Factors to consider when pricing

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Contractors Build Rates & Pricing

By: Jesse Wong
   How special of the construction industry?

   Contractor as an insurance company

   Contractor will be left behind when
    everyone walks off

   Risky business?

   A story
Build up rates / costs
   Labour        -How much double handling?
                  -What type of subcontractors?
   Material      -How much wastage?
   Plant         -What type? How many?
   Overhead      -preliminaries (tangible) &
                  risks (intangible)
   Profit or at cost?
Preliminary costs
   Sum of insurance / Bond
   Contract period-fluctuation / LD
   Payment period / honouring time
   Site management staff
   Plant and equipment
   Reputation of the client
   Reputation of the consultants
   Location of the site
   Technology required i.e. QPME for demolition works
   Government requirement i.e. contamination
   Limit of retention / min. payment
Preliminary costs

 Preliminaries

 Furniture   & Equipment

 Staff
Factors to consider when pricing
Fully understand the project requirement:-
• Site constraints
• Working time
• Interfacing
• Site access
• Neighbours
• Statutory requirement
• Standard of safety requirement
• Utility Services
• Details provided
• Judgment from Contractor
Pricing strategy
   Current and future market
   Labour / material / currency / interest etc
   Global commodities price
   Contract period
   Contractor input
   JV
   Speculating
   Long / short term relationship consideration
Knowledge are important
   Programme of works
   Method statement
   Schedule of materials submission
   Schedule of drawings submission
   Design and structural calculation
   Type of contract
   Construction details
   Predict construction risks
   Think of your own home decoration
Sample case
   Tender-information

   Bid sum

   PC & PQ

   Cost building

   Schedule of Provision
Indirect factors affect pricing
   Learn from experience
   Update yourself
   Talk to others
   Keep good relationship with supplier
   Keep good relationship with bankers
   Keep good relationship with subcontractors
   Build up loyalty of your staffs / colleagues
   Be a considerate contractor
   Long time to settle final A/C
Company consideration
   Internal need
   Company strategy
   Sharing / available of resources
   Financial / technical capability
   Warranty / Guarantee
   Foreseeable tender opportunities
   Background of clients / customers
   The way / time of settlement of final A/C
Reference to professional prediction
   According RLB’s latest quarterly report, tender
    prices in Hong Kong have stabilized after the
    rapid fall between the 3rdQ of 2008
   continue to rise in the 4thQ of 2009
   Looking forward, the rising trend of tender
    prices throughout 2010
   With infrastructure projects moving, the return of
    inflation and the increased activities in the
    property market, tender prices in Hong Kong are
    expected to rise more significantly in the second
    half of the year
Tender price index vs construction costs
   When is the peak?
   How to price a tender when the trend is
    going up?
   Are the contractors making huge profit when
    the trend is down turning?
   As a PQS, how to estimate the costs?
   How to advise the client a saver way?
   How the contractors hedge the risks?

     Thank you


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