In this era of LPTA (Lowest Price Technically Acceptable), there are many more times that you might want to bid on something, even though you’ve done no capture or relationship-building work. And the end of fiscal year is a perfect time to take a look at the circumstances in which you might want to throw a bid “over the transom.”
When to bid
- First of all, does the request for proposal indicate that you need secret knowledge to win? For example, do they want a bunch of resumes, many of them for key positions, or do they just give general staffing requirements?
- Are they looking to see past performance that’s specific to their work, or can you show work you’ve done elsewhere that may have the same size, complexity and scope?
- Is there a big emphasis on price? (The more emphasis on price, the less likely the incumbent has an advantage.)
- Finally, how big is the proposal to write, in particular, the technical and management responses? A smaller proposal has less evaluation or subjectivity in play, and less favors the incumbent.
If there are few or no resumes required, if generally applicable past performance is permitted, and if response time is at least two weeks, these are signs you may want to go ahead and consider a bid.
Conversely, run in the opposite direction if a response is required in three days or less. That bid is wired for somebody else. Maybe not the incumbent, but someone. If that somebody is you, by all means get your proposal in, but if it’s not, there’s no reason to waste your time.
How to compete on price
When you’re competing on price, it’s no longer business as usual. You’ve got to understand what is your wrap rate, and what is the wrap rate of your most likely competitors.
The wrap rate is what you add on top of the salaries or hourly rate of the people in your bid. You’ll add a percentage for fringe, a percentage for overhead – costs directly related to the accomplishment of a job, but which are not billable – and then “G&A” (general and administrative). Plus, profit, of course.
For example, if an employee is sitting at your office but their time is billable to your customer, then you would add that portion of rent, their use of computer, etc. because these things are directly related to project rather than for general work in your company.
You would also add a portion for what is called G&A, or general & administrative. This includes costs like your HR department, accounting people, leadership time that is not billable to the customer, and marketing staff.
On top of those amounts, you put a profit. There are formulas you can use to determine your wrap rate, but typically they’re anywhere from 1.5 to 2.5 (expressed in terms of 1.5 (up to 2.5) times the base hourly salary rate). So for someone who’s salary is $100,000, you would charge $150,000 or $250,000 to the government agency.
The bottom line is that if you’re competing on price, you’d better get your wrap rate down. That might mean shaving benefits, but that hurts hiring. The easiest places to cut are your G&A by operating leaner and less fixed charges, and of course, profit. Sadly. Also, don’t hesitate to reduce escalation (a clause that protects you against higher material prices) in short-term contracts; it’s an area where competition might not think about reductions.
Being selected for a bid in a year-end cycle can bring you great revenue. Even if you haven’t done the capture work, use the criteria I’ve outlined above and when appropriate, you can take a chance without the advance work usually required!