Advanced Strategies for Pricing and Bidding in Road Works

Costing and Pricing of Road Works: Pricing of bids Module 6 session six

Objectives of the Session 1) Interpret the bills of quantities for appropriate pricing 2) Practice pricing of bidding documents 3) Use scenarios to determine revenue and profitability of a contract 2

Pricing Road Works Involves the application of predetermined activity or unit pricing rates to the bills of quantities and appropriate tax rates to determine the bidding price (with or without taxation). By use of excel, it is possible to play around the bidding document while making different scenarios particularly about margins 3

Approach to pricing road works A contractor should use works costs developed over a period of time and applies appropriate markup to determine unit pricing rates. The costs may be varied to suit the changing market environment and factors seen during site visits The markup should also be reviewed considering anticipated competition and bid evaluation methodology. 4

Applying pricing rates to road works Understand the BoQs and select appropriate rates to them Check the multiplications and the additions carefully to ensure the bid is free of arithmetic errors Apply appropriate tax rates where applicable (usually VAT) Examine the final bid price for reasonableness, competitiveness and profitability. 5

Using scenarios to assess impact on revenue and profitability Set up the BOQ on Excel worksheet with costs, margins and price carried to a summary worksheet. Apply different costs scenarios where there are opportunities for cost cutting to see the effect on revenues (bid price) and profit. Apply different margins to cost and evaluate the impact on revenue and profit Relate the outcome to return on capital invested. 6

Example of bid scenarios Specification Scenario one 7.5% Scenario two 10% Overhead absorption Margin Cost of works (shs) 30% 20% 73,324,099 74,621,715 Margin Bid (Revenue) Return on Investment (pa) 21,149,054 94,473,153 115% 14,325,843 88,947,558 77% 7

Evaluation of the bids scenario 1 Scores Evaluation criteria Weigh t Bid one Bid two Technical 70% 85% 78% Rank 1 2 Financial 30% 79% 100% Rank Technical & Financial 2 1 100% 83.2% 84.6% Award 2 1 Note how the best technical proposal loses the job 8

Evaluation of the bids scenario 2 Scores Evaluation criteria Bid one Bid two Technical Rank 70% 90% 1 78% 2 Financial 30% 79% 100% Rank 2 1 Technical & Financial 100% 86.7% 84.6% Award 1 2 If Bid one beats Bid two by more than 9 points it wins 9

Winning strategy Maximize technical scores Seek for low cost competitive advantages Select moderate markup policy Target volume (turnover) 10

Group Activity All groups: Price the Magege Road Works BOQ using the calculated rates provided. Using the calculated rates provided, comment on the reasonableness of the bid. Analyse the profits expected from the job and assess its reasonableness bearing in mind the funds invested. Discuss the common factors that make contractors fail to win tenders. 11