Pricing Strategy

When you're preparing a bid or evaluating submissions, your pricing approach isn't just about picking a number. It's a deliberate plan that balances competitiveness with cost recovery, aligned to the contract type and market conditions. Get it wrong, and you'll either price yourself out or leave money on the table.

How It Works

The Government of Canada's Supply Manual Chapter 6E outlines the core pricing structures you'll encounter. Firm Price contracts lock in a set amount—straightforward for well-defined requirements with minimal risk. But even firm price deals can include economic price adjustments when contracts extend beyond a year and material or labour costs fluctuate significantly. Chapter 6C details how these adjustment clauses work, protecting both parties from market volatility.

Cost reimbursable arrangements operate differently. With Cost Reimbursable with Fixed Fee, the government pays actual allowable costs plus a predetermined fee. The Cost Plus variant bases that fee on actual costs incurred. PSPC typically reserves these structures for complex work where scope uncertainty makes fixed pricing impractical—think R&D contracts or specialized professional services. The catch is they require serious financial discipline. The Canadian pricing framework governing these arrangements combines contract cost principles with PSPC's profit policy, establishing what costs qualify as allowable and how profit margins get determined.

Standing Offers and Supply Arrangements handle pricing differently at the instrument level. Standing Offers fix terms including price during the initial bidding process. Supply Arrangements, however, allow suppliers to adjust pricing at the second stage when responding to specific call-ups. According to the Procurement Ombudsperson's 2009-2010 analysis, this flexibility lets suppliers reflect market changes, new technology, or innovation in their bids—though it also means procurement teams need to re-evaluate value at each call-up.

Federal buyers increasingly look beyond initial price. The best value approach considers delivery dates, service levels, life-cycle costs, and technical merit alongside sticker price. Treasury Board policy has long emphasized this total cost of ownership perspective, particularly for complex requirements where upfront savings might create expensive downstream problems.

Key Considerations

• Contract duration matters for pricing structure. Firm price works well for short-term, stable requirements. Once you're looking at multi-year deals with exposure to commodity price swings or wage increases, economic price adjustment clauses become necessary—not optional.

• Your pricing approach must align with risk allocation. If the government wants flexibility to change scope or can't fully define requirements upfront, insisting on firm pricing creates problems. Cost reimbursable structures shift risk appropriately but demand rigorous cost tracking and transparent financial management.

• Trade agreement thresholds apply differently across instrument types. For Supply Arrangements, the applicable threshold gets assessed at the second stage based on individual contract value, per PWGSC Supply Manual interpretation. This affects which suppliers can compete and what procedural requirements apply.

• Best value isn't a license to ignore price. Non-cost factors need to demonstrably contribute to better outcomes. Evaluations must be defensible and clearly documented, especially when accepting higher-priced bids. PSPC and other major departments face scrutiny on these decisions—both from internal audit and the Procurement Ombudsperson.

Related Terms

Firm Price Contract, Cost Reimbursable Contract, Standing Offer

Sources

• Supply Manual Chapter 6E: Contract Pricing

• Supply Manual Chapter 6C: Price Adjustment Clauses

• Procurement Ombudsperson: Best Value in Procurement

Your pricing decisions set expectations for the entire contract lifecycle. Choose the structure that matches your requirement's risk profile and market reality, not just what feels administratively easiest.