Pre-bid risks for a large construction contract

A joint venture (JV) involving several large construction companies planned to submit a tender to provide fabrication and construction services for a section of a large project. The tendered work formed only a small proportion of the total cost of the project, but nevertheless its scale was substantial for all the JV partners.

This case shows how qualitative and quantitative assessments of uncertainty were used when preparing a response to the request for tender. The aim was to assist the bidders to understand the risks they would face and the implications for their businesses if their tender were accepted, and to develop a realistic view of the budget and contingency they would need. This helped them to develop a negotiating strategy, and to set an appropriate bid price.

A qualitative assessment was based on what might happen were the JV to win the bid and implement the project. It addressed two aspects of the bid:

  • Commercial risks, arising from the terms and conditions contained in the RFT and from the interfaces between the project, the JV and the JV partners' businesses
  • Project risks arising in the delivery of the project.

A quantitative analysis focussed on the non-reimbursable components of the project cost where the JV would be exposed to uncertainty.

Read the full case study here.