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GET THE WINNING TENDER PRICE RIGHT.

Submit a tender and it is a higher price than lowest you are likely to lose a tender. If you submit the lowest price and it is well below the second price, then you have missed an opportunity to make a bigger profit. If you submit a very low price to win a project whatever, this is suicide. Getting the tender price right is vitally important to be a profitable contractor.

Construction projects are expensive to buy, so there are few buyers. The information as to who requires a project can generally be found in the public domain. As such a lot of marketing and sales advice is not applicable for contractors and companies who say they have the silver bullet for gaining more work can not be more wrong. Acquiring construction contracts is a specialist skill and can involve a lot of different specialists with vastly different skills.

 

It starts with a marketing strategy, from which leads are developed. Business development specialists use their skills and some marketing collateral to secure opportunities. Those opportunities are turned into tenders by a team of preconstruction professionals. This guide is about the skills required to submit a tender with the all important correct price.

A GUIDE TO PRE-CONSTRUCTION ACTIVITIES.

STAGE 1 - IDENTIFYING OPPORTUNITIES TO BID

Outside the domestic market, the number of clients, or buyers, is relatively few for projects. The capital cost is prohibitive to engage in building works so there are, relatively few people engaged in the key decisions, and those who are tend to specialise in segments of the market, forming a close community. Your marketing strategy should clearly identify the segments you are to peruse and therefore which communities you are going to be part of.

The other feature of the sector is that there is an abundance of information about projects in the public domain as a result of projects requiring either planning permission and for publicly funded projects the requirement to be advertised publicly to be tendered.

Clients and their representatives do not need to search out companies to do the work, the contractors find them and ask, or offer, to be included on the tender list. Opportunities could be found for free by scouring planning portals or using the government web site for publicly funded projects https://www.find-tender.service.gov.uk/Search

Not surprisingly the long winded searching can be sort cut by using the filters on a paid for service. The four paid for services are Barbour ABI, Glenningan, Builders Conference and Planning Pipe. Each one has it's place in the market depending upon your target. There are specialist marketing companies who will set up the filters on the lead generators for you and then make the contact with the companies involved with the opportunities to find out what information is required for you to be included on the tender list. Alternatively, you can set up the filters and brief a suitable VPA to make the calls.

Some of the lead generator companies include reports about the state of the market, which provides you with knowledge about the latest trends. 

STAGE 2 - INITIAL ENGAGEMENT & USING A CRM

You have got your leads, either by trawling information in the public domain or using one of the paid for services and make initial contact. Generally, there are two outcomes of the initial contact. The first is that it is too early and the tender list is not being compiled for some time, or that the list is already been compiled of companies who have been used before. 

A contact relationship management, CRM, tool is useful at this stage to keep track of the conversations. Marketing companies, freelance business development professionals or a suitable VPA are all capable of this role. The role titles are often interchanged so you will have to check that the person you appoint to do the role has the right attitude & ingenuity to persist with the exchanges to get on the tender list, either for the project found on the lead generator or the next one the contact has coming up.     

Assuming, you get an opportunity to engage further, then the likely next step is some form of screening by the client.

STAGE 3 - PRE-QUALIFICATION QUESTIONS, PQQ

Pre-qualification is a formal stage in a public sector tender. Before you are invited to tender (ITT) you will have to pass the Pre-qualification questionnaire (PQQ). They are usually questions that are about the business, for example, last 3 years accounts, insurances, Safety policies and other policies such as Equality and Diversity, modern slavery. etc.

Having a library of such information is useful. Many businesses their H&S advisors or a QA advisor are asked to put the policies together.

In the private sector, the financial & checks will also occur at this time, but you find that relationships and references also play a significant role, so having case studies available, a web site that will resonate with potential clients and being able to introduce people who will advocate your service is important.


The document library houses insurances, annual accounts, case studies, accreditations, H&S information and other policies. Given the sources of all this information will be different, and different people will require access to it, it is usually best that someone in the business is made responsible for keeping it up to date. The marketing coordination role requires a good understanding of the filing system.


Separate to the library, prospective clients and their agents will look at your web site and social media. Invariably this is out sourced so they need to be kept up to date as to what is happening in the business so case studies are current.      

Assuming you pass the pre-qualification questions (PQQ) then you will be invited to tender, ITT.

  

STAGE 4 - COMPLETING THE ITT. (INVITATION TO TENDER)

Assuming you pass the PQQ, you receive your ITT, the tender documents. In the stages before receiving them you should have ascertained what is involved and therefore have resources ready to put the bid together. In the most complex of bids, there will be a need to coordinate a lot of parties, all of which are usually outsourced: designers, planners, technical bid writers, a graphic designer and the commercial team comprising of those responsible for the take-off, estimating and review of the contract terms and conditions.

