FIGURE 17-1

BID PROPOSAL ORGANIZATION CHART

Proposal
Project
Manager

Engineering
Manager

Procuremen
t
Manager
Quality
Manager

Accounting
Manager

Production
Manager

Sales
Manager

Preparation of Bid Proposal Schedule

If the bid period is several weeks in length, the Project Manager for the bid
proposal work may prepare a schedule of the activities that must be
completed to submit the proposal by the required date. The schedule
indicates the groups that have the primary responsibility for completing
these activities for a bidder. Depending upon the nature of the work
defined in the RFP, the number of bidder activities required can be
significant. The logical relationships among these activities and their
durations are established to determine the proposal schedule. Figure 17-2
indicates a bid proposal schedule for a major contract.

FIGURE 17-2
BID PROPOSAL PREPARATION SCHEDULE
N
o

Task Name

Decision to Bid

Organize Proposal

Prepare Technical Section

Prepare Quality Section

Prepare Schedule Section

Organization & Staffing
Section
Evaluate Commercial
Requirements
Start Pricing Section

Complete Pricing Section

6
7

10

Final Proposal Review

11

Submit Proposal

July
7/2
3

7/3
8/6
0
Executive

August
8/1
8/2
3
0

8/2
7

9/3

September
9/1
9/17
0

9/2
4

October
10/
10/
1
8

Management
Project
Manager

Engineeri
ng
Qualit
y
Productio
n
Project
Project Manager

Manager

Estimati
ng
Estimati
ng
Executive
Management
Sale
s

TECHNICAL SECTION
Chapter 8 addressed the two principal types of technical specifications
included in RFPs, detailed and performance specifications. These two
types of specifications require different approaches from bidders. Detailed
specifications and drawings included in the RFP result in minimal design
work on the part of a bidder since the detailed technical requirements are
specified. Detailed specifications and drawings do require considerable
effort on the part of a bidder in determining the scope of work included in
the RFP. Performance specifications require that a bidder perform design
work prior to completing its proposal. The following sections address the
activities that bidders perform to respond to detailed and performance
specifications.
Detailed Specifications and Drawings
Detailed specifications and drawings included in the RFP require
considerable review by a bidder to assure that the technical requirements
are clearly understood. Particular care is taken for RFPs for fixed, unit,
and target price contracts since the prices quoted for the contract include
all of the work indicated in the specifications and drawings. Reimbursable
with incentive fee contracts also require careful review of the detailed
specifications and drawings since these documents are part of the basis
for determining incentive fees.

A bidder may or may not agree with the technical approach that is
indicated in the detailed specifications and drawings included in the RFP.
Due to the time and money that an owner has invested in the preparation
of these specifications and drawings, the owner is unlikely to be
responsive to suggestions by a bidder for major changes in the design
after the RFP is issued. Minor design changes can be requested by a
bidder if there are quality, schedule, or cost benefits to an owner in
accepting the changes. These changes should be requested prior to
submitting a proposal. Bidders that have technical questions concerning
the specifications and drawings should submit these questions to the
owner as early as possible in the bid period to allow adequate time for the
owner to respond.
Bidders have two major concerns in reviewing the detailed
specifications and drawings included in the RFP. The first concern is with
the quantity of work that they must perform to complete a contract. If
there are a significant number of drawings, the bidder spends
considerable effort in analysing the drawings to determine the quantity of
work. The accuracy of a bidders determination of the quantity of work is
very important for fixed price contracts. The quantity of work affects the
labour cost, material cost, and schedule for completing the contract work.
Although the determination of the quantity of work included in detailed
specifications and drawings is often a tedious task, it is one that must be
properly done to have a good bid proposal.
The second concern for bidders with the detailed specifications and
drawings is the complexity of the work. The complexity of the work
defined in the technical documents has a direct impact upon the quality,
cost, and schedule of the work that will be performed by a bidder. Bidders
are more likely to encounter quality problems with complex work activities
if they are awarded a contract. The cost and time required to complete
complex work activities will be greater than what is required for less
complex work. To adequately evaluate the complexity of the work defined
in detailed specifications and drawings, bidders compare the work to
similar projects that they have completed. If they have not performed
similar work, bidders must estimate the detailed activities that will be
necessary to complete the work.
Performance Specifications
Performance specifications can require a substantial amount of
design work by a bidder prior to submitting a proposal. RFPs with

