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"Why Do Our Proposals Cost So Much?" A 3 Part Series Covering Business Development Lifecycle Costs
Part I – Which Proposals SHOULD Cost More?
This may seem like a self-evident question at first glance, but there is more to it than the obvious “larger proposals for larger contracts” answer. Some proposals should cost more for very differing reasons that are not related to the size of the contract being bid. First of all, do we mean overall cost, or just the cost of the proposal preparation?
We all know that Bid and Proposal (B&P) dollars are precious. For the purpose of this discussion, let’s assume we mean the total cost to win the work, all-inclusive, from the time of target identification until contract award. Let’s also assume a typical sales cycle – we visit with the potential customer, update the Capture Plan as required, fill out our required Bid/No-bid forms, and follow any other “Must Have” requirements from our marketing toolbox or ISO process.
Given that we now have a baseline to work from, the answer to the question is (now that all things are equal) proposals for competitive type contracts, governed by the Federal Acquisition Regulation (FAR) Part 15, which work generally takes the most money to prepare, with A&E type Standard Form (SF) 330 responses much less, and commercial “letter proposals” being the least.
Likewise, single-function contracts are cheaper to bid than multi-function contracts, as a single-function proposal response is more “cookie-cutter” in nature. Of course, the first one you produce will always cost much more that the ones that follow, as there is no source material to draw from and you have to create it from scratch, so to speak.
Another factor impacting cost is the estimate itself. Construction type (design-build, etc) proposals cost more to estimate than service contracts (unless the estimate is based on a coefficient, such as a Deliver Order Contract). Whereas 1 or 2 people can estimate a typical service contract proposal, it takes many more people to do design drawings, material takeoffs and prepare a construction estimate dependent on design schedule/completion and other factors.
I. 1 Costs for Construction vs. Service Contracts
There is a general rule of thumb that the B&P for an “average” proposal (RFP issue through Award) should be about one percent of the expected contract revenue. While this is a good rule for a 300 to 700 Million-dollar Operations and Maintenance (O&M) contract, it simply does not work for Engineering Procurement and Construction (EPC) work. In fact, for a small EPC job, quite the opposite is true. It takes just as much effort and manpower to do an estimating for a $60 million contract as for a $300 million job.
And in service contracting, while it works at the $300 to $700 Million-dollar range, at over $700 million, 1% is too high, and below $200-250 it is unreasonably low.
Most $50 million dollar service contract proposals will still take $220-300 thousand to prepare unless they are single function and you have done some already. If they are single function, and you have the source material (previous proposals), then one person can prepare the response and one cost person can develop the cost volume. This gets single function costs done into the $50-75 thousand ranges.
So the answer here is that construction proposals cost more than services, but for unavoidable (assuming all processes are cost effective) reasons due to the nature of the beast.
I. 2 Company / Corporate Paradigms Affect on Cost
Most companies recognize the need for account managers and sales people, but a “Proposal Manager” is sometimes not so much a position, as it is a function performed by either the sales lead or proposed Project Manager (PM) as a transitionary task to be performed prior to assignment to the job. In other cases, it is looked upon as a clerical position that can be performed by administrative-type personnel. This could not be further from the truth. The fact of the matter is that the work is highly complex and challenging and demands highly skilled professionals to do the job properly.
Government work is solicited under very strict and ridged procurement rules, primarily governed by the Federal Acquisition Regulation (FAR) and supported by FAR supplements (each federal agency’s version of the same).
At current, there are literally thousands of Mandatory and Discretionary acquisition documents. The FAR alone is made of seven Volumes with 99 Chapters, and thousands of Parts and Subparts [as one example: Volume 3, Chapter 2, entitled Defense Acquisition Regulations System, Department of Defense contains nine subchapters, with 48 subparts].
It is simply unreasonable to expect a future Project Manager to be fluent or even cognizant of the complex and often confusing or obscure requirements involved. A violation of these can have serious consequences to the company, including expensive fines, disbarment from federal contracting altogether, or imprisonment.
