Turning the Cost Estimate into a Tender
The Estimator in co-ordination with the tender team will by this stage have completed the task of investigating the true nature and extent of the contract under consideration and produced documents and reference material to aid their final pricing of the contract. They will have produced a pre-tender programme early in the tendering cycle to ensure that the tender is completed and received by the Client by the date noted on the tender documentation. They will be working as a team to produce that which they consider will be the right price for the contract and the strategy by which this price will be competitive and secure the contract.
Even at this stage the manner in which the contract and its individual elements and operations will be completed will have been established and method statements, risk assessment, the overall contract programme etc, produced and discussed.
The estimating team must be optimistic about their chances of winning the contract, and the type of contract should be compatible with the ‘Bidding Strategy’ of the company if the team are to be fully motivated.
It is a reflection on some contractors that only 10% or less of contracts tendered for are won, yet other contractors achieve success rates of 50% or more merely by targeting certain types of contract and recruiting and retaining expertise within that field of work.
Assuming that the tendering team have worked diligently completed the required documentation, produced the required statements and programmes, and studied the drawings and details fully the challenge still remains. - How can the Estimators price be converted into a tender price which can be submitted to the Client and secure the contract for the company.
Taking the contract forward using the knowledge of the tender team and utilizing their understanding of the project and experience from previous contracts is a process known to some as ‘Adjudication’ and to others as ‘Settlement’; some use the description of ‘Completing the Estimate and Final Tender Review’ and separate out settlement as a separate stage.
All are terms which interact and in essence describe a process of checking what has been produced by the tender team and taking this forward to produce a Tender Figure /Price which will secure the contract; turning the estimators cost price to the contractor of actually carrying out the work into a figure which will actually win the contract.
The tender team is charged with the objective of winning the contract at the highest possible price that it is actually possible to do so; not the lowest price anyone can achieve that feat but their company will not remain in business for any length of time. (It should be appreciated that in the real world other factors may make the above statement seem simplistic but the essential point is made).
The estimate should be carefully checked for errors in the bills of quantity unit rates and extension of the rates until the Estimator is content with the price calculated.
Settlement / Adjudication Meeting
The process of settlement or adjudication involves considering amongst other factors.
- The Estimators report
- Contract conditions and form of contract
- Site factors
- Past experience of the Client
- Analyzing own work content
- Sub-Contract allocation.
- Prime cost and Provisional sum content
- Discounts available
- Non Standard insurance requirements
- Liquidated damages applicable
- Complexity of the contract
- Programme constraints
- Likely variations
- Valuation dates
- Labour availability
- Profit margins required
- Preliminaries
- Effects on overheads
- Day works
- Contingency sums included
- Preliminaries including contractual requirements
- Competitors
- The existing company workload
- The need for the new contract.
- Financial implications and cash flow analysis
- Risk analysis
- Health and Safety Plan.
- Cash flow with the new contract
- Cash flow without the new contract
- Company retention on selective tendering lists.
The list is in reality extensive and many of these factors will already have been considered by the tendering team and related to the estimator but the final ‘settlement’ is in many respects left to the senior management of the tendering company; on their shoulders rests the continuance of the company and responsibility for its profitability.
That which turns the estimate by into the formal tender is complex and many would consider it an art rather than a science, everyone attending the settlement meeting(s) should contribute and much discussion will take place until a sum of money is agreed and the Form of Tender completed and submitted.
It is not unusual for a Managing Director cognizant of the competition to reduce or increase the Estimators cost prediction.
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