performance specifications frequently specify that bidders submit

technical information with their proposals that defines how the bidder
intends to satisfy the requirements of a performance specification. If this
technical information cannot be obtained from a completed project and
must be developed for the proposal, bidders can spend considerable time
and effort in developing the information.
The technical section of a proposal that is responding to a
performance specification is one of the most important parts of a
proposal. There can be considerable differences in the technical
approaches in bid proposals for RFPs of this type. These technical
differences can have a significant impact upon the achievement of the
quality, cost and schedule objectives of a project. This is the place in a
proposal where a bidder can demonstrate the technical superiority of its
approach. Bidders should carefully review the performance requirements
prior to selecting their technical approach. The technical approach that
they select should represent the best combination of quality, cost, and
schedule benefits to an owner in addition to meeting the performance
requirements. The technical approach should consider the operating costs
of a project as well as the capital cost.
In addition to being a major factor in the evaluation of bid proposals,
the technical section of a proposal provides the detailed description of the
work that is the basis for a bidders fixed price. It is also the basis for a
bidders schedule commitments in its proposal. Both the quantity and the
complexity of the work performed by a bidder are affected by the
technical approach that a bidder takes to satisfy the performance
requirements. The bidder estimates the quantity and complexity of the
work that it will perform based upon the details of its own design for
satisfying the performance requirements. If the bidder has used the
proposed design approach on other projects, the bidder uses information
on the quantity and complexity of work from the other projects as the
basis for its bid prices.
Since the detailed design that a bidder proposes is the basis for its
fixed price bid, the technical section of the proposal defines the design in
as much detail as possible. If this detail is not included, it may be difficult
after contract award to determine whether owner requested changes to
the detailed design prepared by a supplier or a contractor should be the
basis for changes to the original fixed price. The technical section of a
proposal can include engineering procedures, detailed specifications, and
drawings prepared by the bidder to properly define the details of the
proposed design.
If the technical requirements specify that an owner will review and
approve supplier or contractor engineering procedures after contract
award, bidders may state in their proposal that their pricing is based upon

their current procedures. Changes in engineering procedure requirements

requested by owners can significantly increase the engineering and
production costs of a supplier or a contractor.
QUALITY SECTION
The capability of a bidder to control the quality of the technical work
defined in the RFP is a major factor in an owners evaluation of bid
proposals. The owners quality requirements are carefully reviewed by
bidders. In addition to affecting the quality of the contract work, the
owners quality requirements can affect the cost and schedule of
performing the work. The following sections discuss quality requirement
considerations for bidders for engineered materials and equipment,
engineering, and construction contracts.

Engineered Materials and Equipment Contracts

Most suppliers of engineered materials and equipment have existing
quality programs that they use to control the quality of the materials and
equipment that they manufacture. These suppliers review the quality
requirements in the RFP against their existing quality programs to
determine if the existing programs fully satisfy the RFP requirements. The
quality section of their proposals should describe the basic elements of
their quality programs. The description includes the procedures that are
used to control the quality of the work, a description of training programs
for production personnel, the types and frequency of inspections
performed, and quality documentation prepared by the supplier. If the
supplier intends to supplement its existing program with additional
procedures or inspections to meet RFP quality requirements, these
additional quality program features are described in its proposal.
If the RFP includes a requirement for owner approval of supplier
quality procedures after contract award, the bidder for a fixed price
contract may qualify its price as only including the elements of its quality
program defined in the quality section of its proposal. Changes requested
by an owner after contract award to a suppliers quality program have the
potential of increasing the suppliers cost. Changes that are required to a
suppliers quality program due to RFP quality requirements are included
by the supplier in its proposal pricing.

