How to calculate the cost of a project and win a tender

How to calculate the cost of a project and win a tender – A guide for designers and owners of design offices 

Do not look on other sites for how to practically approach the valuation of the tender. Don’t waste your time. Nobody writes about such things. Unless you are readers of the designer’s guide Welcome to the world of low prices and high responsibility for the projects made.

Public tenders in Poland are regulated by the Act of January 29, 2004. The Public Procurement Law (PZP) defines the rules and procedure for awarding public contracts, legal protection measures, and control of awarding public procurement and the authorities competent in matters regulated in the Act. I will not discuss the PPL. If you want to get acquainted with the theory, below you can download the current act in pdf version from 2015:
THE PUBLIC ORDERS ACT 2015 a little chance to win the tender. The spread of prices is cosmic, and the number of starting companies is from several to even several dozen per one tender.
I will write a few articles about tenders and how to prepare for them. The purpose of this is to acquaint you with the basic costs and conditions for the development of design documentation for a linear investment: gravity-discharge sanitary sewage system or water supply network.

The three most important components of project work pricing are:
– TIME,
– COSTS,
– PROFIT.
REMEMBER YOURSELF VERY WELL THREE GENERAL WORDS – THIS IS THE KEY TO WIN THE TENDER.

3 methods of project work valuation

1. Based on the publication: “Environmental Principles of Design Works Valuation – ŚZWPP”.

Chamber of Building Design – Coordination Council of Project Offices has developed auxiliary materials entitled Environmental Principles of Design Works Valuation – 2012, which allow to determine not only the objective level of prices for design works and engineering services to be negotiated with the contracting authority, but also to determine the correct scope of design documentation in all stages and industries. This method consists in calculating the so-called labor input units. “J.n.p.” and multiplying them by the top-down cost of 1 unit, which currently amounts to about PLN 20.
The Board of the Coordination Council of Project Offices determines the amount of the rate for the contractual unit of labor input (e.g., for the valuation made). In 2015, based on the Environmental Principles of Design Works Valuation, the Management Board set the rate at s = PLN 20.00. This rate does not include VAT, which is calculated on the value of the services provided.

In the journals of ŚZWPP, we have the amount of work for individual design services. The number of units is multiplied by a fixed rate, eg PLN 20, and we get the final price of our offer.
Unfortunately, such a valuation worked well in the 80-90s. Currently, we will always be too expensive if we quote this way.

2. Based on percentage indicators, ie calculation of the cost of documentation as a percentage of the total cost of construction works.

Knowing the construction cost of the entire investment, we can calculate the value of the documentation as a few percent of the entire construction.

The downside of this method – we need to be able to calculate the total construction value of the entire investment, which can be an effective obstacle for novice engineers without experience.
For sewage, the design documentation cost index should be from 3 to 6% of the sewage construction cost.
Eg . Construction cost 12 km. sewage system with connections is 8.5 million. PLN. gross.
The value of design documentation with obtaining a building permit:
3% of 8.5 million. = PLN 255,000 gross. Satisfactory price, but above the current market rates.
The above method also does not work in Poland.

Unfortunately, this method is also flawed. We have two variables:

  • value of construction works (the cost of building a sewage system can be calculated in several ways, we can take different indicators of network construction per meter).
  • percentage ratio (from 1 to even several percent of the value of construction works)

This is an indicative method, recommended for experienced people.

3. Based on my own calculation method, which I will describe below.

A simple and quick method of cost and profit calculation.
The first two methods are very good, but they do not work in these times, where the only criterion for selecting a contractor is PRICE. I recommend the third method, the best in my opinion.

First things first. The ordering party is only interested in the gross price! He is not interested in what costs you incur and how much you earn. The contracting authority specifies the Specification of Essential Terms of the Contract (SIWZ) and assumes that the company that submits the tender takes into account the costs of developing all requirements of the ToR. Will you pay subcontractors PLN 10,000 more or less – it’s your business, the pricing policy of your company.

The investor requires compliance with the Terms of Reference.
Make a table in Excel and list all possible costs that you will incur, e.g. PLN 35,000 net.
In the next step, write down what you have to design and how long it will take, e.g. 8 months (176 business days, 1408 hours).
In the next step, think how much you would like to earn and on what level you should set the profit.
Think whether the topic you are valuing will be the only project you will be doing at that time, or whether you can do, for example, 2 parallel projects. Let us assume that you will do only one project:
Eg: 1408 h x 25 PLN / h of work = 35 200 PLN – PROFIT
35 200 PLN / 8M = 4400 PLN for each month of work. If it were to be the only project it would be a little bit of profit. From this, let’s subtract the costs of ZUS (about PLN 1121) and, for example, the accounting (PLN 120) will be PLN 3000. The salary is meager for a designer. Although at the beginning of your own business it may turn out to be the key to survival.
In this case, the tender price will be PLN 70,200 net, ie PLN 86,346 gross (VAT = PLN 16,146).
Remember, as an entrepreneur, you always count net, at the end you add VAT and provide the Ordering Party with the gross price.

The above method is one of several methods for determining the cost of project documentation. You don’t have to count like that. I showed you how to approach the topic. The first time is the hardest, then you’ll count the costs in your mind.

