From Ghana to Singapore, it seems everyone has had a go at creating a tender price index (TPI). As yet, no Pacific countries maintain or use one. Is that a missed opportunity? Is a TPI a mark of industry maturity or a price control mechanism? Would it be an unnecessary burden producing little benefit? But firstly, what even is a TPI?
A TPI is an index which shows whether tender prices are trending upwards or downwards. It is a lagging indicator of the rise and fall of tender pricing, measured for the previous period, usually a quarter of a year. Unlike a consumer price index (CPI), which is widely used and reported in all countries, a TPI does not have a standard ‘basket of goods’ to compare the cost of. Every tender is unique – scope, risks, location, sectors – making comparison difficult.
This is usually overcome by excluding small projects, excluding tenders that don’t use standard rates or schedules and excluding specialist items. Some jurisdictions publish a series of factors to adjust the standard index number to suit a specific location or project function. Even if there was a standard list of items that make up the TPI, considering the volume of contracts each quarter, sample size in most Pacific countries would be very small.
Looking back to look forward
While a TPI gives you an insight into the past, there are a lot of things that a TPI won’t tell you. Most obviously, it doesn’t tell what tender prices will be in the next quarter! Academics and statisticians have tried to find correlations between TPI and other statistical indicators to try to forecast the direction of a TPI, without much success. The number of variables that go into producing the index and market instability makes correlation elusive.
Even accepting TPI for what it is (history, not forecast), there are several practical difficulties with creating and maintaining a reliable TPI: where will the data come from, who will do the work to keep it up to date and where will the data be stored for future use. Undertaking this task – defining the basis of TPI data, collecting it, collating it and preparing it for issue each quarter – is daunting. It could be argued that national statistics offices and infrastructure ministries already have enough to do with their limited funds, than worry about another statistical index.
As the level of difficulty increases, the likelihood of late issue of the data also increases. Historic trends are still of some value but an outdated TPI would begin to lose relevance with each month it is late.
What benefit?
One area where TPIs are often touted as useful is in the production of project budgets early on in the design development phase. Government ministries and donors typically use an engineer’s estimate as the basis of their budget for approval. When these numbers turn out to be different to the actual tender prices, blame is laid on the poor consultants who were tasked with predicting the future. A TPI is intended to assist these client-side engineers and quantity surveyors in the fools errand of producing cost estimates for projects.
TPIs provide insight to the past and the possible direction of future pricing. But other factors such as market volatility, economic downturns, materials supply and demand, time to contract awardand political uncertainty (or a global pandemic!) can also affect any project and they factor into tender prices. A TPI would just be another voice in that chorus of factors and is unlikely to be decisive. Robust budgets need calibrated and risk-based contingencies added to the base cost estimates, not simplistic indices or percentages.
Why TPI?
In reality, each consulting firm or individual consultant develops their own set of numbers which function for them as a TPI. Past projects, bills of quantities, rates from other projects, reports and consultants, collected across years, to form a rates database used for producing estimates.
Tender prices reflect contractor’s opinions about the future costs of labour and materials and their expectations of the market’s competitive status. Contractors will undertake their own such analysis regardless of the existence of a TPI.
A TPI is a mark of a mature industry and requires sophisticated data collection apparatus. Its time may come for the Pacific but right now, there are bigger fish to fry.
Solomon Islands 
Papua New Guinea 
