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Profit & Fee Are Good Things, But They’re Not the Only Things

The goal of every business is to remain in business.

In order to do that, the business has to make a profit. True, that may be a long term goal. It’s entirely possible that a business may make money one year and lose money the next — but at the end of the day, profit is a goal and an expectation. 

If you look in any business school textbook, you’ll find profit identified as “cost + fee.”

I believe that in today’s hypercompetitive environment, that definition is too narrow. 

I think a better formula now is profit = cost + strategy.

The reason is that, in the short term, customers often have business goals and objectives that may or may not include profitability. For example….

Say you’ve never worked in a certain marketplace before, and you want to arrive on the scene in a big way. To enter the marketplace in a way that gets you noticed, you may decide to bid on a project at a rate that doesn’t include profit. Heck, you may decide to even bid at a loss, especially if you know that the customer is likely to award based on low price simply to either gain market share or announce your presence in the contracting arena by securing the award. 

I frequently tell prospective vendors entering the federal marketplace that no U.S. contracting officer has ever gone to jail for selecting the lowest price. In fact, contracting officers frequently have incentive to pick the lowest price. Therefore, it is not outside the realm of possibility for a contracting officer to approach a competitor and try to negotiate the amount of profit contained in the submission. If your goal is profit, there are tactics you can use to protect the margin you have included that we’ll discuss in a future blog.

In addition, there may be times when the government agency really wants you to participate in the acquisition process. Under the Federal Acquisition Regulations (FAR) competition for bid awards is strongly encouraged. Contracting officers are looking for a minimum of three bids. They get uncomfortable when there are only two, and downright cranky when there’s only one. Reviewing only one bid for an RFP triggers all sorts of time-consuming tasks from FAR, so contracting officers work hard to ensure a competitive field. If you are asked to submit a bid that you are not in a position to service, creating a submission at a high price makes sense to avoid if not exclude selection.  

Are there other reasons for a contractor to submit a bid that are not driven by profit? Here’s one that’s underhanded and just this side of dishonest, but it serves to demonstrate how an unscrupulous company owner can manipulate the government contracting system for their own gain. Several years ago, a privately owned company wanted to sell. Their valuation was relatively low, which drove their asking price down. The owners developed a strategy that would inflate their revenue, making them look more appealing on paper. They bid on and won several high-dollar government contracts at impossibly low prices. The purchasing company spent the next five years on the verge of termination for cause on all of these projects because the pricing was artificially low and the contracts were nearly impossible to service. Again, driving the on-the-books revenue up to inflate the asking price was unethical, but it works within the owners dubious but nonetheless effective business strategy.

Fee and profit are very good things, but they are not the only things that determine why contractors go after programs. Sometimes, your business strategy creates goals that are better met outside of the conventional approach to profit and loss.

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Total Evaluated Price (TEP) v. Performance: What’s the Difference?

Let me start by acknowledging that when people say the federal contracting arena is complicated, it’s because of concepts like Total Evaluated Price (TEP).  After 30 years in the telecommunications and Federal industries, I’ve figured it out—and our team’s understanding of this and other federal-specific words and phrases has helped our clients win more than $30 billion worth of business. So let’s give it a try…

Because it’s important to have the big picture, an explanation of TEP has to start with a brief summary of the Federal Acquisition Regulations (FAR), for those who may not already be familiar. FAR is a set of principles that guide the government procurement process, including the purchase of goods and services. Codified in Title 48 of the U.S. Code of Federal Regulations, FAR is prepared, issued, and maintained jointly by the Secretary of Defense, the Administrator of General Services, and the Administrator of the National Aeronautics and Space Administration subject to the approval of the Administrator of Federal Procurement Policy. Except for a few noteworthy agencies, including the USPS and the Federal Aviation Administration (FAA), all government agencies are required to comply with FAR. 

When doing an acquisition, United States government agencies must comply with a requirement defined within FAR for doing an evaluation of cost or price. There are different approaches for doing this, but at some point, all of them must arrive at a total price upon which the award decision will be made. 

Here’s the challenge: TEP is a purely artificial construct. It does not have to reflect reality.

Let me give you a few examples:

A few years ago, a government agency released a solicitation for an Indefinite Delivery, Indefinite Quantity (IDIQ) contract, the vehicle typically used to acquire service contracts, or architect/engineering services. IDIQ awards are usually for base and option years during which the government places delivery orders for supplies, or task orders for services against a basic contract for individual requirements.

