Jon Barker has been involved in managing government contracts from the supplier side his entire career. He started a company called PTW Solutions, where PTW means Price To Win, and they help companies win government contracts. Jon is an avid coach and he’s coached both lacrosse and soccer. When coaching, Jon fosters a team environment, while learning the strengths and weaknesses of each individual to build up skills and confidence.
In this episode, Jon talks about government contracting as he puts emphasis on why the government’s focus is set on cost-plus.
Why you have to check out today’s podcast:
- Learn how pricing runs in government contracting
- Discover what a “probability of win” means and why you should focus on deals with higher “probability of win”
- Find out resources you can visit as you look for data of your competitors’ prices
“Create your own internal models of the data that you use a lot to make those decisions, and have the ability to make the levers change easily. I think as a government contracting pricer, it would be extremely beneficial.”
– Jon Barker
01:36 – The start of Jon’s pricing journey for government contractors
04:39 – Small businesses having more volatility with government contracting if compared to large companies
08:10 – What’s a P-win + what Jon loves about the field he’s in
09:23 – Best value tradeoffs; putting energy into writing proposals for deals of higher p wins
14:23 – Position, Plan, and Price to Win; Government contracting as an interesting field
17:37 – Go-to’s of a data guy: GSA price list, GSA Calc, STARS III, SAM, USA Spending
22:25 – Jon’s passion for government contracting
24:44 – Jon’s piece of pricing advice for today’s listeners
“Here’s the beauty of it. When you’re talking with larger companies, those rates are set. When you’re talking to smaller companies, they have a lot more flexibility. They’re not on the radars of these agencies… The smaller you are, the more of an art it is to be able to be clever with the numbers and figure out where you can ship those costs.” – Jon Barker
“As you add layers and layers of contracts that you win, you have more capabilities. The biggest thing about winning contracts is being able to successfully execute them.” – Jon Barker
“Section M (evaluation criteria) is probably your most important section in terms of how to create a winning bid and how to tailor your technical and your pricing strategies in order to maximize that probability of win.” – Jon Barker
“The government customers’ so huge, and there’s so many different facets to it. There’s plenty of other work to be had there. Don’t get focused on, again, losing efforts to where the evaluators are not going to find the value in your offering, because you’re not set up to be successful for that.” – Jon Barker
“Pricing is just a fascinating topic; it’s very psychological, as you know. But in government procurement, it’s very much cost-plus based, because the government expects to understand how companies came up with the rates that they bid.” – Jon Barker
People / Resources Mentioned:
- PTW Solutions Inc.: https://price-to-win.com/
- CPARS: https://www.cpars.gov/
- GSA Calc: https://calc.gsa.gov/
- STARS III: https://www.gsa.gov/technology/technology-purchasing-programs/governmentwide-acquisition-contracts/8a-stars-iii
- SAM: https://sam.gov/
- USA Spending: https://www.usaspending.gov/
- Federal Acquisition Regulation: https://www.gsa.gov/policy-regulations/regulations/federal-acquisition-regulation-far
Connect with Jon Barker:
- Email: email@example.com
- LinkedIn: https://www.linkedin.com/in/jon-barker-4648b84/
- Telephone: 571-216-9890
- Website: https://price-to-win.com/
Connect with Mark Stiving:
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Create your own internal models of the data that you use a lot to make those decisions and have the ability to make the levers change easily. I think as a government contracting pricer, it would be extremely beneficial.
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the regulated relationship between them. I’m Mark Stiving. Today, our guest is Jon Barker. Here are three things you’d want to learn about Jon before we start.
He’s been involved in managing government contracts from the supplier side his entire career. He started a company called PTW Solutions, where PTW means Price-to-Win, and they help companies win government contracts. And probably my favorite thing, he’s an avid coach and he’s coached both lacrosse and soccer, neither of which I understand. But on his LinkedIn page, he has this great line when he was coaching lacrosse: his job was to foster a team environment, while learning the strengths and weaknesses of each individual to build up skills and confidence. I wish all our managers knew how to do that, too.
