Pricing schedules in public sector: when fixed beats variable

In public sector procurement, your commercial response is where the bid is won or lost. You can score top marks on quality, but if your pricing schedule exposes too much margin or fails to align with the buyer's evaluation model, you will not secure the contract. For UK SMBs bidding into central government, local authorities, or the NHS, understanding how to structure your pricing is a critical commercial skill.

This guide breaks down how to approach tender pricing schedules, with a specific focus on when to use fixed pricing versus variable rate cards. We look at how buyers evaluate commercial responses under the Procurement Act 2023, the mechanics of relative scoring formulas, and how to defend your margin while remaining competitive.

What this guide covers

The shift from MEAT to MAT and what it means for commercial evaluation.
How relative price scoring formulas work in practice.
The mechanics of fixed price versus time and materials contracts.
Why rate card pricing often exposes SMBs to margin erosion.
A worked example of a commercial scoring scenario.
Common mistakes in public sector pricing schedules.
Frequently asked questions about tender commercials.

The shift from MEAT to MAT

Under the Procurement Act 2023, the basis for awarding public contracts shifted from the Most Economically Advantageous Tender (MEAT) to the Most Advantageous Tender (MAT). This is not just a semantic change. It signals a clear intent from the Cabinet Office that contracting authorities do not have to award contracts based on the lowest price [1].

While price remains a heavily weighted factor—often sitting at 30% to 40% of the overall score—buyers are encouraged to look at the whole-life cost of a solution and the wider value it delivers. For SMBs, this means your pricing schedule must reflect credible delivery and value for money, not just a race to the bottom.

When you open a tender pack, the pricing schedule (often found in Schedule 3 of the framework documents) will dictate how you must present your costs. This could be a fixed fee for a defined outcome, a schedule of rates for specific tasks, or a day rate card for professional services. Understanding which model the buyer has chosen—and how they will score it—is your first step in building a commercial response.

Authorities choose their quality versus price split to reflect where they expect the main sources of value and risk to sit. Service-heavy, complex, or safety-critical contracts typically attract higher quality weightings. More standardised goods or tightly specified services may justify a stronger emphasis on price, because there is less scope to differentiate the solution. Government guidance stresses that these decisions, and the underlying award criteria, should be transparent and clearly linked to the outcomes the buyer is seeking [2].

For you, the weighting is a strategic signal. A quality-heavy tender calls for deeper solution design and highly developed written answers that track the scoring scale closely. A price-heavy tender requires very disciplined commercial modelling, supported by concise quality responses that still demonstrate credible delivery and value for money.

Price is rarely just a single figure either. Depending on the contract, evaluators may look at total contract value, a schedule of rates, unit prices, discounts, and any indexation or risk allowances. Increasingly, authorities are encouraged to assess whole-life costs, not just the upfront fee, so ongoing maintenance, training, and disposal may also be in scope, as highlighted in Cabinet Office guidance on assessing competitive tenders [2].

Most tenders explain a price scoring formula. A common approach is to give full marks to the lowest evaluated price and award other bidders a proportion of those marks based on how far above that level they are. Some authorities use variants such as price bands, capped price ranges, or "price per quality point" to reduce the risk of extreme scores and support better value for money.

You will also see rules for handling abnormally low tenders. These protect buyers against unsustainable pricing and help maintain fair competition. For bidders, the key is to understand exactly how your pricing will be translated into marks, then decide how far you are willing to trade margin against additional score in the overall quality versus price balance.

How relative price scoring works

Most UK public sector tenders evaluate price using a relative scoring formula. The most common approach gives maximum marks to the lowest-priced compliant bid. Every other bid then receives a score proportionate to how much more expensive it is than the cheapest option [3].

For example, if the lowest bid is £100,000 and scores 100% of the available commercial marks, a bid of £120,000 (which is 20% more expensive) might lose 20% of the marks.

This relative scoring creates a high-stakes environment. You cannot know what your competitors will bid, which means you cannot know exactly how your price will score. If a competitor submits an abnormally low tender, it skews the entire scoring curve, potentially wiping out the commercial marks for all other bidders.

