Hello. Attorney Lee Young-kyung from Cheongchul Law Firm here.
Today, we will take a closer look at how to prepare and decide on the estimated price for the bidding representatives of public institutions and companies.
[Question]
What are the methods and criteria for determining the 'estimated price' mentioned in bidding?
[Answer]
Criteria for Determining Estimated Price
The estimated price is determined based on the following prices in accordance with Article 9 of the Enforcement Decree of the National Contract Act and Article 10 of the Enforcement Decree of the Local Contract Act:
Rank | Determining Criterion | Description |
1 | Transaction Case Price | In cases where a proper transaction has occurred |
2 | Price Based on Cost Calculation | In cases where there is no transaction case price |
3 | Standard Market Price | For civil works (estimated price over 10 billion KRW) |
4 | Appraisal Price, Similar Transaction Case Prices, Quotation Prices | In cases where the above methods cannot be applied |
Preparation of Estimated Price Based on Transaction Case Price
When preparing the estimated price based on transaction case prices, one of the following prices is applied:
a) The price surveyed and notified by the head of the Public Procurement Service
b) The price surveyed and published by a specialized price survey institution deemed appropriate by the Minister of Economy and Finance
c) The price directly verified by the contracting officer through investigation of transactions of the goods with two or more businesses
d) In cases where the price is determined by law, the transaction case price within the range of that determined price
Preparation of Estimated Price Based on Cost Calculation
Items to be included in the estimated price based on cost calculation are as follows:
Item | Calculation Method | Remarks |
Material Cost | Required material quantity by specification × Unit price | |
Labor Cost | Required labor quantity by type of work × Labor unit price | |
Overhead | Sum of overhead by item | |
General Management Cost | (Material Cost + Labor Cost + Overhead) × General Management Ratio | Upper limit: 6% for construction, 14% for manufacturing, etc. |
Profit | (Labor Cost + Overhead + General Management Cost) × Profit Rate | Upper limit: 15% for construction, 25% for manufacturing/purchase, 10% for services |
The general management ratio and profit rate are applied differently based on the type of contract as per Article 8 of the Enforcement Rules of the National Contract Act and Article 8 of the Enforcement Rules of the Local Contract Act.
Preparation of Estimated Price Based on Standard Market Price
The standard market price is a system introduced in 2015 to improve the problems of the existing 'actual construction cost' system. It is calculated considering market conditions and construction situations based on the contract unit prices, bid unit prices, and construction unit prices of types of construction previously performed.
The target application is for all construction works over 10 billion KRW.
Preparation of Estimated Price Based on Appraisal Price, Similar Transaction Case Price, Quotation Price
If the estimated price cannot be determined by the above methods, the estimated price is determined in the following order:
a) Appraisal Price: The appraised value by the appraiser
b) Similar Transaction Case Price: The transaction case price of goods with similar functions and uses
c) Quotation Price: The price submitted directly from the contract partner or a third party
Accumulation of Taxes When Determining Estimated Price
The following taxes must be included in the estimated price:
Value-added tax, individual consumption tax, education tax, customs duties, special rural tax
Method of adding taxes in determining estimated price based on cost calculation:
Calculate by summing the respective tax amounts to the total of material costs, labor costs, overhead, general management costs, and profits
Value-added tax is calculated by multiplying the total supply price by the value-added tax rate (10%)
Exceptions in Preparing Estimated Price
According to Article 7-2 of the Enforcement Decree of the National Contract Act and Article 8 of the Enforcement Decree of the Local Contract Act, the preparation of the estimated price can be omitted in the following cases:
Contracts with national institutions and local governments
Contracts by negotiation
Small contracts under 20 million KRW, etc.
Differences Between National Contracts and Local Contracts
In preparing estimated prices, national contracts and local contracts are mostly similar, but there are some differences:
Details of criteria for determining estimated prices (e.g., priority in applying transaction case prices)
Procedures for preparing estimated prices (more detailed procedure regulations for local contracts)
That concludes our discussion on the methods and criteria for preparing estimated prices. The estimated price is an important standard for fair and reasonable contract formation, so it is important to be fully aware of and apply the relevant laws and regulations.
Cheongchul Law Firm has extensive experience and expertise in cases related to bidding, public procurement, and restrictions on bidding qualifications (punishment of improper bidders). If you are contemplating such a case, please feel free to contact us.
Cheongchul Law Firm will be your reliable legal partner. If you need to consult with an attorney, please contact us right away.
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