flexible Cost/Price

Best Value Continuum (FAR)…....the relative importance of cost or price may vary. For

example, in acquisitions where the requirement is clearly definable and the risk of

unsuccessful contract performance is minimal, cost or price may play a dominant role in

source selection. The less definitive the requirement, the more development work

required, or the greater the performance risk, the more technical or past performance

considerations may play a dominant role in selection.

Bidding Process Without Price to WinCompliant and Compelling Program Planning

Assess Procurement Requirements

Develop Technical Approach/

WBS

Federal Solicitation

Prepare Technical/

Management Define Tasks,

SOW

Schedule


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Allocate Resources to WBS/Schedule

Management Proposal

Define Tasks, Duration and

Timeframe

Schedule

Submitted Proposal

Do Bottoms Up Cost Estimate of

Resources and Risk

Maintain Company Historical Cost Data

Prepare Cost

(Price)Proposal

Price to Win Bottoms Up Cost Estimate

Create a WBS/Cost

Model Per Solicitation

Identify Relevant

Historical CostsPrior Contract

Technical and

Cost

Performance

Excel file of WBS &

Schedule Format

Allocate Resources Filled-in cells of


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Allocate Resources

Needed to Perform Work

Filled-in cells of

Staffing/Non Labor

Estimate Cost of

Resources to Perform

Work

Application of Cost to

Labor and Non-Labor

Resources

Adjust Cost Estimate Per

Risk/Reviews

Total Cost Estimate for

Submitted Proposal

Expert

Judgment

Current

Solicitation

Bidding with Price to WinCompetitive Program Planning

Assess Procurement Requirements

Develop Technical

Approach/WBS

Federal Solicitation

Prepare Technical/

Management Proposal

Define Tasks, Duration and Timeframe Submitted


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Allocate Resources to

WBS/Schedule

TimeframeProposal

Do Bottoms Up Cost Estimate of Resources and

Risk

Maintain Historical Cost

Data

Prepare Cost

(Price)ProposalAssess

Knowledge of Customer

Assess Competitor

Performance

Perform Pricing

Analysis

Decide and Approve

CompetitivePrice

NEST WORKSHOP 2

Illustration of Price to Win Internal Capability/Cost Assessment

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TECHNICAL, FUNCTIONAL, AND PERFORMANCE OF YOUR CAPABILITY (IES)

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Illustration of Price to Win Low Cost/Minimal Compliance Bid

Scenario 1

• Requirements Highly

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CO

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• Requirements Highly Specified

• Solutions Are Known and Proven

• Low Cost/ Minimal Compliance is Indicated in Procurement

Illustration of Price to Win Best Value Bid

Scenario 2


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CO

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• Broad Requirements

• Broad Range of Solutions

• Best Value is Requested in Procurement

Illustration of Price to WinCompetitor Comparative Analysis

Com

plia

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Solu

tion


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CO

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TECHNICAL, FUNCTIONA, AND PERFORMANCE OF YOUR CAPABILITY (IES)

Com

plia

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Solu

tion

Price to Win CombinesTop-Down and Bottoms Up

What is the Price Required

to Win

TOP DOWNHistorical

Government

Contract Data

Competitor

Performance

Data

What Price Has the Government Paid in the Past

for Similar Programs

What Price Do You Think the Competitors Will Bid Against

What Solution


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What is the Price Required to Deliver

BOTTOMS UP

Data

Specific

Government

Opportunity

Company

Historical

Performance

Trade-Off of Solution, Price,

and Risk

What Solution

Actual Costs for Performing for Similar Work and Basis of

Estimates for Proposed Work

What You Think Government Plans To Spend and How Will

They Evaluate Price

Final Bid

Price

NASA Solicitation Example:Potential Strategies for Reducing Cost/Price

Direct Labor

� Cross-trained staff to perform multiple tasks in parallel

� Junior staff leveraged by senior staff

� Re-use of existing data and documentation

� Established engineering and program management (PM) processes

� Highly automated business processes


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� Highly automated business processes

� Established Engineering and PM support tools

Non-Labor

� Minimally compliant equipment, materials, etc.

Rates

� Bid of constant rates (no new OH or G&A) over Period of Performance

Fee

� Reduced Fee from year to year, or no fee for first year, etc.

