You operate your own small building company and have decidedto bid on a government contract to build a pedestrian walkway in anational park during the coming winter. The walkway is to be ofstandard government design and should involve no unexpected costs.Your present capacity utilization rate is moderate and allowssufficient scope to understand this contract, if you win it. Youcalculate your incremental costs to be $268,000 and your fullyallocated costs to be $440,000. Your usual practice is to addbetween 60% and 80% to your incremental costs, depending oncapacity utilization rate and other factors. You expect three otherfirms to also bid on this contract, and you have assembled thefollowing competitor intelligence about those companies.
Issue
Rival A
Rival B
Rival C
Capacity Utilization
At full capacity
Moderate
Very low
Goodwill Considerations
Very concerned
Moderately concerned
Not concerned
Production Facilities
Small and inefficient plant
Medium sized and efficient plant
Large and very efficient plant
Previous Bidding Pattern
Incremental cost plus 35-50%
Full cost plus 8-12%
Full cost plus 10-15%
Cost Structure
Incremental costs exceed yours by about 10%
Similar cost structure to yours
Incremental costs 20% lower but full costs are similar toyours
Aesthetic Factors
Does not like winter jobs or dirty jobs
Does not like messy or inconvenient jobs
Likes projects where it can show its creativity
Political Factors
Decision maker is a relative of the buyer
Decision maker is seeking a new job
Decision maker is looking for a promotion
Show all of your calculations and processes. Describe youranswers in three- to five-complete sentences.
What price would you bid if you must win the project?
What price would you bid if you want to maximize the expectedvalue of the contribution from this contract?
Defend your answers with discussion, making any assumptionsyou feel are reasonable and/or are supported by the informationprovided.
