Should they bid on the job?
As has been said in the case study, Marvins company had been very successful in bringing in contracts which were firm fixed-price contracts. They were long-term with follow-on extensions as well. The other point to be noted is that Marvin allotted 5 percent of companys revenue only on a bid-and-proposal budget. His company used parametric and analogy while estimating all contracts. This helped them accurately guess the level 1 and 2 of the work breakdown structure(WBS) keeping in mind all the risks with estimating costs. Years of experience has helped them reduce the uncertainty in estimates and costs.
In this particular bid, that of the companys one of the most important clients, they are being proposed a cost-reimbursable contract. In a cost-reimbursable contract,the final contract price is determined during the fag end of the project where a maximum cost is determined. On the other hand, in a fixed-price contract, the price is decided upfront before work commencement itself. So, Marvins company may not be able to set their convenient price model, which obviously includes the costs of risks and uncertainties, and generally should be higher than the actual cost of the project. The cost, they quote, serve a kind of insurance to clients that even if some unexpected events occur in future they will be charged the same as decided in the beginning. So, they can charge customers a premium and increase margin.
As we see in this case, the client will provide five WBS in lieu of two. All work packages should individually be reported for price information so that client can compare bidders individually and contractors have to follow them during work execution. That means Marvins company has to alter the way they quote clients. The client might have the option to offer contracts for each work package to individual contractors, which if it happens so, will undermine the validity of scope and profitability from the project. Also, the standard cost of finishing a certain type of project will come out and all other clients might have access to the pricing structure. Hence, the company will lose the pricing power for future projects to other clients and have to charge much less than what they do currently.
Even in general, a company should base their decision to bid or not for a project on a few factors like profitability, feasibility, historical analysis, long-term strategy/future, and risk assessment.
Marvin allocated 5 percent of the budget for bidding purpose. His company has a high win-loss ratio as well. Though it should be mentioned that he should consider other pros and cons such as company reputation or delisting from the client list. So, considering all these factors, he should be rejecting the bid for this project. Marvin should consider using the companys budget and high success rate and stick to the established methods, which serves as his companys success formula and start to expand on his customer base rather than depend on one client for stature improvement.