For this particular $100 million IDIQ contract, the agency wanted to include as many awardees as possible. The overall solicitation included 150 labor categories to be priced over a 10-year period. The government was able to achieve its goal and remain within FAR requirements by stating that it would award based on the submitted hourly rate of one junior level programmer/analyst during, thereby keeping the door open to anyone who wanted to bid.

Another example involves the Department of Defense’s (DOD) Mine-Resistant Ambush-Protected (MRAP) vehicles, the light tactical vehicles designed to withstand damage from Improvised Explosive Devices (IEDs). Designed and fielded through an accelerated acquisition process that employed concurrent production, testing and fielding in order to meet the urgent requirements of Operation Iraqi Freedom and Operation Enduring Freedom, the MRAP vehicles were eventually found to have a significant issue while in use. When the MRAPs were hit with an IED, the Marines inside survived, but they couldn’t get the doors open. Designed to be opened only in an upright position, the heavy doors were unworkable when an explosion caused the MRAP to overturn or land on its side.

The DOD needed to release an RFP for the design, fabrication, installation, testing, and fielding of assistance-devices for the doors so that they could be opened at any angle. Because the budgeting and allocation process could take up to five years, and the year in which the actual award would be made was unknown, the DOD wanted to guard against prospective contractors who might be able to glean inside information to game the system and inflate the price. The DOD was concerned that a bidder who had inside information might be able to game the system by inflating the price during the actual award year, and provide an artificially low price in the other years. By requesting TEP over a multi-year contract, the agency was able to better ensure that the pricing was on the straight and narrow. 

Remember that the TEP is an artificial construct, and the performance price is what the customer is actually going to pay. Next month we’ll talk about the strategies you can employ during the capture process to increase the probability of a win, profitability, or revenue. 

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How to Assess Your Competitors Without an RFP

In a perfect world, the government customer would always know exactly what they want, would always publish clear and thorough solicitation documents in a timely manner, and would explicitly and clearly explain how they plan to evaluate you and your competitors to make an award decision.

Unfortunately, we do not live in a perfect world.

Often the customer experiences delays upon delays, and industry is forced to wait for the RFP, or even a draft RFP, to obtain the guidance they need. In other instances, the customer chooses to use an entirely different process, such as an OTA (Other Transaction Authority), which provides no Section M or evaluation criteria whatsoever. Regardless of the reason, there are many times when capture and competitive intelligence efforts must move forward cautiously in the absence of clear instructions from the government customer.

The question is, how do you evaluate your competitors against the customer’s criteria when the government hasn’t provided that criteria? The answer is NOT to simply kick the can down the road or forego that evaluation altogether. No, the answer is to use the next best thing—a notional (or strawman) evaluation model built on a series of assumptions that can be updated later as more information becomes available. There are almost always clues at your disposal that you can use to develop a notional evaluation model.

In developing a notional evaluation model, remember the goal is to approximate the process the customer will most likely use to evaluate proposals. As a starting point, always consider whether the opportunity in question is a new program or a recompete. If it is a recompete, there is a strong possibility that the customer will reuse the same evaluation process from the prior iteration of the contract. Even if it’s a new program, customers often use and reuse (and reuse again) the same evaluation process for all of their solicitations; so it may be a safe bet to use the section M from a similar, recent program from the same customer. You can see what standards and requirements they deemed important, and it can give you the foundation you need.

Another valuable source of data on customer evaluation plans is the Government Accountability Office (GAO). For those unfamiliar, the GAO is the government entity responsible for adjudicating protests filed by contractors in response to a procurement decision. All of the GAO’s protest decisions are made publicly available on their website,, and can be very useful in getting detailed insight into not only the customer’s evaluation criteria, but also how specifically they rated certain competitors, and in some cases, even the prices proposed by those competitors.

Finally, remember that key requirements and evaluation plans are often communicated in general terms via industry day materials, or presentations given at trade shows, which can provide helpful clues for building a notional evaluation model. 

We continually stress the importance of customer intimacy. You must know what the customer truly cares about in order to develop an accurate evaluation model to objectively and effectively examine yourself and your competition.

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Other Transactional Agreements – Something the Federal Government Can Agree On

Businessmen making a transactional agreement

Even though Other Transactional Agreements, “OTAs,” have been around for decades, they have gained popularity in the last few years. A big driver was the National Defense Authorization Act of 2016, which permanently allowed for DoD, military construction, and the national security programs of DoE to award OTA contracts for research, prototype, and production purposes. Ever since the NDAA passed in 2016, OTA headlines have appeared to pop up more frequently all over Government contracting news. There is something the Government can agree on: OTAs speed up the acquisition process by removing a lot of the red tape of traditional procurement.

