If you rely on winning tenders or quotes for your business, this information shared by some CFO On-Call Partners, who have helped their clients win some very large jobs, could be extremely valuable.
- Time Investment
Responding to tenders requires more effort than you may imagine. The information required can be time consuming and needs to be presented in specific ways. Start early and aim to finish a week ahead of the deadline. If possible investigate previous winners and their bids to check if it’s an appropriate tender for you.
- Requirements of the Customer
The key requirement is your ability to do the job, to do it well and within budget. Government and large business requirements often include compliance with; WHS, Fair Work Act, Taxes due, Quality Assurance, Environmental, Legal, Unions, to name just a few.
Your organisation structure may be scrutinised i.e. your employee job descriptions, training, prior experience, recruitment, induction, documentation etc. Your risk management plan may be required. Your systems may need to link in with your customers.
As a contractor you will be representing them, so they want to be sure your business is run efficiently. You are helping them to meet their customer focus and requirements, plus their ability to be a good corporate citizen.
In the delivery process you have to be good at what you do – customer satisfaction and secondly to drive your cost structure down. “Economies Of” is a term used in contracting. It means your experience saves wasted time and you have learnt the traps to avoid.
- Tender Process
‘Open tenders’, where you are running with ‘all comers’ are the least desirable, as most bidders try to compete on price. If you can get a prospect to issue a ‘Closed tender’ you have a better chance of competing on merit.
Most tenders are won by those who stack the cards in their favour, by writing and sending the quote or influencing the client before the tender process even starts. Rather than waiting for the bid document to arrive, target clients with a compelling value proposition in an area where you have a “right to win” i.e. you have experience and strong referrals.
Even if the prospect has to tender the work, chances are only one firm will meet the specifications i.e. yours.
Remember when tendering, that not everyone reading your bid may be technically informed. It’s important to communicate and explain well and don’t assume everyone understands your terminology and methods. Use ‘plain english’.
- Government, Large and Small Business
Government and large business may allow you to check who won previous tenders. It’s worthwhile to speak with the relevant officer to learn what were the key points that got the winner over the line and what were seen as the strong and weak points of their bid. You may not get all the answers, but it’s worth being patient and following through.
Tenders for large business tend to be more commercially driven, whereas Government tenders can be impacted by political influences. The processes are similar, if they truly want the goods or services, they can make a decision quickly.
Tenders for small organisations can be more rewarding, as you can usually obtain more information. This makes the decision to bid or not easier, saving time on bids that are unlikely to be successful.
- The Financial Side
Costing and pricing is a key area in tenders and it must be correct and commercially attractive. A prevalent problem is getting simple mathematics wrong.
When pricing a tender, companies start with quantities and costs for materials and labour, (e.g. construction, tradespeople, software programming etc.) A markup is added to the cost, e.g. for a cost base of $1,000; add 40% – equals a sell price of $1,400.
WHERE DOES THIS FALL DOWN?
Answer – the Gross Margin is less than 28.6%!
It falls down in the language and assumptions. The boss says the Job Margin target is 15% (common in construction and related industries), staff use this figure and slot it into the markup %.
When this happens, the actual margin then drops to 13.1%.
With actual cost blowouts in job delivery, the margin often ends up less than 10%; sometimes down to low single digit percentages. You then have to pay overheads and hopefully end up with a profit for shareholders.
- When you’ve won the job
After you’ve won a tender it’s vital to keep track of all activity and costs on the job to ensure things go to plan and the costs come in as expected. This is an often overlooked aspect of job management. There are some terrific systems available to assist with this that can add much more onto your bottom line than they cost.
If you’ve quoted on a progressive payment method, that’s fantastic! Ensure someone is given the task of checking progress payment dates are followed up. In fact it’s even better to call clients up just prior to the payment due date, to check all will be OK with payment.
Don’t leave invoicing to a particular date of the month – rather invoice out immediately the job is finished. Why give people an extra 30 days credit just because you finished a day after the usual invoicing date?
Ensure you put all the necessary information on your invoice, such as name of the person managing the job as a reference. A really important item is the due date for payment – otherwise people will make up their own and you could be waiting a long time to get paid.
- In a Nutshell;
- Don’t waste time tendering for jobs you are not likely to win.
- Understand your customers’ requirements really well.
- Understand the tender process and use it to your advantage.
- Don’t use a ‘cookie cutter’ solution for different organisations – appeal to how they operate.
- Spend time and money getting the financials right – it’s an investment – not a cost.
- Have good systems for job tracking to ensure profit and learn from mistakes.
- Have good systems for invoice handling to ensure you get paid ASAP