The bidding capacity of a contractor is typically calculated to estimate the maximum value of work a contractor can handle at a given time. This capacity is especially important for contractors participating in competitive bidding processes to ensure they are not overstretching their resources. The calculation considers the contractor’s past performance, current workload, and available resources.
Here’s the general formula used to calculate the bidding capacity:
Bidding Capacity of contractor Formula:
Bidding Capacity = (A×N)−B
where:
- A = Maximum value of works executed in any one year during the last few years (usually 3-5 years).
- N = The number of years considered for the contract period (typically the duration of the contract you are bidding for).
- B = The value of the existing commitments (work in hand or ongoing projects).
Steps to Calculate Bidding Capacity:
- Determine Maximum Annual Turnover (A):
- Review the contractor’s financial records for the last 3-5 years.
- Find the highest annual turnover or value of work completed in a single year.
- Estimate the Contract Duration (N):
- Based on the contract you’re bidding for, estimate the duration in years. If it’s an 18-month project, you could use 1.5 years, for example.
- Account for Existing Commitments (B):
- Calculate the total value of ongoing projects. This is the total contract value of all projects the contractor is committed to and has yet to complete.
- Apply the Formula:
- Substitute values into the formula to calculate the maximum bidding capacity.
Example Calculation:
Suppose:
- Maximum annual turnover in the last 3 years = Rs.10 crore (A)
- Contract duration for the project being bid on = 2 years (N)
- Ongoing project commitments = Rs. 4 crore (B)
Then:Bidding Capacity = (10 crore × 2) − 4 crore = 20 crore − 4 crore = 16 crore.
So, the contractor’s bidding capacity would be Rs.16 crore for the new project.
Notes:
- Different organizations may have slightly varied formulas, or add multipliers based on risk factors or financial health.
- Some clients or government agencies may impose additional limits or adjustments based on local regulations or project complexity. One must refer the tender document for applicable formula.
This formula helps ensure contractors only take on work they can realistically complete within their resources, minimizing the risk of project delays or financial issues.
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