This makes it a cost contributor if we try to teach a future project manager procurement basics (much less strategy) during a proposal effort. Yet it seems that many proposals have been attempted using just this approach.
This was in no way related to the management or leadership capability of the future Project Manager, but simply a function of his being plunged into a new and unfamiliar environment where the rules are much different than his base of reference.
The point here is that the company using this approach is doomed to repeat this on the next proposal, and will have to learn the same lessons again, only with a different Project Manager or team. Proposal teams should be formed of skilled and knowledgeable proposal professionals, and stay together, so that they can take lessons learned forward from effort to effort.
I. 3 Proposed Key Personnel Affect on Cost
Another paradigm that contributes to proposal cost is that many companies tend to believe that only an existing, long-time company employee can be named as “Key” in a proposal.
While on some efforts this is certainly true, in other cases, we sometimes search for one when the customer does not actually specify that current employees score higher in the evaluation, so we spend unnecessary time and costs, trying to “mold” a qualified candidate out of a marginal-at-best employee.
On most service contract proposals, for example, the customer does not generally care about how much the PM knows about his own company, but does care a great deal about his level of experience in performing similar work, and how responsive he will be to the Contracting Officer’s needs.
The cost contributor comes from not conducting the Key Personnel search properly. During the Pursuit Phase, the company (Capture Manager/Sales Team) should be sitting down with the customer, and a critical point of discussion should be Key Personnel. Which positions will be considered key? What are their qualifications? Should they be current company employees? These are all questions that must be answered so that the company can conduct a personnel search within the company and outside as well.
This is a minor cost contributor at best, and then only when the search is either began too late, such as after the solicitation is already issued, or when too much time is spent in finding and qualifying existing resources that may not be interested in leaving their current position, (resulting in numerous time consuming and expensive searches for the next most qualified candidates), or when third party recruitment (headhunters) must be engaged to find qualified personnel at the last moment.
Part II – The Major Cost Influencers in the Business Development Lifecycle
The greatest cost Influencers are generally the ones shown below (in no particular order):
- Pursuit strategy
- Proposal Strategy
- Proposal Approach/Methodology
- RFP Requirements and Approach
- Responsibility for Managing the Effort
II. 1 Pursuit strategy
Pursuit strategy has a direct influence on the overall cost. B&P costs rise alarmingly when there is no clearly defined plan to work to or to manage by.
Most if not all of the companies that train proposal methodologies teach that the pursuit phase is the crucial step in the capture process, and as such, should receive the most attention. While I agree with this concept, if performed effectively, I also have seen companies shun this step completely (working from issuance of the solicitation, focusing entirely on the proposal effort) and still be quite successful.
Because the initial pursuit (sales) process is a critical step does not mean it needs to be the most expensive part of the process. Careful account planning and positioning of the company can be accomplished while paying attention to costs.
Client Account Plans are “Must Haves” and should be developed for each high-level customer base. Strategic sales, or Capture Plans should be developed below and within each account for each opportunity identified to outline the strategy to win that particular solicitation.
The Miller and Movich website outlines requirements for Account Plan management and implementation. This is a good model to use for the client base, as the information contained within it stays constant for that particular agency (Corps of Engineers, for Example) but more and different information is required for each individual opportunity within the agency.
To give an example, the Client Account Plan is used for placing all of the information for the Client; let’s say in this example the Air force. All of the information about Air Force as a client in general will remain accurate and true regardless of the opportunity (target) the company decides to bid on. But, within the Air Force, each Major Command (MAJCOM – ACC, AETC, AFLMA, AFMC, AFSPC, AFSOC, AFRES, AMC, PACAF, USAFE, 10 ABW, 11th CONS, etc) has individual procurement offices staffed with procurement officials who all do the same job with the same rules, but they do them slightly differently. If, for example, an O&M RFP is coming out of USAFE (US Air Forces in Europe) the client needs will be much different than the same type O&M job at Tinker AFB.
