Question

Given specific contract procurement conditions for a project, evaluate the factors that influence a contract pricing strategy and recommend the strategy that is best suited for the given conditions.

Answer 1

Below are the factors that influence a contract pricing strategy:

1. Market condition: This is one of the biggest factors that influence a contract pricing strategy and the pricing strategy has to be in accordance with the conditions prevalant in the market. If the market condition is not good, then the pricing must be kept low as there will be more number of suppliers and less number of buyers in the market and competition will be intense.

2. Regulatory factors: Other factors such as environmental, industry and economy need to be considered before formulating a contract pricing strategy since these factors are macro economic factors and can limit or grow an industry based on regulatory framework.

3. Cost: Cost is another factor which must be kept in consideration since rising costs are related to rise in raw material prices and tend to rise the contract prices as well. Also decreasing costs generally relates to opposite effect. Hence cost must be carefully evaluated.

4. Competition: Competition from local and global players is also a major factor influencing a contract pricing strategy since intense competition from other players forces the contract prices to be kept down whereas monopoly in the market gives leverage to a supplier to keep the prices the way he / she wants.

The strategy that is best suited for the given conditions is the market regulated strategy since prevelant market conditions must be properly studied before making any move. Since contract pricing strategy for specific contract procurement conditions for a project are heavily regulated by market nature and nature of buyers, sellers and competitors, hence the local and global market needs to be studied and strategy must be built considering market risks and rewards.