What is the secret of wining a competitive bid? While price strategy plays a major role it is also important to prepare an accurate cost estimation.If your estimation is not accurate then winning the tender is useless and even you can end up loosing money.This is why it is important that you know how to prepare an accurate cost estimation for your construction bid.
Preparing an accurate cost estimation for your construction bid is really important due to many different reasons.First,you want to win the construction bid.After that you need to deliver the construction project within the prepared cost estimation without losing money.Therefore you need to have an accurate estimation for the construction project you are bidding due to the below reasons.
- in order to win it
- to deliver it without much trouble within your cash flow.
Tendering stage is one of the competitive and important phase for any construction project. At this stage, the owner or developer will be able to choose a contractor who can deliver the project scope within the specification and as scheduled.
Although, it is not required to award any construction project to the lowest bidder, submitting an accurate bid is really important to be successful in any tender.
One of the keys to be successful at competitive bidding is to prepare an accurate cost estimation for the project. For this, both accurate quantities and accurate rates are required. It is also essential to understand the project and suitable construction method in order to foresee the additional costs. When you have the right picture of the construction project, you will reduce the risks of preparing inaccurate bid estimates.
Having experience in participating in many tender submissions in construction sector, below I gathered some helpful tips which every bidder should follow in order to prepare an accurate cost estimation for their tender submission.
Why is it important to prepare an accurate cost estimation for construction tenders?
First, what makes an estimate accurate? As a contractor, you want to win the tender. That is number one priority for any bidder. However, by only having an accurate estimate may not help you to win a project as there are other qualifications which you have to fulfill.These qualifications include previous experience in similar type of projects and financial capability and many more.
Benefits of an accurate estimation
You may not be the lowest bidder. But, with an accurate cost estimate, you will make sure that you are not among the highest bids. You will not submit a too low bid which is unrealistic with current market rates.
Further, you will not forget to add costs for important items for the project. If your cost estimate is without such mistakes, then your company is not at risk if the project is awarded in future. You will not have the burden of a construction project which lose money.
How to prepare an accurate cost estimation for a construction project?
With my experience, I know that preparing an accurate cost estimate is a challenge. You need to focus on the project, understand the scope and possible construction methodology, source the material suppliers and evaluate the risks. And don’t forget to decide the overhead costs accurately which is essential to run the project.
However during competitive bidding,you will have really short time period to do all these.You have to take account of the addendum issued during the pre-bid period.Therefore if you do not have an idea about how to prepare an accurate cost estimate and if you don’t know the specific areas that you have to focus on,there are many chances to make mistakes.
When you do not miss adding cost for any necessary item for the construction and when you make sure to use current market rates for your estimate, you are in the right path for preparing an accurate cost estimate.
Below are some of the things to know before you prepare your tender estimate.
1. Make sure your quantity take off is accurate
Quantity take off is really important for any tender estimate to be accurate. This is really important in Lump Sum projects as the contractor has to evaluate the project documents and drawings in order to prepare his project proposal.
If you bid using traditional bidding method where you get a BOQ to price then you will not have the burden of taking off quantities.But most countries use the Lump Sum contract model for most projects.In such contracts you need to be accurate with your quantities.
2. Prepare the activity breakdown correctly
If you miss out any construction activity which is essential for the project, you will also lose money on it. Therefore, be sure to include all construction activities in your BOQ in order to estimate the accurate price.
3. Understand the tender document
Although it sounds like construction estimates require a BOQ with accurate quantities and rates, it is also essential that you understand the project requirements. Additional costs may involve for the construction due to complexity of the project. Therefore read and understand the tender documents and its requirements before you prepare your cost estimate.
4. Follow the specifications and drawings
It is important to understand your tender documents. While you don’t have time to read all tender documents during the tender stage, it is important to read and understand the drawings and specifications.
