Published in  
Government Contracting Trends
 on  
February 25, 2021

Is Government Contracting Profitable?

Everyone wants to know if healthy margins can still exist in such a price-driven space. The entire team can assure you, profit is sometimes even encouraged for larger procurements and where price is not the decisive factor.

To ensure maximum profitability early on, it’s important to bid based on past successes and make the process conversational. First though, you need to discover the purchaser type on the public side that would pay for quality, added value, and not go the lowest-wins route. These are not always in the most affluent areas (e.g. City of Beverly Hills) either, so it takes some iterating and openness on the capture side. Sometimes, just a priority of the procurement will drive whether higher margins will be allowed. Urgency is another important factor to consider; how urgent is your solution over something more routine like tree trimming?

The insight that GovCon is profitable will be met with a “But how?” question, and this is understandable. Too many people are under the impression that you’re fighting on price when bidding. So it first takes a reorientation of what bidding actually is and what it can achieve.

Bidding Should be Profitable, Because its a Conversation Starter

Bid responses are condensed visual solutions, put together and submitted in good faith that the package addresses the purchaser’s pains/needs/desires. They get the conversation started in a much more acceptable way than just pitching outside an RFP.

We always recommend that the bid opens up new avenues for solution discovery, scope expansion, option exploration, and more. That it attacks the scope and the margins.

Many newcomers are not confident enough to break outside of the scope of work. Many insist that nothing more can be done outside of providing a price on forms, leaving conversation starters and packages outside of the main procurement to larger competitors to explore. This is an unfortunate pattern that TKS has seen repeated across industries and sizes, especially because the value of a smaller (less corporate) vendor is always the customizability, curatorial nature of the service, and great customer service. Why remove the single most advantageous point of contracting with a smaller entity during the bidding process because of a presumed need-to-conform?

We’re not saying you should abandon the scope, or test the patience of the evaluative team. You should certainly consider their flexibility when showing more. This is why our capture style affords a lengthier Q&A process where we try to gauge if the above would work.

People familiar with profitability in bidding, who have reaped the rewards of the bid process and the above strategies, refer to this as selling oranges to someone hungry for an apple.

What Comes Next?

If you have to ask “What comes next?” upon submitting a proposal, you didn’t engage the purchaser in a conversation, and it’s very likely that you tried to beat the competition on price. Many people view this form of competition as a losing battle and refuse to entertain GovCon entirely because of this common engagement format, or precisely because it’s “common” to do so.

After submitting a bid with profit appropriately baked in, we have a mode of actions to recommend post submission. The recommended course of action will depend on the amount of saturation in your industry, the number of bidders who participated, and about a dozen or so other variables. A marker of a strong pre-contract service (like TKS) is the ability to ask and get sound advice back.

Putting Profitability Into Contract Negotiations and Reviews

The ability to support a long-term contract with a healthy margin should be front-of-mind when negotiating or reviewing a contract renewal. Simply, profit needs to be raised just as high as liability. This means considering which penalties exist and the likelihood of those penalties getting triggered. Has the purchaser issued a formal statement to penalize vendors previously? This should be searchable in the public domain.

Further, how do you remain profitable when contracts renew and the appeal of a lower-priced vendor is waved in your face?

Just remember, your higher price is there to keep the contract’s performance strong. Profit raises eventual stakeholder satisfaction and encourages you to pick up the phone for that client, as needed. And strong performance attracts better work down the road, making future sales a lot easier. It also makes our jobs easier on the proposal development side of things, which we appreciate.

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