Many contractors come into government contracting thinking profit can be bid at normal commercial profit levels. While this may be the case depending on level of competition and your overall price relative to other competitors, in non-competitive scenarios, the government follows other general profit numbers. Suffice it to say, the Government rarely awards a contract with a profit above 15.00% in non-competitive acquisitions.
Typically speaking, the acquisition team will use what is called the “Weighted Guidelines Method”. This method focuses on four factors that affect profit. Those are Performance Risk, Contract Type Risk, Facilities Capital Employed, and Cost Efficiency. The contracting officer assigns a weight (percent) and value to each of these profit factors and in the end, an overall profit percentage is identified as a negotiation target. The weighted guidelines method can be found at DFARS 215.404-71.
As a general rule, each contract type has a range as follows:
Cost Reimbursable (to include CPFF) – 4-8%
Time & Material – 6-9%
Fixed Price – 8-12%
The performance risk and contract type risk, along with required capital and any potential cost efficiencies, will determine whether your award will be at the top of bottom of those general spectrums.