In this article, we will cover the importance of bid pricing in public sector procurement. This will be examined in the context of recent reforms in the sector and how your business can benefit and win more tenders. Refining your tender pricing strategy by understanding your options and what tactics may be employed by your competition (competitor analysis).
When we hear about winning tenders, what do we think about? Bid writing, proposals, procurement portals, detailed quality questions and social value responses? Has the tender pricing taken a back seat?
MEAT to MAT?
We have now become familiar with the term MEAT haven’t we? The ratio of how your bid will largely be evaluated in public sector procurement exercises and frameworks. The Most Economically AdvantageousTender – MEAT, which is covered in more detail in our Bid Writing Ultimate Guide. Public sector tenders, procurement and tender evaluations have been largely based on MEAT, which is a balance of tender pricing and your quality submissions (best price and quality ratio). You are told how your bid will be evaluated and it will be based on 40% on price and 60% on quality, for example. The 60% on quality being made up of your quality tender responses, which may be 6 questions worth 10% each. The full 40% score on pricing then going to cheapest or lowest priced bid submission. In practice, this means if you have a very suitable and proven solution accompanied with effective bid writing you could score first in quality gaining full marks (60), and therefore not have to have the lower priced tender in order to win!
Price of course is still very important, especially with the rising standards of bid writing and often a route for smaller, regional and new public sector suppliers to gain crucial additional scores which can often make all the difference.
Up to now price is firmly part of the equation with the emphasis of ‘economically advantageous’ in this assessment.
With the Procurement Bill, reforms and the resulting Procurement Act coming into force in October 2024, MEAT will however change!
MAT or Most Advantageous Tender will become new criteria of how government tenders are evaluated. The change isn’t too subtle – ‘economically’ has gone! Public sector suppliers – no pricing, time to increase those margins?! Afraid not.
The aim of this change is to simply broaden the term and make it more open to being tailored by public sector procurement managers. What is an advantageous bid from their perspective and based on their very specific needs? In practice, public sector procurement teams have been including and weighting sustainability, social value and more areas for years, so we don’t think much will change relating to this. However, it does highlight that value for money can be achieved through other means and does not always need to mean price.
The Bid Writing Ultimate Guide provides more examples of public sector procurement evaluation criteria and how understanding this can help you improve both your bid writing and tender pricing.
Pricing strategies and post-tender negotiations
MEAT to MAT is just one example of a further drive by the government to provide more flexibility in public sector procurement.
Another change as a result of procurement reform and the Procurement Act will be an increased ability, for public sector procurement managers to negotiate after the bid is submitted. The vast majority and volume of tenders have been via an open or restricted procedure, which does not allow this to take place. We expect post-tender negotiations to increase as a result of changes and this will be more familiar to those who have worked on competitive dialogue bids for example.
As a supplier bidding for public sector procurement opportunities it is important to prepare for these changes and make sure your business is able to be a step ahead of your competition. Negotiations will still be formal and managed in an open, fair and transparent manner, giving bidders the opportunity to agree joint clarity and resubmit proposals which includes changes to the quality bid submission, but also your tender pricing.
Pricing strategies to help you win more tenders
To bid effectively and price to win tenders, whether in the public or private sector, you need to understand the market place and importantly your competitors. Competitor analysis and intelligence enables you to understand how you can increase your return on investment (ROI) from bidding and win tenders by having the right pricing strategy.
How do you understand competitors pricing?
The main route to understand your competitors pricing is by competing! When you start to bid or submit quotes you will quickly find out what you are winning and what you aren’t. In the public sector you should also get detailed feedback. A breakdown of what the winning bidder scored compared to yours, including their price scores in comparison to yours. It is your role to understand this, interpret it and identify how they have managed to achieve it?
This feedback and pricing analysis will help inform your pricing strategy. Put very simply, do you need to be cheaper in order to win? Can you increase your quality tender scores to balance up your higher tender pricing? How is competitor x managing to bid so much lower than you despite their size, infrastructure and overheads?
When developing your understanding of the public sector marketplace, these specific competitors and forming your pricing strategy, you will be able to refine your approach.
Do you know your solution is better and like for like your prices are better, but you are still losing on both price and quality? This is an opportunity to improve your bid strategy, or your bid planning, as well are your bid writing approach and pricing strategy. Could it be your solution is too good and exceeds the requirements of the buyer beyond where it also improves your quality responses to make it worthwhile? You would therefore be investment into a level of product or service delivery, which provides your competitors a chance to price to win the work from you.
Or are you still pricing based on lower volumes of work from existing private sector clients and not accounting for the higher volumes and longer commitment often available through winning contracts with the public sector?
Is there a new competitor trying to break into the sector and willing to win work and unsustainable levels? Is this a high risk strategy for the public sector to engage with? If so, it becomes your role as part of your relationship development and business development to highlight these risks and implication to and ensure future tenders are designed to minimise this as a result of increased level of financial assurance or experience, for example.
Are competitors winning work on low prices and then searches for savings almost as soon as the contract award notice lands? Again, it is part of the prior engagement with the public sector buyer to highlight this and aim to influence the structure of the tender as a result.
A lot of questions but hopefully highlighting the what is required in order to understand your pricing strategy for your next tender.
A system for developing a pricing strategy
Developing a pricing strategy for winning tenders can happen organically and based on the approach noted above. However, for those looking for a more strategic approach and system for developing a pricing strategy we have provided several areas to consider below.