Why have OTAs increased in popularity? It is quite simple; our armed forces are undergoing a sizeable modernization effort. As warfighting strategies change and our adversaries have more access to modern technology, we needed to transform the assets of our armed forces. The Army even created a new Program Executive Office (PEO), Army Futures Command, to solely focus their modernization efforts. The Army alone accounts for 63% of OTA contracting dollars since 2016. The Army’s modernization efforts span from the Next Generation Squad Weapon, which will replace the current M4A1 and M249 squad automatic rifles, to the Future Vertical Lift Program, through which the Army is looking to replace its Blackhawk and various other helicopters with a modern solution.

OTAs have allowed for DoD to tap into the resources industry has to offer much faster. They are an excellent vehicle for prototyping new technology to modernize or replace a current vehicle, weapon, aircraft, etc., but they are not just for prototyping. OTAs can speed up the procurement of a non-developmental item to undergo testing and production at a much quicker pace. For example, the Army is looking to replace its current towed howitzers. The howitzers (M777A2) have not undergone any major redesign since their creation in 1999. The Army is looking to replace the M777A2 with a new, wheeled, self-propelled solution, but the Army is not requesting a prototype. The Army called for contractors to provide a non-developmental solution that is ready to be tested and fielded by troops. Instead of going through the standard RFP processes, the Army released the specs of what they are looking for industry to provide. Contractors then take those specs and propose their mature solution that best fits the Army’s needs. By using an OTA to procure a howitzer replacement, the Army could begin testing and integrating the modern alternative in months rather than years.

Over the next few years, we will see all kinds of new technology reaching our armed forces rapidly because of the efficiency of OTAs. The Government can agree that OTAs provides our troops with the best-modernized resources at a much faster rate.

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Organizational Change Management

How to keep your business moving in the face of organizational change and uncertainty

Whether it’s a Government shutdown, company re-structuring or consolidation through M&A, change can have a negative impact on your organization if the accompanying periods of uncertainty and downtime are not properly managed.

In business development, an environment filled with uncertainty can create a breeding ground for lost talent, new business and even a company’s core work – recompetes.  Employees haunted by the thought of layoffs, loss of productivity due to unknown budget allocations and operational stand stills resulting from a lack of direction are just a few examples of how change can have an adverse effect on your business if not addressed.

Here are a few guidelines and tips to consider when managing change within Business Development:

Understand the past

It takes both time and money to prepare a proposal, which is why every bid – win or loss – deserves a thorough post-award analysis and lessons learned to carry forward.

To ensure maximum utility of B&P dollars spent, it is important to understand the who, what, when, where, why and how behind every award. A comprehensive look at the past will help build this story.

1. Prepare win/loss analysis for every competitive bid awarded over past three years

  • Collect and document:
    • Contract details (type, primary NAICS and major elements of cost)
    • Basis of award (from Section M of the RFP to the customer award debrief)
    • Customer (from the highest level of budget authority down to the end user)
    • Competitors (from pre-submission assumptions to post-award knowns)
  • Analyze:
    • Technical (non-cost) scores vs awardee
    • Bid price vs award price
    • Proposal strengths and weaknesses identified on customer award debrief
  • Ask:
    • Was the actual award outcome consistent with Section M of RFP?
    • Did the customer award to the lowest price offer, highest technical rated offer or both – lowest price and highest technical offer?
    • Did we win/lose on price, technical or both?
    • How accurate was our pre-submission assessment of the competitive landscape? Did we model the competitors accurately? How competitive was our bid price?

Keep moving at present

Regardless of the circumstances, business development should never reach a dormant state. There is always work to be done.

To ensure maximum utility of future B&P spending, it is important to ensure that lessons learned from the past do not become lost in translation as an organization undergoes change. Understanding your past will help you thrive at present.

2. Complete deep dive assessment on past wins/losses

  • Collect and document:
    • All prior solicitation packages
    • Technical and pricing requirements
  • Analyze
    • For losses, reverse price engineer average bid rates
    • For wins, compare bid vs current FTE, personnel qualifications and salary
  • Ask:
    • For new business, can we compete against prior average bid rates?
    • For recompetes, to what extent have we deviated from our prior bid? Does the customer intend to adopt this deviation on recompete solicitation?

Prepare for the future

In business development, your opportunity pipeline is your lifeline. While some aspects may become hazy in times of change, there should never be complete lack of certainty with regards to what opportunities your organization will pursue.

Protecting your core work is critical and recompete efforts should be considered automatic to your pipeline and preparation should never cease to exist.

