Price to Win Analysis: Process and Fundamental Concepts

When bidding on government contracts, attempting to know your competition as well as your own company as measured against them, is the basic idea behind competitive assessment and Price to Win (PTW) Analysis.

It is perfectly natural to want to know what your competition will do, their motivations, and the customer’s perception of the incumbent in any given pursuit. The two primary questions we are trying to answer with Price to Win Analysis are:

1. What will your competitions’ bid price be?

2. How will they score on the non-price parts of the Section M evaluation criteria?

If you can accurately predict how the competition will score and what price they will submit, we can leverage that information to greatly increase our chances of winning.

PTW PROCESS AND DELIVERABLES TIMELINE

The PTW Process and Deliverables Timeline is designed to get you oriented and thinking about customer, competition, and price, from a PTW perspective. A notional government procurement timeline is along the bottom, capture activities are along the top of the diagram, and PTW activities and artifacts are shown in the middle.

Along the government procurement timeline, there are:

• Historical requests for proposals (RFP) spending or budget data on the current program and potentially on the upcoming program

• Request for information (RFI) release (always submit a response to the RFI if interested in the program)

• Several draft RFP milestones including:

– Draft PWS

– Draft Section L&M of the RFP – Draft cost formats and Q&As

– Final RFP, Q&A’s, and amendments (if any)

– Proposal submission

Bidders have limited, if any, impact on the government acquisition timeline. All interested bidders will either have to adhere to this timeline and submit their bids or decide to no-bid.

The middle of the timeline shows the various PTW artifacts, which we will cover, including a Top-Down PTW Analysis, Competitor WRAP Rate Analysis, Competitive Assessments, solutioning that might be required, then the BottomUp PTW Analysis with gaming. Before we get to the actual PTW pieces, let’s have a look at the customer.

CAPTURE

GOVERNMENT

Customer

The best place to start when trying to win a government contract is with the customer. The customer has the key requirements which will produce the RFP, so understanding the problem that the customer is trying to solve by awarding the contract is key.

Important questions to ask are:

• Is the customer simply competing because the time has come to re-compete a services contract?

• Do they have new requirements, based on advances in technology they’d like to exploit, like moving to cloudbased computing or artificial intelligence?

• Do they have new requirements, based on changes in technology or changing strategy of U.S. enemies, requiring new radar or stealth technologies?

• Are they running a low price technically acceptable (LPTA) competition for a commodity, or are they seeking to get the most for their budgeted dollars in a best value competition?

You must fully understand what the customer is trying to accomplish when bidding. They set the budget, choose the type of competition, set the Section L and M criteria, write the requirements, and ultimately choose the winner.

It is imperative to start this process as early as possible. You can never really start too early, but you can start too late. Looking at the timeline on page 5, if a bidder starts writing a proposal after the RFP is released and they have not done the necessary frontend capture work, they probably should not bid as their probability of winning will likely be low. Customer visits, requirements shaping, teaming, solutioning, pre-proposal and proposal writing, along with early PTW activities will have already been completed by the competition. When the RFP is released, it will have been shaped by the competition.

However, if you start early and use this up-front time to truly understand the customer’s requirements, ideally shaping them to your capabilities, and analyzing customer buying behavior to help inform your bid, you will be in a much better position to win. Bidders’ chances of winning without doing these up-front activities are extremely low.

It is very important to understand how the customer in question actually buys.

Do they typically go out with LPTA procurements or Best Value RFPs, or do they put on best value competitions and consistently pick the lowest bidder, making it a default LPTA procurement?

The best way to find out how the customer really buys is to review protests on previous bids with the exact same customer. Years ago, bid protests were extremely rare as companies did not want to anger the government, fearing downstream retribution.

Protests are extremely common today, and the information is publicly available. Carefully read the protests for the customer in question. They often reveal how the customer buys, settling the question about whether or not they typically pick the lowest bidder, even in best value competitions.

The other important buying behavior that can often be derived from bid protests is how much of a premium the customer is willing to pay for better non-price scores. The protest review may show that the customer will pay more for what they perceived as better technical, past performance, management, or even risk scores. You want to know this information as it is directly related to the PTW analysis and pricing strategy.

Competition and Competitive Analysis

Know your competition as well as you know yourself. A detailed competitive assessment is foundational to PTW analysis. The goal of competitive analysis is to come to conclusions about what your competition will and will not do when bidding on the procurement in question, and how they will likely score on the non-price items required in Section L and evaluated in Section M (i.e., management, technical, past performance, transition, risk, etc.).

This type of competitive assessment should be centered around the technical requirements in the RFP, the capabilities and motivations of the competitors, and should result in an unbiased mock scoring of the competitors against the Section M criteria. The technical requirements of the RFP are the foundation of the competitive assessment (CA).