It is poor strategy for a bidder to assume that an owner will not

enforce certain quality requirements in the RFP. These quality
requirements can cause a significant increase in the suppliers quality
program resulting in higher costs for a supplier. For example, there have
been cases where detailed owner quality requirements have increased the
costs of engineered materials contracts by over one hundred percent.
Bidders should carefully review these requirements and determine the
additional activities required to comply with the requirements. If the costs
of implementing the quality requirements appear to be excessive, the
bidder can discuss these requirements with an owner prior to submitting a
proposal or indicate the additional costs of the requirements in its
proposal.
Engineering Contracts
Design documents such as specifications and drawings prepared by
an engineering contractor define the technical requirements for the other
groups on a project. The proper implementation of these technical
requirements is a primary objective of the quality programs of all of the
groups on a project. For these quality programs to be effective, the
technical requirements in the design documents must be clearly
understood. The degree of detail in the design documents must be
sufficient to provide adequate guidance to personnel responsible for
inspecting and accepting completed work. For example, the tolerances
defined in the specifications and drawings for an engineered materials
contract must be in sufficient detail to allow an owners inspector to
accept or reject work performed by the supplier. A bidder for an
engineering contract addresses the degree of detail that it proposes to
provide in its design documents to assure that the technical requirements
will be properly interpreted by other project groups. The amount of detail
provided by an engineering contractor in its design documents affects the
cost and schedule of the engineering contract.
In addition to providing sufficient technical detail to other project
groups, the technical documents prepared by an engineering contractor
must be accurate. Errors and omissions in design documents can cause
quality problems in work completed by other project groups. Internal
checking of design documents by the engineering contractor can reduce
the number and severity of design errors and omissions. Many
engineering contractors have design review groups that are independent
of the groups that prepare the original design documents. Bidders for
engineering contracts describe their proposed design review programs.
The amount of independent design review directly affects the cost and
schedule of an engineering contract.

If suppliers of engineered materials and equipment or construction

contractors experience quality problems in completing their work, the
engineering contractor is often involved with resolving the problems. A
supplier or a contractor may request to have the work that is not in
accordance with the technical requirements accepted as is if the deviation
does not appear to be significant. The engineering contractor is
responsible for analysing the existing deviation and determining if the
design integrity is jeopardized by accepting the work as is. If there are
many of these problems, the costs of the engineering contractor will be
significantly increased by the time required to resolve the problems.
Proposals for engineering contract work describe the type of support that
the engineering contractor will provide for problems of this type and the
extent that the estimated costsof the engineering contract include the
support.
Construction Contracts
Many construction contractors do not have formal quality programs. If
the quality requirements in the RFP specify that the bidder must submit a
specific type of quality program, a bidder may have to develop the
program as part of its work on a proposal. Bidders for fixed and unit price
construction contracts carefully review the quality requirements in the RFP
to determine their impact upon the cost and schedule of the contract
work. In addition to the cost of developing a quality program, bidders
consider the cost of implementing the program. The bidder can be
required to provide more inspection personnel for the contract work. The
productivity of the construction contractors personnel can also be
adversely affected by the quality program requirements. Quality program
documentation requirements can significantly increase the costs of a
construction contract.

If the quality requirements state that an owner will perform detailed

quality inspections of a construction contractors work, bidders evaluate
the impact of these inspections upon contractor work activities.
Construction inspection procedures often require that hold points be
established to the work performed by craft personnel to perform
inspections at the proper time in a work sequence. These hold points
increase the amount of craft time required to complete construction work
activities. Bidders for construction contracts should review the owners
quality inspection procedures prior to submitting their proposals. If owner
inspections are performed after construction work is complete and

