Cost Assumptions

Though the bid specification will normally contain information about the financial basis of the contract, there may be points of detail on which you have to make assumptions when preparing the bid. If the format for this part of the bid allows it, you may find it useful to declare these assumptions as a means of safeguarding your position and reducing the possibility of misunderstanding. Points that might be covered, unless they have been specified by the client, include:

• the period for which the price and its component estimates will remain valid after the submission date;

• the assumed starting date of the contract;

• the values in which costs are expressed in the bid (eg April 2003 values);

• any index linking of the estimates to allow for inflation;

• time - the definition of what is deemed to be a 'day' (how many hours of work), a 'week' (how many working days) and/or a 'month' (a calendar month or a set number of working days): in many sectors of business the nominal working year is usually defined as about 210 potential working days, taking into account weekends, bank holidays, vacation time and an allowance for sickness leave;

• the applicability of per diem rates;

• assumptions about client inputs: ie what it is assumed the client will provide by way of logistical support, documentation and so forth;

• arrangements for the recruitment and payment of temporary personnel;

• arrangements for the appointment and payment of subcontractors;

• the extent of computing requirements and basis of computing costs;

• the treatment of travel expenses, including the applicability of any cost limits imposed by the client.

Defining the period of validity of your price is a point of key importance in bidding for overseas contracts, particularly when the work is to be undertaken on a lump-sum basis. Contract negotiations may take longer than expected, while the start of work may be delayed because of political and economic considerations. Though costs may have soared in the intervening period, the client is likely to insist that you hold to the price stated in your bid unless there is a clear understanding about its validity.

Bids for contracts overseas may involve a further set of assumptions in addition to those listed above:

• the currency (or currencies) in which the contractor will be paid;

• the foreign exchange rates on which estimates of local costs are based;

• whether the cost estimates are exclusive of local taxes (value added, sales, corporate and personal income), customs duties and levies, fees and other impositions under existing and future legislation in the overseas territory;

• the extent of any participation in the technical work of the contract by counterpart personnel in the client organization;

• if appropriate, the allocation of a separate budget for training and transfer of expertise;

• reimbursement or defrayment of the costs of local technical documentation;

• the language to be used in reports and discussions, and the extent of any need for translation or interpretation.

The most prevalent financial hazard in overseas assignments is the escalation of local costs through inflation. In some countries it may be difficult to identify an appropriate retail price index to which local costs can acceptably be linked or even, in the case of government clients, to gain recognition that the problem of inflation exists. Commercial banks may be able to act as an authoritative source of reference in these situations. The financial part of your bid should emphasize the need for an eventual contract to include a mechanism that takes account of cost escalation. Matters such as the applicability of withholding taxes and the provisions of double taxation agreements will need to be covered in the terms of a draft contract at the stage of negotiation. The extent to which it may be advisable to address these points in your price information will depend on the particular circumstances of the contract.