How to price a government contract bid

To price a government bid, build your price from the bottom up (direct labor at no less than the wage determination, materials, equipment, subcontractors, bonds and insurance), add your overhead, general and administrative costs and profit, and then check the total against what the agency has paid for similar work and against how the solicitation evaluates price. Bottom-up gives you a floor you cannot go under; market data tells you whether you can win.

Most small contractors already know how to estimate a job. Federal pricing adds three things: wage floors set by the Department of Labor, a price schedule you must fill in exactly as written, and evaluation rules that decide whether the cheapest offer wins. This guide walks through each step, with a worked example.

Step 1: Find out how price will be evaluated

Before you estimate a single hour, read the evaluation section (Section M, or the addendum to FAR 52.212-2 in a commercial solicitation; see how to read a federal solicitation). It tells you how aggressive your price must be.

Also check how the total is calculated: whether option years and estimated quantities are included, and whether any price is evaluated per unit rather than in total.

Step 2: Build your direct costs

Labor

On construction contracts covered by Davis-Bacon and on service contracts covered by the Service Contract Labor Standards, the solicitation includes a wage determination. It lists the minimum hourly wage and fringe benefits for each labor classification in that county. You can pay more, never less. For each classification, estimate the hours and calculate the loaded hourly cost:

• Base wage (at least the wage determination rate)
• Fringe benefits required by the wage determination (or paid as cash in lieu)
• Payroll taxes and workers' compensation insurance
• Paid time off, holidays and vacation where the wage determination or the contract requires them

For service contracts, staff for the coverage in the statement of work, not for the average day. If the contract requires a guard post staffed 24 hours a day, every day of the year, you need relief staff for breaks, sick days and vacations.

Materials, equipment and subcontractors

• Materials: take off quantities from the drawings and specifications and get written supplier quotes valid for at least the acceptance period. Commercial solicitations typically hold you to your price for 30 days after the due date unless they state otherwise (FAR 52.212-1).
• Equipment: owned equipment at an internal rate, rentals at quoted rates, plus mobilization and demobilization.
• Subcontractors: written quotes against the same scope. On a set-aside, check the limitations on subcontracting (explained in small business set-asides) before you plan to sub out most of the work.

Job-specific costs people forget

• Bonds: bid, performance and payment bonds on construction. Your surety quotes the premium. See bonds and prevailing wages.
• Insurance at the minimums in Section H or the clauses, which may be higher than what you carry today.
• Base access and badging: background checks, escorts, time lost at gates.
• Quality control, safety and reporting: a quality control manager or site safety officer can be a required position, not overhead.
• Travel and per diem for jobs outside your area.
• Certified payroll and compliance time on prevailing wage jobs.

Step 3: Add overhead and G&A

Indirect costs are real costs: your office, vehicles, estimators, accounting, insurance not tied to one job, software. Calculate them from your own books:

• Overhead rate = indirect costs that support field work ÷ direct labor (or another base you choose consistently).
• G&A rate (general and administrative) = company-wide management costs ÷ total costs.

Small firms often use a single combined rate. What matters is that it comes from actual numbers, so you know where your floor is. A price below your fully loaded cost is not "aggressive", it is a loss.

Step 4: Add profit and price the risk

On competitive fixed-price jobs there is no required profit percentage. The FAR's weighted guidelines for profit apply when the government negotiates from a detailed cost analysis, which small competitive buys rarely involve. Your profit is a business decision based on competition, risk and how much you want the work.

On a firm-fixed-price contract every overrun is yours (see federal contract types), so price the risks you can see: unclear quantities, tight schedules, weather, remote sites, liquidated damages. If a risk is large and unclear, ask about it during the questions period before you put a number on it.

Step 5: Check your price against the market

Contracting officers compare offers against each other, against historical prices and against the government's own estimate (FAR 15.404-1 lists the techniques). You can do much of the same homework:

• Award notices on SAM.gov show the winner and amount for many past jobs. BidFox lists recent awards by trade and state; see who wins federal contracts.
• Contract awards data: the old FPDS search moved into SAM.gov in February 2026 (SAM.gov announcement). You need a free SAM.gov account to search it.
• USAspending.gov shows obligations by agency, recipient, NAICS code and place of performance.
• GSA CALC+ shows labor ceiling rates awarded on GSA Schedule contracts, which is useful for professional services.
• The magnitude statement: construction solicitations state an estimated price range, such as "between $1,000,000 and $5,000,000" (FAR 36.204). If your estimate lands far outside it, re-check your scope.
• The incumbent: for a recompete, find the current contract and its value. It shows what the agency is used to paying, not what it must pay.