problems are identified, the construction contractor may have to perform

considerable work such as erecting scaffolding to correct the deficiencies
identified by the owner.
The quality requirements in the RFP may require that a construction
contractor perform detailed receipt inspections of materials and
equipment that are installed by the contractor but furnished by other
project groups. This can be a major task for contracts that involve the
installation of a large quantity of materials and equipment. Quality
problems identified by a construction contractor with materials and
equipment furnished by others can take a significant amount of time to
resolve with suppliers. Suppliers frequently do not agree with the quality
deficiencies identified by a construction contractor. Bidders for
construction contracts that include receipt inspection requirements of this
type define the level of effort included in their proposals for these
activities.
SCHEDULE SECTION
The schedule requirements in the RFP have a significant impact upon
the cost of performing the contract work as well as upon how a supplier or
a contractor manages the work. The start and completion dates in the RFP
for the contract work affect the pricing of the labour and materials
required to perform the work. The schedule duration of the work affects
the staffing requirements for suppliers and contractors. Bidders use the
specified schedule dates in the RFP as the basis for developing the cost
information that supports their fixed and unit price bids. The following
sections address activities that bidders perform in preparing the schedule
sections of their bid proposals and the impact of the schedule
requirements upon the cost sections of their proposals.

Required Schedule Dates

Many RFPs do not provide required completion dates for a large
number of supplier or contractor work activities. Certain RFPs only

contain one date for contract completion. It is the responsibility of the

bidder to develop a sufficiently detailed schedule of contract work
activities to substantiate that its work can be completed within the
schedule requirements in the RFP. If the detailed schedule prepared by a
bidder during the bid period indicates that the work cannot be completed
within RFP schedule requirements, the bidder should discuss this issue
with the owner This approach is essential for contracts with schedule
incentive fee or liquidated damage clauses. It is important for a bidder to
provide the owner with an honest assessment of the probable schedule for
completing contract work even if that assessment is not in accordance
with RFP schedule requirements. The bidder includes its detailed schedule
in the schedule section of its proposal.
The completion of certain work activities on many contracts is
dependent upon the completion of work activities by other suppliers and
contractors or the owner. The RFP may or may not provide scheduled
completion dates for all of the activities that interface with a suppliers or
a contractors schedule. The detailed schedule prepared by a bidder
should include all of the interface requirements including the latest
acceptable dates for receiving materials or information from other project
groups. The schedule section of the bidders proposal should make it clear
to an owner that contract schedule performance by the bidder is
dependent upon the schedule performance of the owner and its other
suppliers and contractors.
The durations of the activities in a bidders detailed schedule for
performing the contract work are dependent upon the technical scope
defined in the RFP. If the technical scope increases after the contract is
awarded, more time can be required to complete the additional scope of
work. The schedule section of the bidders proposal identifies the technical
scope that is the basis for the schedule durations provided in the bidders
detailed schedule.
Schedule Program Requirements
RFPs can contain requirements for the type of schedule program that
a supplier or a contractor uses on a project. These requirements can
present several problems to a bidder. If the bidder does not normally use
the type of scheduling system specified in the RFP, the bidder must
expend the time and money required to develop the specified scheduling
system. In addition to the cost and time required to develop the required
system, the bidder may have difficulty in getting its personnel to
effectively use a new scheduling system that is unfamiliar to them. The
schedule section of a bidders proposal addresses the type of scheduling
program that the bidder intends to use to control the schedule of its work

