ENGINUITY TUTORIAL
Setting A Bid
Copyright Virtual Management Simulations
Making Procurement Decisions
A decision is made to bid for job 74, a Design & Build job.
We will now look at how the bid formed ?
Making Procurement Decisions
The Display Job Details option can be used
to display detailed information about the job.
Making Procurement Decisions
Select ‘Yes’ to indicate that a bid is to be submitted.
Making Procurement Decisions
The estimated costs that cannot be changed are the design, build and site costs.
DESIGN COST (D&B JOBS ONLY)
The design cost to be paid to the consultant designer is expressed as a % of the build cost.
Design cost is paid back in relation to the progression of the job e.g., if 30% of the job is completed in a period, then 30% of
the design cost has to be paid back in the period.
BUILD COST
The build cost covers the labour, plant, materials and specialist subcontract trades needed to complete the job.
SITE COST
Site costs pay for the support staff and services required to administer a site.
KEY POINTS
Design and build costs paid in a period relate directly to the % of the job completed in the period, whereas the site costs to be
paid are related to the actual labour on site.
E.g., if there is a lot of ineffective labour on site that does not contribute to progressing the job, site costs still have to be paid
for the total labour on site.
Making Procurement Decisions
A consultant needs to be allocated to produce the design who has appropriate expertise for the job.
In addition, if the job is using BIM, or Building Information Modelling, the client may impose a bidding restriction
that requires the consultant to have some BIM experience, in addition to expertise in the job sector. This is indicated by
the “BIM experience required” note.
In this case, for job 74, a BIM model is being used, and the CLIENT RESTRICTIONS indicate that a consultant with BIM
experience needs to be chosen for the design.
The Select button can be used to choose from a list of all available consultants.
Making Procurement Decisions
An appropriate consultant for the job can be found by reviewing the profiles of each consultant, and matching the consultant’s
expertise to the job sector.
The choice of consultant can have a significant impact on the build costs. Consultants with appropriate expertise and BIM
experience (if a BIM model is being used), produce designs that reduce the expected build cost.
For job 74, a building and commercial contract, Ardvark Architects have been chosen due to their expertise in the building and
commercial sector, and their significant BIM experience.
The Select option is used to select Ardvark Architects.
KEY POINTS
The list of available consultants changes each period due to some consultants being unavailable, as shown in the status column
e.g., too much workload.
Making Procurement Decisions
Making Procurement Decisions
Oncosts are additional costs added to a bid to cover the contract costs over and above the design,
build and site costs, and consist of :-
Project manager allowance
Contingency for risk
Unlike the estimated costs that cannot be changed, oncosts can be altered depending upon the
company’s strategy when bidding for a particular job.
Making Procurement Decisions
PROJECT MANAGER ALLOWANCE
Although project managers are not normally recruited until a
job has been secured, and is in progress, an allowance is
made in the bid for the costs of paying the salary of a
suitable project manager to oversee the job for its planned
duration.
Project managers vary in experience and salary, and the
choice of an appropriate project manager for a job can have
serious implications for the progress of the job.
The Useful information section gives an indication of the
range of annual salaries for project managers.
If we win the job we would be looking to employ a really good
project manager for the job. To keep our bid competitive we
would not be looking to use the maximum annual salary of
64,000, but instead we would base our salary allowance a bit
lower, at around 56,000 per annum.
Bearing in mind that job 74 has a planned duration of 3
periods the allowance for salary is set as follows.
1. Using an annual salary of 56,000 as the base
2. Salary per period is 14,000 (56,000 / 4)
3. Salary for the planned duration of 3 periods is 42,000
(14,000 x 3)
Making Procurement Decisions
RISK CONTINGENCY
The estimators made an assessment of the potential risks that could occur on the job causing monetary losses to the company,
and job delays, and a risk register was formed for the job.
Each potential risk in the risk register has 2 key elements that need to be considered at the bidding stage :-
The likelihood of the risk occurring (risk level), classified as High, Medium or Low.
The impact cost if the risk hits.
A contingency needs to be added for each risk to cover the company for the impact cost if the risk occurs.
KEY POINTS
Although the risk contingency only covers the cost of the risk striking, if a risk strikes there may also be delays to the job, which
have to be considered in the labour allocation when a job is progressed.
Making Procurement Decisions
RISK CONTINGENCY
For the potential risk ‘Structural defects’ :-
The likelihood of the risk occurring is Medium, which is defined as a 40-50% chance of happening
If the risk hits there will be an impact cost of 106,000
We could cover ourselves for the full impact cost, but this could make our bid uncompetitive (too high). Based upon the
probability of the risk hitting, a sensible approach would be to cover ourselves for 45% of the risk cost, or 47,700. This makes
our bid far more competitive, and also provides some insurance if the risk occurs.
Using a similar logic the other risk contingencies are set.
KEY POINTS
Assuming we win the job, if the risk :-
Does not occur then the extra risk becomes profit, or margin, made on the job
Hits it will eat into job profits, although this will be offset by the risk contingency we’re building into the bid, and any
mitigating actions taken to reduce the risk costs
Making Procurement Decisions
MARKUP
The markup applied to a bid is one of the company’s most critical decisions, and is the margin, or profit, to be
made by the job over and above the costs.
Markup is entered as a %, and is added to the costs already set.
To determine the markup to be applied, a number of factors need to be taken into account.
We will look a each one in turn.
Making Procurement Decisions
MARKUP (COVERING OTHER COMPANY COSTS)
The profit made across all jobs should at least cover the company related costs not covered in the individual jobs, such as :-
Company overheads
Paying dividend to shareholders
If the profit over all jobs progressed does not cover these additional company costs, then the company could suffer serious
cash flow problems.
Making Procurement Decisions
MARKUP (RIVAL BIDDERS)
When determining the mark-up, the level that may be set by rival bidders needs to be considered very carefully.
Assuming a similar cost base, including a ‘sensible’ level of oncost, setting too high a markup could make the bid uncompetitive,
and not give the company a chance of winning the job.
The nature of the rival bidders depends upon the timeframe :-
In the early years, the competition comes from fictional rival companies, Each one has their own unique profile and bidding
history, and a careful assessment of them is required to determine the appropriate level of margin.
In the later years the competition comes from the other ‘human’ teams in the competition, with less certainty about
possible bidding strategies, and hence setting the markup becomes far harder.
KEY POINTS
Only the KNOWN rival bidders are shown. Other UNKNOWN rival bidders may bid for the job, and this may affect the decision
about the level of markup to apply.
Making Procurement Decisions
MARKUPS FROM KNOWN RIVAL BIDDERS
The level of markup set by rival bidders is not influenced by the job sector or size, and the previous markups of the known rival
bidders can be analysed to determine who is likely to submit the lowest, and most competitive one, for job 74.
The lowest markup previously set was by the Chota Nagpur Group at 4.1%. Bearing in mind that rival bidders can adjust their
strategies and bid lower than their perceived lowest margin to date, we will set a markup of 3.8% to hopefully be the most
competitive on price.
If we were concerned about potential unknown rival bidders undercutting us, we may reduce the margin each further.
KEY POINTS
Some companies may have just joined the market, and not have a bidding history. In this situation their profile is the only
guide to their likely markup settings.
Rival bidders will adjust their markups as time passes depending upon the prevailing economic climate.
Making Procurement Decisions
Making Procurement Decisions
The bid has now been set for job 74.
We will know next period whether or not we have won the job.
