Bidding Strategies for Construction Firms in Post-Brexit and Post-Pandemic Environment
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Introduction - Optimizing Construction Bidding in Times of Change
Brexit and the pandemic seem to have left a hugely negative impact on the business environment of the UK. There have been many changes that are present because of these two factors which have led to the understanding that new strategies need to be developed by sectors. The construction sector seems to have taken a huge hit because it has affected the bidding as well as the targeting process that is to be adopted. This is because many supply issues have arisen as contracts from not only local but also international customers are also looked at.
Balfour Beatty is a reputed construction organization and is known to deliver multi-disciplinary projects both on a national and international scale. The organization has been ranked one of the largest construction organizations that are present in England but it has also faced the issue of regulating after Brexit and Pandemic hence affecting the operations of bidding as there are not clear areas or strategies that have to be decided.
This report will highlight what is the commercial strategy that is to be used by this organization in order to make sure that there would be effective work to be done within the bidding process. This would involve that understanding of the external environment is done so that the factors affecting the strategy can be understood and how the bidding process would go by is studied.
Strategies for selecting projects to bid for and the factors to be considered
One of the areas that can be looked at is that there have been a huge number of areas that need to be taken into consideration while developing an effective strategy for the organization. In order to analyse the factors that need to be considered the use of PESTLE analysis will be done so that an effective strategy can be developed.
One of the strategies that can be used for selecting projects to bid for is that of seeing what project delivery method is to be used. This is necessary to be looked at as it is through the delivery method that the type of project would be looked at. There are many projects which require a high level of maintenance to be achieved and only then can they have a large number of work to be developed. The larger a project the more skills and barriers it will have (Feghaly et al. 2021). Within this bidding strategy, the best value needs to be found out in which there can be clear understanding of which project would offer the most value hence creating a better project to be managed. The best strategy here would be to use the design-build project delivery method as it has the highest level of value that can be offered (Gransberg and Molenaar, 2019). The two areas of PESTLE analysis that would come in handy here are the economic and political ones. These two factors show that since the economy is not going at a good pace because of the pandemic as many organisations or even large projects have come to a standstill. Hence, while bidding for a project it should be understood whether any value can be achieved from it or not. Politics is yet another area that is to be considered because if the politics within a country is unstable then it can lead to low performance to be seen within the economy. The factor here is that due to Brexit there have been many changes in the way work is done and relationship with neighboring countries has been affected. Hence, now the project delivery method can be different from one place to another hence causing the level of value to drop.
Another strategy that is to be used is that see what the procurement method is going to be adopted and also the type of documenting the construction bid to be developed. The first area is that it is construction documents such as the documenting of the bid have to be understood so that the scaling of dimensions can be understood. All of the data about the whole project would be analysed through this and it can be seen whether the bid should be put or not. The factors of legality would be considered from the framework. New rules and regulations have been imposed on the UK due to Brexit and where one is that UK-only tendering service has been imposed. This rule imposes that there will be a tender alert profile created in which various organisation can make sure that the type of bids that are wanted will be held. This is a necessary area that would need to be done before bidding so that it can be seen whether the project is easily available or not (Skinner et al. 2021).
From the PESTLE Framework, it seems that the technological aspect should also be looked at because there is a high rise of technology within the market and it seems that this can help to develop a better bidding strategy beforehand. There are Bid management software that is present in the market that helps to understand what the complete package that can be adopted is. This software can also help to show who the essential suppliers are and also how staff optimisation can be done hence making sure that only key bids are made for the project (Keogh-Brown et al. 2020). Being able to realise this, it would make sure that there can be a clear outline of all the projects that are present within the market and whether they should be bided for or not.
All of the above strategies that have been directed should be implemented so that an effective bid can be made while taking into account all of the factors that are present within the market.
Strategies for mark-up optimization
“Markup pricing strategy” is also known as “cost-plus strategy” as it provides a simple pricing method where a “fixed percentage” is being included with “cost of production” with every one unit of product (Chen et al. 2020). This strategy does not consider competitors' prices as well as consumer demand. Generally, retailers add a percentage with a product cost and set a strategy by knowing the actual cost of that product. In addition to this, retailers set a strategy by preparing a product price that is going to provide a “desired profit margin”. “Balford Beatty” has a chance to achieve a high benefit from markup strategy while applying on a bulk quantity. Retailers of this company just have to set an appropriate profit margin and multiplying with each product cost. Therefore, retailers save “cost of decision making” when new products are added with a specific product line. This benefit is not available with any other pricing method and also incorporating any advanced software for pricing automation helps in achieving markup strategies easily (Ja?kowski and Czarnigowska, 2019). Success from a markup pricing strategy requires very minimal information like cost of a product and does not consider “current market demand” or “supply”. However, including this strategy operational inefficiency might come forward with an inflated revenue price which creates a difficulty in assessing the company's business value within its industry.
