Calculating Tender Price and Markup Percentage

QUESTION 1

 a). Calculate the tender price at cost of the project

            i). Tender price

              Staff salaries                               2,250,000

               Telephone charges                  165,000

                Bank charges                            60,000

                 Insurance                                  32,000

                Fuel                                             65,000

                Cars and their expenses          54,000

                Maintenance                           7,500

                Turnover                                  1,500,000

                 Total                                        4133500

ii).  Final percentage of mark-up.

                 The markup percentage assist in finding the ideal sales price for the products and it is calculated by;

           Markup %=Gross profit Margin/ Unit cost

                         Gross profit= 14,205, 000

                         Unit cost= 15,000,000

                                       =    x 100

                                         = 94.7%

The percentage arises as a result of stock turnover and cost price which included freight and storage (Abraham, 2008, p. 210).

QUESTION 2

a). Explain why it is important for a contractor to receive regular payments throughout the duration of the contract.

The number one reasons why most contracted jobs are left unfinished is because of cash needed to keep the contract running. In most of the contractors running out of cash can take place easily planned for. There is need of coming up with a plan involving project expenses for all the contracted jobs since many contractors call for invoices to be received by the end of a particular period and invoices not received for that particular month can have a devastating impact on the contracted project since there are some expenses needed to be paid for example subcontractor expenses in order to enable the contracted project to keep running (Benge, 2009, p. 153).

Deprived of a steady cash flow, it can be stiff to cater for essential operations in the contracted project, for example, managing payables, fulfilling purchase orders, paying employees, paying subcontractors (Brook, 2016, p. 78). There numerous importance for the contractor to receive regular payment because of the following reasons;

• Program preparation since a good contractor never goes into a job blind, the contractor needs to plan his or her progress to the day thus ensuring the contractor sordid billing programs on projected needs, average turnaround times, potential cost escalations(Davenport, 2009, p. 451).
• An efficient operation such that when there is enough amount of capital within the reach of the contractor, then the project operations will take place smoothly since workers will be paid on time making them feel motivated thus enabling them to render quality services. Contractors will also be in a position of paying transportation services rendered by other organizations and also subcontracting services rendered(Drury, 2008, p. 321).

b). Importance of retention

Manage Employee Turnover

There is a need for implementing policies concerning retention to assist in managing worker turnover and appeal quality employees into employees’ throughput and bring in excellence workers into the organization. Retention programs focus on the relationship between the workers and management. All the competitive pay, benefits, employee recognition and employee assistance programs forming part of a company try to uphold worker gratification (Hackett, 2016, p. 178).

 Cost-effective

 Retention programs benefit the company since of a straight impact on a worker’s button line and high turnover can be very expensive. Strategies geared towards retaining good workers helps offset employees’ replacement costs and reduces the indirect costs for example lost clients and reduction in productivity (Huse, 2012, p. 329).

The Importance of Regular Payments for Contractors

 Maintain Performance and productivity

The practice of retention practice assists in the production of an organization’s productivity. It will take time in recruiting training and new employees.  Work is not getting done if there is the position which is not filled and even if a position is filled, there is still a learning curve most employees must overcome before their work becomes profitable. Taking the necessary steps to keep current workers satisfied with their roles will ensure productivity is not interrupted (Knight, 2014, p. 219).

Enhances Recruitment

Better strategies based on retaining workers always commence during the recruitment of new workers. Workers prefer working in a company that articulates the assurances made after the extension of the employment contract. Companies that deliver a truthful view of their corporate environment, innovative changes and job opportunities for new hires can definitely affect employee’s retention (Huse, 2012, p. 89).

Increases morale

The employees who are more likely to stay employed with their companies are those enjoying the work they are doing and also the working atmosphere in which there is a high possibility that they likely to remain working with their company. Retention strategies are essential since they assist in creating a positive working environment and strengthen an employee’s commitment to the organization. The companies’ morale increases in case the strategies that target employee’s engagement thus creating a sense of pride in what they do (Knight, 2014, p. 124).

c). Method of valuing works of payment

A large sum of money is involved in the contract work being sent over numerous months or years. The simple standard of contract is low when the work carried out by the contractor involves a fixed sum and payment is only received by the contractor after the completion of the work fully as articulated by agreement made between the employer and the contractor thus permitting interim payments to be tackled as work progressed so that to allow smooth flow of cash to the contractor.

The cost of administration is kept down and thus not contributing to the overpayment to the contractor if he falls behind the programme or finishes with defective work (Knowles, 2012, p. 34). There are methods which are used in valuing works for payment for example;

The quantity surveyor

If an application showing clearly their gross valuation to the quantity surveyor is submitted by the contractors, an interim valuation has to made by the quantity surveyor and this needs to take place. An inscribed notice is handed over by the employer to the contractor showing the projected amount to be subtracted or withheld from the outstanding sum (Mclnnis, 2011, p. 94).

