How to price a tender without pricing yourself out of delivery.
Tender pricing should begin with the scope and contract obligations, not with the price you think the buyer wants to see. A bid can be commercially attractive on the day it is submitted and become loss-making once freight, financing, labour, warranty and scope assumptions are exposed during delivery.
1. Separate cost, contingency and margin
Do not hide everything inside one markup percentage. Build the price from identifiable layers:
- Direct goods or material cost
- Direct labour and specialist services
- Freight, insurance, customs and delivery
- Installation, commissioning and testing
- Project management and administration
- Financing and working-capital cost
- Warranty and support provision
- Risk contingency
- Required margin
- VAT treatment as specified by the pricing schedule
This makes it possible to understand why the price moved and what can safely be negotiated later.
2. Match the pricing unit to the tender schedule
Check whether the buyer asks for a unit rate, monthly rate, fixed project price, bill of quantities, milestone price, hourly rate or blended schedule. Your internal cost model can be detailed, but the final submission must reconcile exactly to the tender's required format.
Pay particular attention to quantities, units of measure, optional items and formulas supplied in spreadsheets. A technically correct price can still become ambiguous if the schedule is completed on a different basis.
3. Price the logistics path, not only the item
For physical products, the commercial question is the cost of getting the correct item to the required destination in acceptable condition and on time. Include packaging, collection, line-haul freight, local delivery, offloading, insurance, storage and any special handling.
For imports, include duties where applicable, clearing charges, foreign-exchange assumptions, international freight, local port or courier charges and realistic lead-time risk.
4. Model working capital explicitly
If suppliers require deposits or payment before the buyer's first milestone, calculate the peak cash exposure. Also consider payroll cycles, VAT, retention, performance guarantees and delayed acceptance.
The financing cost of carrying a project is a real project cost even when it does not appear on the supplier quotation.
5. Use current supplier validity periods
Check how long upstream quotations remain valid. If the tender validity period is longer than supplier validity, document the exposure and determine whether you need a pricing buffer, fixed-price agreement or alternative source.
6. Treat foreign currency as a controlled assumption
Where goods are imported or quoted in foreign currency, record the exchange rate used, quote date, validity period and any contract rules dealing with currency movement. Do not quietly assume that today's exchange rate will still apply at order date.
7. Include the cost of compliance with the contract
Read the special and general conditions for requirements that create cost after award: reporting, security clearances, site inductions, insurance, guarantees, testing, samples, travel, project meetings, documentation, training, penalties, extended warranties or support response times.
8. Price warranty and defects realistically
A warranty is not free because the manufacturer offers one. The bidder may still carry collection, technician time, replacement logistics, troubleshooting and temporary replacement costs. Estimate the likely cost and define exclusions clearly where the tender allows it.
9. Stress-test the price
Before submission, test scenarios such as:
- Supplier price increases by 5%.
- Currency moves materially before order placement.
- Delivery requires an additional trip.
- Ten percent of units require warranty handling.
- Payment is received 30 days later than expected.
- A specialist subcontractor needs additional site time.
If a small adverse event removes the entire margin, the price is probably too fragile.
10. Reconcile commercial and technical assumptions
The pricing team and technical team must be offering the same thing. If the technical response promises installation, commissioning, training and support, those activities must exist in the cost model. If the price excludes something, the exclusion must not contradict the specification.
Do not use margin as the only risk buffer
Margin is the commercial reward for performing the work. Contingency is the allowance for defined uncertainty. Mixing the two makes it difficult to know whether a price is profitable or merely optimistic.
Before finalising the price, use the bid/no-bid framework to confirm that the opportunity still makes sense at a deliverable price rather than at an artificially low one.