Analysis of Optimum Bid and Contractor’s Effort in Obtaining Profit

Abstract

The government in Bali Province, Indonesia offers a limited number of projects, even during 2018-2020 it has decreased by 32% annually. The limited number of projects makes contractors compete to submit low-value bids. That phenomenon raises a question of what the optimal construction bidding for contractors is. A bid could be defined as optimum when it provides both of winning opportunity and the expected profit. Optimum bid analysis was carried out using the Friedman method, where it was discovered that the optimum value of construction bidding is in the range of 1%-9% mark-up or bidding at 76.21%-82.25% of the owner’s estimate. Based on a review of projects throughout 2021, only 19% of projects were won with an optimum value but the quality and quantity of the results remained good according to the agreed contract and was acceptable to the owner. The contractor needs to formulate efforts to maintain the targeted profit margin from the bid value that has been submitted. The factor analysis method is used to find the main factors that affect the profit margins expected by the contractor, where it is found that the Financial-Coordination Factor is the main factors that must be considered. The semi-structured interview method is also used to obtain the right implementation strategy in order to strengthen indicators related to Finance-Coordination factor, such as: smooth payment processing from the owner, good internal communication, safe environment, skilled workforce, proper site conditions, cooperation with suppliers, and good response from the community.