You have to include the cost for products that follows the specifications. Depending on the quality which Employer requires, the rate can be different.It is also necessary to understand the specific clauses applicable for the construction contract agreement if you win the project.Such important things to know include advance payment (if any) ,retention money , progress claim submission,payment response ,liquidated damages,time to completion,variation orders and variations etc.
5. Don’t forget to get quotations from Subcontractors/suppliers
During the tender stage, it is also essential to contact the potential subcontractors and suppliers for quotations. If you receive at least 3 quotations for each of the major items, then you can compare the current market rates before you choose which one to use in your tender estimate. Also, for items which you have to build up your own rates, be sure to use accurate quantities and labour output.
6. Add machinery and equipment cost accurately
Even though your cost estimation is solely depend on the subcontractors’ quotations, don’t forget the heavy machinery and equipment that may require for the project. Include the cost for renting such equipment depending on your construction methodology.
Sometimes, subcontractor rates exclude machinery and they expect main contractor to supply those during construction stage. Identify such items in your project in order to not to miss adding costs.
7. Understand the current fluctuations in material pricing
For some materials such as steel reinforcement, price fluctuations are allowed in some projects. However, it is important to understand the current market trends and possible risks in price fluctuations.
8. Check the availability of materials and other resources
Scarcity of resources will directly affect the cost of such. In case if your project require such materials, be sure to check and study how to deliver the material to the site. Include any delivery charges, transport and other related costs such as loading and unloading to your pricing.
In case if any material is required to import from another country, check the custom duties and taxes which you have to include in your estimation. For such items it is always important to request quotations from potential suppliers.
9. Use a Master Checklist
In your tender cost estimate, you need to include possible costs for overhead. Other than that, there will be costs for authority approvals and permits. Depending on the projects you carry out and depending on the location (due to different laws and regulations), these costs can be different. However, identify such costs for any project and include the price for those. In order to not to miss such items, it is always better to have a master checklist which you can check for each cost estimate. This will avoid missing out any major item from your cost estimate.
10. Identify the risks
Before you start preparing the cost estimate for your project, understand the nature of the project. Identify the possible project risks. All such risks come with a cost. Therefore include such risks in your estimate in order to avoid the burden of carrying out a project which is not profitable.
11. Use Unit Cost Estimates as Guides only for checking purpose
Don’t use unit cost estimates to prepare your estimate. This will be a risk at bidding stage. Usually such unit cost estimates are used during the planning or concept stage in order to roughly estimate the project cost.
Therefore use of such unit cost per square foot (or unit cost per square metre) by multiplying the floor area to get the final estimate is really a bad way to prepare your bid.
However, you can use such unit cost to check the accuracy of your estimate. This will be like a thumb rule to compare your cost estimate. But, remember to use a similar project to obtain the unit cost for such practice. If your current project involve different new features where there will be higher costs involve, this method will not give a correct idea.It is simply an approximate estimate not an accurate estimate!
12. Pay more attention to Cost Centers
Consider the whole project and identify the cost centers. These are the areas that involve the highest percentage of overall project cost. If you do not estimate these construction activities accurately, there is more risk of losing more money than from any other activity include in the same project. Therefore spend more time for such areas of the project and estimate accurately. Add more accurate rates for resources such as labour, material and machinery. Check sub-contractors and suppliers for their quotations. Get help from site personal if they have experience in similar nature of work. In such way, you will ensure these items are correctly estimated.
Wining the Construction Bid
Finally, preparing an accurate cost estimate is the foundation for successful bidding. You may win or lose the project. But, you will not have the burden of winning a project which your company lose money.
Once there is an accurate cost estimation, it is up to you or your management team to use strategies to prepare the final bidding amount. Adding high or low profit percentage will affect the final amount of the bid. In this stage, there are strategies to follow in order to submit a competitive tender bid.When you know right strategies to prepare your tender cost estimation,wining traditional method tenders are not that difficult.I know that with my years of experience in preparing tenders for projects. 🙂
Do you have other ideas to share?Please comment below.