Amen, Mark. Thank you very much for that wonderful intro. I’m honored to be here and being on your podcast today. Thank you.
Okay. So, I’m not 100% sure if this is the right question, but I’m going to ask it anyway. How did you get into pricing?
Well, it was kind of a long haul for me. I was someone who graduated from an economics degree, UVA. Go wahoos! I didn’t really know what I wanted to do with my life. I kind of a considered myself a jack of all trades, master of many. And basically, being born and raised around the beltway in Northern Virginia, Washington, DC, I gravitated to government contractors. And after about probably eight years of exposure to government contracts, I got into, specifically, pricing, and kind of have gravitated to that, I think it’s a good blend of the skills that I bring, and it puts my best foot forward in terms of leveraging my skills and talents in an environment that’s easy to do for me.
Yeah. What was interesting about pricing for government contracts? By the way, I’m going to tell you, I know almost nothing about government contracting, so this will be a fabulous conversation. So, what is it about pricing for government contractors that attracted you?
Well, it’s a blend of Arts and Science, right? When I first started doing this, it was very much math and formula-driven, right? You get your inputs, which most of my experience has been with service contractor. So, we have labor categories, and there could be anywhere between three and hundreds, right? So, you have your direct labor, your salary divided by 20/80; that’s column A, generally, of your math equation.
And you have what’s called a wrap rate, which is inclusive of a fringe benefit, an overhead cost, and a general and administrative cost. Every company, that’s kind of their secret sauce in what they spend; it’s very much a cost accounting driven feel. But the rapid rate is something that larger organizations, you can never touch them. They’re set by the CFO, with forward rate disclosures with agencies like defense contracting, auditing agency.
So, it’s very much a math when you first start out.
Let me pause you for a second. So, what I just heard you say was “We do cost plus pricing. We calculate all the costs, and the plus is the wrap rate.” Is that correct or not?
Sort of correct. Part of the wrap rate that I didn’t get into was profit and fee.
So, the general tenants of the government, they need to promote competition to the maximum extent practical, right? That’s ensuring that the taxpayer gets a good deal. Because of that, they go to the old school, and I know you hate this approach because of what you do and the topics of your podcast, but everything is basically cost plus. There needs to be some sort of rationale that a government buyer can peer into the bits of your proposals and see how you did your rate estimating methodology, right? So, it’s wrap rate, fringe overhead, and GNA. The only thing you can really manipulate from a pricing standpoint is the direct labor and then the fee, because the wrap rate has been what’s set by your agreements with external auditing agencies.
Got it. And so, I want to clarify something real fast. You’re 90% right in that I hate cost plus pricing, but the real answer is we always look at our customers and how they make purchase decisions, and we have to do pricing to help them choose us instead of our competition. And if the government is always requiring us to lay out the costs, then we have no choice. We’re going to lay out the cost; that’s what it takes to win the deal.
Now, here’s the beauty of it. When you’re talking with larger companies, those rates are set. When you’re talking to smaller companies, they have a lot more flexibility. They’re not on the radars of these agencies. That wrap rate can be anywhere from like a 1.5 multiplier to a 2.5 multiplier, right? I charged Mark $100 an hour and I get 250. My wrap rate is 2.5, right? So, there’s a lot of flexibility with small contractors to kind of provide what is called a material analysis of those rates. So, if I’m a 500k revenue company and I win a contract that gives me 10x that revenue, a lot of my rates are going to change because they’re basically ratios, right? It’s a lot of fixed costs and variable costs. So, the smaller you are, the more of an art it is to be able to be clever with the numbers and figure out where you can ship those costs, right?
A very wise person early in my career explained to me that these costs are like a balloon, right? You can kind of squeeze them to have bigger fringe or lower overhead rate, but the costs are the cost at the end of the day. The problem is you don’t know what those costs are until way in the future, because we have to deal with the now, in the reality, and how we price things. Those big companies, they have years and years and years of experience in historical cost data that the government oftentimes requires them to disclose in a bid. So, he said, “Hey, your wrap rate was 1/6. Now, it’s a 1/4. Now, it’s a 1/9.” We’re going to take an average of those three years, right?
