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: 30 units sets cysto irrigation 2017-10-03 11:00 ZNQ 771/ 17/ 18
Servicing of mini substations as per specification 2017-10-09 11:00 ZNQ 714/ 17- 18
Supply: 120 pairs stockings anti embolism thigh high small 2017-10-03 11:00 ZNQ 774/ 17/ 18
Service to fire fighting equipment at Ndwedwe CHC, Wosiyane clinic, Thafamasi Clinic and Mwolokohlo Clinic 2017-10-10 11:00 ZNQ137/ 17/ 18
Supply: 210 Units sets administration high capacity 2017-10-03 11:00 ZNQ 770/ 17/ 18
Minor repairs and refurbishment of JF Mati senior secondary school in Mdantsane NU 9, East London. 2017-10-16 12:00 CDC/ 321/ 17
Supply: 200 units sets infusion y type 2017-10-03 11:00 ZNQ 769/ 17/ 18
Supply: 115 Units catheter urethral foley 2 way latex 3ml 8fg 2017-10-03 11:00 ZNQ 731/ 17/ 18
Industrial stove (3 plate with oven) 2017-10-03 11:00 ZNQ NO.2511/ 08/ 17
CapeNature seeks the services of a skilled project management team and contractor to construct a recreational area including a swimming pool and shaded lapa at the Grootvadersbosch Nature Reserve. The contractor must have a minimum level 3GB for the installation of the required pool and recreational area. 2017-10-20 11:00 WCNCB 01/ 09/ 2017
Supply: 372 boxes test kit syphilis IPR 2017-10-03 11:00 ZNQ 845/ 17/ 18
Steel staff lockers (as per spec) 2017-10-03 11:00 ZNQ NO.2510/ 08/ 17
Supply: 40 Units hospital standard bed with mattresses 2017-10-03 11:00 ZNQ 846/ 17/ 18
Request for information (RFI) for the supply and installation of digital voice recording system at all control centres at EMS: 3 year contract 2017-10-16 11:00 ZNB 5135/ 2017- H
Supply: 108 pairs stockings anti embolism thigh high medium 2017-10-03 11:00 ZNQ 775/ 17/ 18
Supply: 150 pairs stockings anti embolism thigh high x large 2017-10-03 11:00 ZNQ 776/ 17/ 18
Supply: 6360 units nebulizer aerosol child 2017-10-03 11:00 ZNQ 835/ 17/ 18
Supply: 1100 pkts electrodes E.C.G adult pkt/50 2017-10-03 11:00 ZNQ 834/ 17/ 18
Supply and deliver 10L Buckets plastic. Green, Yellow, Blue, Red and White Colours. QTY: 32 Units 2017-10-06 11:00 ZNQ: 593/ 17- 18
Supply and deliver SHE Bins 10L. QTY: 48 Units 2017-10-06 11:00 ZNQ: 591/ 17- 18

Pages

Functionality and Tenders

In all competitive bids (tenders) you as the bidder will have to respond to Functionality. You will need to score a set minimum number of points, measured as a percentage, on Functionality of a competitive bid (tender) in order to advance to the next phase of evaluation in the tender process.

Usually Organs of State evaluate competitive bids (tenders) as follows:

  • The tender response is evaluated on Functionality where the bidder must score points out of a maximum of 100 points.
  • A threshold of between 65 to 75 out of 100 points... Read More
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