Pricing a public contract: what the cheapest bid actually costs

The belief that public contracts go to the cheapest bid is the most expensive misconception in the market. It leads suppliers to cut price to a level that wins nothing — because price was 30% of the marks — and then to deliver at a margin that makes the contract a burden for three years.

Find the weighting before you find a number

Every competition publishes how the marks are split. A 60/40 quality/price split, or 70/30, is common; some are 80/20. Work out what a price reduction is actually worth in marks before you make one. On a 70/30 split, dropping your price by 10% may move you a small fraction of the total marks, while the day you did not spend on the quality answers may have cost you several times that.

Read the price scoring formula too. Many use a relative model where the lowest bid takes full marks and others score in proportion — which means your score depends on competitors you cannot see, and a modest difference in price is often a small difference in marks.

Price the requirement, not the budget

Where a budget or estimated value is published, treat it as information rather than a target. Buyers are increasingly explicit that they are looking for the most advantageous tender rather than the cheapest, and a bid priced suspiciously below the rest invites scrutiny: authorities can investigate abnormally low tenders and ask you to justify the price, and can reject a bid that cannot be justified.

The practical risk is not usually rejection, though. It is winning.

Cost it properly before you decide what to submit

Build the cost from the delivery model you would actually run, including the parts that do not appear in the specification:

• Mobilisation — recruitment, equipment, systems, training, before any revenue arrives.
• Contract management — reporting, review meetings, KPI evidence. On public work this is a real overhead and is often under-costed.
• Compliance — insurances at the required levels, accreditations, audits.
• Working capital — the gap between doing the work and being paid for it.
• Indexation — for multi-year contracts, whether and how prices can rise.

Then decide your price. If it is above what the market has been paying, that is a bid/no-bid conversation, not a reason to shave the cost model until it fits.

Use the buyer's award history as your calibration

Published award notices tell you what this buyer has actually paid for comparable work. That is a far better guide than a budget figure, and it is the check that stops both mistakes: bidding at a price the buyer has never paid, and cutting to a level well below what they were happy to pay last time.

Whole-life cost, and how to use it

Where evaluation considers whole-life or lifetime cost, a higher initial price with lower running costs can win on the arithmetic. If that is your position, show the calculation explicitly rather than asserting it — evaluators can only score what is in front of them, and "cheaper to run" without figures scores as an opinion.

Price the risk you are being asked to carry

Two contracts with the same scope can be worth very different amounts depending on what the terms make you responsible for. Read the contract before you price it, and look specifically for the clauses that move risk onto the supplier: uncapped or high liability limits, service credits and deductions, volume commitments that are estimates rather than guarantees, indexation that is absent on a multi-year term, and termination rights that are one-sided.

Where a term carries real risk, you have three options: price it, seek clarification on it during the question window, or decline the contract. What does not work is noticing it and hoping.

Beware the estimated volumes

Many contracts are priced per unit against volumes the buyer has estimated. Those estimates are often historical, sometimes optimistic, and rarely guaranteed. A price that only works at the stated volume is a bet on somebody else's forecast.

Sanity-check the numbers against the buyer's award history where you can, ask whether the volumes are guaranteed or indicative, and if the answer is indicative, make sure your price stands up at a materially lower level.

Show your workings where the scoring allows

Where the pricing schedule permits narrative, use it. A price with a visible basis — the resource model, the assumptions, what is included — is easier for an evaluator to trust than a number, and it protects you later: assumptions stated at bid stage are the reference point when the requirement turns out to be different in delivery.

Keep it factual and short. This is not the place to re-argue the quality response.