How to Price a Government Contract Bid (With a Worked Example)

Government contract pricing works best from the bottom up: add up your direct labor, fringe benefits, overhead, general and administrative (G&A) costs and profit, then check the total against what the agency has paid before. For service work, start with the Service Contract Act wage determination in the solicitation, because it sets the lowest wages and benefits you can pay. Then adjust for the contract type and for how the agency says it will judge price.

What follows is a method, not accounting or legal advice, and your own numbers will differ from the examples.

Government contract pricing starts with the contract type

Find the contract type in the solicitation first. It tells you who pays when the job costs more than planned. For more on the types, see IDIQ contracts and other contract types.

Firm fixed price vs. time and materials vs. cost plus

Firm-fixed-price. The FAR says an FFP price "is not subject to any adjustment" based on what the work actually costs you. If you underestimate, you absorb the loss. The FAR overhaul text agencies have adopted calls fixed-price types "the default and preferred contract types," so this is what most small businesses will see.

Time-and-materials and labor-hour. Here you bid fixed hourly rates for each labor category. The overhaul text says those rates "include wages, overhead, general and administrative expenses, and profit," which is exactly what a wrap rate calculates. T&M is allowed only when the agency can't estimate the work accurately, and it comes with a ceiling price the contractor exceeds "at its own risk." Labor-hour is the same deal without materials.

Cost-reimbursement. The government pays your allowable costs up to a ceiling, plus a fee. In a cost-plus-fixed-fee contract, the fee "does not change with actual cost." By law, that fee can't exceed 10% of estimated cost (15% for research and development work). These contracts need an adequate accounting system, and they can't be used for commercial products or services, so they're rare for a first bid.

Since an April 2026 executive order, agencies also need a head-of-agency justification for large contracts that aren't fixed-price. That's one more reason to expect fixed price.

How to build your price from the bottom up

Start with your costs, not a guess about what the winner will bid.

The five building blocks

1. Direct labor. The hours each person will spend on this contract, times their hourly wage. Estimate hours from the statement of work: square footage, visits, shifts or deliverables.
2. Fringe benefits. Paid time off, health and retirement benefits, and payroll taxes and insurance. On a service contract, the wage determination sets minimums for some of these.
3. Overhead. Costs that support the work but aren't billed hour by hour: supervisors, uniforms, training, vehicles, equipment wear.
4. General and administrative (G&A). Running the company as a whole: accounting, insurance, rent, software, bid and proposal time.
5. Profit (called fee on cost-type contracts). Your return for the risk. On a fixed-price bid, there's no official figure; the competition sets the ceiling.

Add other direct costs, such as supplies, travel or subcontractors, as their own lines.

What is a wrap rate? The formula

A wrap rate is the multiplier that turns a base wage into a fully loaded hourly price. There are two common ways to calculate it.

Wrap rate = fully loaded hourly price ÷ direct labor rate

Or build it up from your rates, where each rate is a percentage of the line above it:

Wrap rate = (1 + fringe rate) × (1 + overhead rate) × (1 + G&A rate) × (1 + profit rate)

A hypothetical example: a $30.00 direct wage with 30% fringe, 20% overhead, 10% G&A and 8% profit gives 1.30 × 1.20 × 1.10 × 1.08 = a wrap rate of about 1.85, or $55.60 an hour.

That's all a wrap rate calculator does; a four-line spreadsheet works fine. There's no official "average wrap rate for government contracts." Yours depends on your own costs, so work it out from your books instead of copying a number you saw online.

SCA wage determinations: the floor for service pricing

If the work is done by service workers such as janitors, groundskeepers, guards or clerks, the Service Contract Act (SCA) probably applies. It covers service contracts over $2,500, and the contractor must pay each covered employee at least the wages and fringe benefits the Department of Labor (DOL) has found prevail in that area.

What a wage determination sets

A wage determination (WD) is DOL's list of those minimums for one area. A standard SCA WD lists:

• An hourly wage for each job title, by occupation code (for example, 11150 Janitor).
• Health and welfare (H&W). As of September 2026, most SCA wage determinations list $5.92 an hour, or $5.42 an hour on contracts also covered by Executive Order 13706 (paid sick leave), which is still in effect. Revisions issued before August 2026 showed $5.55 ($5.09 with the sick leave order), and Hawaii's are different. The rate changes every year, so use the one in your solicitation's WD.
• Vacation. Two weeks after 1 year of service, 3 weeks after 5 years and 4 weeks after 15 years. Service with earlier contractors doing similar work at the same federal site counts.
• Holidays. A minimum of 11 paid holidays a year.
• Notes on paid sick leave, executive order minimum wages and uniforms.

DOL's fact sheet on SCA fringe benefits adds three rules that matter for pricing:

• H&W applies to all hours paid, including vacation, sick leave and holidays, up to 40 hours a week and 2,080 hours a year.
• You must meet it for each employee, not as an average across your staff. You can pay it as benefits or in cash.
• You can't raise the wage to cover it, and payroll taxes and workers' compensation don't count toward it.

The WD says the paid sick leave order applies to SCA contracts awarded on or after January 1, 2017. So a new bid will generally use the $5.42 rate and add paid sick leave: 1 hour for every 30 hours worked, up to 56 hours a year.

One more trap: if the current contractor's workers have a union contract, the next contractor generally must pay at least the wages and benefits in that agreement, and the WD will reference it.

How to find the right SCA wage determination on SAM.gov

The solicitation should include the WD that applies, usually as an attachment with a number and revision. SAM.gov publishes wage determinations: look one up by number, or search Service Contract Act WDs by state and county. Price from the revision named in the solicitation or its latest amendment, and if a service solicitation has no WD, ask the contracting officer. For where attachments sit, see how to read a government solicitation.