So, the government hates that kind of volatility, but the small businesses will have a lot of volatility, especially in the first few years of their government contracting journey. Does that make sense?
It does. And so small companies, you expect their wrap rate to go down over time as they grow as an organization.
If they’re growing smart, right? Because as you add layers and layers of contracts that you win, you have more capabilities. The biggest thing about winning contracts is being able to successfully execute them, because the way that a company is evaluated by their past performance is that when they get a prime contract, there’s a process called a CPARS – the contractor performance annual appraisal, or something like that. It’s a corporate report card, that if you do well and get good CPARS in past performance ratings, it’s going to be the stepping stone to bigger and bigger contracts. Because there’s things like relevancy, recency. If you have a 10-person contract, you’re not going to win a 10,000-person contract. You need to step to, okay, you got a 10 person, let’s go for a 50, let’s go to that 50, to a 250, and so on and so forth. So, it’s kind of you layer on those capabilities. When companies grow, they’re going to realize, hey, they need a procurement department, they need to invest more in sales and marketing, or they need to create a better machine to crank out proposals, right?
Because again, what Price To Win basically does, it tries to maximize the probability of win; the P win, right? And the art of that is kind of focusing on opportunities where your P win is greatest and get us on opportunities where your P win is lowest.
What is P win?
Probability of win. It’s kind of a very nebulous term, right? And you take lots of different inputs from market research, cost historical data.
And then, what I love in the field I’m getting more and more into is competitive intelligence. Like, how is the market going to respond? You interpret the signals of the historical buying patterns, and then you look at who is the incumbent, if there is one. Find that old RFP. How does that relate to the one that’s on there now? And then look at key sections in the RFP, which Section L is instruction, Section M is the evaluation criteria, right?
So, Section M is probably your most important section in terms of how to create a winning bid and how to tailor your technical and your pricing strategies in order to maximize that probability of win.
Okay. So, Jon, I got to say, there’s one thing that bugs me about the entire conversation we’re having right now, and that is we’ve never talked about value. It’s been price, it’s been cost, and it seems to me that all good decisions or good purchase decisions are trading off value for cost or value for price. Where does value come into this?
Well, that’s a very important question, and it really depends on what Section M is going to say. How is the proposal evaluated? All things being equal things boil down to price. The value is a little bit more nebulous from my standpoint, from a data guy, right? I need to leverage the talents of my technical team and try to figure out how would I assess our score based off these specific and unique evaluation criteria.
Think of it as a spectrum. There’s two different types of procurements, right? On one end, you have your lowest price technically acceptable, and on the opposite end of that spectrum, you have what’s called best value tradeoffs. So anywhere in between there is that spectrum of how contracts are rewarded and evaluated.
So, best value trade off. If there’s not clear criteria why an offer is rated blue – blue would be outstanding, purple is very good, green is acceptable, right? If that person has more blues and purples than greens, then the government would expect to pay a premium for that, right? And just what that premium is, is a matter of kind of internal agency information. Like, they’re willing to make a tradeoff for a purple to green – I’m sorry – of like 15%, and maybe a green to a blue for 30%, right?
But knowing where that competitive range actually is, is very important. And that’s one of the things that I do. It’s like pay these average rates for this type of work are about $75 an hour, right? If you guys are running at $125 an hour, I don’t think you really are going to be successful in this space. And luckily, the government customers’ so huge, and there’s so many different facets to it. There’s plenty of other work to be had there. Don’t get focused on, again, losing efforts to where the evaluators are not going to find the value in your offering, because you’re not set up to be successful for that.
Yeah. So, I didn’t mention this before, but one of the things I like about what you said with the P win is we should be spending our energy and effort writing proposals for deals where we have more of a chance to win than spending time where we have less of a chance to win. And so, the better we are at finding those deals where we can win, we’re probably being more efficient, reducing our cost, customer acquisition cost or cost of sales, and at the same time, probably winning deals at higher prices. So, I think that makes a ton of sense.
