Bid by Noon: Estimating a Three-Year Price Without a Spreadsheet
At 11:05 a council bid team learns that a three-year fixed-price contract must be submitted by noon; the finance spreadsheet is unusable and figures must be estimated by hand. Known inputs: 48 staff at an average £34,500 salary, with 23% employer on-costs; IT support at £12,400 a month; premises at £38,000 a quarter. Corporate overhead is charged at 9% of direct costs, and a contingency is added on top. The bid ceiling is £3.40 million including contingency. The team's rule of thumb is a 5% contingency for fixed-price work, but the bid director wants 4% to leave headroom. A 2.5% pay award from year two has not been included in the salary figure.
1. Produce the estimate at 4% contingency and state whether the bid fits under the ceiling.
Read the worked answer
Staff: 48 × £34,500 = £1,656,000; with on-costs × 1.23 = £2,036,880. IT: £12,400 × 36 = £446,400. Premises: £38,000 × 12 = £456,000. Direct total: £2,939,280. Overhead: 9% = £264,535 → £3,203,815. Contingency 4%: £128,153 → £3,331,968.
Under the £3.40m ceiling by £68,032 (2.0%).
Fast cross-check by rounding up: 48 × 35k = 1.68m; +23% ≈ 2.07m; + IT 0.45m + premises 0.46m = 2.98m; +9% ≈ 3.25m; +4% ≈ 3.38m. Both routes fit, and because every line was rounded up the true figure is the lower one. The bid fits.
2. Can the bid carry both the standard 5% contingency and the 2.5% pay award?
Read the worked answer
At 5% contingency: £3,203,815 × 1.05 = £3,364,006 - under the ceiling by £35,994. Fits.
Pay award: 2.5% × £2,036,880 = £50,922. Direct becomes £3,254,737.
- With 5% contingency: £3,254,737 × 1.05 = £3,417,474 - over the ceiling by £17,474. Fails.
- With 4% contingency: £3,254,737 × 1.04 = £3,384,927 - under by £15,073. Fits.
So the two protections cannot both be bought at the full 5%: pricing the known pay risk forces the contingency down to 4%.
3. With 50 minutes left, what do you recommend and what is the weakest point in your own number?
Read the worked answer
Recommend submitting at 4% contingency plus the pay award: £3.385m, inside the ceiling by £15,073.
Weakest point: £15k is 0.4% of the ceiling, smaller than the likely rounding error of a hand-built estimate of this size (several lines are rounded to the nearest £10k–£50k). The headroom is inside the noise, so it must not be presented as comfortable.
If the ceiling is challenged, IT is the renegotiable line: £446,400 is 13.6% of direct cost, and a 4% reduction (£17,474 ÷ £446,400 = 3.9%) would restore the full 5% contingency. Staff (68% of direct cost) cannot be cut this late.
Action: submit, notify the bid director in writing that headroom is within estimation error, and do not shave the contingency further to manufacture comfort.