Pricing to Win as an InvestmentStill Requires Cost Realism

� Bids may be “low-balled” to under cut competitors

� Overly low cost may backfire if the Government doesn’t believe you

� Government develops cost models to generate probable pricing ranges

� Contracting Officers may “Obtain the type and quantity of data necessary to

establish a fair and reasonable price … techniques such as price analysis,

cost analysis, and/or cost realism analysis to establish a fair and


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cost analysis, and/or cost realism analysis to establish a fair and

reasonable price. FAR Subpart 15.4—Contract Pricing

� “reflect the Government’s best estimate of the cost of any contract that is

most likely to result from the offeror’s proposal. The probable cost shall be

used for purposes of evaluation to determine the best value.” FAR Subpart 15.4—Contract Pricing

� Government can compare your estimated cost to “probable cost”

� “Cost realism may be considered by the source selection authority in

evaluating proposal performance or schedule risk- ” FAR 52.215-1

Instructions to Offerors—Competitive Acquisition

Price to Win With Small Business Teams

� Suggested Steps

� Share background information on customer, current capabilities and competitors post-NDA

� Read and evaluate the entire procurement to gain consensus on meaning of all requirements – submit questions on unclear terms


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� Allocate procurement requirements to team members

� Review team member basis of estimates for initial pricing

� Develop and integrate initial cost estimates for total pricing

� Review initial total cost estimate for realism and risk

� Conduct comparative analysis of competitor capabilities and cost

� Identify likely “Price to Win” and review for team acceptability

� Establish Teaming Agreements incorporating PTW elements

After the Win – NASA ExampleContractor Financial Management Reporting

Post-Award Reporting Requirements

� Compliant with the most current

version of NPR 9501.2, applicable to:

� Phase-in Plan

� Organizational Conflict of Interest

Avoidance Plan

Format of Report

Fixed Price Plan/Invoices


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Avoidance Plan

� Fiscal year (FY) operating plan and

planning, programming, budgeting,

and execution (PPBE)

� NF533M Cost Reporting with

Supplemental Customer Cost

Reporting

� Total Compensation Plan

� Wage/Salary and Fringe Benefit Data

Completion Work Budget

Completion Work Actuals

Indirect Plan and Actuals

After the WinManaging the Cost of Program Implementation

Assign Work to

Resources

Establish Cost

Baseline/Budget Approved Contract Award

Expected Cost

Planned Cost

Positive


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Resources Cost

Track Work and

Resources Used

Actual Costs

Perform Cost

Analysis

Cost Variance

Decide Cost

Corrections

Estimate to Complete

Positive Cost

Performance

Price to Win Consulting Services

� Businesses often hire outside consultants to perform Price to Win

� PTW Consulting Services may include:

� Defining your own capabilities for purposes of competitive analysis

� Facilitating development of Win Strategies

� Assessing your own labor and non-labor costs and rates

Collecting and assessing competitors’ technical and cost performance data


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� Collecting and assessing competitors’ technical and cost performance data

� Developing competitive analyses related to specific procurement

opportunity

� Generating cost models for pricing the bid

� Supporting development of Cost Proposals

� USE CAUTION WHEN OUTSOURCING PRICE TO WIN� Develop detailed Statement of Work and Acceptance Criteria for PTW

� Perform Due Diligence on PTW consultants to verify integrity and results

Additional Resources

� Federal Acquisition Regulations: PTW-related terms and conditions

� https://www.acquisition.gov/far/farqueryframe.html

� SBA Contracting: Articles and Blogs on Pricing Strategies

� Example -- http://www.sba.gov/community/blogs/community-blogs/small-business-cents/how-raise-your-prices-or-rates-without-losing-customers

� DoD Contracts – Opportunities and bidding guidance


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� http://www.defense.gov/contracts/

� DoD Freedom of Information Website� http://www.dod.mil/pubs/foi/dfoipo/

� Text Books – Examples, NOT recommendations

� Pricing Strategies for Small Businesses by Andrew D. Gregson

� Hope Is Not A Winning Strategy. . . But Price To Win (PTW) Is!:by Anthony C. Constable

� Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael Porter

Documents

Pricing to Win and Deliversdric.sdsu.edu/docs/Pricing to Win and Deliver.pdf · 2015-11-24 · Network for Enabling Small Business Teaming (NEST) Workshop 2 WINNING THE OPPORTUNITY