Pricing contracts accurately will always be a challenge for the construction industry; price to high and the chances are the company will lose the tender, price too low and risk losing money. Most tenders are priced on the estimator’s past experience. Estimators often find that they don’t have sufficient historical contract data, this lack of information costs construction companies dearly.
Without the financial tools to analyse previous jobs, estimators repeat the same pricing mistakes. It is inevitable that some contracts will be profitable and that others will lose money. Thus it is vital that the pricing team has the correct financial tools and data so as to increase the accuracy of their pricing.
The material, labour and plant costs associated with construction contracts fluctuate. Thus for construction companies to remain competitive, it is vital that the estimating, financial management, and site management teams work together and share critical financial information. The construction industry is a cyclical industry and during economic downturns cost reduction is crucial. Estimators rely on these reductions in costs to remain competitive during hard time. However, without the ability to measure the costs accurately, it is difficult to know by how much they can reduce their prices and on which items.
Having good financial control is vital. Bespoke systems and software solutions can be developed to manage these financial controls. These software systems need to be flexible enough to suit not only the accounting department’s needs but also those of the other teams.
In conclusion, construction companies need to ensure that they price their tenders as accurately as possible. This requires well designed financial management systems and good communication between the professional teams.
Article by Duncan Stainer