How SMEs Can Bid to Win in the post-Carillion World (part III)
Posted on 27/03/2018 by
Pricing a bid can seem like a shot in the dark to many SMEs. Especially if you have limited experience of tendering, how do you know what prices to submit? First, there will always be some unknowns in where to fix your prices e.g. you may not know the client’s maximum budget and you will not know exactly how many competitors there are and what prices they will be going in at. Whilst my work focuses primarily on the capturing, solutioning and technical writing of bids, I have been party to many pricing discussions over the years – on both client and contractor/supplier sides of the table.
Here are 10 helpful tips to take into account when determining what price to go in at:
- Understand your market position – If your business was a supermarket, which one would you be? If you are high value/high price, then think carefully about going for opportunities with buyers who are looking for mid/low price services. For example, if somebody only wants to pay £20 for a pair of jeans, you have a very hard sell if your jeans are all £75+.
- Interrogate the specification – Is there anything missing? Are you having to make assumptions? Go back to the client and ask questions aiming at creating a level playing field so that all bidders are pricing the same thing.
- Use the clarification question process to your advantage – How could a bidder take shortcuts? Leave things out? Hope elements would not get noticed? Water things down? Look for additional revenue e.g. through variations? These are all tactics that some bidders use to be able to submit low prices. You can flush all / most of these out during the clarification process by asking questions so that the buyer can provide confirmation of their requirements. This increases the chances of their being able to compare apples with apples and makes the price differences between bidders less stark. There is usually a deadline for submitting clarification questions, so watch you don’t miss this! Better still, get your questions in as early as possible which gives the buyer time to answer them and you time to factor their responses into your submission.
- Implement a zero-based pricing model – Don’t just take a notional client budget and then try to work back to your costs and margin. Instead, look at your actual costs of delivering the contract, then allow a reasonable margin. In pubic sector tendering, the contract value is usually given. This is usually not a minimum, maximum or target, but instead may be a budget. However, you should only be submitting a bid at a price you can deliver and make a reasonable margin on. Think Carillion for what happens when there are wafer-thin profit margins! Better no deal than to overplay your hand.
- Look for efficiencies – What opportunities are there for cost efficiencies (where permissible) in materials, value engineering, labour, modern methods of construction, accelerated timescales, programming / phasing, etc? Also, go back to your suppliers and any sub-contractors – make sure their pencils are sharp and that you are getting the best prices. For these third parties, try to make sure you ask them in plenty of time for pricing and that they return it in sufficient time for you to check / challenge. Prices flying in at the last minute can be on the high side and there may not be time to change before the bid deadline.
- Watch your labour costs – Think about the effects of inflation, Living Wage increases, Auto-Enrolment pension increases, availability of foreign labour, shortages of skilled labour, costs of sub-contract / agency workers to name a few variable labour costs.
- Build in contingencies – We’ve recently come through the Beast from the East – weather and other variables can have some significant effects on deliverability both in timescales and budgets. Watch though that your price does not go too far north as you build risk in – you will need to make some commercial decisions around Probabilities, Impacts and Mitigations for the identified risks.
- Brexit considerations – If the opportunity extends over several years, think about how Brexit could affect your delivery model. Some impacts could be reduced availability of EU National labour, higher material costs due to currency fluctuations and perhaps some decrease in construction industry investment confidence.
- Challenge your pricing – Make sure that you hear a few different views from within your organisation before finalising your pricing. If the contract is high value, risky, or specialist, it would be worth considering getting some external assistance with your pricing. This should more than pay for itself over the course of the contract.
- Get feedback – Successful or unsuccessful, always ask for detailed feedback. In public sector bidding, you are entitled to ask for granular feedback – make sure you exercise this option. In the private sector, use your relationships to extract as much information as you can – try to get to the bottom of where the bid was won or lost.
Next week, in my final blog of this series, I will focus on how you can get an edge on your competition and optimise your chances of winning!
Andrew Morrison MSc FCIH, Managing Director, AM Bid Services Ltd