How to Price a Tender Bid in Pakistan

Pricing is where tenders are won and where businesses are quietly hurt. A good price is not the lowest you can write. It is the lowest you can write and still deliver the work, get paid and keep a profit. This guide explains how to think about price in Pakistani public tenders without relying on guesswork.

How price is judged: the lowest evaluated bid

Under the Public Procurement Rules, 2004 and the provincial rules, bids are evaluated only on the criteria stated in the bidding documents. In most goods and works tenders the contract goes to the lowest evaluated bid among bidders who are technically responsive. The word evaluated matters. The agency may correct arithmetic errors, convert prices to a common basis, and apply any adjustments the documents describe, so the price it compares is not always the number on your cover letter.

Two further points follow from the rules:

• The federal rules bar negotiation with the lowest bidder. You cannot expect a second chance to improve your price after opening.
• Some consultancy tenders use quality and cost based selection, where technical score and price are weighted together. Read the weighting before deciding how aggressive to be.

The first price you submit is, in effect, your only price.

Start with real costs

Build the price from the bottom, line by line, before you look at what anyone else might bid. For a works or supply tender, think in these groups:

1. Direct costs: materials, labour, plant and equipment, subcontractors, transport, and site facilities.
2. Indirect costs: site staff, supervision, insurance, utilities, office costs and testing.
3. Financing costs: the cost of bid security, performance guarantee and any borrowing needed because payments arrive late.
4. Risk allowance: items that could cost more than expected, such as ground conditions, delays or quantity changes.
5. Profit: your return on the work, after all of the above.

Take quotations from suppliers in writing, with validity dates, instead of using remembered prices. Check the specification closely. A rate for "cement" is different from a rate for the brand, grade and delivery the document describes. For services tenders, price people honestly: salaries, benefits, supervision, equipment, replacements for absence, and the time the work really needs.

Taxes and withholding

Taxes are a common source of mistakes, because bidders either leave them out or count them twice. Start with what the bidding documents say. They normally tell you whether prices must be quoted inclusive or exclusive of taxes and duties, and often prescribe the form in which you show them.

The main items to understand are:

• Income tax withholding. The buyer may deduct tax at source from your payments. This is generally an advance against your income tax, not an extra cost, provided you hold valid taxpayer status and keep the deduction certificates. Active taxpayer status affects the rate that applies, so confirm your status with FBR before bidding.
• Sales tax on goods. Collected under federal law. If you supply goods, check how the tender wants it shown.
• Sales tax on services. Services are taxed by FBR in some cases and by the provincial revenue authorities in others, depending on the service and the province. Confirm which authority applies to your work and whether you need to be registered with it.
• Customs and import duties. If you import, include duties and clearing costs in the landed cost.
• Stamp duty and registration costs on the contract itself.

Rates and rules change often and differ by province, so confirm the current position with a tax adviser or the relevant authority instead of copying last year's tender. The principle is simple: show taxes exactly as the bidding documents require, and never build an assumed exemption into your price unless you hold the certificate that proves it.

Unbalanced rates

An unbalanced bid has individual rates that are far out of line with the real cost of the item. Typically a bidder loads high rates on items done early, to be paid sooner, and puts low rates on items done late. Some also guess which quantities will increase and inflate those rates.

The temptation is understandable, but the risks are real:

• The agency may question or reject a bid with abnormal rates, and your bid may be declared non-responsive.
• If quantities change in the opposite direction from your guess, you lose money.
• In unit-rate contracts the rate you wrote is the rate you will be paid for variations.
• Leaving an item blank or at zero may be read as including it free of charge.

The safer course is to price every line with a rate you can justify, and to spread overheads and profit proportionately. If you see an obvious quantity error in the bill of quantities, raise it as a written query before the deadline instead of exploiting it.

Bid validity and price escalation

Every bid has a validity period, stated in the documents. Your price must hold for that whole period, and your bid security must remain valid beyond it. If materials move sharply during that time, you cannot reopen the price.

Check also what the contract says about escalation:

• Some works contracts include a price adjustment clause that links payments to published indices for items like cement, steel, fuel and labour.
• Many supply and short-duration contracts are fixed price.
• Long contracts with no adjustment put the whole risk of cost increases on you.

If there is no adjustment, build a risk allowance into the rates for volatile items, and shorten the period of exposure by ordering key materials early where it is permitted and you have the cash. If you think the validity period is unreasonably long for a fixed price, ask for a clarification in writing before the deadline. Do not add your own conditions to the bid; that risks rejection as a conditional bid.

Cash flow and guarantees

A tender priced for profit can still fail on cash. Government payments can arrive weeks after the work, and you carry costs in the meantime. Include in your plan:

• Bid security now, which may be tied up for the validity period.
• Performance guarantee at contract signing.
• Retention held back from payments until completion or the end of the defects period.
• Delay between certifying a bill and receiving the money.

Work out the highest amount you will be out of pocket at any moment. If that number is above your credit line and savings combined, the tender is too big for you, however good the price.

Setting your margin

There is no universal right margin. It depends on the trade, the risk and how much you need the work. A useful way to decide is to ask three questions:

1. What is the profit if everything goes as planned?
2. What happens to that profit if the main risk occurs, such as a price rise or a three-month payment delay?
3. What is the loss if I am wrong on the largest cost item?

If a small error wipes out the profit, the margin is too thin. Resist adding a margin so large you are priced out of tenders you could easily win. The lowest evaluated bid wins, so every extra rupee of margin has a price in lost opportunities.

Keep a record of your estimates and the final results where they are published. Over time you learn where your pricing sits relative to winning bids, and where your cost estimating is weakest. The post-loss routine in our guide on debriefs and complaints shows how.

The danger of bidding too low

Winning at a price you cannot deliver is worse than losing. Warning signs include:

• Your price is far below the engineer's estimate, if one is published, and the other bids.
• You have not obtained supplier quotes for the largest items.
• You are counting on variations to recover the loss.
• You are hoping to substitute cheaper materials than the specification allows.

Abnormally low bids can be questioned and rejected. Even if accepted, they lead to disputes, poor quality, performance guarantee claims and blacklisting. A firm blacklisted by a procuring agency can be excluded from future tenders, which costs far more than one lost job.

Pricing checklist

1. Read the eligibility, price form and taxes clauses before pricing.
2. Build direct and indirect costs from written quotations.
3. Show taxes exactly as the documents require.
4. Price every line with a defensible rate; no blanks, no zero rates.
5. Check the validity period and any escalation clause.
6. Model cash flow, including guarantees and payment delay.
7. Add a risk allowance and a margin you can defend.
8. Check arithmetic twice, and have someone else check it a third time.
9. Compare with past bids and any published estimate.

Good pricing needs time, and time comes from finding tenders early. Our daily tender alerts collect notices from e-PADS, provincial authorities, newspapers and buyers' websites, so the estimating can start while the window is still wide.