Bidding Strategy of Construction Companies

Bidding Strategy of complex body part CompaniesIntroductionThis report aims to prise the value to construction companies of having a defined bidding strategy that is complied with when naked as a jaybirding for new dally. The majority of construction companies set out a bidding strategy of some form whether it is specified or non, in the instance that a party does not engage in a process of selection when approaching new hunt down then they result offer little value as they would be pricing every parentage unattached regardless of the contract value, location, programme or their previous experience of that type of turn.At the eon of writing the UK economy (in particular the construction industry) remains gripped by the instability and uncertainty created by the fiscal market turmoil that occurred throughout 2007 2008 leading to the greatest economic crisis and subsequent quoin since the Great imprint of the 1930s (Brunnermeier, Markus K., 2009). As such construction c ompanies are faced with a market place as competitive as any in living memory, for most turnover and profits have dropped signifi ceasetly and this subsequently applies extra emphasis to the importance of the tendering process.The report pull up stakes firstly review the literature for sale on bidding strategies in the construction industry with a brief review of the effects of the recession on asserters bidding prices. The literature review will then be advanced upon by conducting an judgment of the bidding strategy utilised by Dawn Construction Ltd, a main contractor in operation(p) 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 secern to achieve predetermined objectives. Brook (2008) offers the following analogy It is interesting to note that in military terms, the intelligence information strategy means the skilful direction 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 successful in lovable contracts at prices which would allow the organisation to carry out the convey profitably In effect a bidding strategy is the decision by a company on which work to price for and the direct of profit to incorporate in order to successfully secure the project and maintain the businesses pecuniary security.2.2 The sensitive ProcessUnder traditional circumstances the tender process for a contractor commences with the clients invitation to tender. Upon receipt the contractors result will be shaped by several factors, ultimately though the volume of for sale work will determine the eagerness of the contractor to price the tender. Very few contractors will actually like a shot decline the opportunity to price work for a reputable client, in the instance where the contractor does not want to p rice a tender for whatever reason it is more likely that he will price the work using uncompetitive rates in order to ensure they do not win the contract.(Smith, 1995) This practice is comm hardly referred to as cover pricing and the primary objective of it is for the contractor to avoid work that he does not want to undertake without insulting the client and being removed from his coming(prenominal) 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 some others in a bid-rigging process. (Bingham, 2009)2.3 Decision to Tender preceding 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 resources 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 types of projects outgo 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 perchance the contractor wins another contract unexpectedly this can be taken into account at adjudication stage. (Cook Williams, 2004)Cooke Williams (2004) credit the following as key factors in influencing a contractors decision to tenderGeneralIs it our kind of work?What is the current workload? counterfeiting CapitalIs there sufficient working capital to broth the project?What will be the effect on company financial resources?Availability of ResourcesDo we have the resources available to price?Do we have the site labour available to undertake?Are suitable subcontractors available? fixingIs the project located within our tra ding area?What management and control problems will there be with a contract located some miles from head office?Size Type of WorkWhat is the pecuniary value of the project?Is the contract too big for the company to undertake?How did the company set 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 strategical 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 unavoidable to fund a 500,000.00 project will be approximately 15-20% of the mo netary value at the point in time funding month (say 100,000-150,000)Availability of ResourcesGeneral management personnel (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 coul d give the company severe liquidity problemsHow did the company perform on similar types of work in the past?BibliographyConstruction planning programming ControlBrian Cooke Peter WilliamsFinance Control for ConstructionChris March