The Low Bidder Dilemma

There is little argument about the importance of the price tag to the proposal. The question is, what price will win the job? Everyone has an answer to this question. The decision process that leads to the final price of your proposal is highly complex with many uncertainties. Yet proposal managers, driven by the desire to win the job, may think that a very low-priced proposal will help. But, hopefully, winning is only the beginning. Companies have short- and long-range objectives on profit, market penetration, new product development, and so on. These objectives may be incompatible with or irrelevant to a low-price strategy per se; for example:

• A suspiciously low price, particularly on cost-plus type proposals, might be perceived by the customer as unrealistic, thus affecting the bidder's cost credibility or even the technical ability to perform.

• The bid price may be unnecessarily low, relative to the competition and customer budget, thus eroding profits.

• The price may be irrelevant to the bid objective, such as entering a new market. Therefore, the contractor has to sell the proposal in a credible way, e.g., using cost sharing.

• Low pricing without market information is meaningless. The price level is always relative to (1) the competitive prices, (2) the customer budget, and (3) the bidder's cost estimate.

• The bid proposal and its price may cover only part of the total program. The ability to win phase II or follow-on business depends on phase I performance and phase II price.

• The financial objectives of the customer may be more complex than just finding the lowest bidder. They may include cost objectives for total system life-cycle cost (LCC), for design to unit production cost (DTUPC), or for specific logistic support items. Presenting sound approaches for attaining these system cost-performance parameters and targets may be just as important as, if not more important than, a low bid for the system's development.

Further, it is refreshing to note that in spite of customer pressures toward low cost and fixed price, the lowest bidder is certainly not an automatic winner. Both commercial and governmental customers are increasingly concerned about cost realism and the ability to perform under contract. A compliant, sound, technical and management proposal, based on past experience with realistic, well-documented cost figures, is often chosen over the lowest bidder, who may project a risky image regarding technical performance, cost, or schedule.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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