How to Set Your Bid Price: The Method to Stay Competitive Without Losing Money

Caroline bids often, but one question haunts her every time: at what price? Too high, and she loses out to a competitor. Too low, and she lands the contract... only to discover mid-execution that she's working at a loss. Setting the price of a bid isn't a gamble: it's a methodical construction.

The founding rule: you build the price from the bottom up

The worst method is to guess your competitor's price and slot in just below it. You have no idea what their cost structure looks like, and you risk aligning yourself with a mistake, theirs or your own. The right method starts from your numbers and stacks four layers:

1. Direct costs. Everything the contract consumes directly: assigned labour, materials, equipment, subcontracting, travel.
2. Overhead. The share of structural costs (administration, premises, insurance, tools) that this contract must carry.
3. Margin. Your target profit, consistent with your sector and the risk taken.
4. Risk provision. A cushion calibrated to the specific uncertainties of this contract.

The bid price is the sum of the four. You'll then know your floor price (below which you lose money) and your target price (the one that pays you properly). Everything else is a judgment call.

Layers 1 and 2: never forget a cost

Underestimating costs is the leading cause of unprofitable contracts. Two traps come up again and again:

Read the technical specifications with these costs in mind. Every requirement in the tender specifications has a price; your job is to cost it out before you forget it.

Layer 3: the margin depends on the award method

This is where strategy comes into play, and it depends directly on how you'll be evaluated. Identify the method as soon as you read the file, because it dictates your room to manoeuvre:

• At lowest compliant price, the contract goes to the cheapest compliant bid. The quality of your file remains essential for clearing the technical and administrative requirements and, sometimes, a minimum quality threshold; but quality beyond what is required generally doesn't offset a higher price. It's a battle of costs, where your advantage is won on the efficiency of your structure.
• In quality-price, read the award formula. Depending on the regime, quality serves as a minimum threshold, an overall score, or a coefficient that adjusts the price, in which case lowering your price genuinely can improve your ranking. A higher price can win if the quality advantage offsets the gap. The right strategy isn't to cut blindly, but to set the best sustainable price within the formula laid out in the documents.

We break down the mechanics of these two logics in the guide to award methods. Hold on to the principle: you don't set the same margin depending on whether you're playing price or value.

Layer 4: provision for risk, don't ignore it

Every contract carries uncertainties: estimated quantities, site conditions, tight deadlines, dependence on a subcontractor. Rather than hoping everything goes smoothly, cost out these risks and add a proportionate provision. A highly uncertain contract deserves a thicker cushion, even if it makes you less competitive on the posted price. Better to lose a risky contract than to win it without a safety net.

Positioning yourself against the competition, intelligently

Knowing your costs doesn't excuse you from watching the market: it only tells you how far you can go. To fine-tune your price within the range between floor and target, the most useful information is the history of similar contracts. Opening results and awarded contracts are published on SEAO: they give useful reference points (successful bidder, amount, sometimes the bidders' prices, number of competitors). Depending on the award method, they don't always reveal every price or the quality scores, which is why you read them for a ballpark, not as a full picture. That's exactly the work we describe in the article on how to analyze the competition before bidding. Use these reference points to position yourself, never to replace your own calculation.

The winner's curse

There's a mathematical trap specific to calls for tenders: in a price battle, the winner is often the one who most underestimated the true cost. Winning a contract because you forgot an expense isn't a victory, it's a delayed debt. That's why a disciplined tenderer defends their floor price: they'd rather lose a contract than win it below cost. The profitability of a portfolio of bids is built on that refusal.

What to remember

A bid price is built from the bottom up (direct costs, overhead, margin, risk provision) and never by copying the competitor. The award method sets your margin strategy: a cost war at lowest price, value in quality-price. Use the public history to position yourself within your range, provision for risks instead of ignoring them, and hold your floor price. The goal isn't to win the most contracts, it's to win the right ones at a price that pays you.

Sources

• Principles of pricing and cost management when responding to public contracts (direct costs, overhead, risk provision).
• Act respecting contracting by public bodies (CQLR, c. C-65.1) and its regulations: award methods (lowest price, quality-price) and verification of bids.
• Québec's electronic tendering system (SEAO), seao.gouv.qc.ca: publication of award results (contract reference).