A worked example

A simplified example for a one-year janitorial contract at a federal building. The numbers are illustrative only, not market rates: use your wage determination, your own costs and local quotes.

Then compare: what did the last award for this building or similar buildings in the area go for? If the incumbent was paid much less, find out why before cutting: maybe the scope grew, or maybe the old price is not sustainable at today's wage determination.

Step 6: Price option years and escalation

Many service contracts have a base year and up to four option years, and the government usually evaluates the total. Price each option year for the costs you expect in that year. On service contracts under the Service Contract Labor Standards, the clause at FAR 52.222-43 adjusts the price for wage and fringe increases required by a new wage determination when an option is exercised, but only for those mandated labor costs, not for your overhead or profit. Construction contracts are normally fixed price for the whole job, so include expected material and labor increases up front.

Step 7: Fill in the price schedule exactly

• Use the government's format: Section B, the SF 1442 bid schedule or the Excel price sheet, unchanged.
• Price every line item (CLIN), including option years and estimated quantities, unless the solicitation says otherwise.
• Check every extension: unit price × quantity = total, and the totals add up.
• Avoid unbalanced pricing, where some items are priced far above cost and others far below. Agencies look for it (FAR 15.404-1(g)) and it can get an offer rejected.
• Make sure the price volume and the technical volume describe the same staffing and approach.

After a sealed bid is opened, fixing a mistake is hard: FAR 14.407 allows correction of obvious clerical errors, and anything else needs clear evidence. The time to catch errors is before you submit.

Step 8: Learn from every result

Every lost bid is free market research. Award notices show the winning amount. In negotiated procurements you can request a debriefing in writing within 3 days of being notified of the award (FAR 15.506), and the debriefing must include the overall evaluated price of the winner and of your proposal. Keep a simple log of each bid: your price, the winning price, the number of bidders. After a few bids you will know where you stand in your market.

Common pricing mistakes

• Paying below the wage determination, or forgetting the fringe benefits.
• Pricing the average day instead of the coverage the statement of work requires.
• Leaving out bonds, insurance increases, badging or certified payroll time.
• Copying the incumbent's price without knowing its scope or its cost structure.
• Not acknowledging an amendment that changed quantities.
• Pricing below cost to "buy" past performance on a job that can run five years.

Frequently asked questions

How much profit should I put in a government bid?

There is no set percentage for competitive fixed-price bids. The FAR's profit guidelines are used when the government analyzes a contractor's costs line by line, which is rare on small competitive jobs. Price to win at a margin you can live with, after covering every direct cost, your overhead and the risks in the job, and check the result against what the agency has paid before.

How do I find out what the government paid for similar work?

Look at award notices on SAM.gov, the contract awards data that moved from FPDS to SAM.gov in 2026, and USAspending.gov. For professional services labor rates, GSA's CALC+ tool shows ceiling rates awarded on GSA Schedule contracts. After any competition you lose, ask for the winning price or a debriefing.

Should I bid the lowest price possible?

Only when the solicitation is sealed bidding or lowest price technically acceptable (LPTA), and even then never below your real cost. In a tradeoff source selection, the government can pay more for a stronger proposal, so a sensible price with a strong technical volume can beat the lowest bid.

What happens if I make a mistake in my bid price?

Before the deadline you can fix it by submitting a corrected bid or proposal the way the solicitation allows. After bid opening, relief is limited: under FAR 14.407 an obvious clerical error may be corrected, and other mistakes need clear evidence. Double-check unit prices times quantities and every total before you submit.

Do I need to price the option years?

Usually yes. When a solicitation includes options, the government normally evaluates the total price including options, so leaving an option year blank or pricing it unrealistically can cost you the award. On multi-year service contracts covered by the Service Contract Labor Standards, the price adjustment clause at FAR 52.222-43 can adjust prices when a new wage determination raises required wages.

Price more bids, get better at it

Pricing gets easier with volume: the more solicitations in your trade you look at, the faster you learn local rates and award prices. BidFox emails you the new federal notices for your trade and states every morning, with award notices included, so you can see who won and for how much. See a free sample alert, or start with the free Starter Kit, which includes checklists for your first bids.

Last reviewed October 20, 2026. This guide is general information, not legal advice. Rules and dollar thresholds change, so check the solicitation and the official sources linked above.