Tender, Cash Flow and Labour Capacity for Fourteen Classrooms
A two-person painting firm has ₹40,000 cash and an unused bank overdraft limit of ₹50,000 at 18% per year. It is invited to tender for repainting 14 classrooms in a government school: 2,800 m² of wall, two coats over primer. The firm quotes ₹95 per m², giving a contract value of ₹2,66,000. Estimated costs are material ₹78,000, labour ₹72,000 paid weekly, scaffold hire ₹14,000, transport ₹8,000, and overheads ₹12,000. The school pays 45 days after completion, with no advance and a 5% retention for six months. The work must be finished in 30 days, and the firm can deploy at most six painters; current commitments need two painters for the first two weeks. The firm has no written contract template and has not insured the new scaffold. A friend offers to lend ₹30,000 informally at 3% per month.
1. Calculate the expected gross margin and peak cash requirement. Decide whether the firm should bid on the terms offered.
Read the worked answer
Contract value = 2,800 × ₹95 = ₹2,66,000. Total estimated cost = 78,000 + 72,000 + 14,000 + 8,000 + 12,000 = ₹1,84,000. Expected margin = ₹2,66,000 − ₹1,84,000 = ₹82,000, or 82,000 ÷ 2,66,000 ≈ 30.8% of contract value.
The cash problem is timing. The firm must spend about ₹1,84,000 before payment, while it has ₹40,000 cash plus ₹50,000 overdraft = ₹90,000. The friend's ₹30,000 raises available funds to ₹1,20,000, still ₹64,000 short of the estimated cost. In addition, 5% retention = ₹13,300 is held for six months, and payment is due 45 days after completion, so the firm may wait about 75 days from start. The overdraft and informal loan also add interest cost.
The margin is attractive on paper, but the bid should not be accepted on the offered terms without changes: negotiate a mobile advance or stage payments, material credit, release of retention earlier, or a shorter payment period. Without those, the firm risks borrowing at high informal rates, delaying wages, or failing to complete.
2. Assess whether the firm can meet the 30-day programme with the available painters, and state the assumptions.
Read the worked answer
The average output required is 2,800 ÷ 30 ≈ 93.3 m² per day. For the first 14 days only four painters are available because two are committed elsewhere; for the remaining 16 days up to six can be deployed.
If each painter can apply the system at 20 m² per day, the first 14 days produce 4 × 20 × 14 = 1,120 m². The remaining 1,680 m² over 16 days with six painters requires 1,680 ÷ (6 × 16) = 17.5 m² per painter per day, which is feasible at that productivity. If productivity is only 15 m² per painter per day, the first phase produces 840 m², leaving 1,960 m²; six painters over 16 days at 15 m² give only 1,440 m², so the programme fails. If weather, drying between coats or access delays reduce output, the risk increases.
The firm should verify realistic productivity from its own records, include drying times between primer and coats, and not assume six painters are productive from day one. It should either negotiate a later start, subcontract trained painters with supervision, or reduce the scope. A written programme with daily targets and a contingency for rain is needed.
3. What contract, insurance and labour controls should be in place before work starts?
Read the worked answer
Before starting, the firm should use a written contract or accepted purchase order that defines scope, areas, products, number of coats, rates, payment milestones, retention release, completion date, delay penalties, variation procedure and site access. It should confirm whether GST and any labour cess apply and who bears them. Payment should be linked to measurable stages, not only final completion, to reduce the cash gap.
Insurance and compliance are essential: public liability and adequate cover for the scaffold and workers; scaffold inspection and tagging; safety induction for all painters; and records of wages, attendance and statutory labour requirements. The informal ₹30,000 loan should be documented with repayment terms, or avoided if possible. Material should be ordered against a written schedule, with delivery checked and stored securely. The firm should also retain a small contingency for rework, weather and retention, and keep client instructions in writing so that extra coats or surface repairs become paid variations rather than unpaid work.