How to Price Jobs as a Contractor: Guide for Engineering Services

Introduction

In view of personal industrial experience, it has been observed that running a private business as contractor in the execution of either building, engineering or any other contracts is a quite a good venture. However, operating as a private contractor requires adequate knowledge, competence, experience in job costing, pricing and price negotiation as well as human intelligence and wisdom before operational success can be achieved. Contractors must carefully assess and understand the client’s payment terms before generating a quotation for the project. The contractor having won the contract without having created any cushioning room for client’s late payments, especially if the contractor had pre-financed the project from start to finish, then the contractor may end up paying more interest than expected to financial credit providers. The contractor must not rush to take up a contract by just merely looking at the colossal contract sum without carrying out the due diligence of the contract payment terms, payment promise reliability and credibility of the client. There are cases where loan providers, especially banking institutions call for the contractor’s motor vehicle together with its documents or building property with its documents to be deposited as security with the loan provider before the loan can be assessed. The contractor is also made to open a joint account in the same bank with the loan provider as a tight means of security against default payment. Depending on the project type, the contractor can choose to state any of the following payment terms in the quotation or tender thus:

• 50% deposit payment and 50% remaining balance payment after completion.

• 100% contractor’s full pre-financing with loan interest payable by client.

• Delay payment by client instead of the agreed date by both parties (client and contractor) a percentage interest shall be added for payment.

Contract pre-financing is a serious business, therefore contractors must not joke with it at all. Contractors are business-to-business service providers to their clients and other potential clients and needs to be paid as quickly as possible in order to pay materials suppliers and workers especially soon after completing the project. As a result, contractors need to adopt strategies that shall ensure payment after completion as agreed by both parties (client and contractor).

Chapter 1

Engineering service contracts that contractors can be engaged on are roads repairs and construction, bridges repairs and construction, buildings construction, water systems maintenance, ship repairs, electrical installations, steel structure construction and erection, process designs, construction and installation, offshore petroleum production sector among others. Many contractors do not know how to properly determine Costs and Prices through calculations for services to be executed. Many of these contractors believe that they can always make lower prices than their competitors in order to win contracts and end up borrowing money to completely pay off labour charges to their contract workers after the contract is ended. It even becomes very difficult for these contractors to recover monies that had been injected into the operations of these contracts. It is clearly known by experience that contracts cannot also be won when service charges are made to be too high than that of the competing contractors. However, contracts can be won and profit assured when service charges are realistically and competitively made. The successful running of every Business depends on proper return on the money invested in the execution of every contract. Pricing therefore is the Backbone of every business survival and therefore requires thorough disciplined approach for contractors to be able to make competitive prices always to clients. Undeniably, businesses are established and operated for revenue generation with profits. When business revenue generation begins to dwindle, the business therefore begins to exhibit signs of collapse. The business can be revived by  business operations management guru.

THIS BOOK FOCUSES MORE on engineering contracts pricing giving guiding principles to contractors on how to realistically accumulate costs to generate prices for contract services for quotations development. Every job or product which is to be priced shall require direct technical services and the supporting functions of accounting and marketing to get the job done when awarded. Payment for these services which cannot be ruled out must have their cost elements included in the determination of final price for each job or product.  It is therefore required that In order to be able to price a job or product correctly for profit to be made after paying all expenses at the end of the contract, the contractor must therefore understand the job scope and the supporting functions of its accounting and marketing team for indirect cost factor development before pricing is commenced.

Setting up and Operation of a Company

Any engineer or other technical expert with the right industrial