General procedure for calculating the final design documentation price:

1. Calculate all costs you will incur in designing.
2. Calculates how many days you need to prepare the documentation.
3. Determine your hourly rate and multiply by the number of hours needed to compile all the permit documentation.
4. Add up costs and profit.
If you have an assistant, divide the tasks into yourself and the assistant, recalculate how much you would like to earn, what will be the cost of the assistant for 8 months.
Add fixed costs to the assistant’s cost and your earnings (maps for design purposes, geological documentation, excerpts from the records, etc.) and you have the final price to your offer. Simple isn’t it?

Basic question! What is the documentation development time? “Time is money”

One of the main award criteria is time: the time required to develop the documentation. When designing a linear investment, the life cycle of the project with the arrangements is from one to two years. It results from the necessity to obtain the necessary decisions and arrangements required by the Construction Law and the Terms of Reference (Specification of Essential Terms of the Contract). Some of the main decisions and opinions required for linear investments are:
1. Decision on environmental conditions for the investment implementation (time to obtain up to 3.5 months).
2. Decision on the location of the public purpose investment (time to obtain up to 2 months).
3. Arrangement of the utilities network at the coordination meeting (time to obtain up to 1 month). The condition for applying for another decision is the need to obtain the previous one. It takes about 6 months to obtain just these three decisions. The specified period does not take into account the submission of the application and waiting for obtaining a building permit decision or other arrangements. The standard time for the preparation of documentation for a linear investment should be over 1 year, ie 360 ​​days.
Therefore, I am asking you how to design a network in 6 months, ie 180 days with obtaining a building permit and all decisions. And he often sees such tenders. As I see a crazy deadline (because I have to spend money from the budget by the end of the year), I don’t even waste time preparing a tender offer.

1 year is the minimum deadline for designing a network with obtaining arrangements, decisions, opinions, etc.
(…. design in accordance with the law, without stretching) Working as an engineer is not a piecework. Designer is a profession of public trust. The engineer should have time to think through and design optimal technical solutions.

Basic question! COSTS AND PROFIT. What costs will I incur and how much would I like to earn

Ask yourself why are you working? We work to earn.
Do you earn well? I assume that 90% of you would like to earn more.
Do I have to work a lot to earn a lot? NO
Do you prefer to do 10 projects for half free, working 14 hours a day or do you prefer to do 5 projects at good prices, working 8-9 hours. Time is money, we work to live and spend time with our family. Respect your time and value projects wisely.
Of course we work because we like our work, we like to design, create, solve engineering tasks, but at the end we think about fair remuneration anyway.

I will describe an example of the calculation of the price for the development of design documentation for a sanitary or water-supply system in the following articles. Below is an example of a tender with gross final prices.

Scope of the project:
1. Gravity sanitary sewage network – about 13 km;
2. Discharge sanitary sewage system – about 4 km;
3. Sanitary sewage system connections to the plot border – about 400 items;
4. Water supply network – approximately 13 km.

TOTAL OK. 30 KM OF SEWAGE AND WATER PIPELINE NETWORK.
THE COST OF SUCH DOCUMENTATION, EVEN WITHOUT THE COST OF MAKING MAPS AND ORGANIZING THE TRAFFIC SHOULD BE FROM 250 TO 350 THOUSAND. PLN. GROSS.

PROJECT DEVELOPMENT – REQUIREMENTS of the Terms of Reference:
– Determining the location of a public purpose investment,
– Preparation of an application and obtaining a decision on environmental conditions of consent for the implementation of the project,
– Agreement with the ZUDP,
– Obtaining the necessary approvals and assurance of electricity supply,
– Obtaining the final building permit,
– Obtaining the necessary arrangements, opinions, decisions, permits (in the event of the necessity to provide land owned by natural or legal persons – documentation Contractor under the authority of the Employer), on which the investment is planned for the purposes of obtaining a building permit,
– Preparation of a land development design,
– Implementation of industry projects – including power engineering, – Preparation of information on safety and health protection,
– Inventory of greenery along with the decision to cut trees and plant new ones, if required,
– Soil and water tests of the substrate,
– Technical specifications for execution and acceptance construction works of the required industries,
– Preparation of bills of quantities, collective cost estimates,
– Other documents necessary for the proper performance of the task by the Employer.

The scope of the documentation includes:
– full-size construction and detailed design documentation,
– energy connection designs for the designed sewage pumping station,
– soil and water testing of the substrate,
– investor’s cost estimates and bills of quantities,
– technical specifications of the works,
– electronic version of the project (PDF format) with bills of quantities (ath and xls format) and investment cost estimate (ath and xls) on a CD.

Outside the scope of the offer (within the scope of the Ordering Party or the Contractor of the sewage system and water supply):
– Preparation of a current map for design purposes on a scale of 1: 500,
– Traffic organization design (agreed and approved by the Managers roads).

Most of the prices are ridiculously low, I don’t know what the owners of these companies earn, unless:

  • live on the satisfaction of designed networks;
  • only one person does the project;
  • the project is done by assistants earning PLN 1,600. on hand.

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