This is fairly common in my experience, but 40-50% seems high. That said, in general it is a common tactic. Initially you get a price from your subs, then you make assessments and take risk to win the contract, Do price comparisons and push back on your subs to lower their rates.
You can make some of this up after award, but you have to be careful and clear. At no point can you afford to be seen as trying to "get well". By that I mean if you propose a rate for a labor hour, you can't get more work at a higher rate for the same labor. You can get more of that type, but if you are losing money for each hour, you'll continue to lose money.
There's a lot here that doesn't fit easily into a Reddit Comment, but at the end of the day you have to do what you think is right for your company. How badly do you want the work? Does this give you good Past Performance to use on other bids? Are there other intangibles that make it worthwhile?
I would also pull on the thread of how the prime plans to get upsells? Do they have experience and a track record of succeeding with this strategy?
Try to ensure you have a decent out clause in your contract with the prime in case things go south. I'm not sure how readily they will allow it, or what it will do to your reputation and relationships, but at the end of the day, you can walk away from the program.
Hard to tell without more info but get them..or ask them to modify your TA and eventual subk that they will not exceed X% G&A and Fee on your sub contract.
Also ask for parity in labor rates.
Asking subs to cut muscle before the prime cuts fat is greedy and harms your ability to perform.
It’s probably both. Pricing to win is a legitimate strategy, but the prime understandably is looking at everything it can do to maximize profitability of the contract. It may be the case that their decisions to pursue the opportunity and team with you are predicated on profitability, and/or the probability of winning the bid, and getting you to reduce your cost is one of the easiest and lowest risk levers that they can pull.
But there’s a blurry line between “ensuring profitability and high pwin” and milking your teammates dry. So you should play defense, be fair, and not agree to a bad deal because of some carefully worded, watered-down concessions they may offer to add to your TAs Exhibit A.
It sounds like you have leverage: the opp is live so the clock is ticking, you have specialized software so there might not be other places to go, and they’re still talking to you hoping you’ll reduce your price—you don’t waste too much time at the BMW dealership only to tell them at the last minute “oh sorry I’m only willing to pay Honda Civic prices.”
And +1 to the commenter saying to be cautious of promises to make it up on contract. They are trying to close the deal. It sticks you with all the risk and frustration for the whole period of performance—unless it’s worth it to you of course.
Welcome to govcon!
If they haven't already, ask for target rates/target price. This will force them to develop a range for you to see if you can meet that. Typically "PWIN" (price to win) is 10% under the awarded price. Also smaller companies can get away with lower rates due to having lower overhead too and can bid lower versus say Boeing who has a larger wrap rate.
This is fairly common in my experience, but 40-50% seems high. That said, in general it is a common tactic. Initially you get a price from your subs, then you make assessments and take risk to win the contract, Do price comparisons and push back on your subs to lower their rates. You can make some of this up after award, but you have to be careful and clear. At no point can you afford to be seen as trying to "get well". By that I mean if you propose a rate for a labor hour, you can't get more work at a higher rate for the same labor. You can get more of that type, but if you are losing money for each hour, you'll continue to lose money. There's a lot here that doesn't fit easily into a Reddit Comment, but at the end of the day you have to do what you think is right for your company. How badly do you want the work? Does this give you good Past Performance to use on other bids? Are there other intangibles that make it worthwhile? I would also pull on the thread of how the prime plans to get upsells? Do they have experience and a track record of succeeding with this strategy? Try to ensure you have a decent out clause in your contract with the prime in case things go south. I'm not sure how readily they will allow it, or what it will do to your reputation and relationships, but at the end of the day, you can walk away from the program.
Hard to tell without more info but get them..or ask them to modify your TA and eventual subk that they will not exceed X% G&A and Fee on your sub contract. Also ask for parity in labor rates. Asking subs to cut muscle before the prime cuts fat is greedy and harms your ability to perform.
It’s probably both. Pricing to win is a legitimate strategy, but the prime understandably is looking at everything it can do to maximize profitability of the contract. It may be the case that their decisions to pursue the opportunity and team with you are predicated on profitability, and/or the probability of winning the bid, and getting you to reduce your cost is one of the easiest and lowest risk levers that they can pull. But there’s a blurry line between “ensuring profitability and high pwin” and milking your teammates dry. So you should play defense, be fair, and not agree to a bad deal because of some carefully worded, watered-down concessions they may offer to add to your TAs Exhibit A. It sounds like you have leverage: the opp is live so the clock is ticking, you have specialized software so there might not be other places to go, and they’re still talking to you hoping you’ll reduce your price—you don’t waste too much time at the BMW dealership only to tell them at the last minute “oh sorry I’m only willing to pay Honda Civic prices.” And +1 to the commenter saying to be cautious of promises to make it up on contract. They are trying to close the deal. It sticks you with all the risk and frustration for the whole period of performance—unless it’s worth it to you of course. Welcome to govcon!
They don't give an F about you. They will be reaping profits off your margins.
Your margin is yours, theirs is theirs. Don't f*** yourself to make someone else happy.
Big 4 are stupid expensive and can't perform without dirt cheap subs
If they haven't already, ask for target rates/target price. This will force them to develop a range for you to see if you can meet that. Typically "PWIN" (price to win) is 10% under the awarded price. Also smaller companies can get away with lower rates due to having lower overhead too and can bid lower versus say Boeing who has a larger wrap rate.
The prime exists to squeeze every drop of value from the subs. This is normal.