Ron Smith

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(No Transcript)
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Pricing Commercial Items
Ron Smith Contracts Director EADS-NA Tankers
Date Tuesday 5 August 2008 Time 150 PM
to 250 PM
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Overview

• Pricing Risk Science vs Art
• Pricing Strategies
• Commercial-to-Government
• Commercial-to-Commercial
• Balancing risk in pricing decisions
• Proposal Pricing Tactics
• Cost-based Strategies
• Market-based Strategies
• Assessing proposal risk
• Summary

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Pricing Risk Science vs Art
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Risk and the Project Life Cycle
Project Risk
Amount at Stake
Time
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Risk Matrix
Source Risk Management Guide for DoD
Acquisition August 2006 Department of Defense
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Pricing Strategies
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Pricing Strategies

• Commercial to Government
• Contracts with Commercial Organizations
• FAR 31.201
• Full and Open Competition drives price
• Cost and pricing rules control marketplace
• Commercial to Commercial
• Market Competition drives price
• Flexibility to adjust pricing quickly to remain
  competitive with the market place.
• Multiple opportunities to take a bite out of the
  apple
• Pricing strategy driven by market not the
  opportunity

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Market Pricing Model
List Price
Manufacturers Suggested Retail Price (MSRP)
Web Price/Sticker Price
Discount
Price
Mark-up
Corporate ROI Target
Marginal Pricing
Cost of Goods Sold
Quantity
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Pricing Strategies

• Commercial entities pricing for government buyers
• One shot at award so pricing needs to be right
• Risk of technical leveling to remove competitive
  non-price advantages
• Lack of follow on contract to help absorb initial
  costs

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Target Price Development

• Cost is always the driving factor with profit
  being subject to the degree of risk.
• Contract type dictates the risk.
• In Government, Government dictates the contract
  type,
• In Commercial Vendor has more control over
  contract type

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Strategic Factors

• Market Share
• Profitability
• Marginal Pricing

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Market Pricing Model
List Price
Manufacturers Suggested Retail Price (MSRP)
Web Price/Sticker Price
Discount

• Quantity Discounts
• Government - Pre-negotiated Step or Tiered
  pricing locked at award
• Commercial- More Flexibility
• take advantage of economies of scale and
• adjust pricing on the fly based on market share
  for new business as well as existing business

Price
Mark-up
Corporate ROI Target
Marginal Pricing
Cost of Goods Sold
Quantity
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Buyers Price Evaluation/Price Analysis

• Reasonableness- Eye of the beholder.
• Allocability
• Terms of the contract
• Market research/Market knowledge

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Sellers Pricing Metrics

• Forecasts
• Success ratio
• Percentage of total business
• Market Share

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Proposal Pricing Tactics
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Pricing the Opportunity

• Read the Solicitation
• Determine Contract Type(s)
• Supplies or Services and Prices/Cost
• Statement of Work
• Instructions, Conditions, and Notices to Offerors
• Evaluation Factors for Award
• Perform pricing Risk Analysis
• Price according to Risks and Rewards

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Pricing Risk
Source Risk Management Guide for DoD
Acquisition August 2006 Department of Defense
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Pricing Techniques

• Historic costs, processes, practices are not set
  in stone not all costs are sunk costs
• Direct pricing strategies
• Scrub overly-conservative assumptions
• Require Risk Management versus Risk Dollars
• Map the Risk profile disband the Standing Army
• Map the Risk profile manage the Roll-on/Roll-off
• Not all risks are High and Right in the Risk
  Cube

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Pre-Bid Process Buyer

• Market Research
• Understand market norms and practices
• Anticipate pricing
• Calculate leverage
• Develop gameplan
• Solicitation/Negotiation
• TC Effective? Enforceable?
• Competition Right players? Right game?
• Sprint to the Finish

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Pre-Bid Process Seller

• Bid/No Bid Decision
• Teaming Relationships
• Prime or Sub?
• Importance of Teaming Agreements and
  Non-Disclosure Agreements
• Gathering data from teammates
• Virtually identical in Government and Commercial
  opportunities

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Market Pricing Model
List Price
Manufacturers Suggested Retail Price (MSRP)
Web Price/Sticker Price
Discount
Price
Mark-up
Corporate ROI Target
Marginal Pricing
Cost of Goods Sold
Quantity
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Words to Live By

• Revenue solves everything
• Computer Industry Sales Executive
• You cant manage your way out of a Bad Contract
• Aerospace Contracts VP
• Good Luck

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• QUESTIONS?