Tender pricing goes wrong in two directions. Bid too high and you never had a chance. Bid too low and you win something that costs you money for the length of the contract, with no way out and a customer who now expects that rate. The way through is to know your floor before you look at the points.
How the points actually work
Which system applies to you
Under the Preferential Procurement Regulations, 2022: the 80/20 system applies to tenders with a rand value from R30,000 up to R50 million, and 90/10 above R50 million.
For practical purposes: almost every tender a small business bids for is 80/20. Price carries a maximum of 80 points and meeting the tender's specific goals carries a maximum of 20. Under 90/10 those become 90 and 10.
So price dominates — but it does not decide alone. A modestly higher price with better goal points can and does beat a cheaper bid, which is the whole reason the system exists.
The part most bidders get wrong
Your B-BBEE level does not automatically convert into preference points. Under the 2022 regulations the organ of state decides the specific goals for each tender and how they are scored. B-BBEE status is commonly among them, but the tender document is what tells you.
This changed after the previous regulations were set aside by the Constitutional Court, and a lot of advice still describes the old position. Read the tender: two tenders of similar size can reward different things.
Work out your floor before you look at the points
Your floor is what the job costs you to deliver, properly counted. Do this before you think about being competitive, because the points tempt you to work backwards from a number you want to beat.
- Direct cost — materials, labour, subcontractors, equipment.
- Compliance cost of this contract — anything the tender requires that you do not already have: insurance, certificates, permits, site requirements.
- Your overhead share — the contract must carry its portion of the business, not just its own materials.
- The cost of the money — see below. On public contracts this is the one that is routinely left out.
- Margin — what the business runs on, and what absorbs the estimate being wrong.
Price the waiting, not just the work
On a public contract you buy materials, pay people and deliver — and are paid afterwards. For that period you are financing the customer. If your price does not carry that cost, the contract can be profitable on paper and still run you out of cash.
This is the most common way a first big tender destroys a small business: the work was priced, the wait was not. Before bidding, ask what the contract requires you to lay out up front and how long you will carry it — that number belongs in the price. See the cash-flow guides.
Winning below cost is worse than losing
Losing a tender costs you the time you spent bidding. Winning one below cost costs you for the full term of the contract, and you cannot walk away — non-performance damages the record you need for the next bid.
It also sets a reference price. The next round starts from what you charged last time, with the same buyer and often the same competitors watching.
Deciding deliberately to bid thin — to open an account, to fill capacity — is a real strategy. Discovering afterwards that you did is not.
A pricing routine that survives contact
- Check you can clear functionality first. If not, the price is irrelevant — see functionality scoring.
- Build the cost from the bill of quantities or scope, line by line.
- Add the compliance cost specific to this contract.
- Add the cost of carrying the money until you are paid.
- Add overhead share and margin. That total is your floor.
- Now look at the points. Decide what the goal points are worth to you and whether you can afford to be slightly higher on price.
- If the market price is below your floor, do not bid. Write down why and move to the next opportunity.
Frequently asked questions
- Does the lowest price always win?
- No. Under the 80/20 system price carries a maximum of 80 points and meeting the tender's specific goals carries up to 20, so a slightly higher price with better goal points can beat a cheaper bid. And where functionality applies, a bid that misses the minimum score is never evaluated on price at all.
- Which preference point system will apply to my tender?
- Under the Preferential Procurement Regulations 2022, the 80/20 system applies to tenders with a rand value from R30,000 up to R50 million, and 90/10 above R50 million. Almost every tender a small business bids for falls under 80/20.
- Do I automatically get points for my B-BBEE level?
- Not automatically. Under the 2022 regulations the organ of state decides the specific goals for each tender and how they are scored. B-BBEE status is commonly used, but you must read the tender document to see what that particular tender rewards rather than assuming your level converts to points.
- Should I drop my price to win the first contract?
- Be careful. A price you cannot deliver at becomes a contract you must still perform, and it sets the reference for the next round. Deciding to bid thin is defensible; discovering afterwards that you did is not.
Next steps
Not sure whether your paperwork would even survive the first stage? The free tender readiness check scores you against what organs of state actually verify.