How to Price a Government Bid

Pricing is where government bids are won and lost — and where new bidders make their most expensive mistakes. Price too high and you lose the contract; price too low and you win work that loses money for months or years. This guide walks through a structured way to think about pricing a government bid in Canada: understanding what the pricing forms actually ask for, building up your costs honestly, allocating overhead, setting margin against risk, and adapting your strategy to how the bid will be evaluated. This guide is educational content, not financial or professional advice — for decisions about your specific business, consult a qualified accountant, financial advisor, or other professional.

One principle underlies everything that follows: a good bid price is built, not guessed. Bidders who consistently make money on government work treat pricing as a repeatable process — read the documents, build the costs, add overhead, price the risk, then apply strategy. Bidders who guess at a number and work backwards tend to discover their real costs after the contract is signed, when it is too late to do anything about them.

Read the Pricing Forms Before You Price Anything

Every solicitation tells you how it wants to be priced, and that structure should drive your whole approach. Some tenders ask for unit prices against a table of estimated quantities — you are paid per unit delivered, and the quantities in the table are estimates, not guarantees. Others ask for a single firm, all-inclusive price for a defined scope: you carry the risk of anything you missed. Professional services solicitations often ask for per-diem or hourly rates by labour category, sometimes with an estimated level of effort. Each structure allocates risk differently, and each rewards a different kind of preparation.

Price the structure the form demands — not the structure you wish it had. If the form asks for unit prices, you need a defensible cost per unit, including the fixed costs that do not scale with volume. If it asks for a firm price, you need to have read the entire scope, specifications, and contract terms, because everything not excluded is included. If it asks for per-diem rates that will bind you for a multi-year period, you need to think about what your people will cost you in year three, not just today. Misreading the pricing structure is one of the fastest ways to submit a number that looks fine on paper and bleeds money in practice.

Cost Buildup: Direct Labour, Materials, Subcontractors, Equipment

Start with direct costs — the costs you would not incur if you did not win this contract. Direct labour is usually the biggest line: estimate the hours by task, then apply fully loaded labour rates that include not just wages but payroll taxes, benefits, vacation pay, and statutory contributions. A common early mistake is pricing labour at the wage you pay the employee, which can understate the true cost significantly. Materials and consumables come next: price them from current supplier quotes where possible, not from what you paid on your last job, and note how long those quotes are valid compared to the bid validity period you are committing to.

Subcontractor costs should be based on written quotes tied to the same scope and specifications you are bidding — a verbal ballpark from a sub is not a number you can safely build a firm price on. Equipment costs include rental rates, or an internal charge-out rate for equipment you own that reflects depreciation, maintenance, insurance, and fuel. Then add the contract-specific costs that new bidders routinely forget: bonding premiums, insurance certificates or added coverage the contract requires, security clearances, travel and accommodation, permits, delivery, and disposal. These are real costs of performing this contract and they belong in the buildup, not in your margin.

Overhead: The Silent Killer of Underpriced Contracts

Overhead is everything it costs to run your business that cannot be traced to a single contract: rent, utilities, office staff, accounting and legal fees, software, insurance, marketing, vehicles, and the unbillable time you and your team spend managing the company. Every contract you perform must carry a share of these costs, because nothing else pays for them. The usual approach is an overhead allocation rate — a percentage applied to direct costs or direct labour — derived from your own financial statements, not from a rule of thumb borrowed from another company or industry.

Underestimating overhead is how contractors slowly go broke while appearing busy. Each individual job looks profitable on its job-cost report, because the job-cost report only shows direct costs. Meanwhile the business as a whole loses money, because the margins being earned are not large enough to cover rent, admin salaries, and everything else the jobs are not carrying. If you have never calculated your actual overhead rate from a full year of financials, do that before you price your next government bid — many bidders are surprised by how high the honest number is, and that surprise is far cheaper to have now than after an award.

Margin and Risk: Getting Paid for What You Carry

Margin is what is left after direct costs and overhead, and it is not optional — it is the return that justifies the risk of doing the work and the capital tied up in doing it. How much margin to target is a business decision that depends on your market, your competition, and your appetite for the contract; no guide can give you a correct number. What a framework can tell you is that margin should scale with risk. A contract where you carry more risk should earn you more than one where the buyer carries it.

Contract type is the clearest example. Under a fixed-price contract, you carry the risk of estimating errors, productivity problems, weather, and price changes in your inputs — so your price should include contingency for the risks that are genuinely yours, sized to how confident you are in your estimate and how well-defined the scope is. Under a time-and-materials or per-diem arrangement, the buyer carries most of the quantity risk, and pricing is typically tighter as a result. Contingency is not padding; it is a priced, deliberate allowance for identified risks. Know which risks you are pricing, and resist the temptation to strip contingency out at the last minute just to hit a lower number — that does not remove the risk, it just makes it unfunded.

