Winning Proposals UsingPrice to Win StrategiesJacob George, Director, Red Team ConsultingGC-80
AgendaIntroductionsRealitiesBest Value EvaluationsPrice to WinPrice to PerformReality Modeling and Strategic Pricing2     ...
About Red TeamAbout Red Team Consulting                                     About Red Team FederalRed Team Consulting is a...
About the SpeakerJacob George       Director of Finance at Red Team Consulting       Over 10 Years of financial analytic...
Realities – General PricingMost companies have challenges when pricing contractsMost companies don’t actually follow the e...
Realities – Proposals & Cost        VolumesSubcontractors will often regurgitate prime contractortemplates for cost volume...
Realities – Small BusinessesMany small companies have never been audited and don’tunderstand DCAASmall companies don’t und...
Realities – The Pricing             EnvironmentThe budget is going to become more challenging as growth slows ordeclines (...
Realities – The Pricing            EnvironmentMore budget constraints, fewer resources and limiting escalationrates.The Sm...
Realities – The Pricing        EnvironmentBest value evaluations can be ambiguous - important tounderstand agency or contr...
Best Value Evaluations Versus               LPTABest value is a conversation on how we can trade value(capability, schedul...
Pricing Strategy DevelopmentTo develop an effective pricing strategy, consider:      Your thorough understanding of the r...
Pricing Strategy DevelopmentTo develop an effective pricing strategy, do not:      Presume that the government’s estimate...
Price to WinOn a per proposal basis, Price To Win (PTW) provides adetailed, results based assessment of the price that you...
Price to Win - UsesProper Uses – Decision Support      Provides a decision input to management bid strategy and pricing  ...
Price To Win – When to InitiateAn opportunity/program has content that is core business toyour company strength“Must win” ...
Price to Perform – Setting the             StageQuestions that need to be asked include:      What is your price to perfo...
Price to Perform – In ActionDevelop “if-win” budgets, showing the effect of the newprocurement on current rate structureWh...
Price to Perform - Example Total Cost Input: All costs labor, overhead costs, material and other direct costs (ODCs) are i...
Price to Perform - ManageIn accordance with corporate schedule (i.e. Calendar Yearinitiatives), plan for changes to rate s...
Price to Perform - StrategiesStrategies to Explore      Material and Handling Pool       Typically consists of administr...
Price to Perform – StrategiesStrategies to Explore Cont..      Service Centers       Extract certain traditional G&A cos...
Modeling and Strategic PricingReality Modeling      The intent of reality modeling is to best predict what changes will l...
The Modeling ProcessTypically a bid model begins with a uniform application ofmargin to all itemsItems determined to be ov...
Modeling OutcomesGaming has a negative connotation. However, there are caseswhere elements other than price or margin are ...
Modeling and Strategic Pricing     Example – Uniform Margin26    ©2012 Deltek, Inc. All Rights Reserved
Modeling and Strategic Pricing     Example – Margin Focus27    ©2012 Deltek, Inc. All Rights Reserved
Modeling and Strategic Pricing     Example – Price Focus28    ©2012 Deltek, Inc. All Rights Reserved
Know More with Deltek       Want to Know More with Deltek? View the resources below or visit     Deltek.com for additional...
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Deltek Insight 2012: Winning Proposals using Price to Win Strategies

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Get a 60 minute overview on how financial management and pricing techniques can be utilized -- before proposal pricing exercises are initiated -- in order to help contractors proactively present their best pricing solutions. Learn about key components of a dynamic pricing model, which will enable you to not only establish verifiable basis of estimates, but also align a winning price with both the proposal and corporate financial goals. Intermediate Level.

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  • Make sure bullets are consistent – same color and tabbed over as neededNo periods at the end of bullets
  • I’m not sure what ICS stands for
  • Make sure you explain “Factor 4 Syndrome” Beginner audience - - JG: Revised
  • For the first bullet – suggest they attend the Mini General in Presidential Ballroom D - Planning for Success: the Federal Contracting Outlook for 2013 - - JG: Revised
  • Maybe say “MORE budget constraints? – First bullet was a little confusing, I’m not sure what an IC proposal is - - JG: Revised
  • Bullets blue
  • First bullet read oddly – maybe take off “minimally consider” – don’t need? - JG: Revised
  • Bullet 3 and 4 tab over - – JG: Done, Acceptable?
