Understanding the Difference Between Cost Proposals and Pricing Proposals and Why Getting It Wrong Could Trigger a Rejection

This mistake happens more often than it should: a contractor downloads a proposal template, fills it out with their best numbers, and submits what they think is a complete cost volume. Then they get a rejection notice citing inadequate cost data or failure to meet solicitation requirements.

The problem is not their numbers. The problem is that they submitted a pricing proposal when the government asked for a cost proposal. Or vice versa.

These terms sound interchangeable, but they are not. The federal government draws clear distinctions between cost and pricing proposals, and those distinctions determine what you need to submit, how much detail you need to provide, and what kind of scrutiny your numbers will face.

If you are scaling your GovCon business beyond your first few contracts, understanding this difference is the foundation of compliant proposal development.

What Makes a Cost Proposal Different From a Pricing Proposal

The fundamental difference comes down to contract type and the level of cost visibility the government requires.

A cost proposal provides detailed cost buildup for every element of your price. You are showing the government exactly how you arrived at your numbers, including direct labor by category and hour, indirect rates with full supporting calculations, materials and subcontractor costs with backup documentation, and any other direct costs with clear allocation methodology.

Cost proposals are typically required for cost-reimbursement contracts, time-and-materials contracts, and labor-hour contracts where the government bears some or all of the cost risk. According to FAR Part 15, when the government needs to evaluate cost realism and cost reasonableness, it needs full visibility into your cost structure.

A pricing proposal, by contrast, provides your offered price with limited cost detail. You are telling the government what you will charge, and you may provide some high-level justification, but you are not breaking down every cost element to the same degree of detail.

Pricing proposals are more common with fixed-price contracts where you are accepting the cost risk. The government still wants to know your price is fair and reasonable, but they do not need to see your full cost accounting structure to make that determination.

When You Need a Cost Proposal (and What It Must Include)

If your solicitation requires certified cost or pricing data under FAR 15.403-4, you are submitting a cost proposal. This typically happens when your proposed contract value exceeds $2 million and you do not qualify for an exception.

The DCAA Cost Proposal Adequacy Checklist spells out what makes a cost proposal adequate. At minimum, you need:

Direct labor is broken down by labor category, hours, and rates. Not just total labor costs, but the specific composition of your labor mix with enough detail that evaluators can assess whether your staffing plan makes sense for the work.

Indirect cost rates with full pool calculations. Your fringe, overhead, and G&A rates need supporting schedules showing the costs in each pool, the allocation base, and how you calculated the rate. If you are using provisional rates, you need to explain where those rates came from and how they reconcile to your most recent actual costs.

Subcontractor and consultant costs with their own cost breakdowns. You cannot just provide a subcontractor quote and call it done. You need to show what the sub is charging for and, in many cases, obtain cost or pricing data from them as well.

Materials, travel, and other direct costs with clear basis of estimate. If you are proposing $50,000 in travel, the government wants to see trip frequency, destinations, and per diem calculations. If you are buying equipment, they want to see vendor quotes or catalog pricing.

Cost narratives explaining your estimating methodology. Numbers without context raise questions. Your narrative should walk evaluators through how you developed each cost element, what assumptions you made, and why your approach is reasonable.

When a Pricing Proposal Is Appropriate (and What You Can Omit)

For firm-fixed-price contracts below the certified cost or pricing data threshold, you are usually submitting a pricing proposal. The government still evaluates price reasonableness, but they are doing it through market research and comparison rather than cost analysis.

According to FAR 15.404-1, when cost or pricing data is not required, the government obtains “information other than cost or pricing data” to establish price reasonableness. That might include competitive pricing, catalog prices, prices set by law or regulation, or historical prices for similar work.

Your pricing proposal still needs justification, but you have more flexibility in how you provide it. You might include:

Total price by contract line item. Clear pricing that maps to the solicitation requirements without necessarily breaking down every cost element.

High-level cost categories. Labor, materials, subcontractors, and other directs with summary-level costs rather than detailed buildup.

Competitive analysis or market research. Information showing why your price is reasonable compared to market rates or similar contracts.

Technical approach that supports your pricing. Enough information to demonstrate you understand the work and your price reflects that understanding.

The key difference is you are not providing full cost visibility. You are providing enough information for the government to conclude your price is fair and reasonable without seeing your entire cost accounting structure.

