Rose Report: Issue 11

Cost Proposals: Putting Your Best Foot Forward

Submitting a cost proposal to the government is a contractor’s chance to make a great first impression and outshine the competition. An organization must follow best practices, making every effort to turn in accurate, well researched documentation.

To start, a government contractor should institute written processes and procedures for preparing cost proposals. This information will be requested by the government if an audit or review is scheduled and, it’s a smart practice for all contractors. With a clear system in place, a contractor will know exactly how to handle the next RFP that comes in the door.

Once a contractor has carefully read an RFP—evaluating details such as the type of contract the work would be performed under, the number of years the contract would exist, and the type of labor it would require—it must determine the overall effect the project would have on its operating budget. An organization should build any impact the work would have on its revenues and expenses into the indirect rates it presents in the proposal. For instance, if the project would require an upfront investment in overhauling infrastructure, chances are the indirect rates may increase at least for the short-term. But the work may also increase the contractor’s revenue and expenses to the point that it could drop its rates and become even more cost competitive.

Similarly, a contractor should take stock of any salary increases or other internal expenses that would occur within the time frame of the contract and potentially influence its indirect rates. The contractor should make sure its managing and planning for these expenses in a reasonable and consistent manner.

A prime contractor must also thoroughly document and explain the process it uses to evaluate and select subcontractors. An organization must demonstrate that it’s made smart, cost-competitive choices on this front. But subcontractors need to be smart, too. Ted Rose, president of Rose Financial Services, says RFS always advises its subcontractor clients not to reveal their indirect rates to the primes they’re working with. Instead, subs should provide financial documentation that’s thorough enough for a prime to make a sound decision, but with the indirect rates redacted.

“The prime might be their partner now, but down the road, they could be the competition,” Rose explains.

Finally, organizations must ensure the labor rates in their proposals accurately reflect an understanding of the type of labor the project would require. If the work necessitates individuals with security clearances, those employees may come at a premium, which should be built into the labor rate. If a contractor can identify key individuals that it would assign to the project, then the contractor may also include their specific rates in the proposal. Another important consideration is whether employees would be working on or offsite. If they would be stationed onsite with the government, they’ll come with lower overhead expenses, which may mean the contractor can lower its overhead rate, making itself more appealing to the government. And since first impressions can last a lifetime, all of this effort counts.