Price your financial bid

Your price often decides your ranking, and it always decides what the contract will earn you. Too high and you lose. Too low or badly calculated and you win a contract that costs you money, and backing out can cost you your bid security. This article shows how to fill in the forms, build the price item by item and avoid the errors the committee will correct for you.

The forms to fill in

The tender file (in French, the dossier d'appel d'offres or DAO) provides the financial forms. Use them as they are, without changing the order of the lines or their wording. You will usually find four documents:

• The bid letter (lettre de soumission). This is your signed commitment. It states the total amount, often in figures and in words, and how long your bid stays valid. This amount must be exactly the one in your tables.
• The schedule of unit prices (bordereau des prix unitaires, BPU). It gives the price of each unit: the cubic metre of concrete, the delivered computer, the month of maintenance. It is often required in figures and in words.
• The bill of quantities (devis quantitatif et estimatif, DQE). It multiplies each unit price by the quantity set by the buyer. You do not change the quantities. If one looks wrong, ask in writing before the deadline.
• The price breakdown (sous-détail des prix). When required, it shows what a price is made of: materials, labour, equipment, overheads, margin. It lets the committee check that a price holds up.

These documents change with the contract. A supply contract may come down to one price table. Consulting often takes the form of a statement of fees and expenses. The principle stays the same.

Do not leave a line blank. A line with no price can make the bid non-compliant, or be read as something you will do for free. If an item really is included elsewhere, see what the file allows and write it the way the file provides.

What your price must cover

Many small firms add up their purchases and labour, add a margin and stop there. That is how you win a contract at a loss. Go through these eight items:

1. Direct costs. Materials, labour, equipment hire, subcontractors. Start from real quotes from your suppliers, not from memory.
2. Site or assignment costs. Set-up, transport, lodging, security, supervision, insurance specific to the contract.
3. Overheads. The share of your rent, your accountant, your phone and your own time that this contract has to pay for.
4. Financing. This is the cost of waiting. You pay suppliers and wages well before you are paid, and that money has a price: an overdraft, a loan, or cash you can no longer use for anything else. Deliver the contract and get paid shows where this delay comes from.
5. Taxes and duties. Depending on the country and the contract: VAT, customs duties on what you import, contract registration fees, stamp duties, taxes withheld at source on your payments. Ask your accountant what applies before you price.
6. Guarantees. Bank fees and blocked cash for the bid security, the performance guarantee and the advance guarantee. Part of each payment may also be held back until the end of the contract. See Bonds and guarantees.
7. Risk. A rise in the price of cement, a road cut off, an acceptance that gets postponed. Set aside an allowance based on what can really happen on this contract.
8. Margin. What is left once everything is paid. Set the minimum below which the contract does not interest you, before you look at competitors.

A worked example

Take a fictional works contract. All amounts are made up for the example. They are neither norms nor proportions to copy: each contract has its own.

Item	Amount (in millions)
Direct costs	34
Site costs	4.5
Overheads	3.5
Financing	2
Guarantee costs	0.5
Risk allowance	1.5
Margin	4
Price excluding tax	50

The financing line comes from a simple calculation. You expect to carry 15 million on average for eight months. If that overdraft costs you 250,000 a month, that makes 2 million. If payment may take longer, redo the sum with the duration you think is realistic, not the most favourable one.

You still have to spread this total across the lines of the bill of quantities. A common method uses a coefficient: the total price divided by direct costs, here 50 divided by 34, about 1.47. A line that costs you 100,000 per cubic metre is then offered at around 147,000. Then multiply each price by its quantity and check that the sum lands on your total.

You can adjust line by line, but avoid unbalanced prices: very expensive on the early works so you get paid sooner, slashed on the rest. An attentive committee spots this and may ask you to justify it. And if the real quantity on a slashed line goes up during the works, you are the one who loses.

Calculation errors

The committee redoes the sums. An error does not necessarily get you rejected: usually it corrects the figure, and the corrected price is the one used for ranking. The usual rule is that the unit price prevails over the line total, and the amount in words prevails over the amount in figures. Check this rule in your file, because the file decides.

