Tender Rates in Construction

Tender rates in construction are essentially the rates, or pricing, presented by the contractor at the time of tender. These rates should cover the total cost of the construction project and the mark-up price.

Sounds simple enough, but tender rates in construction can be difficult to pin down. Especially because an estimate won’t do. A quotation is required when it comes to presenting your tender rates in construction bids. This means that the price will be fixed from the time of tender. There is often little room for negotiation later down the line. So, you need to be certain you’ve presented the proper costs for the requirements of the tender.

How can we help?

At Hudson, we employ experts in all stages of tendering, from sourcing construction tenders (Discover) to writing winning bids (Succeed). And while we can create quality, compliant tender responses for you, you must prepare accurate tender rates prior to this. It’s important to have accurate tender rates ready to go when it comes to tendering in construction. Even if you wish to outsource the tender.

We understand that quoting tender rates in construction can be a burden for suppliers, and we want to help. So, we’ve created this quick guide to cover the basics of tender rates in construction. Here are 5 things to look out for, so your business can be one step closer to winning bids!

5 tips for quoting tender rates in construction!

1. Don’t miss any indirect costs.

Buyers will always consider the rates of your services as part of the evaluation process. Some tenders put more weighting on price than others, for instance, they might weight 70% on pricing and 30% quality. In this case, the focus falls on the lowest price.

Even if price is not always the main focus of a tender, the Most Economically Advantageous Tender (MEAT) will always fair well.

To help you consider all costs, there are two main elements to tender rates in construction:

1. Direct Costs.

These are the specific costs incurred to provide the product or service on the construction site. For example:

• Materials used;
• Machinery and equipment used;
• Salaries for staff and supervisors throughout the project;
• Subcontractor invoices.

2. Indirect Costs.

In short, this covers everything else! These are costs that are directly related to construction, but not the specific project or construction site in particular. For example:

• Project management
• Training programmes for staff
• Research and development
• Contract supervision
• Temporary buildings or premises
• Personal protective equipment (PPE)
• Quality control and inspection
• Insurance
• Repairs and maintenance

When considering tender rates in construction, it’s common to focus on direct costs and obvious, physical aspects of the site. It’s easy to neglect aspects of the pricing that aren’t immediately obvious. For instance, an indirect cost such as the salary of a project manager working on multiple projects in the office.

Make sure you take a holistic and detailed approach when considering all factors of your final rates.

2. Be realistic.

Make sure you are realistic when setting your tender rates. You may be tempted to lower your prices to ensure you’re the Most Economically Advantageous Tender. However, this isn’t good practice for several reasons, for instance:

1. The buyer might doubt the legitimacy and quality of your service if your bid is especially low. This could mean you lose the bid.
2. Once you’ve set your tender rates, you must carry out the specification as required. You may even be legally bound to the contract conditions, so you should make sure they’re realistic. You may get a chance to negotiate your price through an Invitation to Negotiate, but this isn’t always the case. In fact, most public-sector Invitations to Tender (ITTs) state that there won’t be any post-tender price alterations.
3. You may manage to carry out the project at a lowered price. However, you’ll then find it difficult to increase the tender rates with this buyer for any future contracts.

It’s always better to price your tender as realistically as possible and avoid running into future problems.

What do current tender rates in construction look like?

You should always ask yourself this question when ‘being realistic’ with your tender rates in construction. Consider the current landscape of the construction industry. For example, the average tender rates in construction have deflated in 2020 due to the effects of coronavirus. Global consultancy Arcadis, however, reports an optimistic outlook on the long-term future of UK tender rates in construction. They forecast tender price inflation at 5% for 2024/25. This reflects a large potential pipeline of work in the coming years, plus a reduction in the UK labour force.

In a recent letter to the construction sector, Business Secretary Alok Sharma praised the resilience of the construction industry. He touched upon adapting to the contraction of tender rates in construction, saying: The industry has had to innovate and adapt, changing the way it operates on sites, finding more efficient ways of delivering projects.

How are construction companies like yours delivering projects more efficiently? It’s worth researching and monitoring changing rates across the industry as a whole and in your specific sub-sector. This should be an ongoing process, each time you tender. 

3. Check (and re-check!) the specification.

Construction tenders contain very detailed specifications. You need to read and understand it all in order to begin accurately quoting tender rates in construction bids. There’s little room for error here, as prices often can’t be revised if you spot a mistake after submission. The only choice may be to decline the contract offer if you are awarded it, which is not an ideal situation to be in.

The Invitation to Tender (ITT) may offer applicants the chance to survey the site of construction. If this is a possibility, you should always take the opportunity to survey! Gain as much information as you can to allow you to consider all aspects of pricing, as accurately as possible.

4. Don’t solely focus on driving down tender rates in construction bids.

Tender rates in construction are important, but as we mentioned earlier, pricing isn’t always the main weighting of a tender. Leave time when tendering to research the requirements and consider what wider benefits that you can provide to the project.

One way to do this is to consider the social value of your services. Social value is becoming increasingly important, and it should be part of your approach to tender rates in construction. For example, have you made environmentally conscious decisions in your supply chain? An increase in cost may allow you to dispose of materials sustainably. This environmental consideration could benefit your tender more than a cheaper, yet irresponsible, alternative would.

So, can you implement high-quality service and demonstrate social value? If this is the case, buyers could choose your bid despite it being priced higher price than your competitors’. Now, that’s a win!

5. Find out which resources are available.

You may use a bill of quantities (BoQ) or a schedule of rates (SOR) when pricing your tender. Both are used to obtain prices from contractors, depending on your procurement route.

3. A bill of quantities: This provides project-specific, measured quantities of the items specified in the tender documentation. It helps tenderers prepare tender rates in construction. This is appropriate in projects that have been designed in great detail, with precise quantities set out in the specification.
4. A schedule of rates: This is essentially a price list, setting out the rates for staff, labour and machinery that a contractor will use. This doesn’t contain specific quantities and is appropriate when the nature of the work can’t be quantified. You may need to insert your rates into the SOR, while others will have pre-filled prices. A handy feature of a SOR is that it sometimes shows the evaluation weighting against certain items. This means you can tailor your rates and aim to be more competitive on highly weighted items, and selective with others.

You could also invest in online services that help you set out tender rates in construction contracts. For instance, the Building Cost Information Service (BCIS) is a service designed to help you produce specific estimates.

Another useful resource can come from always requesting tender feedback from previous bids. Ask for feedback on how you compared to competitors when it comes to failed bids, in particular. From this information, compare your tender pricing and quality to other bidders, and adjust your rates accordingly for future bids.

Need bid-writing support?

We appreciate setting out tender rates in construction bids can be very time consuming, in and of itself. (This guide only touches on a fraction of the information available for tender rates and pricing!) And this all comes before the process of writing a fully compliant and detailed bid to put your rates in.

Our Hudson Succeed team can take the pain out of bid writing and save you a lot of valuable time. We provide writing support to help maximise your bidding success. Our dedicated team of bid writers have extensive experience delivering construction tenders – with an 87% success rate.

Whether you are tendering for the first time or have tendered before, we have four services tailored to your needs:

• Tender Ready
• Tender Writing
• Tender Improvement
• Tender Mentor

Get in touch for more information about our bid management consultancy services.

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