The technical requirements, found in the performance work statement (PWS) and associated documents, tell the CA analyst what to look for in the competitors. If the requirements are for cloud migration leveraging commercial cloud technologies, operations and maintenance (O&M) of the resulting cloud environment and associated call center and help desk support, then the competitors need to have these capabilities to be credible.

The CA analyst should build an analysis that sets the technical requirements as the baseline, then compares the capabilities of each competitor against those technical requirements, just as the government ultimately will. This is often done in table form, where the requirements are on one side and the capabilities are on the other, to show how each competitor meets the requirements. The CA analyst uses the technical requirements to search for suitable past performance citations, the same ones the competitor will likely cite in their proposal.

This is also normally shown in a table format showing the key information about each applicable past performance program, including the name of the program, the government agency, a high- level scope of work, the award date, the size of the program ($M of dollars), and the length of the program or period of performance (PoP), etc. If the CA analyst cannot find enough past performance citations which meet or exceed the technical requirements, then that bidder is likely either going to have to team in order to meet requirements or will potentially score poorly on the past performance evaluation. They may simply “no-bid.”

Price

The price you are going to bid on the program should be shaped by a few important factors:

• The customer budget and the “should cost” (i.e., what the customer thinks they should pay for the program)

• The price the competition will bid

• How they will score on the non-price items in Section M

• Cost basis and profit goals

TOP-DOWN PRICE TO WIN ANALYSIS: SETTING THE LIKELY TOP-LINE OF THE PROGRAM

Top-Down PTW Analysis is a process by which the analyst researches historical spending on the current program along with budget data on the upcoming program to determine the should-cost of the program. The should-cost is the amount the government thinks the program reasonably should cost (i.e., the fair and reasonable price for the government to pay for the program). Once the should-cost is determined, the analyst, knowing that each competitor can also determine the should-cost, will develop a pricing strategy to bid below the should-cost to win. No one is going to bid above the should-cost. How much below the should-cost a competitor bids is dependent upon many factors.

BOTTOM-UP PRICE TO WIN ANALYSIS: BUILDING THE COMPETITORS’ COST BASIS AND FORECASTING THEIR BID PRICE

Bottom-Up PTW Analysis (BUA) is where the PTW analyst builds a working price model of the competition. Ideally, it is a very accurate forecast of the bid prices that will be submitted by each competitor. It is also ideal that BUA be used to fully populate the government’s pricing sheets, just as the competitors will do when developing their cost proposals.

This allows comparison of the competition's forecasted prices to your own internal pricing. An accurate BUA is a game changer. With an accurate BUA, you have a very good estimate of your competition's pricing even before you develop your own pricing for the RFP.

BUA estimates all of the pricing the competition will do, including pricing all of the labor, all materials, travel, other direct costs (ODCs), and everything that needs to be priced in the cost volume. This analysis is also where independent technical solutioning is required, as the solution will determine the competition’s likely labor and material costs.

Pricing Labor: The price of labor is made up of direct labor expenses (i.e., the wages paid to employees), indirect expenses (i.e., overhead, general, and administrative, and fringe benefits), and fees.

Most companies buy subscriptions to human resources (HR) databases to get accurate empirical data on wages for all kinds of job categories all over the country. The most popular HR tools used today are Salary.com and ERI. The Bureau of Labor Statistics (BLS) also produces quarterly reports of wages by job code. BLS data is free.

When overhead, G&A, and fringe benefits are combined, we call that a WRAP rate. WRAP rates are very difficult to determine, so most companies buy WRAP rate estimates from reputable firms that conduct these analyses and sell the estimates.

The fee that is applied to labor is driven largely by the profit goals of the competitor in question and the type of bid. For example, if the competition is a best value competition and the competitor’s last SEC filing of their 10-K shows they have a current operating margin of seven percent, it is likely they will try to at least maintain that seven percent operating margin. But if the competition were to be LPTA, they may have to dive to around four percent to be competitive.

PULLING IT TOGETHER AND GAMING

We have covered competitive assessment, top-down analysis, and bottom-up analysis. Once these are all complete, the analyst can see the whole picture.

The analyst can then assess:

• How the various competitors will likely score in the non-price items

• What the likely should-cost will be

• What the customer may be thinking about the procurement

• The bottom up PTW analysis

• Where each competitor is likely to come in

This is where the analyst applies gaming. Gaming involves adjusting the BUA, altering it to be as close as possible to what each competitor will actually bid.

GAMING

To explore the idea of gaming, let’s look at a case where there is an existing services contract which is up for re-compete. An incumbent and two other bidders are being modeled by the PTW analyst. The procurement is best value with the headcount dictated by the government.

