COMMENTARY

Pricing Strategies for Affordable Housing Projects

What should developers be aware of when evaluating bids for project tenders?

Every contractor bidding for a tender has two key purposes in mind: securing the bid, and maximising profits and cash flow.

In securing the bid, contractors understand that the lowest bid would usually (although not necessarily) prevail. Of course, a contractor with a higher bid could win the tender due to, say, better market reputation or experience. Nevertheless, even the most reputable contractors would rarely be able to secure a bid if their pricing is substantially higher than other bidders.

At the same time, the more contractors seek to maximise profits and cash flow, the less competitive their bids become. Therefore, every bidding exercise becomes a balancing act between submitting a competitive bid, while still having enough room for an acceptable margin.

On the other hand, the developer also has two purposes in mind: maximising profits, and ensuring the project can be successfully completed.

The lower the cost, the higher the profits for the developer. However, developers understand that price cannot be the ultimate factor. If the appointed contractor, for instance, is unable to complete the project, the developer would be burdened with much higher costs and project delays.


CHAN KHENG HOE
Principal, Kheng Hoe Advocates
Chan is a Malaysian construction lawyer, focused on construction and building contract disputes.
He is a Fellow of the Chartered Institute of Arbitrators, and a panel arbitrator, adjudicator and mediator with the Asian International Arbitration Centre. He also sits on the Contracts & Practices Committee of the Master Builders’ Association of Malaysia, and has spoken and written extensively on matters related to construction law.


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