and the degree of compatibility of the bidders scheduling system with

owners project schedule system.
The RFP may also contain requirements for the format and frequency
of schedule reports that a supplier or a contractor is required to provide to
an owner. If a bidders current scheduling program does not have the
capability to generate schedule reports in the format requested, the
bidder evaluates the additional effort required to produce reports that
meet RFP requirements. The bidder includes the type of schedule reports
that it will present to the owner as part of the schedule section of its
proposal. If the RFP contains requirements for progress reports from
suppliers or contractors, the schedule section of the bidders proposal
addresses the format of the progress reports that a supplier or a
contractor will provide to an owner.
If the RFP has requirements for reporting supplier or contractor
schedule activities as complete, the bidder addresses these requirements
in the schedule section of its proposal. These requirements can cause a
supplier or a contractor to establish special reporting systems that
increase the cost of the contract work.
OTHER MANAGEMENT SECTIONS
Chapter 12 addressed other management requirements that are
included in RFPs for major contracts. Depending upon the nature of these
requirements, these management areas are addressed in a bidders
proposal. The following sections discuss activities that bidders perform in
the preparation of responses to the management areas addressed in
Chapter 12.
Organization and Staffing Requirements
Many RFPs request that bidders provide information in their
proposals concerning the organization that they will use to perform the
work and the qualifications of their key managers. If a bidders proposed
organization for a contract is made up of several groups, a Project
Manager may be required to coordinate the activities of these groups.
Owners do not believe that it is their responsibility to coordinate the
interfaces among the groups working for a particular supplier or a
contractor. An owner prefers to deal with a single person from a suppliers
or a contractors organization who is responsible for managing the work
performed by all of the groups working for a supplier or a contractor. The
management capabilities of the individual proposed for this position in a
suppliers or a contractors organization are an important factor in bid
evaluations.

The organizations of a supplier or a contractor and an owner must

effectively interface in order to accomplish the requirements in a contract.
A bidder should study an owners project organization carefully before
structuring its organization in its proposal. The structure of the bidders
organization should parallel the structure of an owners organization to
the extent that it is feasible. This will facilitate communication between
the suppliers or the contractors organization and the owners
organization after contract award.
Many bidders are reluctant to commit to the specific managers that
will be assigned to a contract in their bid proposals since they may be
using the names of certain individuals in several proposals. Since the
performance of the managers assigned to a contract is essential to the
success of a contract, the qualifications of the managers that will actually
be assigned to a project are an important issue with owners during bid
evaluations. Certain owners will include the names of these individuals in
the contracts for the work. If a bidder wants to increase its chances of
contract award, it is specific about the names and qualifications of key
managers in its proposal.
Owner Furnished Items
Many RFPs state that owners will provide certain items to service
contractors that are working at a project site or in owner facilities. Bidders
evaluate whether the items that will be furnished by an owner are
adequate to fulfil all of the needs of a contractor. For example, if an owner
states that it will provide a specific amount of office space for contractor
personnel, it is the bidders responsibility to evaluate its total office space
requirements for a contract. If the space furnished by an owner is less
than the total amount required, a bidder must establish whether the
owner can provide additional space or whether the contractor is
responsible for providing the additional space required for its personnel.
The bidders proposal states its requirements for office space and whether
it is providing any additional space. The bidders proposal also states the
timing of when the bidder will need the office space.
Bidders should understand whether owner furnished items are to be
shared with other project groups. If a contractor does not have the
exclusive use of an owner furnished item, the work performed by the
contractor can be less efficient due to the need to share items with other
project groups. For example, contractor personnel may have to wait until
owner furnished equipment is used by another contractor before they can
perform their work on a contract. Bidders for contract with owner
furnished items make it clear in their proposals what their requirements

are for using owner furnished equipment that is shared with other
contractors.
Safety Requirements
The strength of a bidders safety program for construction contract
work is an important element in bid evaluations. Many RFPs for
construction contracts contain specific safety requirements including a
requirement that bidders submit their safety program with their proposals.
These safety programs must meet federal OSHA requirements as well as
specific owner requirements. Bidders should review their existing safety
programs against the safety program requirements in the RFP to
determine if their existing programs satisfy all of the requirements. A
Bidders proposal should include the safety program that it will use for its
construction work.
If an owner indicates in the RFP that it intends to perform safety
inspections of construction contractor work, a bidder takes this into
account in its proposal. Owner safety requirements can be more restrictive
that construction contractor safety program requirements. These safety
requirements can increase the time required to perform contract work
activities. A bidder needs to be knowledgeable of these requirements to
properly account for them in the pricing section of its proposal.
Environmental Requirements
Environmental requirements can have a significant impact upon
activities performed by suppliers and contractors. RFPs define the specific
environmental requirements that apply to contract work. The design work
performed by engineering contractors and equipment suppliers is often
affected by environmental requirements. Satisfaction of these
requirements is often a prerequisite to obtaining a license fix a project.
Construction contract involving the handling of hazardous materials must
comply with federal environmental requirements. Bidders for RFPs
containing environmental requirements include their proposed approach
for dealing with environmental requirements in their proposals.
COMMERCIAL SECTION
Chapter 14 addressed the extensive commercial requirements that
are included in many contracts. Certain commercial requirements in RFPs
result in additional costs to a supplier or a contractor. Other requirements
should be carefully evaluated by bidders to assess their potential financial
impact upon a company. This potential financial impact is assessed as part

