Network for Enabling Small Business Teaming (NEST) Workshop 2
WINNING THE OPPORTUNITY
1
Pricing to Win and DeliverJune 19, 2012
Susan Pernia, MBA/PMP
Consultant, Foundation for Enterprise Development
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
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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
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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
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Illustration of Price to Win Internal Capability/Cost Assessment
Co
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CO
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TECHNICAL, FUNCTIONAL, AND PERFORMANCE OF YOUR CAPABILITY (IES)
Co
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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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TECHNICAL, FUNCTIONAL, AND PERFORMANCE OF YOUR CAPABILITY (IES)
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
ST
TECHNICAL, FUNCTIONAL, AND PERFORMANCE OF YOUR CAPABILITY (IES)
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
nt
Solu
tion
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CO
ST
TECHNICAL, FUNCTIONA, AND PERFORMANCE OF YOUR CAPABILITY (IES)
Com
plia
nt
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
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