Use present momentum to refine and shape your pipeline around opportunities with the highest pwin.

3. Solidify new business opportunity pipeline using past and present takeaways

  • Use win/loss analysis to identify key customers, competitors, contract types and basis of award that proved most/least successful on past bids
  • Use deep dive assessments to determine if position has improved or worsened since the last bid to determine classification on pipeline


While there is no “one size fits all” when it comes to the specific actions an organization can take to effectively manage change, there is one overarching guideline that applies to all – keep moving.

“He who controls the past controls the future. He who controls the present controls the past.”

– George Orwell, 1984

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Small Details Make a Big Impact

My name is Ryanne. Pronounced “Ryan” but often said “Ry-ANNE” or on the rare occasion, “Re-ANNE.” When I meet someone for the first time, they typically pronounce my name like either of the latter, and with a mild correction, they usually remember for the future. It doesn’t matter what position you are in or what field you work; it’s simple – the little details matter! Take it from someone whose name that is pronounced wrong about 80% of the time, those itty bitty details – they’re kind of important.

I recently discussed with a colleague who is currently in a position of hiring someone. She mentioned that she received a resume and the corresponding questionnaire that not only had one typo but a handful on the resume as well as the applicant’s questionnaire. She didn’t call the said applicant to schedule an interview. A typo is something that at the time seems like a small thing; it’s not. Some people may overlook it as a common mistake. Others, may qualify it as defining quality, and it could lead them to draw the wrong conclusions about not only you but your company.

I am an office manager. Some days rely on focusing on those tiny, little details. Whether I am planning for an event, booking travel for one of my coworkers or reviewing a proposal; it is essential I pay attention to not only the significant details but the minuscule ones that if you look at it too quickly, you will miss it. If I overhear one of my coworkers talk about how he hates flying, am I going to book him a middle seat on his upcoming flight? Of course not! If I need 250 copies of one of our informational flyers for an upcoming event, there is a big difference between, 25, 250 and 2500. Whether you’re reading, writing or listening being conscientious of every single thing, no matter the level of importance, will differentiate you from the rest!

You must pay attention to the details! If you’re writing a proposal, double check you have all the components you need! Sending out sales emails? Make sure you’re addressing the person correctly! Those small details are what differentiate your work from being average to exceptional. You must pay attention! Your boss, a business partner or a client of yours will notice when you focus on the little details as much as the big ones.

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Getting Personal | Meeting In-Person vs. Virtual Conferencing

meeting in person
I was sitting at dinner with my wife and daughter and as I looked around the restaurant I noticed something. Almost everyone in the restaurant was more engaged with their phone than the person sitting next to or in front of them.

In today’s technology-driven lifestyle, it’s become easy do everything remotely. I can see my nieces in Omaha via FaceTime, attend a conference via GoToMeeting and even present information to a client via a web conference. The simplicity of it is great but it lacks something.

Last week I had the opportunity to travel to a city in the South and meet with some existing clients and some potential new clients. With a business partner we had scheduled five meetings in a period of two days. Over the course of those two days we spent an hour or two with each client. These were in-person, no media, “let’s sit down and have a conversation” discussions.

This was personal.

You could see the expressions on the face of the person sitting across from you. You could see and hear nuances in the conversation. This was plain and simple a personal interaction and you know what, at the end of each conversation, every client echoed the same thing. They want to develop a personal relationship. They want to know you so that they can pick up the phone and call you with honest feedback, whether it be good or bad.

So what came of those meetings?

We were able to develop our business relationship with these clients into a more personal relationship. So what does that mean? Well, in the coming weeks or months, we will be meeting with each of these clients and further expand our relationship. We may do some business or simply develop some relationships. Either way, at the end of the day, this personal approach will have a great impact on our business going forward.

So guess what, Beth, Brandon and Kevin… I hope you don’t mind doing a little traveling.

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Success Means Knowing When to Fold

Texas Hold ’em is a game of skill.  Over the years, successful players like David Sklansky, have developed complex algorithms to guide their decision making when a particular hand is dealt.  This mathematical approach helps improve their win probability – but it’s not the total answer.  What does the raise from the player past the big blind position mean?  Why did the person across from me scratch her head before bumping the bet again?  What do I do now?

Winning players understand that “bankroll management” is every bit as important as being able to remember the cards that have been dealt.  No player enters a game with unlimited funds, and once the once you have are gone, it’s “game over”.  Successful players understand that folding a hand is not a sign of weakness; it merely reflects your understanding that your hand is not as strong as your opponent’s. There is no stigma attached to folding if this act lets you conserve your money for a better future hand.

