Payment timing as a factor in bid evaluation

While the timing of payments to the contractor, in the course of the construction process, is an important factor in the project cost, it is not referred to either by the bid-comparison procedures or by the contract terms, in almost all kinds of contracts used in construction projects. An attempt is made here to overcome the consequent disadvantages to the owner, by means of a procedure based on an obligatory schedule whose activities are appropriately related to the items of the bill of quantities, the whole set-up forming an integral part of the bid and of the final contract. This enables the owner to prepare cash-flow estimates for the bids, compare them according to the present value of all expected payments, and select the bid with minimum cost. Apart from this, the procedure neutralizes bid imbalances (regarding unit prices and the production schedule) and facilitates deferment of non-critical activities, thereby reducing financial cost. The cash-flow estimate of the winning bid serves as a basis for the owner’s budget planning, with much higher accuracy in this function. The suggested procedure is adapted also for comparison of bids in which construction duration is determined by the bidder within a given interval.