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.
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:
2. Understand the project documentation.
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.
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?
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.
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
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some Reasons why projects lose money
Top Tips to Cut Costs on Today's Construction Site
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The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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