It’s the same in our world – or at least it should be.  Bid and proposal funds are never unlimited, and misuse of these scarce resources offer a quick path to the unemployment line.  But capture managers HATE walking away from deals.  They believe this will be seen as a sign of weakness – and this unhelpful approach is reinforced by way too many corporate executives who don’t understand the difference between a full pipeline, and a productive pipeline.

We have two clients that compete in the same general market.  One is extremely satisfied with its 35% win rate; the other is horrified that it only wins 90% of the time.  The first company approach to bid submittal is “if his has a pulse, bid it!”.  Their capture process is undisciplined; gate reviews are opportunities to display pretty PowerPoint slides to an audience that always says “Yes!”. The second has a more organized, more disciplined approach.  The criteria for passing a gate review are clearly defined, and lack of preparedness – lack of needed information for effective decision making – guarantees that a pursuit will be ended on the spot.  Guess which organization spends less B&P dollars overall?  Guess which organization is always looking for “successful” capture managers?

Conserve your resources.  Effective Price To Win helps you identify opportunities that meet your business objectives that you truly can win.  As for the rest? Well, poker legend Stu Unger puts it this way: “Fold and live to fold again.”

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The Price/Capability Tradeoff

Fact: every capability you offer has an associated cost, and generally the more you offer, the more it costs.  So understanding what the customer needs – and what the customer wants – is crucial to defining a winning solution.

In our world, an RFP defines the customer’s minimum set of requirements.  These requirements are explicit – they’re in black and white, and known to all bidders.  There’s a general term for a bidder that offers a solution that does not meet these minimal requirements: loser.

On the other hand, customers typically hope for – most of us would say “demand” – solutions that go beyond these minimums. These implicit requirements will never appear in an RFP; if you think of an iceberg, these are the below-the-waterline chunks of ice.  If you know where they are, you’re safe – but if not, they will sink your bid every time. And if you go too far past, well, there be dragons.

A similar situation exists with funding.  Every market, every opportunity has a maximum budget – but don’t think that this represents the highest price you can bid.  Every budget includes deductions – for program management or reserve, for example – which reduce the amount of money that’s actually available to bidders – resulting in what we call the “addressable budget”.  Beneath this number is a floor value that represents the lowest price the customer would consider reasonable. Above the maximum, below the minimum – more dragons.  It should be an obvious point, bit we see people missing it all the time: winning solutions must reflect understanding of the customer’s sources and uses of funding.

Some call the space in the middle the competitive range, but I’m a bit less subtle. I call it the Win Zone, because if you can’t get your solution in it, you can’t win.  This is the ballpark that you have to find for every opportunity – and Price To Win gets you there.

Texas Hold ’em is Price To Win in action.  You enter the game with strategies based on your understanding of how your opponents have played in the past.  As the game progresses, you watch for tells that show how their historical behavior may be different.  You calculate the odds of winning based on probability – and on every hand, you decide to play or fold.

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Richter & Company and The McKelvey Group Create Pricing Partnership

Frederick, MD – August 24, 2016 – Richter & Company and The McKelvey Group (TMG) today announced a strategic partnership focused on improving client win rates in today’s uber-competitive government contracting environment. Under this alliance:

• Richter & Company will offer externally-focused Competitive Analysis and Price To Win services to help clients identify an opportunity’s unique price to win position – the combination of solution and price needed to achieve a win over other competitors.
• TMG will offer internally-focused pricing strategy services to help clients develop and price the winning solutions that achieve the Price To Win position and enable successful execution after contract award.

Together, these services provide actionable information – news both companies’ clients can effectively use to win – while assuring that client information is protected.

Said Randy Richter, President of Richter & Company, “Some competitive analysis companies also do work that exposes them to their own client’s data – for example, using the same team to identify price to win targets and develop detailed costing/pricing solutions to meet them. We never cross that line. We do no work that exposes our analysts to our clients’ cost and price data or strategies. If clients ask for that type of help, we refer that business to partners whose work and ethics we trust.”

“The McKelvey Group is our go-to recommendation for government pricing support”, continued Richter. “They are the pros at helping clients price aggressively yet appropriately, to help win the contract and ensure successful execution after contract award. Their excellent team offers outstanding skills and in-depth industry experience, and we look forward to offering their capabilities to our clients.”

“Our team has known and worked with Richter & Company for many years.” said Matt McKelvey, President of TMG. “When it comes to Price To Win and Competitive Intelligence in today’s hyper-competitive market, they are the experts. We will continue to highly recommend them to our clients”.

Service descriptions and pricing are available from either company.