Beyond the tendered total of the Prices, why do the other rates and percentages tendered by the Contractor matter?

Firstly, you need to check that the tendered total of the Prices, as entered into Contract Data part two, matches the sum of prices in the activity schedules or bill of quantities as it is these sums that count and give ‘the Prices’!

Selecting a Contractor on the Prices alone assumes that nothing changes during the contract i.e. there are no compensation events, which is almost unheard of. Consequently, you need to build up a realistic risk-based model of the value of compensation events broken down – or is that built up from – the various cost components in the Schedule of Cost Components to which the relevant rates and percentages tendered by the different contractors are applied. This will give an adjustment to the Prices which, when added to the tendered Prices, gives what is often called ‘the adjusted tendered total of the Prices’. This figure is then used for the financial part of the assessment when comparing different contractors’ tenders.

Failure to take account of these tendered rates and percentages typically results in high rates and percentages being tendered which, on entering the contract, cannot be changed.
Failure to have a realistic model often results in contractors playing games with these figures in order to look good at tender, but then do rather too well when compensation events occur.

Finally, note that under the cost-based options, the effects of high rates and percentages is magnified even more as they apply to the work in the original Scope, not just to work in compensation events. For example, under a target cost contract, it is always in the Contractor’s interests to ‘inflate’ the fee percentage as a proportion of component of the tendered Prices and ‘deflate’ the estimated cost of doing the work.