Who Owns the Risk Now? Navigating Procurement Change in Federal Contracting
In today’s federal market, risk isn’t just something contractors manage after the award — it’s something they bid on.
The ongoing shift toward fixed-price contracts, driven by deregulation and commercial procurement reforms, is changing the way risk is distributed between government and industry. And while most PTW models track cost, few account for how dramatically risk assumptions are changing — or how unevenly they’re felt across competitors.
This is the new battleground for government contractors: understanding risk profiles, modeling them intelligently, and pricing them strategically.
Differentiating between the 3 Types of Risk in GOVCON Bidding
To price competitively today, you must understand that not all risk is created equal. In PTW modeling, we break risk into three distinct forms:
Compliance Risk: Will our bid meet the RFP’s exacting requirements? This is the binary risk — you’re either compliant, or you’re not.
Evaluation Risk: Will our solution and pricing be evaluated favorably? This includes factors like realism scoring, risk tradeoffs, and discriminators.
Operational (Performance) Risk: Can we execute the work at the bid price — and still maintain margin?
Most firms are comfortable addressing compliance and evaluation risk during proposal development. But it’s the third category — performance risk — that’s being reshaped under the new environment.
What Happens When the Contract Type Changes
Under the current procurement reform, Commercial Solutions are the default acquisition path, with a shift towards more fixed-price type contracts. And that’s not just a commercial shift — it’s a structural realignment of risk.
As contracts move from Cost-Plus to FFP, risk shifts to the contractor as the requirements become more defined:
Under Cost-Plus, performance risk lives with the Government. Requirements can be fuzzy, scope can shift, and the contractor can be made whole.
Under FFP, that risk moves squarely to the contractor. The bid price becomes a hard ceiling. There’s no margin for vague SOWs or scope growth.
Instability Inside the Procurement Machine
The challenge? At the same time that risk is being offloaded, the capacity of the Government to define refined requirements is diminishing. There are fewer contracting officers, high turnover, and shrinking program management benches due to workforce cuts and early retirements.
So contractors are now being asked to price tighter, with less definition, and absorb more performance uncertainty — a perfect recipe for margin erosion, unless it’s priced and modeled properly.
In short: the Government is asking for clearer pricing — but offering less clarity in return.
That disconnect creates real performance risk. And the firms that will win in this environment are those that can model uncertainty, not just scope.
What This Means for PTW
The role of PTW — especially in today’s risk-sensitive environment — is to model the competition, forecast where they’re likely to price, and determine the price your company must bid to win.
That means understanding how competitors will evaluate risk, how that will influence their cost posture, and how far they’re willing to stretch on fee and execution assumptions.
In fixed-price, ambiguity-heavy environments, the most competitive contractors will:
Model pricing scenarios that reflect varying degrees of requirement clarity
Identify asymmetric risk positions — areas where the company can accept more risk than others and use that to justify a more aggressive bid
This is where Bottoms-Up PTW becomes essential. By grounding the analysis in a WBS-based BOE, you can simulate how each competitor will build their price: from labor composition and sourcing strategies to fee profiles and indirect recovery pressure. Using probability distributions and sensitivity analysis, PTW teams can define plausible pricing ranges and competitive thresholds. That data-driven model gives you a realistic view of what others will do — and what you’ll need to do to win.
It’s not about finding the lowest price. It’s about identifying the awardable price — and understanding the competitions’ pathway to get there.
Final Thought
The federal market isn’t just shifting toward FFP — it’s shifting toward uncertainty. And your ability to model and price that risk may be the most important differentiator you have.