Lowest Price vs Best Value: Let the Formula Shape Your Strategy

Before you finalize a number, understand exactly how the bid will be evaluated, because the evaluation method changes the pricing math. In a lowest-priced-compliant evaluation, price is the only differentiator among bids that meet the mandatory requirements. There is no credit for being better — only for being cheaper while compliant. In those competitions you sharpen your pencil: scrub the estimate, tighten contingency to the risks you truly carry, and decide coldly whether you can be competitive at all. If you cannot, declining to bid is a legitimate strategic answer that costs you nothing.

In a weighted or best-value evaluation, technical merit and price are combined by a formula stated in the solicitation, and that formula tells you how much a dollar of price is worth in points. When technical merit carries significant weight, a bidder with a strong technical score can often sustain a higher price and still win, because their point lead absorbs the price difference — while a weak technical proposal cannot buy its way to victory with a low number. Work the arithmetic generically before you decide your strategy: read the formula, understand how many points separate a strong bid from an average one, and price accordingly. Bidders who price a best-value competition as if it were a price-only race routinely leave money on the table.

Unbalanced Bidding: What It Is and Why It Is Risky

In unit-price bids, some bidders shift margin between line items rather than spreading it evenly — a practice known as unbalanced bidding. The classic patterns are front-loading, where early work items are priced high to improve cash flow at the start of the contract, and quantity gaming, where a bidder who believes an estimated quantity is understated prices that item high and offsets it with low prices elsewhere, hoping to profit when the real quantities come in.

It is worth understanding why bidders attempt this, and equally worth understanding the risks. Many solicitations expressly allow evaluators to reject bids that are materially unbalanced, so an aggressive structure can disqualify an otherwise winning bid. And the strategy cuts both ways: if quantities shift in the direction opposite to your assumptions, your underpriced items get consumed in volume while your overpriced ones are cut back, and the contract loses money by design. For most bidders, especially newer ones, pricing each line item at its honest cost plus a consistent margin is both safer and easier to defend if the buyer questions your numbers.

Multi-Year Contracts and Price Escalation

A price that is healthy in year one can be underwater by year three if your labour and input costs rise and your contract price cannot. Before pricing a multi-year term, check whether the contract includes a price escalation or adjustment mechanism — a clause that adjusts prices over time, sometimes tied to a published index. If the documents are silent, ask during the question-and-answer period whether escalation will be permitted; the written answer becomes part of the record all bidders rely on. If the answer is no, then inflation risk over the full term is yours, and your pricing for the later years must carry it. Committing today's rates to a long term with no adjustment mechanism is one of the most common and least visible ways bidders lock in future losses.

Taxes and What Is Typically Excluded

Read the pricing instructions for how taxes are to be handled. Canadian solicitations typically instruct bidders to exclude sales taxes such as GST/HST from bid prices, with taxes applied separately — but do not assume; the instructions govern, and getting this wrong can distort your price against competitors or create an evaluation problem. Check equally carefully what your price must include: many solicitations state that prices are all-inclusive of delivery, travel, or other costs unless stated otherwise. Anything the documents say is included in your price and not separately reimbursable must be in your buildup. When tax treatment for your situation is unclear — interprovincial work, First Nations lands, zero-rated supplies — that is a question for your accountant, not a guess to embed in a binding bid.

Common Pricing Mistakes to Avoid

Most pricing disasters trace back to a handful of repeatable errors. The first is pricing from an incomplete reading of the documents — skimming the scope of work and skipping the contract terms, specifications, and addenda where the expensive obligations live. The second is ignoring compliance costs: bonding premiums, insurance requirements, security clearances, and certifications all cost real money, and bidders who discover them after submitting have already committed to absorbing them. The third is racing to the bottom — cutting price below cost to win a first government contract on the theory that it buys a relationship. Government work is awarded competition by competition; a money-losing contract mostly buys you a money-losing contract.

Two subtler mistakes deserve equal attention. Cash flow: government buyers pay on defined payment cycles, typically after invoicing and acceptance, and on a longer contract you may finance payroll, materials, and subcontractors for weeks or more before payments flow. That financing cost is real and belongs in your thinking, especially for smaller firms without deep credit lines. And contract terms: warranty obligations, liability provisions, holdbacks, and acceptance procedures are all costs or risks that a careful bidder prices and a careless bidder donates. If a term materially increases your risk, either price it or raise it in the Q&A period — silence prices it at zero.

Build a Reusable Pricing Model — and Keep Improving It

You should not rebuild your pricing approach from scratch for every bid. Build a reusable model — a spreadsheet is enough to start — with your fully loaded labour rates, equipment charge-out rates, your calculated overhead rate, standard lines for bonding, insurance, and other compliance costs, and an explicit, visible contingency and margin section. A model makes your pricing faster, more consistent, and harder to sabotage under deadline pressure, because the costs that are easy to forget at midnight before a close are already lines in the template.

Then treat every outcome as data. When you lose, request a debrief — unsuccessful bidders in federal procurement can ask for one — and where the process discloses pricing information, compare it against your model: were you high on labour, on overhead, on margin, or simply against a competitor with a different cost structure? When you win, compare actual costs to estimated costs at the end of the job and feed the variances back into the model. Over a dozen bids, this loop turns pricing from guesswork into an evidence-based system — and that system, more than any single clever number, is what makes government work reliably profitable.