Tuesday, April 30, 2013

Tender Estimation

Winning a tender is a tricky process that any contractor have to endure with. There is some criteria that contractor need to meet in order for us to be recommend as potential contractor for a project. Among the requirement are;
1. Cash flow ( Financial Capacity)
2. Plan, Machinery,Equipment, Labour and technical staff.
3. Work Experience
4. Current Work load
5. Achievements
6. Reputations
7. Project Pricing.
8. Communication and negotiation skills.

However out of all the listed above, Project Pricing always become the turning point for a contractor. This will determine weather we will win the project or not. Most of contractors will fulfils all the above requirements that will qualified them for the tender. When this situation happened the other factor will be the pricing. The question is What is the average cost that contractors offered. From our experience, the normal practice, all those contractor which offered the cost that is with in 15% below and above the average pricing will be consider for next stage of evaluation.

In some country, most of tendering period will take about 3 weeks to 1 month from the date of a project are publish to allow contractor to make calculation and submit their bid on the tender closing date. Very often bidders will rely on the "schedule of rates" which is publish by Public Work department. In my opinion this practice by contractor is quite dangerous. Why? The reason is the publish "Schedule of Rate (S.O.R)" is normally base on the past year record. Hence it might not relevant at the point of tendering. Because of this some adjustment have to be made to this "S.O.R" by contractor which will not reflect the current market price. In view of this, we believe that having our own estimation will be more accurate.

Doing price estimation is not and easy work. Contractor need to do
1. Quantity take of, 
2. Numbers and type of equipment required, 
3. Duration needed to complete each scope of work, 
4. Current market rate for each and every item that had been identify to complete the project, 
5. Activities involve for each scope of work, 
6. Management cost for supervising the project, 
7. Profit margin, unknown risk to contractor in executing their work and 
8. also some public relation cost.

By listing all of this item, contractor already minimised error in cost estimation and had help contractor to control their losses and at the end of the day, contractor will be able to offered a competitive project cost for a tender.

There is lots of software and manual form that can be use to do this estimating work. The picture below is what I use to do mine.

This is a screen shot for some of the form that I create for my tendering purpose.

As for the "S.O.R" that had been mentioned earlier in this article, there is some set of rules and guideline that contractor had to be abide with to ensure that their estimation is not out of date. For instance, S.O.R publish this year is base on Last year average market price, therefore to use this S.O.R in our tender estimation, contractor have to allow for some increase in price for current year. Say 5% increase. Apart from that, contractor must also determine the S.O.R is publish for which area and the percentage increment according to distance from that particular location. By Using this method it eliminate almost all of the process that i bold earlier. Save time!!!!.

Ask ourself, are we satisfied with the estimation we did by using S.O.R? Do we know What is the actual cost for the project? How much is the Profit Margin? How much is the unknown cost we allow? and if we have to go through pricing negotiation with the future client, How much lower are we willing to go for? 5% discount, 10% discount on the offered price? we might have no idea. At the end we will say we cannot afford to give discount. The key to this are what are the estimate for actual construction cost, how much is the unknown risk that we allow for and how much is the profit margin? Only you know.

Happy tendering.