deltek insight 2012: winning proposals using price to win strategies

Winning Proposals Using Price to Win Strategies

Jacob George, Director, Red Team ConsultingGC-80

2 ©2012 Deltek, Inc. All Rights Reserved

Introductions

Realities

Best Value Evaluations

Price to Win

Price to Perform

Reality Modeling and Strategic Pricing

Agenda


About Red Team

About Red Team Consulting

Red Team Consulting is a woman-owned small business providing a wide range of consulting services in support of federal contracting activities.

Red Team’s major areas of support include: Fully outsourced proposal development

and management Strategic capture management and

planning Price strategy and price to win Training and seminars

About Red Team Federal

Red Team Federal, a division of Red Team Consulting, LLC, is an economically disadvantaged woman-owned small business that provides acquisition strategy and planning, federal procurement training and contract management support.

RTF’s major areas of support include: Pre-award/post-award contract

support Acquisition strategy and planning Request for proposal (RFP)

development Cost Estimation


Jacob George Director of Finance at Red Team Consulting Over 10 Years of financial analytic and price modeling experience Practice lead for all federal pricing and corporate budget engagements Expertise with:

Corporate-wide government cost and pricing engagements Financial planning and analysis (FF&P) Defense Contract Audit Agency

(DCAA )-related projects (Incurred Cost Submission, control system audits) Corporate-wide earned value management (EVM) implementation and

training projects Managed pricing activities for over $35 billion in federal procurements

About the Speaker


Most companies have challenges when pricing contracts

Most companies don’t actually follow the estimating and purchasing methodologies they write about

Price evaluations are viewed as entirely subjective and the term “best value” is considered very ambiguous by the industry

Large businesses have the capability to beat small businesses on price based on their ability to allocate corporate costs

Companies will find ways to manipulate the pricing model on pricing evaluations

Realities – General Pricing


Subcontractors will often regurgitate prime contractor templates for cost volumes

Pricing volumes and pricing-related exercises are frequently completed at the last minute. Factor 4 Syndrome (Evaluation criteria proportionality to importance)!

Delays to the RFP release are extremely costly for industry and greatly impact small businesses

Realities – Proposals & Cost Volumes


Many small companies have never been audited and don’t understand DCAA

Small companies don’t understand how to calculate their cost structures they could either be overcharging or undercharging the government when bidding

Small businesses often unknowingly overcharge or undercharge the government because of challenges calculating their cost structures

Realities – Small Businesses


The budget is going to become more challenging as growth slows or declines (Considering attending “Planning for Success: The Federal Contracting Outlook for 2013” – Presidential Ballroom D @ 3:15pm)

Competitors are focusing on keeping current contracts to maintain their customer and market position. The assault on cost factors demands realignment (Consolidations, mergers and acquisitions)

Other options to lower cost positions include: Addressing fringe rates (Multiple rates, fewer benefits, a la carte options) Reducing management (Remove layers – BAE, Boeing, DRS) Opening a new division to allocate costs – cyber, intelligence, health care

Realities – The Pricing Environment


More budget constraints, fewer resources and limiting escalation rates.

The Small Business Administration (SBA) gains muscle to make small business requirements even more important – from 20 percent range to mandatory 40 percent+ (Department of Homeland Security 45 percent total contract value (TCV)

Move from total subcontracted dollars to TCV We have seen small business requirement as evaluation factor in

Intelligence Community proposals

DCAA and Defense Contract Management Agency (DCMA) involvement in procurement cost assessments continue to grow

Best value, realism and reasonableness are becoming real factors



Best value evaluations can be ambiguous - important to understand agency or contracting office tendencies

In acquisitions where the requirement is less defined or there is greater performance risk, technical or past performance considerations may play a dominant role in source selection and best value determination

It is not uncommon for the successful offeror to have a price 10-15 percent higher in best value evaluations, but no more. And only if they are clearly the better proposal



Best value is a conversation on how we can trade value (capability, schedule) against cost/price

Low price technically acceptable (LPTA) is a conversation on how we bid to meet only the compliance threshold for acceptance at the lowest possible price

Types of Source Selections: High technical, price acceptable (HTPA) – Best value Low price, high technical (LPHT) – Best value Low price, technically acceptable (LPTA) – Low price Low price (LP) – Low price

Best Value Evaluations Versus LPTA


To develop an effective pricing strategy, consider: Your thorough understanding of the relative importance of price A reasonable definition of “best value” The awarding agency’s history of evaluating and awarding contracts Your vulnerability to (and tolerance for) risk Your competitors’ perceived tolerance for risk Your true strengths and weaknesses for each evaluation factor and

sub-factor Your experience bidding against the presumed competitors

Pricing Strategy Development


To develop an effective pricing strategy, do not: Presume that the government’s estimated lifecycle contract value,

stated contract ceiling, minimum or maximum order amounts or currently available funding is reflective of an ideal target evaluation price or competitive range

Implement a pricing strategy as a consequence of technical and management strategy

Let pricing be a completion exercise to deliver a cost volume that is compliant

Pricing Strategy Development


On a per proposal basis, Price To Win (PTW) provides a detailed, results based assessment of the price that your competitor(s) is most likely to bid

