Comparing Three Contractor Bids: A Worked Scoring Example in SAR

A step-by-step illustrative comparison of three bids for a residential building, showing how scope adjustment and scoring change which offer is actually the cheapest.

Comparing bids properly has two parts: putting every offer on the same scope, then scoring price against capability with weightings you set before the bids arrived. The worked example below uses illustrative figures for a small residential building and shows the lowest headline price losing once exclusions are priced in and programme is converted into money.

The situation

You are a foreign owner building a 40-unit residential building in a Saudi city, working through a development manager. Three classified contractors have bid on your tender documents. Contractor A is the cheapest on paper, Contractor B is mid-priced with a strong team and balance sheet, and Contractor C is the most expensive with the fastest programme. Every figure below is an illustrative assumption chosen to show the method.

Assumptions (illustrative)

• Headline bids: Contractor A SAR 21,000,000, Contractor B SAR 23,100,000, Contractor C SAR 24,500,000.
• Contractor A excludes external works, which your engineer prices at SAR 900,000, and its provisional sums are SAR 400,000 lower than the others for the same items that are not yet defined.
• Programmes offered: A 26 months, B 22 months, C 20 months.
• Your holding cost while the building is not earning, covering finance, site overhead and management, is assumed at SAR 180,000 per month.
• Weightings agreed before bidding: price 40, programme 15, team 20, financial strength 15, relevant track record 10.
• Non-price scores awarded by your review panel are stated in step three.

Step 1: Put all three bids on the same scope

Contractor A adjusted price is SAR 21,000,000 plus SAR 900,000 of excluded external works plus SAR 400,000 to match the provisional sums, giving SAR 22,300,000. Contractors B and C are already inclusive, so they stay at SAR 23,100,000 and SAR 24,500,000.

The apparent gap between the cheapest and the mid bid falls from SAR 2,100,000 to SAR 800,000 before anything else is considered. Most of what looked like a saving was work that had been moved outside the price.

Step 2: Score price on a formula rather than by impression

Award the full 40 points to the lowest adjusted price and scale the others by the ratio of the lowest to theirs. Contractor A scores 40. Contractor B scores 40 multiplied by 22,300,000 divided by 23,100,000, which is 38.6. Contractor C scores 40 multiplied by 22,300,000 divided by 24,500,000, which is 36.4.

A formula stops the price debate from being reopened at every meeting, and it shows that an 800,000 difference on a 22,300,000 project is worth only about 1.4 points out of 40.

Step 3: Score the capability criteria

The panel awards, out of the maximums set, programme scores of 9, 12 and 15, team scores of 12, 17 and 16, financial strength scores of 7, 13 and 12, and track record scores of 5, 9 and 8. Non-price totals are therefore 33 for A, 51 for B and 51 for C.

Contractor A is cheapest and weakest everywhere else. That combination usually means the price reflects a thinner team and a tighter cash position rather than a better method.

Step 4: Add the scores and rank

Contractor A totals 40 plus 33, which is 73. Contractor B totals 38.6 plus 51, which is 89.6. Contractor C totals 36.4 plus 51, which is 87.4.

Contractor B leads. C is close but pays for its speed with the highest price, and A is not competitive once scope and capability are taken into account.

Step 5: Convert the programme difference into money

Contractor A takes 26 months against Contractor B at 22 months, a difference of 4 months. At an assumed SAR 180,000 per month of holding cost, that is 4 multiplied by 180,000, which is SAR 720,000.

Time is a cost, not a preference. Four extra months of finance, site overhead and management on this illustrative project is worth almost as much as the entire remaining price gap.

Step 6: Test whether the price premium survives

Contractor B costs SAR 800,000 more than the adjusted Contractor A price. Deducting the SAR 720,000 of extra holding cost under A leaves a real premium of SAR 80,000, which is about 0.4 per cent of the adjusted lowest bid.

You are paying roughly 0.4 per cent more for a stronger team, a better balance sheet and a shorter programme. Stated that way, the decision is no longer about price at all.

What changes the answer

• If the excluded external works cost more than your engineer estimated, Contractor A becomes the most expensive option outright.
• If your holding cost is lower than assumed, for example because the project is equity funded and the land was inherited, the premium for speed shrinks.
• If Contractor B slips to 26 months in practice, the calculated advantage disappears, which is why the programme must be contractual and logic-linked.
• If you intend to pre-sell units, earlier completion may also bring revenue forward, which this example does not count at all.
• If provisional sums resolve above allowance, all three prices move, and the bidder with the largest allowances is least exposed.

What the numbers tell you

• Scope adjustment, not negotiation, removes most of the apparent difference between bids.
• Weightings must be set before bids arrive, or they will be written to justify a preference.
• Programme differences should be converted into money before they are debated as opinions.
• A contractor that is cheapest and weakest on every other measure is pricing a risk it intends to pass back to you.
• Decisions defended with a scored sheet survive questions from co-investors and lenders; decisions defended with a feeling do not.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.