Consideration of company bidding efficiency
Being one of the best construction companies within the UK, Balfour Beatty is going to make sure that there is a higher amount of work that can be done in order to protect its image in the market and also make sure that effective bids are made. The two factors that utilize the efficiency of the bidding process is the size of the job and the type of job that is being taken. Both of these areas would need to be properly analysed hence making sure that there would be a clear outline of how long the job will take and whether under certain circumstances it can be done or not (Alsaedi et al., 2019). To further understand this there is a SWOT analysis done of the organisation so that it can be understood whether the organisation is indeed capable to manage such situations or not.
SWOT analysis
Strengths
· Having a widespread over both the national and international market
· Cost efficient programs are provided by the organisation
· Various integrated business solutions can be looked at.
· A large amount of suppliers are present
· The skilled workforce is present within the workplace
Weakness
· The level of competition is high within the market
· There is a high level of dependence that is seen within the market of UK.
· Changes in law due to Brexit
Opportunities
· Technological advancements like Bid management software have been developed.
· New and developing trends are rising within the market
Threats
· Level of competition is high within the market
· The pandemic has caused a high level of work-related issues to arise.
The two other areas that need to be considered in order to increase the bidding efficiency is that of seeing what the rate of return is and how much of project cash flow would be available. Both of these factors can be affected by the weaknesses and threats that are present within the market. Since the pandemic and Brexit have occurred there have been major changes within how a business is done and it seems that it has also lowered the level of construction that is done within the market. The bidding efficiency is lowered because of this people are now not keen to start work within the market again as it is not known when a new wave of the pandemic would hit again. It was due to the pandemic that there had been lower amounts of work that had been seen hence limiting the level of contracts and projects available within the market. If there is not any high rate of return that can be looked at from the bid then it would not be a viable area that can be looked at (Patil et al. 2016).
Capability is yet another factor that needs to be looked at in order to have effective bidding to be done. If a company is able to take on a project then only it would be able to bid for it and if it is not then it should not be able to develop the project (De Clerck et al. 2016). One of the strengths is that there were a large amount of suppliers that are present and having locations across the world will help there to be quality assurance to be developed. Balfour Beatty is known to have quality suppliers which make sure that resources are provided on time hence making it highly capable to bid for various projects.
Cash flow, factors affecting cash flow and the strategies for improvement
Cash Flow Statement for Quarter 2
Belford Beatty
Apr-21
Amount (£)
May-21
Amount (£)
Jun-21
Amount (£)
Operating Activities
Opening Balance
£ -
9304
5742
Money In
Owner's Capital
50000.00
3000.00
3000.00
Bank Loan
1,000.00
1,000.01
1,000.02
Projected Income
5786
5786
5786
Other
5465
5465
5465
Total Money In
11251
11251
11251
Financing Activities
Repayment of Loan
380
£ 380.00
380.00
Goods for Resale
8000.00
850
8548
Equipment
4500.00
2852
2000.00
Interest from loan
700.00
690
680
Supplier Payments
£ 800.00
£ 800.00
£ 800.00
Subcontractor Payments
£ 1500.00
150
1502
Payroll Expenses
205
250
250
Investing Activities
Interest Expenses
356
256
356
Tax Expenses
£ 101.00
101
101
Asset Purchase
856
900
756
Total Money Out
1947
5509
11663
Closing Balance
9304
5742
253.20
Table 1: Cash Flow Statement of Balford Beatty for 2nd Quarter
Cash flow is a financial statement that measures inflow and outflow of cash within a business operation. Therefore, this measurement assesses liquidity within operations through three different activities such as operating, financing and investing. Cash flow is one of the essential financial statements which is being observed by a company’s internal and external stakeholder to estimate business conditions in leveraging business processes to generate enough liquid cash through sales. “Cash and cash equivalents” are compiled within a cash statement to present accurate cash position within a business. In the above table, second quarter of Balford Beatty has been computed to assess the company’s cash position. As opined by Soboleva et al. (2018), information from “cash flow statement” helps in comparing with “quality earnings” by a company from “operating activities” to that company’s “net income”. Generally, companies try to incorporate creative ideas or strategies within operating activities for generation of higher income that pushes up the overall “net income”. Balford Beatty’s closing cash amount in the second quarter has fallen down which signifies this company has been highly affected by ongoing economic conditions such as Brexit or Covid19 pandemic situation. Hence, this company has not been able to maintain a healthy position with an improved cash inflow within business processes.
