Russell Smith and Lee Cooper

During the past 30 years, we have frequently been asked, “how much does it cost to prepare a proposal?” Back in the day, the generalization was often made that proposal prep costs 2% of the contract value. However, RFP requirements and contractor cost recovery approaches vary so much that this answer doesn’t fit all situations. Even though it is difficult to quantify what proposals cost, useful guidelines can be offered.

Four Primary Types of Proposals

First, let’s break proposals into four different types that collectively account for the majority of requirements in Federal solicitations:

  1. Low-end base-level O&M services such as grounds, buildings, streets, uniformed guard service, utilities, trash, etc.
  2. High-end technical and engineering services (aka staff augmentation) where the customer is buying a team of contractor personnel to provide support.
  3. High-end hardware / software-driven solutions where the contractor is developing a system to provide a complex management or operational function.
  4. Product sales where the customer is buying a commercial-off-the-shelf (COTS) product or set of products.

Cost to Prepare Typical Proposals

Our experience suggests that bidders typically incur the following levels of direct and/or indirect expenses on these different types of proposals:

  1. Base-level O&M services – 1.2% or less. The cost varies with solicitation requirements. For example, is it a simple solicitation requiring only key person resumes and and past performance? Or is it a complex procurement requiring management, transition, financial, QA, risk, and other plans? Further, does the bidder have a philosophy of preparing the proposal for the lowest possible cost? Or do they try to create a best value approach/solution and invest enough to increase the PWIN? Where the RFP requirements are simple and the bidder has templates, it is sometimes possible to prepare a proposal for as little as two-tenths-to-three-tenths-of one-percent of the contract value.
  2. High-end technical and engineering services – 1.5% more or less. The bidder is providing a team of experts to deliver technical or engineering support working on the customer site. Typically, several key personnel, complex process descriptions, tools and metrics selections, and reporting formats are required in these proposals.
  3. High-end solutions proposals – 2% to 3%. The bidder is required to deliver a hardware / software integrated solution design and implementation plan. System architects / solution engineers typically develop a solution to solve a customer problem.
  4. Product proposals – often a fraction of 1%. Typically, the bidder is providing commercially available products in response to relatively simple form, fit and function type of solicitations. Variables impacting cost of the proposal include requirements like warranty, maintenance, training, help desk, configuration, installation, and other services.

Note: Lee Cooper is a senior business development consultant who previously served at the Senior VP level at Raytheon, Unisys, and elsewhere.