Cut Throat Tender Pricing….

So another year begins and listening to all the pundits this is going to be tougher than the last one.

But what of tender prices? Inflation is allegedly running at near 4% (although it feels a lot higher to me) so tender prices on the up? No, not a bit.

So whats happening?

Well I wonder how many tender bids are going in at lunchtime today that have been priced below net cost? I’d never be able to prove it but I suspect nearly all of them.

So why is that?

Well as we know there isn’t a lot of work around, and there’s probably still too many of us chasing that amount of work too…and clients know that. So more of you are being asked to tender…and do you consider you are pricing against like for like competition? No, is the most likely answer.

So what to do?

Go in as cheap as you can, beat the opposition, keep your team intact, gain a contribution to your overhead, pray the job goes well, there are lots of variations and changes to claw some money back, over value the job on interim valuations, screw the supply chain further (after all they never put in a sensible bid at tender stage, and if they did you ask them to knock it by 15-20% anyway), and oh that the client still has the funds from his finances to pay you!

But consultants you’re not helping either.

Don’t stuff your tenders with huge provisional sums because designs haven’t been resolved or you haven’t made your mind up, or the client hasn’t. Don’t include provisional quantities or items, keep your specifications tight and detailed to what you want. Don’t send out vague, confusing, incomplete, conflicting designs, drawings and information as the contractor will see this as a great opportunity. And please stop issuing tender addendums when you’ve only just sent out the documents, send it all out once and be done with it!

And finally don’t burn everything you can possibly think of and put it on a cd, as all the contractors do is the same, but pass it on to the supply chain. And what happens? The man in a van gets it, doesn’t understand it, either doesn’t bother with it, puts in a price because he thinks he understands it, only to find he’s committed to something he doesn’t understand.

Then  he doesn’t do the job and leaves everyone with a problem.

By way of an side, but on the same vein, we’ve got a project in the office that we are doing the bills of quantities for the contractor. Tucked away in part of the tender documents there’s a clause that states if your bid is above £7.2M don’t bother sending it in! (The job has already been tendered last year at around £8M, sent out again with no design changes, what do they expect I ask?)

So clients don’t expect the impossible, but if you do ask for it be warned as if you step out of line, dither over a decision, play with the contractors cash flow expect the worst as it will come back and bite you!

Thanks to John Langford for his tweet @ConstructionMM for being the inspiration for this.

14 Responses to “Cut Throat Tender Pricing….”

  1. 1 Philip Reece-Heal January 21, 2011 at 5:18 pm

    Great article and acres of common sense. However, in my long history in this industry I’ve read virtually the same on many occasions (during previous construction depressions that happen with monotonous regularity). Did anyone learn any lessons? The fact that you are writing about it now rather suggests they did not.

  2. 3 Peter L Masters MCIM January 21, 2011 at 5:39 pm

    A great article Derek and one I hope lots of people see! Since I left the construction side of construction nothing has changed and only the companies with very deep pockets can continue working this way until the ‘good times’ return. (Good meaning at least a bit profitable)
    I remember responding to a Tweet from John Langford ages ago about this very subject and nothing has changed!
    One of the main problems is that construction staff at all levels don’t always understand (or don’t want to understand) managements dilemma and rather than going the extra mile they just moan about how tough things are!

    • 4 derekmynott January 24, 2011 at 5:49 pm

      Hi Peter,

      Thanks for the comments, having just read an article from Begbies Traynor about a 20% increase in construction companies being in a state of crisis or near critical condition I expect some of these activites will start to come home to roost for the companys involved in these activities!

  3. 5 John Langford January 22, 2011 at 11:25 pm

    Thank you for making a statement on this issue. I hope that I might be able to launch some kind of campaign once my new site is finished. I think it is unjust and putting many honest people into a difficult financial position as well as creating an industry that lacks integrity.
    I really appreciate the way you have clarified this issue in a way that I would not be able to. Well done!

  4. 7 Simon Denton January 24, 2011 at 9:47 am

    Sometimes Clients need to be reminded that:

    “The bitterness of poor quality remains long after the sweetness of low prices.”

  5. 9 Richard Stokes January 24, 2011 at 10:02 am

    You’ve managed to sum up everything I constantly complain about in one blog!

    Particularly the section about lack of tender information. The standard of tender documentation appears to be getting worse and worse. Vague and confusing specifications and drawings, the words “to match existing” when we aren’t allowed to visit site, and to top it all, when you put in a tender query, they refer you to the fact that they have put forward a Design & Build contract in the prelims, which effectively means that they send you a pile of **** and want the contractor to take the risk!

    • 10 derekmynott January 24, 2011 at 5:55 pm

      Hi Richard,

      Lack of tender information and poor quality information is one of my biggest bug bears at the moment. Everyone on the receiving end is expected to jump through hoops at a rapid pace of knots with next to no information…or conversely too much irrelevant information! And yes it’s a ‘design and dump’ world out there at the moment don’t you find?

  6. 11 Abdulwasiu Amao January 31, 2011 at 4:23 pm

    This is a fantastic article Derek. Your summary of the problem cannot be more true in the developing nations. Clients expect design and award of contract by imposing impossible deadlines with strong eye on incredible low prices. The results are poor tender information, poor quality of work, most times ridiculous price escalations, completion time overrun and a very unhappy client. Thanks for sharing Derek.

  7. 12 Jimmy Cheang March 19, 2011 at 7:25 am

    Derek, thank you for putting up the “ugly side” of Construction Contracts and Tenders.
    In Singapore we are having the same problem, I believe it is a global concern now.
    We may have to focus on the Developers and the Architects in short.

  8. 13 derekmynott March 22, 2011 at 1:52 pm

    Hi Jimmy<

    Thanks for the comments and your thoughts too. Judging by the comments made by Abdulwasiu too it's something we are all experiencing around the world. Now if someone can come up with the solution that would work………… I fear not, as long as the supply is greater than the demand, and the cheapest price rules these circumstances are here to stay.

  1. 1 Tweets that mention Cut Throat Tender Pricing…. « Derek Mynott's Blog -- Trackback on January 21, 2011 at 10:48 am

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About Me

I’m now the Managing Director of Mynott Associates Limited my own specialist measurement business. I’ve been in the industry all of my life since I left school. My first job was with Bovis Construction as a management trainee where I trained to become a quantity surveyor. I’ve worked for contractors all through my career, I am FRICS, FCIOB and MCIHT qualified and act as an RICS assessor. I’m also a keen Arsenal supporter having followed them from a young boy

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