Price and manage delivery risks — Construction & civil engineering

By the end of this lesson, you will be able to calculate a price, test its return and address a delivery risk.

Common to all countries

Build the cost before choosing the price

Start with quantities, paid time, third-party costs and delivery assumptions. Include mobilisation, supervision, compliance, warranty or support, overhead and the end of the contract where relevant. Separate fixed costs from costs that vary with usage. Forecast volumes are not minimum orders unless the contract makes that commitment.

In this exercise, target margin means profit divided by selling price. A 20% margin therefore requires price = cost ÷ 0.80. Adding 20% to cost is a markup and produces a lower margin. Taxes, discounting and financing are excluded from these teaching sums; add the applicable items to a real bid. Test one credible adverse scenario and decide who controls its cause and how the contract allocates it.

Worked example — Renovate an occupied library

This is a fictional teaching case. Quantities, prices and contractual conditions below are assumptions for the exercise, not legal requirements or market benchmarks.

Restricted hours reduce output and an undisclosed service behind a wall can interrupt the sequence. Price the known working constraints; assign investigation and change-control actions for uncertain conditions instead of hiding them inside an unexplained contingency.

Item	Cost (currency units)
Labour	42,000
Materials	28,000
Site setup and management	10,000
Total	80,000

Total cost is 80,000. To retain 20% of the selling price as profit, price is 80,000 ÷ 0.80 = 100,000. If “Additional restricted-hours work” adds 8,000 to cost without a price increase, profit becomes 12,000, or 12% of price. Preserving 20% would require 110,000, only where the procurement permits that price. A cost increase does not automatically entitle the supplier to a contract price increase.

Country specific — what to verify

Check local contractor qualifications, building approvals, site-safety responsibilities and mandatory insurance for the actual activities. Retention, statutory defects liability, price revision and subcontractor payment depend on the governing regime and contract; do not import another country’s standard clauses.

Guarantees, statutory liability and payment mechanisms. Use the destination-country module and the actual tender pack. The sources below are references with their own scope; they do not form a single worldwide regime. For the general method, revisit the foundations.

Put it into practice

Calculate the price for 20% of selling price as profit, then add 8,000 to cost. Calculate profit at the unchanged price and write one risk-control action.

Model answer

Total cost is 80,000. To retain 20% of the selling price as profit, price is 80,000 ÷ 0.80 = 100,000. If “Additional restricted-hours work” adds 8,000 to cost without a price increase, profit becomes 12,000, or 12% of price. Preserving 20% would require 110,000, only where the procurement permits that price. A cost increase does not automatically entitle the supplier to a contract price increase. Restricted hours reduce output and an undisclosed service behind a wall can interrupt the sequence. Price the known working constraints; assign investigation and change-control actions for uncertain conditions instead of hiding them inside an unexplained contingency.

Keep this worksheet in your working file. The quiz below checks the lesson’s decisions; passing it is neither a professional qualification nor a guarantee of an award.