THE TENDER

The Tender

• The success of a tender is dependant upon accurate

estimating and the addition of a correct mark-up to
cover head office overheads and ensure an optimum
profit level is made

• The profit level is a delicate decision which involves

the study of market forces, political cycle predictions
and economic trends, analysis of the competitor factor,
competitive advantage and tender success ratio
 The Tender

• The time for this delicate decision arrives

when the management meet to consider
the estimate in the light of the tender
report. This process is known as
adjudication and it is a commercial
function based on the estimate

• During the tender adjudication,

management of a construction company
study and analyse carefully all important
items in the estimator’s report. They weigh
this information against the following
factors to strike the right balance which will
either win or lose the job
Factors that influence levels of
tenders

(Main contractor to client)

 The Reputation of the Client

• A reputable client may be one whose projects are

prestigious and would enhance the contractor’s market
standing if the tender for the project is won

• It may also be that the client has a programme of

developments in which successful completion of one
may lead to a commission to construct more

• If, in management’s view, the client is one they would

like to do business with, then they may well do their
best to lower the profit mark-up and establishment
changes to win the project
 Experience with the Client and his
Professional Advisors

• If a contractor has had previous dealings with

a client and his professional advisors, then he
may be in abetter position to predict the level
of risks that may confront him. If experience
has shown that the client doesn’t pay promptly
and his professional advisers are noted for the
late issue of project information or disruptive
variations, the contractor may decide to
increase the project overhead costs to mitigate
this risk
 State of the Order Book

• If the contractor’s order book is virtually empty then he

will be more willing to cut down on his profit mark-up in
order to win the project. This should enable a contractor
to achieve a turnover target and also keep key
personnel in employment, although profit level will be
reduced

• If on the other hand, the order book is reasonably full,

the contractor would only over-commit himself for a
handsome return. In that case, he will increase the profit
mark-up to enable him to finance employing additional
key personnel that will be required if the tender is
successful
 Capital Required for the Project

• This is the contractor’s evaluation of the extra capital that

will be required to finance the project. In this assessment
the contractor will consider the following factors:-

• Work in progress
When work in progress is likely to be completed so
as to release money and resources tied up for use
on the project if successful in the tender.
• Investment in plant
If the project requires the use of specific plant which can be
fully utilised to the contractor’s advantage, can he tie up part
of his working capital in outright plant purchase? If not, then
is the contractor in the position to raise the loan required to
purchase the plant and undertake the project economically?

• Level of retention money

Retention money is a percentage deduction of money due to
the contractor to safeguard the client’s interest. This
deduction means that the contractor cannot put all his
working capital to work and has to rely on borrowed funds to
make up the shortfall. If the level of retention is high, then the
contractor will have a greater proportion of his working capital
tied up in retention, which may result in uneconomic
borrowing to finance the project
• Technical and managerial manpower requirement
If the complexity of the project requires more technical and
managerial input tan the current resources at the contractor’s
disposal, the contractor may consider either employing or hiring
consultants to undertake some of the technical and managerial
functions.
If this should be the case, then the question of the availability of
these key personnel and their cost of engagement arises. The
contractor may even decide to train some of his staff to
deputise for some of these functions in the short term
 State of the Economy and it’s
Effects of the Construction Market

• As construction is a major sector in the economy, it

tends to follow the up-and-down movements of the
economy. A study of the economic indicators will enable
the contractor to forecast whether the economy is
heading for a boom or a recession.

If the indications are that a recession is imminent, which

may slow down construction activities, then the
contractor would price keenly to win the contract.
Determination to win means a lower percentage mark-
up and hence reduced profit margin.

However, the reverse will be the case should the

indicators show a pending boom in the economy
 Contractual Risks

• In the construction industry, contractors are required to

assess cost and price of a product before production,
and this process involves high risks due to uncertainties
of the national construction market, the national and
international economies, the weather, ground conditions
and so on. The risks to be considered by management
may include the following factors:-
• Contractor’s resources
• Capital: The cost of borrowing may rise above
the anticipated rate of interest and capital may
not be utilised efficiently due to irregular
payments, under-valuations for interim payment
and construction delays
• Materials: Material prices may change over time
to acute shortages, high interest rates or a fall in
the value of the local currency. Late deliveries
may lead to uneconomic working and a possible
overrun on the contract programme
• Labour: The site may be plagued by labour
shortages, strikes, low morale, go-slows and low
productivity. An untried labour force could result
in faulty workmanship which could be difficult to
rectify
• Weather conditions
Adverse weather conditions are unpredictable and this
can affect ground conditions and disrupt progress on
site.

• The client and his professional advisers

They may not supply project information on time,
leading to an extended contract programme and
additional costs that may be difficult to substantiate
and may result in financial loss.
 • Inaccuracies due to either the fact that:

• A large proportion of the data used in the preparation of

the estimate is outside the contractor’s organisation (e.g.
domestic sub-contractors’ and suppliers’ prices) or a
proportion of the project may be outside the estimator’s
and management’s experience and hence cannot assess
the full cost implications accurately
 Marketing Strategy

• Management may plan for business expansion and so

require new clients, or the project may be one which
suits the firm’s operational strategy. If business
expansion as opposed to business contraction is
managements current policy, this strategic
consideration will influence their decision to submit a
more competitive bid
 Conclusion

• In concluding this analysis of the factors that influence

the level of tenders these can be summarised by careful
consideration of the following:-
• Is the work of the type and/or value and/or duration which the
contractor has experience, both in winning tenders, controlling
and completing profitably?

• Does conflict with the company’s objectives and future workload?

• Has the contractor the necessary supervisory staff and labour

available? (As he may not wish to recruit untried and unknown
personnel in key positions)

• Does the location of the site fit the organisations geographic area
of operation?

• Does the location of the site fit the organisations economic area
of operation?

• Will the estimating department have staff available with the

necessary expertise for the type of work to be priced?
• Are there too many risks in the technical and contractual aspects of
the project?

• Will suitable documents be produced for tender purposes? (A busy

estimating office may give priority to work which has prepared properly.
Poor documentation might give a clue to standard of working
documents during construction)

• Has enough time been given to prepare a reasonable and competitive

estimate?

• The client’s financial standing, will he be able to pay

monies due and on time?

• Previous working relationships (Good or bad) with client, architect,

engineer or quantity surveyor

• What level of security will be required, if any?

• The client’s financial standing, will he be able to pay monies due
and on time?

• Previous working relationships (Good or bad) with client, architect,

engineer or quantity surveyor

• What level of security will be required, if any?

Factors that influence levels of
tenders
(Subcontractors)
Subcontractors
Subcontractors can be appointed in two ways:

• As a domestic subcontractor to the main contractor

• As a nominated subcontractor appointed by the client

or architect who will have had prior negotiations with the
subcontractor but the subcontractor will then be
employed by the main contractor
Subcontractors:

• Domestic Subcontractor
A subcontractor who contracts with the main contractor to supply or
fix any materials or goods or execute work forming part of the main
contract. Essentially this contractor is employed by the main
contractor

• Nominated Subcontractor
Certain contracts permit the architect or supervising officer to
reserve the right of the final selection and approval of
subcontractors. The main contractor is permitted to make a profit
from the use of nominated subcontractors on site, but must provide
attendance (usually provision of water, power, etc. to enable the
nominated subcontractor to do his job). In effect the appointment of
nominated subcontractors establishes a direct contractual
relationship between the client and the subcontractor