To navigate this, you must model your pricing aggressively but realistically. Do not just look at your base costs and add a standard margin. Look at the buyer's budget, analyze past spend data on similar contracts, and stress-test your pricing against different competitor scenarios.

There are a great many methods that can be used to convert costs into scores. One major difference between cost-scoring methods is whether the way that each bid's cost is scored depends on the costs of other bids. If the way that a bid's cost is scored does not depend on other bids' costs, we call it absolute scoring; if it does depend on other bids' costs, we call it relative scoring [3].

The use of any type of relative scoring method comes with significant drawbacks. Using a relative scoring method means that a buyer will only know how a particular cost will score after it receives the bids, knows the costs of all bids, and therefore how the scoring method works in detail. This makes it much more difficult for the buyer to ensure that the scoring method is going to have the desired outcome.

Fixed price versus variable rate cards

When structuring a pricing schedule, the fundamental choice is often between a fixed price and a variable rate card (time and materials).

The case for fixed pricing

A fixed-price contract sets a defined cost for a specified outcome. The buyer gets certainty, and the supplier takes on the delivery risk. In the public sector, fixed pricing is highly attractive to buyers because it caps their financial exposure.

For SMBs, fixed pricing can be highly advantageous if you have a mature, efficient delivery model. If you can deliver the outcome faster or more efficiently than your competitors, you can protect or even increase your margin within that fixed price.

Fixed pricing works best when:

The scope of work is tightly defined and unlikely to change.
You have historical data to accurately estimate the effort required.
You are delivering a productised service or a repeatable methodology.

A fixed price approach can be more expensive because the supplier owns most of the risk. It works best when your requirements are well defined so the supplier can provide an accurate quote without incorporating extra costs [4]. The supplier must do all the work you specify in each particular statement of work within the time you agreed it would take.

The risks of rate card pricing

Variable pricing, typically presented as a SFIA (Skills Framework for the Information Age) rate card or a schedule of day rates, shifts the delivery risk back to the buyer. You bill for the time spent, regardless of the outcome.

While rate cards might seem safer because you are guaranteed payment for your time, they often expose SMBs to severe margin erosion. In a competitive tender, buyers will evaluate the rate card by comparing your day rates against your competitors. This drives day rates down.

Furthermore, rate cards do not account for the complexity of mobilisation, security clearance premiums, or the cost of retaining staff on long-term programmes. If you price a day rate too low to win the bid, you may find it impossible to resource the contract profitably.

As noted in industry analysis, treating day rates as static is a critical error. Rates are rarely static in public sector DDaT. They shift based on Inside vs Outside IR35 status, security clearance level (SC, eDV, NPPV), and SFIA grade inflation. A generic "market rate" is meaningless without those variables [5].

Ignoring clearance premiums is another major risk. Cleared talent is not just a supply issue. It is a lead time and risk issue. If 70–80% of your programme requires SC or above, your rate model must reflect clearance scarcity, transfer dependency, mobilisation lag, and retention risk in long programmes. Failing to model this correctly can result in a bid that looks competitive on paper but collapses during onboarding [5].

Overlooking IR35 structure at the team level is also dangerous. Inside/Outside IR35 modelling is not about individual roles. It is about team composition. Public sector programmes often require a mix of Outside IR35 technical specialists, Inside IR35 operational roles, and permanent delivery leadership. If this is not stress-tested pre-tender, you risk margin erosion, contractor churn, and inconsistent team stability [5].

A time and materials approach means you own more of the risk. The supplier can send a pricing matrix showing how long they need to provide the work. If it takes longer to do the work defined in a statement of work, you pay the day rate and expenses for any extra days worked [4].

Structuring a winning price schedule

When you fill out the pricing schedule, clarity and compliance are non-negotiable. If the buyer asks for a fixed fee broken down by milestones, do not submit a day rate card. If they ask for unit costs, do not bundle them into a lump sum.

