Financial and Commercial Management in Construction Companies

This report discusses financial and commercial management strategies used by Laing O'Rourke in construction companies, including PESTEL analysis, bidding strategies, mark-up optimization, cash flow statements, and ethical considerations.

Financial and Commercial Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PESTEL Analysis.......................................................................................................................3
Strategies for selecting projects to bid for and the factors to be considered...............................5
Strategies for mark up optimization used by Laing O’Rourke...................................................7
Consideration of company bidding efficiency............................................................................8
Cash Flow Statement of Laing O'Rourke Construction company..............................................8
Payments...................................................................................................................................10
Ethical consideration.................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX....................................................................................................................................14
Summary........................................................................................................................................14

INTRODUCTION
The present report is based on the financial and commercial management within construction companies where they used to
manage project's bid in terms of how to bid, where to bid and at what price bid should be finalized to ensure their sustainability and
reasonable profitability in the market. In this report, by choosing Laing O’Rourke as a construction company, discussion will be done
with regard to strategies followed by company to selected projects to bid for, factors to be considered while bidding, strategies for
markup optimization along with consideration to efficiency of company while bidding (Kalan and Ozbek, 2020). Also, factors
affecting cash flows and strategies for their improvement, payments made and received by contractors, ethical considerations while
bidding and opportunity evaluation within the construction industry will be discussed in this report. Accordingly, commercial and
financial strategy will be proposed to the management of Laing O’Rourke.
PESTEL Analysis
External business environment summarizes with the factors associated with PESTEL Analysis. This tool of external business
environment comprise with the various elements such as political, economic, social, technological, environment and legal factors that
would influence business of company.
Political factor
Political factor comprises with the policies of the government in United Kingdom will influence to the business of the Laing
O’Rourke. The political situation in United Kingdom is well supportive for the organisation to grow in market. The political situation
of United Kingdom is progressive in nature that will certainly influence to the organisation in respect to its business functioning. The
government in United Kingdom is highly supportive for the business houses which fairly support such businesses to strengthen the
business idea and achieve growth. Political stability in country is also one of the major aspect that affect positively (Lokovitis, 2021).
Construction sector is highly influence with the policies of the government as it requires constant support from the government to
delegate the favourable environment and policies so that company can process all its operations. The role of political factor is to

support the companies at political level; and the government has always a great vision to have a huge construction and structure all
across the country. The approach of government has been supportive for the sector to grow rapidly in market.
Economic factor
Economic factor is about to analysis the economic situation of country. This is a factor comprises with the buying power of the
customer in market. The per capita income of the people in country could favour the company to develop the giant structure that
contain massive value in market. This is important for the companies in construction market that the structure must go with the buying
power or capacity of the target customers in market (Segura, Morales and Somolinos, 2018). The inflation in the country is also under
controlled due to the monetary policy which could further increases the buying power of the potential customer in respective target
market. Controlled inflation could empower the construction business to grow rapidly in the country. Further the United Kingdom
construction market has been attracting to the foreign direct investment that further enhanced to the growth and development of the
country.
Social factor
The social factor comprises with the choices of people and preferences of the customer in the country. The people in the
United Kingdom like to explore the big and giant structure. Also the United Kingdom is highly developed in term of commerce which
further empower and direct the country to construct the giant structure to mitigate the need regarding the commercial space.
Preference of the investor is also to develop such a structure (Shi and et.al., 2019). Further, the government in country also give huge
emphasis to bridge development, road development and advancement and such like of practice that further allow the construction
sector to grow in the market.
Technological factor
Technology is one of the basic need for the construction sector to channelise the operations. The United Kingdom is
technically well advanced that could incorporate and allow the construction sector to establish the giant structure that can provide the
safe space to the people. Safety is always a big issue when it comes to developing any structure in construction business. Technical

advancement could empower the sector to provide the safe and secure structure that can cater to all different need of type people using
the structure (Zhang, Oo and Lim, 2019). The technology has further allowed the companies involve in construction business to sale
the infrastructure as well to gain profits. Investment always aim to generate the heavy return and profits and technology could allow
the whole sector to maximise the profit by controlling cost as well.
Environment factor
This is another key factor that is associated with the construction sector. In order to develop any kind of structure it take some
cost related to environmental resources such as trees, land and any other resource. The government has framed the policy where the
construction companies need to channelise the corporate social responsibility to deal with the environment related damage.
Legal factor
Legal factor is further a core need associated with the sector. Government has implemented various laws and legal regulation
such as registration, licensing and many more that is needed before initiating any construction project.
The above mentioned factors and elements that is associated with the construction sector. All these factors contain a direct
impact over the sector.
Strategies for selecting projects to bid for and the factors to be considered
Contractors and even sub contractors generally develops or adopt various strategies for deciding which tender to bid and how it should
be bid by considering numerous factors. The uppermost aim of the strategy is to weigh up market along with commercial factors and
also to decide on a price which is attractive and low enough to be called as the preferred bidder. The process involved in bidding is
quite time - consuming and expensive where costs involved are associated with the evaluation of specifications, selection of
subcontractor, proposal preparation, etc. for the purpose of making bidding strategy decisions, Laing O’Rourke's contractors uses
bidding strategy models and quantitative analysis to get assistance in bidding (Ahmed, El-adaway and Coatney, 2022). Some bidding
strategies that contractors at Laing O’Rourke uses on different occasions are as follows:

