Government Tender Pricing Strategy: How to Price Your Bid

Why Pricing Matters in Government Tenders

In most government tenders, price accounts for 80-90 points out of 100 in the evaluation. The remaining 10-20 points are allocated to BBBEE status. This means your pricing strategy is the single most important factor in winning.

However, the lowest price does not always win. Government evaluators assess value for money, not just cost. An unrealistically low price can actually disqualify your bid if it suggests you cannot deliver.

Understanding the Evaluation Formula

The 80/20 Preference Point System

For tenders valued below R50 million, the 80/20 system applies:

• 80 points for price
• 20 points for BBBEE status

The 90/10 Preference Point System

For tenders valued above R50 million, the 90/10 system applies:

• 90 points for price
• 10 points for BBBEE status

How Price Points Are Calculated

The price score formula is:

Points = Maximum points × (1 - (Your price - Lowest price) / Lowest price)

This means if the lowest bid is R100,000 and your bid is R120,000 (on an 80-point system):

• Points = 80 × (1 - (120,000 - 100,000) / 100,000)
• Points = 80 × (1 - 0.2)
• Points = 80 × 0.8 = 64 points

The lowest bidder gets the full 80 points. Every rand above the lowest price costs you points.

How to Build Your Price

1. Calculate Your Direct Costs

List every cost directly related to delivering the contract:

• Materials and supplies — get actual supplier quotes, not estimates
• Labour — hours × rate for each role involved
• Equipment — rental, depreciation, or purchase costs
• Transport and logistics — delivery, fuel, vehicle costs
• Subcontractors — if you are outsourcing any portion

2. Add Overhead

Include your indirect business costs proportionally:

• Office rent, utilities, insurance
• Management and administrative time
• Professional fees (accounting, legal)
• Technology and software costs

3. Include Your Margin

A reasonable margin for government work is typically 10-20% depending on the risk, complexity, and duration of the contract. Lower margins are common for:

• Short-term supply contracts
• Repeat/panel contracts
• High-competition categories

Higher margins are justified for:

• Complex technical work
• Remote locations
• High-risk deliverables
• Long contract durations with inflation exposure

4. Factor in Compliance Costs

Do not forget the costs of compliance:

• BBBEE verification fees
• CSD registration maintenance
• Tax clearance certificates
• Insurance requirements specified in the tender
• Performance guarantees or bonds

Common Pricing Mistakes

Pricing Too Low

• You win but cannot deliver profitably
• This damages your track record and future bid credibility
• Government may terminate and blacklist you

Pricing Too High

• You lose on points even if your technical bid is strong
• A 20% premium over the lowest bid typically loses 16 out of 80 price points

Ignoring Escalation Clauses

• Multi-year contracts should include price escalation tied to CPI
• If the tender allows it, build in annual increases

Forgetting Hidden Costs

• Travel to briefing sessions
• Bid preparation costs (printing, binding, courier)
• Performance guarantees (bank charges)
• Payment delays — government typically pays 30-90 days after invoice

Strategic Pricing Tips

1. Research past awards — check what similar tenders were awarded for on AITenders to understand market rates
2. Attend the briefing session — you will learn about competitors and the buyer's priorities
3. Price each line item carefully — evaluators check individual line items, not just the total
4. Round sensibly — do not submit a price of R1,234,567.89 when R1,235,000 is cleaner
5. Check your arithmetic — calculation errors can lead to disqualification or an unprofitable contract

Next Steps

1. Learn how to respond to an RFQ
2. Understand BBBEE scoring
3. Browse awarded tenders to research market pricing