Unfortunately contractors do make mistakes pricing projects. These mistakes might increase their price, probably meaning they don’t win the project. Sometimes they fail to include documents requested by the client resulting in their proposal being disqualified or going in the trash (a waste of effort). Other times they under-price an activity and they lose money when they construct the project.
Of course companies can avoid some of these problems by being more selective with which projects they price, discarding projects which are unsuitable and concentrating on those that they really want. However, even so mistakes happen.
Ask these questions
It’s prudent to carry out a few checks before submitting your price. Ask yourself and your team these questions:
- Have we included all documentation asked for in the RFP? Customers often ask for a whole host of documents which could include forms the contractor is required to complete as well as other documentation such as the contractor’s insurances, process manuals, project schedule, estimated cash flows, safety plans, quality assurance plans and bid bonds. Failure to include one of these documents could result in your price being disqualified.
- Will the person reviewing our proposal find the documents requested? You may have included all the documents but it doesn’t help if the person scrutinizing your submission can’t find them. This may lead to your price being discarded or at best the customer becoming frustrated. Include an index which will help the client. Also clearly highlight the relevant documents requested.
- Have we priced everything the customer requested? Do we understand the scope of work? Often the project scope is read at the start of the pricing exercise and then forgotten. It pays to review it from time to time to ensure you haven’t priced something that is actually the customer’s obligation or left out items you should have priced.
- Is our price competitive? We sometimes know who our competitors are and how desperate or not they are for the project. Sometimes we even know the customer’s budget or price expectations. If we believe our price isn’t competitive and we really want the project it may be necessary to reduce our profit margin. We could also revisit some of our calculations and quotations received from major suppliers and subcontractors. Don’t do anything stupid by cutting your price so you lose money – rather take a critical look where there are real savings possible. Conversely if you know the competition is going to be pricing high you could decide to increase your price by increasing your profit margin.
- What are the project risks? Have we considered all of the project risks? Have we been too conservative when looking at the risks? Some contractors almost blindly price a project assuming everything will go as expected and are then surprised when things go wrong – even though they could possibly have been foreseen. Other contractors see a risk around every corner and add contingency for every eventuality. By preparing a risk schedule we will have a better understanding of our risks and the steps we should be taking to mitigate them. Reviewing this schedule before submitting your price is always good practice.
- Will it be clear to the customer what’s included in the price? Contractors sometimes think their customers have ESP and should know what the contractor has priced and what is allowed in their price. If you have had need to assume something or you haven’t priced an item ensure that your customer knows this. If you’re pricing a new house it should be clear from the information provided with your price what the house will look like and what finishes have been included.
- Is the math correct and have we carried all prices into the final contract price? This sounds simple yet many a contractor has gone out of business with simple math errors. We often trust in our computer spreadsheets and software, but unfortunately these often depend on the formulas we enter. Check and recheck. Sometimes customers ask contractors to include a provisional amount of money for a section of unknown work, but I’ve known contractors who left this amount out of their final price, and had to later carry the cost of this amount themselves.
- Have we added in all the costs for our subcontractors? .........Continue Reading........
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