  • This shading won’t work – it’s projected and printed. Hard to read - – JG: Revised to be a lighter shade. Acceptable?
  • IAW corporate schedule – explain, might not know what this means - – JG: Done.
  • Bullets 3-5 tab – JG: Done, Acceptable?
  • Tab over bullets – JG: Done, Acceptable?
  • Indent 2-4 – JG: Done, Acceptable?
  • Slide is gritty – can we firm up? – JG: New Graphic
  • Slide is gritty - JG: New Graphic
  • Slide is gritty – JG: New Graphic
  • Deltek Insight 2012: Winning Proposals using Price to Win Strategies

    1. 1. Winning Proposals UsingPrice to Win StrategiesJacob George, Director, Red Team ConsultingGC-80
    2. 2. AgendaIntroductionsRealitiesBest Value EvaluationsPrice to WinPrice to PerformReality Modeling and Strategic Pricing2 ©2012 Deltek, Inc. All Rights Reserved
    3. 3. About Red TeamAbout Red Team Consulting About Red Team FederalRed Team Consulting is a woman-owned Red Team Federal, a division of Redsmall business providing a wide range of Team Consulting, LLC, is an economicallyconsulting services in support of federal disadvantaged woman-owned smallcontracting activities. business that provides acquisition strategy and planning, federalRed Team’s major areas of support include: procurement training and contract management support.  Fully outsourced proposal development and management RTF’s major areas of support include:  Strategic capture management and  Pre-award/post-award contract planning support  Price strategy and price to win  Acquisition strategy and planning  Training and seminars  Request for proposal (RFP) development  Cost Estimation3 ©2012 Deltek, Inc. All Rights Reserved
    4. 4. About the SpeakerJacob George  Director of Finance at Red Team Consulting  Over 10 Years of financial analytic and price modeling experience  Practice lead for all federal pricing and corporate budget engagements  Expertise with:  Corporate-wide government cost and pricing engagements  Financial planning and analysis (FF&P) Defense Contract Audit Agency (DCAA )-related projects (Incurred Cost Submission, control system audits)  Corporate-wide earned value management (EVM) implementation and training projects  Managed pricing activities for over $35 billion in federal procurements4 ©2012 Deltek, Inc. All Rights Reserved
    5. 5. Realities – General PricingMost companies have challenges when pricing contractsMost companies don’t actually follow the estimating andpurchasing methodologies they write aboutPrice evaluations are viewed as entirely subjective and theterm “best value” is considered very ambiguous by theindustryLarge businesses have the capability to beat small businesseson price based on their ability to allocate corporate costsCompanies will find ways to manipulate the pricing model onpricing evaluations5 ©2012 Deltek, Inc. All Rights Reserved
    6. 6. Realities – Proposals & Cost VolumesSubcontractors will often regurgitate prime contractortemplates for cost volumesPricing volumes and pricing-related exercises are frequentlycompleted at the last minute. Factor 4 Syndrome (Evaluationcriteria proportionality to importance)!Delays to the RFP release are extremely costly for industryand greatly impact small businesses6 ©2012 Deltek, Inc. All Rights Reserved
    7. 7. Realities – Small BusinessesMany small companies have never been audited and don’tunderstand DCAASmall companies don’t understand how to calculate their coststructures they could either be overcharging or underchargingthe government when biddingSmall businesses often unknowingly overcharge orundercharge the government because of challengescalculating their cost structures7 ©2012 Deltek, Inc. All Rights Reserved
    8. 8. Realities – The Pricing EnvironmentThe budget is going to become more challenging as growth slows ordeclines (Considering attending “Planning for Success: The FederalContracting Outlook for 2013” – Presidential Ballroom D @ 3:15pm)Competitors are focusing on keeping current contracts to maintaintheir customer and market position. The assault on cost factorsdemands realignment (Consolidations, mergers and acquisitions)Other options to lower cost positions include:  Addressing fringe rates (Multiple rates, fewer benefits, a la carte options)  Reducing management (Remove layers – BAE, Boeing, DRS)  Opening a new division to allocate costs – cyber, intelligence, health care8 ©2012 Deltek, Inc. All Rights Reserved