For this reason, the information below the client Account Plan should be specific to capturing that particular project in order to ensure that time and effort is not wasted arranging travel, making contacts, or in having conversations with the wrong individuals, thus expending effort unproductively, and adding to the cost.
The schedule for the pursuit phase should also be clearly defined and bounded with the information needs the sales team identifies that best qualifies the company’s offer. Too much time equates to too much cost. It needs to be balanced with what is not just the unknown, but what is essential to be known in order to be successful.
II. 2 Proposal Strategy
The proposal itself, of course, has the most influence on B&P. How the proposal is developed needs to be given careful consideration to mitigate cost “creep” and budget overrun. Below we discuss some of the leading contributors.
II. 2. 1 Schedule Impact on Cost
Proposal Scheduling is an oft-debated subject. . . the question of when to start is always at hand. There are several choices, but schedule is still one of the largest cost contributors. Some prefer to wait until the solicitation is issued, others proceed based on Freedom of Information Act (FOIA) data or Agency issued draft. What is the right timing? One that gives you the greatest advantage over your competition is the easy answer, given your “need” to win, strategy, past performance, incumbency, and a hundred other variables. There simply is no “right” answer.
Additionally, the schedule needs to be controlled through the different phases of the solicitation. If we are the incumbent contractor, there is a tendency to begin either too early or very late. Too early adds unnecessary cost to the Pursuit Phase and is often information already in the company’s possession. Too late results in throwing too many resources at the proposal, resulting again in additional unprogrammed costs. Remember the adage – “nine women cannot make a baby in one month”.
Of course, the longer the proposal schedule, the higher the proposal cost. A 45-day proposal effort normally will be higher than a 30-day effort. Having said that, there are still some scheduling nuances to consider.
Just because the government gives offerors 45 or more days to prepare a response does not mandate you take all of that time. Many times, companies simply continue to polish the same words without adding real substance. Another contributor to this is extensions and Q&A. Sometimes it is easy for the Proposal Manager to want to keep the team together working “just in case”, even though there are no real impacts or changes required on the proposal.
Questions from the Government must be responded to in a timely manner, and usually come after the proposal team has started other projects, or, if consultants were used, have all disbanded and can add cost if they need to be reassembled to answer questions and revise the proposal.
If the effort is longer, say 45 to 60 days, care must be taken to ensure that authors are available for the whole duration, and that the team can stay engaged without adding multiple trips to home locations, or be distracted by other business (or personal) reasons. Each trip away does more than just add the cost of the travel to the B&P. It also adds the time to ramp up back to where the author was before he stopped writing, plus any time to grasp what has occurred in other sections or with the solicitation itself since his leaving.
In fact, I have seen proposal costs almost double from rotating multiple authors in and out during the proposal. This normally stems from using in-house resources that have a job other that proposal writer, who suddenly are pulled away to go do something else, leaving a void in the proposal team. By the time the new person is found, assigned, and gets up to speed, that person is essentially right where the other person was when he left off, but both people charge to the proposal and there is an additional schedule impact. (If the first person worked a week, and the second person worked a week learning what he did, then you have two weeks of charges but only the same week of schedule/proposal progress). Repeat this for five or six authors (and I have seen it happen more than that during a single proposal) and the costs add up quickly.
Also if there is an oral presentation in addition to a written proposal effort the team configuration and schedules must be controlled so as not to begin too early or too late (resulting in throwing more resources at it, thus increasing Proposal cost). You will most likely need two teams working in parallel, so that all of the materials match. This will almost certainly add cost, so it is essential that you learn there will be orals early on during the pursuit phase so that you can plan and budget accordingly.
The solution here is to craft a proposal schedule that accommodates the workload using only those resources needed at that point in the process where they have the most influence and are the most effective; and in knowing when the finish line has been crossed, regardless of time remaining.