Valuation Methods for Works Completed

The payment of simple interest on the unpaid amount is a must to be done by the contractors and also they are also empowered to providing the notice needed in suspending the enactment of their responsibilities under the contract until full payment is done. The contractors are also allowed to send their quantity survey setting out their gross valuation. It is the responsibility of the contract administrator in presenting an interim certificate at the exact times while is the responsibility of the owner to make payment to the contractors within a period of 14 days (Newton, 2011, p. 84).

QUESTION 3

Interim Certificate

1. Project: Construction works
2. Employer: Umoja Construction Company
3. Contractor: JJ
4. Contract Sum: 3,310,000
5. Date of Valuation: 18/7/2018
6. Progress Bill No:312/10

We provide Bill no 312/10 for the work carried out up to 18^th July 2018 on the above project and request an interim certificate to be issued for the amount of 628,850

• The total value of work done

         Prelims                                                                                148,500

         Own work                                                                            255,000

         Own Sub contract                                                              58,600

           Nom subcontract                                                             104,250

          Nom suppliers                                                                   56,500

• Variations
  • Contingencies                                                                      6000
  • 3% adjustment                                                                    10400
  • SUB TOTAL                                                                           638,920           
• LESS
  • Bank charges and normal retention                               60,000

  Gross amount                                                                                             578,850                         

QUESTION 4

1. The company purchase standard JCB-70,000/=, 7 years at a rate of 7%

When calculating the depreciation of this particular asset, then we start by calculating the scrap value and later using the straight-line method to calculate the depreciation.

Salvage value= P (1- r) ^y  

Where p is the original value of the asset, r is the depreciation rate and y is the number of years the asset was used in generating revenue (Volkmar, 2009, p. 75).

               = 70,000 (1-4/100)⁷

              = 70,000(1-0.04)⁷

                = 70,000 (0.96)⁷

                 =70,000 x 0.751447

                Salvage value= 52,601.323

Using straight line method

         Annual depreciation=      

                                             = 17,398.677

1. Discuss the alternative method of depreciation

Depreciation is simply the decrease in an asset or is just a technique used in transferring the price of physical assets over the useful lifespan of its being in motion. The type of assets within the similar business makes techniques involved in calculating downgrading and the time over which properties are depreciated to vary (Stice, 2016, p. 134). There are numerous methods used in computing depreciation expenses, for example, a declining balance method, the straight-line method, and a fixed percentage. Asset depreciation normally commences when the asset is placed in service and its main causes are natural wear and tear though there is no cash involved such that it does result in any cash flow. The methods of downgrading are discussed below;

Double declining balance method

When using the technique mentioned above, there is no need of considering the salvage value in defining the yearly depreciation, but in the case of the depreciated asset, its book value does not fall below its salvage value irrespective of the technique applied.  When the salvage value or when the life of an asset comes to an end thus it makes the depreciation to cease. In the course of using the above method, one can find the rate of depreciation that would allow exactly full depreciation by the end of the period (Smith, 2013, p. 12).

Depreciation Methods for Construction Equipment

Depreciation= 2 x straight-line depreciation percent x book value at the beginning of the accounting period.

Book value= asset cost – accrued depreciation

 Sum-of-years digits method

Sum-of-years-digit is a technique for calculating depreciation leading to a more faster write off as compared to using the straight-line method and typically more accelerated than declining balance method. When using the sum-of-years digit method, annual depreciation is determined by multiplying the depreciable cost by a schedule of fractions (Smith, 2013, p. 56).  This type of technique is on one of the quicker downgrading technique which is grounded on the hypothesis that assets are generally more productive when they are new and their productivity decreases as they become old. The formula for calculating depreciation using this method is;

Depreciation=depreciable base x (remaining useful life/ sum of the year digits)

Depreciable base= cost- scrap value.

Straight-line depreciation method

This is the easiest technique of calculating depreciation and most often the residual value which is known as scrap value which is predictable by the company when the period in which is used in creating the revenue or the useful life comes to an end.  A similar amount of depreciation is charged by the company on yearly till the asset worth is reduced from the original cost to the salvage value. Using this technique, depreciation is calculated using the formula given below;

Yearly depreciation= (Asset cost- Residual Value) / Useful life of the asset

Discuss the merits of a stringent supply chain management policy within a company.