A bid responsibilities matrix and programme should be drawn up. All interdependencies should be clear, for example the planner will need to inform the technical writer what to include in the bid. The technical writer and other parties must leave enough time for the graphic designer to create the final document and have it thoroughly checked. To manage the process, especially if there a lot of outsourced parties will require someone to be appointed as bid manager to coordinate the teams and develop a bid strategy.


Owners of SME's often do the bid management themselves and play an active role in the design and estimating, knowing how crucial the price is. Their involvement in the detail at this stage, is understandable given how critical the price is, but often leads to issues as the business grows, as they then become the fountain of knowledge about all projects and the site staff are forever asking them questions. Finding a reliable estimator or external estimating service early on will avoid this bottle neck forming at a later stage. 

STAGE 5 - TENDER SETTLEMENT

The direct costs of carrying out the project are all derived mathematically. To the direct costs a percentage is added for overheads, which should be derived from the accounts and forecast turnover, to give the break even sum. Again this should be a mathematical computation based upon facts and assumptions in the accounts. All these computations can be done by the estimator or a QS.


Finally, the profit is added. The mark up for profit takes account of how much you want the project, the project and contact risks and what the market will bear. Everything except the amount of profit to be added can be calculated. The profit demand is discretionary and will be the deciding factor in whether or not you secure the project. The decision falls to the business owner. Very little is written about how this decision is made, as obviously those making the decision do not want to disclose how they do it and often those writing about tendering have never been in the position of making the discretionary decision. I am willing to share with you a method for maximising your price, yet still be in a position to win the project. The method provides a logic to the decision which was developed over 10 years of bidding and gaining profitable work.

You can request this method here.

The tendered sum is entered on to the tender sheet, signed and sent off by the required time with any supporting narrative which has been requested and has been prepared by the bid writer.

STAGE 6 - POST SUBMISSION

Once the tender has been submitted, there are invariably clarifications and the final two contractors might be asked to present their bid to the client's team, so they are comfortable that they are entering into contract with someone they can work with.

The contract will be signed and works commence.

If you are a losing party it is worth asking for feedback and if it's a public sector project rules apply about giving the losing parties time to challenge the result.

Regardless of whether it's a public of private client a review of the submitted tender should be undertaken.

STAGE 7 - NEW MARKETING COLLATERAL

Assuming that the project is secured, then a well managed project not only provides another case study to demonstrate experience but there will be opportunities to capture information to put into the quality section of future bids. Compiling case studies and social media information about the project can be outsourced to marketing and PR freelancers, with experience of working with construction businesses.  
More importantly, relationships should be developed with all other parties as they can become advocates for you to get on the tender list of future schemes.

Are you interested in becoming a profitable contractor and winning tenders at the maximum profit possible, then request my f.o.c. 3 steps to maximising tender prices today.

Tender Pricing: Resources and Tips

FAQ FOR PRE-CONSTRUCTION ACTIVITIES

WHAT IS THE MARKET SEGMENTATION FOR CONSTRUCTION?

Deciding which segments of the market you will work in requires an understanding of how you describe who you will work for. Typically Residential, Health, Education, Commercial & Industrial. The ultimate clients determine what the market sectors are that you will work in. A list of those can be found in the Office of National Statistics, ONS. The ONS breaks the sectors down in to regions, new build, refurbishment and maintenance, public and private sector. Figures are given for the size of each of these markets.

Your segmentation could break the regions down in to smaller areas, by value of project and type of procurement, e.g. Traditional or Design and Build. Other combinations can be decided, depending upon what your skills, experience and accreditations are most suited to.

The aim should be to define the segments of the market you will work in to focus your efforts to save wasting time.


Are your marketing segments clearly defined?

WHAT IS BID-NO-BID?

If you have carried out a market analysis and decided what segments of the market you will work in, then the next stage is to define more criteria to narrow down your search for work. Criteria such as the financial stability of the client, if you have worked with any of the team members before and the clients alignment to your business values are typically additional criteria which can be added.

By listing exactly who you will work for and what what you offer will narrow down the search for work. The criteria become your Bid-no-Bid policy. By sticking to policy you will find yourself operating in a market you know well, which will give you confidence about your pricing as you learn more about that market.

Have you defined the attributes of clients who you will work for?

WHAT MAKES CONSTRUCTION ACCOUNTS DIFFERENT?

Construction accounting is different from general business accounting. In every other sector there is a direct link between production and accounts, leading to the functions, accounts payable, accounts receivable, and payroll transactions. In construction companies as there are contracts and many projects there is also retention, job costs, change orders, monthly progress payments and other anomalies to deal with.