Just to highlight an effective pricing strategy is the difference between winning tenders and not. It is also crucial for businesses aiming to maximise profitability and sustain market relevance. By developing and implementing a structured framework, businesses can align their pricing strategies with their overall goals, market dynamics, and customer preferences. This involves thorough market analysis, understanding cost structures, evaluating competitive positioning, and continuously monitoring and adapting to changes in the business environment. A well-designed pricing strategy not only enhances revenue streams but also strengthens customer relationships and sustainable business growth.
Market Analysis
What is the current market demand for similar services or products?
Are there any trends or shifts in the market that could impact pricing decisions?
Who are the main competitors bidding on this tender, and what is their market share?
Cost Structure
What are the direct costs associated with delivering the service or product?
Are there any indirect costs that need to be accounted for, such as overhead or administrative expenses?
How efficient are your competitors in managing their costs?
Value Proposition
What unique value does each competitor offer compared to your own offering?
How do competitors position themselves in terms of quality, reliability, or additional services?
Are there any premium features or services that competitors might include in their pricing?
Customer Segmentation
What types of customers are your competitors targeting with their bids?
Are there specific segments or niches that competitors might prioritise over others?
How do competitors tailor their pricing strategies to different customer segments?
Past Performance
What is the track record of competitors in similar tenders or contracts?
Have competitors consistently underbid or overbid compared to their actual performance?
How do competitors adjust their pricing based on past experiences or feedback?
External Factors
What regulatory or legal constraints might impact pricing decisions?
Are there economic factors, such as inflation or currency fluctuations, that could affect pricing?
How do external events or crises, like natural disasters or geopolitical tensions, influence pricing strategies? Think covid…
Strategic Objectives
What are the long-term goals or objectives of competitors in bidding for this tender?
How do competitors view this tender in the context of their overall business strategy?
Are there any strategic alliances or partnerships that could influence pricing decisions?
How do you start pricing for tenders?
Pricing will depend on your industry or sector, but this article is designed as a general overview to support those looking to find an advantage and improve their bid win rates.
Starting the pricing process for tenders requires understanding and fully reading the tender pack, and of course the pricing instructions, criteria for evaluation of your pricing, and the pricing or commercial document which needs to be completed and returned, alongside the other elements of your bid submission. Begin by thoroughly reading through the tender documents, paying close attention to the pricing section. Ensure that you fully grasp the requirements outlined in the pricing document.
If there are any ambiguities or uncertainties regarding the pricing requirements, it's essential to seek clarification promptly. Most public sector tenders are managed via a procurement portals, which has a platform for bidders to ask questions, but it's crucial to be mindful that responses are shared with all bidders. So don’t give anything away!
One key aspect to focus on is understanding how the pricing section will be evaluated. Often, there will be a specific section within the Invitation to Tender (ITT) or tender pack detailing the evaluation criteria for pricing. Take the time to comprehend and test this evaluation methodology to ensure your pricing strategy aligns with the stated criteria.
In cases where a basket of goods is utilised for pricing, you should gather insights into buyer habits and actual volumes where possible. Understanding the purchasing patterns and volume requirements of the buyer can enable you to price more effectively, potentially offering competitive rates while maintaining profitability.
Different tender pricing strategies
Ensuring your bids are competitive and maximise your chances of winning that next crucial tender, have you considered the following pricing strategies?
Cost-plus pricing is a widely used strategy that involves adding all expenses together and then applying a percentage mark-up to arrive at the sale price. Cost-plus pricing is a safe starting point when pricing tenders, as it provides transparency and allows you to compare your rates with the competition. Reviewing your performance and feedback from your bid submissions to then tailor your offer and assess ways to improve both your quality submissions and how to refine this approach.
Value-based pricing involves setting prices based on the perceived value that your products or services deliver to the customer. This strategy takes into account factors such as quality, innovation, and the unique benefits you offer. By aligning your pricing with the value your customers are willing to pay, you can position yourself as a provider of high-quality solutions, even if your prices are not the lowest in the market. You need to be confident in your ability to write a good bid here and being able to highlight your non-price driven strengths.
Marginal pricing is a strategy that takes into account variations in output levels. It involves setting the price to cover the additional expense of producing an extra unit of output, along with a profit margin. This approach is particularly useful when considering spare capacity within your fixed overhead framework. By carefully analysing your production costs and profit margins, you can determine the optimal pricing for each tender.
Economies of scale are cost savings that occur as a result of higher outputs or a larger scale of activity. By signing a high-value, long-term deal, you can negotiate a lower unit price, taking advantage of economies of scale. This strategy is particularly effective when you have spare capacity and can offer your products or services at a reduced price while still maintaining profitability.
Continuous improvement and feedback
Winning tenders is an ongoing process that requires continuous improvement and learning from past experiences. After submitting your tender bid, it's crucial to seek feedback from the buyer, regardless of the outcome. Feedback can provide valuable insights into areas where you can improve and help you refine your pricing strategy for future bids. By maintaining a bid library and documenting successful pricing approaches, you can build a valuable resource for future tender processes. What is great about bidding for public sector tenders is that they are obligated to provide you detailed feedback, depending on the contract value and the procurement thresholds .
Bid writing consultants and pricing strategy
Bid writers typically refrain from directly pricing tenders, a common misconception we encounter frequently. However, it's crucial for bid writers and consultants to actively engage in understanding the pricing strategy and rationale. This involvement bridges potential divides between teams, ensuring alignment and synergy in approach. By delving into the intricacies of tender pricing, bid writers can unearth valuable insights, refine win themes, and generate practical elements to enrich the quality section of the bid. While bid writers don't set the prices, their involvement in shaping the pricing strategy is instrumental in crafting compelling and competitive bids.
For more information or to speak to one of our team, please use the form below.
