How to Price a Government Bid

Certified cost data (TINA)

Over $2.5 million (since Oct 1, 2025)

Prior TINA threshold

$2 million

Service Contract Act

Services over $2,500

Davis-Bacon Act

Construction over $2,000

Wage determinations

Free on SAM.gov

CPFF fee cap

10% of cost (15% for R&D)

Simplified acquisition threshold

$350,000

Start With a Cost Buildup

A government price is built from the bottom up. You list every cost of doing the work, add your share of overhead and then add profit. This method is called a cost buildup, and it lets you explain your price if the contracting officer asks how you got there.

Begin with direct labor. Estimate the hours for each type of worker and multiply by the wage you will pay. Then add other direct costs, such as materials, equipment, travel and subcontracts. Read the statement of work closely, because every task, report and meeting it lists takes time and money.

Wage Determinations: Service Contract Act and Davis-Bacon

Some contracts set the minimum wages you must pay. The Service Contract Act covers service contracts over $2,500, such as janitorial, security and food service work. The Davis-Bacon Act covers construction contracts over $2,000. These thresholds were not changed by the 2025 inflation adjustment.

Each covered solicitation includes a wage determination issued by the Department of Labor. It lists the minimum hourly wage for each job title in that area and the fringe benefits you must provide. All wage determinations are posted free on SAM.gov, where you can look them up by state and county before you bid.

Price your labor at or above these rates, and include the cost of the required fringe benefits, such as health and welfare payments, vacation and holidays. On Davis-Bacon jobs, you submit certified payrolls each week, often on Form WH-347. Building these costs in from the start keeps your price accurate.

Indirect Rates

Indirect costs are the costs of running your business that do not belong to one contract. They are usually grouped into three pools. Fringe covers payroll taxes, health insurance and paid leave. Overhead covers things like supervision, facilities and equipment that support the work. General and administrative expense, or G&A, covers company-wide costs such as accounting, executive pay and insurance.

Each pool becomes a rate, calculated by dividing the pool's costs by a base, such as direct labor dollars. For example, take a worker paid $30 an hour. With 30 percent fringe, 20 percent overhead and 10 percent G&A, the cost becomes $30, then $39, then $46.80, then $51.48. Add 8 percent profit and the billed rate is about $55.60. The ratio of the billed rate to the base wage is often called the wrap rate.

Use your real accounting records to set these rates. Allowable costs are defined in FAR Part 31, and some costs, such as entertainment and most advertising, cannot be charged to the government. Keeping your books in a way that separates direct and indirect costs makes pricing faster and helps you qualify for cost-type contracts later.

Profit

Profit, also called fee, is the amount you add on top of cost. On fixed-price competitions, you choose your own profit, and the market sets the limits. When a contracting officer negotiates using cost analysis, the FAR has them weigh factors such as your effort, the cost risk you take, socioeconomic program support, capital investment and your track record.

On cost-plus-fixed-fee contracts, the law caps the fee. It may not exceed 15 percent of estimated cost for experimental, developmental or research work. It may not exceed 10 percent for other cost-plus-fixed-fee contracts. For architect-engineer services on public works, the fee may not exceed 6 percent of the estimated construction cost.

Contract Types and How They Change Your Price

A firm-fixed-price contract, or FFP, pays one set price for the work. You keep any savings and cover any overruns, so your price must include a cushion for risk. It is the most common type for commercial products and well-defined services, and it needs the least paperwork.

A cost-reimbursement contract pays your allowable costs plus a fee, up to a ceiling. The government takes more of the cost risk, so fees are lower. To get one, you need an accounting system that can track costs by contract. You bill using provisional indirect rates and file an incurred cost proposal within six months after the end of each fiscal year.

A time-and-materials contract, or T&M, pays fixed hourly rates for labor plus the actual cost of materials, up to a ceiling price. Your hourly rates must include wages, indirect costs and profit. Agencies use T&M when they cannot estimate the work with confidence at the start.

An IDIQ contract, which stands for indefinite delivery, indefinite quantity, sets prices or rates for a period of years and a guaranteed minimum order. The agency then issues task orders or delivery orders as needs arise. You price the rates in the base contract and price each order when it comes, often against other IDIQ holders.

The Truthful Cost or Pricing Data Threshold

The Truthful Cost or Pricing Data Act, often called TINA, applies to larger negotiated contracts. Since October 1, 2025, the threshold is $2.5 million, up from $2 million. Above it, unless an exception applies, you must give the government certified cost or pricing data and sign a Certificate of Current Cost or Pricing Data.

The most common exceptions are adequate price competition, commercial products and services, and prices set by law or regulation. Most small business competitions fall under the competition exception. When certification applies, you share all the facts that would affect price, such as vendor quotes and labor history, as of the date you agree on price.

Below the threshold, a contracting officer may still ask for other data to judge whether your price is fair. Contracts at or under the simplified acquisition threshold of $350,000 use simpler procedures. Purchases at or under the micro-purchase threshold of $15,000 often need no price support at all. Both amounts also took effect on October 1, 2025.

Check Your Price Against the Market

Before you submit, compare your price with what the government has paid for similar work. USAspending.gov shows past award amounts, and GSA's free CALC tool shows labor rates on GSA Schedule contracts. If your price is far above or below those numbers, review your hours and rates again.

Read the evaluation method in the solicitation as well. A lowest-price technically acceptable award goes to the lowest price that meets the requirements. A best-value tradeoff lets the agency pay more for a stronger proposal. Your APEX Accelerator can review your pricing approach for free.

Sources

https://public-inspection.federalregister.gov/2025-16412.pdf
https://www.acquisition.gov/far/15.404-4

Checked October 2026. Thresholds and rules change; each source above is the official page.