Best Practice in Writing About Price


  • Keep price information concise, direct and businesslike. If the work is a relatively small-scale and straightforward assignment, there may be no requirement for detailed tables. A single summary table may be perfectly adequate.

  • It is essential to check that price information is consistent, ie that the costs set out in detailed tables match correctly the costs shown in a summary table.

  • Make sure there is no vagueness or room for misunderstanding in the terms of your bid. Remember that in law if any term in a contract is ambiguous or unclear, it will be interpreted against the party that drafted it.

  • Take care not to appear to be hedging your price with niggling conditions and exceptions. If you do, the client may conclude that you will be troublesome to work with.

  • Develop the financial and technical sides of the bid together. They have to reinforce each other if both the bid and the work that results from it are to succeed. This principle is particularly important when relating price to the levels of risk that you are accepting in the contract. You may win the contract, but it is likely to go wrong if your price does not properly match the requirements of the work or the scale of its risks.

  • Getting the price right is at least as important as making the right technical response. If the competition is fair, a bid that succeeds in combining the highest technical quality with the lowest price should always win. In most sectors of procurement such bids are rarities, and most contract awards involve a balance of technical and financial considerations. Your prime objective in bid development must be to make both your technical approach and your price as sharply competitive as possible: in other words, to be perceived as offering better value for money than other bidders. The client needs to be convinced that you have properly thought out the cost aspects of the work and that you are able to apply a quality of professional effort that justifies your price.

  • In analysing the bid specification, you will have made provisional estimates of project costs. Develop and refine these estimates as you firm up your ideas on the work programme and inputs. Spreadsheets and accounting programs can help you model the effects of changes in the size and composition of the work team, the scale of time inputs, charge rates and the levels of other costs.

  • If the deliverables of the contract are products that you offer to a variety of clients and involve well-defined procedures and standard tasks - for example, in certain areas of financial consultancy, statistical analysis or legal work - you may find it appropriate to quote on the basis of your average charging rates for that sector of activity. Where the work does not involve a set product, the prices you quote must be project-specific. In developing price bids for this type of work, you will need to form a reliable estimate of the direct costs likely to be incurred both in obtaining the work and in performing the contract. You will have to consider the likely impact of the contract on your variable overheads and its implications for cash flow. Your normal practice may be to price work on a cost-plus or percentage mark-up basis, ie aiming to make a target contribution to fixed costs and profit after covering your direct costs and variable overheads. A depressed market or the particular circumstances of the contract may make it necessary to move the target and bid at a lower price, so as to compete more effectively. But remember that, while you can always reduce your price for the work when negotiating a contract, you cannot increase the price if you started by pitching it too low. Moreover, a price that is clearly too uneconomic to allow the required depth and quality of work is likely to put you out of the running.

  • Clients sometimes underestimate the work needed to produce the results they want and as a consequence set budgets that are not fully in scale with the requirements of the work. If the client's figures seem wrong, try to find out how they were arrived at - which means understanding the financial constraints within which the client has to operate. Contracts may have to be channelled through plans and programmes with predetermined spending limits: it is often difficult to extend the budget or arrange for an increase in expenditure to cover any additional work that a contractor may think necessary.

  • If the scope of your contracting activity means that you tender for work from parts of a large organization that share a common procurement and purchasing arm - for example, divisions within a business conglomerate or government departments and agencies - you will need to explain any variations or inconsistencies in the basis of your pricing.

  • Aim to minimize your exposure to financial risk. This is particularly important in estimating for contracts that involve long-term horizons or large-scale commitments of staff. Risks may include cost escalation as a result of inflation, rises in interest rates and unfavourable exchange rates; delays in receiving payment; changes in tax liability; the adverse consequences of political changes or reversals in management policy; or planning and programming errors on the part of the client. Many of these risk factors represent contingencies with impacts that can be critical to the financial outcome of a contract.

  • Think in terms of the price the client is prepared to pay for the right outcome, rather than the price at which you are prepared to sell your services - in other words, the value of your work to the client, not its cost. What evidence do you have about the client's perception of value for money in your sector of activity? Do your clients associate your work with distinctive, high-value skills? Some clients regard contractors as agency staff or temporary extensions of their in-house personnel and may want to minimize the differential between payroll costs and contract payments by setting fee rate ceilings that bear no relation to market conditions and would be acceptable only if there were a secure promise of continuity in the engagement. Pitching your price at the right level means being aware of these considerations.

  • If you work on your own and are new to contracting, deciding what price to put forward in a bid can be a difficult task. The price has to be competitive in terms of the market for your services while providing you with a reasonable level of profit. New contractors are liable to undercharge for their services, either out of fear of losing opportunities for work or through a lack of reliable information about market rates. You must be wary of bidding initially at marginal prices in the expectation of entrenching a position with a new client and capturing a source of further profitable work: you may find it hard to negotiate upward the rates you accepted at the start, and the expected stream of work may never rise to the surface. Some clients adopt a policy of continually taking on different contractors rather than giving repeat work, since they reckon that new people will charge lower rates to secure the work but still deliver a good quality of service in the hope of more contracts coming their way. Never let a client persuade you to accept a rate you know is uneconomic by holding out the promise of more work in the future. What matters is your cash flow here and now!




Bids, Tenders and Proposals. Winning Business Through Best Practice
Bids, Tenders and Proposals: Winning Business through Best Practice (Bids, Tenders & Proposals: Winning Business Through Best)
ISBN: 0749454202
EAN: 2147483647
Year: 2003
Pages: 145
Authors: Harold Lewis

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