As construction companies grow, the issue of bidding for new jobs becomes more important. For instance once they employ dedicated estimators they need to determine how do they account for the estimators salary in their Project Accounting Software.

Tendering as a Project Expense

Some companies prefer to have their estimators allocate their hours on their time-sheets to the individual (potential) projects they are working on. If the company is not the successful tenderer then these would become loss projects and the costs written off.

Tendering as an Overhead

Other companies will argue that the cost of estimating for a prospective new client is an overhead because the company needs to retain the estimating staff even if you have no projects currently underway.

If the Project Accounting Software in use does not have an integrated payroll which facilitates posting hours across multiple projects then often companies will go for the overhead option just because it simplifies the process of data entry.

Other Views on the Cost of Tendering?

Some companies adopt an approach based on the amount involved. So they may say that is the cost is less than a defined figure, say $5,000 then it should be treated as overhead. But as soon as an estimate costs more than this threshold amount then it should be treated as a specific project expense.

This makes it easier for management to assess the worth of continuing with certain bids as they can set a budget limit of say $10,000 or $20,000 on going for a job. The budget may need to be set higher, for example in the Club and Retirement Village construction market a submission end up costing over $50,000 when you take account of draftsmen's time and consultant to validate the proposal. With this sort of money involved there needs to be a review policy in place.

Review or Perish

Successful contractors with a growing business are well advised to instigate formal reviews of the jobs they are tendering on. Otherwise they could come to the end of the year only to discover that they have spent more than $100,000 chasing potential business that may not have come to fruition.

Having a review policy may well save the business when construction activity passes its peak. Quite often you can find managers who have only known the good times and the company may not adjust quickly enough to tighten expenditure when the lean times commence.

The Role of Project Accounting Software in Tendering

When you are treating tendering as a project expense you need to extend the use of your Project Accounting Software into the bidding stage. And the use should not be restricted to the use of any integrated Estimating module but rather the establishment of tendered projects, budgets for tendering and time-sheet entry of hours against these same projects.

Of course the details of earlier unsuccessful tenders are then readily available to management so the history can be accessed before even committing resources to tendering for similar work in future.