 Contractors occasionally used to submit bids without having any expectation for winning bids because they want to test a new
market in which they are desiring to enter.
 Also, sometime contractor used to bid for those projects where there is a little chance for making a profit and such projects are
belonged to declining market but contractor strategically chooses it to enter a new market, to maintain their operations and also
to develop relationships with new clients.
 Contractors at Laing O’Rourke also enter into a joint venture while bidding to take the advantage of winning work in the
market areas (Alkhateeb, Hyari and Hiyassat, 2020). They enter into joint venture with a strategy of taking up such projects
which involves high risks and the contractors of Laing O’Rourke are having experience in those projects. With this they are
able to build their skills and experience and also get higher rewards for the highly risky projects by taking advantage of their
joint partner with whom they have undertake bid.
 Laing O’Rourke has a strategy of using gathering good amount of data that is accurate, reliable and useful to be work with by
providing considerable amount of time and effort. While doing so, their attitude is like they will win the bid and make money
out of utilizing good amount of accurate data. Sometimes, company also applies reverse engineering technique while bidding
where they use cost codes associated with specific items of previous job. With this, they can determine their scope of work by
keeping their activities under budget. Also, such cost data are helpful in revealing those project bids which are over budget.
Some factors that is being considered by the construction company like Laing O’Rourke while selecting a project to be bid for are as
follows:
 Type of work involved in the project, its size, duration, complexity and availability of detail and clear information regarding
the nature and particulars of the project.
 The amount and value of work that is needed or could be subcontracted (Smith, 2017).

 While bidding for a project, it must be realized that whom the company is competing with as it is seen that very fewer
contractors choose to give serious competition over a single project bid, cut-throat competition may leads to sacrificing a
considerable margin which may not allow for bidding if the bid amount is going below the BEP level.
 Profitability, prior experience, risk factors, number of bidders involved in the bidding, availability of time and how much they
are busy with their current projects are taken into consideration before selecting a project to bid for.
Strategies for mark up optimization used by Laing O’Rourke
A competitive tender having the lowest price is considered to be a single criterion followed by contractors while selecting a project to
be bid for. For staying long in the market, it is necessary for the Laing O’Rourke to assess the behaviour of competitors in terms of
knowing about their winning of the past projects and what price they generally quote while selecting a project along with
determining what price they are quoting for the current project. Some of these mark up optimization strategies are as follows:
 First of all, Laing O’Rourke looks at the bid price of other bidders for the similar project and then must determine their
minimum target profit (Lezama and et.al., 2020). Accordingly, a bid price has been decided by adding markup amount to the
overall costs of the project, which in turn ensures their minimum profitability.
 To sustain in the market, Laing O’Rourke generally bid at the lowest side to win sufficient number of projects whereas they
never keep their bid price too low which may results in non-achievement of reasonable profit. Thus, they strategically maintain
a balance between chances of winning and profitability (Kalan and Ozbek, 2020).
 Laing O’Rourke and their contractors generally follows the markup of their competitors, their bid price and cost data of their
own associated with the past projects. In this way, they ensure their mark up is being optimized.
 Also, company has the strategy of using Friedman bidding strategy models to produce optimum markup for their project bids.
This model allows for approximately 9% mark up that is to be added to the total, thus reasonable profitability could be
ensured.