Map costs to the specification: Ensure every element of the specification is accounted for in your pricing. If the buyer asks for a specific deliverable, there must be a corresponding line item in the schedule.
Account for indexation: Public sector contracts can run for up to seven years. Ensure you understand how inflation will be handled. Are prices fixed for the duration, or is there an annual uplift linked to CPI or RPI?
Build in risk contingencies: Do not hide risk contingencies in your base rates. If the pricing schedule allows, line out risk allowances clearly. This shows the buyer you have a mature understanding of the programme's complexity.
Leverage volume discounts: If appropriate, use volume discounts to show value for money at scale. This can make your bid highly attractive if the buyer anticipates high usage.

Pricing schedules can be simple or complex. Some might have just a few items, while others could list hundreds of products, options and take some real time to get to grips with. Within public sector tenders the benefit is that will come with instructions and you have the chance to ask clarification questions to ensure you have a full understanding of the pricing requirements [6].

Remember, prices in a schedule might change based on factors like market conditions, raw material costs, and labour rates. Check the terms within the tender pack to make sure you understand whether prices will be fixed or linked to inflation, for example. If this is not clear, ask the question.

The base price is the starting point for your pricing schedule. It is the standard cost for your product or service before any discounts or adjustments. When setting your base price, look at your costs and desired profit margin, check what competitors charge, and think about what similar customers are willing or able to pay. Your base price should cover your expenses and leave room for profit. It is smart to review and update it regularly as costs change. You want to win the tender but it needs to be sustainable and worth the effort of bidding.

Worked example

Let us look at a commercial evaluation scenario for a professional services contract on a Crown Commercial Service framework. The buyer has allocated 40% of the total score to price.

The evaluation formula is: (Lowest Bid / Your Bid) x Maximum Price Score

The Bids:

Bidder A (Lowest): £500,000
Bidder B (You): £550,000
Bidder C: £650,000

The Scoring:

Bidder A: (£500,000 / £500,000) x 40 = 40.00 points
Bidder B: (£500,000 / £550,000) x 40 = 36.36 points
Bidder C: (£500,000 / £650,000) x 40 = 30.76 points

In this scenario, being £50,000 more expensive than the lowest bidder costs you 3.64 points. You now know exactly how much ground you need to make up in the quality evaluation to win the contract. If your quality score is 4 points higher than Bidder A, you win the contract despite being more expensive.

This illustrates why you should not blindly discount your price to win. If discounting your price by £50,000 destroys your margin, but you are confident your quality response can outscore the cheapest bidder by 4 points, you hold your price.

Commercial scoring is how the buyer evaluates the financial part of your bid. This is usually outlined in the bid documents. There is often a section explaining how the scores are calculated. Be aware that buyers can exclude unusually low bids, which are typically 10-25% lower than the next lowest bid. This means buyers have a good idea of what the market rates should be, based on their benchmarking exercises. So, make sure your pricing is competitive but realistic [7].

You might think that lowering your price is the best way to win a tender, but that is not always the case. Public sector contracts can last up to 7 years, so it is crucial to ensure your pricing is sustainable over the long term. You have the option to hold your prices fixed throughout the contract term, or to take an annual increase as set by the council/buyer. Depending on your service or solution this could be 2-25% annual increase [7].

Instead of just slashing prices, focus on offering value for money. Highlight the quality of your services and any unique benefits you provide. Remember, it is not just about being the cheapest; it is about being the best value.

If you hold your market rate at £100 which is advertised on your website, but then offer a rate of £80 for businesses that you are responding to 12 months sales proposals, then could £75 for year 1 of a 3 year deal be viable for your business? The answer would be a resounding YES if your cost is £20 but an obvious NO is your costs are £70 [7].