Yeah. Absolutely. I mean, that’s the thing where the capture process, right? The government lifecycle is very long. But the opportunity there is you know when contracts are expiring, and you have six to 18 months to plan, right? And that planning is where the money is made. It’s like, are you having phone calls with that customer? Are you getting feedback for how well the current incumbent’s doing? Is there an opportunity there to unseat that incumbent? Those are the times before the opportunities actually come out. It’s what’s called shaping those opportunities, right?
And knowing that lifecycle and knowing there’s three to 16 months or anywhere in between, where you need to be having those conversations and looking for opportunities, that you may want to expand your work, or you have an agency that you already like, try to get more work within that agency, or you like the work that you do and you’re looking for other agencies that buy that work, then I know how to find that data to give you ultimate sales channels to kind of start your business development efforts.
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Yeah. What I like about what you just said is that’s no different than the commercial world. In the commercial world, salespeople need to find deals early, need to be involved, help shape the opportunity, however you want to phrase that, but it’s building those relationships, building the knowledge base, so that when we put our bid out, we actually have the advantage because we know more than our competitors did.
Absolutely. And I’ve been kind of playing when I first started PTW, it was Price To Win, was what it was for. But now, as I’ve kind of evolving as a business owner, I’m kind of liking more Position To Win, and Plan To Win, and then Price To Win, right? So again, it’s kind of an iterative process. You start that shaping by positioning yourself. What kind of company are you? What kind of value do you bring? What’s your secret sauce? Look for other companies that are peers or near peers.
And this isn’t rocket science as we know, right? It’s a lot of, you know, there’s an imitation going on, and you can’t beat them, join them type of deal. Government contracting is just so fascinating to me for doing this for two decades. It’s kind of like a chess game that’s played over decades, right?
No offense, Jon. I’m glad there are people like you that find this fascinating.
Well, I haven’t born– My parents were both civil servants for DOD and some of those agencies, and again, it’s just a fascinating ride. As taxpayers, it’s very important for me, personally and professionally, to make sure that we are helping the companies that are trying to do the right things and win work by being smart, aggressive, working hard, things like that, and to try to cut some of that waste. And I know where that waste is, a lot of times, because of the knowledge that I know and just the signals you can pick up like the anomalies of, “Hey, this contract was awarded way higher than it should have been. Why is that?” “Oh, it was so sourced to a multibillion dollar small Alaskan Native company.” “Okay.”
So, there’s lots of different things. There’s lots of gamesmanship that people play with government procurement. Pricing is just a fascinating topic; it’s very psychological, as you know. But in government procurement, it’s very much cost plus based, because the government expects to understand how companies came up with the rates that they bid. I’ve had scenarios where I get some signals. The government publishes the budget, I do a top-down analysis of that, and when I look at a client’s and they have a cost-plus approach, I’m like, “Wait a minute, there’s a huge spread here.”
I had a client recently that I did the math, and he had about a $95 an hour rate on average for his 13 labor categories, and I was looking at the signals of old awards in the competitive environment, and I was like, “Man, prices of this is you’re going to be awarded around probably 175 on the high end, about 145.” So long and short, but he raised his rates to about 125 and I am 90% confident he’s going to win.
Again. So, yeah. 99.9 is about as best you can get, but I’m very confident about that, just because of the signals it was. It was one of those multiple award deals, and so the bidding is you get your foot in the door, you are limited with only three or four other bidders, and so that’s where the money’s made at the task orders, right? But you got to win that first step to be successful.
So, Jon, one of the questions that people often ask me, they say, “I’ve got this big challenge,” and that is they can’t find competitors’ prices. And I often say, if they sell to the government, it should be on the GSA price list. Can you tell us what the GSA price list is?
Oh, that’s a great question. So, a lot of companies go for what’s the GSA contractors. Different types. IT70S is for professional services. They have a professional engineering services. A pass one.