of the overall assessment of the risk of a contract. The following section

address activities that bidders perform in assessing the commercial terms
contained in RFPs.
Bidders Commercial Terms
Due to the complexity of the commercial terms often contained in
RFPs, certain bidders submit their proposed commercial terms in
response to the RFP. A bidders commercial terms are more favourable to
the bidder than are the owners since they are prepared by the bidder. The
problem with this approach is that most owners are not willing to use
commercial terms developed by the Bidder since they know that their own
commercial terms provide better protection for an owner. If a bidder has
objections to specific commercial requirements in the RFP, the bidder
should include revised language for the specific requirements in the
proposal. This marrows the differences can commercial terms between a
bidder an owner to specific issues and increase the probability of resolving
the issues.
Liability Requirements
RFP clauses that define the lability of a supplier or a contractor for
performance problems can impose a significant financial liability upon a
supplier or a contractor. Cost increases and schedule delays that occur on
major projects due to supplier or contractor performance problems can be
substantial. The costs of these performance problems by a supplier or a
contractor to an owner can be more than the value of the contract. Many
suppliers and contractor do not have the financial capability to pay costs
of this magnitude. Bidders should carefully evaluate liability clauses and
state their positions on liability limits in their proposals.
Cost of Commercial Requirements
Certain commercial requirements in RFPs result in additional costs
for suppliers and contractors. Bidders evaluate the commercial
requirements to determine their impact upon the cost of performing the
contract work. For example, insurance requirements in RFPs can result in
additional insurance premiums. If a contractor is required to furnish
certain bonds by the requirements in the RFP, the premiums for the bonds
are included in the contract price. Invoicing requirements in the RFP can
require more accounting work than normal to comply with the
requirements. Warranty requirements necessitate establishing an
allowance in the contract price for future repairs. Payment schedule

requirements can cause increased supplier or contractor financing costs

for a project.
PRICING SECTION
The amount of work that a bidder expends in preparing the pricing section
in significantly affected by the requirements in the Proposal section of the
RFP. The following sections address the activities performed by bidders in
preparing the pricing section of their proposals for the types of contract
pricing addressed in Chapter 3.

Fixed Price, Unit Price, and Target Price Contracts

The amount of pricing detail requested in RFPs for fixed price, unit
price, and target price contracts from bidders my not be significant. The
owner may be primarily interested in the total price of the contract work.
Bidders for fixed price, unit price, and target prices and to substantial
estimating detail to assure that all specified activities are covered in their
prices and to be able to adequately control the work after contact award.
This estimating detail includes a description of the scope of the contract
work, the productivity rates and hours required to perform the contract
work, and overhead and profit. The following sections address these
areas.
Contract Scope Of Work
The pricing section of a proposal for a fixed price, unit price, or a
target contract cannot be completed until all of the work required for the
other sections of a proposal is complete. The bidder develops its specific
responses to the technical, management, and commercial requirements in
the RFP to define the work that it will perform. The groups that will be

