Market conditions are the characteristics of the market in which a firm is tendering or a project will be built, such as the number of competitors, the intensity of competition, the amount of work available and the market’s rate of growth.
Market conditions have a major effect on tender prices, often independently of the underlying costs of labour and materials. When contractors have full order books, tender prices and mark ups tend to rise and fewer firms bid; when work is scarce, competition increases and margins are squeezed. For the QS, market conditions affect:
- the allowance for tender inflation in the cost plan;
- the choice of procurement route and the number of firms invited to tender;
- the risk of very low bids that may prove unsustainable.
Published tender price indices and market reports, along with regional and sector factors, help the QS make these judgements.
Related terms: Tender Price Index, Inflation, Mark Up, Procurement Strategy.