The PTW exercise may reveal a competitive price that exceeds your own capabilities

The PTW exercise may show new opportunities on how you can provide a lower price and better value

PTW is your competitors price and is based on their capabilities/cost structure and return on investment goals

Price to Win


Proper Uses – Decision Support Provides a decision input to management bid strategy and pricing

approach Informs management of the most probable competitive bid price

scenarios Develops competitor views of the opportunity and prices these

approaches

Improper Uses – Becomes the Decision Management abandons decision responsibilities and bids the PTW

Price to Win - Uses


An opportunity/program has content that is core business to your company strength

“Must win” opportunities (new account penetrations)

Incumbent looking to protect contract from challengers

Competitors look to unseat incumbents

Early in the bid cycle (pre-RFP) to help evaluate teaming options, suppliers and technology partners

Price To Win – When to Initiate


Questions that need to be asked include: What is your price to perform on the awarded contract? Can I sustain submitted prices with my current indirect rate and

multiplier? How much growth – base and organic - should I consider to be

equitable?

Price to Perform – Setting the Stage


Develop “if-win” budgets, showing the effect of the new procurement on current rate structure

What impact does this new contract have on: Fringe – New insurance plans, locality influence, outside of the

continental United States Overhead and general and administrative (G&A) expenses – New

management (PMO) positions, additional facility costs, new personnel (HR, IT), capital expenditures, subcontracts

Price to Perform – In Action

04/18/202319 ©2012 Deltek, Inc. All Rights Reserved

Price to Perform - Example

Total Cost Input: All costs labor, overhead costs, material and other direct costs (ODCs) are included in the base (denominator)Direct labor: $30,000Direct material: $25,000Overhead costs: $35,000ODCs: $10,000Total cost input: $100,000G&A cost: $10,000G&A rate: 10 percent

Value Added: Total cost input minus Materials and subcontractsDirect labor: $30,000Direct material: $25,000Overhead costs: $35,000ODCs: $10,000Value added: $75,000G&A cost: $10,000G&A rate: 13.33 percent

Single Element Method: Only one cost element, not often used Direct labor: $30,000Direct material: $25,000Overhead costs: $35,000ODCs: $10,000Single element: $30,000 (using labor)G&A cost: $10,000G&A rate: 33.33 percent


In accordance with corporate schedule (i.e. Calendar Year initiatives), plan for changes to rate structure

Proper management and evaluation of indirect rates is key in the financial lifecycle of a contract

Monthly review of indirect rates via reviewing Statement of Indirects

Develop budget to actual reports and period to period reports to monitor rates

Price to Perform - Manage


Strategies to Explore Material and Handling Pool

Typically consists of administrative costs/expenses necessary for handling of subcontractor and material costs

The base of the pool (denominator) consists of all direct subcontractor and material costs

The base of the pool is excluded from the base of the G&A.

Price to Perform - Strategies


Strategies to Explore Cont.. Service Centers

Extract certain traditional G&A costs and re-allocate them between G&A pool and overhead pools in a logical and consistent allocation basis

Cross allocations can be complex, so it is imperative that your accounting system be able to accommodate multiple service centers

Typical service centers include: HR (allocation base – headcount), IT (allocation base – units), facilities (allocation base - square footage), security (allocation base – headcount).

Price to Perform – Strategies


Reality Modeling The intent of reality modeling is to best predict what changes will likely

occur over the life of a contract and bid with those changes in mind. In other words, what is being evaluated and what will actually be purchased, when and with what margin

Gaming The intent of gaming is to notate the inefficiencies and imbalances in a

given solicitation and strategically price accordingly

Modeling and Strategic Pricing


Typically a bid model begins with a uniform application of margin to all items

Items determined to be over-evaluated, i.e bidder believes it is less likely to be sold – margins are re-allocated to items that are more likely to be sold

Over-evaluated items, i.e. unlikely to be purchased are bid below their actual cost to drive down total evaluated price

The Modeling Process


Gaming has a negative connotation. However, there are cases where elements other than price or margin are drivers behind gaming an opportunity, these include:

Lower evaluated price Higher profit Inventory maximization (product or labor)

Modeling Outcomes


Modeling and Strategic Pricing Example – Uniform Margin


Modeling and Strategic Pricing Example – Margin Focus


Modeling and Strategic Pricing Example – Price Focus


Want to Know More with Deltek? View the resources below or visit Deltek.com for additional information and analysis to help you find and

win more government business.

Team More with Deltek

Free White Paper: How Prime Contractors Can Win More Business Through Effective Teaming and Partner Management

Comply More with Deltek

Free White Paper: Compliance 101: Understanding the Greatest Challenges of GSA Schedule Contracts

Win More with Deltek

Video Case Study: How Citizant Increased Their Pipeline From $250 Million to $960 Million in One Year

Know More with Deltek

http://www.deltek.com/

http://iq.govwin.com/corp/downloads/GW-Teaming-WP-Jul12.pdf

http://iq.govwin.com/corp/downloads/GW-Teaming-WP-Jul12.pdf

http://iq.govwin.com/corp/downloads/WMGWhitePaper-GSA-Schedule-Compliance-Challenges.pdf

http://youtu.be/SfaF2avvETI

Thank You!

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