The FAR Part 15 Requirements That Trip Up Contractors

FAR Part 15 governs contracting by negotiation, and it’s where most of the rules around cost and pricing proposals live. Contractors get in trouble when they do not read Section L and Section M of the solicitation carefully enough to understand what’s actually required.

Section L tells you what to submit. It specifies the format, the level of detail, whether you need to provide certified cost or pricing data, and what supporting documentation is required. If Section L says “provide detailed cost buildup by labor category,” that’s not optional guidance. That’s a requirement.

Section M tells you how your submission will be evaluated. It explains whether the government is conducting cost realism analysis, how they will assess your indirect rates, and what factors matter most in their evaluation. This tells you where to focus your supporting documentation.

Many contractors use proposal templates from previous submissions without checking whether those templates align with the current solicitation requirements. A cost proposal format that worked perfectly for a cost-plus contract does not meet the requirements for an FFP procurement, and submitting the wrong format is grounds for rejection.

Common Mistakes That Lead to Rejection

I have reviewed hundreds of proposals over the years, and the same mistakes keep appearing:

Mixing cost and pricing formats. Contractors provide detailed cost buildup for labor but summary-level pricing for everything else. The inconsistency raises red flags about what they are hiding or what they do not understand.

Using indirect rates without support. Throwing a 45% overhead rate into your proposal without explaining where it came from or how it’s calculated makes evaluators question the entire submission. Per FAR Part 31, all costs must be adequately supported, and that includes indirect rates.

Failing to segregate unallowable costs. If your indirect pools include unallowable costs under FAR Part 31 and you have not identified and excluded them, your rates are overstated. DCAA will catch this in pre-award audit, and you will be back to square one.

Providing insufficient basis of estimate. Saying “based on similar work” is not enough. The government needs to see what similar work you are referencing, how the current requirement compares, and what adjustments you made to account for differences.

Ignoring subcontractor cost analysis requirements. If your prime proposal requires certified cost or pricing data, your major subcontractors’ proposals likely do too. Failing to obtain adequate cost data from subs puts your entire proposal at risk.

How to Know What You Are Supposed to Submit

Before you start building your proposal, answer these questions:

What’s the contract type? Cost-reimbursement and T&M contracts almost always require cost proposals. Fixed-price contracts may require pricing proposals unless they exceed the cost or pricing data threshold.

Does the solicitation require certified cost or pricing data? If yes, you are submitting a cost proposal regardless of contract type. FAR 15.403-4 spells out when this requirement applies.

What does Section L specifically require? Read the actual words in the solicitation, not what you assume they mean based on past proposals.

What evaluation criteria appear in Section M? If the government is conducting cost realism analysis, they need detailed cost data. If they are only evaluating price reasonableness, less detail may be acceptable.

Are you close to any cost or pricing data thresholds? If your proposal is approaching $2 million, assume you will need detailed cost support even if it’s not explicitly required. Better to over-document than get caught short.

Building Systems That Support Both Types of Proposals

The best way to handle this complexity is to build accounting systems that can support detailed cost proposals, even when you are submitting pricing proposals. That means maintaining job costing by contract, tracking indirect costs in clearly defined pools with documented allocation bases, preserving supporting documentation for all direct costs, and keeping your chart of accounts aligned with FAR Part 31 cost categories.

When your accounting foundation is solid, you can scale your proposal documentation up or down based on solicitation requirements without scrambling to create cost data that should have existed all along.

The Cost Accounting Standards do not just apply to CAS-covered contracts. They represent best practices for any contractor who wants to price proposals accurately and defend those prices under scrutiny. Following CAS principles of consistency, allocation, and documentation positions you to respond to any type of solicitation with confidence.

Make the Difference Count

Cost proposals and pricing proposals are not two ways of saying the same thing. They are two different deliverables with different requirements, different levels of detail, and different evaluation standards.

Contractors who treat them interchangeably either over-disclose proprietary cost information when it’s not required or under-document their costs when full transparency is mandatory. Neither position is good.

The smart approach is to know which one you are submitting before you start writing, build from accounting systems that can support detailed cost analysis when needed, and read every Section L and Section M carefully enough to know exactly what the government expects.

Your proposal format should match solicitation requirements. Not your preferences, not your previous templates, and not what seems easier to prepare. Match the requirements or risk rejection.

Ready to build proposal systems that work for both cost and pricing submissions? Let’s talk about getting your accounting and proposal processes aligned.