Issue Date: 
Monday, October 13, 2014

Direct and Indirect Costs: 2 items that determine tender pricing

Article by Werner van Rooyen

www.how2tender.com

13 October 2014

Many bidders that respond to tenders struggle when it comes to calculating a price for a specific tender. One of the reasons for this is that a large number of small business owners are usually new to the tender process and therefore they lack the necessary experience to price their bids correctly.

Without getting into the fundamentals of accounting there are two basic items that determine your tender price. In fact, these two basic items should always be your guide when determining your price on the goods or services you sell.

The two items that determine pricing are:

  • Direct Costs; and
  • Indirect Costs.
  1. Direct Costs

Direct Costs are the costs that one pays to either:

  • Produce goods or services; or
  • The cost price you pay to procure goods or products that you will resell to your customers.

In other words, if you manufacture wooden chairs your direct costs will be the money you spend on purchasing the wood for the chairs. Other direct costs in manufacturing wooden chairs would be wood glue, nails and labour costs.

Thus, when responding to a tender you must take the utmost care that you include all your direct costs in your tender price.

  1. Indirect Costs

Indirect Costs are the expenses that you incur to run your business, these costs do not necessarily generate any income. Some of the most common indirect costs that your business incurs are:

  • Rent
  • Utility expenses such as electricity and water
  • Telephone
  • Stationary
  • Salaries and wages
  • Accounting fees

It is very important to include indirect costs in your tender price. Remember that the tender will form part of your normal day-to-day business and therefore it must contribute to your indirect costs.

The question is how to calculate how much of the indirect costs are contributable to the tender. There isn’t one specific rule but one of the more common rules is to estimate the time spend on servicing the tender and then use that to factor in the indirect costs into the tender price. In other words if you have to spend 50% of your time servicing the tender then 50% of your indirect costs should be part of your tender price.

Please visit our website at www.how2tender.com for more on these as well as other interesting topics. You will also find our Tender Manual there - the Tender Manual guides you through the whole process of responding to a Tender or a Request for Proposal.

Until next time.

Title Closing Date Tender No.
Supply: Electrical accesories 2018-03-01 15:00 GJ11800683
Upgrade Isikhova Park, Supply and installation of water tank at Isikhova Park. 2018-03-02 12:00 SB11800549
Supply of end user computing devices and services 2018-03-02 12:00 REF: RFPUJ 05/2018
Supply and Delivery of Polymer Products and Adaptor. 2018-02-27 11:00 280037
Supply MV Terminations 2018-03-01 15:00 GJ11800687
Repair to paving Harmony Park Resort 2018-02-28 12:00 SB11800553
Skills Program Training of BVM’S Employees 2018-02-26 11:00 280696
Supply: Electrical accesories 2018-02-23 15:00 GJ11800692
Appointment of Service Providers to carry out feasibility studies of proposed sites in Kwazulu-Natal Province for the potential of Social Housing Projects 2018-03-09 11:00 SHRA/RFB/SDT/04/201718
Atmospheric emission consulting engineer required for stack sampling at Maitland Crematorium. 2018-03-02 09:00 SN11800569
Rental, Services of Sani Bins and supply of Germicidal Sanitary Spray for Area 2, From March 2018 until June 2018 2018-02-27 12:00 SB11800543
Supply and delivery of Kiosk Poly 2018-02-26 11:00 280050
Horticultural maintenance: Cleaning, soil preparations & mulching of planting beds at Delft Cemetery. 2018-03-05 14:00 SN11800567
Supply and delivery of Cock Stops 2018-02-27 11:00 280250
Supply and delivery of projectors 2018-02-23 14:00 GK11800463
Supply and delivery of wifi adapter - wifi adapter 2018-02-23 11:00 GK11800464
Provision of Central Printing Units for the Production of Mono and Color Printing 2018-03-09 12:00 CENTRAL PRINT UNIT CPU/2018/01
Appointment of a service provider for the provision of corporate sustainability performance solution for ATNS. 2018-03-19 16:00 ATNS/HO/RFP CORPORATE SUSTAINABILITY PERFORMANCE SOLUTION/29/10/2017 (2)
Invitation to Submit an Expression of Interest in a Strategic Partnership with Atlantis Forge (Pty) Ltd 2018-03-09 16:00 Not Supplied
Provision of Learning and Development Programme Services. 2018-03-19 16:00 ATNS/HO/L&D PROGRAMME 12/17(1)

Pages

Tender adjudication process

The SBD/WCBD6.1 document must form part of all bids invited.  It contains general information and serves as a claim form for preference points for Broad -Based Black Economic Empowerment (B -BBEE) Status Level of Contribution, and explains how tenders or bids are decided.

The document says:

  • The bidder obtaining the highest number of points will be awarded the contract.
  • Preference points shall be calculated after prices have been brought to a comparative basis.
  • Points scored will be rounded off to two decimal places... Read More
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