10 tips to successfully pricing your next construction project

​Pricing (estimating) a construction project has been described as a science, an art, part luck, and for some just a guess. Getting your price right means you have to win the project with a price that is higher than your final project costs will be, meaning you’ll make a profit. But just because you have the right price (for your company) doesn’t mean that your competitor won’t have a lower price that will be profitable for them. Having a lower price than your competitors also doesn’t mean that you’ll be awarded the project since clients often look for other requirements, and they need to be convinced that you are the right contractor for their project.
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Unfortunately there are many contractors who submit flawed prices which have little chance of success, or worse, which can lead to the downfall of the company when the price is lower than their final project costs. But there are also many other risks that contractors don’t consider when pricing their projects, these include non-payment, inability to deliver the project to the required standards, lengthy legal disputes, health risk to employees, reputational risks, cashflow problems, and even the risk of losing out on favourable future work.
#pricingconstructionprojects #constructionbids #constructiontenders

Tips to successfully pricing your construction project

​1.    Understand your client. You don’t want to work for some clients, particularly those who don’t, or can’t pay. Check whether your client:

• Has a reputation for paying their contractors on time.
• Has sufficient finance for the project.
• Has employed a suitable project team.
• Doesn’t regularly get embroiled in legal disputes with their contractors.
• Treats their contractors fairly.
• Is serious with proceeding with the project.
• Has reasonable expectations which your company can deliver on.

In construction it’s important to know your clients. It could save you.

   2.    Understand the project documentation.

• What are the payment terms?
• Are there specific project rules?
• Is the contract fair?
• Are their conflicting clauses or potential problems with the contract?

your construction project contracts - why you need to understand them
 3.  Know the market and what other projects are coming out for pricing. Good market intelligence is essential. You don’t want to be stuck with a difficult project at a low price while you miss out on other more lucrative and easy projects that are likely to be available in the next few months. Read: Should contractors price every project?
 4.    Physically check the project site conditions.

• Is access to the work areas available? Are there restrictions on the route to the project which could restrict the size or weight of vehicles? What about traffic?
• Are their other contractors working in the area who could cause disruptions to your work?
• What are the project physical conditions – ground conditions, drainage, water table, etc?
• Are there power cables or other overhead restrictions?
• Are there underground utility lines in the way of construction?

Don’t Submit Your Construction Price (estimate/tender) Proposal Until You Get These Questions Answered On A Site Visit
 5.  Understand the opposition (competitors). It may not be worth pricing projects against competitors who are known to be favoured by the client, ones that have a reputation for stupidly low prices, or competitors that are in a position to deliver a cheaper project because they are working in the area or have the right equipment for the project. You may be wasting your time pricing a project which you don’t stand a chance of winning!
 6.    Understand the project. What is your company responsible to deliver? What will the client supply?

Despite the obvious warning signs some contractors dive straight into risky projects.

​ 7.    Identify and quantify the risks. Prepare a risk schedule. Understand how you can manage and reduce the risks. Be prepared to walk away from projects that are too risky and where the quantum of the risk event could sink the company. Read How to deal with construction risks
 8.    Know your company’s capabilities. Will you have the people and equipment to do the work? Do you have people with the right experience?
 9.    Check the available resources. Are materials, people, and equipment available?  Will they be available when they are required?
 10.   Consider the construction methodology. Develop the best methodology taking account of your company’s capabilities, the available resources, the project site conditions, the project schedule requirements, price, safety and the client’s requirements and design. Consider alternative construction methods and products. 

Conclusion

 Some contractors take the shot gun approach to pricing projects. Aiming in the general direction of the target and hoping they snag a project. Submitting as many prices as possible, hoping that one will get them a project. Their estimators often work long hours churning out price after price, just hoping that they will have success with one submission.

Unfortunately this often leads to mistakes. High prices mean it's another effort in vain. Low prices may land the company a project at a price they cannot do the work for.

Rather contractors should pick the right project, then spend time and effort preparing a winning price submission. In my next article I discuss more tips for winning construction bids 10 more tips for pricing construction projects​#constructionprojects #contractors #constructionmanagement

Other useful articles
Negative cash flow – the death for many construction companies
some Reasons why projects lose money
Top Tips to Cut Costs on Today's Construction Site

Do you want to learn how to manage construction projects successfully

​Paul Netscher has written several easy to read books for owners, contractors, construction managers, construction supervisors and foremen. They cover all aspects of construction management and are filled with tips and insights.
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The books are available in paper and ebook from most online stores including Amazon.