Common mistakes

Treating day rates as static. Bidding a generic market rate without factoring in IR35 status, security clearance requirements, or mobilisation lag. Instead: Build a dynamic rate model that accounts for the specific resourcing risks of the contract. A generic market rate is meaningless without those variables [5].
Ignoring the evaluation formula. Pricing the bid without running scenario models to see how your price will actually score against likely competitors. Instead: Stress-test your pricing using the buyer's exact scoring formula before submission. The use of any type of relative scoring method comes with significant drawbacks, and bidders may not be able to work out which of their options is the best to offer [3].
Hiding costs in lump sums. Failing to break down fixed prices into the component parts requested by the buyer, leading to a non-compliant bid. Instead: Follow the pricing schedule structure exactly, mapping every cost to a specific requirement.
Failing to plan for inflation. Submitting fixed prices for a multi-year contract without understanding the indexation clauses. Instead: Clarify the inflation mechanism during the Q&A period and model your year-three and year-four costs accordingly. Public sector contracts can last up to 7 years, so it is crucial to ensure your pricing is sustainable over the long term [7].
Submitting an abnormally low tender. Pricing so low that the buyer flags the bid as unsustainable and excludes you from the process. Instead: Ensure your pricing is credible, defensible, and clearly linked to an efficient delivery model. Buyers can exclude unusually low bids, which are typically 10-25% lower than the next lowest bid [7].
Overlooking clearance premiums. Failing to model the scarcity and lead time of cleared talent. Instead: If a significant portion of your programme requires SC or above, your rate model must reflect clearance scarcity, transfer dependency, and mobilisation lag [5].
Ignoring team-level IR35 structures. Modelling IR35 status for individual roles rather than the team composition. Instead: Stress-test your team composition pre-tender to avoid margin erosion, contractor churn, and inconsistent team stability [5].

Frequently asked questions

What is an abnormally low tender?

An abnormally low tender is a bid that is significantly lower than the market average or the buyer's budget. Under the Procurement Act 2023, buyers must investigate abnormally low bids. If you cannot prove that your pricing is sustainable and capable of delivering the contract, your bid can be rejected. Buyers can exclude unusually low bids, which are typically 10-25% lower than the next lowest bid [7].

Should we always bid the lowest price?

No. With the shift to the Most Advantageous Tender (MAT), buyers are looking for value, not just the cheapest option. If your quality response is strong enough, you can win contracts while being more expensive than the lowest bidder. The overall basis of award is now referred to as the MAT, rather than MEAT. This is to clarify and reinforce for contracting authorities that tenders do not have to be awarded on the basis of lowest price/cost, or that price/cost must always take precedence over non price/cost factors [1].

How do we handle rate card evaluations?

When buyers evaluate rate cards, they often use a blended rate or a sample scenario. You must understand exactly which roles and grades carry the most weight in the evaluation and price those specific lines competitively, rather than applying a flat margin across the board.

Can we negotiate the pricing schedule?

Generally, no. In a competitive tendering procedure, you must submit your pricing exactly as requested in the schedule. Any deviation or qualification of your pricing can render your bid non-compliant.

When should we use fixed pricing?

A fixed price approach works best when your requirements are well defined so the supplier can provide an accurate quote without incorporating extra costs. The supplier must do all the work you specify in each particular statement of work within the time you agreed it would take [4].

When should we use time and materials?

References

[1] Guidance: Assessing Competitive Tenders (HTML) - GOV.UK. https://www.gov.uk/government/publications/procurement-act-2023-guidance-documents-procure-phase/assessing-competitive-tenders-html [2] Quality vs Price: How to Weight Tender Answers | Thornton & Lowe. https://thorntonandlowe.com/quality-vs-price-explained/ [3] Methods for scoring Cost and implications of relative scoring | Commerce Decisions. https://commercedecisions.com/methods-for-scoring-cost-and-implications-of-relative-scoring/ [4] How to pay for Digital Outcomes and Specialists services - GOV.UK. https://www.gov.uk/guidance/how-to-pay-for-digital-outcomes-and-specialists-services [5] The Pricing Mistakes That Cost Public Sector Bids - SR2 Consulting. https://sr2consulting.co.uk/insights/the-pricing-mistakes-that-cost-public-sector-bids/ [6] Pricing Schedules: What They Are and How to Effectively Respond to Them | Thornton & Lowe. https://thorntonandlowe.com/pricing-schedules-responding-to-them/ [7] How to Price a Public Sector Tender | Tender Response. https://www.tenderresponse.co.uk/blog/how-to-price-a-public-sector-tender/