Do you want to risk losing money?
An Employer or a Contractor sends out a tender enquiry which consists of several lever arch files and CD’s. They ask you to provide a price within a particular, normally tight, timescale. You win the job, but you lose money because you did not price the ‘risk’ factor.
So, what is the ‘risk’ factor?
This can only be determined by inspecting the documentation issued, and will vary for every project that you price. A party will often attempt to pass on its own ‘risk’ factor onto another party. Typical examples of risk are full and partial design responsibilities, payment conditions, erroneous clauses, bond requirements etc. These types of risks occur frequently, and nearly always have a cost implication, but they are overlooked or are not given any priority at all in the rush of the tendering process. Because of this, it is often these very risk factors that turn what would have been a profitable contract into a loss making project.
But you may say, if we priced the risk factor in the first place we may not have won the work. Putting aside the obvious comment that why would you want to win a loss making project (particularly remembering the old mantra that ‘turnover is vanity, cash-flow is sanity’); there is another way.
That other way is to negotiate the risk factors during the tender process to ensure that the more onerous of those risk factors are modified such that they are included within your tendered sum. If the risk is highlighted in this way, it can be to the benefit of both parties, and the risk can then be managed correctly or even removed, resulting in good relationships and repeat agreements.
To this end, Melbury Construction Consultants Ltd offers a pre-contract vetting service that identifies risk; identifies the financial consequences of the risk; helps the contracting parties to achieve their appropriate risk balance; avoids parties accepting risks they don’t understand; and helps provide a successful execution and effective monitoring of the project.
So, what is the ‘risk’ factor?
This can only be determined by inspecting the documentation issued, and will vary for every project that you price. A party will often attempt to pass on its own ‘risk’ factor onto another party. Typical examples of risk are full and partial design responsibilities, payment conditions, erroneous clauses, bond requirements etc. These types of risks occur frequently, and nearly always have a cost implication, but they are overlooked or are not given any priority at all in the rush of the tendering process. Because of this, it is often these very risk factors that turn what would have been a profitable contract into a loss making project.
But you may say, if we priced the risk factor in the first place we may not have won the work. Putting aside the obvious comment that why would you want to win a loss making project (particularly remembering the old mantra that ‘turnover is vanity, cash-flow is sanity’); there is another way.
That other way is to negotiate the risk factors during the tender process to ensure that the more onerous of those risk factors are modified such that they are included within your tendered sum. If the risk is highlighted in this way, it can be to the benefit of both parties, and the risk can then be managed correctly or even removed, resulting in good relationships and repeat agreements.
To this end, Melbury Construction Consultants Ltd offers a pre-contract vetting service that identifies risk; identifies the financial consequences of the risk; helps the contracting parties to achieve their appropriate risk balance; avoids parties accepting risks they don’t understand; and helps provide a successful execution and effective monitoring of the project.
posted by Melbury at
09:41
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