Beginners Guide to Pricing Tenders

Competitive tender pricing is a key to a winning bid.

Let's cover some of the basics of the Pricing tenders:

There are 4 basic elements to a bid price in consideration of the estimated cost of the tender:

Cost-plus pricing: This method involves considering all the costs and then adding a profit margin to arrive at the estimated cost of the tender. This pricing can be later evaluated based on the competitiveness in the market; however, this can be a good starting point for proposal pricing.

Value-based pricing: This is the pricing higher than the cost-based pricing for the service industry. However, it can be less than the cost-plus pricing when it comes to selling commodities. Under this situation, the pricing is required to be re-evaluated on the basis of the over cost and margin. Value-based pricing in a tender or the proposal helps to charge more.

Marginal Pricing: This pricing structure is more applicable to commodity tenders. This involves setting up the tender price higher than the production cost plus the profit margin.

The Tendering authority or the government buyers follow MEAT evaluation for the tenders. MEAT (Most economically advantageous tenders). The MEAT evaluation is based on two factors Price and Quality. Depending upon the policy followed by the government buyers it can be I the ratio of Price and quality at 70:30 respectively or 30:70 respectively.

Firm tender price

Normally Invitation to tender is invited by the government wherein the bidder has to quote the fixed price which is non-negotiable. So once the quotation is placed and accepted by the authority it cannot be withdrawn back. This also has some different types like Invitation to negotiation (wherein negotiation in the tender pricing is allowed by the tendering authority), but this is not a very common publication.

Pricing tenders properly

Before pricing a tender one need to clearly compliance and accurately understand the contract. For competitive pricing, tender include only those criteria’s as required by the tendering authority. Addition of services to the contract not required by the government buyer will add on to the cost and will lead to higher tender pricing thus reducing the chances of the bid to be considered in the competitive market.

Bid for the tender which you feel confident of winning taking into consideration the technical specification requirement of the tender or proposal and the pricing.

There are three elements to pricing :

  1. Direct Costs are the specific costs incurred to provide the product or service e.g. staff, materials / sub-contractors and supervision
  2. Indirect Costs include premises, management, professional fees, administration etc.
  3. Profit is the difference between the selling price and (1) & (2)

Pricing tenders for Fixed term

The Fixed-term pricing tender is normally for a longer period of time, which means there will not be any uplift in the RPI or any other such direct costs. This is like assuming the cost to be static for that period. The fixed term pricing tender is basically to have control over the cost, which helps to manage the budget.

Pricing tender should always be done taking into consideration and understanding our competitors.

Overall while pricing for the tender we need to take into consideration a few points :

  • Make an effort to price your tender competitive in the market so that the chances of winning the tender is increased
  • Be precise while mentioning the price of the tender, it has to be the exact amount one has quoted because a slight difference in the amount might reduce the chances of winning the tender.
  • Before quoting the final tender price make sure that all the costs like logistics, transportation etc are taken into consideration as a little negligence might land up in big trouble while delivering the services if the bid is won.
  • Confirm all the prices taken into consideration before quoting the tender, as there is a possibility of an increase in prices due to market fluctuation.
  • Always remember that all the related taxes are taken into consideration before quoting the final price bid.
  • Never bid very low or very high as evaluation firms normally do not consider such bids
  • Tender pricing model and how to price the tender.
  • The very first thing is to prepare the price list that should include packaging, delivery cost, logistic cost, courier cost or say maintenance cost.
  • Prepare well in advance the price list that should include.
  • The overall price
  • Breakdown taking into consideration all the components
  • Scheduling the work to be done
  • Terms and conditions.
  • Time period.
  • Payment terms and schedules of payment.
  • Management of time and the cost.
  • Administration time if required.
  • This detailed break down is for our own consideration.
  • The price needs to be quoted in both words and in the figure and also the currency in which you are going to deal with including all the taxes.
  • The validity of the price can also be mentioned taking into consideration that tender award might take longer time and if the tender decision is taking up a long time then there might be an increase in the quotation
  • Always add contingencies for the unexpected costs that may arise depending upon the progression of the tender work.
  • Be realistic in pricing your tender, which the buyer should find realistic and competitive.
  • For reducing the tender pricing we can take into consideration the tax subsidy, incentives available etc.
  • The profit margin should be reasonable as higher profit margin might lead to rejection of the bid.
  • For few tenders like consultancy tenders mostly the evaluation is done on QCBS (Quality cum cost-based selection), so while bidding for such tenders make sure you take into consideration all the strengths you have and accordingly the bid is required to be prepared.
  • If any doubts are there in the tender seek clarification from the purchaser before filling up the bid.
  • We need to consider that there is a difference between the Quotation and Tender.

The quotation is just an indicative cost for or we can say an estimated cost for offering the products, however, tender is a general formal letter from the buyer for supplying the goods and services. Tender is a part of the tendering process, whereas quotation is something which is just an indicator of the prices which the supplier is offering for supplying any goods or services.