II. 2. 2 Proposal Team Contribution to Cost
Tied to the above subject, author assignment can be a leading cost contributor to the proposal. In a company that uses existing project resources as authors, proposals always cost more than in companies that use internal technical writers or paid consultants. This is because they do not have to learn how to do a proposal while on a proposal.
Some companies also have team components that add to the cost and are questionable as to how effective they are or what they actually contribute. These sometimes are the Capture Manager or Executive Sponsor. I believe that these can be effective team members, but need to be limited to specific functions at specific times. Also refer to managing the effort, below.
II. 3 Proposal Approach / Methodology
This is where the bulk of the cost growth is incurred. Contributors are normally partly procedural, and partly the company policy that governs proposal cost. The leading causes of why proposals cost as much as they do are:
- There are too many people who believe they are managing the effort
- The right people are not accountable for the cost
- Using the wrong approach to staffing a proposal
- Outsourcing the entire proposal to an expensive proposal house
II. 4 How RFP Requirements and Approach Affect Cost
Each proposal approach needs to respond to the specific requirements of the solicitation, and not just use what we conveniently have on hand. This means that we cannot simply submit our operating plan, execution plan or use almost any other ready-made documents, but must carefully craft an answer to specific (most times complex) questions being asked as outlined in the proposal instructions.
An exception to this is preparing Standard Form 330 responses for A&E work, or proposals for contracts that are single function in nature such as a grounds maintenance, pest control, or Job Order Contracts.
The RFP itself sometimes contains unique requirements leading to higher cost. Is it an oral, or “Spoken” proposal effort? Severely page limited? Highly graphical response required?
Generally speaking, the more oral considerations a response has, the higher it’s cost. This is because not only do you need to prepare a written document, you now need to prepare additional presentation material and coach a team of key personnel, many of whom probably will incur living and travel expenses during preparation, and so costs almost double.
II. 5 Responsibility for Managing the Effort
This is a problem in the fact that many companies have too many cooks. There is the Sales Lead, the “Capture Manager”, the Executive Sponsor, the Operations Lead, and the Proposal Manager, all of whom believe they have responsibility and authority for proposal decisions.
There MUST be a clear division of responsibility in each of the five phases of business development (refer to my article of the same name), for the pipeline to remain full and robust. Once the Capture Manager or Sales lead makes the handoff to the Proposal Manager at the time of RFP release, his decision authority should be relinquished to the Proposal Manager, and he should return his attention to the next target in the Account Plan.
Because companies do not often handoff primary ownership from phase to phase through the life cycle properly they incur more cost than needed as they hold meeting after meeting to coordinate with persons who actually are now out of touch with the requirement (which is contained in the RFP), and to make group decisions that one responsible and accountable person can make.
Because these roles are not properly defined, companies waste money as many individuals try to do the same task.
Part III – Staffing for the Proposal
For some reason I have never been able to define, many companies think they need a gaggle of people to solve any problem or to write any section. They use everyone available, but many for only part time work. They assign people based on availability, and not on qualifications. They use “subject matter experts”, but many of these people do not write or otherwise contribute to the proposal, they just tell other people (assigned authors) what is important or what they should be writing about, with no regard to the solicitation, or clear rationale as to why, beyond a broad statement that they were there, they have xx years of experience, etc.
Some companies fall into the trap that a former contract employee is a SME with all sorts of (secret) operational details to share with the authors. However, the sales lead should already have all of this information (it should be in the Capture Plan) and it should be distributed to the authors in the proposal kick-off package.
Make no mistake, SMEs are sometimes critical to understanding a technical issue and should be made available at all times to the assigned authors, but only as the authors need their advice, not sitting in the same room day after day, charging to the proposal. SMEs should also be capable of writing any section within their area of expertise.
III. 1. 1 What is the Right Number of Proposal Staff?
The simple answer is not too many, but not too few. While this seems to oversimplify the answer, the most optimum approach is always to use a “core team” made up of the most qualified individuals you can find, using to a high degree consultants with a history of working together. The benefit to using a core team is that they keep lessons learned, communicate far more quickly and effectively, and can produce more work with less effort than lesser qualified personnel, especially those internal to the company with other daily duties to perform. I have made a fairly decent living over the years coming in behind a failed proposal team effort to rework the proposal from top to bottom (and doubling their original proposal B&P estimate), however, if proper resources had been allocated in the first place, this would have been avoided.