Supply chain management policy are just rules and regulations put in place to ensure effective buying and selling of products and services. Developing strict policies will have an impact on the performance of the company for example;

1. Strict policies will assist in eliminating fraud or any other irregularities.
2. Strict policies will enable organizations to provide the greatest worth for money thus taming delivery of service thus escaping from the nethermost price situation to the finest value for money situation.
3. To prevent irregularities in the procurement of goods and services.
4. To create the condition which is favorable to the principle of Broad-Based Black Economic Empowerment.
5. To ensure the efficient, effectiveness and uniform procurement system of assets, services, and goods needed for the proper function of the business.
6. The strict policies will facilitate an efficient and cost-effective sourcing of the services and goods needed by the customers.
7. The strict policies are needed to ensure that the principle of unbiased business, rivalry as well as clearness of purchase through bid requirement and assessment.
8. To ensure that the workers are observing the pertinent jurisdictive and supervisory requests contained by the outline of broader existing government primaries.

Importance of Pre-Qualification Questionnaire (PQQ) and how it affects the contractor’s opportunity to tender.

A pre-qualification questionnaire is a way of inviting suppliers to your tender process and in determining whether they possess the right products or the appropriate levels of skills, experience, and technical ability. The pre-qualification questionnaire sets out a set of questions for potential tenderers to answer regarding their level of experience, capacity and financial standing (Smith, 2017, p. 185). The feedback provided to queries asked to assist the user to come up with a list of suppliers that are in a position of taking the project whereby the suppliers who are shortlisted should be summoned to tender for the deal. After the submission, a  system of tallying and weighting should be organized for grading the information surrender by the willing suppliers or potential tenderers who needs to be informed concerning the detail of the criteria needed to be used (Smith, 2017, p. 64).

The pre-qualification questionnaire if used properly will allow you to assess potential supplier’s commercial, financial and technical competence since PQQ will typically request details and evidence of topics for example company status, quality, processes and financial situations. The process of inviting potential suppliers, distributing pre-qualification questionnaire and collecting the feedback can all be automated and also data-centric system will assist in breaking down the pre-qualification questionnaire questions into individual data element.  They are numerous important ways in which the pre-qualification questionnaire is important in an organization;

• Keeping your supplier’s list fresh meaning a reduction in supplier risk and obtaining the best experience from the marketplace.
• It also assists in bringing new bidders to the process more so those who are hungry to win a new client and it is important to ensure that they have the correct expertise and deliver the right level of service(Potts, 2014, p. 97).
• Engaging the right suppliers for each of the tenders leading to achieving the best outcome in the optimum timeframe. The needs of an organization require to be changed and this can be done by avoiding issuing of tender documents to the same suppliers each time since an organization might be missing some products or expertise that could benefit the organization.
• Increasing the understanding of what the buyer is searching for.
• Understanding how to make the best use of a procurement portal.
• Increasing the understanding of procurement related issues.
• Reduces the amount of evaluation work required by the client.
• Allows small and medium enterprises to apply and only spend valuable time and resources on a full-blown tender if they qualify and are really in with a chance of winning.
• Speeds up the tendering process.
• Allowing a logical and defendable evaluation to be made.

References

Abraham, W., 2008. An Analysis of International Construction Contracts. s.l. Sanoma.

Benge, D., 2009. Competitive Tendering of Rail Services. s.l. Media Participations.

Brook, M., 2016. Estimating and Tendering for Construction Work. s.l. Grupo Planeta.

Davenport, P., 2009. Fundamentals of Building Contract Management. s.l.: Wiley.

Drury, C., 2008. Management and Cost accounting. s.l.: McGraw-Hill Education.

Hackett, M., 2016. The Aqua Group Guide to Procurement and Tendering. s.l.:HarperCollins.

Huse, J., 2012. Understanding and Negotiating Turnkey and EPC contracts. s.l. OLMA Media Group.

Knight, A., 2014. Best Practice Tendering for Design and Build Projects. s.l.: Wolters Kluwer.

Knowles, R., 2012. 200 Contractual Problems and their Solutions. s.l.: Readers Digest.

Mclnnis, A., 2011. The New Engineering Contract. s.l. Adventure Works Press.

Newton, I., 2011. An Analysis of Depreciation Methods and Bases. s.l.: Random House.

Potts, K., 2014. Construction Cost Management. s.l.:Informa.

Smith, A., 2017. Estimating, Tendering, and Bidding for Construction Work. s.l. Scholastic.

Smith, N., 2013. Project Cost Estimating. s.l.:Informa.

Smith, R., 2013. Estimating and Tendering for Building Work. s.l. Sanoma.

Stice, J., 2016. Financial Accounting. s.l.: China Publishing Company.

Volkmar, A., 2009. FIDIC Guide for Practitioners. s.l. Haufe Gruppe.