    9. 9. Realities – The Pricing EnvironmentMore budget constraints, fewer resources and limiting escalationrates.The Small Business Administration (SBA) gains muscle to makesmall business requirements even more important – from 20percent range to mandatory 40 percent+ (Department of HomelandSecurity 45 percent total contract value (TCV)  Move from total subcontracted dollars to TCV  We have seen small business requirement as evaluation factor in Intelligence Community proposalsDCAA and Defense Contract Management Agency (DCMA)involvement in procurement cost assessments continue to growBest value, realism and reasonableness are becoming real factors9 ©2012 Deltek, Inc. All Rights Reserved
    10. 10. Realities – The Pricing EnvironmentBest value evaluations can be ambiguous - important tounderstand agency or contracting office tendenciesIn acquisitions where the requirement is less defined or thereis greater performance risk, technical or past performanceconsiderations may play a dominant role in source selectionand best value determinationIt is not uncommon for the successful offeror to have a price10-15 percent higher in best value evaluations, but no more.And only if they are clearly the better proposal10 ©2012 Deltek, Inc. All Rights Reserved
    11. 11. Best Value Evaluations Versus LPTABest value is a conversation on how we can trade value(capability, schedule) against cost/priceLow price technically acceptable (LPTA) is a conversation onhow we bid to meet only the compliance threshold foracceptance at the lowest possible priceTypes of Source Selections:  High technical, price acceptable (HTPA) – Best value  Low price, high technical (LPHT) – Best value  Low price, technically acceptable (LPTA) – Low price  Low price (LP) – Low price11 ©2012 Deltek, Inc. All Rights Reserved
    12. 12. Pricing Strategy DevelopmentTo develop an effective pricing strategy, consider:  Your thorough understanding of the relative importance of price  A reasonable definition of “best value”  The awarding agency’s history of evaluating and awarding contracts  Your vulnerability to (and tolerance for) risk  Your competitors’ perceived tolerance for risk  Your true strengths and weaknesses for each evaluation factor and sub-factor  Your experience bidding against the presumed competitors12 ©2012 Deltek, Inc. All Rights Reserved
    13. 13. Pricing Strategy DevelopmentTo develop an effective pricing strategy, do not:  Presume that the government’s estimated lifecycle contract value, stated contract ceiling, minimum or maximum order amounts or currently available funding is reflective of an ideal target evaluation price or competitive range  Implement a pricing strategy as a consequence of technical and management strategy  Let pricing be a completion exercise to deliver a cost volume that is compliant13 ©2012 Deltek, Inc. All Rights Reserved
    14. 14. Price to WinOn a per proposal basis, Price To Win (PTW) provides adetailed, results based assessment of the price that yourcompetitor(s) is most likely to bidThe PTW exercise may reveal a competitive price thatexceeds your own capabilitiesThe PTW exercise may show new opportunities on how youcan provide a lower price and better valuePTW is your competitors price and is based on theircapabilities/cost structure and return on investment goals14 ©2012 Deltek, Inc. All Rights Reserved
    15. 15. Price to Win - UsesProper Uses – Decision Support  Provides a decision input to management bid strategy and pricing approach  Informs management of the most probable competitive bid price scenarios  Develops competitor views of the opportunity and prices these approachesImproper Uses – Becomes the Decision  Management abandons decision responsibilities and bids the PTW15 ©2012 Deltek, Inc. All Rights Reserved
    16. 16. Price To Win – When to InitiateAn opportunity/program has content that is core business toyour company strength“Must win” opportunities (new account penetrations)Incumbent looking to protect contract from challengersCompetitors look to unseat incumbentsEarly in the bid cycle (pre-RFP) to help evaluate teamingoptions, suppliers and technology partners16 ©2012 Deltek, Inc. All Rights Reserved
    17. 17. Price to Perform – Setting the StageQuestions that need to be asked include:  What is your price to perform on the awarded contract?  Can I sustain submitted prices with my current indirect rate and multiplier?  How much growth – base and organic - should I consider to be equitable?17 ©2012 Deltek, Inc. All Rights Reserved
    18. 18. Price to Perform – In ActionDevelop “if-win” budgets, showing the effect of the newprocurement on current rate structureWhat impact does this new contract have on:  Fringe – New insurance plans, locality influence, outside of the continental United States  Overhead and general and administrative (G&A) expenses – New management (PMO) positions, additional facility costs, new personnel (HR, IT), capital expenditures, subcontracts18 ©2012 Deltek, Inc. All Rights Reserved
