Government Contract Pricing Guide 2025: Strategies & Cost Analysis
Complete guide to government contract pricing. Learn pricing strategies, cost analysis requirements, price reasonableness, certified cost data, and how to develop competitive yet profitable prices.
Quick Answer: Government Contract Pricing
Government contract pricing requires demonstrating price reasonableness. Depending on contract type and value, this may involve price analysis(comparing prices) or cost analysis (evaluating cost elements). Contracts over $2M may require certified cost or pricing data.
Government Contract Pricing Basics
The government's goal is to pay fair and reasonable prices. Your goal is to win contracts while maintaining profitability. Understanding how the government evaluates prices is key.
Pricing by Contract Type
Fixed-Price
Price is set at award—you bear cost risk
Cost-Reimbursement
Allowable costs reimbursed plus fee—government bears risk
Time & Materials
Fixed hourly rates plus materials at cost
Labor Hour
Fixed hourly rates, no separate materials
Price Analysis
Price analysis compares proposed prices to other prices without examining the underlying cost elements. It's the preferred method when adequate price competition exists.
Price Analysis Techniques
Competition
Comparing prices from multiple offerors
Historical Pricing
Comparing to prior purchases of similar items
Published Price Lists
Comparing to catalog or market prices
Independent Government Estimate
Comparing to the government's cost estimate
Cost Analysis
Cost analysis evaluates the individual elements of cost—labor, materials, overhead, profit. Required when price analysis alone cannot determine reasonableness.
Cost Elements Examined
Direct Labor
Hours and rates for each labor category
Direct Materials
Material costs and quantities
Indirect Costs
Overhead, fringe, G&A rates
Profit/Fee
Contractor's return on investment
Rate Structures
Government evaluators examine your rate structure to determine if costs are realistic and properly allocated:
- →Fringe Benefits - Health, retirement, PTO as % of labor
- →Overhead - Indirect costs supporting direct work
- →G&A - General and administrative expenses
Certified Cost or Pricing Data
The Truth in Negotiations Act (TINA) requires certified cost or pricing data for negotiated contracts over $2 million, with exceptions.
TINA Requirements
When Required
Negotiated contracts over $2M threshold without exceptions
What's Certified
Data is accurate, complete, and current as of agreement date
Defective Data Risk
Price reduction if certified data was inaccurate
TINA Exceptions
- ✓Adequate price competition
- ✓Commercial products or services
- ✓Prices set by law or regulation
- ✓Waiver granted by agency head
Pricing Strategies
Competitive Pricing Tips
Know Your Costs
Accurate cost accounting is the foundation of good pricing
Research the Market
Use FPDS and other sources to understand competitive pricing
Understand Evaluation Criteria
Know how price is weighted against other factors
Don't Underprice
Unrealistically low prices raise concerns and can be rejected
Price Realism
For cost-reimbursement contracts, the government evaluates whether your proposed costs are realistic for the work. Proposing too low may indicate you don't understand the requirements.
Frequently Asked Questions
What profit rate should I use?
Profit varies by contract type, risk, and complexity. Government guidelines suggest 7-15% for fixed-price, less for cost-reimbursement. The weighted guidelines method (FAR 15.404-4) provides a structured approach.
How do I support my pricing in proposals?
Provide basis of estimate for labor hours, quotes for materials, explanation of indirect rates, and rationale for profit. More documentation needed as price increases.
What if my prices are higher than competitors?
In best value evaluations, higher prices can win if technical superiority justifies the premium. Focus on demonstrating value, not just competing on price.
Find Contract Opportunities
Discover federal contracts and research competitive pricing for your market.
Get Started →Related Articles
Ready to Find Your Next Contract?
Get instant access to thousands of government construction bids with our AI-powered platform.
Get Started