Two Tenders, One Carriageway, One Budget Line
The Highways team must resurface 2.6 km of two-lane carriageway, 6.5 m wide, before the winter maintenance window closes. Two tenders are on the table. Contractor A quotes £18.50 per square metre of carriageway plus a £12,000 mobilisation charge, and programmes 10 weeks. Contractor B quotes £21.00 per square metre with no mobilisation charge, and programmes 6 weeks because it will run two paving crews in parallel. Traffic management (lane closures, signage, diversion notices) is paid by the council at £9,000 for each week of works, whichever contractor is appointed. The finance officer requires an 8% contingency calculated on the combined works and traffic-management cost. The approved capital budget line is £450,000 and cannot be increased this financial year. Both tenders are otherwise compliant. A has completed four schemes for the council; B has not worked for the council before. The committee decision is due on 12 September.
1. Calculate the total cost of each tender, including traffic management and the 8% contingency. Show every step.
Read the worked answer
Area: 2,600 m × 6.5 m = 16,900 m².
Contractor A
- Surfacing: 16,900 × £18.50 = £312,650
- Mobilisation: £12,000 → works subtotal £324,650
- Traffic management: 10 weeks × £9,000 = £90,000
- Combined: £414,650
- Contingency 8%: £33,172
- Total: £447,822
Contractor B
- Surfacing: 16,900 × £21.00 = £354,900
- Mobilisation: £0 → works subtotal £354,900
- Traffic management: 6 weeks × £9,000 = £54,000
- Combined: £408,900
- Contingency 8%: £32,712
- Total: £441,612
Difference: £6,210 in favour of B - about 1.4%.
The trap is comparing unit rates. B's rate is £2.50/m² higher, but four fewer weeks of traffic management saves £36,000, more than the £42,250 extra surfacing charge plus the £12,000 mobilisation. The mobilisation charge is a fixed cost; the unit rate is not the decision variable.
2. Given the £450,000 ceiling, which tender would you recommend to the committee, and on what reasoning?
Read the worked answer
Both fit under the ceiling, but only just: A leaves headroom of £2,178 (0.5%) and B leaves £8,388 (1.9%). A single week of overrun costs £9,000 plus 8% contingency, i.e. £9,720 - more than either headroom. So neither tender is protected against a one-week slip, and programme certainty is financially material, not just a convenience.
Recommendation: B, conditional on references and capacity checks. Reasons: (1) it is cheaper on a like-for-like total; (2) a 6-week programme reduces exposure to a £9,720-per-week overrun and to weather delay before the winter window; (3) four fewer weeks of lane closures reduces resident and business disruption.
Conditions: two verified references for schemes of similar size, evidence that two paving crews genuinely exist and are available in the window, and a performance or delay clause. If B cannot evidence capacity, appoint A - a 1.4% saving does not justify a contractor who may not finish before the window closes. State the residual risk to the committee explicitly rather than presenting the arithmetic as a decision.
3. The committee asks how much faster Contractor A would have to finish to match B's total cost. Calculate it and explain what the figure means for negotiation.
Read the worked answer
Set A's total, with an unknown programme length w, equal to B's total:
(324,650 + 9,000w) × 1.08 = 441,612 324,650 + 9,000w = 408,900 9,000w = 84,250 w = 9.36 weeks
A would need to finish in about 9.36 weeks - cutting roughly 0.64 weeks, or about 4.5 days, from its 10-week programme - to break even with B.
What this means. The margin between the tenders is less than one week of programme time. Two practical consequences:
- A's mobilisation charge and programme are the negotiable items, not its unit rate. Asking A to absorb the £12,000 mobilisation would make it the cheaper tender by about £5,790 and would be a defensible negotiation point.
- Because each week of programme carries £9,720 after contingency, any offer from either contractor that shortens the programme is worth more than a small cut in the square-metre rate. B's two-crew commitment is effectively its main selling point and should be written into the contract as a delivery obligation, not left as an assumption.