Too many Government contractors slap the price together as if cost and profitability are not important.  Profits are the lifeblood of every Government contractor that wants to stay in business.  It is in the Government’s best interest to encourage reasonable profits so that the viability of the market sources stays vibrant.

Simply putting a profit on the cake mix version of the cost buildup mentality does little to further your winning price.  Most Government contractors guess at the profit that they bid.  Other large Gov Cons have a company policy about bidding profit.  Determining a viable profit based on analysis of the risks, complexity of the work, and determination of company goals is the right way to look at profit.  If profit and the ultimate price are so important, then you must analyze profit and the price by making it a top priority.  How do you do that?

By analyzing profit in a structured and informative manner for each bid, the company can determine what the range of profit ought to be using a simple tool like Weighted Guidelines from DD1547.  Based on the various degrees of technical, management, performance risks, contract type, capital investments, and cost efficiencies you can assign a value and weighting of the factors.

After analyzing profit using weighted guidelines, a company can also perform a performance price analysis versus a bid price analysis.  Both will provide invaluable insight into the various parameters and risks necessary to determine an adequate profit margin for the price.

A wise company will always track the profit margin bid against the performance of each contract regularly.  Performance metrics are critical to knowing what your profitability is and how you are accomplishing the project goals against what you thought you would do. Of course, adequately assessing your risks in the bidding process is just as important as managing the risks effectively when you are underway.  Managing your risks and mitigating them will help you keep your profitability at the levels you anticipate.

Check out this helpful Gov Con tool.

Marsha Lindquist
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