A $8.5M Fixed-Price Bid With Retention, LDs and a Competing Job

Margin

• Price $8.50M − cost $7.60M = $0.90M
• On price: 10.6%; on cost: 11.8%

Cash timing

• Month 1: $1.20M cost against $0.50M billing → $0.70M out of pocket before the first invoice is even issued.
• 45-day terms mean month 1 billing lands in month 3. With a 45-day lag on roughly $0.55M/month of revenue, receivables hover near $0.85M.
• Retention accrues at 5% of billings, peaking near $0.43M, held until 12 months after acceptance.
• Peak working capital: roughly $1.3M–$1.5M.

Financing cost at 9%

• Mobilization/receivables gap: ~$1.1M average × 9% × 4/12 ≈ $33k
• Retention: $430k × 9% × ~1.2 years ≈ $46k
• Performance bond: $850k bonded × 1.2%/yr × 14/12 ≈ $12k
• Total carry ≈ $90k, about 10% of the gross margin.

Read it honestly. A 10.6% gross margin that loses a tenth of itself to carry is a ~9.5% job before any risk reserve - and none of that reserve exists yet.

LD exposure. 0.5% of $8.5M per week = $42,500/week; the 10% cap is reached at 20 weeks and equals $850,000. That is 94% of the entire gross margin. In plain terms: the job is one roughly 20-week delay from a break-even outcome, and the risk is concentrated in whatever drives the critical path - design approvals, long-lead automation equipment, site access.

Retention exposure. Up to $425,000 locked up for a year past acceptance, with counterparty risk on the client for that period. It is not a cost so much as capital and credit risk.

How to reflect it in the bid

1. Price a risk reserve, sized from a schedule risk analysis of the LD drivers, not from a gut percentage. If a P80 schedule puts completion 6 weeks out, the expected LD is ~$255k and it must appear in the price or in a contingency the company holds.
2. Qualify the bid. Bid the LD regime you can accept - a lower weekly rate, a later cap trigger, or carve-outs for client-caused delay, force majeure and owner-furnished equipment.
3. Negotiate the retention, not the price: reduction to 2.5% at 50% completion and release at acceptance instead of 12 months later is often easier to win than a higher price, and it is worth ~$25k in carry.

Compare the two jobs on risk-adjusted contribution, not headline margin

• Fixed price: $0.90M gross, less ~$90k carry, less a risk reserve that could approach the full margin if the 20-week LD cap is breached.
• Cost-plus: $3.0M × 9% = $270k fee, no LD, no retention, monthly cost recovery - low risk, low carry, and it keeps the crew utilised in months 1–6.

The two are not mutually exclusive, and that is the point. The cost-plus job uses the crew for six months; the fixed-price job's critical work starts with mobilization. If the schedule can be sequenced so the cost-plus work runs in the first six months and the fixed-price scope front-loads engineering and procurement rather than field labour, both can be taken. If it truly is either/or, the $270k fee plus zero LD risk may beat a $900k margin carrying $850k of LD exposure.

If you bid the fixed-price job, do it with conditions:

1. Notice provisions and time-extension entitlement drafted tightly - a time bar you cannot meet is worse than no clause.
2. Front-load the schedule of values within contract limits so mobilization is recovered in month 1 rather than month 3. Legitimate, but it must be transparent and approved, not hidden.
3. Secure payment security - parent guarantee, letter of credit or prompt-payment legislation - given the retention period.

Recommendation: bid with qualifications and a priced risk reserve, take the cost-plus job for the crew, and walk away only if the client refuses to move on either the LD cap or the retention release.