Consideration of company bidding efficiency
The bidding is basically a process of setting and offer a price of the products and services. In simple term, bidding can be
performed in order to determine the value of projects. For example, Laing O'Rourke is a multinational construction company which
uses and consider the bid strategy to determine the final price of the projects and various contracts. The efficiency of the company
bidding strategy is one of the best because they use Smart Bidding. The Smart Bidding is a set of automated bid strategies which helps
the construction company in learning and optimizing the conversions and conversion value in every auction using the machines. This
strategy is also known as auction time bidding. Beside this, the reason behind the high efficient bidding of Laing company is
competitive bidding. The impact of this strategy over the business efficiency is such that they can help the buyers to get the best price
of the contracts. For example, in order to construct the bridges in the area of country, the company uses bid process to set the price
which is mutually agreed by both the buyer and seller (Attarha, Amjady and Dehghan, 2018). The company further uses this strategy
to select the seller of raw material which they use in their construction process. This helps them to get the qualified seller of raw
material which further efficient in reducing the overall cost of the construction.
Cash Flow Statement of Laing O'Rourke Construction company
Laing O'Rourke -Cash Flow Projection Report
Particulars January £ February £ March £ April £ May £ June £ July £ August £ September £ October £ November £ December £ Total £
Opening Balance (A) 200000 133000 85000 122000 179000 -55000 -68000 139000 411000 968000 1329000 1766000 5209000
Cash Inflows:
Income from sales 100000 150000 200000 250000 300000 350000 400000 450000 500000 550000 600000 650000 4500000
Sale of Old Bulldozer 0 0 0 0 750000 0 0 0 0 0 0 0 750000
Sale of stock and shares 0 0 0 0 0 0 0 0 1000000 0 0 0 1000000
Total Cash Inflow (B) 100000 150000 200000 250000 1050000 350000 400000 450000 1500000 550000 600000 650000 6250000
Cash Outflows:
Payment to supplier 14000 20000 10000 15000 130000 25000 30000 25000 15000 26000 10000 19000 339000

Payment to subcontractors 25000 50000 25000 50000 26000 60000 35000 25000 50000 35000 25000 50000 456000
Payroll Expenses 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 240000
Interest Expenses 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 18000
Tax Expenses 4500 4500 4500 4500 4500 4500 4500 4500 4500 4500 4500 4500 54000
Office Expenses 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 24000
Purchase of Truck 1000000 1000000
Payment of Building Leases 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 1200000
Dividend Payments 150000 750000 150000 1050000
0
Total Cash Outflow (C) 167000 198000 163000 193000 1284000 363000 193000 178000 943000 189000 163000 347000 4381000
Net Cash Flow (D) = (B) – (C) -67000 -48000 37000 57000 -234000 -13000 207000 272000 557000 361000 437000 303000 1869000
Closing Balance (A) + (D) 133000 85000 122000 179000 -55000 -68000 139000 411000 968000 1329000 1766000 2069000 7078000
Factors affecting cash flow:
The various factors which affects the cash flow of the Laing O'Rourke construction company and that need to be considered by
them for proper management of cash flows are as follows:
 Purchase and sale of assets: This is a factor which affects the cash flows of the Laing O'Rourke to the large extent. For
example, the purchase of Truck in the month of May leads to the negative net cash flows and closing balance. It might be
because of low opening cash balance and poor cash inflow from sale of projects & contracts (Ali and Hamad, 2021).
 Unexpected change: This is also one of the factor which affects the cash flows of the company. For example, because of
Covid-19 and Brexit, Laing O'Rourke construction company faces huge decrement in their demands of services. The impact of
which the company is unable to manage minimum closing cash balance within the business which further affects the expansion
strategy of the company.
 Increase of liabilities: This factor indicates that the balance of liabilities will leads to decrease balance of cash flows. For
example, the liabilities or cash outflow of the Laing company in the month May and June is higher than the cash inflow. The

impact of which the closing cash balance of the company became negative. This might be because of the poor financial
planning of the construction company (Güleç and Bektaş, 2019).
Recommended strategies for improvement of cash flows:
In order to improve the cash flow within the business, the following strategies recommended to Laing O'Rourke which are as follows
 Offer discounts for early payment: The company need to offer the discounts to their customers and clients if they able to pay
them early. This will help the Laing to increase their cash inflows and decrease their credit sales (Maryanova, Kushnir and
Moskovchenko, 2018).
 Lease, Don't Buy: It is also advisable to the company that they have to take the assets on lease rather than purchase. It is
because purchase require huge amount of investment which affects the cash flow of the business. For example, Laing company
need to take the truck on lease rather than purchase it at the total cash payment of £1000000.
 Investment appraisal technique: This is a technique or strategy which state investment of the retained funds and closing cash
balance within various profitable projects using net present value method. For example, Laing construction company need to
invest their cash balance which they recover from the sold of shares in some investment plans in order to improve the cash
flow (Stevanović, Minović and Marinković, 2021).
Payments
The Laing O’Rourke provides the facility to its customer for making an easy and convenient payment options. The mode of
payment for the customer is accessible with support of the bank loan and other kind of funding options. The company is also directed
the proper policy to make payment to suppliers and such other stakeholder group in against of delegating to the payment option
(Fakari Sardehae and et.al., 2021). The organization has designed the effective chain to complete and conduct all the payment in
against to material purchase and labour and such other areas. Construction sector require the huge financial investment any structure