I would recommend go to a website called GSA Calc, which is a fantastic resource. You can go in there and plug in, “Hey, I’m looking for a software developer,” and it’ll show you everybody’s rates with that. Someone who’s a data mining nerd, I like to do query all’s, and I’ve been able to download 52,000 different records, and then spin it up in my own database to tie that with other public data sources. GSA Calc is a perfect one.
There’s also ones for unique contracts. There’s one that was awarded. STARS III. It’s an 8(a) set aside program, a small disadvantaged business, and there are 1100 bidders that keep adding to it. And so, there’s the website that I’ve downloaded and basically did many different tranches the data. So now, I have that price list with hundreds of other bidders in it, that I can do side by side analysis, depending on a specific client’s request or specific deal that I’m interested in, and things like that.
There’s another one I’m thinking of–
Hang on one second. You said GSA Calc. Is that .com, .gov?
Just Google it. I’m sorry. It’s https://calc.gsa.gov/
I’m going there when we’re done.
Yeah, you should. It’s pretty fantastic. They put some good data visualizations in there.
Basically, the government has to realize that when they award contracts, the contracting officer, the only one with authority to award contracts, they have to have a fair and reasonable analysis in every bid that they do. So, if they have competition, the easiest thing to do is base it off price, right? It makes their job a little bit harder when it’s either they’re having to justify it at a higher price, right? So, they need input from their technical team in order to do that, to help them sell the story about why we’re paying 30% higher for the same requirement based off of the evaluations of the bid.
Do they publish all of the bids so you can see the companies who beat you or the lost you?
It depends. For the most part, they do. There’s a kind of a standard government entry point called sam.gov, the System for Award Management. All opportunities are supposed to be advertised in there. It used to be called the FBO, FedBizOpps, right? So, there’s been an evolution in the last few years about that. But the government is supposed to publish the need for their requirement and get industry input about what it is, and then that’s how they know if they want to set it aside to a small business or a veteran-owned business, or they like the offerings of a large business, they’ll call it OTSB, which is an other than small business. You got to love some of these acronyms, right? OTSB. And that’s determined whether it’s F&O – full and open – or a set aside contract.
So yeah, you can go. There’s about a three month lag, but all this information is published. You just got to know where to look.
Another go to site that I love; I think is fantastic, is USAspending.gov. You can go in there. And if you have a curious mind, like I know you and I do, Mark, I can look up any vendor and see whether federal government contracts or get which agencies they have, how much they’re for, when were they awarded. And then if you go even deeper into that, you can see if they’re under running or looking like they’re over running.
So, there’s many different angles and vectors of things that you can provide using someone like me as a data guy and just knowing where the public sources of data are. And it kind of goes full circle, because when the government, again, they have to do this fair and reasonable assessment when they award contracts, I like to give them their own bureau of labor statistics data back at them. So, I have rates from all over the place that I can do a bottom up and a top-down approach, and in between there’s kind of the price to win the sweet spot about where you want to be. How would you grade your value versus competitor A, B, or C? And then try to price as best you can with those kinds of assumptions that you have to make and the data that you’re able to get.
So, Jon, we’re about to wrap this up. Before I ask you the last question, I have to make a quick comment.
I am truly amazed at watching your face glow when you talk about government contracting, because I can assure you mine does not.
I appreciate that, Mark. I mean, I do have some passion for this industry, and it goes as professional also, again, as a taxpayer, right? I mean, it’s just amazing what the government buys.
And I’m just constantly amazed by the things that they’re buying and the companies that are set up to be able to provide those services. And a lot of times, it’s kind of arbitrage. There’s a lot of people out there that are bid brokers. They look for opportunities. And having moved at DC a few years back, like not everybody where I live in Wilmington, North Carolina understand what the heck it is I do. And I’m like, “Hey, I’m a Contract Administrator.” Like, “What is that?” It’s like, “Well, I help companies win deal from the federal government.”