These differences are not appreciated by many accountants who are capable of helping you set up a business but not to help manage it as the business grows. Construction is the only sector where there is a measurement function (quantity surveying) carried out between production and the accounts activities.

Do you have an accountant who understands construction and can you call on commercial (understanding contracts) support?

WHAT ARE THE DIFFERENT TYPES OF PROFIT?

The term profit is used with out definition by people in business. The profit which they are referring to will often be related to the level of the business they are working at. Gross profit is the profit made by taking all the income and deducting the cost of delivering all  the projects. Ideally with construction companies you should know the gross profit for every project individually. From the gross profit all the overheads are deducted to leave the operating profit. Accountants often call the overheads, expenses which can be confusing as staff associate that term with travel.

Another term used for operating profit is EBITDA, which stands for Earnings Before Interest Tax Dividends and Amortisation. This is a useful term as it gives the order in which deductions should be taken to leave the Net Profit.

Deciding what should be project costed, charged to overheads and how much overhead each project should carry needs to be carefully considered, so the mark up calculation can be done accurately.

Do you know your gross profit on recent projects?

WHAT IS THE DIFFERENCE BETWEEN MARK UP AND MARGIN?

Both profit margin and mark-up use income and costs as part of their calculations. The main difference between the two is that profit margin refers to income minus the full cost of delivery while mark-up is the amount by which a project cost is increased in order to get to the tender price. The mark up calculation is often carried out incorrectly, effectively under pricing project, resulting in a lower margin than expected at the end of the project.

Do you know your mark-up to achieve your target margin?

HOW MUCH IS A GOOD MARK UP?

Many SME's accounts are compiled without the correct allocation of costs, as owners are happy to let their accountants assume where the costs belong. So the figures suggested below are rough but generally accepted as being what is used in the absence of accurate data. The figures are approximations as few SME's take the care to do the calculations properly.

However, it is thought that for an SME the overheads run at about 10% (Overheads or expenses / total income x 100) and operating profit is also 10% ((Income - direct costs - overheads) / total income X100). Adding these together suggests the mark-up needs to achieve 20%.

To achieve a 20% return on the project costs a project needs to be marked up by 25%. ( (1 / (1-0.2) - 1).

Every business is different and should use their actual figures. Using generic rates immediately puts you at a disadvantage in terms or competitiveness or at risk of making a profit.

WHAT MAKES A GOOD ESTIMATE?

The estimate for a project is the approximate cost of physically doing the works. The contractor's directors tell the estimator what business overheads to add, then will decide what profit is required. Generic advice might be given by external estimators as to what the considerations are for mark up but that figure will not give you an edge. It is better if the estimate is understood by the directors and they make the decision, as they should.

Good estimates in a business follow a standard approach if the person deciding the mark up is going to get a good feel for the market. It is no use giving back merchant or wholesalers rebates on some tenders and not others. Any discount should be accounted for in the mark up if you decide to offer it, otherwise you do not know the true expected profit.

When estimating the proposed  contract should be checked for showstoppers and things like the level of LAD's reviewed. In particular, any clauses amended, removed or added to a standard contract should be looked at.

The next thing is the quality of the take off and who is taking responsibility for the quantities. The level of design, has it got planning? Has it got building control? Has implications for the accuracy of the quantities.

Some estimators, if they are busy working on lots of projects, because there is not a bid-no-bid policy, simply add a percentage for the preliminary's and accept what they are given for a programme. Clearly this is a missed opportunity to have an edge.

Finally, getting a number of prices for suppliers / subtrades and seeing the spread of them is something the person doing the mark up should see. External estimating services are good, but you need to manage them and identify where they have been over cautious, so there is no comeback or lazy when information is missing.


Are you aware of the context of the estimate presented to you and do you decide the mark up?

WHAT IS A TENDER ADJUDICATION OR SETTLEMENT?

The estimate and overheads percentage are largely a mathematical computation. In places there might be risks outstanding but the scale of the risk should be explained by the estimator. Before the price is submitted the estimate has to be turned into the tender by adding the profit. Academics have tried to suggest ways to do this but it has been found that it is largely an intuitive decision. The contractor's director should bring all their experience and knowledge to the decision. It should not be taken lightly as it will determine if they win the project and make as much profit as they can. The method I developed reduces the variables and makes the decision easier, by introducing current market data. Get a copy of the method by clicking the button below.

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TESTIMONIALS

"Submitting a public sector bid exposed us to completing the quality section for the first time. Peter identified resources to cover the new elements of this type of contact and we scored highly on quality with his guidance."

Partner - Fitout contractor

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