The Housing Depar tment of Chaldon District Council has invited tenders for re-roofing 80 houses on an estate. Chaldon Direct Ser vices (CDS) is one of the Council’s direct ser vices organisations and it has submitted a tender for this contract, as have several contractors from the private sector.

The Council has been able to narrow the choice of contractor to the four tenderers who have submitted the lowest bids, as follows:

£

Nutfield & Sons 398,600 Chaldon Direct Ser vices 401,850 Tandridge Tilers Ltd 402,300 Redhill Roofing Contractors plc 406,500 The tender evaluation process requires that the three private tenderers be appraised on the basis of financial soundness and quality of work. These tenderers were required to provide their latest final accounts (year ended 31 March 20X4) for this appraisal; details are as follows:

Review of financial ratio analysis • 701 Nutfield Tandridge Redhill Roofing

&Sons Tilers Ltd Contractors plc Profit and loss account for year ended 31 March 20X4

£ £ £

Turnover 611,600 1,741,200 3,080,400 Direct costs (410,000) (1,190,600) (1,734,800)

Other operating costs (165,000) (211,800) (811,200)

Interest — (85,000) (96,000)

Net profit before taxation 36,600 253,800 438,400 Balance sheet as at 31 March 20X4

£ £ £

Non-current assets (net book value) 55,400 1,542,400 2,906,800 Inventories and work-in-progress 26,700 149,000 449,200 Receivables 69,300 130,800 240,600 Bank (11,000) 10,400 (6,200)

Payables (92,600) (140,600) (279,600)

Proposed dividend — (91,800) (70,000)

Loan — (800,000) (1,200,000)

47,800 800,200 2,040,800 Capital 47,800 — —

Ordinar y shares @ £1 each — 250,000 1,000,000 Reser ves — 550,200 1,040,800 47,800 800,200 2,040,800 Nutfield & Sons employ a workforce of six operatives and have been used by the Council for four small maintenance contracts worth between £60,000 and £75,000 which they have completed to an appropriate standard. Tandridge Tilers Ltd have been employed by the Council on a contract for the replacement of flat roofs on a block of flats, but there have been numerous complaints about the standard of the work. Redhill Roofing Contractors plc is a company which has not been employed by the Council in the past and, as much of its work has been carried out elsewhere, its quality of work is not known.

CDS has been suffering from the effects of increasing competition in recent years and achieved a return on capital employed of only 3.5% in the previous financial year. CDS’s manager has successfully renegotiated more beneficial ser vice level agreements with the Council’s central suppor t depar tments with effect from 1 April 20X4. CDS has also reviewed its non-current asset base which has resulted in the disposal of a depot which was surplus to requirements and in the rationalisation of vehicles and plant. The consequence of this is that CDS’s average capital employed for 20X4/X5 is likely to be some 15% lower than in 20X3/X4.

A fur ther analysis of the tender bids is provided below:
Nutfield Chaldon Tandridge Redhill Roofing & Sons Direct Ser vices Tilers Ltd Contractors plc £ £ £ £
Labour 234,000 251,400 303,600 230,400 Materials 140,000 100,000 80,000 140,000 Overheads 24,600 50,450 18,700 36,100 (including profit)
The Council’s Client Ser vices Committee can reject tenders on financial and/or quality grounds.
However, each tender has to be appraised on these criteria and reasons for acceptance or rejection must be justified in the appraisal process.
Required:
In your capacity as accountant responsible for reporting to the Client Services Committee, draft a report to the Committee evaluating the tender bids and recommending to whom the contract should be awarded.
(CIPFA)