that is established by the company. Payment need to be made on time so that operations can sustain its regular pace. Laing O’Rourke
try to sustain a positive liquidity situation so that there is not any blockage company face in respect to payments against all different
factors involve in the construction process.
Ethical consideration
This is the ethical responsibility of the Laing O’Rourke to cope up with all the damages that are done in order to construct and
build a certain structure. Ethically all aspect must be covered by the organisation. It takes a plenty of resources such as land, tress,
forest and such other to create any structure. Further the expansion of cities could reduce the length of village that could further create
a negative impact in nature (Quiceno and et.al., 2019). This is the ethical responsibility of the company to run different social
responsibility campaign to deal with all the damages that is created to nature in against of running the construction site.
CONCLUSION
The report has concluded the PESTLE analysis of the Laing O'Rourke construction company in order to identify the impact of
various external environment factors over the business. Further, the report has also computed the cash flow statement of the business
describing factors affecting cash flow and the strategies that they can adopt for further improvement. Overall, the report has concluded
the payment, ethical consideration, bidding consideration, strategies of selecting projects and mark-up optimization.

REFERENCES
Books and Journals
Ahmed, M. O., El-adaway, I. H. and Coatney, K. T., 2022. Solving the Negative Earnings Dilemma of Multistage Bidding in Public
Construction and Infrastructure Projects: A Game Theory–Based Approach. Journal of Management in Engineering, 38(2),
p.04021087.
Ali, D. J. and Hamad, H. A., 2021. The role of the cash flow statement to provide accounting information for the financial decision-
making process:(Case study International Islamic Bank of Kurdistan in the year 2018). QALAAI ZANIST SCIENTIFIC
JOURNAL. 6(2). pp.870-887.
Alkhateeb, A. M., Hyari, K. H. and Hiyassat, M. A., 2020. Analyzing bidding competitiveness and success rate of contractors
competing for public construction projects. Construction Innovation.
Attarha, A., Amjady, N. and Dehghan, S., 2018. Affinely adjustable robust bidding strategy for a solar plant paired with a battery
storage. IEEE Transactions on Smart Grid. 10(3). pp.2629-2640.
Fakari Sardehae, B. and et.al., 2021. Limitations and Production Capacities of Field and Horticultural Crops in Iran. Journal of
Agricultural Science and Technology. 23(4). pp.767-782.
Güleç, Ö. F. and Bektaş, T., 2019. Cash flow ratio analysis: The case of Turkey.
Lezama, F., and et.al., 2020, July. Learning bidding strategies in local electricity markets using ant colony optimization. In 2020 IEEE
Congress on Evolutionary Computation (CEC) (pp. 1-8). IEEE.
Lokovitis, I., 2021. Investigating Construction 4.0 Integration in the Greek AEC Industry: Perceptions and Societal Analysis of the
AEC Industry.
Maryanova, S. A., Kushnir, E. O. and Moskovchenko, A. A., 2018. The procedure for preparing a cash flow statement of an
enterprise. Modern Science. (7). pp.91-94.

Quiceno, G. and et.al., 2019. Scenario analysis for strategy design: A case study of the Colombian electricity industry. Energy
Strategy Reviews. 23. pp.57-68.
Segura, E., Morales, R. and Somolinos, J. A., 2018. A strategic analysis of tidal current energy conversion systems in the European
Union. Applied energy. 212. pp.527-551.
Shi, Q. and et.al., 2019. How to set the proper level of carbon tax in the context of Chinese construction sector? A CGE
analysis. Journal of Cleaner Production. 240. p.117955.
Smith, A. J., 2017. Estimating, Tendering and Bidding for Construction Work. Macmillan International Higher Education.
Stevanović, S., Minović, J. and Marinković, G., 2021. EARNINGS AND CASH FLOW PERSISTENCE–CASE OF MEDIUM
AGRICULTURE ENTERPRISES IN SERBIA. Економика пољопривреде. 68(1). pp.141-153.
Zhang, Q., Oo, B. L. and Lim, B. T. H., 2019. Drivers, motivations, and barriers to the implementation of corporate social
responsibility practices by construction enterprises: A review. Journal of cleaner production. 210. pp.563-584.Kalan, D. and
Ozbek, M. E., 2020. Development of a construction project bidding decision-making tool. Practice Periodical on Structural
Design and Construction, 25(1), p.04019032.

APPENDIX
Summary
The construction sector is emerging rapidly due to the progressive policies and economic well-being of country. The Laing
O’Rourke sustains the good flow of liquidity and cash management system that could allow the company to ensure the timely payment
of all its supplier and other stakeholders. It is analysed from the cash flow statement of the company that in the month of May and
June the company have negative net cash flows and closing cash balance. In order to improve the same, various strategies has been
recommended to the company in this report. A proposed strategy for deciding upon which project to bid for should be such where
enough consideration has been given to available resources, project size, risks of losses, competitors involvement and their pricing and
relationship with the client to secure profitable bid along with ensuring future sustainability in the market.