Is Your Bid Too Low to Win? Understanding Price Realism in Government Contracting
Often in government contracting, businesses are laser-focused on one thing: winning the award. And typically, the instinct is to go low—to undercut the competition and offer the best deal to the government.
But what if we told you that going too low could actually cost you the contract?
Welcome to the lesser-known—but critically important—concept of price realism.
Whether you’re new to government contracting or an experienced player trying to sharpen your edge, understanding how price realism works—and how it’s evaluated—can help you avoid costly mistakes and position your bids for success.
In this article, we’re breaking it all down: what price realism really is, when it applies, how it’s evaluated, and most importantly, what you can do to protect your bids and increase your win rate.
What Is Price Realism?
Price realism is the government’s method of determining whether a contractor’s proposed price is too low to realistically perform the work.
It’s not about whether the price is fair to the government—that’s called price reasonableness. Price realism, on the other hand, is about risk.
If your price is so low that it suggests you might not understand the scope, might cut corners, or simply can’t deliver what the government needs, you could get downgraded—or disqualified altogether.
In short: a low price doesn’t always win. It might raise red flags instead.
When Is Price Realism Applied?
Not all government contracts include price realism evaluations. Here’s when it shows up:
✅ Cost-Reimbursement Contracts
Price realism is required. The government assumes the risk of cost overruns, so it needs to be confident your pricing is accurate and your plan is viable.
⚠️ Fixed-Price Contracts
Price realism is optional. If the government wants to conduct a price realism review for a fixed-price solicitation, it must explicitly state that in the solicitation documents.
If it’s not mentioned in the solicitation, then the government can’t legally evaluate bids for realism—no matter how low they are.
Why the Government Cares About Low Pricing
At first glance, you’d think the government would love bargain-basement bids. After all, low prices mean budget savings, right?
Not exactly.
When a price is too low, it tells contracting officers a few things:
- The contractor may not fully understand the scope of work
- The proposal might be missing critical costs or labor
- The project may be at risk of failure, delays, or poor performance
And here’s the kicker: if your bid looks too good to be true, and price realism is part of the evaluation, your proposal could be downgraded or even eliminated.
A Real-World Example
Imagine a contract for cybersecurity monitoring services. Most bids come in between $950,000 and $1.1 million.
Then your company submits a bid at $600,000.
The contracting officer’s eyebrow raises.
If price realism is in play, they’ll likely scrutinize your pricing to see how you plan to do the same job for 40% less.
If you didn’t clearly explain your efficiencies, cost structure, or labor model in your proposal, your bid may be tossed aside—not because it wasn’t a good deal, but because it seemed too risky to succeed.
How Agencies Evaluate Price Realism
So how does the government determine if your price is realistic?
They don’t just guess. Agencies can use several methods:
1. Comparison to Independent Government Cost Estimates (IGCE)
Every solicitation starts with an internal estimate. If your price is significantly below that figure, it’ll be flagged.
2. Comparison to Other Offers
If most bidders are in one price range and you’re drastically lower, that could be viewed as a warning sign unless you clearly justify the difference.
3. Technical Proposal Analysis
Agencies will review your technical approach. Are your labor hours too low? Are key roles missing? Are you using labor rates that don’t match the market?
4. Cost Breakdown Analysis
They might examine your cost elements to see if you’ve omitted important expenses, such as fringe benefits, subcontractor costs, or escalation factors for multi-year projects.
Common Mistakes That Trigger Price Realism Flags
Here are a few all-too-common bidding mistakes that can hurt your proposal:
- Underestimating labor hours
You can’t do a 1,000-hour job with 400 hours just to keep your bid low. - Omitting indirect costs
Don’t forget overhead, general and administrative (G&A) costs, and escalation for inflation. - Using unreasonably low labor rates
Offering senior-level services at junior-level prices won’t fly. - Failing to justify efficiencies
If your costs are lower because of proprietary software, automation, or unique staffing models, you must explain it in your technical narrative.
So… Should You Ever Bid Low?
Of course! Competitive pricing is still important. But if your price is lower than average, back it up with facts.
Show your efficiencies, your experience, your streamlined process. Tell the story of how you can do the work better, faster, or cheaper—without sacrificing quality.
Otherwise, your “great deal” could be seen as a high-risk gamble the government won’t take.
How Market Research Can Help You Avoid Price Realism Pitfalls
One of the best ways to ensure your price is both competitive and realistic is through thorough market research.
By knowing what agencies have historically paid for similar work—and what your competitors are bidding—you can set pricing that hits the sweet spot: low enough to win, high enough to perform.
This is where FedBiz365 comes in.
FedBiz365 is the AI-powered government market research platform that contractors trust. With FedBiz365, you can:
- Access historical pricing data on similar contracts
- Analyze your competitors’ past awards
- See which agencies buy what you sell
- Pinpoint realistic labor rates and indirect costs
- Build out accurate cost models backed by data
That kind of insight can make all the difference between a bid that raises red flags—and one that rises to the top.
7 Practical Tips to Ace Price Realism
Want to make sure your bid survives a price realism evaluation? Here are seven contractor-tested tips:
1. Don’t Guess—Research
Use tools like FedBiz365 to see what others are charging and what agencies expect to pay.
2. Align Your Price and Technical Proposal
Make sure your technical narrative supports your pricing assumptions. If you’re proposing fewer hours or lower costs, explain why it still works.
3. Avoid Unrealistic Labor Rates
Use industry-standard rates unless you have a clear, justifiable reason to go lower—and explain it.
4. Include All Cost Elements
Don’t forget fringe, G&A, materials, travel, subcontractor costs, or escalation. Missing elements = unrealistic price.
5. Explain Efficiencies
If you have tech or processes that reduce cost, highlight them. Prove you can do more with less.
6. Use Past Performance as Proof
Show where you’ve successfully performed similar work for similar pricing. Back up your bid with real-world wins.
7. Review the Solicitation Carefully
If price realism is mentioned, take it seriously. If it’s not mentioned in a fixed-price bid, you still want to ensure your price won’t raise red flags—but the agency can’t legally disqualify you solely for low pricing.
A Quick Word on Subcontracting
If you’re a prime contractor relying heavily on subs, make sure you:
- Include realistic subcontractor pricing
- Confirm availability and commitment of your subs
- Understand their cost structures to avoid underestimating
An unrealistically low subcontractor estimate could tank your whole proposal.
The Bottom Line: Realistic Prices Win Contracts
At the end of the day, government agencies want performance, not just savings. An unrealistically low price might help you stand out—but not in the way you want.
The smartest government contractors use market intelligence, strong technical writing, and detailed pricing strategies to craft proposals that check every box: price, performance, and realism.
Need Help Navigating?
You don’t have to figure this out alone.
At FedBiz Access, we’ve helped thousands of businesses successfully navigate the government contracting maze—securing over $36 billion in awards for our clients.
Our team can assist with:
- Market research and pricing strategy (via FedBiz365)
- Capability statement development
- Socio-economic certifications
- Direct marketing to government buyers
- SAM and DSBS profile optimization
- GSA Schedule Assistance and Management
If you’re ready to bid smarter and win more—without falling into the price realism trap—schedule a complimentary consultation with a FedBiz Specialist today. We’ll help you take the guesswork out of government contracting.
Looking to align your price with confidence? Let’s talk.