responsible for performing the contract work define the detailed activities
that the bidder will perform if awarded the contract.
The level of detail in the bidders estimate is affected by two factors.
The level of detail is sufficient to prepare an estimate that includes all of
the work specified in the RFP. The level of detail is also sufficient to
prepare budgets that can be compared to actual costs.
Productivity and Hours
Bidders for engineered materials, equipment, and engineering
contract RFPs use their experience from previous contract work to
estimate the productivity and hours required to complete a new contract.
Since the personnel that will work on a new contract usually are already
working in a suppliers or a contractors facility, the productivity of these
personnel should be known. The hours required to complete the new
contract are affected by the technical and management requirements in
the RFP. The quantity and complexity of the work involved are major
factors that affect the labour hours required to perform the work. The
managers of the groups that will perform the contract work assist in
estimating the hours.
Bidders for construction contracts have difficulty in estimating
labour productivity if they have not previously worked in the area where a
project is located. Labour productivity levels of construction craft labour
vary considerably with the region of the country where the work is
located. Estimating guides published by certain companies provide an
indication of the variation in labour productivity that may be experienced.

Labour and Material Cost

After a bidder estimates the labour hours required to perform
contract work, the next step is to apply wage rates to these hours to
determine labour costs. There is usually little difficulty in developing
currents wage rate information since it is available from accounting and
other records. If the contract work will not be completed before wage
increases occur, it is necessary to estimate the cost of future wage rate
increases.
If there are extensive materials that will be provided by a supplier a
contractor, a bidder can expend considerable effort in obtaining prices for
these materials. Quotations can be requested from the suppliers of the
materials during the bid period. The bidder may be required to escalate
from costs in its bid price if the schedule for procuring the materials is in
the future. If a bidder does not ha have sufficient time to obtain

quotations from material suppliers, the bidder often relies upon material
costs data from its previous projects or estimating guides.
Equipment Cost
Many contracts require a supplier or a contractor to provide the
equipment required to complete the contract work. Engineered materials
and equipment contracts require the supplier to the specialized
equipment to manufacture the items. Engineering contractors use
computers and computer assisted drafting equipment to perform their
work. Construction contractor use tools and construction equipment to
perform their work. RFPs usually do not specify the type of equipment
that a supplier or a contractor must use to perform the contract work and
the duration for using the equipment are included in the contract price.
Risk Analysis
After a bidder has completed its detailed estimate, an evaluation of the
potential for actual cost expenditures that are greater than the estimate is
made. There are many factors that can affect the bidders cost estimate
for example.
Underestimates of quantities of work
Underestimates of the complexity of the work.
Schedule delays that are the responsibility of the bidder.
Underestimates of increases in wage rates.
Underestimates of material prices.
Underestimates of the amount and types of equipment required to
perform contract work.

The amount of contingency that a bidder includes in its bid price for
uncertainties of this nature is dependent upon the confidence that the
bidder has in its detailed estimate. If a bidder adds to much contingency,
it will not be awarded the contract. Target price contract bids frequently
include a greater allowance in the target price for uncertainties due to the
fact that the scope of work is often not as well defined as it is for fixed
price contracts.
Overhead and Profit
There are certain costs that suppliers and contractors incur as a
result of doing business that are difficult to include in the above

categories. For example, suppliers and contractors have sales personnel,

executive personnel, office facilities, and support groups that are
necessary for their businesses. The costs of these items are difficult to
estimate for a specific contract since these personnel and facilities are
used for a contract and included in proposal prices. They are frequently
referred to as overhead costs. Overhead costs are real costs are real costs
that must be recovered by suppliers and contractors if they are to remain
in business.
Suppliers and contractors are entitled to earn a reasonable profit on
a contract if they effectively manage the work. If the actual costs of a
supplier or a contractor exceed its estimated costs plus any contingency,
profit is reduced by the amount of the overrun. Competitive bidding limits
the profit that bidders can include in their proposals.
Reimbursable Contracts
Reimbursable contracts with incentive fees that are based upon
expending less than a targeted costs figure can require that a bidder
develop the targeted costs figure. The bidders activities are similar to
those required for target price contracts discussed in the previous section.
RFPs that specify that a bidder submit cost limits for items such as wage
rates and travel expenses require the preparation of these figures by a
bidder. This information is relatively easy to develop since it can be based
upon existing accounting records.

