The Housing Department of Chaldon District Council has invited tenders for re-roofing 80 houses on an estate. Chaldon Direct Services (CDS) is one of the Council€™s direct services organizations 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 Services .... 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:

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 service level agreements with the Council€™s central support departments 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 further analysis of the tender bids is provided below:

The Council€™s Client Services 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 beawarded.

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Redhill Roofing Contractors plc Nutfield Tandridge & Sons Tilers Ltd Profit and loss account for year ended 31 March 20X4 Turnover 611,600 1,741,200 3,080,400 Direct costs (410,000) (165,000) (1,190,600) (211,800) (85,000) 253,800 (1,734,800) (811,200) (96,000) 438,400 Other operating costs Interest 36,600 Net profit before taxation Statement of financial position as at 31 March 20X4 55,400 26,700 1,542,400 2,906,800 Non-current assets (net book value) Inventories and work-in-progress 149,000 449,200 240,600 (6,200) (279,600) (70,000) (1,200,000) 2,040,800 Receivables 69,300 130,800 Bank (I1,000) (92,600) 10,400 Payables Proposed dividend (140,600) (91,800) (800,000) 800,200 Loan 47,800 Capital Ordinary shares @ £l each 47,800 250,000 1,000,000 Reserves 550,200 1,040,800 47,800 800,200 2,040,800