Bidding Strategy of Construction Companies

Bidding Strategy of Construction CompaniesIntroductionThis report aims to assess the value to construction companies of having a defined bidding strategy that is complied with when tendering for new turn over. The mass of construction companies have a bidding strategy of some form whether it is specified or non, in the instance that a comp all does not wage in a process of selection when approaching new figure out then they pull up stakes offer little value as they would be value every job forthcoming regardless of the lease value, location, programme or their previous experience of that type of work.At the time of writing the UK economy (in extra the construction industry) re master(prenominal)s gripped by the instability and uncertainty created by the financial market turmoil that occurred throughout 2007 2008 leading to the greatest economic crisis and subsequent inlet since the Great Depression of the 1930s (Brunnermeier, Markus K., 2009). As such construction compani es are faced with a market place as competitive as any in living memory, for most turnover and profits have dropped significantly and this subsequently applies extra emphasis to the importance of the tendering process.The report will firstly reexamination the literary works available on bidding strategies in the construction industry with a brief review of the answers of the recession on goors bidding prices. The literature review will then be advanced upon by conducting an assessment of the bidding strategy utilised by Dawn Construction Ltd, a main haleor operating in the central belt of Scotland.2.0 Bidding Strategy2.1 DefinitionA bidding strategy can be described as a wide range of applied techniques and timing in order to achieve predetermined objectives. Brook (2008) offers the follo pull throughg analogy It is interesting to note that in military terms, the word strategy means the skilful management of an army in such a way as to deceive the enemy and win a campaign. In business the stated objectives can sometimes be achieved by deceiving the opposition but principally the specified objective is to be productive in winning contracts at prices which would allow the organisation to carry out the work profitably In effect a bidding strategy is the close by a gild on which work to price for and the level of profit to incorporate in order to successfully secure the bear and nurture the businesses financial security.2.2 The Tender ProcessUnder traditional circumstances the tender process for a contractor commences with the clients invitation to tender. Upon receipt the contractors response will be molded by several factors, ultimately though the volume of available work will determine the eagerness of the contractor to price the tender. Very few contractors will actually outright decline the opportunity to price work for a reputable client, in the instance where the contractor does not want to price a tender for whatever reason it is more likely t hat he will price the work using uncompetitive rates in order to visit they do not win the contract.(Smith, 1995) This practice is commonly referred to as cover pricing and the primary objective of it is for the contractor to avoid work that he does not want to attempt without insulting the client and being removed from his future tender lists. Although cover pricing was made illegal in 2000, it is still regularly employed by contractors who differentiate between submitting a price that is non-competitive and the act of colluding with others in a bid-rigging process. (Bingham, 2009)2.3 Decision to TenderPrior to committing to pricing a project a contractor must carefully consider his decision to tender as every job he prices costs the company money and reduces the elections available to price other work. Some contractors engage in a grading system when they receive a tender (i.e. a grading range of 1-4), this is in order to prioritise enquiries and put emphasis on winning the ty pes of projects best suited to the company. Others prefer to approach each tender with the aspiration of winning the contract, allowing their price to be influenced only by perceived risk and relevant market factors. Where circumstances change during the bidding process perhaps the contractor wins another contract unexpectedly this can be taken into account at adjudication stage. (Cook Williams, 2004)Cooke Williams (2004) cite the following as key factors in influencing a contractors decision to tender cosmopolitanIs it our kind of work?What is the current workload?Working CapitalIs there sufficient works capital to fund the project?What will be the effect on company financial resources? handiness of ResourcesDo we have the resources available to price?Do we have the site labour available to undertake? are suitable jobors available?LocationIs the project laid within our trading area?What management and control problems will there be with a contract located some miles from head office?Size Type of WorkWhat is the monetary value of the project?Is the contract too big for the company to undertake?How did the company perform on similar types of work in the past?Subcontract elementWhat is the extent and value of the contractors work in the project compared with the subcontract element?Is the main contractor simply being asked to manage a number of subcontractors?Is a reasonable mark-up on subcontractors likely?GeneralIs it our kind of work does it fit into strategic plan?What is the current workload in both the contracts division and the estimating section?Do we have the financial and management resources to undertake the work?Working CapitalIs sufficient working capital available to fund the project?What will be the effect on company financial resources?The working capital required to fund a 500,000.00 project will be approximately 15-20% of the monetary value at the peak funding month (say 100,000-150,000)Availability of ResourcesGeneral management person nel (e.g. contracts managers, planning engineers, quantity surveyors)Site management (e.g. site agents, foremen/gangers, site engineers)Labour and plantSubcontractors are suitable subcontractors available and what is their resource situation?LocationIs the project located within our trading area?What management and control problems will there be with a contract located some miles from head office?Size Type of WorkWhat is the monetary value of the project?Is the contract too big for the company to undertake? taking on a project which is too big could be damaging to future planning and growthWhat impact will there be on the viability of the business if the contract fails to make an adequate margin?If a contractor with an annual turnover of 10 million wins a 4 million contract and this project makes a loss, the whole business could be put at risk.A major project could give the company severe liquidity problemsHow did the company perform on similar types of work in the past?Bibliograp hyConstruction planning programming ControlBrian Cooke Peter WilliamsFinance Control for ConstructionChris frame in