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Breakout Session # 1006 Joel McMains, CPCM Date April 24, 2007 Time 3:20 to 4:20

Pricing Strategies. Breakout Session # 1006 Joel McMains, CPCM Date April 24, 2007 Time 3:20 to 4:20. Pricing Strategies . Contracts with Commercial Organizations FAR 31.201 Commercial Target Pricing. Pricing Strategies. Government buying from Commercial entities

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Breakout Session # 1006 Joel McMains, CPCM Date April 24, 2007 Time 3:20 to 4:20

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  1. Pricing Strategies Breakout Session # 1006 Joel McMains, CPCM Date April 24, 2007 Time 3:20 to 4:20

  2. Pricing Strategies • Contracts with Commercial Organizations • FAR 31.201 • Commercial Target Pricing

  3. Pricing Strategies • Government buying from Commercial entities • Full and open Competition driving price • Commercial entities pricing for commercial buyers • Flexibility to adjust pricing quickly to remain competitive with the market place. • Multiple opportunities to take a bite out of the apple

  4. Pricing Strategies • Commercial entities pricing for government buyers • One shot at award so pricing needs to be right • Risk of technical leveling to remove competitive non-price advantages • Lack of follow on contract to help absorb initial costs

  5. The Same Number – A different point of view - • Target Price Development • Cost is always the driving factor with profit being subject to the degree of risk. • Contract type dictates the risk. • In Government, Government dictates the contract type, • In Commercial world Vendor has more control over contract type

  6. The Same Number – A different point of view - • Pricing strategies • Market Share • Profitability

  7. The Same Number – A different point of view - • Pricing Drivers • Use of Networks • Construction of the Network crucial • Cost controlled through negotiation and opportunity management • Steerage • Integral part of controlling spend to maximize cost efficiency

  8. The Same Number – A different point of view - • Quantity Discounts • Government - Pre-negotiated Step or Tiered pricing locked at award • Commercial- More Flexibility • take advantage of economies of scale and • adjust pricing on the fly based on market share for new business as well as exiting business

  9. The Same Number – A different point of view - • Reasonableness- Eye of the beholder. • Government has guidelines, • Commercial business it is more negotiated • Allocability- should be applied the same for both • GAAP vs. DCAM • Terms of the contract • Government Mandates, • Commercial Negotiates.

  10. Best Practices • Forecasts -Timeliness of the data is critical to competitive pricing and the ability to adjust the forecast due to unforeseen economic changes also helps in controlling pricing and preventing dilution of profit. • Success ratio • Percentage of total business

  11. Conflicting Practices • Forecasting versus preprocurement information • Forecasting is Strategic while pre-procurement information is tactical • Relationship building • Commercial teams with stakeholders

  12. Conflicting Practices • Procurement integrity issues • Government maintains arms length relationship to ensure even the perception of impropriety is avoided • Exit strategies • Government contracts, Government controls termination scenarios, • Commercial- Vendor has more control over termination scenarios.

  13. Challenges versus Rewards • Manufacturing Base • Contractor corps • Largest budget component

  14. ROI and Profitability • Return on Investment for additional effort • Is the juice really worth the squeeze? • Yes but … • with the Government the extra effort has to be done on the front end, • on the commercial side extra effort and creativity can bring value at anytime.

  15. ROI and Profitability • Reasonable profit from both sides • Stakeholders getting their monies worth? • Opportunity costs to commercial side

  16. Conclusions • Is win-win really possible? • Always possible but needs to be managed. • There has to be the desire by both sides for a win-win outcome to be realized

  17. Questions • Joel P. McMains • 904-519-6656 • jpmcmains@aol.com • Joan Wysoske • 563-343-0041 • wysoske@aol.com

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