How to Price Your Tender Proposal for Success

Why Pricing Decides Most Tenders

Pricing a tender is a high-wire act. Price too high and you lose the bid to a cheaper competitor, even when your technical proposal is stronger. Price too low and you win the bid but lose money delivering it, sometimes for years, because government contracts are rarely cancellable once signed. Finding the right number requires a disciplined approach to costing and a deliberate strategic decision about margin — not a guess dressed up as a quote. This guide walks through both halves of that process: working out your true costs, and then deciding how to price against them.

Step 1: Know Your True Costs

Before you add a single cent of profit, you need to know exactly what delivering the contract will cost you. Many businesses lose money on tenders not because their pricing strategy was wrong, but because they never properly identified all the costs the contract would generate in the first place. Hidden and forgotten costs are the single biggest cause of thin or negative margins on otherwise well-run contracts.

Direct Costs

• Materials: Raw materials, components, software licences, consumables, and any equipment purchased specifically for the contract.
• Labour: Wages for staff working directly on the project, including any overtime, shift allowances, or standby time the scope requires.
• Subcontractors: Fees for specialist partners performing part of the scope, plus the administrative cost of managing them.
• Statutory add-ons: UIF, Compensation Fund (COIDA), and any Skills Development Levy contributions tied to the labour you employ on the contract — these are frequently left out of a first-pass cost estimate.

Indirect Costs (Overheads)

• Administrative: Office rent, internet, electricity, insurance, and other running costs of the business that the contract must carry its fair share of.
• Management: Salaries of project managers, supervisors, and administrative staff whose time is consumed by the contract even though they don't appear as billable labour.
• Logistics: Transport
  , accommodation
  , and per diems for staff travelling to sites away from your base of operations.
• Financing: The cost of carrying the contract's cash flow — retention held back until completion, invoices awaiting payment, and any guarantee or performance bond fees charged by your bank or insurer.

The Contingency Fund

Always add a contingency buffer for unexpected events such as price hikes, delays, or scope ambiguity that only becomes apparent once work starts. A contingency line is not padding — it is a deliberate allowance for the parts of the scope you cannot fully verify before the contract is awarded, particularly site conditions, existing infrastructure, or client-side dependencies outside your control. Treat it as a real cost category with its own line in your costing sheet, not an afterthought added to the final total.

Step 2: Choose a Pricing Strategy

Once you know your break-even point — the minimum price at which the contract covers all its direct costs, overheads, and contingency — you need to decide how to price the bid for the client and the evaluation process you are entering.

1. Cost-Plus Pricing

Method: Total cost plus a fixed percentage profit margin.
Pros: Guarantees a profit if your cost estimate is accurate; simple to calculate and easy to defend if questioned.
Cons: May not be competitive if your underlying cost base is higher than a rival's, since the method doesn't respond to what the market will actually pay.

2. Market-Based Pricing

Method: Researching what competitors typically charge for similar work and pricing at or slightly below that level.
Pros: Highly competitive on paper, since it's calibrated directly against what wins.
Cons: Risky if you don't actually know your competitors' cost structures — pricing to match a rival with lower overheads or better supplier rates than you can produce a bid that wins but loses money.

3. Value-Based Pricing

Method: Pricing based on the value or return on investment you deliver to the client, rather than simply your time and materials.
Pros: Highest potential margins, particularly for specialised or high-impact work.
Cons: Hard to justify inside a rigid government pricing schedule that only asks for a unit price and total — there is usually no field to make a value argument, so this strategy works better in negotiated or private-sector procurement than in a standard SBD tender.

Step 3: Completing the Pricing Schedule

Government tenders usually come with a standard pricing schedule, most commonly SBD 3.1 for a fixed price offer or SBD 3.3 for a professional services offer with a rate-based fee structure. You must use the prescribed format exactly — reformatting it, even to make it clearer or add extra detail, risks the bid being ruled non-responsive on price because the evaluation committee can no longer compare your schedule against everyone else's like for like.

Rules for Success

1. Fill in every line: If an item genuinely has no cost, state that explicitly rather than leaving the field blank. A blank line can be read as an incomplete bid.
2. Check VAT treatment: Confirm whether the prices requested are inclusive or exclusive of VAT before you enter a single figure. This is one of the most common sources of pricing errors on otherwise sound bids.
3. Double-check the maths: Build your totals in a spreadsheet, then transfer them carefully into the tender's own pricing schedule format. An arithmetic error discovered during evaluation can be corrected against your unit price, but the correction may not be in your favour.
4. Match units precisely: If the schedule asks for a price per unit, per hour, or per month, make sure your figure is genuinely calculated on that basis rather than converted loosely from a total contract estimate.

Common Pricing Pitfalls

The Foot-in-the-Door Trap

Bidding at a loss just to win the client, hoping to make money on future work, is a common but dangerous strategy in public procurement. Unlike private-sector relationships, there is no guarantee that a government client will extend or renew a contract based on goodwill from a previous low-priced job. You are stuck delivering at your low price for the full contract term, which in professional services and facilities contracts is often measured in years, not months.

Ignoring Inflation on Multi-Year Contracts

For multi-year contracts, your input costs — wages, fuel, materials — will rise over the life of the agreement. If the tender doesn't provide for an annual escalation mechanism tied to a published index, you need to build a realistic allowance for cost growth into your initial price, because you may not be able to ask for more once the contract is signed.

Confusing Turnover With Margin

A large contract value can look attractive on paper, but a high-turnover, low-margin contract can tie up working capital and management time for a return that barely covers your cost of capital. Before submitting, model what the contract actually returns after all direct costs, overheads, and financing costs — not just what it adds to your annual revenue figure.

Building a Simple Break-Even Model

A useful discipline before finalising any price is to build a simple break-even model: total direct costs, plus apportioned overheads, plus contingency, equals your break-even price. Anything you price above that figure is genuine margin; anything below it is a loss, however healthy the contract looks on the pricing schedule. Keep this model as a live working document throughout the bid process rather than a one-off calculation, since scope clarifications during a briefing session or addendum can change your cost base before you actually submit.

Conclusion

Pricing is not a guessing game. It is a mathematical exercise — establishing your true break-even cost — followed by a strategic decision about margin and competitiveness. Build a robust costing model that covers all your direct costs, overheads, and contingency, decide deliberately on a pricing strategy suited to the tender type, and verify your figures more than once before submission. A profitable business is built on profitable projects, not simply won ones.