And it’s just fascinating because I’ve been throwing out emails to people doing a little bit of bid matching. I’m like, “Hey, there’s something that’s right down the road.” Because for about an hour where I live, there’s an airport, there’s a rail port, a big container shipping port, and then there’s a jail, an Air Force Base, an Army base, a Marine Corps base, and there’s probably something else I’m forgetting, although there’s a prison too. So, I mean, all sorts of things come out of those, you know, there’s janitorial services, there’s need for officers. I mean, anything you can honestly think of.
And so, I guess I’m my face is probably glowing, because I’m also thinking of other angles of trying to get some business. And one of the things that I was looking at, for my little neck of the woods here in North Carolina now where I live, is an analysis of all the money going into Southeast North Carolina and how much of that is being awarded to North Carolina companies, right? And so, I did some math over the last five years, and it was determined that at about a $12 billion a year of money going into this region, only 28% was being captured by North Carolina companies. So, 72% of that was going to companies in Virginia, and Florida, and wherever else government contracting is. More awareness.
Jon, we’re going to have to start to wrap this up, but you do have to answer the final question. What’s the one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
So, I’ve been struggling with answering this question, I think, but I think in the short of it is creating your own internal models of the data that you use a lot to make those decisions, and have the ability to make the levers change easily.
I had a president that I reported to, and they were constantly going, “Hey, get under this bogey. You get under that bogey. What do we need to do to get under this bogey?” You know, all sorts of questions like that, that I never really had experienced as a pricer. And so, it took me a while to develop a model where I could easily create. What if I did a change here? What if I changed it?
So, things that you can do to quickly make the changes, I think as a government contracting pricer, it would be extremely beneficial.
The other thing about that is to be able to better corral your own historical data, and think about how do you categorize people, like with pay bands, or job functions, things like that. Because again, as someone who does service contract pricing, I need to know like, how much do we charge for an engineer? How much do we charge for a software engineer? All those little minor granularities in between them, I think is, is important for companies to be able to have on demand, to be able to produce your own pricing.
So, I love the answer, Jon, but I’m going to toss out a different answer that I think you should have given, if you don’t mind.
Not at all, Sir. Thank you.
I think you should have said something to the effect of, if you’re not selling to the government today, you should consider selling to the government. Even though it seems confusing, there are people like you that can help them figure out how to do it.
Well, I can certainly appreciate that. I mean, it is. The government does not have sexy margins, right? The FAR – the Federal Acquisition Regulation – actually put stipulations in your profit. FAR 15.404-4, I believe. So, you can only get about 10-12% on a bid. Now, that’s only how you win it. There’s different tactics to execute it and you can make as much profit as you can stomach, but again, you know, the tenets of government transparency, and that competition if you are bidding contracts at a higher than probably 12 or 15% margin, you’re probably going to get some pushback from those evaluators. But again, it’s not as sexy as commercial. It’s steady, but the margins just are not there, ad again, that value question is just so gray, and it really depends on any specific opportunity you’re tracking.
So, if they were hiring pricing experts, I would reach out to you, Jon.
I would love that, Mark. Thank you. And I do, yeah. The government buys trillions of dollars for stuff per year, and there are experts like me and other folks that I know that can help you kind of eliminate those barriers. Because again, the barriers are not as big as people think, and other consultants will lead you to believe as well. All stuff is free. It just takes some time. And as someone, again, who’s been called stingy in my life, if things save me time or eliminate headaches for me, I’m willing to open up my pocketbook and spin.
Hey Jon, thank you so much for your time today. If anybody wants to contact you, how can they do that?
My name is Jon Barker, PTW solutions, 571-216-9890, or John J-O-N @ price P-R-I-C-E to T-O W-I-N S-O-L-U-T-I-O-N-S. firstname.lastname@example.org. And I’m also on LinkedIn as well. That’s probably the best way to hit me up. Just send me a connection request and we can go from there.
Alright. Thank you, Jon.
Episode 171 is all done. Thank you so much for listening.
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