The Federal government puts out about $300 billion per year in contracts on over 400,000 contracts. About $180 billion of that is in new contracts awarded on open bid solicitations. About $20 billion is awarded to small- and medium-size businesses, with more than half of that going to “consulting services.”

To hear people like Matthew Lesko (author of How to Write and Get a Grant) talk, you’d think they’re handing out risk-free government contracts to all that ask. Unfortunately, the business of government is often inept, incompetent, inefficient, and frequently misinformed or oblivious of important aspects of its enterprise. The lowest bidder or the best company doesn’t always win.

There are competitive and contractual pitfalls that are never discussed in books on how to do business with the government. In reality, the process of breaking into the government marketplace is a high-risk, complex venture that requires a special awareness and set of skills to survive. On the upside, it’s a market that’s only mildly affected by ups and downs in the economy, and if you know what you’re doing, it can be a stable source of company revenue for years to come.

Perhaps the most crucial aspect of your government contracting process is the decision of whether to bid. If you do bid, you should have some reasonable assurances that you’re at least competitive and have a chance of winning. This process doesn’t begin when the Request for Proposals (RFP) comes out—it begins well before that. I’ll cover a few of the cardinal rules of the process of qualifying your bid decision.

Know thyself
Qualifying a bid starts with pensive introspection: Who are you and what do you do? Until you know all about yourself, you can’t convince anyone else who you are or what you can do. One way to get a handle on what you really sell and who you really are is to make a business plan. It will force you to answer questions about who your competition is and what makes you different from them. What you get out of this self-examination is a better sense of what you can realistically go after.

In the bid decision process, you have to be able to make an objective decision about your competitive advantage against likely bidders. You’ll be better able to do that if you have a proper business plan.

Know thy client’s needs
While you’re thinking about what your skills and capabilities are, keep in mind that the client has his own perceptions that must be addressed. It’s amazing how often a bidder and a contract office do not see the world the same way. For example, a common mistake that many people make is trying to sell a product to someone that wants to buy a solution. There’s a big difference. Remember, the guy in the hardware store really wants to buy a Œ-inch hole, not a Œ-inch drill bit. Don’t attempt to sell a product to someone that wants to buy a solution. Most government contracts want a solution without regard to the method or means.

Know your client’s intentions
The RFP you’re responding to may have been locked in for someone else before the RFP was ever published. In some cases, the eventual winner of the contract is the one that wrote the RFP for which they will bid. Of course, this is not common knowledge to the general public.

It’s also possible that the RFP is completely unfunded and an award was never possible—the government was simply fishing for ideas. Officially, these should be called Requests for Comments (RFCs), which are intended to “test the waters” with a preliminary draft of the RFP.

The agency releasing an RFC may want to reduce its protest risks by letting companies screen a draft of a future RFP for obvious flaws. It might want to get an idea of what its needs will cost, especially since most career government people have little idea of the true market value of what they buy. Finally, it may be trawling for ideas and technical solutions for an agency’s need.

Know your competition
On most contracts, you can find out the bidder’s list—those companies that have shown an interest in receiving bid information. Examine this list and objectively evaluate your chances with these competitors against the solution you offer and the skills you have relative to the RFP’s requirements. Using your business plan as a guide, can you argue that you can do a better job than the companies on that bidder’s list?

Quality, not quantity
Do not, do not, do NOT…shotgun proposals with the idea that you’re bound to get something. It’s like playing 25 slot machines at the same time in the hopes you’ll win faster. You won’t. You have a finite amount of resources to expend on unfunded proposal writing. Don’t waste it. Take a few steps back and take the time to qualify your bid. The best way is to develop a simple formula to weigh the risks vs. rewards. Here’s a simple one I’ve used to get people started estimating their Bid and Proposal Budget (B&P)—how much to set aside for the total expense of making a bid on a given contract:

B&P = (Gross Contract Award x Your Expected Profit Margin x SI x FI)/RF

In this formula, SI is your Strategic Investment factor, a subjective number from 1 to 10 that represents how strategically important this bid is to your company. The higher the number, the more important it is to win for strategic, marketing, or operational reasons.

FI is the Financial Investment you want to make in this contract. This is a percent of expected contract profit that can be invested to win this contract. Typically, this would be under 20 percent.

The RF is the Risk Factor, a subjective number from 1 to 10, where a higher number represent greater risks.

For example: A $500,000 contract with a 7 percent profit and a moderate Risk Factor of 5 might be important to win to break into a new market, so you’d give it an SI of 8. If it is that important, you might give it a high FI of 20 percent. This would yield a B&P budget of $11,200 or about 224 hours of B&P labor—a reasonable number.

Typically, experienced managers independently develop these three factors. Set up your own methods to derive these factors or adjust the formula to suit your specific needs. More advanced formulas can incorporate the time-value of money and ROI, including intangible gains to skills, market position, future growth, competitive image, and corporate value.

Resources abound
Start your research by making full use of the Q&A phase of the RFP. Caution: All bidders see all the Q&As, so it is important to carefully word questions that won’t give away your bid strategy but will still get the information you need. You can also use the federal databases to see what else the incumbent has won and the background on the government office that is releasing the bid. Here are some useful links:

  • FedBizOps: Announcements and awards of federal contract opportunities
  • AcqNet: Acquisition regulations, guides, reports, and laws
  • GSA: Comprehensive site for governmental project info
  • DTIC: Defense Technical Information Center (search by company/office)
  • GPO: Government Printing Office—lots of reference material and links

All this is just to feed your bid-no-bid decision but the effort is worth it. I use this approach and have an 88 percent win record for bids that I have managed with a total contract value of more than $3 billion, so I know it works.

The author of this article isTom Watkins, Director of Government Systems atManagement Technology Consulting, Inc.