Balford Beatty is an experienced company within construction industry still it is facing certain cash flow problems for which advanced strategies can improve overall “cash flow statement” till the end of financial year 2021. This company can gain control over cash flow through implementing new strategic policies such as “discounts to customers” for collecting money quickly and diverting into operations. Invoicing procedures need to be improved by building better relationships with vendors for “increased pricing” and “increased cash flow”. External economic conditions cannot be modified by this company so internal management has to prepare policies that pull up cash inflow from sales operations (Itan and Riana 2021). Pandemic situation has created an adverse impact on the sales revenue and inventory turnover becomes slow as a result Balford Beatty has to monitor inventory movement by placing high pricing strategies. Furthermore, the company has to decrease any additional expenses and incorporate strategies such as penalizing customers on late payments to collect additional revenue. The above discussed process markup strategy can be one of the strategic ideas by this company to generate enough profit from manufactured goods.
Payments
Payment is voluntary tender of the money which is equivalent to the value of things, services provided by an organization. The party, who makes a payment, is called the payer and the party who is receiving the payment is called payee. There are different types of payment and they are debit cards, credit cards, checks, cash, electronic bank transfer, and mobile payment. Nowadays internet paying has taken an essential part in the paying process as it helps to do the payment in a proper way and enhance the business procedure more easily (Perez-Diaz et al. 2018). Besides that, it provides proper experience for paying someone for the price values of a thing or service. Balfour Beatty follows a payment system between their different parties by cash as well as credit payments. The company provides a stipulated time frame to its suppliers for collecting money and improving its liquidity position. A better payment system provides a quick collection of money and high profitability within a financial year. Initiatives taken by this company with improved policy to collect payments within can increase business value. Therefore, a strong customer base is easily prepared than other competitors within the construction industry. The company has to increase additional revenue and decrease additional expenses for improving sustainability to struggle with competitive environment. Based on this evaluation it can be stated that the company’s financial strategy has been evaluated in a sustainable and successful manner in this assignment.
Ethical Consideration
Ethical consideration must be done within the bidding process to make sure that there is not any moral issues that are arising within it. One of the ethical considerations that should be abided by during such a time is that specifications should be matched with the suppliers. It is the suppliers that are going to provide not only quality of resources but also making sure that they reach on time. This is important for the organisation as if the suppliers are not properly kept in touch with the suppliers so that whenever a bid is made it is known that there can be proper success achieved within it.
Another ethical consideration that is to be maintained is that there should not be any type of corruption that is presented within the bidding. There should not be any types of gifts that should be given to the bidder so that the decision would come in favour of the organisation as this can cause a huge dispute to arise. The image of the organisation can go down within the market hence causing there to be a large amount of illegal work to be done. This also involves the factor that there should not be any insider trading or whistle blowing down (Shah et al. 2018). It is due to these that key information about the project is let out beforehand hence showing what are the various bids that are present. The suppliers would be able to make sure that all of them get a fair chance to bid for all of the work.
All of the suppliers should be given a chance to renegotiate their deals and this should not be only limited to a single one. This is necessary as it shows that there is not a monopoly present in the market for a single supplier hence creating a better outline of the organisation. Also during the pandemic, it seems that there was not too much of business conducted hence offering more opportunities to the suppliers (Zhang et al., 2017).
Conclusion
From the above it can be seen that Brexit and the pandemic of COVID 19 both have had a huge impact upon the bidding that is being done within the construction industry. It seems that they bidding process has changed and construction organisation now need to properly assess an project before placing a bid for it. There have been different rules and regulations that have been presented through which there can be a large amount of various changes within how operations are done. Ethical considerations need to be followed more through this as it provides a better understanding of how to deal with the bidding process.
References
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