I'm being asked for a fixed price on a job that runs for two years
The tender wants one price for the whole package, the work runs for nearly two years, and our main materials move every month.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
What's happening?
A fixed price on a long job asks you to guess what your materials will cost in 18 months' time. Many main contractors ask for it even though their own contract with the client adjusts for price rises. They keep that protection and pass the risk down to you.
Price the risk in and your tender is too high to win. Leave it out and one bad quarter for steel, aluminium or cable can wipe out your margin. Once the subcontract is signed, the price is whatever it says, so the fix has to go in with the tender.
The solution
Do not argue about the price. Change how you offer it. Put a base date on the tender, fix the price for a stated period, and name the volatile materials with their tender prices. Say how they will be adjusted after that, ideally by the same published indices the main contract uses.
Price Rise Loss Prevention sets that price basis before your tender goes in, matched to the main contract's terms where you can see them. Before you sign, we read the subcontract's price terms and put what to ask for, and your fallback, on one sheet. Once the job starts, we set up the price record that proves each movement month by month, and your team keeps it.
To have this done for you, see our Price Rise Claim service.
Example
Illustrative example. The scenario and figures are invented.
The facts
A cladding subcontractor is tendering a £1,200,000 package that runs for 22 months, most of it aluminium and glass. The enquiry asks for a fixed price. It also shows that the main contract is NEC with Option X1, price adjustment for inflation.
What happens
- Pricing the risk in would need a contingency of about 6%, £72,000, which would lose the tender.
- The tender goes in without the contingency. It states a base date and asks for X1 in the subcontract, using the main contract's own indices and proportions.
- At negotiation the main contractor accepts X1 back to back, because it already gets the same adjustment from its client.
- Over the job the aluminium and glass indices rise, and X1 adds the adjustment at each monthly assessment.
The price basis in figures
| Item | Amount |
|---|---|
| Contingency a fixed price would have needed | £72,000 |
| Adjustment paid under X1 over the job | £38,400 |
The outcome
The subcontractor wins the package without a contingency. It is paid £38,400 of price adjustment as the indices move, without a single claim or argument.