Should you chase this tender at all?
A tender against a bidder with a structural cost advantage is not a game you win by trying harder. The grid shows they have one obvious move whatever you do, and that your best answer to it is to stop chasing.
Construction Advanced Game Theory Pro engine
After you install, this is the model to open.
How Should Two Bidders Price One Tender?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Their move is already made
- Bid keen a strictly dominant strategy for the rival
- Your best answer
- Bid full worth $9K against -$6K for matching them keen
- The equilibrium
- $9K vs $96K their cost advantage is the whole gap
- The $58K cell
- unreachable it needs the rival to bid full, which they never do
One tender worth about $4.2M of turnover, two credible bidders, and a rival whose site compound is already next door. That is worth about $190,000 of preliminaries to them on the same programme, and every number in this grid follows from it. Each cell holds both payoffs as yours then theirs, in thousands of dollars of expected contribution from this tender.
Your keen-against-keen figure is negative because a 4% margin here does not cover the $210,000 of estimating and pre-construction time you spend to win it half the time. Your price-properly-and-lose figure of 9 is small and positive: you lose the tender, you spent far less pricing it, and the estimator went onto a job you can win. Open Game Theory 2x2 and click Run.
The report finds one equilibrium: you bid full, they bid keen, worth $9,000 to you and $96,000 to them. Read how it got there, because the route is the lesson. Your rival has a dominant strategy. Bidding keen beats bidding full for them whatever you do, 34 against 4 if you go in keen and 96 against 61 if you price properly, so they do not have to think about you at all.
You have no dominant strategy: if they were going to bid full you would want to go in keen and take the 58, and because they will not, you would rather price properly and take the 9. Once you accept that their move is fixed, your move follows, and the honest answer is that you should not chase this tender. Going in keen against a bidder who is also going in keen is worth negative $6,000 to you.
The other line in the report is the one most contractors reach for, so read it before you do. Moving first is worth nothing here, to either side: the first-mover table shows a gain of zero for both of you, because their answer does not depend on yours. There is nothing to be gained by signaling, by going in early, or by letting it be known what you intend.
Against a bidder with a structural cost advantage on this specific site, commitment tactics do not work and the only real move is to choose a different tender. Now test the thing that would change it. If you could take $190,000 out of your own preliminaries here, by sharing a compound or by using a subcontractor who is already local, their advantage disappears and the whole grid changes.
That is the conversation this template is really for. To make it yours, put your own two pricing strategies down the side and theirs across the top, and build each of the four cells the same way: the margin at that pricing, multiplied by the chance you win at it, less what it costs you to price the job.
The model
It arrives on a tab called Template: How Should Two Bidders Price One Tender?, carrying these columns:
- You \ Rival
- Bid keen (4% margin)
- Bid full (11% margin)
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Was your best day on site really your best?Which Days on Site Went Wrong?
- Is your markup quietly costing you margin?What Markup Gets This Bid to Target Margin?
- Is the extra crew cheaper than the damages?How Many Crews, When the Weather Is a Guess
- A construction site risk register pricing five risks where every mitigation pays for itself, plus the exposure left for the contingency line. Free template.What Could Go Wrong on Site?
- Which matters more, your markup or your prep time?What Makes Us Win a Bid?
- What is one more person on the gang worth?What Explains How Much a Crew Gets Done?
Every model like this one, and the method behind them: Decision trees.