On Target 9 – know your costs

I have watched several episodes of BBC TV drama, Don’t Forget the Driver, but I am disappointed that it is a stereotypical view of the coach industry. It may make good comedy, but sets us back years. Enough said!

To ensure we don’t forget the driver, I have been reviewing several school contracts coming up for renewal in September. It has been almost five years since the last round, with some contracts on a shorter term, but a chance to reappraise and evaluate how much I need to charge for a further contract term.

These days it isn’t just the cost, but also the pre-qualification, covering all aspects of the business. I see they want to know about my Operators Licence, insurances, health and safety policy, diversity, issues that I may have had with officialdom and a whole host of other information. Fail to measure up and that means my company will not be eligible to bid.

It is all done on line and I quite like to be asked, even if some of the questions don’t seem to be relevant. I guess this due to the same tender format being used for all manner of council suppliers. I get satisfaction in having a portfolio of the required documents, all kept up to date electronically and ready to attach. It also acts as a prompt not to leave things until the tender deadline!

I can’t help feeling, no matter how much I justify my costs, the lowest price wins

In many ways costing is the easy part, but at the same time needs the most thought. I am a great fan of ‘open book’ tendering, where my costs are open for the customer to see. This should ensure there is a level playing field against my opposition, but I can’t help feeling, no matter how much I justify my costs, the lowest price wins! On this occasion, the selection criteria are clearly stated, with 60% based on compliance and quality and 40% on price. I always expect to be 100% on the first, but not necessarily on the second.

I tend to start costing from scratch, as any inflation payments I have received over the five-year term, are not necessarily enough to ensure my current price is enough. It is always dangerous to go on current pricing, a complete review is the only way to be sure you cover your costs, going forward. So, having prequalified, I sit down and look at my costs, in two separate categories.

Direct Costs

In this category, I include everything needed to operate the vehicle on the day. Most school contracts are asked for on a per day basis, but costing is based on the number of school days relevant to the school concerned. Normally around 190 days, but for some of my private schools it can be as low as 165 days. The costs I include in this category are:

  • Fuel for the distance involved, garage to garage
  • Direct drivers’ cost, including pension, employers NI and the cost of holidays
  • Motor insurance
  • Tyre wear (effectively p/mile figure)
  • Vehicle maintenance costs (annual cost)
  • Vehicle depreciation/finance charges or lease costs

All the above are costs that cannot be avoided, and are not subjective. So far, so good.

Overhead costs

In this category, are all the costs that are not individual to the vehicle, divided by the number of vehicles in the fleet, each of which has to take its share of the overhead.

  • General insurance costs (statutory insurances, building, cyber, employer’s liability, etc)
  • Support staff (excluding engineers)
  • Premises, IT, support vehicles and equipment
  • Directors/shareholders

These are figures I keep updated on a monthly basis, so they are always up to date, based on previous actual costs and used to prepare budgets for the future, which effectively is what a tender price is.

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