Worked example: pricing a small janitorial contract

Here's a simplified bid for a made-up requirement: nightly cleaning of a small federal office, a one-year base period plus option years, firm-fixed-price.

The assumptions: 2 full-time janitors (2,080 paid hours each, including holidays and vacation), a hypothetical WD wage of $18.00 an hour, H&W at $5.42, and both workers carrying over 2 to 4 years of service from the previous contractor, so each gets 2 weeks of vacation. A part-time fill-in covers 272 hours of vacation and sick days (2 × 80 vacation hours plus 2 × 56 sick hours).

That works out to about $11,708 a month, or $33.77 for each of the 4,160 full-time paid hours. Divide $33.77 by the $18.00 wage and the wrap rate is about 1.88. You can use this table as a simple government contract pricing template: swap in your WD rates, your hours and your real overhead.

Also check uniforms. The WD says employees can't bear the cost of required uniforms, so furnish them or reimburse the cost, and put that in overhead.

On September 28, 2026, FedReady's search showed 17 open notices under the janitorial services code (NAICS 561720), 10 of them set aside for small businesses.

Research what the government paid before

Your cost build tells you what you need to charge. Past prices tell you what the agency is used to paying, and contracting officers look at them too: the FAR lists comparing your price to "historical prices paid" and to the government's own cost estimate as ways to check whether a price is reasonable.

• USAspending.gov. Search past awards by NAICS code, agency and place of performance, with no account needed (what USAspending.gov is). Open an award to see who won, the dollar amount and the dates. An award amount often covers several years, so divide by the period of performance before you compare it to your annual price. For a step-by-step walkthrough, see how to use USAspending.gov.
• GSA's CALC+ ceiling rates. For professional services billed by the hour, CALC+ shows hourly rates awarded on GSA Multiple Award Schedule contracts. GSA describes them as "not-to-exceed 'ceiling' prices," and access "does not require user credentials." Orders can be priced below the ceiling, so treat these as an upper benchmark. See what a GSA Schedule is for how those contracts work.
• The incumbent. If a notice replaces an existing contract, the previous award is your best comparison. See how to find government contracts for more research tools.

Paid FedReady plans include a labor rates tool that searches GSA CALC+ ceiling rates by job title, and free accounts can look up past awards from USAspending in market research. You can create an account to try them.

How will the agency judge your price?

The solicitation's evaluation section (Section M in a traditional RFP) tells you how price will be weighed. Under the FAR overhaul text, price or cost must be evaluated in every competitive source selection, with narrow exceptions. The common approaches:

• Lowest price technically acceptable (LPTA). The agency sets a pass/fail bar and awards to the lowest price that clears it. No tradeoffs. Outside the Defense Department, it's allowed only when the requirement can be clearly described and exceeding the minimum adds little value. Those contracting officers must also avoid it, as far as practicable, for IT, cybersecurity and other knowledge-based professional services, so you're more likely to see it on routine work.
• Best value tradeoff. The agency can pay more for a better proposal, but "the anticipated benefits of a higher priced proposal must merit the additional cost." A strong technical approach can win without the lowest price.
• Highest technically rated with a fair and reasonable price. New in the FAR overhaul text: the agency picks the best proposal, then checks that its price is fair and reasonable.

Price realism: when too low hurts you

On fixed-price competitions, both FAR texts let agencies run a realism check in exceptional cases, such as when the requirement may not be fully understood or past low bids led to poor service. The agency won't change your price. But a price that looks unrealistic can be scored as a performance risk. If the evaluation criteria mention "realism," expect the evaluators to compare your labor hours and wages with the work described.

Common government contract pricing mistakes

Option years and SCA escalation

Many service contracts run for a base year plus option years. When the agency expects to use the options, the FAR says it evaluates offers including them, so option-year prices count toward whether you win.

At each option, the contracting officer adds the newest wage determination to the contract. The FAR's SCA price adjustment clause for option and multiple-year contracts (FAR 52.222-43, which the FAR overhaul text keeps) then adjusts your price for the higher WD wages and fringe benefits, plus the related payroll taxes and workers' compensation. It doesn't "include any amount for general and administrative costs, overhead, or profit," and it doesn't cover your supplies, rent or salaried managers. You must also notify the contracting officer within 30 days of receiving a new WD. So build a sensible escalation into each option year for the costs the clause won't touch, and track WD changes closely.

Line items (CLINs) and unbalanced pricing

Section B, the price schedule, lists the contract line items (CLINs) you must price. Price each one on its own costs. The FAR overhaul text warns that unbalanced pricing, where a line is "significantly over or understated," raises risk, especially when startup work or base and option periods are priced separately, and such an offer may be rejected.

When to get help with pricing

A pricing mistake on fixed-price work comes out of your pocket, so get a second pair of eyes before your first bid. APEX Accelerators offer no-cost, one-on-one help to businesses selling to the government, and their listed services include help with solicitation packages and understanding pricing. Ask your local center whether it can review your price build. For tax treatment, benefits plans or accounting systems, talk to your accountant, especially before bidding on T&M or cost-reimbursement work.

Next steps

Read the solicitation's price schedule and evaluation criteria with how to read a government solicitation, then pick a small first target using how to win your first federal contract. If you're still deciding which contracts suit you, government contract examples for small businesses shows where others start.

This guide is general information, not legal or financial advice. Rules and thresholds change, so confirm details on SAM.gov and the official agency sites linked above before you act. FedReady is an independent company and is not affiliated with any government agency.