Risk Pricing in Construction Tenders - How, Who, What

Marcus Towner, David Baccarini


Abstract

Construction projects are most commonlyprocured in Australia by means of atraditional design-tender-build model,whereby design is largely completed thencontractors submit tenders in acompetitive environment. Constructioncontractors must consider risks within theirtenders. This paper reports the researchfindings into pricing for risk in competitivetenders by construction contractors. Theresearch is based on structured interviewswith 10 contracting personnel;supplemented by 23 responses ofconstruction personnel from an onlinesurvey. Two common methods to price forrisk are a trade-by-trade basis or anoverall percentage or lump sum addition tothe base estimate. Experience andintuition plays a significant role in pricingfor risk in tenders and the number andtype of people involved varies with projectsize, with greater involvement as projectsize increases. The most significant riskspriced in tenders were: availability ofresources; design or documentation errors;incomplete design; buildability issues; andinclement weather. The most significantproject factors considered by contractorswhen pricing for risk in tenders are: valueof liquidated damages; type ofcontract/procurement; completeness ofdocumentation; project complexity; and. current workload. These risks and projectfactors are primarily those over which thecontractor has limited or no control.

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