Another fictional example. You offer 100 cubic metres at 147,000 and write a total of 14,070,000 instead of 14,700,000. The committee keeps 14,700,000. Your bid goes up by 630,000 and you may fall behind a competitor. The opposite error lowers your price, and you remain bound by that lower price. Refusing the correction can lead to rejection of the bid, and sometimes to the loss of the bid security.

Three habits prevent almost all of this:

• Calculate in a spreadsheet with formulas, with no total typed by hand.
• Read the prices in words against the prices in figures, with a second person if you can.
• Check that the total in the bid letter is exactly the total in the bill of quantities, down to the last unit.

Tax basis and currency

Before pricing, find out in the file on which basis the price is requested: excluding tax (hors taxes, HT) or including all taxes (toutes taxes comprises, TTC). A tax-inclusive price written in an excluding-tax box can cost you the ranking. An excluding-tax price written in a tax-inclusive box makes you pay the tax out of your margin.

Some externally funded contracts are exempt from all or part of the taxes. Do not assume so: the file says it, or you ask in writing. The fact that a funder pays for the project is not enough to conclude that you will pay nothing.

For currency, bid in the one the file requires. Some international contracts accept several currencies and say how they will be converted for comparison. If you import and are paid in local currency, the exchange risk is yours unless a clause says otherwise. Put it in your allowance.

Abnormally low bids

An abnormally low bid (offre anormalement basse) is a price so low that the committee doubts you can deliver the contract at that amount. It will usually ask you to justify it, and it can then reject the bid if your explanation does not convince.

Prepare your defence before anyone asks: supplier quotes, stock already bought, equipment already paid off, closeness to the site. A solid price breakdown is your best argument. How these bids are identified varies by country, sometimes with a formula, sometimes at the committee's discretion.

🇨🇮The rule in Ivory Coast

• A three-member evaluation committee first reviews the administrative documents, then analyses the technical and financial offers confidentially against the tender's criteria only, and proposes a ranking. The COJO then judges in session, with the analysis report delivered three days earlier, and chooses the compliant offer judged most economically advantageous (arts. 14.2.5, 71, 72 and 75).[1]
• A single criterion is used: either price, for standardised supplies or services, or an overall price or cost that can take into account life-cycle cost, deadlines, after-sales service, quality, staff experience and other items listed in the tender (art. 72).[1]
• The committee may question bidders only to clarify their offer and to correct purely arithmetical and carry-over errors. No change to prices or conditions is allowed. Written answers must arrive within three working days and cannot change the price or make a non-compliant offer compliant. Variants count only if the tender allows them (art. 71.3).[1]
• An abnormally low (or high) offer is identified by the formula in the tender document. It can be rejected by reasoned decision only after a written request for justification, to be answered within three working days (art. 74).[1]
• A candidate may submit only one bid per lot, alone or in a group. If it does both, the bids of the candidate and of the group are void (arts. 42.2 and 71.4).[1]
• Opening and judging must be completed within 15 days, extendable by at most 7 days for proven complexity, with the DGMP's agreement (art. 75.6). Commission members may not sit if they hold an interest in a bidder, on pain of nullity (art. 14.2.6).[1]
• For consulting firms, the selection methods are: least cost (SMC), fixed budget (SCBD), quality and cost (SFQC), quality only (SFQ) and consultant qualifications (SQC, for small contracts or urgency, using terms of reference sent to at least three firms). Technical offers are opened and evaluated first, and only technically qualified firms have their financial offer opened (art. 62).[1]

Bid validity and price revision

Your price binds you for the whole validity period stated in the file, and the contract will be delivered well after that. Several months can pass between your pricing and the last delivery, sometimes more than a year.

So read the contract clauses. A firm price does not move, whatever happens to the cost of materials. A revisable price follows a formula set in the contract. If the price is firm and the contract is long, it is up to you to anticipate increases, in the price or in the allowance. Also ask your suppliers how long their quotes hold.

Placing your price in the market

The best benchmark is what the buyer paid for a comparable contract. Look for contracts of the same kind and similar size, if possible with the same buyer or in the same region.

Read these amounts with care. An award does not always state the exact quantities, or whether the price includes tax, or whether the winner made any money. It gives you an order of magnitude, not a price to copy. Bid opening minutes, when you can get them, also show the prices offered by all competitors, not just the winner.

Once the price is settled, make sure you can get the bid security in time: that is the subject of Bonds and guarantees.