    19. 19. Price to Perform - Example Total Cost Input: All costs labor, overhead costs, material and other direct costs (ODCs) are included in the base (denominator) Direct labor: $30,000 Direct material: $25,000 Overhead costs: $35,000 ODCs: $10,000 Total cost input: $100,000 G&A cost: $10,000 G&A rate: 10 percent Value Added: Total cost input minus Single Element Method: Only one cost Materials and subcontracts element, not often used Direct labor: $30,000 Direct labor: $30,000 Direct material: $25,000 Direct material: $25,000 Overhead costs: $35,000 Overhead costs: $35,000 ODCs: $10,000 ODCs: $10,000 Value added: $75,000 Single element: $30,000 (using labor) G&A cost: $10,000 G&A cost: $10,000 G&A rate: 13.33 percent G&A rate: 33.33 percent19 12/11/2012 ©2012 Deltek, Inc. All Rights Reserved
    20. 20. Price to Perform - ManageIn accordance with corporate schedule (i.e. Calendar Yearinitiatives), plan for changes to rate structureProper management and evaluation of indirect rates is key inthe financial lifecycle of a contractMonthly review of indirect rates via reviewing Statement ofIndirectsDevelop budget to actual reports and period to period reportsto monitor rates20 ©2012 Deltek, Inc. All Rights Reserved
    21. 21. Price to Perform - StrategiesStrategies to Explore  Material and Handling Pool  Typically consists of administrative costs/expenses necessary for handling of subcontractor and material costs  The base of the pool (denominator) consists of all direct subcontractor and material costs  The base of the pool is excluded from the base of the G&A.21 ©2012 Deltek, Inc. All Rights Reserved
    22. 22. Price to Perform – StrategiesStrategies to Explore Cont..  Service Centers  Extract certain traditional G&A costs and re-allocate them between G&A pool and overhead pools in a logical and consistent allocation basis  Cross allocations can be complex, so it is imperative that your accounting system be able to accommodate multiple service centers  Typical service centers include: HR (allocation base – headcount), IT (allocation base – units), facilities (allocation base - square footage), security (allocation base – headcount).22 ©2012 Deltek, Inc. All Rights Reserved
    23. 23. Modeling and Strategic PricingReality Modeling  The intent of reality modeling is to best predict what changes will likely occur over the life of a contract and bid with those changes in mind. In other words, what is being evaluated and what will actually be purchased, when and with what marginGaming  The intent of gaming is to notate the inefficiencies and imbalances in a given solicitation and strategically price accordingly23 ©2012 Deltek, Inc. All Rights Reserved
    24. 24. The Modeling ProcessTypically a bid model begins with a uniform application ofmargin to all itemsItems determined to be over-evaluated, i.e bidder believes it isless likely to be sold – margins are re-allocated to items thatare more likely to be soldOver-evaluated items, i.e. unlikely to be purchased are bidbelow their actual cost to drive down total evaluated price24 ©2012 Deltek, Inc. All Rights Reserved
    25. 25. Modeling OutcomesGaming has a negative connotation. However, there are caseswhere elements other than price or margin are drivers behindgaming an opportunity, these include:  Lower evaluated price  Higher profit  Inventory maximization (product or labor)25 ©2012 Deltek, Inc. All Rights Reserved
    26. 26. Modeling and Strategic Pricing Example – Uniform Margin26 ©2012 Deltek, Inc. All Rights Reserved
    27. 27. Modeling and Strategic Pricing Example – Margin Focus27 ©2012 Deltek, Inc. All Rights Reserved
    28. 28. Modeling and Strategic Pricing Example – Price Focus28 ©2012 Deltek, Inc. All Rights Reserved
    29. 29. Know More with Deltek Want to Know More with Deltek? View the resources below or visit Deltek.com for additional information and analysis to help you find and win more government business. Team More with Deltek Free White Paper: How Prime Contractors Can Win More Business Through Effective Teaming and Partner Management Comply More with Deltek Free White Paper: Compliance 101: Understanding the Greatest Challenges of GSA Schedule Contracts Win More with Deltek Video Case Study: How Citizant Increased Their Pipeline From $250 Million to $960 Million in One Year29 ©2012 Deltek, Inc. All Rights Reserved
    30. 30. Thank You!

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