Most Government contractors focus on indirect rates as their main source of cutting proposed costs. Usually, this is in connection with cutting profit to lower the bid price. Too many believe indirect rates and profit are their only means of pricing changes. Some contractors even take the advice of potentially well-meaning advisors or prime contractors who tell them that their wrap rate must be some number that they convey secretly. To go beyond beating up on indirect rates, what can you do?

Why Indirect Rate Cuts Alone Do Not Make a Good Price

Indirect rates are only one set of factors that comprise the potential bid cost. Why is focusing on only indirect rates faulty thinking? Quite simply you have only solved part of the pricing composition. This thinking does not leave room in your pricing discussions to consider a new indirect pool approach. That approach may be as simple as a new indirect pool that you may not currently have such as a new overhead for this new business area. Or it may mean a more comprehensive approach to your entire indirect pool structures like a subcontractor handling pool.

What Makes a Bigger Impact

Oftentimes, a contractor may want to change one rate for the specific bid they are pursuing. It may not mean a change to an entire structure for anything except this one bid. Changes to indirect rate structures can be a factor in the business planning for the company defined by this bid. Other cost elements may have a much larger impact on the bid price than just the indirect rates. Frequently, changes or improvements in the labor market and the resulting salaries can make a company’s hiring approach change for the bid. Of course, that means that you must back up your pricing conversations and decision-making process to the earliest part of the capture process to make these changes.

Critical thinking about the entirety of the bid early in the process must focus beyond the indirect rates. By cutting indirect rates alone or choosing some fictitious wrap rate to achieve a lower bid price is dangerous. Sometimes, this thinking keeps people using the same indirect rate structure that they currently have even though their business or this bid may change all that.

Marsha Lindquist
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