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Factors influencing Price

Apart from the basic input cost of materials and services, some of the terms and conditions that influence the Contract Price are:

  • Risks: insurances, indemnities, liabilities – where costs cannot be easily identified directly with the Contract Price.
  • Others: bank guarantees/bonds, warranty, etc – where costs can be easily identified directly with the Contract Price.

Risks

One of the major factors that influences price is “risk”. Risks are broadly of two types i.e. those that are manageable / controllable and those that are not.

Risks that can be managed can be costed for and/or calculated risks assumed.

Those Risks that cannot be managed have to be passed on or outsourced.

  • Indemnities and Insurances: Indemnities/Liabilities and Insurance are directly related to risks. The amount of risk to be imposed on a Contractor vis-à-vis scope should be carefully examined and included such as imposing excessive risks on a Contractor, that he is on the face of it is neither able to manage nor control, could increase costs.
  • Bid bond: if Tender invitations are to standard, reputed companies with whom Client normally does business with, requirement of a bid bond by Tenderers could be reviewed or waived altogether;
  • Laws: Inclusion of applicable laws, different than one normally operates in;
  • Damages for Delay: Inclusion of liquidated damages (or penalty) for delay in case of there being no corresponding effect to Clients schedule could be waived;
  • Warranty / Guarantee including provisions in excess of normal industry practices and standards;
  • Call-off Contracts: Generally come with no guarantee of commitment since these are required on an ad-hoc basis. In certain instances, if possible, providing a minimum guarantee could reduce risks and hence costs to the extent of such guarantees.
  • Other conditions: Conditions that have an indirect bearing are termination, suspension, review and approval cycle of documents, applicable laws, and such others where Contractors assume or manage risks thru better management of Works/Services.

Market conditions, type of competition and business tactics

A soft issue that could influence the Tendered price is market competition. In a booming business environment, Contractors would be more willing to cost for risks vis-à-vis a situation where there was more competition.

At times the pricing could be tactical as well, so as to remain a potential Bidder to a Client yet win a Contract on its price.

On the other hand, new Contractors wanting to gain entry to a Client system, would want to win a Contract albeit with low margins.

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