JOINT VENTURE PROPOSALS

A bid proposal can be submitted by a joint venture or more than one
company if this approach is acceptable to an owner. The advantage of
joint ventures is that they allow companies to combine their financial and
management resources to fulfil contract requirements. Joint venture bid
proposals require a comprehensive definition of the contract
responsibilities of each of the members of the joint venture. This definition
is required by each of the members of the joint venture as well as by the

owner. The owner usually requires that one of the joint venture members
be responsible for the overall management of contract work. Joint venture
contract approaches can result in management accountability problems if
responsibilities are not clearly defined. The preparation of a joint venture
bid involves all of the steps addressed in this chapter. The preparation of a
joint venture bid involves all the steps addressed in the chapter. The
parties to the joint venture determine who will be responsible for the
preparation of each part of the bid proposal.
CASE STUDIES AND QUESTIONS
Case Sudy 17-1
Badger Power Company
The Caster Engineering Company is one of the companies that
receives the RFP for the engineering contract for the Badger Power
Company power plant. The Carter Engineering Company has previously
performed engineering work for the Badger Power Company. Mike Jones is
assigned as the Project Manager for Carter responsible for the preparation
of the bid proposal. The bid proposal is due three weeks after it is received
by Carter
Mike Jones meets with the Vice President to discuss staffing for the
bid proposal and projects work. The current workload of the Carter
Engineering Company is significant and there are not many people
available to work on the bid proposal. Personnel projections indicate that
engineering resources from current projects will be available for a new
project in approximately three months. Although currently available
resources are in short supply, the Vice President indicates to Mike Jones
that Carter wants to bid on the new project to maintain good business
relations with the Badger Power Company.
The performance specification in the RFP requires that the bidders
for the engineering contracts provide a description of their technical
approach for the power plant including any reference plant designs that
they intend to use. The RFP indicates that the adequacy of these technical
descriptions will be a major factor in the evaluation of the bid proposals.
The quality requirements in the RFP state that the engineering
contractor is responsible for performing sufficient design review to
minimize to occurrence of errors in specifications and drawings. The
Badger Power Company engineering group will closely monitor the
performance of the engineering contractor in this area. The incentive fee
awarded to the engineering contractor the quality performance will be
determined in part by the accuracy of the specifications and drawings
prepared by the contractor. The cost of correcting errors in specifications
and drawings is the responsibility of the contractor.

The schedule requirements in the RFP indicate that the design

specifications and drawings for the civil construction contract must be
completed by the engineering contractor within eight months of contract
award. The design specifications and drawings for the RFPs for the
mechanical and electrical construction contracts must be completed by
the engineering contractor within twelve months of contract award. The
achievement of the schedule incentive fee is primarily based upon the
completion dates for the design packages required for the construction
contracts.
The RFP requires that bidders provide an estimate of total
engineering contract hours for the project based upon the bidders
proposed technical approach. The estimate is to include the hours
required to perform procurement activities as well as support of licensing,
construction, and testing activities. The achievement of the cost incentive
fee for the project is based upon how well the actual cost performance of
the engineering contractor conforms to its estimated hours. The bidders
are required to specify wage rates for the different classifications of their
personnel.
Mike Jones meets with the members of the engineering,
procurement, estimating, and schedule groups that have been assigned to
assist him in preparing the bid proposal. Answer the following questions as
if you are Mike Jones.
Questions:
17-1a
Will you prepare a schedule for the preparation of the bid
proposal? What are the activities and durations that should be
included in this schedule?
17-1b
How will you define the technical approach to the project in
the time available for the bid proposal?
17-1c
How much independent design review will Caster perform of
its design specifications and drawings to assure that design errors
are minimal? Will you design review program in the bid proposal?
How will it affect the estimate of total hours for the contract?
17-1d
Will you describe in the bid proposal the amount of detail that
will be provided in the specifications and drawings for the project?
How Joes the amount of design detail affect the quality of the work
performed by the suppliers and contractors? How does it affect the
estimate of the total hours for the contract?