While working as the Director of Proposals in one large company, one of our proposals grew to over 45 people who were charging to the proposal. While after the fact it was argued that many of them charged only small amounts of time, it all adds up.
When proposal skills are not viewed as actual unique and difficult to master trade skills, but as tasks that can be accomplished on as “other duties as assigned” basis, it almost always leads to unnecessary cost.
Regardless of the solicitation being responded to, it always takes time to understand the requirement or task before responding. This time is sometimes referred to as “reading-in”, where the new author reads the solicitation requirement for familiarization. The problem stems from the fact that once he becomes educated enough to actually become productive, he is often replaced with another person who then follows the same cycle, thus effectively doubling cost for that duplicated period of time and effort.
Another area of cost creep is the issue that was previously discussed above regarding who is actually in charge of the proposal and its resources, On one proposal I witnessed, tasks that the Proposal Manager thought were being accomplished by one or another author were in fact also being done by someone else (reassigned by the Capture Manager) working outside of the proposal team. This added to the cost significantly, as now two people were charging for the same work, even though one was writing material that was never used in the proposal, as the assigned author was working in concert with the team, and thus had the most integrated response. This takes us into our next discussion, labor utilization.
III. 2 Labor Utilization / Cost of Overhead
This is an area where some companies simply add (perceived) cost to the proposal through policy. This is not to say it is wrong, just that one needs to understand the difference if we are to make fair comparisons. It is a “perceived” cost only in the regard that it is a difference in accounting principles only.
As an example, lets say that company A’s policy dictates that all personnel charge to the proposal even when performing the most perfunctory of administrative support tasks.
Company B however, has all of the same costs, but their policy causes them to account for them in a manner that gives the impression that they do it for less.
By charging their time directly to overhead and not a distinct proposal, the Sales Lead, Department Manager, Production staff, legal, Contracts Manager, and all administrative support is charged to normal every-day overhead – recovered through their General and Administrative (G&A) rate, and so does not appear in the proposal cost rollup.
III. 3 The Outsourcing of Entire Proposals
This is simply a great way to ensure the absolute maximum proposal cost possible. Period.
Still, outsourcing entire proposals, from time-to-time, may be the only way to produce a proposal. Sometimes the company is at their maximum capability when an opportunity presents itself, and the only way to respond is to outsource the effort to a qualified company that can provide additional capability on short notice.
If this is the case, it needs to be controlled and executed on a FFP basis, with quality levels and deliverables well defined, your company management deeply involved at all times, and should include penalties for failures set at multiple milestones. I also recommend a Schedule of Deductions (SOD) approach to managing subcontracted proposals.
I have seen more than one company outsource proposals only to place the proposal in the trash once received.
III. 4 Accountability for Controlling Costs
We finally come to the last point. . . just exactly who is accountable for the B&P anyway?
This should not one person, but a responsibility shared by the people involved in the lifecycle. The department manager is accountable for the entire B&P budget that has been allocated to the targets within the various Account Plans and Capture Plans. The Sales Lead/Capture Manager and the Proposal Manager must estimate their portion of the process for the expected timeframe required, to arrive at reasonable estimate of the entire effort.
Each must then be accountable to manage their individual effort to that number and to report variances as soon as possible to avoid going to the end of the cycle and learn the effort was two or three times higher than anticipated, robbing B&P dollars from other targets in the pipeline (it happens more often than one might think).
Segregating costs is also crucial to managing the B&P Pursuit and Proposal budgets. To develop a budget for pursuing a target, and then not report on the results, or hide the costs in another accounting structure is a path leading to an accounting nightmare at best, and a painful, if not punitive government audit at worst.
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