Pricing a public tender: how to set a price that wins and still pays

In private sales, price is a conversation. In public procurement it is a number you write once, in a sealed envelope, with no second round. Get it right and you win work at a margin you can live with. Get it wrong in one direction and you lose to a competitor; in the other, you win a contract that loses money for three years.

This guide is about getting it right: understanding how your price will be scored, what the market has paid before, and what your own number must contain.

Step one: read the scoring formula before you price anything

Every tender states how price will be evaluated, usually in the procurement documents rather than the notice. Three models cover almost every case:

• Lowest price wins. Only the cheapest compliant tender matters. Quality is a pass/fail gate, not a score. Common for supplies and simple services.
• Price as a weighted criterion. The award criteria give price a weight, say 40 percent, and quality the rest. Within the price part, a formula turns each bidder's price into points.
• Fixed price, quality competition. The buyer sets the budget and bidders compete on what they deliver for it. Rare, but explicitly allowed by Article 67 of Directive 2014/24/EU.

The formula inside the second model matters more than the weight. Two common versions behave very differently:

1. Proportional to the lowest. Points equal the lowest price divided by your price, times the maximum. Every euro of discount earns points, but with diminishing returns: going from 10 percent to 20 percent below the leader earns less than the first 10 did.
2. Linear between limits. Full points at the lowest price, zero at some ceiling (the estimate, or a percentage above the lowest). Here a euro is worth the same everywhere in the range, and a price above the ceiling can score nothing at all.

Before you decide on a discount, compute what it buys you in points, then compare that with what the same effort would buy in the quality score. A bidder who finds that 5 percent of price equals 2 points while a better implementation plan equals 8 points has just learned where to spend the weekend.

Step two: find out what the market has paid

The public record is your benchmark. For your CPV codes and target countries, pull the last two years of award notices and note, for each, the buyer's estimate, the winning value and the number of bidders.

Three numbers fall out:

• The typical discount to estimate. In many service markets the winning tender lands 10 to 25 percent below the estimate. In works it can be more in a slow year and nothing in a busy one.
• The spread. If winners cluster tightly, the market has found its price and you must match it. If they range widely, quality or specification differences are deciding, and price is less decisive than it looks.
• The buyer's own history. The same authority tends to buy the same way. Aperlena's tender pages show what the buyer has paid before in the same sector: the lower quartile, the median and the upper quartile of its past awards, and where the current estimate sits against them.

Treat the estimate itself with respect. Buyers are required to estimate honestly, and an estimate is often built from the last contract's price plus inflation. A tender whose estimate is far above recent awards usually means the scope grew; one far below usually means the buyer is testing the market or has less money than the work needs.

Step three: build a cost you can defend

A public price is not a sales figure; it is a promise you will have to explain if it is questioned. Build it bottom-up:

• Direct labour at real loaded rates, for the hours the specification actually implies. Read the draft contract for service levels, response times and reporting duties; each one is hours.
• Materials and subcontractors at quoted prices, with the subcontractor's commitment in writing if their share is significant. The rules on subcontracting may require you to name them.
• Contract conditions that cost money. Insurance levels, performance bonds, penalties, staff transfer obligations, training, security clearances, green or social clauses. These live in the draft contract, and every one of them has a price.
• Duration and indexation. A four-year contract at a fixed price is a bet on inflation. Check whether the contract has a price revision clause; if it does not, price the risk.
• Bid cost recovery. A serious tender costs days of work. Amortise it across the contracts you expect to win, not the ones you bid for.

The result is your floor. Everything below it is a loss you are choosing to take, which is sometimes a strategy and never an accident.

Step four: choose your position

With the formula, the benchmark and the floor in hand, the decision becomes concrete. Three positions are common:

• Match the market. Price at the typical winning discount, win on quality or references. The default for an established bidder.
• Buy the reference. Price near the floor to win a first contract with a buyer or in a new country, accepting thin margin for the track record. Do this knowingly, once, and make sure the contract cannot expand into a loss.
• Price for value. Price above the market where the quality weighting is high and your offer is genuinely better. This works only when the scoring really rewards quality; read the formula again before betting on it.

A worked example of the two formulas

Three bidders, price weighted at 60 points. A offers 100,000 euros, B 110,000 and C 125,000.

Under the proportional formula, points equal 60 times the lowest price divided by the bidder's price. A scores 60, B scores 54.5, C scores 48. Being 10 percent dearer than the leader cost B 5.5 points; being 25 percent dearer cost C 12 points. The scale is gentle: a bidder with a stronger quality offer can afford to be second on price.

Under a linear formula that gives 60 points at the lowest price and zero at 30 percent above it, A scores 60, B scores 40, C scores 10. The same 10 percent gap now costs B 20 points, and C's price has almost eliminated it. Under this formula, price discipline is not optional.

Now add the quality score. If quality carries 40 points and B's offer is genuinely better, B needs to beat A by 5.5 quality points under the first formula and by 20 under the second. The first is common; the second almost never happens. Same three prices, same buyer, two different winners, decided by a line in the procurement documents that many bidders never read. Read it, and run these numbers with your own price before you decide on it.

The two classic mistakes

Pricing below the abnormal threshold. Every buyer must investigate a tender whose price looks too low, and may reject it if the explanation does not hold. A price that cannot be justified with real costs is not a bold bid; it is a disqualification with extra steps. The abnormally low tenders guide explains what triggers the question and how to answer it.

Pricing the notice instead of the contract. The notice gives a value and a duration; the draft contract gives the obligations. Bidders who price from the notice discover the obligations after signature. Read the contract first, price second.

After the award

Whether you win or lose, the award notice will tell you the winning price. Record it next to yours. After ten tenders you will know, in numbers, whether you are systematically too high, too low, or losing on quality, and that is worth more than any pricing formula.