How to price a tender bid: building a number you can defend

Most losing bids are not lost on quality. They are lost on a price that was either too high to compete or so low the evaluator doubted the bidder understood the work. Pricing is not guesswork with a margin bolted on — it is a build-up you should be able to defend line by line if the buyer asks.

Start from the scope, not from the competition

The instinct to price against a rumoured competitor number is the single most expensive habit in bidding. Build your cost from the actual scope of work first, then decide what to do about the market. If your honest build-up lands above what you believe the contract will go for, the useful question is whether your delivery model is wrong — not whether to shave the number until it wins.

The five layers of a defensible price

1. Direct costs. Labour (by grade, with real day rates), materials, equipment, subcontractors, travel. Price the quantities in the bill of quantities or scope, not the quantities you hope will be needed.
2. Indirect / project overheads. Site establishment, supervision, insurance, bonds, quality assurance, reporting. These are genuine costs of this contract and belong in the price, not in general overhead.
3. Company overhead recovery. Your fixed cost of being in business, allocated across expected turnover. If you carry ₹2 crore of annual overhead and expect ₹20 crore of revenue, every contract needs to carry roughly 10 per cent.
4. Risk contingency. Priced against identified risks, not a flat percentage. A fixed-price contract with volatile input costs carries more risk than a reimbursable one with the same scope.
5. Margin. What is left. Decide it consciously, and know the floor below which you would rather not win.

Escalation: the clause that decides whether you make money

On any contract running more than about twelve months, find the price-adjustment clause before you price. If there is none, you are carrying input-cost inflation for the whole term and your contingency has to reflect that. If there is an index-linked formula, read which index, what base date it uses, and whether labour and materials are treated separately. Two bidders with identical costs can legitimately differ by several per cent purely on how they read this clause.

Abnormally low bids

Many procurement regimes — EU rules, most multilateral development banks, and Indian government tenders — allow the buyer to challenge a price that looks abnormally low, and to reject it if the bidder cannot justify the build-up. Winning on a price you cannot explain is not a win. If your number is well below the pack, be ready to show why: a genuinely different method, existing local plant, or a subcontractor rate you have locked in.

Common pricing traps

• Pricing the estimate rather than the scope. The buyer's estimate is a budget, not a specification. Price what the documents actually require.
• Forgetting the cost of the bid instruments. Bid security, performance guarantee and retention all tie up working capital. See bid security and bank guarantees.
• Unbalanced bidding. Loading early-milestone rates to improve cash flow is visible to any competent evaluator and is grounds for rejection in many regimes.
• Ignoring payment terms. Ninety-day payment on a labour-heavy contract is a financing cost. Price it.
• Currency exposure. On cross-border contracts, know which currency you are paid in and who carries the conversion risk.

Price and quality are scored together

Under quality-and-cost-based selection, the cheapest compliant bid does not automatically win — price is typically 20 to 30 per cent of the score. A stronger technical proposal can carry a higher price. Know the weighting before you decide how hard to sharpen the pencil; our guide to QCBS and evaluation methods explains how the arithmetic works.

A final sanity check

Before submission, ask one question: if we win at this price and everything goes reasonably well, what is the outturn margin? If the answer is "thin, provided nothing goes wrong", the price is too low — because on a real contract something always does.