The competitive assessment indicates that the incumbent seems to be doing a good job and has many other programs, like this one, they can cite in their past performance and technical volumes. If the incumbent writes a strong proposal and submits an aggressive bid, they will be hard to beat.

It is reasonable to assume the government does not want to go to the trouble of re-badging contractors to a new company and maybe even lose a few good contractors along the way, especially if there are no real cost savings. The other two bidders understand all of this and will game their bids, dropping their prices in an attempt to get below the incumbent, making it attractive enough for the government to choose them.

The PTW analyst will adjust the competitor models, making downward adjustments where they can drop the price. Remember, the incumbent can’t drop the headcount, so they will likely drop the direct labor rates, maybe even bid a lower WRAP rate (that can be

START THE CONVERSATION AND LEARN MORE

Winning bidders prepare and plan early, obtain an accurate PTW analysis and target, and leverage that information to improve their win probability.

Government contracting leaders have trusted the McNulty Group to provide this level of analysis on their most strategic recompetes and new business captures for over 20 years. We work exclusively for one client on

done within reason) and drop their fee. All of these maneuvers are gaming moves to try to get the price down.

The analyst now has an even better picture of the whole situation and what they are up against on this bid. From here, a PTW recommendation can be made, taking all of the analysis into account, and recommending what price their company should bid to win.

The PTW recommendation is a target number in dollars. There is quite a bit of complex, detailed analysis behind getting to that target number. PTW targets are not supposed to be the lowest possible number that can be bid. The PTW target is supposed to be the highest number you can bid, still win, and not leave money on the table. It must also allow for successful program execution.

To leverage the PTW analysis, the bidder compares it to the numbers obtained from internal pricing or targets set by senior leaders. How close are the numbers? Where are they off, and why? They don’t need to match necessarily, but should be carefully compared for discrepancies and reasons. The point is to leverage the PTW analysis so that decision makers can then drive their pricing direction internally, normally to meet or get below the PTW target.

a deal-by-deal basis, so getting in touch with us early in the capture process is critical.

If you would like to explore an engagement on your upcoming pursuits or learn more about our experience and methodology, please contact Michael McNulty at mmcnulty@citrincooperman.com

About Us

INSIDE CITRIN COOPERMAN'S GOVERNMENT CONTRACTING SPECIALTY ADVISORY SERVICES PRACTICE

The McNulty Team at Citrin Cooperman is an industry leading provider of Price to Win (PTW) analysis and related competitive intelligence and assessments.

Our team of research analysts, technology professionals, pricing and financial analysts, technologists, and parametric modelers provide our clients with exceptional insights and understanding of the program, budget, competitive landscape, and pricing for their must-win opportunities.

Our team analyzes the opportunity, budget, competitive landscape, and historical program data to gain an understanding of your situation. We then apply our proven processes combining our technical, competitive, and programmatic experience with leading parametric estimating tools to develop independent accurate bottoms-up estimates and forecasts. Throughout the analysis, our team applies a rigorous quality assurance process to ensure maximum accuracy.

ABOUT CITRIN COOPERMAN

Citrin Cooperman is one of the nation’s largest professional services firms that has steadily built its business by helping companies and high net worth individuals find practical, actionable solutions to help them meet their short-term needs and long-term goals.

Citrin Cooperman clients span an array of industry and business sectors and leverage a complete menu of service offerings.

Citrin Cooperman clients span an array of industry and business sectors and leverage a complete menu of service offerings. Citrin Cooperman & Company, LLP, a licensed independent CPA firm that provides attest services and Citrin Cooperman Advisors LLC, which provides business advisory and non-attest services, operate as an alternative practice structure in accordance with the AICPA’s Code of Professional Conduct and applicable law, regulations, and professional standards. The entities include more than 450 partners and 2,800 total professionals. Learn more about Citrin Cooperman here: www.citrincooperman.com

About the Author

703.281.4880

Michael McNulty is a partner and the Government Contracting Specialty Advisory Practice leader in the firm’s Braintree, MA and Fairfax, VA offices. He is a highly experienced business development professional in the U.S. Government market. He has over 25 years of experience as a business development executive, capture manager, program manager, proposal manager, and engineering specializing in modeling and simulation.

Michael has been instrumental in providing Price to Win, Pricing Analysis, and Competitive Assessments on many successful competitive procurements across all services and the U.S. Federal Government, His experience includes program values ranging from under $10M to over $3B, spanning all areas of acquisition from R&D to Systems Design & Development to Production, Deployment and Sustainment. Functional areas include Design & Engineering of Major Systems, Large IT Systems, C4ISR Systems, Training Systems, Flight Simulators, and Large-Scale Logistics and Support efforts.

mmcnulty@citrincooperman.com Kyle

"Citrin

citrincooperman.com/Services/Government-Contracting-Specialty-Advisory-Services