We're working on a grounds maintenance Invitation for Bid (IFB) for a county park system. It's for NAICS 561730, Landscaping Services, and it's a full and open competition. The IFB asks for a fixed price for a base year and then four option years, all priced now. Our internal pricing model shows that if we accurately forecast wage increases and fuel costs over five years, our year one price looks too high. We've been told by others that we need to be competitive in the base year, but then we risk losing money in later years if costs go up significantly. We've also seen some federal services contracts with clauses for economic price adjustment. How do you approach pricing a five-year fixed-price services bid like this without pricing yourself out of the first year, especially when you know wages and fuel will fluctuate? Does a wage determination update on a Service Contract Act-covered contract allow for price adjustments?
How do you price a five year fixed price services bid when wages and fuel will move?
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You price a five-year fixed-price services bid by building in your anticipated cost increases for future option years. A firm fixed price (FFP) contract places maximum risk and full responsibility for all costs on the contractor. For this county park system Invitation for Bid (IFB), you need to factor in your estimated wage and fuel cost increases across all five years. This will make your base year price higher than if you only considered current costs. The low bidder often gets this wrong and takes a loss in later years. Federal services contracts may include economic price adjustment clauses, but this is a county contract. The county procurement rules will govern whether an economic price adjustment is allowed. A wage determination update on a Service Contract Act-covered contract does not automatically allow for a price adjustment on a fixed-price contract. The contract terms must specifically allow for such an adjustment.