group of business people determining total evaluated price

Total Evaluated Price: What is It and Why is It So Critical?

To say the federal contracting space is complex is an understatement. 

From NASA to the Department of Defense and every agency in between, government entities go about evaluating costs and purchasing goods and services differently. Although most (with noteworthy exceptions like USPS and the Federal Aviation Administration), must comply with a set of principles codified in Title 48 of the U.S. Code of Federal Regulations called the Federal Acquisition Regulations (FAR), every RFI and/or RFP is still going to look different depending on who is preparing and issuing it. Whether you’re bidding on a Lowest Price Technically Available (LPTA) or a Best Value contract, understanding and then determining the Total Evaluated Price is going to be the key to winning or losing that bid.

What is Total Evaluated Price?

In a perfect world, a government agency would issue an RFI or RFP for a product or service with very specific, consistent specifications. The documents would clearly indicate the exact quantity needed and the essential requirements would be clear and specific. This would enable each competitor to submit a bid based on what the RFI or RFP clearly delineates, making it easy for the agency to compare similar to identical submissions and the process would be fair to all the companies participating in the bidding process.

But as we know, it’s not a perfect world. That’s where Total Evaluated Price comes in.

Why is Total Evaluated Price Critical to Winning Business?

When government agencies issue RFIs or RFPs, it’s not unusual for these documents to have anywhere from several to dozens of categories—each of which has a range of acceptable requirements. Contractors must then decide which of these requirements to base their bids on—often resulting in an array of submissions with little to no common ground. In order to ensure that the government is comparing “apples to apples,” deriving a Total Evaluated Price for each bid submitted is critical.

A Simple Example.

Sometimes a simple example can help make a complex concept a bit clearer. Let’s examine an extremely simple example of why Total Evaluated Price is so important in the federal contracting space:

Let’s say a government agency has issued an RFP to purchase 500 pencils. The RFP indicates the product’s requirements in ranges instead of specific terms. For example, the length should be 10-12 inches, the size of the eraser should be between .50 and 1.0 inches, and the lead should be either No. 1 or No. 2. One submission is based on 500 pencils that are 11 inches long with .50 inch erasers and No. 1 lead. A second is based on the same quantity, but the product is 12 inches long with 1.0 inch erasers and No 2 lead. Still a third contractor goes outside the stated parameters and bids on a 12.5 inch pencil with a 1.25 inch eraser and No. 3 lead. How does the government compare those three bids, all of which are within the requirements stated in the RFP yet vary widely?

The answer is by determining the Total Evaluated Price.

If the value of each pencil is a US$1.00, a miscalculation of Total Evaluated Price is unlikely to create major issues for a potential contractor or the customer. However, the quantities and requirements involved in this example are for illustration purposes only. Far more often, contractors are bidding on million-dollar (if not billion-dollar) contracts. In the federal marketplace, the product in place the agency is seeking to secure is more likely to be 1,000 to 2,000 Mine-Resistant Ambush-Protected (MRAP) vehicle designed to withstand damage from Improvised Explosive Devices (IEDs) than it is to be pencils. The higher the value of the contract, the more critical it will be to determine the Total Evaluated Price. 

How is Total Evaluated Price Determined?

The formula for arriving at the Total Evaluated Price isn’t an algebraic equation or a simple algorithm, nor is it necessarily related to the price at which the work will eventually be performed. Instead, it is a strategic construct that an experienced participant in the government contracting space can help you determine by “reading between the lines” of the RFP. Getting to the Total Evaluated Price may involve analyzing some of the subtle features of the RFP, looking closely at specific elements of the way the contract is presented, the history of the agency’s interaction in the federal contracting space and a clear understanding of what Total Evaluated Price is—and perhaps more importantly, is not. (Link to Richter blog Total Evaluated Price: What’s the Difference?)

Richter and Company is here to ensure that you understand the big picture of each contract your company is exploring. Their comprehensive tools and proven methodology, combined with years of experience and insight into the federal contracting process, have helped them help their clients win over $30 billion in government and other business. Contact us for information on how we can help you win!