Bidding Strategy of Construction Companies

Bidding Strategy of Construction Companies

Keywords bidding strategy construction bidding in construction construction bidding strategy


This report aims to assess the value to construction companies of having a defined bidding strategy that is complied with when tendering for new work The majority of construction companies have a bidding strategy of some form whether it is specified or not in the instance that a company does not engage in a process of selection when approaching new work then they will offer little value as they would be pricing every job available regardless of the contract value location programme or their previous experience of that type of work

At the time of writing the UK economy in particular the construction industry remains gripped by the instability and uncertainty created by the financial market turmoil that occurred throughout 2007 2008 leading to the greatest economic crisis and subsequent recession since the Great Depression of the 1930s Brunnermeier Markus K 2009 As such construction companies are faced with a market place as competitive as any in living memory for most turnover and profits have dropped significantly and this subsequently applies extra emphasis to the importance of the tendering process

The report will firstly review the literature available on bidding strategies in the construction industry with a brief review of the effects of the recession on contractors bidding prices The literature review will then be advanced upon by conducting an assessment of the bidding strategy utilised by Dawn Construction Ltd a main contractor operating in the central belt of Scotland

20 Bidding Strategy

21 Definition

A bidding strategy can be described as a wide range of applied techniques and timing in order to achieve predetermined objectives Brook 2008 offers the following analogy It is interesting to note that in military terms the word strategy means the skilful management of an army in such a way as to deceive the enemy and win a campaign In business the stated objectives can sometimes be achieved by deceiving the opposition but principally the specified objective is to be successful in winning contracts at prices which would allow the organisation to carry out the work profitably In effect a bidding strategy is the decision by a company on which work to price for and the level of profit to incorporate in order to successfully secure the project and maintain the businesses financial security

22 The Tender Process

Under traditional circumstances the tender process for a contractor commences with the clients invitation to tender Upon receipt the contractors response will be shaped by several factors ultimately though the volume of available work will determine the eagerness of the contractor to price the tender Very few contractors will actually outright decline the opportunity to price work for a reputable client in the instance where the contractor does not want to price a tender for whatever reason it is more likely that he will price the work using uncompetitive rates in order to ensure they do not win the contractSmith 1995 This practice is commonly referred to as cover pricing and the primary objective of it is for the contractor to avoid work that he does not want to undertake without insulting the client and being removed from his future tender lists Although cover pricing was made illegal in 2000 it is still regularly employed by contractors who differentiate between submitting a price that is noncompetitive and the act of colluding with others in a bidrigging process Bingham 2009

23 Decision to Tender

Prior to committing to pricing a project a contractor must carefully consider his decision to tender as every job he prices costs the company money and reduces the resources available to price other work Some contractors engage in a grading system when they receive a tender ie a grading range of 14 this is in order to prioritise enquiries and put emphasis on winning the types

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