How to price a tender for a public contract

How to price a tender comes down to two things: knowing how the buyer will score price, and building a number from your real costs that you can explain.

We can’t give you a formula or a margin, and nobody can do that responsibly without seeing your costs. What we can do is show you the rules that apply to your tender price, and a worksheet to build it from. This guide assumes you’ve decided to bid. For the rest of the response, see how to write a tender response.

How to price a tender: start with how price is scored

The buyer has to describe how tenders will be assessed. Where there is more than one criterion, it must show their relative importance as a percentage, as a ranking or in another way (section 23(3)). Award criteria can include “price, other costs or value for money in all the circumstances” (section 23(5)(d)).

Government guidance says tenders “do not have to be awarded on the basis of lowest price/cost” (para 4). Awarding on price alone is possible, but the guidance calls that “unlikely to be suitable for most contracts” (para 18).

The guidance also tells buyers to be aware of “the potential negative impacts on value for money of the use of relative scoring mechanisms”, where a supplier’s price score is derived from the price of the lowest-priced tender (para 8(e)). In plain terms, under a relative method your price score can depend on what others bid. The buyer has to describe its method, so look for it in the pack.

On life-cycle cost, the guidance says that except for basic purchases such as single-use goods, buyers should use life-cycle cost in assessing tenders instead of the initial purchase price (para 8(d)). So if the pack asks for whole-life costs, price them.

For the buyer’s side of this, see how tenders are scored and the glossary entry for most advantageous tender.

Read the pricing schedule before you build a number

Answer these from the pack, not from assumption:

• What format does the buyer want: a lump sum, rates, or a schedule of rates?
• Are the quantities firm, or estimates?
• Is VAT shown in or out?
• Is there indexation or a price review?
• How long is the contract, including any extensions?
• What are the payment terms?
• What in the specification costs money: response times, reporting, staffing levels, mobilisation?

If anything is unclear, ask before the deadline. Our guide to reading the notice and documents shows where to look in a notice.

Build the price from your costs

Use your own numbers. The worksheet below is a checklist of cost lines to check, not a formula, and it doesn’t suggest any figure for you.

Why bother with a full build-up? Government guidance lists “inaccuracies in cost modelling” among the reasons a low price might arise, “casting doubt on the ability of the supplier to perform the contract” (para 33(c)). A price that doesn’t hold together on paper is one you may struggle to defend.

If the pack says staff may transfer to you, read the entry on TUPE, take advice and price it.

Fill in the worksheet from the bottom up, and write the source next to every figure: a quote reference, a payroll line, a page of the specification. If quantities in the pack are estimates, write down the assumption you priced on, so you can see later what you assumed.

Keep your workings. You may need them if the buyer queries your price, as described below.

VAT, contract values and thresholds

When a buyer estimates a contract’s value, “the contract value estimation should be inclusive of VAT” (valuation guidance, para 12). The estimate is the buyer’s calculation of the maximum amount it could expect to pay under the contract (Schedule 3, paragraph 1(1)). It isn’t a target, and it isn’t a budget for you to price to.

For how to show VAT in your own price, follow the pricing schedule.

Estimated value decides which rules apply. For below-threshold contracts, the notice duty applies to contracts with an estimated value of not less than £12,000 for central government authorities that aren’t devolved Welsh authorities, and not less than £30,000 for other buyers (section 87(4)). The guidance gives those figures as “£12,000 including VAT” and “£30,000 including VAT” (para 10).

For the main rules, the amounts from 1 January 2026 are £135,018 for goods and services bought by central government, £207,720 for sub-central authorities and £5,193,000 for works (Schedule 1, as amended by SI 2025/1200; see also PPN 023). Schedule 1 has further rows for other types of contract. Our guide to the thresholds gives the context.

In the week to 10 Oct 2026, 366 live notices stated a value: 85 under £100k, 157 between £100k and £1m, and 124 over £1m, with a median of £400,000 (values buyers stated in notices, as of 10 Oct 2026; how we count).

If the buyer says your price looks abnormally low

The buyer may disregard any tender that offers a price it considers abnormally low for performance of the contract (section 19(3)(c)).

But it can’t do that straight away. First it must notify you that it considers the price abnormally low, and give you a reasonable opportunity to demonstrate that you’ll be able to perform the contract for the price offered (section 19(4)). If you demonstrate that to its satisfaction, it may not disregard the tender on that ground (section 19(5)).

Government guidance says reasons for a low price “might be production efficiencies or leveraging economies of scale” (para 33(c)). If you can’t show that you can deliver at that price, the guidance says the tender may be disregarded.

In practice, your worksheet is your answer. Respond within the time the buyer gives you.

Cash flow: when you’ll be paid

Payment terms are implied into public contracts. Any sum due must be paid within 30 days beginning with the day the invoice is received or, if later, the day payment falls due under the invoice (section 68). That doesn’t apply where the buyer considers the invoice invalid or disputes it, and section 68 excludes concession contracts, private utilities’ contracts and contracts awarded by a school. The same terms are implied into public sub-contracts (section 73), and a 30-day rule applies to regulated below-threshold contracts (section 88).

Check the payment terms in the pack against these, and note any invoicing steps the buyer asks for. You may pay staff and suppliers before the buyer pays you, so plan for the gap. Our bid or no-bid checklist asks whether the job is worth it once you’ve counted that in. See public sector payment terms.

Pricing mistakes to avoid

• A price that doesn’t match your schedule or your assumptions. The first-tender checklist includes this check before you submit.
• Missing cost lines. Run down the worksheet once more against the specification.
• Pricing the purchase, not the whole life. If the pack asks for whole-life or life-cycle costs, the guidance expects buyers to use them in assessing tenders (para 8(d)). Price what is asked.
• Submitting the price the wrong way. A tender that breaches a procedural requirement in the notice or tender documents may be disregarded (section 19(3)(d)). Enter the price in the format and place the pack asks for.
• Pricing to beat an imagined competitor rather than to deliver the contract you’ve read.

Your next step

Tell us your trade and postcode to join the free weekly list of live tenders, starting soon. On Pro (£49/month), notices that fit your trade and area are checked against what each states about insurance, certifications and location, and you get an email each morning on days with new matches.