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I believe the proper way to price is to enter data at the lowest level of detail, and allow it to perculate up to a final bid price.  Managers and owners often have a problem with this -- they seem to find a "top-down" approach preferable.  They don't want to go to the trouble to provide low-level data, and are totally in love with the price they think will work.  Often their instruction to underlings is to "find a way to make it work" when it is simple as their numbers just won't work - 2+2=5 syndrome.

I have a customer who takes my pricing and waltzes off into a delusional sunset by "playing" with numbers, and I am about to quit since I have other work to keep me busy and don't really need the money.  These fictional prices are accompanied with a narrative which says:  "ABC follows a pricing model based on rates resulting from a submission of 5-year plan coupled with the effect of an award"  DCAA would crucify their "top-down" practices if they ever checked in - but in recent years DCAA has just about quit fooling with smaller contractors.

I don't know that I can forge a question from the above, but I would like to hear from some of you as to whether this is normal and what you do about it.  Comments welcomed.

 

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There is cost-based pricing and market-based pricing. Typically, the government expects the former when cost analysis is involved.

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In my experience, both bottoms up and top down estimates are capable of being analyzed further before a bid is submitted. Neither one is necessarily "the gospel." Management may believe some challenges can be had and may for example, change some estimates to a lower amount based on information not necessarily known to the "bottoms up" people, but add a lesser sum back in to management reserve if possible. Some labor may be susceptible to a ambiguity as to the depth of work needed to comply with the customer statement of work.There also seemed to be many occasions in my experience where where the "customer" and/or advanced business marketing about customer funding gave rise to a range considered more winnable. Just saying.   

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Three other thoughts, FWIW--

1. Every time I priced, back when I priced, management had a "bogey" they wanted me to hit. I think the kids call it "Price2Win" these days. It didn't matter that the pricing followed inevitably from the estimating input; they always wanted the bottom-line number they wanted to see. I learned to deliver the number regardless of my opinion regarding its predictive accuracy.

2. One time I did some consulting work for a DOE contractor who was remarkably effective at winning new contract awards. Its secret? When the solicitation contemplated a cost-type contract, they bid it FFP. The government was delighted to award on an FFP basis, as it was perceived to lower the risk. I was called in to consult on a T4C. I was surprised to find that the company was losing money on every single DOE contract it had. Apparently there was a reason the work was let as cost-type and not FFP. Anyway the only contract that contractor made money on in that year was the one that had been T4C'd. At least, it didn't lose as much on that one as the others. Unsurprisingly, that contractor is no longer in business.

3. I knew this company--a Beltway Bandit--that fired its entire estimating staff as a cost-cutting measure. PMs kept complaining that the estimators didn't give them sufficient budget to perform the work. So the company fired the estimators and put the PMs in charge of the estimates and associated pricing. Then those same PMs would run the job after award. No more complaints, right? Unfortunately, the PMs knew next to nothing about estimating and pricing. One example: 4 commercial plants in 4 different CONUS locations; each bid FFP. Brilliant PM idea: detailed estimate for the first plant, then replicate for the others, cutting out 10% for learning curve efficiency. Guess what? Each location had a unique site with unique geology and unique environmental conditions. Each location had a unique governmental permitting and regulatory oversight process. Oops! Unsurprisingly, that contractor is no longer in business.

Hope these anecdotes amuse somebody out there.

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I think I knew Company 2, H.  Unfortunately, it wasn’t amusing...

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On 12/4/2018 at 4:04 AM, joel hoffman said:

I think I knew Company 2, H.  Unfortunately, it wasn’t amusing...

Probably. That contractor was all over the DOE's nuclear weapons complex, winning award after award, taking "bet the company" risk after risk.

It lost.

 

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