Tendering: The Cost of Tendering … to the Builder!

A sometimes overlooked, and often under-appreciated issue, I think, is the cost to the Builder to prepare a tender or quote. Certainly, some people outside this industry (who are often our clients) may fail to understand this point, and some may think that building prices are somehow ‘standard’ … And so, putting in a ‘bid’ is a simple and quick mathematical exercise.

This is not true.

During the tender period, there is much activity for the Builders, sub-contractors and suppliers. Drawings, specifications and schedules are copied, collated and issued to the various subcontractors & suppliers who will be offering their services to the Builder.

This wraps up in a flurry of frantic activity just before tenders are due for submission – when the subcontract and supply quotes are received and co-ordinated by the Builder and their contract administrators.

The Builder then works out their own costs – labour, wages, supervision, hire items, administration, risk and profit – to produce a bid – usually, a fixed-lump sum price. A very tricky and expensive exercise – for if they miss something out or under-calculate, they may win the project only because they’ve made a costly mistake – then wishing that maybe they hadn’t won it, as making a profit can then be difficult or unlikely.

Or they may not win a project because they have doubled-up on a cost or over-priced something, or included too much supervision or profit. Or, worst of all, they might put in a good, fair & reasonable price only to lose the project to a cheaper bid (that may have been riddled with errors).

This time-consuming process can cost thousands, even tens of thousands, of dollars or more! … even on a relatively small project … A cost that must become an overhead, and so, be recouped somewhere in the construction costs (or their company overheads) of a successful bid … And, as they may win only, say, 1 out of 4 or 5 tenders, this cost may then be 4  or 5 times the initial bid cost.

Note: Builders sometimes employ outside help (quantity surveyors, for example) to prepare part, or all, of their bid (especially expensive if a Bill of Quantities has not been provided by the client and needs to be measured). These ‘outsiders’ need to be paid, even if the bid is not successful.

Remember, if you are tendering to four or five builders, there can only be one winner (if the job goes ahead), and so there must be three or four losers – meaning the cost to prepare one successful tender also includes the cost to prepare the unsuccessful ones.

So please, only tender projects that you are confident are close to budget and very confident that they will be constructed.

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