How to Price a Government Tender So That Winning It Is Not the Problem

A government contract that loses money rarely loses it on the rate analysis. It loses it on the costs that were never in the build-up: the capital locked in guarantees, the retention held for two years, and the months between doing work and being paid for it.

Start with the direct cost

Rate analysis for each BOQ item: materials at landed cost, labour at the rate you actually pay including statutory contributions, plant on an hourly or output basis, and wastage at a realistic percentage.

Where a department publishes a schedule of rates, it is a reference for what they expect, not a substitute for your own analysis. Your costs are your costs.

Then site and project overheads

• Site establishment, temporary works, storage
• Supervision, the site engineer and support staff for the full duration
• Utilities, security, housekeeping
• Insurances required by the contract
• Testing and quality control
• Mobilisation and demobilisation, particularly outside your home area

The duration point matters. Overheads accrue over the contract period, and a contract that runs long accrues more of them while the contract value stays fixed.

Then head office overhead

Your fixed costs, apportioned. If annual overhead is a known figure and expected annual turnover is a known figure, the percentage is straightforward, and it should be applied honestly rather than shaved to win.

Now the part most build-ups miss

This is where government contracts differ from private work, and where margins disappear.

EMD, committed from submission until refund, which is months. Capital you cannot use elsewhere. See EMD in tenders.

Performance guarantee, both the commission for the full life of the guarantee including the defect liability period, and the opportunity cost of the margin money the bank holds. See performance bank guarantees.

Retention money, deducted from every running bill and released after the defect liability period. This is your money, held for years, and on a contract with a meaningful retention percentage it is a substantial sum. See retention money.

The payment cycle. You buy materials and pay wages now; the running bill is measured, certified and paid later. That gap is financed by you. See running account bills.

Non-recoverable deductions. Some deductions from bills are creditable and some are a real cost. Treating them alike loses money on every bill. See TDS, GST TDS and labour cess.

Price risk explicitly

Input price movement, where there is no price variation clause. On a fixed-price contract you are carrying a commodity position for the duration.

Bid validity, during which your price stands while materials move. See bid validity period.

Liquidated damages exposure, weighted by an honest view of delay risk.

Put a number on each rather than absorbing them into "margin", because a margin that is quietly funding four risks is not a margin.

Then look at what wins

Now, and only now, compare your cost-plus-margin price with what this buyer actually pays. Past award data shows the discount to estimate that has been accepted before and how many bidders typically turn up. See reading award data before you bid.

Three outcomes:

• Your price is at or below the winning band. Bid.
• Your price is above it but the gap is explainable, for example you have priced risk others have not. Decide deliberately whether to carry that risk unpriced. Usually the answer should be no.
• Your price is well above it. This is not your tender. See the bid or no-bid framework.

The evaluation method changes the answer

Under L1, price is everything among qualified bidders. Under QCBS, a technical point can be worth more than a price cut, and discounting as though every tender were L1 leaves margin on the table. See L1, QCBS and LCS.

Where a reverse auction follows, decide your floor before it opens and hold it.

Two prices, written down

The discipline that survives contact with an auction and with a persuasive client: compute your target price and your walk-away price, and write both down before any negotiation or auction begins.

The walk-away price is cost plus the minimum contribution that makes the contract worth doing given what it consumes in capital and attention. Below it, losing is the better outcome.

Avsar keeps the award history for a buyer and category alongside the tender, so the "what wins" step is data rather than recollection. See the intelligence module and awards.