Before the contractor determine the final bid price strategy, he must know himself very well. As Michael E. Porter (1985) stated, the contractor must know the workload the he can assume during the period of implementation of the project, the current estimating workload, and his financial situation. The contractor also needs to the advantages and disadvantages of his competitors and how the competitors influence upon the client. The most important is the contractors must understand and influence the client very well.According to Tweedley(1995), the most important aspect of effective the bid price determination is understanding and influence upon the client. The contactor needs to know what the client’s needs and wants.
After client puts the project into tendering, suppliers are required to bid or present their offer with the bid price, terms and conditions that, upon acceptance of the client. The client knows the right price that he can pay to the contractor. The client will decide to accept one of the bidders who give the right bid price.If the bidder doesn’t know the client very well, may be he could quote the price too high which leads he to fail bidding.
Therefore the bidder should know the client’s enterprise, understands the client’s concerns, and influences the client. The bidder should always attempt to view the opportunity from client’s perspective first. Then the bidder can set an acceptable price to the client. How can the bidder know his client well? Building a good relationship with the client is very important. As Tweedley(1995) stated that the relationship between client and supplier is important.
And the clients and suppliers are currently working in closer relationship. Even in normal supplies this is beginning to prevail. It is beneficial to both client and supplier. They have better relationship with the supplier resulting in knowledge transfer and improved pricing, an influence in future developments and improved competitiveness. The supplier benefits from the good relationship that evolves with the client organisation, a satisfied reference site and steady income streams.
Therefore the contractor should analyse himself, the competitor, the client, the environment and the risk well before determine the bid price.The factors referred above are pivotal factors in the bidding. But it stated much general and only among the client, contractor and competitor.
As the investigation of Mochtar and Arditi(2001) shows, the five most important factors that affect respondents’ current pricing strategies are project size/complexity, financial goals of company, company’s strengths and weaknesses, expected future project from the owner and the need of work. In Mochtar and Arditi’s point the most important factors that affect the bid price strategy of the company are the project size/complexity and financial goals of company.The larger project size or more complexity, the company will determine a bid price strategy that will set higher bid price. Because the project with larger size or more complexity, it must be more risky for the company to finish the project successfully. The financial goal of company is another most important fact that affects the determination of the bid price strategy. If the company wants to make more profits from the project, it will determine a pricing strategy to set higher bid price.
Company’s strengths and weaknesses also affect a company how to set the pricing strategy.The company must know its strengths and weakness well. If the company has more strengths to do the project, he should put the price lower. But is the company has more weaknesses to do the project, he should put the price higher because it’s more risky. Sometimes the bidder company expected future project from the owner.
If the company expects a long term relationship with the client and make profit during the long term partnership, the company should also determine a bid price strategy that will set a lower bid price.The lower price the bidder sets, there are more chances that the bidder can be awarded the offer of the project. Then the company can make long term relationship with the client. The need of work influence the company’s bid price strategy as well. For example, if the company has financial problem, the company should determine a bid price strategy that will set a lower bid price to ensure to be awarded an offer of the project, because the company needs the cash flow of the project to help solving its financial problem.