From direct cost to submitted price: building up materials, labour, plant and subcontractors, then adding P&G, overhead, profit, contingency and VAT — with a note on pricing risk.
A tender price is a direct cost with a series of deliberate additions on top. Skip or fudge any layer and you either lose the job or win it at a loss. Here's the build-up, in order.
1. Direct cost
Start with the cost of actually doing the work: materials (plus waste), labour (from output rates, not guesses), plant and equipment, and subcontractor prices. This is the number the BoQ rates build up to. Get it from real build-ups and current supplier and subcontractor quotes — this is the foundation everything else sits on.
2. Preliminaries (P&G)
Add the site-wide costs that aren't in the rates — supervision, establishment, plant, insurances, running costs. On South African building work this is commonly 8–15% of value, split into fixed and time-related. A clear time-related rate protects you if the programme is extended.
3. Overhead and contingency
- Head-office overhead: your business's cost of existing — offices, directors, accounts, tendering — apportioned to the job.
- Contingency: an internal allowance for measured-but-uncertain risk. On lump-sum work it's often carried quietly rather than shown as a line.
4. Profit
Margins in South African construction commonly sit between about 5% and 15%, depending on risk, competition, and project size. Thin margins win work but leave nothing to absorb a variation that goes against you; fat margins price you out. Set profit deliberately against the risk of the specific job, not by habit.
5. Risk, then VAT
Before you finalise, look hard at the risk: incomplete design, ground uncertainty, a tight programme, onerous contract terms, volatile material prices. Price the risks you're accepting; flag the ones you aren't. Then add VAT at the end — the tendered rates are almost always exclusive of VAT, with VAT shown separately.
Putting it together
The Tender Pricing Calculator runs this exact build-up — direct cost, P&G, overhead, profit, contingency, VAT — so you can see the mark-up your bid carries and test it against the margin you need. Price the underlying bill with the BoQ Pricer first, then layer the additions on top.
By Setout. General guidance, not project-specific advice.
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