Price To Win For Some; Price To Sub For Others(10-09-2006)

At a Price To Win (PTW) seminar I gave recently an attendee rendered me temporarily speechless. This was done by suggesting that while PTW may be of great concern to a prime bidder, many firms typically find themselves in supplier or subcontracting roles and, as a consequence, their need is less one of PTW and more one of PTS, or "Price To Sub."

In general, while PTW is charged with developing competitor overall opportunity bid prices, PTS defines and competitively costs and prices only those elements that a prospective subcontractor is being asked to provide to a prime bidder. Let us assume that the subject of a PTS analysis is a specialty subsystem that a given prime intends to team with a qualified subcontractor to provide. To prove its mettle the prospective subcontractor is likely to have to provide a high-level design, a development and test approach, a basis of estimates (BOE), and, ultimately, a fixed price -- all of which are PTW study by-products. Therefore PTS must be able to focus on that subset of the overall opportunity that is to be subcontracted without losing any of the specificity that is the hallmark of a full-blown PTW study. Let us examine how this should be done.

Early in any PTW study each competitive prime's suitably discounted view of the entire job's addressable budget must be determined. This budget is allocated across the first level WBS elements, and below, to provide price targets for each materially relevant work package (such as the subsystem mentioned in the previous paragraph). These work package price targets must then be netted out to remove expected prime uplifts. This process provides CAIV-like price targets for materially relevant work packages such as our subsystem.

To be relevant a prospective subcontractor should develop a "bottoms up" cost, then price a solution that demonstrably lives within the subsystem's target price, i.e., the prime's PTS cost target. The resulting PTS analysis should be robust enough to:

• drive the subcontractor's in-house bid team to achieve the "top down" PTS target price; and
• present the prime with a credible third party opinion that they can understand and appreciate of where a competitive, yet reasonably priced, offer for the subcontracted work package should be.

In cases where there is no hypothetical subsystem PTS can still be important. PTS results are often needed to support a supplier or subcontractor's pricing position. For subcontractors PTS can be both an offensive and a defensive weapon or tool.

Offensively, the pro-active rigor of a well-crafted PTS study can be used to convince a prime to add the subcontractor to the bid team. The PTS analysis can also be used as a defensive weapon to support the subcontractor's contention that the estimates provided are competitive, equitable and reasonable as a prelude to price negotiations with a prime.

From now on CAI/SISCo will be including PTS issues, considerations and discussions in our PTW training seminars. This portion of the instruction will enable smaller companies and journeyman subcontractors to deal more effectively with their primes by having well-targeted, well-supported, well-presented, quantified and cost-efficient subcontracting solutions.

To learn how CAI/SISCo's PTW services, seminars, tools and products can help your organization improve capture probabilities please contact me, Tony Constable, at (301) 807 8171.