Short answer: a government price is your direct labor cost, plus fringe benefits, overhead, and general and administrative (G&A) costs, plus a reasonable profit. Then you check that number against what the government already pays, using tools like GSA CALC+, and against any wage rates the solicitation requires. If your price is fair, reasonable, and you can show your math, you're in the game.
Step 1: Build Your Real Labor Rate
Most federal pricing starts with people. Your "wrap rate" turns a base hourly wage into the rate you bill. Indirect rates stack in order, each on top of the last.
| Layer | Example rate | Running total on $100 of labor |
|---|---|---|
| Direct labor | $100.00 | |
| + Fringe (benefits, payroll taxes, PTO) | 35% | $135.00 |
| + Overhead (supervision, tools, facilities) | 15% | $155.25 |
| + G&A (admin, accounting, BD) | 12% | $173.88 |
| + Profit | 8% (example) | $187.79 |
Your percentages will be different. The point is the order: each rate applies to the total above it, not to the base wage. Get the order wrong and you'll underprice every hour.
Step 2: Check What the Government Already Pays
GSA's CALC+ Ceiling Rates tool (free, no login) shows the not-to-exceed hourly rates on GSA Schedule contracts. You can filter by labor category, education, years of experience, business size, security clearance, and worksite. GSA itself warns these are ceilings, not exact prices, so use them as a range check, not a target.
If your rate for a senior engineer is far above the CALC+ range, you'd better have a reason the evaluator can see in your proposal. If it's far below, ask whether you've left out costs.
Step 3: Use the Right Wage Rates
- Services: if the contract is over $2,500 and covered by the Service Contract Act, you must pay at least the wages and fringe benefits in the wage determination for that location.
- Construction: over $2,000, Davis-Bacon prevailing wages apply.
- Wage determinations are on SAM.gov, but always use the one attached to the solicitation.
Step 4: Know What Kind of Contract You're Pricing
| Type | Who carries the cost risk | What to watch |
|---|---|---|
| Firm-fixed-price (FFP) | You | Every assumption you miss comes out of your profit |
| Time-and-materials (T&M) | Mostly you, up to a ceiling price | Your hourly rates must already include overhead, G&A, and profit |
| Cost-reimbursement | Mostly the government | You need an accounting system that can track allowable costs |
Most small business contracts, especially under the $350,000 simplified acquisition threshold, are firm-fixed-price.
9 Pricing Tips Most Small Businesses Learn the Hard Way
- Price the work, not the dream. Read the performance work statement line by line and estimate hours per task. A single number for "the whole job" is a guess.
- Find the last award. Search the contract's history on USAspending or SAM.gov awards. The incumbent's price is the most useful number you'll find.
- Don't buy in at a loss. A lowball price can get you rejected as unrealistic, and if it wins, you're stuck with it for every option year.
- Put escalation in option years. Wages go up. If the contract has five years, price raises into years two through five.
- Keep unallowable costs out of your rates. Entertainment, alcohol, and certain other costs can't go into government pricing. Flag them in your chart of accounts so they never sneak in.
- Read Section M before you price. If it's "lowest price technically acceptable," every dollar counts. If it's "best value," a slightly higher price with a stronger technical approach can win.
- Match the CLIN structure exactly. Price every contract line item the way the solicitation lays it out. Rearranging it is a fast way to get thrown out.
- Write down your assumptions. If the price depends on something (site access hours, government-furnished equipment), say so in the proposal where allowed.
- Check your math twice, then have someone else check it. A spreadsheet error in a fixed-price bid is a contract you pay to perform.
Frequently Asked Questions
How do I know if my government price is too high?
Compare it with GSA CALC+ ceiling rates for similar labor categories and with the last award for the same work on USAspending or SAM.gov. If you're well above both, either cut costs or show why you're worth more.
What profit margin is normal on government contracts?
It varies by contract type and risk. Fixed-price work usually carries more profit than cost-reimbursement work because you carry more risk. There's no single legal cap for most fixed-price contracts, but the price has to be fair and reasonable.
Do I have to pay prevailing wages on a government contract?
On covered service contracts over $2,500, yes, the Service Contract Act wage determination applies. On construction over $2,000, Davis-Bacon wages apply.
What is a wrap rate?
The multiplier that turns a base wage into a billable rate by adding fringe, overhead, G&A, and profit. A wrap rate of 1.88 means a $50 wage bills at about $94 an hour.