How to Price a Government Tender in South Africa
Pricing a government tender correctly is one of the most critical skills in the procurement market. Under-pricing leads to financial loss; over-pricing leads to losing. This guide covers the complete tender pricing process for South African government contracts.
Understanding the PPPFA Price Evaluation Formula
Under PPPFA, tenders above R200,000 use a points system where price contributes 80 points (80/20 system for contracts R200,000-R50 million) or 90 points (90/10 for contracts above R50 million), with B-BBEE contributing the remaining 20 or 10 points. The price score formula is: Ps = 90(1 – (Pt-Pmin)/Pmin) where Pt is your price and Pmin is the lowest compliant bid price.
This means the lowest compliant price always scores 90 (or 80) points. All other prices score proportionally lower. A 10% premium above the lowest price costs approximately 9 price points in the 90/10 system. Combined B-BBEE points can offset a small price premium — a Level 1 B-BBEE company (10 preference points) can afford a larger price premium than a Level 8 company (2 points).
Building Your Tender Price
Build costs from the bottom up: (1) Direct costs — labour (including statutory contributions: UIF, PAYE, WCA), materials at current market prices with 3+ supplier quotes, plant and equipment hire, sub-contractor costs; (2) Indirect costs — site management, facilities, health and safety, preliminaries; (3) Head office overhead — typically 8-15% of direct costs; (4) Risk and contingency — 2-5% for known scope; (5) Profit margin — 5-15% depending on competitive pressure and strategic value.
Always factor in the cost of working capital during government's payment lag. If invoices take 45-60 days to be paid (despite the PFMA 30-day rule), you bear the financing cost of materials and labour for that period. This cost should be included in your overhead or as a separate line item in your pricing structure.
- Get 3+ supplier quotes for all major materials and sub-contracted work
- Use current labour rates per the applicable Bargaining Council
- Include all statutory costs — UIF, Skills Development Levy, COIDA
- Factor in 45-60 day payment lag as a working capital cost
- Never price below your full cost — contract failure is far more costly than not winning
Competitive Pricing Strategy
After calculating your cost-based price, assess competitiveness. Review previously awarded contract values published in the Government Gazette and on etenders.gov.za to benchmark against historical awards in your category. Consider your B-BBEE level relative to likely competitors — a Level 1 company can price higher and still win on combined score.
If your cost analysis shows the contract cannot be delivered profitably at competitive prices, either identify delivery innovations that reduce costs, or consider not bidding. Many businesses have gone into financial distress by winning tenders they cannot deliver profitably. Better to decline an unviable tender than to accept it, fail to deliver, and face penalties, blacklisting, and reputational damage.
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Frequently Asked Questions
What is the PPPFA price evaluation formula?
The PPPFA uses Ps = 90(1 – (Pt-Pmin)/Pmin) for the 90/10 system. The lowest compliant price scores 90 price points. Your score decreases proportionally as your price increases above the lowest. B-BBEE adds up to 10 additional points. The 80/20 system (for R200,000-R50M contracts) works the same way with 80 price points and 20 B-BBEE points.
Should I always bid the lowest price?
No. Your price must cover all costs plus profit. Bidding below cost to win leads to financial distress, poor delivery, and potential blacklisting. Calculate your true cost first. If you cannot price competitively while covering costs, improving your B-BBEE score or more efficient delivery may improve your position without under-pricing.
What is a Bill of Quantities?
A BoQ is a structured list of all work items with quantities specified by the client's quantity surveyor. You price each line item with a unit rate (cost per measured unit). The BoQ calculates the total by multiplying your rates by the quantities. BoQ pricing requires accurate unit rate building including all labour, materials, plant, and overheads in each rate.
How do I handle VAT in tender pricing?
Most government tenders request prices exclusive of VAT on the pricing schedules, with VAT added separately. If you are VAT-registered (required once annual turnover exceeds R1 million), you charge VAT at 15% on top of your prices. Government pays the VAT component and can claim it back as input tax. If you are not VAT-registered, your price is your total price.
Can I revise my price after tender submission?
No. Once a tender is submitted, your price is fixed and binding. Only in exceptional circumstances will a BAC issue a Best and Final Offer (BAFO) request — only then can you revise your price. Never attempt to change a submitted tender outside of a formal BAFO process, as this constitutes irregular procurement and can result in disqualification.
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