Pricing bids with more certainty in uncertain times

Following the challenges of Brexit and Covid-19, we are now seeing increasing energy prices and a cost-of-living crisis, with the war in Ukraine impacting construction supply chains, labour markets and material costs.

With such uncertainty causing extreme market volatility, how can we commit to long-term pricing in our bids and tenders?

Engage in dialogue with your target clients upstream of the bid and tender phase. This will allow you to make them aware of current market challenges and their impacts on delivery costs. Suggest solutions, such as flexible price bandings, more regular price review gates, or provision for fluctuations in costs.  

JCT-type contracts have scope for fluctuation provisions within them, but these have generally been deemed inapplicable for many years. This leaves contractors to absorb any additional costs arising from increased prices of raw materials. Now, more contractors are pushing for these provisions to be included, due to the cost of material impacts. For example, those resulting from Russian sanctions have decreased the supply of materials such as timber, driving costs up through market scarcity and increased demand.  

Prices of some raw materials, particularly those with petroleum-based components, are at an all-time high. Pricing tenders based on these costs is disadvantageous to buyers, so fluctuation provisions in contracts could benefit them too. Prices fluctuate down as well as up, so having provision for this in their tenders may enable them to realise potential projects savings sooner – if material costs stabilise and you can reduce your pricing to pass on these savings.

If you can commit to long-term contracts with your suppliers, they may be able to offer you more favourable terms. Try to link these with the terms of your client contracts, for example, the same frequency of price review or fluctuation provisions. Establish yourself as a long-term, valuable customer with committed contracts to fulfil, to strengthen your negotiating position. Having more certainty in your supply chain costs will enable you to commit to tender prices with less risk.

Once the tender is live, don’t be scared to submit clarification questions asking for fluctuation provisions or more frequent price reviews to be baked into the contract, reflecting the current uncertainty and volatility in markets. Recently, some public sector buyers have responded to bidder clarification questions and agreed to monthly or quarterly price reviews, rather than the annual reviews initially set out in the tender documents. This has massively de-risked bidders’ pricing commitments.

This is always sound advice, but it is now more critical than ever to agree on a clear pricing strategy and process early in the bid. Last-minute pricing is inherently risky as late assumptions or mistakes may prove extremely costly. Be sure to understand the buyer’s pricing evaluation and staging too. Are you pricing a Best and Final Offer (BAFO), or will an Invitation to Negotiate (ITN) involve further pricing submissions?

Do an early ‘dry-run’ of your pricing submission and never make assumptions on what is to be priced or included – this is riskier than ever in the current climate. Instead, flush out any anomalies or ambiguous pricing requirements by submitting early clarification requests. These will give you plenty of time to consider the buyer’s responses and develop a well-informed price, allowing you to bid with more certainty.

David Gray is managing director of AM Bid, one of the UK’s leading bid specialists and creator of Ultimate Tender Coach, an online bid programme designed to help SMEs win more public contracts.